World Bank Document

ReportNo. 7822-IN)D Indonesia Forest,Land and Water: Issuesin SustainableDevelopment Public Disclosure Authorized June 5, 1989 CountryDepartment V AsiaRegional Office FOR OFFICIALUSE ONLY Public Disclosure Authorized Public Disclosure Authorized

Documentof theWorld Bank

ThisPublic Disclosure Authorized document has a restricteadistribution and may be usedby recipients only in 'he performanceof their officialduties. Its contfotts may not otherwise bedisclosed without World Bankauthorization. CURRENCY ECUIVLENT

US$1.00 - Rupiah (Rp) 1,650 Rp 1 million - US$606

GOEMEN OF INDtAIA FISCALYA

April 1 - March 31

WEIGHTS AND MEASURES

I kxilometer (km) - 0.62 miles (mi) I square kilometer (km2 ) - 100 ha - 0.39 mi2 1 hectare (1 ha) - 2.47 acres (ac) I kilogram (kg) - 2.2 pounds (lb) 1 metric ton (t) - 2.206 pounds

ACRONYMSABBREVIATIONS AND LOCAL TERMS ADB - Asian Development Bank BAKOSURTANAL - The Coordinating Agency for National Surveys and Mappinj BAPPEDA - Regional Development Planning Boards BAPPENAS - The National Development Planning Agency BFL - Batic Forestry Law BKLH - Provincial Level Environment Office BKPM - Investment Coordinating Board CHR - Complete Harvest and Regeneration CIDA - Canadian International Development Agency DGCK DirectorateGeneral Housing and Human Settlements DGRRL - Directorate General for Reforestation and Land Rehabilitation (MOF) DGRWD - Directorate General of Water Resources Development (MPW) DR - Discount Rate ETA - Environmental Impact Assessment EMDI - Canadianfunded Project, Environment Management Development in Indonesia FAO - Food and Agriculture Organization GIS - Geographic Information System GOI - Government of Indonesia GRDP - Gross regional domestic product RYV - high yieldingvarieties IGGI Inter Governmental Group on Indonesia IHE - Institute of Hydraulic Engineering IIED - International Institute for Environment and Development IRR Internal rate of return IUCN International Union for Conservation of Nature and Natural Resources IUIDP - Integrated Urban Infrastructure Development Program KEPAS - The research group on agroecosystems KLM - Ministryof Populationand Environment(also MPE) LNG LiquidNatural Gas LRD - Land Resources Department of ODA K&I - Municipal and Industrial Water Supply MHA - Ministry of Home Affairs MOA Ministry of Agrieulture MOF - Ministry of Forestry MOH - Ministry of Health ROl Mit.istry of Industry MPE - Ministry cf Population and Environment (also MW) MW Ministry of Public Works N8S - Nucleus Estate and Smal11older NPV - Fat Present Value NGO - Non Governriwntal Organization ODA - British Overseas Development Authority PKK - Indonesian Women's Movement PMCA Pollution Monitoring and Control Agency PHU - Project Management Unit PRONA National Land Registration Program PBZ - River Basin Enterprises Repelita - Five-Year Development Plan RePPProt - Regional Physical Planning Program for Transmigration RRA Rapid Rural Appraisal SLS - Indoesian Selective 'ogging System SKEPHI - Indonesian Society for Forest Protection TGHR - Forest Classification System UNDP - United Nations Development Programme USAID - United States Agency for International Development WALHI - The Indonesian Environmental Forum WRI - World Resources Institute WF - World Wildlife Fund YIP - The Indonesian Green Foundation YPMD - The Foundation for Rural Village Development FOR OMCIAL USE ONLY

INDONESIA

FORESTS. LAND Ak!s' WATER: ISSUES IN SUSTAINABLEDEVELOPMENT

Table of Contents

Page No.

PREFACE...... v EXECUTIVESUMM ...... vii I. THE MANAGEMENTOF PRODUCTIONAND PROTECTIONFORESTS 1

A. Indonesia'sForest Resources. 1 B. Deforestationand Wood Raw Material Supply. 4 C. Issues in Forert Management.10 D. Policy and InstitutionalChanges Needed for ImprovedForest Management.15 E. Managing and ProtectingConservation Areas and Wildlife Reserves.21

II. ILN RESOURCE MANAGEMENT.27

A. Land Use Issues in the Outer slands.27 B. AlternativeApproaches to AgriculturalDevelopment 33 C. AlternativeApproaches to ShiftingCultivation .37 D. Land Allocation in the Outer Islands.40 E. SelectedLand Use Issues in Java.44 F. The Tools for Land Use Planning.48

III. JAVA UPLANDS AND WATERSHEDMANAGEMENT .54

A. Land and DemographicFactors in Jaa .54 B. EnvironmentalDegradation .58 C. Current Programsand Projects in Upper Watersheds 63 D. Upland Farming Systems.66 E. Scope for ImprovingOn-Farm Practices.72 F. Scope for ImprovingOther Soil ConservationMeasures 75

IV. WATER OUANTITY ISSUES ON JAVA. 79 A. Java's Water Resources.79 B. Water Supply and Demand Issues. 86 C. ImprovingWater Resource Management.92

V. WATER OUALITY ISSUES ON JAVA . .104

A. Sources and Extent of Water Pollution.104 B. Water Supply and Sanitation.109 C. Key Issues in Water Supply and Sanitation.113 D. IndustrialPollution .116

This document has a restricteddistribution and mnaybe used by recipientsonly in the performance of their officialduties. Its contents miaynot otherwise be disclosed without World Bank authorization. - ii -

VI. INSTITUTIONAL AND POLICY CHANGESIN SUPPORT OF | ~~~~~SUSTAINABLE DEVELOPMS ...... 125

A. Institutional Arrangements for Environmental MHnagement ...... 125 B. Strengthening the State Ministry for Population and Environment ...... 130 C. Policies for Sustainable Development...... 135

ANNEXES A - Contributors to the Main Report ...... 142 B - Definitions of Environmental Terms ...... 144 C - List of References...... 147

Annex 1 - Forestrv Tables

Table 1 - Land Within Forestry Department Boundaries...... 155 2 - Forested Area with Forestry Department Boundaries, Sumatra, Kalimantan and Irian Jaya (km2 )...... 156 3 - Percent Area within Forestry Boundaries No Longer Forested ...... 157 4 - Rates of Timber Extraction, Year 2000 ...... 158 5- Comparison of Forest Management Systems at Discount Rates of 6% and 10%...... 159 6 - Priority Conservation Areas for Management and Protection...... 160

Annex 2 - Land Acguisition and Land Registratin .163

Annex 3 - Java Uplands

3A Table 1 - Maximum and Minimum Discharge Rate and Ratio for Selected Rivers on Jva .167 2 - Construction Costs, Capacity and Cost for Check Dams in Central Java .168 3B - Land and Water Management in Indonesia.169 3C - Foreign Assisted Projects in Java Watersheds .176 3D - KEPAS - A New Style of Agricultural Research and Development.178 3E - Credit for Uplands Development.182

Annex 4 - Water Ouantity

Table 1 - Irrigation Efficiency of Waru-Jayeng Irrigation Scheme.184 Figure 1 - River Flows and Water Demands on Jaa .185 Figure 2 - Extent of Seawater Intrusion under Jakarta 186 Figure 3 - Water Deficits and Efficiency Improvements in Java .187 - iii -

Annex 5 - Water OualitY

Table 1 - Summary of ExistingSituation on Community Water Supply in Java...... 188 2 - Illustrative Costs and Standards of KIP with SanitationEmphasis ...... 189 3 - RegionalDistribution of Medium and Large Scale Industries,1985 ...... 190

IBRD 21290 - Forest Coverage and Forest Reserves in Indonesia IBRD 21082 - Jakarta: DevelopmentPotential and Water Flow Impact IBRD 21468 - Estimate of Erosion Risk - West Java IBRD 21469 - Estimate of Erosion Risk - Central Java IBRD 21470 - Estimate of Erosion Risk - East Java IBRD 21068 - Mean Annual Rainfall and Flood Prone Areas in Java IBRD 21069 - Supply Demand Balances in Java - With Dams/Without Dams IBRD 21264 - Average Dry Season ColiformNumber and BOD Concentrations in Java - v -

INDONESIA

FORESTS. LANDAND UATER: ISSUES IN SUSTAINABLEDEVELOPMENT

Preface

This document was prepared as an input into the Bank's Economic Report, presentedat the 31st meeting of the Inter-GovernmentalGroup on Indonesia (June 1988), and as a resource for the preparationof Indonesia's fiith five-yeurdevelopment plan (1989-1994). Although there were many topics which could have been considered,the report focusedprimarily on issues related to land and forest managementin the outer islands,and land and water resourcemanagement in Java. These topics were thought to be central to issues of sustainabledevelopment and to illustrateimportant policy and institutionalconcerns. The main audience for the report was Indonesian economic planners,and the main objectiveof the report was to demonstrate that increasedattention to the environmentwas necessary to achieve the Governmentdevelopment objectives. It is gratifyingto note that due to the broad efforts of the Ministry of Populationand Environmentand concerned officialsand public interest groups,many of the issues raised in this report are being addressedin the fifth five-yearplan.

Background papers prepared by Bank staff and consultants are summarized in the main report.1,/ The report also borrows from a parallel effort by the United Nations Development Programme (UNDP) which focused on itititutional arrangements for environmentalmanagement, and from document prepared for Indonesiaby the InternationalDevelopment Agencies of Canada (CIDA) and the United States (USAID). Minister Emil Salim and the staff of the State Ministry for Populationand Environmentreviewed and facilitatedthe work. Many other Indonesianofficials and concernedindividuals also made importantcontributions to this report and the Bank is grateful for their assistance.

2/ This paper was preparedby Gloria Davis with assistancefrom Richard Ackermann. Backgroundpapers were prepared by Dirk Leeuwrik (Upland Watersheds),Daniel Gunaratnam (Water Quantity and Quality),Kyle Peters (IndustrialPollution) and Gloria Davis (Forestsand Land Resources). Contributorsto these reports are listed in Annex A. - vii -

FORESTS- JANM AND WATER: ISMUS IN SUSTINABLEDELOET

ExecutiveSUmm=r

A. Sustainable Develgent

Environment and DeVelopment

1. Environment and development are intertwined. The sound management of natural resources, including forests, soils and water, is a prerequisite to economic development; and economic development, in turn, is necessary for good environmental man2gement. Economic development and associated education, industrialization and urbanization will be the major factors slowing population growth, reducing pressures to convert marginal lands to agriculture, providing the capit.- to reduce pollution, and permitting the planned, rational use of natural resources. If growth is pursued without due regard to its immediate impact on the environment _nd natural resource base, it can jeopardize longer te,..mdevelopment. But sound resource management in the absence of economic growth is not feasible in countries where poverty and population growth are major contributors to resource degradation.

2. The concept of sustainable development acknowledges the importance of economic growth, but it differs from previous concepts of development in its recognition that natural resources are finite and that the wasteful use of resources today will cause an unnecessary sacrifice of inc.ome and wealth in the future. With this in mind, a sustainable development approach encourages looking beyond immediate preoccupations in order to detect unsustainable practices in their early stages when they are easier and less costly to address. Linked to this strategy is the view that forests, land and water have important ecological functions not easily measured in economic terms, and the belief that new knowledge and increasing shortages will increase thteir future value. Given these premises, a sustainable development approach tries to keep open as many options for future choice as possible, and it adopts a cautious appreach to any undertaking which imposes irreversible environmental costs.

3. The concept of sustainable development explicitly acknowledges the strong incentives for both individuals and governments to maximize immediate gain. This is true in countries at all levels of development and is particularly true in developing countries which have pressing economic and social problems. For this reason, the concept of sustainable development also encourages a broad development of awareness about natural resource utilization and a broad participation in the benefits of sound resource management and economic development.

4. In developed countries, attention to the environment has accompanied higher material standards of living; and in some quarters environmental concerns have been seen primarily as a luxury of the rich. This view is changlng. Countries with high population densities, such as those in Asia, - viii -

cannot afford to wait for future income improvementsbefore attendingto problems of water supply,sanitation and pollution control;and developing countrieswhich have poor populationsinteracting daily with the natural environment,have found that sound natural resource managementand the quality of the human environmentare matters of overridingimportance. Finally, countrieswhich are heavily dependenton their natural resourcesfor employment generationand economicdevelopment, now realize that efficientuse of these resourcesis critical to long-termgrowth.

The IndonesianContext

5. In contrastwith many Zivelopingcountries, Indonesia is very fortunatein terms of her natural endowments. The countryhas:

(a) a wealth of energy resources,including petroleum and coal, plus the potentialfor increasedhydro and geothermalenergy;

(b) rich soils in Java and Bali, and good soils in parts of Sumatra, Sulawesi and many other islands;and

(c) closed canopy forest in more than half of the country, a far higher proportionthan in any other large country in Asia.

This wealth of natural resourceshas helped sustainimpressive rates of growth and achieve substantialreductions in poverty.

6. Indonesiais also fortunatein a number of other ways. In t- Last two decades it has had good macroeconomicmanagement. Indonesiahas also had a long standing commitmentto the besic csnceptsof sound environmental management. For the last decade, the countryhas had a State Minister concernedwith the environment,and more recently the importanceof environmental concernshas been reiteratedby the President. The seriousnesswith which the Governmentviews the environmentcan also be seen in recent legislationrequiring environmental impact assessmentfor all major developmentprojects, in concreteactions such as the nationwideintroduction of integratedpest management,in the guidelinesfor the fifth five-yearplan, and in the recentlyannounced steps to strengthenforest management.

7. The program to introduceintegrated pest management is a particularly good example of sound environmentalmanagement. During the 1970s and early 1980s, Indonesiarelied on broad spectrumpesticides, supported by price subsidies,to reduce pest outbreaksand support rice production. As in many other countries,heavy pesticideapplications destroyed natural predators. As a result, a previouslyinnocuous insect, the brown planthopper,became a significantpest, and by 1986 it seriouslythreatened the rice crop in Java. Once the problem was recognized,the Governmentbanned 57 broad spectrum pesticides,reduced pesticide subsidies and developedemergency extension programs to teach farmers to recognizeand protect pest predators. Damage declined sharply in 1986/87 and an ecologicalbalance was reestablished. As the first country to introducesuch measuresnationwida, Indonesia has received internationalrecognition and acclaimfor these efforts. - ix -

8. In summary, the climate for sound environmental management in Indonesia is favorable. The country is fortunate to have generous forests, land and water resources, and policymakers recognize their obligation to future generations to manage these sustainably. There are, however, a number of emerging environmental issues in Indonesia which need to be addressed in the next five years, and this report is intended to help identify these issues and make recommendations for change.

Emerging Environmental Iisues in Indonesia

9. Indonesia's environmental pressures are related to population growth and spatial patterns of development. Of the population of 176 million, about 62% (109 million people) are located in the inner islands of Java, Madura, Bali and Lombok, which together have about 8% of Indonesia's land. Population densities in Java, at about 800 people/kcm 2 , are roughly the same as Bangladesh, but Bangladesh is largely flat and has more cultivated land. About 67 million people reside in the outer islands of which the largest are Sliumatra, Kalimantan, Sulavesi and Irian Jaya. With average rural household incomes of about US$450 per year in Java and about US$600 per year in Sumatra and Kalimantan (1984), and with 2.3 million new entrants to the labor force annually in the 1990s, poverty alleviation and employment generation will be among Indonesia's most pressing development problems.

Table 1: BASICDATA

% Land Lg Estimated Population in Forest % Mediumuand 1988 People Growth Department Large Scale Island Population per km2 % p.a. Boundaries Mlanufacturing

Inner Islands Java 106.0 788 1.7 22 80 Bali 2.9 503 1.3 22 3

Outer Islands Sumatra 36.2 74 3.1 65 11 Kalimantan 8.5 15 3.0 82 3 Sulawesi 12.3 63 2.2 68 3 Irian Jaya 1.4 3 2.9 99 Other 8.6 37 3.0 69

Total 175.9 90 2.1 75 100

La Includes reserves, protection, production and conversion forest.

10. To improve family welfare, reduce poverty and limit population growth, Indonesia has an active family planning program. In 1970 the crude birth rate was 44 births per 1,000 population per year and by 1985 it was 33 per 1000. In this same period the growth rate fell to 1.8% in Java and 2.3% in the country as a whole. However, Government'sobjective of 22 births per 1,000 populationby the year 2000 will be difficultto achieve since poor householdsdesire more than two children for income security.

11. Despite past accomplishmentsin family planning, employmentgent -. tion will continue to be the overridingdevelopment objective for the fore-ee- able future, and problems related to employmentgeneration will be particularly relevant to environmentalconcerns. One reason is that Java has very little capabilityto absorb more labor in agriculture. Virtuallyall land in Java is used (nearly75% of Java is under agricultureand 87% is under productiveuse); average family farms are less than 0.5 ha; and nearly 40% of the populationdependent on agriculturalis landless. Although Java has 60% of the country'spopulation, of whom 55% are directly dependenton agriculture for employment,agriculture in Java absorbed only 12% of the country's incrementallabor force between 1980-81).Agriculture in the outer islands absorbed 30% of the total labor force. In this same period, 38% of Indonesia'snew labor force moved into nonagriculturaloccupations on Java and about 20% found non-agriculturalwork in the outer islands.

Table 2: SHARE OF EHPLOYMENTGROWTH IN JAVA AND THE OUTER -SIANDS (%)

1971-80 1980-85

Agriculture Java 8 12 Outer Islands 18 30

Total 26 42

Non-AgriculturalOccupations Java 50 38 Outer Islands 24 20

Total 74 58

Source: Central Bureau of Statistics,SUPAS, 1985.

12. The developmentprocess has also produced differentenvironmental pressures in the outer islandsand in Java. The out'erislands are the repositoryof most of Indonesia'sforest and land resources. They account for close to 60% of all forested area in SoutheastAsia, and more than 98% of all forests in Indonesia. These closed canopy forestsare of value from both a productionand protectivepoint of view, but thay are under increasing pressuresas a result of populationgrowth and economicdevelopment. In the decade between 1973 and 1983, dryland agricultureexpanded at 1.8% p.a. in Java, 3.7% in Sumatra, 4.6% in Kalimantan and 5.6% in Sulawesi. Since 1980 Government-sponsoredprograms in the outer islandshave put nearly 2 million ha into productionand there has been a rapid growth in the exploitationof timber and other forest products. These factorshave led to a sharp increase - xi -

in the rate of deforestationand an uneven pattern of land use. Primary forests are thought to be disappearingat a rate of about 900,000 to one million ha per year and many cultivatedareas are producingonly modest returns on a per hectare basis. If the outer islandsare to achieve expacted growth rates in both agricultureand timber production,better land use managementand improvedforest policies will be required.

13. In Java, th,ethreat to the environmentarises primarilyfrom a growingpopulation, industrial development, and the resultingpressures on land and water resources. An estimated60% of outer island interprovincial migration is to Java and 78% of Java interprovincialmigration is to the Jakarta-Bandungcorridor. Java's cities are expected to double in size between 1980 and 2000, and there will be more people in Java's Lities in the year 2000 than there were in all of Java only 50 years before. Under these circumstances,increasing population densities along Java's north coast are strainingthe capacity of coastal ecosystemsto deal with municipalwaste and industrialpollution, and shortagesof clean water threatenboth human health and industrialdevelopment. Manufacturingmust necessarilyprovide the momentum for growth of output and employmentin the inner islands during the 1990s; but if the growth of manufacturingand industryon Java is to be sustained,early action will be needed to ensure adequatewater supplies and to control water pollution.

B. Land and Forest Management in the Outer Islands

Issues in Land Resource Management

14. The Problem. The populationin the outer islands is about 67 million people, with a natural rate of increaseof about 2.3% p.a. This alone places considerablepressure on forestsand on marginal land. In addition,the less densely populatedareas of the outer islandshave long attractedspontaneous migrants from Java and Bali as well as more crowded areas in the outer islands such as South Sulawesi,North and West Sumatra. In response to population pressuresand poverty, the Indonesiangovernment has also promoted a variety of agriculturaldevelopment programs in the outer islands. Between 1980 and 1986, two million people were moved to the outer islandsunder the transmigrationprogram and about 1.2 millionha of tree crops were planted for local people and transm,6 rants. These programs have contributedto economic developmentand populationgrowth and the overall rate of populationincrease includingimmigration is now about 2.6% p.a.

15. With this rate of growth, ensuring sound land use in the outer islands is a major challenge. Key issues to be tackled in land resource managementare as follows:

(a) The current land classificationsystem does little to ensure optimal land use from either an economicor environmentalpoint of view. For instance,nearly 30% of all land within Forestry Department boundaries in Sumatra is deforested,but it is not availablefor developmentsince it is classedas Forest Departmentland. Other areas with good stands of timber on poor soils, are currently classifiedas conversionforests. It also appears that areas with a slope of over 45%, which should be protected,have been classifiedas production forests. 4 . x 1 -

(b) Land use planning is undertaker.by a very large number of agencies and data related to land use tends to be centralizedand not availablein the provinceswhere land use decisionsare currently being macie. Provinces,in any event, have only limited institutional capacity at this time to address land use problems.

(c) Local smallholdersand migrants attractedto new areas of employment Cace seriousconstraints in obtainingappropriate land, since most land which has been previouslycultivated is subject to local land claims and is difficultto purchase. If purchased irformallythere may be little security of tenure,since local clan members can claim that the seller had no right to alienate the land. Consequently spontaneousmigrants tend to farm unclaimed,forested land.

(d) Developmentprojects also encounterdifficulties in identifyingand acquiringcultivable land on the scale required. Thnisis partly due to the fact that local Land claims constrainthe use of previously cultivatedland. Governmentpolicies, whicF. regard land as a national asset to be used for public benefit, also discouragethe payment of compensationfor land intendedfor smallholder de.velopment,and this limits the amount of previouslycultivated land which can be acquired from local people for developmentpurposes.

16. The problem of finding land for agriculturaldevelopment is compoundedby the recent expansionof land witnin perJtanentforest categories. When the Basic ForestryLaw was passed in 1967 there were 26 million ha withia permanentforest categories;in 1974 there were 56 million ha; and in 1983, 113 million ha. Although it may seem desirableto have a very large area within permanentforest categories,such classificationcan k-ecounter- productiveunless there is broad local participationin the benefits derived from forestry activities. Since concessionairesalone can legallyharvest timber on ForestryDepartment land, and since they frequentlydiscourage the exploitationof secondaryforest products to prevent poaching,there are few incentivesfor local smallholdersto protect forested land. In fact, the only way a local farmer can realizebenefits from ForestryDepartment land is by clearing it for crops. Shifting cultivatorson Forestryland are also discouragedfrom introducingperennial crops, which would reduce the area under production,since cultivationis forbiddenand perennialcrops can be expropriated.

17. In short, governmentdevelopment programs have createdemployment, stimulatedspontaneous migration and increasedthe demand for land in the less densely settledareas of the outer islands;but mechanismshave yet to be developedto ensure that land is properlyclassified and that local people and smallholdersattracted into developingareas can obtain appropriate underutilizedor deforestedland. The demand for land for private sector developmentis also increasing. According to Forest Departmentstatistics, applicationswere received for 1.6 million ha of land in Repelita III of which 137,000ha were allocated;and applicationwas made for 1.5 million ha in Repelita IV of which 627,000 were allocatedin the first half of the five-year period. Host of the areas were in degraded conversionforest. Under the circumstances,however, either mechanismsmust be developedfor improvedland - xiii -

classificationand land allocation,and for land intensificationand land purchase,or developmentwill inevitahlyoccur on land which should be set aside fot protectivepurposes and for timber production.

18. Approaches to the Problem. To address these issues, land use problems in the outer islands need to be tackledon several fronts. First, there are good reasons to shift the emphasisof developmentfrom the opening up of new lands to the intensificationof productionon existing agricultural lands. Not only would crop intensificationschemes directed at local smallholdersincrease production and incomes and reduce pressures on forests and swamps,but evidence suggeststhat it would often produce greater economic benefits than new settlements,which typicallyinvolve high costs for new infrastructure,land clearing and the provisionof services. There are, for example, at least 3 millionha of low-yieldingand aging rubber in the outer islandswhich yield 300-500kg/ha/yr but could produce up to 1,500 kg/ha/yr, if replantedwith improvedmaterial. There are also opportunitiesfor upgradingcoconut and coffee areas and for increasingthe productionof rainfed foodcropsthrough the disseminationof improvedtechnologies. Limited new settlementwill continue to be justified,to provide land to the landless and to relievepopulation pressures, but a greateremphasis on intensification would make sense on both environmentaland economicgrounds.

19. Second,where developmentprojects and employmentopportunities have attractedlabor to the outer islands,mechanisms need to be developedto permit smallholdersto purchase underutilizedland and to permit Government to compensatelocal landownersfor land that is used for developmentpurposes. There are areas in the outer islandswhere land is availableat a fair price (US$100-200/ha).This land could potentiallybe used either by development projects or by local smallholdersand migrants,if compensationwere paid for land used for development,if land registrationwere simplified,and if credit were availablefor land purchase. To protect the more traditionalgroups, such programswould need to be targeted to areas where the local people are alreadyknit into the cash economy. While there are many issues related to land rights which need to be carefullyassessed, it is increasinglyclear that the developmentof rational land markets in the outer islandswill be prerequisiteto sound land allocationand to forest and watershedprotection.

20. Third, in view of their extensiveland use and their relativelylarge impact on forestsand protectedareas, greater attentionis required to the needs of shifting cultivators. Recent data indicatethat 11 mil.lionha in Kalimantanand 14 millionha in Sumatra are under shifting culti-vationor brush and secondaryforest which are generallysigns of low intensity agriculture. The number of people practicingshifting cultivation for subsistenceexceeds one million familiesand the number dependentpartly upon shiftingcultivation is und ibtedlymuch higher. These farmers are very diverse. They range from traditionalcultivators depending entirely on the forest for their subsistence,to wage laborersusing small scale slash-ard- burn agricultureto meet food requirements. Past efforts to settle traditionalshifting cultivatorsoutside of forest boundarieshave been unsuccessful,largely because cultivationsystems were neither technically sustainablenor culturallyappropriate. Communityforestry schemes or treecropdevelopment projects, which raise incomesand stabilizeproduction, appear much more likely to succeed. In these programs,promoters work with - xiv -

the local people to understand -he incentiveswhich are needed for them to manage the forest sustainably. Such incentivesmight range from rights to timber, to better markets for secondaryforest products,or the introduction of perennialcrops which produce higher incomeson less land.

21. Fourth, optimal land use in the outer islandswill call for amendmentsto the current system of classifyingland for forest and agriculture. In view of the discrepanciesin land use, land potential,and current land classification,a number of proposalshave been made to ilter current land classificationcategories on economicgrounds. All of these proposalsassume that areas for conservationand watershedprotection would be set aside, but that decisionswould be made about the allocationof other land. Amon:,.h- approacheswhich could be takf re the following:

(a) I..-_; oposal suggests that all areas suited to food crops or tree croos should be potent,allyavailable for conversion. This would, over time, reduce the area deliberatelymaintained under forest cover in an area like Kalimantanby about 10%.

(b) A variationon this proposalwould preserve all areas with reasonable timber even though they might be suited to other uses, but it would permit the conversionof degraded forests.

(c) Another proposal emphasizesthe need to protect forested areas in those provinceswith a comparativeadvantage in timber production. Since Riau, West, Central and East Kalimantanand Irian Jaya have 70% of all commerciallyvaluable species, this proposal would discourage developmentin these provinceswhich is inconsistentwith maintaining a significantforest cover.

(d) A position taken by many forestersand environmentalistsis that the amount of unplanneddeforestation will be so large that no planned conversionof forestedareas should take place.

Resolvingthese conflictingviews and objectiveswill be a major task of Governmentover the next decade.

22. Finally, to manage land sustainably,Government must develop the basic tools for land use planning and development. The followingkey steps are required:

(a) the key mapping agencies should agree on a common mapping system;

(b) the geodetic referencesystem in the outer islands should be completed,as this is the basis for mapping and registration;

(d) key natural resource informationagencies such as the Soils Research Center should be strengthenedand their data decentralized;and

(e) maps completedunder the transmigrationprogram should be made availableto the provinces. - xv-

To improveland use planning,the capacity to make good land use decisions must be developedin the provinces. Each province has a provincialplanning office,or BAPPEDA, which should be equipped to make land use planning decisions.

23. Recognizingthe pervasivenessof the problems, in November 1988 the GOI created a new institutionto deal with land relatedmatters. This agency called the National Land Board (Badan Pertanahan Nasional) was created by removing the Directorate General of Agraria from the Ministry of Home Affairs and making it directly accountable to the President. At the time of its formationthe mandate of the institutionwas not yet agreed, but appeared to be focussedlargely on issues related to land registration. However, as this report makes clear, there is the need for one agency to focus on a broad spectrumof policy .elatedmatters. Among these are:

(a) the allocationof land for forestryand agriculture;

(b) the management of other critical ecosystemssuch as mangrovesand swamps;

(d) social and technicalissues in land registration;

(e) policies related to land acquisitionand compensationfor development projects;and

(f) the allocationof land for private development.

Resolvingthese issues will be necessaryto ensure economic developmentwhile protectingIndonesia's forest resources.

Issues in Forest Resource Management

24. Indonesia'sForest Resources. Indonesiahas about 144 million ha of land within ForestryDepartment boundaries, about 75% of its surface area. Land within ForestryDepartment boundaries is divided into five categories: forest set aside for conservationand nationalparks (13%); forest intended primarilyfor watershedprotection (21%);limited production forest (21%) and regularproduction forest (24%) in which selectivefelling is allowed; and conversionforest (21%),which can be convertedto agricultureand other uses. In total, 113 million ha in Indonesiaare within permanentforest categories, of which about 65 million ha are in limited and regular productionforest. - xvi -

Table 3: AREA WITHIN FOREST BOUNDARIESBY FORESTRY DEPARTMENTCLASSIFICATION ('000 ha)

Limited Reserves Prorection Production Production Conversion Total

Sumatra 3,684 7,094 7,579 6,821 5,032 30,210 Java 444 554 0 2,014 0 3,012 Kalimantan 4,101 6,924 11,415 14,234 8,293 44,967 Sulawesi 1,406 3,867 3,926 2,092 1,993 13,284 Irlan Jaya 8,312 8,649 4,732 7,123 11,775 40,591 Other 779 3,229 2,874 1,581 3,444 11,907

Total 18,726 30.317 30.526 33.865 30.537 143.971

t 13 21 21 24 21 100

Source: Departmentof Forestry,Project for the Developmentof Forestry Data and InformationSystems, 1986/87.

25. Not all land within ForestryDepartment boundaries is forested. A recent evaluationof aerial photographyfrom 1981/82 indicatesthat Indonesia has about 110 million ha of closed canopy forest,roughly 60% of its surface area. Although low in relation to the total amount of land within Forestry Departmentboundaries, this is a very large area under forest covet. Indonesiahas 2.5 times as much land under forests as Western Europe,which is comparablein size, and twice the proportionof its area under forests as the United States. These forestsare of enormouscommercial and ecologicalvalue. In addition to providing foreign exchange,Indonesia's forests protect criticalwatersheds, prevent soil erosion and stabilizedownstream river flows. Indonesia'sextensive forest cover and island geographyalso give it the greatestbiodiversity in the Asia region and make it one of the most importantcountries for conservationin the world.

26. In spite of Indonesia'sextensive forest cover, however, there are reasons for concern. In the early 1970s FAO estimatedthe rate of deforestationin Indonesiaat about 300,000ha/year; in 1981 this estimate was raised to 600,000ha/year, and recently FAO has suggeatedthat it could be as high as one million ha per year. The data are weak, but Bank estimates confirm that deforestationat these rates is possible (Table4). It is difficult to disaggregatethe causes of forest degradation,since logging creates opportunitiesfor smallholdermovement onto forested land, but Bank estimatessuggest that about 15-20% of forest depletionis due to poor logging practices;about about one-quarteris due to developmentprojects and the remainder is due to smallholderagricultural conversion, both by local people and immigrants. Some of the area convertedby smallholdersmay regenerate into secondaryforest, but little of this land will be suitable for timber production. - xvii -

Tsble 4: SOURCESOF DEFORESTATION

Source Best estimate (ha) Range (ha)

Logging and fire loss 180,000 150,000-250,000 Developmentprojects 250,000 200,000-300,000 Smallholderconversion 500,000 330,000-650,000

Total 900.OQO 700.000-1.200.000

Source: Bank staff calculationsand Atlanta/INPROMA,Vol. III.

27. Although some deforestationis inevitableand consistentwith the efficientutilization of forest resources,deforestation on this scale repre- sents a substantialeconomic loss and jeopardizesthe longer-termavailability of forest resources. The cost to the economy of deforestationand timber depletionis conservativelyestimated at about $1 billion/year. Moreover, the present rate of deforestationleads to land degradationwhich reduces the productivityof farmers and disruptswater suppliesand threatensthe raw material supplieson which export diversificationpartly depends. Deforest- ation also has a number of negative consequencesof national and international concern. Large scale clearing for agricultureproduces smoke and carbon dioxidewhich contributeto global warming; and forest clearing threatens biologicaldiversity and endangeredspecies. This last point is particularly importantin Indonesiawhere the island topographyresults in a high degree of endemism and species can quickly disappearif the forest cover is destroyed.

Issues in Forest Management

28. Managementof forest resourcesin the outer islands is largely in the hands of private concessionaires.There are over 500 concessionsin Indonesia with an average size of 100,000ha and concessionaireslog an estimated 800,000ha p.a.; this is more than the area logged in all other Southeast Asian countriescombined. However, loggingas currentlypracticed in Indonesiatakes a toll on the forest. Recent surveys show that up to 40% of standingstock is damaged in loggingoperations and where areas are relogged before the 35 year logging cycle elapses,damage is higher. As valuable speciesregenerate slowly and only under specificconditions, selective loggingalso tends to preservemore robust but less valuable species. Since logged-overareas have greatlyreduced value, many concessionairesdo little to protect their holdings from encroachmentand fire once they are logged.

29. One reason for these problems is that there are very few incentives for concessionairesto manage their holdings sustainably. FAO analysis shows that under current financialconditions which assume a high opportunitycost of capital (10% or above) and a long period for regeneration(35-70 years or more), clear fellingwith no regenerationis financiallymore attractiveto concessionairesthan even a nominal investmentin restorationof the forest. - xviii -

The relatively short period of timber concessions in relation to the 35 year logging cycle also contributes to a short-term perspective. These problems are compounded by low taxes and royalties which have encouraged concessionaires to maximize harvests to capture surplus profits. Bank estimates suggest that the understatement of harvests and declining rates of tax collection between 1980-85 cost the government at least US$1.2 billion in revenues and possibly twice this much. This, in effect, constituted a subsidy to the sector and fueled the "timber boom."

30. The underpricing of natural resources encourages their inefficient use. Import protection of wood-based industries and the ban on log exports have resulted in an underpricing of domestic timber and reduced incentives for efficiency. Since sawmills in Indonesia recover about 43% of logs compared to 55% in comparable developing countries, increases in efficiency could increase output by 28% from the same log volume. Timber in areas clear felled for development is generally burned, secondary species are neglected, and valuable hardwoods are used for low quality products. The past incentive structure treated the natural forest as a nearly free resource and expanded the annual allowable cut in response to supply constraints. In so doing, it also discouraged the development of timber plantations which could take pressure off the natural forest for low quality construction materials. Moreover, since plantation development under current financial conditions is financially attractive only when combined with complete harvest of the natural forest, subsidies for afforestation may now have the effect of encouraging plantation establishment in natural forest areas, rather than on degraded land.

31. There are also problems related to weak management of the sector and a poor knowledge of the resource base. Fifty percent of all Forestry Department staff are in Java, which has less than 2% of all forested land. Forestry Department officials in the outer islands rely largely on concessionaire reports to determine annual allowable cut and this, in turn, leads to an understatement of the volume and quality of merchantable timber (and royalties to be paid) and a tendency to ignore poor logging practices and breaches of the regulations. This situation has led the International Institute for Environment and Development (IIED) to conclude that the Forestry Department should be strengthened, its staff increased and reallocated, training improved and officials given the means to carry out their work without depending on concessionaires.

32. Given that a forest performs both protective and production functions, optimal management of forests would require that t".ose who log the forest or convert land to agriculture should pay a price for the timber which takes into account the full cost of conversion, including the economic value of lost forest products and the loss of the protective value of the forest to the environment. This is difficult since concessionaires, shifting cultivators and transmigrants, seek returns from only one part of the land or forest and do not consider the full opportunity cost of forest use and conversion to the economy. Thus there is an inherent weakness in market mechanisms in the forestry sector which sound forest management policies should seek to offset. - xix -

33. Rather than compensatefor such market failures,however, the policy environmenthas contributedto deforestationand the inef"icientuse of resources. The main policieswhich have affected the rate of forest utilizationare:

(a) a relativelyhigh opportunitycost of capital, the short duration of concessions,and inadequateincentives for reforestation,which together encourageshort-term exploitation of forests rather than their long-run sustainableuse;

(b) high levels of protectionof wood-basedindustries, achieved through import protectionon outputs and the ban on log exportswhich have contributedto inefficienciesin harvesting,processing and plantationdevelopment;

(c) the 'zero' cost of forest conversiontogether with poor logging practices,which have encouragedthe expansionof shifting cultivationand extensiveagricultural development, at the expense of intensificationprograms.

Problems arising from these policieshave been exacerbatedby weak institutional arrangements,a poor data base, and inadequateresearch on improved silviculturaltechniques and forest management. The total effect has been to increase,rather than decrease,the incentivesfor short-termextraction, and to encouragea pattern of exploi stion of forest resourcesthat is environmentally detrimentaland economicallyinefficient, even in the short-term.

34. Governmentrecognizes the need to address these issues and has recently taken several importantmeasures to manage the sector on a riore sustainablebasis. In the fifth five-yearplan:

(a) annual log extractionfrom forestswill be limited to between 31-32 million mi3 , roughly the current extractionrate;

(b) logging and processingactivities will be integratedsince concessionaireswith large investmentsin processingfacilities are likely to have greater incentivesfor sustainablemanagement of the forest;

(d) the inspectionservice will be strengthenedand greater use will be made of remote sensing informationfrom satellitesto monitor changes in forest cover;

(e) a new Directorateof Extensionhas been created to encourage the participationof people in conservingand managing forest resources in cooperationwith the Forestry Department;and

(f) human resource developmentin the Ministry will be strengthenedto ensure that the staff of the Ministry can perform better in their forestry management and conservation tasks. - xx -

35. In April 1989, Governmentalso announceda 150% increase in the reforestationtax, and a new export tax on sawn timber with a median rate around US$40/m3. Processedtimber will have lower rates and plywood export, accountingfor nearly 50% of log consumption,is still exempt from export tax, though it will be subject to the 150% increase in the reforestationtax. Measures which favor plywood exports are not economicallysound and may be distortionary,(i.e. encouragethe diversionof wood into plywood manufacture rather than other suitable uses) and these policies need to be further reviewed. The increase in reforestationfees will raise tax revenues by about US$180 million per year and the export tax about US$100 million per year, for a total increaseof US$280 millionper year in taxes/ fees at a logging level of 30 million m3/year. These measures show an increasingcommitment to manage the sector on a more sustainablebasis.

36. There are still issues on which analyticalwork is required. To determinesustainable rates of timber extractionand to establisha framework for improvedconcession management, additional information will be needed on: (a) the quality and quantity of standing stock; (b) the regenerativecapacity of the natural forest (and potentialways to improve it); (c) the elasticity of demand for Indonesiantimber and Indonesia'srole in settingworld prices; (d) the relationshipbetween taxes, royaltiesand extractionrates. Further research is also needed on measures to increaseplantation production and improvesilviculture techniques. To address these issues a Bank-assisted ForestryManagement and ConservationProject was begun in 1988. This project will incOudean inventoryof representativeareas to determine the quality and quantity of timber stands and it will support the use of SPOT imagery to monitor forest cover. The project will includestudies on ways to improve concessionmanagement and it will continue to review the mechanisms for, and appropriatelevels of, revenue collectionfrom the sector. It will also study shifting cultivatorsand strengthenforest research efforts.

The Reserve System

37. Indonesiahas set aside almost 10% of its land area for conservation and protection,a larger proportionthan in most developedor developing countries. The countryhas 319 gazettedconservation areas, including19 national parks, and it has 187 areas identifiedand scheduledfor incorpo- ration into the protectedarea system. In total, Indonesiahas set aside nearly 20 million ha as reservesand another 30 million ha as permanent protection forest. The National ConservationPlan, the Irian Jaya Development Plan and the Marine ConservationSystem Plan bring the number of planned or proposed reserveareas to more than 700. These proposalscover the major biogeographicregions of the countryand conservationgroups agree that these areas if properlymanaged, would be sufficientto protectbiological diverlity and endangeredspecies. However, additionalwork is required to prioritize and demarcatewetland areas. - xxi -

Table 5: NUMBEROF RESERVESWITH PRIORITY FOR PROTECTION BY BIOGEOGRAPHICREGION

Number of Number with Region priority reserves managementplans

Sumatra 16 6 Java and Bali 9 8 Kalimantan 14 5 Nusa Tenggara 8 2 Sulawesi 8 4 Maluku 12 1 Irian Jaya 12 3

Total 79 29

Source: InternationalUnion for the Conservationof Nature and Naturai Resources

38. To initiatea comprehensiveconservation program, strategiesneed to be developedfor each of Indonesia'sseven biogeographicalregions (Table 5), inventoriesand managementplans should be developedfor specific reserves,the managementof parks and reservesneeds to be decentralizedto the provinces,and models are needed for incorporatinglocal people into the planning and implementationof protectionprograms. This will require additional manpower and funds. To mobilize grant funds internationallyand to utilize the technicalsupport and trainingavailable in developedcountries, the report recommendsthat selecteddonor countriescooperate with the provinces in each biogeographicalregion to develop a comprehensiveconservation program. A numaer of countriesappear to be ready to provide financial and technicalsupport if governmentcan developan appropriateinstitutional frameworkto coordinatethis effort; and an estimatedUS$50 million appears to be availableon grant for this purpose oveirthe next five years. If successful, such a program would be a milestonein mobilizing internationalsupport for conservationpurposes.

39. Conservationneeds in forestedareas are relativelywell known, but there are many critical ecosystemsin Indonesiathat are largely unmanaged, are of critical economic and ecologicalimportance, and in which land use conflictsare increasinglyintense. These includewetlands, mangroves, coastal and marine areas. Many of these areas provide importantecological services in their natural state, but relativelylittle is known about the economicsof alternativeuses. Tidal swamps,for example, are both an importantreserve for fisheriesand wildlife and Indor.esia'sremaining agricultural frontier. Recently the Departmentof Forestryhas sought authority over coastal and marine reserves,but the number of parties interestedin these areas suggests the need for other means of coordination. Under the circumstances,it may be appropriatefor the Ministry of Populationand Environmentand the provinct; to take a more active role in the managementof critical lands. Plans for the managementof tidally affectedwetlands are particularlyurgent. - xxii -

C. Land and Water Manap-amentin Java

Land Use Issues

40. Urban Land Management. Land use issues are importantin Java as well as the outer islands. The most significantissues are related to the almost complete utilizationof arable land and to rapid urbanization. While population levels in Java's rural areas are growingat about 1% p.a., medium-size cities are growing at 6.5% and are projectedto increasefourfold in 25 years. Among the environmentalconsequences of such urban growth is the loss and degradationof prime agriculturalland. An estimated40,000 ha of cropland is convertedto other uses annuallyand replacingthe productr.vecapacity of this land is estimatedto cost US$50-100million/year. Urban and industrial expansionalso place pressureson coastal ecosystemsand hillside forests; and increasinghuman populationsand the proliferationof small industries contributeto air and water pollution,and to human healtlhproblems.

41. These problems are magnifiedaround large urban areas such as Jakarta. The Jakarta metropolitanarea with ten million people is currently the eighth largesturban agglomerationin the world. It is expected to surpass Los Angeles in size by the year 2000, to become the world's seventh largest city. Given the rate of growth and associatedenvironmental problems, a number of planning studieshave been carried out on the Jakarta metropolitan area. These studieshave provoked interest in the problems of the region, but they have been only modestly successfulin providingthe basis for consensus or in attractingfunds. Among the major impedimentsto coherentregional planning are a lack of clear authorityamong agencies,the top-down nature of spatial planning in the past, a lack of integrationto date between spatial planning and the regulatoryframework necessary to support it, and weak integrationof planning and budgeting.

42. To address these problems one agency needs to have clear authority for regionaland spatialplanning. This job is currentlydelegated to the provinces,but to play this role effectivelythe BAPPEDAsmust be strengthened and line agency roles must be clarified. The new National Land Agency could play an importantrole in resolvingagency responsibilities.Spatial plans must be developedat the local level with broad participationand the instrumentsfor enforcingspatial planning, e.g., licensing,zoning and taxationmust be integratedand simplified. Increasedlocal-level participationin planning and revenuegeneration will, over the longer-term, help solve tue budget problem, but central support for these initiativesis needed at this time.

43. WatershedManagement. Most watershedsin Java are potentially subject to serious erosion,but "critical"areas are thought to cover about 1.9 million ha (15%) and includeabout 12 million people. Critical areas have somewhatlower populationdensities (400-500 people/km 2) than the average for Java as a whole (800 people/km2), and populationdensities are lower in limestoneareas than in areas with fertile volcanic soils. Whereas average erosion in the United States is estimatedat about 0.7 tons of soil/ha/year, overall erosijn rates in Java are about 6-12 tons/ha/yearon volcanic soils and about 20-60 tons/ha/yearon limestonesoils. On agriculturalland they - xxiii -

are much higher (Table 6). These high rates are due mainly to the high levels and intensityof tropicalrainfall, but they are exacerbatedby the loss of ground cover in the hills.

44. Erosionbrings benefits in the form of new land, but it also causes siltationof reservoirsand ports, and it raises riverbeds,causing flooding in low-lyingareas. The differencebetween high water and low water levels has also widened in downstreamareas, causing disruptionsin water supply in some river basins. Bank staff analysissuggests that soil erosion on Java costs the economy about US$400 million/year. Of this, nearly 80% is due to aesclinesin productivityon agriculturalland, while only 20% is due to off- site costs such as the siltationof irrigationsystems and the loss of reservoircapacity. To date, however, nearly two-thirdsof the expenditures in upland programs such as the RegreenitgProgram have been for off-site measures such as afforestation,check dams and gully plugs. This analysis suggestsa need to reo'1.ent investmentsaway from off-siteprograms toward improved farmingpractices.

Table 6: ON-SITECOSTS OF EROSION

Average annual Capitalized soil loss on value of agricultural productivity Province Total area land loss (km2) (Mt per ha) (US$ million)

On-Site

West Java 47,370 168.0 142 Central Java 33,013 145.8 29 Yogyakarta 3,346 108.1 6 East Java 45,308 87.2 150

Subtotal 129.037 138.1 326

0ff-Site 25-91

Total 312-417

Source: Adapted from Magrath and Arens (1987).

45. A number of studies demonstratethe potentialfor reducing soil loss with improved farm technologies. For example, one study of upland volcanic soils in East Java found soil loss of 476 tons/ha/yearwith poor terraces,but only 54 tons/ha/yearwith good terracing. On limestonesoils, FAO measured soil erosion rates up to 539 tons/ha/yearon slopes of 15-20%,while on similar soils with good terraces they were 48 tons/ha/year. Since an - xxiv -

estimated30-40% of total annual erosion occurs during the first two months of the wet season, cropping systems designed to maintainmaximum ground cover could also play an importantrole in reducing soil erosion.

46. Javanese farmers are quick to adopt new farming systems and modify their farmingpractices if they perceive an economic advantagein doing so, but the main constraintto the adoption of recommendedupland farming practicesis their cost. Labor required for the constructionof bench terraces amounts to 750-2000work days/ha. This means that farmersmust either borrow money to hire labor or forego other income earning opportunities to do the work themselves. Calculationof the gains from terracingsuggests that farmers can be expected to adopt good terracingtechnologies without subsidies,only if they cost less than US$500/ha. To circumventthis constraint,research is needed on lower cost technologies. One promising innovationis the use of vegetativegrasses on contours to build natural terraces. Research is also required on croppingsystems which minimize the time land is exposed between crops.

47. Upland areas and the more marginal areas of the outer islandshave a variety of elevations,slopes, soils, vegetationand moisture regimes, and for this reason agriculturein these areas is characterizedby much greater diversity than in lowland rice growing regions. This means that flexible,bottom- up approacheswill be needed to identifythe characteristicsof each agroecosystemand to help the farmer experimentwith and adopt appropriateinter- ventions. Research on appropriateon-farm soil e-onversationpractices and extensionof new technologiesis generallythe function of the Ministry of Agriculture(MOA). However, the Ministry of Forestry,Directorate General for Reforestationand Land Rehabilitation(DGRRL) has been given the responsibility for all soil and water conservationplanning on slopes over 8%. This is an awkward arrarngementand requires duplicationof serviceswith MOA at the farm level. Considerationshould thereforebe given to moving the Subdirecto- rate for Soil Conservationin the Ministry of Forestryback into the Ministry of Agricultureor to giving MOA full responsibilityfor soil conservationon agriculturalland.

Water Resource Management

48. Although Java is well endowed with rainfall,most of its rivers are less than 50 km long, and very shallow catchmentscombined with deforestation have increasedthe variabilityin runoff and caused water shortagesdown- stream, particularlyin dry years. Under the circumstances,the allocationof surface water and groundwaterfor agriculture,municipal and industrialuse is an issue of increasingimportance.

49. Analysis in this report indicatesthat Jiva has total surface water flows of about 170 billion cubic meters (Bm3) annually,but firm water resources,i.e., minimum flows in a once-in-five-yeardry year, are only about 78 Bm3 or 42%. Dams impound6.9 Bm3, about 4% of total annual flows. Irrigatedagriculture is the major user of surfacewater, requiringabout 60 Bm3 annually. This is about half the potentiallyavailable water and three- quarters of the firm water flows. Future water requirementsin the year 2010 are projected ..t about 88 Bm3 and suggest shortagesof 10 Bm3 in a dry year. ' xxv -

Two-thirdsof this shortage could be eliminated-y increasingthe efficiency of water used for irrigation;and it couid be reauced another 10% by the constructionof new dams (Table 7).

50. Municipalwater use is lw at about 2.25 Bm3, about 3% of the water used for agriculture. Despice relativelylow requirements,however, urban and industrialpollution are reducing the quality of raw water supply, and compe- tition for water in the dc-yseason is already intense,particularly in urban areas like Surabaya,Bandung, Cimanuk, Bogor, Jakarta and Tenggarang. Urban and industrialwater use are expectedto grow at high rates, reflectingrapid urban and industrialgrowth and current low levels of piped municipalwater supply. Unaccounted-for-water,water lost from piped systemsor used without payment, accounts for almost 40% of municipalwater, and efficiencyimprovements and better cost recovery are requiredif future supply targets are to be met.

Table 7: TOTALWATER DEFICITS FOR SELECTEDCATCHMENTS IN A DRY YEAR (2000)

Deficits in million cubic meters without With With efficiency efficiency efficiency Catchment Irrigation improvements improvements improvements area area ha E 30% la E -50% E -50% & Dams

Solo 274,000 1,520 560 560 Jratunseluna 108,000 1,930 840 530 West Semerang 22,000 10 0 0 Pemali Comal 130,000 1,440 530 530 Cissauggarung 42,000 360 190 190 Rentang 90,000 1,030 350 0 Cibeet/Jakarta Cisadane 190,000 1,940 300 290 Banten 55,000 370 65 65 Serayu 197,000 1,060 220 220 South Kedu 55,000 230 120 0 Citanduy 50,000 100 0 0 Telok Lada 31,000 20 0 0

Total 1.244.000 10.010 3.220 2.390

/a E - efficiency. Refers to the percentageof water delivered. Most systems are designed for 50% efficiencies.

Source: Bank staff estimatesbased on DGWRD data. - xxvi -

51. Groundwater extraction is about 8.7 Bm3 per year, about 10% of firm surface water flows. However, because groundwater is relatively safe and convenient, it supplies about 60% of water for rural domestic use and is the major source of water in cities which have polluted surface waters. In Jakarta, private groundwater abstraction provides about four times as much water as municipal water supply 5 and it provides 65% of the water for industry. About two million m3 of groundwater is drawn per day in Jakarta and this massive withdrawal has caused saline intrusion into shallow aquifers. This is a particularly serious problem since shallow wells provide most of the water for domestic use. Contaminated groundwater has forced some poor households on Java's north coast to purchase water from vendors at rates far exceeding those paid by wealthier users of the piped water system.

52. To help emerging water allocation problems, the report suggests increased attention to pricing to improve the efficiency of water use. The cost to Government for supplying irrigation water on-farm in Java is currently about $100 per ha/year. The fact that there is no charge for this water contributes to inefficient use. Government has agreed in principle to recover the cost of operation and maintenance of irrigation systems under the Bank assisted Irrigation Subsector Loan, but the pilot projects do not provide economic incentives for water conservation because they are not linked to the volume of water used. Appropriate charges for groundwater are even more important than those for surface water, as groundwater is only a partially renewable resource and current abstraction occurs at the expense of future users. Increasing the level of tariffs on groundwater and improving mechanisms for their collection could have a significant impact on the rates of groundwater abstraction on Java's north coast.

53. At the present time, different institutions are responsible for irrigation, municipal water supply, surface and groundwater use. This hampers planning and leads to resource conflicts. To improve the situation, coordination between agencies involved in water resource management must be improved. Existing institutions also need to be strengthened to take multiple water uses into account. Provincial Irrigation Services would be more effective if they were able to monitor water use and make allocational decisions across sectors. Existing Irrigation Committees would function better with a broader mandate including the management of all water use in each subsystem. For this the Committees would need a secretariat, permanent staff and adequate budget to manage day-to-day work. Water Users Associations would also benefit from training intended to improve system management and the efficiency of water use.

54. At the river basin and regional level, water resources planning, management and operations could also be improved to better take into account multi-sectoral needs and environmental concerns. To accomplish this the report suggests a phased approach. Initially coordination among- existing agericies could be improved by creation of an interministeral committee with central and provincial representation. This committee might subsequently evolve into a board with a small but highly qualified executive staff. For many basins and provinces, improving coordinating mechanisms would suffice, but for more complex areas an autonomous River Basin Entity (RBE) may be desirable. The RBE would have a larger staff, legally defined authority, and - xxvi i,

powers to set and enforce standards. It would also be empoweredto independently manage its finances,including the impositionof water user and waste disposal charges. Underlyingthis institutionalevolution is the 'remisethat existing entities and staff should perform their historical functionsto the extent appropriateunder a multi-sectoralapproach, and that provincialand local governmentsare ultimatelyresponsible for the developmentand management of their resources.

55. Additionaldams may also be justifiedfor selected areas to alleviate water shortagesand to prevent damaging floods,but costs and benefits must be carefullyassessed. Currently,true multipurposedam operationdoes not exist in indonesia,and any future dams must maximizebenefits from all sectors includingpublic water supply, irrigation,flood control, water quality management and power generation. The economicanalysis of proposed dams should also take social and environmentalcosts fully into account.

'WaterOualitv

56. Extent of the Problem. In Java, water pollutionposes an immediate threat to human welfare and industrialgrowth. This problem is exacerbatedby water shortagesin the dry seasonwhich preventwastes from being flushed away from urban centers. The most excessivepollutant in Indonesianrivers is fecal coliform from human waste, and this exceeds recommendedstandards in key cities by a thousandfoldor more. BOD (chemicaloxygen demand) and COD (chemicaloxygen demand)also exceed standardsin all provinces indicating excessivepolluti-'n levels. Due to high levels of municipaland industrial waste, eight major rivers on Java's north coast are regarded as significantly or seriouslypolluted.

57. It has not been possiole to quantify the cost to the economy of pollution,but major costs are incurredby sicknessand the resultingloss of work, and pollution is so severe in areas like Surabaya that industries have been forced to close in dry years because of raw water shortages. The eventual cost of piping unpollutedwater to Jakarta to circumventpollution problems has been estimatedat US$1 billion; and an initial pipeline is now being constructedat a cost of US$40 million. Costs are also incurred from losses in fisheriesand aquacultureand damage sufferedby mangroves and fragilecoastal areas. A detailed study of pollutioncosts would be useful to rationalizepollution control measures.

58. Water Supply and Sanitation. In 1986 it was estimatedthat only 40% of Indonesianhouseholds had access to safe water (41% urban, 4% in rural areas). This is lcw, even by Asian standards. In India, for example, WHO estimatesthat 75% of urban residentsand 31% of rural residentshave access to safe water, and due to this fact, in part, the infant mortalityrate is lower in India and decliningmore rapidlr. Sanitationlevels in Indonesiaare also poor. Only 28% of urban residentsand 9% of rural residentshad private facilitieswith subsurfacedisposal.

59. Water is supplied and wastes are managed throughconventional piped water and sewerage systems in the more affluenturban areas, and through low cost water and sanitationtechnologies provided under the Kampung Improvement Program (KIP). Nearly 40% of governmentexpenditure in urban areas is for - xxviii -

water supply, but sanitation lags badly. In 1988/89 about 5s of urban development expenditures were for sanitation,but investments in on-site disposal were negligible. Furthermore,KIP expenditureshave been declining by aLout 4% p.a. Under the circumstances,priority should be given to increasing expenditureon sanitation, to providing appropriate technologiesand social approaches,and to developing central and provincial capabilities in this field. Nongovernmentalorganizations are expectea to play a strong supporting role.

60. Rural water supply and sanitationare currently under the Ministry of Health, but the Ministry does not have an organizationalstructure or capability which lends itself to this work. Partly for this reason, nearly 90% of external assistance for water supply and sanitation has been to the urban sector. To improve this situation, a coherent program for rural water supply and sanitation needs to be developed and a decision needs to be made on the most appropriate implementingagency to do the work. Attention to community involvementis appropriate and should be supported.

61. Industrial Pollution. Although industrialpollution is less pervasive than pollution from domestic and municipal waste, it is already a major factor in the overall pollution levels on Java's north coast (Table 8). Industrialpollution, particularly in the form of toxic substances, can also have far more serious consequences than domestic waste, as these substances become concentratedin the food chain and cannot be removed from water by conventionalwater treatment processes. Monitoring in the Tangerang Industrial Zone, for example, found serious pollution at all ten monitoring stations, and excess levels of chromium, cadmium, mercury and selenium in different locations.

