Document of The World Bank

FOR OFFICIALUSE ONLY Public Disclosure Authorized

Report No.: 18049

IMPLEMENTATION COMPLETION REPORT

Public Disclosure Authorized REPUBLIC OF INDONESIA

SECOND JABOTABEK URBAN DEVELOPMENT PROJECT (Lean 3219-IND) Public Disclosure Authorized

June 23, 1998

Urban Development Sector Unit Indonesia Country Management 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 Currency Unit = Indonesian Rupiah (Rp) (As of January, 1990) US$1.00 = Rpl,795 (As of July, 1997) US$1.0 = Rp2,400 (As of March, 1998) US$1.0 = Rp8,500

WEIGHTS AND MEASURES Metric Units

FISCAL YEAR OF BORROWER April I - March 31

ABBREVIATIONS AND ACRONYMS BAPPEDA - Regional Government Development Planning,Board CRBDP - Citraum River Basin Development Project CTWLP - Cisadane Treatnent Water Line Project DG - Director General DGCK - Directorate General Cipta Karya (Human Settlements) DGWRD - Directorate General Water Resource Development DKI Jakarta - Special Capital Region (Daerah Khusus lbukota)of Jakarta EIRR - Economic Internal Rate of Return FIRR - Financial Rate of Return GO] . Government of Indonesia IUDIP - Integrated Urban Infrastructure Development Program JABOTABEK - Jakarta Metropolitan Region JSSP - Jakarta Sewerage and Sanitation Project JUPCO - Project Coordinating Unit in DKI Jakarta. BAPPEDA .lWRMS - Jabotabek Water Resource Management Study KIP - Urban Neighborhood (Kampung) Improvement Program MoHA - Ministry of Home Affairs OECF - Overseas Economic Cooperation Fund of Japan OED - Operations Evaluations Department O&MI - Operations & Maintenance PAM JAYA - Water Enterprise for DKI Jakarta PD PAL - PD Pengelola Air Limbah (Sewerage Manag,ementEnterprise) Pl) - Project ImplementationUnit PJSIP - PAM JAYA System Improvement Project PMU - Project Management Unit PO. - Authority of Jatiluhur PRWLP - Pejompongan Raw Water Line Project PSP - Private Sector Participation TA - Technical Assistance UfW - Unaccounted for Water WTC - West Tarum Canal WTP - Water Treatment Plant

Vice President Jean-Michel Severino Country Director Dennis de Tray Sector Manager Keshav Varma Task Manager Alain Locussol FOR OFFICIAL USE ONLY IMPLEMENTATIONCOMPLETION REPORT

REPUIBLICOF INDONESIA SECONDJABOTABEK URBANDEVELOPMENT PROJECT (Loan 3219-IN)

Table of Contents

PREFACE.in...... 1 EVALUATIONSUMMARY ...... iV

PART I: PROJECT IMPLEMENTATION ASSESSMENT A. STATEMENT/EVALUATIONOF OBJECTIVES ...... 1 B. ACHIEVEMENTOF OBJECTIVES ...... 2...... 2 C. MAJORFACTORS AFFECTING THE PROJECT ...... 8 D. PROJECT SUSTAINABILITY...... 9...... 9 E. BANK PERFORMANCE...... 10 F. BORROWERPERFORMANCE ...... 10 G. ASSESSMENTOF OUTCOME...... 11 H. FUTURE OPERATIONS...... 11 I. KEY LESSONSLEARNED ...... 12

PART II: STATISTICAL ANNEXES TABLE 1. SUMMARYOF ASSESSMENT.13 TABLE2. RELATEDBANK LOANS .14 TABLE3. PROJECTTIMETABLE .16 TABLE4. LOAN DISBURSEMENTS-CUMULATIVEESTIMATED AND ACTUAL .16 TABLES. KEY INDICATORSFOR PROJrECT IMPLEMENTATION (5A1, 5A2, 5B1 &5B2) .17 TABLE6. KEY INDICATORSFOR PROJrECT OPERATION (6A 1 & 6A2) .21 TABLE7. STUDIESINCLUDED IN PROJECT.23 TABLE 8A. PROJECTCOSTS ...... 26 TABLE 8B. PROJECTFINANCING ...... 26 TABLE9. ECONOMICCOSTS-BENEF ITS ...... 26 TABLE 10. STATUSOF LEGALCOVENANTS ...... 27 TABLE 11. COMPLIANCEWITH OPERATIONAL MANUAL STATEMENTS ...... 30 TABLE 12. BANK RESOURCES-STAFF INPUTS...... 30 TABLE 13. BANKRESOURCES-MISSIONS ...... 31

APPENDICES: A. MISSION'S AIDE-MEMOIRE...... 34 B. BORRowER'S CONTRIBUTIONTO TEIEICR ...... 38 C. ECONOMICRATES OF RETURN...... 53

MAPS (IBRD Nos. 21674, 21675, 22039)

SUPPLEMENTARYTABLES AVAILABLEIN PROJECTFILES TABLE 1 A & B. PAM JAYA Income Statement 1990-96 TABLE 2 A & B. PAM JAYA Sourcesand Applicationsof Funds 1990-96

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. ii

TABLE3 A & B. PAM JAYA Balance Sheet 1990-96 TABLE4 A & B. PDAM TangerangIncome Statement 1990-96 TABLE5 A& B. PDAMTangerang Sources and Applicationsof Funds 1990-96 TABLE6 A& B. PDAMTangerang Balance Sheet 1990-96 TABLE7 PD PAL JAYAConnections and Service Areas iii

IMPLEMENTATIONCOMPLETION REPORT

REPUEBLICOF INDONESIA SECONDJABOTABEK URBAN DEVELOPMENT PROJECT (loan 3219-IND)

Preface

This is the Implementation Completion Report (ICR) for the Second Jabotabek Urban DevelopmentProject in the Republic of Indonesia, for which Loan 3219-IND in the amount of US$190.0million was approved on June 5, 1990 and made effective on February 27, 1991. Part of the proceeds of the Loan, the equivalent of US$124.0million, was on-lent by the Governmentto (a) DKI Jakarta (US$19.0million); (b) PAMJAYA (US$92.0million); and (c) PDAM Tangerang(US$13.0 million) for 20 years at 9.5 percent per annum interest. Loan 3219-ND was closed on December 31, 1997 after a one year extension of the original closing date of December31, : 996. Final disbursementtook place on April 30, 1998, and a balance of US$15,265,338.84was canceled. The ICR was prepared by a team consisting of Alain Locussol (Task Manager), Dong Liu, JaehyangSo (EASUR),Leila Elvas, MohamadNuch (EACIF),and Ephrem Asebe (EASTR), consultant. It was reviewed by Messrs. Dennis de Tray, Director, Indonesia Country ManagementUnit, and Keshav Varma, Manager, Urban DevelopmentSector Unit, East Asia and Pacific Region. Preparation of this ICR started during the Bank's December 1996 supervision mission. The ICR is based on material in the Project file and data gathered during the ICR mission of December 1997, at which time discussions on the draft ICR were held with the Borrower. The Borrower contributed to the preparation of the ICR by providing its own evaluation of the Project, as reflected in the mission's Aide-Memoire(Appendix A), and by preparing an extensive separateevaluation of the Project, the summaryof which is shown in AppendixB. iv

IMPLEMENTATIONCOMPLETION REPORT REPUBLICOF INDONESIA SECONDJABOTABEK URBAN DEVELOPMENT PROJECT (Loan3219-IND)

EvaluationSummary i. Background.During the mid-1980s,the Governmentof Indonesia(GOI) introduced the conceptof IntegratedUrban InfrastructureDevelopment Programming (IUIDP), grouping under a single umbrella:urban transport, water supply,sewerage and sanitation,drainage and flood control, solid waste management and kampung (neighborhood)improvement (KIP) investments.Due to the size of Jakarta and its region, known as Jabotabek(Jakarta, Bogor, Tangerang,Bekasi), it was felt difficult to undertake activities in all sub-sectors under a single IUIDP project; IUIDP activities were thus divided into three projects. The first JabotabekUrban Development Project (JUDP I - Ln. 2932-IND & ICR No. 17116-IND) dealt with urban transport. JUDP III (Ln. 3246-IND),which is ongoing, deals with KIP and solid waste management.The project under review, JUDP II (Ln. 3219-IND), dealt with water supply,sanitation, flood control and drainage. ii. Project Objectives. As stated in the Staff Appraisal Report (SAR) No. 8339-IND, the Project's main objectives were to develop and implement a coordinated program of physical investments,technical assistance and policies for urban water supply, waste water disposal, drainage and water resource/qualitymanagement which would: (a) balance the existing production capacity with that of the transmission and distribution facilities; (b) increase piped water supply to about 50 percent of the population; (c) result in improved service for the poor through constructionof standpipes and removal of monopoly water sale by vendors; (d) improve waste water disposal; (e) strengthen management, staffing and financial viability of water supply and sewerage institutions; and (f) strengthen Jabotabek water resourceplanning capabilities.JUDP II was consistentwith GOI policy to decentralize design,financing and constructionresponsibilities of urban water supply to municipalwater supply companies and to implementcost recovery measures to ensure sustainabilityof the latter. iii. Project Components.The Project focused primarily on improvingJakarta's water supply through three major components: (a) the PAM JAYA (Jakarta Water Supply Company) System Improvement Project (PJSIP); (b) the Pejompongan Raw Water Line Project (PRWLP);and (c) the Cisadane Treated Water Line Project (CTWLP).In addition, the Project financed: (d) the completion of the Jakarta Sewerage and Sanitation Project (JSSP) initiated under an earlier project; (e) priority flood control and major drainage works in Jakarta; (c) the preparationof a JabotabekWater ResourceManagement Study (JWRMS); (f) the preparationof future projects; and (g) supportto the overall Project CoordinationUnit, JUPCO. iv. Evaluation of Objectives. Project objectives were simple, focused and well understoodby all implementingagencies. The Project was importantfor all of them. It was in particular challenging for PAM JAYA, which for the first time was given responsibilityfor v implementinga large constructionprogram. The design of the Project benefitedfrom earlier Operations Evaluations Department 4iOED)reviews of the Indonesian water and sanitation projects. Accordingly, Loan covenants rightly emphasized cost recovery, cash flow, contributiontowards capital expendiiture,and commitmentsto regular tariff increases. The Project's objectives were realistic, and targets for service coverage and performance improvementwere based on Bank experiencein these sectors in Indonesia.

ImplementationExperience and Results v. Achievement of Objectives. The Project has substantially achieved its physical, managementand financial objectivesand realized most of the benefits anticipated,with some shortcomings.The three major componentsof the Jakarta WaterSupply project have resulted in more balancedproduction and distributioncapacities. As a result, an additional2.3 million people, including lower income groups, now have access to piped water through an additional 234,000 connections.The service ratio in DKI Jakarta is now estimated to be above 50 percent, slightly higher than the appraisal forecast. Groundwater abstraction is likely to have been limitedto its 1990 level, but still remains the main water source for many households and for most high rise buildings that cannot yet rely on PAM JAYA's service. The overall quality of piped water did not improve significantlybecause of the deteriorating qualityof raw water sources;consequently most householdsstill boil water obtainedfrom the piped system before consumption.In 1997, unaccounted for water (UfW) was 56 percent, i.e., two percentage points above the 1990 figure of 54 percent. PAM JAYA's inability to reduce UfW is the main failure of lthe Project. PAM JAYA's tariffs have been increased regularly, as initially agreed; the 1997 tariff increase, however, was delayed to April 1998, pending conclusion of the negotiations with the two private operators who took over PAM JAYA's operations in February 1998. While debt and capital structure covenants were compliedwith, its contributionto the overallinvestment program remainedslightly belowthe required 30 percent. PDAM Tangerang's bulk water tariff to PAM JAYA, although higher than appraisal forecast, is still below what is needed to cover operations and maintenance (O&M) costs and debt service. PDAM4Tangerang's tariff increase,due in January 1996, was postponeduntil 1998. vi. The Drainage and Flood Control project was completed on time and within budget; it is estimated to benefit 7,520 hectares of densely populated areas. The Jakarta Sewerage and Sanitationproject was only partially successful, partly because a major urban renewal effort in the Project area since 1990 affecteddemand for new connections;however, the floor area of commercial buildings connectedto the sewerage system increasedthreefold. A pilot sewerageproject in a lowermedium income community was not successfulbecause of a lack of supportivepolicies on the part of GOIT vii. The main achievement of the Jabotabek Water Resource Management study was a substantialincrease of the ground wvaterabstraction fee in DKI Jakarta. The Project also fnanced the preparation of several IUIDP projects (e.g., Surabaya, Kalimantan, Second Sulawesi)now being implemented. viii. Costs and Implementation Time Table. The actual project cost was estimated at Rp568.4 billion (US$266 million equivalent, compared to the SAR estimate of US$307 million).A reallocationof Loan proceedsamong implementingagencies was necessaryto cover vi the cost overrunof the PRWLPdue to implementationdelays by about 30 monthsbeyond the appraisalestimate. The Loan was closed on December31, 1997,after a one year extensionof the initialclosing date. ix. EconomicInternal Rate of Return. The water supplycomponent is estimated to yield an EIRR of 11.6 percent, close to the appraisal forecast and a FIRR of 10.5 percent. The small drainagecomponent is estimated to yield an EIRR of 59 percent, against the appraisal forecast of 17 percentto 22 percent. x. Project Sustainability.GOI commitmentto addressingwater supply issues in DKI Jakarta was evidencedby regular tariff increasesto make PAM JAYA financiallysecure, and a willingnessto involve private operators in the delivery of water supply services.However, the recent change in government and the dramatic downturn in economic conditions make sustainabilityof the water supply componentuncertain. In particular, the new institutional arrangementshould be more conduciveto reducing the high level of unaccounted-forwater (UfW) and thus the cost of services. Sustainabilityof the small sanitation and sewerage componentis uncertain (even though the physical componentshave been implementedand financial covenants met), in the absence of an appropriate policy framework for the urban sanitationsector. Indicationsare that the flood control and drainagecomponent of the Project is likely to be sustainable. xi. Main Factors Affecting Implementation of the Project. At GOI level, implementation of the Project was mostly affected by a number of regulationsin existence at appraisal,that resulted in, for example,the poorly designedimplementation and operationalarrangements for the Cisadanebulk water supplyscheme. The standardtariff structurerecommended to PDAMs by the Ministryof Home Affairs was suspectedto be one of the reasons for high UfW and consumptiondistortion. The deteriorationof raw water qualitydelivered to the treatmentplants did not allow a noticeableimprovement in the quality of water distributedby PAM JAYA. At implementingagency level, PJSIP's decision to change the initiallyagreed procurementplan and to awardmore than 200 contracts(more than three times what was initiallyagreed), led to less than optimumconstruction quality. xii. Bank Performance.Bank performanceduring identification,preparation, and appraisal was satisfactory. Project objectives were kept relatively simple. The main institutional developmentthat occurred during implementation,i.e., the privatizationof PAM JAYA's operations,an event parallel to but facilitatedby the Project,was not envisagedby GOI and the Bank at appraisal as private sector participationwas still a new concept at that time. Bank perfornance during supervisionwas also satisfactory,focusing on technical, financial and institutionalaspects. The Bankwas also vigilanton procurementand environmentalissues. xiii. BorrowerPerformance. GOI performancewas satisfactory,as evidencedby a Project whose physical componentshave been fully implemented,within budget,and with only minor delay. PAM JAYA's performancewas good, consideringits inexperiencein implementinga large constructionproject. The coordinatingrole of JUPCO was limited due to its lack of authorityto addressproblems promptly. xiv. Project Outcome.Overall Project outcome is rated satisfactory.Most of the physical and financialobjectives have been achieved.Facilities financed by the Projectare alreadybeing heavilyused, but O&M costs may rise becauseconstruction quality was only barely acceptable. vii

The failure of the UfW reduction program, and the pilot sewerage project were the main shortcomingsof the Project.

Future Operationsand LessonsLearned xv. Future Operations. In February 1998, two 25-year "cooperation" agreements between PAM JAYA and two private consortia became effective. Initially, each consortium included an internationaloperator and a local partner. Following the May 1998 change of Government,the internationaloperators were asked to buy the shares of their local partners; this has now been done. The "cooperation" agreements are modeled after concession contracts: PAM JAYA remains the owner of existingfacilities and will become the owner of facilities financedby the operators:PAM JAYA will remain responsiblefor setting the tariff that applies to consumers. The agreements include detailed performance indicators that would allow for further monitoring of the piped water supply service in DKI Jakarta. The institutionalarrangements in place are likely to improve these performance indicators.PAM JAYA has officially providedthe Bank with a copy of the two "cooperation"agreements to enable an assessmentof their impact on the Loan Agreement. xvi. The current arrangement for operating the Pejompongan transmission line is satisfactory; transferring O&M activities to one of the two private operators is under consideration. The current arrangement for operating the Cisadane bulk water supply facilities could be improved. PDAM Tangerang has contracted out the managementof the treatment plant to a private operator; transfer of the operation of the transmission line and pumping plants to a single private operator is also envisaged. PD PAL JAYA is likely to remain a small operation,with limitedimpact on the sanitary environmentin Jakarta, because the assets it manages do not allow for a significant increase of the customer base. Arrangements for operation of the major drainage facilities are adequate, although availability of central governmentfinancing for rehabilitationprojects, such as that financed by the Project, could encourageinadequate budgeting for regular maintenance.

