Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 41275-ID INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized PROGRAM DOCUMENT FOR A PROPOSED FIRST INFRASTRUCTURE DEVELOPMENT POLICY LOAN (IDPL 1) IN THE AMOUNT OF US$200 MILLION TO Public Disclosure Authorized THE REPUBLIC OF INDONESIA OCTOBER 3 1,2007 Sustainable Development Department Public Disclosure Authorized East Asia and Pacific Region 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. REPUBLIC OF INDONESIA - GOVERNMENTFISCAL YEAR January 1 - December 3 1 CURRENCYEQUIVALENTS (Exchange Rate Effective as of October 25,2007) Currency Unit Rupiah (Rp) US$1.oo 9,175 Rp Vice President: James Adams Country Director: Joachim von Amsberg Sector Director: Christian Delvoie Co-Task Team Leader: Hongjoo Hahm Co-Task Team Leader: Michel Kerf The Indonesia First Infrastructure Development Policy Loan was prepared by a World Bank team supervised and task managed by Hongjoo Hahm (EASIS) and Michel Kerf (EASOP), and consisting of Michael Warlters (EASOP), John Holdaway (EASIS), Maha J. Armaly (ECSSD), Timothy H. Brown (EASIS), Steven Charles Burgess (EAPCO), Sally L. Burningham (EASIS), Jeffkey John Delmon (FEU), Giovanna Dore (EASRE), Jan Drozdz (EASIS), Wolfgang Fengler (EASPR), Migara Jayawardena (EASTE), Charles J. Kenny (FEU), William Kingdom (EASUR), Blane D. Lewis (EASPR), Sulistiowati Nainggolan (EASIS), Isono Sadoko (EASIS), Imad Saleh (EAPCO), L. Panneer Selvam (EAPCO), Rajiv Sondhi (EAPCO), and Andri Wibisono (EASIS). The team is working closely with David Hawes (AusAID), Alfred0 Pasquale (Asian Development Bank), Takehiro Yasui (Government of Japan), and Stephen Schwartz (IMF) to coordinate policy advice. Ellis Juan (FEU), Christine Kessides (ECSSD) and Bambang Bintoro (Consultant) are the peer reviewers for the operation. The team is working under the overall guidance of Christian Delvoie (Sector Director, EASSD) and Joachim von Amsberg (Country Director, EACIF). FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS ,\ 1\ iris \iical dnd isor! ,\cu\ities JICA Jdpdnesz Intzrndtional Caoperation Agenc) ADB Asian Development Bank KAI 1 Indonesian Railway Company I National Committee for the Acceleration of Infrastructure. APBD Sub-national Expenditure Budget ' velopment i APBN National Expenditure Budget putusan Menteri, (Ministerial Decree) i AMDAL Environmental Impact Assessment I Keppres ' Keputusan Presiden, (Presidential Decree) AusAID Australian Agency for International Development I KMK I Keputusan Menteri Keuangan, (MOF Decree) BAPPENAS National Development Planning Agency , KF'K 1 Anti-Corruption Commission .LpKpp GoodsiServices Procurement Policy Development. BI Bank Indonesia Institution BPK Supreme Audit Agency i LWG 1 Land Working Group BPKP Financial and Development Supervisory Board , MCIT Ministry of Communications and &fo-rmat!on Technology Control Board for Development of Drinking Water BPP-SPAM MDGs Millennium Development Goals Systems BPS National Statistics Agency , MOEMR Ministry of Energy and Mineral Resources BRTl Indonesian Telecommunications Regulatory Body MOE , Ministry of Environment BUMD Regional Government Enterprises 1 MOF Ministry of Finance CAS (PR) Country Assistance Strategy (Progress Report) I MOHA Ministry of Home Affairs CCT Conditional Cash Transfer MOPW Ministry of Public Works CDD Community Driven Development 1 MOSOE Ministry wed Enterprises CGI Consultative Group on Indonesia MOU Memora nderstanding CIDA Canadian International Development Agency ' MTEF Medium-Term Expenditure Framewoik CMEA Coordinating Ministry for Economic Affairs ' NAP-CW National Action Plan on Clean Water 1 CPI Consumer Price Index NCB National Competitive Bidding CPIA Country Policy and Institutional Assessment ; NJOP Assessment of Price for Land Tax CY Calendar Year i NPPO National Procurement Policy Office 1 DAK Special Allocation Grants OGM Operational Guidelines Manual , 1 DAL General Allocation Grants OPCS Operations nd Country Services DFlD Department for International Development I P2T Land Acqu ommittee DG Directorate General l PDAM Public Wat es DGH Directorate General of Highways 1 PEFA Public Expenditure and Financial Accountability DlPA Budget Activity Lists Pelni 1 National Sailing Corporation DPL PER Public Expenditure Review DPR Perpres Peraturan Presiden, (Presidential Regulation) DSF Decentralization Support Facility : PFM , Public Financial Management e-GP Electronic Government Procurement 1 PLN State Electricity Company EPP Economic Policy Plan Peraturan Menteri Keuangan, (MOF Regulation) ESW Economic and Sector Work National Community Empowerment Program FRAP Financial Restructuring