Table 8: INDUSTRIAL POLLUTIONAS A PERCENT OF POLLUTION LOAD IN MAJORRIVERS ON JAVA'S NORTHCOAST

Chemical Oxven Demand Total % of indus- River Point (tons/day) trial waste

West Java Cisadane Tangerang 137 55 Banjir Perompongan 13 31 Lunter Pulogadung 30 Bekasi Cileungi 14 23 Citarum Jatiluhur 110 38 Cimanuk Tomo 21 67 Citanduy Cikawung 69 42 Central Java Serayu Banyumas 62 34 Progo Sentolo 36 14 East Java Solo Babat 123 64 Surabaya Tawangsari 25 28 Brantas Mojokerto 16 75

Source: Institute of Hydraulic Engineering. - xxix -

62. The legal structurefor an industrialenvironmental control program is basically in place and existingregulations and decrees are sufficientto redress the current situation. The next step is to strengthenthe institutional arrangementsfor pollutionmonitoring and control at the center, and to replicatethis and provide enforcementpowers at the provinciallevel. This could be done by the provincialenvironment offices (BKLH) supportedby the line agencies;by specializedpollution monitoring and control agencies (PMCAs)formed at the provinciallevel; by river basin enterprises;or by pollutionmonitoring and controlenterprises with revenue generatingand enforcementpowers. Pollutioncontrol enterprises would have the ability to attracthigh caliber staff and would have the capacity to generate revenues to help offset the cost of pollutionabatement. However,because of the vested interestsof existing ministriesnew institutionsmay be difficultto form and a staged approachmay be necessary. To reach a consensusamong Ministrieson appropriateinstitutional arrangements, a lead agency should be selected to consolidateviews and help prepare appropriatepolicies and legislation. MPE can serve this function,but will require technicalsupport.

63. Other elements of a comprehensivestrategy to address industrial pollutionwould include:

(a) compilationof an initialdata base on the extent and nature of industrialpollution, and the identificationof regional control priorities;

(b) enactment of reasonable standards (currently in draft form) for industrialdischarges as well as for solid waste disposal;

(d) identificationof subsectorsthat produce the most toxic wastes and offer the greatestpotential for abatement,and a focusingof assistanceand enforcementon these sectors;

(e) waste minimizationthrough improvedefficiency and process changes; improvedmonitoring, cogeneration and recycling;and costing and financingof end-of-pipecontrol technologies;

(f) upgradingof provincialcapacity to take environmentalfactors into account in issuinglocation and nuisance licenses;

(g) establishmentof hazardousand industrialwaste collection,treatment and disposal facilities;

(h) establishmentof industrialparks to achieve economiesof scale in waste management; and

(i) development of a system of effluent charges.

There is also a need to simplify the environmentalimpact assessmentprocess in the Ministry of Industry and to eliminateduplication in the approval process. - xxx -

D. Needed Policy and InstitutionalChanges

Policy Areas

64. Like all countries,Indonesia faces a number of environmental problems. This paper has focusedon four of the most important: deforestation,land degradation,water shortagesand water pollution. Of these issues,deforestation and water pollutionare the most urgent. However, steps taken to improve land resourcemanagement will addressboth problems of deforestationand land degradationand steps to improvewater resourcemanagement will addressboth water resourceefficiency, allocation and pollution problems.

65. A major theme in this report is that many resource conflictscan be resolvedby increasingthe potentialof existing resourcesthrough intensification and greater efficiencyin resourceuse. The tools for improved efficiencyinclude proper pricing and impro-vedmanagement. The utility of these tools can be seen in the analysisof forest, land and water resource management.

(a) Forestrv. Wasteful log extractionand timber processing,the failure to recover timber from areas cleared for development,and weak incentivesfor plantationdevelopment, are all due in part to an underpricingof timber from the natural forest'.Under current conditionstimber is a partiallyrenewable resource and should be managed on a sector-widebasis taking into account the need to maximize public revenuesrather than extractionrates.

(b) land. Land allocationconflicts could be reducedby crop intensification,but technologiesfor crops other than tree crops are weak. Smallholdersare also limited in their ability to buy and upgrade underutilizedland by tenure problems and shortagesof cash, and Governmentdoes not pay for underutilizedland used for agr .lturaldevelopment. Under these circumstances,local smallhoidersprotect unused land and agriculturaldevelopment is forced into unclaimedforest areas. To address these problems increasedattention is needed to alternativetechnologies for developingmarginal land, programs for land registrationand credit for land purchase.

(c) Water. Appropriatepricing is critical to the efficientuse of water. Charges for irrigationwater in water short areas would conserve resourcesand potentiallybenefit end-systemusers; and groundwatercharges uniformly applied in urban areas would help to prevent over extraction. Pollutionfines and charges levied against pollutersalso have the potentialto reduce pollutionand pay for mitigation. - xxxi x

Institutional Priorities

66. Land Resource Nanagement. The efficient use of forests, land and water resources requires institutional strengthening and better cross-sectoral coordination, and the report makes a number of recommendations along these lines. To improve land resource allocation and ensure appropriate land distribution between forestry, agriculture, mining and urban use, an overall review of land policy is required and a lead agency is needed for this purpose. It would also be desirable for one agency to take the lead in coordinating regional planning and mediating land use disputes. The new National Land Agency could potentially play a major coordinating role at the national level. At the provincial level, this role could be played by the BAPPEDAs, but they will need further institutional and technical support for this purpose.

67. Water Resource Management. Water resource management also runs across sectoral lines, but the options for coordination are somewhat easier because of the dominance of irrigation in the sector. The report therefore recommends that the Directorate General for Water Resource (DGWRD)take the lead in coordinating water resource management. Provincial Irrigation Services should develop Water Resource Divisions to look at water use across sectors, and Irrigation Committees should be strengthened to take mult' ple water use into account. The Subdirectorate for Hydrology, in the Directorate of Environmental Geology (Department of Mines and Metallurgy) should also work closely with the DGD. River Basin Entities could improve water resource management particularly in basins where water resource conflicts occur and pollution levels are high. To improve interagency coordination on water pollution abatement, the report recommends that MPE play an integrating role.

68. Enviroamentallanaeent. Indonesia has a State Ministry for Population and Environment (MPE). As a State Ministry, EPE has no line agency responsibilities. The fact that Indonesia has a free standing Ministry dealing mainly with the environment is in itself commendable, but Indonesia is also a pioneer in its efforts to develop environmental awareness and institutional structures for dealing with the environment in its line agencies and in the provinces.

69. As a State Ministry, MPE has no direct implementation responsibilities. Instead, a key dimension of MPE's work is to improve the environmental performance of the Government as a whole. This is an extremely ambitious task and the Ministry is limited in its ability to carry out its mandate by its lack of official authority over other ministries, by its lack of influence over the budget process which generates line agency priorities, and by its own organizational structure, shortages of technically trained staff and small budget.

70. One option to strengthen environmental management would be to form a "Super MPE" along the lines suggested by the UNDP Environment TReport. Under this proposal, broad policymaking and regulatory functions would be given to MPE. While attractive, this proposal does not seem feasible in the current Indonesian situation. Another possibility would be to strengthen MPE's influence over the budget process. There are several ways to do this: - xxxii -

(a) by expanding NPE's formal role in the budgetary process in BAPPENAS;

(b) by assigningto MPE critical coordinatingfunctions, e.g., the responsibilityfor developinga pollutionmonitoring and control framework,and the authorityto suomit integratedbudget proposals to BAPPENAS for this purpose; and

Regardlessof the approach increasedtechnical support to MPE is required.

71. In Repelita IV, MPE had divisionsfor Developmentof the Natural Environment,Development of the Built Environment,Harmony of Environmentand Population,and Population. These divisionshad little relationshipto MPE's major tasks (policyplanning, the preparationof standardsand regulations, etc.). Furthermore,the categorieswere overlapping(few environmentalissues did not affect population,the natural and built environments)and as a result, the objectivesof each divisionwere diffuse and overlapping. UNDP recommendedchanges, modified slightlyby the Bank, were to form divisions for policy analysis and planning;environmental impact assessment(EIA) supervision;land resourcemanagement; pollution monitoring and control; and populationand public affairs.

72. In preparationfor RepelitaV the anticipatedreorganization of MPE has occurr_d and new divisionshave been formed. Under the new arrangements MPE will be guided by a prioritiesand planning committeedirectly under the Minister. Divisionshave also been formed for population;natural resource management;the managementof environmentaldegradation; and support systems for institutional coordination, community participation, information and communications. This arrangement is broadly consistent with recommendations made by UNDP and the Bank. In the next Repelita, the most important challenges facing MPE will be defining a manageable EIA program and establishing appropriate institutional arrangements at the provinciallevel.

73. Recent legislation (PP29/1986) institutes an environmental impact assessment(EIA) process in the line agencies and provides an institutional frameworkfor carrying this out. This legislationprovides both problems and opportunities. The most serious concernsrelate to the fact that there are a very large number of projects to be reviewed and very limited capacity to carry out the work. Differentdonors are also working with differentagencies to develop EIA proceduresleading to conflictingstandards and prioritiesand provincialmechanisms for EIA review have yet to be established. Since this is an importantpiece of environmentallegislation, the danger exists that weak implementationwill damage the credibilityof MPE.

74. To address these problems the UNDP Report on the Environment recommendsthat the EIA processbe introducedin stages with each sector initiallyreviewing only a few high impact projectswith significantoff-site effects. The Bank stronglysupports these recommendations. Improved donor coordinationis also required and leadershipshould be taken by MPE. Finally, the prescribedEIA review structure(consisting of a commission,secretariat, - xxxiii -

technicalteam and coordinatingoffice) needs to be established,and to be most effective,these institutionsshould be given a broad mandate and not confined to EIA review alone.

75. Perhaps the most critical issue facing NPE is the establishmentof viable environmentalinstitutions at the provinciallevel. A unit to deal with environmentalmatters has been created in each provincialgovernor's office. This agency, called the Bureau for Populationand Environment(BKLH) is a relativelylow level (third-echelon),nonoperational (e.g., data collecting)group which reports to an assistantsecretary in the Governor's office. In most provincesa coordinationteam has been formed to support the BKLH, however, the group has only advisorypower. Most observershave concludedthat the BKLH has been formed at too low a level to be effective and the role of the BKLH and the coordinatingteam need to be reconsidered. One possibilitywould be to incorporateBKLH directly into the BAPPEDA,with formal recognitionof its role in coordinatingenvironmental matters.

Conclusions

76. Several general lessons can be extractedfrom this report. First, in a situationwhere resourcesare scarce, sustainabledevelopment will depend on their intensiveand efficientuse. To maintain timber productionand forest protectionfunctions, land use must be intensified,and to meet water supply requirements,water must be used more efficiently. The lesson is the same in virtuallyevery sector.

77. Second, there are importantlinkages between and within sectors where environmentalissues are involved. For example, land has many uses: for forest productionand protection,and for smallholderproduction and employment. Water use is also multifunctionaland future investmentdecisions will have t. consider irrigation,municipal and industrialdemands, hydropower and flood control, and pollutionmanagement. The issues in these sectors are so importantand so interrelatedthat the report recommendsthat mechanisms of cross-sectoralcoordination be formed to deal with land issues and water issues, that a lead agency be designatedin each sector, and that the capacity to deal with each of these sectorsbe developedat the provincial level.

78. Third, although there are policy issues and financialand technical limitationsin key sectors related to the env1mionment,in Indonesiathe main constraintsto sound environmentalmanagement are institutional. Overlapping institutionalresponsibilities lead to fragmentationof effort and impasses in decisionmaking. The problem is especiallyserious in Indonesiabecause of shortagesof skilledmanpower. A related institutionalpoint is that the ability to a4dress environmental issues adequately will depend on continuing decentralizationof decisionmaking. The Governmentof Indonesiais making clear and consistentsteps in this direction,but support for decentralization requires major adjustmentsby some donors and will entail significanthuman resource development.

79. Given this analysis there are a number of areas where additional technicaland financialsupport are needed from donor countries. - xxxiv -

(a) Informationon the quality and quantity of remainingtimber is needed as a basis for determiningoptimal rates of timber extraction,and policies for concession management, plantation establishment and revenue generationalso need to be reviewed. These issues will be covered in the proposed Bank-assistedForestry Project. Additional donor support is urgently needed for a nationwideconservation effort, and funds and technicalsupport are needed for agroforestry pilot projects,and for watershedprotection.

(b) A major effort is required to reevaluatethe land classification system for for..-y and agriculture. To improve land use planning BAPPEDA developmentshould be promoted along the lines already undertakenby the Asian DevelopmentBank (ADB) and key information, such as that collectedfor transmigration,should be made available to the provinces. An externally-assistedproject to speed and simplify land registrationis recommended.

(c) There are a number of externally-assistedprojects underway in Java's upper watersheds. However, further efforts are needed to develop lower cost soil and moisture conservationmeasures and to disseminate them. The regreeningprogram would also benefit from a program-wide review of costs and benefits and external supportwhere indicated.

(d) In the water resourcessector, initiativesalready underway to improve efficiencythrough the introductionof user changes will continue to have strong Bank support. In addition,there is a need to strengthenprovincial irrigation services, irrigation committees and water user associationsand to enable them to take multiple water uses into account. River basin managementshould be encouragedin river basins where water allocationis a growing issue, and there is room for improvedcoordination between donor groups which are presentlyrecommending different strategies in differentriver basins.

(e) Additionalfunds are needed for rural water supply and particularly for low-costsanitation. Far greaterattention is needed to pollutionmonitoring and control and furtherwork is also needed to define the most cost-effectivestrategies for pollutionmanagement.

80. MPE would benefit from technicalassistance for policy planning and for key functions,and additionalresources are needed to create an awareness of environmentalissues, to support environmentalstudies centers and to encourageNGO sponsoredprojects. Staffingtraining needs additionalsupport as does the developmentof environmentalcapability in the provinces. The Canadian-fundedENDI (EnvironmentalManagement in Indonesia)Proje:t is providingsupport for a number of vital MPE functionsand the World Bank is preparingan EnvironmentalManagement technical assistance loan to support policy analysis,assist in developingpollution control capability,and strengthenenvironmental studies centers. In view of the rapid growth of donor interest in the environment,MPE is working to improve coordinationin this area. I. THE MANAGEMENTOF FOREST RESOURCES

A. Indonesia'sForest Resources

Importance

1.1 All forestsare importantfor watershedprotection, for lumber, fuelvood and other economicproducts, and as the habitat for important species of animals and plants, but rain forests are particularlyvaluable for these purposes. The tropical rain forest is an evolutionaryadaptation to high rainfall and poor soils. The multi-storiedcanopy reduces temperaturesand permits the formationof humus, mitigatesthe impact of intense rainfall,and permits the gradualpercolation of water and nutrients into the ground. when such forestsare cut and soils are unprotected,runoff increases,organic materials are leachedaway, fertilitydeclines and erosion occurs. If an area is burned or cultivatedover severalyears, tree seedlingsare destroyed, soils are depleted,and the capacity of the forest to regenerateis reduced.

1.2 Among tropical rain forests,Indonesia's forests are of regionaland global importance. Indonesiais thoughtto have nearly 60Z of all tropical forest in Asia and perhaps 902 of the remainingvirgin stands. Indonesiahas the world's richest forest in terms of commercialproduction and East Kalimantanhas the most homogenousand most valuable dipterocarpforests in the world. Forest products are Indonesia"smost importantnon-oil export, and they provided about US$2.5 billion in foreign exchange in 1987.1/ Indonesia's forests also provide poles and timber for domestic construction,and minor forest products such as rattan, resin, turpentineand bamboo make an important contributionto the economy. Finally, Indonesia'srain forest is a reserve of flora and fauna of potentialeconomic value. Tropical forests in general include perhaps one third of the earth'stotal species,and the value of only a small fraction is known. One study calculatedthat drugs produced from plants in this genetic storehouseare worth US$20 billion annually in the United States alone, and of the 63 genera from which they are produced, 901 are from the rain forest (Meyers,1980).

Estimatesof Forest Area

1.3 Indonesiahas about 191 millionhectares of land. In 1981 the Food and AgricultureOrganization (FAO) estimatedthat the country had 114 million ha of forest. This estimatewas based on ForestryDepartment reports and selectivesampling so the data's accuracyhad been uncertain. Recently, however, an analysis of aerial surveys,mainly from 1981/82,2/and covering

1/ Total exports in 1987/88were estimatedat US$17.5 billion.

21 This analysiswas conductedby the Land ResourcesDepartment (LRD) of the Overseas DevelopmentAdministration of the United Kingdom. The project, called the Regional Physical PlanningProgram for Transmigration(RePPProt), involved work with the Ministry of Transmigrationand the CoordinatingAgency for National Surveys and Napping (Bakosurtanal)to identifyareas suitable for agricultural development. - 2 -

data from Sumatra, Kalimantanand Irian Jaya (Table 1.1) indicateda total forest area of about 116 million ha for the period. Neither FAO nor LRD figures reflect the damage caused by the 1983 Kalimantanfire (approximately 3.6 million ha), nor recent deforestation. Taking both factors into account, forest cover is currentlyestimated at about 110 million ha. Areas under forest cover are indicatedin Map 21290.

Table 1.1: ESTIMATESOF AMOUNT OF LAND UNDER FOREST COVER, 1981

FAO RePPProT Island Estimate /a Estimate /b

Sumatra 22,200,000 23,300,000 Kalimantan 35,400,000 39,600,000 Irian Jaya 38,000,000 35,000,000

Subtotal 95,600,000 97,900,000

Other 18,000,000 not yet available

Subtotal 18,000,000 18,000,000/c

Total 113,600,000 115,900,000Ic

La FAO, Tropical Forest ResourcesAssessment Project, 1981. jD LRDIODA/RePPProTStudies, 1986, 1987. /c Using FAO estimateof 18 million ha as subtotal for all other islands.

1.4 It is importantto note that this is a very large forest area. Indonesia,which is roughly the size of Western Europe (excludingScanda- navia), has 2.5 times as much forest, and it has almost twice as much of its land surfaceunder forests (602) as the United States (322). However,while Indonesiais fortunateto have so much forest,there are reasons for concern. The Philippinesand Thailand,which were largely forested until this century, have seen their forests reduced to 252 and 302 of the land area, respectively; and no more than 32 of land in the Philippinesis mature natural forest. Thailand,a major exporter of tropicalhardwoods in the 19608 and 1970s, now imports timber for constructionpurposes; and land degradationassociated with deforestationhas become so seriousin Thailand that all loggingwas banned in late 1988.

1.5 There is also evidence that Indonesia'sforest area is being rapidly reduced. In the early 1970s, FAO estimatedthe rate of deforestationin Indonesiaat about 300,000ha/year; in 1981, this estimatewas raised to 600,000ha/year; and recently,FAO suggestedthat it could be as high as 1 million ha/year. How rapidlyIndonesia's forests are disappearingwill not be known until reliable time-seriesdata are available. However, figures from several sources tend to confirm FAO's estimate. The Bank, for example, has reasonablefigures on forest conversionfor Government-sponsoredtree crop and transmigrationprograms, and this is estimatedat about 200,000-300,000 ha/year in the third five-yearplan (RepelitaIII, 1979-84). In recent studiesof wood processing,the consultingfirm AtlantaI$NPROMAestimated deforestationdue to loggingat about 80,000 halyear, or about 101 of the annual area logged; and destructiondue to forest fires was estimatedat about 70,000 ha/year. The latter figure does not include the Kalimantanfire and may be on the low s'de.

1.6 The greatestuncertainties relate to the loss of forest due to shifting cultivationand smallholderagricultural conversion outside of developmentprojects. The recent RePPProT studiesindicate that 14 million ha in Sumatra, 11 million ha in Kalimantanand at least 2 million ha in Irian Jaya are under shiftingcultivation or under brush and secondaryforest which usually signify previous agriculturaluse. If this area is expandingat only 22 annually (abouthalf the rate of populationgrowth in the provinceswith large areas under shifting cultivation),then deforestationdue to various types of smallholderforest conversionin the outer islandswould be on the order of 500,000ha/year. The figure could well be higher. O this, perhaps half could ultimatelyregenerate as secondaryforest, to be cleared again by smallholderswhen fertilityimproves, but virtuallyall would be lost to timber production.

1.7 These figures,summarized in Table 1.2, suggestthat deforestation during 1979-84 could well have approached900,000-1,000,000 ha/year. The data are rough, but any reasonablerange (e.g., deforestationof 700,000 to 1.2 million halyear) is significant. It is difficultto disaggregatethese figures since logging contributesto deforestationby developingroads, which open new land to smallholders,and by providingwage work, which attracts families into the forest. With these caveats in mind, however, these figures suggest that of the area deforested,smallholder agricultural conversion may account for about half, developmentprojects about one quarter,with the remainderdue largely to poor loggingpractices and forest fires.

Table 1.2s SOURCESOF DEFORESTATION (Hectaresper year)

Source Best estimate Range

Smallholderconversion 500,000 350,000 - 650,000 Developmentprojects 250,000 200,000 - 300,000 Logging 80,000 80,000 - 150,000 Fire loss 70,000 70,000 - 100,000

Total 900,000 700,000- 1,200,000

Source: Bank calculationsand Atlanta/INPROMh,Vol. III. - 4 -

1.8 Simple analysis shows that deforestationat this level is associated with very high costs. One hectare of standing timber in primary forest has a net present value (NPV) of at least US$2,500-3,000,and about US$500 if already logged. Shiftingcultivation, yielding 2,000 kg of rice per ha for one year with a fallow period of 15-20 years, produces an NPV per ha of about US$120. Assuming 502 of the area opened is in loggableforest and the rest in logged-overareas, the net lose to the economywould be conservatively US$625-750millionlyear. With another US$150 million lost to loggingdamage and fire, losses would be about US$800 million. Loss of minor forest products could bring this figure to US$1 billion/year. The additionalloss of timber on sites cleared for developmentprojects could be US$40-100million, although this would ordinarilybe offset by agriculturalbenefits of greatervalue.

1.9 In addition to being costly to the economy in terms of foregone timber production,deforestation has a number of negative consequencesof national and internationalconcern. Large-scaleclearing for agriculture produces smoke and carbon dioxidewhich contributeto global warming; and most studiesplace Indonesiasecond only to Brazil in producingatmospheric pollutionfrom this source. Forest clearing also threatensbiological diversityand endangeredspecies. This is particularlyserious in Indonesia vhere its island topographyresults in a high degree of endemism, and isolated speciescan be quicklyer&dicated if the forest cover is destroyed.

1.10 At a national level, deforestationalso jeopardizesIndonesia's economic objectives. In particular,it threatensthe wood raw material supply on which export diversificationpartly depends,and it leads to land degradationwhich disrupts regularwater suppliesand reduces the productivity of both traditionalcultivators and downstreamwater users. This chapterwill focus mainly on issues related to wood raw material supply and on the policies needed to realize the economic objectivesof Indonesia'sdevelopment planners in the timber sector. Importantissues relatedto land degradationand land use in the outer islandsare covered in Chapter II.

B. Deforestationand Wood Raw Material Supply

Forest Stock within Forestry DepartmentBoundaries

1.11 About 144 million ha or 75Z of Indonesia'sland falls within Forestry Departmentboundaries. The area is divided into five categoriess forest set aside for conservationand nationalparks (13X); forest intendedprimarily for watershedprotection (21?);limited production forest (212) and regular productionforest (24?) in which selectivefelling is allowed; and conversion forest (21Z),which can be convertedto agricultureand other uses. Data by province are given in Annex 1, Table 1 and summarizedin Table 1.3. Of the 144 million ha, about 113 million ha are within permanentforest categories, of which about 65 million ha are in limitedand regularproduction forest. However, not all of this land is forested. - 5 -

Table 1.4s AREA WITHIN FOREST BOUNDARIESBY FORESTRY DEPARTMENTCLASSIFICATION ('000 ha)

Limited Reserves Protection Production Production Conversion Total

Sumatra 3,684 7,094 7,579 6,821 5,032 30,210 Java 444 554 0 2,014 0 3,012 Kalimantan 4,101 6,924 11,415 14,234 8,293 44,967 Sulawesi 1,406 3,867 3,926 2,092 1,993 13,284 Irian Jaya 8,312 8,649 4,732 7,123 11,775 40,591 Other 779 3,229 2,874 1,581 3,444 11,907

Total 18,726 30,317 30,526 33,865 30,537 143,971

2 13 21 21 24 21 100

Sourcet Departmentof Forestry,Project for the Developmentof Forestry Data and InformationSystems, 1986/87. Details by province in Annex 1, Table 1.

1.12 In order to evaluate the area under closed canopy forest within those areas classifiedas reserves,protection and production forest,the RePPProt team, at the requestof the Bank, superimposedForestry Departmentboundaries on 1981182 aerial photographsof Sumatra,Kalimantan and Irian Jaya. Table 1.4 shows the percent of land not under closed canopy forest in 1981182. Within the areas set aside for conservationand protection,about 162 of the land in Sumatraand 82 in Kalimantanwas deforested;and within the area classifiedas limited Droductionand productionforest, about 302 in Sumatra and 162 in Kalimantanhad been convertedto other uses. On a provincialbasis the figureswere even more significant. Sixty percent of the permanent forest area in Lampungwas deforested,432 in South Sumatra, 422 in North Sumatra, and 442 of limitedproduction forest in West Kalimantanwas gone (See Annex 1, Tables 2 and 3). These provinceswith high levels of deforestationwithin Forestry Depatmentboundaries are generallyprovinces in which significant developmentis taking place, and given the widespreadagricultural development in the outer islands since 1981/82,these figurescould now be higher. This amount of deforestationhas clear implicationsfor wood raw material supply and for sustainablerates of timber production. - 6 -

Table 1.4: PERCENTOF AREA WITHIN FORESTRYDEPARTMENT BOUNDARIES NOT UNDERCLOSED CANOPY FOREST

Limited Regular Protection production production Conversion Province Reserves forest forest forest forest …______…______S ------

Sumatra D.I. Aceh 3 5 20 26 49 North Sumatra 4 45 46 37 65 West Sumatra 7 27 29 36 38 Riau 15 37 ^4 8 58 South Sumatra 37 SO 49 42 65 Jambi 13 12 13 17 42 Bengkulu 8 12 18 29 45 Lampung 33 76 none 72 85

Sumatra subtotal 16 33 30 29 58

Kalimantan West Kalimantan 7 13 44 23 39 Central Kalimantan 25 5 7 18 47 South Kalimantan 60 35 18 34 59 East Kalimantan 4 1 1 7 22

Kalimantansubtotal 9 8 14 17 36

Irian Jaya 15 13 9 9 19

Total 14 17 18 18 ?7

Source: LRD/RePPProTstudies, 1986, 1987.

Estimating SustainableRates of Timber Production

1.13 In order to determinesustainable rates of timber production,better data are requiredon:

(a) the quantity and quality of standingstock;

(b) the regenerativecapacity of the forest;

(d) Indonesia'srole in settingworld market prices. - 7 -

In spite of these limitations,however, availabledata already suggestbroad limits to sustainablerates of extractionfrom Indonesia'sforests.3t

1.14 EstimatingLog Production. To estimate log productionit is first necessary to evaluatehow much forest there is within exploitableforest categories (i.e., regularand limitedproduction forest and conversion forest). Table 1.5 shows that the two major timber producingprovinces, Sumatraand Kalimantan,have about 42 million ha of closed canopy forest.4/ This figure probably overstatesthe area actuallyavailable for timber productionsince (a) selectivelogging has removedmany of the most valuable speciesand damagedmany remainingstems; (b) some productionforest areas are too remote or too steep to be economicallylogged; and (c) cessionaires ordinarily log only in productionand limitedproduction forest, and serious difficultieshave been encounteredin utilizingtimber from conversionforest areas cleared for developmentprojects.

1.15 Table 1.5 also show3 rough estimatesof projected forest loss for 1981-91and for l091-2001with and without policies to limit deforestation. Using the assumptionsoutlined earlier and includingpotential harvests from conversionforest, the analysis suggeststhe forest area in Sumatra and Kalimantanfrom which commercialtimber can be drawn could be on the order of 35 million ha in 1991 and 27-30 million ha in year 2001. If timber from conversionareas is not utilized,the area would be about 25Z less.

1.16 Using Indonesianassumptions that forestedland on average adds 1.1 m3 of roundwoode4uivalent/halyear; also assuming that Kalimantar.and Sumatrawill continue to produce 80S of the country'stimber for the foreseeablefuture and that plantationswill not significantlyincrease production in the next 15 years; the estimatedmaximum sustainablerate of timber production in the year 2001 would be on the order of 30-40 million m3 of roundwoodlyear. If the yields from conversionforests are not recovered and half of all deforestationoccurs in productionforest, the sustainable rate of productionwould be closer to 30 million m3/year. These figuresare very rough.

31 The Bank has recently approveda ForestryManagement and Conservation Projectwhich will make a systematicinventory of the quantity and quality of represeztativeareas of productionforest. The project will also evaluate assumptionsabout regenerationand optimal rates of extraction in order to develop improvedforest policies.

4/ Sumatra and Kalimantanare Indonesia'smajor timber-producingislands, producingover 802 of its commercialtimber in 1986. In 1985, Sumatra produced about 8.2 million m3 (322) of round logs and Kalimantanabout 12.0 million m3 (48t). Table .s5: FORESTED LAND WITHIN EXPLOITABLEFOREST CATEGORIES IN KALIMANTANAND SUMATRA

Sumatra Kalimantan Total ------million ha ------__

Land under Closed Canopy Forest, 1981/82 /a Limited productionareas 4.7 10.2 14.9 Regular productionareas 4.9 11.0 15.9 Conversionareas 3.6 7.4 11.0

Total Area, 1981/82 13.2 28.6 41.8

EstimatedConversion, 1981-91 Smallholderconversion /b 1.1 2.3 3.4 Developmentprojects /c 1.3 0.5 1.8 Kalimantanfire /d - 1.8

Total Conversion,1981-91 2.4 4.6 7.0

EstimatedForested Area, 1991 10.8 24.0 34.8

EstimatedForested Area, 2001 With improvedpolicies 9.4 22.0 30.4 No policy change 7.8 19.0 26.8

/a LRD/RePPProT. lb Based on the land alreadydeforested within production forest boundaries. !C Based on the assumptionthat all forest conversionfor developmentprojects is from conversionfo,est area. Id Estimatedarea burned with commercialtimber.

1.17 EstimatingLog Demand. Table 1.6 shows Bank estimatesof the demand for logs under low-, medium- and high-growthscenarios in the year 2000. All scenariosassume that local demand for sawn wood will increase at 32 p.a. and for plywoodat 52 p.a. from a low base. Under the low-growthscenario, sawn wood exports grow at 1.52 p.a. and plywood at 32, while under the high-growth scenario they both increaseat 5? p.a. Both estimatesare well below Governments'original targets for RepelitaV (1989-94). In scenarioswith efficiencyimprovements, efficiency in sawn wood productionis improved from 43Z, the currentaverage, to 55t (see Annex 1, Table 4). As Table 1.6 indicates,however, even under assumptionsof low growth and efficiency improvement,extraction rates in the year 2000 could be on the order of 35 million m3 of roundwood. The Bank's high-growthscenario would lead to extraction rates up to 48 millionm 3 . Extrapolatingfrom the previous analysis,high rates of growth in the logging industrywould not be sustainable,and if pursuedwould lead to further forest depletion. - 9 -

Table 1.6: RATES OF EXTRACTIONAND SUSTAINABLELEVELS OF PRODUCTIONIN THE YEAR 2001 (millionm 3 roundwood)

ExtractionRates Low growth with efficiencyimprovements 34.7 Low growth, no efficiencyimprovements 40.0 High-growthwith efficiencyimprovements 41.1 High-growth,no efficiencyImprovements 48.3

SustainableProduction Levels Productionfrom Sumatraand Kalimantan With improved policies 33.4 No policy change 29.5 Total estimatednational production With improvedpolicies 42.0 No policy change 36.8

Source: Bank staff calculations(see Annex 1, Table 4).

1.18 Under the circumstances,if timber productionis to be managed sustainablyfor the foreseeablefuture, Government needs policies that:

(a) slow the conversionof productionforest;

(b) control the rate of timber extraction;

(d) ensure the use of timber from areas cleared for developmentprojects;

(e) promote the use of secondaryforest products; and increase downstream value added; and

(f) support afforestationand plantationdevelopment.

1.19 Indonesianofficials have expressedconcern that controllingthe rate of log extractionwould significantlyreduce export earnings,but this assumptionis tempered by several importantfactors. Since Indonesia is the world's major producer of tropicalhardwoods, controlling nearly 402 of the market, lower productioncould be offset in part by price increases. Second, reductionsin allowableextraction rates would encourageboth improved efficiency in the productionof saw timber and downstreamprocessing. It would also increasethe emphasis given to timber recovery in conversionareas and lead to better exploitationof available,but less common sources of timber such as wood from rubber trees and lesser-knownspecies. Such policies might encouragethe developmentof other secondaryforest products. - 10 -

1.20 Some authoritieshave minimizedthe threat to Indonesia'stimber production,suggesting that shortfallscan be made up by logging in Irian Jaya, a province which has 282 of Indonesia'sproduction forest and has experienced less timber exploitation to date. These figures are deceptive, however, as Irian Jaya has a forest of relativelylow commercialvalue. Atlanta/INPROMA(1986) estimates that Irian Jaya has less than 102 of Indonesia'scommercially valuable species. Moreover, because of limited infrastructureand the relativelyhigh costs of extraction,logging in many areas of the province is not commerciallyattractive. Therefore,while declining timber resources In Sumatraand Kalimantanare likely to increase the pressure on Irian Jaya's forests, its timber can by no means compensate economicallyfor a decline in timber production from the rich dipterocarp forestsof western Indonesia.

C. Issues in Forest Management

The ConcessionSystem

1.21 In Java, state forests are managed by a Forestry Departmentagency (Perum Perhutani),but in the outer islands, Indonesia'slogging industry and managementof its natural forestsare primarilyin the hands of private concessionaires.Concessionaires are responsiblefor preparing forest inventories,for proposing20-year, five-yearand annual operatingplans to the Forestry Department,and for protectingthe concessionareas from encroachmentand fire. There are now over 500 concessions,with an average size of about 100,000 ha. In Indonesiaan estimated800,000 ha are logged annually,more than the total area logged in all other countriesin the region.

1.22 Indonesian concessionaires receive twenty-yearconcessions, but they work under a selectivelogging system which permits the extractionof trees over 50 cm in diameter once every 35 years. There are numerous problemswith this system. First, selectivelogging is damaging to the forest. Recent surveys show that up to 40? of standingstock is damaged in logging operations (Atlanta/INPROMA,1986) and where, as often happens, concessionsare relogged before the harvest cycle is completed,damage and depletionare even higher. As valuable dipterocarpsregenerate slowly, and only under specific forest conditions,selective logging also tends to alter the speciesmix toward less valuable species. Second, the relativelyshort length of the concession agreement,compared to the harvest cycle of 35 years, encourages concessionairesto take a short-termmanagement perspective. Beyond meeting necessaryregulations, firms have little corporate interestin providing the conditionsneeded to encourageregeneration or to minimize fire hazards and encroachment.

1.23 Difficultiesinherent in the concessionsystem are magnified by Forestry Departmentprocedures. Nearly 50? of all forestry staff manage forestry resourceson Java, while officialsin the outer islands are almost entirely dependenton the concessionairesfor informationand access to concessions. Forestry Departmentofficials rely largely on concessionaires' reports to determinethe annual allowablecut, which in turn determinesthe volume of timber which can be extractedfrom a concessionand the royaltiesto be paid. This leads to (a) understatementof the volume and quality of - 11 -

merchantabletimber, and hence the royaltiesto be paid; and (b) a tendency to ignore poor loggingpractices and breaches of regulations,such as those intended to prevent reloggingin selectivelylogged areas. The negative consequencesof these practicesinclude an understatementof log extraction, significantreduction in revenues to Government,overlogging and resource depletion.

1.24 Forestry Departmentofficials are aware of these problems,and Government'scommitment to change is reflectedin its support for the forestry policy studies now underwaywith World Bank support. However, the difficulties inherent in addressingthese issues should not be minimized. There is no evidence,for example, that a state-ownedcorporation would be run better than private concessions,and there is little evidence that increasingthe number of ForestryDepartment staff and/or their supervisoryfunctions would improve the situationunder current conditions. Insteadattention must be focused on incentivesfor better forest managementby timber concessionaires and on changing developmentpolicies which contributeto deforestation.

FinancialAnalysis of Forest ManagementSystems

1.25 In order to determinewhether some loggingsystems provide stronger incentivesto the concessionairesfor better management,FAO undertooka financialanalysis of the returns to six types of forest managementand harvestingsystems (FAO/Sedjo,1987). The analysiscovered two systemsof natural tropicalhardwood forest management(selective logging and complete harvestwith regeneration),one experimentalregime intended to re-establish dipterocarphardwoods on logged-overareas, and three kinds of forest plantationsof fast-growingspecies. The systems representa cross-sectionof the managementregimes actually being practiced,under consideration,or showingpromise at this time (see Annex 1, Table S for details).

1.26 Table 1.7 summarizesthe discountednet presentvalue (NPV) of one hectare of forestedland under the managementsystems analyzed, using a lOX discount rate. With stable timber prices, the two systems that rely on natural regenerationhave a higher NPV than saw timber plantations. It also indicatesthat the NPV for plantationdevelopment is negative if benefits from clear felling are excluded from the calculationor if plantationsare establishedon bare ground. This means that the return to capital for plantationdevelopment in Indonesiais currentlyless than 102. (In fact. the internal rates of return [III]were less than 6? on the models run.) If timber prices are projected to increase at 1? p.a., saw timber becomes more attractive when associatedwith clear felling,but postharvestIRRs remain under 10Z. - 12 -

Table 1.7: ALTERNATIVELOGGING SYSTEMS AT A 10X DISCOUNT RATE

Total Postharvest Logging System NPV Rank IR La NPV Rank (US$) (US$)

No Price Increase Selectivelogging 2,177 2 + 67 1 Commercialharvest 2,553 1 + 3 2 Clear felling and saw timber plantations 2,130 3 + -420 3 Saw timber plantation on bare ground -420 4 - -420 3

At 1? p.a. Real Price Increase Selectivelogging 2,245 3 + 135 1 Commercialharvest 2.560 1 + 10 2 Clear felling and saw timber plantations 2,519 2 + -31 3] Saw timber plantationon bare ground -31 4 - -31 3

/a Over 1O0 = plus (+), under 1O? minus (-).

1.27 This analysis leads to two important conclusions. First, for the foreseeablefuture, timber extract,onfrom the natural forest with natural regenerationwill continue to characterizethe Indonesiantimber industry. However, annual real price increasesabove 12 for hardwoodswould improve the returns to other management systems. Second, the fact that plantation developmentis financiallyattractive only vhen linkedwith clear felling of commerciallyvaluable natural forest species suggests that pressuresto establishplantations may cause the conversionof natural forest rather than afforestationof underutilizedland. Such a policy would not be sound in economic or environmentalterms, and, to the extent possible, the conversion of primary forestwith good regenerativepotential should be discouraged.

1.28 Several secondarypoints emerged from the FAO analysis. The internal rate of return to pulpwood productionas feedstockto a nearby mill is attractive. However, the industryis restructuringand opportunitiesfor expansionmay be limited. Intensivedipterocarp management, an experimental regime to re-establishthe most commerciallyvaluable species on logged-over lands, is also encouragingand would have good returns if replicable. However, this program has not yet been tried on a sufficientscale to recommendwidespread adoption. This indicatesthe need to do further research on technologiesfor re-establishingcommercial species in the natural forest.

Comparisonof Natural Forest Management Systems

1.29 On the assumptionthat a natural forest managed for sustainable timber productioncan contributeto economic and environmentalobjectives, FAO - 13 -

examined two natural forest management regimes to determine which one is financiallyor environmentallymore attractive. The first system, the Indonesianselective logging system (SLS),permits only the harvest of timber over 50 cm in diameter and relies on the growth of residual stock to harvest again in 35 years. The second, the completeharvest and regeneration(CHR) system, a variant of the Malaysianuniform harvest system,permits harvest of virtually all merchantablestanding timber and relies largely on small trees and seedlingsfor reharvestin 70 years. The argumentsfor CHR are that it suppliesmore timber on averageper hectare; it reducesrthe problem of residual stands damaged by selectivelogging and relogging;and in some areas, it already reflectscurrent practice.

1.30 The findings,shown in Table 1.8, indicatethat clear felling of conmerciallyvaluable specieswith natural.regeneration is financiallymore attractivethan selectivelogging, although this conclusionis sensitiveto economic assumptions. For example, an increase in timber prices or a reductionin the discount rate makes selectivelogging more attractivethan completeharvesting. Also, the postharvestvalue of CHR is low when compared to selectivelogging, and there is evidence that CHP produces a second stand of less valuable species. ror these reasons,concessionaires have fewer incentivesto protect an area logged under CHR. In Malaysia, in fact, there has been widespreadconversion of logged areas to agricultureon the grounds that they have no furthereconomic value for timber production. Given these drawbacks,there is clearly a need for closer scrutinyof the Malaysian experience before strong recommendations about natural forest management can be made on either financial or environmental grounds.

Table 1.8: DISCOUNTEDNET PRESENTVALUE (NPV) OF NATURAL FOREST MANAGEMENTSYSTEMS

NPV (US$) by Postharvest harvest year NPV(US$) Model 0 35 70 Year 0 Year 70

62 Discount Rate

CUR - Optimal 2,550 - 43 2,593 43 CHR - Normal 2,550 (41) 43 2,542 2 Clear Felling- No regeneration 2,550 - - 2,550 0 SelectionLogging - Optimal 2,100 273 36 2,409 309 SelectiveLogging - Normal 2,100 227 21 2,348 248

102 Discount Rate

CUR - Optimal 2,550 - 3 2,553 3 CHR - Normal 2,550 (49) 3 2,504 -46 Clear Felling- No regeneration 2,550 - - 2,550 0 SelectiveLogging - Optimal 2,100 74 3 2,177 77 SelectiveLogging - Normal 2,100 62 2 2.164 64

Sources FAO/Sedjo,1987. - 14 -

1.31 Regardlessof system used, at discount rates of 62 or 10?, the more timber that is removed from the area in the first year, the more financially attractivethe NPV. In fact, clear fellingwith no regenerationwhatsoever is more attractivefinancially than a nominal investmentin restorationof the forest. This is true since regenerationcosts are incurredearly, and the NPV of timber S0 or 70 years hence is negligibie. This finding helps explain the concessionaire'sdisregard for timber destructionin the initial logging phase and suggests that a change in concessionlength alone may not be sufficientto modify concessionairebehavior. More generally,this fact suggests that a policy aimed at mAximizingharvests from the natural forest under current economic and financialconditions may cause irreversibledamage to the forest and the speciesmix within it, and it implies that such a strategy could foreclosefuture options.

Issues in PlantationDevelopment

1.32 Indonesiahas ambitiousplans for the establishmentof timber plantations,starting from 120,000halyear in the fourth five-yearplan and rising to 360,000ha/year in the sixth. Plantationsthat supply more timber per hectare than the natural forest can have a positive environmentaliapact by supplyinglow-quality timber to the domestic market and reducingpressures on the natural forest from logging. However, as noted, the rates of return to plantation investmentare currentlylow (ess than 6?) and have been insufficientto produce significantprivrte investmentin plantation development. To address this problem, t ie ForestryDepartment has established a reforestationsubsidy of Rp 675,000 S$425) per hectare to be paid to concessionaireswho plant fast-growingspecies on concessionland. This subsidy is to be financed from a reforestationtax of US$4/m3 on logs extractedfrom the forest. In practice,concessionaires are permitted to plant trees and deduct the amount of the reforestationsubsidy due them from the reforestationtax which they would otherwisepay.

1.33 There are numerous problems implicit in these arrangements. The most importantproblem is that there are no provisionsfor managing the trees after three years. Tree species are poorly selectedand there is little control over the land on which trees are planted. Furthermore,since the concessionairehas no stake in the trees, because of short tenure and uncertaintyabout Government'sintentions for recoveringthe reforestation subsidywhen the trees are harvested,the concessionaLieoften plants the trees at the lowest possible cost and provides little or no maintenance. Although it generallycosts US$700-1,000/hato plant and maintain a good stand of trees, some concessionairesare spendingmuch less on reforestationand making a profit on the US$425 subsidy. Unfortunately,the unmanagedtimber stands are likely to be worthiess at maturity. Unless policies are changed, the possibilityexists that large areas of plantationspecies will be establishedwhich have little or no economicvalue and cannot serve their major environmentalfunction, i.e., reducingpressure on the natural forest. In the unlikely event that 4.4 million ha could be planted by the year 2000, this could amount to foregone revenues of up to US$2 billion in constant prices, funds which could have been used to establisha viable plantation sector. - 15 -

1.34 Finally, current plantation developmentsubsidies ignore important locationalconsiderations. For example,provinces such as Lampung and South Sumatra,plus some eastern islands,already suffer localizedshortages of wood for domestic constructionand this leads to poaching in the natural forest. Other provinces such as Central and East Kalimantanhave rich dipterocarp forests and a comparativeadvantage in quality hardwood production. However, linking logging and reforestationby means of the reforestationsubsidy could mean that most plantationswere establishedin Kalimantan,even though natural regenerationwould be more economicallyand environmentallysound. It is also possible that plantationselsewhere would be neglectedbecause concessionaires would not be concernedwith forgivenessof the reforestationtax. To address this problem the reforestationtax should be collectedand paid out only after locationalfactors have been taken into account. These issues need to be considered in formulatingplantation policy and will be reviewed in the Bank- assisted Forestry Project.

D. Policy and InstitutionalChanges Needed for Improved Forest Management

1.35 The precedinganalysis suggeststhat under current financial conditionsthe incentivesfor good forest managementand/or reforestationby the private sector are slight and that without Governmentintervention, forest depletionas a result of loggingwill continue. Key problems are related to an underpricingof forest resourcesand weak management of the sector. Deforestationis also related to land tenure and land allocationissues which are covered in Chapter II.

Resource Pricing and Rent Seeking

1.36 The Problem. Like most agriculturalcommodities, timber production is affectedby price subsidies. In developedcountries, such as the United States, timber extractionon state-ownedland is subsidizedby the provision of infrastructureand other services to concessionholders, and such subsidies are one factor which keeps prices low for softwoodtimber. Although Southeast Asian hardwoodshave valuable propertiesnot found in temperatesoftwoods, incentivesprovided by SoutheastAsian countriesto concessionairesto increaseharvests over the past 20 years have resulted in (a) an oversupplyof hardwoodsand low timber prices; (b) lack of strong price differentiation between hardwoodsand softwoods;and (c) substitutionof hardwoods for softwoodsat very low prices. One exampleof this is found in Indonesiawhere valuable dipterocarps(meranti) are used for plywood cores.

1.37 Such practicesmight be justifiedif timber resourceswere completely renewableand if future value could be capturedat a future date. However, hardwoods appear to be only a partiallyrenewable resource. According to a recent report by the World ResourcesInstitute, the World Bank and the lnited Nations DevelopmentProgramme, of the 33 developingcountries which were net timber exportersin 1985, only 10 will be importantexporters in the year 2000; the rest will have lost most of their productiveforest. Even in Indonesia,which is expected to remain a major producer,the number and quality of valuable dipterocarpsis declining;and there have been no programs outside of researchcenters to enrich or restoredipterocarp forests. This suggests that as a matter of policy,valuable species should be reserved for - 16 -

high-qualityuses and should be priced high enough (throughtaxes and royalties)to force the use of low-qualityspecies for rough construction purposes. In Indonesiathis would promote better utilizationof lesser known species and stimulateplantation development.

1.38 Rent Seeking. As with any natural resource,there is an economic rent relatingto the standingstock of trees. The rent is the difference between the sale value of the timber and the costs of harvesting it, including a reasonableprofit margin to the concessionaire. This rent approximatesthe maximum amount a forest concessionairewould be willing to pay for the concession. Low rates of rent 'capture"have several importanteffects. The first is to limit Government revenues. Since such revenues should be availablefor developmentpurposes, there is a cost to the public in terms of the foregonebenefits. The second is to leave the rent availableto other parties, giving rise to "rent seeking'by concessionaires. This means that there is pressure to harvest large areas in order to obtain quick profits. The net result is an accelerationin the rate of forest depletionas concessionairesrush to secure their share of high profits. Finally,high profits permit concessionairesto sell good timber products at low prices, even though the practicemay not be economicallysound.

1.39 In Indonesia,a comparativelylow proportionof the forests economic rent has historicallybeen taken as Governmenttax. In 1980, this was estimatedat only about 402 of availablerent on those logs on which taxes were paid, about half the amount collectedin the adjacent timber-producing area of Sabah, Malaysia. Since then rent collectionhas fallen further. There are two importantareas where Governmenthas failed to collect revenues due to it.

(a) DecliningRates of Collection. Total tax collectionsfell from Rp 341 billion in 1980 to Rp 200 billion in 1984, and in dollar terms from US$545 million to US$191 million. Part of this was due to a decline in levels harvested,as a result of the ban on round log exports, but the amount of tax collectedper m3 also declined from almost US$22/m3 in 1980 to less than US$10/m3 in 1985. This slide was permitted,in part, to finance the constructionof the domestic wood processingindustry.

(b) Understatementof HarvestedVolumes. During Repelita III (1979-84) taxes and royaltieswere collectedon about 85.8 million m3 of logs, compared to FAO estimatesof the 124.8 million m3 actuallyharvested during the period. Assuming that taxes and royaltiesaveraged only US$10/m3, losses in taxes and revenuesare estimatedat about US$400 million or US$80 million/yeardue to understatementof harvest volume.

1.40 Total revenuescollected by the ForestryDepartment during 1980-85 amounted to US$1.55 billion. If revenueshad been collectedon all timber harvested (estimatedat 125 million m3) and taxes had approximatedthe already low 1980 level of US$22/m3 (with no increasefor inflation),revenue collectionwould have been US$2.75 billion, or US$1.2 billion more than the amount collectedin the five-yearperiod. Productionwould have had to increaseby 50Z to accomplishthe same revenue-generatingeffect for Government. In effect, this $1.2 billion amounts to a Governmentsubsidy to the timber industrywhich fueled the 'timberboom.' - 17 -

1.41 To address this problem, Governmentmust raise taxes and royaltiesto achieve more rational rates of extractionand improveGovernment revenues. There are, however, practicalproblems in capturingexisting rents where incentivesare low for accurate reportingand monitoring. In principle,a number of differentapproaches could be taken.

(a) CompetitiveBidding. Governmentmight require competitivebidding for the next round of concessionrights, i.e., beyond the first 20 years. The existing concessionairecould be given the "right of first refusal" in recognitionof his earlier investments.

(b) Stumpage Tax. A greaterproportion of revenuescould be generatedas a stumpage tax, a tax on the total volume of standing timber whether or not harvested,thus reducingthe tendency to distort or under- report harvestedvolume.

(c) Export Taxes. Taxes could be collectedprimarily on export products. This does not provide a mechanismfor full rent collectionfrom timber going into domestic productionand, unmodified,could distort the pattern of productionfor domesticversus internationalmarkets.

1.42 Each of these arrangementshas advantagesand disadvantagesand further investigationis requiredon optimal taxation levels,mechanisms of taxation,and differentiationin taxes to discouragethe use of valuable hardwoods for low-valueproducts. Such an analysiswill be carried out under the Bank-assistedForestry Management and ConservationProject, Whatever method of revenuegeneration is chosen, however, there is a need for Governmentto increase taxes and royaltieswhile the cost of extractionto the concessionaireis relativelylow and the timber supply large. The time is coming when the best timber will be depleted and the cost of timber extraction will rise. There will then be pressure on Governmentto reduce taxes and royaltiesin order to maintain high levels of extractionand foreignexchange earnings. The trade-offswill be difficult,and both sustainingwood raw material supply and maintainingthe economicviability of the wood processing industrywill involve importantpolicy decisionswith increasingenvironmental significance.

ImprovingForest Management

1.43 A recent study by the InternationalInstitute for Environmentand Development(IIED, London, 1988) on Natural Forest Management for Sustainable Timber Productionnotes that despite legislationand intentionsto the contrary,the extent of tropicalrain forest being managed for sustainable productionis negligible. It further states that *comprehensiveand urgent measure are absolutelynecessary if the tropicaltimber trade is to continue in the long term to handle material which even approachesthe quality it is accustomedto, and if other goods and services providedby the forest are to be maintained.' Among the essentialconditions given by TIED for sustainable timber production are the following: - 18 -

(a) establisbmentand protectionof a permanentforest estate:

(b) secure conditionsfor forest managers and certaintyof future returns;

(d) economic and financialpolicies which do not encourageover- exploitationand forest degradation;

(e) improvedknowledge about stocks, and research on the means to increasethe productivityand value of logged-overstands; and

(f) greater attentionto the environmentaland social consequencesof logging.

Severalof these points bear elaboration.

1.44 InstitutionalChanges. Indonesiahas demarcateda permanent forest estate,but as yet it does not have the means to manage and protect it. Part of the problem lies with the institutionalarrangements for forest protection and harvest management. As noted earlier, about 502 of Forestry Department staff are in Java and those in the outer islands are mostly dependenton concessionairesfor informationand access to concessions. Under these circumstances,there is little control by the Forestry Departmentover extractionpractices. This leads IIED to suggest that Indonesia'sForestry Department should be strengthened,its staff increasedand reallocated, training improved,and officialsgiven the means to carry out their work without having to depend on the concessionaires. These recommendationsare sound.

1.45 At a broader level, some observersargue that more drastic changes are needed and that the ForestryDepartment shouldmanage log extractionlike the extractionof other non-renewableresources such as oil. In the oil industrythe value of the resource leads to considerableinvestment in its management;the extractionrate and the price and profit margins of contractorsare carefullycontrolled on an industry-widebasis to maximize Governmentrevenues from the sector. In Malaysia,the state of Sabah is experimentingwith such arrangementsand is phasing out some concessionsand turningtheir managementover to the Sabah Foundationwhich manages forest resources (and revenues)for the public benefit. Whateverthe arrangement,it is clear that too few resourcesare currentlyspent on industrymanagement and that not enough considerationhas been given to managing the sector for the public welfare.

1.46 Incentivesfor ImprovedManagement. To improve forest management incentivesare also needed to ensure that forest managers have security of future returns. Those with a stake in the forest include local inhabitants, concessionaires,and plantationdevelopers. First and foremost are the local people. For adequate forest managementthe local populationmust be given a strong incentiveto protect the forest estate. This is not possiblewhere the benefits of timber productiondo not accrue to the local people, at least in part. In fact, current policieswhich forbid timber exploitationby those - 19 -

other than concessionairesabet deforestationand encourage shifting cultivationwhich becomes the main way for local people to take advantageof the land. This situationsuggests that policies should be developedthat will allow local people to share in timber revenues or increasethe value (marketability)of secondaryforest products.

1.47 Incentivesfor good managementmust also be increasedfor concessionaires. Although, as noted earlier, financialincentives for sustainedtimber management are weak, most observersagree that some system is needed to extend the interestof the concessionairebeyond the current 20-yearperiod. Possibilitiesincludes

(a) Awarding a concessionon a rollover basis, whereby every five years it would be extended for 20 years, subject to satisfactory performance;

(b) Extendingthe concessionto at least 35 years to ensure that the area is harvestedover the full rotation period (this runs the risk of locking in poor concessionaires);or

(c) Giving wide latitudeto concessionairesto sell their concession rights, subject to Governmentapproval. This would give the concessionairean interest in maintainingthe value of the concession as an asset.

The first alternativeseems most promising,but the main objectivein any solutionwould be to provide the concessionaires,even those who plan to discontinue.an incentiveto maintain the forest's long-termproductivity.

1.48 It is also critical that plantationdevelopers be given a strong financialstake in the plantationsthey establish. To do this, Governmentmay wish to treat timber developmentlike other forms of tree crop development. For purposes of reforestation,the concessionairecould apply for permission to establishplantations on the same basis as a private tree crop estate, i.e. to acquire a 30-year lease. Another incentivewould be relaxationof the export ban on round logs from timber plantations. This would have the dual purpose of stimulatinginvestment and promotingthe establishmentof higher- quality plantationsaimed at the export market. Concessionairesalso need to be given better technicalsupport for proper species selectionand appropriate site section,and conversionof natural forest should be strongly discouraged.

1.49 Other Needed Changes. In the future,the technicalbasis for increasedtimber productionwill requirefar greater attention. Research is needed on sustainablemanagement of the natural forest, possibly including improved silviculture techniques and enrichment planning. Further work is also needed to increase the volume and quality of plantation timber. Additionalattention is needed to the productionand marketing of secondary forest products which will encouragesmallholders to utilize,not convert, forested land and to mixed agroforestrysystems which will help restore the diversityof resourcesavailable for human use.

1.50 Further attentionshould also be given to the environmental implicationsof logging. Useful studieswould explore the total economic and environmentalbenefits to be derived from productionas well as protected forests. Felling techniquesshould be developedwhich minimize loss of - 20 -

habitat and land disturbanceand maximize regenerativepotential. The linkagesbetween watershed protectionand timber productionalso need to be further explored;and the consequencesof forest burning on soils and atmosphereneed to be better understood.

1.51 Finally, far greaterattention is needed to halt deforestationfrom developmentprojects and shiftingcultivation. Transmigrationand tree crop developmentprojects, which cost US$4,000-10,000per family, provide very powerful incentivesfor people to move to remote areas. Those who move attract relativesand friends and because it is difficultfor spontaneous migrants to obtain secure tenure to previouslycultivated land forest encroachmentresults. With Indonesia'spoverty and populationpressure, it is difficultto argue that no such developmentshould take place, but far greater care is needed to ensure that emallholderscan obtain underutilizedand degraded land and that projectswhich intensifythe use of cultivated land are given preferenceto projectswhich lead to deforestation.

Recent Developments

1.52 Since this report was initiallywritten and discussedwith Government,the fifth five-yearplan (RepelitaV, 1989-94)has been agreed. In this plan the Forestry Departmenthas emphasizedits commitmentto managing its resourceson a sustainablebasis. To achieve this, the Departmentis taking the followingsteps:

(a) the annual log extractionfrom forestswill be limited to between 31-32 million m3;

(b) the inspectionservice will be strengthenedand greater use will be made of remote sensing informationfrom satellitesto monitor changes in forest cover;

(d) logging and processingactivities will be integratedsince concessionaireswith large investmentsin processingfacilities have greater incentivesfor sustainablemanagement of the forest;

(e) increasesin forest industryexports will be encouragedthrough increase in value added and efficiencyin processingactivities;

(f) a new Directorateof Extensionhas been created to encouragethe participationof people in conservingand managing forest resources in cooperationwith the ForestryDepartment; and

(g) human resource developmentin the ministrywill be strengthenedto ensure that the staff of the Ministry can perform better in their forestrymanagement and conservationtasks.