Key LessonsLearned xvii. Key lessons learnedfrom the project are listedbelow:

Physical Implementation:

* Good qualitypreparation is the key to successfulimplementation; * The procurement plan agreed at appraisal should be followed without major modifications;there is little or no advantage in splitting supply and laying of pipes into separatecontracts; and * UfW is more an institutionalthan a physical problem.

Institutional Development:

* PDAM performance cannot be improved simply by providing technical assistanceand training; viii

* To prepare a meaningful PDAM performance improvement program, it is necessaryto understandthe incentive frameworkin which it operates; * UfW reductionprograms shouldbe envisaged as part of a larger effort to reduce operatingcosts; and * UfW is magnified by inappropriate pricing practices, such as low raw water charges,and a distorted piped water tariff structure. Financial Developnent:

* Simple financial covenants are well understood by PDAMs and can be implemented if both the PDAM and the local government are committed to improvement; * Financial covenants should be carefully designed to avoid automatictransfer of a PDAM's inefficienciesto users; tariff increases should not be granted without at the same time instituting a strictly monitored performance improvement program; and * Agenciesthat cannot submittimely audit reports by Governmentauditors should be requested to engage private auditorsto meet this requirement. IMPLEMENTATIONCOMPLETION REPORT INDONESIA SECONDJABOTABEK URBAN DEVELOPMENT PROJECT (Loan 3219-IND)

PART I. PROJECTIM0PLEMENTATION ASSESSMENT

A. Statement/Evaluationof Objectives

1. Background.During the mid-1980s,the Governmentof Indonesia (GOI) introduced the concept of IntegratedUrban InfrastructureDevelopment Programming (IUIDP), grouping under a single umbrella:urban transport, water supply, sewerageand sanitation,drainage and flood control, solid waste management and kanpung (urban neighborhood) improvement (KIP) investments.Due to the size of Jakarta and its region, known as Jabotabek (Jakarta, Bogor, Tangerang,Bekasi), it was felt that activities in all sub-sectorsunder a single IUIDP project would be difficult; IUIDP activities were thus divided into three projects. The first Jabotabek Urban DevelopmentProject (JUDP I - Ln. 2932-IND & ICR No. 17116-IND) dealt with urban transport. JUDP III (]Ln.3246-IND), still under implementation,deals with KIP and solid waste management.The project under review, JUDP II (Ln. 3219-IND), dealt with water supply,sanitation, flood control and drainage. 2. Project Objectives.As stated in the Staff Appraisal Report (SAR) No. 8339-IND, the Project's main objectives were to develop and implement a coordinated program of physical investments,technical assistance and policies for urban water supply, waste water disposal, drainage and water resource/qualitymanagement which would: (a) balance the existing production capacity with that of the transmission and distribution facilities; (b) increase piped water supply to about 50 percent of the population; (c) result in improved service for the poor through constructionof standpipesand removal of monopolywater sale by vendors; (d) improve waste water disposal; (e) strengthen management, staffing and financial viability of water supply and sewerage institutions; and (f) strengthen Jabotabek water resource planning capabilities.JUDP II was consistent with GOI policy to decentralize design, financing,and constructionresponsibilities of urban water supplyto municipal water supply companies and to implement cost recovery measures to ensure sustainabilityof the latter. 3. Project Components.The Project primarily focused on improvingwater supply in DKI Jakarta throughthree major components:(a) the PAM JAYA (DKI Jakarta water supply company) System ImprovementProject (PJSIP), to extend the distributionnetwork to cover 70 percent of Jakarta's territory, reduce unaccounted-forwater (UfW) from 49 percentto 37 percent, and improvePAM JAYA's managementcapacity (PJSIP was co-fnanced by a loan from the Japanese Government);(b) the PejomponganRaw Water Line Project (PRWLP)to improve the quality of the raw water delivered to the Pejompongan water treatment plant (WTP); and (c) the Cisadane Treated Water Line Project (CTWLP) to improve bulk water supplyto the westem part of DKI Jakarta by linkingthe Cisadane WTP (financedearlier by a 2 loan from the French Government)to PAM JAYA distribution system. In addition the Project financed: (d) the completion of the Jakarta Sewerage and Sanitation Project (JSSP) initiated under an earlier project; (e) priority flood control and major drainage works in DKI Jakarta; (c) the preparationof a JabotabekWater ResourceManagement Study (JWRMS); (f) the preparation of future projects; and (g) support to the overall Project CoordinationUnit, JUPCO.

4. Evaluation of Objectives. Project objectives were simple, focused and well understood by all implementing agencies. The Project was important for all of them; it was in particular challenging for PAM JAYA, which for the first time was given responsibility for implementinga large constructionprogram. The design of the Project benefited from earlier Operations Evaluations Department(OED) reviews of the Indonesian water and sanitation projects (OED Report No. 6256 of June 1986). Accordingly, Loan covenants rightly emphasized cost recovery, cash flow, contribution towards capital expenditure and commitments to regular tariff increases. Project objectives were realistic and targets for service coverage and performance improvement were based on the Bank experience in these sectors in Indonesia.

B. Achievement of Objectives

5. Overall Assessment. The Project has substantially achieved its physical and financial objectives and has realized most of the benefits anticipated, with some exceptions.

Bl. Jakarta Water Supply

6. The three major components in Jakarta water supply (PJSIP, PRWLP and CTWLP) have been completed. Their major physical and financial objectives have been substantially achieved, with some exceptions. The economic and financial rates of return of the water supply components (11.6 percent and 10.5 percent respectively) are comparable to appraisal forecasts (Appendix C).

7. PAM JAYA System Improvement Project (PJSIP). Table 1 below summarizes the evolution of water supply service in DKI Jakarta between 1990 and 1997. During this period, 2,265 km of distribution pipes were added, and the number of connections more than doubled to 462,000; however, the number of standpipes, forecast to increase from 2,100 to 4,900, went down to below 1,500 (para. 18). As of end 1997, about half of DKI Jakarta's population had access to piped water; however, while actual water production was above SAR forecast by 13 percent, water sales were below by 14 percent, reflecting PAM JAYA's inability to reduce UfW (para. 8). 3

Table 1. Jakarta Water Supply-Mlin Physical Achievements 1990 1996 1996 1997 1997 % (Est/ Units Actual SAR Actual SAR Est. SAR) Populationin servicearea 000 6,439 8,260 8,695 8,695 8,880 110 Serviceratio % 35.4 46.5 45.3 49.1 52.1 95 Populationserved 000 2,280 3,840 3,940 4,135 4,624 112 Populationnot served 000 4,160 4,420 4,755 4,290 4,256 115 Connections 000 228 384 394 414 462 108 Standpipes unit 2,100 4,900 1,500 31 Productioncapacity i3/s 10.4 16.7 16.3 17.93 17.0 95 PAM JAYAown production mio rn3/y 263 326 401 339 430 127 Purchasefrom Cisadane mio rn3/y 0 65 10 76 38 50 Totalproduction mio i3/y 263 390 410 415 463 112 Sales mio n3/y 123 219 176 237 205 86 Unaccountedfor water (UfW) % 54 44 57 43 56 130 Distributionnetwork km 3,672 5,653 5,937 Connectiondensity J/km 62 70 75

8. In 1997, UfW reached 56 percent, i.e., two percentage points above the 1990 figure of 54 percent or 13 percentage poinits above the SAR forecast of 43 percent. The UfW reduction program is the main failure of the Project. At the time of appraisal, UfW was mostly perceived as a "physical" problem, and the UfW reduction program, designed along the lines of a Bank manual that had just been published, focused mostly on rehabilitating what was perceived to be a "leaky"' distribution network. Between 1990 and 1997, 178 elementary distribution cells out of satotal of 250 were rehabilitated by PJSIP and handed over to PAM JAYA after UfW in each cell was measured below 30 percent. This has not translated into a reduction of PAM JAYA's overall UfW, which remained above 50 percent throughout the Project implementaition period. In retrospect, it would have been more appropriate to focus first on improving commercial management by placing PAM JAYA within an incentive framework, encouraging reduction of operating costs and increase in revenues. The fact that the two private operators, who took over operations early in 1998 (para. 33) and who would operate in such a framework, are confident that UfW can be reduced to 35 percent by end 2002, by combining an overhaul of commercial management and the continuation of the rehabilitation program initiated under PJSIP, tends to confirm this diagnosis.

9. Between 1990 and 1997, the quality of piped water distributed in Jakarta did not improve as expected because of the deteriorating quality of raw water delivered to the water treatment plants (WTPs) and contamination in the distribution system in areas not yet served with sufficient pressure. As a result, customers still boil piped water or use bottled water for drinking purposes.

10. In 1997, PAM JAYA sold about 82 million m3 of water (2.6 m3/s or 225,00 m3/day) more than in 1990. This extension of the piped water service is likely to have resulted in a 4

stabilizationof groundwaterabstraction, since the populationwith no access to piped water remained unchanged at about four million. However, DKI Jakarta, which is now responsible for monitoringground water abstraction,is believed to meter and tax no more than 30 percent of groundwaterpumped from deep aquifers.In 1997, most high rise buildingswere still using their own water sources, because the piped water supply service does not guarantee continuity and quality. Land subsidence resulting from over abstraction in deep aquifers continues to be a major constraintfor the drainage system of a city that barely lies above sea level.

11. Pejompongan Raw Water Line Project (PRWLP). PRWLP involved: (a) limited rehabilitation of the West Tarum Canal (WTC); (b) the construction of an intake and pumping station on WTC; and (c) constructionof twin pipelines 1.6 m diameter, to replace the current supply of the PejomponganWTP from the polluted Banjir canal by that of WTC. Constructionsuffered a delay of about 30 months beyondthe appraisalestimate, but facilities finally became fully operational in June 1997. The 8 percent cost overrunthat resulted from this delay forced a reallocation of the Loan proceeds among implementingagencies. It is not yet possible to fully assess the impact on operations of the Pejompongan WTP (mostly savings on chemicals) because of the short period of observation.

12. Cisadane Treated Water Line Project (CTWLP). CTWLP involved the construction of a transmission line between the Cisadane WTP and PAM JAYA's distribution network. It was implemented by PDAM Tangerang. Construction suffered a delay of about 20 months beyond the appraisal estimates, because of slow acquisition of rights of way. Operations started only in 1996, but PAM JAYA's distributionsystem would have not been able to absorb incrementalproduction earlier. Negotiationsof the bulk water supply agreement between PDAM Tangerang and PAM JAYA took more than two years. The current arrangement for operatingthis bulk water scheme is not optimum and involves: (a) a private operator under contract with PDAM Tangerang for the Cisadane WTP; (b) PDAM Tangerang for the portion of the transmission line located in kabupatenTangerang; and (c) the private operator for the western part of PAM JAYA water supplysystem, for the portion of the transmission line and pumping plants located in DKI Jakarta. In Serpong, the Project also financeda small distributionnetwork that was built on time. 13. InstitutionalDevelopment Objectives-PAM JAYA. The impact of the Project was modest. The action plan designedto address PAM JAYA's managementweaknesses and agreed upon at the time of appraisal, was prepared with the assistance of a TA team from a large international private water distributor. Procedures prepared by this team became effective in April 1995. Soon after, PAM JAYA decided to implementa more decentralized structure;this decision, combinedwith too many reassignmentsof staff who had earlier been formally trained on new procedures, hampered implementationof the latter.Nevertheless, between 1990 and 1997, improvementcould be noticed in the preparation of management reports and audits, number of audit qualifications, management of personnel, quantity of training provided, reduction of accounts receivable, and in number of employees per 1000 connections.Less success could be noticed on staff qualificationand motivation, customer relations, efficiency of training, and cost control. In fact, PAM JAYA's commitment to improving its performance through the above action plan declined sharply, when GOI initiated negotiations to transfer the responsibility for operating and developing the piped water supply service to two private consortia (para. 33) and when it became clear that PAM JAYA was unlikely continue as the operator because of an obvious conflict of interest. Bank 5 financing for the above institutional development technical assistance (TA) contract was terminated soon after the Bank was informed that the TA company was one of the two private consortia.

Table 2. PAM JAYA-Selected Management Indicators 1990 1996 1996 1997 1997 Units Actual SAR Actual SAR Est. Numberof employees person 2,186 3,160 2,180 3,265 2,213 Employeesper 1000 connections person 9.6 8.2 7.6 5.5 4.8 Daysaccount receivable days 66 76 15 76 35 UfW 0", 54 44 57 43 56 Audit qualifications None None

14. Institutional Development Objectives-Authority of Jatiluhur (POJ). The impact of the Project was marginal on a public authoritywith limited commercial orientation, even though an action plan to improve POJ accountingand budgeting proceduresand preparation of financial reports was successfullyimplemented in 1994. In the case of PDAM Tangerang, the program to improve its accounting and budgeting procedures was undertaken, but the recent decision to split PDAM Tangeranginto two, following the creation of a kotamadya (municipality)distinct from the kabupaten (regency) is likely to have a negative impact on the efficiency of its operations.

15. Financial Objectives-PAM JAYA. The project's financial objectives were achieved. PAM JAYA's water tariff was adjusted in November 1991 by about 30 percent, and again in July 1994 by about 54 percent. The latter increase resulted in an average revenue of about Rpl,450/m3 (equivalent to US$0.65/m3 at the exchange rate of Rp2,200/m3prevailing on that date), a very high rate by Indonesian and South East Asian standards.The tariff increase due for 1997 was implementedwhen the two private operators took over operations in February 1998. In April 1998, the average tariff was Rpl,920/m3 (equivalent to US$0.23/m3at the exchange rate of Rp8,500/US$).Although the financial crisis that hit Indonesia in July 1997 mrnakescomparison difficult, the average 1998tariff is below that of 1994, expressed in constant Rupiah. This reflects both expected productivity gains, and a reschedulingof PAM JAYA's debt granted by the Ministry of Finance. (The Bank's views have not been sought on the latter.) PAM JAYA water tariff structure was simplified in 1994, but still remained fairly complex until the 1998 tariff revision; it was suspected to be a reason for high UfW by implicitly encouragingmeter readers to reduce actual readings in order to maintainbillings in lower blocks. It also distorted consumption; industrial and commercial customersstill preferred to use substitutesources of supply, such as poorly regulated groundwater,in part because of the high rates applied to them for PAM JAYA water. Groundwaterabstraction fees in DKI Jakarta were adjusted in August 1994and placed above the highest block for pipeSdwater to discourage such action. 6

Table 3. PAM JAYA-Selected Financial Indicators

1990 1996 1996 1997 1997 Units Actual SAR Actual SAR Est. Averagetariff- Currentprices Rp/m3 682 1,176 1,491 1,352 1,491 Totaloperating revenues Rp bn 91.6 262.4 296.3 325.9 349.5 Totaloperating expenses Rp bn 66.1 159.4 170.5 181.2 214.4 Workingratio % 72 61 58 56 61 Operatingratio % 70 77 68 74 72 Currentratio 2.3 2.9 0.5 3.1 1.1 Debt servicecoverage ratio 3.0 1.9 1.8 2.6 Debt/Debtplus equityratio % 57 58 74 54 69 Contributionto investmentAnnual % 26 23 29 64 17 3 year average % 37 24 31 52 19 DKI equity( after adj. in 1990) Rp bn 2.6 26.9 43.0 35.5 18.7 RoR on re-valuedassets % 7.8 6.0 17.2 7.0 11.9 1/ There was no loan amortizationdue for payment in 1997 because this has been includedin the loan reschedulingscheme which took effect on the effectivedate of the concession.

16. PAM JAYA's debt and capital structure covenants were complied with, but contributions to the overall investment program from cash generation remained below 30 percent, because the non PJSIP investment program (mostly the second phase of CTWLP) did not materialize. Also, DKI Jakarta decided to reduce its equity contribution, not really needed after the 1994 tariff increase that resulted in a very comfortable cash situation for PAM JAYA. Between 1990 and 1995, PAM JAYA's profit distribution to DKI Jakarta totaled Rp3O.6 billion (US$8.0 million equivalent), despite recommendation of the Ministry of Home Affairs (MoHA) to retain earnings for financing system extensions until the coverage ratio reached 75 percent.

