TECHNICAL ASSISTANCE COMPLETION REPORT Division: Indonesia Resident Mission (IRM)

TA No., Country and Name Amount Approved: $500,000

TA 7729-INO: Capacity Development Assistance for Public-Private Revised Amount: N.A. Partnerships

Executing Agency Source of Funding Amount Undisbursed: Amount Utilized: The National Planning Agency(BAPPENAS) Japan Fund for $59,149 $440,851 Poverty Reduction (JFPR) TA Approval TA Signing Fielding of First TA Completion Date Date: Date: Consultant: Original: Actual: 31 Dec 2011 30 June 2014 10 Dec 2010 19 Sep 2011 16 April 2012 Account Closing Date Original: Actual: 31 Dec 2011 26 Sept 2014 Description Following the Asian financial crisis, Indonesia cancelled or suspended many of its planned public and private infrastructure projects. Infrastructure investment has since fallen from approximately 6% of gross domestic product to a low of 2% of GDP in 2000, before recovering to the current level of 4% of GDP. Over the next five years, the government is seeking to mobilize about $140 billion in infrastructure investment. However, the ability of public sector is limited by its macroeconomic objectives to keep public sector debt at a sustainable level and reduce financial deficits. Due to these constraints, the government anticipates that about 60% of its planned infrastructure financing requirements will be sourced from the private sector. The TA is designed to support the government in preparing public-private partnership (PPP) projects that are economically sound, financially attractive to private sector, and affordable to government. This is to support the realization of the impact and outcome of the Infrastructure Reform Sector Development Program (IRSDP). 1 The TA will also support the government’s objective to increase the number and value of commercially attractive and sustainable PPP projects offered by government contracting agencies (GCAs) to the private sectors.

Expected Impact, Outcome and Outputs The impact of the TA will be improved national and regional provision of infrastructure and delivery of services by selected GCAs through the use of PPPs. The outcome of the TA will be improved capacity of GCAs to develop, implement, and monitor infrastructure PPP projects. This will support the government’s objective to increase the number and value of commercially attractive and sustainable PPP projects offered by GCAs to the private sectors. The TA has three expected outputs, as follows: (i) Strengthened institutional capacity of selected GCAs to select and design PPP project structures and implementation processes; (ii) Development of two pilot best practices PPP structures and implementation process; and (iii) Increased awareness of GCAs on the requirements to prepare efficient, bankable, and affordable PPP projects.

Delivery of Inputs and Conduct of Activities : Of the $500,000 TA fund, a total of $440,851 was utilized, and the government provided in-kind contribution equivalent to $50,000. The terms of references (TORs) of the consultants for this TA were prepared in consultation with PT Sarana Multi Infrastruktur (SMI) as the Implementing Agency (IA) and BAPPENAS. All consultants (international and national) were recruited individually through firms, included: (i) water supply specialist, (ii) solid waste management specialist, (iii) transaction specialist, (iv) legal specialists, (v) training specialist, and (vi) various national engineering specialists. A minor change in TA scope and implementation arrangement was introduced on 28 March 2011 to accommodate the change of the EA from SMI as originally designed, to BAPPENAS. The assignment of SMI as the EA is conflicting with government regulation. SMI is a State Owned Entity, in which the Ministry of Finance (MOF) represents the government as the shareholder. SMI operates as facilitator and catalyst for the infrastructure development in Indonesia. SMI was subsequently assigned as the Implementing Agency (IA) of the TA. The consultants have implemented the activities as expected.

