World Bank Document

Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No: 36122-ID

PROJECT APPRAISAL DOCUMENT

ON A Public Disclosure Authorized

PROPOSED LOAN

IN THE AMOUNT OF US$208 MILLION

TO THE

REPUBLIC OF INDONESIA

FOR A

STRATEGIC ROADS INFRASTRUCTURE PROJECT Public Disclosure Authorized

June 2,2006

Transport Sector Unit East Asia and Pacific Region

Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective June 1,2006) Currency Unit = Indonesian Rupiah IDR 1,000 = US$O.111 US$ = IDR9,OOO

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS AADT Annual Average Daily Traffic ACAP Anti Corruption Action Plan ADB Asian Development Bank AMDAL Analisa Mengenai Dampak Lingkungan (Environmental Impact Assessment) Bappenas Badan Perencanaan Pembangunan Nasional (National Development Planning Agency) Bapedalda Badan Pengendalian Dampak Lingkungan Daerah (Local Environmental Impact Management Agency) BPK Supreme Audit Institution Capex Capacity expansion CTC Core Team Consultant DGH Directorate General of Highways, Ministry of Public Works DGLT Directorate General of Land Transport DOP Directorate of Planning, Ministry of Public Works DSC Design and Supervision Consultant EIRTP- 1 Eastern Indonesia Region Transport Project EIRTP-2 Second Eastern Indonesia Region Transport Project ESAMP Environmental and Social Assessment Management Plan GO1 Government of Indonesia ICB International Competitive Bidding JARNS Java Arterial Road Network Study JBIC Japan Bank for International Cooperation KPK Anticorruption Commission LARAP Land Acquisition and Resettlement Action Plan LARF Land Acquisition and Resettlement Policy Framework MPW Ministry of Public Works MOT Ministry of Transport NCB National Competitive Bidding PAP Project Affected Person PBC Performance Based Contract POLRI Indonesian National Police PSC Project Steering Committee SOP Standard Operational Procedure SRIP Strategic Roads Infrastructure Project SRRP Sumatra Region Roads Project UKL Upaya Pengelolaan Lingkungan (Environmental Management Effort) UPL Upaya Pemantauan Lingkungan (Environmental Monitoring Effort) WP Work Program Acting Vice President: Mr. Jeffrey S. Gutman, EAP Country Director: Mr. Andrew Steer, EASIN Sector Director: Mr. Jitendra N. Bajpai, EASTR Task Team Leader: Mr. Jerry Lebo, EASTR INDONESIA Strategic Roads Infrastructure Project

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and sector issues ...... 1 2 . Rationale for Bank involvement ...... 3 3 . Higher level objectives to which the project contributes ...... 3 B. PROJECT DESCRIPTION ...... 5 1. Lending instrument ...... 5 2 . Project development objective and key indicators (Annex 3) ...... 5 3 . Project components ...... 5 4 . Lessons learned and reflected in the project design ...... 6 5 . Alternatives considered and reasons for rejection ...... 7 C . IMPLEMENTATION ...... 8 1. Partnership arrangements (if applicable) ...... 8 2 . Institutional and implementation arrangements ...... 8 3 . Monitoring and evaluation of outcomes/results ...... 9 4 . Sustainability ...... 9 5 . Critical risks and possible controversial aspects ...... 9 6 . Loadcredit conditions and covenants ...... 10 D. APPRAISAL SUMMARY ...... 12 1. Economic and financial analysis ...... 12 2 . Technical ...... 13 3 . Fiduciary ...... 13 4 . Social ...... 15 5 . Environment ...... 16 *. 6 . Safeguard policies ...... 17 7 . Policy Exceptions and Readiness ...... 19 FOR OFFICIAL USE ONLY This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Annex 1: Country and Sector Background...... 21 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 27 Annex 3: Results Framework and Monitoring ...... 30 Annex 4: Detailed Project Description ...... 34 Annex 5: Project Costs ...... 40 Annex 6: Implementation Arrangements ...... 42 Annex 7: Financial Management and Disbursement Arrangements ...... 45 Annex 8: Procurement Arrangements ...... 55 Annex 9: Economic and Financial Analysis ...... 61 Annex 10: Safeguard Policy Issues ...... 67 Annex 11: Project Preparation and Supervision ...... 90 Annex 12: Documents in the Project File ...... 92 Annex 13: Statement of Loans and Credits...... 93 Annex 14: Country at a Glance ...... 98 Annex 15: Anti-Corruption Action Plan ...... 100

Maps: IBRD 34582,34583,34584,34585,34586,34587, 34588 INDONESIA

STRATEGIC ROADS INFRASTRUCTURE PROJECT

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASTR

Date: June 2,2006 Team Leader: Jerry A. Lebo Country Director: Andrew D. Steer Sectors: Roads and highways (100%) Sector ManagedDirector: Jitendra N. Bajpai Themes: Trade facilitation and market access (P); Decentralization (S); Infrastructure services for private sector development (S) Project ID: PO79906 Environmental screening category: Full Assessment Lending Instrument: Specific Investment Loan

[XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 208.00 Proposed terms: Variable-Rate Single Currency Loan payable in 20 years, including 5 years of grace and annuity principle repayment, at a rate equal to LIBOR for the Loan Currency plus the Variable Spread, subject to any waiver of a portion of such interest as may be determined by the Bank from time to time.

Source Local Foreign Total BORROWER 79.00 0.00 79.00 INTERNATIONAL BANK FOR 0.00 208.00 208.00 RECONSTRUCTION AND I I I DEVELOPMENT Total: 79.00 208.00 287.00

Borrower: Republic of Indonesia

Responsible Agency: Ministry of Public Works J1. Pattimura No. 20 Jakarta Selatan 12 110 Indonesia Tel: (62-2 1) 720-028 1 727-658 1 Fax: (62-21) 720-1760,727-9232 Contact: Mrs. Sri Apriatini Soekardi, Director of Planning, Directorate General of Highways Expected effectiveness date: November 1,2006 Expected closing date: December 3 1,201 1 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Ref: PAD A.3 Does the project require any exceptions from Bank policies? Ref: PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XlYes [ ]No Ref: PAD C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD D. 7 Project development objective Ref: PAD B.2, Technical Annex 3 The objective ofthe Project is to improve economic competitiveness by improving the capacity and quality of strategic national roads on the Borrower’s islands ofJava and Sumatra, improving road safety and increasing the efficiency, quality and transparency ofworks procurement and implementation in Indonesia’s Ministry ofPublic Works.

Project description [one-sentence summary of each component] Rex PAD B. 3.a, Technical Annex 4

The US$287 million Project includes the following components (front end fee cost excluded):

Component 1- Improvements to Strategic National Roads (US$262. I million). This component consists of

(a) Betterment of approximately 155 kilometers of urban and inter-urban roads;

(b) Expansion ofroad capacity on approximately 85 kilometers ofurban and inter-urban roads, including bridges;

(d) Construction of a new bridge of approximately 50 meters on an inter-urban road; and

(e) Implementation ofa Performance-Based Contract Pilot Program on an approximately 110 kilometer section of the North Java Corridor, involving betterment ofapproximately 10 kilometers and maintenance of approximately 1 10 kilometers. Component 2- Implementation Support (US$20.1 million). This component consists of

Suppoft to the Directorate df Planning ofMPW and the PMU in Project implementation, including environmental management, project performance monitoring, implementation ofthe Anti-Corruption Action Plan, financial management monitoring and reporting.

Assistance to MPW in the design of works, pre-contract activities, supervision of construction and implementation management for Sub-Projects;

Assistance to MPW in preparation and implementation ofthe Performance-Based Contract Pilot Program;

Assistance to MPW in the procurement of consultancy services and works, including in implementation ofthe Anti-Corruption Action Plan; and

Assistance to MPW in carrying out financial and technical audits on Project works.

Component 3 - Road Sector Institutional Development (US$4.1 million). This component consists oftwo aspects ofthe required to support the road sector in Indonesia:

(a) Supporting Indonesia’s overall road safety strategy (US$3.5 million) by developing: (i) an integrated road safety strategy and long-term plan, including an institutional framework; and (ii)a pilot integrated road accident database/analysis system, and establishing self-sustaining personnel development procedures for traffic police; and

(b) Training ofProject staff (US$ 0.6 million) in the application ofthe Project Management Manual, including procedures on procurement, financial management procedures, reporting procedures, and in the application ofthe Anti-Corruption Action Plan and the Environmental and Social Assessment Management Plan.

Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10

Environmental Assessment (OP/BP/GP 4.0 1) Cultural Property (OPN 11.03, being revised as OP 4.1 1) Involuntary Resettlement (OP/BP 4.12)

Significant, non-standard conditions, if any, for: Re$ PAD C. 7 Board presentation: There are no conditions for Board presentation.

Loadcredit effectiveness: The Additional Conditions of Effectiveness consist ofthe following:

(a) The detailed engineering designs and bid documents for Work Program -1, in each case satisfactory to the Bank, shall have been adopted by the Borrower; (b) The Project Implementation Plan satisfactory to the Bank shall have been adopted by the Borrower; (c) The Project Management Manual satisfactory to the Bank shall have been adopted by the Borrower; and (d) The Borrower shall have shortlisted the Financial Management Experts in accordance with the Procurement Plan and the provisions ofthe Loan Agreement.

OTHER: I 1. (a) The Borrower shall engage a Procurement Agent in accordance with the Procurement Plan and the provisions of the Loan Agreement to assist the Borrower in the selection and employment ofthe DSC, CTC and Procurement Advisor in accordance with the Procurement Plan. I (b) Except as the Bank shall otherwise agree, the Borrower shall (i)retain the services ofthe Procurement Agent until completion of all procurement activities for the DSCs, CTC and Procurement Advisor consultants’ services under the Project; and (ii)take all such steps as are necessary to ensure that the Procurement Agent is permitted to provide its services in accordance with its contractual terms of reference.

2. (a) The Borrower shall engage a Procurement Advisor in accordance with the Procurement Plan and the provisions of the Loan Agreement to assist the Borrower in the procurement in accordance with the Procurement Plan ofworks for all Sub-Projects.

(b) Except as the Bank shall otherwise agree, the Borrower shall (i)retain the services ofthe Procurement Advisor until completion ofall procurement activities for works under the Project; (ii)ensure that the Procurement Advisor shall at all times during Project implementation provide reports directly to DOP and shall provide a copy directly to the Inspectorate General in MPW and the Bank; and (iii)take all such steps as are necessary to ensure that the Procurement Advisor is permitted to provide his services in accordance with its contractual terms ofreference.

3. The Borrower shall engage a Public Notary with terms ofreference satisfactory to the Bank to assist the Borrower in the procurement ofworks for Sub-projects under WP-1 and for consulting services where the Procurement Agent is not involved, in accordance with the Procurement Procedures set out in the Loan Agreement.

4. The Borrower shall carry out at regular intervals during Project implementation, risk- based internal audits of financial controls and technical audits ofselected road sections to determine if the quality ofconstruction meets the specifications and technical standards included in the bidding documents and contracts. Such audits shall be carried out in accordance with terms ofreference satisfactory to the Bank and the schedule set forth in the Project Management Manual. Copies ofthe reports from such audits shall be made available to the Bank promptly upon their completion. Should either the Borrower or the Bank determine that any such audit identifies any significant lapse in internal controls, quality of outputs realized or any significant delav in execution ofthe works contracts under the Proiect. the Borrower shall DreDare and submit to the Bank for its review and comments a time-bound action plan for remedy ofthe identified problems; and shall, promptly after the Bank has discussed the results of its review with the Borrower, take all necessary action to carry out the time-bound action plan, taking into account the Bank’s comments on such plan.

5. The Borrower through MPW shall make publicly available promptly after receipt all final financial audit reports (including qualified audit reports) and all technical audit reports for the Project prepared in accordance with the Loan Agreement and all formal responses ofthe Borrower in relation to such reports. The Borrower shall ensure that MPW shall place the information provided for in this paragraph on the MPW official website (http://www.pu.go.id, or any successor website thereto) within one month ofthe report being accepted as final by the Borrower.

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

Indonesia's economic performance has stabilized in recent years with Gross Domestic Product (GDP) growth in 2006 expected to remain around 5-6 percent. Inflation is expected to continue to decline, as the impact ofthe 2005 fuel price increases disappears. Efforts are underway to address the long needed reform agenda in key sectors, such as judiciary and legal, as well as to improve economic legislation. Decentralization efforts, which started five years ago, are beginning to take root.

There has also been good progress in non-economic areas. The anti-corruption campaign has continued with a growing number ofprosecutions (and convictions) for corruption. The Anti- corruption Commission is playing a leading role in this area and in broader reform, including, most recently, taking the lead in a proposal for fundamental civil service reform. The Supreme Audit Agency has continued breakthrough audits (including dissemination ofresults) on government agencies and public enterprises. In addition, a peaceful process ofregional direct elections has continued.

Sector Issues

Since the end ofthe financial crisis, infrastructure investment has lagged behind needs and more investment in key infrastructure sectors is considered necessary if the Government's growth targets are to be met. Between 1975 and 1997, Indonesia enjoyed more than 30 years ofrobust growth and decreasing poverty rates from 64 to 17 percent, in part due to the high spending on infrastructure. Better road networks, larger and more efficient harbors and airports, improved supply systems for electricity and water and more extensive flood mitigation measures are areas where investment is needed in the near-term.

Transport is of key importance to the performance of the Indonesian economy, particularly the road sector, which accounts for the major share of domestic freight and inter-urbanpassenger land travel. Enhanced international competitiveness, as well as the availability and affordability of goods and services within the economy (especially access to basic services in isolated areas) rely on efficient functioning ofthe transport sector.

Transport demand in Indonesia has been growing faster than GDP for nearly a decade and traffic levels are now above pre- 1997 levels. Congestion on the arterial road network is a widespread problem, especially on Java. For the foreseeable future, traffic growth can be expected to increase at 1-1.5 times GDP growth rates (roughly seven to 10 percent per annum). The national road network of about 34,628 kilometers of national arterial roads consists of about 27,000 kilometers, about 649 kilometers oftoll roads, and about 8,000 kilometers of unclassified /strategic roads.

1 A summary ofkey road sector issues includes:

On Java, roads are approaching capaciQ, thereby hindering economic growth; conversely, lack of basic road access is hindering growth on the eastern islands, particularly for the rural poor. It is expected that about 55 percent ofthe arterial network in Java will be congested by 20 10. The coverage and quality of local roads remain inadequate to service the eastern region and Kalimantan where poverty is high.

Maintenance is reasonable for national roads but poor on provincial and rural roads, Over half ofthe provincial and local roads are in good/fair condition, compared to around 80 percent for national roads.

Growing backlog of investment requires increasedjhancingfrom each level of government and the private sector. Despite higher budget allocations since the 1997 crisis, the backlog of construction and rehabilitation is estimated as IDR 17 trillion, posing an imminent crisis. The plan to build more than 1,000 kilometers ofexpressway with private participation has a number ofproblems, including land acquisition and related financing.

Traffic Growth. Traffic growth is increasing by seven to 10- percent per annum with a consequential increase in road accidents. In 2005, there were some 30,000 reported fatal accidents.

Corruption remains an endemic problem. Collusion in procurement of works and services is rampant at both local and national levels, while sanction mechanisms are weak.

The World Bank assists Government with its review ofthe country sector strategy and progress in achieving its vision for the sector. The findings and recommendations ofthis collaboration are well presented in the Bank’s publication “Indonesia: Averting an Infrastructure Crisis: A Framework for Policy and Action”, June 2004 and “A Road to Economic Growth: Strategic Priorities for the Road Sector in Indonesia” issued by the World Bank in partnership with Japan Bank for International Cooperation (JBIC) and the Asian Development Bank (ADB) in January 2005. The key areas ofaction identified in these documents include: (a) the need to establish a stronger public policy for planning and managing the road sector, with focus on improved service and development impact; (b) the need to establish a sustainable financing policy, with appropriate cost recovery from users and sound framework for private sector participation; and (c) the need to improve the efficiency in implementation ofpublic infrastructure programs, including competitive prices, transparent transactions, and sustainable quality.

Bank Sector Strategy

In recent years the Bank, through its steady engagement with the Government, has financed critical investments and has nurtured key reforms and good practices including the creation of a Toll Road Authority (BPJT) and making the previous regulator/operator, Jasa Marga, an operator only. The Bank has further supported the design ofa standard concession model for toll roads,

2 road asset management framework, planning capacity building at provincial and Kabupaten (district) levels, options for establishing a road fund, plan for Java Arterial Road Network Development Study (JAWS), Land Transport Development Plan (LTDP), Road User Taxation (Charges) in the highway sector, and pilots on the enforcement of vehicle overloading rules. The Bank’s aim is to assist in improving existing road capacity in Java, Sumatra (Sumatra Region Roads Project), and in the eastern islands (Eastern Indonesia Region Transport Project [EIRTP- 17 and Second Eastern Indonesia Region Transport Project [EIRTP-21).

Among the Bank’s three currently planned transport sector operations, two will focus on reducing the critical bottlenecks in national roads, and one will nurture expressway development in Java by developing an expressway plan, financing land and supporting transparent award of concessions, in accordance to the integrated national development planning and policy for land transport development plan and nationalhegional intermodal transportation system. The institutional agenda will complement the planned investments including the anti-corruption practices in partnership with ADB, JBIC and Ausaid, the three key donors in the sector. This proposed Strategic Roads Infrastructure Project will further strengthen procurement and anticorruption measures.

2. Rationale for Bank involvement

The rationale for Bank involvement is based on the need to support the economic growth and competitiveness of Indonesia by eliminating traffic bottlenecks along strategic road corridors and enhancing road sector management capacity. Through its development and implementation of a comprehensive Anti-Corruption Action Plan (ACAP) the Project will help to build institutional capacity for efficient, effective procurement, both within the Project and beyond. The Bank has extensive experience in the road sector in Indonesia having supported numerous projects and technical assistance support programs over the last several decades. The Project is a logical continuation to the Strategic Urban Roads Infrastructure Project (Loan 4054-IND) which successfully reduced traffic bottlenecks in selected areas in North Java and the Second Highway Sector Investment Project (Loan 37 12-IND) which addressed road maintenance and capacity expansion, as well as sector reforms.

3. Higher level objectives to which the project contributes

The Country Assistance Strategy (CAS) discussed by the World Bank Board of Executive Directors on November 25,2003 (Report No. 27108-IND October 29,2003) focuses on assistance to Indonesia to overcome the low rate ofinvestment and to improve the public service environment, two major impediments to reducing poverty. The objectives ofSRIP are fully consistent with, and give substantial support to, two ofthe five areas identified as essential to raise investment and improve services, namely, fostering a competitive private sector and expanding Indonesia’s infrastructure. A CAS Progress report is under preparation and is scheduled to be presented to the Board in 2006. The Project contributes to the Government’s overall poverty reduction and growth strategy by supporting rapidly rising transport demand and alleviating congestion along key transport corridors, particularly in Java. More than 58 percent of Indonesia’s population is in Java and 21 percent in Sumatra. About two-thirds ofthe Project

3 beneficiaries are located in Central and West Java. It is estimated that 40 to 45 million people are likely to benefit from the Project.

4 B. PROJECT DESCRIPTION

1. Lending instrument

The Project will be financed with a specific investment loan. The Borrower has selected a Variable-Rate Single Currency Loan payable in 20 years, including 5 years of grace and annuity principle repayment, at a rate equal to LIBOR for the Loan Currency plus the Variable Spread, subject to any waiver of a portion of such interest as may be determined by the Bank from time to time.

2. Project development objective and key indicators (Annex 3)

The objective ofthe Project is to improve economic competitiveness by improving the capacity and quality of strategic national roads on the Borrower’s islands of Java and Sumatra, improving road safety and increasing the efficiency, quality and transparency ofworks procurement and implementation in Indonesia’s Ministry ofPublic Works.

The key performance indicators for the above development objective are: (a) percentage reduction in travel times on Sub-project roads; (b) annual average daily traffic (AADT) on Sub-project roads relative to forecast flows as reported in the Project Implementation Plan; (c) Performance-Based Contract Pilot Program implemented as designed; (d) Road safety studies and pilot program carried out as designed; (e) Anti-Corruption Action Plan implemented and construction supervision carried out as designed (percentage ofnew contracts fully compliant with no breaches); (0 number oftechnical audits carried out; and (g) number ofkilometers of betterment, capacity expansion, and new roads constructed, and number ofmeters ofbridges completed.

3. Project components

The US$287 million Project includes the following components (front end fee cost excluded):

Component 1- Improvements to Strategic National Roads (US$262.1 million). This component

Betterment of approximately 155 kilometers of urban and inter-urban roads;

Expansion of road capacity on approximately 85 kilometers of urban and inter- urban roads, including bridges;

Construction of approximately 55 kilometers of new urban and inter-urban roads, including bridges;

Construction of a new bridge ofapproximately 50 meters on an inter-urban road; and

5 (j) Implementation of a Performance-Based Contract Pilot Program on an approximately 110 kilometer section of the North Java Corridor, involving betterment of approximately 10 kilometers and maintenance of approximately 110 kilometers.

Component 2- Implementation Support (US$20.1 million). This component consists of:

(9 Support to the Directorate of Planning of MPW and the PMU in Project implementation, including environmental management, project performance monitoring, implementation of the Anti-Corruption Action Plan, financial management and monitoring, evaluation and reporting;

(g) Assistance to MPW in the design of works, pre-contract activities, supervision of construction and implementation management for Sub-Projects;

(h) Assistance to MPW in preparation and implementation of the Performance-Based Contract Pilot Program;

(i) Assistance to MPW in the procurement of consultancy services and works, including in implementation of the Anti-Corruption Action Plan; and

(j) Assistance to MPW in carrying out financial and technical audits on Project works.

Component 3 - Road Sector Institutional Development (US4.1 million). This component consists of two aspects of the required support to the road sector in Indonesia:

(a) Supporting Indonesia’s overall road safety strategy (US$3.5 million) by developing: (i)an integrated road safety strategy and long-term plan, including an institutional framework; and (ii)a pilot integrated road accident database/analysis system, and establishing self-sustaining personnel development procedures for traffic police; and

(b) Training of Project staff (US$0.6 million) in the application of the Project Management Manual, including procedures for procurement, financial management, and reporting, and in the application of the Anti-Corruption Action Plan and the Environmental and Social Assessment Management Plan.

4. Lessons learned and reflected in the project design

Readinessfor Implementation. Based on experience in implementing SW,EIRTP-1 and 2, the first annual work program of civil works, as well as terms of reference and requests for proposals for technical assistance should ideally be ready for implementation not later than Project negotiations. This is expected to speed up implementation and disbursements.

6 Quality of Engineering Designs. In the past, there have been some concerns relating to the quality of some detailed engineering designs. To improve quality under SRIP , the engineering designs have been reviewed by international consultants and the Bank.

Quality of Construction. Quality ofworks has been an issue in past projects. This Project will emphasize improving the quality control of construction primarily through: (a) strengthening the powers and authority ofthe Design Supervision Consultant who will be designated as “Engineer”; (b) carrying out independent technical audits; and (c) implementating of an Anti- corruption Action Plan.

Corruption and Collusion. This Project addresses the risk ofcorruption and collusion through an Anti-Corruption Action Plan which builds on the one for EIRTP-2 (Annex 15).

Sustainability. The Project includes a pilot program to introduce performance-based contracting for road maintenance and rehabilitation to improve quality of construction, reduce corruption and increase value for money spent.

Safeguards. Environmental agencies at the provincial and kabupaten levels need strengthening and must be more involved in planning and monitoring road programs. SRIP includes training to pertinent provincial and Kabupaten environmental agencies (Bapedaldas) to improve their capacity and help them assume a larger role in monitoring safeguards. Land acquisition tends to start late in the project cycle and is frequently not completed before a contract begins. SRIP will require that the necessary land be acquired and compensation completed before contract signature.

5. Alternatives considered and reasons for rejection

The main alternative to the Project would be to develop the Trans Java Highway (primarily as toll roads) along a new alignment, rather than add capacity to the existing road corridor. While some sections ofthe alternative corridor already exist, the majority could not be realized until around 2010-20 15. Meanwhile, traffic along the existing roads will continue to increase, traffic speeds and quality oftraffic service will continue to decrease, and traffic accidents will continue to rise, unless those roads are widened or alternate routes around congested areas are built. Further, according to the Bank-financed Java Arterial Roads Network Study (JAWS, 2001) and the other studies under the Strategic Urban Roads Infrastructure Project, the proposed toll road developments are expected to divert 30 percent or less of the traffic on existing parallel roads (such as SRIP Sub-Projects). This is due to the fact that tolls discourage diversion oftraffic and most ofthe traffic volumes along this corridor involve short to medium lengthjourneys, which are not likely to divert to toll roads. However, the impact ofthe proposed toll roads was assessed in determining the level of improvement for each pertinent SRIP Sub-project. The Bank is supporting development ofthe Trans Java Highway in parallel to the SRIP project.

Geographic coverage. Initially, SRIP was to cover national roads throughout Indonesia. However, since funds are limited, it was decided to limit SRIP to Java and Sumatra. These two islands (especially Java) contain large populations and significant economic activity, in addition to having the most congested roads in Indonesia. Further, restricting SRIP to these islands

7 reduces resources needed for proper management, and supervision of construction and allows sharper focus n issues and rapid problem solving.

Design Alternatives. At the Sub-project level, alternatives ranged from betterment (strengthening and pavement overlays and minor widening), major widening and traffic management to increase traffic capacity and improve road safety, and new bypasses around constricted road sections. Various possible design cross-section alternatives were also evaluated for each Sub-project based on existing and projected traffic volumes and cost-benefit analyses of such investments. Considerations of availability of right-of-way or the difficulty in obtaining required right-of-way, as well as the results of consultations with local people and government agencies, were key factors in determining capacity expansion Sub-Projects, including whether widening would be done on both sides, to the left or to the right ofthe existing alignments.

C. IMPLEMENTATION

1. Partnership arrangements

The Government has established an umbrella Steering Committee (SC) to guide and oversee the development ofroad infrastructure and road traffic and transport. The SC reports to the Ministerial-level Committee on Policy for the Acceleration of Infrastructure Development, which is chaired by the Coordinating Minister for the Economy, through the Sub-committee on Planning and Investment. The Sub-committee is chaired by Bappenas’ Deputy for Infrastructure, who also chairs the roads steering group. The Steering Committee has appointed the Directorate General ofHighways (DGH) within MPW as the Executing Agency for the Project.

A number of organizations will be involved in the Project. These include Bappenas, Ministry of Finance (approval of Project’s budget, administration of special account and loan account), Ministry of Home Affairs (facilitation ofprovincial participation and coordination), Bapeda Province (coordination ofprovincial activities), Bapedalda Province (environmental overview), Directorate General of Land Transport in the Ministry of Transport and Directorate ofTraffic Police in the Indonesian National Police (overview oftraffic and safety aspects including overloading and traffic control devices), and local communities and non-governmental organizations (represent local intere’sts as stakeholders, assist in minimizing corruption, participate in procurement committees and attend bid processing).

2. Institutional and implementation arrangements

The Ministry of Public Works is the executing agency through the DGH. The Directorate of Planning (DOP) within the DGH is the implementing agency and will be responsible for the day- to-day activities and has established a Project Management Unit (PMU) to be responsible for managing all activities ofthe Project. Direct responsibility for project implementation will be shared between the agencies responsible for each road. The Project Organization Chart is shown in Annex 6.

The DOP and its PMUwill be supported by Core Team Consultants (CTC), who will assist with all aspects of project and financial management, monitoring, evaluation and reporting, and

8 ensure that they are properly undertaken in a timely fashion. The CTC will assist with detailed project preparation for Work Program-3 ofthe Project, and assist in the management ofthe Design and Supervision Consultants (DSCs) in the detailed design ofthese programs. CTC will closely liaise with DSCs and other consultants employed under the Project.

The DSCs will be appointed by DGH to assist the immediate Project Managers, appointed by the central Government, in all aspects ofthe design, procurement and implementation ofthe civil works. The DSCs will be the supervision engineer for all works contracts. The DSCs will have a main office in Jakarta and provincial and site offices to provide full regional support for the Project. The terms ofreference for CTC and DSCs are available in the project files as well as the Project Implementation Plan and Project Management Manual.

3. Monitoring and evaluation of outcomes/results

The DOP is the implementing agency and will monitor the overall performance of the Project and its implementation. This includes: (a) the extent to which project objectives are being achieved, (b) the administrative, physical and financial progress ofimplementation ofthe project components; and (c) the extent to which required implementation procedures are being complied with.

4. Sustainability

The sustainability ofProject investments will be determined by the quality achieved and the availability of funds for maintaining the completed works. The Project will improve quality through: (a) a performance-based contracting approach that strengthens accountability and the authority to enforce contracts, whereby supervision engineers can reject defective work and withhold payment for such works; (b) the procurement ofqualified contractors and supervising engineers; (c) the training (both formal and on-the job) ofpublic works staff and contractors; (d) carrying out oftechnical audits; and (e) implementation ofan Anti-Corruption Action Plan to reduce the chances for fraud and corruption (Annex 15).

For the technical assistance components ofthe Project, sustainability will be highly dependent on the level of ownership and buy-in by the concerned agencies. The past performance of DGH/ MPW in these areas has been generally good, however still uneven.

5. Critical risks and possible controversial aspects

The overall risk rating for the Project is high and is considered high risk for corruption. An enhanced Anti-Corruption Action Plan has been agreed with Government as a key item to moving forward on the Project. The Project does not have any controversial aspects. Its investments are straightforward and its technical approach is based on standard approaches, which build on existing Government programs.

9 Risk Rating Mitigat ion

Corruption compromises the S MPW will implement the ACAP shown in Annex 15. project quality and impact Difficulties in acquiring land H (a) The Land Acquisition plans for Work Program-1 have and resettlement been adopted and the land acquisition process is underway; (b) reasonable budgets will need to be provided; and (c) civil works contracts will be signed only after completion of land acquisition and payment of compensation. Delay in procurement (a) A Procurement Plan has been developed and will be fiupdated annually; (b) a Procurement Agent will be appointed to assist DGHI DOP in selection of consultants; (c) CTC and DSCs are required to be in place prior to award of works contracts; and (d) training in procurement will be provided to procurement committees. Inadequate capacity to execute M PMU is organized based on EIRTP-2 model and supported Project by consultants Effective coordination among M Partnership approach was adopted during preparation and Project agencies effective management arrangements were built on lessons learned from SRRP and EIRTP. Poor attention to environmental M (a) Implementation of the ESAMP and agreed land management acquisition and resettlement framework based on previous project experience; (b) DSC will exercise more effort on environmental supervision and CTCs will follow up on safeguards during implementation; and (c) active involvement of provincial environmental agencies (Bapedaldas) in monitoring activities and training of their staff Support to road safety strategy is included in the Project including support to traffic police activities H = High; M = Moderate, S= Substantial)

6. Loan conditions and covenants

1. Effectiveness Condition

The additional conditions of effectiveness are:

(a) The detailed engineering designs and bid documents for Work Program - 1, each satisfactory to the Bank, shall have been adopted by the Borrower;

(b) The Project Implementation Plan satisfactory to the Bank shall have been adopted by the Borrower;

10 (d) The Borrower shall have shortlisted the Financial Management Experts in accordance with the Procurement Plan and the provisions ofthe Loan Agreement.