1.53 Followingthe announcementof these measures, Governmenttook further steps to increase taxes and royalties. In April 1989, it announced: - 21 -

(a) an increase in the reforestationtax from US$4 per m3 to US$10 per m3 . This increase is to be phased,with the first increase of 752 expected in July 1989, and the next, one year later; and

(b) a new specific export tax on sawn timber, rangingbetween $30 per m3 for common varietiesto US$700 m3 for the most valuable species,with a median rate around US$40 per n3. Processedtimber will have lower rates.

Plywood export, accountingfor nearly 502 of log consumption,is still exempt from export tan, though it will be subjectto the 1502 increase in the reforestationtax.

1.54 The increase in reforestationfees will raise tax revenuesby about US$180 million per year and the export tax about US$100 million per year, for a total increaseof US$280 million per year in taxesifeesat a logling level of 30 million m3 . This entails an increaseof about US$9.33 per ma (93Z). Splittingthe increasebetween an export tax and a tax on the raw material provides a comprisebetween ease of implementation(which favors an export tax) and economic efficiencyprinciples (which favors a charge for resource depletionat the source).

1.55 Measures which favor plywood exports and in effect continue to subsidizethis industryare not economicallysound and may be distortionary. i,e., encouragethe diversionof wood into plywoodmanufacturer rather than other suitableuses. These policies need to be further reviewed. However, the overall tax effort proposed through these policy changes remain impressive. The proposed change will help both the internal resource mobilizationeffort and conservationthrough the higher reforestationfund. The higher wood price to the mills will encourageincreased efficiency of wood utilizationand will further assist in conservationof fo-'estresources.

E. Managing and ProtectingConservation Areas and Wildlife Reserves

1.56 Stretchingsome 5,110 km from west to east, Indonesiaencompasses the greatestpart of the Malaysian floristicregion, one of the richestbotanical areas in the world. The country spans two of the world's major biogeographic regions: the Oriental region,which includesthe islandsof Sumatra, Kalimantan,Java and Bali on the Sunda shalf; and the Australian region with Irian Jaya restingon the Sahul Shelf, along with the rest of Papuasia and Australia. In between lies Wallacea,which has a mixture of elements from these two very differentparts of the world. Indonesia'sterritorial waters encomrasssome 3,650,000km 2, neatly twice as much as the land area, and the countryhas the largest coastaland near-coastalenvironments in the region. These include extensivemangroves and swamps,and tens of thousandsof kilometersof coral -eefs.

1.57 Despite its richness,there are over 200 animals in Indonesialisted by the InternationalUnion for Conservation*f Nature and Natural Resources (IUCN) as threatei.edor endangered. Some of the more well known include the Javan and Sumatran rhinoceros,Asian elephant,Simatran tiger, clouded leopard, orangutan,Sulawesi macaque, and birds such as the Bali starling. A fantasticdiversity of plants also occurs in Indonesia,including the endangeredfishtail palm, climbing palm and rafflesia,the world's largest - 22 -

flower. Indonesia'slevel of endemism is exceeded only by Madagascar and amounts to one of the world's great treasuresof natural biota. Indonesia is thereforeconsidered one of the world's six 'megadiversity"countries, based on their extremelyhigh diversityof species. Because of the economic and scientificimportance of preservingbiological species worldwide, the country is receivinggrowing attentionand supportfrom major environmentalgroups.

The Reserve System

1.58 Indonesiahas set aside almost 10? of its land area for conservation and protection,a much larger area than sc designatedin most developedor developingcountries. Tha countryhas 319 gazetted conservationareas, including19 national parks, and it has 187 areas identifiedand scheduledfor incorporationinto the protectedarea system. In total, nearly 20 million ha are set aside as reserves and another 30 million ha are set aside as permanent protectionforest (refer back to Table 1.3). The National ConservationPlan, the IriLa Jaya DevelopmentPlan and the Marine ConservationSystems Plan bring the number of planned or proposed reserveareas to more than 700. These proposalscover the major biogeographicregions of the country and, if properlymanaged, would be sufficientto protect biologicaldiversity and endangeredspecies. Additionalwork is requiredto prioritizewetland areas. If these areas could be protected,it would answer many of the concerns of conservationistsand permit decisionson the allocationand management of other forested land to be more easily made on the basis of sustainable productionand optimal land use.

1.59 The National ConservationPlan for Indonesia (JWAO,1981) evaluated each protectedarea by quantifyingthe relationshipSamong three parameters: (a) importancein preservinggenetic diversity;(b) socioeconomic justification;and (c) the need for managementand the feasibilityof protection. Reserves receivinga priority one rating are of major national importance,contain the most valuable or best examples of differenthabitat types and requiremost urgent attention. Based on this system of analysis, there are a total of 79 priority areas for protection (Annex 1, Table 6). These areas representIndonesia's seven biogeographicregions to obtain the widest possible representationof importantflora and fauna, and the number of reserves in each biogeographicregion is shown in Table 1.9.

Constraintsto Conservation

1.60 The main constraintsto conservationin Indonesiaare: the absence of incentivesfor local people to preserve the naturalhabitat, a lack of awarenessof the issues, the absence of clear prioritiesand strategies, shortagesof manpower and overcentralizationof responsibility,and a severe shortage of funds.

1.61 Benefits to People. It will not be possible to protect and preserve .riticalecos)-tems unless the people who are asked to forego short- term gains by setting aside land used for productionperceive some tangible benefits from doinb so. Close coordinationwith the local people will be necessary in order to identify the benefits they need to participatein conservationprojects. Such benefitsmight includepermission to extract traditionalresources, particularly where this does not degrade the reserve, - 23 -

or the provisionof alternativeincome-earning opportunities, either in conjunctionwith reservemanagement (tourism,etc.) cr in adjacent areas such as buffer zones. Several pilot programs are underway to work with local smallholdersin forestedareas and these are discussed in Chapter II.

Table 1.9: NUMBER OF RESERVES WITH PRIORITYFOR PROTECTION BY BIOGEOGRAPHICREGION

Number of Number with Region priority reserves managementplans

Sumatra 16 6 Java and Bali 9 8 Kalimantan 14 5 Nusa Tenggara 8 2 Sulawesi 8 4 Maluku 12 1 Irian Jaya 12 3

Total 79 29

Source: InternationalUnion for the Conservationof Nature and Natural Resources (IUCN).

1.62 Awareness. During the late 1970s, nongovernmentalorganizations (NGOs) concernedwith environmentalprotection and awareness,and with wildlife conservationand appreciation,greatly expanded their membershipand influence in Indonesia. They helped foster the growingconservation movement in the country throughcampaigns, publications, seminars and active project work. The IndonesianEnvironmental Forum (WALHI),the Green Indonesia Foundation (YIH), and the IrndonesianSociety for Forest Protection (SKEPHI) have been leaders in this offort and have developeda strong and dedicated following,particularly among universitystudents. The State Ministry for Populationand Environment(MPE), the ConservationDirectorate in the Forestry Departmentand the larger NGOs have promotednature appreciationclubs at universitiesand schools throughoutthe country. Far more could be done, however, to introduceconservation through parks and educationalactivities, to target school-agechildren and people in rural areas, to promote the work of NGOs, and to supportregional environmentalstudy centers at major provincialuniversities.

1.63 Prioritiesand Strategies. With limitedmanpower and funds, prioritiesfor protection,whether by location,habitat type or species,must be clear and focused. To develop appropriatestrategies for each biographic region, the followinginitiatives, many of which will require external support, are necessarys - 24 -

(a) a comprehensivereview of each biogeographicregion;

(b) inventoriesof and managementplans for neglectedwetland areas;

(d) techniquesfor protectingimportant reserves, possibly including buffer zones and social forestryprograms.

1.64 Manpower Development. The shortageof trained and motivated people in wildlife managementand protectionis a particularlyserious problem. Staff recruitedfrom the forestry serviceare not yet trained in conservation strategy;entire specializations(e.g., marine conservation)are lacking;and guard staff are poorly paid and, hence, poorly motivated. There is therefore an urgent need for manpower development. Critical elements of this program would include trainingof middle-levelmanagers by strengtheninguniversity curriculaand by providingoverseas training;developing a marine conservation trainingcenter, possibly located in Ambon; developingregional programs for trainingfield-level guards and staff; and providingappropriate incentives and supervision;and expandingconservation awareness and educationprograms in the regions.

1.65 Decentralization.One of the most critical steps in improvingthe managementof protectedareas is to developthe concern,manpower and capacity to address the problem at the provincialand local level. As a first step, provincesin conjunctionwith the ForestryDepartment should be encouragedto developpriorities for conservationand to coordinatewith their neighbors in A single biogeographicregion to ensure protectionof criticalhabitat. Appropriateindividuals in the provincesshould be identifiedfor training,as Jakarta staff are seldom willing to move to the provinces. This pattern would be consistentwith the general process of decentralizationin Indonesia,in hinichthe center provides guidelinesand implementationis increasingly carried out by local or provincialgovernments.

1.66 Fund Increases. Under Repelita IV (1984-89),the total budget and revenuesprovided by the Forestry Departmentfor conservationwas about US$12 million, includingexternal commitmentsof about US$4 million. Less than half was for reservemanagement, which is insufficient. The minimum cost of protectingpriority reserves,undertaking other strategicwork and species studies, and training staff is estimatedat about US$100 million in the next five-yearplan (RepelitaV) or about US$20 million/year. This figure is based on the amount of money that could be spent within each biogeographicalregion (Table 1.10). Additional funds are required to do an adequate job, but absorptivecapacity is severely limited. Since funds to support conservation need to be increasedat least sixfold,mobilizing adequate financialresources is critical to Indonesia'sconservation effort.

A Proposal for Action

1.67 If indonesia'sforests and wildlife are of value globally,then presumablyother countriesshould be willing to share in the cost of preservingthem. Indonesia,with per capita income of US$500/yearand other - 25 -

pressing social and economicproblems, cannot alone bear the burden of protecting tropical ecosystemsof global value. Assistancefrom better-off countriesand NGOs will be required.

1.68 To circumventresource and manpower constraints,the Bank recommends that the Govertmentof Indonesiainvite interesteddonors to support Indonesianconservation efforts by providing funds and technicalassistance for conservationawareness, strategic planning, manpower developmentand reserve protection. Donors and Governmentcould share the costs of such an effort on roughly a 50/50 basis. Since differentbiogeographic regions have distinct needs, and reserve areas within regions are in differentstages of demarcationand protection,this report also recommendsthat one or two donor countriesbe asked to provide supportfor an entire reserve system and for manpower developmentprogram within one of the seven biogeographicregions. The bilateral agency would then have an interest in determiningpriorities and providing technical and financial support for the system as a whole. Potential donors include Australia, Canada, the Federal Republic of Germany, Japan, the Netherlands,the Nordic Countries,the United Kingdom, and the United States. Several smallerdonors with strong environmentalinterests might be encouragedto cooperate.

Table 1.10* RESOURCESREQUIRED DURING REPELITAV TO ESTABLISHTHE RESERVEAREA SYSTEM

Total cost Donor share Donors with interestsin _____ (US$ million) ----- specific areas /a

Sumatra 20.0 10.0 Several Java/Bali 10.0 5.0 GOI with IBRD Kalimantan 20.0 10.0 Fed. Rep. of Germany, France,U.S. Nusa Tenggara 10.0 5.0 Australia Sulawesi 10.0 5.0 Canada Maluku 15.0 7.5 The Netherlands Irian Jaya 15.0 7.5 Several

Total 100.0 50.0

La Not an exhaustivelist.

Based on the costs of managingprotected areas in externallyfinanced projects, but scaled back to teke account of limitedabsorptive capacity and manpower.

1.69 The rough financialestimates in Table 1.10 assume: (a) that the cost of developinga protectionsystem in the seven biogeographicregions is roughlyproportional to the number of priority areas to be preservedwithin the region; (b) that manpower developmentand special studieswould be included as part of the cost; and (c) that Government,through the reforestationtax or other measures,would mobilize about half of the - 26 -

resourcesrequired. The ability of provincialinstitutions to absorb availablefunds would be very limited at first, but is expected to grow over the five-yearperiod.

1.70 Developmentand implementationof such a program of mutual assistance would take considerableeffort and goodwill. Government,for its part, would have to establishan appropriateorganizational framework for managing and coordinatingthe work of donor agencies. An internationalNGO such as IUCN might be asked to take the lead in coordination,or this fun^tioncould be served by a donor country or by the Bank. Governmentwould also have to assign to the task officialswho had strong conservationvalues and an ability to work with expatriateteams. Expatriates,in turn, would have to be committednot only to the preservationof Indonesia'snatural resources,but to a transferof technologyand human resourcedevelopment. The objective justifiesthe adjustmentsrequired, and if successful,this type of cooperationwould be a milestone in mobilizingmultilateral support for conservation purposes. - 27 -

II. LAND RESOURCEMANAGENENT

A. Land Use Issues in the Outer Islands

2.1 The major land use issue in the outer islandsrelates to expanding agriculturaldevelopment and the encroachmentof agricultureonto forested lands. There are also importantissues related to land tenure, land classification,and land use management. To address these issues, this chapter describesthe problems faced by smallholdersand developmentprograms in identifyingland for economicallyproductive purposes, discusses alternativesto currentpractice, describes the overall policy and institutionalchanges needed for sound land use management. The chapter also touches on land use issues in Java.

Pressureson the Land

2.2 In the early 19709, the Indonesianeconomy experienceda steady shift away from agriculturetoward other sectors. With about 70? of the population living in rural areas and dependent,directly or indirectly,on agriculture for subsistence,such a change was welcome. However, as a result of declining oil revenues in the 1980s, rates of growth and employmentgeneration slowed. For example, growth in manufacturingdeclined from about 13S p.a. in the 1970s to about 3.7Z after 1983. This placed renewedpressure on agricultureto absorb surplus labor. The agriculturesector, which absorbed about 26S of the new entrants to the labor force during 1971-80,absorbed nearly 422 during 1980-85 (Table2.1)

Table 2.1t SHARE OF EMPLOYMENTGROWTH (Z) IN JAVA AND THE OUTER ISLANDS

Area 1971-80 1980-85

Java Agriculture 8 12 Other 50 38

Subtotal 58 50

Outer Islands Agriculture 18 30 Other 24 20

Subtotal 42 50

Total Agriculture 26 42 Other 74 58

Total 100 100

Source: Central Bureau of Statistics,SUPAS, 1985. - 28 -

2.3 Despite pressureson agriculturein Java to absorb labor, the sector'scapacity to do so was limited. By the early 1980s, 75Z of the surface area of Java was cultivatedand 87X was in productiveuse (including forests, aquaculture,and house lots). Virtuallyall economicallyirrigable areas were under the command of irrigationsystems and 94? of wet rice fields were planted to high-yieldingrice. Thus, while opportunitiesremained for increasingagricultural production in Java, there was little room for increasedagricultural employment. LandlessJavanese laborerswho wanted to find employmentin agriculturehad to do so by moving to the outer islands.

2.4 In the late 1980s, conditionsin the outer islands are placing similarpressures on the land. Although 401 of Indonesianslive in the outer islands,only 202 of medium- and large-scaleindustries are located there. This means that new entrants to the labor force are likely to seek employment in agriculture. Governmentinvestment programs hare also encouragedland developmentin the outer islands. Between 1980 and 1986, more than 2 million people moved from the inner to the outer islandsthrough the Government- sponsoredtransmigration program; and an estimated1.2 million ha of tree crops were planted under government-sponsoredprograms. The data reflect these forces at work. Although Java has a larger total populationdependent on agriculturethan the outer islands, from 1980 to 1985 agriculturein Java absorbed only 122 of all new entrants into the labor force, while agriculture in the outer islands absorbed 30? (Table2.1).1i

2.5 Agriculturalexpansion as a result of these factors is reflectedin Table 2.2. The data, aggregatedfrom local-levelstatistics rather than aerial photography,are subject to error, though indicativeof trends. Between 1973 and 1983, drylandproduction in the outer islandsroughly increasedby more than SO? and expandedby 3.4 million ha. Growth was particularlyrapid in Sulawesi (5.6? p.a.), Kalimantan(4.6% p.a.) and Sumatra (3.7Z p.a.). These data suggest the increasingdemands for land in the outer islands and the increasingimportance of trade-offsamong forests, agriculture and other land uses.

1, While Java's average agriculturalgross regionaldomestic product (GRDP) per worker (Rp 393,000 in 1980), is about the same as that in other islands, there is a large differencein the pr,uctivity of land as metsured by agriculturalGRDP per hectare. Sumatraas a whole requires 2.1 ha to equal the productivityof 1.0 ha on Java, while Central Kalimantanrequires 6 ha and Irian Jaya, 12 ha. This indicates that farmers in the outer islandscurrently require more land per family to earn the same'incomeas in Java. This is due partly to lower soil fertilityand partly to lower levels of infrastructureand investmentin some outer island provinces. - 29 -

Table 2.2* AVERAGEANNUAL RATE OF EXPANSION FOR WETLAND AND DRYLANDRICE (2)

1963-73 1973-83 Island Wetland Dryland Wetland Dryland

Java 0.4 -0.8 1.1 1.8 Sumatra 2.9 -1.2 2.2 3.7 Nusa TenggaralBali 1.8 2.7 2.2 3.7 Kalimantan 4.6 2.3 3.5 4.6 Sulavesi 6.1 4.1 1.6 5.6

Total 1.7 0.6 1.7 3.6

Sources Kasryno,Faisal, et al., 'Pola Usaha Pertanian dan Pola Tanam," 1986. BPS AgriculturalCensus, 1983.

Land Availability

2.6 The populationin the outer islands is about 65 million and the growth rate is about 2.3Z p.a. without immigration. This alone places considerablepressure on the land and forests. In addition,the outer islands provide opportunities to migrants from overcrowded areas in other islands. Regions in North and West Sumatra, and North and South Sulawesi have been centers of out-migrationfor many years.2/ Since the 1930s, outer island migrants have been joined by Javanesemigrants moving in large numbers, mainly to southern Sumatra. Prior to 1980, the majority moved "spontaneously",i.e., without governmentassistance. Recently,however, Governmenthas promoted a number of large-scaledevelopment programs in the outer islands intendedboth to combat poverty and address populationpressure on Java. These programs have provided strong incentivesto move and strong demands for land, but to date mechanisms to obtain land outside development programs have been limited, and this has had adverse impacts on the environment.

2.7 Land availabilitydepends in part on traditionalland tenure arrangementswhich vary from place to place. In Sumatra virtuallyall land, whether cultivatedor not, is claimedby local clans or Margas; whereas in Kalimantan, claims are extended mainly to those lands which have been previously cultivatedor harvestedby local people. Under traditionallaw or adat the questionof permanentalienation of land does not arise, although clans or local families can grant permission to others for short-term or long- term use of the land. These arrangements are often subject revocation, however, and under the circumstancesnewcomers are often reluctantto invest

2/ Historically,movement in Sumatrahas been from the fertile highlands in the west and north to the less-fertilelowlands in the south and east, and there has been extensivemovement from South Sulawesi to East Kalimantanand to the coastal areas in the eastern islands. - 30 -

in perennial crops or soil conservationmeasures and may find it preferableto clear unclaimed forested land.

2.8 Under the Basic Agrarian Law of 1960, the Governmentassumed the right to reallocateunderutilized lands for public benefit and has used this power to acquire and redistributeland for developmentpurposes. Such transfermust be done with the consent of local people and the inabilityto obtain local consent to land transferis a frequentcause of project delays. The Basic Agrarian Law also introducedprocedures for land transfer,and outright sale accompaniedby land titling is increasing;but land registration is a long and cumbersomeprocess which frustratesboth buyers and sellers (see Annex 2). Without land title, however, outsiders,whether from the outer islands or Java, have little securityand are subject to claims that the seller of land had no right to do so. Again difficultiesassociated with land purchase encouragessmallholders to encroach on forested land.

2.9 To further complicatethe picture, the amount of land under Forestry Departmentjurisdiction was recentlyformalized and expanded under the Basic Forestry Law (BFL). When the BFL was passed in 1967 about 26 million ha of land were within ForestryDepartment boundaries. In 1980, in response to developmentpressures, instructions were issued to the provinces to prepare a ConsensusForestry Land Use Plan (TGHK). In the reclassification,which was largely completedby 1983, the amount of land within ForestryDepartment boundarieswas increasedto 113 million ha. This is nearly 607 of the country'ssurface area (Table 2.3). If areas earmarkedfor potential conversionto other uses are included,752 of the country is now within ForestryDepartment boundaries. Since 1983, additionalareas have been reserved for mining and oil exploration,and in many cases, mining and oil reserves overlapwith forestryboundaries.

Table 2.3: CHANGES IN AREAS WITHIN FORESTRY DEPARTMENT BOUNDARIES,1972-84

Area in PermanentForest Categoriesla 2 Land in Z Land in Province 1972 1984 Ratio 1984 permanent all forest (Hectares)------to 1972 forest categories

Sumatra 9,043,000 25,176,000 2.8 54 65 Java 2,814,000 3,013,000 1.1 22 22 Kalimantan 5,848,000 36,674,000 6.3 67 82 Sulawesi 6,408,000 11,291,000 1.8 58 68 Irian Jaya -- 28,816,000 - 70 99 Other 1,688,000 4,364,000 2.6 49 69

Total 25,841,000 112,742,000 4.4 59 75 la Includes reserves,protection, limited productionand productionforest.

Source: Forestry DepartmentStatistics. - 31 -

2.10 With such a large area within Forestry Departmentboundaries, developmentprojects face seriousproblems acquiringland. Although 30S of the land within forestryboundaries in Sumatra is deforested,and 152 of all rubber in Sumatra is now on ForestryDepartment land, none of these areas can be used for tree crop intensificationprograms directed at local smallholders. The problem is exacerbatedby Governmentpolicies which regard land as a national asset and discouragethe payment of compensationfor land intended for smallholderdevelopment. Not surprisinglythis limits the land which can be voluntarilyacquired for developmentpurposes.

2.11 Traditionalshifting cultivators also face potential difficulties,as the BPL recognizesthe rights of local people to harvest forest products other than timber,but it does not allow local smallholdersto log or to cultivate ForestryDepartment land. This means that local smallholdershave only limited incentivesto protect the forest or to invest in stable production systems. In some countriesin South and SoutheastAsia (e.g., Philippines) the forest estate has been almost completelyeliminated by local farmerswho had no rights to forest products and, therefore,strong incentivesto clear the land. even for marginal returns. To date, the problem is less serious in Indonesia,but the data for some provincesshow that there is already a higher proportionof land under shifting cultivationwithin Forestry Department boundariesthan outside them.

Economic Returns to AlternativeLand Uses

2.12 If areas set aside for conservationand watershed protectionwere adequatelyprotected, then whether land should remain under forests or be used for agricultureshould depend, in part, on the economic returns to alternative land use systems. To evaluate this, Bank staff calculatedthe net present value (NPV) and return per hectare for severalcommon productionsystems in the outer islands, includingshifting cultivation,sedentary food crop production,tree crop productionand forestry (Table2.4). This analysis supports the view that shiftingcultivation under optimal conditionsprovides a higher income per work day than most sedentaryfood crop systems. In the optimalcase, however, food productionwould be substantiallyin excess of normal family requirements,an unusual situation. If productionis, on average,only sufficientto meet a family's subsistenceneeds (a more typical situationwhere short-fallowrotation is being practiced),then low-input, low-outputfood crop productionon adequate soils is slightlymore attractive in terms of total household incorto(although the return per work day is still higher for shifting cultivation). Farming systemsbased on block-plantedtree crops ordinarily provide better financial returns than short-fallow shifting cultivation or low-input food crop cultivation on marginal soils. - 32 -

Table 2.4: NET PRESENTVALUE OF ALTERNATIVEPRODUCTION SYSTEMS (1OZ Discount Rate, 1987 Constant Rp)

Net return Net Land per farm needed for Production System work day income this return NPV per hectare (Rp) (ha) (Rp) (US$)

Shifting Cultivation Short fallow 2,200 1,861,000 12 87,000 53

Sedentary Cultivation Low-input food crops 1,900 2,576,000 1.5 736,600 446 Smallholder rubber 2,500 4,708,000 2.0 1,850,000 1,182 Rubber and house garden 2,300 6,060,000 2.5 1,758,000 1,065

Timber Production Low-value stand (USS15/halyr) - 1.0 211,000 128 Hoderate-value stand (US$35/ha/yr) - 1.0 492,000 298 Good-value stand (US$65/halyr) - 1.0 913,000 553

Source: Bank staff estimates from staff appraisal reports.

2.13 If land, not household, productivity is assessed, however, the results are quite different. The net present value of the returns to one hectare of land under shifting cultivation over time is about US$50-120. Under low-input food crops on adequate agricultural land it is about US$450. Sustained food crop production is difficult on poor-quality soils. Systems with block-planted rubber have an NPV of about US$1,1001ha with current low commodity prices. Timber production in a good stand of natural forest produces a NPV of about US$550, which is better than shifting cultivation and somewhat better than sedentary food crop production. Rubber production has an NPV higher than either food crops or timber-production, although eome timber producing areas may have NPVs approaching those of tree crop proauction.

2.14 These data ruggest that, from an economic rather than a social point of view, it is preferable to use marginal land for timber production, rather than shifting cultivation. Low-output food crops and timber production have roughly the same NPV per hectare, but only where there are adequate soils. Timber production is more attractive on poor soils. Tree crops have the highest economic return per hectare on reasonable soils. In 3eneral, environmental benefits are consistent with economic benefits. Smallholder food crop production on marginal soils generally produces low household incomes and may i-ad to extensive land use with an adverse impact on soils and forests. Compared to food crops, tree crops reduce levels of erosion and provide a habitat for some wildlife, but they reduce the diversity found in - 33 -

the natural forest. On poor soils, timber production is attractivefrom both an economic and environmental poi..tof view.

B. Alternative Approsches to Agricultural Development

Back5round

2.15 Transmigration. The major land settlementscheme in Indonesiahas been the Government'stransmigration program. The main objective of the programis to move peoplefrom overcrowdedareas in the innerislands to the less populatedouter islands. Transmigrationcan be fullysponsored, partiallyassisted, or unassisted(spontaneous), and localresettlement also occurs. Migrantsgenerally receive about 2 ha of land and land titlesafter five years. The cost of the programis estimatedat aboutUS$6,000 per family. To date,there has been littlecost recoverywhich has provideda strongincentive for peopleto move. Between1980 and 1986,more than 2 millionpeople moved from the innerto the outerislands on the transmigration program(Table 2.5), and in supportof the program,about 800,000 ha of land were cleared. Of this,about 300,000ha were in brush and secondaryforest and an equalamount was in logged-overprimary forest; the remainderwas not forested.Another 500,000 ha were allocated,but the land has not yet been cleared.

Table 2.s5 SPONSOREDSETTLEMENT IN THE OUTERISLANDS (Families)

Years (Repelita) Sumatra Kalimantan Sulawesi Irian Jaya Total

1969-74 (I) 22,000 6,000 11,400 100 39,500 1974-79 (1I) 33,000 11,000 2,000 2,000 55,000 1979-84(III) 227,000 70,600 51,000 16,600 365,200 1984-86(IV) 84,500 38,300 23,800 7,400 154,000

Total 366,500 125,;C0 95,200 26,100 613,700

2 60 20 15 5 100

Sources WorldBank, Transmigration Sector Review, 1986. 2.16 A centralquestion in the evaluationof transmigrationis whether siteson marginalsoils can be sustained.To date,agricultural production on transmigrationsites has been basedmainly on low-inputfood crop production. As notedpreviously, traditional cultivators typically rely on shiftingculti- vationto circumventthe limitationsof low-fertilitysoils and, ordinarily, l- 20 ha of land are neededto sustaina familyon this basis. Given the widespreadnature of this adaptation,some criticsof transmigrationhave arguedthat transmigrantswill not be able to sustainfood crop productionon 1-2 ha of marginalland, and as a corollary,suggest that transmigrantswill eitherhave to turn to shiftingcultivation or abandontheir sites. - 34 -

2.17 Although the data are not all in, due to the short time many migrants have been on site, it appears that land constraints,combined with cultural, technicaland economic factors (includingthe presence of c_f-farmwork) have enabled sponsoredmigrants to meet their subsistenceneeds from sedentary cultivation. Extensivecultivation by sponsoredmigrants who received land is not common, although it could increase if soil fertilitydeteriorates further, and the.-eis little site abandonment. When migrants do leave, others usually take their place. However, incomes from agricultureare low, householdsare dependenton off-farmwork, and the programhas had a significantimpact on forested land. There is also evidence that spontaneousmigrants expand the areas of settlementwell beyond the initial site, and they may shift from place to place if soil fertilitydeclines.

2.18 In mid-1986,the transmigrationprogram was curtaileddue to declining oil revenues and implementationproblems. Through the remainderof Repelita IV (1984-89)and Repelita V (1989-94),the funds availablefor transmigrationare to be used primarilyto upgrade the infrastructureand productionsystems on existing sites. In the absence of government-sponsored settlement,however, the number of spontaneousmigrants moving to the outer islands is expected to increase. Since these migrants do not have access to land, encroachmenton forested lands and extensivecultivation may also increase. For this reason,the managementof spontaneousmigration will be one of the most pressing problems facing governmentin the next five-year plan.

2.19 Tree Crop Development. In recent years, the main vehicles for Indonesiantree crop developmenthave been (a) the nucleus estate and smallholder(NES) program in which government-ownedestates plant new areas for the estate (20X) and for smallholders(80X); and (b) project management units (PMUs) under the DirectorateGeneral of Estateswhich help existing smallholdersplant or replant on their own land. In recent years about one quarter of all tree crops were planted by estatesand three quarters by smallholdersunder PMU supervision. Privateestate developmenthas recently been encouraged. In most tree crop developmentprograms some cost recovery is expected from the farmers although there has been only limited collectionto date.

2.20 Compared to transmigration,a relativelysmall area of primary forest has been used for estate crop development.3/It is now becoming increasingly difficult,however, for estates to identify land which is not forested and not alreadyunder smallholderproduction, and land acquisitionis a growing problem. PMU projects on smallholderland have good prospectsfor intensifyingproduction systemsand can help limit shifting cultivationand improve smallholderincomes. For these reasons,they are attractiveon both environmentaland equity grounds. However, recent PHU programs have suffered from the poor quality of planting,and to be cost-effective,program implementationand cost recoverymechanisms must be improved.

2.21 Given budgetaryconstraints, Government has recently launchedan ambitiousprogram to encourageprivate estate developmentin which 40? of all

3/ Statisticsfrom the estate crop sector indicatethat about 46,000 ha of forested land were cleared for tree crops in Repelita III, about 402 of the total area allocatedfor this purpose in the plan period. - 35 -

block-plantedareas would be for the estate and 602 for smallholders. In anticipationof such expansion,requests have been made for the reservationof large areas of land. Accordingto ForestryDepartment statistics, 1.6 million ha of land were requestedfor agriculturein Repelita III, of which 137,000 ha were allocatedin the five-yearperiod avnd1.5 million ha were requested in the first half of Repelita IV, of which 627,000ha have been provided. Virtuallyall allocatedland was transferredfrom areas already earmarkedfor conversionand not all was forested. Nevertheless,the magnitude of these numbers indicateslarge and growing pressure for agriculturalland.

2.22 Because of budgetaryconstraints, it is difficultto predict the total area of government-sponsoredand private tree crop developmentlikely to occur in Repelita V. However,with a reasonableincrease in development expendituresand measures to overcomequality control and credit recovery problems,500,000-1 million ha of tree crops could be planted in Repelita V, virtua}lyall in the outer islands (see Table 2.6). This large area presents Governmentwith clear developmentoptions with respect to land use. Either arrangements will have to be made to permit the upgrading of txisting agricultural land, or the expansion of this area vill have to be made at the expense of forests and wetlands.

Table 2.6: TREE CROP PLAPTINGPROGRAMS

Repelita III Repelita IV Repelita V Commodity achievements estimates projections - ha ------

Rubber 262,000 120,000 250,000 Oil palm 59,700 120,000 300,000 Coconut 193,300 78,000 200,000 Beverage crops 217,000 200,000 250,000

Total Hectares 732,200 488,000 1,000,000

AlternativeApproaches to AgriculturalDevelopment

2.23 Since forest conversionentails relativelylarge opportunitycosts in terms of foregonetimber revenues,and both forest and swamp conversionmay involve the destructionof importantecosystems and wildlife habitat, the question arises whether options exist that would meet Governmentobjectives without the large-scaleconversion of forests and swamps. The answer lies to some extent in the intensificationof areas currentlyunder low-intensity production. There are at least 3 million ha of low-productivityrubber in the outer islandswhi,h yield 350-500kglhalyear and which could be upgraded by smallholderswith PMU assistanceand produce 1,200-1,500kg/halyear. Opportunitiesalso exist for upgrad5ngcoconut and coffee areas and for upgradingrainfed food crop productionby improvingexisting technologies. - 36 -

2.24 Not only would land intensificationreduce pressures on forests and swamps, the evidence suggests it would have economic benefits. Table 2.7 compares the estimatedrates of return where Government (a) provides access to remote areas and clears forested land in large-scalesettlement projects; or (b) allocatesmoney for land purchase and land registrationin areas where access already exists. As indicated,the high costs of infrastructureand land clearing associatedwith large-scalesettlements produce low rates of return. However, if programswere developedto permit new settlers,whether transmigrantsor locals, to purchase underutilized,cleared and accessible land, economic returnswould be significantlyincreased. Government's productionand equity objectivescould be met at far lower cost, and pressures on natural forest areas could be reduced.

Table 2.7: ECONOMIC RATES OF RETURN TO NEW SETTLEMENTIN REMOTE AREAS, AND IN AREAS WHERE LAND IS PURCHASEDFOR INTENSIFICATION(X)

Agriculture Agricultureonly and off-farmwork Ls%rge-scale Land Large-scale Land Models la settlement purchase settlement purchase

Low-inputfood crops negative 5 1 15 Diversifiedfood crops 2 14 4 1' High-inputfood crops /b 2 16 7 27 Smallholdertree crops 8 13 9 15 la Adapted from World Bank, TransmigrationSector Review, 1986. lb Observedprimarily in researchareas.

2.25 Large areas of underutilizedor degraded lands in the outer islands are not availableto settlersbecause of traditionalland claims. However, there are other areas where land is availableat a fair price (US$100-200/ha). This land could potentiallybe used either by developmentprojects or by local smallholdersand immigrants,if governmentagencies were prepared to compensatepeople for land used for development,land registrationwere simplified,and credit were availablefor land purchase. Some observersare concernedthat acceleratingland sales would put local people at a disadvantage;to avoid this, land purchase,credit and land registration should be targettedto areas where the local people are already fully knit into the cash economy.4/in spite of the difficultiesinvolved, however, it is increasinglyclear that the developmentof rational land markets in the outer islandswill be a prerequisiteto sound land allocationand to forest and watershedprotection. The steps needed to free underutilizedand degraded land for development,to facilitateland transferand to ensure fair treatment of buyers and sellers are describedin Annex 2.

41 An estimated 4 million people are relativelyisolated from the cash economy. These people are mainly in Irian Jaya and interior Kalimantan. - 37 -

C. AlternativeApproaches to ShiftingCultivation

2.26 One importantform of smallholderproduction is shifting cultivation. Shifting cultivation,like the forest itself,is an evolutionaryadaption to low-fertilitysoils. Under such productionsystems, forestedareas are cleared and burned to take advantageof nutrients in the ash. When soil fertilitydeclines, the area is left fallow and bush regenerates. Since farmers generallyprefer to cut secondaryrather than primary forest, they return to the same plot after 10-20 years where they clear and burn again. When land and populationbalances allow for sufficientlylong fallow periods, such systemsare productiveand sustainable. Of the 65 mil'ion people in the outer islands the large majority are sedentarycultivators. The Forestry Departmentestimates that about 1 million families are practicingshifting cultivationon 7.3 million hectares (Table 2.8). If part-time shifting cultivatorsare included,however, the figure undoubtedlyexceeds this number. According to LRD figures, the amount of land under long-fallowrotation in Kalimantanand Sumatra alone is about 25 million ha.

Table 2.8: ESTSMATESOF AREA AND FAMILIES PRACTICINGSHIFTING CULTIVATION

LRD Estimates /b Under Affected by Island ForestryDepartment estimates /a shifting shifting Area Families ha/family cultivation cultivation ha ------ha - - - - -

Sumatra 932,000 261,000 4 n.a. n.a. Kalimantan 4,052,000 229,000 18 5,457,000 11,240,000 Sulawesi 1,350,000 245,000 18 n.a. n.a. Irian Jaya 204,000 120,000 2 1,400,000 2,000,000 Other 772,000 204,000 4 n.a. n.a.

Total 7,310,000 1,060,000 7 la Forestry Department,Forestry Statisticsof Indonesia,1985186, p. 118. /b LRD/RePPProTStudies, 1986, 1987.

2.27 Shifting cultivatorsare very diverse. There are traditional cultivatorsin Central Kalimantanand Central Sulawesiwho are largely dependenton shiftingcultivation for subsistence,while Buginese immigrants in East Kalimantanproduce pepper for cash on fieldswhich are cultivatedfor 6-10 years and then moved. One of the most common farming systems in Sumatra for the last 100 years has been based on food crops and rubber. Rubber trees are tapped when prices are high and left unattendedwhen prices are low, and from time to time they are cut down for food crops and replanted. Some spontaneousimmigrants who rely on agriculturefor their livelihoodsshift from year to year, simply because they cannot obtain secure tenure to the land which they cultivate. - 38 -

2.28 Over the past decade a number of programshave been developedto relocate shifting cultivatorsfrom the forest. None has been carried out on a large scale, and only about 10,000 families (50,000people) were resettled through such schemesbetween 1972 and 1982. Virtuallyall these programswere failures,either because they involvedforced relocation,which left the farmers apatheticand dependent,or because they provided insufficientland to maintain productivityon low-fertilitysoils.

2.29 A number of lessonshave been learned from past settlementschemes, among them are the following:

(a) Programsmust be designedwith local participation. The participation of the local people is necessary to identify the benefits to be achieved and the means of realizingthem. Where programs are involuntary, participants become dependent on government for continuedsupport and promisingpossibilities are frequently overlooked.

(b) Programs must be technicallyviable. To earn a reasonableincome from low-fertilitysoils, a relativelylarge area for productionis required. Yet more often than not, resettlementschemes give farmers 1-2 ha of land on the assumptionthat they will practice sedentary agriculture,even though the soils are not suitable,initial capital is not provided,and farmers lack the backgroundor experienceto know what to do. Such programs should be discouraged.

Cc) Programs directed at local smallholders must be culturally acceptable. For example,Javanese and Balinese can often earn an adequate living on transmigration schemes and most consider themselves better off than before. But those cultivatorswho have little experience with hoeing, animal tillage or new technologies, and forest dwellerswho are deprived of the forest resourcesthey depended on in the past are generallyunable to meet their subsistenceneeds in such settings. For these reasons, resettlement within existing transmigrationschemes is most appropriatefor spontaneousmigrants who are anxious to obtain secure land title to new land.

(d) Programs should draw on the farmer'spast experience. Tree crop intensificationschemes are often attractivein those areas of Sumatra and West Kalimantanwhere farmersalready have rubber or oil palm or have worked as estate laborers. Since 2 ha of tree crops can produce the same income as 30-40 ha under shiftingcultivation, low- input tree crops can be used to stabilizethe productionsystems of some shifting cultivators,and they are attractiveto many sedentary cultivatorswho practice shiftingcultivation on the side.

Alternativesto Past Approaches

2.30 Where local cultivatorshave little interestin or knowledgeof sedentaryagriculture, efforts to resettlethem have not been successful,and alternativeapproaches are required. As noted earlier,many smallholderson forestry land have few incentivesto maintain the land under forest cover. If - 39 -

these smallholderscould benefit through the sale of timber or secondary forest products, or through the provisionof alternativecropping systems, deforestationcould potentiallybe reduced. This suggests that projects should recognizetraditional land rights and provide secirity of tenure;work closely with farmers to understandtheir needs and to improve the income- earning potential of their productionsystems; and strive to develop forest management systems in which local smallholdersclearly benefit. Such programs are often termed "social or community'forestry.

2.31 The objectiveof social forestryprograms is to help forest-dwelling people manage their resourcessustainab'y. Key elements of such a program are%

(a) data collectionon existing forest conditions,local production systems and needs;

(b) developmentof local organizationsfor participatoryforest management;

Cc) introductionof appropriatetechnical innovations that provide a variety of short-,medium-, and long-termbenefits such as agroforestrysystems; and

(d) the developmentand legalizationof long-termcontractualltenurial arrangementsto provide local people with securityand incentives for investmentin suotainableforest management.

Reorientationof the forestry servicetowards "social'forestry and away from *custodial"forestry is also required.

2.32 The Ford Foundation,in cooperationwith the Forestry Departmentand SeveralNGOs, has initiatedpilot projects in social forestry at locationsin Java, South and East Kalimantan,South Sulawesi,and Irian Jaya. In addition, the Ford Foundationis cooperatingwith the Bogor AgriculturalInstitute in the developmentof a social forestryresearch program. The United Nations EnvironmentProgramme's Man and BiosphereProgram in Indonesiaalso includes several forest reserveswhere local people are encouragedto help protect local wildlife and forests,although the program is small and underfunded. Given the potentialof social forestryprograms to improve smallholderincomes and to reduce the encroachmenton areas set aside for conservationand watershed protection,a much larger effort is required to evaluate existing social forestryprojects in both Indonesiaand neighboringcountries, and to design and initiatenew pilot projects,research, and trainingprograms.

2.33 A study of shiftingcultivation has beer.included in the Bank- assisted ForestryManagement and ConservationProject. The study will develop a typology of shiftingcultivators so that planners can better understandthe diversity of systems involved. It will evaluate agroforestryschemes tried elsewhere in SoutheastAsia, review mechanismsto provide securityof tenure, and recommendalternative approaches for upgradinglocal productionsystems and appropriateinstitutional arrangements for doing so. The study, which is intended to minimize both relocationand adverse impactson the forest,will - 40 -

be carried out by the Forestry Departmentto increase the awarenessof social issues within the agency. When completed,a major redirectionof funds may be desirable to improve local production systemsin remote areas and in critical watersheds.

D. Land Allocationin the Outer Islands

Land ClassificationSystems

2.34 Forests provide ecologicalservices such as watershedprotection and riverflowstabilization, and forest cover appears to have an impact on local rainfall and, perhaps, on global climate. For these reasons, the more land that remainsunder forest cover the better from an environmentalpoint of view. However, the very large areas within forestryboundaries in Indonesia, the poor quality of data on which these boundarieswere based, and the presence of large cultivatedareas within forestryboundaries suggest that land allocationfor forestryand agriculturalneeds to be reviewed. Several approacheshave been suggested,but the objectivesand the criteria for land classificationhave yet to be agreed.

2.35 One approach to land allocationin the outer islandshas been proposed by LRD which, in the process of mapping land suitabilityin Kalimantan,found that many areas classifiedas productionforest had slones over 45Z and should be protected. It also found that the area suited to food crops was limited,but that large areas within productionforest categories had the slope and soil requirementssuitable for tree crops. Accordingly,LRD proposed revisedforestry boundarieswhich would significantlyincrease the amount of land in reserves and protectionforest (due mainly to the large area found to be over 45Z slope) and would put all areas where agriculturewas not counterindicatedinto a conversioncategory. Table 2.9 summarizesthe results of this exercise in Kalimantan.

Table 2.9: PERCENTOF KALIMANTANLAND UNDER CURRENT FORESTRY CATEGORIESAND PROPOSEDLRD REVISION

Forest category Current boundaries Proposed revision ------2 ------

Reserves and protection forest 19 30 Production forest 47 26 Conversionand nonforestcategories 34 44

Sourcet LRDlRePPProTStudies, 1986, 1987.

2.36 If the LRD recommendationswere followed,the amount of land in Kalimantan in reservesand protectionforests would increase from about 10 million ha to 16 million ha; the amount of land which could potentiallybe converted to agriculturewould increase from about 11 million ha to 23 million ha; and the amount of land remainingin permanentproduction forest would be reduced from about 25 million ha to 14.5 million ha. In East Kalimantan, - 41 -

Indonesia'srichest timber-producingprovince, this classificationsystem would potentiallyreduce the land within productionforest categories from 5O0 of the total land area (9.8 million ha) to 222 (4.3 million ha).

2.37 LRD's contentionthat a far larger area of Kalimantan is over 452 slope than currentlyrecognized should be carefullyinvestigated by the Forestry Departmentto ensure that such areas are adequatelyclassified and protected. The suggestionthat 10 million ha could be added to the land available for agriculturaldevelopment is more contentious. Although not all land would be converted,and conversionwould occur over many years, a classificationsystem of this type would have repercussionsfor the area under permanentforest cover.

2.38 The LRD proposal assumes agriculturewould have priority over timber production in areas suitable to tree crop production. In contrast,Forestry in Land Use Policy for Indonesia (M.S. Ross, 1984) takes a somewhat different approach. It argues that after land has been allocatedfor agricultureto meet the basic food needs of the population,a decision about what land should be maintained as productionforest must weigh those attributesthat contribute to the financialvalue of the productionforest, e.g., regenerativepotential, location and accessibility. Forestswith lower quality, either because of depletionor speciesmix, would have lower priority for preservationthan higher-qualityforests, and the least valuable forest land would be released first. In order to implementsuch a system,all agencieswould have to agree on an appropriateland classificationsystem, taking both agriculturalneeds and forest type into account.

2.39 A third approach to land classificationwould take into account the comparativeadvantage of provinces for agricultureand timber production. Table 2.10 shows the percentageof land in each provincewithin permanent forest areas and the estimatedpercentage of commerciallyharvestable timber. As indicated,Kalimantan, which has one third of the area within permanent forest boundaries,has more than half (55Z) of the commerciallyvaluable timber, and East Kalimantanalone has almost one quarter of all commercially valuable trees in Indonesia. Irian Jaya with one quarter of the area within production forest has only 9Z of the commerciallyvaluable species.

2.40 In the past, each provincehas been encouragedto be self-sufficient in rice production,raise secondaryfood crops (e.g., soybeans),plant tree crops, produce timber and accept migrants,even though some provincesmay have a strong comparativeadvantage in one form of productionover another. To continue this policy is neither economicallynor environmentallysound. Kalimantan,particularly East Kalimantan,has a strong comparativeadvantage in timber production,but has poor soils and is not well suited to food crops. Under the circumstances,Government should considerpolicies which minimize movement to East Kalimantan for land settlement. In contrast,provinces like North and South Sumatrahave relativelygood infrastructurein comparisonwith other outer island provincesand have a strong comparativeadvantage in tree crops. - 42 -

Table 2.10: PROPORTIONOF COMMERCIALTIMBER IN THE NATURAL FOREST BY PROVINCE

X Forest in permanent X Commercially Province forest categoriesla marketabletimber L

Sumatra Aceh 3.0 4.0 North Sumatra 3.0 2.0 West Sumatra 3.0 2.0 Riau 6.0 9.0 Jambi 4.0 3.5 South Sumatra 2.0 2.5 Lampung 1.0 0.0 Bengkulu 1.0 1.0

Sumatra Subtotal 22.0 24.0

Kalimantan West Kalimantan 7.0 8.5 Central Kalimantan 10.0 19.0 South Kalimantan 2.0 3.0 East Kalimantan 14.0 24.0

KalimantanSubtotal 32.0 55.0

Sulavesi North Sulawesi 1.0 1.0 Central Suiawesi 4.0 4.0 South Sulawesi 2.0 1.0 SoutheastSulawesi 3.0 0.0

Sulawesi Subtotal 10.0 6.0

Eastern Islands Bali and Nusa Tenggara 2.0 0.0 Maluku 4.0 5.5 Irian Jaya 25.0 9.0

Eastern Islands Subtotal 31.0 14.5

Java and smaller islands 5.0 0.0

Total 100.0 100.0

/a Forestry Departmentstatistics. /b Atlanta/INPROMA,Wood Raw Material Supply,1987. - 43 -

2.41 All these approachesto land use are based on the assumption that additionalland should be allocatedto agricultureand that some forest or degraded forest land should be used for agriculturalproduction. However, many forestersand environmentalistsargue that the amount of unplanned conversionis likely to be so large that no planned conversionshould take place. They also contend that the economicvalue of the natural forest is underrated. Under the circumstances,they argue that existing forest boundariesshould be defended to the greatest extent possible. Whether this can be done will depend largelyon whether Governmentcan develop land intensificationsystems to improve smallholderproduction and develop the mechanisms to permit farmers to buy and sell underutilized lands.

Land Use Issues Involving Critical Ecosystems Other than Forests

2.42 There are many land resourceareas other than forestswhich are of ecologicaland economic importance,and in which land use conflictsare also becoming increasinglyintense. Chief among these are wetlands,mangrove, and coastal areas.51 Most coastal regionsare flat and have poor drainage networks so that rainwater,floodwater and water backed up by tidal action are trapped on the land. This forms swampy areas which are relatively inhospitableto people and difficultto cultivatewithout major drainage works. Because of their physical characteristicsand the cost of suitable technologiesto develop them, swamps have relativelylow populationdensities. For this reason they are one of Indonesia'srichest areas for wildlife conservationand one of its last agriculturalfrontiers.

2.43 Experiencewith smallholdersettlement in swamplandshas been mixed. Both the best transmigrationsettlements and the worst are in tidally influencedareas and numerous technicalproblems must be overcome if smallholdersare to be settled in swamps.61 Recently,however, private investors,who have difficultyobtaining land in upland areas due to land tenure problems,have discoveredthe developmentpotential of swamplandsand in Repelita IV a large number of applicationswere made for the reservationof swamplandsfor developmentpurposes. Since it is technicallydifficult to develop swamplands,the danger exists that undercapitalizeddevelopers without adequate technicalknowledge may occupy large tracts of land, but destroy its value both for productionand protectionpurposes.

2.44 To minimize the adverse environmentalimpacts which might be associated with future swamplanddevelopment, studies are needed at the provincial

51 Indonesiaoriginally had an estimated36.5 million ha of peat, freshwater and mangrove swamps of which about 25 million ha remain, about 12Z of total land area. About 3,365,000ha of swamplandare in reserves.

6/ Because of the high organic content of swamp soils, some older communitiesin tidal reclamationschemes produce two to four times as much rice as upland communities. Swamps are also suitablefor oil palm and coconut, but not for rubber,coffee, tea, and cocoa. - 44 -

level to identifyareas which are most importantfor conservationand protection and to determinewhat criteria should be used for conversion. A study of priority areas for conservationin Sumatra is about to be undertakenby the Asia Wetlands Bureau in cooperationwith the ForestryDepartment, with financialassistance from the Netherlands. It will take at least two years to complete. In addition,thorough work is requiredon the hydrologicalimpact of drainage on downstreamand coastal areas and on possiblemitigatory measutes to reduce acidificationand other adverse effects. This work could potentiallyimprove understanding of swamp ecosystemsand help develop criteria for swamplanddevelopment.

2.45 A major problem in swamplanddevelopment and in the developmentand protectionof other sensitiveecosystems such as mangroves and coastal reefs is that no single agency is responsiblefor their management. Data on the servicesprovided to these areas is incomplete,and the extent of their degradationis unknown. Technical,economic and environmentalguidelines on their management do not exist. Under the circumstances,there is a strong case to be made for increasingthe role of one agency, in coordinatingother agencies involved in the managementof environmentallysensitive areas and in building the needed capacity in the provincesto take these issues of land management into account.

E. SelectedLand Use Issues in Java

Overview

2.46 Land allocationissues are importantin Java as well as the outer islands. The most significantaspects of demographicchange in Java involve the almost completeutilization of availablearable land in rural areas and rapid urbanization. As Table 2.11 suggests,population levels in rural areas in Java are growing at rates of less than 12 per year; while small,medium and large cities are growing, on average, about 3.5Z per year. Medium-sizecities in West Java are projectedto grow at 6.5Z per year and to increase fourfold in 25 years. Urban populationsshould reach more than 50 million people by the year 2000, more than the entire populationof Java in 1950, and most of this populationgrowth is concentratedalong Java's north coast. _ 45 -

Table 2.11: RURAL AND URBAN POPULATIONGROWTH IN JAVA

Population (million) Average growth Province 1985 1990 2000 2010 rate (Z)

West Java 30.834 36.581 43.325 54.175 2.5 Rural 23.373 2&.993 27.626 28.468 0.9 Small & medium 5.412 9.306 13.076 20.657 6.5 Large 2.049 2.282 2.623 5.050 3.5

Central Java 26.707 27.896 30.854 34.743 1.0 Rural 21.172 21.405 21.889 22.288 0.2 Small & medium 2.959 3.471 4.794 6.667 3.3 Large 2.576 3.020 4.171 5.790 3.3

East Java 32.040 34.669 40.758 48.200 1.6 Rural 25.318 26.748 29.718 32.734 1.0 Small & medium 3.245 3.842 5.411 7.698 3.5 Large 3.477 4.079 5.629 7.768 3.3

DKI (Jakarta) 7.629 8.887 11.376 12.000 2.3

DI Yoayakarta 3.055 3.290 3.847 4.551 1.6 Rural 2.337 2.439 2.650 2.862 0.8 Urban 0.718 0.851 1.197 1.689 3.5

Total Java 100.265 111.323 130.160 153.671 1.8

Source: Bank staff estimatesextrapolated from data provided by the Direc- torate General,Cipta Rarya (DGCK).

2.47 One consequenceof this growth is that both rural and urban population increasesare causing the conversionof prime agriculturalland to residentialuse. Despite Java's slow rate of rural populationgrowth and declining share of national-population,its rural population is expandingby about 150,000new agriculturalhouseholds per year. In general, this means decliningfarm sizes and increasedlandlessness, but so intenseis land pressure in Java that the need for houselotsalone is estimatedto require the conversionof some 10,000 ha of agriculturalland per yeal. The Indonesia National Urban DevelopmentStrategy Project (INUDS)has calcAlatedthat Indonesiancities will also expand by 376.000ha between 1980 and 1995, of which 222,500 ha would be in Java (Table 2.12). Thus, Javanese cities are expected to expand by about 15,000 ha per year. Roads, industriesand other uses are expected to increasetotal land conversionto 40,000 ha per year. This may considerablyunderstate r'tes of conversion in Java, as the DirectorateGeneral, Agraria reportedapplications to convert 76,000 ha of agriculturalland to other uses in 1986. - 46 -

Table 2.12: AREA EXPANSIONOF CITIES IN INDONESIA,1980-95

Urban area Area expansion, Island/ 1980 1995 1980-95 ('000 ha) provincel(metro) '000 ha 2 '000 ha 2 Total Annual S

Java 289.7 63 512.2 61 222.5 14.8 59 Jakarta 39.3 9 65.4 8 26.2 1.7 7 (Jabotabek)la 122.6 27 185.2 22 62.7 4.2 17 West Java 77.7 17 171.4 21 13.7 6.2 25 (BandungMetro) 24.9 5 49.4 6 24.5 1.6 7 Central Java 76.3 17 117.4 14 41.2 2.7 11 (SemarangMetro) 15.2 3 26.1 3 10.9 0.7 3 DI Yogyakarta 9.4 2 16.6 2 7.2 0.5 2 (Yogyakarta) 5.8 1 11.8 1 6.1 0.4 2 East Java 87.1 19 141.3 17 54.2 3.6 14 (SurabayaMetro) 28.1 6 53.8 6 25.6 1.7 7

Sumatra 90.6 20 164.3 20 73.7 4.9 20 (MedanMetro) 20.0 4 41.9 5 21.9 1.5 6 (Palembang) 11.7 3 24.5 3 12.8 0.9 3

Kalimantan 26.5 6 60.1 7 33.6 2.2 9

Sulavesi 28.7 6 59.3 7 30.6 2.0 8 (UjungPandang) 8.8 2 22.6 3 13.8 0.9 4

Eastern Islands 23.5 6 39.5 5 16.0 1.1 5

Bali!NusaTenggara 16.1 4 28.3 3 12.2 0.8 3 Maluku 3.0 1 5.9 1 2.9 0.2 1 Irian Jaya 4.4 1 5.3 1 0.9 0.1 1

IndonesiaTotal 459.0 100 835.5 100 376.5 25.1 100

la Includes all of Jakarta and the urban areas of the gabupatensof Bogor, Bekasi Karawang and Tangerang. Source: ER+MC International,"Proposal for an Action Program in the Jakarta-PuncakCorridor' (Jakarta: UNEPI/LH, 1984).

Sources Peter Gardiner,INUDS Project,Jakarta, 1987.

2.48 Reactionsto urban and industrialexpansion are mixed. On one hand, such expansionis desirableas cities create high-densityliving space, which relieves populationpressures in rural areas, and industrieshave far higher productivityand income-generatingeffects per hectare than agriculture. On the other hand, such conversionentails costs to the economy. Since it requiresUS$2,000-3,000 to create one hectare of new irrigatedland, the cost of compensatingfor the 40,000 ha on Java that are convertedto other uses - 47 -

could be as high as US$504100millionlyear, or US$1-2 billion between 198t'and year 2000. Since about 7.5 million ha in Java are under production, conversionat recent rates over a 20-year period would also reduce the cultivatedland on Java by about 10X. While manageable,this would place additionalpressure on agriculturein the outer islands.

2.49 Urban and industrialexpansion also entail other environmentalcosts. Increasingpopulation densities put pressureon critical ecosystemssuch as coastal mangroves and hillside forests. The destructionof mangroves, in turn, leads to increasedcoastal erosion, damage to urban dwellingsfrom wind and waves, and destructionof fish-breedingareas. Deforestationleads to increasedsoil erosion, siltation,flooding and other downstreameffects. Increasinghuman populations.. nd the proliferationof small-scaleindustries contributeto surfacewater pollution,which is hazardousto human health and detrimentalto coastal ecosystemsand fisheries. Water pollution,in turn, leads to increasedabstraction of groundwaterand the salinizationof shallow aquifers. These problems are common to both developedand developingcountries, but they are mitigatedto some extent in developedcountries through appropriatepricing (taxes)and other incentives,such as zoning and spatial planning. To date, however, there has been only limited successwith land resourceplanning in Java, in spite of a number of efforts.

The Jakarta MetropolitanArea - A Case Study in Land Use

2.50 The Jakartametropolitan area now has about 10 million people and with growth rates of 5 p.a., it is doubling in size every 15 years. Already the eighth largesturban agglomerationin the world, the Jakarta area is expected to surpass Los Angeles in size by the year 2000, becoming the world's seventh largest city.7/ Areas such as Depok and Cibinang on the peripheryof Jakarta are ezpandingat a rate of 10? p.a. This growth has created intense pressure on city servicesand led to a number of environmentalproblems. In responseto the increasingdensity of human activity and environmental impacts,a number of planning studieshave been carriedout in the Jakarta area. Their purpose has been to develop an effectiveland use policy, taking environmentalfactors into account. Some of the most importantfollow:

2.51 Jabotabek. The JabotabekMetropolitan Planning Study, begun in 1976 by the Ministry of Public Works (MPW),was the first study in Indonesiathat acknowledgedthe existenceof a metropolitanregion, extendingbeyond city boundaries. It coveredJakarta and the three surroundingdistricts Bogor, Tangerangand Bekasi (Figure2.1). This study advocateddeconcentration of urban growth to ancillaryurban centers around Jakarta. To do so, it proposed incentivessuch as upgradinginfrastructure in selectedurban areas. Although the proposalwas sound, it was difficultto obtain agreementacross agencies on investmentsneeded and the plan was not adopted. However, many provisions in the plan affected later thinking.