1 ADB.2006. Report and Recommendation of the President to the Board of Directors: Proposed Program Cluster, Loans, Technical Assistant Grant, and Administration of Grant to the Republic of Indonesia for the Infrastructure Reform sector Development Program. Manila Evaluation of Outputs and Achievement of Outcome

The TA assisted the IA in selecting GCAs to design PPP structures and implementation process. Two GCAs, the City of Batam (COB), and the City of Bandar Lampung (CBL), have been selected to implement best practices PPP structures. In Batam, the TA successfully strengthened the COB, by the establishment of a PPP working group, and assisted the GCA in preparing an outline business case (OBC) for the Batam Municipal Solid Waste Management. A team of international and national consultants was fielded and finalized the OBC. A number of technical options were developed to manage the waste of COB. Finally, the consultant team recommended that the waste to energy project with mechanical separation of waste into dry and wet organic fractions is the most suitable for PPP arrangements. The TA further assisted COB to develop a Final Business Case (FBC) for this project, and preparation of the prequalification documents. Because of the limited time and funds, the Batam Municipal Solid Waste Management project is transferred from the TA to the ongoing Loan 2264-INO: Infrastructure Reform Sector Development Project (IRSDP), for transaction.

The TA assisted CBL to prepare implementation plan for the Lampung Water Supply PPP project, which aims to improve water supply provision for the City in a financially affordable and environmentally sustainable manner. The Bandar Lampung water supply project involves two PPP arrangements (PPP1 and PPP2). The PPP1 is to build and operate bulk water facilities, and to build distribution networks which are to be operated by the regional water supply enterprises (PDAM Bandar Lampung). Because of the low capacity of the PDAM Bandar Lampung to operate distribution networks, another PPP scheme (PPP2) was initiated to manage the distribution networks. This PPP scheme requires Viability Gap Funding (VGF) from the MOF. By the closing date of the TA, the proposed VGF is being evaluated by the MOF. Two workshops have been conducted in Batam and Bandar Lampung for the respective projects.

The TA closing date was extended twice, with a total TA extension of 18 months. The extension was mainly to accommodate the delay due to the change of the EA, and to complete the FBC for the Batam Municipal Solid Waste Management Project.

Overall Assessment and Rating BAPPENAS through SMI has used the TA to strengthen the two GCAs, Batam and Bandar Lampung, in dealing with PPP schemes. Performance of BAPPENAS and PT SMI is rated satisfactory. Performance of the recruited individual consultants, on average, is also rated satisfactory. The TA has successfully delivered OBC and FBC for the Batam Municipal Solid Waste Management, and transferred it to IRSDP for transaction. In Bandar Lampung, the TA prepared an implementation plan for the PPP Water Supply Project, considering the complicated arrangements that involved two (2) PPP arrangements in one project. SMI has used the TA to assist CBL in dealing with other PPP players, such as Indonesia Infrastructure Guarantee Funds (IIGF), MOF, and other government institution. The 18 months TA extension did not negatively impact on the TA performance, as this was also to cover additional works of FBC which was not included in the TA Scope. ADB provided guidance and necessary changes in TA scope and implementation arrangements timely. Performance of ADB is rated satisfactory. Overall, the TA is rated as successful. Major Lessons The implementation arrangements which involved BAPPENAS as the EA and SMI as the implementing agency had, in some occasions, delay the implementation, and led to less flexibility on the use of the TA funds in supporting the GCAs. Any changes to meet the actual requirement of the GCAs, initiated by SMI required approval from BAPPENAS. The TA would possibly be more smoothly implemented if the EA is the MOF. Coordination would be much better as SMI is owned by MOF. Recommendations and Follow -Up Actions The TA provided a strong base, in particular, for the Batam Municipal Solid Waste Management Project, in which the Government is committed to proceed the initiated OBC and FBC under the TA with further transaction under the ongoing ADB financed IRSDP. The Government recently issued a decree on the establishment of Committee on Acceleration of Priority Infrastructure Provision (KPPIP-Komite Percepatan Pembangunan Infrastruktur Prioritas ). The Committee will be chaired by the Coordinating Minister for Economic Affairs, and MOF, BAPPENAS, and the National Land Agency as members of the Committee. Similar TA need to be further initiated to support the newly established KPPIP to prepare a good OBC and FBC for the priority infrastructure projects.

Prepared by: Soewartono, HS Designation: Sr. Project Officer, IRM In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.