Action Plan PP , Peraturan Pemerintah, (Government Regulation) FSL Fixed Spread Loan l PPIAF , Public Private Infrastructure Advisory Facility FY Fiscal Year PPITA Private Provision of Infrastructure Technical Assistance GDP Gross Domestic Product GF Guarantee Fund Government Financial Management and Revenue GFMRAP PSP Private Sector Participation Administration Project GHG Greenhouse Gas ' RKP Government's Annual Work Plan GNP Gross National Product ' RMU I &sk Management Unit GTZ German Technical Cooperation RPJM I Medium-Term Development Plan IBRD ~~~~~~e~tfor Reconstruction and Satker 1 Ministerial Working Unit ICB International Competitive Bidding ' SIA Social Impact Assessment ICT Information and Communications Technology SNG , Sub-national Government IDA International Development Association SOE State Owned Enterprise IFC International Finance Corporation ' TDL I Basic Electricity Tariff IG Inspector General TEU Twentyfoot Equivalent Unit IIF Indonesia Infrastructure Fund I TSA 1 Treasury Single Account IMF International Monetary Fund 1 UNDP ~ United Nations Development Program Inpres Presidential Instruction USAID United States Agency for Internat!onal IPP Independent Power Producer ~ US0 Universal Service Obligation IRSDP I Infrastructure Reform Sector Development Program UU Law JBIC Japanese Bank for International Cooperation WSS I Water Supply and Sanitation This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. INDONESIA.FIRST INFRASTRUCTURE DEVELOPMENTPOLICY LOAN I. INTRODUCTION ....................................................................................................... 6 I1. COUNTRY CONTEXT .............................................................................................. 8 Recent Economic Developments ................................................................................. 8 Poverty Profile and Development Challenges ........................................................... 15 The Government’s Development Strategy ................................................................ 18 I11. THE GOVERNMENT’S INFRASTRUCTURE REFORM PROGRAM ................ 19 The Challenge ............................................................................................................ 20 The Government’s Infrastructure Agenda ................................................................. 22 IV. BANK SUPPORT TO THE INFRASTRUCTURE REFORM PROGRAM ............ 30 Link to the Country Assistance Strategy ................................................................... 30 Rationale for a New Policy Loan Series .................................................................... 31 Relationship to Other Bank Operations ..................................................................... 32 Collaboration with Other Development Partners....................................................... 33 Lessons Learned ........................................................................................................ 34 Analytical Underpinnings .......................................................................................... 36 V . THE PROPOSED INFRASTRUCTURE DEVELOPMENT POLICY LOAN........ 36 Policy Area I: National Infrastructure ....................................................................... 40 Policy Area 11: Sub-National Infrastructure............................................................... 44 Policy Area 111: Public-Private Partnerships.............................................................. 47 Policy Area IV: Land, Environment, and Fiduciary Responsibilities ....................... 50 VI. OPERATION IMPLEMENTATION ........................................................................ 55 Poverty and Social Impacts ....................................................................................... 56 Participation ............................................................................................................... 57 Implementation, Monitoring and Evaluation............................................................. 57 Technical Assistance to Support Implementation ..................................................... 59 Fiduciary Aspects ...................................................................................................... 60 Loan Administration .................................................................................................. 61 Environmental Aspects .............................................................................................. 61 Governance ...............................................................................................................