17. Financial Objectives-POJ. Financial objectives were partially achieved. Since PRWLP covered only a small part of POJ's fixed assets, financial covenants were limited to financial aspects directly related to the Project. POJ raw water tariff to PAM JAYA was adjusted in 1994 and again in 1997 to Rp35/m3; it covers O&M costs, but not depreciation of the facilities built. The large difference between raw and treated water tariffs did not provide PAM JAYA an incentive to reduce its production costs and thus to limit physical UfW. Concerning PDAM Tangerang, the bulk water tariff it charges PAM JAYA is above the appraisal estimate, but below what is needed to cover the cost of the Cisadane WTP management contract and the debt service associated with the CTWLP. PDAM Tangerang's tariff increase, due for January 1996, was postponed until 1998. The debt coverage ratio and contribution to capital covenants were not complied with; nevertheless, PDAM Tangerang paid dividends to its local government, against MoHA recommendations.

18. Poverty Reduction Objectives. This objective was partially achieved. The total number of public hydrants reached about 2,150 in 1993, but by 1997 it was back to its 1989 7 level of about 1,480. PAM JAYA had little incentiveto install new hydrantswhere water is sold below cost. While constructionof an additional 234,000 connectionsbetween 1990 and 1997 had a positive effect on lower income groups who could purchase water from their neighbors,the impact of the hydrant program, as initially envisaged, has not been sustained. Two independentreviews concludedthat liberalizationof water sales by householdsto their neighbors had a positive effect, but ifoundno compelling evidence of the existence of a monopoly in the hydrant operator-vendormarket. They also cautioned that the unit cost of operating hydrants may increase as their numbers increase and the volume of water sold by each hydrant decreases, and they fiurther demonstrated that promoting a social house connectionprogram would be both economicallyand financiallysuperior to providingpublic hydrants. The two operators who took over PAM JAYA's operations in 1998 (para. 33) are not required to provide additional hydrants, but are instead encouragedto seek attractive commercialpolicies to favor connectionsto lower incomehouseholds.

B2. Other Physical Components

19. Jakarta Sewerage and Sanitation Project (JSSP). The objectives of this component were only partially achieved. The Project financed the completion of works started under an earlier Project, whose outcome was rated "unsatisfactory"(OED Report PPAR No. 13285). Constructionwas carried out on time, but because of the major urban renewal that affected the Project area between 1990 and 1997, the number of connections remained at its 1990 level of about 1,000, comparedwith the SAR estimate of about 3,700. However, the floor area of commercial buildings connected increased threefold. (Because most high rise buildings connected ito the sewerage network are not connected to PAM JAYA's piped water, PD PAL JAYA, the DKI Jakarta municipal waste water utility company, uses floor area rather than water consumptionas a basis for billing.) The targeted volume of waste water to be treated al:the Setiabudiponds was achieved.The Bank declined to finance the "low cost sewerage pilot project" built in a lower middle income neighborhood, Malakasari, because no agreement could be reached on a process for consultinghouseholds targeted for connection.To date, despite completionof sewers and of a small waste water treatment plant, no households have been connected. PD PAL JAYA remains a small operation, employing 125 staff and serving only about 1,000 connections, with growth possibilitieslimited to the Project area and depending mostly on connectionsto new high rise buildings.Although PD PAL JAYA compliedwith financial covenants (mostly coverage of O&M costs), assets built under the first JSSP have not yet been transferred by the central government.The Project also financed"micro drains" in neighborhoodsnewly servedwith piped water. This componentwas successfullyimplemented. 20. Flood Control and Major Drainage. The objectives of this component were substantiallyachieved. It included the dredging and rehabilitation of main canals and of a large storm water drainage reservoir and associatedpumping stations, and the constructionof two tidal gates. Assets have been transferred to DKI Jakarta, which is responsiblefor O&M. It is estimated that a total of about 7,500 hectares of densely populated areas would benefit from the improved drainage conditions. Increase in land value, as a result of flood and drainage improvements,yielded a 59 percenteconomic rate of return, to be comparedto SAR estimates of 17 to 22 percent (AppencdixC). 8

B3. Major Studies and Project Coordination

21. Jabotabek Water Resource Management Study (JWRMS). JWRMS had a positive impact on identifying possibilities and constraints in the management of water resources in the Jabotabek area. It: (a) formulatedscenarios for long term water demand, in particular in relation to pricing policy; (b) reviewed surface and ground water options; (c) comparedtransfer schemes; and (d) proposed pricing strategies.JWRMS' main conclusionto develop a new transmissionline from the Jatiluhur reservoir in the next decade, before a new reservoir located West of Jabotabek is built, may, however,have to be reconsidered.JWRMS did not cover the complex institutional aspects of water resource management in the two provinces of West Java and DKI Jakarta, where Jabotabek is located. This may explain the somewhatlimited follow-upactivities so far in preparing long term solutions along the lines recommended. 22. Other Studies and Project Coordination. The Project made a substantial contribution to the preparation of several follow-on Bank supported IUIDPs (Surabaya, Kalimantan,Semarang-Surakarta, Second Sulawesi) which are now under implementation.It also made a contribution to the development of a project monitoring system within the Directorate General of Human Settlementsof the Ministry of Public Works. The Project financed limited TA to the GOI team that negotiated the "cooperation" agreementswith the two private consortia (the main TA contract was financed by a PHRD Grant) and TA to JUPCO for overallmonitoring and coordinationof JUDP II.

C. Major Factors Affecting the Project

23. Factors Outside Government Control. All major factors affecting the project were within governmentor implementingagency control.

24. Factors Subject to Government Control. The Project was designed to fit regulations in effect at the time of appraisal,in particular those governing PDAMs. Some of them had an impact on the achievement of Project objectives. For example, the poorly designed implementationand operating arrangementsfor the Cisadane bulk water supply scheme (paras. 12, 34) reflect the rule "one PDAM per local government-each PDAM responsible for projects in its territory". The distortedwater consumptionand high UfW may have their roots in the tariff structure recommendedby MoHA and raw water tariffs that POJ was allowed to charge (paras. 15, 17). The deteriorationof raw water quality deliveredto the WTPs did not allow for a noticeable improvement in the water distributed by PAM JAYA (para. 9). Procurement regulations that restrict the selection of certain categories of contractors for smaller constructions barred PAM JAYA from attracting better qualified contractors.Splitting pipe supply and laying contracts, a practice initially designed to favor local steel pipe manufacturers(imposed on most PDAMs by central government agencies) has not proven to be very efficient and cost effective. The absence of a clear policy in urban sanitation did not allow for testing the feasibility of sewerage options in lower income neighborhoods(para. 19). Slow transfer of assets built by central governmentagencies was often a cause for the delays in audit reports (para. 19). It does not appear that implementation of PJSIP sufferedfrom GOI's decision to privatize PAM JAYA's operations(para. 33); staff morale was affected to some extent, although an agreement was reached early with the consortia that there would not be lay-offs. The decision to split PDAM Tangeranginto two may affect implementationof its managementimprovement program (para. 14). 9

25. Factors Subject to Implementing Agencies Control. Delays in procurement and implementation were often an issue. While procurement was generally handled in a reasonable manner by most agencies, PJSIP's decision to split the 64 contracts initially agreed in the procurement plan into more than 200, led to an additional administrative burden and to the selection of poorly qualified contractors. As a result, quality of construction of smaller diameter pipes under this component can be rated less than optimum. Delays in construction were mostly due to slow issuance of digging permits (PJSIP), slow acquisition of rights of way (CTWLP), or the extreme difficulty in laying large diameter pipes in the center of a very busy city (PRWLP). No major changes were made to the Project, apart from the reallocation of the Loan proceeds among agencies to finance the PRWLP cost overrun (para. 11). The only serious environiental issue to be addressed was the proper disposal of the spoil from the Pluit storm water reservoir (para. 20); this was handled professionally, according to a plan agreed with the Bank. Resettlement was not a major issue and the few households that had to be resettled, mostly under PRWLP, were properly compensated. As with most projects in the sector, implementation depended heavily on TA provided by international and local consultants; TA absorbed 20 percent of total disbursements. The performance of consultants was satis factory.

D. Project Sustainability

26. GOI's commitment to addressing Jakarta's water supply issues was demonstrated through its willingness to set tarliffs at a level that ensured PAM JAYA's financial sustainability, and the strong drive lo involve the private sector in the provision of service. The institutional arrangements that became effective on February 1, 1998 are likely to be more sustainable than the one envisioned at appraisal. The expected increase in efficiency from improved monitoring of the operator's performance should eventually translate into lower tariffs. The two professional operators are likely to be more successful than PAM JAYA in lobbying for implementation of a water resource management program and in obtaining additional sources in a tinnely manner; the protection of raw water quality is also likely to become a priority (para. 21). An appropriate regulatory framework still needs to be put in place to guarantee that all ca1tegoriesof consumers will benefit from efficiency gains achieved by private operators. Nevertheless, the recent change in government and the dramatic downturn in economic conditions make sustainability of the water supply component uncertain.

27. JSSP had a marginal input on the sanitary environment in Jakarta. Between 1990 and 1997, GOI only made limited progress in developing a sanitation strategy for Jakarta. The master plan prepared in 1991 under Japanese financing was never approved, and alternatives consisting of developing "modular systems" were rapidly faced with the issues of land availability for waste water treatment plants and the environmental problems related to their operation. Sustainability of the flood control and drainage component of the Project is likely, even if rehabilitation activities, such as dredging of major canals and storm drainage reservoirs, are mostly deferred maintenance that should be financed by O&M budgets rather than by investment budgets. 10

E. Bank Performance

28. Bank performance during Project identification, preparation and appraisal was satisfactory. The appraisal team tried to keep the Project simple in its objectives and components, although the Project eventually had to deal with three main urban sub-sectors, and eight different implementingagencies. The quality of preparationwas sufficientto allow for immediate implementationof most components. The designs of the UfW reduction program and of PDAM performance improvement program reflected the thinking that prevailed at the time of appraisal (paras. 8 & 13). In the late 1980s, private sector participation(PSP) in the delivery of water supply services was still a new concept for both GOI and the Bank; had GOI proposed a PSP option, it would have most likely been turned down by the Bank, following other unsuccessful experiencesin Indonesia. The Bank had a more limited input in the design of the other sub-projects,but after the failure of the first JSSP, it could have refused to support a repeater project without prior agreement on a sewerage and sanitation policy framework. In the case of the flood control and major drainage component,the Project merely supplementedfunding of the largest financier in this field, OECF of Japan. 29. Bank performance during supervision was satisfactory. The Bank supervised the Project at least twice a year during the initial years of implementation. Once most implementation problems were solved, annual supervisions were carried out, with brief follow-up missions visiting the main implementingagencies at least three times a year to follow-up on actions agreed upon. Further support was provided by staff of the resident mission on an as required basis. Supervisionmissions focusedmostly on technical,financial and institutionalaspects. They paid less attention to the poverty reduction objective, after reviews suggestedthat the public hydrant program might not have been the optimum service option (para. 18). 30. No deviations from Bank policies and procedures were noticed during implementation.The Bank was particularly vigilant on procurement issues, and paid close attention to environmentaland resettlement issues. Representativesof the OECF-financed project generallyjoined supervisionmeetings with PAM JAYA; since the Bank and OECF projects were implemented in different geographical areas, this was more for mutual informationon progressthan for detailed coordination.

F. Borrower Performance

31. GOI performancewas satisfactory,as evidencedby a Project whose main objectives have been achieved; physical components have been fully implemented,within budget and with only minor delay. Agencies tended, however, to focus too much on implementation issues, and not enough on achievement of objectives. PAM JAYA's performance was of good quality, taking into account its inexperience in implementing large construction programs; however, planning and procurement procedures could have been better. All agencies issued sufficiently documented progress reports and audit reports. However, the coordinatingagency JUPCO has recently experienceddelays in obtainingaudit reports from Government auditors. All agencies demonstratedcommitment to the Project objectives, and most covenantswere compliedwith. Coordinationcould have been somewhatbetter; JUPCO, acting mostly as an intermediarybetween the various implementingagencies and the Bank, lacked the authority to promptly address issues such as the reallocation of Loan proceeds 11

(para. 11) and to acceleratenegotiations of the Cisadane bulk water supply agreement(para. 12).

G. Aisessmentof Outcome

32. On the whole, the Project's outcome is assessed as satisfactory. The Project has achieved most of its physical and financial objectives. The privatizationof PAM JAYA's operations, an event parallel to, but facilitated by the Project, is likely to further achieve developmentobjectives. Facilities financed by the Project are alreadybeing heavily used, but the average quality of construction of some distribution pipes might lead to higher than standard O&M costs. The UfW reduction program and the low cost sewerage pilot project are the main failures of the Project.

H. Future Operations

33. Jakarta Water Supply. In February 1998, two 25-year "cooperation" agreements between PAM JAYA and two private consortia became effective. Initially, each consortium included an internationaloperator anld a local partner. Following the May 1998 change of government,the internationaloperators were asked to buy the shares of their local partners; this has now been done. The "cooperation" agreements are modeled after concession contracts: PAM JAYA remains the owner of existingfacilities and will become the owner of facilitiesfinanced by the operators.PAM JAYA will remain responsiblefor settingthe tariff that applies to consumers. The agreements include detailed performance indicators that would allow for further monitoringof the piped water supply service in DKI Jakarta. The institutionalarrangements in place are likely to improve these performanceindicators. PAM JAYA has officially provided the Bank with a copy of the two "cooperation"agreements to enable an assessmentof their impact on the Loan Agreement. 34. The current arrangementfor operationof the Pejompongantransmission line by POJ is satisfactory;POJ envisagesthe possibilityof transferringO&M activities to one of the two private operators under a "management" contract. The arrangement for operation of the Cisadanetransmission line could be improved. PDAMTangerang has recentlycontracted out the management of the Cisadane WVTPto a private operator. For the time being, PDAM Tangerangstill operatesthe part of the facilitieslocated in its territory, while facilities located in Jakarta are operated by the private operator for the western part of the PAM JAYA's operations (Para. 12). This private operator could take over O&M responsibilityfor the entire CTWLPscheme. 35. Jakarta Sewerage and Sanitation. PD PAL JAYA is likely to remain a small operation,with a limited impact on the sanitary environmentin Jakarta, because the assets it manages do not allow for a significant increaseof the customer base. However, it should be able to continue financingits O&M from user charges. 36. Jakarta Flood Control and Major Drainage. DKI Jakarta will operate the major drainagefacilities, but availability of central govermmentfinancing for rehabilitationprojects, such as that financedby the Project, could be a disincentiveto adequatebudgeting for regular maintenance. 12

I. Key LessonsLearned

37. Physical Implementation.The main lessons learnedare: (a) Good quality preparationis key for successfulimplementation (para. 28);

(b) The procurementplan agreed at appraisal should be followedwithout major modifications(para. 25); there is little or no advantage in splittingsupply and laying of pipes in separatecontracts (para. 24);

(c) UfW is more an institutionalthan a physical problem (para. 8).

38. InstitutionalDevelopment. The main lessons learnedare: (a) PDAM performancecannot be improvedsimply through the provisionof TA and training (para. 13);

(b) To prepare a meaningful PDAM performance improvementprogram, it is necessary to understand the incentive framework in which it operates (para. 8);

(c) UfW reduction programs should be envisaged as a part of a much larger effort to reduce operatingcosts (para. 8)

(d) UfW is magnifiedby inappropriatepricing practices, such as low raw water charges and distortedpiped water tariff structure (paras. 15, 17).

