Completion Report

Project Number: 34159 Loan Number: 2184-INO September 2011

Indonesia: Road Rehabilitation-2 Project

CURRENCY EQUIVALENTS Currency Unit – rupiah (Rp)

At Appraisal At Project Completion 8 September 2004 31 December 2010

Rp1.00 = $0.000114 $0.000111 $1.00 = Rp8,800 Rp8,980

ABBREVIATIONS

ADB – Asian Development Bank ASEAN – Association of Southeast Asian Nations BAPPENAS – Badan Perencanaan Pembangunan Nasional (National Agency for Planning and

Development) CTC – core team consultant DGH – Directorate General of Highways DGLT – Directorate General of Land Transport DSC – design and supervision consultant EIRR – economic internal rate of return ERM – economic review module IDC – interest during construction IMA – independent monitoring agency IRI – international roughness index IRMS – integrated road management system ITMS – integrated transportation management system km – kilometer LARP – land acquisition and resettlement plan PCR – project completion report PMU – project management unit PPTA – project preparatory technical assistance ROW – right-of-way RRP – report and recommendation of the President RUC – road user cost

NOTES (i) The fiscal year (FY) of the Government of Indonesia ends on 31 December. “FY”

before a calendar year denotes the year in which the fiscal year ends, e.g., FY2010 ends on 31 December 2010.

(ii) In this report, “$” refers to US dollars. Vice-President-in-Charge B. N. Lohani, Operations 2 Director General K. Senga, Southeast Asia Department (SERD) Officer-in-Charge B. A. Finlayson, Indonesia Resident Mission, SERD Team Leader H. S. Soewartono, Senior Project Officer, SERD Team Member B. Mudiantoro, Project Officer, SERD

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.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1 B. Project Output 2 C. Project Costs 5 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 7 G. Conditions and Covenants 7 H. Technical Assistance 7 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 8 K. Performance of the Borrower and the Executing Agency 9 L. Performance of the Asian Development Bank 9

III. EVALUATION OF PERFORMANCE 10 A. Relevance 10 B. Effectiveness in Achieving Outcome 10 C. Efficiency in Achieving Outcome and Output 11 D. Preliminary Assessment of Sustainability 11 E. Impact 12

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 13 C. Recommendations 14

APPENDIXES 1. Design and Monitoring Framework 16 2. Chronology of Major Events 19 3. Project Output 20 4. Project Cost and Financing 22 5. Disbursements 23 6. Implementation Schedule 24 7. Project Organization Structure 25 8. Status of Compliance with Loan Covenants 26 9. Economic Reevaluation 32

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Indonesia 2184 Road Rehabilitation-2 Project Republic of Indonesia Directorate General of Highways $151,000,000 PCR: INO 1258

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

8 September 2004 24 September 2004 31 May 2005 2 June 2005 29 September 2005 16 June 2006 12 September 2006 12 September 2006 None 31 December 2010 19 April 2011 None 0.75% per year 25 years (inluding grace period) 5 years

8. Disbursements a. Dates Initial Disbursement

19 January 2007

Final Disbursement

19 April 2011

Time Interval

52 months

Effective Date

12 September 2006

Original Closing Date

31 December 2010

Time Interval

52 months

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b. Amount ($ million)

Category

Original

Allocation

Last Revised

Allocation

Amount

Canceled

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance 1A Civil Works– Sumatra 1B Civil Works– Kalimantan 1C Enforcing Controls over Truck Overloading 2 Equipment 3A Consultants, DGH 3B Consultants, DGLT 3C Consultants, BAPPENAS 4 IDC 5 Unallocated

65.35

53.14

0.51

2.03

9.67

0.76

0.60

17.44

1.50

90.80

40.62

0.00

0.00

10.47

0.21

0.90

8.00

0.00

0.00

0.00

0.51

2.03

0.00

0.00

0.00

0.00

0.00

90.80

40.62

0.00

0.00

10.47

0.21

0.90

8.00

0.00

89.40

40.48

0.00

0.00

8.42

0.21

0.79

3.75

0.00

1.40

0.14

0.00

0.00

2.05

0.00

0.11

4.25

0.00

Total 151.00 151.00 2.54 151.00 143.05 7.95 BAPPENAS = National Agency for Planning and Development, DGH = Directorate General of Highways, IDC = interest during construction.