2.52 Jakarta-PuncakClearing House Study of Critical Lands. In 1983, UNEP undertook a major study on the management of urban growth along a north-south

71 Year 2000 ranking: (1) Mexico City (32 million), Tokyo (26 million), New York (22 million), Shanghai (19 million),Beijing (19 million), Seoul (19 million), Jakarta (17 million). - 48 -

axis from the coast (Jakarta)to the mountains (Bogor-Puncak)and beyond (Ciancur). Among the major environmentalproblems identifiedwere severe water pollutionfrom both urban and agriculturaluses, unnecessaryloss and degradationof prime agriculturalland, deforestationand potentiallyserious erosion in the mountains above Jakarta, flash floods and reducedwater supply, and extensive loss of naturalhabitats in forestsand coastal areas. The main purpose of the Clearing House reportwas to illustrateenvironmental linkages and identifyprojects and sourcesof funds. Priorityprojects includedwater pollutioncontrol in two of the most severelyaffected locations,water q-ualityimprovements in three pollutedwaterways, prevention of forest loss and erosion in the foothills,conservation of natural forest areas and establishmentof marine parks to protect coastal areas. The report served to focus attentionon the environmentas a regional rather than sectoralproblem, but UNEP was not successfulin mobilizing resourcesfor proposed projects and aggregateresource requirementsprevented both implementationand replication of the approach.

2.53 West Java Urban DevelopmentProject. This study, again by MPW, argued against limiting growth and counseledagainst a strategy that would depend on significantpublic acquisitionof land for urban development. Instead, it advocatedguiding urbanizationthrough improved spatial planning efforts. The plan conceivedthe developmentarea as a series of zones running parallel to the coast and recommendeddevelopment along an east-westaxis, excluding both low-lying areas and uplands (Map 21082). Five towns were selected as growth centers: Tangerang, Bekasi, Karawang, Cikampek and Cikarang. The report sidesteps complex issues of land regulationand reflects inherent limitationsin the spatial planning approach when not buttressedby needed regulatoryand policy measures.

2.54 In spite of the very large effort involved,a consensushas been achievedon only the most rudimentaryaspects of these proposals. Problems have resulted from a lack of clear authorityand differingperceptions by agenciesof the problems involvedand of the appropriateuse of regulatory licensingand planni.ngframeworks. So deep-seatedare the differencesthat the republic'svice presidentwas recentlycalled upon to mediate between agenciec in an effort to develop a land use plan for the Jakarta-Puncak corridor.

F. The Tools for Land Use Planning

Agency Coordination

2.55 There are numerous institutions with strong vested interests in land use planning and land allocationin urban and rural areas. Among the most importantare:.

(a) Agraria. The Basic Agrarian Law envisionedthat the Directorate General of Agraria in the Ministry of Home Affairs (MNA) would take the lead in developinga comprehensiveland use plan. In practice, however, Agraria has been mainly involvedin land use mapping and land registration,and since the 19609, it has had a limited role in macro-planning. - 49 -

(b) Cipta Karya. The DirectorateGeneral of Human Settlements(Cipta Karya or DGCK) in the Ministry of Public Works (MPW) is the strongest advocate for spatialplanning. To date, however, Cipta Karya has been mainly involvedwith housing and urban issues, and it is not well representedin rural areas.

(c) Agriculture. The Soils Research Center in the Ministry of Agricul- ture has a role to play in determiningland suitabilityfor agriculture. However, until recqntlythe agency has been underfunded, understaffedand overcentralized. Its main functionto date has been largely investigatingsoil type and recommendingappropria%e farming systems.

(d) BAPPEDAs. Each provincehas a provincialplanning office, or BAPPEDA,which can and should help make land use planning decisions. The obstacles,however, are large. Most data are aggregatedat the center and unavailablein the provinces,and skills are limited, particularlyamong governmentstaff. On the other hand, only local staff have the regionalknowledge and access to the detailed local- level data.

ge) Municipalities. Urban areas have their own local-levelgovernments and planning apparatus,and they frequentlyhave only limited interest in the impact of growth and other environmentalconcerns outside their city boundaries.

This fragmentationof responsibilitieshas led to a virtual impasse in land- relatedmatters. Efforts at sharing responsibilitiesthrough steering comittees have proven ineffective. Under the circumstances,it is critical to identify a lead agency which can coordinate the others.

Development of An Integrated Land Use Policy

2.56 The absenceof a coherent land use policy is a major impedimentto environmentally and economically sound development in both the outer islands and in Java. Each agency has its own needs tnd objectivesand there are no mechanisms,particularly at the center, for establishingcross-sectoral guidelines or mediating disputes. In the outer islands,the Forestry Department has stepped into the breach and developeda land use plan for 75Z of the country's land area; but forestry categorieshave been drawn up without detailed knowledgeof the slope and forest conditions,have incorporatedlocal cultivators within Forestry Department boundaries, and have not taken agricultural needs or land suitabilityinto account in definingconversion categories. In Java, land conversionand urbanizationare also proceedingwithout clear definitions of optimal land use.

2.57 Therefore, given the pace of developmAnt and the opportunity which still exists to make decisionsaffecting land use, Indonesiashould give serious considerationto a comprehensivereview of all aspects of land polic,. This would include a review of the Basic Agrarian Law, the Basic Forestry Law and procedures for land registrationand land allocation,especially in the outer islands. It would also includea review of measures for spatialplanning and zoning, licensingand taxationpolicy, particularlyin Java. - so -

Guidelineson Spatial Planning

2.58 In Indonesiathe concept of spatialplanning refers to the process of planning and designingefficient land utilization. Spatial planning can be a powerful tool for environmentalmanagement. and legislatiL.on spatial planning is about to be proposed by the State Ministry for Populationand Environment (MPE). Spatial planning frameworkshave been developedwithin the Ministry of Public Works, both for specific regionsand for sectors such as transmigration. While useful as informationtools, implementationof such plans has been limitedby their top-downdevelopment and the lack of appropriatemechanisms for enforcement. To addressthe first problem, spatial planningwill require broad participationat the provincial,district and subdistrictlevel. The importanceof this cannot be overstated. While the central governmentcan provide broad guidelinesand technicalsupport, final plans must incorporatethe views of the 'consumers,"i.e., local-level officialswith the authorityto licenseand control.

2.59 The tools for implementingsucl plans, once developed, includea wide range of instruments,most of which are cnly beginningto be developedin Indonesia. These includezoning for specifictypes of land use, e.g., residentialor industrial,licensing by the various agencies involved,and taxation to co;trol land use. The principlein taxation is that conversionto suboptimalland uses, from the point of view of the economy, can only be agreed at a price which will compensatethe public. For example,virtually all industrializedcountries protect agriculturalland from encroachmentby a two-tieredtaxation system in which nonagriculturaldevelopment is taxed at higher rates, reflectingin part the cost of providingadditional services. Spatial plans as broad developmentguidelines cannot be effectivewithout the appropriateregulatory and licensingsupport and these must be agreed upon, with broad agency participation.

ImprovedData Collectionand Mapping Services

2.60 In the past decade, Governmenthas undertakenlarge-scale aerial photography,land resourceasbessment and mapping in urban and rural areas. But problems remain. There are still no standardbase maps for Indonesia, data are fragmentedand redundant,and an adequategeodetic control aystem, which is critical for mapping and land registration,has yet to be completed in the outer islands. The reasons are understandable. There are numerous agencles involved in data collection (Table Z.13); and relativelynew agencies,such as the NationalCoordinating Agency for Surveyingand Mapping (Bakosurtanal),have had limitedabsorptive capacity and have remainedunder- funded and understaffedin relation to the task. Given ambitiousdevelopment targets, line agencieshave requestedand received relativelylarge amounts of money to do land resourceassessment for their own projects (e.g., estates, irrigation,transmigration and oil exploration),but the data gathered on this scale have not been absorbedby Bakosurtanaland are frequentlyinaccessible to others. - 51 -

Table 2.13t PARTIAL LIST OF LAND RESOURCE INVENTORY AND HAPPING AGENCIESIN INDONESIA

Armed Forces Survey and Happing Service Army Topographic Service (PUSURTABRI) Naval Hydro-OceanographicService Air Force Aerial PhotographicService

Bakosurtanal(National Coordinating Agency for Surveyingand Mapping)

Directorateof Geology GeologicalMapping Division

Directorateof Meteorologyand Geophysics

LAPAN (NationalSpace and AeronauticsInstitute)

Ministry of Agriculture Soils Research Institute DirectorateGeneral of Estates

Ministry of Forestry (MOF) Agency for Forest Land Use Inventories

Ministry of Home Affairs (MHA) DirectorateGeneral, Agraria BAPPEDAs

Ministry of Public Works (MPW) DirectorateGeneral for Water ResourcesDevelopment (DGWRD) DirectorateGeneral of Human Settlements(Cipta Karya, DGCK) MPW Mapping Center (PUSDATW) Various Directorates

Ministry of Transmigration DirectorateGeneral for Site SelectionPlanning and Programming

Pertamina (the national oil productioncorporation)

Source: State Ministry for Populationand Environment(MPE).

2.61 Under the circumstances,there is a need to consolidatethe existing piecemealefforts to carry out mapping and land resource inventories. Key agencies should be identifiedand strengthened,and they should be given adequate funds and technicalsupport to carry out their work. Priority should be given to fundamentals,such as base maps and an adequate geodetic network, and training and manpower developmentshould be accelerated. To determine what agencies should be strengthened,stronger coordination is needed aLong those agencies involved in data collection,compilation and dissemination. - 52 -

2.62 A major issue requiringattention is the effectiveutilization of mapping done in connectionwith Government'stransmigration program. In the past decade, the Bank has committedabout US$200 million to surveys and mapping intendedto identify land with agriculturalpotential in the outer islands. This work evaluatessoils, present land use and forest cover and would be useful for a wide variety of planning purposes. Its disseminationis particularlyimportant, since transmigrationhas slowed and land is being committedfor other purposes. In relation to the initial cost of collection, only small budgetary outlays are now needed to make this data base useful to the provinces.

Land Use Planning at the Provincial Level

2.63 Bakosurtanal, with Asian Development Bank (ADB) support, has recently initiateda project (Loan 730-IND) to strengthenkey land resource information centers and to improve the capacity of the BAPPEDAs (regionalplanning boards) in eight Sumatran provincesto make appropriateland use decisions. Under the project, a simplifiedgeographic information system (GIS) is to be established in the land use subsectionof the physicaland infrastructuresection of each BAPPEDA. Data would be obtained from local, provincialand national agencies to (a) evaluate the suitabilityof areas selectedby the provincial service offices for a particulartype of proposed development;(b) provide planners within the line agencieswith maps showingareas suitable for specifictypes of development;(c) enable boundariesto be drawn more accuratelythan at present; (d) permit a better delineationof areas for conservationand watershed protectioitand (;e)improve the selectionof farming systems suited to specific agroclimaticconditions.

2.64 This project is now being implemented,and some lessons are already clear. As was known, the capacity of the BAPPEDA to evaluate land use is weak and settingup the units requiresstrong technicalsupport, probably in excess of that provided by the small team from ADB. On the other hand, early experiencewith mapping boundaries,identifying overlapping claims, isolating Ohot spotsn (e.g., areas where protectedwildlife and people are coming into contact) and devisingprograms to deal with these problems confirms that only within the provincescan authoritiesfind adequate solutions. The fact that ADB has provided salary support to project staff has been a major factor in permitting full- time commitmentand improvingthe quality of work.

Recent Developments

2.65 In November 1488, Governmentannounced the formationof a new National Land Agency (Badan PertanahanNasional). This agency was created by removing the DirectorateGeneral of Agraria and its provincialoffices from the Ministry of Home Affairs and making it directly accountable to the President. Under these arrangements, the new agency is a potential focal point for coordination. This is a very significant step toward improved land use management. At the time of formation,the new agency'smandate was not yet clear. During substequentmeetings with officialsfrom the new agency, however, the Bank urged that the agency undertakea comprehensivereview of land use policy covering issues relatedto: - 53 _

(a) the allocationof land for forestryand agriculture;

(b) the managementof other critical ecosystemssuch as mangroves and swamps;

(d) social and technicalissues in land registration;and

(e) policies related to land acquisitionand compensation.

At the provinciallevel, the roles of the BAPPEDAs,the former provincial Agraria offices and the municipalitiesalso need to be clarified.

2.66 To manage land sustainably,the new agency should also give due considerationto improvingthe basic tools for land use planning. To do this:

(a) the geodetic referencesystem in the outer islands should be completedas this is the basis for mapping and land registration;

(b) Bakosurtanaland the ForestryDepartment should agree on a common mapping system;

.c) Bakosurtanal'sability to compile and recover existingmaps should be strengthened;

(d) agencies for natural resourceinventory such as the Soils Research Center should be strengthenedand data decentralized;

(e) data collected in conjunctionwith the transmigrationprogram should be decentralized;and

(f) spatial plans should be developedin cooperationwith local-level agencies and the instrumentsfor spatialplanning, e.g. licensing, zoning and taxation,should be integratedand simplified.

For maximum efficiency the mandate of the National Land Agency should be extended to permit coordinationon these issues. - 54 -

III. JAVA UPLANDS AND kJATERSHEDMANAGEMENT

Introduction

3.1 Java's watershedsdiffer in many significantways from those in the other islands. In general, they are both more fertile and far more densely populated. This means that opportunitiesfor afforestationor exclusionof existing populationsare limited, and other means must be sought to restrict or reduce soil erosion and its on-site and off-siteeffects. This chapter deals exclusivelywith watershedmanagement in Java, based on detailed study and analysis;but many of the lessons learnedare applicableto the outer islandsas well.

A. Land and DemographicFactors in Java

Physical Features

3.2 Java is dominatedby a range of volcanoeswith elevationsranging from 300 meters (m) to about 3650 m above sea level. Roughly one third of Java's land area is flat or nearly flat, one third hilly or sloping, and one third steeply to very steeply sloping and mountainous (Table 3.1). Java's land area is drained by more than 100 rivers,most of which are less than 50 km long and drain directly into the sea. The great natural fertilityof Javanese soils is largelydue to the depositionof recent volcanicmaterials. There is hardly an area on Java that has not received some volcanic ash deposit during the last 50 years. This makes most Javanese watersheds far more resilientthan watershedswith shallow, slowly renewed soils such as those in Haiti, Nepal and even non-volcanicareas in Java and the other islands of the Indonesianarchipelago.

Table 3.1: AREAS IN VARIOUS SLOPE CLASSES IN JAVA

Land Type Hectares

Slope class 0-8? 4,404,000 Slope class 8-30? 4,817,000 Slope class over 30? 3,596,000 Tidal lands 201,000 Volcanic cones,wasteland 200,000

Total 13,218,000

Source: FAO AgroecologicalData Base. - 55 -

3.3 Most of Java's watershedsare classifiedas 'critical'in the sense that they are subjectto actual or potentialdegradation due to erosion,but there is no precise definitionof "critical." The simplest definition considersany land with slope greater than 502 as critical,while other definitionsinvolve criteria such as yield potential,ability to regulate water flow and ability to serve protectivefunctions. The total area of all watersheds listed as 'critical'covers about 7.8 million ha or 60Z of Java (Table 3.2). For practicalpurposes, however, the most threatened lands are locatedprimarily in the steep upper watershedwhere actual or potential land degradationis worst. This comprisesabout 1.9 million ha or about 15Z of Java's total land area. Areas with the greatest erosion risk as reflectedby rainfall intensityand current land use are shown in Maps 21468-21470.

Table 3.2: POPULATIONAND POPULATIONDENSITY IN CRITICAL WATERSHEDSOF JAVA

Upper water- PopulationLa Populationdensity Total area shed area in upper in upper watersheds Watershed (ha) (ha) watersheds (people/km2)

Ciliwungl Cisadane 536,532 96,516 796.696 825 Ciujung 682,415 143,700 nd nd Citarum 1,029,610 183,440 952,391 519 Cimanuk 592,612 388,061 2,174,912 560 Citanduy 486,121 352,520 2,396,860 679 Serayu 652,837 169,195 1,200,431 709 Lusi 734,400 173,746 870,468 501 Serang nd 171,625 nd nd Solo 2,002,137 121,014 727,379 601 Brantas 1,158,149 205,000 1,619,000 790

Total 7,874,813/b 1,913,817 10,738,137/c 671 la 1983 data (includingupland cities such as Bandung,Malang). lb Compared to Java's total area of 13.2 million ha. /c IncludingCiujung and Serang,estimated at 12 million. nd - no data

Source: Ministry of Forestry. Feasibilitystudies fot upper watershed management in Java's criticalwatersheds, 1985.

DemographicFactors

3.4 Of Java's roughly100 million people, an estimated12 million reside in upper watershed areas. Differencesin populationdensity relate to soil - 56 -

fertilityand carryingcapacity. The averalepopulation density is 671 per km2 in upland areas, compared to 788 per km for Java as a whole. In individualupper watersheds,however, populationdensity is lower, ranging between 400 and 550 per km2 (e.g., upper Solo, 432 per ki2). On the more fertile and productivevolcanic soils, average populationdensity is markedly higher than in limestone areas which are more erodible and have lower inherent soil fertility (Table 3.3).

Table 3.3: COMPARATIVEPOPULATION DENSITIES

Area Average populationdensity

Average for all Java (1987) 788 per km2 Districts in volcanic areas of upper watersheds 550-820 per km2 Districtsin limestoneareas of upper watersheds 430-570 per km2 Average for all Indonesia (1987) go per km2

Source: 1983-85 district-leveldata.

3.5 Overall, Java's populationgrew 1.8Z per year between 1980 and 1985, but the annual growth rate in upper watershedswas closer to 1.OZ. From 1974 to 1984, the average annual growth rate in the upper Solo watershed (Wonogiri) was 1.OZ and in Gunung Kidul it was between 0.9Z and 1.02. Even with these low rates of growth, there is pressure to cultivatenew lands and more and more marginal land is being brought into production;but contrary to popular perception,given the high populationdensities in the upper watersheds,it is unlikely that populationgrowth in the lowlands is forcingpeople into the uplands.

3.6 The slow rate of populetiongrowth in upland areas, compared to lowlandareas, is apparentlydue to movement induced by limitedemployment opportunities. In addition,in order to reduce environmentaldegradation and poverty in upland areas, populationsin criticalwatersheds have also been targeted for recruitmentby transmigrationauthorities. From April 1984 to February 1986, 109,433 familieswere moved through the transmigrationprogram, of which 351 were from criticalwatersheds, even though these areas have only about 12S of Java's population. This rate of out-migrationalone would be sufficientto lower the growth rate in upper watershedsto 0.9S per year. Since sponsoredtransmigration ceased in mid-1986,there may now be increased pressure on underemployedlabor in upper watershedsto seek alternatives elsewhere.

3.7 Although data on income distributionin upland and lowland areas are not available, some informationexists on patterns of landlessness. A survey of eight rural Javanesevillages (Wiradiand Manning, 1984) found that 36Z of village householdshad no land at all. Of these, about 11? rented agriculturalland. Howefer, landlessnesswas higher in lowland villages than in upper watersheds. While 2-24Z of the households in upland areas were landless,the portionwas 28-73S in lowlandvillages (Table 3.4). Since there - 57 -

are many more families in the lowlands,landlessness and poverty are higher in the lowlandsthan in upland areas, but many householdsin critical upland areas are among the poorest in Java.

Table 3.4: GINI RATIOS FOR SAWAH LAND OWNED, EIGHT LOW, MEDIUM AND UPLAND VILLAGES OF JAVA, 1982/83

GINI Ratio Land owned Cultivated 2 HH lb Owners Village Type/a landless All HH only All HH Cultivators

Wargabinangun Low 73.3 0.86 0.62 0.76 0.52 Lanjan Low 28.1 0.63 0.50 0.63 0.48 Gemarang Low 65.7 0.81 0.54 0.72 0.45

Sukosari Medium 51.7 0.74 0.50 0.77 0.53 Sukaambit Medium 31.3 0.64 0.49 0.51 0.39

Gunungwangi Upland 23.7 0.58 0.45 0.49 0.37 Malausma Upland 2.4 0.50 0.48 0.47 0.44 Ciwangi Upland 21.0 0.63 0.54 0.59 0.47

All villages 36.3 0.69 0.54 0.68 0.52

Note: The Gini ratio measures the degree of equality or inequalityof distributionof land or incomes a Gini ratio of 0.0 indicatesperfect equality of distributionand a ratio of 1.0 a complete concentrationof all resources.

/a Lowland villages = 8, 2 and 45 meters above sea level. Medium villages = 334 and 330 meters a.s.l. Upland villages = >700 meters a.s.l. b RH = Household;land area in hectares.

Source: Wiradi Gunawan and Chris Manning. 'Land Ownership,Tenancy, and Sourcesof HouseholdIncome: Community Patterns from a Partial Recensus of Eight Villages in Rural Java' (YayasanPenelitian Survey Agro Ekonomi, Bogor, Indonesia,1984).

Current Land Use

3.8 Table 3.5 summarizestrends in land use on Java over the last 100 years. As clearly indicated,agriculture dominates. In uplard areas (predominantslopes greater than 30Z), approximately51Z of the land is devoted to rainfed agriculture,232 to wet rice cultivation,12 to other uses and 252 to forests. Also as indicated,land use in Java has largely stabilized.The potential for expandingirrigated rice areas has largely been exhausted,as has the potential for rainfed agriculturalland. Forested areas are estimatedto have declined at a rate of about 18,000 ha annually over the - 58 -

last 50 years, a trend that has only recentlyslowed, due to the lack of additionallands suited to agriculture. Today, Java has an estimated2.4 million ha of natural and plantationforest, but as much as one third is of very poor quality.

Table 3.5: LAND CLASSIFICATIONBY AREA ON JAVA AND MADURA, 1883-1983 ('000ha)

IrrigatedFarm Land 18831a 1913 1938 1963 1973 1978 1983

IrrigatedFarm Land 1,845 2,220 3,368 2,528 nd 3,511 3,501 Rainfed Farm Land 640 1,775 3,251 3,119 nd 3,520 3,407 Estates 241b 675/b 1,012 613 649 615 595 Home Gardens and Compounds nd n.a. 1,252 nd nd 1,592 1,615 State Forest nd nd 3,035 3,000tk 2,891 2,319 2,396/b Fishponds nd nd 54 nd nd 36 30 NonfarmLand Uses /f nd nd 1,247 nd nd 1,626 1,675

Total --- 13,219 --- 13,219 13,219

la Does not includeMadura island. tb Or most relevantdata, 1875, 1920, 1965 and 1981, respectively.

3.9 Because of the wide varietyof elevations,slopes, soils, vegetation and moisture regimes,agriculture in the upper watersheds is characterizedby much greater diversitythan the lowlandareas. A large proportionof the uplands is suitable for growing annual, perennial and tree crops, while the flatter, alluvial soils are suitable for irrigated crops. Annual crops are cultivated on the lower to middle slopes, and, to a lesser extent, mixed gardenswith tree crops are grown. Unsustainabledryland practices are often used for annual crops. Typicalupland cropping sequencesinclude dryland rice, corn, peanuts, cassava and cowpeas, in many variations. On steeper slopes,a wide variety tree crops for food and timber may be planted as part of more sustainableagroforestry systems.

B. EnvironmentalDegradation

Physical Indicators

3.10 Soil Erosion. Some of the importantphysical indicatorsof environmentaldegradation in Java's watersheds are soil erosion, increased silt content of river water and increasedirregularity of river flows. Java's soil erosion derives from geologicalerosion (naturalerosion) as a result of land upheaval and climatic factorsand acceleratederosion as a result of land use. - 59 -

3.11 Geologicalerosion is practicallyunavoidable. On Java it may assume seriousproportions, as in the case of post volcanic mudflows, landslidesand similarcases of mass movement of soil and rocks. On the other hand, volcanic eruptionson Java have greatlycontributed to accretionand depositionof new soil materials from volcanic ash. Because of tectonic uplift and volcanic act dity, it is believed that natural erosionwas roughly in balance with new soil formationin Java prior to extensivecultivation in the uplands.

3.12 Acceleratederosion is a consequenceof land use by humans. Progressivedeforestation, followed by regular soil tillage and removal of other protectivevegetative cover, has exposedmore and steeper lands to erosion. Particularlyserious are the increasingareas under annual cropping systemswhich disturb the soil and leave it exposed during criticalperiods at the beginningof the wet season. An additionalsource of erosion and sedimentationin the uplands of Java is road construction,which may induce seriouslandslides on otherwise stable slopes. Along with dryland agriculture,road constructionis probably the most importanthuman activity contributingto erosionand sedimentation.

3.13 Climate and the geologicalorigin of soil are the major factors in determiningits development,fertility and erodibility. Table 3.6 shows differracesin rates of erosion in volcanic and limestoneareas. Volcanic soils are generallyless erodible than sedimentary(limestone) soils, which are often shallowerand more poorly drained. More important,however, due to high rainfall,natural erosion on any soil in Indonesiais far higher than it is in temperateareas. Erosion on volcanic soils is perhaps 10 times as great (0.6 mm and 7.2 tonslha) as average erosion in the United States (0.06 mm or 0.7 tons/ha) and on limestonesoils it can be nearly 100 times (5 mm and 60 tons/ha) higher than in the United States. Of the critical upper watershed areas, perhaps two-thirdsare in volcanic areas and one-thirdare in limestone areas.

Table v.6: A COMPARISONOF EROSIONRATES IN VOLCANIC AND LIMESTONEAREAS IN JAVA

Volcanic areas Limestone marl areas

Rutten (1917) 0.1-0.6 mm 1.6-5.0 mm (1.2-7.2 tons/ha) (19-60 tonsiha)

Mohr (1933) 0.5-1.0mm 2.0-5.0 mm (6-12 tons/ha) (24-60 tonsiha)

3.14 Silt Content. The silt contentof river water is another indicator of erosion and the Solo River in Java carries 60 times more sedimentthan the Rhine, even though it is only one third as long. Sedimentationin Java has been measured since about 1910 (with interruptions)and is now measured on a daily basis in major watersheds. The collecteddata show an increase in sedimentcontent over time, but over the last decade, the rate of increase - 60 -

appears to have leveled off (Table 3.7). Heavy sedimentloads entail costly downstreameffects, includingsiltation of dams, reservoirsand irrigation systems, raising of riverbedsand correspondinglowland flooding,and siltationof ports and navigationchannels.

Table 3.7: MAXIMUM OBSERVED SILT CONTENT OF SOME RIVER WATERS IN SELECTEDUPPER WATERSHEDSOF JAVA (Mg per liter)

19111 19321 1970 1971 1972 1973 1974 1975 1976 1912 1933

Ciliwung 1,150 2,750 8,980 10,100 30,500 36,500 Citanduy 983 3,650 2,200 4,550 Cikawung 300 2,600 1,250 5,850 1,510 2,230 4,220 B. Solo 4,530 13,700 23,700 Kali Konto 95 222 738 600 8,400 5,000

Source: Mardjono and Badruddin, 1981.

3.15 IncreasedIrregularity of River Flows. As a result of deforestation in upper watersheds,incoming rainfall runs off more freely and concentrates more rapidly in waterways,thus causing flash floods. Because less moisture is retained,water tables decrease and the durationof flows becomes shorter. Low flows during the normal dry seasonmay disappearaltogether. A commonly used measure of increasedirregularity of river flows is the ratio of observed maximum dischargerate to minimum dischargerate (ratio QmaxlQmin)over a year. Although there are difficultiesassociated with the interpretationof time-seriesdata for watershedson Java, in part becausevariations primarily reflect the intensityof storm flows, it appears that the differencebetween high water and low water flows has widened in the Ciliwung, Citanduy, Cikawung and Kali Konto watersheds during the 1970/80 decade (Table 3.7). In other watersheds,the trend is less evident. (For details see Annex 3A, Table 1). Some rivers also show a decrease in dry season flows which can be as serious as an increase in flood levels if it reducesdownstream water suppliesto municipal and industrialusers.

Economic Losses due to Upland Degradation

3.16 Erosion has on-site and off-site effects. The principalon-site effects include loss of fertile topsoil, reductionin soil depth, loss of soil moisture required for crop growth, and loss of capacity to produce more profitablecrops. These on-site effects are theoreticallyquantifiable. Their consequencescan potentiallybe valued in terms of net income,capital assets,wealth distribution,morbidity and mortality,and fertilityand migration, although these factors are difficultto measure in practice. The depositionof soil particlesat downstreamlocations also imposesoff-site costs. - 61 -

3.17 It is importantto try to separate the relative effects of human- induced erosion from that of natural erosion. With limited exceptions, geologicalerosion needs to be taken by policymakersas a given. Manmade erosion is more susceptibleto policy interventions,especially to alterations in land use or farming systems. On the other hand, some consequencesof erosion, particularlyoff-site ones, inflict the same costs regardlessof the origin of soil loss, and it is difficultto evaluate the relative impact of geologicaland human-inducederosion. Methodologicalproblems are caused by the lack of data on the relationshipbetween observed erosion and measured sedimentyield at differentpoints and due to uncertaintiesabout the time lags involved.

3.18 While recognizing the difficultiesin relatingcause and effect in dealing with soil erosion, an attempt has been made to account for the economic losses due to on-site and off-site effects of soil erosion on Java. Details of the methodologyand steps followedare included in Annex 3B. Since the distributionof soils is fairlywell known, as is the erodibilityof these soils under the various conditionsof slope, rainfall erosivityand plant cover, soil losses under major types of land use and production systemswere quantifiedand relatedto soil-specificand crop-specificproductivity losses. The quantificationof these productivitylosses was then used to provide an order-of-magnitudevalue of the on-site cost of erosion to the national economy. Table 3.8 summarizesthe resultsof this analysis.

Table 3.8: ON-SITECOSTS OF EROSION

Average annual Weighted Capitalized soil loss on average value of Total agricultural annual prod':c- productivity area land tivity loss loss Province (Em2) (Metricton (2) (US$ H) per ha)

West Java 47,370 168.0 4.4 141.5 Central Java 33,013 145.8 4.1 29.1 Yogyakarta 3,346 108.1 4.7 5.7 East Java 45,308 87.2 4.1 149.6

Java Total 129,037 138.1 - 326.0

Source: Adapted from Magrath and Arens, 1987.

3.19 The off-site costs of erosionwere also estimatedincluding costs associatedwithr (a) siltetionof irrigationsystems; (b) dredging of harbors and waterways; and (c) losses of hydroelectricand irrigationcapacity due to sedimentationof reservoirs. Some off-site consequencesof erosion were not quantifieddue to lack of data. These includedincreased irregularity of river flows, flood damage due to sedimentationand raising of stream beds; loss of infrastructure,human life, livestockand crops due to flooding;and - 62 -

disruptionof domestic and industrialwater supplies due to reduced dry season water flows. The results of this analysis are suammarizedin Table 3.9.

Table 3.9: TOTAL ESTIMATEDANNUAL COSTS OF SOIL EROSION ON JAVA (US$ million)

West Java Central Java Yogyakarta East Java Java Total

On-site 1.2 29 6 150 326

Off-site

IrrigationSystem

Siltation 1.7-5.7 0.8-2.7 0.1-0.5 1.2-4.0 7.9-12.9

Harbor Dredging

(1984-85) 0.4-0.9 0.1-0.3 -- 0.9-2.2 1.4-3.4

Reservoir

Sedimentation 9.0-41.3 3.5-16.3 -- 3.8-17.3 16.3-74.9

Total 152.6-189.4 33.5-48.4 5.8-6.2 155.5-173.1 351.6-417.2

Sources Adapted from Magrath and Arens, 1987.

3.20 Taking these factors into account, the on-site cost of soil erosion on Java is estimatedat about US$330 million per year, while the off-site costs are estimatedat US$25-90 million per year. Per hectare of arable dryland, the on-site cost would equal US$68 per year, the off-site cost US$5-19 per year. These costs are lower than expected and relativelymodest when compared to losses attributedto deforestationin the outer islands (estimatedat US$1 billion annually)or to the very large costs of water pollution in the lowlands. Furthermore,costs associatedwith on-site degradationare four to ten times higher than the cost of off-site effects. This suggests that soil erosionprograms should emphasizeon-site interventionsto reduce erosionand to increaseproductivity and incomesmore than interventionstu reduce off-site effects. - 63 -

C. Current Programt and Projects in Upper Watersheds

GovernmentAgencies Invclved in WatershedManagement

3.21 The need for watershedmanagement arises from the interconnected nature of soil and water systems. In particular,the transportof waterborne silt across property boundariesrequires, in additionto technological interventions,planning and collectiveaction on a watershed basis. Watershed managementexplicitly recognizes that upstream Land use generatesnot only direct outputs such as timber, food and fodder,but also downstreameffects such ab water level and sedimentation. In the absence of unified management or some similar institutionalmechanism, upstream users will selectmanagement strategieswithout considerationof their impact on downstreamusers.

3.22 Because of the cross-sectoralnature of watershedconcerns, nu- nus agenciesare involved in watershedmanagement in Java, of which the maj.~.dre:

(a) Perum Perhutani,a parastatalunder MOP that functionsas the forestryservice in Java. STis agency has been mainly concernedwith forest management,product-on and security. However, it has recently begun to adopt a more participatoryapproach, working with villages to improveliving conditionsin order to reduce encroachmenton state forest land.

(b) The Ministry of Forestry (MOF), or Forestry Department,is the lead agency for the Government'sRegreening Program and Reforestation Program. Through its DirectorateGeneral for Reforestationand Land Rehabilitation(DGRRL), MOF has responsibilityfor soil and water conservationplanning for all land of greater than 82 slope regardlessof its tenure or present land use. DGRRL activitiesalso include reforestation,check dams, and demonstrationfarms to promote a standardizedand subsidizedpackage of bench terracingand improved dryland agriculturalpractices.

(c) The Ministry of Agriculture (MOA) has a minor office, the .ub- Directoratefor Soil Conservation,under its DirectorateGeneral for Food Crops. It supportsresearch and extensionto intensifydryland agriculturein Java's uplands. This research is oriented along commoditylines, but is increasinglyintegrating soil conservation practicesinto improwedupland farming systems.

(d) The Ministry of Public Works (MPW) has broad water resource management responsibilities,but in watersheddevelopment programs it is responsiblefor water control structures,irrigation systems, and monitoringwater flows and sedimentation.MPW is also responsible for the planning,design and constructionof roads and major water control structuresin upper watersheds.

(e) The Ministry of Home Affairs (MBA) supports the provincialand local- level governmentsin their efforts to plan and coordinateregional developmentactivities, including those relatingto watershed - 64 -

management. It plays a role in the national RegreeningProgram and is the lead agency for the externallyassisted Upland Agricultureand ConservationProject in East and Central Java.

(f) The State Ministry for Populationand Environment(MPE) monitors the activitiesof the various agencies involvedin the planning and implementationof watershedmanagement activities. It has been a principalproponent of the concept of watershedsas units for the analysis,planning, and managementof land and water resources.

(g) The National DevelopmentPlanning Agency (BAPPENAS)exerts a significantinfluence over the programs of the various government agencies through its i.ontrolover budgetaryallocations. However, since agriculture,forestry, water resourcesand environmental managementare under differentsectors, the BAPPENAS review process tends to compartmentalizerather than integratethe activitiesof the planning and implementingagencies.

Due, in part, to the numerous agencies involvedin watershedmanagement and their differentmandates and objectives,and despite concertedefforts to the contrary,only the radimentsof a policy toward cohesivewatershed management and land use in Java are in place. Instead,most interventionsoccur in donor-assistedprograms in selectedupper watershedareas.

Table 3.10: GOI AND FOREIGN-ASSISTEDPROGRAMS IN TO UPPER WATERSHEDSIN JAVA

GOI Programs in Upper ------Rp billion ------Watershedsof Java 1981-81 1982-83 1983-84 1976-86

Regreening Program 22.88 22.63 166 la ReforestationProgram 4.41 32 /a

Total 198

------US$ million - - - - Foreign-AssistedUpper Watershed Committedas Spent as of Proiects in Java lb of mid-1987 mid-1987

Upper Solo WatershedProject (FAOIUNDP) 1.18 1.18 YogyakartaRural Development(IDA/IBRD) 10.00 IA 10.00 Ic Kali Konto (Netherlands) 3.26 .46 Citanduy II (USAID) 16.76 12.10 Uplands Agricultureand Conservation 30.20 1.84 (USAID,IBRD) Total 50.22 25.84 la MOF and agenc7 estimates,and extrapolationstherefrom. /b See Annex 3C for details. /c Assuming two thirds of the project's$15.1 million expenditureswas for uplands. - 65 -

Maior WatershedPrograms

3.23 Solo Watershed Prolect. The earliestexternally assisted program dealingwith upper watersheddegradation and sustainableproduction systems on Java was the FAO Solo WatershedProject (1972-78),funded by UNDP. The Solo Project developedthe integratedterracing/fodder/animal husbandry system to replace annual cultivationon upland slopes,which system became the nodel for subsequentupland projects, includingthe RegreeningProgram. In areas up to 502 slope, this basic approach involves subsidizingbench terrace construction throughcash wages and/or free agriculturalinputs, either directly or through the provisionof credit. Terraceconstruction is then complementedby impr,vingcrop husbandryand by introducinggrasses on the riser and lip to support livestockand to help control erosion. On slopes greater than 502, the RegreeningProgram and other projects discouragedfarmers from growing annual crops and instead encouragedthem to plant tree crops for cash income.

3.24 RegreeningProgram. Government'sRsgreening Program (INPRES Penghijauan),executed by the ForestryDepartment, is by far the largest upper watershedprogram in Java, with estimatedexpenditures of US$166 million in Java during 1976-P6 (Table 3.10).1/ Regreeningfunds are for privatelyowned land, as distinct from the Government'sprogram for state forests, the Refor- estation'rogram (INPRESReboisasi). Regreeningcovers a large number of activitiesother than afforestation,and of regreeningexpenditures in 1982183, 622 was for check dam construction,22! for agricultureand silviculture (nurueries,model farms, social forestry),10! for rehabilitationof terraces (Table 3.11).

Table 3.11: REGREENINGFOR JAVA, 1982/83, 1983/84,BY ACTIVITY (Rp '000 and percent)

1982/83 1983/84

Nurseries 1,735,000 1,258,000 (9O) (5X) Planting 1,025,836 1,644,705 (52) (72) Terraces 2,218,000 3,688,000 (112) (152) Check Dams 12,450,000 12,690,000 (622) (54%) Model Farms 1,716,000 3,217,000 (80) (142) Social Forestry 951,000 1,138,000 (5Z) (r)

Total 20,097,000 23,635,000

Source: Forestry Department.

1/ Regreeningcost US$466 million for all of Indonesia,or 2.0-6.22of annual central payments to regional governmentsduring 1976-85. - 66 -

3.25 Since 1976, some 3.5 million ha have been planted with trees under the RegreeningProgram, but survivalrates, estimatedoverall at 12-20Z, have been low. This is due to the poor quality of seedlingsand supply problems, and the to lack of attentionto providingalternative sources of food supply for local people. By 1980, concern about low survival rates of seedlingsand a desire for immediateresults from erosion control in project activitiesled to the inclusionof check dam constructionand model farms in the Fegreening Program. Programshave just been startedto involve local people in project design.

3.26 One strengthof the RegreeningProgram has been its direct channeling of earmarked funds to local government. However, rigid central planning and budgetingprocedures and poor coordinationbetween the lead agency (Forestry) and other ministrieswhose participationis crucial (agriculture,public works, home affairs)have caused major implementationproblems. Furthermore, Government'semphasis cn equity throughprojects for the uplands, rather than best techuicaloptions, has frequentlyresulted in check dams and other works that are poorly sited and built to low technicalstandards. While there is no doubt that the programhas had results, it has been costly in terms of what has been achieved.

3.27 ExternallyAssisted Projects. Since 1973, the Bank, FAO, UNDP, USAID and the Netherlandsgovernment have contributedUS$25.8 to five donor:assisted programs that have substantiallyor entirely focused on Java's uplands (see Annex 3C). In 1988, the Bank began supportof a US$35 million upper watershed soil conservationand agricultureproject in the Wonogiri dam catchmentarea. In spite of the importanceattachied to these activities,total donor assistancesince 1973 was only US$3 million more than the regreening expendituresin Java for one year, 1982183 (US$22.6million).

3.28 Government'sRegreening Program and donor-assistedprograms differ significantlyin terms of scale, objectivesand technicalsupport. Whereas regreeningextends to all nine 'critical"watersheds in Java and 18 provinces outside Java, no donor-assistedprojecc operates in more than two watersneds or two provinces. Moreover, regreeninghas been viewed as a vehicie for employment-creationin underdevelopedrural areas and distribut'ngfunds to such locationsto stimulatemore balanced regional development. Donor- assistedwatershed projectshave emphasizedincreasing the productivityand incomes of upland farms, soil conservation,and in some cases, local institution-building.Given the predominanceof the RegreeningProgram in Governmentexpenditures, a strong argument can be made for program-widereview and support.

D. Upland Farming Systems

3.29 Although there are numerous Governmentprograms in the uplands, the real watershedmanagers of Java are its upland farmersand families. Constrainedby poverty and technology,their pursuit of arable land to produce food, fuel and fodder has a profound effect on soil and water resources. Despite considerableresearch and speculationabout the objectivesand - 67 -

opportunitiespursued by Java'supland farmers, important questions remain unanswered.For example,a varietyof governmentprojects and programsseek to promotechanges in farmingsystems and landuse in orderto raiseincomes and reduceerosion. However.the successof many of theseefforts in either raisingfarm incomesor in reducingenvironmental degradation is uncertain. To understaulthe reasonsfor successor failure,the motivationsof farmers and the effectivenessof interventionsmust be understood. Overview 3.30 Althoughproduction for home consumptionis stilla major featureof uplandagriculture on Java, severalfactors are changingthe subsistence-ba_ed economiesof the uplands:(a) the increasingavailability of markets;(b) the presenceof off-farmwork; and (c) increasedlandlessness. An increasingly importantchange is the degreeof marketinvolvement (Roche, 1987). In part as a resultof risingincomes among urban-dwellers and lowlandrice producers, marketdemands are resultingin a diversificationof the ruraleconomy in some parts of Java. The risingdemand for fruits,vegetables and meatshas resultedin changesin croppingpatterns in some uplandareas away from the major secondarycrops grown for subsistence. 3.31 The secondimportant change is in the availabilityof off-farmwork. Surveysconducted by the Rural DynamicsStudy show that one fifth of the economicallyactive population of ruralareas engagesin short-termseasonal migrationin order to work as laborers,pedicab drivers and in small-scale trade (Colter,as citedin Roche,1987). Over 1976-83,rural household income in the West Java Cimanukwatershed rose by 3.9Z per year,with the largest annualgrowth (5.5Z) occurring among medium-size farms (0.25-0.50ha). Income of landlesshouseholds rose by 4.7-4.8Zper year, and mostlydue to increases in earningsfrom nonagricultural employment. 3.32 Landlessnessand tenancyare also increasingwith significant ramificationsfor farmingpractices. In Java'suplands, a wide rangeof wage labor,contract hire and sharecroppingtakes place in farm production,each with implicationsfor the adoptionof new technologiesand for decisions betweensubsistence and cash cropping.To date,however, there are few studiesexamining tenancy and its impacton the adoptionof new technologies. 3.33 Thesetrends have importantand oftencontradictory implications for soil erosion. Shiftsin demandtoward higher-value products implies higher farm incomesand greaterreturns to land,which can be expectedto promotethe adoptionof conservationmeasures. There is also some evidencethat higher- value cropsmay be grownusing less-erosivefarming practices. However, the increasedavailability of off-farmemployment also means that labor-intensive conservationworks have becomemore costlyand in some casesless attractive, and under some tenancyarrangements, tenant farmers have few incentivesto adopt soil conservationmeasures. Studiesdisaggregating these factorsare rare and contradictoryand betterwork in this fieldwould be helpful. The Impactof ImprovedFanming Practices and Soil ConservationMeasures 3.34 Over the last15 years,yields of major drylandcrops in Java have consistentlyrisen despite ongoing erosion. For example,over 1972-83,upland - 68 -

rice, maize and cassavayields on Java increased4.3Z, 4.72 and 2.8Z per year, respectively(Roche, 1987). Fertilizerinputs also rose in the case of maize, from 38 kg/ha to nearly 106 kg/ha, and for cassava, from 8 kg/ha to more than 16 kg/ha (CentralBureau of Statistics). Increasedfertilizer use, plus the release and rapid adoption of high-yieldingmaize varieties (Arjuna,Hibrida C-1), have masked declines in the productivityof the resource base. In other words, yield increaseshave been possible through the continuedintensifica- tion of farmingpractices, offsetting the effectsof productivityloss which may be occurringthrough erosion. Only a few studiesare availablethat have tried to separatethe effect of Improvedor increaseduse of inputs from the underlyingproductivity losses caused by erosion. These are summarizedin Table 3.12. This table suggeststhat yields would have been even higher, had it been possible to curtail erosion.

Table 3.12: YIELD LOSS ATTRIBUTABLETO EROSION

Annual decline in yields as Area the result of erosion (2) /a Source

Yogyakarta 1.5 IBRD (1979) Jratunseluna 2.0 USAID/IBRD Upper Solo Basin 5.0 Ramsay and Muljadi West Java 4.4 Magrath and Arens Central Java 3.8 Magrath and Arens Yogyakarta 4.7 Magrath and Arens East Java 4.1 Magrath and Arens

/ia Decline in yields as a percent of previousyear's production.

3.35 There are significantdifferences in rates of erosionwith different managementpractices. Data from West Java suggestthat the type of crop affects erosion rates, varying from virtuallyno erosion under dense forest to 136 tons/ha of soil lost to erosionwith a tuberouscrop such as potatoes (Table 3.13). With conservationmeasures, however, these erosion rates can be considerablyreduced. In a separate study (cited in Rcche, 1986) on volcanic slopes in the Brantaswatershed, areas grown with corn on poor terraceshad erosion rates nine times as high (476 tons/ha) as areas on similarvolcanic soils with good terraces (54 tons/ha). Further, in limestoneareas of the Upper Solo River Basin, erosion rates were four times higher (192 tons/ha) on poor terraces than on good terraces (48 tons/ha)according to FAO and project data. This indicatesthat planned interventioncan have a considerableimpact oD erosion. - 69 -

Table 3.13: EROSIONRATES ON JAVA UNDER VARIOUS CONDITIONSOF SOIL, SLOPE, VEGETATIONCOVER AND MANAGEMENT

REGOSOLS,WEST JAVA, 102 SLOPE

------Soil loss (tonsihap.a.)------Crop Without conservation With conservation

Potatoes 136.0 43.5 (contourplough) Onions 11.0 3.1 (terracing) Grasses 0.2 - Trees and intercropping 27.1 6.8 (mulching) Dense forest 0.0 _

Source: Suwardjo,S., Sukmana dan Sofiah (1975)s Beberapa data dan masalah percobaankonservasi tanah untuk pencegahanerosi. Bogor, L.P.T. no. 11, 1975.

AgriculturalPackages to Improve Incomesand Reduce Erovion

3.36 There are numerous exampleswhere the introductionof terraces, togetherwith the use of new varieties,higher value crops and increased inputs (particularlyfertilizer and pesticides),have considerablyimproved the net returns from upland cultivation. For example, in Tulungrejovillage of the Kali Konto watershed,the financialinternal rates of return for planting coffee or avocado on steep slopes are 35Z and 162, respectively. The internal rates of return for planting fuel wood (e.g., Calliandraand King grass) for fodder are 102 and 272, respectively. This comparesvery favorably with the standardfood crop rotationof maize and cassava and can be successfullypromoted if the farmer's food crop requirementscan be satisfied elsewhereand if his cash flow problems can be overcome through the provision of credit or subsidieson labor costs.

3.37 The standardmethod of promotingsoil conservationand improved u land agricultureis demonstrationplots (demplotsor model farms) locatedon farmers' fields. Participantfarmers receive technicalassistance, a financialsubsidy and improved inputs. Project areas surroundingdemplots receive technicalassistance and a small subsidyor no subsidy. Farmers in areas outside the project area may become aware of the benefits of the proposed technologyand follow program recommendations,but this is done without direct subsidy. Evidence on the rate of spontaneousadoption of soil conservationmeasures is weak, but researchon the Citanduy Project, sponsored by USAID, claims that a demonstrationplot of 10 ha will induce adoption of conservationon more than 400 ha of surroundingfarms within five years (Tampobolonand Saragih, 1986). However, some of these terraces are of poor quality and their soil conservationbenefit is limited.

Constraintsto Adopting New Technologies

3.38 In general, upland farmers on Java are quick to adopt new farming systems and modify their land managementpractices if they perceive an - 70 -

economic advantagefrom doing so. 4oreover,farmers appear responsiveto new informationprovided by research and extensionservices on improvedtechniques and cropping patterns;even non-participantsin upland projects spontaneously adopt and adapt those techniquesand croppingpatterns that can boost productivityand incomes.

3.39 The main constraintto the adoption of new technologiesis that soil conservationtechniques in upland farms require a substantialinvestment of time and money. For example,bench terracingon slopes of 50Z or less requires labor ranging from 750 to 1,800 work days per ha, dependingon the slope (Table 3.14).21This impliesconstruction costs of between US$420 and US$2,060 per ha in areas where householdincomes averageUS$300-500 per year. In addition,the costs of planting materials,tools and fertilizerrequired to build and establisha crop on the terrace in the first year average US$ll2lha. These estimatesdo not includethe additionalcosts to the farmer of periodic maintenanceof terraces,waterways and drop structures.

Table 3.14: LABOR REQUIREMENTSAND COSTIHA AT VARIOUS PROJECT SITES AND SLOPE RANGES

Total Cost (Rp '000) at Work days wage rates per work das Site Slope (Z) per ha Rp 700 Rp 350

Upper Solo /a 5 - 30 750 525 263 30 - SO 1,520 1,140 570 Citanduy II lb 10 - 15 789 551 275 45 - 50 1,742 1,219 610 Yogyakarta Ic 40 - 50 1,833 1,283 642 la Gauchon, Some Aspect of WatershedManagement Economics, 1976. /b Project staff (typeddata). /c YogyakartaRural DevelopmentProject, Working Paper C-5, Appendix I.

Source: Bersten,R. and Sinega,R, 1986.

3.40 Under the circumstances,the major issues facing the farmer are the opportunitycost of his labor and additionalexpenditures. It is generelly assumed that labor for constructingterraces is provided by the farmer during the dry season. Assuming a four-monthdry season,a single farmer could provide a maximum of 100 work-days each dry season,far short of the terracing requirementsfor even a half hectare holding (375-900days). In addition,the labor for terracingmay requireadditional cash expendituresor hired labor. Thus, from the farmer'sperspective, the cost of terracingnot only implies foregoingincome-earning opportunities, either in off-farm emplovmentduring the dry season and/or less labor time devoted to crop and farm production,but also additionalexpenditures on material and possibly livestockfeed costs.

2/ Compares to about 300 work-daysper ha of labor for secondarycrops. - 71 -

Calculationsof the net present value of the gains from terracingin the Citanduy II project suggest that only to the extent that terracingcosts were around US$500 or less (1984185prices) could farmersafford to adopt terracing without credit or subsidies.

3.41 The trade-offbetween productivityincreases and costs and their effect on farmers'behavior can be illustratedby a number of examples found in the literature.

(a) Soil conservationpractices are less likely to be accepted in areas where there are small productivitylosses from erosion. In Ngadas, commercialvegetable farmerson deep volcanic topsoils (growing mainly potato, but also onions, garlic and cabbages)do not appear to experience significant declines in yields, iespite -.verageannual erosion rates of 150-200 tons/ha and the loss of 2 cm of soil each year. Therefore, for these farmers, soil conservation measures are not perceived to as a high priority.

(b) Adoptien of soil conservationpractices is slow where there is a lack of sufficientmarketing and transportationfacilities. Marketingof commoditiesis less profitablewhere there are high transportation costs or price discriminationand this may also retard adoption. According to Tampubolonand Saragih (1986),the poor adoption record of model ferm technologyaround the Sadabumimodel farm in Citanduy was due to poor access roads and inefficientmarketing, which reduced incentivesto increaseproductivity.

(c) Adoption of erosion controlmeasures is affected by the extent to which farmers receive income from off-farm employment. If farmers derive most or all of their income from working their land and have securityof tenure, they will be more prone to invest in activities to maintain and improve productivity. Farmers with a large proportion of their income from off-farm employment tend to respond to reducedprofitability of their agriculturalland by devotingmore labor to off-farm work.

td) Conservationfarming is more readily adoptedby wealthier farmers with ready cash. In East Java, only relativelywealthy farmerswho engaged in profitablecommercial apple production (approximately US$3,000-6,000per year profits, 1986 prices) could afford to constructeffective backsloping terraces. Similarly,a survey of farmerswho did not adopt bench terracingtechnology in the Citanduy watershedof West Java revealedthat 87Z cited lack of money as the reason for not constructingterraces.

(e) Adoption of soil conservationmeasures is also linked to tenancy, althoughthe data are somewhatcontradictory. In general,owner- operatorshave the strongestincentives for investmentin permanent structuresand tenants are unlikely to make long-terminvestments unless they are directlycompensated or realize significantshort- term gains. However, some tenantswill invest in low-cost conservationmeasures and some landownersarrange for tenants to carry out soil conservationworks. _ 72 -

3.42 In summary,upland farmers face significantcosts in adopting soil conservationmeasures and making changes in farming systems. They are likely to make changes in their land managementonly if there is a perceivedeconomic advantagein doing so. In addition,the more productiveor profitable the land, the more farmerswill be willing to maintain and invest in better land managementand erosion controlpractices. Higher productivityand returns ensure that farmerscan afford to maintain terraces and other conservation structuresand to continuewith labor-intensiveerosion controlmeasures. Adoption of soil conservationmeasures is also thought to be related to tenancy,with tenants less likely to invest in major soil conservationworks, but the data on this matter are limited.

E. Scope fo- TnprovingOn-farm Practices

DevelopingCost-Effective Technologies

3.43 AgriculturalPractices. As noted abo7e, the cost of on-farm conservationpractices, particularly bench terracing,is a major constraintto the widespread adoption of these technologies,particularly in poorer areas. The Citanduy II project suggeststhat the returns from selected agroforestry and bench terracinginvestments are sufficientto repay loans at 242 annual interest. However, such investmentsrequire a medium-termloan for at least two years and short-termloans for succeedingyears. Agroforestryrequires long-termloans for at least seven years. After nine years of investmentin terracingand 12 yeare of investmentin agroforestry,all loans can potentiallybe repaid. Such loans require considerableconfidence by farmers that increasedproduction will permit repayment. The ability and willingness of Citanduy farmersto take loans on these terms is apparentlyrelated to the fact that they are on relativelygood soils and are full-timefarmers -'.h reasonableincomes from other agriculturalsources which ensure the abiiity to repay.

3.44 To make recommendedfarm practicesmore attractive,a major effort is needed to identifyand introduceless costly interventionswhich nevertheless have benefits In terms of productivityand erosion control. one promising initiativeis the use of vegetativegrasses along contours. This system is currentlybeing used with considerablesuccess in India. Contour planting of Vetiver grass, for example, createsnatural terraces stabilizedby the root system of the grass. This function is illustratedin Figure 3.1. Leguminous trees have also been used to reduce soil erosionwith the added benefit of nitrogen fixation. The main advantageof vegetative systemsis that moisture conservationincreases productivity at relativelylow cost. While considerablework is needed in Indonesiato determinewhich measures are most effective,there can be no doubt that a major cost reductionis required if benefits are to accrue to farmers in the poorer areas.

3.45 InstitutionalImplications. As noted, DGRRL in the Ministry of Forestry is responsiblefor soil conservationon all lands over 82 slope, whether cultivatedor not. However, since on-farm soil conservation activitiesare an integralpart of agriculturalpractices, ior which the Ainistry of Agricultureis responsibleand has the technicalcapacity, many observersfeel that considerationshould be given to making MOA responsible - 73 -

for soil conservationon agriculturalland. One of the most important functionsof MOA in the uplands could then be an expanded research effort to developmore cost-effectivetechnologies for on-farm erosion control.

3.46 MOA is also needed to link new technologiesto ongoing extension. The extension services should be conduits of new information,technology and skills provided by the research stationsand should in turn provide useful feedback to researchers on field resultsand on farmers' reactionsto the new systems. Training should stress an integratedsystems approach rather than tbe traditionalproduction-oriented approach for each crop. Again, investmentswill be requiredto make these necessarychanges in the extension services.

3.47 There is a general lack of technicalknowledge among local government officialsabout natural resourceutilization and conservation. Conservation land use planning and implementation,and watershedmanagement are virtuall, unknown to agencies in local government. For these reasons,there is a need to strengthenthe technicalcapacity of local staff and to improve their ability to undertakeeconomic and social analysis. There is also a need to developmore effectiveinteraction between agenciesproviding technical planning and supervisionand local implementingageucies. The technical preparationof local personnelat the district and subdistrictlevel and the ability to coordinatewith other agencies is a preconditionto the successof conservationprograms with the so-calledtop-down/bottom-up approach.

3.48 Interventionsalso need to be carefullytailored to specific conditions. This is often difficultbecause of over-standardizedapproaches. One way to address this problem could be to devel6p a more sophisticated typologyof the uplands, along the lines alreadybegun by the KEPAS group (see Annex 3D). The outcomeof such a typology is a set of fairly large-scale agroecosystemzones, each of which can be technicallyregarded as a 'general recommendationdomain." Such domains are defined so that innovationsor interventionsthat work in one place shouldwork anywhere else in the same or similar domains. Within each zone there are distinctmicro-watersheds, each again with its characteristicfeatures which have to be seen as a single system.

3.49 At the bottom of the agroecosystem'shierarchy, the farming system can only be designed and developedby the farmer. With this in mind, a major shift is required in the extensionmessage. Farmersneed help understanding the variables affectingcrop productionin order to evaluate their own farming systemsand to learn from pragmaticesperimentation. More time must be given to learning from successfulfarmers and enlistingthem in the educationof others. No one formulawill apply in the uplands and pragmaticmethods will be required to identify site-specificproblems and overcome them.