39. FinancialDevelopment. The major lessons learnedare: (a) Simple financial covenants are well understood by PDAMs and can be implementedif both the PDAM and its local governmentare committedto improvement(pares. 15, 17);

(b) Financial covenants shouldbe carefully designedto avoid automatictransfer of PDAM inefficiencies to users; tariff increases should not be granted without instituting a strictly monitored performance improvement program (para. 15, 17); and

(c) Agencies that cannot submit timely audit reports by Government auditors should be requested to engage private auditors to meet this requirement (para. 31). 13

IMPLEMENTATIONCOMPLETION REPORT 1NDONESIA SECONDJABOTABEK URBAN DEVELOPMENT PROJECT (Loan 3219-IND) PART II. STATISTICAL ANNEXES STATISTICAL TABLES

Table 1. Summary of Assessment

A. Achievementof objectives Substantial Partial Negligible Notapplicable Macroeconomicpolicies [] 5 X S Sectorpolicies [5 X 5 O Financial objectives X 0 5 E Institutionaldevelopment [J X 5 5 Physicalobjectives X 5i 0 Povertyreduction [] X 5 O Genderconcerns 5 5 X E Other social objectives [] X O Environmentalobjectives [ X El n Public sectormanagement 5 X O ° Private sectordevelopment I] X El Economicbenefits 0 X O a

B. ProjectSustainability Likely Unlikely Uncertain I5 5 x C. Bank Performance High1y Satisiqctory Satisfactory Deficient Identification O X 5 Preparationassistance 5 X 5 Appraisal 5 X 5 Supervision E X E

D. BorrowerPerformance Highly Satisractorg Satisfactory Deficient Preparation ] X E Implementation a X 5 Covenantcompliance 5 X 5 Operation 5 X 5

E. Assessmentof Outcome Highly Satisfactory Satisfactory Deficient E x O 14

Table 2. Related Urban and Water Supply Bank Loans

Yearof Loan/credittitle Purpose approval Status Precedine. operations* Fourth Urban To implementa nationwideKIP, a sites and servicesprogram, and to 1981 Closed DevelopmentProject strengthenthe managementcapabilities of Bank TabunganNegara (Loan1972-IND) (BTN)and PERUMNAS. Fifth Urban To improvebasic urban servicesand strengthenmunicipal administration 1984 Closed DevelopmentProject in the project cities(Surabaya, Semarang, Surakarta, and Ujung Pandang) (Loan2408-IND) and augmentthe capacityfor local resourcemobilization. ousingSector Loan To expand accessto housing fnance for low and middleincome 1986 Closed (Loan 2725- IND) households;to reduce overallsubsidies to the lowestincome groups; to reducethe reliance of the housing financesystem on governmentfunds and introducenew instrumentsfor resourcemobilization; to stimulatethe productionof more low cost housingby both public and private developers;to generateemployment and to strengthenBTN and PERUMNAS. UrbanSector Loan To carry out GOI's FY87/88and FY88/89urban infrastructure 1987 Closed (Loan2816-IND) expenditureprogram; to strengthensector institutions and procedures;to improvelocal resourcemobilization; and to increasethe responsibilities of local governmentsfor urban infrastructureplanning, fnancing and implementation. RegionalCities To implementa programfor relievingtraffic congestionand promote 1987 Closed UrbanTransport transportefficiency; to strengthencity governmentcapabilities in the Project planning,implementation, and maintenanceof traffic and transport (Loan2817-IND) facilities;and to establisha process of coordinatingthe investment activitiesof central,provincial and city governmentagencies in urban transportprograms. ll JabotabekUrban To provide technicalassistance for institutionaldevelopment and training 1988 Closed DevelopmentProject in urbanmanagement; and physicalworks for road improvementand (Loan2932-IND) construction. l. ThirdJabotabek To introducea more effectiveand sustainableapproach to provisionof 1991 Active UrbanDevelopment basic servicesin Jabotabekthrough extensive community participation in roject recognizedlow-income urban communities;to strengthenenvironmental (Loan3246-IND) protectionand pollutioncontrol in the Jakartaregion; and to improve maintenanceof existinginfrastructure networks and provide a firmer basis to plan future developmentpriorities. EastJava - Bali To supporturban infrastructureinvestment (including rehabilitation in up 1991 Closed UrbanDevelopment to 45 local governmentsin East Java and Bali, includinga limited Project expansionof waterdistribution system in the city of Surabaya;to (Loan3304-IND) improveurban infrastructure expenditure programming, fnancial planningand informationmanagement for local governments;to encouragelocal revenue generation,improved financial management; and to assist sectordevelopment nation wide, includingpreparation of futureprojects. 15

Table 2 (cont'd) Year of Loan/credit title Purpose approval Status Following projects Sulawesi- Irian Jaya To provide urban infrastructurein selectedcities in Sulawesiand Irian 1991 Closed UrbanDevelopment Jaya with increasein accessof householdsto water supplyand sanitation Project services;to supportimproved infrastructure programming and financial (Loan3340-IND) planningin these cities;to encouragelocal governments and water enterprisesin revenuegenemration and improvedfinancial management. SurabayaUrban To improve:urban service levelsand affordability,particularly for the 1994 Active DevelopmentProject poor in Surabaya;productivity and the effectivenessof investments (Loarn3726-IND) throughbetter infrastructureplanning and management,revenue mobilization,project implementationand O&M;environmental quality by enhancinglocal governmnentcapacity to plan, implementand operate infrastructurein an environmentallysound fashionand also by enhancing community participation. Semarang-Surakarta To improvethe provisionof urban infrastructureservices and the 1994 Active UrbanDevelopment efficiencyof the urbaninvestments in Semarangand Surakarta;to Project promote stronger,more autonomous,and financiallymore independent (Loan3749-IND) municipalgovernments; and to contributetowards poverty alleviation, mainlythrough betteraccess to essentialservices and an improvedurban environment. alimantanUrban In the five cites of Banjarm,asin,Balikpapan, Palangkaraya, Pontianak, 1995 Active DevelopmentProject and Samarindaand their respectiveWater Enterprises(PDAMs), the (Loan 3854-IND) project will improvethe provisionof urban infrastructureservices and the efficiencyof the urban investments;promote stronger, more autonomous,and financiallymore independentmunicipal governments; contributetowards poverty reduction, mainly through better accessto essential services; and impirovethe environment. Second East Java To improvethe provisionof urbanservices to more than 5 million 1996 Active UrbanDevelopment residentsof urban areas in East Java Province(excluding the city of Project Surabaya)through appropriate investments in physicalinfrastructure; to (Loan 4017-IND) strengthenoperations and maintenanceactivities for urbanservices, and support improvedplanning, programming, budgeting, financial managementand localrevenue generationby local governments;and to improveurban environmenIt management and reduceenvironmental impacts. Second Sulawesi To improvethe deliveryof urban infrastructureservices for about 3.6 1997 Active UrbanDevelopment million residentsin 41 towns and cities of 40 local governmentsof the Project four Sulawesiprovinces through appropriate investments in physical (Loan4105-IND) infrastructure;to strengthenO&M activitiesfor urban services,and support improvedplanning, programming, budgeting, financial managementand localrevenue generationby local governments;and to improveurban environmentalmanagement and reduceenvironmental impacts. Bali Urban Improveurban infrastructureservices in Bali in a sustainablemanner to 1997 Active InfrastructureProject meet: basic needs in all importanturban centersand the needsfor (Loan4155-IND) growingurbanization in south Bali as a result of tourismand other economicactivities. *Precedingprojects are those withinthe ten year limit. 16

Table 3. Project Timetable

Steps in projectcycle Date planned Date actual/latestestimate

Identification (IEPS) NA 02/07/88 Preparation 03/00/89 03/00/89 Preapraisal 06/00/89 06/00/89 Appraisal 10/00/89 11/28/89 Negotiations* 03/00/89 05/01/90 Board presentation 05/00/90 06/05/90 Signing 05/00/90 07/06/90 Effectiveness 07/00/90 02/27/91 Project completion 06/30/96 06/30/97 Loan closing 12/31/96 12/31/97 * Parallelfinancing meeting. GOI, OECFand IBRDreviewed funding of OECFmission and agreedon parallel financing; JUDPIInegotiation substantially completed by May 1, 1990.

Table 4. Loan Disbursements-Cumulative Estimated and Actual (US$ million) Bank FY FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 Appraisal estimate* 5.20 17.10 40.30 74.10 116.40 146.40 190.00 190.0 Actual 5.14 17.04 40.24 74.09 116.38 150.82 168.36 174.59 Actual as % of estimate 100 100 100 100 100 103 89 91 jDate of final disbursement *Revised estimate. 17

Table5Al. Key ImplementationIndicators PAkM JAYA Physical,Management & Financial PerformanceMonitoring Indicators, 1990 - 1997AsAppraised

l1990 1991 1992 1993 1994 1995 1996 1997 l ______Budget DEMAND Populationin ServiceArea - 000 6,439 6,897 7,178 7,471 7,776 8,093 8,257 8,425 PopulationServed 32% 34% 37% 39% 42% 44% 46% 49% Water Connections- 000 208.63 233.63 263.63 293.63 323.63 353.63 383.63 413.63 TotalEff. ProductionCapacity-Liters/second 13,230 14,930 14,930 17,930 17,930 TotalEff. ProductionCapacity - MillionM3 417.22 470.83 470.83 565.44 565.44 % Unaccounted-for-Water(Target) 50% 49% 48% 47% 46% 45% 44% 43% Max. Water Availablefor Sale-MillionM3 221.19 280.80 286.00 340.47 346.55 ForecastVolume Sold - MillionM3 124.87 137.79 152.53 167.28 183.96 201.40 218.49 236.60 VolumeProduced and Purchased- MillionM3 315.62 340.67 366.18 390.16 415.09 PAM JAYAProduction - MillionM3 249.74 270.18 293.33 306.75 311.54 318.00 325.56 339.09 CisadaneProduction Capacity - MillionM3 29.33 82.12 82.12 82.12 82.12

MANAGEMENT # Days AccountsReceivable 76 76 76 76 76 76 76 76 Numberof Employees 2,554 2,705 2,790 2,870 2,940 3,055 3,160 3,265 Employeesper 1000 Connections 1:2.24 11.58 10.58 9.77 9.08 8.64 8.24 7.89 % Increase# of Employees 8% 6% 3% 3% 2% 4% 3% 3%

FINANCIAL AverageTariff in CurrentPrices (Rp/m3) 700 910 980 980 1,176 1,176 1,176 1,352 AverageTariff Increase 0% 30% 8% 0% 20% 0% 0% 15% WorkingRatio 58% 55% 52% 53% 49% 54% 61% 56% Contributionto investment(Annual) 29% 23% 35% 27% 55% 29% 23% 54% Cont.to Invest. (Ave. of 3 Years) 23% 28% 34% 28% 54% 28% 24% 52% Rate of Return 16% 22% 19% 10% 9% 8% 6% 7% Debt Service Ratio 3.37 5.26 6.91 3.33 4.64 2.12 1.88 2.62 Debt on Debt Plus Equity 0.60 0.59 0.63 0.64 0.62 0.61 0.58 0.54 18

Table 5A2. Key Implementation Indicators PAM JAYA Physical,Management & Financial PerformanceMonitoring Indicators, 1990-1997Actual 1990 1991 1992 1993 1994 1995 1996 1997 Audited Audited Audited Audited Audited Audited AuditedEstimated DEMAND Populationin ServiceArea - 000 6,439 6,897 7,178 7,471 7,776 8,128 8,695 8,880 PopulationServed 35% 39% 42% 44% 44% 46% 49% 52% Water Connections- 000 227.83 267.11 298.89 327.43 340.85 366.73 396.71 462.48 Total Eff. ProductionCapacity-Liters/second 10,385 10,435 12,485 12,485 12,530 12,380 16,292 17,035 Total Eff. ProductionCapacity - MillionM3 327.50 329.08 393.73 393.73 395.15 390.42 515.19 537.22 % Unaccounted-forWater (Actualor Target) 54% 53% 54% 53% 51% 53% 57% 56% Max. WaterAvailable for Sale-MillionM3 118.52 132.58 163.32 158.35 171.46 164.26 180.69 210.42 Actualor ForecastVolume Sold - MillionM3 123.47 138.67 144.12 158.36 167.61 164.05 176.42 204.76 VolumeProduced & Purchased- MillionM3 262.62 288.85 312.11 336.10 344.23 347.43 411.03 467.53 PAM JAYAProduction - MillionM3 262.62 288.85 312.11 336.10 336.30 347.00 401.05 429.69 CisadaneProduction Capacity - MillionM3 ------25.30 50.46 CiburialProduction Capacity - MillionM3 - - - - 7.88 4.73 6.45 6.60

MANAGEMENT AverageCollection Period (Days) 66 29 15 13 11 9 15 35 % Receivablein Billings 18% 8% 4% 3% 3% 2% 4% 10% Numberof Employees 2,186 2,250 2,216 2,117 2,098 2,165 2,180 2,213 Employeesper 1000 Connections 9.59 8.42 7.41 6.47 6.16 5.90 5.50 4.78 % Increase# of Employees 0% 3% -2% -4% -1% 3% 1% 2%

FINANCIAL AverageTariff in CurrentPrices (Rp/m3) 682 698 927 951 1,197 1,428 1,491 1,491 AverageTariff Increase -3% 2% 33% 3% 26% 19% 4% 0% WorkingRatio 72% 74% 57% 62% 57% 58% 58% 61% Contributionto Investment(Annual) 26% 26% 19% 47% 28% 24% 29% 17% Cont. to Invest. (Ave. of 3 Years) 37% 18% 20% 42% 23% 37% 31% 19% Rate of Return 8% 8% 12% 7% 10% 13% 17% 12% Debt Service Ratio 3.02 1.62 4.46 3.83 3.49 3.32 1.81 24.41 Debt on Debt Plus Equity 0.57 0.66 0.68 0.67 0.70 0.74 0.74 0.69 19

Table 51B1.Key Indicatorsfor ProjectImplementation PDAM TangerangPhysical, Management & FinancialMonitoring Indicators, 1990-1997 As Appraised 1990 1991 1992 1993 1994 1995 1996 1997

DEMAND TangerangWater Production- MillionM3/Y 8.6 9.7 10.9 12.1 13.6 15.2 16.7 18.3 CisadaneBulk Production- MillionM3/Y 9.0 29.4 48.7 65.3 76.8 VolumeProduced - MillionM3/Y 8.6 9.7 10.9 21.1 43.1 63.8 82.0 95.0 % Unac'ted-forwater (UfW)mcl. Cisadane 26% 25% 25% 26% 26% 26% 26% 260/o VolumeSold to Tangerang- MillionM3 6.4 7.3 8.2 9.1 10.2 11.4 12.5 13.7 Volume Soldto PAM JAYA- MillionM3 8.9 29.1 48.2 64.6 76.0 Totalvolume sold -MillionM3/Y 6.4 7.3 8.2 18.0 39.4 59.6 77.1 89.7

MANAGEMENT Days AccountsReceivable 76 76 76 76 76 76 76 76 umber of Employees 329 378 427 546 607 668 729 790 % Increaseof Employees 0% 15% 13% 28% 11% 10% 9% 8% umber of Empl/Noof Conecx 1000 12 12 12 12 12 12 12 12

FINANCIAL OverallRetail Tariff (in currentprices) (Rp/m3) 582 679 675 808 803 801 961 963 AverageRetail Tariff Increase 4% 17% - 1% 20% -1% 0% 20% 00/ Bulk Tariff(in CurrentPrices) 375 375 375 375 375 Average Bulk Tariff Increase 0%/ 0% 0% 0% WorkingRatio 35% 37% 39% 37% 33% 32% 31% 33% % Cont to Inv w/o CisadaneProduction Facility and Int. CapitalizedAverage of 3 Yrs 56% 40% 30% 40% 57% 53% 69% 38% Rate of Return Based on Net Income 17.0% 18.2% 17.9% 7.1% 6.2% 9.6% 13.1% 14.70/ Debt Service Ratio 5.2 6.0 6.3 11.5 21.7 5.4 6.7 2.3 % Debt on Debt Plus Equity 43% 47% 52% 56% 57% 56% 54% 52%

* Debt withoutCisadane production facility and excludingasset revaluation 20

Table 5B2. Key Indicatorsfor Project ImplementationPDAM TangerangPhysical, Management & FinancialMonitoring Indicators, 1990-1997 Actual

1990 1991 1992 1993 1994 1995 1996 1997 DEMAND Tangerang Water Production - Million M3/Y 21.2 23.7 30.5 9.1 11.6 17.5 17.4 19.2 Cisadane Bulk Production - Million M3/Y - - - - - 0.8 22.6 Volume Produced - Million M3/Y 21.2 24.5 53.1 9.1 11.6 17.5 17.4 19.2 % Unac'ted-for water (U.F.W) incl. Cisadane 28.0% 25.9% 42.1% 38.4% 42.5% 42.2% 42.9% 43.6% Volume Sold to Tangerang - Million M3 12.3 13.8 18.7 6.6 8.6 10.1 10.7 11.1 Volume Sold to PAM JAYA - Million M3 - - - - - 0.3 20.5

Total volume sold - Million M3/Y 12.3 14.1 40.2 6.6 8.6 10.1 10.7 11.1

MANAGEMENT # Days Accounts Receivable 108 47 56 52 45 50 52 30 Number of Employees 345 355 356 356 357 353 351 361 % Increase of Employees 7% 3% 0% 0% 0% -1% -1% 3% Number of Empl/No of Conn x 1000 11.9 10.6 9.1 8.4 8.0 7.4 7.1 6.9