9. Local Costs (Financed) - Amount ($) 72.76 - Percentage of Local Costs 36.00 - Percentage of Total Cost 26.54 C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual

Foreign Exchange Cost 76.17 70.29 Local Currency Cost 139.57 203.82 Total 215.74 274.11

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2. Financing Plan ($ million)

Cost Appraisal Estimate Actual Implementation Costs Borrower-Financed 64.74 131.06 ADB-Financed 133.56 139.30 Other External Financing 0.00 0.00 Total 198.30 270.36 IDC Costs Borrower Financed 0.00 0.00 ADB Financed 17.44 3.75 Other External Financing 0.00 0.00 Total 17.44 3.75 ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakdown, by Project Component ($ million)

Component Appraisal Estimate Actual A. Road and Bridge Rehabilitation

1. Civil Works a. Sumatra b. Kalimantan

2. Consulting Services a. Core Team b. Field Team

B. Road Sector Policy

1. Enforcing Control on Truck Overloading 2. Road Safety 3. Developing New Approaches

C. Capacity Building and Training

1. Environmental and Social Impact Management 2. Project Management and Engineering Training

D. Contingencies E. Taxes

86.19 70.06

3.20 5.90

3.09 0.20 0.60

0.30 0.28

10.45

18.03

120.63 126.38

2.23 5.68

0.00 0.21 0.79

0.29 0.22

0.00

13.93

Total 198.30 270.36

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4. Project Schedule

Item Appraisal Estimate Actual Part A : Road and Bridge Works Date of Contract with Consultants, CTC 1 Apr 2006 17 Nov 2006 Date of Contract with Consultants, DSC-1 1 Sep 2006 16 Feb 2007 Date of Contract with Consultants, DSC-2 1 Sep 2006 23 Feb 2007 Completion of Engineering Designs, Phase 1 1 Mar 2005 23 Mar 2007 Completion of Engineering Designs, Phase 2 1 Aug 2006 6 Mar 2008 Civil Works Contract, Phase 1 Date of Award 1 Jun 2006 30 May 2007 Completion of Work 30 Jun 2009 4 Dec 2010 Civil Works Contract, Phase 2 Date of Award 1 Sep 2007 5 Nov 2008 Completion of Work 30 Jun 2010 15 Dec 2010 Part B : Road Sector Policies Date of Contract for Truck Overloading Prevention, DGLT 1 Jun 2006 Canceled Date of Contract for Road Safety Campaign, DGLT 2 Jan 2007 21 Apr 2009 Date of Contract for Integrated Transportation Management System, BAPPENAS

2 Jan 2007 30 Nov 2009

Part C : Capacity Building on Road and Bridge Works Date of Contract for Engineering Support Training, DGH 1 Sep 2006 26 Sep 2008 Date of Contract for Social and Environmental Management Training, DGH

1 Jun 2008 9 Feb 2009

CTC = core team consultant, BAPPENAS = National Planning and Development Agency, DGH = Directorate General of Highways, DGLT = Directorate General of Land Transport, DSC = design and supervision consultant.

5. Project Performance Report Ratings

Rating

Implementation Period Development

Objectives Implementation

Progress 1 Jan 2006–31 Dec 2006 Satisfactory Satisfactory 1 Jan 2007–31 Dec 2007 Satisfactory Satisfactory 1 Jan 2008–31 Dec 2008 Satisfactory Satisfactory 1 Jan 2009–31 Dec 2009 Satisfactory Satisfactory 1 Jan 2010–31 Dec 2010 Satisfactory Satisfactory

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D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-Days

Specialization of Membersa

Appraisal 8–24 Sep 2004 5 80 a, a, b, c, d Inception 6–29 Sep 2006 2 28 a, e Loan Review 23 Aug–15 Sep 2007 2 28 a, e Special Loan Administration

11 Dec 2007–15 Jan 2008 2 28 a, e

Loan Review 11 Aug–18 Sep 2008 2 20 a, e Special Project Administration

2–19 Dec 2008 2 12 a, e

Loan Review 27 May–19 Jun 2009 2 25 a, e, f Safeguard Review 1–5 Jun 2009 2 10 e, g Midterm Review 17 Nov 2009–7 Jan 2010 2 28 a, e, f Project Review 19 Apr–20 May 2010 2 22 e, f Project Review 7 Oct–4 Nov 2010 2 20 e, f Project Review Project Completion Review

21 Feb–17 Mar 2011 5–30 Jun 2011

2 3

20 33

e, f e, e, h

a a = engineer, b = financial analyst, c = programs officer, d = social development specialist, e = project officer, f = resettlement specialist, g = environmental specialist, h = economist.