The additional legal matter to be included in the legal opinion consists ofthe following: the Environmental and Social Assessment Management Plan and the Anti-Corruption Action Plan have been adopted by the Borrower and are legally binding.

2. Key Legal Conditions

The Borrower shall engage a Procurement Agent in accordance with the Procurement Plan and the provisions of the Loan Agreement to assist the Borrower in the selection and employment ofthe DSC, CTC and Procurement Advisor in accordance with the Procurement Plan.

Except as the Bank shall otherwise agree, the Borrower shall (i)retain the services ofthe Procurement Agent until completion ofall procurement activities for the DSCs, CTC and Procurement Advisor consultants’ services under the Project; and (ii)take all such steps as are necessary to ensure that the Procurement Agent is permitted to provide its services in accordance with its contractual terms of reference.

The Borrower shall engage a Procurement Advisor in accordance with the Procurement Plan and the provisions ofthe Loan Agreement to assist the Borrower in the procurement in accordance with the Procurement Plan ofworks for all Sub-Projects.

Except as the Bank shall otherwise agree, the Borrower shall (i)retain the services ofthe Procurement Advisor until completion ofall procurement activities for works under the Project; (ii)ensure that the Procurement Advisor shall at all times during Project implementation provide reports directly to DOP and shall provide a copy directly to the Inspectorate General in MPW and the Bank; and (iii)take all such steps as are necessary to ensure that the Procurement Advisor is permitted to provide his services in accordance with its contractual terms of reference.

11 identifies any significant lapse in internal controls, quality of outputs realized or any significant delay in execution ofthe works contracts under the Project, the Borrower shall prepare and submit to the Bank for its review and comments a time-bound action plan for remedy ofthe identified problems; and shall, promptly after the Bank has discussed the results of its review with the Borrower, take all necessary action to carry out the time-bound action plan, taking into account the Bank’s comments on such plan.

D. APPRAISAL SUMMARY

1. Economic and financial analysis

Economic Analysis (Select Cost Benefit) NPV= US$ Million 309.6; EIRR = 41 percent The Highway Development and Management Model was used to perform the economic evaluation of the Project. An economic evaluation was undertaken for: (a) each Sub-project; (b) for the proposed three Work Programs (WPs); and (c) for the Project as a whole. The results of the evaluation ofeach Sub-project are presented in Annex 9 using the following three economic indicators: (a) Net Present Value; (b) Economic Internal Rate ofReturn (EIRR); and (c) First Year Rate of Return (FYRR). The EIRR results for each annual work program by type ofwork are shown below.

WORK TYPE Economic Internal Rate Capacity Bridge/ of Return (EIRR) Betterment ExDansion New Roads Flvover Annual Work Program 34% 55% 28% - WP 1 34% 32 yo 43 yo 27% WP 2 60% 79% 49% 31% WP 3 51% 72 yo 79%

A sensitivity analysis was undertaken to measure the impact of significant changes in the user benefits and project costs. These results show that most ofthe Sub-projects remain economically viable even in the low-case scenario, which reflects a 20 percent increase in construction costs and a 20 percent reduction in overall benefits.

12 2. Technical

The civil works ofthe Project involve road betterment, some periodic maintenance ofexisting rights-of-way, some road widening from two lanes to four lanes, and new rights-of-way/bypass construction. Generally, the works pose no significant technical problems, although in some areas ofhighly plastic swelling and shrinking soil, special construction techniques will be employed. Performance-based Contracting will be applied for the first time in Indonesia. To increase support by the pertinent agencies, workshops have already been held in a number of locations in Indonesia in preparation for the contracts. Also, a study ofthis issue including impacts on Government agencies was carried out by consultants from New Zealand. There are no major technical issues and the significant factor will be the agreement ofthe Ministry of Finance to ensure funds are available for the full implementation period ofthis contract.

3. Fiduciary

Financial Management (Annex 7). The Financial Management assessment for the Project was carried out in accordance with the Financial Management Practices in World Bank- Financed Investment Operations issued by the Bank’s Financial Management Sector Board on November 3,2005. The Bank reviewed the financial management capacity and procedures of the Directorate General Highways (DGH) of the Ministry ofPublic Works (MPW) as the executing agency. The Bank’s team visited DGH at the central level, and the public works offices at the provincial level in Pantura, DKI Jakarta, West Java, Central Java, East Java, Riau; and Traffic Directorate of Indonesian Police. In addition, the Bank also met with representatives from the civil engineering faculty ofBandung Institute of Technology and Riau University.

The financial management capacity assessment notes that the Directorate of Planning ofDGH, MPW has considerable prior experience in managing Bank-financed projects, and sufficient capacity to implement the Project and financially account for it. Such capacity is however variable at the province Public Works office locations. It is noted that the internal control environment in the implementing agencies is relatively weak, which is in part reflected in the relatively high incidence of fraud and corruption problems reported in previous projects in this sector. This was particularly so in civil works expenditures, which form a large part ofproject expenditures in this Project. Finally, substantial inherent risks arise at country and entity levels, due to the weak country control environment overall, although financial management reforms are making headway very gradually. To the extent that this Project will rely on financial management systems and procedures ofthe Government, fiduciary risks will arise. Taking all these factors into consideration, the overall Financial Management risk ofthe Project is rated as “substantial”.

A Financial Management Action Plan has been developed in consultation with the Directorate of Planning to help mitigate the identified financial management risks. This action plan includes strengthened internal controls through regular technical and financial audits of Project activities, strengthened payment validation procedures to reduce risks offraud, segregation of some financial functions from the rest ofProject management to maintain checks and balances, documentation of Project and financial management procedures in a manual to guide Project staff, and steps to train Project staff in financial management procedures.

13 This assessment has concluded that, after the implementation ofthe actions stated in the Financial Management Action Plan in Annex 7, the Project will satisfy the Bank’s financial management requirements as stipulated in OP/BP 10.02.

Procurement (Annex 8). Procurement activities will be carried out by the Directorate General of Highways (DGH), Ministry ofPublic Works and at the central level and which is mainly for the technical assistance components; and Public Works Offices at the provincial level in the participating Provinces in Java and Sumatra. DGH, through the Directorate of Planning (DOP), will manage and coordinate the various implementing units at the central and provincial level. The DOP will include a Procurement Officer who will be supported by the Procurement Advisor, Each ofthe implementing units will form a procurement committee to procure the packages for which they are responsible.

An assessment ofthe capacity ofthe Implementing Agency to implement procurement actions for the Project was carried out from December 2004 to September 2005. The assessment reviewed the organizational structure for implementing the Project and the interaction between the Project’s staff responsible for procurement and the Ministry’s relevant central unit for administration and finance. Some aspects ofthe Procurement Assessment for SRIP are based on the result of the Procurement Assessment for the Second Eastern Indonesia Region Transport Project (EIRTP-2), in particular with regard to the legal aspects, procurement cycle management, record keeping, and general procurement environment. The result ofthe EIRTP-2 procurement assessment on these aspects is still applicable for this Project.

The overall procurement risk ofthe Project is considered “high”. This risk level is due mainly to the following: (a) the bulk of the procurement packages consists oflarge packages of significant strategic value; (b) a performance based contract pilot will be introduced (a first in the country, in general, and in this sector, in particular); (c) previous experience in selection of consultants indicates significant difficulties in terms ofweaknesses in the evaluation process and extreme delays in the planned time schedule; (d) the central PMUwill be a newly established PMU, different from existing Bank-funded projects in the transport sector; (e) although many staff at the Central and Provincial level are experienced with donor-funded projects, there is still uneven understanding ofthe principles ofthe Bank’s Procurement Guidelines, and in particular Selection of Consultants and large ICB Procurement; (f) the procurement ofworks will be conducted simultaneously, which will stretch the coordination between the DOP and the PIUs and the DOP and the Bank; and (g) the general procurement environment is weak and significant cases offraud and collusive practices have been found in past projects in the sector, leading to numerous investigations, re-biddings and cases ofmis-procurement.

The risk mitigation measures which have been agreed are: (a) the tendering ofthe three large consultancy contracts under Component 2 - Implementation Support to MPW, as well as the appointment ofa Procurement Advisor, through the designated Procurement Agent, thus avoiding delays and ensuring a transparent process. This Procurement Agent will be responsible for preparing the shortlist and the technical evaluation report and submitting to the procurement committees for four consultancies (CTC, two DSCs and Procurement Advisor); (b) provision of additional support to the Procurement Officer at the Central Level PMUthrough the Procurement Advisor; (c) the establishment of a Procurement Plan for the Project with annual

14 updates for the subsequent years; (d) provision of procurement training during Project Launch, and in particular on performance-based procurement, and annual workshops in every fourth quarter ofGOI’s fiscal year; (e) establishment of an Anti-Corruption Action Plan for the Project; and (0 the use ofthe new e-procurement system once launched by the MPW (subject to the Bank’s assessment ofthis system). In the interim, the existing semi e-procurement system can be used as an additional measure to advertise and provide the bidding documents. Strengthened procurement procedures form part ofthe Anti-Corruption Action Plan outlined in Annex 15.

Anti-Corruption Action Plan (Annex 15). As noted in the Country Procurement Assessment Report (CPAR- Report No. February 2001), corruption and collusive practices are wide spread in public procurement and during implementation in Indonesia. This indicates that both public and private sectors are willing and able to abuse projects such as SRIP. The resulting financial losses, including substandard quality of construction (which is adversely affected by corruption), have been a cause of concern to the Bank and the Government of Indonesia. The first serious attempt to reduce corruption in the road sector was introduced under EIRTP-2. The MPW’s oversight ofthis procurement has resulted in supervision ofthe procurement process and rebidding of 25 percent ofthe contracts. The EIRTP-2 is in the early stages of implementation and it is too early to judge the success or failure of its Anti-Corruption Action Plan (ACAP). It is clear that there is need for a well focused initiative to reduce corruption in the road sector. The key area of concern is the procurement process; therefore the enhanced ACAP for SRIP includes use ofe-procurement, elimination ofpre-qualification, pre-bid meetings, confidentiality oflist of bidders that purchased bidding documents, introduction ofprocurement technical expertise, and other measures.

MPW will contract a Procurement Advisor who will have a specific reporting line to DGH, DOP and copy to Inspectorate General in MPW and the Bank. The Procurement Advisor is likely to be a firm with international experience and a strong track record in the provision of independent monitoring and auditing services, particularly for public procurement.

Given the concern over delays for selection of consultants (more than one year on average) and concerns ofcorruption in the process, MPW will contract a Procurement Agent for procurement ofthe key consulting contracts under SRIP.

4. Social

The Project is expected to lead to positive social development outcomes, which include improved access for road users and generally a more efficient market for labor, economic goods, services, and other facilities as a result ofnew/and or improved access, which will also stimulate economic growth in Java and Sumatra. In addition, property prices for land adjacent to the completed Sub-projects will increase, benefiting those along the roads, including those affected by minor land acquisition not causing displacement.

Negative impacts derive from land acquisition. The mitigation measures to manage land acquisition and resettlement impacts together with consultation, disclosure and monitoring arrangements are described below in Section 6 on Safeguard Policies and in Annex 10.

15 The Project will involve a number of construction workers coming to live in base camps along the project corridors; these workers could potentially spread HIV/AIDS. To mitigate the risks of HIV/AIDS transmission, the construction contracts include clauses requiring contractors to allow their workers to attend education sessions where materials such as awareness brochures and condoms will be distributed. This is a standard provision in the Standard Bidding Documents used for the works (and agreed between Multilateral Development Banks and FIDIC). This will follow the same methodology developed under the parallel ADB Loan for the Road Rehabilitation-:! Project. This is a small targeted activity, using existing materials, where the MPW will invite the relevant local health department or non-governmental organizations to provide services such as an initial information session, and one or two follow up meetings during contract execution. This activity will be financed through the contracts and will be targeted to a initial few contracts to see the results before expanding further. MPW has been coordinating with the Ministry of Health on this aspect.

5. Environment

The Project was prepared in accordance with the requirements of OP4.01 Environmental Assessment, and assigned an EA category “A” due to the potential for significant adverse environmental impacts. As the main type of civil works will be construction of new roads, and betterment and capacity expansion of existing national roads, there may be significant potential environmental impacts which may adversely affect land and soil resources, water and air quality, and natural ecosystems. These impacts are mostly on site locations along the road alignments, and offsite too, in locations where construction and road fill materials are sourced, excavated, stored and processed.

To ensure these significant potential impacts are identified, analyzed and clearly understood so that they can be effectively avoided, minimized, and/or acceptably managed, the GO1 has adopted an environmental management process that is adequately funded. As part of this process, GO1 has adopted an overall Environmental and Social Assessment Management Plan (ESAMP), which will serve as the Project’s umbrella Environmental and Social Assessment, setting out a strategic screening process that will ensure all Project-associated adverse impacts are identified, effectively mitigated through the implementation of tangible measures for each Sub-Project, are monitored both at the Sub-project level and cumulatively, and that the required and sustainable institutional framework for these measures is functioning and is monitored. This process is funded through the Project.

A two-stage environmental screening process has been followed: (a) an initial screening to determine whether any environmental examination is required, and (b) a second stage screening to determine the extent of further environmental examination. The screening process will result in categorizing Sub-projects into category “A”, “B”, or “C” depending on the nature, scope, and intensity of potential adverse impact of the Sub-project. The screening procedure and its results are described in full in the ESAMP. Category “A” Sub-Projects, being the most severe, will require Sub-project EIA’ s/AMDALS (Environmental Assessments). Category “B” Sub-projects will require Environmental Management Plans (UKL) and Monitoring Plans (UPL), and Category “C” Sub-projects will require only standard operation procedures (SOP).

16 Effective implementation of the environmental aspects of the ESAMP will be the responsibility ofthe Directorate of Planning, DGH, through the relevant government agencies at the Provincial, City and District (Kabupaten) levels of Government. The relevant agencies in Sumatra have received the necessary training under the Bank-financed SRRP. The corresponding agencies in Java have received the same training financed by another project. Training for Bapedaldas at the provincial and local levels in the project area in both Sumatra and Java will receive training on use and application of ESAMP in 2006 as part of training on use of the Project Management Manual. Oversight of and guidance on ESAMP implementation will be provided by the Directorate of Planning, which is supported by a Core Team Consultant (CTC) and Design and Supervision Consultants (DSCs) and the Sub-Directorate of Environmental Affairs at the DGH. The CTC team will include environmental specialists who are directly involved in screening Sub-projects for potential impacts and monitoring implementation.

The Bank has reviewed the ESAMP and the environment safeguard documents for the first batch of Sub-projects in the first years annual work program. Extensive consultations with stakeholders were held. The list of consultations, dates, and attendees is shown of the ESAMP. The ESAMP and the Work Program-1 documents are disclosed publicly and locally in Indonesia in a manner that complies with the Bank’s disclosure policy, and also at the InfoShop at the Bank. Consultation and information disclosure processes are fully outlined in the ESAMP. Annex 10 provides summary information on the EA instruments for all of the Sub-Projects.

6. Safeguard policies

The following safeguards polices are triggered by the SRIP project

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.0 1) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revised as OP 4.11) [XI [I Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I [XI Forests (OP/BP 4.36) [I Ex1 Safety of Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP/GP 7.60)* [I [XI Projects on International Waterways (OP/BP/GP 7.50) [I [XI

The safeguard screening category ofthe Project is “Sl” and the environmental screening category ofthe Project is “A”.

Environmental Assessment (OP/BP/GP 4.01): As described above, the MPW has prepared an overall Environmental and Social Assessment Management Plan (ESAMP), that will serve as the Project’s umbrella Environmental Assessment. The full list of Bank safeguards policies (10+1) and the environmental requirements of the GO1 have all been incorporated into the screening

* By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties’ claims on the disputed areas

17 process to ensure that ifany one ofthem is triggered by a Sub-project, the requirements ofthat policy are complied with ifthe project is to fund the Sub-project, or it will be deleted from the approved list of Sub-Projects.

For WP- 1, the required AMDALs, UKLAJPLs, and SOPS have already been prepared, reviewed and approved by the relevant bodies in Indonesia. Environmental safeguard documents for most ofthe Sub-projects under WP-2 and WP-3 Sub-projects have also been prepared. These will be revised as needed and new environmental documents consistent with the ESAMP will be prepared for any new Sub-projects (which might be added to the lists) during implementation of SRIP.

Natural Habitats (OP/BP 4.04): Project appraisal confirms that this safeguard is not triggered.

Cultural Property (OPN 11.03): Five cemeteries in Karawang, Semarang, Cianjur, Ngawi, and Tegal, have been identified in areas affected by Sub-projects under Work Program-1 . Ofthese, the two in Semarang and Cianjur have been relocated after extensive consultation with the local population. It has been determined that the other three cemeteries can remain in their current location, and steps are being taken to secure them from any potential damage as a result of construction activities. Screening for cultural property issues will be carried out for all Sub- Projects under WP-2 and WP-3 as a part ofthe environmental screening process as detailed in the ESAMP.

Involuntary Resettlement (OP/BP 4.12): As the Sub-projects in SRIP are rolled out, land acquisition will occur on a varying scale for Sub-projects which require widening ofexisting roads or where new roads are constructed on new rights-of-way. To mitigate the risk to people and communities who will be affected by the land use and land acquisition needs of SRIP, GO1 and the World Bank have agreed to a Land Acquisition and Resettlement Policy Framework. It ensures that compensation is provided at market prices, that any entitlements to project affected persons are paid out before their land and other assets are taken into possession by the Project that they have been consulted in a participatory manner, and that implementation of land acquisition, compensation and resettlement, as well as their post- resettlement status is monitored.

Similar to the management of environment impacts, GOI’s ESMAP will serve as the Project’s umbrella social management document setting out the strategic screening process that will ensure that all the Project’s social issues are captured. For individual Sub-Projects, GO1 has prepared four instruments: (a) Land Acquisition and Resettlement Policy Framework (LARF) - to give overall Project guidance for the preparation ofthe LARAPs; (b) Land Acquisition and Resettlement Action Plans (LARAPs) - which for specific Sub-projects sets out the processes for and agreements on the compensation and resettlement assistance to be given to project affected people and communities affected by land acquisition; (c) Abbreviated LARAPs - for Sub-projects when fewer than 200 persons are affected; and (d) TRACER studies - as a due diligence investigative report to ensure that in cases where land acquisition and resettlement activities were conducted by local governments before SRIP was prepared, the Bank is fully informed of how that process was undertaken, and that post-corrective actions if any, are taken satisfactorily to the Bank.

18 Consultations: The ESAMP contains detailed requirements for consultation regarding land acquisition and resettlement. For each Sub-Project, consultations with PAPs were carried out as part of the preparation ofthe LAMP. These consultations comprised information to PAPs on Sub-project design, and their compensation entitlements and options. Moreover, local governments consult with PAPs on compensation since the finalization ofcompensation amounts is done through negotiations (rnusyawarah = deliberation) with PAPs.

Grievance procedures will be available to all PAPs, and the executing agency and local authorities will be responsible for ensuring that PAPs are aware ofthe procedures and have full information concerning the planning and implementation ofresettlement activities.

Monitoring of implementation ofthe LARAP for each Sub-project will be carried out by the local monitoring teams on a bi-monthly basis. Project wide monitoring and reporting will be supervised by DOP and its CTC consultants, and the monthly monitoring reports will be sent to DOP. The Sub-Directorate of Environmental Affairs (DGH) will be involved in this process. DOP will in turn forward the monitoring reports to the Bank for review and comment. The monitoring consultants and their terms ofreference will be cleared by the Bank. By the midterm review and by Project closure, an evaluation based on terms-of-reference approved by the Bank will be conducted by an independent consultant.

Indigenous Peoples (OP 4. IO): No proposed Sub-project location is in an area that would affect indigenous people (IP). Most Sub-project locations are in Java and none ofthem affect or pass through areas in which IPSlive. Other locations ofproposed Sub-projects are in urban areas of Sumatra (Palembang, Lampung, Jambi) in which no IPShave been identified. For those Sub- Projects that have not yet been finally identified (especially under WP-2 and WP-3), a screening process will be carried out as a part of the EA process to determine whether there are any IPSin the areas to be affected by the Sub-Projects. However, at this point it is not anticipated that such populations will exist in the areas considered likely candidates for Sub-Projects.

Disclosure has been carried out at the World Bank’s Infoshop on February 1, 2006, the Jakarta Project Information Center, and the web site ofMPW ofthe ESAMP with includes the LAW, three AMDALs, an example of one UKLAJPL, an example of one LARAP and one Abbreviated LARAP.

7, Policy Exceptions and Readiness

No policy exceptions apply. The Project is ready as assessed against the agreed regional and country criteria.

19 Readiness Criteria Status June 2006 1. Monitoring and evaluation performance Complete - attached as Annex 3 to this document indicators, including baseline data, are ready. 2. Counterpart funds for the 1st year of Complete - Government has confirmed implementation have been allocated. allocations 3. Land acquisition and resettlement plans are Complete - Government adopted the LARAPs for in place, including the required funds. all Work Program 1 Sub-Projects at negotiations May 22,2006 and has completed LARAPs for a further six Sub-Projects. 4. Project Management Units and Project Complete Implementing Units are established and staffed. 5. Final draft ofthe Project Management Project Implementation Plan and Project Manual is ready (covering scope, Management Manual complete as of negotiations organization and its TOR, procurement, May 22,2006 and will be updated using latest budgeting, disbursement, reporting and Project scope information and finalized as a auditing arrangements). condition of effectiveness. 6. Commitments from Regional Governments Central/Provincial/Local governments will finance (ifapplicable) for participation and land acquisition and resettlement costs. MPW will provision of counterpart funds are in place. obtain written confirmation. 7. Bidding documents in format ready to issue Drawings and bidding documents are complete in to contractors Le., including Bill of draft. For the Work Program -1 these will be ready Quantities, Drawings, Specs, etc. for each to issue to bidding in June 2006 and represent road. more than 25 percent of the Project. 8. EA complete for Each road. Complete - Government adopted the agreed EAs at negotiations May 22, 2006 9. Anti-Corruption Action Plan adopted. Complete - Government adopted the agreed ACAP at negotiations May 22,2006 and provisions are reflected in the legal agreement. 10. Disclosure complete. Complete - February 1, 2006

20 Annex 1: Country and Sector Background INDONESIA: Strategic Roads Infrastructure Project

A. Key development issues and rationale for Bank involvement

1. The road sector accounts for the major share ofdomestic freight and inter-urban passenger land travel in Indonesia, playing a critical role in linking communities and markets throughout the country, increasing economic growth, and helping reduce poverty.

2. The density ofthe road network in Indonesia is relatively low in relation to the size of the country and the population. The level of sector investment has increased since the end ofthe 1997 financial crisis, but has not kept pace with population growth and rising transport demand. In addition, as a result of decentralization, new provinces and kabupaten are being created which is leading to the reclassification ofmany provincial (and non-status) roads to national road status. The result has been a recent increase in the length of the national road network from about 27,000 kilometers to about 35,000 kilometers.

3. The Government’s vision for the national highway sector is presented in Section A.l of this document. This annex emphasizes the role of SRIP in helping realize this vision and in addressing the main issues facing the road sector.

B. SRIP helps ameliorate infrastructure bottlenecks which are hurting growth

4. Traffic congestion along main traffic corridors and approaches to major cities is severely affecting the economic life and social well-being of Indonesians. It is particularly serious on Java, which is home to 62 percent of Indonesians and represents 6.8 percent of the total land area. Although traffic congestion eased following the financial crisis of 1997, traffic levels returned to the pre- 1997 levels by 200 1 and continued to grow at about 4-8 percent annually. The need for systematic investments for improving network capacity and its management is severe. Currently, highly congested corridors include North Java, Trans-Sumatra and to a lesser extent the Trans- Kalimantan. According to the Java Arterial Road Network Study (JAWS, 2001), which is the most up-to-date examination of inter-urban capacity needs on Java, without further capacity improvements, the share ofthe highly congested arterial network will rise from 4 percent in 2000 to 37 percent by 2010, and by 2020 the entire arterial network in Java would require four-lane capacity.

5. The 1997 crisis forced deferment of a substantial program of upgrading and capacity expansion that was planned by the Government. Few capacity expansion investments have taken place since then. This has created a significant backlog of capacity expansion needs. Bank financing since the crisis had focused on preservation ofthe existing network. In 1998, for example, the capacity expansion component under the Second Highway Sector Project (Loan 3712-IND) and Sumatra Region Roads Project (Loan 4307-IND) was drastically cut to release funds for road preservation. The recent operations to support the two Eastern Indonesia Region Transport Projects (Loan 4643-IND and Loan 4744-IND) once again support preservation of the existing network. The Asian Development Bank (ADB) has adopted a similar approach by

21 extending two loans for road rehabilitation in Sumatra and Kalimantan. In the past, donor funded projects in Java that include capacity expansion investments included the Bank supported Strategic Urban Roads Infrastructure Project (Loan 4054-IND), ADB supported North Java Transport Corridor Project, and JBIC supported Heavily Loaded Roads Rehabilitation Project. Despite these interventions, arterial road capacity constraints in Java, especially along the North Java Corridor, remain severe. At the request of the Government, the Bank has responded favorably to support JARNS, other public investments, and potential freeways (some are toll road) development needs.

6. Role of the Strategic Roads Infiastructure Project. SRIP will assist with the implementation ofJARNS recommendations. The estimated capacity expansion needs of the strategic road network in Java are about 7800 km. Donor activities at present consist ofJBIC's North Java Corridor Flyover Project (which focuses on nine locations) and an Urban Flyover Project. The Project coverage will be limited to Java (inter-urban and urban roads) and parts of Sumatra (urban roads). Some of the Sub-projects that were identified during preparation in SURIP and SRRP, which could not be funded due to budget constraints, have been included under the proposed SRIP.

C. Capacity expansion and maintenance needs are not met due to inadequate public and private funds

7. Funding for road programs (preservation, capacity expansion, and extension ofthe road network) has been inadequate since the financial crisis of 1997, particularly for kabupaten roads. Funding is expected to stay below the economically justified road expenditure needs over the coming decade. Since road preservation is still seen as a general public expenditure responsibility, there is no explicit recovery of costs imposed by road users. Currently, road related taxes are treated as a general tax revenue and funding for road programs remains below the collected revenues. Under-funding problems are compounded by unpredictability in the level of funding. Further, the allocation of funds among road networks, regions and nature of treatments is sub-optimal. In order to meet transport demand, a sustainable and stable source of finance needs to be established. JARNS estimated the capacity expansion costs of strategic roads in Java during 2005-20 10 at about US$l billion (in 2000 prices). Recently, Government has announced an ambitious plan to build 1,600 kilometers oftoll roads over the next decade at an estimated cost of over US$9 billion. However, given the needed preparation time for such investments, toll roads will not materially reduce congestion on existing parallel roads before 20 10- 20 12. Also, many toll roads (especially sections away from big urban areas) will probably require public support to make them attractive to the private sector. Although, the concept of a road fund financed directly from road user charges has been under discussion for over twenty years, it was not included in the Road Law of 2004 and is unlikely to be implemented without concerted support at the highest levels of Government.

8. Based on JAWS analysis, future capacity is best provided by widening existing roads and building new limited access roads where widening beyond four lanes poses difficulty and the potential for introducing tolls is feasible. Moreover, commercially feasible (bankable) sections of roads would be eligible for private participation only if factors affecting private participation are improved. After the financial crisis of 1997, several inter-urban toll road sections had been

22 authorized and negotiated. However, private interest has been limited and few fully conforming bids are being received - this despite the recently enacted reforms mentioned in the last paragraph of Section A. 1 of this Project Appraisal Document.

9. In the next five to seven years, toll road development will remain slow and would not relieve capacity problems. The option to expand capacity of the existing network alignment (of the type proposed under SRIP) thus remains a high priority. However, capacity expansion schemes along the Jakarta - Bandung and Cikampek- Jakarta corridors, and within the Greater Surabaya area take into consideration the likely development of toll roads. The Bank strategy is thus to support public financing ofthe highest priority capacity expansion schemes, while working with the Government to accelerate legal and institutional reforms and technical work needed to support high grade highway (some will be toll roads) development.

10. The cost ofroad preservation should be recovered through a fee charged to road users and, in this regard, if the political interest in a road fund can be revived, the Bank should support its creation according to the findings ofprevious studies.

1 1. Role of SRIP. Road funds sourced from specific road user charges, not from general tax revenue, have been studied over the past 20 years. Recently, the Bank has supported a study of road funds under TAP41, a workshop in 2001, a technical assistance for socialization ofthe road fund concept in 2002, and technical assistance under EIRTP- 1 to establish pilot road funds in two provinces (study commenced in January 2004). Further deepening and extension ofthis work is being carried out under EIRTP-2. Despite these efforts, the concept ofthe road fund is yet to be accepted. The Road Law of2004 does not support the road fund concept. Hence, a high level dialogue between the Bank Country team and the Government on a sustained basis for funding road development and preservation would be necessary. SRIP will not cover the issues of freeways/ toll roads since they are currently addressed through an ongoing PPITA technical assistance operation and the Bank is considering extending a loan in FY 2008 towards development of freeways.

D. Improving sector governance and making decentralization work is a priority,

12. The need for further reform and institutional strengthening is well recognized within the Government. However, moving the agenda forward will require garnering support as part of an overall strategy for improving sector performance. A priority list ofkey institutional issues in the sector includes:

e Rethinking the role of central agencies. Under decentralization the role of MPW has changed from an operational role to one ofpolicy/ resource allocation and provider of technical guidance to regions. However, DGH has yet to adequately assume this role under the ongoing decentralization efforts.

Improving sector management. Government has invested heavily to build capacity at central and regional levels, and to develop and apply improved planning and programming tools. However, these tools have yet to be extended to meet the needs of the provinces and Kabupatens, who have increasing responsibilities in the transport

23 sector. However, the Government has recently restricted the role of Jasa Marga as an operator of toll roads only and created the Indonesian Toll Road Authority (BPJT) for policy and development purposes.

Tackling corruption and quality of construction. Road works tend to be expensive and the quality ofworks is often inadequate. This results in reduced useful life ofroads while increasing demand for rehabilitation fund. It is also linked to unhealthy procurement practices and related corruption. The public sector loss from corruption and poor quality of construction can reach up to 50 percent ofroad sector investment.

Enforcing truck overloading regulation. Truck overloading is widespread in Indonesia leading to premature failure ofroads and increase in maintenance costs. It is estimated that as many as 90 percent oftrucks are overloaded, greatly undermining sector sustainability .

Improving road safety. Road accidents and fatalities continue to be a national problem despite the continuous support by the Bank, ADB and others over the past 25 years.

13. Under decentralization DGH has deconcentrated many of its technical staff to the regions. The Bank is currently supporting decentralization efforts through the implementation of EIRTP- 1 and EIRTP-2. Technical assistance and an implicit “learning-by-doing” approach have been extended. However, DGH still retains a strong influence in implementation ofregional programs, in part, due to limited local capacity and funding constraints. As regions become less reliant on the center for funding and implementation support, the role ofDGH would evolve. The Bank’s strategy is thus to support DGH in various areas, including improving the framework for information sharing among regions, building capacity, and to strengthen its role in policy setting and provision oftechnical guidance to regional government.