FINANCIAL Overall Retail Tariff (in Current Prices, Rp/m3) 650 668 694 890 849 869 893 867 Average Retail Tariff Increase 16% 3% 4% 28% -5% 2% 3% -3% Bulk Tariff (in Current Prices) - - - - 450 450 Average Bulk Tariff Increase 0% 0% 0% 0% Working Ratio 48% 61% 66% 53% 56% 53% 67% 84% % Contribution to Investment -228% -95% -183% 8% 20% -9% -14% -19% (W/o Cisadane Production Facility and Interest Cap. Average of 3 yrs) % Contribution to Investment- Ave. 3 yrs -23% -10% -8% 4% 13% -9% -14% -19% Rate of Return Based on Assets 12.4% 8.0% 11.2% 26.1% 27.4% 29.1% 0.8% -9.9% Debt Service Ratio 4.0 3.6 0.6 5.2 5.5 2.5 9.3 8.2 % Debt on Debt + Equity 19% -15% 24% 54% 56% 64% 66% 84%

Debt withoutCisadane production facility and excludingasset revaluation Table 6A1. Key Indicators for Project Operation FuturePAM JAYAMonitoring Indicators, 1998-2002

Projected GARUDADIPTA SEMESTA (West Sector) KEKARPOLAAIRINDO/THAMES WATER (East Sector) 19981 19991 20001 2001 2002 19981 19991 20001 20011 2002 19981 19991 20001 2001 2002 DEMAND Populationin Service Area -000 9,282 9,467 9,696 9,848 9,996 5,132 5,217 5,302 5,383 5,460 4,150 4,250 4,394 4,465 4,536 PopulationServed - 000 4,611 5,437 6,109 6,578 6,965 2,279 2,877 3,321 3,562 3,797 2,332 2,560 2,788 3,016 3,168 PopulationServed -% 50% 57% 63% 67% 70% 44% 55% 63% 66% 70%/ 55% 59% 63% 68% 70%/ WaterConnections at Year-End-000 470,674 571,776 653,885 711,003 757,129 219,067 290,169 342,278 369,396 395,522 251,607 281,607 311,607 341,607 361,607 % Non-RevenueWater 50% 47% 42% 38% 35% 50% 47% 42% 38% 35% 50% 47% 42% 38% 35% Max.Water Availablefor Sale-MillionM3 7,827 8,495 7,706 6,972 6,421 3,672 4,007 3,696 3,344 3,080 4,155 4,487 4,010 3,628 3,342 ActualorForecastVolume Sold - MillionM3 210 244 281 317 342 105 123 145 164 174 105 121 136 153 168 VolumeProduced and Purchased- Us 15,654 18,074 18,347 18,347 18,347 7,344 8,526 8,799 8,799 8,799 8,310 9,548 9,548 9,548 9,548 VolumeProduced and Purchased- MillionM3 496 573 582 582 582 233 270 279 279 279 263 303 303 303 303 PDAMJaya Production- Us 13,585 15,085 15,375 15,375 15,375 5,710 6,010 6,300 6,300 6,300 7,875 9,075 9,075 9,075 9,075 PDAMJaya Production- MillionM3 431 478 488 488 488 181 191 200 200 200 250 288 288 288 288 Bulk TreatedWater Purchases- I/s 1,819 2,701 2,684 2,684 2,684 1,634 2,516 2,499 2,499 2,499 185 185 185 185 185 BulkTreated Water Purchases- MillionM3 58 86 85 85 85 52 80 79 79 79 6 6 6 6 6

MARKETING TariffRevenues - MillionRp 361,469 474,085 595,459 729,116 837,031 TariffRevenue Rp/ m3 Sold 1,721.28 1,942.97 2,119.07 2,300.05 2,447.46 TariffIncrease (%) 12.00% 8.97% 8.72% 8.47% 6.00%/

FINANCIAL AverageAnnual Water Charge 1,548 1,652 1,767 1,877 2,007 1,724 1,839 1,963 2,088 2,218 1,371 1,461 1,559 1,651 1,788 AnnualWater Charge - MillionRp 324,975 402,978 496,659 595,035 686,316 181,020226,197 284,635 342,432 385,932 143,955 176,781 212,024 252,603 300,384 AverageTariff in current prices(Rp/m3) 1,721.28 1,942.97 2,119.07 2,300.05 2,447.46 Average tariff increase 12.00% 8.97% 8.72% 8.47% 6.00%/61

21 22

Table6A2. Key Indicatorsfor ProjectOperation Future PDAM Tangerang MonitoringIndicators, 1998-2002

1998 1999 2000 2001 2002 IDEMANDI Tangerang Water Production - Million M3/Y 32.3 38.0 44.9 49.2 53.6 Cisadane Bulk -Production - Million M3/Y 56.0 93.3 93.3 93.3 93.3 |VolumneProduced - Million M3/Y 88.3 131.3 138.3 142.5 146.9 % Unac'ted-for water (UfW) incl. Cisadane 41.7% 40.1% 39.1% 38.1% 37.1% Volume Sold to Tangerang - Million M3 20.1 24.0 28.9 32.1 35.5 Volume Sold to PAM JAYA - Million M3 52.9 87.1 87.1 87.1 87.1 Total volume sold - Million M3/Y 76.1 114.2 119.1 122.3 125.7

MANAGEMENT # Days Accounts Receivable 30 30 30 30 30 Number of Employees 363 365 367 369 371 /%Increase of Employees. 0.55% 0.55% 0.55% 0.54% 0.54% umber of Empl/No of Conn x 1000 6.55 5.37 4.48 4.14 3.86

FINANCIAL Overall Retail Tariff (in current prices, Rp/m3) 875 1,115 1,119 1,485 1,516 Average Retail Tariff Increase 0.90% 27.52% 0.32% 32.72% 2.12% Bulk Tariff (in current prices) 450 558 558 558 558 Average Bulk Tariff Increase 0.0% 24.0% 0.0% 0.0% 0.0% Working Ratio 70.49% 47.32% 46.69% 44.93% 45.67% % Contribution to Investment 55.99% 28.60% 952.07% 79.48% 55.29% (W/o Cisadane Production Facility and Interest Cap. Average of 3 yrs) % Contribution to Investment- Ave. 3 yrs 55.99% 28.60% 952.07% 79.48% 55.29% Rate of return based on assets -6.03% 5.41% 7.12% 10.40% 12.44% Debt Service Ratio 2.0 2.7 2.4 2.4 2.5 % Debt on Debt + Equity* 94.17% 94.34% 93.66% 88.99% 83.61%

* Debt without Cisadane production facility and excluding asset revaluation. 23

Table 7. Studies/Technical Assistance Included in the Project

Tut"~ ~~utn A. PJSIP (Zones 1,2,4,5)TA - /Supervisionof Construction . Rehabilitation Works. To help PAM JAYA plan DGCK/PAM Satisfactory. and execute the JAYA rehabilitation program. 2. Final Engineering Design of To prepare FEDs TDs for DGCK/PAM Satisfactory. Infill/Extension Works. infill/extension. JAYA 3. TA for Final Engineering Prepare designs and tender DGCK/PAM Satisfactory. Design of Primary Distribution documents. JAYA means in Zones 3 and 6. l 4. Construction Management To strengthen the PIU DGCK/PAM Satisfactory. Services I _gth__JAYA B. Institutional Development I. Institutional Development To improve PAM JAYA's PAM PAM JAYA underwent reorganization in overall operations. JAYA/DGCKI April 1995. Most of the procedures PUOD developed by institutional development and training for the former structure had not been implemented. 2. Consumer Survey To improve PAM JAYA's PAM JAYA Limited. knowledge of waler consumer behavior 3. Training To develop PAM JAYA's PAM Limited. in-house training units JAYA/ DGCK/ PUOD C. Pejompongan Pipeline 1. Consulting Service for To support the PIU PSJ Completed on 31/12/96. Project suffered Supervision of Construction of a delay of some 30 months but the the Pejompengan Pipeline facilities were fully completed. Impact on operation of the Pejompongan WTP (mostly savings on chemicals) is still difficult to assess, because of short period of observation. 2. Institutional Strengthening To improve financial DGWRD/POJ Satisfactory. and Management Information conditions of POJ. Study 3. Training To strengthen the training DGWRD/POJ Satisfactory. unit at POJ with specific emphasis on training for O&M of the Pejompengan Pipeline __ __ 24

Table 7 (cont'd)

D. Cisadane Treated Water Transmission Main 1. Construction Supervision To support the PIU DGCK/ Satisfactory. Completed on 8/15/95. Services for the Treated Water PDAM Construction suffered a delay of about 20 Transmission Main and PDM. Tangerang months beyond appraisal estimate, mostly because of slow acquisition of rights of I______ways and operations started late in 1995. 2. Management Improvement To improve management DGCK/ Satisfactory. Completed on 05/01/95. Study for PDAM Tangerang organization and capability PDAM Impact was positive, but the recent of PDAM Tangerang. Tangerang decision to split PDAM Tangerang in two, l______may have a negative impact. 3. Training To develop training PDAM Satisfactory. I ______program. Tangerang l E. JSSP Extension 1. Consultant Services for To support the PIU DGCK Limited. Project completed on 31/03/95. Construction and Supervision. The number of residential connections remained at its 1990 level of about 1000 with growth possibilities limited to Project area and depending only on new high rise connections. 2. Institutional Development To develop BPAL/PDAL DGCK Limited. Completed in 12/91. F. Priority Major Drainage 1. Consulting Services for To support the PIU during PPJR/ Satisfactory. Finalization of Designs, tendering and execution of DGWRD Preparation of Tender Documents the works and Construction Supervision. l 2. Training To develop training program PPJR/ Training program was not included I______IDGWRD because staff have already the knowledge. G. Jabotabek Water Resources Project 1. Jabotabek Water Resource DGWRD Completed on 01/12/93. Management Study. 2. Jabotabeck Water Data Center DGWRD Completed on 01/01/93.

3. Consultant Services for Advisory service for DGWRD Completed on 30/09/92. JWRMS' Jabotabek Water Management institutional development findings and recommendations led to the Services (JWRMS). and water resources study substantial ground water abstraction tariff coordination increase in Jakarta, implemented in 1994; prompted preparation of project that would disconnect from WTC three rivers in order to improve raw water quality delivered to I ______various WTPs. 4. Ground Water Investigation DGWRD Satisfactory. Completed on 11/15/92. 5. Water Quantity and Quality DGWRD Satisfactory. Completed on 03/18/93. 6. Socio-economic and Ground DGWRD Satisfactory. Completed on 08/21/92. Water Surveys 7. Geotechnical Investigation and DGWRD Satisfactory. Completed on 04/24/93. Topographical Survey and Mapping l 9. Jabotabek Institutional and DGWRD Satisfactory. Completed on 09/30/92. Advisory Services 25

Table 7 (cont'd) H. IUIDPStudies and FutureProject Preparation 1. NationalProgram Preparation Institutionalstrengthening in DGCK Satisfactory. and ManagementAssistance for centralgovemment, Urban Development assistanceto programme preparationand arrangement & assistanceto local govemments l 2. CPMOManagement Assistanceto project DGCK Satisfactory.Completed on 08/27/93. Information Systems monitoring in DGCK l 3. DGCK/DKIManagement Upgradingof project/ DGCK Satisfactory.Completed on 8/22/93. TrainingProject program developmentand L ______management 4. Metro and LargeCities IUIDP Futureurban developmentin DGCK Bank financedIUIDP projects (Surabaya, metroand large cities: Kalimantan,Semarang/Surakarta, Sulawesi

Assistanceto PDAM DGCK Satisfactory.Completed on 01/06/92. Surabyafor Preparationof implementationfor water L ______sector (SSUDP) KalimantanUrban DGCK Satisfactory.Completed on 8/06/94. DevelopmentProject Supportto complete Appraisal& Preparationfor Loan

Assistancefor DGCK Satisfactory. Completedon 03/31/98. implementation oi SSUDP Preparationfor DGCK Satisfactory. implementationSecond Sulawesi (UDP) 5. HRD in the WaterSupply DGCK Completedon 01/04196. Sector(PRMDUs, Gov't of Netherlands Counterparts, etc.) I 6. Planning& Managementof Policy and guidelines DGCK Not carriedout. New LargeScale Urban Settlement development;establishment Developmentsin JabotabekArea of mechanismancl pilot applicationin Jabotabeck area 7. Developmentof PrivateSector Identifyopportunities and DGCK Not carriedout. Participationin JabotabekUrban the mechanismsfor private Services sector participationin provisionof urban services ,particularly in Jabotabek I 26

Table 8A. Project Cost Estimate and Financing (US $ million) OriginalProject Cost Estimate Actual/LatestEstimate Item Local Foreign Total Local Foreign Total PAM JAYAWlSystem Improvements 57.4 65.1 122.5 66.80 75.64 142.44 PejomponganRaw WaterPipeline 21.8 26.2 48.0 25.55 30.72 56.27 CisadaneTreated Water Trans. Main 10.0 5.5 15.5 10.52 5.77 16.29 JakartaSan. SewerageExt. Project 10.0 7.6 17.6 9.52 7.19 16.71 Waste WaterDisposal (Micro-drainage) 1.3 0.0 1.0 1.11 0.00 1.11 Priority MajorDrainage 13.9 5.9 19.8 16.31 6.93 23.24 WaterResource Management Study 1.4 5.3 6.6 0.69 2.70 3.39 MiscellaneousStudies 1.0 2.3 3.3 0.92 2.14 3.05 OverallProject coordination 1.5 1.5 3.0 1.78 1.65 3.43

TotalBase Cost 118.3 119.4 237.3

Physicalcontingencies 14.3 13.3 27.6 Price contingencies 23.6 18.2 41.8

TotalProject Cost 136.0 150.9 306.9 132.21 132.72 265.93

*Excludesthe appraisalcost of PAM JAYAWater SystemImprovements financed by OECFamounting US$41.5 million plus contingencies.

Table 8B. Project Financing Plan Summary (US $ million)

______: _ lAppraisal Actual/estimates Source of Financing Local Foreign Total Local Foreign Total GOI (DKI Jakarta,PAM JAYA, Tangerang) 110.5 0.0 110.5 91.34 0.0 91.34 IBRD 61.7 128.3 190.0 41.87 132.72 174.59 Total ~ ~~~~172.2128.3 300.5 133.21 132.72 265.93

* Excludingthe contributionsof OECF estimatedat US$44.7 million and Govemmentof Netherlandsat US$1.1million equivalent.