I. PROJECT DESCRIPTION

1. A main objective of the Indonesian government’s national transport development plan is to build up intra- and interisland transport links as well as links to neighboring countries by developing the main national road corridors. However, the Asian financial crisis of the late 1990s weakened the government’s financial situation and substantially reduced spending on transport infrastructure, particularly roads. The implementation of the government’s long-term transport development plan came to a halt. Budget allocations for road preservation shrank. As the economy improved in the early 2000s the government was able to resume its long-term transport development focus, while addressing at the same time the road rehabilitation needs that had arisen since the financial crisis. 2. The Road Rehabilitation-2 Project was aimed at supporting the rehabilitation and improvement of strategic national roads in Sumatra and Kalimantan, in particular the most deteriorated road sections of links in 10 provinces (six provinces in Sumatra and all four provinces in Kalimantan). The links are part of trans-island corridors and serve both interregional trade and local traffic. They connect producing areas and markets on the country’s two largest islands and provide access to the Association of Southeast Asian Nations (ASEAN) highway through links with Malaysia and Brunei Darussalam. The project also included measures to strengthen the capacity of central and provincial agencies to maintain and protect road surfaces and reduce the risk of accidents in areas of growing traffic. 3. The project had three components: (i) road and bridge rehabilitation works, (ii) support for the implementation of sector policy, and (iii) capacity building and training. The road and bridge component provided for (i) the rehabilitation or improvement of 1,292 kilometers (km) of national road, and (ii) the replacement or widening of about 40 bridges. Support for road sector policy involved (i) the installation of weighbridges to control truck overloading, (ii) the development of new approaches to road maintenance management, and (iii) the conduct of road safety awareness campaigns. The capacity building and training component consisted of (i) training in project management and engineering support practices, and (ii) the strengthening of capabilities in environmental and social impact management. By rehabilitating and improving 1,292 km of road on the strategic national road network, the project was expected to promote mobility, trade, investment, and economic growth, and thereby help reduce poverty and strengthen national cohesion. The project design and monitoring framework is in Appendix 1. 4. Project preparation was based on project preparatory technical assistance (PPTA), 1 which was completed in February 2004. The Board of Directors of the Asian Development Bank (ADB) approved a loan of $151 million for the project on 25 September 2005. The loan took effect on 12 September 2006 and had a completion date of 31 December 2010. It closed as scheduled, and no extension was required. Appendix 2 provides a chronology of major events.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. The project was designed to support the government’s road development policy, which emphasizes the need to link more developed with less developed regions, including remote and 1 ADB. 2002. Technical Assistance to the Republic of Indonesia for Preparing the Second Road Rehabilitation

Project. Manila (TA 3989-INO, for $900,000, approved on 15 November).

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border areas, through better-quality transport infrastructure and improved capacity along the island-based main national road corridors. The government is also committed to strengthening land transport and trade links between Indonesia, Malaysia, and Brunei Darussalam under the ASEAN regional cooperation program. The project was consistent with ADB’s strategic focus for Indonesia and ADB’s support for ASEAN’s regional cooperation strategy. By underscoring the rehabilitation of road assets to enable their proper management in later years, the project remained relevant at completion. 6. The PPTA as the basis for project design was generally of good quality and helped the government formulate the road rehabilitation project. The PPTA was intended to (i) identify road links for high-priority rehabilitation in the national road networks of Kalimantan and Sumatra islands, to revive the economy and reduce poverty; and (ii) help the government review its Action Plan for Road Traffic and Transport Policies and revise the policies. Priority road links in Kalimantan and Sumatra were successfully selected under the PPTA, and the required investments underwent feasibility evaluation. From a long list of about 1,900 km of priority links, the PPTA identified about 1,500 km to be rehabilitated under the project. The PPTA consultant also proposed revisions in the road traffic and transport policies. But not enough resources were provided under the PPTA for the preparation and review of engineering designs for road sections in difficult geotechnical conditions.

7. The project faced significant cost increases (para. 20). Contingencies were underestimated. The design was nonetheless sound and incorporated lessons from previous projects, which helped ensure completion as originally scheduled.

B. Project Output

1. Part A: Road and Bridge Works

8. This component comprised roadworks on a total length of 1,292 km, as follows: (i) 284 km of betterment works and 370 km of periodic maintenance works on 20 links in Sumatra, and the replacement of 19 timber and log bridges; and (ii) 474 km of betterment works and 164 km of periodic maintenance works on 13 links in Kalimantan, and the replacement of 21 timber and log bridges in Kalimantan. The periodic maintenance and betterment works were to bring the condition of the roads to a level where normal maintenance would suffice. These works mostly comprised resurfacing with asphalt concrete or hot-rolled sheet overlays, reshaping of shoulders, and improvement of side and cross drains. Betterment works on sections too heavily damaged to allow periodic maintenance included pavement reconstruction, drainage improvement, strengthening and minor widening of pavements and shoulders (within the existing right-of-way [ROW]), and resurfacing. Pavement markings and safety barriers and signs were safety improvements. No land acquisition, compensation, or resettlement was anticipated, as the road and bridge works were within the ROW (but two subprojects— RI-01-I in Riau and BV-02-I in Central Kalimantan—required more land during implementation). 9. A core team consultant (CTC) was to provide management advisory services to the executing agency, the Directorate General of Highways (DGH), and two field teams of design and supervision consultants (DSCs), one each for the Sumatra and Kalimantan regions, were to assist in (i) reviewing the designs and cost estimates, (ii) evaluating tenders, (iii) supervising civil works and certifying satisfactory completion, (iv) ensuring compliance with quality standards, and (v) monitoring project impact.

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10. The road and bridge works were implemented in two phases, with 15 contract packages in the first phase and 11 in the second, and the targets were substantially achieved. A total of 1,145 km of roads and 41 bridges were rehabilitated and upgraded. Cost increases due to a combination of factors, most of which could not have been anticipated at appraisal, accounted for the slight underachievement in road length. Table 1 shows the civil works output including seven contract packages financed by the government.2 This output is presented in detail in Appendix 3.