14. In support ofrecent decentralization policy, planning, programming, and budgeting procedures (PPBP) are being developed under EIRTP- 1, while application and further training will be extended under EIRTP-2 and SRIP. The part ofplanning tools dealing with urban road management systems (URMS) needs further development. Also, there is need to update the set of road design standards and guidelines for Indonesia.

15. The Bank is addressing construction quality by increasing transparency and efficiency in procurement, stricter supervision by consulting firms, independent technical audits, and intensifying training in project and contract management. Moreover, under new projects the Bank has introduced anti-corruption action plans. However, more effort would be necessary to bring awareness within all levels of government and stakeholder groups.

16. Due to poor enforcement and corruption, progress on truck overloading control has been limited. Under SRRP, a pilot program of commercial weigh station operation was found effective in reducing overloading and it is recommended that it be expanded to cover other areas in Indonesia.

24 17. The Bank strategy on road safety has been to support targeted initiatives, such as accident blackspot investigatiodelimination programs (under SRRP and EIRTP- 1). The Bank would continue to support such efforts under a responsive institutional framework. Sustainability of current initiatives is uncertain due to poor coordination between responsible agencies. The project steering committee established to coordinate road safety has so far proven ineffective. Hence, the first step would be to identify a high-level “champion” for road safety who would provide leadership in developing a national strategy that may seek Bank support.

18. Recent discussions between the Bank and GOI/ MPW have demonstrated the need to have a shared vision for reform and development ofthe road sector. Consequently, in the coming months the Bank will have extensive discussions with the Government to clearly define what needs to be done, priorities, timing of implementation of various actions, and generalized implementation strategy. It is important that this effort be coordinated with other donors, especially ADB, JBIC and AusAID. The strategy to implement the agreed program would take into consideration the following: (a) program should be demand driven by GO1 and reflect their priorities which will increase their commitment to the program and increase the probability of sustainability in the future; (b) implementation to be shared by various donors considering the comparative advantage ofeach; (c) investment projects to be used as a mechanism to implement the various components ofthe agreed program; (d) each investment project to focus on few elements/ TAs rather than overload projects with many TAs which reduces the burden on DGH/ MPW to administer the implementation and increases the probability of success and sustainability ofthe TAs.

19. Role of SRIP. The Project aims to strengthen sector governance at the national level of government through technical assistance and training. Initially, SRIP was to include most ofthe areas mentioned in the previous section. However, due to the large increase in cost of construction (due to the huge increases in price of fuel and bitumen in 2005, especially in October) and in order to increase the effectiveness and sustainability ofTAs (as discussed in paragraph 18 above), it was agreed with GO1 to reduce the scope ofthe TAs under SRIP. It is understood that areas which have been deleted will be addressed under future Bank-financed projects or projects financed buy other donors, especially ADB. SRIP will address road safety (through improving manpower skills ofthe traffic police). Development of a bridge management system will now be handled by JBIC. Truck overloading will probably be considered under the proposed National Roads Improvement Project (NRIP) in FY 2007. ADB is supporting a truck over-loading program.

20. Corruption. Investigations by the Bank’s Department ofInstitutional Integrity (INT) have confirmed corruption under SRRP, EIRTP- 1 and SRIP preparation. Also, despite the implementation of an Anti-Corruption Action Plan (ACAP) for EIRTP-2, about 25 percent ofthe civil works packages that have been bid have exhibited collusion. Corruption is a major problem facing the road sector at all levels of government, however, it is not restricted to roads or to the Ministry of Public Works. It is a national problem and GO1 at the highest level is targeting it and taking concrete actions to reduce corruption. Also, the Bank’s institutional focus on corruption issues has increased several-fold recently.

25 2 1. A new initiative to address corruption issues under SRIP is being developed jointly by the East Asia and Pacific Region’s Infrastructure Unit, Operations Policy and Country Services department and INT. It emphasizes third party independent monitoring and strengthening of the Supreme Audit Institution (BPK) for fiduciary audits, the Anticorruption Commission (KPK) for forensic investigation/ sanctions, and the Inspectorate General in the MPW for audits of road- related activities. This initiative was discussed by a high level mission from the Bank with the GO1 at the highest levels around mid February 2006. The GO1 was receptive to the ideas, but has not yet formally agreed to it. The lessons learned from implementation of the ACAPs under EIRTP-2 and other ongoing Bank projects in Indonesia will be built into the ACAP to be developed for SRIP and agreed during project appraisal. Further, a representative of INT will participate in the appraisal mission for SRIP to help finalize the ACAP for SRIP. Moreover, the Bank at both headquarters and Jakarta needs to increase its resources to tackle and monitor efforts to reduce corruption. Corruption is a long term problem which can not realistically be solved through one or two road projects. It requires genuine commitment and effective policies and actions from the GO1 including MPW as well as leadership, support, and steady and focused monitoring by the Bank.

26 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies INDONESIA: Strategic Roads Infrastructure Project

Latest Supervision Sector Issue Project (PSR) Ratings (Bank-financec irojects only) ~ Implementation Development Progress (IP) 0 bjec tive (DO) Bank-financed

- Development planning, capacity in Jakarta - Cikampek S north Java corridor, and investment Highway Project, Ln, cost recovery. 2049-IND, 198 1-90

- Restoration of main road networks, Highway Betterment S central and Provincial institutions, Project, Loan 2404- and road transport policy. IND, 1984-88.

- Planning and implementation of Highway Maintenance S road investment and maintenance, and Betterment Project, priority of preservation, and road Ln. 2717-IND, 1986-90 transport regulations.

- Efficiency of road subsector, road Highway Sector S policy, and annual programming. Project, Ln. 3 133-IND, 1989-95.

- Road policy implementation, Second Highway S annual programming, capacity Sector Investment expansion and institutional Project, Ln. 3712-IND, strengthening. 1994-2000

- Mobility in 25 Kabupatens, Rural Roads S institution building at Kabupaten Development Project, level, and annual programming. Ln. 2083-IND, 1982-87

- Management of district road Second Rural Roads S programs, implementation, and Project, Ln. 2881-IND, labor-based technology. 1987-94.

- Access and preservation in 73 Third Kabupaten Roads S Kabupatens, capacity of all Project, Ln. 3490-IND, institutions regarding Kabupaten 1992-97. roads.

- Access and preservation in 5 1 Eastern Indonesia S Kabupatens, institutional capacity, Kabupaten Roads, Ln. ippropriate technology, social and 3579-IND, 1993-99. snvironmental imDacts.

27 [mplementation Development Progress (rp) 0 bjective (DO)

- Access and preservation in 27 Fifth Kabupaten Roads S S Kabupatens, institutional capacity, Project, Ln. 3732-IND, 1994-99.

- Integrating planning and Sumatra Region Roads S S management of transport Project, Ln. 4307-MD, infrastructure in region, road 1998-2005. Closed development and preservation, December 2005 resources use and service delivery. - Decentralizing responsibility for Strategic Urban Roads S S the planning, design, construction, Infrastructure Project maintenance, management and (SUMP), Ln. 4054- regulation of urban transport from IND, 1997-2003. central to local government. Access and preservation of primary Eastern Indonesia MS MS arterial National roads in 15 Region Transport provinces in Eastern Indonesia Project (EIRTP-l), Ln. Region and improved road 4643-IND, closing June management. 30,2006. Connectivity, access and Second Eastern MS MS preservation of national roads in 16 Indonesia Regional provinces and 3 7 kabupaten improve Transport Project road management and support (EIRTP-2), Ln. 4744- decentralization in Eastern part of IND, ongoing Indonesia, 16 provinces and 37 kabupaten.

Other development agencies In Sumatra, Java and Kalimantan, ADB Roads using much of the same sectoral Rehabilitation (Sector): analytical basis and approach as the two projects: one is EIRTP. almost completed and the other is ongoing. Capacity expansion in congested ADB North Java corridor. Transport Corridor Project-completed...... Capacity expansion on heavily JBIC Heavy Loaded trafficked routes. Roads Improvement Project- one is on going and the other is completed.

28 Implementation Development Progress (IP) Objective PO) Removal of bottlenecks. JBIC North Java Flyover Project and Urban Arterial Road Improvement Project - both projects are ongoing. Access and capacity expansion. JBIC 18 provinces replacement and new construction-planned. Capacity expansion of east coast JBIC Sumatra East heavily trafficked routes Coast Highway, ongoing. Tanjung Priok main national seaport JBIC, Tanjung Priok accessibility Seaport Access Road Accessibility to Java from Madura China: Surabaya - island Madura Bridge, on going DO Ratings: HS (Highly Satisfactory), S (Satisfactory), MS (Moderately Satisfactory), U (Unsatisfactory), MU (Moderately Unsatisfactory), HU (Highly Unsatisfactory)

29 Annex 3: Results Framework and Monitoring INDONESIA: Strategic Roads Infrastructure Project

1 Project Development Objective Project Outcome Indicators Use of Project Outcome Information To improve economic Reduced congestion and Year 1-Year 2: Gauge speed and competitiveness by improving improved traffic safety on project transparency in procurement. the capacity and quality of roads. strategic national roads on the Year 2-Year 4: Gauge quality Borrower’s islands of Java and and pace of civil work Sumatra, improving road safety construction. and increasing the efficiency, quality and transparency of Year 5: Assess impact and works procurement and sustainability of road investments implementation in Indonesia’s through assessment of quality of Ministry of Public Works. construction and maintenance practices. 1 Intermediate Outcomes Intermediate Outcome Use of Intermediate Outcome Indicators Monitoring Outcome One: Outcome One: Outcome One: Reduced congestion and Pace of construction as expected. Year 1-Year 3: Improper increased travel speeds on project Average travel speeds and traffic construction management may roads. levels increase per projections. result in increased congestion, which should be addressed.

Year 3-Year 5: Congestion should begin to reduce as sub- projects are completed. Proper intersection designs will be critical to ensuring the benefits of increases road capacity and quality. Outcome Two: Outcome Two: Outcome Two: Construction Supervision and CTC and DCS team perform Year 1: Gauge speed and project management support effectively. Performance based effectiveness of Procurement effective and performance based constructing pilot program Agent in terms of timeliness and constructing pilot program implemented as designed. quality of consulting service implemented as designed. procurement.

Year 2-Year 5: Gauge performance of consultant and compliance with agreed TOR. Independence and role of construction supervision and design team are important to

I ensuring quality of construction.

Year 2: Ensuring quick start-up of PBC pilot to ensure adequate period for implementation.

30 Intermediate Outcomes Intermediate Outcome Use of Intermediate Outcome Indicators Monitoring Outcome Three: Outcome Three: Outcome Three: Anti-Corruption Action Plan Number of Technical Audits Year 1-Year 3: Gauge implemented and road safety carried out and project effectiveness and capacity of improved, procurement conducted in audit team and monitor compliance with Guidelines. procurement corruption Road accidents reduced on indicators and complaints. project roads. Year 3-Year 5: Gauge effectiveness of follow up on technical and financial audit results. Monitor road safety statistics in Droiect area.

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a Annex 4: Detailed Project Description INDONESIA: Strategic Roads Infrastructure Project

1. The US$287 million Project will cover five provinces in Java (West Java, Banten, Central Java, and East Java) and three provinces of Sumatra (Lampung, Jambi, and South Sumatra Palembang). The Project addresses a discrete portion of road preservation, capacity expansion, and development of bypasses in Java and Sumatra, and consists of three main components (excluding the Front End Fee of US$0.52 million):

Component 1 - Improvements to Strategic National Roads (US$262.1 million); Component 2 - Implementation Support (US$20.1 million); and Component 3 - Road Sector Institutional Development (US$4.1 million).

2. The Project follows from work already undertaken in Java under the World Bank supported Strategic Urban Road Improvement Project, and the Asian Development Bank’s funding of the North Java Roads Improvement Project, and in Sumatra under the World Bank funded Sumatra Region Roads Project. The components of the Project are detailed in the following sections. Costs shown besides each Project component include contingencies but exclude value added tax (VAT).

Component 1- Improvements to Strategic National Roads (US$262.1 million). This component consists of:

(a) Betterment of approximately 155 kilometers of urban and inter-urban roads;

(b) Expansion of road capacity on approximately 85 kilometers of urban and inter- urban roads, including bridges;

(d) Construction of a new bridge of approximately 50 meters on an inter-urban road in central Java; and

(e) Implementation of a Performance-Based Contract Pilot Program on an approximately 110 kilometer section ofthe North Java Corridor, involving betterment of approximately 10 kilometers and maintenance of approximately 110 kilometers.

4. The Project will be implemented over five years, and will encompass about 24 Sub- Projects in 22 packages, six of which are expected to commence during the first year of the project. LARAPs for these first year Sub-projects have been prepared and adopted and it is expected that land will be acquired and affected persons compensated by June 2006. No Sub- Project will commence construction until all necessary land acquisition and resettlement are finalized to the satisfaction of safeguards personnel of MPW and the Bank.

34 under PBC Total 401.46 248.04 $617,839

5. Criteriafor selection of Sub-projects are as follows:

the proposed Sub-project must be approved by DGH as a priority, must be compatible with regional and local plans, and must be included in the relevant WP approved by the Bank;

the proposed Sub-project must have a minimum economic rate of return of 15 percent as calculated in a manner satisfactory to the Bank, or a lower economic rate ofreturn if the Bank agrees;

the proposed Sub-project has a minimum international roughness index (IRI) of 6.0 and a surface distress index (SDI) of more than 50 to be proposed for inclusion as a betterment Sub-project;

the proposed Sub-project must have a minimum volume to capacity ratio of 0.6 to be included as a capacity expansion Sub-project;

the necessary counterpart funding to fully finance all works and activities must be available for the Sub-project to be implemented in accordance with the schedule in the Procurement Plan;

appropriate engineering, social and environmental standards and practices that would minimize any acquisition of land and avoid involuntary resettlement of displaced persons must have been considered in the design ofthe proposed works and activities;

for proposed works and activities involving the involuntary resettlement of Project Affected Persons (PAPs), (i)a Land Acquisition and Resettlement Action Plan (LARAP) or an abbreviated LARAP when fewer than 200 PAPs are concerned must be prepared in accordance with the ESAMP and in consultation with said PAPs; (ii)such LARAP or abbreviated LARAP must be approved by the Bank; and (iii)every PAP must be compensated and/or provided with a resettlement site and moving allowance prior to the taking ofthe land and related assets. Such compensation and provision of resettlement site and moving

35 allowance must be substantially completed prior to the signing of the contract for the carrying out of such works or activities; and

(h) for proposed works and activities, the environmental impact assessment requirements must be completed according to the ESAMP, including the provisions relating to cultural property, as approved by the Bank.

6. The Sub-projects already included under SRIP are given in Table 3 below. This table lists the Sub-projects by work program, province, type of improvement, length, metropolitan or no-metropolitan, indicative cost, and indicative implementation period. Work Program 1 is defined in Table 2 below as the first six Sub-Projects. The Sub-projects in the Table 3 under WP- 2 and WP-3 might change to reflect changing circumstances. Each WP will be cleared by the Bank before procurement starts.

No Su b-P rojec t Km Type Province 1 Karawang Bypass 11.47 New Road West Java 2 SemarangNRR 2.23 Capacity Central Java Expansion 3 Demak Bypass 7.00 Capacity Central Java Exoansion 4 Ngawi Ring Road 10.75 New Road East Java 5 Karangampel - Cirebon 28.5 1 Betterment West Java 6 Cianjur Ring Road 7.50 NewRoad West Java

36 -- 22. Keprekan I 8.60 I Capex I Java I 88,373,360,356 I 9,819,262 I 1,141,775 TOTAL I 401.5 I I 2,237,143,046,048 I 248,571,450 I

37 Component 2- Implementation Support (US$20. I million). This component consists of

(a) Support to the Directorate of Planning ofMPW and the PMU in Project implementation, including environmental management, project performance monitoring, implementation of the Anti-Comption Action Plan, and financial management, monitoring and reporting. These services will be provided by Core Team Consultants (CTC) whose terms ofreference are available in the project files, and the Borrower's Project Implementation Plan. This sub-component includes supply of office and communications equipment to support management and implementation ofthe Project by Directorate of Planning, equipment to support PUSDATA ofthe Secretary General of MPW, and financing of incremental operating costs such as staff travel, per diems, communications, consumables, web page establishment and maintenance, advertising of bidding, printing and publication ofproject information, rental of meeting facilities; and costs related to financial and technical audits by the Inspectorate General of Ministry of Public Works which expenditures would not have been incurred absent the Project;

(b) Assistance to MPW in the design ofworks, pre-contract activities, supervision of construction and implementation management for Sub-Projects;

(d) Assistance to MPW in the procurement of consultancy services and works, including in implementation ofthe Anti-Corruption Action Plan; and

(e) Assistance to MPW in carrying out financial and technical audits on Project works.

Component 3 - Road Sector Institutional Development (US$4. I million). This component consists oftwo aspects of the required to support the road sector in Indonesia (with emphasis on Java and Sumatra). Discussions are underway with the MPW regarding the need to address various aspects, including: Updating the standard Indonesian Road Design Manual with emphasis on filling in gaps in technical base, identifying sections which require updating to meet best practices appropriate for Indonesian conditions and affecting those updates, and setting up an appropriate institutional structure for distribution ofthe revised manual and the training of all local agencies involved in highway development; Identifying the changes to be made to the Indonesian Highway Capacity Manual (it is now about 10 years old and uses an outdated DOS platform) and developing the terms of reference, budget cost estimate, and time schedule to affect those changes and to train staff in the use of the revised manual; Extend the initiative started under EIRTP- 1 in the development ofplanning, programming, and budgeting procedures to cover three provinces in Sumatra and five provinces in Java; and continuation of the successful axle-load control pilot that was developed under an earlier Bank supported project. There are various funding agencies active in the road sector and some ofthese activities will be taken up under their financing. For example the new Road Sector Development Loan supported

38 by the Asian Development Bank included a component on axle-load control. Specifically funded under this Project are only the following two sub-components:

(a) Supporting Indonesia’s overall road safety strategy (US$3.5 million) by: (i) developing an integrated road safety strategy and long-term plan, including an institutional framework; and (ii)developing a pilot integrated road accident database/analysis system, and establishing self-sustaining personnel development procedures for traffic police; and

(b) Training of Project staff (US$0.6 million) in the application ofthe Project Management Manual, including procurement procedures, financial management procedures, reporting procedures, and in the application ofthe Anti-Corruption Action Plan and the Environmental and Social Assessment Management Plan.

39 Annex 5: Project Costs

INDONESIA: Strategic Roads Infrastructure Project

Cost by Project Component

11 US$ 1 = 9000 IDR 21 Costs exclude cost of land acquisition and resettlement as well as taxes which are funded directly by Government. 31 Design and supervision services are calculated at 4 percent of the cost of the works for design (excluding the roads already designed) and 4 percent of the cost of works for supervision 4/ Consultant services represents approximately 10 percent of Loan amount, including PPFs 51 Unallocated consists of physical and price contingencies on civil works

Republic of World Bank Indonesia Loan Total Category (US$) (US$) (US$) Works 7437 1,429 174,000,000 248,57 1,429 Goods 0 1,325,000 1,325,000 Consultant Services (CTC, DSCs, PBC,

40 Cost by local and foreign inputs

Local Foreign Total Category (US$) (US$) (US$) Works 109,371,429 139,200,000 248,571,429 Goods 265,000 1,060,000 1,325,000 Consultant Services (CTC, DSC, PBC, Procurement Agent and Advisor) 10,110,000 6,740,000 16,850,000 Consultant Services (Road Safety) 1,500,000 1,000,000 2,500,000 I Training." I 360.000 I 240.000 I 600.000 I Incremental Operating Costs 540,000 360,000 900,000 Refund of Project Preparation Advances 1,230,000 820,000 2,050,000 Front End Fee 0 520,000 520,000 Una1located 5,930,571 7,548,000 13,47837 1 TOTAL 129,307,000 157,488,000 286,795,000

41 Annex 6: Implementation Arrangements INDONESIA: Strategic Roads Infrastructure Project

1. The Strategic Roads Infrastructure Project is a national level project, executed by national level ministries. The provinces, districts and their respective local governments where the project roads are located have a role in accordance with the Government’s regulations on decentralization, particularly with regard to land acquisition, resettlement and environmental monitoring.

2. The National Development Planning Agency (Bappenas), Deputy for Infrastructure, will chair a Steering Committee to oversee the Project activities and allow agencies concerned with the Project to be represented at the policy level. It will be the responsibility of the Steering Committee to facilitate coordination among the provinces, and within and access the departments.

3. Executing Agency. The Ministry of Public Works (MPW) is the executing agency through its Directorate General of Highways (DGH). The Directorate of Planning (DOP), within the DGH, is the implementing agency and will be responsible for the day-to-day activities and has established a Project Management Unit (PMU) to be responsible for managing all activities of the Project.

4. Implementing Agency. The DOP will be in charge of day-to-day implementation of all components of the project, with the exception of the road safety strategy (Component 3 [a]). The DOP has established a Project Management Unit which will be assisted by full time, qualified staff.

5. Satker (Project Manager) ofDGH. The Satkers of DGH located at the Project site, will be responsible for each of the respective Sub-Projects. They will report to the Directorate of Roads and Bridges for Western Region (DRB-WR) for non-metropolitan Sub-projects and to the Directorate Freeways and Urban Roads (DFUR) for metropolitan Sub-Projects. DRB-WR and DFUR will guide, supervise and monitor the Satkers during implementation. DRB-WR and DFUR report to DOP in regard to contract administration, and progress of the Project. The SRIP project will be implemented in accordance with this existing arrangement. It is the Bank’s understanding that DGH is now preparing a new organization structure of implementation unit as mandated by new Law no 17 year 2003 on State Budget and Law no 1 year 2004 on State Treasury. Current discussion indicates that, starting 2007, DGH will establish several implementation units (PIUs) through out the country, which will be responsible for national road project implementation. The PIUs will be responsible for implementation of each Sub-Project within respective region of PIU. The PIU report to Directorate of Roads and Bridges for Western Region (DRB-WR) for interurban Roads and to Directorate Freeways and Urban Roads (DFUR) for urban roads. DRB-WB and DFUR will report to DOP in monitoring loan funded project implementation progress. For the purposes of the SRIP project, the Bank will assess a new arrangement once DGH decide the new organization structure of Implementation Unit.

6. Support Consultants. The DOP’s PMU will be assisted by the following consultants in implementing the Project: the Core Team Consultant (CTC), the Design and Supervision

42 Consultants, the Consultant for the Performance Based Contract. Terms of Reference for the various consultants are available in the PIP. PMU and CTC will liase with the Traffic Police and DGLT regarding that component ofthe Project.

7. Inspectorate General. The Inspectorate General (IG) ofMPW will monitor the fiduciary aspects of the Project and will issue recommendations for sanctions as appropriate. The IG is responsible for the internal financial and technical audits ofthe Project. Audits will cover design, bid preparation, procurement and construction. Currently, IG undertakes routine annual internal financial and technical audits on all projects under MPW. The audit reports contain findings of any irregularities in project implementation, and recommends actions to be taken, Le., repayments, corrections, and sanctions. IG carries out further investigations in case ofstrong evidence ofcriminal wrong-doing. The audit report is submitted to MPW and the respective Directorates General within MPW. DGH, through its respective implementation directorates are responsible for following up on IG’s recommendations and must report back to IG on actions taken and inform DOP subsequently. IG makes sure that any follow-up actions taken by the DGH comply with its recommendations. IG will issue its statement ofcompliance if it is so. Bank experience in the past shows that IG recommendation of sanction to be exercised or followed up by the DGH were either not clear or very light. IG is expected to be specific and clear to its recommendation. Any cases with strong indication of criminal action shall be taken into further investigation by prosecutor.

8. Local Governments. Local governments are responsible for financing and implementing land acquisition and resettlement according to agreed policies and for environmental monitoring. Local governments contribute the most to financing and implementing land acquisition and resettlement since their community is the one who suffer most from existing road conditions. However, the Ministry of Public Works, according to the Road Law, is responsible for national roads, therefore the ultimate responsibility to finance land acquisition and resettlement falls to MPW. MPW will be responsible to ensure that the land acquisition and resettlement has been executed in full prior to commencement ofthe works contracts, irrespective of implementing or funding party. With regard to environmental monitoring, the local environmental office, Bapedalda will be responsible for monitoring all environmental aspects of implementation. The DSCs responsible for construction supervision on site will provide the local environmental office with a report on environmental related activities. Under special circumstances, as required in AMDAL, the local environmental offices will test, check and monitor the site by themselves. The Project will provide the necessary budget, facilities and equipment accordingly for these purposes.

9. Ministry of Transport and Indonesian National Police. Indonesia has adopted a road safety action plan. With regard to the Road Safety sub-component 3 (a), and in line with its relative institutional responsibilities, the Directorate General of Land Transport ofthe Ministry of Transport will be the implementing unit responsible for Component 3(a)(i) ofthe Project. The Directorate ofTraffic Police ofthe Indonesian National Police will be the implementing unit responsible for Part 3(a)(ii) ofthe Project. The Borrower shall establish a Road Safety Steering Committee to oversee the process ofimplementation and coordination ofPart 3(a) of the Project within one month of the Effective Date. The Project’s PMU will act as the secretariat to the Road Safety Steering Committee.

43 I I I I I I I I I I I I I ,I I I I I <--,

I I

44 Annex 7: Financial Management and Disbursement Arrangements INDONESIA: Strategic Roads Infrastructure Project

A. Summary of the Financial Management Assessment

The Strategic Road Infrastructure Project will be financed as a Specific Investment Loan, with a total Project size ofUS$ 287 million, of which US$ 208 million will be funded from this loan. The Directorate General of Highways (DGH) of the Ministry ofPublic Works (MPW) is the executing agency for this Project. The Directorate of Planning (DOP) within DGH is the implementing agency. The Directorate of Land Transport in the Ministry of Transport and the Directorate of Traffic Police in the Indonesian National Police are the implementing agencies for the roads safety strategy component.

The Bank undertook a financial management assessment to determine if the financial management system of the executing agency had the capacity to produce timely, relevant and reliable financial information on the project activities, and if the accounting systems for the project expenditures and underlying internal controls were adequate to meet fiduciary objectives and allow the Bank to monitor compliance with agreed implementation procedures and appraise progress towards its objectives. The financial management assessment was carried out in accordance with the Financial Management Practices in World Bank- Financed Investment Operation ”, November 2005 guidelines issued by the Financial Management Sector Board. As part ofthe assessment, the DGH offices at the central Ministry and their regional offices at Pantura, DKI Jakarta, West Java, Central Java, East Java, Riau were visited. The Bank also met with representatives of the Civil Engineering Faculty at Bandung Institute of Technology and Riau University to assess their potential involvement in Project oversight.

In terms of financial management capacity, the assessment notes that the DGH and its DOP have considerable prior experience in managing Bank financed projects, and sufficient capacity to implement the Project and financially account for it. Such capacity is, however, variable at the provincial Public Works Dinases. The assessment also noted that the internal control environment in the executing agencies is relatively weak, which is in part reflected in the relatively high incidence of fraud and corruption problems reported in previous transport projects. This was particularly so in civil works expenditures, which form a large part oftotal expenditures in this Project. Finally, substantial inherent risks arise at country and entity levels, due to the weak country control environment overall, although financial management reforms are making progress very gradually. To the extent that this Project relies on financial management systems and procedures ofthe Government, fiduciary risks will arise. Taking all these factors into consideration, the overall financial management risk ofthe Project is rated as “Substantial”.

An action plan has been developed, in consultation with the DGH, to help mitigate the identified financial management risks. This Financial Management Action Plan includes strengthened internal controls through regular technical and financial audits ofproject activities, strengthened payment validation procedures to reduce risks of fraud, segregation of some financial functions from the rest ofproject management to maintain checks and balances, documentation of Project and financial management procedures in a manual to guide project staff, and steps to train Project staff in financial management procedures.

45 This assessment has concluded that after the implementation of the actions stated in the Financial Management Action Plan, the Project will satisfy the Bank’s financial management requirements as stipulated in OP/BP 10.02.

B. Country Issues

Weaknesses in the country’s financial management systems have been well documented. The Country Financial Accountability Assessment completed by the Bank in 200 1 concluded that the control environment in Indonesia was weak. The Asian Development Bank Country Governance Assessment Report (September 2002) similarly concluded that there was need for reform ofthe national financial management system following the decentralization process in the country.

The Ministry of Finance issued a White Paper in 2002, laying out the principles for reform of public financial management in the country. Since then, there has been steady, though slow, progress in implementing these reforms. In particular, the regulatory instruments needed to initiate reforms have been issued, including the State Finance Law no. 17/2003, State Treasury Law no. 1/2004 and the Public Accountability Law no. 15/2004, which provide a legal basis for improvements in the country’s public financial management.

Implementation ofthese new laws and regulations is making gradual progress. The Ministry of Finance has been reorganized and the Budget and Treasury functions have been separated into distinct Directorates in line with international good practice. The budget proposal for 2005 introduced functional and program classifications, with a stronger focus on the outputs and performance of budget entities, and presentation ofbudgets using the international standard GFS200 1 classification. The system of State Treasury Management and Budget Execution is being modernized, with the gradual automation of treasury operations and the introduction (on a pilot basis) of a Treasury Single Account. Concurrent with the introduction offar reaching changes in budgeting procedures, the Ministry of Finance experienced considerable delays in issuing its Budget approval documents (DIPA) during 2005. However these teething problems have been substantially overcome, and for fiscal year 2006, DIPA’s for most agencies were issued on time in January 2006. New modern accounting standards for Government agencies have been promulgated, though implementation ofthese standards is likely to pose challenges due to capacity constraints. A set of consolidated financial statements ofthe Central Government, were prepared on a modified accrual basis for 2004 for the first time and received a disclaimer audit opinion by the Supreme Audit Board (BPK). A similar set offinancial statements have also been issued for 2005.

Indonesia has still an ambitious reform agenda to implement. The next phase in fiduciary reforms will focus on streamlining the implementation ofrecent laws through the issuance of corresponding regulations, including modernization and automation ofthe Treasury, including full introduction of the Treasury Single Account; and strengthening capacity ofthe Supreme Audit Board and of the internal audit function in the country. The Government has committed to the implementation of this reform agenda with the support ofthe World Bank and other donors, and these are supported under the World Bank’s financed Government Financial Management

46 and Revenue Administration Project and Asian Development Bank financed State Audit Reform Project.

This situation impacts the financial management arrangements for this Project to the extent that this Project relies on Government financial management and project implementation systems.