Table 9. Economic and Financial Evaluation Estimatesat Appraisal Estimatesat Completion* Water (82% of total projectcosts) ERR of watersupply 11.7%** 11.6% NPV (Rp. billion) 49.0 34.0 FIRR of watersupply 8.1 % 10.5% NPV (Rp. billion) n.a. 10.0

Drainage(7% of total projectcosts) Drainage/floodcontrol 17%to 22% 59.0%/o Micro-drainageimprovements 1590/o NPV (Rp. billion) n.a. 364.0

* Forapproach used, see Appendix C: Economic Evaluation of WaterSupply and Drainage Components ** ERRlowered to 8.6% whenexcluding savings of boilingcosts. 27

Table 10. Status of Legal Covenants Agreement Section Covenant Present Descriptionof Covenant Comments type status Loan 3.03 (a) 10 C Carry out projectimplementation Compliedwith. I ______arrangements 3.03 (b) 5 CP Carry out actionprogram to (a) PAM JAYA:The contractwas strengthenPAM JAYA, PDAM terminatedin July 1995 soon after the Tangerangand POJ. Bankwas informedthat the consulting firn had initiated negotiationof a long- term "cooperation"agreement, because of conflictof interest;(c) PDAM Tangerang- compliedwith. But the recent decisionto splitPDAM Tangeranginto two, followingthe creationof Kotamadya(municipality) may affect impact;(c) POJ - the action plan to improvePOJ's accountingand budgetingprocedures and preparationof financialreports was successfully l______implementedin 1994. 3.04 (a) 12 C EstablishPD PAL by April 1, Perda issuedon 26 September1991. 1991. Full establishmenton 11 February1992. 3.04 (b) I 2 C Allow BPALto retainrevenues Compliedwith. for operationalpurposes. 3.04 (b) II 2 C Causeto break-evenfrom March Compliedwith. 31, 1991 on. 3.04 (c) 6 C Ensure satisfactoryoperations and Compliedwith. maintenanceof sewerageponds. 3.05 12 C EstablishJUPCO for overall Compliedwith. I______project coordination. 4.01 (b) I NC Cause specialaccount to be JUPCOProject Accountfor FY94/95 auditedand submittedto Bank and FY95/96audited by BPKPnot yet withirtnine monthsafter the end sentfor review. of each year. 4.01 (b) I CD Cause annualaudited accounts for Compliedwith after delay. (11) PAM JAYA,PDAM Tangerang and BPA/PDALto be submitted to Bankwithin nine months.After year-end,start with FY92 (Fy/89/90/91submission of accts. l______Is 15/15/12months respectively. 4.01 (b) I CP JUPCOto submitreport on Partially compliedwith. (III) actionstaken to carry out the auditor's recommendationsto Bank withinthree monthsof audit l ______completion. 28

Table 10 (cont'd) Agreement Section Covenant Present Descriptionof Covenant Comments type status 4.03 (a) 2 CP PAM JAYAto reviewtariffs and Tariff adjustmentdue for January1, to adjust them by April 1, 1991 1994 effectiveon July 1, 1994.Tariff and by JanuaryI in eachthird year adjustmentthat was due in 1996 was thereafter. postponeduntil 1998,pending results of negotiations with the private sector. 4.03 (b) 9 C Provideto Bankthe resultsof Compliedwith. Review. 4.04 (a) 2 NC PAM JAYADebt servicecoverage Not in compliance. of 1.5. 4.04 (b) 2 NC Debt Limitationof 70%. Not in compliance. 4.05 (a) 2 CP PAM JAYAnet internalcash Amountedto about 25% in 1993, 17%in generationnot less than 30% of 1994. 32% in 1995;and 295 in 1996. three year averagecapital expenditures(excluding Buaran II). 4.05 (b) 4 CP DKI to providenew equity to Partiallycomplied with. PAM JAYA,equal to 10%of total expenditure 1990/96. 4.06 (a) 1 C PDAMTangerang to review and Compliedwith. adjust tariffs by January 1993and every three years thereafter. 4.06 (b) 9 C Providethe Bankthe result of Compliedwith. review. 4.07 (a) 2 C PDAMTangerang debt service Compliedwith. X______coverage 1.5. 4.07 (b) 2 C Debt limitationof 70%. Compliedwith. 4.08 (a) 2 C PDAMTangerang net internal Tariffadjustment due for January1, cash generationnot less than 30% 1994 effectiveon July 1, 1994. Tariff of annualaverage of total capital adjustmentthat was due for January expendituresincurred over 3-year 1996was postponeduntil 1998. period (excluding Cisadane) 4.09 (a) 2 CP Review and adjust tariffs every Tariffof raw waterdelivered to PAM three-years for full cost recovery JAYA(Pulogadung and BuaranIWPS) on raw waterpipelines. was adjustedin 1994 to Rp. 25/m3 and again in April 1997to Rp. 35/m3to coveradditional 0 &M costs of the new Pejomponganraw waterfacilities; POJ estimatesthat if depreciationis taken into account,both waterrates should reach Rp. 40/m3,Rp. 55/m3and Rp. 74/m3for supply to the Buaran, Pulogadungand PejomponganWTPS respectively. 29

Tablle10 (cont'd) Agreement Section Covenant Present Descriptionof Covenant Comments type status 4.10 2 CD DKI Jakartato reviewand adjust New tariff effectiveon July 1, 1995. groundwater abstractionfee by April 1, 1990 and everythree yeanr there after. 4.11 4 C Borrowerto provideall financing Compliedwith. for BluaranII and Cisadaneto extend existinggrace periodand accumulationof interestand comrnitmentfees through l______December 31, 2000. 6.01 (a) 3 C Executionof subsidiaryloan Compliedwith. agreementsre: DKI Jakarta,PAM l ______JAYA and PDAM Tangerang. 6.01 (b) 5 C Establishmentof JUPCOand Compliedwith. L ______senior positions filled. 6.02 (a), 4 C Ratificationof the above Compliedwith. (b) &(c) subsidiary agreements.

Present Status: Covenanttype C = Covenantcomplied with I = Account/Audits CD = Compliedwith after delay 2 = Financialperformance/revenue generation from beneficiaries CP = Compliedwith partially 3 = Flow and utilizationof projectfunds NC = Not compliedwith 4 = Counterpartfunding 5 = Managementaspects of projector executingagency 6 = Environmentalcovenants 7 = Involuntaryresettlement 8 = Indi,genouspeople 9 = Monitoring,review, and reporting 10 = Projectimplementation not coveredby categories1-9 11 = Sectoralor cross-sectoralbudgetary or other resourceallocation 12 = Sectoralor cross-sectoralpolicy/regulatory/institutional action 13 = Other 30

Table 11. Compliance with Operation Manual Statements

Statement number and title Description and comment on lack of compliance

OD 10.60 Accounting, Financial Reporting, and 4.01 (b): Cause special account to be audited and submitted to Fuditing Bank within nine months after the end of each year. JUPCO Project Account for FY94/95 and FY95/96 audited by BPKP was not sent for review.

Table 12. Bank Resourcestaff Inputs

Staff-week Amount Stages of project cycle Actual US$ ('000)

Through pre-appraisal 98.8 203.2

Appraisal-effectiveness 54.7 109.0

Supervision 183.5 363.3

Completion 17.5 40.1

TOTAL 354.5 715.6 31

Table 13. Bank Resources-Missions Stagesof Month/ No. of SW Specialities Performnance project cycle Year persons\ in represented ratings Types of problems l ______I field IS DO Through Appraisal* l

L______Nov. 87 3 FA, SE, Ec = _= Feb. 88 6 EE, SE,,TA (2), WE (2) l Jun. 88 6 FA, SE,,Ec _(2), E, Sc Aug. 88 1 FA

Appraisalto Jul. 89 8 FA (2), SE, Board Ec, 0 (2), ME Nov. 89 14 FA (3), SE, EE, TS, Ec (3), 0 (2), ______ME, E (2) l Jul. 90 6 0.0 FA (2), TS, 2 1 Procurementof consultantsfor PJDIPis Supervision1 E, 0, PO behind schedule- TOR preparedby PAM JAYAneed to be substantiallyimproved; DKI Jakartareluctant to appoint full-time staff to JUPCO. Supervision2 Nov. 90 5 5.6 FA, E, 0 (2), 2 1 Loan effectivenessdate has been extendedto SE December31, 1990,however, further extensionmay be requiredfor ratificationof SALsby local governmentassemblies and obtaining legal opinion. Mar. 91 3 6.0 0, SE, FA 2 1 DKI action on PAM JAYAtariff adjustment Supervision3 requesteddelayed; achievement of break- even point and establishmentof sewerage enterprise(PDAL) likely to be delayedby one year; PSJ yet to respondto IBRDletter concerning pipe material. Supervision4 July 91 4 0.0 FA, SE, 0 2 1 Disbursementlag seriouslydue to previously (2) unresolvedprocurement issues. BPALaudit for year ending March 3 1, 1990 overdue. Mar. 92 4 3.6 FA, SE, Ec, 2 2 Disbursementlag continuesto be serious- Supervision5 E by about $40 million from appraisal estimate.

E = EnvironmentalSpecialist FA = FinancialSpecialist 0 = OperationOfficer/Procurement specialist Ec = Economist PO = Program Officer SE = Sanitation Engineer/Water Engineer EE = Environmental Engineer PS = Procurement Specialist TS = Training Specialist 32

Table 13 (cont'd) Stagesof Month/ No. of SW Specialties Performance Types of problems projectcycle Year persons\ in represented ratings

l ______I field IS DO Supervision6 Oct. 92 3 4.6 FA, SE, E 2 2 Tariff adjustmentsfrom PDAM Tangerang and groundwater in Jakartawill be needed during 1993;water demandin zones4 and 5 of Jakartarequire start of preparationof Phase II project;and two managementaction programs(RKL) are neededin respect of major drainagecomponent. Improvement PJSIPconstruction quality and contract administrationneeded; unaccounted for water higherthan expectedin some sales. Supervision7 Jun. 93 4 10.7 FA, SE (2), 3 2 DKI assemblyand MOHAnot approvedthe E new groundwatertariffs as yet; UFW is increasingpartly due to higher water pressures;procurement is slow; budgeting needsto be accelerated;slow construction; PAM JAYA is currentlyunable to make 30% contributionto constructionfrom internal cash generation;current projections indicate at least 50% tariff increasewill be requiredeffective January 1, 1994;three audit reports are qualified(PAM JAYA for value of land and GOI equity: PDAM Tangerangfor reconciliationof accounts receivable,adequacy of provisionfor the bad debts, and value of GOI equity; project laccount for consistency of format). Supervision8 Nov. 93 3 0.6 FA, SE (2), 2 2 Groundwater tariffs representabout 100% increaseby January 1, 1994;raw water chargeincrease from Rp22/m3to Rp25m3 to coincidewith effectivenessof PAM JAYA's new tariffs. Supervision9 Jun. 94 2 4.2 FA, SE 2 2 Physicalimplementation of the largest component(PAM JAYA)still lagging behind; delay in compliancewith audit and cost recoverycovenants; project account audit is expectedto be completedby end June 1994 insteadof 12/3/94;PD PAL (sewerage)audit for 1992 will now be combinedwith 1993 audit and completedby 9/30/94;PAM JAYAtariff adjustmenthas been delayedfrom 1/1/94to 7/1/94;raw watertariff adjustmenthas been delayed from 1/1/94to 7/1/94;and groundwater tariff adjustmenthas been delayedfrom 4/1/93to 7/1/94;unaccounted for water will ______need continued action on along-term basis. E = EnvironmentalSpecialist FA = FinancialSpecialist 0 = OperationOfficer/Procurement specialist Ec = Economist PO = ProgramOfficer SE = SanitationEngineer/Water Engineer EE = Environmental Engineer PS = Procurement Specialist TS = Training Specialist 33

Table 13 (cont'd) Stages of Month/ No. of SW Speciaeties Performanc Types of problems project cycle Year persons\ in represented e ratings I field IS DO Supervision 10 Dec. 94 1 0.9 SE S S All agencies complied with financial covenants, but in particular the municipal water utilities remain weak organizations to address the complex issues of providing a very large urban area with a reasonable water supply service at an affordable price. Supervision 11 Jun. 95 1 SE Follow-up. (limited) I- Supervision 12 Nov. 95 3 2.9 SE, FA, 0 S S Delays in rehabilitation of PAM JAYA water distribution network zones I and 2 requires a one year extension of the closing date; a sub- project of major drainage component (Sentiong cut-off in Ancon) is now being proposed to be financed by the on going OECF loan; financing of the cost overrun (US$4.0 million short) of Pejompongan Raw Water Transmission Line; very high price of piped water in Jakarta (average of Rpl450/m3 or US$0.65/m3; also very high tariff of ground water DKI Jakarta creates collection difficulties; audit of PDAM Tangerang's account show increased number of qualifications; unaccounted for water remains at very high, 52% of PAM JAYA's production despite intensive rehabilitation carried out under the project. Supervision 13 Jun. 96 SE, 0 S S Cost-overrun of the Pejompongan Raw Water transmission line project; official reallocation and request for extension of loan closing still not yet received. Tariff of ground water in DKI Jakarta is so high that it has become l ______almostimpossible to collect. Nov. 96 3 0.0 SE, FA, 0 S c Delays in rehabilitation of PAM JAYA water Supervision 14 distribution network in zones 1 & 2 justified a one year extension of the loan closing date. No bulk water supply agreement has been signed between PAM JAYA and PDAM Tangerang for the supply of the Cisadane water and the Jatiluhur Authority for the supply of raw water from the West Tarum Canal to the Pejompongan treatment plant. Supervision 15 Mar. 97 1 0.0 SE No problems were reported. Supervision 16 Oct. 97 1 0.0 SE S S Initiated ICR preparation. Supervision 17 Dec. 97 5 SE, E, FA S S Delays in audits. (ICR mission) (2), 0 _

E = Environmental Specialist FA = Financial Specialist 0 = Operation Officer/Procurement specialist Ec = Economist PO = Program Officer SE = Sanitation Engineer/Water Engineer EE Environmental Engineer PS = Procurement Specialist TS = Training Specialist 34

AppendiceA

SECOND JABOTABEK URBAN DEVELOPMENT PROJECT (JUDP II - LOAN 3219 IND)

LAST SUPERVISION and COMPLETION MISSION (December 1 to 12,1997)

AIDE MEMOIRE

A. Introduction

1. A mission composed of Messrs./Mmes. A. Locussol, D. Liu, J. So (EASUR), L. Elvas and M. Nuch (EACIF) visited Jakarta between November 1 and 12, 1997 to carry out a last supervision and an implementation completion mission of the Second Jabotabek Urban Development Project (JUDP II). The mission thanks the various agencies involved in the project for their cooperation and the courtesies extended.

2. This aide-memoire summarizes the mission's findings and recommendations. The draft aide memoire was discussed during a wrap-up meeting chaired by Mr. B. Panudju, Secretary TKPP on December 11, 1997. Its findings, presented in a format consistent with the Project Implementation Completion Report (PICR) the Bank will submit to its Board before June 30, 1998, are subject to confirmation by Bank management. Since most agencies were not able to carefully read the draft PICR, it was agreed that they will send their comments to JUPCO and TKPP before the end of the year, so that they can be taken into account in the final draft PICR which will be submitted to the Government for comments not later than March 1998. Mission members will be available to discuss their findings during their regular visits in Jakarta.

B. Status of Project at Completion

3. Loan 3219 IND of US$190 million was approved on June 5, 1990 and became effective on February 27, 1991. It will close on December 31, 1997 after a one-year extension. The Loan account will remain open until the end of April 1998 to allow for the processing of disbursement applications for contracts implemented before end 1997. All physical components of the Project have been implemented. According to the latest information provided by JUPCO, about US$9.35 million or 5 percent of the Loan amount will remain undisbursed and will have to be canceled. The main saving comes from the PJSIP component which is scheduled to use only US$98 million out of its US$107 million allocation.

4. The following issues still have to be addressed:

(a) The Bank may have to suspend disbursement until delayed audit reports of JUPCO's 1994/95 and 1995/96 project accounts, due for December 31, 1995 and December 31, 1996 respectively are submitted. The audit report for the 1996/97 project account is due for December 31, 1997. According to information 35

provided by JUPCO, project accounts will be submitted again to the auditors in December 1997, and the audit reports will be forwarded to the Bank in April 1998;

(b) Despite a clear position expressed during the last two supervision missions against financing of the construction of sewers in Malakasari from the Loan, payment under the construction contract has been processed under the SOE procedure; the Bank may decide to request the Government to refund the correspondingamount;

(c) PAM JAYA officially transmitted to the mission a copy of the two "cooperation agreements"that have been signed with private operators; the Bank will review them to assess how they affect executionof the Loan; and

(d) PAM JAYA's debt will be rescheduled by the Ministry of Finance, in order to limit the required tariff increase to about 12 percent; the mission reminded that the Bank position should be officially sought if the SubsidiaryLoan Agreement (SLA) between MoF and PAM JAYA is to be amended (Loan Agreement: section 3.01 (c));

(e) PDAM Tangereangis also negotiating an amendment of its SLA with MoF; the Bank's position shouldalso be officially sought.

C. Review of Implementation Performance and Lessons Learned

5. During the November 1996 supervisionmission, all agencies were provided with Bank procedures to help prepare their contributionto the PICR. To date reports have been received from JUPCO, PAM JAYA System ImprovementProject (PJSIP), PejomponganRaw Water Line Project (PRWLP), Cisadane Treated Water Line Project (CTWLP), Ciliwung Cisadane River Basin DevelopmentProject (CCRBDP),Jakarta Sewerage and Sanitation Project (JSSP), micro dirainage(DPU - DKI Jakarta) and miscellaneous studies (DG Cipta Karya). The report the labotabek Water Resource Management Study by Directorate General of Water Resource Development (DGWRD)still has to be submitted. The completion reports submitted generally include: (a) an assessment of the project objectives, design implementation and operation experience so far; (b) an evaluation of the implementingagencies and lessons learned; (c) an assessmentof the Bank performance;and (d) views on the operationalphase of the Project. 6. Additionaldata must be submittedby some agenciesso that the final draft PICR can be issued: (a) PAM JAYA and PDAM Tangerang: audited financial statements for 1990 to 1996, financial indicators and monitoring data, consistent with audited data, estimates for 1997, and projections for 1998 to 2002; (b) final figures on resettlement for the PJSIP and PRWLP components;and (c) increase in land value in the area servedby CCRBDP,to estimatethe rate of return of this latter component. Mr. Nuch (EACIF)will regularly contact the various agencies if such data are not receivedbefore the end of 1997. 7. The mission met with representativesof the two private operators who shouldtake over ]PAMJAYA's operations early in 1998 to seek their views on achievement of the Project, in particular on the quality of design and constructionof the various assets and managementtools financed by the Project. A detailed inventory of PAM JAYA's assets will be carried during the 36 first 12 months of their contracts and a position would be expressed at that time. Digitized mapping and mathematical models of the distribution network developed by the Project are deemedvaluable managementtools by the operators, at least for the initial years of their activity. 8. A representativeof the OECF financed Project ManagementUnit attendedmeetings with PJSIP and informed the mission of the extension of the closing date of the Loan until mid-1998 and of the various actions to be carried out before that date, in particular with regards to the rehabilitationof the elementarycells in zones 3 and 6.