Table 1: Road and Bridge Output Road Rehabilitation (km) Bridge Construction (no. of bridges)

Location RRP

Revised Target Completed Plan Contracted Completed

Sumatra 653.70 551.53 551.53 19 20 20 Kalimantan 638.80 593.55 593.55 21 21 21

Total 1,292.50 1,145.08 1,145.08 40 41 41 km = kilometer, RRP = report and recommendation of the President. Note: The above figures include works that were eventually financed entirely by the government. Source: Final report of the Directorate General of Highways. 11. Quality assurance arrangements were set up at three levels during implementation. First, the contractor formed an assurance team consisting of a general superintendent, a laboratory engineer, and a pavement engineer. At the second level of quality assurance, a field team of DSCs under a site engineer was made responsible for the day-to-day supervision of the roadworks, the review and approval of the asphalt mix and the drawings, and the review and approval of the quality of the works. The CTCs provided technical and management advice to the DSC team and project management advice to DGH at the third level of quality assurance. The above arrangements were sound in principle and successful, yet the intended quality of the road pavement was not achieved in some cases. The use of poor-quality coal and poor supervision of the asphalt mixing plant in subprojects LP-01-I in Lampung province and SS-03-II in South Sumatra, for example, caused premature damage to the pavement. Despite efforts to deal with these issues and institute remedial measures, the quality of the pavement in these two subprojects was in doubt. 12. Most contract packages incorporated road safety measures, including road markings and road signage. In cases where the safety measures were improperly or inadequately installed, DGH used its own funds to complete the required road markings or signage.

2. Part B: Support for Road Sector Policies

13. Control of truck axle loads. To reduce road damage from overloaded trucks the project provided for the installation of new weighbridge equipment and the introduction of management arrangements involving the private sector following the model developed under the Road Rehabilitation (Sector) Project (RRSP).3 A consultant was to assist in selecting three sites in Kalimantan and one in Sumatra, supervising minor civil works, installing the equipment, awarding management contracts, and monitoring effectiveness. 14. The Directorate General of Land Transport (DGLT), the implementing agency responsible for enforcing axle load limits, however, found the existing weighbridge operations 2 In the Central, South, and West Kalimantan provinces. 3 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Republic of Indonesia for the Road Rehabilitation (Sector) Project. Manila (Loan 1798-INO, for $190 million, approved on 11 December).

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unsatisfactory and requested ADB to cancel the installation of new weighbridges and the associated consulting services. DGLT had decided to review the performance of selected weighbridges built with various funding sources, and its axle load control policies. The project completion report (PCR) on the RRSP had also recommended that no new weighbridges be installed until appropriate laws and regulations could be established, and the operating and regulatory arrangements modified to allow effective enforcement.4 ADB approved the DGLT’s request, and agreed to a study to review the operation of existing weighbridges and the government’s axle load control policies. 15. The study covered major weighbridges in five locations in Sumatra, Kalimantan, and Java and included discussions with stakeholders and seminars. It resulted in recommendations to (i) issue a presidential decree creating an institution, with BAPPEDA (Regional Planning and Development Agency), the Ministry of Transportation, the Ministry of Public Works, and the Indonesian traffic police represented, to monitor the operation of weighbridges; (ii) issue regulations governing cargo transportation; (iii) synchronize policies and laws; and (iv) operate the weighbridges in partnership with the private sector. These recommendations, together with several initiatives by various sources including donors, will be used by the government to decide the most appropriate methods to minimize truck overloading. 16. Road safety awareness campaign. The program was intended to improve awareness of the risk of accidents among children and other vulnerable groups living near the roads to be rehabilitated. Communities living in areas of West, Central, and South Kalimantan that were newly exposed to higher-volume and faster traffic were the targets of the program. A team of national consultants was hired to implement the program, which involved (i) identifying the causes of accidents along the project roads; (ii) developing relevant campaign modules; (iii) implementing the awareness campaign by holding workshops and training for the residents of 14 districts in Kalimantan, and distributing stickers and leaflets; (iv) interviewing public transport drivers and communities; and (v) creating a safety awareness community group (Kelompok Masyarakat Sadar Keselamatan). 17. Road maintenance management. To help ensure sustainable road investments, the project provided consulting services to assist in developing improved approaches to routine and periodic maintenance, assessing capabilities and training requirements in the provinces, and developing pilot projects for implementation. BAPPENAS, the implementing agency for this component, proposed to broaden the scope of the component to encompass new approaches to the development of an integrated transportation management system (ITMS), which would not be limited to the road sector but would also cover the government’s strategy for managing and maintaining the country’s transportation system. A national consulting team was hired to carry out the ITMS study with the support of an international consultant. 18. The objective of the ITMS study was to support the government in developing, managing, and maintaining the national transportation system by devising a new approach to more effective, efficient, and durable transportation based on optimum and efficient transportation models and regional characteristics. The consulting team produced draft policies covering manufacturing location, service and industry location, infrastructure development and management, and technological progress. But as the study was completed only when the loan was about to close, the government declared its intention to follow up the consultants’ recommendations in future road projects.