C. Risk Assessment and Mitigation

Risk Risk Risk mitigation measures incorporated into Condition of Rating project design Effectiveness Inherent risk Country level H Continued support to PFM reforms through GFMRAP, in coordination with similar work being done bv other donors Entity level H Inclusion of audit cost for Inspectorate General, Done at negotiations MPW, to conduct technical audits (covering May 22, 2006 (refer to financial aspect and internal controls) for Project Financial Management implementation with terms of reference acceptable Action Plan) to the Bank. Financial management consultants will help strengthen capacity to prepare consolidated interim quarterly financial reports Project leve 1 H Project Management Manual includes clear Acceptable draft description of financial management procedures for Project Management guidance of Project staff. Manual submitted at The Anti Corruption Action Plan covers: negotiation on May - civil society involvement in the procurement 22,2006, full adoption process before effectiveness - audit report access to the public (refer to Financial - monitoring by KPK (anti corruption agency) Management Action - strengthened payment validation procedures. Plan)

Budgeting S Annual budgets and work programs will be Done at negotiations required. Budgeting control procedures of May 22,2006, part of Government of Indonesia to be followed. Project Management Manual (refer to Financial Management Action Plan) Accounting S Use of government Chart of Account and loan Done at negotiations simplified category for Bank reporting. May 22,2006, part of Project Management Manual (refer to Financial Management Action Plan) Internal H Strengthened internal controls will include regular Done at negotiations control internal technical and financial audits, stronger May 22,2006, part of payment validation procedures and specific Project Management requirements for accounting evidence. Payment Manual (refer to verification function to be segregated from project Financial Management management. These measures are fully detailed in Action Plan) the Project Management Manual.

47 Risk Risk Risk mitigation measures incorporated into Condition of Rating project design Effectiveness Control risk Funds flow S Dedicated bank account at the Central Bank Disbursement Letter (Bank Indonesia) to channel loan disbursements. agreed at negotiations DG Treasury shall issue a circular letter to the on May 22,2006 relevant KPPN Offices providing guidelines and criteria for eligible project expenditures in accordance with the Loan Agreement Direct payment will be used as the basis for disbursements method for consultant and civil works type of expenditures. Other type of expenditures will be based on the submission of Statement of Expenditures. For direct payment; satisfactory accounting evidence to be submitted to the Bank Financial S Special purpose financial statements for annual Done at negotiations reporting reporting, and un-audited Interim Financial Reports May 22,2006, part of will be submitted in an agreed format on quarterly Project Management basis as part of the Project Reports. Manual (refer to Financial Management Action Plan) Auditing 0 Audit arrangements to include appointment of Done at negotiations BPK as Auditor on terms of reference acceptable May 22, 2006 (refer to to the Bank; Financial Management Action Plan) Audit reports and audited financial statements will be made available to the public. Project funds MPW will implement action plans agreed to are not used strengthen financial management and procurement for the arrangements as detailed in Annex 7 and 8 of this purposes document. intended, with due regard to economy and efficiency.

I). Implementing Agencies

The Directorate General of Highway (DGH) in the Ministry of Public Works (MPW) is the executing agency. The Directorate of Planning (DOP) in the DGH is the implementing agency for all components, except Component 3(a). The DGH has extensive prior experience in implementing Bank financed projects through the implementation of Sumatra Region Roads Project (SRRF': IBRD 4307-IND), Eastern Indonesia Region Transport Project (EIRTP-1: IBRD 4643-IND) and (Second Eastern Region Transport Project (EIRTP-2: IBRD 4744-IND). The most recent previous project audit on other World Bank financed projects implemented by DGH, MPW for FY 2004 was for SRRP and EIRTP-1. The audit reports and audited financial statements for all these projects were received on time, and with an unqualified audit opinion,

48 but management letters issued included many findings, most of which related to payments made for incomplete works, poor asset management, damaged roads and procurement problems.

The DOP in DGH will be responsible for overall project management. Day to day project management will be undertaken by the Project Management Unit (PMU) established within the DOP. The PMUwill be chaired by the Directorate of Planning and assisted by full time qualified staff in adequate numbers and supported by staff from related agencies (when needed). The PMUwill be supported by a Core Team Consultant and will develop the annual works programs, monitor progress in project implementation and compliance with World Bank safeguard policies. This will include the preparation ofannual programs, financial management, procurement, performance indicators and physical achievements. It will also include the preparation and submission to the Bank and the Steering Committee of quarterly Interim Financial Reports (IFRs) and annual progress reports on overall project implementation.

The Project will be part ofDGH MPW Satker working unit (Director ofPlanning is the head of the Satker). As head ofthe Satker, the Director of Planning is assigned as KPA (budget holder). Director General, DGH, will supervise the KPA, while payment verifications will be conducted at the Finance Unit within DGH.

Direct responsibility for project implementation at the province level will be shared among the units responsible for each road within provincial Public Works offices (P2JJPerencanaan Pengawasan Jalan dan Jembatan and PPJJM/ Pembinaan Jalan dan Jembatan Metropolitan) through their Satker.

E. Strengths and Weaknesses

Strengths

DOP is familiar with Bank financial management and disbursements requirements. All audit reports have been received on time and most material audit observations raised in earlier project audit reports have been satisfactorily resolved.

DOP has been able to prepare reliable financial reports on a regular basis. Nevertheless, given the large size ofthis Project and the total volume ofproject activities likely to be simultaneously under implementation, MPW is hiring financial management specialists, at the central and district level, to augment its financial accounting capacity.

Core Team Consultants will provide technical support to the DOP in managing the Project. Their tasks will include financial management support including production of the quarterly Interim Financial Reports in the quarterly Project Reports.

Weaknesses

The project financial management arrangements will rely, to some degree, on the financial management systems ofthe Government. Given the acknowledged and well documented weaknesses ofthese systems and the very gradual pace ofreform, Project implementation will be exposed to some weaknesses and risks.

49 In the similar, previous projects, verification and monitoring of civil works contracts were found to be main accountability weaknesses, in addition to collusion in procurement. These weaknesses in internal controls pose clear fiduciary risks. This aspect has been given particular attention in designing the financial management arrangements for this Project and will be carefully monitored during the Bank’s supervision.

The MPW has its own internal audit unit, the Inspectorate General (IG). However, IG’s activities cover only 30 percent of all MPW budget implementation. Currently IG has 70 auditors with economics, management and technical backgrounds, however, no accountants. Although all of them have received internal audit training and certification from BPKP, their work plan does not include risk based internal control assessments and no guidelines for such work are available.

F. Action Plan to Mitigate Risks

An action plan has been developed in consultation with the Directorate of Planning to mitigate the identified financial management risks. Adherence to the agreed Financial Management Action Plan is expected to reduce the financial management risk ofthe Project to acceptable levels.

Financial Management Action Plan Action Expected Output Due Date A. Project Organization and Staffing 1. Project Management Unit established and DGH decree which sets out By negotiations staffed. This organization should allow for the Project’s organizational adequate segregation of duties between project structure and FMstaff financial verification functions and project appointments acceptable to management. the Bank.

2. Recruitment of financial management Acceptable terms of reference By effectiveness specialist consultant to help prepare the and qualification of financial Interim Financial Reports management consultant as part of CTC

B. Project Management Manual A Manual to Draft Project Management Done at negotiations, document procedures to be followed by Manual acceptable to the May 22,2006 implementing unit covering all aspects of Bank (developed and procurement and financial management. This simplified based on EIRTP should include, inter alia, all financial 11’s Project Management management and disbursement procedures for Manual) this project. Also included should be annual budgets and work programs for at least the first year, stronger payment validation procedures, Final Project Management By effectiveness segregation of duties among payment Manual acceptable to the authorization and “commitment maker” Bank functions at central level, financial reporting formats, supervision, internal audit arrangements community oversight arrangements and anti corruption plan

50 C. Training for DGH and province public Project Management Manual By effectiveness works dinas staff who will require the training necessary skills to carry out respective duties as described in the Project Management Manual D. Internal Audit Risk-based Internal Audits 0 Incremental operating cost Done at negotiations, to be systematically undertaken for all project ofinternal audits included May 22,2006 activities at regular intervals, jointly by private in the Project cost sector audit firms and the Inspectorate General, estimates. based on terms ofreference acceptable to the draft MPW decree Bank. Copies ofthese audit reports to be (including terms of provided to the Bank reference on IG responsibility for internal audits of project activities to be issued E. Auditing. Arrangement ofthe project Terms ofreference and letter Done at negotiations, annual audit in accordance with a specific TOR to auditor (including TOR) May 22,2006 and by independent auditors acceptable to the confirming the audit Bank arran aements

G. Financial Management Arrangements

The accounting policies and procedures for this Project will substantially follow Government financial management procedures, with strengthened procedures where appropriate. These Government procedures include, for instance, the Government budgeting procedures, accounting standard (PP no. 24,2005) and Government accounting systems (PerMenKeu no. 59/PMK.o6/2005) which have been issued following the issuance of Finance and Treasury Laws. Following are summarized procedures starting from budgeting to reporting procedures. All project activities and expenditures will be included in the central Government budgets and administrative and accountability procedures for approving expenditures and disbursing funds to beneficiaries will follow Government procedures. Detailed procedures are given in the Project Management Manual.

H. Budgeting

Since FY 2005, the Government has been using a unified budget system which does not differentiate the recurrent budget from the development budget. The budget ofthe Bank funded Project will be integrated into the budget ofthe respective government agency where the Project will be implemented, namely DGH, MPW. Under this arrangement, for auditing purposes, the Project budget performance measurement will be combined with the performance ofthe corresponding budget allocation ofthe implementing agency.

The Project budget proposals are submitted to the Directorate General (DG) Budget in June of the year proceeding the budget year. DG Budget allocates budget ceilings in September. DGH, MPW then proceeds to prepare budgets in detail. The results ofthe work are then submitted to DG Budget and Bappenas for clearance. The final budget for the Project will then be ready for submission to the World Bank as the annual work program ofthe Project. The budget is presented to the Cabinet (as part of the national budget) in September and after Cabinet approval,

51 it is presented to Parliament. Further details ofthe budgeting process are available in Project Management Manual.

I. Activities and Expenditure Programming

Based on the annual work program, procurement plan and the approved budget, DGH would be able to program Project activities and undertake procurement.

Self-Managed activities. Based on the assigned budget, DOP, P2JJs and PPJJMs may request an advance payment of a maximum of a month’s projected cash needs from the Treasury Office of Ministry of Finance (KPPN) in order to finance activities and administrative expenditures with a maximum of 1/12 ofthe annual budget. This advance is maintained on an imprest fund basis. The advance should be accounted for to KPPN within a month. A Payment Request should be prepared by DOP, P2JJs and PPJJMs for eligibility review (for its eligibility to the budget and documentation completeness) by the finance units within DGH, MPW or the respected P2JJs and PPJJMs who then issue a payment order.

SuppIier/Consultant/Contractor Contracts. Payments to eligible suppliers, consultants and contractors will be made in accordance with their contracts, through direct transfer. To effect payments, the project management unit (Satker) would prepare a payment request for verification (for its eligibility, compliance with the approved budget, compliance with the contracts and acceptability of supporting documentation) by the finance unit within DGH, MPW, who then issues payment order (SPM). The finance unit then submits the SPM to KPPN, who in turn issues a Bank transfer instruction (SP2D) to the central bank/ government bank. The payment will then be transferred directly to the account ofthe respective vendor or consultant or contractor, and KPKN will debit the project Designated Account (DA) for the Bank’s portion. Although the payment processes will follow Government procedures, some additional payment validation measures will be prescribed to mitigate fiduciary risks, including stronger accounting evidence, audit trails and procedures to validate contracts and outputs. These are available in detail in the Project Management Manual.

J. Accounting and Record Keeping

The MPW Finance Unit and provincial sub-units follow the Government’s accounting standards (Government Regulation no. 24,2005) and accounting system (Ministry ofFinance Regulation no. 59/PMK.06/2005). Government accounting software is used to record all transactions. Manual back-up (general cashbook and its supporting books) is still maintained in both the finance bureadsub-unit and KPPN. The system is closed monthly and budget realization reports are submitted to Ministry of Finance on a quarterly basis. KPPN also maintains a budget realization records card specifically for each Project. This card is supported by advance and contract monitoring cards (one card for each contract).

K. Reporting

Currently the Government is implementing GFS classification as the Government Chart of Accounts. The Ministry of Finance Chart of Accounts does not include codes for funding sources

52 (e.g. donors). As a consequence, the government accounting software does not differentiate project expenditures from government expenditures. Therefore, to enable this differentiation, Project expenditures for budgeting and for facilitating report preparation by component and expenditure category, the following additional steps will be included in the Project Management Manual: (i)project component and expenditures category (as per Loan Agreement) must be reconciled with the Government’s chart of accounts; (ii)DGH’s Finance Unit must differentiate all of the Project’s payment vouchers and payment remittance orders; (iii)Finance Unit must reconcile the Project records with the Project’s Designated Account.

DOP will work closely with P2JJs and PPJMs in preparing the Interim Financial Reports (IFRs), which are useful to determine if loan funds are available when expenditures due for payment. The IFRs will include (a) sources and uses of funds (by Project activity and due by disbursement category); (b) six months forecast of fund required; (c) Loan DA activity statement (d) disbursement and expenditure status; (e) detail expenditures for contracts subject to prior review (if any); (f) summary expenditures for others/contracts not subject to prior review; (g) output monitoring report (unit of output by Project activity); and (h) procurement management report.

All reports received from the provinces will be compiled in an agreed IFR format and submitted on a quarterly basis, within 45 days ofthe end of the reporting period, to the Bank through Ministry of Finance. The first report will consist only of the planning part covering six months forecast of fund required and procurement plan. The IFR will be used as a basis of disbursement. The quarterly reports will be aggregated for the annual financial audit.

Monitoring of the budget for the Project will be through the IFRs and the agreed interim audit and supervision schedule. This mechanism will help ensure that the IFRs are reliable for monitoring purposes. This mechanism also enables early identification of any problems, especially shortcomings in budget execution processes such as under-spendingof budget allocations.

L. Funds Flow and Disbursement Arrangement

Disbursements for civil works and consultants contracts will be made under “direct payment” procedures. In order to facilitate disbursements for others (Le. goods and incremental operating costs) a Designated Account (DA) denominated in US dollars will be opened in the Central Bank under the name ofthe Ministry of Finance (MOF). The management ofthe DA would be the responsibility ofthe Directorate General Treasury, MOF. The DA ceiling limit is set at US$75,000 to cover the quarterly funds required to finance goods and incremental operating costs.

Disbursements from the Loan will be made under the direct payment method for civil works and consultant type of expenditures based on the submission of full documentation/ copies of accounting evidence (including contract, monthly certificate with photo status, third party’s receipt) along with the withdrawal applications. Replenishment ofDA for expenditures related to goods and incremental operating costs would be based on the submission of statements of expenditures duly approved by DG Treasury, MOF. Although the management of the DA would be under the responsibility of DG Treasury, MOF, the DOP will be responsible to reconcile the

53 DA as part ofthe IFR. The DA statement will be received by DOP from DG Treasury, MOF. All documentation for the expenditures as reported for disbursements would be retained at the DOP and shall be made available to the auditors for the annual audit and to the Bank and its representative if requested.

DG Treasury shall issue a circular letter to the relevant KPPN Offices providing guidelines and criteria for eligible Project expenditures in accordance with the Loan Agreement.

M. Internal Controls: Project Management Manual

The Project Management Manual (PMM) documents the financial management system and procedures to be followed by the DGH and the provincial Public Works Dinas’s staff that are involved in the Project to ensure that sound financial management practices are followed. The PMM will include aspects such as organization structure, job descriptions, budgeting, procurement (with addition of World Bank procedures if there are differences), record management for finance unit, assets management, flow of funds, payment verification - with additional verification processes for Bank-financed expenditures and for Performance Based Contracts, accounting (including use ofgovernment chart of account for the project), reporting (IFR format, how to prepare and preparation time line at each level), annual audit arrangement, supervision plan, governance/anti corruption and disclosure requirement (including acceptable mechanism for civil society oversight on procurement, sanction and remedy procedures, audit report publication and complain handling mechanism); monitoring and evaluation mechanism (including training plan and supervision plan) for Project implementation and IG review on PMMcompliance.

N. Internal Control: Internal Audit

The Project will have strengthened internal audit arrangements. Audits will be conducted by the Inspectorate General (IG) ofMPW with the assistance ofprivate sector auditors quarterly. The assessment shows that MPW’s IG has limited capacity to conduct internal audit ofthe project transactions, IG’s auditors have received internal audit training and certification from BPKP training centre. However, their work program does not include risk based internal control reviews, and no guidelines related to this are available. The assessment recommends that IG recruits accountants to enrich its team.

Technical assistance to improve IG’s capacity is being provided through EIRTP- 1. The IG work plan includes an internal audit ofthis Project’s activities and expenditure with the assistance ofa qualified private audit firm. Terms ofReference for this will be agreed with the Bank,’ and will cover a review of internal controls for this Project’s expenditures. Reports on audit findings will be submitted to the external Project auditors as well as to the Bank for information.

Specifically for this Project, verification by IG should include substantive checks on the reliability of accounting evidence and on project implementation, including technical audits.

54 0. Audit Arrangement

Annual special purpose Project financial statements will be audited by independent auditors acceptable to the Bank. DGH (with the input from provincial Public Works Dinases) shall prepare the annual consolidated Project financial statements and submit these to the Supreme Audit Board (BPK) for audit. BPK is accepted as the auditor for this Project, given its independence and in line with the Country Audit Strategy. The annual audit reports shall be furnished to the Bank not later than six months after the end ofthe Government fiscal year (June 30 ofthe following year). The audit will be conducted in accordance with the terms ofreference for audit acceptable to the Bank. The Bank will separately discuss with BPK the modalities for involving private sector audit firms to supplement their capacity for this work. The DGH, MPW, as the executing agency, will produce a Project Financial Statement (a single audit opinion comprising Project account, Dedicated Bank Account and /SOE) within six months after the end of the Government fiscal year. DGH, MPW will make the annual audit report ofthe Project available to the public.

Disbursement Schedule for Loan Bank FY (US$ million)

2007 2008 2009 2010 2011 10% 3 0% 60% 80% 100% Expected 20.8 41.6 62.4 41.6 41.6 Cumulative 20.8 62.4 124.8 166.4 208.0

Amount of the Loan Allocated (expressed in US$)

Category Amount of the Loan Percentage of Expenditures to Allocated be financed (expressed in US$) (1) Works 174,000,000 70%

(2) Goods 1,325,000 100% (3) Consultants’ services and 19,950,000 100% training (4) Incremental operating costs 720,000 80%

(5) Refund of the Project 2,050,000 Amount payable pursuant to Preparation Advance Section 2.07 (a) of the General Conditions (6) Front-end Fee 520,000 Amount payable pursuant to Section 2.04 ofthis Agreement in accordance with Section 2.07 (b) of the General Conditions (7) Unallocated 9,435,000 TOTAL AMOUNT 208,000,000

55 Annex 8: Procurement Arrangements INDONESIA: Strategic Roads Infrastructure Project (SRIP)

A. General

Procurement for the project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Loan Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame have been agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Procurement of Works: Works procured under this Project would include betterment, capacity expansion of existing roads, construction of new roads, bridge replacement and flyovers, and road maintenance works along urban and inter-urban national roads. The procurement will be done using the World Bank's Standard Bidding Document (SBD) for all ICB contracts which is based on the harmonized FIDIC document used by multilateral financiers. All procurement of works will use post-qualification, including large contract packages with estimated amount of above US$ 10 million. This having considered that the works are road construction which is not complex in nature and the experience ofthe Borrower with pre-qualification processes in EIRTP-1 and 2 reflected long delays in the process. Additionally, pre-qualification may lead in some cases to increased risk of collusion among the pre-qualified bidders.

A special feature ofthis Project is the introduction of a Performance-Based Contract (PBC) for roads maintenance pilot. This PBC pilot will be introduced on a 100 kilometer section and include betterment and maintenance activities with a total estimated contract amount of US$ 18 million. The preliminary identification phase ofthe PBC pilot was done in August - September 2005 by a consultant appointed by the Bank in cooperation with the MPW. The second phase of this pilot will be the setting up ofthe frame work: the risk analysis, the bidding documents, and the identification oftraining.

International Competitive Bidding (ICB) will be used for all works contracts estimated to cost more then US$3.0 million each. National Competitive Bidding (NCB) will be used for all other packages, if any. The current Procurement Plan does not envisage the usage ofNCB under the Project.

Procurement of Goods: There are three goods packages proposed under the Project. One IT equipment package, with estimated contract value of US$200,000, and one vehicle package, with an estimated contract value ofUS$75,000, will be procured through NCB. Procurement will be carried out by the DGH at the Central Level. A model bidding document for procurement of Goods using NCB developed in EIRTP-2 based on the Bank's SBD for Goods will be used. One package of equipment for road safety with an estimated contract value of US$ 1.O million will be procured through ICB. The Bank's SBD for goods will be used.

56 Selection of Consultants: There are three large consultancy contracts (One CTC contract and two DSC contract) proposed for the Implementation Support to MPW under Component 2 ofthe Project and one Technical Assistance package for the Road Sector Institutional Development under Component 3 (a) ofthe Project. In addition, and as a measurement to expedite and safeguard procurement under the Project, the following two consultancies will be financed under the Project: 0 Procurement Agent to carry the selection process for the three large consultancies and Procurement Advisor contract 0 Procurement Advisor to provide procurement support and monitoring for the work packages under the Project.

The GOI’s project preparation team will ensure that the time ofthe loan signing and effectiveness coincides with the signing ofthe first six works packages (expected to represent 26% ofthe loan amount) and the appointment ofthe Core Team Consultant and Design and Supervision Consultants. This is to ensure disbursements proceed as soon as the loan is effective. A lesson learned from EIRTP-2, in which the procurement process for the main implementation support and supervision consultants experienced significant delays which in turn delayed the overall implementation ofthe Project.

The selection method for consultants to be used will be Quality and Cost Based selection (QCBS) for all assignments estimated to cost more then US$200,000 and Selection Based on Consultant’s Qualifications (CQS) for those estimated to be less than US$200,000.

Incremental Operating Costs: A total ofUS$ 900,000 will be allocated for incremental operating cost of which 20 percent will be funded by GOI. These costs are to cover Project management costs by GO1 staff that will be using GOI’s administrative procedures acceptable to the Bank.

Others: Training, estimated at US$600,000, for GO1 staff will be provided using self-managed activities under GOI’s administrative procedures acceptable to the Bank.

The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, will be presented in the Project Management Manual ofthis Project.

B. Assessment of the agency’s capacity to implement procurement

Procurement activities will be carried out by Directorate General ofHighways (DGH), Ministry of Public Works at the central level and which is mainly for the technical assistance components; and Public Works Offices (Dinas) at the provincial level in the participating Provinces in Java and Sumatra. DGH, through the Directorate of Planning (DOP), will manage and coordinate the various implementing units at the central and provincial level. The DOP will include a Procurement Officer who will be supported by the Procurement Advisor. Each ofthe implementing units will form a procurement committee to procure the packages they are responsible for.

57 An assessment of the capacity of the implementing agency to implement procurement actions for the Project was carried out from December 2004 to September 2005. The assessment reviewed the organizational structure for implementing the Project and the interaction between the Project's staff responsible for procurement and the Ministry's relevant central unit for administration and finance. Some aspects ofthe procurement assessment for SRIP is based on the result ofthe procurement assessment for the Second Eastern Indonesia Region Transport Project (EIRTP-2), in particular with regard to the legal aspects, procurement cycle management, record keeping, and general procurement environment. The results ofthe EIRTP-2 assessment on these aspects are still applicable for this Project.

The overall procurement risk ofthe Project is considered "high" considering the large value of the contracts, the history ofsome corruption cases in the sector and the previous delays in selection ofconsultants. Specifically, this risk level is due mainly to the fact that : (i)the main bulk ofprocurement packages consists of large packages of significant strategic value (ii)a performance based contract pilot will be introduced which is the first in the country in general and in this sector in particular; (iii)previous experience in selection of consultants indicates significant difficulties in terms of weaknesses in the evaluation process and extreme delays in the planned time schedule , (iv) the central PMUwill be an entirely new established PMU, different from existing Bank funded projects in the transport sector; (v) although many staff at the Central and Provincial level are experienced with donor funded projects, there is still uneven understanding ofthe principles ofthe Bank's Procurement Guidelines and in particular selection of Consultants and large ICB Procurement; (vi) the procurement ofworks will be conducted simultaneously which will stretch the coordination between the PMU and the PIUs and the PMU and the Bank; and (vii) the general procurement environment is weak and significant cases of fraud and collusive practices have been found in past projects in the sector leading to numerous investigations, re-biddings and cases ofmisprocurement.

The risk mitigation measures which have been agreed are: (i)selection of the three large consultancy contracts for the Implementation Support to MPW under Component 2 and the Procurement Advisor by a Procurement Agent to avoid delays and ensure a transparent process. This Procurement Agent will be responsible for carrying the evaluation for these three consultancies; (ii)provision of additional support to the Procurement Officer at the Central Level PMUthrough the Procurement Advisor, (iii)the establishment of a Procurement Plan (PP) for the project for the 1'' year implementation with annual updates ofthe PP for the subsequent years; (iv) provision ofprocurement training during Project Launch, and in particular on performance-based procurement, and annual workshops in every 4'h quarter ofthe GOI's FY; (v) establishment ofan Anti-Corruption Action Plan for the Project; (vi) use ofthe new e- procurement system once launched by the MPW ( subject to the Bank's assessment of this system). In the interim, the existing semi e-procurement system can be used as an additional measure to advertise and provide the bidding documents.

Each member ofthe procurement committee for a Sub-project and each Echelon I- IV official of MPW ("Official"), who is involved in the procurement process for a Sub-project, shall disclose to the head ofthe procurement committee for that Sub-project and to the Procurement Advisor if they or any oftheir immediate family members are related or otherwise connected to any ofthe members ofthe boards ofdirectors or commissioners ofthe bidders and/or consultants

58 participating in any ofthe procurement packages for any Sub-project under the Project (“Interested Member”). Any Interested Member shall recuse himself or herself from further participation in the evaluation process for that Sub-project; and any Interested Member who is an Official shall recluse himself or herself from any decisions relating to the evaluation process or contract award for that Sub-project.

Project Managers assignments will be based on MPW criteria.

Strengthened procurement procedures form part ofthe Anti-Corruption Action Plan and are outlined in Annex 15.

C. Procurement Plan

The Borrower, at appraisal, developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Bank on May 22, 2006. This plan is available at the Directorate General of Highways, Ministry ofPublic Works. It will also be available on the MPW official website and on the Bank’s external website. The Procurement Plan will be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment ofthe Implementing Agency has recommended one supervision mission annually to visit the field to carry out post review ofprocurement actions if any. However, the current procurement plan does indicate that all packages are prior review.

E. Details of the Procurement Arrangements Involving International Competition

1. Works and Goods

(a) List of contract packages to be procured following ICB is provided in the table below.

(b) ICB contracts for works estimated to cost above US$ 3,000,000 equivalent per contract and ICB contracts for goods estimated to cost above US$ 200,000 equivalent per contract will be subject to prior review by the Bank.

59 Sub-project Province Method IDR US% Post/ Prior/ Date of advert Pre Post Qual review 1 Karawang Bypass West Java ICB 11 1,638,460,798 12,403,273 Post Q. Prior June, 2006 2 Semarang N,R.R Central Java ICB 96,862,500,194 10,762,500 Post Q. Prior June, 2006 3 Demak Bypass Central Java ICB 38,236,385,336 4,248,487 Post Q. Prior June, 2006 4 Ngawi Ring Road East Java ICB 70,3 15,045,201 7,812,783 Post Q. Prior June, 2006 5 Karangampel - Cirebon West Java ICB 145,005,981,345 16,111,776 Post Q. Prior June, 2006 6 Cianjur Ring Road West Java ICB 95,174,818,915 10,574,980 Post Q. Prior June, 2006 7 Brebes - Tegal Bypass Central Java ICB 193,299,977,520 21,477,775 Post Q. Prior Sept, 2006 8 Semarang - Demak Central Java ICB 157,820,040,011 17,535,560 Post Q. Prior Sept, 2006 9 Kabuyutan Bridge Central Java ICB 4,805,553,344 533,950 Post Q. Prior Sept, 2006 10 Pejagan - Losari Central Java ICB 39,113,710,179 4,345,968 Post Q, Prior Sept, 2006 Cilegon - Pasauran Banten ICB 64,520,226,594 7,168,914 Post Q. Prior Sept, 2006 1 1 Widang - Lamongan East Java ICB 38,898,812,783 4,322,090 Post Q. Prior January, 2007 Bandar-Lampung Lampung ICB 175,298,520,793 19,477,613 Post Q. Prior January, 2007 l2 Rvnacc -ahPalmerah, -ahPalmerah, Jambi I Jambi I ICB I 53,123,355,090 I 5,902,595 I Post Q. I Prior I January,2007 I South Palembang WRR ICB 63,121,564,601 7,013,507 Post Q. Prior January, 2007 14 Sumatera 15 Pasuruan - Pilang East Java ICB 157,733,566,2 12 17,525,952 Post Q. Prior January, 2007 Soekamo-Hatta West Java ICB 45,813,075,000 5,090,342 Post Q. Prior TBD . l6 Bandung 17 Boyolali - Kartosuro Central Java ICB 95,8 15,406,807 10,646,156 Post Q. Prior TBD ~ ~~ Ambarawa Ring Road Central Java ICB 93,198,000,000 10,355,333 Post Q. Prior TBD 18 Semarang - Bawen Central Java ICB 153,064,606,272 17,007,178 Post Q. Prior TBD 19 Semarann - Kendal Central Java ICB 28,627,763,260 3,180,863 Post Q. Prior TBD 20 Semarang - Pekalongan Central Java ICB I 160,409,454,597 17,823,273 I Post Q. I Prior TBD 2 1 Pemalang Bypass Central Java ICB 66,872,860,840 7,430,3 18 Post Q. Prior TBD 22 Magelang - Keprekan Central Java ICB 88,373,360,356 9,819,262 Post Q. Prior TBD Total 2,237,143,046,048 248,571,450

60 Goods contracts

Method US$ IDR (~1000) Review 1 IT Equipment NCB 250,000 2,250,000 Prior 2 Vehicles for Project staff NCB 75,000 675,000 Post 3 Equipment for Road Safety ICB 1,000,000 9,000,000 Prior Sub-total 1,325,000 11,925,000

2. Consulting Services

(a) List of consulting assignments is given below.

(b) Consultancy services estimated to cost above US$200,000 per contract and all single s ur e selection of consultants (firms) will be subject to prior review by the Bank.

(c) Short lists composed entirely ofnational consultants: Short lists of consultants for services estimated to cost less than US$400,000 equivalent per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

Consulting Services contracts

7 Integrated Road Safety Program QCBS 2,500,000 22,500,000 Prior Sub-total 19,350,000 174,150,000

61 Annex 9: Economic and Financial Analysis INDONESIA: Strategic Roads Infrastructure Project

A. Background

There are two models that were developed in Indonesia to measure vehicle operating costs and road performance use: (i)the Indonesian Road Management System (IRMS); and (ii)the Urban Road Management System (URMS). IRMS was designed to screen inter-urban road sections for betterment and minor capacity increases and URMS was designed to screen urban roads for betterment. Both models are similar in concept; but are unable to handle capacity expansion and new roads on new right of way.

As a result, the Highway Development and Management Model (HDM-4) was chosen to perform the economic evaluation ofthe Project. First, it allowed the roads to be grouped for the purposes of economic evaluation (unlike IRMS). In addition, and after adapting to Indonesian conditions, HDM-4 was used to select an optimal group of road improvements, given the budget constraints and insufficient funds to undertake all the economically viable projects.