D. Project OperationalPlan

9. The "cooperation" agreements signed by PAM JAYA with two private operators constitutethe "operationalplan" of the water supply service in Jakarta. They include a series of physical performance targets (number of connections, UfW, volume of water sold, water quality...)which constitute PAM JAYA's future operational plan (annex 1). Also, the contracts included detailed financial statements, including a consolidated statement, that constitute PAM JAYA's financial forecast. These figures will be attached in the final PICR. In addition,the two operators will report on raw water quality in WTC, treated water quality at the WTPs and treated water quality and water pressure in various locations of the distribution networks. Also, the operators will report on the number and nature of complaintsby customers and on groundwater monitoring. 10. For JSSP, the mission proposed that the main indicatorsto be monitoredbe: number of connections;floor surface of building serviced; waste water flow entering the Setiabudi ponds; waste water quality at the inlet and outlet of the Setiabudi ponds and pollution load removed; operatingexpenses; manpower expenses.

n:\raja\icrlI .doc June 12, 1998 37

AppendiceA Annex 1

PAM JAYA Water Supply Operations Selected Monitoring Indicators (from the Cooperation Agreements with PT GDS and PT KPA)

1997 1998 1999 2000 2001 2002

Production Capacity West m3/s 5.22 5.71 6.01 6.30 6.30 6.30 East m3/s 7.98 8.34 8.53 8.53 8.53 8.53 Total m3/s 13.20 14.05 14.54 14.83 14.83 14.83 Bulk Water Purchase m3/s 1.82 2.16 3.06 3.06 3.06 3.06 Total Product.Capacity m3/s 15.02 16.21 17.60 17.89 17.89 17.89 U1w West % 53% 50% 47% 42% 38% 35% East % 50% 47% 42% 38% 35% Total % 50% 47% 42% 38% 35% Water Sold West m3/s 105 123 145 164 174 East m3/s 105 121 136 153 168 Total m3/s 194 210 244 281 317 342 Connections(total) West 000' 219.07 290.17 342.28 369.4 395.52 East 000' 251.61 281.61 311.61 326.61 361.61 Total 000' 447.75 470.68 571.78 653.89 696.01 757.13 PopulationServed West million 1,920 2,279 2,877 3,321 3,562 3,797 East million 2,185 2,338 2,566 2,794 2,908 3,174 Total million 4,105 4,617 5,443 6,115 6,470 6,971 Total Population 'West million 5,054 5,132 5,216 5,302 5,382 5,459 lEast million 4.180 4,250 4,321 4,394 4,465 4,536 Total million 9.,234 9,382 9,537 9,696 9,847 9,995 ServiceRatio West % 38% 44% 55% 63% 66% 70% East % 52% 55% 59% 64% 65% 70% Total % 44% 49% 57% 63% 66% 70% 38

AppendiceB

BORROWER CONTRIBUTION TO THE ICR

Republic of Indonesia JABOTABEK DEVELOPMENT PROJECT LOAN No.3219-IND

JUDP II: WATER SUPPLY AND SANITATION

BORROWER PERSPECTIVE OF THE PROJECT JUDP II

Edited March 1998 The Government Contribution for the ICR 39

BorrowerPerspective to the Project Loan No. 3219-IND- JUDP II

List of contents Preface

Part 1: Introduction i Main Report 1 A. Project objective 1 B. Achievementof Project objective 1 C. Major FactorsAffecting the Project 2 D. Project Sustainability 8 E. Bank Performance 9 F. BorrowerPerformance 9 G. Assessmentof Outcome 10 H. Future Operation 10 l. Key Lessons learned I I

Part 2: StatisticalAnnexes Disbursementcuirve Loan saving PDAM Financial Statement

Appendix:Map

(Judp27.doc: OSA)

NOTE: The aboveis the table of contentsof the Governmentcontribution the ICR, The full text is sent to project file alongwith the contributionsof the implementing agencies. 40

BorrowersPerspective to the Project loan no321S-lOJD*JUDP.lI

Preface This is the borrowersperspective evaluation report for the projectloan no.3219-1NO-JUDP-IIfor whicha loanof USO190 million equivalent was approvedon 6 July 1990and made effective on 21 February1991. The loanwas closedon 31 December1997 insteadof the originalclosing date 31 December1996, and the last disbursementtook place on 31 December1997 at whichtime a balanceof US39.363 millionshould be cancelled. Cofinancingfor the projectwas providedby the OECFloan in an amountof Japanesseyen 446,000 to assist in financingpart of the distributionzone 3-6 POAMJaya water supplysystem improvement andNLG 7,300,000 of Outchguilder in financinga portionof part of JabotabekWater Resources ManagementStudy (JWRMS). Within the currentimplementation Oucth grants has been terminated by Galsubsequently the project financing has replacedlo IBROloan. The evaluationreport was preparedby theborrower (Goll on the basisof theavailable material in the projectsflils, likewiseits as the borrowerscontribution to the Bank'sICR.

IJUDOP2I.AQ5 41

Part 1

Main Report 42

Republicof Indonesia Jabotabek UrbanDevelopment Project Loanno.3219-IND; JUDP-l1 BorrowerPerspective of the Project JUDP-I1 EvaluationReport

1. Introduction

Since1980 the Governmentof Republicof Indonesiahave developed the 'IntegratedUrban Infrastructure DevelopmentPlan' (IUIOP),grouping under a singleumbrella ie: urbantransport, water supply;drainage, waste water disposal,solid waste, floodcontrol, sewerage and sanitationand KarnpungImprovement Project(KIP).

The programhave started with stressedto the big citiesas the first priorityin the beginningand then continuedto the secondarycities such as the regionalcapital city, Themetro city of DKIJakarta and its boundariescalled as Jabotabekhave startad thisprogram since 1988. Dueto tha size of Jabotabekis the largeregion, therefore it was devidedin to three l3) activitiesla JUDP-1concern to theurban transport p(ojectstarted in 1988, then in 1990 it was continuedto JUlDP-lwhich concern to water supplyand sanitationand JUDP-I1 for the KampungImprovement Project.

JUDP-1have been completed on endof March1997 after two(2) tines or 18 monthsextention time; JUOP 11have been completedin end of December1997 after I (one)year axtentionand JUOP-IIIhave two timesor 32 monthsextention time; accordingly it should complete by end of June 1999. Thisreport prepared in accordanceto the 'BankPolicy' for evaluatonof the projectsout come.whether the projecthas run as the proposetarget plan mentionedin staff appraisalreport estination(SAR no.8339-INOdated May10, 1990),and to assesswhat is necessaryto learnfor the futureproject.

A.StatementJEvaluation of objective

2. Projectobjective

Projectobjective and scope of projectwere described in StaffAppraisal Report ISAR) no. 8339-INDedited May10, 1990. Themain objective of the projectwere developedand implementa coordinatedprogram of physicalinvestment, technical assistance and poficiesfor urbanwater supply;waste water disposal, drainage;water resourcesand quality managemenL 43

3. Project component

Projectcomponent comprises: li) Watersupply group consist of: - PJSIPIPAMDKI Jakarta - CisadaneWater Supply Project (CS WSP - PAMTangerang) * CitarumRiver Basin Development Project (CRSDP OGWRO)

(ii) Floodcontrol and Sanitationgrou;p consist of: *Ciliwung Cisadane River Basin Development Ptoject (CCRBDP - OGWRD) *Jakarta Sewerage and Sanitalion PFroject (ext.) (JSSP- DGCK) Microdrainage project (DPU- OKI Jakarta)

(iii) WaterManagement Studies and rechnical Assistancegroup *Water Supply Management Studies, (Binagram -DGCK) JabotabekWater Resources Manaigement Study (JWRMS - DGCKJ OverallCoordination Project Of fice (JUPCO -Bappeda DKI)

Theproject outcomes have been described on1 the followingparagraphs

B. Achievementof-Objecive

4. Jakarta WaterSupply Sector

The Jakarta WaterSupply Sector consists of PJSIP, CRBDPand PDAMTangetang. in which CRBDPwas duties to providethe raw water supply &2 mOlsec capacityto PejomponganWTP and CSWSP(PAM Tangerang)provided the drinkingwater supply2.8 m'lseccapacity to the R5 DistributionCenter located at LebakBulus Area. Theseprojecis have been fullycomplleted, which the dischargestarget plannedcould be reached. evenihoughtthe project completion has been delayedfor severalmonths or about two years of the targetedschedule. This may to influencethe financialstatement of the companieseither or Economic sate ofreturns (ERR) of the projects.

5. PAMJaya SystemImprovement Project IPJSIP)

PJSIP* PAMJaya is thebiggest compcinent in JUDP-II, with USD107 M 156.3%)of USO190 totalloan no.3219-INOJUOP-I1. PJSIPis the largeproject within JUOPI'l, therefore it was devidedinto two stages ie. PJSIP 1" stago financingby bothIBRO and OECF whichl was inplementedunder JUOP-II and PJSIPZ' stage whichnow is underproject preparation between PAM Jaya and theprivat operator. WtJOZ4WacO 541 44

Themain objective of PJSIP1' stage were: * tomainiain the pipe-laying rehabilitation works to reduce51% UFW in 1980instead of 43% 1997. - to implementthe distribution pipe extension to increase49% of tolalpopulation seived in 1997instead of 30%in 1989. * toincrease the potential employment of the Human Resources, in Management andTechnical ability. * to developethe newcostumer at the WestJakarta Regionby supplyof 2.800llsec drinking water distributiedfrom POAM Tangerang -toextend the primary distribution system at zones1,2.4,5 to increaseof watersupply and pressure water in tertiarydistribution pipe andto developethe newcustomers in zone3,6 eastof Jakartaby OECF parallelloan. * toincrease of theemployment ability to maintainof theproject administration execution.

During7 yearsproject execution in PJSIP.finally have resulted the success, limited and failure area as describedbelow:

Successarea:

fi) PAMJaya own water production capacity has increased to 408 million mn 1997 instead of 263nmllion mz in i 990.This is higher 120.35%) than SAR estimate 339 rnillion m' in 1997. (1i) Houseconnection has increased to448.000 HC in 1997instead of 228,000HC in 1990.This was 7.6% higherthan SAR estimate 414,000 HO in 1997. Iiii) Theconneclion density was increased to 75 perkm pipelengths in 1997.instead of 62 perkm pipe lengthin 1990. Population served has increased to 47% in 1997,instead of 35.4% in 1990. .iv) Employmentdensity has increased to 6.8employees per 1000 NC in 1997 insteadof 9.4employees per 1000HC in 1990.This was 14% better than SAR estimate 7.9 employees per 1000 HC in 1997. (v) Theaudit reports now has no any Qualification; and other's project reports; billing issuance has also been expedited.

Limitedsuccess:

Ii) TheKalimalang Raw Waler quality has insignificant improve due to at recentlythe raw waterhas been polutedby determination thewaste water flooding from some heavy factories, which located at theup streamof KeraWang area. (ii) Thewater pressure indistribution pipe at some areas has insignificant improve by this project (iii) Groundwaler supply was insignificant reduced owing to PAMJaya could not be garranted the amounting of watersupply to thefactories and large customers; the water tariff is alsonot competitive yet to the pipedwater and also increasing of 4.9 millionpeople in 1997instead of 4.3 peoplein 1990,could not servedyet. (iv) PAMJaya financialstatement has indicatedinsignificant improved especially in revenues,water production,current ratio. contribution to investment,OM cost accordingly PAM Jaya to datemay has suffereda difficultiesto financingthe project. AAiDPtaec.54 45

Failurearea:

(i) TheUFW increased to 56%in 1997 insteadof 53%in 1990, whileSAR estimate to 43% in 1997.This is themayor failure of PJSIP.This targst is not reacheddue 1othe pipesrehabilitation works has doneonly at a small parts of served area and administrationlosses may as a dominantfactor. Thereforethe reducingof UFWprogram should make more intensive in the future. fi) PublicHydrant has decreasedto 1500 unitsin 1997 insteadof 2000 unitsin 1990.This was a lemon programbecause 2800 unitsplanned to be builtduring PJSIP 1I stage period,must be canceled,due to no oneof suitablenew location has foundedby PAMJaya, whereasis about6000 units of existingPublic Hydrantshave resorted been comedown caLised of reformationof existingarea whichwas outsidecontrol by PAMJaya. PublicHydrant development is oneof the most importantGol's policyto solvethe water supplyproblem for the lowincome groupislump area, in whichas the'social caredprogram ' to the lowlevel community.

6. CisadaneSerpong Water Supply Project (CSWSP)-PDAM Tangerang

Thisproject has preparedto supportthe P.ISIP in a duty to supply2800 llsec drenkingwater, take from CisadaneWater Treatment Plant PDAMiTangetang, distributed via transmissionmain pipe (steel pipe) 1500 mmdiameter to R5 DistributionCenter at LebakBulus area southof Jakarta as of PAMDKI Jaya ownfacilities. Cisadane WTP which constructed under French Protocol loan has been fullycompleted on 1992 but commissioningwork hasnot doneyet. TheWTP commissioning work has donetogether with transmissionmain pipe on December1996, accordinglythis projecthas suffered delay for 20 monihs.

The imfactof the delays,has burdenedthe tevenuesand the POAMactivities; furthermore the water priceand an amountingschedule of bulkwater supply with PAMDKI Jaya is alsonot satlsfied,likewise 1800 iJsecidle capacitywould rise during1997 to 1999, then a complictof interest betweenboth Municipaland TangerangRegency Government concerning 'serviced area', shouldmore burden PDAM Tangerangfinancial. The problem solving sliould requires prudence of relateddispute agencies, therefore a .mergesystem' between two PDAMmay could be recommended. Conclusion The projecthas successfullo be completed,however non lechnicalissues may foulup PDAMTangerang financial.

7. CitarumRiver Basin Development Project (CRBDP)-DGWRD

Thisis alsoa supplementproject to supportPJSIP with duty to deliver6.2 m'Isecof KalimalangRaw Water (originallycome from Jatiluhur Reservoir)to PejomponganWater Treatment Plant which transferredvia twin concrele pipes 1600 mm diameter with 11.3 kmlength. MAJOPZI.*cSA 46

Thisproject has been fully completed by midof March1997 with has suffered 795 days or 26.5months delayfrom the original contract completion date in whichthey had run into a difficultyon cost overrun amountingto USD4.2 million(10% ) approximately.This has been taken mayarly from JSSP and another'sloan saving of JUDP-1I component. Thedelays of completionwork, made burden to POJfinancial and moreover Raw Watertariff was inadequatedRp35Im' in 1997instead of Rp251m 3 in 1994(or 2% of averagesold price PAM Jaya), whereasthe Raw Water Tariff calculation still based on 0 & M costonly, this may against to SARwhich recommendedto 'full costrecovery' calculation.

Thefollowing table shown the comparison between P0J Raw Water tariff with average sold price of PAM Jaya.

WaterTariff (Rp)

Year POJ Average (2:5) Remarks RawWater 1%) drinking 1%) 100% WaterSold. (%) (PAMJaya) 1. 2 3 4 5 6 7 1991 22 718 3% Rawwater tarift 1992 25 12% 1197 67,6 2% Averagewas 2.45% of theaverage sold 1997 35 40% 1491 25,3 2,35% pricePAM Jaya Mean 27.3 26% 1135 46% 2.45%

WOU4.cosJJ 47

Thisfigures has showna big differstriking with averagesold price PAMJaya, thereforePOJ shouldhave difficulties on thefuture to fin.ancingof theiroperation; if the tariffis not stand on a reasonableprice. It alsoarose on POAMTangerang drinking water supply which paid Rp 450Jm3J (or 40% of average walersold price) by PAMOKI with inconvinient a bulk water supplyschedule. Theseprice, my as reflectedof PAMJaya businesstact to compensateof their difficultiesto reduceof un accountedfor waler(UFW) which now stand on 56%. TheInstitutional Management and Training in PDJstaff haveresulted a restructureorganization on the middlemanager level, to reduce a numberof employees;financial-accouniing system improvement;Management Information System (MIS). POJ now has beingchanged their policy to 'profitmaking' neither-nor 'non profitmaking'.

FloodControl and Sanitationgroup

8. Jakarta Sewerageand SanitationProject Extension(JSSP Ext.

Jakarta Sewerageand Sanitation Project lJSSP) aimed ID continue their remaining program on the priorJSSP IJSSP phase 1) and to developof thenew programof thesewerage such as LowCost Se.werProject which was clarifiedas a 'pilot project'who financing by 'SOE' procedure.