4 ADB. 2008. Completion Report: Road Rehabilitation (Sector) Project in Indonesia. Manila.

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3. Part C: Capacity Building and Training

19. Both the training program in project management and engineering support practices (PMES) and the strengthening of capabilities in environmental and social impact management (SCESIM) were well implemented by DGH. The 12-month PMES was carried out to enable the DGH regional staff to manage construction contracts, prevent or mitigate landslides, maintain slope stability and retaining walls, manage DGH finances, and prepare technical specifications for road projects. A total of 193 DGH staff participated in the training conducted in Palembang, Pekanbaru, and Medan in Sumatra, and in Palangkaraya and Pontianak in Kalimantan. The SCESIM program was implemented to (i) improve the capacity of DGH’s Sub-directorate of Environmental Affairs to analyze and manage the environmental and social impact of road rehabilitation projects, (ii) prepare environmental and social impact management procedures that conformed with government regulations and donor guidelines, (iii) train DGH staff in environmental and social impact management, and (iv) train the personnel involved in project implementation. A total of 398 DGH staff from headquarters and the provinces attended the training and conducted field studies on actual environmental and social issues in the project sites.

C. Project Costs

20. At completion, the total project cost was $274.13 million, 27% more than the $215.74 million estimated at appraisal. Several factors led to the cost increase:

(i) Further road deterioration. The project appraisal was conducted in 2004, more than 3 years before the civil works were first implemented. At the time of construction, the roads had deteriorated further after a late start. The phase 1 contracts were awarded about 1 year late, and the phase 2 contracts about 14 months late. The physical contingencies, calculated at 6.6% of the local base cost, were not enough to absorb the significant cost increases due to the further deterioration in road condition.

(ii) Fuel price increases of 120% in March 2005 and 29% in May 2008. These also contributed to price increases in other materials. The price escalation ranged from 15% to 21%, and averaged 17%.

(iii) A change in the highway design standard for national roads after loan approval. The minimum pavement width was increased from 4 meters to 6 meters in Kalimantan and 7 meters in Sumatra, and the minimum shoulder width was increased to 1.5 meters on either side of the pavement. The change affected some 322 km of road to be rehabilitated.

(iv) Underestimation of costs. The costs of a number of roads in Kalimantan (in particular under subproject BU-1-I in West Kalimantan, where the existing road was not of paved standard) did not allow for the geotechnical and soil conditions in the area and were underestimated.

21. The financing plan was modified to address the cost increase. Of the 26 contract packages, the government agreed to fully finance seven—two in Sumatra and five in Kalimantan. The ADB loan of $151.00 million was to finance the remaining 19 packages according to the cost-sharing agreement with the government. The financing plan at appraisal called for ADB to finance $151.00 million, representing 70% of the total project cost of $215.80 million. At project completion, the ADB loan had financed 52% of the project and the government had financed the rest. The project cost at appraisal and at completion is in Table 2 below. Appendix 4 shows the details of the project costs and the financing plan.

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Table 2: Project Cost at Appraisal and at Completion At Appraisal At Completion

Source Foreign

Exchange Local

Currency Total % Foreign

Exchange Local

Currency Total % ADB 76.20 74.8 151.0 70 70.29 72.76 143.05 52 Government 64.8 64.8 30 131.06 131.06 48 Total 76.20 139.6 215.8 100 70.29 203.82 274.11 100

ADB = Asian Development Bank. Source: ADB staff estimates.

D. Disbursements

22. Of the $151.00 million ADB loan, $143.05 million was disbursed between January 2007 and April 2011. Disbursements for all components, including consulting services, training, and civil works, were made through direct payment. After the cancellation of the weighbridge component, no equipment was procured. The imprest account, with a ceiling of $1.50 million as provided for in the loan agreement, was not used, as the contracts were large enough to justify direct payment.

23. Of the $143.05 million disbursed, $129.88 million were for civil works (90.79%), $8.42 million (5.89%) for consulting services, $1.0 million (0.70%) for capacity building and training, and $3.75 million (2.62%) for interest during construction (IDC). The original IDC allocation of $17.46 million was overestimated; only $3.75 million of this amount was needed to complete the project. Of the IDC surplus, $9.47 million was reallocated to finance the civil works component. At project completion, $7.95 million of the loan amount (5.2%) was canceled. The projected and actual disbursements are shown in Appendix 5.