B. Feasibility Studies and Annual Work Programs

A total of 32 feasibility studies were completed as part of the project preparation. Individual feasibility studies were prepared for all new roads, capacity expansion (widening), and bridge/flyover projects. In addition, a single feasibility study was prepared for betterment of urban roads, and another for betterment of inter-urban roads Sub-Projects. The complete set of feasibility studies is available in the project files.

The works program was defined based on three Work Programs (WPs). All Sub-projects proposed to be financed under WP-I, and the corresponding feasibility studies were subject to detailed review. These Sub-projects did not require land acquisition (or land had already been acquired) and were considered to be ready for procurement.

The candidate Sub-projects for WP-2 and WP-3 may be subject to change, and need to be confirmed or adjusted using the following selection criteria. The Sub-project must meet the agreed criteria.

C. Case Scenarios

Each Sub-project was subject to the following three case scenarios: 0 Base Case. Do minimum Scenario. Perform routine maintenance only. 0 Periodic Maintenance Case. Perform periodic maintenance in accordance with DGH’ s norms which recommend: overlays every five years and intermediate re-seals after three years, in addition to routine maintenance. 0 Project Case: Road betterment, capacity expansion (widening) or new construction (bypasses). The internal rate of return (IRR) was calculated for each Sub-project. Sub-projects with an IRR higher than the discount rate (1 5 percent) were considered economically viable. Also, the first

62 year rate of return (FYRR), (measured as the net benefit in the year the project is open to traffic divided by the capital cost) was used to determine the optimum year of opening.

D. Project Costs

The road agency costs considered in the analysis included: land acquisition costs and any additional costs associated with the resettlement of project affected people, project construction costs, and road maintenance costs after completion of construction. Land costs were included even when the land had already been acquired by public authorities.

E. Project Benefits

The following project benefits for road users were considered in the economic evaluation: reduction in vehicle operating costs, reduction oftravel time, and reduction of number of accidents. These benefits were calculated primarily as a result of improved road surfaces, widened carriageways, and improved geometry. Also, long-term savings to the road agency were estimated from reduced or delayed periodic maintenance costs, following resurfacing or structural strengthening.

F. Project Life Period and Population Forecasts

The life of a road project was defined as 20 years, and estimates ofvehicle operating costs, travel time, accident costs, and maintenance costs were included for each year ofthe project’s life.

Population growth in Indonesia has gradually fallen from over 2.4 percent per annum in the 1970s to around 1.4 percent in the 1990s, and is expected to continue to fall. Therefore, it has been assumed that the national growth rate will be around 1.O percent per year for the forecasting period. This rate was applied to all inter-urban (non metropolitan) Sub-Projects. Local growth rates, on the other hand, are expected to vary, mainly in response to internal migratory movements. In principle, individual forecasts should have been made for each city, based on local development plans. However, after reviewing a sample of development plans, it was concluded that reliable forecasts could not be made at local level. Accordingly, a simplified procedure was adopted, using a population growth rate of2.7 percent per annum for all urban areas in Java and 3 .O percent per annum for the urban areas in Sumatra. These rates reflect recent growth in urban population and reasonable expectations about future developments.

G. Traffic Flows Forecasts

Two basic approaches to forecasting traffic flows were used, depending on the type of Sub- Project under consideration.

0 For road widening and betterment Sub-Projects, the proposed upgrading should only affect traffic flows along the road itself. Therefore, other network effects were assumed to be negligible. For these Sub-Projects, the current traffic flow was multiplied by the traffic growth factors (shown below) to obtain forecast traffic for each year during the appraisal period.

63 Buses Trucks Year Motor Car Utility Pick Small Large 2-axle 3-axle Trailer cycles UP &

I 2005 I 5.2 I 6.3 I 5.6 I 5.6 I 5.2 I 5.2 I 4.2 -1 4.2 I 4.2 I 2006 5.5 6.6 6.0 6.0 5.5 5.5 4.4 4.4 4.4 2007 5.8 7.0 6.3 6.3 5.8 5.8 4.7 4.7 4.7

0 For new by-passes, it was also necessary to consider the traffic on the existing road which is likely to divert to the new road. The procedure and diversion curves utilized are described in detail in the project implementation plan archived in the project files. The traffic forecasts made no allowance for modal diversion. Inter-urban road improvements in the North Java Corridor, which runs generally parallel to the railway, are likely to generate a switch from rail to road. However, previous studies, have demonstrated that the potential for switching is quite limited, as the rail and road services are used by distinct segments of the passenger and freight markets, and because improvements to the rail network are likely to counteract any change in the roads’ relative attractiveness.

H. Key Inputs to Calculate Vehicle Operating Costs

All key inputs to calculate vehicle operating costs were used extensively in previous studies; namely, SURIP, JARNS, and HLRIP. The following HDM-4 inputs are found in Appendix 3 of the SRIP Report: Feasibility Studies Volume 1: Approach and Procedures for Preparation of Feasibility Studies. This report has been archived and can be found in the SRIP project files. These inputs include: representative vehicles, vehicle operating characteristics, economic and financial costs, composition ofvehicle production and distribution costs, new vehicle prices, interest rates, tire costs, value of passenger time, and accident costs.

I. Results

An economic evaluation has been undertaken for: (i)each Sub-project; (ii)for the proposed three Work Programs (WPs) WP-I, WP-2, WP-3; and (iii)for the project as a whole. The results of the evaluation ofeach Sub-project are presented using the following three economic indicators: (i)Net Present Value (NPV); (ii)Economic Internal Rate of Return (EIRR); and (iii)First Year Rate of Return (FYRR). Except for one Sub-project in each WP, all proposed Sub-projects have an EIRR of 15 percent or more. The ERR for the Project is 41 percent. The following summarizes the EIRR results for each annual work program by type ofwork.

64 Capacity Return (EIRR) Betterment Expansion New Roads Bridge/ Flyover Work Program 60% 13% 19% WP 1 46% 59% 5 6% 21% WP 2 40% 95% 62% 10% WP 3 85% 149% 104%

J. Sensitivity Analysis A sensitivity analysis was also undertaken to measure the impact of significant but likely changes in the user benefits and project costs. These results show that; except in six cases, most of the Sub-projects remain economically viable even in the worst case scenario, which reflects a 20 percent increase in construction costs and 20 percent reduction in overall benefits. Therefore, it is concluded that the overall program is robust and likely to produce high economic returns.

Sei sitivity Analysis I Cost +20% and 1

24.8 I 75 I 19.4 I 72 I 87 I 17.3 I 62 I 73

65 Economic evaluation

Su b-Droiect I Works I US$ 1 km I US$/km I ERR I

66 Annex 10: Safeguard Policy Issues INDONESIA: Strategic Roads Infrastructure Project

ENVIRONMENT

A. Brief Project Description

The Strategic Roads Infrastructure Project (SRIP) comprises several urban and inter-urban highway Sub-projects of betterment, capacity-expansion, and new construction on new right of way. The Project will be implemented through three work programs (WP). The Sub-projects in the second and third year might be further clarified during the first year. The first work program consists ofthe Sub-projects given below:

Work Program -1

B. Environmental Assessment Requirements and Documentation

The Government of Indonesia (GOI), represented by the executing agency, the Ministry of Public Works, has prepared an overall Environmental and Social Assessment Management Plan (ESAMP) that will serve as the project’s umbrella Environmental Assessment. The ESAMP sets out a strategic screening process that will ensure that all Project-associated adverse impacts are captured and effectively mitigated through the implementation oftangible measures for each Sub-project, which are then monitored both at the Sub-project level and cumulatively, and that the required and sustainable institutional framework to ensure these measures is established and monitored. This process is also funded through the Project. The full list of Bank safeguards policies (10+1) and the environmental requirements ofthe GO1 have all been incorporated into the screening process to ensure that when any one ofthem is triggered by a Sub-project, the requirements of that policy are complied with if the project is to fund that Sub-project, or it will be deleted from the approved list ofSub-Projects.

The screening procedure and its results are described in full in the ESAMP, and will result in categorizing Sub-projects into category “A”, “B”, or “C” depending on the nature, scope, and intensity ofpotential adverse impacts of the Sub-project. Category “A” Sub-projects being the most severe, will require Sub-project EIA’s/AMDALS (Environmental Assessments), Category “B” Sub-projects will require Environmental Management Plans (UKL) and Monitoring Plans (UPL), and Category “C” Sub-projects will require only standard operation procedures (SOP).

67 For WP- 1, the required AMDALs, Environmental Management Plans (UKL) and Monitoring Plans (UPL), and standard operation procedures (SOP) have already been prepared, reviewed and approved by the relevant bodies in Indonesia. Environmental safeguard documents for most ofthe Sub-projects under WP-2 and WP-3 Sub-projects have also been prepared. These will be revised as needed and new environmental documents consistent with the ESAMP will be prepared for new Sub-projects (which might be added to the lists) during implementation of SRIP.

C. Sub-Projects. Three Sub-projects require a full environmental assessment (AMDAL) under Indonesian Environmental laws, namely:

Ngawi Ring Road 10.8 km of new highway Cianjur Ring Road 7.5 km ofnew highway Brebes - Tegal Bypass 17.1 km of new highway

Another seven Sub-projects require a simple environmental impact assessment (EIA) and environmental management plan (EMP), or site specific Environmental Management Plan (UKL) and Monitoring Plan (UPL). Eight Sub-projects need the standard operation procedures (SOP) which describe a set oftypical mitigation measures for small-sized road construction work.

The Ngawi Ring Road Sub-project comprises the construction of a new 7 kilometer road and betterment of3.6 kilometers including construction ofnew bridges with a carriageway width of 7 meters. This ring road is necessary to reduce through-traffic to the central city of Ngawi area, which was 80 percent ofthe current traffic, and to improve traffic safety and the environment. According to its AMDAL, the environmentally and socially sensitive spots along the alignment are: (1) the existing irrigation system, (2) two schools, and (3) one cemetery. The adverse environmental and social impacts at these spots are addressed through: (1) the provision of eight culverts for irrigation; (2) one school will be moved back from the highway and a noise barrier and tree-plantation will be installed at the other school; and (3) the cemetery will be relocated away from the road right ofway.

The Cianjur Ring Road Sub-project comprises the construction ofa 7.5 kilometer ring road with bridges and box culverts on new right of way with a carriageway width of 7 meters. The new alignment would help reduce existing heavy traffic on small roads in the residential areas, which would greatly improve traffic safety. According to its AMDAL, the environmentally and socially sensitive spots along the alignment are: (1) a school, and (2) three cemeteries. The adverse impacts at these spots are addressed through: (1) moving the school back from the road, and (2) relocating the cemeteries away from the road right ofway.

The Brebes - Tegal Bypass Sub-project comprises construction ofa new 17.1 kilometer long bypass with a carriageway width of 7 meters. The bypass is aimed at decreasing road congestion problems in the city of Tegal and Brebes and at the same time improves the road transportation infrastructure in this area thereby efficiently accelerating the regional and national traffic volumes which pass through the Brebes-Tegal artery road. According to its AMDAL, the significant impacts likely to be caused by construction ofthis Project can be classified into 3

68 phases: pre-construction, construction, and post-construction. The environmentally and socially sensitive spots along the alignment are: (1) the productive land, and (2) two schools. The significant adverse impacts are addressed through (1) land acquisition, and (2) noise barriers and tree-plantation will be installed.

The table below in this Annex provides summary information on the environmental assessment and resettlement instruments for the Sub-Projects.

D. Existing Environment

Ecological Environment. All the Sub-projects are located in urban, semi-urban or farmland areas. The AMDALs, UPLAJKLs, or SOP confirmed that there are no protected areas, natural forests or wetlands near the Sub-project sites.

Environmentally Sensitive Spots. AMDALs, UPL/UKL, and SOP identified environmentally sensitive sports for this Project, which are highly populated residential areas, schools, hospitals, rivers, ponds, and lakes. Accordingly a major environmental issue for this Project would be noise control.

E. Major Mitigation measures

The AMDALs, UPLAJKL, and SOP cover a full rage of mitigation measures for the design, construction, and operation stages. The following mitigation measures are a sample of some of the key measures that will be taken at each stage of implementation:

Design Considerations 0 Schools, hospitals, religious places such as mosques, churches, and residential areas that are too close to the alignments will consider various alternatives which may result either their relocation, adjustments in the alignment, entrance re-locations or other arrangements reached following consultations with users and owners of these facilities. 0 The roads and bridges have adequate evacuation and drainage for storm flows. 0 Designs to avoid flooding of nearby communities and farmland from drainage ofstorm water from the roadshridges. 0 The designs will follow the approved engineering design standards for roads and bridges. 0 Suitable noise barriers will be installed in critical locations along the road alignment. 0 Cut slopes to be protected to avoid erosion and eventual slip failure.

Key Construction Impact Mitigation Measures 0 Aligning the resettlement and construction schedules to ensure those affected by resettlement receive their compensation entitlements before their assets are taken into possession. 0 Ensuring heavy equipment is operated within locally acceptable hours. 0 Avoiding unnecessary disturbance to structures/institutions in near by settlements that are not re-located. 0 Ensuring that safe access to mosques, schools, hospitals and other public areas is maintained during the construction.

69 e Ensuring spoil material is disposed of appropriately and not in flood plains or agricultural land. e Erosion and Sedimentation Control Management requirements are complied with. e.Land, soil and water pollution from use of fuels and lubricants, sediment flow, etc is controlled and monitored. Excavation offill material is done in approved and controlled pits and areas, and that these areas are adequately rehabilitated/ restored by the civil works contractors after their use.

Key Operation Requirements e Periodic maintenance and cleaning of storm drains, channels, culverts, etc, to ensure no blockage. e Maintaining the landscape architecture ofthe slopes through regular vegetation clearance and trimming. e Constant periodic repair and maintenance ofroad and bridge infrastructure. e Constant monitoring for noise and air quality will continue so that new/additional management measures are adopted by the local public works authorities if required.

F. Environmental Monitoring

The Projects monitoring system is designed (i)to ensure that the set ofresponses to and management measures for the Sub-project’s potentially adverse impacts described in the various AMDAL’s, UKLAJPLs, SOPS, Design Drawings and other contract documents are implemented as required, (ii)to evaluate whether these mitigatiodmanagement measures in the Sub-projects are successful directly, cumulatively, provisionally and nationally and (iii)to alert the project’s authorities, such as the DGH, the PMU’s, the Bapedalda’s and the World Bank about the success or otherwise ofthe ongoing environmental and social processes in such a manner that changes can be made if required.

To achieve these goals, the monitoring plan is functionally structured into two levels; e Monitoring at the individual Sub-project Levels. e Monitoring ofthe SRIP as a whole at the Project Level.

The first level ofmonitoring, which is the closet level to “the action” will be performed routinely and regularly, in the manner specified in the AMDALs and/or UKLAJPL’s and will be done by the Local PMU’s and the Provincial and District Bapedalda’s. The District Bapedalda will take the lead by working closely with the DSC to perform regular and intrusive monitoring during the construction phases and to prepare regular monitoring reports. The Bapedalda and the DSC are empowered to issue instructions and punitive measures to the civil works contractor’s. During construction the Bapedalda and the DSC will monitoring indicators detailed in the AMDAL’s and/or UPLLJKLs, including activities at quarry sites and management ofsoil erosion and sedimentation control, water quality, spoil disposal, slope stability, noise, dust and air quality. At the end ofthe construction phase, as the DSC demobilizes, the Bapedalda’s will continue to monitor the operations phase for noise, air quality, storm water evacuation, etc.

The next level ofmonitoring of the SRIP at the Project Level will be for oversight monitoring, which will be the overall responsibility ofthe Sub- Directorate of Environmental Affairs in

70 DGH, to be assisted and supported by the Core Team Consultant (CTC). Essentially, the DGH will receive the periodic monitoring reports from the Bapedalda’s and the DSC at the Sub- Project level. The sub- directorate of environmental affairs in DGH and CTC will also conduct random and periodic site visits to ensure they are fully briefed on the issues. The sub-directorate of environmental affairs DGH assisted by the CTC will then prepare periodic consolidated reports for the PMU, DGH and the World Bank. These periodic consolidated reports will then be used during supervision missions by the World Bank who will also undertake regular site visits to the Sub-Projects.

G. InstitutionalArrangements and Training

The key institutions with responsibility for environmental management ofthe SRIP are;

(i> Sub-Directorate of Environmental Affairs in the DGH. The governmental authority responsible for the implementation of the entire ESAMP.

(ii) Core Team Consultant. Serves under DGH Technical Directorate and will also support and assist the sub-directorate of environmental affairs in the DGH

(iii) Design and Supervision Consultants. Lead role for design review, monitoring, including environmental monitoring, and reporting of implementation.

(iv> Provincial Project Planning and Supervision Units (P3JJ). Lead role of planning and supervision at the provincial level.

The Provincial and District Bapeldalda- Will review and approve AMDALs, UPL/UKL’s and monitors their implementation and they will be assisted by the DSC.

Institutional capacity in the Bapedalda’s varies across districts and provinces, but generally the provincial level Bapedalda’s are more fully staffed, better trained, have more budget and have laboratories that are very well equipped and staffed. The District Bapedalda’s who have already taken the lead in reviewing and clearing the AMDAL’s and the UKL/UPL, will continue to lead the monitoring. Where the districts have limitations in terms of laboratory facilities for instance, laboratories ofthe provincial Bapedalda will be used. The DSC will work closely with the Bapedalda’s at both levels.

In order to implement the ESAMP and ensure adequate monitoring, the sub-directorate of environmental affairs DGH will provide on an ongoing basis the required training for the staff of the Bapedalda’s.

The training program is proposed at provincial level to ensure participants are familiar with all the requirements of the monitoring ofthe safeguard policies ofthe World Bank and Government of Indonesia, and also with the environmental and social requirements ofthe respective AMDALs, UKLsAJPLs, Land Acquisition and Resettlement Action Plans (LARAP), and the Land Acquisition and Resettlement Policy Framework (LARAF).

71 The SRIP will finance the training program and will also provide Bapedaldas with the necessary budget support to undertake the monitoring activities required from them under the SRIP. These costs are included in the SRIP COSTAB.

The Sub-Directorate of Environmental Affairs in the DGH, which was setup with support from the World Bank in 2001 , has established itself well and has a good track record ofworking closely with the Bank and for addressing the pressing environmental and social needs of the roads projects it has supported.

H. Public Consultation and Information Disclosure

Two-stage public consultations process was carried out for the AMDAL Sub-Projects. For the other Sub-projects not requiring an AMDAL, a single stage public consultation was conducted. The detailed dates and locations are described in the ESAMP.

The World Bank has reviewed and cleared the ESAMP and the WP-1 environmental safeguard documents. The ESAMP and the WP-1 documents are disclosed publicly and locally in Indonesia in a manner that complies with the Bank’s disclosure policy, and also at the INFOSHOP at the Bank.

SOCIAL

The Strategic Roads Infrastructure Project (SRIP) triggers two social safeguards policies, namely Involuntary Resettlement (OP/BP 4.12) and Cultural Property (OPN11.03). Indigenous Peoples (OP 4.10) safeguard policy is not triggered. A full explanation ofthe approach to social (and environmental) safeguards is provided in the Environmental and Social Assessment Management Plan (ESAMP).

A. Involuntary Resettlement (OP/BP 4.12)

Most ofthe SRIP Sub-projects in each ofthe three annual work programs will require land acquisition that will lead to resettlement ofvarying scale. To manage the resettlement issues to ensure compliance with GO1 requirements as defined in the ESAMP and the World Bank’s Involuntary Resettlement policy OP/BP4.12, the GO1 has prepared a suite ofresettlement instruments.

A Land Acquisition and Resettlement Policy Framework (LARF) was prepared to give overall project guidance for the preparation of the LARAPs, abbreviated LARAPs, and TRACER studies for those Sub-projects where land was acquired before preparation of SRIP was started.

72 The General Principles ofthe LARF are:

Land acquisition and involuntary resettlement should be avoided or minimized where feasible. Where it is not feasible to avoid land acquisition and resettlement, the affected people should be assisted in their efforts to improve their livelihoods and standards of living to at least equal with their pre-project status. Project Affected Persons (PAPs) will receive compensation commensurate with replacement cost of losing their own assets as a result ofthe impact ofthe Sub-project. PAPs will be fully consulted in a participatory manner and will receive information about their rights and entitlements, and will be involved with resettlement planning and implementation. If the PAPs and the local government are unable to come to an agreement on a resettlement action plan after more that a year, the Sub-project will be deleted from the SRIP program. If the number ofPAPS is less than 200 people, or if less than 10% of their productive assets are lost and no people are physically displaced, then an abbreviated LAMPwill suffice. Otherwise a full LAMPwill be required.

The LARF designates the following categories of PAPs:

0 Those who have legal land certificate, girik, or adapt title (individual or communal) -will receive compensation for land, buildings, and fixed assets. 0 Those who occupy land in a residential, commercial, or industrial zone in the Sub-project area, but do not hold a certificate or legal title will receive compensation for land, buildings, and fixed assets according to the length of their stay and the replacement value ofthe assets. 0 Those who occupy public land on sites such as rivers, roads, parks, or other public facilities in the Sub-project area will receive allowances and other resettlement assistance from the local government. In cases where public land is occupied for a long period without sanction from the government and recognition from the government in terms of obligation to pay land taxes and fees, or in camatl lurah agreements, the PAPs will get compensation based on the findings ofthe socio-economic survey and inventory of assets lost; 0 Those who are renters will be assisted in finding other rental property.

Monitoring of LARAP implementation and results will occur as follows;

0 Internal monitoring and reporting on the implementation of LARAPs and Abbreviated LARAPs will be undertaken by the Monitoring Team comprising representatives from local government, project affected people and non-governmental organizations or a university on a monthly basis. 0 External monitoring and evaluation. By the Midterm Review and by Project closure, an evaluation based on TOR approved by the Bank will be conducted by an independent consultant to assess (i)whether the compensation and resettlement entitlements have been provided to the PAPs as planned in the LARAPS, and (ii)whether adequate income

73 restoration measures were planned, and whether these have enabled the PAPs to at least restore their standard of living, or whether they still face serious problems which require further assistance. 0 The cost ofinternal monitoring will be borne by local budget and external evaluation will be borne by the SRIP.

Land Acquisition and Resettlement Action Plans (LARAPs), which set out the processes and agreements for compensation and resettlement assistance to be given to project affected people and communities for land acquisition needs that are identified and known.

The LARAPs are be prepared by the appropriate level of government to be delivered to the Directorate ofPlanning (DOP) in the Ministry of Public Works. The DOP will ensure that this plan is reviewed by the Sub-Directorate ofEnvironmental Affairs (DGH). After review and consultation with the affected people and the local government and its consultants (who prepared the LARAP), the DOP will submit the LARAP to the Bank for review and clearance. After Bank clearance, the LARAP will be formally issued as a BupatYWalikota Letter.

The scope and level ofdetail ofthe LARAP will vary depending on the Sub-Project’s resettlement impacts, but generally, the full LARAP will be structured as follows: 0 Sub-project description. 0 Impacts ofthe Sub-Project, including project activities leading to impacts, and the areas of impacts. 0 Main objectives ofthe LARAP. 0 Findings ofthe socio-economic study and inventory of assets lost for each PAP together with compensation entitlements. 0 Institutional framework identifying agencies responsible for resettlement activities, and any steps necessary to enhance the capacity ofthose agencies to carry out the resettlement activities. 0 Eligibility criteria for PAPs for various kinds of compensation and resettlement assistance. 0 Principle to be used in valuation ofassets. 0 Resettlement measures, including description ofthe compensation packages, assistance and other measures. 0 Consultation arrangements and description of consultations held. 0 Grievance procedures. 0 Organizational responsibility and implementation schedule, including costs and budget. 0 Monitoring and evaluation arrangements.

As some local governments have relatively small local revenues and could experience difficulty in providing full funding for the necessary budget for land acquisition there can as is practiced in Indonesia be cost sharing between three levels ofgovernment (local, provincial and central government) depending on the status ofthe Sub-project.

Abbreviated LARAPs are prepared for cases when fewer than 200 PAPs are affected.

74 Tracer Studies are due diligence investigative reports that are prepared to ensure that, in cases where land acquisition and resettlement activities were conducted and concluded by local governments well before the Sub-projects were identified for Bank financing and approved LARAPs were prepared, the Bank is fully informed of how the process was undertaken, and that corrective action if any, are taken satisfactorily to the Bank.

More specifically, if a Sub-project included in the list in the Project Implementation Plan was proposed for WP 2 or 3, and land acquisition for this Sub-project was conducted before October 2004 by local government without a LARAP approved by the Bank, a “tracer study” shall be conducted to assess whether the land acquisition has been implemented commensurate with the LARF agreed between the Government of Indonesia and the World Bank (including where possible an evaluation of the situation ofPAPS before and after the land acquisition). Tracer Studies will not be accepted for Sub-projects for which land acquisition began subsequent to the October, 2004, Bank mission. These Sub-projects will require preparation of a satisfactory LARAP.

Summary of Environment and Resettlement details per Sub-project

Sub Project Km LGU, Type of Type of Social Report Province Environmental :om pensation Tracer LARAP budget in Report (# of PAP) (# of PAP)

Tracer for 289 Pending (survey Karawang Karawang Bypass 11.47 UKL/UPL HHs approved has been West Java on July 7, 2005 conducted) LARAP for 39 Semarang HHs affected. No Semarang NRR 2’23 UKLiUPL NA Central Java objection on June

Demak Demak Bypass 4.40 SOP NA NA Central Java 85 HHs (30 kiosks to be relocated). Tracer for 388 1,870,000 Ngawi Comment on draft Ngawi Ring Road 0’75 AMDAL (1,470,000) East Java HHs approved LARAP provided, On 7, O5 revised version

Karangampel- Cirebon, 28’5 SOP NA NA Cirebon West Java 37 HHs affected. Tracer for 297 Comment on draft 3,048,000 Cianjur Ring Road 7‘50 Cianjur, AMDAL HHs approved LARAP provided, West Java (2,948,000) on N~~17, 05 revised version pending. 3 HHs affected. Tracer for 612 Comment on draft Brebes-Tegal Tegal, 4 1,500 17.05 AMDAL HHs approved Lmprovided, Bypass Central Java (500) on N~~17, 05 revised version pending 92 HHs (83 kiosks Semarang & to be relocated). 444,800 Semarang - Demak 20.1 1 Demak, UKL/UPL NA Comment on draft (80,000) Central Java LARAP provided, revised version

75 - No. Sub Project Km LGU, Type of I Type of Social Report Total & Province om pensation LARAP budget in Report (# of PAP) (# of PAP) LARAP - ('000) pending. Brebes, Kabuyutan Bridge ~ 0.05 1 Central Java UKLiUPL I NA NA 35 HHs affected. 2omment on draft Pejagan - Losari Cirebon, 4,386,360 9'43 SOP NA LARAP provided, (Sec.1) I I Central Java (3,425,360) revised version pending. Pending (survey Cilegon - Cilegon, SOP NA has been Pasauran (Sec. 1) 1 l7'I0I Banten I conducted) I I 39 kiosks (all kiosks to be relocated) SOP NA Comment on draft 643,000 LARAP provided, revised version pending. 37 HHs affected. Comment on draft Bandar Lampung Lampung, 1,497,600 UKLKJPL LARAP provided, 12 NA (1,307,600) Bypass revised version pending. 16 HHs affected. Palmerah, Jambi Comment on draft Jambi, 917,100 UKLKJPL LARAP provided, 13 22'90 NA (795,600) Jambi revised version pending. 65 HHs affected. Palembang Western Comment on draft Palembang, 2,677,450 SOP LARAP provided, 14 Ring Road 8'45 NA (2,500,000) South Sumatera revised version pending. 20 HHs affected. Comment on drafi Pasuruan, 634,180 SOP LARAP provided. 15 Pasuruan - Pilang 32.81 NA (517,230) East Java revised version pending. Soekarno Hatta Bandung, 16 3'80 UKLKJPL NA NA - Bandung West Java 1 20 HHs affected (1 0 kiosks to be Boyolali & relocated). 376,500 UKLKJPL Comment on drafi 17 Boyolali - Kartosuro 15.40 Sukoharjo, NA (249,000) Central Java LARAP provided revised version pending. Arnbarawa Ring 18 7.30 TBD TBD - Road Semarang, Pending (survey 19 Semarang - Bawen 22.55 Central Java has not been done Semarang & Semarang - Kendal 20 10.40 Kendal, SOP NA NA (PBC) 1 - Central Java

76 Sub Project Km LGU, Type of Type of Social Report Total & Province Environmental Compensation Tracer LARAP budget in Report (# of PAP) (# of PAP) LARAP (‘000) Semarang & Semarang - 100.0 Pekalongan, SOP NA NA Pekalongan (PBC) Central Java 131 HHs affected. Comment on Pemalang, draft Tracer Pemalang Bypass UKLAJPL NA Central Java provided (Oct 5,05), revised version

___ pending. Magelang - Magelang, 8.60 UKLAJPL NA Pending Keprekan Central Java I

MPW had adopted agreed Tracer Studies and LARAPs for all Sub-projects in the first work program namely the first six Sub-Projects, and they have been disclosed publicly and locally in Indonesia in a manner that complies with the Bank’s disclosure policy, and they also have been disclosed at the INFOSHOP at the Bank on February 1, 2006. Resettlement instruments for the remaining Sub-projects will be prepared during project implementation in compliance with the approved LARF.

B. Training

Training will be provided to the Sub-Directorate ofEnvironmental Affairs (DGH) in MPW to enable it to provide training the local government staff involved in the preparation, implementation and monitoring ofLARAPs. The training will be funded from the SRIP budget.

C. Monitoring

Monitoring of implementation ofthe LARAP for each Sub-project will be carried out by the local Monitoring Teams on a monthly basis. Project wide monitoring and reporting will be supervised by the Directorate ofPlanning, and the monthly monitoring reports will be sent to the Directorate of Planning and its Project Management Unit. The Sub-Directorate of Environmental Affairs (DGH) will be involved in this process. The monthly monitoring information on each Sub-project will be shared with the World Bank for review and comment. The quarterly Project Reports submitted to the World Bank will include consolidated information on the status of LARAP. The monitoring consultants and their terms ofreference will be cleared by the Bank. By the Midterm Review and by Project closure, an evaluation based on terms of reference approved by the Bank will be conducted by an independent consultant.

D. Public Consultation and Information Disclosure

The ESAMP contains detailed requirements for consultation regarding land acquisition and resettlement (as well as environmental issues). For each Sub-project, consultations with PAPS

77 were carried out as part of the preparation of the LARAP. These consultations comprised information to PAPs on Sub-project design, and their compensation entitlements and options. Moreover, LGUs consult with PAPs on compensation since the finalization of compensation amounts is done through negotiation (musyawarah = deliberation) with PAPs. Disclosure has been carried out at the Bank’s Infoshop on February 1,2006, the World Banks Public Information Center in Jakarta, and the web site of MPW of the ESAMP with includes the LAW, three AMDALs, an example ofone UKLKJPL, an example of one LARAP and one Abbreviated LARAP plus four Tracer Studies.