Otner Factors AffectingSuccess

3.50 Numerous other factors affect the adoption rates of soil conversation measures proposed for upper watersheds.

(a) Soil Type. Volcanic soils, having the lowest erodiBility,g've the highest net returns,whereas sedimentary(limestone) soils have low, - 74 -

and in some cases negative,net returns. This . due to the generallylower fertilityof the limestonesoils, to the higher labor requirementsfor terracingand greater soil erodibility. Improved technologiesare ueeded for limestoneareas.

(b) lnglitsionof Livestock. The introductionof livestockin the farming systemsby various upper watershedprojects increaseshousehold income and nutrition,reduces vulnerability to crop failureand encouragesfarmers to maintain a gi:asscover on terraces. With terracesalready established,a farminghousehold can significantly raise productivityfrom animal husbandrywith a relativelysmall additionalinvestment in terms of labor and material costs, making the entire package more attractive.

(c) Income Generationin Early Years. The main constraint to developing agroforestry-basedsystems is the long "waiting"period before trees mature. A pr-ferredapproach has been to develop farming systems incorporatinga mix of trees that can be harvested,or that produce fruit at differenttimes, to spread income flows throughoutthe year and graduallyphase out annual cropping.

(d) Nursery DsMe29=n. A key componentin the establishmentof perennialcrop gardens and agroforestrysystems on steep slopes in the Kali Konto ?rojecthas been the developmentof village-level nurseriesbacked up by central forestryand perennialcrop nurseries at the subdistrictlevel. These nurseriessupply planting material, train and encouragefarmers a: the establishmentof their own nurseriesand serve as demonstrrtionsites for high-yielding varieties. -

(e) Marketing. Marketing facilitiesir. the upland villages are also importantand improvedmarket informationsystems are also needed. Mobilizingexisting farmers'groups to market their produce would increasecost efficiency. To facilitatethis, the extensionworkers' knowledgeof postharvesttechnologies should be upgraded. These measures are particularlyneeded for the developmentof high-value commercialproduce, such as tree crops, fruits,vegetables and legumes in the uplands.

(f) Credit. The widespreadadoption of soil conservationpractices will also be dependenton the availabilityof multipurposecredit at affordablerates to farmersand rural entrepreneurs. There should be an expansionof the credit institutionsto meet the diverse credit needs of upland borrowersand the constraintposed by requiringland title as collateralshould be overcome. More detailed informationon credit arrangementsis included in Annex 3E.

3.51 On-farm investmentsto improveproductivity and conserve soil (a properly combinedpackage of soil and water conservationand agricultural practices)have relativelyimmediate on-site benefits. Besides their directly productivepotential, such investmentsare justifiedboth on grounds of equity as well as for the considerablepotential that exists for environmentally sustainabledevelopment. Investmentsshould be made on a catchmentbasis - 75 -

within the context of regional or area developmentplans and be directed towards diversificationand generationof off-farm employmentopportunities and incomes.

F. Scope for ImprovingOther Soil Conserva,%ionMeasures

Bench Terraces

3.52 On-farm soil conservationin Java's watershedshas relied almost entirely on bench terracing (on all slopes below 502 and on all soil types). Other conservationtechniques, such as ridge terraces,contour ditches, grass strips,and so on, are used to a lesser extent. Bench terracingwith improved agriculturalpractices or volcanic soils can greatly reduce runoff and erosion. For instance,experiments on Latosol soils with 15-22Z slopes have shown a reductionin soil loss from 158 tons/ha to 6 tons/hawith terracing. In the upper catcbment,soil loss of 21 mm per year was reduced to 2 mm per year after terracing (Table3.15). Yield increasesfrom terracingare largely due to reduced runoff and improvedmoisture availability. Studies indicate that these increasesmay be significant,especially in combinationwith improved inputs and management.

Table 3.15: SOIL LOSS BEFOREAND AFTER BENCHTERRACING

Before Terracing After Terracing Soil loss Runoff Soil loss Runoff in mm coefficient2 in am coefficientZ

Tapan 21 80 2 40 Dumpul 20 75 1 30 Wader 14 75 2 30

Source: PAO Upper Solo WatershedDevelopment Project, Sunarno and Sutadji, 1981.

3.53 Bench terraces are not well suited to shallow,highly erodible soils includinglimestone soils on steeperslopes. On marl and other heavy-textured limestonesoils, backslopingterraces may increaseerosion when surfacewater becomes concentratedalong the back of the terraces. On some soils, increased percolationof water due - terracingmay create mass instability,producing infrequentbut catastrophiclandslides. Bench terracesmust, therefore,be designed to fit specific requirements. Heavy rainfallrequires a design that allows efficientdrainage without causing erosion,while under drier conditionsthe terraces should be constructedto retain maximum moisture. Agronomic requirementsalso Leed to be taken into account in terrace construction. For example, certainhigh-value crops, such as potatoes, cabbage, tobaccoand onions, requirewell-drained soils. Finally, even on well-constructedterraces excess drainagewater can concentrate,particularly during the early part of the wet season. To avoid erosion caused by rapid runoff,well-designed and constructsdwaterways are critical,especially on - 76 -

heavier,more erodible soils. As noted earlier in the section,where bench eerraces are not appropriate,a variety of other conservationpackages can be considered.

Other Soil and Water ConservationMeasures

3.54 The most importantfactor in minimizingsoil erosion is the maintenanceof continuousground cover. This is more effectivethan any physical conservationmeasure in reducingerosion and soil loss. With no ground cover, erosionwill proceed on upland slopes,whether or not they are terraced. Since an estimated30-40Z of total annual erosion on cropland occurs during the first two months of the wet season,when soils are unprotected,cropping systems should be designed to maintainmaximum continuousv.;getative cove-, even during the dry season.

3.55 Intercroppingof seasonalcrops (e.g., cassava,maize, and peanuts) will increaseboth the emount and duration of soil cover, particularlyduring the early phase of crop growth. Improved ground cover in afforestedareas may be createdby maintaininglong-duration caaopies through suitable i--tercroppingand by planting legumes and other cover crops. Mulches can also be used to provide ground cover during the dry season. These may consist of organicmaterial brought onto the plot, such as rice straw or forest litter, or they may be the residuesof the crops on the plot. Mulching also Amproves soil and water temperatureand hence enhances crop growth, but there are reportsof increasedincidence of weeds and of insect attack on the crops grown in mulch.

Reforestation

3.56 Mature forests are effectivein reducingsoil loss (Table 3.16), but pressure on agriculturalland is so great on Java's watersheds that it is unrealisticto assume large-scalereforestation of land currentlyunder drylandcultivation. Moreover,vegetative cover other than fo::estcover can be even more effectiveunder certain conditions. Although natural forests tend to have low rates of surfaceerosion, this is primarilya functionof the ground cover, that is, the shrubs,herbs and grasses, and the litter beneath them. In certain reforestationschemes, erosionmay be higher under trees than from bare soil because of the concentrationof runoff between trees. Teak forests and most eucalyptusforests have little undergrowthand are particularlyprone to erosion.

Table 3.16: SOIL LOSS AND RUNOFF BEFORE AND AFTER REFORESTATION

Before Reforestation After Reforestation Soil loss Runoff Soil loss Runoff (mm) coefficient(t) (mm) coefficient(Z)

Tapan 21 80 0.6 20 Pidekso 14 75 0.4 25

Source: PAO Upper Solo WatershedDevelopment Project, Sunarno and Sutadji, 1981. - 77 -

3.57 To date, agroforestry or forage-based packages for the steeper slopes thave not been economically attractive to small farmers and have met with only limited success. For example, the Forestry Department's Reforestation Program is aimed at rehabilitating state forest land degraded through encroachment for agriculture and for fuel wood and fodder collection. Where slopes are over 402, the area is cleared by participants who are mainly landless people from neighboring villages. Each participant is allocated a 0.25 ha plot and is expected to plant seedlings supplied by the Reforestation Program. Participants are allowed to cultivate annual crops over a two-year period between the trees to compensate for their labor. This approach has had only limited success, as farmers have had little economic incentive to participate and are afraid that they may lose control over reforested land. 3.58 Recently, the Ford Foundation's Social Forestry Program has attempted to improve the regreening system by negotiating for a longer period for annual cropping by participants, introducing higher-yielding maize varieties and inputsfor food production and encouraging participants to experiment with more economically attractive species (e.g., fruit, fodder and fuel wood species) that they will continue to cultivate alter annual cropping has been phased out. Underthis system, farmers maintain the right to harvest crops theyplant. As this program has been expanded, a crucial problem has been to develop the appropriate mix of species to ensure participants a steady income flow during the critical transition period in which annual cropping is phased out. Off-farm Conservation Works

3.59 The average cost of check dams, constructed by MPW in Solo, is Rp 2,895 per cubic meter (m) of storage (Annex 3A, Table 2). These dams are designed for a life span of about 10 years, but many are fully silted in as few as three years. Table 3.17 shows the average cost of trapping a cubic meter of silt as a function of reservoir life, assuming a 102 discount rate. Data from the Kali Ironto project show even higher costs for check dam construction, averaging greater than Rp 7,0001m3 of storage tlwiwarsito and de Graff, 1987). These costs are significantly greater than the costs of removing silt from irrigation systems in East Java which are estimated at Rp 1,1001m3 . Harbor dredging costs, reported by the Directorate of Ports and Harbors, Ministry of Cammunication, range from Rp 720 to Rp 1,750 per m3 . This suggests that downs1 ream interventions are more cost effective than check dams, if sedimentation control alone is considered. - 78 -

Table 3.17: COST OF TRAPPINGSILT IN CHECK DAMS

Average cost per cubic Assumed life (years) meter of silt trapped (RpIm 3 '

4 3,359 5 3,535 6 3,723 7 3,924 8 4,138 9 4,368 10 4,614

Source: Bank estimates.

3.60 In calculatingbenefits, however, a number of other considerations must be taken into account. Often these dams also provide irrigationto nearby fields. Unfortunately,no data are availableon the area irrigatedby these small dams, so benefits cannot be quantified. Furthermore,following the siltationof dams, relativelyhigh-quality land is provided behina the check dam. The value of such land in Central Java may exceed Rp 10 million/ha. Once again, however,no data are availableon the value of the originalbottom land relative to the salvaged land behind the dam. Taking all these benefits into account, the program of check dam constructionis probably marginallyprofitable, but greater attentionis clearlyneeded to cost-benefit analysis. Profitabilitycould also be improved if greater attentionwere given to more carefulvetting of alternativesites and designs.

3.61 To improve the effectivenessof major conservationworks, improved planning and coordinationare required. The recently approved Indonesian IntegratedRiver Basin Developmentand WatershedManagement Project sponsored by MPW is trying to bring about interministerialcooperation on improving managementof the catchmentareas of four major dams on Java: Selorejo (BrantasBasin), Wonogiri (BengawanSolo Basin),Kedung Ombo (Jratunseluna Basin) and Jatigede (Cimanuk). It is intended that the lessons learned from better integrationof managementactivities in these four locationscan later be applied to other catchmentareas.

3.62 In summary,engineering structures, such as check dams, silt traps and other works can play a role in minimizingthe off-site cost of erosion. This is especiallytrue given the time lags between the insiallationof improvedfarming systemsand discerniblereductions in sediment loads. However, much more emphasis is needed to improve the siting of these works to ensure that the benefits of reducing sedimentationwarrant the costs of constructionand to improve technicalstandards while reducing costs. Raising standardsof road constructionand planning could play an importantpart in reducingthe off-sitecosts of erosion. Collaborationbetween the Ministries of Public Works and Forestryand with local governmentson these issues should continue and receive greater support from Government. - 79 -

IV. WATERQUANTITY ISSUES ON JAVA

Introduction

4.1 The developmentof Java's water resourceshas been a major factor in economic growth. Although most of Java is well endowedwith rainfall,surface water and groundwater,shallow watersheds cause rapid runoff of surfacewater in the rainy season, and some coastalareas in Java experiencewater shortages in dry seasons. The water supply/demandbalances in severalbasins are also becoming critical. In addition,pollution in the downstreamareas of almost all the north coast rivers has seriouslyreduced the availabilityof raw water of adequate quality for municipaland industrialpurposes. Hence, continu±ed developmentof several large cities is now dependenton their ability to find alternativesources of water. This chapterdiscusses issues related to water quantity in Java, and Chapter V covers issues related to water quality. Water resourceproblems are generallyless seriousin the outer islandsand solutionsdeveloped for Java, and applied to the outer islands,could help address and amelioratesuch problems in the future.

A. Java's Water Resources

AvailableWater Resources

4.2 Average rainfall in Java varies from 1,500-8,000mm, with an island average of 2,650 mm. Rainfall decreasesfrom the south to the north and from west to east. Rainfall distributionis shown in Map 21068. The heaviest rainfalloccurs on the southwestcoast, while the driest part of the island is along the central north coast. Over 80% of all rainfall occurs within a six- month period from December to May, and the remaining20S occurs mainly in July, August and late November (Table 4.1). Therefore,although there is a relativelyhigh level of annual rainfall in Java, there is significant variabilityfrom year to year and from place to place, which contributeto seasonaland locationalshortages. The impact of these shortagesis compoundedby the fact that Java's watershedsare extremelyshallow. Most of Java's rivers are less than 50 km long, and shallow catchments,combined with deforestationand rural development,have contributedto more rapid runoff and increasedvariability in river flows.

4.3 The usable water resourcesof java are mainly surfacewater flows. The total average rainfall amounts to 352 billion cubic meters (Bm3), and about 50% (175 Bm3) flows through the river system as surface flows. However, because of the rainfall pattern and the catchmentconfiguration it is difficultto use moat of this water and, on average, only about 126 Bm3 is usable. The balance (49 Bm3) is generallynot "divertible"or usable, unless expensivedams and reservoirsare constructed. Surfacewater resourcesalso vary considerably with the amount of annual rainfall and in a dry year, surface water is considerablyreduced. For example,for a once-in-five-year dry year, the surfacewater resourcesare reduced to 78 Bm3. This means that firm water resourcesare only about 45% of averageannual water flows. In some areas, availablewater is already insufficientto meet needs in a dry year in some areas (see also Annex 4, Figure 1). - 80 -

Ib41st4J1 1: WATER DISCIARGIAND REQUIRE9(Sl5IN JAVA DN AVERAK AINDDRY YEARS (O isec)

Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec

mean d4ischame

Average 9,346 10,177 10,019 8,382 5,902 3,115 2,233 1,555 1,752 2,629 5,195 7,428 Dry year 4,166 4,536 4,466 3,736 2,630 1,388 995 693 781 1,172 2,316 3,311

Wean Reauiregents

Irrigation 2,840 2,840 2,840 2,840 2,840 2,840 1,988 852 852 852 1,988 2,840 &I ]A 101 101 101 liJl 101 101 101 101 1(t 101 101 101

Total 2.4 2.941 _941 2.941 2.941 2.941 ,2.089 953 9L5 953 2.089 2.941

Balmae In an Averaxe Year

6,405 7,078 7,528 5,441 2,961 174 144 602 799 1,676 3,106 4,487

Ba1ance in A Dry Year

1,224 1,595 1,524 795 -311 -1,553 -1,094 -260 -172 218 226 369

LI XI! - municipaland 4ndustrial.

Source: Bani staff estim tes based on data from the DirectorateCeneral of Water ResourcesDevel- opsent (DGMRD).

4.4 The distributionof water resourcesalso varies by province. West Java has 44% of Java's total resources,while East and Central Java have about 30% and 26%, respectively. Table 4.2 gives the water resourcesby province and per capita per year. Although average availablewater is 1,750 m3/ capita/year,the maximum divertibleis 1 340 m3/capita/yearin West Java, 1,000 m in Central Java and and 1,120 ml East Java. Therefore,in spite of high rainfall, the total water resourceper capita on Java (1,750m 3/ capita/year) is surprisinglylow when compared to other countries. For example, China with 10 times the populationof Java and far less r&infallon average,has a resource level of 2,800 m3/capita/year. This is due to the fact that rivers in China are up to 4,000 km long and have very large catchmentareas. - 81 -

Table 4.2: WATER RESOtRCESIN JAVA BY PROVINCE

Per Capita Water Water Resources Resources Location (Bm3) (w3/cap/yr)

West Ja.vaand Jakarta Total 79 1,870 Divertible 61 1,340

Central Java and Yogyakarta Total 44 1,480 Divertible 30 1,000

East Java Total 52 1,770 Divertible 35 1,120

All iava Total 175 1,750 Divertible 126 1,260

Source: DirectorateGeneral of Water ResourcesDevelopment (DGWRD).

4.5 Irrigationand municipalwater use is about 60 Bm3, and 65% of the total water flows into the sea. This water cannot be used at presentbecause flows do not coincidewith the times when water is needed. Excess water often overflows the banks of rivers and causes floods on about 6% of Java's land each year. (Flood-proneareas are shown in Map 21068.) Table 4.3 shows the total volume of reservoirsby province. Of the three major provinces,East Java has the lowest regulationcapability (2.1%), due mainly to a shortageof good dam sites. There are about 32 dams impoundingabout 6.9 Bm3 of water in Java, which is about 3.9% of total annual flow.

4.6 Groundwaterresources are small in relation to surfacewater resources, but they are a very important source of domestic water supply on much of the island and of industrialwater supply in urban areas. The Jakarta area, for example,uses about two million cubic meters (Nm3) per day of groundwaterwhich suppliesmore water and serves more people than the piped water supply systems. In total however, groundwaterextractions on Java are relatively small, about 8.75 Bmi per year.

CurrentWater Demand

4.7 PresentWater Use. Presentwater use on Java does not vary significantlyfrom that in most developingcountries. Water is required for: (a) irrigatedrice and non-rice crops; (b) aquaculturein fresh and brackish water ponds and in rivers and lakes; (c) municipalwater supply for drinking - 82 -

and for urban, industrialand commercialuse; (d) flushingand low-flow maintenance;(e) hydropowergeneration; (f) inlandnavigation; and (g) recreationaluses. Except for hydropowergeneration and recreation,all other uses of water are out-of-streamuses.

Table 4.3: STORAGERESERVOIRS ON JAVA

Annual Reservoir Regulation flow volume of annual Location (Mm3) (Mm3) flows a (%)

West Java Citarum 5,500 3,615 66.0 Cisanggarung 23 36 155.0 Other 73,477 0 0.0 subtotal 79.000 3.651 4 6

Central Java Kedung Ombo 730 615 84.2 Wonogiri 900 630 70.0 Wadaslintang 473 408 86.3 Hirca 2,940 156 5.3 Small Dams 8,770 321 3.7 Others 30,187 0 0.0

Sxubtotal 44.000 2.130 5.8

East Java Brantas 7,020 350 5.0 Solo 7,945 700 9.0 Small Dams 1,000 40 4.0 Other 36,035 0 0.0

Subtotal 52.000 L11.090

Total Java 175.000 6.8Z1 3.9

/a The regulation% is defined for flows at dam.

Source: DirectorateGeneral of Water ResourcesDevelopment (DGWRD).

4.8 IrrigationWater Use. Irrigationis by far the largestwater user. About 50% of water for rice grown on Java is from rainfall,the balance is from irrigationschemes of differenttypes. The average use of irrigation water varies from 8,000-12,000m 3/crop/ha,depending on the rainfall level, - 83 -

the crop type, and the extent of the water controlfacilities. Java has 2.8 million ha (22% of its total area) under irrigation. Rice is cropped almost twice a year in most irrigatedareas, with an additionalnon-rice crop grown using residualmoisture. Cropping intensitiesincreased from about 130% in 1970 to 165% in 1985 for rice (1.7% growth rate), and from about 60% to 70% for non-rice crops.

4.9 Water use is estimatedto have increasedas much as 15 Bm3 between 1970 and 1985 (a 2.1% annual increase)which amounts to 19% of firm water resourcesof 78 Bm3. Demand started to climb sharply in 1976 when high- yielding varietieswith short maturationperiods of 105 days were introduced on a large scale. (Traditionalvarieties mature in 160-180 days.) Since most of the productiongains were due to increasedcropping intensitiesduring that part of the year when monthly rainfalldeclines (April to July), the demands on water resourceswere significant. Present irrigationareas and surface water uses in Java are summarizedin Table 4.4. The 59 Bm3 of irrigation water used representsabout 48% of the divertibleresources available and 77% of the dry-year or firm flows.

Tablk 4.4: IRRIGATEDAREA AND ESTIMATEDSURFACE WATER USE ON JAVA /a

Location Irrigatedarea Water use (ha) (Bm3)

West Java (includingJakarta) 951,500 22.4 CentralJava 873,300 18.3 East Java 956,700 18.6

Total 2.781.500 59.3

La Derived from detailedcalculations on eight catcbmentscovering 1.35 M ha of irrigatedarea.

Source: DirectorateGeneral of Water ResourcesDevelopment (DGWRD).

4.10 Efficiencyin irrigationis measuredby the percent of total flows within the system which are used for crop production. This is importantsince more efficientsystems permit more water to flow to a greater number of users. When combinedwith storage, an efficientsystem also permits irrigationon a uniform basis over a longer period of time. As in most countries,however, irrigationwater is not used efficientlyin Indonesia. Average efficiencies on larger schemes in Java barely exceed 30%, although large systems are designed for efficienciesof about 50% and traditionalsystems may reach 65% efficiency. Recent measurementsindicate that even in the dry season in East and CentralJava, efficienciesonly range from 10-35%, averagingabout 25% over large areas. In the Brantas river basin where there is a significant shortage of water across sectors, the efficiencyof irrigationwater on medium schemes is estimatedto vary from 10% to 25%. - 84 -

4.11 Water Use for Aogamdt1 . Water use for aquacultureis increasing at a rapid rate. In the past, water for aquaculturewas derived from the drainage waters of irrigationschemes. However, since there is concern about fish poisoningfrom residualpesticides and fertilizersin irrigationwaters, many aquacultureschenes now receive a special allocationof water which has not been used for Irrigation. Aquacultureareas includeabout 86,000 ha of brackish water ponds, 27,400 ha of freshwaterponds, and about 66,000 ha of sawah. Total water used for aquacultureis estimatedat 900 Mm3 per year, or about 0.85% of usable water resources.

4.12 MunicipalWater Use. The use of surfacewater by municipalitiesis minor compared to agricultural use, but its importance is growing. A breakdown of urban water use in the three Java provinces and Jakarta is given in Table 4.5. The water used for municipalpurposes in rural and urban areas is about 1.26 Bm3, about 1% of the usable water resourcesand about 2% of the water used for agriculture.l/ Despite the relativelylow requirementsfor municipalwater, competitionfor water is intenseduring the dry season when unregulatedriver flows are small and water poliutionmakes it difficultto adequatelytreat raw water. This is particularlytrue for the water supplies for Bandung, Bogor, Cimanuk, Semarang,Surabaya, and Tenggarang.

Tabe 4.5: MUNICIPALWATER USE IN JAVA (1987)

Urban areas Rural are«s Provinc- mJ/sec Mm3 m /sec Mm

West Java 4.67 147.6 5.80 183.0 DKI Jakarta 6.75 213.4 0.76 24.0 CentralJava 4.00 128.2 5.29 167.2 East Java 6.24 197.2 6.33 202.1

Total 21.66 686.4 18.18 574.3

Source: DirectorateGeneral Cipta Karya (DGCK).

4.13 About two thirds of municipalwater is from rivers and about one quarter from springs (Table 4.6). Most spring sources are small and have been completelyexploited. Groundwateris about 9.7% of the municipalsupply. Although East Java relies more on groundwater,the total amounts used are still small. In urban areas where river water is highly polluted (e.g., around Jakarta, Bandung,and Indramayu),the generalpublic and industryrake intense use of groundwaterwithout assistanceof the city water enterprises.

J/ Figures on water use for urban areas have been calculatedon existing water supply schemes; for rural areas, on all existingschemes and from water use from unprotectedsources. - 85 -

For Jakarta, groundwatersupplies almost 80% of municipalwater. About two million m3 are drawn per day,Z/ almost four times as much as the piped water supplied by the local water supply authority(PDAM). This withdrawalof groundwaterhas depletedJakarta's aquifers so severely that much of the shallowgroundwater along the coast is saline (Annex 4, Figure 2). Since wells are a primary source of water for the city's poor, many of whom live in the older urban areas near the coast, the situationis serious.

Table 4.6: WATER SOURCES FOR EXISTING MUNICIPALWATER SUPPLY

Total annual Province Groundwater Springs River Total use ------m /sec ------(Mm3)

Local Water Supply Authorities (PDAM) West Java 0.15 1.04 9.73 10.92 344.40 Central Java 0.74 1.49 0.96 3.19 100.54 East Java 0.84 2.51 3.50 6.84 215.71

Water Supply Boards (BPAM) West Java 0.04 0.30 0.66 1.00 31.38 Central Java 0.13 0.17 0.40 0.70 22.01 East Java 0.36 0.04 0.20 0.60 18.98

Total 2.25 5.54 15.45 23.24 733.02 Percent 10 24 67 100 na

No. of systems 23 51 22 96 na Percent 24 53 23 100 na

Source: DirectorateGeneral Cipta Karya (DGCK).

4.14 IndustrialWater. Industriesrely primarilyon ground water as their so-urceof supply. In West Java surveys show that almost 65% of industrial water is from private wells and another25% is private abstractionsfrom rivers and lakes. Only 10% of the water used comes from town or city supplies. However,with the worseningof water pollucionin the river systems and the deteriorationof groundwaterquantity and quality in some areas, future supplies will have to be derived from city water systems. For major cities, projectionsfor industrialwater demand are assumed to be 50% of the total municipalsupply, while for small towns they are assumed to be 25%.

/ Estimate of ground water extractionvary widely by different researchersbecause o- incompletedata. The value of 2.0 Mm3 is in the upper range of estimates - 86 -

4.15 Rural Water Supply. About 60% of water for domesticuses in rural areas is from shallowwells. Other water sources includeopen streams, piped water, springs, rainwatercollection, and hand pump systems. By the start of Repelita IV in 1984, only about 27% of Indonesia'srural population (38 million people) had access to protectedwater. This is a lower number than in most developingcountries and is possible, in part, because of high rainfall which flusheswastes and stagnantwater. Rural water use is estimatedat about 575 MM3 annually.

Future Water Demand

4.16 AgriculturalUses. Future demands for irrigationwater will depend largelyon the growth of rice productionand efficiencyimprovements in irrigation. The demand for rice is based on assumptior-about populationand income growth,and income elasticityfor rice. Earl'er studies indicatedan increase in demand for rice of about 3.5% p.a. in the 1990s. However, more recent trends suggest that the increasemay be lower (2.8%),due mainly to lower economic growth rates in the late 1980s than previouslyanticipated. Assuming the lower growth rate, the de,.maidfor rice would be 25 million, 30 million and 38 million tons for the years 1985, 1990 and 2000, respectively.

4.17 If Java is to maintain a 60% share of Indonesia'srice production,it would have to increasewater-use efficiencies from 25% to 50%, increase cropping intensityfrom 165% to 200%, and increaseyields from 4.2 tons/ha to 6.0 tons/ha by the year 2010. On the assumptionthat these goals are technicallypossible, an effort was made to calculatetotal water demand, based on a computer model that derives water requirementsfor two cropping patterns. The model requires that the irrigationsystem be broken into upstream and downstreamareas. Part of the drainagewater from upstream areas is reused downstream. The model was run on 13 catchmentswith detailed water and irrigationdata. Aquacultureneeds were includedwithin projected requirements. The catchmentareas analyzed,which cover 1.33 million ha, were found to require 31 Bm3 of water in the year 2010 for agricultureand aquaculture(Table 4.7). However, since the total irrigatedarea for all systems on Java amounts to 2.78 millionha, the area's total water requirement is estimatedat about 63.7 Bm3 in the year 2010. As a result of the assumptionthat the water-useefficiency of irrigationsystems will be increased,this is relativelyclose to the amount now used. Sensitivityto this assumptionis discussedlater in this section.

4.18 Municipal and IndustrialWater Requirements. Future projectionsof water supply for cities will depend on the growth of city populations. The urban populationis now projectedto grow at a 60% higher rate than the rate of overall populationof Java and to increasefrom 25 million in 1986 to 53 million by 2010. In fact, there will be more people in Java's cities in the year 200 than there were in all of Java 50 years before. To serve this population,urban water supply services will have to be considerablyexpanded. - 87 -

Table 4.7: IRRIGATIONWATER REQUIREMENTSPER RIVER BASIN IN YEAR 2010 /A

Irrigatedarea Total annual considered water requirements Name ('000 ha) (Bm3)

Teluk Lada 31 0.76 Banten 55 1.23 Cibeet-Jakarta-Cisadane 190 4.35 Citarum 190 4.58 Cimanuk 90 2.17 Cisanggarung 42 0.92 Pemali Comal 130 2.97 Kuta Bodri 22 0.52 Jratunseluna 108 2.42 Bangawan Solo 274 6.44 Serayu 97 2.17 Kedu Selatan 55 1.28 Citanduy 50 1.16

Iotal 12334 31.17

La Assumes that cropping intensitiesfor rice increase from 165% to 200% and that efficiencyin water use increases from 30% to 50%.

Source: Bank staff estimates.

4.19 The future demand for water for municipalatd industrialuses will depend on the targets for water supply that Governmentcan meet within its budget. Assuming that current targetsare met and water supply service is available for 80% of rural and 85% of urban dwellersby the yeat 11'10,supply for small and medium cities would have to be increasedat 8.7% p.a. and for large cities at 6.8% p.a. These projectionsare extremelyoptimistic, but municipalwater supply representsa small portion of the total demand. Water for industryis also includedwithin these requirements. These future industrialwater requirementsdo not reflect the need for cooling water which is an in-streamuse and does not requirehigh qualitywater. It is also expected that all water for municipaland industrialneeds will eventuallybe from river water, as spring and groundwatersources will become more limited. Using these estimates,and assumingthat about 30% of municipaland industrial water is returned to the river, the net demand for water would be about 3.4 Bm3, about 4% of the firm water resourcesand only 6% of the requirementfor irrigationwater.

4.20 Flushing Reguirements. Since waste water treatmentis virtually absent in Indonesia,a short-termsolution to waterbornepollution is flushing city waterways. In Jakarta, this requires a dry season maximum of 28 m3/see or an annual average of 14 m3/sec, equivalentto 400 Mm3 annually. This short-termsolution has two drawbacks. - 88 -

(a) F'ushingdoes not basically solve the problem of pollution,it only carries the pollutantsto another location. In the case of Jakarta, flushingmerely adds to the pollutionof Jakarta Bay. In the long run, waste water treatmentseems unavoidable.

(b) The cost of bringing flushingwater to cities is high. This applies particularlyto Jakarta, since the requiredamounts of water will have to come from nearby rivers either to the east (Jatiluhur)or the west (Cisadane). Tappingeither of these rivers will require large capital investmentsin infrastructure.

4.21 Total Water Needs. Total water needs are summarizedin Table 4.8, which shows that irrigationand aquacultureneeds are about 95% of future requirementsand municipaldemands are only about 5%. Nunicipaluses are very important,however, 'or urban and industrialgrowth and economic development. Future projectionsassume significantefficiency improvements in the delivery of irrigationwater and in reducing losses in piped municipalwater systems.

Table 4.8: PRESENTAND PROJECTEDWATER USE IN JAVA FOR YEAR 2010 (Bm3) /a

W--ater use in 1986 ------Water use in 2010 ------Agri- Urban Rural Agri- Urban Rural JAVA culture water water Total culture/k water water Tota

DKI Jakarta 0.10 0.21 0.02 0.33 0.00 1.26 0.00 1.2 West 22.40 0.15 0.18 22.73 21.50 0.58 0.27 22.3 Central 18.30 0.13 0.17 18.60 20.11 0.32 0.27 20.7 East 18.60 0.20 0.20 19.00 22.05 C.38 0.21 22.6

Total 5902Q 0.69 0.57 60.66 63.66 2.55 Q0.74 L

La Urban water includesmunicipal and industrialuse, and rural mainly human use a some industry. Lu Assumes 200% cropping intensityand 50% efficiencyin irrigationwater use by 2010.

Source: Bank staff estimates.

B. Water Supply and Demand Issugs

CalculatingWater Suggly and Demand

4.22 For 13 of the 21 major river basins on Java, a water balance analysis was performedusing a computermodel. As noted earlier, the irrigationsystem was divided into upstream and downstreamareas, ane part of the water used upstream and dischargedwas assumed to be reused downstream. The division of upstream or downstreamareas was based on the locationof diversionweirs and the size of irrigationcommand areas. In most river basins, about 20-30% of the upstream water was found to be reused downstream. Using this model, the - 89 -

total demands on water resourcesfor the year 2010 (includingirrigation, aquaculture,and municipaland industrialwater) were calculatedfor each of the 13 basins. The water availablewas defined rinthly for each basin.

4.23 Based on these water balances,a rough & aracterizationof the basins in terms of shortagesand surplusesof water could be derived. The results are given in Table 4.9. For each area, the percent shortfallbetween annual requirementsand availabilityin a one-in-five-yeardry year i- given. The overall shortage for a dry year, based on the model studiesfor the 13 catchments,is 7.2 Bm3 or about 10% of firm water resources,but in some catebmentsshortages are more substantial.

Table 4.9: PERCENT SHORTFALLIN WATER IN A DRY YEAR

Shortfall Shortfall Water balance /a without dam with dams without dams River basin (%) (%) (with dams)

Teluk Lada 0 0 surplus Banten 5 5 marginal shortage Cibeet-Jakarta-Cisadane 14 5 b severe shortage (marginal) Citarum 2 2 surplus Cimanuk 16 0 Xb severe shortage (surplus) Cisanggarung 18 14 severe shortage Pemali Comal 17 11 severe shortage Kuta Bodri 0 0 surplus Jratunseluna 34 21 /c very severe shortage Bangawan Solo 9 9 shortage Serayu 10 10 shortage South Kedu 10 0 /, shortage (surplus) Citanduy 0 0 surplus

Average 10 7 shortage

JA 5% shortfall - marginal shortage. 5-10% shortfall - definite shortage. 10-20% shortfall- severe shortage. 20+ shortfall very severe shortage. /b Dams contemplated (Jatigede and Parangbadak). jgq Dams being built or close to completion (Wadaslintang and Kedung Ombo).

Source: Bank staff estimatesusing water balance model.

4.24 This analysis reinforcesthe picture that moving from western to eastern Java, water becomes more scarce. In West Java there is generallya 90

surplusof water, and even the large requirementsby DKI Jakarta (40 m3/sec for drinkingwater and, on average, 14 m3/sec for flushing)can be met. In East Java, demands exceed water resourcesand shortagesoccur. In addition, the north coast catchmentssuffer from severe shortages. Map 21069 shows water shortageareas particularlyin the months May throughSeptember.

Table 4,10: TOTAL WATER DEFICITSFOR SELECTED CATCRMENTSIN JAVA IN A DRY YEAR (2010)

------Deficits in Mm3 - Without With With efficiency efficiency efficiency River basin Irrigation improvements improvements improvements area ha E - 30% E 50% E 50% & Dams

Bengawan Solo 274,00 1,522 564 564 Jratunseluna 108,000 1,928 888 534 West Semerang 122,000 13 0 0 Pemali Comal 130,000 1,445 528 528 Cisanggarung 42,000 356 186 186 Cimanuk 90,000 1,029 354 0 Cibeet-Jakarta Cisadane 190,000 1,942 293 293 Banten 55,000 367 66 66 Serayu 197,000 1,058 217 217 South Kedu 55,000- 234 124 0 Citanduy 50,000 98 0 0 Teluk Lada 31,000 18 0 0

Total 1.244.000 10.010 3,220 2.388

Sourse: Bank staff estimatesbased on DGWRD data.

4.25 This analysispresupposes that overall irrigationefficiency for water distributionwill be improvedfrom the present level of 30% to 50%. If these efficienciesare not realized,then the analysis shows that the shortages will be greatly aggravated (Annex4, Figure 3). For the 13 catchments,a simulationwas performedwith 30% efficiencyand under these circumstances shortages increased300%, i.e., from a 2.4 Bm3/year to 10 Bm3/year (see Table 4.10). Overall for Java, without efficiencyimprovements, shortages become 22 Bm3/year, or 38% of the firm water resources. Improvingwater-use efficiencyof irrigationreduces shortfalls by two thirds,but dams reduce shortfallsby only 10%. Therefore,a failureto improve irrigationefficiency would have seriousconsequences for some river basins. For example, the Serayu basin would have deficits almost all year in a dry year if water requirementsincreased as projectedbut efficiencyimprovements were not undertaken. - 91 -

Problem Areas

4.26 Efficiency in the Use of AgriculturalWater. The precedinganalysis indicatesthat the main constraintto increasingcropping intensityand production is the inefficientuse of water for irrigationpurposes. For a flood irrigationsystem, like most systems in Indonesia,the maximum efficiency achievableis about 50%, which requires efficienciesof 90% at intake, 70% efficiencyin the operationof the system,and 80% efficiencyin on-farm use. However, averageefficiencies in the larger schemeshardly exceed 30% in the wet and dry seasons. A coTparisonof achievableefficiencies and the present situationin Java is shown in Table 4.11.

Table 4.11: EFFICIENCYCOMPARISONS (S)

Maximum Indoinesian Percentage Type of Efficiency achievable levels of achievable

Intake 90 20-70 La 22-78 System Operations 70 45-65 /b 64-92 On-farm Use 80 65-80 b 81-100 Overall 50 6-36 11-72

_A Based on IIMI studies in East and CentralJava. Ak Estimated,based on severalWorld Bank appraisals1981-85. /e Average efficiencyis about 25%.

Source: IIMI Studies,1987.

4.27 The largestdiscrepancy in efficienciesinvolves inflow regulation, due to lack of proper control structures and improper management of inflows. This is a seriousproblem. If too much water is diverted into a system, particularlyin drier periods, surpluswater stands in fields and downstream users suffer. If too little water is taken, end-userswithin the system experienceshortages. Recent measurementsindicate that even in the dry season, East and CentralJava efficienciesvary from 10-35%, averagingabout 30% over large areas. In the Brantas River, where there is a significant need for water downstream for the city of Surabaya, inflow efficiencies of upstream irrigationsystems on medium schemes (6,000-10,000ha) are only 23-45%,which is 25-50% of what is achievable (Annex4A, Table 1). Part of the water transmittedthrough the irrigationsystem and not utilized does reappear in downstreamareas, but some is lost to evaporationor directed away from importantdownstream users.

4.28 Efficiencyof Muicipal Water Use. Despite the low level of service for urban water supply systems on Java, unaccountedfor water varies from 20-65% for piped water. This is due both to physical losses in the distribution system and disconnection of or tampering with metering devices to avoid or reduce payment. Table 4.12 shows that for some local water authorities about 40% of the water treated and supplied cannot be accounted for, and for Jakarta alone almost 50% of treated water is not accountedfor. - 92 -

Considerableeffort will have to be made to ensure that unaccountedfor water is reduced in the existing municipalwater supply systems.

Table 4.12: UNACCOUNTEDFOR WATER BY PROVINCE AND JAKARTA AND SITRAAYA

DKI Unaccounted West Central East Jakarta Surabaya for water ------Number of Water Systems-^------%

5 2 3 - - 10-20 7 5 1 - - 21-30 5 3 3 - 1 31-40 - - - - - 40-50 1 - over 50

Source: DirectorateGeneral Cipta Karya (DGCK).

4.29 Efficiencyin GroundwaterUse. At prezent, groundwaterabstraction is undertakenmainly by the private sector for residentialand industrialuse. In theory,licenses are issued for groundwaterabstraction, the rate of abstractionis metered, and charges on water use are leveledby the m cuncipality.In practice,however, the situationis difficultto monitor. Unlicensedwells are common and tariffson groundwaterabstraction are both low and undercollected. Underpricing,in turn, leads to considerablewaste by y-ivate users. This Is particularlyserious in coastal areas where aquifers cannot recharge at adequate rates, so currentuse lowers the water table, increasesthe price of abstraction,and causes the salinizationof subsurface water.

4.30 Potentialfor Water Reuse. Some citios in Asia and elsewherereuse waste water for agriculturaland other non-potablepurposes. As practiced informally,such reuse can pose some danger to croplands,crops and agriculturalworkers. However,planned reuse with appropriatesafeguards would be worthy of considerationin those regions of Indonesiathat face increasingscarcity of water due to competingdemands or contaminatedsources. Water for reuse would have to be collectedand treated at costs which should be comparedwith the cost of other potentialwater sources.

C. ImprovingWater Resource Management

4.31 Although municipalitiesuse only a small amount of water when compared to agriculture,these uses are extremelyimportant, and the general tendencyhas been for municipaland industrialwater supply to put pressure on the nhistorical"rights of irrigatedagriculture. Within urban areas the use of publicly supplied piped water versus privatelyabstracted groundwater also poses importanttrade-offs and investmentdecisions. Therefore,water allocation issues will have to be addressedin Java to ensure optimal agriculturalproduction and sustainableindustrial and municipaldevelopment. . 93 -

4.32 Four measuresare suggestedto resolveefficiency and allocational issues: (a) Efficiencycan be improvedthrough water pricingto reducewaste and to providefunds for operationand maintenance. (b) Water resourcemanagement can be improvedby strengtheninginstitu- tionsinvolved in watercontrol and by improvingcross-sectoral coordination. (c) New mechanismssuch as integratedriver basin planningand management agenciescan be introduced. (d) Dams can be built to increasestorage capacity. The followingsections describe current water management, and then consider variousoptions for improvement. WaterPrcLng 4.33 The Costof SurfaceWater. Watercosts a certainamount to capture, deliverand distribute.Users who do not appreciatethese costs are apt to waste the resourcethey receive,reducing growth and productivity.Water is currently the most subsidized of all agricultural inputs in Indonesia, with farmers paying only a fraction of the costsor of the incremental benefits from irrigation water. In 1985, the average operation and maintenance (O&N) and annualizedcapital costs of a medium-sizedirrigation project, including tertiaryO&M costs,were estimatedat aboutRp 187,000per ha (US$113)]/and totalfarmer payments in 1985/86amounted to less than 13% of the totalcost. The implicitsubsidy was thereforeabout Rp 165,000(US$100) per ha. Since thereare approximately4 million ha of government-financedirrigation works (in both Java and the otherislands), the cost of the irrigationsubsidy in 1986 amountedto aboutRp 660 billion(US$400 million) for Indonesia.Of this amount,approximately Rp 50 billionwas for 06& and the rest for annualized capitalcosts. For Java, the subsidyfor irrigationwater was aboutRp 440 billionor Rp 7.3 per m3 of irrigationwater delivered.A recentanalysis of the budgetfor CentralJava (Table4.13) indicatesthat financialsubsidies were aboutRp 173,500per ha, which tallieswell with the overallnational estimateof subsidyat Rp 165,000per ha.

MNore recentestimates indicate that the totalweighted average cost of irrigationfor all systemsis currentlyabout Rp 343,000/ha/year.This impliesan implicitsubsidy for irrigationwater of Rp 1.3 trillionfor all GOI-financedsystems. Even using the more conservativeestimate of Rp 262,000/ha/year(the marginal benefits to farmersfrom irrigation), the subsidyis aroundRp 1 trillion. - 94 -

Table 4.13: IRRIGATIONSUBSIDIES FOR CENTRALJAVA

Rp/ha/p.a.

(a) Capital investments

(i) Rehabilitation 25,000 (ii) New Schemes 150,000

Subtotal 175.000

(b) O&M payments

(i) CentralGoverrunent 10,000 (ii) ProvincialGovernment 2,500

Subtotal 12.500

Mi) Land Taxes (IPEDA) 10,000 (ii) Farmer Contribution 4,000

Subtotal 14.000

(d) Total FinancialSubsidies (a + b - c) 173.500

Source: Bank Staff estimatesfrom various documents1978-1982.

4.34 Strong argumentscan be made for subsidieson equity grounds,but funding shortagesin Indonesiahave led to poor operationand maintenanceof irrigationsystems. This, in turn, has reduced the area irrigatedand the number of farmers that benefit, and is costly to the economy and to farmers at the margins of the system. For example, as a result of the shortfallsin O&M funding, the performanceof several recentlyconstructed systems has rapidly deterioratedwith adverseeffects on agriculturalproductivity; and it is now estimatedthat over Rp 2 trillionwould be needed to restore the irrigation network to a conditionamenable to normal 06M. Under the Bank-assisted IrrigationSubsector Project, user fees will be introducedto cover the cost of O&K, but these are not linked to the volume of water used. Thus, while system efficiencymay be improvedthrough better maintenance,incentives for efficientwater use have not yet been established. Therefore,in areas where water shortagesoccur, experimentationwith economic incentivesfor water conservationmay be desirable.

4.35 Appropriatepricing of groundwateris even more urgent since groundwater is only a partiallyrenewable resource and current abstractionslimit future options. Appropriatecharges are required for drilling and abstraction and closer scrutiny of abstractionrates is required. In this case, both - 95 -

efficiencyand equity concernsargue for higher rates to urban and industrial users who can afford deep wells in order to subsidizelow-income families who no longer have access to traditionalwater sourcesbecause of the salinization of shallow aquifers.

The InstitutionalFramework for Water ResourceManagement

4.36 SurfaceWater. The Ministry of Public Works (MPU) is chargedwith the overall planning,development and managementof surfacewater resourcesin Indonesiaand may assist the provincesin all relatedmatters. MPW is empowered to collect data on water quantity and quality,make policies on water resourcesplanning, advise on water managementand regulatewaste water. MPW is assistedby the followingprovincial and local-levelinstitutions. Within MPW, the most importantagencies for surfacewater managementare the DirectorateGeneral of Water ResourcesDevelopment (DGWRD) and its Directorate of Irrigation (DI).

(a) The ProvincialIrrigation Service (PRIS) in each province is responsiblefor planning and design, irrigationconstruction, operationand maintenance,and logisticsfor both rivers and swamps. Its district-leveloffices have administrativeand technieal responsibilityfor 70,000-100,000ha of irrigatedarea. PRIS offices are responsiblefor providingdata on water availability,water requirements,and land use to the IrrigationCommittee at the respectivelevel.A/

(b) IrrigationCommittees, made up of MPW, provincialand local governmentofficials, and agriculturalservices staff, coordinate water distributionat the provincial,district, and often subdistrict levels. The provincial-levelcommittee provides guidance and makes policies for carrying out projects,while the district-level committeemakes decisionsregarding cropping patterns, planting dates, etc. Committeesdo not control their financialresources, which come from the Government,and do not have working secretariats, so they are frequentlyunable to enforce their decisionsand instructions.

(c) Water Users Associations(WUA) are based on the self-helpprinciple. A typicalWUA has a membershipof 100-200 farmers,who are supposed to receive technicalguidance on system design and O& from the PRIS and instructionon water use from the agriculturalextension service. In practice,however, only about 15% of the existingWUAs are active, 20t are semi-active,and the rest are inactive. WUAs often lack the expertiseto operate and maintain the tertiary irrigationsystems, and farmers,finding the services of little benefit, are often reluctantto contributeto the WUA, especiallyas there are no sanctionsfor nonpayment.

b/ Operationand maintenance(O&M) for the main irrigationsystem is carried out, under instructionfrom the district irrigationcommittee, mostly by sections (each covering 20,000-40,000ha), and by subsections (4,000-6,000ha each) headed by a member of the PRIS field staff. - 96 -

4.37 GroundwatXr. The Directorateof EnvironmentalGeology (DEG) in the Ministry of Mines and Energy is responsiblefor evaluatinggroundwater resourcesnationwide, for groundwatermapping and for issuing licenses for groundwaterabstraction. However, as noted, many private users circumvent licensingrequirements and aquifersare being overdrawn. The Directorateis anxious to address this problem,but it faces jurisdictionalproblems in relation to municipalities,and it has little enforcementauthority and limited staff outside of Jakarta and Bandung. In addition,the work of the Directorateis only weakly linked to that of the Directorateof Irrigation, which is responsiblefor surfacewater management.

IntegratedWater Resource llanningand Management

4.38 While many aspects of irrigationmanagement within a single scheme have been reasonablywell defined, the more complexproblem of managing water quantityand quality across differentirrigation schemes, between rural and urban sectorswithin a river basin, and among surface,groundwater and coastal water resourceshas received inadequateattention to date. The overall responsibilityfor surfacewater planning and managementwithin a river basin has been given to the Ministry of Public Works, but can be delegated to other bodies, such as state enterprisesor the provincialgovernments. Since 1967, MPW has supportedintegrated water resourcesdevelopment programs and 12 river basin assessmentshave now been carried out on Java.5/

4.39 There are severalpotential advantages to the river basin or regional approach to water resourcemanagement: coordinationis improved,the interestsand needs of competingusers can be cared for, both in planning and operations,and water can be more efficientlyallocated among competinguses. The river basin approachcan also be implementedunder a variety of institutionalsettings: (a) workingwithin existingarrangements, in which governmentdepartments perform the necessaryfunctions, albeit with improved coordinationand concern for the needs of other users; (b) introducingnew forms of coordinationamong existing agencies,such as a steering committeeor perhaps junior minister;and (c) establishinga single enterprisewith the needed powers for planning,construction, management, operation, monitoring and compliance.

4.40 Seviralphases or steps that may be helpful in moving towards integratedwater resourceplanning and managementon a river basin or regional scale can be distinguished.

(a) Phase-I. Build and strengthenexisting institutionalarrangements and improvewater resourceplanning and coordinationat the provinciallevel.

5/ The Governmentof Japan was the first donor to accept the above approach with the integrated development of the Brantas and Solo rivers. The World Bank later assisted with the Jratunseluna interrelatedriver basins study and the Cimanuk study. More recently, AID supportedthe approach with the South Kedu river basin project. - 97 -

(b) Phase II. Create an interministerialcommittee with central and local governmentrepresentation to oversee and coordinatethe activitiesof various agenciesengaged in water resource planning and management.

(c) Phase III. Set up interministerialboards with strong provincial governmentparticipation to guide the developmentof river basin or regional entitieswith responsibilityfor water resourceplanning and management.

(d) Phase rv. Strengthenthe river basin entity and increase its links to provincialand local governments. Central government representativeswould serve in an advisorycapacity. In selected cases, such an entity could become a River Basin Enterprise (RBE).

These phases or steps are not mutually exclusive. Differentriver basins might require differentsolutions, and at any time, river basins might be at diffarentphases of development. Over time, however, there would be an evolutiontowards an entity which is increasinglycomprehensive and autonomous.

4.41 Water resourceplanning and managementfor most river basins have not yet entered Phase I, but some basins are moving in that direction. The main emphasis is on coordinationbetween centraland local agencies,and on developing the capacity for integrated water resource planning in DGWRD. Over the medium-term, as water resource management moves toward Phases II and III, effective interministerialboards may emerge which would coordinatethe managementof water resourcesbetween the many central and local agencies involved. As these boards become increasinglydominated by local governments, provincially-basedriver basin enterprisescould be formed particularlyin basins where competitit-aamong water users is most intense. In parallel with this process, farmer participationand responsibilitymust be strongly encouraged.

Imnroving Existing Arrangements

4.42 New institutional arrangements and coordinating mechanisms take time to develop. In the short run, sectoral agencieswith strong foundations,good technicalstaff and historical functionswill have to be relied upon as much as possible. DGWRD will have to play a major role in coordinatingintegrated water resourceplanning. It will also have to take into account Dmuicipal needs and water quality. Both are within its legal mandate, but have not received due attentionin the past. Local institutionsand related sectoral agencies also need to be strengthenedto provide the inputs needed for planning,management and operations. Specific steps to improvethe performanceof existing institutionsare as follows.

4.43 To improve the water-useefficiency of irrigation,the PRIS should have a water resourcecenter or a "water operations'division to estimate crop areas and water requirements,field applicationand conveyancelosses, and water inflowsand outflows throughoutthe system. To do this, the PRIS needs more staff with higher technicalcapabilities who can follow operational guidelinesand standardizedata collectionand water schedulingpractices for - 98 -

better water managemencat the subdistrictand village levels. To date, this work has been carried out by central governmentstaff and consultants. The provincialagricultural services which are responsiblefor advising farmers on water matters also need staff upgrading.

4.44 The body most suited to integratedwater managementat the local level, the IrrigationCommittee, Is currentlyonly chargedwith matters related to irrigatedagriculture, and most committeesare very weak. The committee's effectivenesscould be increasedif (a) it were provided with a secretariat with a permanentstaff and adequatebudget and (b) its functionswere extended to the day- ;-daymanagement of all water use in each subsystem. Such an extensionof iunctionwould fit Government'spresent policies of decentralization.At the same time, the provincialBAPPEDAs (as well as BAPPENAS)would need to develop capabilitiesto review and help integrate investmentsin the water resourcessector as a whole.

4.45 To improvewater-use efficiency, Government also gives pri.,rityto an integratedpolicy for the developmentof water-userassociations, including better representationof farmers in the preparationof cropping and irrigation schedules. The Bank-assistedIrrigation Subsector Project, with assistance from Ford Foundationspecialists in communityorganization, aims at turning over most irrigationsystems serving fewer than 150 ha to WUAs within RepelitaV. WUAs would also be establishedat the system/districtlevel in pilot areas for the introductionof irrigationservice fees.

4.46 In municipalareas, improvedcoordination is requiredbetween those enterprisesassociated with municipalwater supply (PDAMs),surface water quality (MPW), and groundwaterabstraction (DEG). Master plans which inventory resources,project demand and promote efficientuse throughappropriate incentivesand user charges are required in many cities. Developmentof such plans is particularlyurgent in cities where groundwaterresources are being depletedby overuse.

4.47 Institutionaldevelopment will also require a parallel effort to improvewater resourceplanning. Such planning should weigh the benefits, costs and environmentalimpacts of alternativewater uses, then design physical systems and policy measures to optimizethe net benefits while maintaining (or improving)environmental quality. To carry out such planning, guidelines from the central governmentare needed to harmonize sectoralconcerns. Such guidelineswould help ensi4re that water resourceplans prepared for basins and regions:

(a) are consistentwith and flow from nationalplans and development objectives;

(b) are prepared on a common basis (regardingsuch parametersas discount rates and time horizons)yet reflect local and regional differences;

(d) are comprehensivein their concern for upper watersheds,rivers, estuariesand bays, groundwaterand surface water, and the needs of rural and urban populations;and - 99 -

(e) respect and foster Government'spolicy for devolvingdevelopment responsibilitiesto provincialand local governments.

The guidelinesfor planning should also prescribea mechanismfor optimally allocatingfunds to the water resourcessector, setting out economic, social and environmentalcriteria for judgingalternatives and for prioritizing.

Table 4,14: ILLUSTRATIVEECONOMICS OF RIVER BASIN APPROACH (for Solo, Brantas and Citarum)

---- Revenue Sources ---- GOI Local or user Expenditures subsidy finance Item (Rp billion) ----- (Rp billion) ------

Present levels of expenditure for O&M and capitalworks 62.1 48.8 15.5

Needed expenditureand sources under present arrangements 136.8 121.3 15.5

Expendituresand revenue 121.3 56.3 65.6 sourcesunder a River Basin Enterprise

Savings Subsidy reduction 75.0

Additional income -- 4

Source: Bank estimatesbased on existingoperating costs and estimatedpollu- tion charges from developedcountries adapted to Indonesia.

River Basin Entities

4.48 There are inatitutionaland economicadvantages to water resource managementon a river basin or regionalbasis.§/ An analysis of the cost of integratedwater resourcemanagement under a state enterpriseindicates that there could be a significantreduction in the level of central government subsidiesfor three large basins (Brantas,Solo and Citarum). The analysis shows that even with increasedservices related to pollutioncontrol and water

i/ A regional approach is desirablein certain areas where several rivers serve one region, as in the Jabotabekregion. - 100 -

supply for urban areas, the su.sidy from the central governmentcould be reducedby more than half (Table4.14). The economiesof scale are derived from reduced staff numbers and lower operatingcosts for irrigation,water supply,hydropower and water quality control. Additionalincome would be mainly from pollutioncharges and water supply charges for urban areas.

4.49 At present there is only one river basin entity in Indonesia,the JatiluhurAuthority. The JatiluhurAuthority does not have comprehensive legal powers, is actuallya weak form of state enterprise,and is not multisectoral,i.e., it has only a limitedmandate for hydropower,flood protection,industrial wastes and coastal water quality. It manages major irrigationinfrastructure, such as the Curug pumping station and the irrigationand water supply canals,but leaves the actual managementof irrigationwater to the provincialgovernment.

4.50 Current opinionwithin DGURD is that legallyconstituted river basin authorities,like the TennesseeValley Authority in the United States and DamodarValley Authorityin India, cannot be dlplicatedin Indonesiabecause of strong oppositionfrom local governments. Instead,the proposed river basin entities would be intermediateorganizations linking central and local governmentauthorities throughout the river basin area. DGWRD has several project offices organizedalong river basin lines which are managing and operating irrigationand flood controlprojects. Although their current operationsare limitedand exclude municipaland industrialwater supply and water pollutioncontrol, these project offices comprise the rudimentsof a basin entity. Several could continue to functionwith central government subsidiesand take on an expandedrole in water quality control.

4.51 Under the present constitution,responsibility for water resource managementcan be delegatedto a state corporation(such as a Perum) with the objectiveof providingpublic services as a public utility operatingwithout subsidies. At present, one river basin project office (Brantas)and one semi- autonomousbasin enterprise,the JatiluhurAuthority, are under consideration for conversioninto a genuinelyautonomous entities. Both basins are in water- short areas with some of the highest levels of pollutionin the country. Both river basins have multipurposeoperations for power, raw water supply, flood control and irrigation.

4.52 Mandates for river basin entities (RBEs) may vary in accordancewith needs and local realities. One possibilityis a relativelyweak mandate and structurewhere the RBE would be directedby a steering committee. It would be responsiblelargely for operationsand coordinatingactivities of sectoral entities of central,provincial and local governmentsto ensure that multipurposeneeds are met. It would have a small technicalstaff and use the technicalunits of existinggovernment departments for analysis,monitoring and enforcement.

4.53 Under a strongermandate, the RBE could be provided a firm legal basis, directedby a board comprisedof one or more ministersand the provincial governor and managed by a managing director. It would have responsibility for water resourceplanning, design, construction,management and operations and have a comprehensivetechnical staff relocatedfrom other agencies - 101 -

to perform these tasks. It would also have the authorityto borrow and impose user charges and powers to set standards,issue licenses and enforce complianceregarding locatior.of infrastructure,raw water abstraction,waste dischargesand other concerns.

4.54 In both cases, basic operatingfunctions would include:

(a) wholesale supply of surfacewater for irrigation,industry, municipalities,hydropower, waste assimilation/dilution/disposaland other uses, with due considerationto efficiencyand environmental quality;Z/ (b) operationsfor drainageand flood control;

(c) allocationand control of groundwaterabstraction, with due considerationto conjunctivesurface/groundwater use and water quality protection,and using DEG for monitoring and technical support;

(d) issuance of standards,licenses and permits for surface and groundwater abstractionand liquid waste disposal;the impositionof tariffs or fees for water use and waste disposal;

(e) monitoringof water quantityand quality;

(f) advice to provincialand local governmentson land use and zoning to optimizewater resourceuse and protectwater quality;

(g) review water resource developmentplans of other agencies to achieve economic,social and environmentalobjectives.