E. Project Schedule

24. All contracts financed under the project were completed by 15 December 2010, or within 6 months of the expected completion date of 30 June 2010 and before the loan closing date of 31 December 2010. The loan account was closed only on 19 April 2011, as the allocation under the government budget for expenditures incurred in 2010 was not sufficient and the government had to provide for the shortfall under its 2011 budget. 25. The final designs for the phase 1 works were completed only in March 2007, while the prequalification, bidding, and award process took 1 year longer than anticipated. Contracts for the phase 1 works were awarded by the end of May 2007, instead of June 2006 as expected at appraisal. However, despite the long process of recruitment, the CTC and DSCs were fielded in time in relation to the civil works contracts, only 2 months after loan effectiveness, through advance procurement action by DGH. 26. All the civil works contracts were implemented within 365–935 days. Contract BU-01-I in West Kalimantan, which involved huge amounts of earthworks in a remote area, took the longest time to implement. This contract was completed on 15 December 2010. Most of the other contracts were completed within 30–120 days after the dates set in the contracts. The delays were mostly due to the additional works, delayed review of the designs by DGH, and to hitches in the contractor’s financial cash flow. Appendix 6 presents the project implementation schedule.

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F. Implementation Arrangements

27. DGH was the executing agency. It established a project management unit (PMU) under its director of planning with responsibility for monitoring day-to-day project activities, preparing project reports, and ensuring that ADB procurement guidelines and financial reporting requirements were met. The PMU was assisted by the CTC. A project steering committee was established to guide, coordinate, and monitor the overall implementation of the project; it was chaired by BAPPENAS and had representatives from the Ministries of Public Works, Finance, and Transportation. DGLT was the implementing agency for axle load control and for the road safety component, and BAPPENAS was the implementing agency for the development of new policy approaches to road maintenance management. 28. The civil works were implemented by Balai Besar Pelaksanaan Jalan Nasional (Balai Besar), the Regional Agency for National Roads Implementation, in close consultation with the Directorate for Implementation of Region I (for Sumatra ) and Region II (for Kalimantan). For each civil works subproject, the Balai Besar assigned a project manager. The DSC recruited by the Directorate for Implementation assisted the project manager in supervising civil works and reviewing the road designs. For the design preparation the Balai Besar assigned the Perencanaan dan Pembangunan Jalan Nasional (P2JN, the National Roads Planning and Development Agency), in consultation with the Directorate of Technical Affairs. DGH underwent minor organizational restructuring during the implementation. The changes affected the Directorate for Implementation related to the area of coverage and led to a new assignment for the Balai Besar. The recruitment of the CTC and DSCs was delayed during the period of restructuring. 29. After the installation of the weighbridges was canceled, DGLT implemented only the road safety component, and assisted BAPPENAS in evaluating the operation of existing weighbridges and the government’s policy on axle load control. The development of a new policy approach to road maintenance management was replaced by the ITMS study. This study was implemented by BAPPENAS, as it involved the responsibilities of several government departments. The project’s organization structure is presented in Appendix 7.

G. Conditions and Covenants

30. The loan covenants, 41 in all, covered (i) project implementation and coordination, (ii) counterpart funding, (iii) reporting, (iv) environmental management, (v) social safeguards, (vi) health and safety, (vii) auditing, (viii) fiduciary and ethics control, and (ix) monitoring. No covenants were modified or waived during implementation. Except for the provision relating to the prevention of truck overloading, all covenants were complied with. Compliance with the loan covenants is detailed in Appendix 8.

H. Technical Assistance

31. No technical assistance was attached to the project.

I. Consultant Recruitment and Procurement

32. Consulting services. Consultants were recruited through quality- and cost-based selection (QCBS), according to ADB’s Guidelines on the Use of Consultants (2006, as amended from time to time), to form three consulting teams that would provide advisory services in civil works implementation. The entire recruitment process took about 2 years. The length of the

8

process was attributable to (i) the replacement of the recruitment committee as a result of the DGH restructuring, and (ii) delay in finalizing the technical and final evaluation of each consultant. However, as mentioned earlier, DGH took advance procurement action and the three consulting teams were fielded on time. Other consultants were also recruited on the basis of government procurement procedures acceptable to ADB to assist in the implementation of (i) the road safety campaign, (ii) the engineering support component, (iii) the capacity-building program in environmental and social impact management, and (iv) the development of a new approach to integrated transportation management. Four separate consulting teams were formed. The recruitment of these consultants averaged about 8 months. The contract with the CTC was signed in November 2006, and both DSC contracts were signed in February 2007. 33. The contract with the CTC was terminated in 2008 after a prolonged contractual dispute with DGH related to the qualifications of the assigned team leader and tax liabilities. A bridging team of national consultants recruited through single-source selection took over the CTC services for about 15 months, during the recruitment of a new CTC through QCBS. The new CTC was fielded in December 2009. Owing to the bridging arrangement, there was no interruption in services during the transition between CTCs. 34. The fielding of consultants was well below the estimates in the report and recommendation of the President (RRP). International consultants were fielded for only 128.5 person-months (45% of the 284 person-months in the RRP) and national consultants for only 2,246 person-months (68% of the 3,324 person-months in the RRP). The significant difference was due to (i) the transfer of seven civil works contract packages, including the services of the supervision consultants, to government financing; (ii) the cancellation of the weighbridge component; and (iii) the slightly shorter duration of assignments for the road safety campaign, the training in project management and engineering support practices, and the strengthening of capabilities in environmental and social management. 35. Procurement of civil works. The civil works packages were divided into two phases according to the state of readiness of the detailed engineering design. Phase 1 consisted of 15 packages; contractors were selected through prequalification for 11 of these packages, and through post-qualification for four packages. The contractors for all four contract packages in phase 2 were selected through post-qualification. Prequalification took about 376 days on average while bidding took about 238 days, for a total of about 614 days from prequalification to contract award. DGH adopted post-qualification for the remaining four packages in phase 1 and for the phase 2 packages, at ADB’s urging; as a result, the total bidding time was cut to 350 days on average.