E. Cultural Property (OPN 11.03)

Five cemeteries in Karawang, Semarang, Cianjur, Ngawi, and Tegal have been identified in areas in which Sub-projects are included under WP-1. Ofthese, two in Cianjur and Semarang have been relocated after extensive consultation with local populations. It has been determined that the other three can remain in their current location, and steps are being taken to secure them from any potential damage as a result of construction activities. Screening for cultural property issues will be carried out for all Sub-projects under WP-2 and WP-3 as a part of the environmental screening process as detailed in the ESAMP. Procedures for handling of chance finds ofhistorical or cultural artifacts are included as standard provisions in construction contracts.

F. Indigenous Peoples (OP 4.10)

The Indigenous Peoples (IP) policy is not triggered by the SRIP as no locations ofthe proposed Sub-projects are in areas that would affect indigenous people (IP). Most Sub-project locations are in Java and none ofthem affect or pass through areas in which IPSlive. Other locations of proposed Sub-projects are in urban areas of Sumatra (Palembang, Lampung, Jambi - WP-1) and there are no IPSidentified in those locations. For those Sub-projects that have not yet been identified (especially under WP-2 and WP-3) a screening process will be carried out as a part of the EA process to determine whether there are any IPSin the areas to be affected by the Sub- Projects. However, if indigenous peoples are identified in the area to be covered by any such proposed Sub-project, Government has indicated its decision that such Sub-project shall not be included in the SRIP and shall not qualify as a Sub-project.

78 Land Acquisition and Resettlement Policy Framework for SRIP

The following is the Land Acquisition and Resettlement Policy Framework (LAW) adopted by Indonesia for the purposes ofthe SRIP project.

Brief Project Description

The Strategic Roads Infrastructure Project comprises several urban and inter-urban highways Sub-projects ofbetterment, capacity-expansion, and new construction on new right of way. This Project will be implemented through three work programs (WP). The current distribution of Sub- Projects is described in ESAMP. The Sub-projects in the second and third year might be further clarified during the first year.

The Environmental and Social Assessment Management Plan (ESAMP) will serve as the Project’s umbrella environmental and social management document, setting out the strategic screening process that will ensure capture of all the projects social issues, Le., resettlement issue.

CHAPTER 1 - DEFINITIONS

The definitions used in this Policy Framework are: 1. “Project” means the Strategic Roads Infrastructure Project (SRIP) including all Project components, Sub-projects and its activities as described in this Loan Agreement between the Republic ofIndonesia and the Bank. 2. Sub-project is part of the project, which the physical activity is on the government, provincial and kabupatedkota authority area. 3. “Government” means the Government ofthe Republic of Indonesia. 4. “Province Government” means the Regional Government ofa province in the Western of Indonesia (Java and part of Sumatra). 5. “KabupatedKota Government” means the KabupatedKota Government in a province in the Western of Indonesia (Java and part of Sumatra). 6. “Project Affected Persons“(PAP) are person or institution or business unit which because of Sub-project implementation are affected with respect to: (i)livelihood; and (ii)right or, ownership or benefit ofbuilding and land (agriculture land, grassland, and other productive land), or other physical assets which are acquired or affected temporarily or permanently. 7. “Physically Displaced Persons“, are people affected by the project who have to relocate because : (i)the remaining land or building is not sufficient for shelter or work place, or (ii) the remaining land is less than 60m2, or (iii)the remaining agricultural land is no longer adequate for cultivation. 8. “Land acquisition” means an activity by any level ofGovernment to obtain land, buildings or other assets on the basis of eminent domain from Project Affected Persons for purposes ofthe Project against provision of compensation and assistance. 9. “Compensation“ means replacement of land at replacement value, either with land-for-land of equivalent size or productivity, or payment ofcash equivalent to replacement value if land is not available or the PAP choose cash, and includes the replacement value of building, plants and/or other assets connected with the land as impact ofthe right of land release or transfer.

79 10. “Resettlement” means an effort/activity to relocate the Project Affected Persons into a new location which meets the requirements of settlement so that they can develop a better life or at least equal with the previous condition. 11. “Relocation Assistance” means the assistance provided to displaced persons/families to cover (i)the costs ofmoving from their previous to new location, and (ii)an allowance equal to the local average costs of living if a transition period is needed to resettle in a new location ofresidence or business. 12. “Resettlement Assistance” means an effodactivity to improve ability and PAP economic and social life, so that they can improve their standard of living or at least equal with the previous life before the Sub-project implementation. The resettlement assistance includes efforts to handle the difficulty in transition period. 13. “Tracer study” means a due diligence study conducted to ensure proper procedures according to World Bank OP 4.12 have been carried out and the outcomes have been what would have been expected under this policy framework in the event land acquisition and/or resettlement has occurred in an area ofa Sub-project before October 2004.

CHAPTER 2 - GENERAL PRINCIPLES

1 Involuntary resettlement should be avoided where feasible, or minimized to the extent possible. During the Sub-project preparation process, consideration oftechnical options shall involve a concurrent assessment ofpotential associated land acquisition impacts, so that, where feasible, design alternatives to minimize such impacts can be identified as early as possible. 2. Where it is not feasible to avoid resettlement, physically displaced people should be assisted in their efforts to improve their livelihoods and standards of living or at least equal with the previous life. 3. PAPs will receive proper compensation based on calculation ofthe real replacement cost of the assets they lose as a result ofthe impact of Sub-project. 4. PAPs should be fully consulted and should receive proper information oftheir rights and be provided with opportunities to participate in planning and implementation ofland acquisition and resettlement. 5. If the PAPs and Local Government are unable to come to an agreement on a resettlement action plan after more than a year, the Sub-project will be deleted from SRIP program. 6. If the PAPs number less than 200 people, or if less than 10 YOof productive assets are lost and no people are physically displaced, an abbreviated LARAP can be done. Otherwise a full LAMPwill be required. However, the specific requirements for an abbreviated or full LAMPin particular Sub-projects should be reviewed in case-by-case basis. 7. This Policy Framework provides guidelines and a set of procedures of Land Acquisition and Resettlement for PAPs appropriate to their social and economic condition. 8. Tracer studies have been conducted for a number ofidentified Sub-projects for which land acquisition had been undertaken before October 2004 in order to assess whether the process was compliance with the requirement of the Bank’s OP 4.12.

80 CHAPTER 3 - SOCIAL ECONOMIC SURVEY, INFORMATION AND CONSULTATION

3.1 Social-economic Survey and Inventory ofAssets Lost 1. As part ofthe planning and land acquisition process, the relevant level of Government will conduct a survey to (i)define the areas to be affected by the Sub-project by making the drawing alignment, (ii)collect basic socio-economic data on the PAPs, and (iii)identify the impacts on each PAP (or affected family) with regard to all assets lost and whether they will be displaced. The survey will constitute the baseline against which implementation progress will be monitored.

2. The socioeconomic survey should be conducted after project designs are provided or , at least after the road corridor alignment is determined. 3. The date ofthe social-economic survey will be the latest cut-off point to record the persons in the Project area who will receive compensation, resettlement and resettlement assistance. 4. The social economic survey will be a detailed description about PAP social economic condition before the Sub-project is implemented. The survey should include such information as: a. Social characteristics of all Project Affected Persons and households: numbers, age, gender, education, job, standard of living, time of stay. b. Information about vulnerable groups, such as low-income groups, female-headed households, elderly, orphans, minorities, and handicapped, those without legally protected title to land, and other marginal groups. c. Land tenure and transfer systems including patterns of authority over land. d. Sub-project impacts on the PAP’S patterns of economic and social activity, including impacts on social networks and social support systems. e. Where resettlement is taking place and PAPs are relocated to new locations, the capacity of services (school, medical) in the host community to accommodate the resettlers should be assessed. 5. The inventory of assets lost will record for each PAP (or affected family) (i)the precise extent ofproperty loss (area of agricultural land; residential, business and other structures, crops and trees etc), (ii)the legal ownership status of land, and (iii)whether the PAP will be displaced. The inventory will also include NJOP and market prices of land and building. The information should be based on the written information from authoritative institutions such as local banks, or local brokers. 6. The socio-economic survey and inventory of assets lost will include all PAPs, and will be the basic information informing land acquisition, resettlement and resettlement assistance processes.

3.2 Information, Awareness, and Consultation 1. Local Government will conduct intensive awareness campaigns among PAPs, to provide information about planned Sub-project activities, possible Sub-project impacts and compensation and resettlement options. 2. Awareness and consultation will be conducted together with social economic survey among all PAP and related stakeholders. These activities can be conducted through open discussion, FGD (focus group discussion), dialogue, or other ways appropriate to

81 local condition. Care should be taken to ensure consultations include vulnerable and marginal groups. 3, The purpose ofthe consultation is to accommodate the opinions/aspirations, and suggestions ofPAPS and related stakeholders about land acquisition and resettlement policy and strategies.

3.3 Independent Organization In conducting social economic survey activity described in sub chapter 3.1 and 3.2, Local Government will involve independent institutions, which have good experience in social economic survey or community development work.

3.4 Land Acquisition and Resettlement Action Plan (LARAP) 1. Based on the results ofthe survey described in sub-chapter 3.1, the appropriate level of Government prepares a comprehensive Land Acquisition and Resettlement Action Plan (LARAP) or Abbreviated LARAP depending on the level ofpossible impact as described in Chapter 2, paragraph 6 above. 2. A full LARAP will contain the following elements : a. Sub-project description b. potential impacts ofthe Sub-project, including project activities leading to impacts, the areas of impacts; c. main objectives ofthe Land Acquisition and Resettlement Action Program d. findings ofthe socioeconomic study and inventory of assets lost e. institutional framework identifying agencies responsible for planning, implementation, and monitoring of resettlement activities, and any steps necessary to enhance the capacity ofthose agencies to carry out resettlement activities f. eligibility criteria for PAPs for various kinds ofcompensation and resettlement assistance g. principle to be used in valuation ofassets; h. resettlement measures, including description ofthe packages of compensation and other resettlement measures for each category of eligible persons, site selection, preparation and relocation strategies for those PAPs that will be relocated to new sites, housing, infrastructure and social services, environmental protection and management where appropriate, mechanisms of community participation in the resettlement process (including host communities); i. grievance procedures j . implementation schedule, including costs and budget k. monitoring and evaluation arrangements.

3. Abbreviated LARAP If PAP less than 200 people, or if productive assets affected by the Sub-project are less than lo%, then an abbreviated may be prepared. An abbreviated LARAP will contain, at a minimum, the following elements: e Census survey of PAPs, assets lost, and valuation ofassets e Compensation and resettlement assistance description; e Consultation with PAPs about compensation alternatives

82 0 Institutional responsibility for implementation and procedures for grievance redress; 0 Arrangements for monitoring and implementation; and 0 Schedule and funding 4. The LARAP will be prepared by the appropriate level of government to be delivered to the SRIP secretariat, Public Works Ministry, which, after review, will submit the LARAP to the Bank for review and clearance. After World Bank approval, the LARAP will be formally issued as a BupaWWalikota Letter. 5. The World Bank will issue clearance for procurement to proceed for the Sub-project once land acquisition is complete and PAPs have received compensation as established under the LARAP. 6. During implementation ofthe LARAP the appropriate level of government will provide regular progress reports to the SRIP Secretariat which will forward those reports to the World Bank.

3.5. Tracer Study If a Sub-project included on the list of the Project Implementation Plan (PIP) is proposed for WP 1,2 or 3 and land acquisition for the Sub-project was conducted before October, 2004 by local government without a LARAP approved by the Bank, a “tracer study” shall be conducted to evaluate whether the land acquisition has been well implemented appropriate with the Land Acquisition and Resettlement Policy Framework between Government of Indonesia and The World Bank and to evaluate PAP condition before and after the land acquisition. Any Sub- Project in the PIP for which land acquisition began subsequent to October, 2004 will not be considered for funding without preparation of a satisfactory LARAP. For Sub-projects under WP-1 the process is already completed.

CHAPTER 4 - LAND ACQUISITION

4.1 Compensation 1. The PAPs will receive fair compensation calculated at real replacement cost. Replacement costs are: (i)agriculture area: the pre-project or pre-displacement, whichever is higher, market value ofland ofequal productive potential or use located in the vicinity ofthe affected land, plus the cost of preparing the land to levels similar to those ofthe affected land, plus the cost ofany registration and transfer taxes. (ii) land in urban area: the pre-displacement market value of land ofequal size and use, with similar or improved public infrastructure facilities and services located in the vicinity ofthe affected land, plus the cost of any registration and transfer taxes, and (iii)for housing and other buildings: replacement based on material market price to build replacement building similar to the affected building, or to repair a partially affected structure, plus cost oftransporting building materials to construction site, plus cost of any labor an contractors fees and cost of registration and transfer taxes. In determining this replacement cost, depreciation ofassets and material salvage value are not countable, nor are lost assets affected by value added as a result ofproject activities. 2. Compensation for trees, plants and other assets are to be negotiated based on established price standards for various kinds oftrees and cash crops.

83 3, Follow up monitoring and evaluation of the implementation ofthe compensation process will be conducted to make sure that PAPs receive their compensation as described in the LARAP. Internal and external monitoring will conducted and will include a census or sampling survey depending on the number of HH affected by project. The report and recommendation will be made publicly available.

4.2 Relocation Assistance Displaced persons/families will be assisted with regard to (i)the cost of moving from their previous to new location, and (ii)an allowance equal to the local average costs of living if a transition period is needed to resettle in a new location of residence or business (e.g. during the time it takes to build a new house/business)

4.3 Resettlement Assistance In addition to the compensation for land, building, and fixed assets, the PAPs, who have suffered an income loss due to the displacement (e.g. job loss), will receive resettlement assistance, to assist them in re-establishing or improving their livelihood in the new environment. Resettlement assistance can be provided in parallel with Sub-project construction and implementation.

4.4 Compensation Alternatives 1. Based on the agreement reached at the negotiation, the eligible PAPs can choose to receive cash compensation or land replacement. 2. Physical displacement may include provision of serviced sites, land swaps, low cost housing, real-estate housing provided through a Bank Tabungan Negara (BTN) credit facility, or other schemes organized by the appropriate level ofGovernment. 3. PAPs can also form cooperative housing groups to construct housing. For this Local Government will coordinate with relevant institutions to provide service and rehabilitation assistance as needed. 4. The Physically Displaced Persons will not bear the costs of depreciation oftheir buildings, and charges or taxes related to the relocation or compensation. 5. PAPs can take and bring their salvaged building materials to the new site. 6. Cash compensation must be given to PAPs before their move to a new location or the destruction oftheir old building.

4.5 Categories of Project Affected Persons PAPs can be grouped into: 1. those who have legal land certificate, girik, or adat title (individual or communal); 2. those who occupy land in a residential, commercial, or industrial zone in the Project area, but do not hold a certificate or legal title; 3. those who occupy public land on sites such as rivers, roads, parks, or other public facilities in the Project area; and 4. those who are renters

84 4.5.1 Persons who Have Land Certijkate, Girik or Adat Title 1, PAPs who have land certificate, girik, or adat title, will receive compensation for the land, building, and fixed assets appropriate with ownership status and its environmental condition. 2. PAPs described in sub-chapter 4.4, point 1, who are displaced by the Project, can choose to receive cash compensation or other options as described in sub- chapter 4.5. 3. The lots at the resettlement site will have land title ofthe same level or higher (whenever possible) than they previously had, and the certificate will be issued within 6 months after displacement ofthe physically displaced persons. 4. PAPs will receive transport allowance to move themselves and their belongings, including any salvage material they choose to retain. 5. PAPs who suffer an income decline due to resettlement will also receive resettlement assistance to increase their ability to improve their lives. 4.5.2 Persons Who Occupy Land in a Residential, Commercial or Industrial Zone in the Project Area But Do Not Hold a Land Certijkate or Legal Documents 1. PAPs who are recorded in the baseline survey and who occupy land in a residential, commercial, or industrial zone in the Project area, but do not hold a land certificate, girik, or hak adat, receive compensation of land, building, and fixed asset according to the length of their stay and the replacement value ofthe assets. 2. PAP described in sub-chapter 4.4 point 2, who are recorded in the social economic survey who have to displaced, can choose to receive cash compensation or other options as described in sub-chapter 4.3. 3. The lots at the new site will have Hak Pakai or a higher land title, and the certificate will be issued within 6 months after the displacement. 4. PAP will receive transport allowance sufficient to move their belongings. 5. PAPs who suffer an income decline due to resettlement will also receive resettlement assistance facilitated from the Local Government to increase their ability to improve their lives. 4.5.3 Persons Who Occupy Public Land on Inzastructure or Public Facility Sites 1, PAPs who are recorded in the social economic survey that clearly delineated as public land such as railway, under bridge of fly over will receive allowance and other resettlement assistance from the local government. 2. In cases that the public area: (i)has been occupied for long period oftime without any sanction from the government, (ii)people occupying the land have received recognition from the government by incurring the obligation to pay land tax or fees, or a camat/lurah agreement has been effected on land transactions such that it is no longer clear the land is public land, the PAP should receive compensation based on the recommendation ofthe social economy survey 4.5.4 Persons Who Are Renters PAP who are renters, and are recorded in the social-economic survey, will be assisted in finding a rental-house, or a housing site of similar size to the one lost, which can be rented or rent-purchased through affordable installments.

85 4.6 Land donation 4.6.1 Land donation is acceptable only if: a) the land donator gets direct benefit from the project/ Sub-project and they are not poor people; b) PAP have been informed clearly their right on compensation as stated in this framework and they still willing to donate without any pressure. 4.6.2 The donor shall provide a written statement clearly indicating willingness to donate the land. This statement shall be duly signed by the PAP with appropriate stamp/materai and witnessed by third parties. 4.6.3 PMU and the Bank should ensure that there is no pressure or intimidation to the PAP in the process of land donation. 4.7 Resettlement Site 1. The resettlement site provided for the physically displaced persons will include adequate infrastructure and public facilities to promote development of a good social and economic life, including: (a) Road or footpath as necessary; (b) Drainage system; (c) Water supply (if a piped water distribution network is not available, there should be wells that comply with health standards); (d) Electricity; (e) Access to health facility, education, work places, religious services, and sport facilities, in accordance with the size ofthe new community; and (f) Access to public transport facilities. 2. The location reserved for resettlement as described in point 1 ofthis sub-chapter will be widely publicized so that the general public will be well informed. 3. The physically displaced persons will be informed ofthe completion ofthe resettlement site at least one month before displacement, and they will be invited to survey the new site. 4. The physically displaced persons will move to the new site after the infrastructure and facilities at the resettlement site are completed and feasible to live in as confirmed by the Project supervisor and local community leader.

CHAPTER 5 - ASSISTANCE, MONITORING AND EVALUATION

5.1 Types ofAssistance 1. PAPSwhose job, income, or living are disturbed by the Project or are physically displaced will receive assistance to improve their standard of living or at least to maintain it at the level before the implementation ofthe Sub-project. 2. The assistance program will give priority to vulnerable community members and groups, including to women and women headed households. 3. In implementing the assistance care should be taken to smoothly integrate the newly resettled people with the host community in the resettlement area. 4. The assistance can be linked to existing programs and resources. 5. Resettlement assistance may include one or more ofthe following: (a) Allowance (b) Motivation development (c) Skill and vocational training

86 (d) Assistance to start and develop small businesses (e) Small scale credit (0 Marketing development (g) Strengthening ofcommunity based organization and services (h) Grievance resolution and mediation (i)Training to promote gender equality, such as woman access and participation in decision-making. (i) Health training about the environment, reproduction, HIV/AIDS.

5.2 Assistance Schedule and Cost 1. The assistance will start during the consultation prior to displacement. The program should be limited only in one year budgeting but can be conducted in several years appropriate with PAP needs. 2. The fund for the extended assistance will be reserved from the Project funds or other sources as defined by the Bupati/Walikota letter in the LARAP.

CHAPTER 6 - INSTITUTIONS AND FUNDING

6.1 Land Acquisition Committee (LAC) The various activities described above will be implemented by Land Acquisition Committee in each Local Government. 6.2 Head, Members, and Tasks ofthe Land Acquisition Committee 1. The Land Acquisition Committee as described in sub-chapter 6.1 will be chaired by District Head, with members from relevant agencies in the Local Government (e.g. Land Agency, Technical Agency requiring the land, Adminitrative Agency). 2. The tasks of the Land Acquisition Committee described in sub-chapter 6.1 include, among others: (a) to inform and consult to the PAP on the Sub-project plan (b) to conduct asset inventory to be acquired; (c) to disclose affected asset in places that can be accessed easily by PAPs (d) to negotiate and reach agreement on compensation with PAPs.

6.3 Consultation and Assistance by Independent Institution 1, In the planning and implementation, especially related to the informatiordawareness, consultation, training and assistance to the community, the LAC will be assisted by independent institution, which are experienced and have achieved good results. They should be keen and skilful in community development and they should be able to integrate various sectoral activities at the community level. 2. Transparency and consultation should be strengthened to solve local problems, quickly, and effectively. Complaints, which cannot be solved locally, will be processed through the procedures described in Presidential Decree No. 36 of 2005 and Regulation ofthe Minister ofAgraria No. 1 of 1994.

6.4 Coordination between Bappeda and Land Acquisition Committee (LAC) 1. Bappeda should act as the main coordinator handling all environmental and social matters connected with Works. This would include consultation, land and building

87 acquisition and compensation, resettlement, and rehabilitation assistance. Bappeda should also be responsible for liaison with all stakeholders and non-governmental organizations 2. Intensive communication and coordination should be developed between Bapedalda, Bappeda, and the Land Acquisition Committee. Joint meeting coordination will be conducted at least once each month. 3. BupatUWalikota and other related officials conduct the evaluation for the development of land acquisition and resettlement and rehabilitation assistance, at least one for each month. 4. Provincial Government together with its related institutions will monitor and assist the Local Government in conducting community rehabilitation assistance as describe on this Framework Policy. 6.5 Coordination 1. Reports and funding sources for the implementation information campaign, consultation, assistance, and resettlement as described in this Policy Framework shall be coordinated with the Project SRIP at Local Government in related Province. 2. General arrangements will be covered in the Project Implementation Plan. The details ofthe cost and funding sources will be covered in the LARAP which will be determined by the Bupati/Walikota letter as agreed by the relevant funding sources. 3. The Project Management Unit SRIP at the related province will provide the proposed LARAP to the SRIP Secretary, Ministry ofPublic Works for furnish it to the World Bank for reviewed and approval. 4. Independent Institution will be retained as required by the Project and/or Bank to periodically carry out external monitoring and evaluation ofthe implementation ofthe LARAPs. 5. The Bank may carry out an inspection ofthe site or location of candidate Sub-projects with prior notification to the Executing Agency, MPW, although the inspection can be conducted independently. The result of inspection, which shall be discussed with related local government agency, shall be informed to the Executing Agency.

CHAPTER 7 - MONITORING AND EVALUATION

7.1 Internal monitoring and reporting Internal monitoring and reporting on the implementation of LARAPs and Abbreviated LARAPs will be undertaken by the Monitoring Team comprising representatives from Local Government, project-affected people, and NGO or University on a monthly basis and will include: (a) Information on consultations held during LARAP preparation and implementation (b) Information on the delivery of compensation and rehabilitation entitlements as stipulated in the LARAP comprising (i)the timely provision ofcompensation to individual PAPs, and (ii)the timely provision ofresettlement assistance (relocation and income restoration assistance) to individual PAPs (see Annex 1 for reporting format). (c) Information on grievance redress (see Annex 1 for reporting format)

88 (d) The Socio-Economic Survey and Inventory of Assets Lost undertaken during the preparation of the LARAP will constitute the baseline for monitoring of implementation progress. (e) Monthly monitoring information on each Sub-project will be shared with the World Bank. (0 Quarterly project report will include consolidated information on the status of LARAP implementation prepared by the PMUand submitted to the World Bank. (g) The budget for internal monitoring will be borne by local government. 7.2 External Monitoring and Evaluation 1. By the Midterm Review and by Project closure, an evaluation based on TOR approved by the Bank will be conducted by an independent consultant to assess (i)whether the planned compensation and resettlement entitlements have been provided to the PAPs as planned in the LARAPs, and (ii)whether adequate income restoration measures were planned, and whether these have enabled the PAPs to at least restore their standard of living, or whether they still face serious problems which require further assistance. 2. Ifthe PAP has not been able to overcome income and the standard of living problems, the Local Governments will provide an extension of the assistance. 3. The budget for External Monitoring and Evaluation will be borne by the Project.

CHAPTER 8 - GRIEVANCE MECHANISM

8.1. Project affected people can submit any complaint on LARAP implementation to either Bappeda, Local Monitoring Team, Sub-project Manager, or the PMU-SRIP. The Team shall respond to it by conducting an investigation and deliberation no later than twelve working days.

8.2. For any complaint on disagreement of compensation amount the Project will follow the existing regulation (Perpres 36/2005).

89 Annex 11: Project Preparation and Supervision INDONESiA: Strategic Roads Infrastructure Project

Planned Actual PCN review February 18,2004 July 23,2004 Initial PID to PIC July 23,2004 May 13,2005 Initial ISDS to PIC July 23, 2004 May 16,2005 Appraisal April 17, 2006 May 2006 Negotiations May 22,2006 May 22,2006 Board/RVP approval June 27,2006 Planned date of effectiveness November 1,2006 Planned date of mid-term review Planned closing date December 3 1.201 1

Key institutions responsible for preparation of the Project: Ministry of Public Works

Bank staff and consultants who worked on the Project included:

Name Title Unit Hatim M. Hajj Task Team Leader until EASTR February 28,2006 Jerry Lebo Senior Transport Specialist EASTR (economist) and Task Team Leader starting March 1, 2006 Sally Burningham Senior Transport Specialist EASTR Alain Dube Senior Transport Specialist EASTR Mesra Eza Operations Officer, Transport EACIF Kundhavi Kadiresan Portfolio Manager EACIF Yogana Prasta Senior Disbursement Officer EACIF Novira Kusdarti Asra Financial Management EACIF Specialist Imad Saleh Lead Procurement Specialist EACIF Firman Dhannawan Procurement Specialist EACIF Glenn Morgan Lead Environmental Specialist EASES Farida Zaituni Operations Analyst EACIF (Environment) James Monday Consultant (Environment) EASEN Mackay Angus Consultant (Environment) EACIF Asger Christensen Lead Social Development EASSD Specialist Bruce Harris Consultant (Social Issues) EASRD Sulistiowati Nainggolan Urban Specialist EACIF Francisca Melia Consultant (Land Acquisition EACIF and Resettlement Steven Burgess Senior Social Development EACIF

90 Specialist (Anti-corruption) Junxue Chu Finance Officer LOAGl Anthony Toft Chief Counsel LEGEA Melinda Good Senior Counsel LEGEA Imogene Jensen Senior Economist (Quality EASIN Assurance, Economics, Sector Issues) Sri Oktorini Program Assistant EACIF Christopher De Serio Senior Program Assistant EASTR

Bank funds expended to date on Project preparation: 1. Bank resources: US$534,892 (as of end-May 2006) 2. Trust fund PHRD TF052415 (Borrower-executed): US$1,124,594 3. Trust fund JPN TF030484 (Bank-executed): US$259,852 4. Project Preparation Facility: PPF P4080: US$826,211 5. Project Preparation Facility: PPF P408 1: US$1,2 19,935 6. Total (Borrower): US$3,824,592 7. Total (Bank): US$794,744

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$56,000. 2. Estimated annual supervision cost: US$lOO,OOO.

91 Annex 12: Documents in the Project File

INDONESIA: Strategic Roads Infrastructure Project

A. Project Implementation Plan

1. Project Implementation Plan, May 2006

B. Bank Staff Assessments 1. Bank Staff Aide Memoires covering period from 2003 to 2006 2. Procurement Capacity Assessment for SRIP, December 2005 3. Financial Management Assessment for SRIP, December 2005.