Secondaryareas of operationcould cover watershedmanagement, navigation, fisheries,and recreation.

4.55 FinancialAutonomy and Water Charges. There are two financialprin- ciples fundamentalto cn autonomousriver basin entity.

(a) Charges levied should contributeto the costs of water resourcemanagement and pollutioncontrol. Income should be sufficientto maintain the assets,make adequateallocation for depreciationand cover the costs of servicingloans. This in turn will enable authorities to borrow in their own right to financenew investment. Financial projectionsfor prospectiveentities for Brantas and Jatiluhur indicatethat sufficientrevenues can be generatedfor power, municipal and irrigationwater supply and waste disposal charges to at least cover operatingcosts. (Floodprotection costs should, for practical reasons,be recoveredfrom property taxes on improved land).

7/ The operationsof power plants, irrigationdistribution systems and municipal and industrialtreatment and distributionsystems would remain with the user entity. - 102 -

(b) Individualcharges should reflect the economicsof supply. If available quantitiesare limited,tariffs should by set at levels which encourageefficient water use for the benefit of all users. Waste- water treatmentand/or disposalcharges and fines should discourage the uneconomicdisposal of waste and help ensure that ambient environmentalquality standardsare achieved.

4.56 Since investmentsin the water sector are long-term,detailed financial projectionsfor prospectiveRBEs should be prepared. These should take into account water resourceplans as well as pollutioncontrol activities, togetherwith other specificobligations (e.g., hydroelectric generation, irrigationschemes, raw water treatmentplants). The financingof urban flood control,capital expendituresand operatingcosts should be recoveredfrom local authoritiesbenefiting from the schemes. In general, the basin entities will undertakenew schemesor maintain existing schemes at the request of the local clients, allocatingcosts commensuratewith benefits. Cost-sharing among users would in particularaffect irrigationwater, for which there is now no charge.

4.57 The Bank recognizesthat institutionalchange will be difficult;that it is not generallydesirable to create new agencies;that change must be carefullyconsidered, discussed, derived from consensus,and phased. But this analysis suggests that the present institutionalstructure requires reconsideration. The .auccessof river basin entities in other countries suggests that the approlch in itndonesia,properly executed, would help to solve the pressing need for municipaland industrialwater for the country's two largestcities, Jakarta and Surabaya;would reduce central government subsidiesfor many completedwater resource developmentworks; and would help reduce water pollutionaround waterwaysand rivers.

Dams and Reservoirs

4.58 Dams involveenormous capital investmentand high social and environmentalcosts. Therefore,measures to improvethe water-useefficiency and ensure appropriateallocation are far more cost-effective.Nevertheless, the analysiscarried out in this report provides an argument for dams in highly selected cases. Where appropriatelyplanned and managed, dams can be used to alleviatewater shortages,protect downstream areas from flooding,and provide power and other needs.

4.59 Alleviationof Water Shortages. The water balance model used in this report suggests that the constructionof additionalreservoirs could potentially relieve water shortagesin some criticallyshort areas. For txample, the Parangbadakreservoir on the CisadaneRiver, the Jatigede reservoirand the Kedung Ombo reservoirare able to change the water balance from a shortage to marginal shortageor surplusesif accompaniedby increasedirrigation efficiency. In other areas, little more can be gained by new reservoirs (Table 4.9). In Brantas (East Java), for example,only 6% of water flows are currentlyunregulated, so virtuallyall improvementmust come from increased efficiencyin water use or from costly interbasintransfers.

4.60 ProtectingFlood-Prone Areas. In addition to supplyingwater for municipal and industrialuse, dams can also reduce flooding. It is of - 103 -

interest that the areas with the greatestwater shortagesin Java are also the most flood-prone. On average,about St of Java is subject to severe river floods.I/ Annual direct damages due to floods amount to about US$150 million and annual investmentsin flood mitigationon Java have averaged about US$30-40 million during Repelita III and IV. The major problem is high surface flows in the wet season due to high rainfall and little natural storage in the catchments. During the dry season, the river flows are reduced to negligibleamounts and cause local shortages. Map 21068 shows the major flood-proneareas subject to high flood damages. All are either close to major cities or transportationlinks. The only solutionsfor reducing floods are to contain the water throughlevees or to build artificialstorage, e.g., dams for flood control. Governmenthas not focusedon flood control measures to date, because such projectshave low priority since they are not within a productive sector.

4.61 Multifuctional Use. If dams are proposed in the future, it will be necessaryto give far more attentionto the multipurposeuse of reservoirs. Currently,reservoirs are primarilyused for power generation(operated by PLN, the state electric company)or for irrigationand drinkingwater supply (operatedby MPW). True multipurposeoperation hoes not occur. Although hard to quantify, current operational policies and methods could be improved significantly, with important benefits for the nation. In a nationwide 1983 survey, PLN listed potential hydropowersites, includingabout 30 "promising" sites in Java. However, the criterionused in this selectionwas cost per k'Wh. It is now necessaryto add the benefits for public water supply, irrigationand flood control as criteriaand to review environmentaland resettlementcosts carefullyin order to determinewhat sites, if any, should be developedfor multipurposeoperation. For the northern part of West Java, this will be carriedout in the frameworkof the Cisadane-CimanukIntegrated Water ResourcesDevelopment Project. A similar study is recommendedfor Central and East Java.

WXFlood-prone areas cover 671,000ha, including26,000 ha in DKI Jakarta, 256,000 ha in East Java, 223,000ha in CentrelJava and 166,000ha itr West Java. - 104 -

V. WATER OUALITY ISSUES ON JAVA

A. Sourcesand Extent of Water Pollution

Sources of Water Pollution

5.1 One of the most importantand least appreciatedbenefits of water is its ability to flush, diffuse and degrade human and industrialwaste. This capacity has been recognizedfor millenia and is used by all societies. How- ever, failure to manage this process can lead to pollutionlevels which exceed the capacity of water to handle them. The main sources of water pollution in developedand developingcountries are generallyfrom agriculture,erosion, and domestic and industrialeffluents.

5.2 Indonesiais fortunatethat agriculturalchemicals are not a major contributorto water pollution. A detailed evaluationof runoff of agricultural chemicals, includingpesticides and fertilizers,was made in 1983 as part of the environmentalimpact assessment(EIA) of the Bali Irrigation Project. This showed that while pesticiderunoff in Java had generatedvery severe ecologicaldamage over the years when "hard' (nondegradable)pe5ticides were used in &overnmentsubsidized programs, little damage had been reported since the Governmentintroduced degradable pesticides in the early 1970s. The Bali assessment,the 1986 Segara Anakan Phase I report and the 1986 Jatigede EIA all confirm that neither pesticidenor fertilizerrunoff has resulted in significantimpairment of river water quality. However, '9'ard"pesticides are still availableon the market and continuedmonitoring of their use is important.

5.3 Silt runoff from upper watershederosion due to road construction, human encroachment,deforestation and removalof surfaceprotective cover can cause major problems in the downstreamlowlands. These problems include increasedturbidity which damagesaquatic life, increasedwater treatment costs, increasedsiltation with resultingflooding and navigationhazards, and dredging costs for removal of depositedsilt. Quantificationof these effects, carried out in conjunctionwith the watershedmanagement report, suggestsan annual cost to the economy ranging from US$25-90 million.

5.4 Organic pollutionfrom human waste and varbageis a major problem. Western-style,waterborne domestic sewerage systemsare rare and limited in scope in Indonesiancities. Moreover,water suppliesare generallyinadequate to support large flush-basedsystems, and the high cost of these systems limits their use to higher-incomegroups. Adequate treatmentof waste water to render it acceptablefor dischargeis even rarer, although some cities (e.g., Jakarta) require large waste producers,such as hotels and office blocks, to install on-site treatmentfacilities. Even then, improperdesign and operationof such facilitiesoften results in the dischargeof large volumes of pollutantsinto surfaceand groundwater.

5.5 The principalmeans of waste disposal is on-site septic tanks or pit- leaching systems in higher-incomeareas, or direct discharge into drains and water courses in poorer areas without adequate toilet facilities. However, accumulatedsludge from pits and septic tanks may not be removed, reducing - 105 .

Table LI1: SELECTEDEFFECTS OF TOXIC CHEMICALSON HEALTHAND THE ENVIRONMENT

Carcin- Terato- Environmental Chemical ogen iA gen & Other effects

Cadmium X X Suspectedcausal factor Toxic to fish, accumu- in many human patholo- lates in aquatic orga- gies: tumors, renal nisms dysfunction, hyperten- sion, arteriosclerosis, weakened bones (Itai- itai disease)

Copper Gastrointestinalirri- Toxic to fish tant, liver damage

DDT X X Tremors, convulsions, Reproductive failure of kidney damage birds and fish, accumu- lates in aquatic orga- nisms, magnifies in food chain Lead X X Convulsions,anemia, Toxic to domesticplants kidney and brain damage and animals, magnifies in food chain

Mercury X Irritability,depres- Reproductivefailure in sion, kidney and liver fish, inhibitsgrowth of damage,Minamata dis- and kills fish, methyl- ease mercury biomagnifies

Polychlor- X X Vomiting, abdominal Liver damage in mammals, inatedbi- pain, temporaryblind- kidney damage and egg- phenyls ness shell thinning in birds, (PCBs) suspectedreproductive failure in fish

/a Cancer-causti.g. ak Inducingbirth defects.

Source: U.S. Council in EnvironmentalQuality, State of the Environment.1982 (Washington,D.C. pp. 120-21). effectivenessanA' causing overflow. Collectedsludge is, in any event, often improperlydischarged into water coursesby public agencies and private contractors. Improper disposalof solid waste in water courses is also a serious pollutionproblem, reflectingthe weak developmentof garbage collectionservices, especially in congestedlow-income areas. - 106 -

5.6 In some urban areas, industrialpollution is almost as pervasiveas pollutionfrom human and municipalwaste, and its consequencesmay be more serious. A 1983 study of the Tangerangindustrial zone found serious pollutionat all 10 monitoringlocations. The most alarming findingwas the high concentrationof heavy metals and other toxic materials in a number of samplingstations along the river. These includedexcess chromium,primarily used in metal alloys and metal plating;cadmium, used in protectiveplating and bearing metals; high mercury levels at all locationsand more than 100 times the allowablelevel at one location;and selenium,a nonmetallicelement used in the electronicsindustry for the productionof computerwafers. Further observationsat the outlet streams of factoriesindicated that most firms lacked appropriatewaste water treatment.

5.7 Table 5.1 provides an overviewof the effect of toxic chemi4-alson human health and the environment. Toxic substancessuch as organic and inorganicchemicals and heavy metals are especiallydangerous, as these pollutantsare not fully removedby standardmunicipal water treatment facilities. Traces of these toxicantscan become concentratedin the food chain, potentiallyexposing human beings to long-termpoisoning and chronic disease that may be revealedover time. Analysis of fish and shellfishtaken from the Jakarta Bay indicatedthat World Health Organization(WHO) standards for heavy metals were exceeded in 76% of the samples for cadmium, 51% for copper, 44% for lead, 38% for mercury and 2% for chromium. PCB and DDT in the Bay's waters reach 9 parts per billion, and 13 ppb respectively,exceeding the limit of 0.5 ppb consideredto be the thresholdof pollution.l/ An emerging concern also involvesthe long-termeffects of the use of chlorine as a disirfectantin public water supply. The greater the pollution,the higher the amount of chloiine required,but such use produces chemical residuals includingchloroform, a known carcinogen. Extent of Pollution

5.8 Table 5.2 shows pollutionlevels in selected rivers in Java. The most excessivepollutant is human excretaas indicatedby fecal coliform,which in places exceeds conventionalstandards by 1,000 times and more. The BOD (biochemicaloxygen demand) and COD (chemicaloxygen demand) also exceed conventionalstandards in all provinces. Map 21264 summarizesthe findingsof the Instituteof HydraulicEngineering and the Ministry of Health on water quality in the eight major river basins in Java. They show that significant dry season pollution,represented by BOD levels of 3-6 mg/liter,exists in five of the eight river systems in Java, and seriouspollution (over 6 mg/liter)occurs in the Bandung/Jakarta/Jabotabekregion (Citarumand JabotabekRivers), in the Surabaya region (SurabayaRiver) and around the cities of Solo and Semarang. SurabayaRiver pollutionhas seriouslyimpeded the functioningof the main Surabayawater treatmentplant, and pollutionin the Banjar canal, the raw water supply for Jakarta'swater treatmentplant at Pejompongan,is so severe that, combinedwith less than adequateplant operation,water deliveredto Jakartamust be boiled before use.

/ USAID, Natural Resourcesand EnvironmentalManagement in Indonesia (Jakarta,1987). - 107 -

Table 5.2: POLLUTIONLEVELS IN SELECTEDRIVERS IN JAVA

West Central Esst Problem Units Norm/a Java Java Java magnitude pH value High 9.0 8.2 8.1 8.1 Low 5.0 7.1 7.6 7.6

Dissolved02 High mg/liter 9.0 7.2 7.0 6.7 Low mg/liter 4.0 2.6 6.3 4.4

BOD High mg/liter 6.0 36.0 6.8 14.4 Low mg/liter 0.0 1.4 2.2 2.9

COD High mg/liter 10.0 17.9 84.7 28.7 Low mg/liter 0.0 6.5 10.9 21.2 Fecal coliform High MPN/lOOmlLk 2.0 1,700.0 9,200.0 8,600.0 Low MPN,iOOml 4& 0.0 970.0 130.0 110.0

Copper (Cu) High mg/liter 1.000 0.013 0.026 0.009 Low mg/liter 0.000 0.000 0.003 0.003

Chromium (Cr) High mg/liter 0.050 0.004 0.037 0.009 Low mg/liter 0.000 0.000 0.000 0.000

Cyanide High mg/liter 0.050 0.000 0.000 0.000 Low mg/liter 0.000 0.000 0.000 0.000

Lead (Pb) High mg/liter 0.100 0.051 0.005 0.007 Low mg/liter 0.050 0.000 0.000 0.000

Free ammonia High mg/liter 0.500 1.593 0.655 0.588 Low mg/liter 0.010 0.020 0.100 0.133

Nitrate High mg/liter 10.000 0.949 1.401 1.500 Low mg/liter 5.000 0.209 0.783 0.384

La Based on MPE's categoryB of ambientwater quality for treated surface water used for drinking. Xbk MPN - most probable number.

* 4Minor ** Moderate *** Significantly polluted **** Serious pollution

Source: Instituteof HydraulicEngineering (IHE). - 108 -

5.9 The extent and impact of water pollutionalong Java's north coast is heightenedby industrialconcentration in the area. Java contains 600 of Indonesia'spopulation, 76% of manufacturing,and 80% of medium- and large-scale industry (Table 5.3). One third of all medium- and large- scale industryis in the Jakarta-Bandungcorridor. This concentrationof industry,population and pollution from industrialand domestic sources is strainingthe carrying capacityof the regions'ecosystems.

Table 5.3: REGIONAL DISTRIBUTIONOF MEDIUM AND LARGE SCALE INDUSTRIES(%)

Province Number of firms Employment Value added

Java 80.1 i7. 76.4

Sumatra 11.0 12.3 13.5 Bali/NTT 2.7 1.2 0.4 Kalimantan 3.1 5.5 6.8 Sulawesi 2.6 1.8 2.3 Maluku and Irian Jaya 0.5 0.6 0.7

Outer Islands 19.92.4

Source: Central Bureau of Statistics.

5.10 The impact of water pollutionis also magnifiedby the following factors.

(a) Physical Factors. As noted earlier, some of Java's lower basins suffer dry season water shortageswhich reduce the amount of water availableto dilute and flush wastes from the system, thereby concentratingpollutants in water courses. In addition,Java's north coast rivers flow outward over the very shallowSunda Shelf (average depth, 50 meters), which results in slow dispersionof wastes, and allows tidal action to push pollutantsback into coastal wetlands and city waterways.

(b) Social Factors. The major portion of Java's urban populationis located along the north coast, and many of the poorest people live in the older sectionsof cities close to the coast where surfacewater pollutionis greatest. Moreover,salinization and pollutionof groundwateraquifers is increasinglycommon, and low-incomepeople are most affectedas they have limited access to and are least able to afford piped or purchasedwater. - 109 -

Cost to the Economy 5.11 The lack of datamakes quantifying the cost of pollutionand makinga cost-benefitanalysis of pollutioncontrol difficult. However, some fragman- tary data are available.For example,the heavypollution of raw water sourcesto the Jakartatreatment plants is necessitatingthe constructionof a US$40 millionpipeline from the West Tarumcanal to the Jakartawater treatment facility,and the eventualcost of supplyingraw water to Jakartafrom distantsources is estimatedat US$1 billion. The cost of boilingwater to make it safe for consumptionis estimatedin preliminarystudies at US$20-30 millionper year in the Jakartaarea alone. 5.12 Otherpollution costs, as yet unquantified,are sicknessamong the work forceand lostproduction due to waterbornediseases, the cost of medicinesand hospitalcare, the impacton fishingand tourismdue to coastal pollution,the reductionin propertyvalues along coastlines and water courses,the corrosionof pipesand sewersby water containingindustrial wastes,and industrialstoppages due to inadequateraw water supplies.These data can be quantifiedand would,no doubt,show very largecosts to the economyfrom water pollution.Even withoutquantification, however, virtually all countries,including Indonesia, have realizedthat pollution at high levelsentails unacceptable social costs.

B. WaterSUDPIY and Sanitation Backercound 5.13 Water qualityand pollutioncontrol have historicallyinvolved three basic operations: (a) furnishing the community with adequate water supply of acceptable quality (especially safe drinking water); (b) collecting and removinghuman excretaand otherwastes from the community(usually by use of subsurfacedisposal units or dischargeinto the nearestdrainage channel or waterway);and (c) improvingthe qualityof dischargedwater and protecting waterways.This involvesthe treatmentof sanitaryand industrialwaste beforedischarge; disposal of solidwastes in planneddisposal sites (rather than dumpingthem into the drainagesystem); and controlof wastesreaching the waterwaysfrom noncomunmitysources (industries and mining,runoff of agriculturalwaste and watershederosion). 5.14 In industrializedcountries, the provisionof safewater was initiallyof primaryimportance, followed later by a concernfor the removal of humanwaste fromhousehold areas, usually through sewerage systems that carriedwastes to nearbywater courses. Communityconcerns about water pollutionfrom sewerageare relativelyrecent, since it is usuallydownstream userswho are affected. In the UnitedStates, for example,while sanitation has been a concernfor about 100 years,water qualitycontrol has been an issue for about50 years. In developingcountries of Asia today,many of which lack seweragesystems, the prioritytoday is to providesafe water and managethe removalof humanwaste in congestedurban areas. Measuresto deal with Riverpollution have been a secondpriority. deal with riverpollution as a secondpriority. Most Asian citiesare makingprogress on the first,and only some are addressingthe second. - 110 -

5.15 In Java, attentionis focusedon the provisionof safe water and sanitation,as the bulk of the populationstill lacks these primary needs. There is only a beginningawareness of the need for water pollutioncontrol, and this is limitedmainly to those regions, such as Jakarta/Jabotabekand Surabaya, in which urbanizationand indulstrializationhave producedpollution levels which are impedingcommunity development and damaging rivers, estuaries and coastalwaterways.

Water Suppl

5.16 At present, Indonesianshave limited access to safe water (Table 5.4). In 1980, only 12% of the householdsin Java had access to piped or pumped water (41% in urban and 4% in rural areas), and in 1986, it was estimatedthat only about 40% of people in urban and rural areas had access to safe water supplies. This level is very low, even by Asian standards. In India, for example. WHO estimatesthat 75% of urban residentsand 31% of rural residentshave access to safe water. As a result, the infant mortality rate in India is lower and decliningmore rapidly.

table 5.4: PRIMARY SOURCESOF DRINKING WATER FOR URBAN AND RURAL HOUSEHOLDS (%)

Hand Pipe pump Wells Spring River Other /a

UarbanHouseholds

DKI Jakarta 30 32 26 - - 12 West Java 13 12 66 6 1 2 Central Java 23 6 66 3 1 1 D.I. Yogyakarta 11 3 86 - - - East Java 36 6 55 2 - 1

Subtotal 21 IA S4 3 1

Rural Households

DKI Jakarta 5 16 70 - 4 5 West Java 2 4 57 28 7 2 CentralJava 2 1 63 24 7 3 D.I. Yogyakarta 1 - 75 12 2 9 East Java 2 1 70 19 5 3

Subtotal X 63 A

Total j la1 53 jA Rainwatercollectors and purchase from vendors.

Source: 1980 Census, Series S, No. 2. - 111 -

5.17 During Repelita III (1979-84),a basic needs approach to urban water supply was emphasized. About 388 cities with populationsbetween 20,000 and 100,000were designatedas targets for 60% coverage. These targetswere to be met by supplyingwater throughnew standpipes(50%) and house connections (50%). Midway throughRepelita III, Governmentadded 563 subdistrictcapitals to its target list for delivery of drinkingwater throughpiped systems. These programswere continuedin Repelita IV with the objectiveof 75% coverageby 1989. As Table 5.5 indicates,however, although production capacityhas more than doubled since Repelita II, -he proportionof urban householdswith servicehas been stagnantduring Repelita III and IV. This is because urban communitiesare growingat much faster rates (3-4% p.a.) than the Java population(1.8% p.a.), and because investmentsin water distribution systemshave lagged.

Table 5.5: JAVA URBAN WATER SUPPLY COVERAGE

R_ftpelitS(five-year plan) Unit I II III IV (est.)

Productioncapacity m3/sec 15.3 20.3 37.7 42.8

Urban areas Large 68 105 200 388 Small nd nd 390 563

People served million nd nd 12 14

Coverage % nd nd 40 41

5.18 Rural water supply comes from piped water, artesian and dug wells, protectedsprings, rainwater collection, handpump systems,infiltration and sand filter systems. By 1984, only 27% of the rural population (38 million) had access to some form of protectedwater supply,and only 4% had access to "safe"water. During Repelita IV the objectivewas to raise the rural level from 27% to 55%, but this target was not achieved due to insufficientfunding, inadequate institutional capacity, and inadequate attention to the role of the community, including its ability to share in the cost.

Sanitation

5.19 The 1981 census indicated that 28% of urban householdsand 4% of rural householdshave private toilet facilitieswith subsurfacedisposal (mainlyseptic tanks and pit latrinesand a few sewer connections);15% of urban householdsand 16% of rural householdshad private toilet facilities without septic tanks; and 57% of urban and 80% of rural householdsused shared or public facilities(Table 5.6). In the past decade, urban planners and officialshave realized that it would not be economicallyfeasible to install public sewers to serve most urban-dwellers;instead, i-nexpensivesubsurface disposal systems ranging from small bore sewers to pit:latrines have been recommended. However, to correct the problem of nonfunctioningsubsurface - 112 -

disposalunits, the design and maintenanceof such systems will have to be improved,so that they functioneffectively.Z/

Table 5.6: TOILET FACILITIESFOR URBAN AND RURAL HOUSEHOLDS IN JAVA BY PROVfTlCE,1980

Privatewith Privatewithout subsurface subsurface Shared, public disposal disposal or other

Urban Households DKI Jakarta 42 12 46 West Java 19 19 62 Central Java 24 13 62 D.I. Yogyakarta 30 17 53 East Java 28 14 59

Subtotal 57

Rural Households DKI Jakarta 23 8 69 West Java 1 5 91 Central Java 20 77 D.I. Yogyakarta 6 36 58 East Java 4 23 73 Subtotal 4 1 80

Total 9 16 La

Source: 1980 Census.

5.20 Government'sapproach to providingwater supply, sanitationand drainage in urban areas has been twofold. Conventionallypiped water and sewers are provided in city areas where cost re.overy can be realized through taxes or user charges. Public taps, pour-flush toilets with pits for disposal, and drainage channels for solid waste disposal measures are being used in the less affluentand more populous areas. The latter comprise the

/ Indonesiais participatingin UNDP's global research on low-cost sanitationtechniques. The twin-leachingpit latrine,which requires little maintenanceand uses minimalwater for flushing,thereby minimizingpollution risks to surface and groundwaters,is being tested in several Indonesiancities. Although not suited to high-rise areas nor to areas with a high water table, it does remedy, at low cost, some problems associatedwith existingseptic tank and open drain systems. - 113 -

sanitationcomponent of the Kampung ImprovementProgram (KIP) and represent about ouiethird of total KIP project investments. (See Annex 5, Table 2 for a breakdown of KIP expendituresin Java's urban areas.)

5.21 In rural areas, human wastes are the primary source of polluted drinkingwater. Shallowwells are particularlyvulnerable. Two surveys con- ducted by the School of Sanitation,Jakarta, showed that a high proportionof wells used for water supply containedfecal coliform bacteria. Such contamination can be prevented by properly locating and constructing latrines, traininghealth workers and educatingthe public. However, higher investments and improved in_titutionalarrangements are needed for this purpose.

C. Key Issues in Water Supp1y and Sanitation

InstitutionalArrangements

5.22 In the past, the DirectorateGeneral Cipta Karya (DGCK) carried out important, centrally funded urban infrastructure programs for water supply, drainage,solid waste managementand sanitation,under the Kampung Improvement Program (RIP). However, recent legislation(KEPRES 14/1987) devolved responsibilityfor the provisionof urban infrastructureto the cities and other local governmentswhich fall administrativelyunder the Ministry of Home Affairs (MHA). Under the Government'snew integratedUrban Infrastructure DevelopmentProgram (IUIDP),central governmentassistance to local governmentsis to be based on acceptable(a) expenditureprograms, (b) revenue generationplans, and (c) institutionaldevelopment plans. In theory, such plans must make adequateprovision for waste disposal and water pollution control expendituresand for related institutionaldevelopment.

5.23 Since local governmentsare generallyill-equipped to develop and implementsuch programs, technicalassistance to local governmentswill be provided by DGCK under the guidanceof an interagencycoordinating team (Tim Koordinasi). In close collaborationwith the Directoratesof Regional Development,the Local Administrationin the Ministry of Home Affairs, and the Ministry of Finance, DGCK's Directorateof Water Supply will provide assistanceto local governmentsfor major water supply development,including rehabilitationand institutionaldevelopment. DGCK's Directorateof EnvironmentalSanitation will also assist cities with human and solid waste and urban drainageprograms. At this point, however,neither directoratehas sufficientstaff, expertiseor resourcesto meet these new demands.

Constraints to Adecuate Sanitation Programs

5.24 Design and Technical Constraints. Recent attempts to deliver conventional sewerage systemshave been fraughtwith installationdifficulties and problems in achieving adequate operation and maintenance (0O&) or appropriate levels of cost recovery. Therefore, a key factor in 4Zovernment' s ability to provide adequate sanitation and to addresspollution control problems is the selectionof adequate technology,accompanied by appropriate fundingand delivery arrangements. Since low-costsanitation systems cost about one-tenththat of seweragesystems, the choice of technologyalso has importantinvestment and maintenanceimplications for the government. - 114 -

5.25 Low-cost facilities,limited mainly to public toilet/bathing/ launderingfacilities, have had a mixed receptionto date. The ongoingUNDP project on low cost technologyfor human waste disposal suggests that low- income communitiesare willing to participatein the implementationand funding of a mix of individual,joint and public toilet facilities,if communityorganizations are appropriatelyinvolved. Local managementand the participationof NGOs such as the IndonesianWomen's Movement (PKK) have been key featuresof successfulcommunity-based approaches.

5.26 Program effectivenesshad also been limitedby diffuse institutional arrangements. At the center, the Ministry of Heath is responsiblefor programs and projects for simple rural water supply and sanitationschemes, while more technicallycomplex schemes such as piped water suppliesare assistedby DGCK. In the regions local governmentand communityhealth centers are responsiblefor simple water supply systems and sanitations,but the capacity of local governmentto plan implementand maintain rural water supply and sanitationprograms and facilitiesis limited. Therefore the technicalcapacity of the MinistryHealth's DirectorateGeneral of CommunicableDisease Control and EnvironmentalHealth needs to be built up, in order to strengthenassistance to local governmentsand better attract donor support for sectoral development,and this effort needs to be better coordinatedwith the programs of DGCK.

5.27 ExpenditurePriorities. Urban programs are now dominatedby water resource expenditures,while those that are more poverty-focused(public health, sanitationand KIP) are in decline. One-thirdof all public expenditureson urban infrastructureis currentlyfor water supply, reflecting an average annual growth in real terms of 14% since 1984; and urban-related flood protection and drainageaccount for 18% of expendituresand have been growing at 22% annually. Both have had strong donor support.

5.28 On the other hand, the sanitationsubsector, dealing broadly with the problem of large-scalehuman waste disposal,is lagging badly, thereby contributingunnecessarily to water pollutionand negating the health benefits of improvedwater supply. Although sewerageexpenditures have grown steadily (13% p.a.) and are now Rp 30 billion p.a., or 4% of the total, this is from a small base and its impact is limited. Furthermore,high-cost seweragehas only limited applicabilityin Indonesiaat this time. Lower-cost,on-site disposal technologieshave greaterpromise, but public expenditureson them are negligible. The KIP program,once the flagshipof Government'sefforts on urban poverty alleviationand a potentiallypowerful means of improving environmentalconditions in low-incomeareas, has been decliningat about 4% p.a. (Table 5.7). KIP expendituresnow total about Rp 55 billion p.a. or only 6.5% of the total. Solid waste managementexpenditures, already minimal at Rp 18 billion p.a. (2% of the total),are also decliningby 6% p.a.

5.29 Funding contraintsin the rural sector are even more severe. At present, some 90% of external technicalassistance and capital funding for water supply and sanitationis directedat the urban subsector. Given the number of rural people (some 125 millionnationwide), the limited coverage of water supply and sanitationin rural areas and the pivotal contributionof these services to improvedhuman health, and governmentshould vigorously pursue external support for water supply and sanitationin rural areas. - 115 -

5.30 FinancialContraints. A continuedincrease in urban expenditurein Repelita V will depend largely on the ability of local governmentsto mobilize funds locally, to borrow from the central governmentfor this purpose, and to channel central governmentfunds effectively. The current estimate of urban expendituresincluding O&M for the final two years of Repelita IV (FY87/88and FY88/89) is about Rp 1.5 trillion (US$900million) or about 8% of public capital expenditures,more than a 75% increaseover the plan's first three years. This large gain was made possibleby substantialincreases in foreignaid and complementarybudgetary funds from the centralbudget. BAPPENAS estimates

table 5.7: REAL ANNUAL GROWTH RATES IN URBAN EXPENDITURES(% p.a.)

84/85 85/86 86/87 87/88 88/89 Averege

Developmentexpenditures 23.4 -1.9 -20.1 78.4 -6.9 9. Water supply 21.8 15.7 -18.1 101.4 -18.4 13.7 Sewerage and sanitation 25.4 23.6 25.5 51.4 -34.9 13.8 Drainage/floodprotection -7.8 33.4 -21.0 164.2 4.0 21.7 Solid waste -28.7 -40.2 -25.4 153.1 -9.0 -6.2 KIP -36.5 33.7 -48.7 47.4 -25.0 -4.3 Roads 115.8 -45.5 -16.8 9.8 13.9 4.1 Planning and engineering -16.8 128.6 -16.2 40.8 -17.2 13.2

Operationsand maintenance 8.1 16.1 -12.7 12.2 17.0 7.6

Total 19.7 2,.Q -18X3 61.0 -. 6_ 94

Source: DirectorateGeneral Cipta Karya (DGCK). that annual urban expendituresin RepelitaV will averageRp 900 billion (US$545million), thus maintainingexpenditures at about the same level in real terms as in the past two years. Although still insufficientin relation to the need, this is, nevertheless,a credibleeffort towardsachieving urban sector goals at a time of seriousresource constraints.

5.31 As the resourcepositions of the central and local governments improve towards the end of RepelitaV, the stage should be set for another increase in real urban expendituresto deal with the backlog of services required. By that time, implementationcapacity should also have improved. Expenditureby subsectorshould reflectthe recommendedchange in priorities towards sanitationand waste managementand water quality control;their share in urban expendituresshould rise from about 6% to at least 8%. With due emphasis on low-cost technologies,the increasesin sanitationexpenditures can be kept within manageablelimits, and substantialimprovements in sanitationshould be possiblewith the resourcesavailable in Repelita V (1989-94)and beyond. - 116 -

5.32 Future Directions. To address water quality and human health problems in the urban subsector in Repelita V, the interagency coordinating team and the agencies concerned with strategy should aim to increase local governments' awareness of the need for expanded expenditures on sanitation and provide the direction and the means for implementing substantial sanitation programs. An appropriate agenda for a special working group of the interagency coordinating team, their consultants and the UND? project, would be as follows.

(a) The roles and capacities of central, provincial and local governments in promoting sanitation should be clarified, and DGCK's directorates should be strengthened to allow them to play a meaningful supporting role.

(b) Private sector contributions and NCO involvement in the delivery of suitable programs should be expanded, and mechanisms to do this should be explored.

(c) Appropriate technologies for large-scale, low-cost programs should be promoted; and arrangements for operation and maintenance should be improved.

(d) Priorities should be determined. Large cities such as Jakarta, Surabaya and Semarang and low-income communities, in general, warrant special attention.

5.33 For the rural subsector, Government should build up local capabilities to plan, implement and operate water supply and sanitation programs and facilities, while also building up the Ministry of Health's ability to guide local governments. Community involvement in planning, constructing and operating sanitation programs is needed and can be used to encourage the community to share in costs. Handpump effectiveness can be improved with greater attention to manufacturing quality control, and adequate maintenance arrangements (manpower training, spare parts and community payment system). Finally, additional external resources should be sought for the rural subsector,

D. Industrial Pollution

Surabaya: An Illustrative Case

5.34 Surabaya, Indonesia's second largest city (population 3 million), vividly illustrates the environmental effects of concentrated urban and industrial growth on water quantity and quality. Water availability in the Surabaya area has become a critical problem, and current river flow is insufficient to satisfy demand. Although industrial water is only about 10% of the water demand during the dry season, by 1977 shortages of raw water were so obvious that the Governor of East Java issued a decree imposing a moratorium on the further development of industries using water from or disposing wastes into the Surabaya River. By the early 1980s, pollution of the Surabaya River had reached such a magnitude that the river had become virtually anoxic and was untreatable by conventional methods. - 117 -

5.35 The Bank-assistedEast Java Water Supply I Project includeda detailed study to determinethe extent of river pollution,identify the major causes of pollutionand recommenda program of abatement. The study found that in spite of the heavy use of the SurabayaRiver for domesticwaste, 80% of the river'spollution was caused by industrieslocated along the lower Brantas and SurabayaRivers.f

5.36 Of the more than 70 industriesinitially investigated, the study found that responsesto the legislationgoverning industrialwaste discharges was mixed, ranging from no apparentaction at all to provisionat one factory of sophisticatedpretreatment facilities. Of the 28 firms selected for detailed analysis, it was found that only four (14%) complied with the provincial standardfor biochemicaloxygen demand (BOD) and 11 (30%) with the standard for chemical oxygen demand (COD).

5.37 An examinationof the 28 firms also revealed that four major polluters (22% of the sample)contributed 94% of the total BOD load from industrialsources. The majority of the remainderconsisted of minor pollutersand two thirds of all industrieswere responsiblefor only 1.2% of the industrialBOD load. The study also estimatedthat if the four problem firms were to comply with the waste water limits specifiedin the East Java legislation,the total industrialpollution load would be reducedby 750. To this end, the study recommendedan extensiveschedule of monitoringand enforcement. The four "gross violators"were to be moni:oredweekly and the additioral11 firms, which were classifiedas potentialpolluters or "medium- scale" polluters,were to be monitoredmonthly.

5.38 Complianceby the four firms identifiedin the study was achieved in late 1987 throughdirect interventionby the Governor'soffice. One firm, a pulp and paper mill, installeda pollutiontreatment facility which allowed the recovery of low-gradepulp from its waste water. This recyclingof the firm's waste has generatedsufficient revenues to offset the installationand operating costs of the waste treatmentfacility. A second firm, a sugar mill, has diverted its waste water flow into a nearby irrigationchannel, thereby lowering the pollutionload in the Surabayariver. One firm invested in a waste water treatmentfacility designed by a local entrepreneur,but the system was inadequate. A treatmentsystem recommendedby a foreign consultant has now been put in place. The fourth plant installedtreatment facilities in late 1987. In spite of these initiatives,in a very dry period in October 1987, pollutionlevels were higher than the water treatmentplant could handle, and it became necessaryto flush the SurabayaRiver at a cost of about US$1 million. Within two weeks of flushing,river qualityhad again deterioratedto the previous level.

J Industrieslocated along this corridor includepulp and paper mills, monosodiumglutamate (MSG) manufacturers,dyeing, sugar mills, tile manufacturers,coconut oil mills, and metal fabricationplants. - 118 -

Table 5.8: INDUSTRIALPOLLUTION OF JAVA'S NORTH COAST

River Point Industrial Municipal Industrialwaste - COD tons/day ----- % of total

West Java Cisadane Tangerang 75.0 62.0 55 Banjir Pejompongan 4.0 8.7 31 Sunter Pulogadung 2.0 4.6 30 Bekasi Cileugi 3.4 11.2 23 Citarum Jatiluhur 42.0 68.0 38 Cimanuk Tomo 14.0 7.0 67 Citanduy Cikawung 29.0 40.0 42

Central Java Serayu Banyumas 21.0 41.0 34 Progo Sentolo 5.0 31.0 14

East Java Solo Babat 79.0 44.0 64 Surabaya Tawangsari 7.0 i8.0 28 Brantas Mojokerto 12.0 4.0 75

Average 46

Source: IHE MonitoringData.

5.39 Although this examplecenters on Surabaya,industry is a major contributorto the degradationof water resourcesthroughout Java. Statistics summarizedin Table 5.8 indicatethat industrialwaste constitutesabout 50% of the aggregatedpollution load in major river basins. Given the current projectionsof industrialgrowth in Indonesiafor the next several decades (about 8.5% p.a.) and the current trend of concentratedgrowth on Java, the situationis likely to deteriorateunless correctiveactions and measures are undertaken. While the situationon Java is the 12.qt critical,the current trends of industrialgrowth and insufficientabatement techniques are leading to a similar situationon some of the outer islands.

The Legal Frameworkfor EnvironmentalProtection

5.40 Early Efforts. In 1977, the deteriorationin water quality on Java and the increaseof water-relateddiseases prompted the Ministry of Health (MOH) to issue guidelines(173/77) on water qualityand dischargelimits on industrialwaste water. The decree was based upon WHO guidelinesissued in the early 1970s. The MOH decree had three categoriesof water (drinking, irrigationand aquaculture)with appropriatestandards for each. In a number of provinces, the MOH decree was modified in a provincialdecree which set water standardsfor the province. These provincialdecrees were enacted in all provinceson Java, some provincesin Sumatra,and in East Kalimantan;and the MOH decree was binding by default in those provinceswhich did not establish separate guidelines. - 119 -

5.41 These decrees were subsequently supplementedby two regulations on water usage: Law 11/1974 and PresidentialDecree 22/1982. These two regulations were primarily intended to improve and protect the quality of irrigation water and they empowered the Ministry of Public Works (MPW) to monitor ambient water quality and particular point sources. To date, monltoring for MPW has been carried out mainly by the Institute of Hydraulic Engineering (IHE) in Bandung.A/ The two laws governing water usage also empower the provinces to enforce standardswith civil penalties and to charge firms for water usage and waste water discharge. However, neither power has been exercised, and it is generally agreed that water standards are too strict for immediate application. As a result, enforcement of the standards has bee. virtually nonexistent.

5.42 In response to the impetus from provincial authorities t-ocontrol the activities of industrial enterprises, the Ministry of Industry (MOI) also issued a decree in 1978 to regulate industrial firms. This decree required each industrial firm to file a report explaining the technology used in the production process and provide a list to MOI detailing the toxic and dangerous substances used or stored at the production facility. Each enterprise was also required to install a system of waste disposal. This decree placed responsibility for environmentalmanagement under the relevant Director General in OI.

5.43 The MOI decree has had two effects on environmentalmanagement of the industrial sector. First, the requirement for each firm to have a system of disposal for toxic and dangerous substances has been interpreted as a requirement to install a waste water facility. This has enabled the approptiate licensing authority (MO:, the Investment CoordinitingBoard (BRPM], or the provincial government) to insist that firms have a waste water treatment facility prior to obtaining an operating license. However, there is insufficienttechnical knowledge in most institutionsto assess whether the proposed technology is appropriate or adequate, and there is no requirement that the pollution control mechanism be sufficient to meet acceptable standards. Second, the institutionalarrangements specified in the decree have led to a fragmentationof authority over environmentalmatters within OI. Compliance with the other requirementsof the decree has been minimal.

5.44 Recent Legislation. In 1982, the legislature enacted uThe Basic Provisions for the Management of the Living Environment" (Law 4/1982). Intended as the cornerstone of environmentallaw in Indonesia, it serves as an umbrella for more detailed implementingregulations and decrees. Among its provisions: (a) the role of the State Ministry for Population and Environment (MPE) as the coordinatingministry for the environmentwas codified; (b) the province, and, therefore, the provincial governors, were given executive power over provincial environmentalmatters; (c) an environmental impact analysis (EIA) was mandated for each project with environmentalimplications; and (d) environmentalprotection was to be guided by new quality standards. Each department or nondepartmentalagency was made responsible for environmental matters in its particular sector or area, i.e., the Ministry of Industry was responsible for environmentalaffairs in the industrial sector.

i/ Monitoring is also carried out by the Ministry of Health and by laboratoriesat the request of a provincial government. - 120-

5.45 Environmental legislation was put on a solid legal basis with the enactment of Law 4/1982, but there is a significant unfinished agenda. Draft regulations on water, air and toxic wastes need to be finalized and enacted as soon as possible. The draft water quality guidelines should begin to be used as a benchmark for control of existing industries and as a standard for evaluating and regulating the impact of new firms. The civil penalties prescribed under Law 4/1982 should also be enforced and, if necessary, the license of violators should be cancelled (penalties are not currently used). Existing regulations need to be enforced to convince industries of the Government's commitment to sound environmental practices. Concurrent with a revived program of enforcement, the effort to develop more appropriate, enforceable and comprehensive legislation will need to continue at the national level.

5.46 More recently, Government Regulation 29/1986 was passed which describes a process and an organizational framework to enable central government departments to undertake work on environmental analysis. The new regulations and decrees require that each industrial activity, existing and proposed, complete a preliminary environmental impact report (for proposed activities) or evaluation report (for existing activities). If the industrial activity is deemed to have significant environmental impact, then a full envirotmental impact assessment is required. For new industrial activities, the decree requires that reports be completed prior to initial operation; for existing industrial enterprises utilizing dangerous or hazardous substances in the production process, these reports must be completed by June 5, 1990; and all other firms must submit reports by June 5, 1992. 5.47 Coordination of these reports across sectors and within subsectors is the responsibility of MPE. Pursuit of these objectives within a period of five years will be an enormous undertaking and will be impossible to accomplish without significant technical support. Under this legislation, line agencies and the provincial governments are also required to establish commissions to evaluate environmental reports. However, the law and its implementing decrees are unclear as to the division of responsibility among the involved institutions, partly for this reason few agencies have set up the full complement of institutions to date.

Industrial Pollution Control

5.48 To reduce industrial pollution greater attention is needed to:

(a) environmental concerns in industrial licensing;

(b) the . istry of Industry approval process;

(d) the creation of industrial estates and centralized waste treatment facilities;

(e) the targeting of polluters and key polluting subsectors for analysis, technical support and control; and

(f) the possible establishment of a system of effluent charges. - 121 -

These poirts are elaborated below. To address the problem adequately, however, these steps must be linked together in a program of pollution monitoring and control.

5.49 Licensing For new industrial projects, environmental impact is examined at two stages of the approval process. During the approval of the location license (Izn Lokasi), the provincial governor's office determines the suitability of the location for the particular industrial use, and at the second stage a nuisance license is issued. These are the most important points for ensuring that new industrial activities are environmentally sound and comply with environmental regulations. Theoretically, all aspects of the environmental impact of the firm are examined and incorporated into a nuisance license that controls water usage, and air, water and noise pollution. The intention is for most relevant government agencies and departments to participate in the approval process. In practice, however, specific environmental requirements are only beginning to be incorporated into the license review, and once the license is issued, compliance and environmental consequences are rarely monitored. Licensing procedures can be improved under existing conditions, but mechanisms for wronitoring remain to be developed.

5.50 MOI Arppval. Government Regulation 29/1986 specifies the organizational framework for environmental analysis, and recent work by the Canadian- assisted EMDI project has identified a number of problems in MOI which must be overcome for the process to be effective.5

(a) Funding. Annual financial needs are far more than current allocations.

(b) ManDower. Effective management will require trained manpower and expertise currently in short supply.

(c) Cross-sectoral coordination. Environmental management in the industrial seccor must occur in the regions and include numerous other agencies. Appropriate arrangements for coordination at the provincial level remain to be worked out.

The support provided by EMDI has been extremely useful in clarifying issues and objectives. It should be continued and backed by additional financial resources.

5.51 At present, OI reviews investment applications and EIAs for domestically financed projects, while the Investment Coordinating Board (BKPM) approves externally financed activities. With the limited skills in environmental management in Indonesia today, strict delineation of institutional mandates is important. At the national level, closer cooperation is needed between ths BKPMand MOI to ensure a consistent stance towards the regulation of industry and the environmental impact assessment process. Establishment of a separate institutional apparatus in BYPM for examining the environmental impact of investment proposals duplicates efforts

/ Environmental Management Development in Indonesia (E DI) is a joint project of the MPE and the School for Resource and Environmental Studies, Dalhousie University, and is supported by the Canadlian International Development Agency (CIDA). - 122 -

underway at OI. It is thereforerecommended that BKPM use MOI for evaluation of individualapplications and EIAs.

5.52 MonitoringIndustrial Pollution. After an industrybegins operation, there is little systematicmonitoring of effluent discharges. Ambient water quality is monitoredat the national level 'y IHE and at the provinciallevel by laboratoriesof the Ministry of Public Health, but facilities,manpower and funding are spread too thinly to be effective. Moreover,no effort is given to relatingchanges in water quality to particularpoint sources. Without this link, and without a systematicprogram of monitoringof industrialfirms, the licensingcontrol exercisedby the province, OI or BKPM is ineffectivein addressingproblems of water pollution,as firms have no incentiveto adhere to establishedguidelines.

5.53 The most experiencedand best managedwater quality laboratoryin Indonesiais the Environmentaland Water Quality Laboratory in IHE in Bandung. This laboratoryhas also developedtraining modules for laboratorytechnicians as well as for sampling and analysisand has a capabilityfor in-house training of laboratorytechnicians. However, it has had to restrict its work since 1984, because of underfundingand reorganization. There is need to develop and strengthenprovincial government programs in monitoringand control and if issues related to IHE's function could be resolved,the agency could take the lead in this effort. IHE should also be establishedas the national quality controland referencelaboratory for water analyses.

5.54 IndustrialWaste TreatmentFacilities. The developmentof industrial estateswith centralizedwaste water treatmentfacilities provides a cost- effectivesolution for waste water management. One industrialestate in Surabaya, (P.T. SIER), is an excellentexample of a cost-effectivewater treatmentprogram for a group of industries. First, the industrialestate specifiesminimum standardsfor each firm's waste water; firms exceedingthese levels must invest in pretreatmentfacilities. After meeting these minimum standards,there is a graduatedsystem of effluent charges for both the quantity and quality of the industrialdischarges. The revenues collected from these charges fund the operationof the laboratoryand treatmentplant. The water dischargedfrom the industrialestate is in full compliancewith East Java provincialstandards. IHE has also designedand implementedseveral pilot-scaleindustrial waste treatmentsystems and a partiallycompleted treatmentplant for an industrialzone in Bandung. Given the centralization of industry,MOI should give increasedattention to supportingthe development of similar facilitiesin other areas of industrialconcentration. This should be done for both large- and small-scaleindustries.

5.55 "PollutionBusters." Evidence that only a minority of firms cause a major portion of industrialpollution suggests that a program to identifyand eliminatemajor pollutersshould have high priority for immediatesupport. Major elements of a "pollution-busting"program would include identification of major polluters,analysis of appropriatetechnical interventions and their costs and benefits, and provisionof credit to modify existingpractices. To carry out such a program,Government would have to identify the appropriate enforcementinstitution, and technicalsupport would be required to pollution control technologieswhich would be used by polluting industries. It would also be possible to identifythe mos- significantpolluting industrial sectors and to develop appropriateapproachb to pollutioncontrol in these sectors. - 123 -

For example, a project to review the petrochemicalindustry and finance pollution abatementhas alreadybeen proposedby the Bank.

PollutionMonitoring and Control

5.56 The central governmenthas firmly establishedthe principleof devolutionof powers to provincialand local-levelgovernment, and enforcement of environmentalregulations is clearly the responsibilityof the provincial governors. Within this structure,however, actual responsibilitiesfor pollutionmonitoring and controlremain to be specified. A number of orgarnizationaloptions are possible.

(a) Pollutionmonitoring for water, air and toxic wastes could be carried out by the line agencieswith supportfrom IHE and other appropriate laboratories. Data could be compiledby the provincialenvironment offices (BKLH) and forwardedto the provincialgovernor's office for informationand action. This arrangementis not thought feasible since line ageacies lack technicalskill and equipmentand BKLM is not positioned,nor staffed for the responsibility.

(b) Pollutioncould be monitoredby the lira agenciesand the data for- warded to a PollutionManagement and ControlAgency (PMCA) created by the province. This agency would have technicalstaff to evaluate data and make recommendationsto the governor and in due course would be given enforcementresponsibilities.

(c) Responsibilityfor pollutionmonitoring and control could be given to River Basin Entities in provinceswhere they exist. This arrangement has the advantageof ensuring high-qualitystaff and possible self- financing. However, only the largestriver basins are likely to have RBEs, and under these arrangementsthe control of air pollutionand toxic waste disposalwould be weak.

(d) Pollutioncontrol could be given over to a pollutionmanagement enterprise,functioning under provincialauthority, but with both revenuegenerating and enforcementresponsibilities. This would ensure high-qualify staff and provide the basis for a future agency with regulatory and enforcement authority. While such an agency may be difficultto set up, the P4L laboratory(Applied Research and DevelopmentLaboratory for Urban and EnvironmentalMatters) in DKI Jakarta appears to have the potentialfor expandingfunctions and responsibilitiesalong these lines.

5.57 Numerous discussionshave taken place during the past severalyears concerningthe most appropriateinstitutional arrangements for a pollution monitoringand control agency. Some guiding criteriahave been drawn up during preparationof the proposed Bank-assistedJabotabek Urban Development II Project to assist policymakersin deciding the preferredoption. These are included in Table 5.9. One option that satisfiesthe criteriawell is a public enterprisedirectly reportingto the provincialgovernor, which has full powers to implementa system of escalatingpollution charges and to provide financialassistance for pollutionabatement. - 124 -

Table5.9: SELECTED CRITERIAFOR A POLLUTION MONITORINGAND CONTROL AGENCY

1. Mission

- to give pollutioncontrol first priority

2. Operational Flexibility

- to adapt easily to future trends or extend its area of jurisdiction - to extend its cover to air and noise pollution,public nuisance and hazardous waste

3. Strategic Positioning in Provincial Government

- to allow direct access to senior provincialgovernment officials

4. FinancialFlexibility

- to recover costs and be self-financing - to apply a system of disincentivesthrough charges - to apply an incentivesystem by redistributionof charges to industryor urban settlementsto improvepollution abatement facilities

5. Suitable Salary Scale

- to attract and retain qualifiedstaff

6. CaRabilities

- to implementan industrialmonitoring and controlprogram - to implementan analyticalquality control program

7. EnforcementPowers

- to exercise the necessaryauthority and legal powers - to control and enforce conditionsfor effluent discharge - to impose an effluentcharging system

8. Transfer of Powers

- to limit the number of transfersof powers from other governmentbodies

Source: JabotabekUrban DevelopmentII Project.

5.58 Foreignexperts may be useful in the process, but Indonesian industrial,academic, and governmentalprofessionals are best positionedto decide the course and design an implementationprogram. Once a concensushas been reached on the general framework,additional financial support will be required to set up and implementsuch a program. - 125 -

VI. INSTITUTIONALAND POLICY CHANGESIN SUPPORTOF SUST4INABLEDEVELOPMET

A. institutional Arrangetets for Environmental Management

6.1 In 1986-87 UNDP supported research on the institutional aspects of environmental management in Indonesia (INS/85/027). Since the Bank did not independently evaluate institutional options, this chapter draws heavily on the UlNDP's Environmental Sector Review, Phase II (Kismadi and Graybill, et al., 1988). This section reviews broad issues related to the institutional arrangements for environmental management, followed in the next section by more detailed recommendations on the structure and functions of MPE.

Opportunities for Environmental Management

6.2 There are many possible institutional arrangements for environmental control and management, including the following models:

(a) A strong centralized agency with regulatory and enforcement authority across several sectors. Many developed countries have such agencies (e.g., the U.S. Environmental Protection Agency), but only a few developing countries have had success with models based on litigation and a responsive legal system.

(b) Environmental protection functions located within technical ministries. Many Latin American countries have placed environmental protection in ministries of health or urban planning, and Thailand has located its environmental protection agency within the Office of Science and Technology. Such arrangements tend to focus on one sector to the neglect of others.

(c) Environmental management functions located within the national planning agency. This arrangement is used in India and is being considered in several other Asian countries. Its advantages relate to bureaucratic coordination and budget allocation.

(d) Free-standing ministries without enforcement functions. Generally such ministries have strong advocacy functions and high visibility, but limited budgets and power. They rely heavily on internalization of environmental functions in implementing agencies to be effective.

No one arrangement is best for all countries. Further, the UNDP report indicates that a major factor in the success of any institutional arrangement is continuity over time. In most countries, major changes in organizational arrangements have a deleterious effect on institutional growth.

6.3 Indonesia has an institutional model similar to that in (d) above. The State Ministry for Development Supervision and Environment was formed in 1978. With adoption of Repelita IV in 1983, it was modified, assigned new responsibilities, and called the State Ministry for Population and Environment (MPE). As a state ministry, MPE has no line responsibilities. Its primary roles are to (a) coordinato the formulation of Government policies on population and the environment; (b) develop regulations for implementation by national and local government institutions; (c) provide technical advice and - 126 - assistanceto line agencies;(d) monitor the environmentalperformance of departmentsand provinces;and (e) coordinatethe developmentof environmental awarenessand participation.

6.4 Indonesiais not unusual in having a state ministry for environmental protection. It is, however, a pioneer in attemptingto internalizeenviron- mental functionsinto line agencies and regional governments. A major instrumentfor doing this is Regulation29/1986 which institutesan environmentalimpact assessment(EIA) process in major line agencies and provides the institutionalframework for doing so. Environmentinstitutions are also being formed at the provinciallevel. If Indonesiais successfulin this effort to broaden and decentralizeenvironmental responsibilities and concerns,this will be a significantachievement and its example may serve as a model for other countries.

The Role of the State Ministry for Popul.ationand Environment(MPE)

6.5 In the absence of direct implementationresponsibilities, MPE's main objectiveis to ensure that each line agency takes environmentalconsidera- tions into account. This is an ambitioustask and while MPE has had many successes,it is limitedby its lack of officialauthority over other ministries, lack of influenceover the budget process which generatespriorities for line agencies and by its organizationalstructure, shortages of technically trained staff and small budget.

6.6 To address these problems,the UNDP report has recommendedformation of a "super MPE." This could be done by expandingagency powers in the direction of a full coordinatingministry, such as the Ministry of Economic and FinancialCoordination and DevelopmentSupervision (EKUIN), with broad policy- makinigand regulatoryfunctions and powers to intervenein the managementof line agencieswhere necessary. To do this, a super MPE would have to include the participationof key directorsgeneral and have a significantlyexpanded staff and budget. While this recommendationcould have a significantimpact on environmentalmanagement in Indonesia,the UNDP report does not assume that the proposalwill be adopted,and subsequentrecommendations are coloredby the assumptionthat-policy influence, staff and budget resourceswill remain limited.

6.7 In the absenceof a super MPE, the UNDP report recommendsthat a direct relationshipbe establishedbetween MPE and EKUIN and that closer links be forged with the Minister for EfficientUse of State Apparatuswho monitors line agency functionsand performance. Such contacts already occur, but could be formalized. Other recommendationsintended to enhanceMPE's coordinating power, in the absence of an increasein authority,would be an annual con- sultationof all ministersconcerned with environmentalaffairs and regular meetings with all ministries. To some extent these already occur.

6.8 Equally important,but not covered in the UNDP report, are specific steps to strengthenNPE's influenceover the budget process. There are severalways to do this:

(a) by expandingMPE's formal role in the budgetaryprocess in BAPPENAS;

(b) by assigningto MPE critical coordinatingfunctions, e.g., the responsibilityfor developinga pollutionmonitoring and control - 127 -

framework,and the authorityto submit integratedbudget proposalsto BAPPENAS for this purpose; and

MPE's ability to influencefinancing will be a major factor in strengthening its status and effectivenesswith the line agencies.

EnvironmentalManagement in Line Agencies 6.9 Table 6.1 provides a partial listingof agencieswith a major role in managing environmentalmatters. In the past, line agencies carried out their mandates,many of which have a positive environmentalimpact, without explicit referenceto the environment. However, PresidentialDecree 29/1986 established a process and an institutionalframework for carrying out environmental impact assessment (EIA). In so doing, it has createdboth problems and opportunities.

6.10 Briefly, the EIA processbegins with the screeningof investment proposals in each line agency, to determinewhich projects should be exempted from scrutiny,which projects have adverse environmentalimpacts for which mitigatingmeasures can be readilyprescribed, and those with significant adverse impact that require detailedassessment. The full EIA process applies to the latter. This involves the preparationof terms of referencewhich define the scope and nature of the analysisthat should be undertakenby the project sponsors,a detailed environmentalassessment report, and an environmentalmanagement plan for mitigatingthe project'snegative effects. Also, the project sponsorsmust prepare an environmentalmonitoring plan for determiningwhether the project is complyingwith the requirementsin the managementplan.

6.11 In each line agency the institutionslegally requiredto oversee the EIA process consist of:

(a) the environmentcommission, a high-levelbody intended to evaluate the environmentalimplications of projects and to make recommendationson the acceptabilityof these projects to the minister;

(b) the secretariat,which supports the commissionand records its delib- erations;

(c) the technicalteam, which is intended to analyze the environmental effects of specific projects and draft recommendations for consideration by the commission; and

(d) the environmentalcoordinator's office, which is intended to facili- tate communication among the various participantsand to oversee monitoring.