J. Performance of Consultants, Contractors, and Suppliers

36. Consulting services. The performance of the consultants recruited for the project was generally satisfactory. However, performance was uneven in quality among the DSC staff assigned to supervise construction in the field. The following factors may have contributed to the inconsistency of performance: (i) personal professionalism and dedication (or the lack of it) conditioning the performance of most DSC staff, who were not permanent personnel of the consultant firm and could therefore not be counted on to show the past performance of their employer to best advantage; (ii) large delays in contract signing, leading to lower-quality replacements for the originally proposed staff who were no longer available; and (iii) inadequacies in the capabilities and performance of the other actors, including government officials and contractors, which affected the outcome of the DSC activities. Overall, the effectiveness of the CTC and DSC teams was hampered by the complex institutional

9

arrangements governing the responsibilities of central and regional agencies, which involved many crisscrossing lines of reporting, consulting, and advice. It is still too early to assess the outcome of the study on a new approach to an ITMS and of the evaluation of the operation of the existing weighbridges, as this outcome will depend on government follow-up on the findings and recommendations. 37. Contractors and suppliers. All contractors were either pre- or post-qualified, had appropriate experience in works of a similar nature and size, and generally performed satisfactorily. Foreign contractors (from the Republic of Korea and Japan) participated in some bids but could not compete with qualified national contractors who were able to quote lower unit prices because of lower overhead costs. The two cases of low-quality pavement and premature damage, caused by the use of coal as fuel in the asphalt mixing plant, showed that DGH must be extra cautious when allowing contractors to use coal as fuel. The coal types that are allowed should be specified more stringently. Also, some contractors experienced cash flow difficulties as the price of fuel and asphalt increased significantly and price adjustments were delayed. All civil works were nonetheless completed before the loan closing date. No suppliers were involved, as the procurement of weighbridges, the only supply package, was canceled.

K. Performance of the Borrower and the Executing Agency

38. The performance of the borrower and the executing agency was highly satisfactory. The borrower provided timely counterpart funding, resolved the project cost overrun by fully financing seven contract packages, and submitted withdrawal applications to ADB on time. DGH, the executing agency, demonstrated its commitment to complete the project on time. Issues that arose, such as the dispute with the first CTC, resulting in contract termination, were quickly resolved by a bridging consultant team. DGH proactively fielded an independent quality auditor to resolve the quality issues. It also requested the State Auditor Board (Badan Pengawasan Keuangan dan Pembangunan [BPKP]) to audit every contract variation, including price escalations, and coordinated effectively between implementing agencies and assisted in resolving issues. The cancellation of the planned installation of the weighbridges reflected a change in the government’s understanding of how best to approach the issue of truck overloading, and was consistent with the recommendations of the PCR on the previous ADB-financed road sector project in Indonesia (footnote 4).

L. Performance of the Asian Development Bank

39. ADB provided effective advice to DGH and responded promptly to inquiries from the executing and implementing agencies. It met with the PMU every two months to anticipate potential implementation issues and coordinate with DGH. ADB also fielded review missions on time and special project administration missions as required. Two major changes were made in the project during implementation to respond to (i) the project cost overrun, and (ii) the cancellation of the installation of the weighbridges. To avoid a repeat of the excessively long procurement process in Phase 1, ADB urged DGH to adopt post-qualification instead of prequalification in Phase 2. Procurement time was cut by almost half as a result. ADB also processed withdrawal applications without delay, and made timely disbursements. 40. The borrower, the executing agency, and the implementing agencies appreciated the transfer of project administration responsibility to the ADB Indonesia Resident Mission at an early stage of project implementation. The transfer resulted in more efficient communications, and enabled the parties to resolve implementation issues without delay. ADB’s performance during project implementation was satisfactory.

10

III. EVALUATION OF PERFORMANCE

A. Relevance

41. The project was highly relevant to the government’s Medium-Term Development Plan 2004–2009, which emphasized the development of infrastructure through more efficient services and greater private sector participation, and with ADB’s Country Strategy and Program Update on regional cooperation at the time of appraisal, and it remains highly relevant to this date. The islands of Sumatra and Kalimantan had been lagging behind other regions in road development, and the road deficiencies were seen to constrain growth. Improving the quality of the road infrastructure on the islands, and thereby also providing access to the ASEAN highway through links with Malaysia and Brunei Darussalam, was therefore an appropriate response. The changes made in the project—the modification in the financing plan, the cancellation of the installation of the weighbridges, and the replacement of the road maintenance management study with a study on ITMS—demonstrated the government’s commitment to the objectives of the project and helped to ensure that the project remained fully relevant. The cancellation of weighbridge procurement was a sound decision considering the government’s realization after the start of the project that its approach to controlling truck overloading was not effective. By financing consulting services for the evaluation of the operation of existing weighbridges, the project stayed relevant in regard to this issue. Several initiatives have been taken since then, at both the central and provincial levels, to deal with the issue of truck overloading and its negative impact. As for the ITMS study, planning and managing the transport system in an integrated manner in coordination with the various sectors of the real economy is a crucial task of government, and it deserved the project’s support.