C. Others 1. Country Assistance Strategy, October 2003

D. Program Preparation Reports 1. Draft Feasibility Study Report, Volume 2, for Gresik -Lamongan, December 2004 2. Draft Feasibility Study Report, Volume 2, for Batang-Weleri 3. Draft Feasibility Study Report, Volume 2, for Kaligawe Flyover, December 2004 4. Review of Studies for Preparation of the Strategic Urban and Inter-Urban Road Components 5. Technical Assistance Consulancy Services Study And Project Preparation Strategic Road Infrastructure Project 6. Feasibility Study Brebes - Tegal - Pemalang (Volume 2), February 2005 7. Feasibility Study Bekasi - Karawang (Volume 2), January 2005 8. Draft Feasibility Study Report Magelang to Keprekan, Volume 2, December 2004 9. Feasibility Study Magelang - Secang (Volume 2), January 2005 10. Draft Feasibility Study Report for Interurban Betterment Schemes, Volume 2, December 2004 11. Feasibility Study Brebes - Tegal Bypass (Volume 2), November 2004 12. Cianjur Feasibility Study Cianjur Ring Road (Volume 2), September 2004 13. Draft Final Report Study Of Introducing Road Safety - Audit In Indonesia, September 2004 14. Feasibility Study Pemalang - Pekalongan Volume 2, September 2004 15. Penyampaian Laporan Study Tracer Brebes - Tegal Bypass, May 2004 16. AMDAL Study For Widang-Gresik Road

E. Environmental and Social Assessment 1. Environmental and Social Assessment Management Plan Volumes 1 and 2, January 2006 2. Magelang-Keprekan LARAP Study (in Bahasa), November 2005 3. Simple Land Acquisition and Resettlement Action Plan (LARAP) Study of Kali Banteng Fly Over Semarang (in Bahasa), Year 2004

92 4. Tracer Study Final Report in Ruas Jalan Lingkar Utara Pemalang, Kabupaten Pemalang (in Indonesian language) 5. LARAP Report of Peningkatan Jalan Soekarno - Hatta Pekanbaru 6. Tracer Study Report of Peningkatan Jalan Soekarno - Hatta Pekanbaru 7. LARAP Report of Pembangunan Jalan Lingkar Ambarawa 8. Tracer Study Report of Pembangunan Jalan Lingkar Ambarawa 9. LARAP Report of Semarang Northern Ring Road, dated May 22,2006 10. LARAP Report of Cianjur Ring-Road, dated May 22,2006 11. LARAP Report of Ngawi Ring-Road, dated May 22,2006

93 Annex 13: Statement of Loans and Credits

INDONESIA: Strategic Roads Infrastructure Project

Difference between expected and actual Original Amount in US$ Millions disbursements

Project FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. ID Rev'd PO97535 2006 Community Recovery Through the 0.00 0.00 64.70 0.00 0.00 51.20 0.00 0.00 KDP PO77175 2006 ID-Domestic Gas Market 80.00 0.00 0.00 0.00 0.00 80.00 0.00 0.00 Development Proj. PO71296 2005 ID-USDRP 45.00 0.00 0.00 0.00 0.00 45.00 0.29 0.00 PO76174 2005 ID-Initiatives for Local Govern. 14.50 15.00 0.00 0.00 '0.00 28.65 0.00 0.00 Reform PO78070 2005 Support for Poor and 69.00 35.00 0.00 0.00 0.00 102.12 0.00 0.00 Disadvantaged Areas PO84583 2005 ID-UPP3 67.30 71.40 0.00 0.00 0.00 134.27 -0.34 0.00 PO85133 2005 Govt Fin1 Mgt & Revenue Admin 55.00 5.00 0.00 0.00 0.00 56.3 1 0.64 0.00 Project PO85374 2005 ID-HIGHER EDUCATION 50.00 30.00 0.00 0.00 0.00 78.29 0.00 0.00 PO92019 2005 Kecmatan Development Project 80.00 80.00 0.00 0.00 0.00 153.68 52.1 1 0.00 3B PO95883 2005 ID Reconstruction of Aceh Land 0.00 0.00 25.00 0.00 0.00 25.50 0.00 0.00 Adrnin Pro PO74290 2004 ID-E. IND REG TRANSPT 2 200.00 0.00 0.00 0.00 1 .oo 173.00 29.67 0.00 PO71318 2004 ID - Coral Reef Rehab and 0.00 0.00 0.00 7.50 0.00 7.02 0.43 0.00 Management I1 PO71316 2004 ID - Coral Reef Rehab and Mgmt 33.20 23.00 0.00 0.00 0.17 51.00 0.36 0.00 Prog I1 PO64728 2004 ID-LAND MANAGEMENT 32.80 32.80 0.00 0.00 0.16 59.38 6.46 0.00 &POLICY DEVT PROJECT PO59931 2003 ID-Water Resources & IrrSector 45.00 25.00 0.00 0.00 0.00 69.95 33.16 0.00 Mgt Prog PO63913 2003 ID-Java-Bali Pwr Sector & 141.00 0.00 0.00 0.00 0.00 136.84 88.09 0.00 Strength PO79156 2003 ID Third Kecamatan Development 204.30 45.50 0.00 0.00 0.00 74.20 33.78 0.00 Project PO76271 2003 ID-PPITA 17.10 0.00 0.00 0.00 0.00 13.14 10.23 0.00 PO73772 2003 ID-Health Workforce & Services 31.10 74.50 0.00 0.00 0.00 97.00 42.12 0.00 (PHP 3) PO72852 2002 ID- U P P 2 29.50 70.50 0.00 0.00 0.00 77.15 37.33 0.00 PO73970 2002 ID-GLOBAL DEV LEARNMG 2.66 0.00 0.00 0.00 0.00 1.68 1.68 0.00 (LIL) PO40578 2002 ID-EAST. IND. REGIONAL 200.00 0.00 0.00 0.00 0.00 41.30 39.64 0.00 TRANSPT PO49539 2001 ID-PROVINCIAL HEALTH I1 63.20 40.00 0.00 0.00 0.00 80.23 67.81 0.00 PO40528 2001 ID-W. JAVA ENVMT MGMT 1 1.70 5.75 0.00 0.00 0.00 7.68 6.81 1.72 PO73025 2001 ID-SECOND KECAMATAN 208.90 11 1.30 0.00 0.00 0.00 61.60 46.97 0.00

94 DEVELOPMENT PROJECT PO68051 2001 ID-GEF-W. JAVA ENVT MGMT 0.00 0.00 0.00 2.54 0.00 2.05 10.00 2.12 PO68949 2001 ID-LIBRARY DEVELOPMENT 0.00 4.15 0.00 0.00 0.00 0.56 0.00 0.00 PROJECT - LIL PO59477 2000 ID-WSSLIC I1 0.00 71.40 0.00 0.00 0.00 43.65 34.00 0.00 PO49545 2000 ID-PROVINCIAL HEALTH I 0.00 38.00 0.00 0.00 0.00 18.63 16.24 4.38 PO40196 1999 ID-SUMATRA BASIC 54.50 20.10 0.00 0.00 0.00 0.35 0.99 0.00 EDUCUATION PO41895 1999 ID-SULAWESI BASIC EDUC. 47.90 15.93 0.00 0.00 0.00 11.09 11.85 0.00 PO36049 1999 ID-EARLY CHILD 21.50 0.00 0.00 0.00 10.65 1.33 11.99 11.99 DEVELOPMENT PO40061 1998 ID - BENGKULU REGIONAL 20.50 0.00 0.00 0.00 5.00 4.63 9.63 4.63 DEVELOPMENT PO03993 1998 ID-SUMATRA REGL RDS 234.00 0.00 0.00 0.00 50.00 7.08 57.08 1.40 Total: 2,059.66 89.70 10.04 66.98 1,795.56 26.24 820.33 649.02

95 INDONESIA STATEMENT OF FC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. Approval 2004 BonaVista School 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 2003 Buana Bank 0.00 12.16 0.00 0.00 0.00 12.16 0.00 0.00 2006 Buana Bank 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1999 ITCF 40.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 LYON-MLF-Ibis 2.01 0.00 0.00 2.01 2.01 0.00 0.00 2.01 2004 Medan NP School 1.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 P.T. Gawi 11.50 0.00 0.00 4.07 5.35 0.00 0.00 4.07 1989 PT Agro Muko 0.00 2.20 0.00 0.00 0.00 2.20 0.00 0.00 1997 PT Alumindo 4.78 0.00 0.00 0.00 4.78 0.00 0.00 0.00 1989 PT Astra 0.00 0.20 0.00 0.00 0.00 0.20 0.00 0.00 1994 PT Astra 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 2003 PT Astra 0.00 0.12 0.00 0.00 0.00 0.12 0.00 0.00 PT Astra Otopart 0.00 0.70 0.00 0.00 0.00 0.70 0.00 0.00 2005 PT Astra Otopart 24.00 0.00 0.00 0.00 24.00 0.00 0.00 0.00 2005 PT Austindo N... 15.06 0.00 0.00 0.00 1.96 0.00 0.00 0.00 2000 PT Bank NISP 0.00 2.85 2.86 0.00 0.00 2.85 2.83 0.00 2002 PT Bank NISP 0.00 2.04 0.00 0.00 0.00 2.04 0.00 0.00 2004 PT Bank NISP 35.00 0.00 0.00 0.00 35.00 0.00 0.00 0.00 1997 PT Berlian 0.00 3.35 0.00 0.00 0.00 0.00 0.00 0.00 1993 PT Bina Danatama 0.07 0.00 0.00 0.00 0.07 0.00 0.00 0.00 1996 PT Bina Danatama 0.00 0.00 3.62 6.73 0.00 0.00 3.62 6.73 2004 PT Ecogreen 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2005 PT Ecogreen 25.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 PT Grahawita 0.00 0.00 5.00 0.00 0.00 0.00 5.00 0.00 1991 PT Indo-Rama 0.00 3.82 0.00 0.00 0.00 3.82 0.00 0.00 1995 PT Indo-Rama 0.00 1.57 0.00 0.00 0.00 1.57 0.00 0.00 1999 PT Indo-Rama 0.00 0.81 0.00 0.00 0.00 0.81 0.00 0.00 2001 PT Indo-Rama 20.00 0.00 0.00 0.00 0.33 0.00 0.00 0.00 2003 PT Indo-Rama 5.00 0.00 0.00 0.00 4.88 0.00 0.00 0.00 2004 PT Indo-Rama 48.00 0.00 0.00 0.00 14.00 0.00 0.00 0.00 1992 PT KIA Keramik 0.23 0.00 0.00 2.00 0.23 0.00 0.00 2.00 1996 PT KIA Keramik 1.65 0.00 0.00 53.49 1.65 0.00 0.00 53.49 1995 PT KIA Serpih 4.50 0.00 0.00 49.50 4.50 0.00 0.00 49.50 1997 PT Kalimantan 11.25 0.00 0.00 0.00 11.25 0.00 0.00 0.00 PT Makro 0.00 2.61 0.00 0.00 0.00 2.61 0.00 0.00 2000 PT Makro 0.00 1.25 0.00 0.00 0.00 0.79 0.00 0.00

96 1998 PT Megaplast 4.38 2.50 0.00 0.00 4.38 2.50 0.00 0.00 1993 PT Nusantara 0.00 0.00 10.16 7.90 0.00 0.00 10.16 7.90 2004 PT Prakars (PAS) 35.00 0.00 0.00 9.02 35.00 0.00 0.00 9.02 1997 PT Sayap 2.50 0.00 0.00 0.00 2.50 0.00 0.00 0.00 2001 PT Sigma 0.00 1.09 0.00 0.00 0.00 1.09 0.00 0.00 1995 PT Viscose 9.38 0.00 0.00 2.92 9.38 0.00 0.00 2.92 2004 PT Viscose 9.50 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1997 PT Wings 2.17 0.00 0.00 0.00 2.17 0.00 0.00 0.00 2003 SMM 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 200 1 Sunson 11.62 0.00 0.00 7.35 11.62 0.00 0.00 7.35 2005 WOM 0.00 20.00 0.00 0.00 0.00 19.93 0.00 0.00 2004 Wilmar 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 ~~ Total portfolio: 383.35 57.46 21.64 144.99 246.06 53.58 21.61 144.99

97 Annex 14: Country at a Glance INDONESIA: Strategic Roads Infrastructure Project

East Lower- POVERTY and SOCIAL Asia 8 mlddle- Development diamond' Indonesia Pacific Income 2005 Population, mid-year (millions) 221.3 1,870 2,430 Life expectancy I GNI per capita (Atlas method, US$) 1,240 1,280 1.580 GNI (Atlas method, US$ billions) 273.9 2,389 3,847 T Average annual growth, 1999-05 Population 1%) 1.4 0.9 1.o GNI Gross Labor force (%J 2.7 1.1 0.7 Per primary Most recent estimate (latest year available, 199905) capita enrollment Poverty (% of population below national povem line) 17 Urban population (% of total population) I 46 41 49 Life expectancy at birth (years) 66 70 70 Infant mortality (per 1,000 live births) 31 32 33 Child malnutrition (% ofchildren under 5) 27 15 11 Access to improved water source Access to an improved water source (% of population) 70 78 81 Literacy (% ofpopulation age 15+) 91 90 90 Gross primary enrollment (% of school-age population) 111 113 114 -Indonesia Male 112 113 115 - Lower-middle-income !arouD I Female 110 112 113

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1985 1995 2004 2005 Economic ratios' GDP (US$ billions) 87.3 202.1 254.3 287.2 Gross capital formation/GDP 28.0 31.9 23.2 22.2 Trade I Exports of goods and services/GDP 22.2 26.3 32.1 33.5 Gross domestic savings/GDP 29.7 30.6 27.9 26.6 I Gross national savings/GDP 49.2 56.3 24.9 23.4

Current account balancelGDP -2.2 -3.2 0.6 0.3 Domestic Capital Interest paymentslGDP 2.7 3.1 4.6 1.7 savings formation Total deb!/GDP 42.0 61.5 53.9 46.5 Total debt service/exports 28.8 29.9 -25.7 -27.0 Present value of debffGDP 1 Present value of debVexports Indebtedness 1985-95 1995-05 2004 2005 2005-09 (average annual growth) GDP 7.7 2.2 5.1 5.6 6.3 -Indonesia GDP per capita 5.9 0.8 3.6 3.8 4.9 Lower-middleincome arow I Exports of goods and Services 9.3 2.4 13.5 8.6 11.2

STRUCTURE of the ECONOMY 1985 1995 2004 2005 Growth of capital and GDP (%) 'I (% of GDP) 20 Agriculture 23.2 17.1 15.6 13.4 35.8 41.8 44.3 45.8 Industry 100 16.0 24.1 28.7 28.1 Manufacturing -'10 Services 40.9 41.1 40.1 40.8 I. -20 Household final consumption expenditure 59.1 61.6 63.7 65.2 -301 General gov't final consumption expenditure 11.2 7.8 8.4 8.2 -GCF +GDP

1985-95 1995-05 2005 1 Growth of exports and imports (Oh) (average annual gmwth) 40 1 Agriculture 3.4 2.4 4.1 0.6 Industry 9.7 2.1 3.9 4.2 2o Manufacturing 11.2 3.3 6.2 4.8 0 Services 7.9 2.2 6.8 9.1 -20 Household final consumption expenditure 6.5 3.3 9.4 7.4 4o General gov't final consumption expenditure 4.6 3.6 4.0 Gross capital formation 11.0 -3.4 6.4 4.2 -Exports +imports Imports of goods and services 8.5 0.0 27.1 12.3 I Note: 2005 data are preliminaly estimates.

98 Indonesia

PRICES and GOVERNMENT FINANCE 1985 1995 2004 2005 Inflation (%) Domestic prices (% change) 25 T Consumer prices 4.8 9.4 6.1 10.5 Implicit GDP deflator 4.3 9.7 6.3 13.7 Government finance (% of GDP, includes current grants) Current revenue 19.8 15.6 17.6 18.2 O' 00 01 02 03 a4 151 Current budget balance -2.3 7.8 7.4 7.6 1 -GDP deflator -CPI Overall surplus/deficit -1.0 4.1 -1.0 -0.5

TRADE 1985 1995 2004 2005 (US$ millions) Total exports (fob) 18,527 45,418 71,585 85,625 Fuel .. 10,465 15,803 19,155 Rubber .. 2,916 1,144 1,468 Manufactures .. 18,312 22,063 22,343 Total imports (cia 10,259 40,629 46,525 57,600 Food .. 3,022 3,786 3,888 Fuel and energy .. 3,007 11,797 17,429 Capital goods .. 16,290 12,175 13,949 99 W 01 02 03 M Export price index (2000=100) .. 24 107 124 Exports Imports Import price index (2000=100) .. 26 114 130 rn O5 Terms of trade (2000=100) .. 95 94 95 I

BALANCE of PAYMENTS 1985 1995 2004 2005 Current account balance to GDP (%) (US$ millions) Exports of goods and services 19,371 52,923 89,783 89,783 Imports of goods and services 17,840 54,461 79,116 79,116 14 Resource balance 3,062 -3,076 10,667 10,667 12 10 Net income -3,542 -1 1,748 -10,917 -10,768 8 Net current transfers 88 981 1,138 1,189 6 Current account balance -1,923 -6,431 1,564 930 4 2 Financing items (net) 2.433 9,578 -1,255 -1,315 0 Changes in net reserves -510 -3,147 -309 385 I 99 00 01 02 03 04 05 I Memo: Reserves including goid (US$ millions) 5,880 14,787 36,320 34,729 Conversion rate (DEC, local/US$) 1,110.6 2.248.6 8,938.9 9,504.0

EXTERNAL DEBT and RESOURCE FLOWS 1985 1995 2004 2005 Composition of 2004 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 36,715 124,398 137,024 133,482 IBRD 3,590 12,503 8,943 8,131 A 8,943 IDA 844 756 996 1,000 8:996 Total debt service 5,823 16,416 -23,647 -24,855 IBRD 384 1,875 1,931 1,865 IDA 12 26 34 34 Composition of net resource flows Official grants 273 501 29 134 Official creditors 980 1,129 -2,927 -3,017 Private creditors 154 2,303 554 -400 Foreign direct investment (net inflows) 310 4,346 -3,408 -3,118 Portfolio equity (net inflows) 0 1,493 4,409 6,084 World Bank program Commitments 1,068 1,312 773 900 A - IBRD E - Bilaleral

Disbursements 777 2,090 649 646 8. IDA D - Other muitilateral F ~ Private Principal repayments 133 975 1,389 1,417 C. IMF G - Short-term Net flows 644 1,115 -740 -771 Interest payments 262 926 576 482 Net transfers 382 188 -1,316 -1,253

Development Economics 4/10/06

99 Annex 15: Anti-Corruption Action Plan INDONESIA: Strategic Roads Infrastructure Project

Since 2003 all new projects supported by the World Bank in Indonesia have needed an agreed Anti-Corruption Action Plan (ACAP) in place. This particular ACAP builds upon experience in the sector over recent years. The main actions are stated below, and in an Action Plan Table that is arranged in accordance with six key elements, namely:

1. Enhanced Disclosure 2 Civil Society Oversight 3, Mitigation of Collusion Risks 4. Mitigation of Forgery and Fraud Risks 5. Complaint Handling Systems 6. Sanctions and Remedies

Increasing effectiveness of procurement procedures within MPW

One key area for corruption concerns is in the procurement process. Ongoing road sector projects (SRRP, EIRTP- 1 and EIRTP-2) have procurement at the local/provincial/ kabupaten levels involving local administrations in the procurement of about 300 NCB contracts per project. SRIP is a national government, national roads project with a limited number of works procurement packages (expected 2 1 ICB contracts for works) and all the procurement will be directly undertaken by MPW itself, whether physically in Jakarta or in the relevant province. This ACAP is built around this more “centralized” model which should lend itself to easier monitoring and a higher quality. The following procurement packages are expected.

0 Approximately 22 ICB works contracts (1 5 in first year) with an average value of US$lO million 0 Three goods contracts at a total approximate value of US$1.325 million

0 Few consultancy contracts including three large consultancy contracts for management namely the Core Team Consultant and Design & Supervision consultants.

The following procurement related aspects are introduced for SRIP:

0 E-procurement on the MPW official public web-site for both works and consultant services contract - “semi” e-procurement initially in line with the system already in place in MPW, full transaction based e-procurement when the new e-procurement system is launched (expected in July 2006) and assessed by the Bank to be acceptable. 0 MPW to hire a Procurement Advisor for the works contracts. Procurement Advisor to provide a set of services to ensure that procurement and award decisions are carried with measures to avoid collusion and fraudulent practices 0 MPW to hire a Procurement Agent for the four large consultancy contracts expected under SRIP including short listing, technical evaluation and contract negotiations 0 Revise and improve on the selection process and qualifications of Civil Society Representatives (current suggestion is to request assistance from local universities wherever this is appropriate)

100 0 External technical audits procured by MPW to assess on-going and finished works. 0 Inspectorate General role, responsibilities, facilities to be reviewed and strengthened where needed. 0 Review criteria for nominating procurement committees 0 Provide project implementers with needed facilities and budget

E-Procurement within MPW

MPW already has in place a "semi" e-procurement system for public bidding which is up to the limit ofwhat is currently allowed under current Indonesian law. In line with this "semi1' e- procurement system, MPW has agreed to use their official website www.pu.go.id for publishing key information related to SRIP , including: Invitation to Bid, download of bidding documents, bid clarifications, minutes ofbid opening, information on bid award. This level ofe-procurement is already in place for many of their current bids. MPW is technically ready to move to full transaction based e-procurement on enactment of a pending Presidential decree. After enactment of the decree or other relevant legislation MPW will, within three months, commence use ofa transaction based e-procurement system. This is being synchronized with the overall dialogue with the Government on e-procurement. Any use of transaction based e-procurement for SRIP will be compliant with the "E-Bidding Requirements for MDB Loans, Grants and Credits", May 2005.

Procurement Advisor within MPW

MPW will hire a Procurement Advisor with reporting responsibilities to the Inspectorate General of MPW. This Advisor is required to provide a set of services to ensure that procurement and award decisions for works are carried with measures to avoid collusion and fraudulent practices. The provider ofthese services will be a specialized reputable firm, preferably separated from the regular project management consultancies, but with access to national expertise and ability to mobilize staff at the provincial level. Short listing and selection ofthis firm will be scrutinizedh-eviewed by the Bank.

With regard to the first six works contracts, given that the Procurement Advisor will not yet be in place, the MPW will ensure that a public notary attends the bid opening, The public notary will hold in escrow the one sealed copy of each bid submitted and deliver directly to the Procurement Agent on his appointment. The MPW will ensure that the Procurement Agent reviews the bids and the bid evaluation report prior to submission to the Bank for no objection.

The scope ofthe services ofthis firm will be detailed further in a terms ofreference; however, at a minimum the assignment should include the following: 0 Assisting in setting and managing an e-procurement system for SRIP initially and with prospects for expanding to all World Bank-financed projects in the sector in line with government systems; 0 Developing measures/protocols to avoid collusive/fraudulent practices for bidding of works contracts based on experience in the country: discourse of all information, participation in the evaluation process, verification ofparticipation ofbidders, verification ofowners estimates versus submitted prices;

101 0 Setting up a monitoring system to capture salient information about contract processes, participating bidders, awarded contractors, variation in contracts, unit prices, etc. . . with the objective of identifying any collusive trends; 0 Ensuring all procurement processing and awarded decisions are carried within the agreed time frame avoiding delays and need for extension of bids validities; and 0 Reviewing the procurement system in MPW particularly with regard to consultant selection and work with MPW to develop a revised system

Procurement Agent within MPW

The history of the process for selection of consultants reveals long delays and weaknesses in the short listing and evaluation reports. In addition to delaying the project, such practices make these selection processes vulnerable to corruption. The need to mobilize the large consultancies in a timely, efficient and transparent manner will require specialized support to the MPW. The optimum form of this support is to recruit a Procurement Agent to carry the full selection process on behalf of MPW for the Core Team Consultant, Design and Supervision Consultant and Procurement Advisor. Given MPW concerns about legal issues, the Procurement Agent will carry all the required tasks (Le. short listings, evaluation, etc.) and will submit his recommendations to the procurement committee who will be expected to adopt them. The profile of this consultant should be an internationally reputable firm specialized in these services.

Anti-Corruption Action Plan as adopted by Ministry of Public Works

Enhanced Disclosure 1. The MPW will provide the following information in the PIP, PMM, the MPW website, and in the bidding documents: “The contact point for complaints related to the Strategic Roads Infrastructure Project: To : Directorate of Planning Ministry of Public Works Tel: Fax: e-mail: To: Inspectorate General Ministry of Public Works Tel: Fax: e-mail: To the World Bank Fraud and Corruption unit Email: [email protected] Website: http://www.worldbank,org/integrity If you prefer to remain anonymous, you may wish to make use of a free email service (such as Hotmail or Yahoo) to create an email account using a pseudonym. This way, we could correspond with you as necessary, to seek clarification or additional information. This would be helpful for us in pursuing your allegation. Through a Fraud and Corruption Hotline hired by INT for this purpose: (24 hourdday;

102 translation services are available) Toll-free: 1-800-83 1-0463 Collect Calls: 704-556-7046 Mail: PMB 3767, 13950 Ballantyne Corporate Place Charlotte, NC28277, United States” Each annual Work Program and the Procurement Plan will be published on the official website ofMPW and made available to the public as a part ofthe public disclosure policy ofthis project. MPW will publish a quarterly newsletter on the official website ofMPW including information concerning the list ofcontracts, implementation progress, project-related workshops and the number, typology and status of complaints for each location. MPW will send the quarterly newsletter to the civil society (e.g. NGO) forum in each project province in hardcopy or through an electronic mailing system. Guidelines on disclosure of information to the public on project and procurement activities shall be incorporated in the PMM, and will include the following key actions: a. The MPW will and the World Bank may make publicly available, promptly after completion ofa mid-term review ofthe project carried out in accordance with the loan agreement, the mid-term review report and the aide-memoire prepared for this purpose. MPW will also post this on the MPW official website within 2 months ofthe completion ofthe mid-term review. b. The MPW will and the World Bank may make publicly available promptly after receipt all final audit reports (financial or otherwise, and including qualified audit reports) prepared in accordance with the loan agreement and all formal responses of the government in relation to such reports. MPW will also post this on the MPW official website within 1 month ofthe report being accepted as final. c. The MPW will and the World Bank may : Make publicly available promptly after finalization all annual Procurement Plans and schedules, including all updates there to; MPW will also post this on the official website ofMPW within one month ofthe end ofthe fiscal year. Make available to any member ofthe public promptly upon request all bidding documents and requests for proposal (this provision does not include actual bids and proposals) issued in accordance with the procurement provisions ofthe loan agreement, subject to payment of a reasonable fee to cover the cost ofprinting and delivery. Each such document will continue to be made available until a year after completion ofthe contract entered into for the goods, works or services in question. Make available to any member ofthe public promptly upon request all shortlists of consultants. Actively encourage representatives of civil society groups to attend the public bid openings and other key procurement steps. Representatives of civil society will be included as observers and sign the attendance list for the Procurement/Selection

103 process. For works: (i)For the first six civil works contracts, if the Procurement Advisor has not been hired, then a public notary will (A) attend the opening ofbids, and certify the Minutes ofbid opening ofbids (B) send one copy ofthe bids (after the bid opening) to the PMUwithin 24 hours; and (C) keep in a safe place one copy ofthe sealed bids (after bid opening) and make available on request the copy ofthe bids and the minutes ofthe opening ofthe bids to the Procurement Advisor when hired (ii)For the remaining civil works contracts, the Procurement Advisor will do all ofthe above steps. For consultants services: (i)For the CTC consultants, the DSC consultants and the Procurement Advisor, a Procurement Agent will be used. (ii)For the procurement of the other consultants’ services where a Procurement Agent is not used, a public notary will be invited to officially witness the opening ofthe technical and financial proposals, and certify the Minutes of Opening oftechnical/financial proposals. The public notary will also keep in a safe place one copy ofthe technical proposals submitted by each consultant (once they are open), the sealed financial proposals (before they are open), and one copy ofthe financial proposals submitted (after they are open). In line with the Procurement Guidelines, within two weeks of contract award (Bank’s no objection) publish in UNDB online, dgMarket, on MPW website, and send to those who submitted bids, contract award information identifying the bid and lot numbers and the following information (a) name of each bidder who submitted a bid (b) bid prices as read out at the bid opening, (c) name and evaluated prices of each bid that was evaluated; (d) name ofbidders whose bids were rejected and the reason for their rejection; and (e) name ofthe winning bidders, and the price it offered, as well as the duration and summary scope ofthe contract awarded. Make available, promptly upon request by any person or company, a list of all contracts awarded in the three months preceding the date of such request in respect of s project, including the name ofthe contractor / supplier / consultant, the contract amount, the number ofbidders / proposes, the procurement method followed and the purpose ofthe contract The MPW will establish a webpage within the official website ofMPW that provides monthly updated information on project activities. This information would include, for each province or district, inter alia : nature ofcontracts awarded (estimated cost, scope of works, contractor details); current estimate ofthe progress of implementation (e.g. gross estimate of completion as a percentage ofworks to be carried out); other project-related activities such as workshops; data concerning complaints and remedial actions Civil Society Oversight MPW will actively encourage representatives ofcivil society groups to attend public bid openings and other key procurement steps. Civil society observers may be invited from local universities or other independent institutions. Experience in other projects strongly suggests that the unit being monitored should not control the selection and briefing of such representatives, therefore a third-party, the Inspectorate General, acting on behalf ofthe Project, may be required to perform these roles. Details concerning the selection and

104 briefing ofrepresentatives must be recorded at the national level. Guidelines on appropriate procedures will be provided in the PMM. The MPW will establish a mechanism whereby the media and civil society groups can become involved in monitoring the progress ofthe project including implementation. This mechanism will include regular sharing ofinformation with the media. Copies ofpress clippings (etc.) will be sent to the national level for discussion and filing. Regular (e.g. annual) Accountability Meetings will be held to enhance accountability and sharing of information. The first of these will occur at the province level, before procurement of contractors or service providers, so that any civil society and community representatives required for the procurement processes (etc.) can be selected in a transparent manner. Each meeting must be properly organized and the agenda widely distributed amongst interested parties. Mitigation of collusion risks Works contracts. MPW will hire a Procurement Advisor to support the management of the procurement of goods and works for the Project 0 MPW will use “semi” e-procurement and publish on its official website for all works contracts: o all Invitations to Bid, o bidding documents and drawings, o clarification of bids, o bid opening minutes, o information on contract award. Manual system will continue to run in parallel for contractors who wish to use it. 0 Bidding documents will be available for download on-line. No charge for electronic documents. 0 “Procurement Advisor” to certify the documents are on-line prior to the issuance of the Invitation to Bid and remain available to bid opening. 0 No pre-qualification 0 List of bidders remains confidential until bid opening. 0 No Pre-bid meetings. The specifications shall be defined clearly in the bidding documents. Clarifications can be sought through written correspondence and replies will be sent to all bidders. Appropriate guidelines providing for this will be prepared. 0 “Procurement Advisor” to be present to observe the bidding process and opening

0 Bids to be under control of “Procurement Advisor” during the “Bid Submission Period”. 0 Two sealed copy ofthe bids submitted to be kept by “Procurement Advisor”, which will send one sealed copy to PMUwithin 24 hours to be kept by PMU. 0 “Procurement Advisor” to immediately check the bids for any signs ofcollusion (using tracking software) and to certify the minutes to be submitted to Procurement Committee, and copy to the PMU.

0 Bid Evaluation Report to be complete and submitted within 4 weeks and prepared by “Procurement Advisor” to be submitted to Procurement Committee, and copy to the PMU. 0 Bids awarded within original bid validity period. Any extension of bid validity period for the second time or for cumulatively greater than 8 weeks requires Bank no

105 objection. Bank would not provide such no objections. No rebids. If needs a rebid due to corruption and/or collusion, Sub-project is not eligible for financing. MPW to use FIDIC arrangements with the independent supervision consultant having responsibility as the "Engineer" in the works contract. 0 MPW will track the following indicators from the bill ofquantities of the SRIP contracts and eight randomly selected ABPN financed contracts and report in the quarterly Progress Report: bid price of concrete, bitumen, Consultant services. MPW will hire a Procurement Agent to assist Procurement Committee to undertake the procurement ofthe consulting services for the project. This is zxpected to apply to three key consulting contracts for consulting services. MPW will use "semi" e-procurement and publish on its official website for all consultant :ontracts 0 Shortlisting: New process for shortlisting. 0 Request for Proposals. Only the CVs of key personnel with be requested and evaluated up to about 10 staff. (Currently up to 100 CVs have been requested and evaluated making this a very mechanical process). NCB procedures. No NCB procurement of works is expected. The clarification ofNCB procedures following Keppres 80/2003 to be acceptable by the Bank is included in the Legal Agreements. Following such clarifications, the implementation plan includes:

0 Advertisement in national newspapers 0 Removal ofgeographic and other restrictions Use ofpost-qualification which allows participation by bidders without any restriction Advertisement of bids. The MPW will employ a standard agreed format (minimum column size=lO) of advertisement and place in a nationally circulated newspaper, on the MPW official website. on the UNDB on-line and dn Market websites. Project Managers. Project Managers to be assigned based on agreed qualifications as stated in MPW criteria reauirements to be Dut in the Proiect Mananement Manual. Guidelines for preparation of specifications / selection criteria in the Bidding Documents / request for proposal will be prepared to ensure compliance with Bank guidelines. This will include suggestions to conduct simple surveys on available products in the market and the alternative ofhiring consultants for procurement ofworks / services to define the specification / terms ofreference. Guidelines to prepare owner estimates, particularly for consultancy work will be defined. This will include the requirement to provide a detailed breakdown of estimates, suggestions to conduct simple market price surveys, maintaining data base of survey results and previous purchases under EIRTP-1 and EIRTP-2, which will be accessible to all Implementing Units A narrative justification of each shortlisting will be required for proposing shortlists for prior review contracts. Guidelines on preparing these justifications will be prepared Public openings for ICB and QCBS processes will be attended by the Procurement Officer / Treasurer / civil society representatives. The reports / records ofpublic openings for all prior review contracts shall be submitted promptly to the Bank (2 x 24 hours) The MPW will provide guidelines and training on how to conduct clarifications /negotiations that are in line with the Bank guidelines.