Although requiredunder the new legislation,these organizationshave only been set up in a few agencies to date. - 128 -

Table 6 1 PARTZALLIST OF ZNDONESIA9AGENCZES WITS ENYIRO!6ST ANDNATURAL RESOURC MANAGEMENTRESPONSIBILITZES

Government agency Environmental support responsibility

Maisitries

Ministry of Agriculture Renewable resources in agriculture, fisheries, anlial husbandryr pesticlde regulation

Nlnlstry of Counications Noise pol.ution, pollution by transport modes

Minlstry of Education end Culture Environmental education, environmental study centers

Ministry of Finance Budget for environmental managementprojects, programs and lnstltutions

linistry of Forestry Forest protection, production, reservee and conservation, research, regreeniag and reforestation

Ministry of Health Sanitation, food quality, pesticides, bazardous substanees management

Miaistry of Nboi Affairs Supervision of municipal and provincial agencies dealing with environments land registration and demarcation

Ministry of Industsy Industrial pollution control, habazdaus substances management ministry of Justice Codifieation of envLronmental laws enforcement

Ministry of Maqpower Occupational safety

Ministry of Mines and Enersy Nonrenewable resources management, environmental geology (including groundwater), pollution control

State Ministry for Population CoordLnatLin of envLronmental end population and Environment affairs

Ministry of Public Works Water supply and mgaagemnt, human ettlemnets, eity planning, water and air quality, energy management

State Ministry for Research and Research on ecology, ocesnography, natural Tecbnology resource inventory, supervision of research, technology development

Ministry of Trade and Cooperatives Trade in protected anLmals and plants

Ministry of Traslaigration Environmental planning for transmigration settlements

Soure: State Ministry for Population and Environment. - 129 -

6.12 The most serious concernsabout the EIA process center on the fact that there are many projects to be taken into account,but little implementation capacity. Institutionalarrangements are not yet in place, agency staff are not fully familiarwith their functionsand may be uncommittedto the process, and few consultantsare qualifiedto undertakethe work. Since this is the first major piece of environmentallegislation in Indonesia,the danger exists that delays and high expectationsmay reduce the credibilityof MPE. To address this problem, the UNDP report recommendsthat the implementationof PP29/1986be carried out in phases,with each sector initiallyassessing in detail only a few high impactprojects with potentiallysignificant impacts. The report also recommendsthat a separatedivision be created in MPE to guide, superviseand manage the developmentof the environmentalimpact assessmentprocess. The Bank stronglysupports these recommendations.

6.13 On the positive side, the UNDP report points out that the line agency environmentcommissions can be used to provide a broader perspectivethan that entailedby EIA assessment. It argues that the line agency commissionsshould have a broad mandate to identifyenvironmental issues in each sector and to develop appropriatestrategies for addressingthem. Since the commissions includehigh level staff, this would be a major departurefrom the past practice of assigningenvironmental matters to a small unit within the line agencies. If followed,this recommendationcould significantlyenhance attentionto environmentalissues.

Environmental Manaement in the Provinces

6.14 The Indonesianadministrative structure has been characterizedby strong sectoral line agencies and a relativelyhigh degree of centralization of developmentplanning and investment. This patternhas been due to, and perpetuatedby, shortagesof trainedmanpower at the regional level and by the absence of a strong independentmeans of revenue generationin most provinces. Policy-plannersare aware of this situationand in recent years Governmenthas graduallybeen decentralizingdecision-making and encouraginglocal-level revenue generation.

6.15 The provincialgovernment is now responsiblefor environmentalmanagement at the regional level. The authorityvested in the provincialgover- nor is wide-ranging: to set standards,to licenseand check new projects,to monitor adherenceto environmentallaws and to enforce the laws. The main planning and coordinatingagency at the provinciallevel is the BAPPEDA which works directly under the governor. This agency is organized along the lines of BAPPENAS,e.g., with subsectionsfor economic analysis, infrastructure and agriculture,among others. BAPPEDAs coordinatesectoral agencies in the preparation of developmentplans and budgets, and they help resolve implementation problems. The BAPPEDA also has an increasinglyimportant role to play in natural resourcemanagement, but to do so effectivelybetter cross-sectoral coordinationwill be requiredat the provinciallevel, particularlyin land and water managementand in pollutioncontrol.

6.16 A unit deal with environmentalmatters has recentlybeen established by presidentialdecree in each provincialgovernor's office. This agency, called the Bureau for Populationand Environment(BKIH), is a low- level (third echelon),nonoperational (i.e., advisory and data collecting)group * 130 -

which reports to an assistant secretary in the governor's office. BKLHhas no enforcement power. The manpower and budgets allocated to this bureau are also minimal. Its main task has been the preparation of a provincial environmental report which describes current problems and lists the steps being taken to resolve them.

6.17 In many provinces (including all on Java), the provincial governor has also established an interagency coordinating team to assist and supplemen; BKLH and some have established a provincial environment commission to review EIAs. The coordinating team contains all agencies with expertise or legitimate interest in environmental matters, and it includes the agencies in charge of licensing activities which affect the environment. Agencies within this group have the responsibility to evaluate standards, monitor environmental activities and recommend corrective actions. In practice, however, the group has no executive authority and little technical capacity. The provincial environment commissions, which are intended to review ElAs carried out by line agencies, have similar membership and some similar functions.

6.18 The UNDP report gives little attention to the BKLHs and none at all to the functions of the provincial coordinating team and the provincial environment commissions. However, there is growing recognition that the low- level BKLHs will have only a limited role in decision-making as currently structured. One possibility for strengthening the BRLHwould be to incorporate it directly into the BAPPEDA,with formal recognition of its coordinating role on environmental matters. Whether or not this is done, BAPPEDAshave now been in existence for about a decade and it would be timely to review their structure in order to assess whether it adequately addresses the most pressing cross-sectoral problems related to environment and development. It might be possible to expand the roles of the provincial coordinating team or provincial environment commission to provide cross- sectoral coordination on environmental matters, but this would require new institutional arrangements, and administrative support. Therefore improving the capacity of the BAPPEDAto take enviromental matters into account would appear to be more feasible and effective.

B. Strengthening the State Ministry for Population and Environment

UNDP and Bank Recommendations

6.19 During Repelita IV, IMPEhad four assistant ministers, heading divisions for: (a) development of the natural environment; (b) development of the built environment; (c) harmony of environment and population; and (d) population. There were difficulties with this arrangement. The divisions had little relationship to MPE's major tasks (policy planning, the preparation and evaluation of standards and regulations, etc.); the categories were overlapping (few environmental issues do not affect populaeion and the natural and built environments); and, as a result, each division's objectives were diffuse. In addition, MPE suffered as a result of its inability to attract sufficient technically trained staff; and the budget for all MPE functions, about US$2 million annually, also fell far short of the resources required.

6.20 The UNDP report made a number of recommendations to strengthen IPE. Specifically, it recommended that new divisions be created for: - 131 -

(a) policy analysis and planning;

(b) guidance and supervisionof the EIA process;

(d) populationand public affairs; and

(e) information management.

SubsequentBank analysis supported reorganization along these lines, with the addition of a division to establishthe institutionalarrangements for pollutionmonitoring and control. Bank experiencedid not augur well for a free-standingdivision for informationmanagement.

Recent Develgpmens

6.21 Since this report was drafted, the anticipated restructuring of MPE has taken place. Briefly, the reorganizedMPE will be guided by a priorities and planning committeedirectly under the minister and consistingof all expert staff and assistantministers. This is consistent with recommendations made by both UNDP and the Bank. This committeewiA be assisted by a permanentpolicy analysis unit and a high-levelpolicy analysis team. The tasks of the policy analysis team are to:

(a) identifypolicy prioritiesand developpolicy recommendations;

(b) develop and supervisethe work on natural resource economics;

(d) develop sectoral,cross-sectoral and regional initiatives;

(e) superviserecruitment and training;and

(f) prepare routine and developmentbudgets.

External support for the work of this team is being sought.

6.22 In addition,MPE will have four divisions,each headed by an assistantto the minister,with support staff, for the following: population; natural resourcemanagement; the managementof environmental degradation;and support systems for institutionalcoordination, community participation,information and communications. Their mandates are as follows.

6.23 The major tasks of the Division for Populationare to:

(a) analyze populationdynamics by evaluatingpolicies on population developmentand planning,and ou populationin relation to the environment;

(b) monitor quality of life indicators; - 132 -

(d) assess the impactsof developmenton women and vulnerablegroups.

This provides a coherent focus for a rather broad program.

6.24 The major tasks of the Division for Natural ResourceManagement are to:

(a) developpolicies, procedures and planning tools for spatialplanning, resource allocation,and resourcemanagement;

(b) give guidance on the maintenanceof biologicaldiversity to agencies having responsibilitiesfor the managementof criticalecosystems, such as national parks and protectedareas, watershedsand coastal zones; and

This division containsa large number of topics, some overlappingwith other divisions,and care should be given to defining its focus and consolidating some functionswith those of other divisions.

6.25 The Division for Managementof EnvironmentalDegradation is primarily responsiblefor:

(a) further implementationof the environmentalimpact assessmentprocess through centraland regionalcommissions;

(b) establishingappropriate mechanisms for pollutionmonitoring and control with an emphasison water and air pollutionand the establishmentof enforcementmechanisms; and

This division could potentiallyestablish or form the nucleus of a pollution monitoringand control agency in RepelitaV.

6.26 The Division for Support Systemsfor InstitutionalCoordination, CommunityParticipation, Information and ConmLunicationsis in charge of:

(a) coordination and development of environmental information systems;

(b) guidance to regional environmental institutions including NGOs, university environmentalstudies centers and promotionof community participation;and

This division has an importantrole in raising awarenessand promotingenvi- ronmentaleducation and human resourcedevelopment. - 133 -

6.27 This reorganization is broadly cvnsistent with the recommendations of both UNDPand the Bank and it covers most essential functions. Given staffing constraints, however, care must be taken to have each division focus on a few critical activities such as EIA development and the proposed spatial planning legislatior. The mandate of the division for Management of Environmental Degradation is particularly demanding and some tasks may be beyond MPE's current capacity. This, in turn, argues for a major effort to set up an independent agency for pollution monitoring and control which can be adequately empowered and staffed to carry out functions related to this task.

Ongoing Issues and Needs

6.28 Staffing Constraints. MPE faces serious constraints in recruiting technically qualified full-time staff at the higher echelons. There are several reasons for this. MPE is small, and as a Alatively new agency in a very new field, it cannot be expected to have a cadre of trained people rising through the ranks. It must turn outward for qualified staff and attract them from either the private sector or other ministries. In both areas, IPE is at a disadvantage; official pay scal-s are low in relation to the private sector, and individuals in long-established ministries often enjoy financial 'perks' provided in association with project maragement, which they cannot receive in an agency like MPE which has few implementing responsibilities. There is also an added risk for staff transferring tco a relatively new agency and losing seniority in a more established sector. Some indivi;uals with strong environmental concerns are prepared to work with MPE, but only if they can do so while maintaining their other teaching or line agency affiliations. The result is a core group of part-time officials, working at low pay and under considerable pressure.

6.29 If MPE is to function effectively, this situation must change. Some method must be found to make the incomes of senior staff comparable to those in other line agencies and to ensure that the incentives are adequate to attract the caliber of staff needed on a full-time basis. It is possible that donor agencies with strong environmental interests might provide funds for MPE overheads, including staff salaries. In the past, donors have paid honoraria to government officials for work in support of their programs. This practice might be formalized, although it raises equity concerns in BAPPENAS. In spite of the problems entailed, however, this issue must be a key concern of any donor attempting to strengthen MPE.

6.30 Staff Training. Worldwide, few people have technical training in environmental disciplines, and the situation is acute in Indonesia, which has a general shortage of trained people in all sectors. Under the circumstances, there is an urgent need to provide in-service and advanced training to IPE staff. Recognizing this as a high priority, a Canadian-supported team called EMDI 1/ is undertaking assessment of human resources in environmental fields for MPE. The study is intended to:

(a) identify environmental programs in MPE and important line agencies and evaluate current staff levels and qualifications;

1/ The Environment Management and Development (ENDI) Team supported by the Canadian International Development Agency (CIDA) has provided a major portion of technical support given to MPE in Repelita IV. - 134 -

(b) determineneeded technicaland managerial skills;

(d) provide a frameworkfor overallhuman resource development.

Additional support for subsequentphases of this work is being sought.

6.31 Although formal trainingwill be necessary,there is an even more critical need to develop the means to manage limited staff and resources effectively. To do this, some type of management-by-objectivesexercise is needed. Such an approachwould help higher-echelonstaff identifyconcrete objectivesand the means to carry them out, and, would involvemid- and lower- level staff in definingboth agency objectivesand the approachesto be followed in realizingthem. Where most staffing constraintsare insurmountable,this approach is more useful than a static and somewhat theoreticalmanpower needs assessment. At this point, tackling the problem with existing staft is more importantthan studying long range needs which will change rapidly.

6.32 InternalizingMPE ResRonsibilities.As noted earlier, a major task for NPE during RepelitaV will be to ensure that environmentalconcerns are incorporatedinto the work of the line agencies and provinces. Considerable external supportwill be needed to developEIA proceduresin key line agencies and to expand environmentalawareness and concernsbeyond the EIA process. Such support is being provided in a somewhatuncoordinated fashion by ADB, CIDA, USAID, and the Bank, and it would be useful to bring key agenciesand donors together to discusscommon approachesto the problem.

6.33 The biggest challenge,however, lies at the provinciallevel. There is an emerging consensusthat BKLHs are at too low a level to have any major impact on provincialplanning and _hat alternativeinstitutional arrangements are needed. This could be in the form of strengtheningthe BAPPEDAs'mandate for sound environmentalmanagement, or furtherdeveloping and expandingthe environmentalcommissions. Since BAPPEDAs alreadyprovide planning and coordinatingfunctions, strengthening the BAPPEDA'srole on environmental issues appears most promising. In any case, however, the identificationand developmentof appropriateprovincial-level mechanisms for environmental managementshould be a major objectiveof MPE in Repelita V.

6.34 Enhancingthe Effectivenessof the MPE Network. In addition to strengtheningMPE, it will also be importantto support the work of allied organizations,including the university-affiliatedenvironmental studies centers (ESLs) and environmentallyoriented NGOs. Both are potentially importantin formulatingthe policies of MPE and in disseminatingkey messages to the public. Fifty-twouniversities have created environmentalstudies centers, and six, mostly in Java, have acquired sufficienttechnical competenceto be importantinstitutes within their universities. UNDP, the Bank and CIDA have provided supportto selectedenvironmental studies centers, but under the current austerityconditions, considerab7y more funds are needed to maintain a core program,even in the best institutes.

6.35 MPE has also encouragedthe work of environmentallyoriented NGOs. The main umbrella organizationfox these groups is WAHLI, the IndonesiaEnvi- - 135 -

ronmental Forum. CIDA and USAID have reviewed the NGO activities and concluded that they need more access to better information to be effective. This function should be met by MPE and adequate staff resources need to be dedicated to this task. Both the country and MPE would also benefit if additional funds were available through MPE to support activities proposed by capable, environmental NGOs.

6.36 Donor Suport. MPE currently has an annual budget of about US$2 million which is insufficient to cover priority activities. With EKDI support, MPE has identified a number of priority needs, among them:

(a) core support for IFPE, particularly for policy analysis, staff training and institutional development;

(b) technical assistance for the development of pollution control standards, licensing procedures, laws and regulations;

(d) support to the provinces for developing environmental institutions. Such support may be possible in connection with bilateral regional development efforts; and

(e) support to the private sector through loans and projects to help meet environmental standards and regulations.

6.37 To date, Canada has provided the strongest support for institutional and human resource development in MPE. In Repelita V, CIDA is committing significant additional resources to strengthen MPE, to support environmental studies centers and the work of environmental NGOs and to improvecoastal resource management. Many other donors are also supporting ernvironmentally related activities in the line agencies and in specific projects. The Bank, for its part, is considering a technical assistance loan to MPE for economic and policy analysis, the development of pollution monitoring and control mechanisms, and land resource management. Support may also be provided to develop environmental capacity in the provinces and to strengthen the regional environmental studies centers.

C. Policies for Sustainable Development

What is Sustainable Development?

6.38 Recent thinking has converged on sustainable development as the main unifying concept for environmental management. The Global Possibilities Con- ference (1985) identified the critical transitions needed for sustainable development (i.e., demographic, energy, resource utilization and political) and the World Commission on Environment and Development (1987) endorsed the concept of sustainable development and elaborated on its meaning. Bank staff have further refined the concept as applied to development projects (Warford 1985, 19PS). - 136 -

6.39 Sustainable development does not negate economic growth, but differs from previous concepts of development in its recognition that world resources are finite. It suggests that wasteful use of existing resources today will cause an unnecessary sacrifice of income and wealth in the future. Commitment to this view implies that some resources should be allocated to exploring these limitations and assessing their implications for policy. The concept of sustainable development also recognizes that forest, land and water resources have important ecological functions which can be measured only partly in economic terms, and it suggests that new knowledge may significantly increase their future economic value. It therefore encourages the commitment of manpower and funds to protect these resources and preserve future options. 6.40 The concept explicitly acknowledges the strong incentives for both individuals and governments to maximize immediate gain. This is true in countries at all levels of development and is particularly true in developing countries wnich have pressing economic and social problems. For this reason, the concept encourages broad development of awareness about natural resource utilization and an approach to decision-making that ensures broad participation. Finally, the concept encourages looking beyond immediate preoccupations in order to detect unsustainable prautices in their early stages when they are easier and less costly to address. This implies moving from micro-level to macro-level analysis wherenational policies are established, intersectoral conflicts resolved and incentives established that affect private behavior. 6.41 Indonesia has had a longstanding commitment to the concepts of environmental protection and sustainable development. For example, the General Guidelines for State Policy in 1973 emphasized that "exploitation of natural resources should be executed by a comprehensive policy which takes into account the needs of future generations." Indonesia has also had a ministry concerned with environment since 1978, and its minister of environment contributed substantially to the conclusions of the World Comission on Environ- ment and Development.2/ The importance of environmental concerns in Indonesian development policy has been reiterated on the occasion of World Environment Day 1987, in the Jakarta Resolution on sustainable development announced by ASEANMinisters on October 30, 1987, and in recent speeches by leading economic planners. Sustainable development was the special topic at the donor consortium meetings (IGGI) at the Hague in June 1988; and environmental management is also a major theme in the recently approved State Guidelines for Repelita V (1989-94). 6.42 In spite of these favorable conditions, however, Indonesia like all other countries far-es a mmber of environmental problems. This report has focused on four of the most important: (a) Deforestation. Deforestation is occurring at high rates, threatening the supply of raw wood material and secondary forest products and reducing ecological services such as the protection of watersheds and preservation of important natural habitat.

2/ World Commission on Environment and Development. Our CommonFuture, (Oxford University Press, 1987). - 137 -

(b) Land Degradation. In the outer islands,marginal land best left under forest cover is being convertedto agriculture;in Java, good agriculturalland is convertedto urban use; and in upper watersheds soil erosion levels are high.

(c) Water Shortages. Due to deforestationin the uplands, increasing water demand and increasingsurface water pollution,there are surface water shortagesin dry years in Java, and groundwaterresources around major coastal cities are being overdrawn.

(d) Water Pollution. RaJd urbanizationand industrializationalong Java's north coast have produced levels of water pollutionwhich are unacceptablyhigh and threatenurban and industrialgrowth.

Of these issues,the Bank regardsproblems of deforestationand water pollution as the most urgent,but it recognizesthat steps taken to improve land resourcemanagement will addressboth problems of deforestationand land degradation,and steps to improvewater resourcemanagement will addressboth water shortagesand water pollutionproblems.

ImprovingEfficiency in Resource Utilization

6.43 A major theme of this report is that many resourceconflicts in Indonesiacan be resolvedby increasingthe potentialof existing resources through intensificationand greater efficiencyof resourceuse. This con- trasts with past policy which has been characterized,to some extent,by a frontierphilosophy, one which assumes that conflictscan be resolvedby con- tinually expandingthe resourcesused. This philosophyis understandablein a country endowedwith ample natural resources,but Indonesiais at a turning point. Resourcessuch as forests,land and water are now becoming scarce and must be managed more effectivelyif the benefits derivedfrom such resources are to be sustained. Among the tools for improvedidefficiencyare appropriate pricing of resourcesand more intensiveuse, as indicatedin the sectors reviewed.

6.44 Forestry. Forests,as currentlymanaged, are only partially renewable. This reinforcesthe need to use the resourceas efficientlyas possible and to achievemaximum revenue generationfrom those resourcesused. Among the areas where efficiencyimprovements are requiredare the following:

(a) Lo. extraction. Logglng as currentlypracticed damages significant amounts of standingtimber, due, in part, to the fact that the concessionaireis less interestedin future values from the timber left than in immediategain.

(b) Timber Recovery. After initialselective logging, very little timber is recoveredfrom areas which are cleared for agriculturaldevelopment. If the timber in conversionforest is not recovered,the total narional output will be significantly less than it might otherwise be.

(c) Timber processing. Sawmillingin Indonesiarecovers about 43% of the log compared to 55% in comparabledeveloping countries. Thus, - 138 -

improvementsin sawmillingoperations alone would increase saw-timber exports and associatedrevenue generationby 28* from the same volume.

(d) PlantationDeveo1mXent. Appropriatelysited plantationscould produce 10 times more low-gradetimber than an equal area under natural forest, thus providingtimber for domestic constructionand preserving more valuable tropicalhardwoods for more specializedfunctions. But investmentin plantationsis not now attractiveto concessionaires who have access to an almost cost-freeresource in the natural forest.

6.45 Each of these issues is related to an underpricingof timber from the natural forest. To address this problem, this report suggests that stumpage prices should be raised throughnew taxationmeasures and timber resources should be managed on a sector-widebasis. As with oil, governmentshould seek to increase its share of rents (profits)and maximize revenue generation. Technicalinnovations are also needed to improveproduction in natural and plantationforests and organizationalchanges are requiredto improve forest management,forest protectionand land classification. As noted in the text, Governmenthas recently taken significantsteps to address these issues, although royaltieson some processedmanufactures such as plywood may still be too low.

6.46 Forest degradationalso resultswhere smallholdershave no stake in sustainablemanagement of the forest. As noted, forest dwellers cannot extract timber from the forest and they are forbiddenfrom establishing perennial crops in areas in permanentforest categories. Under the circumstancesthey have little stake in the efficientutilization of standing forests and strong incentivesto clear the land for short-termgains. Recognizingsmallholder rights to forest products and developingthe means to market them would not only increase the intensityof fotest utilization,but ensure the broader sharing of benefits,which will be necessaryfor smallholdersto support sustainableforest management.

6.47 Land. Land suitable for agricultureand once thought to be a limit- less resource in the outer islandsis now becoming scarce; and good land is subject to competingclaims, even though only a fractionof the land is under agriculturalproduction. Land in Java is also under pressure for agriculture and for urban and industrialdevelopment. In both cases resource conflicts can be eased if efficientland use through intensificationis encouraged.

(a) In the outer islands there are 25-30 million ha of land under long- fallow production systemsand 3-6 millionha under low-intensitytree crops. For many areas, technologiesexist which would permit yield increasesto meet crop productiontargets if securityof tenure was assuredand there was adequateaccess to credit and extension.

(b) To meet equity objectiveswhile promotingland intensification, mechanismsmust be developedto transfer land, particularlyto the landless. This can be done by facilitatingthe growth of land markets, and by providingcredit for land purchase and agricultural development. - 139 -

(c) There is also considerablescope for improvingagricultural production and reducingland degradationcaused by soil erosion and by improvingtechnologies for use in marginal lands, such as in most of the outer islands, in the upper watershedsof Java, and in swampy areas. Again, this will require increasedattention to researchand extensionarid to land tenure arrangementswhich provide incentives for good soil management.

(d) Urbanizationrepresents the ultimate form of land intensificationand is inevitablealong Java's north coast. But tools such as spatial planning,zoning and taxationcan be used to limit the conversionof critical a.eas and to channel developmentonto appropriateland. Again pricing and institutionalchanges are also required.

6.48 To achievemore efficientland use, smallholdersmu t have a strong stake in sound land utilization,economic incentivesmust be provided for sound land management,and improvedcross-sectoral coordination and institutional change are required. To identifyproblems and solutions,this report recommendsa review of land use policy to be carriedout by the new National Land Agency. It also recommendsthe developmentof a capacity in the provincial planning offices (BAPPEDAs) to deal with land use issues. This will require the decentralization of data from line agencies to the BAPPEDAs and significantmanpower developmentat the provincial level. Establishing the institutionalframework for improvedland resourcemanagement should be a major objectiveof the Governmentin Repelita V.

6.49 Water. Appropriatepricing and improvedmanagement are necessaryto imnprovethe use of water resources.

(a) Water for irrigationis the most subsidizedof all agricultural inputs. However, efforts recentlyinitiated to promote cost recovery are not linked to the volume of water used and will have little effect on water conservation. To improvewater allocation, incentivesfor conservationshould be developedand provincialand local-levelmanagement should be improved.

(b) Control of municipalwater use is complicatedby leakages through tamperingand partial payment,which lead to low cost recovery and wasteful use. Groundwaterlevies are also low and erratically applied outside of Jakarta. This provides incentivesto extract water, which lowers the water table and causes saline intrusion.

(c) In many countries,financial measures are used to reduce pollution, i.e., the polluter pays. This essentiallyrecognizes the cost to the economy of mitigationand provides financialincentives for cleanup. To support similarmeasures in Indonesianew institutional arrangementswould be required.

6.50 Several options exist for improvingwater resourcemanagement across sectors. One is to upgrade existing institutionssuch as Irrigation Committees. Another would be to establishRiver Basin Entities,particularly in areas with water shortages. The main task of RBEs would be to evaluate existing surfaceand groundwaterresources; to assess the water demand for - 140 -

agricultural,urban and industrialuse; and to developmanagement and pricing mechanismsto allocatewater resourcesefficiently. RBEs could also produce operating income for water resourcemanagement and pollutioncontrol by settingwater charges to reflect the economicsof supply. Expected benefits from river basin managementinclude financialself-sufficiency, development of new water supplies,and increasedattention to municipalwater supply and waste treatment. RBEs could also play a role in pollutioncontrol.

6.51 The managementof urban and industrialpollution requiresurgent attention. To address these problems,this report recommendsthe formationof a PollutionMonitoring and ControlAgency (PMCA) which either initially,or in the long run, would have enforcementauthority and the ability to charge pollutersand channel funds into appropriatemitigatory measures. MPE could play a catalyticrole in forming PMCA by coordinatingline agencieswith related interests.

6.52 One possible way to focus line agency attentionon the efficiencyof resource use would be to encouragethem to prepare natural resource audits which would discusswhat is known about existingstocks and their utilization. These audits could also exploreways of intensifyingresource use. Such a program has been proposed in the UNDP report. The proposed first phase would includeonly selectedagencies and would consist of desk studies to identify gaps in the data base and to isolatemajor problems. In a proposed second phase, the data would be evaluatedin financialterms. (Detailsare available in the UNDP report,Vol. 3).

Poverty. Participationand the Environment

6.53 Recent environmentalliterature recognizes the strong links between poverty and environmental degradation and it highlights the need for broad participation in defining and sharing development benefits if sound environmental management is to be achieved. Th.isreport identifiesseveral instances of unsound resourceuse where local people do not directlybenefit from existing policies. For example, shiftingcultivators have few incentivesto manage the forest sustainably,as they cannot realizebenefits from doing so; farmers with insecure tenancyhave little motivationto invest in soil conservation measures;farmers using irrigationwater have few, if any, incentivesto use such water efficiently;and urban slum dwellershave little ability and few incentivesto manage urban waste in the face of massive pollutionby others.

6.54 To address these problems,a broad spectrumof programs is necessary to ensure local-levelparticipation in the design of projects and the distributionof benefit!, This is difficultin developedcountries and even more so in developingones. Neverthelessgovernment support to programs for land registration,extension and credit can improve the lives of poor people and projects which significantlyincrease the incomesof a few beneficiaries should ordinarilytake second place to projectswith broad income-generating effects.

6.55 In summary,as resourcesbecome scarce the emphasis should be on preserving them, not exploitingthem for short-termgain. To make this shift, Governmentwill have to allocate adequatefinancial resources (humanand financial)for the sound managementof forests,soils and water, and it will - 141 -

have to develop an appropriateincentive framework to encouragesmallholders and others to use their assets in ways consistentwith sustainable development. Sustainabledevelopment does not suggest that previous patterns of growth were inappropriatefor their time or that local people do not care for long-termgains. Rather, it suggests that current practicesare no longer sustainable,given the acceleratingrate of change in the relationshipbetween populationgrowth and rates of resource depletion. Ensuring sustainable developmentwill thereforerequire new ways of thinking and acting in the future, and new policies emphasizinglong-term growth. - 142 -

ANNEXA Page 1

INDONESIA

ISSUES IN SUSTAINABLEDEVELOPMENT

Contributorsto the Report

1. The team preparingthis report wishes to express its appreciationto the numerous officialsof the Governmentof Indonesia,as well as others in academic and nongovernmentalinstitutions who provided valuable advice and support.

2. In particular,the team is grateful for the extensiveadvice and guidanceprovided by Prof. Dr. Emil Salim, Minister for Populationand Environment,and his staff, especiallyDr. Herman Haeruman,Dr. R.E. Soeriaatmadja,Ir. Aca Sugandhy and M.S. Kismadi.

3. Valuable assistanceand contributionswere also providedby the participantsat an expert panel meeting on watershedmanagement and upland development,chaired by Minister Salim. In addition to staff from the State Ministry for Populationand Environment(MPE), participantsincluded Nani Djuangsih (PadjadjaranUniversity), Putra Duarsa (Departmentof Public Works), Achmad N. Fagi (UplandAgriculture and ConservationProject), Joesron Loebis (Instituteof HydraulicEngineering), Tejoyuwono Notohadiprawiro (Gadjah Mada University),Paimin (WatershedManagement Technology Center), Hadi Purnomo (Centerfor Land Rehabilitationand Soil Conservation),Asep Saefuddin (Agency for AgriculturalResearch and Development),Bungaran Saragih (USESE),Engkah Sutadipradja(Department of Forestry),and H. Suwardjo (Centerfor Soils Research).

4. The final report was prepared by Gloria Davis with the assistanceof Richard Ackermann. Background papers were prepared by:

Gloria Davis (Team Leader, Forests and Land Resources), Jean Aden, Charles Barber,Michael Douglass,Ronald Petocz, Robert Repetto,Roger Sedjo and David Wall;

Dirk Leeuwrik (Team Leader,Upland WatershedDevelopment), Jean Aden, A. Alicbusan,P. Arens, Edward Barbier,Gordon Conway,William Magrath, David McCauley,Otto Soemarwotoand Richard Ackermann;

Daniel Gunaratnam (Team Leader,Water Resource Management),Paul Ankum, D. Berthon,Jos Dijkman, Harvey Ludwig and C. Salvetti;and

Kyle Peters (Team Leader, IndustrialPollution). Paul Stott, Ali Memon, Roger Batstone and Art Bruestle contributedmaterial on urban and water pollution issues,Arif Zulfiqaron irrigationmatters.

Mapping work was done by Glenn Morgan, Yung Koo, Ernest Hardy and Jennifer Allen. - 143 -

Page 2

5. A preparatorymission was led by Richard Ackermann in May 1987 and a principalmission led by Gloria Davis and RichardAckermann in August/ September1987. A draft of the report was discussedwith the Governmentin April 1988 and the final report was clearedwith Governmentin November 1988. ANNEX B - 144 - Page 1

INDONESIA

ISSUES IN SUSTAINABLEDEVELOPMENT

Definitionsof EnvironmentalTerms

Abatement The method of reducing the degree of intensityof pollution,also tie use of such a method.

Air pollution The presence of contaminantsin the air in concentrations that prevent the normal dispersiveability of the air and that interferedirectly or indirectly with health, safety or comfort or with the full use and enjoymentof property.

Biologicaloxygen A measure of the amount of oxygen consumed in the demand %BO1)) biologicalprocesses that break down organic matter in water. Large amounts of organicwaste use up large amounts of dissolvedoxygen, thus the greater the degree of pollution,the greater the BOD.

Biodiversity A characteristicof ecologicalcommunities that have a large variety of plant and animal species.

Brackish water A mixture of fresh and salt water.

Carcinogenic Cancer-producing.

Carrying capacity The ability of an Lrea to produce the surplusneces- sary for its own maintenance. Because external factors fluctuateover time, the carrying capacity also changes.

Dissolved oxygen The oxygen dissolvedin water or sewage. Adequately dissolvedoxygen is necessary for the life of fish and other aquatic organismsand for the prevention of offensiveodors. Low dissolvedoxygen concentrations generallyare due to dischargeof excessive organic solids having high BOD, the result of inadequate waste treatment.

Ecology The interrelationshipof living things to one another and to their environmsntor the study of such interrelationships. - 15- ANNEX B Page 2

Ecosystem A living (biotic)community (human,plant, animal, marine) in interactionwith its nonlivingenviron- ment. Ecosystemsexhibit homeostasiss they contain regulatorymechanisms that tend to maintain equilib- rium despite fluctuationsin external factors such as temperatureor rainfall.

Emission standard The maximum amount of a pollutantlegally permitted to be dischargedfrom a single source, either mobile or stationary.

En-ironment The sum of all external conditionsand influences affectingthe life, developmentand, ultimately,the survivalof an organism.

Environmentalservices Beneficialfunctions performed by natural ecosystems, such as maintenanceof water flow patterns, soil protection,breakdown of pollutants,recycling of wastes, support of fisheriesand other economically important living flora and fauna, and regulation of climate.

Erosion The wearing away of the land surface by wind or water. Erosion occurs naturallyfrom weather or runoff but is often intensifiedby land-clearing practices.

Ground cover Grasses or other plants grown to keep soil from being blown or washed away.

Groundwater The supply of fresh water under the earth's surface that forms a natural reservoirfor human use.

Habitat The sum total of environmentalconditions of a specific place that is occupied by an organism, a population or a communty.

Nonrenewable resources Includes minerals and fossil fuels whose economically recoverablestock is finite. Also referred to as exhaustibleresources.

Particulates Finely divided solid or liquid particlesin the air or in na emission. Particulatesinclude dust, smoke, fumes, mist, spray and fog.

Point-source In air and water pollution,a stationarysource of a large individualemission, generally of an industrial nature. This is a general definition;point- source needs to be legally and preciselydefined in governmentregulations. - 146 - ANNEXB Page 3

Pollution The presence of matter or of energy whose nature, location or quantityproduces undesiredenvironmen- tal effects. ppm Parts per million. The unit commonly used to represent the degree of pollutantconcentration where the concentrationsare small. Larger concentrationsare given in percentages. Thus BOD is representedin ppm, while suspendedsolids in water are expressed in percentages. In air, ppm is usually a volume/volumeratio; in water, a weight/volume ratio.

Raw sewage Untreateddomestic or commercialwaste water.

Recycling The process by which waste materials are transformed into new products in such a manner that the origiral products may lose their identity.

Renewableresources Natural resourceswhose stock can be maintained as long as the rate of exploitationdoes not exceed the rate of regeneration.

River basin The total area drained by a river and its tributar- ies.

Runoff The poztion of rainfall,melted snow or irrigation water that flows across ground surfaces and even- tually is returned to streams. Runoff can pick up pollutantsfrom the air or the land and carry them to the receivingwaters.

Sewage The total of organic waste and waste water generated by residential and commercial establishments.

Sewerage The entire system of sewage collection,treatment and disposal. Also applies to all effluent carried by sewers whether it is sanitary sewage, industrial wastes or storm water runoff.

Suspended solids Small particlesof solid pollutants in sewage that contributeto turbidityand that resist separation by conventionalmeans. The examinationof suspended solids and the BOD test constitutethe two main determinantsfor water quality performedat vaste water treatmentfacilities.

Watershed The area drained by a given stream. - 147 -

AM C Page 1 INDONESIA

ISSUES IN SUSTAINABLEDEVELOPMENT

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Ludwig,H. "Reporton Evaluationof Jakarta KIP Water Supply and Sanitation Facilities." For World Bank, circa 1978.

Ludwig,H. Reports on ongoingJakarta Sewerage and SanitationProject. For World Bank, circa 1985.

Ludwig,H. "Reporton Pollutionof Musi River at Palembang."For IHE, circa 1982.

Ludwig,H. "Reporton ProposedWater Quality Control Program for PDAM/ Surabaya." For IHE/PDAM,Surabaya, July 1983.

Ludwig,H. "Surveysof Major IndustrialPollution Problems in Indonesia."For IHE, circa 1983.

Ludwig, H. "Terms of Referencefor EnvironmentalImpact Assessment for ExpandedKujang Operationsincluding Delineation of Water Pollution Control Plan for CitarumRiver System." Cikampek,West Java, October 1986.

Ludwig,H. "Use of Public Taps in Urban Slum Areas in Asia." National EnvironmentBoard Newsletter,1987.

Ludwig,H., H. Wolf and IHE. "QuarterlyReport, Kedung Ombo/WaterQuality Component."For DGWRD, 30 June 1987.

MacDonald/Encona."Kali Surabaya PollutionControl Study." Final Report, December 1985.

MacDonald. "Lower Brantas PollutionStudy," September1977.

Mahbub, Badruddin."Cleaning Up and PollutionControl of Urban Rivers in Indonesia." Workshop on CleaningUp of Urban Rivers, Singapore,January 1986.

Nedeco/ViramaKarya. "West Tarum Canal EnlargementProject Investigationof SurfaceWater Quality." IHE, Bandung,December 1984.

Nihon Suido and Ludwig,H. "ImmediateProgram for Sanitation,Jakarta Sewerage and SanitationPlanning Project."For l!.P/VHO/DGCK,circa 1975. - 153 -

Page 7

PerusahanAir Minum (PAM) Jakarta, "Buku Data PerusahaanAir Minum DKI Jaya," October 1986.

Ryuabhorn,P. and H. Ludwig. "EIA in Thailand." National EnvironmentBoard, 1955.

Seatec International. "Final Report, Eastern Seaboard Regional Environmental ManagementProject." For National EnvironmentBoard and USAID, 1987.

Susilo, Kasru and Andrew Keir. "EnvironmentalManagement: A Working Guidelinefor the Departmentof Industry."For the Departmentof Industry,Jakarta, 1988.

Watson-Hawkesleyand Seatec International."Samutprakarn Industrial Pollution Control and ManagementProject." Final Report. For ADB and National EnvironmentBoard, Bangkok,1987.

World Bank. "Note on Raw Water Supply for City of Jakarta," circa 1983.

World Bank. "Reportof Mission to Indonesiaon BasinwideWater Pollution Control,"November 1986.

*hater VI

Dewees, Donald N. "Pursuitof SustainableDevelopment." Report of the EnvironmentalSector Review (Phase II), UNDP Draft Document,Vol. 2, Report 1B, March 12, 1988. Dewees,Donald N. "TowardConceptual Frameworks for Economic Evaluationof Natural Resourcesard the Environmentfor SustainableDevelopment." Report of the EnvironmentalSector Review (Phase II), UNDP Draft Document,Vol. 2, Report 1A, March 12, 1988.

James, David E. "EnvironmentalProtection and SustainableDevelopment: Applicationof EconomicAnalysis." Report of the EnvironmentalSector Review (Phase II), UNDP Draft Document,Vol. 2, Report 3, March 12, 1988.

Kismadi, M.S. and Donald L. Graybillet al. ZxecutiveSummary." Report of the EnvironmentalSector Review (Phase II), UNDP Draft Document,Vol. 1, March 12, 1988.

Kismadi, M.S., ae al. "Problemsand Urgent Needs of the Ministry of Populationand Environment." Repor. of the EnvironmentalSector Reviews (Phase II), UNDP Draft Document,Vol. 5, March 12, 1988.

Kismadi, M.S., t al, "Towarda Data Base for SustainableDevelopment." Report of the EnvironmentalSector Review (Phase II), UNDP Draft Document,Vol. 4, March 12, 1988. - 154 - =ANEXC Page 8

Peskin, Henry M. "Environmental and Non-Market Accounting in Indonesia." Report of the Environmental Sector Review (Phase II), UNDP Draft Document, Vol. 2, Report 2, March 12, 1988.

Szekely, Francisco. "Toward an Institutional Framework for Environmental Management for Sustainable Development." Report of the Environmental Sector Review (Phase II), UNDP Draft Document, Final Report, Vol. 3, December 7, 1987.

Tarrant, James J. "Performance and Accountability of Indonesian Government Institutions in the Context of Sustainable Economic Development: Analysis and Recommendations." Report of the Environmental Se^tor Review (Phase II), UNDP Draft Document, Vol. 3, February 3, 1988. - - ANNX

INDONESIA

ISSUES inS DEVSlOPMENT

Land Within Forestry DeRWrtmant Boundaries /a (ha)

Non- Total area Limited convertible Convertible with Forest Park & reserve Protection production production produ-tion Department forest forest forest forest forest boundaries Province (1) (2) (3) (4) (5) (6) (1*2+3+4+5)

D.I. Aceh 666,800 1,051,400 1,375,700 188,300 192,700 3,474,900 NorthSumatra 253,900 1,391,100 1,349,900 531,500 253,700 3,780,100 West Sumatra 599,700 1,206,600 539,700 596,800 437,700 3,380,500 Riau 267,200 741,800 2,764,200 2,772,900 1,754,100 8,300,200 SouthSumatra 796,S00 774,700 333,000 2,124,000 1,186,500 5,214,700 Jambi 493,000 1,147,500 974,000 - 1,013,200 3,627,700 Bengkulu 249,900 465,500 242,000 34,100 193,600 1,185,100 Lapung 356,000 315,000 - 573,000 - 1,244,000 SumatraSubtotal 3.683,000 7.093.600 7,578,500 6.820.600 5,031.500 30,20?.200 WestJava 196,400 229,500 - 547,900 _ 973,800 DKI Jakartab 15 - - 1,100 - 1,115 Central Java 3,000 65,000 - 605,100 - 673,100 DI YoSyakarta 200 3,200 - 13,200 - 16,600 EastJava Lb 245,300 255.800 - 847,100 - 1,348,200 JavaSubtota 444.915 553.500 2,014.400 _ 3.012.815 West Kalitmntan 1,336,700 2,047,100 2,988,700 1,323,000 1,508,700 9,204,200 CentralKalimantan 729,400 800,000 3,400,000 6,068,000 3,000,000 13,997,400 SouthKalimantan 66,000 432,700 200,600 1,330,400 284,700 2,314,400 East Kallmantan 1.968,600 3,643,900 4,826,100 5,513,100 3,500,000 19,451,700 Kallsntan Subtotal 4.100,700 6.923,700 11.415.400 14.234.500 8.293.400 44.967.700 NorthSulawesi 326,600 285,400 741,200 230,500 699,400 2,283,100 CentralSulawesi 616,700 1,156,900 1,364,100 1,028,000 335,000 4,500,700 SouthEast Sulawesi 273,400 420,800 827,100 668,900 699,400 2,889,600 SouthSulawesi 189,600 2,004,100 993,100 165,000 259,400 3,611,200 SulawesiSubtotal 1.406.300 .,.867,200 3,925,500 2.092.400 1.993.200 13,284.600

Bali 32,000 84,100 5,700 3,900 - 125,700 West *usaTewggara 134,800 481,700 222,800 224,100 195,900 1,259,300 EastNusa Tenggara 131,900 677,600 399,000 278,100 2,801,600 4,288,200 Maluku 441,000 1,550,400 2,075,600 1,029,900 436,400 5,533,300 IrianJaya 8,311,800 8,648,500 4,732,300 7,123,500 11,775,400 40,591,500 EastTimor 38,800 435,300 170,500 45,200 10,000 699,800 Eastern IslandsSubtotal 9.090.300 11.877.600 7.605.900 8,704.700 15.219.300 52.497.800 Total 18.725.215 30.315.600 30.525.300 33.866.600 30.S37.400 143,970.115

/a Based on Forest Land Use by Consensus Up to Way 1984. b Land utilization design in Java Island based upon the existing forest land use pattern.

Source: Agency for Forest Inventory and Forest Land Use Planning. INDONESIA

ISSUES IN SUSTAINABLE DEVELOPMENT

Forested Area with Forestry DeDartznent Boundaries. Sumatra. Kalimantan and Irian Java (km2)

Protection Limited Regular Province Reserves forest production forest Conversion Other Total

D.I. Aceh 8,134 9,238 12,247 2,048 1,559 5,614 38,840 North Sumatra 2,447 8,968 9,599 3,391 1,332 2,641 28,378 West Sumatra 5,086 9,165 3,635 3,766 2,620 1,471 25,743 Riau 3,502 4,483 14,702 16,691 19,799 1 59,178 South Sumatra 4,581 4,660 1,503 12,371 4,389 8,066 Jambi 35,570 5,326 1,746 3,281 9,417 4,577 3,307 27,654 Bengkulu 2,940 3,761 1,969 208 912 1,481 11,271 Lampung 2,671 715 0 1,129 996 1,057 6,568 Sumatra 34,687 42,736 46,936 49,021 36,184 23,638 233,202

West Kalimantan 13,497 19,544 17,291 11,908 9,958 14,808 87,006 Central Kalimantan 3,349 7,421 29,511 48,039 23,561 0 111,881 South Kalimantan 247 3,326 1,953 9,023 2,051 1,359 17,959 East Kalimantan 16,054 29,791 52,940 41,341 38,457 168 178,751

Kalimantrn 33,147 60,082 101,695 110,311 74,027 16,335 395,597

Irian Jaya 61,721 95,083 41,759 70,441 77,940 2,639 349,582

Total 129.555U 91190390 229.773 188151 42.612 978.382

....~~~~I...... - 157 -

A1- Table]

ISSUES IN SUSTAINABLEDREELOPMENT

Percent Area-Withln Forestry oundaities No Longer Forested

Protection Limited Regular Conver- Province Reserves fore;t production forest sion Other Total

D.I. Aceh 3 5 20 26 49 68 32

North Sumatra 4 45 46 37 65 90 61

West Sumatra 7 27 29 36 38 82 38

Riau 15 37 24 8 58 100 40

South Sumatra 37 50 49 42 65 84 65

Jambi 13 12 13 17 42 81 43

Bengkulu 8 12 18 29 45 83 45

Lampung 33 76 na 72 85 93 81

Sumatra 16 33 30 29 58 84 51

West Kalimantan 7 13 44 23 39 69 41

Central Kalimantan 25 5 7 18 47 100 27

South KalLnantan 60 35 18 34 59 87 52

East Kalimantan 4 1 1 7 22 95 9

Kalimantan 9 8 14 17 36 76 26

Irian Jaya 15 13 9 9 19 79 16

Total S14Wtudie1 ,Po

Source: LRD RePPProt Studies. - 158 -

INDONSI

ISSUES IN SUSTAINAILK mEVELOPmENT Rates of Timber Extraction.Yesr 2000 Low growth High growth 1986/87 with Low growth with High growth base line efficiency scenario efficiency scenario

Finished Product Sawn wood: Local 4.80 7.26 7.26 7.26 7.26 Export 2.60 3.18 3.18 5.15 5.15 Subtotal 2.4Q 10.44 10.44 12.4 12,41 Plywood: Local 1.06 2.10 2.10 2.10 2.10 Export 4.24 6.41 6.41 8.39 8.39 subtotal 8.5.1 10.49 10.49 RoundwoodEquivalents Sawn wood: Local 11.2 13.20 16.88 13.20 16.88 Export 6.0 5.77 7.39 9.36 11.97 Subtotal 1.Z98 24.27 28.86 Plywood: Local 2.0 3.89 3.89 3.89 3.89 Export 7.9 11.88 11.88 15.55 15.5 Subtotal 2Jt 15.76 liki 19.4 19.A3 Total Extraction Local 13.1 17.09 20.77 17.09 20.77 Export 13.9 17.65 19.27 24.91 27.52 Total 27.0 34.74 40.04 41.00 48.29

AssumotionsUsed in Calculating Growth and Efficiency Low growth Low growth High growth High growth wIth no effici. with no effici. Timber product efficiency change efficiency change

Sawn Wood Local a p.a. 3.00 3.00 3.00 3.00 Export % p.a. 1.44 1.44 5.00 5.00 Efficiencyof conversion 55% 43% 55% 43%

Locald p.a. 5.00 5.00 5.00 5.00 Export % p.a. 3.00 3.00 5.00 5.00

Source: FAO and World Bank calculations. - 159 -

A,NNEX 1 Male 5

INDONESAA

IS$MES IN SUSTAINABLE DEVELOPMENT

Comparisonof Forest Management Systems at Discount Rates of 6% and 10%

6% discount rate 10% discount rate Post- Post- Total harvest Total harvest Management system DPV Rank DPV Rank DPV Rank DPV Rank

Natural Forest Nanagement

Selective logging 2,409 5 299 3 2,177 5 67 2 Commercialharvest 2,593 3 43 4 2,553 2 3 4 Selective logging with IDI 2,746 2 636 1 2,203 4 93 1

Clear Felling and Plantation ManagemenLt

Pulpwood 2,926 1 376 2 2,562 1 12 3 Sawtimber - 10 year rotation 2,419 4 -131 5 2,278 3 -272 5 Sawtimber - 20 year rotation 2,165 6 -385 6 2,130 6 -420 6

PlantationEstablishment on BLare oun

Pulpwood 376 7 - - 12 7 - - Sawtimber - 10 year rotation -131 8 - - -272 8 - - Sawtirber - 20 year rotation -385 9 - - -420 9 - -

Assuming 1% R.a. Price Increase

Selective logging 2,705 2 595 2 2,245 3 135 1 Commercialharvest 2,690 3 140 3 2,560 1 10 2 Sawtimber - 20 years 3,300 1 750 1 2,519 2 -31 3 Sawtimber on bare ground 750 4 750 1 -31 4 -31 3

Source: Sedjo, Roger. "Incentivesand Distortions in IndonesianForest Policy." Paper prepared for FAO/World Bank, 1987. - 160 -

ANNEX1 Table 6 Page 1

INDONESIA

ISSUES IN SUSTAINABLEDEVELOPMENT

PriorityConservation Aress for Managementand Protection

Reserve Province Area Status MPIa

Sumatra (A - Aceh, N - North Sumatra, W West Sumatra, R - Riau, J - Jambi, B - Bengkuxlu,L - Lampung, S - South Sumatra)

Gunung Leuzer 8,080 TN Y Jabung 30 CA N Singkil Barat A 650 CA N Dolok Sembilan N 339 SM N Kerinci Seblat W,B,J,S 9,114 TN Y Kambang Lubuk Niur (ext. to Kerinci) W 1,000 SM N Taitai Batti W 965 SM Y Kerumatan (Baru) R 120 CA N Siberida R 120 CA N Tg. Datuk & P. Bakung R 550 CA N Berback J 300 SM N Bukit Besar J 300 SM N Banyuasin/MusiRiver Delta S 900 CA N BarisanSelatan B,L 3,650 TN Y Way Kambas L 1,235 TN Y Bentdyan 193 SM N

Java-Bali (W - West Java, C Central Java, E East Java, B Bali)

Gunung Gede-Pangrango W 150 TN Y Gunung Halimun W 400 CA Y Ujung Kulon W 761 TN Y Kepulaun Seribu W 1,100 TN/TL Y Meru Betiri C 500 TN Y Baluran E 250 TN Y Bromo Tennger E 580 TN Y Gunung Kani-Kelud E 776 CA N Bali Barat B 570 TN Y

Source: Based primarilyon Mac-Kinnon.MacKinnon, K. "Reviewof the ProtectedAreas System in the Indo-MalayanRealm"; IUCN/CNPPA,Gland. 1986. - 161 -

ANNEX 1 Table 6 Page 2

Reserve Province Area Status MPjA

Kalimantan(W - West Kalimantan, C CentralKalimantan, E East Kalimantan, S - Sonth Kalimantan)

G0mung Palung W 300 CA Y Gunung Bentuang/Karimun W 6,000 CA N Danau Sertarum W 800 SM Y Gunung Nu.t Becapa W 1,400 CA N Tanjung Puting C 3,750 TN Y Bukit Raya C 1,100 CA N Bukit Raya Extn W,C 5,900 CA N

Bukit Raya (Extn B. Raya) W 1,000 CA - Sungai Kayan Mentarang & Ulu Kayan Mutlak E 16,000 CA N Ulu Sembakung (Extn to Kayan ?tentarang) E 5,000 CA Y Muara Sebuka E 1,327 CA N Kutai E 2,000 TN Y Barito Basin/AlabiaPolder & Amuntai S 3,000 SM/CA N Sangkilirang E 1,000 TN N

Lesser Sundas or Nusa Tenggjara(Represented are the islandsof Lombok, Sumba, Sumbawa,Flores, Alor, Wetar, Timor and Tanimbar. Locationsof the reserves are spelled out for each entry. Wetar and Tanimbar are included in the Maluku Unit.)

Gunung Rinjani Lombok 400 SM Y Komodo W. Flores 340 SM/TN Y Ruteng Forest Flores 300 CA N Gunung Olet Sangenges Sumbawe 350 CA N Tambora Utara Sumbawa 800 SM N Gunung Wanggamati Sumba 60 SR N Gunung Mutis W. Timor 150 SM N Danau Ira/Lalore/P.Yaco E. Timor 250 Sm N

Sulawesi (N - North Sulawesi,S South Sulawesi,C Central Sulawesi,SE - Souteast Sulawesi)

Tangkoko Dua Saudara N 43 CA Y Dumoga Bone N 3,000 TN Y Morowali C 2,000 CA Y Rawa Aopa/Wstumohae SE 1,500 SM/TN N Lore Kalamanta (L.Lindu) C 2,290 SM/TN Y Marisa N 940 CA N Gunung Latimojong S 300 SM N Kepulauan Togian C to 200 m TL N isobath - 162-

ANNEX 1 Table 6 Page 3

Reserve Province Area Status NPLA

Maluku (H - Halmahera, B BBuru, S Seram/Ambon, BS - Banda Sea, K - Kai Islands,A - Aru Islands)

Lolabata H 1,890 S11 N Gunung Sibela H 400 CA N Gunung KelapetMuda B 1,450 SM N Manusella S 1,890 TN Y Wae Bula S 600 CA N Gunung Api BS 80 CA N Pulau Manuk BS 100 SM N Gunung Arnau (Wetar) BS 450 CA N Y,mdena (Tanimbar) BS 600 CA N Kal Besar K 370 CA N Pulau Kabroor A 1,700 SM N Aru Tenggara A 2,000 SM/SL N

IrianJana

Lorentz 21,500 CA/TN N Mamberamo-Foja 14,425 TN N PegununganArfak 637 CA Y PengunuganTamrau Utara 2,657 CA N PengununganTamrau Selatan 2,479 CA N Wasur 4,310 SN N Rawa Biru 40 CA N Cyclops 325 CA Y Jayawijaya 8,620 CA N Bintuni 4,500 CA N Teluk Cenderawasih SL+ SN/SL Y Jamursba-Mandi-NediBeaches 24 km CA N

/A ManagementPlan completed: Y-yes, N-no.

Notes: Areas of reserves are expressedin squarekilometers; some boundary revisionswill be necessary;SL - sea level and reserve area are yet to be determined;the turtle nestingbeach is measured in kilometers with area to be determinedlater.

Conservationareas are classifiedas follows:

TN Taman Nasional - National Park TL Taman Laut - Marine National Park CA Cagar Alam - 3trict Nature Reserve SM Suaka Margasatwa - Wildlife Reserve SL Suaka Laut - Marine Reserve. - 163 -

.-2 Page 1

Land Acqulsitionand Land Registration

1. Land acquisitionfor developmentprojects is one of the most difficultproblems facing Government. It has been cited as a major reason for delays in implementationby the World Bank. In fact, the difficultyof acquiringland in settled areas is a major reason why governmentagencies look to forested land for developmentpurposes. Complicatedland markets also pose problems for smallhol4ers,who find it difficultto identifyland and obtain secure title to it. When underutilizedland cannot be purchased, they turn to forested land. Thus, to reduce smallholderpressure on the forests,land acquisitionprocedur^s must be improved.

GovernmentAcauisition of Land

2. Acquisitionwith Compensation. The Governmentacquires land for roads, buildingsand developmentprojects through a district land release committee. Government agenciesseeking land apply to the Governor who submits the request to the land release committee. This committee,which includes local-levelofficials and the villagehead in which land is located, is intended to facilitateland transferwhere adat rights are invoLved and to ensure that both the pturchaserand the local people are treated fairly. The committeeexamines the site, consultswith the user and intended user, considersthe quality of land, access,buildings, and productivecrops and determinesthe amount of compensation.

3. The land release committeeis entitled to receive 1.5% of the compensationprice in large land transactions,or Rp ona;million (US$600), whicheveris less, plus another 1.5% for administrativecosts. In practice, their share is often higher. To limit abuses, BAPPENAShas set guidelinesfor Governmentacquisition and in recent years the provinceshave been required to pay one half the cost of land purchase from their own revenues as an incentive to keep prices down. In some areas the systemworks reasonablywell, but unofficialpayments intended to facilitatethe work of the committee, pa-Acularly where private enterprisesare involved,drive up the cost of land and cause serious delays,particularly in rural areas of the outer islands. To reduce such problems,the work of the land release committeesshould be more carefullysupervised and independentmechanisms must be developedfor appeal and review of land use decisions.

4. Land Acquisitionwithout Compensation. Although government institutionsregularly pay compensationfor the land required for roads, offices and other infrastructure,they do not pay cash for land used for developmentprojects such as transmigrationand NES.1/ In theory,the local people also benefit from the employmentand infrastructurewhich these projects provide, and they can become projectparticipants. This policy reflects Government'sview that land is a resource to be used for the good of all people, their concern that cash compensationwill increase the cost of land to projects and local people. -nd the problem of ensuring the appropriate distributionof cash compensation.

/ Compensationis paid for buildingsand productivetrees and plants, but not for the land itself. - 164 -

ANNEX 2 Page 2

5. In recent years, however, land has come to have a real monetary value in many areas. Under these conditions,Government's reluctance to pay cast compensationforces developmentprojects into increasinglyremote areas and incurs a significantcost in terms of access and forest conversion. To reduce this problem, Governmentmust reassess its position on cash compensationfor land and rely more on land markets to obtain reasonableagricultural land. Where cash compensationis involved,Government is well aware that mechanisms must be developed to ensure that compensationgoes to the appropriate beneficiaries.