JSSP has maintained40 packages,in whichall of contractspackages have been completed in on originaltime schedule. Neverthelessa pilotproject low cost sewer demo packagehas failuredto seek the Bank's clearance,due to no agreementcould be reachedon a design,implementation and pricingstrategy that shouldhave involved the householdtargeled for connection;accordingly the Bank'smay be refusedto financethat piot project.JSS? has been implementedthat project,while the Bank's clearancehas not issued yet. The bottomproblem was the Banks did not satisfied to JSSP perfDrmance,because JSSP has not submitteda sufficientproposal in accordanceto community willingnesssurvey; house connection cost; scheduleof HCInstallation and moreover the detailed designwas notsufficient with the Banks requirement. Mostlyall of JSSP objectiveshave been achieved, except the LowCost Sewer package and the Trainingof PDPAL Jaya stalfs whichwas droppedout bythe project,and JSSPs1" stage assets whowould be transferredto PDPAL OKI Jaya as CentralGovernment equity, it turnout couldnot bedone entirely;

Thefailure area of JSSP aresummarized below (il TheBank's may refusedto financinga pilotproject LCS built in Malakasaria lowermiddle incomeneighborhood. (ii) During5 year periodof JUDP-Ilimplementation. a transfer of JSSP 1" phaseassets could not rea'izedyet, neverthelessa smallparts of I' step amountingto Rp5,7 million has been transferredon midSeptember 1997. (iii) Trainingfor POPAL staff was canceled. 48

Concluslonof JSSP Assessmentand Remedial Action will betaken (i) The BOO effluentof Setiabudiponds has been reducedto 30 ppminstead of 300 ppm as inffluent (ii) Allof JSSP objectivefor drainageand sewer constructionshave been achieved excepts as above mentioned. (iii) PO PALJaya has been operatedthe seweragesystem and has achievedan increaseof a numberof costumersin equivalentto the buildingsquarp meter (m?) (iv) PD PALJaya has increasedthe revenuesand surpluson 0 & M parameterbudget; then at presentis preparingfor the roleof fullcost recovery'. (v) Futureremedial action to be takenare to improvethe ProjectManagement personels in order morefamiliar to maintainthe foreignloan.

9. CisadaneCiliwung River Basin Develoment Project (CCRBDP-DGWRD) This projectaimed to controlthe floodingand inundationin wholeOKI Jakarta projectarea. CCRBOPas the PIUhas been successedto maintain13 contractspackages under the loanIBRD JUDP-11;in which the parallelOECF loan is alsoimplemented at the samelocation such as Sentiong Cutof Channelspackage and at differentlocations which aimed to supportthe entireprogrames of DKIJaya flood control.Insignificant problem arose to maintainthis projectbut generallythis projecthas assessedquite satisfactory. The benefitof this projecthave resulted7520 Ha existingof inundationarea, now couldbe drainagedor freefrom inundation and or floodingimpact.

10. Microdrainage DPU-DKI Microdrainage is part of PJSIPprogram, which aimed to drain theinundation caused of Public Hydrant. Thisis also a pilotproject for sanitationimprovement, in whichDPU-DKI as the PIUhave 12 packagesof civil works under JUDP-11 *IBRO funds; and several packages under OECF loan. All of packages have been completedin on time with the constructionquality are quite satisfactory. In the futurethis projectwill be continuedwith the simillarproject by mutualagreements among othersDPU DKI, PAM Jaya andPO PAL DKI Jaya.

11. TechnicalAssistance group The technicalassistance group comprises of miscellaneousstudy (water supply * DGCK), JabotabekWater ResourcesManagement Study IJWRMS- DGWRO)and Jabotabek Urban DevelopmentProject Coordination Office (JUPCO - Bappeda DKI). Generallythe Internationaland NYationalconsultants performance were satisfactory,included consultant'sproducts assessed as, quiteinterested and able to followup. TheJWRM Study aimed to investigatethe Jabotabek Ground Water potential and the arrangement conlrol.The study have been resulted some recommendations to establishthe policyand sirategy how tomanage the groundwater on the future. (O2KWO Si0JJ 49

Ptesentlythe DGWRDhas been followeclup the recommendationto reacheda new policyof groundwaxer abstraction, The miscellaneousstudy of DGCKis also prepare a new polcy in drinkingwater supply managementrelated to privat sector parlicipation.The privat sector now has proactive participatedin the severalPDAMs among others PAM OKI, Tangerang, Bekasi, POJ. Medan and Surabaya. The overall projectcoordinalion office as maintainthrough roles of JUPCOin JUDP,have an interestingexperiences as a singlewindovos 'among other's' agencies,Gol and the Bank,which turnedout the projectimplementation anddisbursement could be expeditedand monitored; as well as procurementand the problemsolving. Its arose an advantageto the provincialGovernment to controlin outflow investment, done by theproject implementation in their area. The JUPCOsmodel may could develop in anothersprovince, now Baliand EastJava maintingtheir projectsimillar with JUPCOs model.

C.Mayor affecting of the Project

12. factor outside of Government land acquisitionproblem is one of a factor outside of Gol;the land pricingwhich increase spectaculeris not to go on thisproject. The veryhigh increasing of landprices occured on a small parts of the transmissionmain pipeat !?DAMTangerang components, because of a delays of paymentto the landowner due to the limitedbudget available at that time.Resettlement problem has not to becomeof becauseland acquisition system,- is not to movethe land owner,however this modelsimillar to boughta 'permit' for pipe-layinginstallation. Large varianis of USD exchangerates is the oneof the factorout side of Gol.

13. Factorsubject to Governmentcontrol The TangerangMunicipal Government stance to establish the New PDAMmay affect implemen.taioncf the managementand operation improvement program. The WestJava ProvincialGovernment should take a better withthe sweet to solvethat matter, otherwisemay recommend to mergea jointoperation between two disputesPDAM.

14. InternalGovernment Project Increasingof 200 packagesin PJSIPirstead of 64 packagesas original,due to splittingof combinedcivil work of pipelaying work and supplywork; neverthelessthe supplypackages has also splitedinto smaller packages. This aimedto meet with a better performanceof contractor and,to allow a morefair distribution opportunity job. The costover run in CRBOP,indicated that a lackof controlto thebudget allocation by the project management,during cn the procurementstep. The tightbudget policy should sirengihen in the future. 50

D.Project Sustainability

15. Sustainabilityof the projectoutcomes depends on continuedin the managementand operation of the water system.particularly in an expansionof productioncapacity and distribution to increase of populationserved and reducing of UFW. Thewaler supply sector projectis likelyto be sustainable,likewise for sewerageenterprises such as PD PALJaya. A joint operationbetween PAM Jaya-PDAMTangerang with severalprivals sectors,presently is on goingoperation, while POJPAM Bekasiis alsounder preparation for a joint operationwith theprivat sector.

The prival operatorshould achieve more efficient gainsof operationand maintenance cosL and this shouldindicate that the water tariff will decreasesignificant. If the water tariff trendto increase:it meanthat the privatsuctor joint operationis failure. Sustainabilityof the floodcontrol and drainage component is likely,even if rehabilitationactivities suchas dredgingof majorcanals; and storm drainage reservoir are mostlydeferred maintenance thatshould finance by the routinebudget rather than by investmentbudget.

E.Bank's Performance

16. The Bank'sperformance during project identification, preparation, appraisal and supervision was satisfactory. The projecthas noted that Banksprocedures were considered to complexand take more iimes consumingby theborrower. Delegationof responsibilityfor smallICS procurement to RSIto moreexpedite the approval process,may could considere bythe Bank.

F.Borrower Performance

17. Thewhole physical project component and loan covenants have been fully implemented; whose mainobjective have aLso been achieved, although it hasarose significant delay in the project completiontime. Generallythe borrower performance was satisfactory. Theissues of disputesconcerning PDAM Tangerang will bereached soon a finalsolution, whose mayrecommend a merge or jointoperation system between two POAMwhich was occured with PDAMBekasi as well as. Thetransfer of assetsof PDPAL Jaya could be expeditedfollowing the 1" stageof PDPAL transferof assetshas been completed. Duringproject implementation, the projects component PJSIP, CRBDP, CCRBDP, DGWRD DPU- OKI very cooperativewith the Bank'ssupervision mission, while JSSP,PAM Tangerang, MiscellaneousStudy component was lair. Theupper coordination level such as TKPP, DitTua, Bappenas have quick responsed to the projects problemsolving. 51

G.Assessment of Outcome

18.Overall projects outcomes could be assessedas satisfactory,notwilhstanding some delays of the projectcomponent were occurredin whichits may be burdenedto the enterprises financial condition. Theprojects has beenachieved their main objectives as targetedin SARsuch as physical,rinancial andmanagement strengthening in whicl privatizationin PDAMJaya, PDAMTangerang operation, an evenparallel to the project, maybe as advantageto achievea goalin the futuredevelopmenL

The shortcomingof the projectsobjective are: li) Failuredto reduceof UFW.fair quality at somepipes-laying construction and inefficiency work in PJSIPIPAMJaya may be causedto higherof 0 & M cost then willimpact to the water tariff pricing.The privat operator shouldavoid to increase the water tariff without unreseanable justification,furthermore if privatoperator failure to increaseof an efficiency. (ii) To dropout of PDPAL Jaya trainingstaff, posiphoneof transferof assets to POPAL Jaya and poor implementationarrangement on the LCSDPin JSSP component;is one of an inconvenient conditionin JUDP-I1. (iii) The 'costover run' in CRBDP,is alsoan unadvantageto thisproject due to limitedbudget control by.project management during procurement. Thesematters was highlightedto improvein the future.

H. FutureOperation

I S. Jakarta WaterSupply Sector Under rooperationagreement' in February1996 the two privatconsortia had fullyresponsible to manageboth of PAMJaya andPOAM Tangerang, included to financing,operating and mainlening, of the worksand also billcollecting, whereas the both POAMfunctions are as the ownerof the existing.and the futureassets once the privatoperator fully depreciated.Beside that the PDJ envisagethe possibiiity to transfetof 0 & M activitiesto the privatsctor. later to jointoperation watersupply under a 'cooperationagreement'.

20. Jakarta Sewerageand SanitationProject At the timebeing PD PAL Jaya is also lookinga possibilityto jointoperation with privalsectors for thefuture development under a rnutvalcooperation agreement.

21. Jakarta flood Controland Microdrainage Mtostlyon the mayordrainage facilities availability by the centralGovernment Projects ( CCRBDP) havebeen transiferted to Governmentof OKIJakarta for furtherextended and operated. Loansaving no.3246-IND; JUOP.11I hiave been used to financingrehabilitation a few of large pumpingstalion for DKIJaya floodcontrol, which now is implementingby DPU-DKI as the PIU. No agreementhas been reachedso far on the floodcontrol investment program on east Jakarta Regionin whichwould require a mayorland acquisition. 52

22. JWRMS,Water Supply Study and JUPCO The Jakarta water resourcesmanagement recommendation is on goingpreparation for inssuance of the new strategy and policyof the groundwatermanagement, as wellas for water supply management. Projectcoordinition system such as JUPCO'smodel; may applicate to be implementedin another provinces.

1. KeyLeason Learned

23. PhysicalImplementation

The mainlesson learnedare: (i) Completiondelay The bottomproblem of the completiondelays mayorlyon land acquistion,procurement, implementationpermit (digging. city regulation changes, budget available). Appropriately these factorscould be mitigatedbefore loan agreement signed. Tender document, included detailed designshould complete and readyto tenderand as wellas for landacquisition. Digging permit may notedlo qualityof constructionmust comply with the technicalspecification, however in suchcase a prioritypermit may consider to issue. Costover run and Galportion need more priority ro.put in AP8NIAPBD.Any changes of DPU- DKIprodence such as didnot allow for several mounth'sfor pipes-layingconstruction on the newroad financing under the loan (IBRD).should be avoided.The coordinationwork Inter agenciessuch as synchronizationwork will make more effective.

24. Financial

Privatsector participation for PDAMshould make more efficient to the management;therefore on the futureoperation the water tariffmay significant reduce. UFW,ground water abstraction,production capacity, increasing of water supply,drinking water quality.revenues should more improve by them, whilethe entireexpences component makemore efficient and fully transparant control. The privatoperator annual audit shouldcarry out by independentauditor both localand internationalauditors. Theproject cost should make more strickly control by relatedagencies, internal controlers, to avoida wastefulbudget, in whichwill caused high cost product. Financialprojection should prepare more objeclive and reseonable parameters to avoida bigger deviation;this maya just every3-5 year. The failureof outcomingof an efficiency,do not caused to burdenby direct transferredto costumervia tariffincreasing. therefore a controlingto each efficiencyparameter should be done stricklyand continuesly.

/JJOfld.#cD5sE 53

AppendiceC

ECONOMIC EVALUATION WATER SUPPLY AND DRAINAGE COMPONENTS

Economic Analysis of Water Supply Components

As part of the Project implementationreview, an economicevaluation was carried out for the three completed water supply components, including PAM JAYA System Improvement Project (PJSIP), PejomponganRaw Wal:erLine Project (PRWLP), and Cisdane Treated Water Line Project (CTWLP). Together,these components account for about 82 percent of the total ]?rojectcosts. The benefits of these components can be categorizedas: (a) cost savings as a result of switchingsources of water use from wellls,vendors, etc. to householdconnections; (b) additional benefits to consumersdue to increasedwater consumption;and (c) health-relatedbenefits due to improved water quality. In principle, these benefits together should be comparedwith the costs of the investmentsto determine whether the investmentsare economicallyjustified. In practice, becausethe health-relatedbenefits are very difficultto quantify, only the benefits of types (a) and (b) are estimated. The "with project" and "without project " scenarios were developed to determine the incrementalbenefits and costs of water consumptionas result of the implementedwater supply components. The "with project" scenario includes the three components:PJSIP, PRWLP, and CTWLP. The componentswere evaluatedas a whole because two pipelines were installed under PRWLP and CTWLP that supply improved quality bulk water to the PAM JAYA system. Informationon investment and O&M costs, including land acquisition,technical assistance and administrationcosts, implementationperiods, number of connections,and volume of water sold was gatheredfrom the project implementationagency. The "without project" scenario includes non-connectedhouseholds obtaining water from vendors, public hydrants,wells, rain, etc., and non-residentialconsumers obtaining water mostly from wells. Information on investmenitand O&M costs and consumptionof these alternative sources of water was assembled from existing water use surveys and the implementingagency. Informationon external environmentalcosts of abstracting ground water was also obtained from the JabotabekWater ResourcesManagement Study, which was financedby JUDP II. The economic analysis estimatesthat the cost savings as a result of switching sources of water use from wells, vendors, etc. to house connectionsamount to Rp236 billion (all values are expressed in 1991 price). The avoided costs of abstracting ground water were included. The SAR had expected that boiling cost savings would result from improved water quality. Since households continue to boil piped water, boiling cost savings were not considered in the current analysis. The additional benefits due to increased water consumptionwere estimated to be Rp93 billion. These benefits were consideredaccruing mostly to residential customers. 54

The total benefits are therefore Rp329 billion. After deductingthe costs of investments of Rp.295 billion, the water supplycomponents, post implementation,are estimated to generate a net present value (NPV) of Rp34 billion for the society, with an economic internal rate of return (EIRR) of 11.6 percent. The investmentsare thus consideredeconomically justified. A financial analysis was also carried out for the three water supply components. The objective was to determine whether these investments under the current tariff charges would provide a net financial gain or loss. The incrementaltariff revenues and connectionfees derived from the new connections were compared with the investment and O&M costs. The analysis shows that the investmentswould create an NPV of RplO billion and a financial rate of return (FIRR) of 10.5 percent. This means that the net result of these investmentsis positivefinancially. As a comparison, the economic analyses that were carried out at project appraisal estimated that the project would have a rate of return of 11.7 percent. This included savings of boiling costs as it was assumed at the time that the practice of boiling water would be gradually eliminated. If this savings were not included,the estimated return at appraisalwould be lowered to 8.6 percent.

Economic Analysis of Drainage Component

The drainage works carried out under the project were mostly rehabilitation. The total costs account for about 7 percent of the total investments. An economic analysis was carried out for this component as part of the project implementationreview. A small survey of land values was conducted and land rental value increases were used as a measure of the benefits from the completed drainage works. The analysis shows that this component has generated NPV of Rp364 billion and a return of 59 percent. At project appraisal, two economic analyses were carried for this component.One was based on assessmentsof avoided property damages. It estimatedthat the rate of return would be at 17 percent to 22 percent. The other analysis was based on a small survey of a low income and high density area. This gave an estimated return of 159 percent. MAP SECTION IBRD21614

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