106 The MPW will prepare guidelines and training on monitoring contract implementation. Mitigation of Forgery and Fraud Risks 3ach Project Implementation Unit will include a qualified procurement specialist / officer md financial management specialist / officer The MPW will establish procedures to maintain proper project and procurement filing ncluding filing ofadvertisements, bidding documents, evaluation reports, contract award md final contract documents. rimelines for procurement decisions will be agreed between GO1 and the Bank to establish service standards and avoid procurement delays to reduce opportunities for corruption. These will be clearly stated in the Project Management Manual. The MPW will establish procedures for regular review of accounting reports including all supporting documents (Le. travel report, receipts, etc.) Guidelines for submission ofcomplete documentation required for requests for payments [SPP) to KFKN will be prepared by MOF via Circulated Letter ofDG Treasury MOF to all KPPN. The MPW shall conduct regular interim audits by third parties, which will include review of procurement process andprocurement results (end use checks, quality and quantity of acquired goods / works / services, verification ofpayments, price comparison between contract mice and market mice. etc.). The MPW shall conduct training as needed to improve the capability ofkey personnel at all levels. This will include, as necessary, aspects ofprocurement, financial management, design, and supervision ofimplementation. The design capability and the quality of design will be improved in order to avoid any design review in post contract signing. The MPW shall delegate the authority for supervision of works by stating clearly and in detail the bidding/contract document the authority for Engineer’s and Engineer’s Representative. Complaint Handling System A complaints handling mechanism, which includes maintaining a project complaint log and filing to monitor status of follow up of each received complaints, will be established by the implementing Agency and the Bank. The mechanisms will include provision for follow up investigations of substantial complaints by the internal Auditors, or third party audit to ensure independency and reliability ofthe system.

All complaints received shall be responded to by the Project Implementation Unit (PIU) within 7 days of receipt, with copy to PMU, World Bank and DGRI.

All complaints handling component will be included in the website to be established for the project. This will be updated on a monthly basis.

For the complaint mechanism to function, it is essential that information concerning the alternative conduits for complaint (telephone hotline’, dedicated email ad+ and PO Box) is widely disseminated.

Strict procedures to ensure anonymity ofinformants will be enforced.

Recording and appropriate referral of all incoming complaints will be undertaken by the

107 Implementing Agency with each case generating an automatic, standard format report to the Bank.

Tracking ofthe status of investigations and measures taken will be reported in monthly reports to management and the Bank. Complaints deemed possible serious infringements may be further investigated by the Bank. Sanctions and remedies Remedies for non-compliance with agreed time-lines for procurement decisions / service standards will be established and will include the following remedies : An Evaluation report must be submitted to the Bank within four weeks of bid/proposal submission. Failure to do so will be deemed to be a failure of due diligence; timely and appropriate action acceptable to the Bank will be required to remedy the situation. 0 Request for extension ofbid validity for 8 weeks beyond the original validity will quire the Bank's prior approval. Bank will not give such no objections. The MPW will establish the remedial actions and sanctions for cases of fraud and corruption that are reported and for which evidence is found. This will include sanctions to staff proven to be involved in such cases. In all contracts, evidence of fraud, corruption, collusion and coercive practices will result in termination ofthe relevant contract, possibly with additional penalties imposed (such as fines, blacklisting, etc. in accordance with Bank and/or Government regulations and may result in suspension of disbursement of funds with respect to that contract. Any entity that is found to have misused funds may be excluded from subsequent funding. Information regarding such cases, where lessons are learned and funds are retrieved, will be widely disseminated. Disbursement to any given contract/location can be suspended or stopped completely if cases of corruption are not dealt with effectively.

108 World Bank supervision

The World Bank team will supervise implementation of the six elements, through inter alia:

Disclosure of information will be supervised mainly through (a) checking the frequency and comprehensiveness of website updates and, (b) checking the distribution of materials to key CSOs in participating provinces.

Civil societv oversight will be supervised mainly through (a) reviewing the attendance of CSOs in Public Accountability Meetings and (b) reviewing the inclusion of CSOs in project activities, particularly in monitoring procurement.

Mitigation of collusion risks will be supervised mainly through (a) tracking key data related to procurement (e.g. unit costs, schedules) and (b) periodic analysis ofall bids that have suffered from collusion, to identify weaknesses in the system.

Mitigation of forgery and fraud risks will be supervised mainly through (a) reviewing the findings of strong technical and financial audits, to be held during (interim audits) and after (post audits) each year for a significant sample and (b) reviewing incoming remarks from third party observers/monitoring.

The complaints handling system will be supervised mainly through (a) periodic review of statistics based on problem typology, severity and location, and (b) field level checks to ensure that problems are being reported and acted upon.

The system ofsanctions and remedies will be supervised mainly through (a) periodic review ofthe sanctions that have been enforced by the project based on typology, severity and location, and (b) periodic review ofsanctions enforced by agencies external to the project such as the police, attorney general and Corruption Eradication Commission.

As a part ofthe work ofthe Bank-executed External Supervision Team, outlined in Attachment A below, there will be a need to make comparative studies/evaluations between “project and non-project” activities. The government is therefore requested to make information regarding SRIP and similar activities available to the Bank

External Supervision of Roads Projects - Enhanced WB Supervision

This note focuses on the External Supervision Team or EST which will assist the Bank to supervise the project and carry out related tasks. The team may be mobilized under one or more contracts, depending on need, under a Bank-executed trust fund.

The primary function ofthe proposed EST is to advise and support the Bank and the Bank’s internal Anti-Corruption committee for Indonesia (ACI) in supervision, specifically to help identify the risks offraud and corruption at an early stage, and to bring these to the attention of the Bank and Government institutions for further processing. The EST will include a dedicated

109 core team ofexperts with additional members “on call.” This team must possess strong skills for successful field and desktop reviews - including financial, procurement, accounting, legal and technical. The focus ofthe services will be the SRIP, assisting the TTL and ACI primarily through:

1. Identifying and tracking simple indicators of corruption. Starting with the procurement process through implementation. These, indicators will include those related to quality and cost as well as those related to the critical path of Sub-project timelines. The aim is for the Bank to catch problems earlier than would otherwise be possible, ideally before funds are put at risk. The experts will prepare and implement processes for collection and analysis of relevant, easily available data - including comparative analysis ofthe data against that originating from comparable non-SRIP sources (e.g. other MPW activities). They will also assess data entry to help ensure that it is entered correctly and in a timely fashion. They will also help to coordinate remedies with project management.

2. Helping with supervisorv reviews ofthe proiect’s progress, through Sub-project site checks, both on a periodic and troubleshooting basis. The TTL will have a high degree of flexibility in deciding which locations are visited, the type ofreview and the frequencyhiming ofvisits. The main purpose of this is to allow site reviews to take place at strategic times between the formal supervision missions. These reviews will cover the entire range, from simple checks on progress to a small number oftargeted, international quality, forensic audits. Particular attention will be given to shortcomings in quality ofwork during implementation and fiduciary risk flags. This holistic set of supervision support services is considered vital because recent Bank investigations have found recurring cases ofpoor project-based implementation supervision and output quality due to corruption in some recent roads projects. It has also been noted that increased frequency of audits can have a preventative effect, indicating that Sub-projects “being under the spotlight” has a positive impact.

A second set of functions relate to the Bank’s stated enhanced disclosure functions, primarily:

1. Summarizing key data for the TTL/ACI for internal use and for public consumption. Materials for external dissemination will include all those items highlighted in the ACAP and any others that the TTL determines with government counterparts. As a part ofthis work the experts will establish an independently maintained and publicly accessible website, with key project implementation information to facilitate public oversight. They will also assess possibilities of direct collaboration with local media groups. Preparation of external information will be done in consultation with the External Affairs (EXT) team in the WBOJ. Different possible methods for information dissemination will be assessed on behalf ofthe TTL/ACI. Internal reports will include information regarding suspected problems and cases.

2. Disclosing proiect information to civil society and encouraging civil society interest in the proiect. The EST will work closely with the TTL, the ACI and the EXT team, to design disclosure and networking processes related to the project. Beyond simple dissemination of information, these processes should contain opportunities for civil society to give feedback and pose questions to the TTL and project management. This work will include the design of possible supervisiodmonitoring activities that can be carried out by civil society in relation

110 to the project. It is necessary to provide access to reports and other data to key civil society groups through newsletters and other dissemination ofreports. To this end the experts will develop a list ofinterested civil society groups along with suggestions on how to foster improved information dissemination to them. As mentioned above, they will help the project to access media networks, particularly radio and print media, and encourage investigative journalism. They will also develop and implement strategies to develop linkages, with civil society, including mechanisms to encourage civil society organizations as voluntary monitoring bodies, and the issuance of contracts for specific monitoring services. The experts will also channel feedback from meetings with civil society back to the WB and PMU.

The EST will also assist the WBOJ, particularly the ACI and EXT in:

1. Designing Complaint Handling processes to strengthen the Bank’s own systems and to the extent possible link with and support the office ofthe Inspectorate General (IG) of MPW. The EST will develop a system for the Bank to receive, classify and prioritize complaints from any source for suspected fraud and corruption at any stage ofthe project. The system must ensure fast referrals ofcases and transfer of information to the BPWKPK, and close tracking and processing of cases of suspected fraud and corruption in the selected projects. The system should provide wide and open access to complainants, including beneficiaries of projects, civil society and public: contact information for the system will be widely publicized in all project locations. Standard operating procedures will be developed for handling complaints. These will include data entry monitoring to help ensure that it is entered correctly and in a timely fashion. The EST will prepare periodic reports for Bank management (TTL, ACI) with copies to BPK and KPK and help to monitor the status ofthe complaints referred to external agencies. Linkages to the system in the office ofthe IG should be encouraged in order to emphasize the importance ofthe IG in handling incoming the complaints.

2. Designing mechanisms for coordination with institutions. The EST will help the Bank to coordinate with BPK and KPK. They will provide access to working papers, as requested, to enable BPK to endorse or certify reports and forward them to KPK. The External Monitoring Team will not investigate or prosecute cases, but it will provide the Bank’s INT (Department of Institutional Integrity) section and the BPWKPK with information related to suspected corruption cases. The experts will ensure that all evidence ofcorruption or fraud found during reviews will be diligently documented or recorded in other media, for possible later use by the INT and/or the IG, BPWKPK. The EST will also accommodate participation of INT, IG, BPK and KPK team members in reviews where requested and appropriate. The EST will also help the Bank to prepare materials that can promote harmonization with other donors in relation to anticorruption measures.

External Supervision Team Timeline

Month 0 to 4 - starting prior to SRIP being launched 0 Mobilize consultant team 0 Design and test indicators and supervision strategy, prepare tools (e.g. checklists) 0 Summarize project preparation, procurement and launch materials

111 0 With the office ofthe IG, design Complaint Handling System 0 Prepare draft communications and networking strategy for the TTL, including mechanisms for CSO feedback (create and update list ofinterested CSOs) 0 Preparation and launch ofwebsite 0 Design possible support and coordination strategy with IG, BPK and KPK.

Month 5 to 10 - overlapping with first cycle procurement and implementation 0 Continue improving and consolidating new systems 0 Use indicators to track procurement and implementation 0 Start routine supervisory reviews and troubleshooting reviews as requested by TTL 0 Prepare case information for the TTL, INT, IG, BPK and KPK as appropriate. 0 Design and test mechanisms for coordination with BPK and KPK (etc.). 0 Fully hand over Complaint Handling System to the IG.

Month 11 to 12 - wrapping up first year 0 Continue improving and consolidating new systems 0 Hand over all other systems to Bank and/or Government of Indonesia as appropriate

Parallel Activities

During this same period discussions will continue between the MPW the Bank, KPK and the BPK concerning the strengthening oftheir respective roles in relation to Bank-assisted projects, particularly in sectors deemed vulnerable to corruption problems. These discussions will include two key areas ofconcern. The first, requested by the Minister of Finance, is to identify means of applying greater positive incentives within the MPW, to encourage fairer practices that will give meaningful benefits to those who do not engage in corrupt practices. The second set ofissues relates to sanctions, with particular emphasis on the strengthening of investigations and prosecutions.

112 JUNE 2006 JUNE 15 0 Banda Aceh

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Simeulue Sea MYANMAR

Pematangsiantar

1 Nias THAILAND

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Gulf of Enggano 4

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Batam M CAMBODIA Jambi For detail, see IBRD 34583 SINGAPORE 7 105

Serang A

Palembang Lingga Tanjungpinang 8 For detail, see IBRD 34586 ° 10 Bandar Lampung For detail, see IBRD 34584

Bogor Anambas

Bandung Bangka

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, of The World on the part Bank Group, any judgment on the legal status of territory, or any endorsement or acceptance of such boundaries. Pangkalpinang For detail, see

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11 Besar JAKARTA VIETNAM 9

Pontianak A Cilacap For detail, see

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Cirebon Surakarta Y 12 13

Semarang

S JAVA 19 Malang For detail, see Palangkaraya

IBRD 34588

KALIMANTAN I Banjarmasin

BRUNEI 14 Madura A Surabaya INDONESIA 20

Denpasar Bali 15 Balikpapan

21 Lombok 22 0 400 200 0 Mataram 16

Samarinda Sumbawa Makassar KILOMETERS Tarakan Parepare Waingapu

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Sumba Sulu ° Sea ° 17

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PHILIPPINES Java Sea Java

27 Celebes

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PROVINCES: Waigeo 9 8 7 6 5 4 3 2 1 BANTEN BANGKA-BELITUNG LAMPUNG SOUTH SUMATRA BENGKULU JAMBI WEST SUMATRA RIAU NORTH SUMATRA D.I. ACEH Fakfak

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STRATEGIC ROADS INFRASTRUCTURE PROJECT To Painan

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017-0 D.Kerinci Siulakderas 025-0 016-0 018-0 Bts.Sumbar

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Muaratembesi SOUTH 028-0 011-1 011-2 006-1 103 103 Durian Luncuk ° ° Sp.Mersam 021-3 005-0 S.Bahar KUALATUNGKAL 002-2 MUARABULIAN 021-2 K.Mandalo Sp.Tuan 004-0 Pmt.Lumut 021-1 032-K3 Pal X 031-3 031-2 023-0 003-0 002 JAMBI Sp.Lagam 031-1 Tempino 001

022-1 To Palembang 032-K2 02 30 Kilometers 20 10 0 Bts.Sumsel Sp.Kenali Pudak Tl.Duku Sp.Gelam 011-3 032-K4 033-1 22.90 km. - Betterment Muarasabak Bts.Sumsel Peta Ling/ PROVINCE BOUNDARIES KABUPATEN BOUNDARIES PROVINCE CAPITAL KABUPATEN CAPITALS DISTRICT (KECAMATAN) CAPITALS PORTS LINK NUMBERS MAIN ROADS 13. PALMERAH

022-2 Selat Berhala 104 104 ° ° Suakkandis 033-2 033-3 Simpang Nipah Panjang

1 2 3

° ° ° IBRD 34583 IBRD JUNE 2006 JUNE 4 5 3 2 °

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INDONESIA To Manna 103 103 Sp.Periuk Tugumulyo Tanjungraya Pagar Alam 50 Maur Karangdopo ° ° SUMATRA Tl.Padang Belalan Ma.Beliti Jalinteng Tebingtinggi Mangunjaya Tanjungsakti Bts.Bengkulu Ujanmas Pauh LAHAT

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n Sungaiselan

Pudingbesar Pudinggebag g

k Belinyu a Lumut Lampur 106 106 Katis Payung Ka.Mapur ° ° Bedukang Puput SUNGAILIAT Pangkalpinang Namang Airbara Koba Toboali

PROVINCE BOUNDARIES KABUPATEN BOUNDARIES PROVINCE CAPITAL KABUPATEN CAPITALS DISTRICT (KECAMATAN) CAPITALS PORTS AIRPORTS MAIN ROADS

ntelglsau faytrioy or status of any territory, on the legal This map was produced by the h onais oos denominations The boundaries, colors, n n te nomto hw on other information shown and any this map do not imply, on the part of The World Bank Group, any judgment any endorsement or acceptance of such boundaries. Map Design Unit of The World Bank. 107 107 ° ° TANJUNGPANDAN Membalong Tj.Kelayang Perawas 4

5 3 2

° ° ° ° IBRD 34584 IBRD JUNE 2006 JUNE 4 6 5 °

° °

This map was produced by the Map Design Unit of The World Bank. h onais oos eoiain n n other information shown denominations and any The boundaries, colors, on this map do not imply, the part of The World Bank Group, any ugeto h ea ttso n ertr,or any endorsement status of any territory, judgment on the legal acceptance of such boundaries. 103 04 60 Kilometers 40 20 0

STRATEGIC ROADS INFRASTRUCTURE PROJECT BENGKULU ° 011-3 PROVINCE BOUNDARIES KABUPATEN BOUNDARIES PROVINCE CAPITAL KABUPATEN CAPITALS DISTRICT (KECAMATAN) CAPITALS AIRPORTS PORTS LINK NUMBERS MAIN ROADS LAMPUNG

INDONESIA To Manna BANDAR LAMPUNG

Bernung Kotabumi Bts.Bengkulu

023-K To 001-1K Hanura 062-1

Sp.Gn.Kemala

031-K INDIAN 12. BANDAR LAMPUNG BYPASS OCEAN 001-2

059-1K Branti Pugungtampak Tl.Betung Karang Pl.Panjang Sp.Tj. 18.10 km. - Capex Krui 061-1 021-K Jatimulyo Sp.Slt.Agung 080-1K Kotabatu 009-2 104 104 Sp.Pugung Sp.Tiga 053-0 °

009-1 Metro 022-2K

055-0 To 008-0 Biha

022-1K Kalianda Sukabumi LIWA

010-0

Bergen To Sukabumi 088-0 Bts.Sumsel 087-0 Giham

Suoh To Baturaja

Sanggi SOUTH SUMATRA Bengkunat 007-0 091-0 Kasui Banjit 012-0 Bukitkemuning Pubung Tambak 090-0 010-0 Sp.W.Tuba 028-0 Ulubelu 026-3 096-0 Sp.IV 011-0 Blambanganumpu 026-2 Wonosobo 006-0 984-0 Sp.Bjt. Gn.Labuhan 029-0 Tekat Agung Kota- 005-0 048-0 Ajikagungan

083-0 Tl.Padang LAMPUNG Sp.Kuripan 026-0 Air Naningan Sp.Kotabumi 089-0 Srirejeki Negara Ratu Ketapang Serupaindah KOTABUMI 028-0 070-0 Sukamara Putihdoh R.Tijang 049-0 025-0 047-0 Pardasuka Sukoharjo 030-1 Pringsewu Pakuanratu 030-2 Padangratu Bd.Baru 092-0 082-0 077-0 Jt.Ringin 093-0 050-0 051-0 071-1 Panarangan Sp.Kotabumi

Pmt.Panggang 095-0 To Palembang 076-0 Kelapa Parjama Tajab Tl.Jukung Tujuh 105 024-0 105 Sp.Tujak 025-0 004-0 027-0 045-0 Kedondong Dy.Murni Bd.Abung ° ° 081-0 052-0 044-0 086-0 Napal 079-0 Mesuji E Gd.Tatakan LAMPUNG Tbg.Besar Wates Gn.Sugih 076-0

Bdr.Jaya BANDAR 065-0

Branti Selat Sunda Wates 064-0 046-0 023-0 Hanura Manggala 002-0 003-0 013-2 Pd.Cermin 071-2 Sp.Gd.Ajibaru 074-0 Mesuji Sp.Tl.Randu Tegineneng 075-0 Sp.Penawar Sp.Asahan 094-0 013-1 001-2 Gunungbatin 015-0 Kt.Gjh. Bj.Tenuk Sp.Msj.D 040-0 014-0 031-0 062-2 042-0 Sp.Tj.Karang Hd.Mulyo Sp.Pematang 080-1 080-2 Gd.Dlm. Sp.Mataram METRO Km.10.30 Kibang Sp.Unit VII Umbulbayur 062-1

062-1 See inset Sp.Msj.B 038-0 Sukabumi 073-1 043-0 072-0 055-0 R.Raya Mandala 022-3 Pg.Raharjo Sp.Kalianda 017-0 KALIANDA Gd.Ajibaru Bumijawa 056-0 063-0 039-0 057-0 Babatan Raman Utara Bergen 018-0 085-0 058-0 Tj.Kari 041-0 033-0 018-0 073-2 Kt.Dalam Sribawono Sukadana Jabung Purbalingga Wiralaga 056-0 035-0 Gayam Kunir 066-0 Blambangan 036-1 Wana 036-2 054-0 Seputih Surabaya 037-0 Gd.Aji Asahan Teladas Tj.Aji Palas 019-0 019-0 020-0 Sp.Sribawono Bakauhuni Rawajitu 068-0 Ketapang Sp.Kemuning 069-0

034-0 Lb.Maringgai

Java 106 Sea 106 ° °

5 6 4

° ° ° IBRD 34585 IBRD JUNE 2006 JUNE 7 6

° °

10. CILEGON-PASAURAN (Sec. 1) (SUMATRA) LAMPUNG 17.10 km. - Betterment Sumur 50 Ma.Binaungeun 099-0 Pasauran Labuhan 115-0 027-1 093-0 026-2 Cibaliung Sp.Labuhan 026-1 027-2

Merak

PANDEGLANG BANTEN Anyer Kidul 033-0 Saketi 001-0 106 106 SERANG ° ° 002-0 028-0 Cilegon 032-0 Simpang Bojonegoro 034-0 RANGKASBITUNG Gn.Madur Cibareno 029-0 Bayah 030-0 Palima P.Manuk 003-0 Cikotok 035-0 Uj.Genteng 031-0 082-0 Cikande 119-0 STRATEGIC ROADS INFRASTRUCTURE PROJECT 087-0

037-3 Cisolok INDIAN OCEAN 103 Jampangkulon Bagbagan Cigelung TANGERANG Sp.Bitung Curug Sp.Kr. Hawu 037-2 102 038-2 031-0 Muara Pel.Ratu 037-1 Gajrug Jampangtengah 104 Serpong Tegalbuleud Ciledug Sawangan Cikembang Surade 101 BANTEN AND WEST JAVA 038-1 041-1 039-0 Cibadak 104 BOGOR JAKARTA Warungbanten 040-0 015-0 071-0 100 Cibinong 128-0 Kreo 105-0 Parung Ciputat Ciawi 043-0 044-0 P.Gede 014 041-2 042-0 Cikembar Agrabinta 016-0 Cimanggis Cibubur Citeureup 6. CIANJUR RING RD. 7.5 km. - New Road Sagaranten INDONESIA SUKABUMI 107 107 Bts.DKI 129-0 CIANJUR Batujaya 16.SOEKARNO HATTA BANDUNG Cileungsi Jatiasih 045-0 005 092 098 ° ° BEKASI

091 WEST JAVA 095-2

11.25 km. - Betterment 046-1 Java Sea Sindangbarang 046-2 Cidaun Bojongpucung 006-0 095-1 Sukanegara Tj.Pura Rancabali 017-0 Selaiambe 097-0 1. KARAWANG BYPASS 11.47 km. - New Road Jatiluhur KARAWANG 094-0 007-0 079-0 047-0 Larang 131-0 Pangalengan PD Malabar Purwakarta 078-0 107-0 PURWAKARTA Sadang Cilauteureun 080-0 Sp. 048-0 Cikampek Rancabuaya 008-0 BANDUNG Cimaung Sp.Cikajang Cagak Sanca Pamanukan 084-0 075-0 Jatisari 077-0 019-0 Cipatujah 124-0 Cileunyi SUBANG 020-0 052-0 076-0 051-0 106-0 Wr.Kalde Cikamurang 050-0 Nagreg GARUT 009-0 074 SUMEDANG TASIKMALAYA 108 108 Wado 121-0 056-0 Cijelag Jangga Rajapolah 054-0 ° ° 118-0 118-0 011-3 108-0 Malangbong Jatibarang 070 Lohbener 068-9 INDRAMA Kadipaten 057-0 058-0 072-0 Cikijing Ancol PROVINCE BOUNDARIES KABUPATEN BOUNDARIES NATIONAL CAPITAL PROVINCE CAPITAL KABUPATEN CAPITALS DISTRICT (KECAMATAN) CAPITALS AIRPORTS PORTS LINK NUMBERS MAIN ROADS Palimanan 023-0 068-0 Cimerak MAJALENGKA 010-0 025-0 Sumber 060-0 073-0 Kelapagenep 011-0 CIAMIS 110-0 109-0 064-0 065-0 061-0 5. KARANGAMPEL-CIREBON Banjar 081-2 Pangandaran Cigasong Karangampel Oleced 28.51 km. - Betterment 081-1 Ciracas KUNINGAN Cibingbin 067-0 012-0 111-0 063-0 062-0 Bts.Jateng CIREBON 013-0

066-0

CENTRAL 112-0 JAVA Bintaraharja Losari

7 6

° ° IBRD 34586 IBRD

JUNE 2006 JUNE To Banjar

8 7

WEST JAVA ° °

9. PEJAGAN-LOSARI (Sec.1) 9. PEJAGAN-LOSARI To Cirebon + KABUYUTAN BRIDGE 0.05 km. - Bridge 9.43 - Betterment Salem Losari Cilapodang STRATEGIC ROADS INFRASTRUCTURE PROJECT Bangtarkawung Kubangkangkung Pejagan Sidareja Melahaju AIRPORTS PORTS MAIN ROADS 7. BREBES-TEGAL BYPASS7. BREBES-TEGAL Djatibarang 17.05 km. - New Road BREBES Adjibarang Bulakamba Gumilir 109 109 Balapulang Prupuk PURWOKERTO CILACAP ° ° Bumiayu Wangon Baturaden Pulosari TEGAL CENTRAL JAVA SLAWI Tuwel Moga Pagiringan 18. PEMALANG BYPASS18. PEMALANG PURBOLINGGO INDONESIA Buntu Bodaskarangdjati 7.00 km. - Capex PEMALANG Banyumas Sukaradja Pajung

Randudongkal Gombong CENTRAL JAVA Mundong PROVINCE BOUNDARIES KABUPATEN BOUNDARIES PROVINCE CAPITALS KABUPATEN CAPITALS TOWNS BANDJARNEGARA Kadjen Penggarit KEBUMEN Sigedang Mandiraja PEKALONGAN Karanganjar Karangtengah BATANG Tenggalar Kendungwuni WONOSOBO Lundong Tempuredj 19. MAGELANG-KEPREKAN Batur SEMARANG-PEKALONGAN (PBC) 8.60 km. - Capex 17. SEMARANG-KENDAL (PBC) 17. SEMARANG-KENDAL Djagalaja Kulong Dieng Banjuputih PURWOREDJO 100 km. - Maintenance 10.40 km. - Betterment Lebo

110 110

TEMANGGUNG INDIAN OCEAN 22. AMBARAWA RING ROAD ° ° KENDAL Sukoredjo Muntung 7.30 km. - New Road WATES Parakan YOGYAKARTA Kedungsurem Kebonongan Naggulan 2. SEMARANG N.2. SEMARANG ROAD RING BANTUL Galur Sentol Pudakpajung MAGELANG Ambarawa UNGARAN 2.23 km. - Capex Keprekan SEMARANG

SLEMAN

Kalasan YOGYAKARTA Imagiri BOYOLALI Bawen 8. SEMARANG-DEMAK Kedungmalang Salatiga Piyungan

Dukun

20.11 km. - Capex

Java Sea D.I. Ampel DEMAK 20. SEMARANG-BAWEN Wonosari Plajen 22.55 km. - Betterment KLATEN 3. DEMAK BYPASS3. DEMAK 15.40 km. - Capex Wedung 7.00 km. - Capex 21. BOYOLALI- KARTOSURO JEPARA Wurjantoro Djaranmati Duwet Karanggondang Trengguli SURAKARTA Kartosuro Keling Jati KUDUS SUKOHARJO Karangasem SRAGEN PURWODADI Kepek WONOGIRI KARANGANYAR Batretno Karangsari Wirosari 111 111

PATI To Pacitan Banjutarung ° Pohgading ° Taju 50 Kilometers 0 Djatisrono Todanan REMBANG Djipangulu BLORA

Kembang

Map Design Unit of The World Bank. n n te nomto hw on other information shown and any The World Bank Group, any judgment ntelglsau faytrioy or status of any territory, on the legal any endorsement or acceptance of such boundaries. This map was produced by the h onais oos denominations The boundaries, colors, this map do not imply, on the part of Tanggel Pamotan Podjokwatu Lasem Ngawi

Tjepu

JAVA EAST Sedan

Padangan-wetan To Bj.Negoro Kalipang Djatirogo

Bulu To Tuban 8

° ° IBRD 34587 IBRD

JUNE 2006 JUNE Gajahmungkur 8 7

and Surakarta Reservoir and Surakarta

Pringkuku

To Sukoharjo To Sragen 111 111

° °

and Surakarta

CENTRAL To Sukoharjo

4. NGAWI RING ROAD 10.75 km. - New Road JAVA PACITAN Arjosari Nawangan Mantingan MAGETAN Gorang-Garer PORTS MAIN ROADS Maospati Panggul NGAWI Biting Dangka Kembang STRATEGIC ROADS INFRASTRUCTURE PROJECT PONOROGO TRENGGALEK Cepu Dolopo MADIUN Watulimo Bulu Padangan Caruban Jatiraga BOJONEGORO Glondong TULUNGAGUNG Jarakan NGANJUK Ngantru Gampengrejo Ponco KEDIRI EAST JAVA PROVINCE BOUNDARIES KABUPATEN BOUNDARIES PROVINCE CAPITAL KABUPATEN CAPITALS TOWNS 112 112 Pakah INDONESIA Ngadiluwih Ngunut Sumberrejo Tanjunganom ° ° Kertosano Munung Babat TUBAN 11. WIDANG-LAMONGAN Ngurah Baurejo Srengat Kartosono Pare Ploso 5.50 km. - Capex Temangkar Brondong Widang BLITAR Sutojayan Kudu JOMBANG Pl.Rejo Mojoagung Kandarigan Gedek Wlingi LAMONGAN Banjaran Pd.Sari Paciran Kedamaian Tikung Karangploso Sumber Soako Pucung Pacet MOJOKERTO MALANG Pakisaji Claket Driyorejo

Dau INDIAN OCEAN Meganti Batu Gondang Pd.Arum Mojosari

Lawang Trawas Kepanjen JAVA SEA Legi Krian Tretes GRESIK Bululawang Singosari Pandaan Taman Gempol Porong Pakis Waru SIDOARJO Candi Kamal Buduran Kejayan Turen Purwodadi Purwasari SURABAYA BANGKALAN Tumpang Bangil Nangkajajar

PASURUAN Tosari EAST JAVA 113 113 Galis

LUMAJANG Strait of Madura ° Ragung ° 0204060 Pilang Wonorejo Grabagan 15. PASURUAN-PILANG Sukopuro 32.81 km. - Betterment SAMPANG Ketapang Torjun PROBOLINGGO Kencong

Leces Barung Island Dringu Omben Kasihan Semboro Pd.Dalem Kraksaan Tanggul Sotobar Puger

PAMEKASAN

Mayang

Island Raja Maesan 100 Kalisat BONDOWOSO Tamanan

PANARUKAN

Genteng Island Sumberjati SUMENEP KILOMETERS Pasanggrahan Wonosari Bangunrejo Kalianget 114 114 Prajekan

Situbondo Puteran

Genteng Island ° Temuguruh ° Batang-Batang G.Agung Jajag BANYUWANGI Grajagan Bajulmati Ketapang Assembagus Rogojampi Jangkar

Tlg.Dlimo Sapudi

Srana Island

Muncar

Island

Raas BALI

7 8

° ° IBRD 34588 IBRD