SmallholderLand Acquisition

6. General. There are many benefits to land registrationincluding security of tenure and access to credit. For purposes of this paper, however, the most importantreason for an active program of land registrationis to permit land transactions. Land has a value related to what it can produce. Where land markets functioneffectively and arrangementsare in place for land purchase and land transfer,land can be upgraded and put into productionby those who have the desire,skills and capital. People with claims to such land can be adequatelycompensated if they choose to sell.

7. Any discussionof land registrationneeds to be informedby several importantsocial factors. First, not all people are equallyprepared to participatein land transactions. Of the 12-14 million families in the outer islands, a million familiesor so are still relativelyisolated from the cash economy. Therefore,any effort to accelerateland titlingwould be wise to defer registrationin such areas, except when specificallyrequested by the local people. Second, culturallyappropriate mechanisms for legal entitlement which recognizethe primacy of the communityneed to be developed. Agrarian law permits registrationof communityland, but this is not common. A program to do so would be well received in the outer islands since it could (a) provide protectionagainst expropriation to local people and (b) permit transfersagreed by the community,without providingindividual titles which could be permanentlyalienated. Third, nrotall familieshave equal access to capital, and any land registrationsystem will only be useful and equ'tahleif parallel programs for credit and/or land purchase are developedwhich permit poor as well as wealthy people to fir.dland.

8. Land RegistrationPrograms. Indonesia'sland registrationsystem provides land titles primarilyupon request for documentationof land transfer. About 8 million parcels of land have been officiallyregistered since 1960; but most of these have been in urban areas, and fewer than 10% of rural households are thought to have land title. Recently Agraria has acceleratedlane titling throughthe Prona Program (ProyekOperasi Nasional) and some 900,000 titles were issued under all programs in 1985/86. This is a significantaccomplishment, but the programhas been slowed by recent budget limtitations. - 165 -

ANNE 2 Page 3

9. The most importantconstraints to land registrationare the complexityof the process and the number of steps involved. Table 1 lists the proceduresfor obtainingtitle to ada land. Not only are these procedures beyond the administrativecapacity of the average rural smallholder,but each step requires officialand unofficialpayments which frequentlyexceed the value of the land itself. Under the circumstances,few smallholdersare prepared to initiatethe process,and they are likely to request title only in conjunctionwith developmentprojects or a subsidizedone-step program, such as Prona. As recent shortagesof funds have slowed the Prona program, considerationshould be given to attractingexternal supportfor this effort.

Table 1: PROCEDURESFOR OBTAININGTITLE TO AM LANDS

Procedure

1. Applicantobtains officialdocuments.

2. Applicant files for land title. The applicationmust include:

(a) informationon the chronological/historicalstatus of land, certifiedby the villagehead; (b) a rough sketch of land parcel showing boundaries agreed by the village head; (c) informationon land ownershipverified by subdistricthead; and (d) certificationof tax payment,verified by subdistricthead.

3. The DistrictAgraria Office carriesout a field check to identifyany adverse claims.

4. The land is officiallysurveyed and a map prepared.

5. Upon completion,the map and documentsare posted in the office of the village head and the subdistrictfor 60 days to permit complaint.

6. District (or subdistrict)Office of Agraria prepares a letter of recommendationif no complaintsare made.

7. The letter of recommendationsis sent to the provincialOffice of Agraria for a letter of decision (for non-adat land, the latter is forwardedto Jakarta).

8. The applicantis informedof decision and requiredto pay fees for the completionof the process.

9. The certificateof title is issued,and a copy is provided to the applicant.

Source: MacAndrews,Colin. "Land Policy in Indonesia,"p. 36, 1986. - 166 -

ANNE%2 Page 4

10. A second serious constraintto the land registrationprocess is reliance on governmentinstitutions to carry out the work at all levels. Agraria staff process applications,carry out the cadastralsurveys and do land titling. Efforts to encourageAgraria to accept surveys alreadydone by transmigrationofficials, for example,have only recentlybeen successful. To facilitatedevelopment generally, and to reduce delays in development projects,a progratAto speed and simplify the work of Agraria and to privatize some survey and mapping aspects of the land registrationprocess should be given high priority. Without a responsiveland registrationsystem, land markets are distorted,prices are raised, and increasedpressure is placed on marginal lands and forest resources.

11. Capital for Land Purchase. As noted, there is a reasonableamount of cleared land availablein the outer islandsat a price of about US$40-100/ha. In general.,however, Indonesiansmallholders with household incomesof US$500 annually,barely enough for subsistence,do not have sufficientfunds to purchase 2-3 ha. Therefore,to facilitateland transfer,mechanisms must be available to providecapital for land purchase,either throughdevelopment programs such as transmigration or through standard credit systems.

12. The World Bank's TransmigrationSector Review argues that while more general credit mechanisms for land purchase are being developed, the Hinistry of Transmigration should develop a facilitv to provide funds for land purchase to spontaneoussettlers whether from the iuter or outer islands. Initially funds from such a facilitymight be made availableto nongovernmentalgroups (religiousorganizations, veterans groups and the like), which would guarantee repayment. Loans could be limitedto purchasesof previouslycultivated land in areas where agriculturalsettlement was to be encouragedand such factors could be taken into account in land titlingby Agraria.

13. In the longer run, however, capitalmust be availableto individual smallholdersfor land purchase throughnormal credit mechanisms. In the past, Governmenthas been reluctantto provide credit for land purchase on the grounds that smallholdersmight not repay. However, even if land purchase and land registrationcost $200-250/haand smallholderloans of 2 ha were encouraged,Government's financial outlay for settlementunder smallholder credit schemeswould be less than one tenth that under transmigration. To facilitatethe developmentof appropriateprograms along these lines, Agraria should take a much strongerrole in identifyingconstraints to the development of local land markets and take the needed steps to overcome them. This should includeworking with developmentprojects and state and commercialbanks to mobilize capital for land purchase. Agraria would also be expected to certify that land being registeredis unforestedand suitablefor agricultural production. - 167 - ANEX3A

INDONESIA

ISSUES IN SUSTAINABLEDEVELOPMENT

Maxima and Minimum Discharge Rate (in m3/sCe) and Ratio QIMAXa/INfor Selected River. on Java

Rliver 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 clujung Qmax 637 436 651 516 522 697 712 772 nd 1,277 - - Qsin 23.2 24.4 28.0 21.0 10.8 10.3 26.4 12.8 nd 25.3 - - Qsax/Qmain 27.5 17.9 23.2 24.5 48.3 67.7 26.9 60.3 - 50.4 - -

Cimanuk Qasx 157 154 254 119 166 119 186 96 130 148 227 226 Qiin 2.68 7.30 7.60 4.70 3.01 3.20 6.32 4.20 3.20 3.40 3.55 3.40 Qmax/Qm1n 58.6 21.1 33.4 25.3 55.1 37.2 *29.4 22.9 40.6 43.5 63.9 66.5

Citarum Qax - 269 323 364 247 290 302 nd 284 276 268 QW n - 18.7 12.5 13.0 2.6 3.2 ad ad 4.8 8.0 3.8 - Qsax/Qnin - 14.4 25.8 28.0 95.0 91.0 - - 49.2 34.5 70.5

Serayu Quax - 728 1,789 1,503 1,850 1,757 1,946 1,430 2,270 1,475 1,680 1,165 Qiin - 10S 85.8 42.4 26.0 29.4 59.3 38.2 57.8 96.3 18.6 21.0 QInax/Qiidn - 6.9 20.8 35.4 71.2 59.8 32.8 37.4 39.3 15.3 90.3 55.5

Citanduy Qmax 162 400 277 501 448 408 361 359 107 461 501 - Qmin 5.5 5.8 3.4 2.1 1.2 1.5 5.9 2.4 1.3 5.1 0.8 - Qmax/Qmiin 29.3 70.4 82.4 239 373 272 60.7 144 s0 91 626 -

Cisanggarung Qmax 250 356 357 368 1369 360 370 430 314 392 407 389 qimin 2.9 17.1 17.1 12.5 3.4 2.1 9.7 5.3 1.0 6.6 2.0 19.9 Qmax/Qmin 347 324 476 460 1,538 36,000 411 1,433 laf. 461 13,567 1,341

Solo Qmax 1,820 1,768 2,395 2,655 1,946 1,306 1,982 2,132 1,715 1,556 1,670 1,286 Qidin 2.9 17.1 17.1 12.5 3.4 2.1 9.7 5.3 1.0 6.6 2.0 19.9 Qmax/WQmn 865 208 223 258 427 1,783 299 259 - 465 2,620 -

Madiun Qmax 519 540 600 474 606 624 751 757 540 526 524 - Qoin 0.6 2.6 2.7 1.8 1.4 0.35 2.5 2.9 ad 1.13 0.2 - Qmax/Qmin 865 208 223 258 427 1,783 299 259 - 465 2,620 -

Brantas Qmax 640 630 568 732 553 440 532 608 510 665 550 494 Qain 18.5 23.4 51.0 64.7 35.0 68.0 49.0 22.8 13.0 6.0 28.8 31.4 Qmax/Qmin 34.6 26.9 11.1 9.8 15.8 6.5 10.9 26.7 39.2 110.8 19.1 15.7

Source of Data: DPMA, Bandung,courtesy of Dr. Badruddinand coworkers(September 1987). Data for the followinggauging stationswas used for compilationof the Table:

Ciujung : Rangkas Bitung Cimanuk Leuwidaun Citaraum : Leuwidaun Serayu : Rawalo Citanduy : Cijolang-Cikadi Cisanggarung : Pasuruan Solo : Napel Madiun : Madiun-Nambangan Brantas : Kertosono - 168 -

ANNEX 3 Table 2

CONSTRUCTIONCOSTS, CAPACITYAND COST PER CUBIC METER FOR CHECK DANS IN CENTRAL JAVA

Capacity Cost Cost per m3 W&tershed Location (000 m3) (millionRp) (Rp 000)

Keduang Semen 1/Ngadirojo 80 283 3.531 Keduang Semen 2/Ngadirojo 80 283 3.531 Keduang Banjaran 87 350 4.023

Tirtomoyo Banaran l/Nguntoronadi 54 236 4.368 Tirtomoyo Banaran l/Nguntoronadi 54 236 4.368 Klampok Konggojati/Tirtomoyo 115.5 50 450

Tirtomoyo Batant 1 /Tirtomoyo 80.3 248 3.298 Tirtomoyo Batant 2 /Tirtomoyo 80.3 248 3.298 Tirtomoyo Batant 3 /Tirtomoyo 80.3 248 3.298 Tirtomoyo Tirtomoyo/Tirtomoyo 50.5 211 4.170 Tirtomoyo Taman 1 /Tirtomoyo 80.3 323 4.019 Tirto-&oyo Taman 2 /Tirtomoyo 80.3 323 4.019 Tirtoroyo Jobot /Tirtomoyo 56 314 5.160 Baratbanyu Ngerjo 2 /Tirtomoyo 41.9 88 2.088

Bengawan Solo Begendo /Giriwoyo 124 209 1.678

Bengawan Solo Cerme /Giriwoyo 88 116 1.313 Bengawan Solo Sambirejo/Giriwoyo 64 120 1.875 Lanang Pasang /Giriwoyo 77 145 1.803 Lanang Nglaban /Giriwoyo 52 95 1.827

Alang Pramoon /Pracimantoro 32 112 3.500 Alang Kedung Padas/Gr.tontro 28 96 3.428 Alang Xcanding /Giritantra 32.3 68 2.093 Jimba Banarcan/Pracimantoro 24 88 3.508 Dungprahu Kedungringin/Pracizantoro 49 120 2.447

K. Bencungan Bringin /Wuryantoro - -

Total 1,618.7 4,686 2,895

Average 64.7 187

Source: Departmentof Public Works, Solo. - 169- ANNEX3B Page 1 of 7

Land and V3t.-r Management in Indonesia Methodolc, _%r Calculating Costs to the Econer) of Soil Erosion in Java

Introduction

1. Soil erosion is analogousto the depreciationof man-made assets. Unlike the depreciationof capital assets,however, the effects of soil erosion are not reflectedin conventionalmeasures of economicwelfare. Efficientmarkets seldom exist for soil resources,because of the pervasive influenceof externalitieson the true costs of soil erosion, and because systems of national accounts are biased to treat natural resource as free goods. As a result,policymakers do not have the informationrequired to weigh adequ3telythe benefits and costs of alternativesoil conservation policies. To atcempt to overcome this, a study of the costs of soil erosion on Java was undertakenby the World ResourcesInstitute in conjunctionwith the World Bank as an input to the Review of Land and Water Management Issues in Indonesia. This annex summarizesthe methodologyused for this calculation. Additionaldetaili can be found in Magrath and Arens (forthcoming).

2. Soil erosion is a physicalprocess which induceseconomic effects. The detacbmentof soil and its depositionelsewhere lowers the agricultural potentialof a site and sets in motion a sequencethat results in a lower economic value of its resourcebase. In addition,the depositionof eroded material at downstreamlocations (e.g., irrigationsystems, reservoirs, ports and harbors) imposes other costs. Estimatingon-site costs requires a methodologythat links the physical process of soil loss with the economicsof agriculturalproduction. Calculatingoff-site costs requires identifyingaffected sites and valuing the impact of sedimentationon the subsequentprovision of goods of services from them.

3. CalculatingOn-Site Costs: The basic requirementsfor calculating the on-site costs of resourcedegradation are understandingthe physical process of change,understanding the impact of those processeson the productionof valued goods and services,and understandingthe ways in which economic activity adjusts to these changingcircumstances. For this study, these requirementswere met by developingthree linked models: physical dimensionsof erosion, quantitativeimpact of erosion on yields, and economic impact of productivitydecline.

4. To satisfy the first requirementa (geographicinformation systems) model was used to integratedata on soil type, topography, rainfallintensity and land use to estimate levels and distributionof erosion. Based on small plot and area studies from Java and other tropical countries,the model tries to reflect the impact of the major factors that contributeto soil erosion. The model allows for 5,500 possible combinations(24 soil types x 11 rainfallerosivity patterns x 5 (and uses x 5 provinces). Table 1 summarizesthe models predictionsfot soil loss by broad land use category for the provincesof Java. -170 - ANNEX 3B Page 2 of 7

Table l PREDICTEDSOIL LOSS BY REGION AND LAND USE (millionmetric tons)

Land West Central East Use Java Java Jogyakarta Java Java

Tetal 427.9 164.3 22.7 122.1 737.0

Forestland 5.6 .9 - 5.4 14.9

Degraded Forest 30.0 1.3 - 2.7 34.0

Sawah 1.1 0.6 .' 0.6 2.4

Total 464.6 170.1 22.8 130.8 788.3

S. To estimate the erosion-inducedconsequences for crop yield, the second model focused on rainfedagricultural land (teRal).1 While it is widely accepted that erosion lowers agriculturalproductivity, there is little agreementon exactlyhow erosion is relatedto productivityand the quantitativeimpact of erosion on yields. Erosion involveschanges in the availabilityand relativeconcentration of nutrientsfor plant growth, changes in soil structure which influence root growth and influence wat.- availabilit.y. Weathering of subsoil, however, may partially reverse the negative effects of erosion. Few explicit studies of erosion-yield relationshipsare availablefor the soils of Indonesia,so experimentaldata from on similar soils in other countrieswere used as a basis for predicting erosion-yieldrelations. The loss in yield, based on erosion producted,in the model dependedboth on crop and and soil type and ranged in severity from 0-122 per year. The weighted average annual losses predictedfor Java were 6.8S per year for erosion-sensitivecrops such as maize, soybeans or dryland rice and 4.4? per year for relativelyinsensitive crops such as cassava. See Table 2.

6. A final set of calculations,involves an economicmodel of farmer responseto decliningproductivity. Productivityloss due to erosioncan have severaleffects on farming systems;profits can fall as the result of lower output without major changes in the mix of farm activities,farmers can be inducedto make sometimesradicaL changes in the mix of crops and the level of input use, and in the extreme,erosion may lead to complete abandonment. In the uplands of Java all three of these impactsare seen and have been reported by numerous observers.

1/ Due to frequentexposure of the soil surface, tegal is highly susceptible to erosion and because of the value of output is also likely to suffer the greatest losses. - 171 - ANNEX 3B Page 3 of 7

Table 2: AREAAND SEVERITY OF ESTIMATEDEROSION-INDUCED PRODUCTIONLOSSES ON TEGAL ON JAVA

Annual Product Lose As a Fraction of Current Total Production a/

0.0 0.01 0.02 0.0 0.06 0.06 0.07 0.08 Average Total Les Area (a) (00ha)

Area(00 ha) West Java 5,116.8 82.4 287.6 4,168.0 4,511.0 0,560.1 1,486.1 8,514.6 4.4 26,684.4

CentralJava 1,686.1 15.4 1,205.0 2,168.4 1,712.2 2,009.2 1,647.7 609.8 4.1 11,268.2

Jogyakerta 166.7 0.0 258.7 2.1 408.7 1,176.9 0.0 0.0 4.7 2,093.0

East Java 1,937.9 446.1 907.3 1,284.8 6,478.6 8,941.6 186.0 0.0 4.1 14,181.7

Total 9.189.3 490.9 2.88.6 7.61?.7 12.170.4 18.713.8 B.219.9 4.12B.8 4.4 56,117.2

/I Basedon cassva.

7. The overall impact of erosion-inducedlosses lowers farm profitability progressively,and graduallyleads to the adoption of less and less profitablecrop(s). The ability to switch to less demanding,albeit less profitablecrop mixes, is a way to avoid some of the costs of erosion. In order to take this cropping systems selectionprocess into account for the four regions of Java, farm-leveldata from a variety of sourceswere used to develop sets of enterprisebudgets representativeof the range found in Java's uplands. These budgets were used to estimate the change in net income as yield declines due to erosion.

8. Table 3 summarizesthe cropping systemsused to representland use in each region, gives estimatesof their relative occurrence,current profitability,and the impact of a percentagedecline in productivity.

9. The estimatedcost of a 12 loss in productivityas shown in Table 3 is a function of both currentproductivity and the structureof production costs. The higher the output,the greater the loss. However, in addition, the importanceof fixed costs relativeto variable costs also influencesthe costs of productivitylosses. In cropping systemswith relativelylarge va-riablecosts, farmersare more able to shift rcsourcesto other enterprises and thereby reduce the costs of erosion. - 172 - ANNEX 3B Page 4 of 7

Table 3: MAJOR FEATURES OF MODEL RAINFEDCROPPING ENTERPRISESON JAVA

Estimated Estimated Estimateed current cost of a proportion net income 1X productivity Crops of tegal (X) (Rp/ha)la decline (Rp/ha)

West Java I Cassava, corn, upland, rice and legumes 58 139,496 4,309 II Cassava, corn and upland rice 27 49,531 3,616 III Pure stand cassava 15 1,279 1,563

Central Java I Intercroppedcorn and cassava 57 6,698 800 II Corn, cassava and legumes 43 10,183 937

Jogyakarta I Intercroppedcorn and cassava 57 8,220 1,011 II Intercroppedcorn, cassava and legumes 43 11,279 1,047

East Java I Intercroppedcorn and cassava (level tegal) 30 298,327 4,926 -I Intercropped corn and cassava (terraced hillsides) 30 58,lZi 2,876 III Pure stand cassava (level tegal) 20 145,005 3,746 IV Pure stand cassava (terracedhillsides) 20 27,806 1,816 la Net income defined as returns to land and management.

Source: Adapted from Roche, 1984, Central Bureau of Statistics,and data provided by the AgroeconomicSurvey, Bogor.

10. The loss of soil productivityand its associatedcost is calculated on a single year basis. The total value of that cost to the economy also depends on the duration of the productivityloss and on the social rate of discount. In this study a 0l discount rate was assimed. Table 4 shows how the estimatesof productivitylosses, cropping system predominanceand value of productivityloss are combinedto produce an overall estimateof the capitalizedon-site cost of erosion. - 173 - ANNEX 31 Page 5 of 7

IJ*.A: PROtIXTIVTY O8I#MS AM CAPITALM STSOGe TO 8M19L 1si1w1 OffRONPAID ARICLTUUL UWO (TMML)

Anful Coat Valbahd is cp.lultiz Caplallsod Province A Cro"p*1 Proportion Are /& Production Producon Tots Iat Cast TotI Coot system of T (00l) tLa "w i. (lP'le) (R ooo.ooo 1 00.000) COot :. 000) (1) (2) (8) (4) C8)-(4z8a2) 8 .1 (a)

WentJava I .69 0,S88 4.4 4.309 18.6 186.870 9.898 96.980 II .27 3.8.0 4.4 8.616 6.089 60.890 8.672 a6.720 III .1S 211t 4.4 1.868 1.4655 14.0 660 6.,20

Totel Tegal 1.00 14.402 4.4 283.810 141.0

Central Java I .S7 7,7W? 4.1 800 2,64 28,840 1,647 18.470 II .48 .6874 4.1 987 2.257 22.870 1.867 13.670

Total Tool 1.00 1S.661 4.1 46,110 29.140

Jogaskarta I .87 1.119 4.7 1.011 an 3.820 822 8.220 n .4S 64 4.7 1.047 416 4,160 252 2.620

Total Tegl 1.00 1,964 4.? 9.460 6.740

Eaat lava

I .30 8.282 4.1 4,9261 10,867 108,670 e 404 64.040 II .80 8.282 4.1 2,876 S.169 61.690 3,739 37.390 III .20 .4811 4.1 8.746 8.887 88,870 8924? 32.470 IV .20 8,486 4.1 1.816 2.867 28,970 1,74 18,740

Totl TagI 1.00 17.440 4.1 246.9e0 149.640

TOTAL 88.600 O.COw s2.604 a26,040

/i fbasd an Central Buramu o Statistica. - 174 - AN 3A Page 6 of 7

11. CalculatinsDownstream Costs. As noted, the depositionof soil at downstreamlocations frequently reduces the benefits from investmentsin infrastructuresuch as reservoirsand irrigationsystems. In princ..ple,it would be possible to extend the erosionmodel describedabove by specifying transportfunctions to relate erosion from upper catchmentswith the delivery of sedimentto various receivingsites. However, given the difficultiesof adequatelyapecifying these relationshipsand the fact that data are available on the actual quantitiesof sedimentaccumulating in specific locations,uuch a modellingrpproach was not employed. Instead, an effort was made to identifymajor categoriesof potentialdamage and to locate whatever evidence was availableon their economic significance.

12. The depositionof silt in irrigationchannels results in either higher operationand maintenance(O&M) expenditureor lower operatingeffi- ciencies rest-ltingin decreasedreturns to irrigationinvestments. Studies by the World Bank and others have shown that increased spending on O&Myields high rates of return. There are few definitivedata on the costs of rsltation of irrigationsystems. The few analysesavailable irrigational O&M cu%ts specify categoriessuch as wages, equipment,and supervisionbut not functionalcomposition of O&M works (i.e., silt removal,weeding, etc.). At this time, there u:e no availabledata on the physicalvolumes of silt either accumulatingin or removed from irrigationsystems.

13. It is p-ssible,however, to approximatethe cost of siltationby analyzingtotal O&M costs and apportioningsome fractionto silt removal. A further complicationis that current levels of O&H spendiag are inadequateand fail to maintain irrigationsystems in good condition. Based on studiesof World Bank-supportedirrigation projects and subsectoreconomicz.l *nalysiu, it is estimatedthat silt managementcosts between 152 and 50t of the total recommendedlevel of O&M expenditure. For Java, this amounts to Rp 13 - 43.5 billion per year.

14. Further downstream,eroded soil can obstructports and harbors, limiting the transportof goods or necessitatingdredging. To determinethese costs, data were obtained from the Directorateof Ports and Harbors of the Ministry of Communications. These indicatedthat dredging costs range between Rp 800/m3 and Rp 1750/m3 dependingon the type of and locationof work. Applied to the 1.2 million im3 dredged in 1985186,this amounts to US$1.4-3.4 million.

15. Siltationof reservoirsis often listed as one of the importantoff- site consequencesof soil erosionon Java. Developingan estimate of the economiccosts of this process again requires data on the physical dimensions of soil movement,on the consequencesof siltationon the productionof valued outputs such as hydropowerand irrigationwater, and on the prices of those outputs.

16. An inventoryof the major dams and reservoirson Java, based on data provided by the Ministry of Public Works and World Bank energy sectorwork, indicatesthat total installedcapacity for irrigationand hydroelectric generationamounts to approximately278,000 ha of command area and 2.7 million mwh. Extrapolatingthe estimatedeffects of sedimentation2 from a sample of

21 Which are assumed to be linear functionsof reservoircapacity. - 175 - ANNEX33 Page 7 of 7

reservoirsfor which data are availablesuggests that the capitalizedvalue of lost services amounts to Rp 26-124 billion per year.

17. Other Costst It has not been possible to gather sufficiently completedata on the costs of all of the consequencesof upland soil degradation. This should not at all be taken to imply that they are unimportant. Among the costs that have been left out are flooding and irregularityof stream flow that results from deforestationand other forms of poor land use. In addition to the difficultyof obtainingcomplete data on the extent and cost of flooding,a complete examinationof flooding due to erosion costs would have to considerthe relationshipbetween land use changes and the frequencyand severityof flooding. Similarly,the costs of interrupted stream flows which have caused temporaryplant closures on Java, are also difficult to value. In industrial applications, a wide variety of responsesto irregularwater flows is possible and the time availablefor this study has not allowed for their systematicanalysis. Based on available information,these costs, and others such as pesticideand fertilizer pollutionfrom runoff,and damage to coastal fisheriesare clearly important on Java. Future research,which could follow the approachused in this paper, could more correctlydocument and qualitativelyestimate these costs.

18. Summary: Table 5 summarizestotal on- and off-sitecosts of soil erosion as estimatedin this paper. For Java, as a whole, these amount to Rp 580.1-710.6billion (US$352-430million) which is slightly less than 52 of total agriculturalGDP. Over 80 percent of these costs are the on-site costs of decliningsoil productivity. In addition to these costs, importantand probably qaxitelarge costs relatedto soil erosionhave not been quantified.

19. This estimateneeds to be consideredas a provisionalone, subject to significantuncertainties. The models developedto estimate erosion and its impact on crop yield, while based on the best availableinformation, indicates the type of additional agronomic and soils research needed to provide po.icymakers with useful information.

Table 5: TOTALESTIMATED COSTS OF SOIL EROSIONON JAVA (Rp bi I I Ion)

Wlst Java Central Java Jogyakart. East Java Jove

On-Site 238.5 48.1 9.5 248.9 5W5.0 Off-Site Irription System Siltation 2.8-9.4 1.3-4.4 0.2--0.8 2.0-4.6 13.0-48.4 Harbor Dredging 0.0--1. 0.2-0.5 - 1.5-3.7 2.3--C.7 (1984/85) ReservoIr 14.8--69.1 6.8--26.9 8.2-29.6 26.8- 123.6 Sedimentation TOTAL 251.7-312.6 C5.4-79.9 9.7-10.8 266.6--285.7680.1-710.0 - 176 -

ANNEX 3C Page 1

INDONSIA

ISSUES IN SUSTAINABL5DEVELOPMENT

Foreign-AssistedProjects in Java Watersheds

1. Tw' J4§-1TNDP-assistedpFoiects providet ae initial teclnical assistance trainingto develop strategiesand approachesfor watershed managementdau6.tg 1973-82 in t':eUpper Solo basin. The projects had an independentm nagement team working closelywith agriculture,forestry and provincialauthorities. The second project concentratedparticularly on developingmethods for securing farmer participation,since the "top-down" approach in the first projectwas unsuccessfulin ensuring maintenance of soil conservationworks.

2. The Citanduy Pr_oect,which started in 1982 in parts of Central and West Java, is partly funded by USAID and focuseson upland extensionand agriculturalresearch; improvedupland conservationtechnologies; model farms for demonstrationpurposes and upland farming credit programs. The lead agency is the Ministry of Agriculture (MOA). Difficultieshave arisen in the project from the rigid applicationof a standardconservation approach, for example, using the same type of bench terracing on -volcanic and sedimentary soils. Soil surveys, land evaluationand planning are now being carried out in order to develop appropriatetechniques to be applied to different conditions. Sustainabilityis also an importantissue, as some model farms operated successfullyfor the first two years, while inputs were suppliedby the project, but afterwardsfailed when farmers tried to continuewithout the necessaryinputs.

3. The IDA-assistedYograkarta Rural Developme_ntPoject started in 1979 under provincial authorities. The projectwas to test and introducenew agriculturaltechnologies and soil conservationmeasures for upland farming; to expand income-generatingactivities in agriculture,fisheries, livestock and small-scaleindustries; to developlow-cost technologiesfor rural road construction;to improvehealth care and to provide drinkingwater. The projecthas been successfulin introducingbetter cropping systems and other rural developmentactivities. Soil conservationwork has been less successful,especially the constructionand maintenanceof waterwaysand necessarystructures in newly terraced areas.

4. The Upland Agricultureand ConservationProject (UACP) is being implementedin two districtsin CentralJava within the Jratunseluna watershed,and two districtsin East Java within the Brantaswatershed. Started in 1984, its purpose 's3to increase farm productionand incomes,while minimizingsoil erosion, through the expansionand improvementof institutionalcapacities to introduceimproved upland farmingpractices and by experimentingwith alternativeapproaches to upland farming. It is funded jointlyby USAID, GOI and the World Bank. The lead agency is the Ministry of - 177 -

ANNEX 3C Page 2

Home Affairs (MOH),with the relevantprovincial BAPPEDAs and sectoral agencies (MOA, MOF and MPW) playing importantroles. Difficultieshave includedweak managementand coordination,slow recruitmentof consultants, lack of detailed soil maps, and inabilityto design and implementsite- specificconservation works.

5. The Kali Konto Project in East Java is conductedunder the auspices of the DirectorateGeneral for Reforestationand Land Rehabilitation. This NetherlandsGovernment-funded project began as an effort to establisha systematicapproach to forest managementin a watershedcontext. During the first two stages of the project, attentionwas focused on forest lands, and the forest utilizationpatterns in this catchmentare perhaps the best documentedon the whole of Java as the result of this intensivemulti-year effort. Despite the technicalmerits of the project,however, unusuallyheavy relianceon foreign consultantshas limited institutionaldevelopment.

6. The Ford Foundationin conjunctionwith GOI has recently initiated another approach to upland soil conservationand agriculturaldevelopment through its social forestryprogram. This approach involvesthe development of new arrangementsbetween upland farmers and forestryofficials regarding the managementof state forest lands. The objectiveis not only to raise farmers' incomes throughseasonal and tree crop production,but also to stop continuedforest degradationand deforestationthat exacerbatesproblems of upland soil erosion. During 1987, the existing pilot project sites of 600-700 ha across three provincesof Java are being expanded to 39 sites covering some 2,000 ha. - 178 -

ANNME 3D Page 1

INDONESIA

ISSUES IN SUSTAINABLEDEVELOPMENT

KEPAS -- A New Style of Agricultural Researchand Develog_ent

1. KEPASwas createdin Indonesiain 1983 in responseto a growing awarenessof sustainabilityissues in agriculturaldevelopment. By 1981, Indonesiawas self-sufficientin rice production,but leadingadministrators aud scientistswere becomingconcerned by the "secondgeneration" problems thatwere affectingthe stability,sustainability and equityof agricultural development.Not least among thesewere the devastatingand widespread attackson rice of the brownplanzhopper. A seminaron these topicsin 1981 was followedby two intensiveworkshops that brought together scientists from the Agencyfor AgriculturalResearch and Development(AARD), universities and donoragencies, together with observerswith similarconcerns from Thailand and the Philippines.The firstworkshop focused on the socialand ecological consequencesof furtherlowland intensification, while the secondtook marginallands (critical lands, alang-alang lands, swamplands) as its theme.lJ/ 2. Both workshopsidentified broad questions and prioritiesfor research and, perhapsmore important,the styleand compositionof the workshopsproved popular. They includeda wide rangeof disciplinesand staff fromboth governmentagencies and universities;moreover, the participantswere encouragedto contributeas individualswith skillsand expertiserather than as representativesof theiragencies or departments.As a consequence,the KelompokPenelitian Agro-Ekosistem (KEPAS) was createdunder the leadershipof Dr. Ibrahim Manwan. It is coordinated by AARD and funded by AARD and the Ford Foundation. 3. The firstofficial KEPAS workshop was held in 1983 in Kalimantan and carriedout an agroecosystemanalysis for fourvillages in the swampland transmigrationareas. An importantoutcome was a set of researchpriorities which became the basis of the World Bank's Swamps II project, probably the first time the agenda of a major Bank researchproject had been determinedby Indonesianscientists rather than outside consultants. 4. The successof thisworkshop was thenquickly followed by a workshop on the Uplandsof East Java held at Malang. A combinedteam from Brawijaya Universityand the MalangResearch Institute for FieldCrops carriedout a rapid ruralanalysis (RRA) of fourvillages representing a range of soil types and croppingpatterns and socioeconomicconditions. The workshopthen collectivelyanalyzed these data using the techriquesof agroecosystem analysisand arrivedat a consensuson the key researchquestions. A second outputof the workshopwas a preliminarytypology of uplandagroecosystems, and the refinementof this typologyhas becomethe subsequentprincipal focus of the UplandsWorking Group set up by KEPASafter the vorkshop.

1J/ KEPAS 1984. "TheSustainability of AgriculturalIntensification in Indonesia."Agency for AgriculturalResearch and Development,Jakarta, Indonesia. - 179 -

MM 3D Page 2

5. KEPAS is now based at the CentralResearch Institutefor Field Crops at Bogor. It has a small staff of three scientiststogether with a consultant based at Malang who is guiding the upland working group. In a relatively short time KEPAS has achieved a considerablereputation both in Indonesiaand internationallyfor the successfulway it has been able to make a reality out of the often sought goal of multidisciplinaryanalysis and research. It is developingconsiderable expertise in such techniquesas agroecosystemzoning, agroecosystemanalysis and rapid rural appraisal. In its recent work in East Java with the extensiondepartment it is also demonstratinghow this approach can begin to influencenot only research,but also practicaldevelopment on the ground.

Rapid A&MraijalTechiFgues For SustainableDevelopment

6. Deciding which innovationsand interventionsare appropriatein the uplands of Java, in both the short and long term, requires careful analysis and a genuinedialogue among policymaker,development specialists, extension and research workers and farmersthemselves. However, this is not solely a case of ensuring that analyses are careful, insightfuland multidisciplinary in nature, difficultthough this is. Conditionsin the uplands are serious and immediate. There is not time fcr long-term,detailed academic studies before action can be taken. The need is for methods of analysisand experimentationthat are powerful and quick, and inexpensive.

7. Over the last 10 years, a large number of such methods have been developedunder the generalheadings of rapid rural appraisaland agroecosystemanalysis.

8. Rapid rural appraisal (RRA) may be defined as a systematic,but semi- structuredactivity carried out in the field by a multidisciplinaryteam and designed to acquire quickly new informationon, and new hypothesesabout, rural life. A key featureof RRA is the use of severaldifferent sources of, and means of gathering,information. "Truth" is approachedthrough the rapid build-up of diverse informationrather than via statisticalreplication. Secondarydata, direct observationin the field, semi-structuredinterviews, and the preparationof diagramsall contributeto a progressivelyaccurate analysis of the situationunder investigation.Very broadly there are four principalclasses of RRA, which ideallyfollow one another in the sequenceof developmentactivity:

(a) exploratoryRRA: to obtain initial informationabout a new topic or agroecosystemand produce initialdevelopment hypotheses;

(b) topicalRRA: to investigatein more depth the initialhypotheses;

(c) participatoryBRA: to involvevillagers and local officialsin decisionsabout furtheractions based on the topical or explanatory RRAs, e.g., farmer-managedtrials;

(d) monitoringRRA: to monitor progress in trials and implementation. - 180 -

ANNE 3P Page 3

Najor centers of work in RRA in SoutheastAsia are at Khon Koen Universityand in the NortheastRegional Office of Agriculture,Khon Koen in Thailand. But familiaritywith RRA techniquesis also present among many members of the KEPAS group.

9. Agroecosystemanalysis (AEA) is a form of exploratoryRRA. It takes as its focus any level in the hierarchyof agroecosystems,from farms, through villages and watershedsto whole regions. The analysisbegins with a field visit and the productionof summariesof the informationso obtained in the form of a wide diversityof diagrams. Inese are then analyzed in a workshop by a multidisciplinaryteam to produce initialhypotheses for developmentof the agroecosystem. The proposed innovationand interventionsare assessed for the potential impactson productivity,stability, sustainability and equit- ability, and for their costs and feasibility. The outcome is a preliminary researchand developmentplan.

10. AEA was first developedat the Universityof Chiang Mai in Thailand in 1978 but has also been appliedon severaloccasions over the past seven years in Indonesiaby the KEPAS group. PublishedAEA reports include those on the uplands of East Java, the swamplandsof Kalimantan,the drylands of West Timor and the coastal brackish agroecosystemsin Java. - 181 -

ANNEX Page 4

Notes:

1. Conway G.R. and McCrackenJ.A. (in press). Rapid Rural Appraisaland Agro-ecosystemAnalysis in Altier, N.A. and Hecht S.B. (eds.)Agroecology and Small Farm Development. CRC Press Inc., Florida.

2. Conway G.R. 1985 Agro-ecosystemanalysis. Agricultural Administration,20, 31.

3. Conway G.R. 1986 Agro-ecosystemAnalysis for Research and Development,Winrock International,Bangkok.

4. KhonkaenUniversity, 1987. Proceedingsof the International Conferenceon Rapid Rural Appraisal,Khon Kaen, Thailand September2-5, 1985.

5. Alton C.T. and Craig I.A. 1987 The Rapid AssessmentTechnique (RAT): A procedurefor identifyingfarmer problems and developmentopportunities, NortheastRainfed AgriculturalDevelopment Project (NERAD,Kohn Kaen, Thailand).

6. KEPAS 1985. The SwamplandAgroecosystem of KalimantanAgency for AgriculturalResearch and Development,.Jakarta, Indonesia. - 182 -

ABUE 3E Page 1

INDONESIA

ISSUES IN SUSTAINABLEDEVELOPMENT

Credit for Uplands Develonment

1. At present, neither the availablityof rural credit nor its allocationis adequate. Despite an implicitagricultural credit subsidy of about Rp 132 billion (US$80.3million) annually that provides loans to farmers at 12% a year, public liquiditycredits are estimatedto meet only 15% of the demand for credit by farmers,and the other 85% is obtained informallyat an interest rate of around 60% p.a. Indicationsare that small farmers in particularmust rely on high-cost,informal sources of funds. In addition, new liquiditycredits declinedby 6% in real terms annuallybetween 1981 and 1985. Of the total liquiditycredits availableto agriculturein 1985, more than 50% went to sugar production. Given that (a) sugar productionaccounts for only 3.3% of the value of total crop production;(b) sugar is not a staple food; (c) consumersare paying prices well in excess of the world price; and (d) Indonesiadoes not have a comparativeadvantage in sugar production,the credit resourcesallocated to sugar shouldbe realloc,ted to increase the flow of liquiditycredit to other rural sectors.

2. Mo:eover,the increase in net benefits after 10 years of investment supportedby credit is three and four times greater, respectively,for terracingand agroforestrywhen compared to the net benefits of farms that do not adopt soil conservationmeasures. A Citanduy study concludedthat, because the need for credit is generaland widespreadand currently inadequate to meet the diverseneeds of the entire rural population,the rural banking system should be funded to expand loans to farmers,traders and light industry. After two years in the lendingprogram, borrowers could pay back their funds at market or near-marketinterest rates.

3. Given the diverse credit needs of rural upland populations,it is unclear whether making more multipurposeand multi-termloans availablewill be sufficientor whether some form of subsidy for rural credit is required. In recent years, GOI appears to have moved away from subsidizedprograms for specificcrops (e.g.,BIMAS) toward more general credit programs at market interestrates (e.g.,KUPEDES). The operationsof KUPEDES and other commercial-ratelending schemeshave, to some extent, demonstratedthat a successful credit program can be designed to reach low-incomegroups with small loan sizes, even at market interestrates and in the absenceof collateral. It requires accessibilityof bank offices and simple lendingprocedures. Other argumentsagainst maintainingsubsidies for rural credit include concerns that (a) low and fixed lending rates on most agriculturaland rural lending do not provide sufficientincentives for banks to lend to these sectors; (b) state banks lending to the rural sectorsneed to increasetheir interest income and reduce their arrears and operatingcosts to maintain their financial viability; (c) low rural interest rates are a disincentiveto savers; and (d) certain subsidizedand liquiditycredit finan.-edpriority programs (e.g., tree crops) may distort the capacity of producersto become financially viable. - 183 -

ANNEX 3E Page 2

4. It is estimatedthat a 100% increase in liquidityallocations to agriculture(excluding sugar) and the removal of interestrate subsidiesof 20% to the average market rate would actually decrease the weighted average interest rate paid by farmers, as many farmerswould be abl-.to switch from informal sources of credit that charge even higher interes. .tes. In addition,removal of differentialinterest rates in rural arcz3 may result in greater use of institutionalcredit for agriculturalpurposes if there is a scarcity of availablecredit. For example, in the Citanduy Farm Credit Program the interestrates charged to agriculturalactivities (24%) are lower than for nonagriculturalactivities (36%). If the rate of return on investment in the nonagriculturalactivities is higher, then there would be a greater demand for credit at the higher interestrate and, obviously,concen- tration of credit supply in these activitieswould be efficient for lenders. If this supply is limited, this would tend to reduce the support of credit for soil conservationactivities. Thus, increasingthe general availabilityof formal credit for both agriculturaland nonagriculturalactivities at similar rates to upland rural areas on Java is required for more balanced development and more widespreadadaption of conservationfarming. Making this credit availableat market or near-marketinterest rates may reduce problems of efficiencyand distortion. Furtheranalysis is required,however, to determine the optimal interest rate structure for rural credit in the uplands, especially for financing soil conservation investments in long-term improvements in farming systems. - 184 -

ANNEX4 Table 1

ISSUES IN SUSINAE DEVELOM

IrrigationEfficiencv of Waru-JayengIrrigation Scheme

Dry season Dry season Wet season Daddy crop lst mixed crop 2nd mixed crop Offtake Area supplied efficiency/ supplied efficiencyjk supplied efficiency,& location (ha) (lls ha)LA (l) (1/s ha)Z& (l) (l/s ha)La (%)

B2 288 1.28 65 0.96 47 0.90 31 B3 659 3.69 23 2.12 34 2.50 21 B4 831 2.43 24 1.29 27 1.65 31 B14 (175) (1.91) - (0.75) - (0.60) - B15 865 1.26 68 0.89 75 1.00 40 B17 101 1.25 66 1.24 52 1.45 28 B16 (346) (1.44) - (1.20) - (0.80) - B19 229 1.23 76 1.18 70 0.97 34 B21 877 1.64 57 1.14 42 1.28 31 B20 (213) (1.21) - (1.29) - (1.17) - A99 137 1.00 77 0.66 31 0.66 65 B23 270 1.24 69 (1.22) NA 1.23 30 B24 638 1.81 54 1.09 48 1.23 23 B25 739 1.87 50 1.68 34 1.59 20

Total 5.634 1L21 -4 2 3 1.43 23

/a l/s - liters per second. /b Efficiency: seasonalplant water requirementdivided by total seasonal water supplied.

Source: IIMI, 1986. - 185 - ANNEX4 Figure 1

INDONESIA ISSUESIN SUSTIJNABLEDEVELOPMENT RIw Rowe& Wate Demands on Ja

11*

- I InvowsYew R

4 N o~~~~~~~~~Po

TOWORQUIIWInti

JohFbMa, Apr Waf Ju'l A Sec~t Nov Doc Months

Wodd9nk-427562 - 186- INDONESIA ANNEX4 ISSUESIN SUSTAINABLEDEVELOPMENT Figure 2 Extentof SeawaterIntfusion under Jakaft

To~un" DM] ? S

t, :o .- sb

PCKV~~~~~~~~I

itii

IiIt~~ ~~t uIi:

pMentegtt

'I It~~~~~~~~i

itit

Ij ij~~EirnoI.js tswl,K 'I~~~1: nil t, av LZW -sn,oowre,luc - 187 - AUE 4 Figure 3

INDONESIA ISSUESIN SUSTAINABLEDELOPMENT JAVA WaterDefichs and EMciencyImphvement In Jaya

;.8

02-

_ 1 2 3 4. 5 6 8 10 1; 12 Catchment AMe (See Ted Table)

Efkcency30¶E Efcieny 80% E %& do"

WoWdSok*-4278&3 SKMAIY 0F EXISSINCSItUATION OQ COOUSY WATFR SUPPLY IN JAVA

Primarv Sourcee of Driakis Wate.rfor Urbam and Rural Houashold

PLne PuXp -Well _Sirtnz Rtver -2020rs la _ Sotl- (000) (1) (000) (1) (000) (2) (000) (S) (000) (2) (000) (2) (000) (S)

Primarv Source of-Drinkina Water for Vxbam Household bzProvince. 1980

DXI Jakarta 323.5 30 348.6 32 276.0 26 0.3 - 0.1 - 120.9 12 1,077.4 100 West Java 147.8 13 131.8 12 739.6 66 U6.8 6 12.3 1 24.4 2 1,122.8 100 Co Central Java 219.1 23 54.2 6 6,145.8 66 23.8 3 9.2 1 13.7 1 136.7 1.00 C D.I. Yogyakarta 14.4 11 3.5 3 109.2 86 0.2 - - - 0.2 - 127.6 100 East Java 419.5 36 67.6 6 641.4 55 21.3 2 5.6 - 16.1 1 1,171.5 100

Prlmar, Sirce of Dinkim Water for Rural Bouseholds, hb Province. 1980

DMa Jakarta 4.7 5 13.9 16 60.4 70 0.2 - 3.3 4 4.2 5 86.6 100 West Java 78.7 2 204.6 4 2,856.6 57 1,375.6 28 364.3 7 98. 2 4,977.9 100 CentralJava 70.1 2 60.4 1 2,731.5 63 1,053.2 24 314.8 7 119.5 3 4,349.5 100 D.I. Yogyakarta 5.5 1 2.9 - 350.1 75 55.2 12 7.9 2 43.4 9 464.9 100 eest Java 104.0 2 79.1 1 3,704.7 70 998.3 19 299.2 5 132.9 3 5,307.1 100

I& Includes e.8. collection of rain water (RMau, West Kal.imantan), purchase fran water vendor (Jakarta).

Hotes Totals may not add due to roundlng.

Sources (1980 Census, Series 8, Ho. 2) 3.f. 55 - 189 - ANNX S Table 2

INDONEJIA

ISSUES IN SUSTAINABLE DEVELOPMENT

Illustrative Costs and Standards of KiD with Sanitation Emphasis

Basic cost per ha (constant 1982 prices ) (Rp '000) (Z)

A. Costs La Access Roads, side drains, bridges 1,890 21 Footpaths, side drains 2,070 23 Main drainage 1,080 12 Sanitation Public bathing & toilet facility (MCR) 2,430 27 Solid waste (under citywide sectoral program) Water supply reticulation 900 10 Land for clinics, schools, etc. 630 7

Total 9,0001b 100 (Total in 1984 prices) (12,150)

B. Standards

Access: All dwellings within 20 m of paved footpath and within 150 m of paved road. Minimum footpath provision of 150 m/ha. Drainage: The total capacity of drains is sufficient for the discharge for the whole area. Footpaths drained with open side drains or one covered central drain. Roads have drains on each side. Sanitations One MCK Keluarga /a is provided for every seven families or five houses not already provided with private facilities. Water Supply: A pump or water connection is provided for every MCK. la Analysis is based upon poor conditions in unimproved kampungs in Cirebon, Bogor, Tangerang and Bekasi, Surakarta, Ujung Pandang and on average costs to raise conditions to the specified standards within those cities.

Sources Joint Urban Development Consultants, Cibotabek Project, and Bank staff estimates. - 190 -

"ANNEX5

INDONESIA

ISSUES IN SUSTAINABLEDEVELOPMENT

Regional Distributionof Nedium.-and Large- Scale Industries.1985 (%)

Province No. of firms Employment Value Added

Aceh 0.4 0.6 1 North Sumatra 5.3 5.2 5.1 West Sumatra 0.9 0.7 0.5 Riau 1.0 1.4 1.8 Jambi 0.8 0.8 0.7 South Sumatra 1.3 2.1 Bengkulu 0.1 0.0 0.1 Lampung 1.3 1.5 1.4 Sumatra 11.0 12.3 13.5 DKI Jakarta 13.9 13.8 18.0 West Java 24.3 23.2 25.7 CentralJava 16.8 15.9 10.3 DI Jogjakarta 1.6 1.0 0.4 East Java 23.5 24.8 22.0 Java I8Q 78.8 7L4 Bali 1.9 0.9 0.3 West Nusa Tenggara 0.6 0.2 0.1 East Nusa Tenggara 0.2 0.1 0.0 East Tim,-r 0.0 0.0 0.0

Bali=wm zz La_4 West Kalimantan 0.6 1.2 1.6 Central Kalimantan 0.6 0.9 0.7 South Kalimantan 1.1 1.4 1.7 East Kalimantan 0.8 2.0 2.8 Kalimant 31 Li6 North Sulawesi 0.6 0.3 1.5 Central Sulawesi 0.3 0.3 0.1 South Sulawesi 1.2 1.1 0.7 SoutheastSulawesi 0.5 0.1 0.0 Sulawesi L.Li Z.1 Maluku 0.3 0.5 0.3 Irian Jaya 0.2 0.1 0.4 Maluku & Irian Java

Source: IndustrialCensus, 1985. ' iDj§itggSir|gt ii i'E §g§ iI~~~~~o

0t'$

Z %-o '':.

th~~~~~~~~~~~. IBRD21082 106"30 106'45 107°00l70715, IN DON ESIA J A W A DEVELOPMENTPOTENTIAL ZONE AND WATERFLOW IMPACT JobotobekBoundory = DevelopmentZones (Potentiol) -6O00 ManufacturingIndustry Areas 6000 Municipality Boundaries Rivers

\ > s g O~~~7N F

-6 is 1aX j - *44 wz (** K = >- 6°15

cekaBe

6'30

- . , 0 5 10 15 20 25 30

KIltOMETE RS

6 45 6:45

ZONE At) D URSAN DE.EfLOPVEN' ..o- -' COWc0o. 5tS 0 ''.6 0c0 d-o 'age

5_re>t5. 'ocednC i5ZONE IV LIMITEDURBAN DEVELOPMENT oo' 50 Des_d-ea *c po.Lo-as AGRICULTUREINTENSIFICATION

Gr So t.e'. swnoeo-id _- kdct g Steeper s'op.ng zone TOr so oe cr< 9 S' Good o..'o! d'oogecl T,," e"(o ccn -9 0^ zone oso * No flood ng o-l,ed g,oo,,d~ie, oandnio deep oqg,sfers Reoso.nob!e ogs,',crwe doe to no,e ro,fol! ZONEi AGRICULTUREINT(NSIFICATION Reosonoae so bl0eo-9ngCOPOCtY L;MITED URBAN DEvECOPS;EN' L.o, s-9" a.-s ZONE V UPLAND FOREST PLANTATIONS IRRIGATION FSo '_b co 0I 0 ge AND CONSERVATION AVOID AGRICULTURE

S,,,hfI Ooa"g .INTENSIFICATIONe e tese.o..ce gied Steep -0o-.to.-ois zone esre.-o::.gwfea I .<. Roopd i 5 rofi bo -nled b) vegetoton . '-d*w'e ;esli t.' eos' 00 .. e No'.,o ioies, oeos 700 Po-,, sc "ac,' g crPo. 's Agr-.caltve -uted to coe'pleo *eu-oce cc,st.cr or ZONE i-i MAJOR URBAN DEsFEO>PVsENl Sb.ec' 'o 'o, d e-oso- forests o'o cedred AGRICU .TJRAL INtLNSIFICA iON

H.gpee' l.cds s rZ- coasif-* rJ Re-so,iob e grod en' -s- good rJa-L, d'J'JQC LC.c ood rsk ugor.d'o'ler ties' ai.d leock...

Poo'er ogr ci J'n'e n'fl rot =n*'td .W 500Cr r

Qe_,~~~~~~~~~~~~~~~~~~~~~~~~~~~*500 s0 .04..... 0560005 4. ,0. 88.eW.r.0' t600..£0y.v7FIarr;

] ',:f R:~ ~ ~ ~~~~~~~3 D645 . 7^0C 107-IS

SEPTEMBER 1988 IORD 21468

¢sm;Wu¢stnntu82...... INDONESIA (ior thet own/oen o({tAe i0r'n,7W 01 Thet i4401d...... JAWA BARAT ,,jd od te onodte thon.n.. rid gam^OuU>fft>lndoehw ...... PROVISIONALESTIMATE OF EROSIONRISK "%:;,,£v$E-7 3I.'...... (Based on Soil/Slope Conditions; Rainfall Intensity/Duration and Present Land Use)

}~~~~~gBrN - -. .

0 0andung

Erosion Risk WLowerPredominantly S.wah,Avg. Sloe- 8% nd Lo*mwRainfall

Moderate Erosion Risk Predominanvtly Protected Forest, Avg. Slape 30 %, and Mdoderte Rainfall.-

l- Higher\'/l Erosion Risk Predominantly Agriculture or Deraded Lands, Avg. Slope " 30 % and High RAinfall

Province-. - Boundary

oAerC 1989i. IBRDOl1469

INDONESIA r JAWA TENGAH PROVISIONAL ESTIMATE OF EROSION RISK (Based on Soil/Slope Conditions; 3R E°- '3ainfall Intensity/Duration and Present Land Use)

, . Semaraleti {~~~~~~~~~~~~~~~~~ftt

Purwodadi (

Surakarta

Ctlacan. ':

t - 8 - - * S ~~~~~~~~~~~~~~~~~Yogyakcarta

Lower Erosion Risk z Predominantly Sawah, Avg. Slope < 8% and Low Rainfatl t

Moderate Erosion Risk [z Predominantly Protected Forest, Avg. Slope 8-30 %, and Moderte Rainfall

;.F ' t vi Higher Erosion Risk Predomninantly Agriculture or Degraded Lands, Avg. Slope :30 % and High Rainfall

Province Boundaries

MAd 1 959 IBRD 21470

rTheqobdd h..,I INDONESIA r0,Ih ronnAen,orbcer01/4. zthe JA W A T I M U R Corpo rhton.The denntn.tlnn M. M,0 Cndp.n,.. PROVISIONAL ESTIMATF OF EROSION RISK p./o 1'SennH,d DSn ttd 1hJeb (Based on Soil/Slope Conditions; Rainfall Intensity/Duration and Present Land Use)

f . 0 Mantingan <">tt a

TulunMgung _

Lower Erosion RI k and RovPi.nf5 vz^v lp Moderate Erosion Risk- PredominantlyProtected Forest, ~J¢ Avg. Slcopea-30 X, and Moderate Rainfall> , Higher Erosion Risk . Predominantly Ariculture or Deaded Lands, Avg. Slope o30i% and High Rain all *- Province Boundary MARCH 1989 IBRD21068 I NDONESIA JAWA WATERRESOURCES MANAGEMENT SECTOR WORK MEAN ANNUAL RAINFALL

*D NationalCapitol 0 Cities

500 1000 2000 3000 4000 5000 6000 8000

0 4 80 120 160 200 KILOMETERS

FLOOD PRONEAREAS

., < FloodProne Areas

C,i ,ung R,ver 1Sunt.r RAver = Rivers - \ / gokvngRwer lekarto ,tormmR,ver * Notionol Capital

C'sadone R,ver

RiverBasin Names; Proa River_ A Jabotobek 8 Citarom J 0 C Cimanuk D Garang E BengawonSolo F Brontos * Praga 0 40 80 120 160 200 H Citanduy KILOMETERS

D*..u_e_~nTvwso* .anS r_e~n lbM.. 1 n__esa

SEPTEMBER19R88 IBRD21069 IN DONESIA J A W A WATERMANAGEMENT SECTOR WORK SUPPLY/DEMAND BALAiNCES- WITH DAMS

SevereShortage Shortage [Mild Shortage Surplus jakart No Data 1.2S V X s } \ t > - - Sub-RiverBasin Boundaries

A2o+\/ ( tz \2 -R RiverBasin Boundaries 3 * Notional Capital 0 Cities

15~~~~~~~~ W 5_v) ~~~~~~~t0X) tL~~~~ 7.2

_~~ -- ~ / T3.2 < 1. .' RiverBasins: 8

1 Bonten 7 BengowanSolo 1.1 Telukloda 7.1 BengowonSolo 1.2 Bonten 7.2 LasemUtror 2C J C 4Brontos 3 Citorum 9 Mandura 4 Cimonuk- Cisonggorung 10 PekolenSompeon 4.1 Cimonuk 10.1 PekolenSompeon Utaio 4.2 Cisonggorung 10.2 PekalenSompeon Seloton 5 PemoliComol 11 Jolim Selaton 6 Jrotunseluno 12 Progo 6.1 Koto Bodori 12.1 Progo KILOMETERS 6.2 Jratunsoluno 12.2 Opok Oyo 6.3 Murioutoro 13 Seroy- Kedu 0 40 80 120 160 200 13.1 Seroyu I I 13.2 Kedu Seloton 14 Citanduy 15 lobor Seloton

SUPPLY/DEMAND BALANCES - WITHOUT DAMS

93 Jak9rta ~ ~ J.o.- de~

3.1~~ ~ ~~~.

8 KILOMETERS ) -_2 ) 10.1 0 40 80 120 160 200 10

SEPTEMBER1988 IIRD2126 INDONESIA JAWA AVERAGEDRY SEASON COUFORM NUMBER

* Notional Capital j8 fla~ ~Sonsarang/K 0 Cities

|~~~ I2X 'y_'f >,:J

FECALCOUFORM NUMBER MnowrCoff/pol ( 10*0 10r - Sig_fico1lypolluted (1 Os. lo) Badly polluted( 10- 107)

- -- Ve-y badly polluted (1070 more)

0 40 EO 120 160 200 KILOMETERS

WATERRESOURCES MANAGEMENT SECTOR WORK AVERAGEDRY SEASON BOD CONCENTRATIONS

CGhwungRwver SunterPAver - Rivers f,J>J Jakartai h okunirr RgwertDR,ver 0 NationalCailNio Capitol

I , ] <= (CD) ndromayud R,rer anuk R,e3

Cgjdano R,r ve 8 Solo Rwer

CitonduyRisr H 't s Rv River Basin: Progo R,,er ' c / A Jabotabek B Citorum SODCONCaENTRATIOS C Cimanuk N J D Garong Minor polluIn (1 - 3 mg/AI E Bengawan Solo SIgfcOty polluted (3 -6 mg/I) f Brontas Bodlypolluted (over 6 mg/I) * Progo * Citonduy 0 40 0o 120 160 200 n..en 'a tea, a, en. , _ , KILOMETERS __eC r___n _,w.4.,dre..,a,.,re.eN M 9

NOVEMBER1988