B. Effectiveness in Achieving Outcome

42. The project was effective in achieving its purpose. It improved vehicular access on strategic national roads in Sumatra and Kalimantan, reduced road transport tariffs on selected routes, raised awareness of road safety, and strengthened governance in project implementation. Better roads, particularly in poor areas, now enable farmers to sell their agricultural produce in towns and cities at fairer prices and give them better access to health care, public services, and alternative employment opportunities. According to the report on the post-construction Socioeconomic Monitoring and Evaluation Program (SEMEP), road improvements on Link 35 and Link 36 in South Kalimantan have cut travel time to destinations 50 km or more away by about 30%.5 Passenger fares have also decreased significantly—by up to 50% for several destinations. The minibus fare for one destination was reported to have decreased from Rp25,000 to Rp10,000. In all locations covered by the post-construction SEMEP, a marked increase in travel by motorbike, at the expense of travel by public transport, was noted. Higher incomes in general had much to do with the increase, but so had the improved road conditions. Road safety awareness is expected to intensify in the target areas of the road safety campaigns. The wider shoulders provide more secure road space for nonmotorized traffic and pedestrians, heavy users of most of the roads. Not much progress has been made in reducing the premature failure of roads. But providing four weighbridges could not have had any noteworthy impact on this complex institutional issue. In sum, the project is likely to contribute to the wider developmental goal of fostering economic growth and improving the lives of those living in the influence areas of the project.

5 The SEMEP report was prepared by the CTC.

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C. Efficiency in Achieving Outcome and Output

43. On the basis of a reevaluation of the economic internal rate of return (EIRR) of the subprojects, the project is rated efficient. The selection of road links followed approved procedures aimed at guaranteeing economic viability. At appraisal, the estimated EIRR of the 19 subprojects was between 10.3% and 49.9%, with the returns being higher on average for subprojects in Sumatra than for those in Kalimantan.6 These calculations used the data and methods of the economic review module (ERM) of DGH’s integrated road management system (IRMS). 44. The reevaluation of EIRRs also used DGH’s ERM but applied the final construction costs, updated traffic data, as-built geometric characteristics and pavement thicknesses, and post-construction roughness indices. The reevaluation showed EIRRs of 16%–46% for the Sumatra subprojects and 15.2%–40% for the Kalimantan subprojects, and an overall EIRR of 26.9%. One subproject in West Kalimantan was not reevaluated because not all the necessary data were available.7 Spot observations, however, revealed that the improvement and widening of this road section had significantly cut road user costs. It had also successfully opened up the remote area in West Kalimantan province, and provided access to Central Kalimantan province. Despite the significantly higher costs, the reevaluated EIRRs were broadly in the same range as the EIRRs at appraisal. The impact of the cost increases was counterbalanced by (i) higher savings in road user costs resulting from the averted deterioration of the roads; (ii) for the majority of subprojects, higher savings in road user costs resulting from improvements that were more substantial than anticipated at appraisal; and (iii) higher traffic volumes than predicted at appraisal, in more than half of the cases. These results are robust considering (i) the condition of the roads before the improvements, (ii) the levels of traffic on the roads, (iii) the improvements that were made, and (iv) the cost of the works. More details on the reevaluation are given in Appendix 9. 45. The output of the capacity building and training component was achieved with less input and at lower cost. The ITMS study and the evaluation of the operation of the existing weighbridges still require follow-up actions to realize their broader outcomes. All the project components started with some delay, implying less than efficient use of project resources.

D. Preliminary Assessment of Sustainability

46. The project’s output and outcomes are likely to be sustainable. The sustainability of the road rehabilitation and betterment works largely depends on three factors: (i) the appropriateness of the designs and the quality of construction, (ii) the quality of maintenance after the works are completed, and (iii) the effectiveness with which vehicle axle load limits are enforced. With respect to design and quality of construction, the investment is likely to be sustainable overall, as care was taken to ensure that final designs were appropriate and construction was adequate. In cases where there were early failures in construction, fully adequate remedial measures have been taken. But there is a measure of variability between subprojects in the quality of the designs and construction, in particular where terrain and soil

6 Three subprojects in Kalimantan with an EIRR below the threshold (10.4%–10.6%) were considered justified on the

basis of socioeconomic factors, their role in the development of strategic corridors within Kalimantan, and their role in developing cross-border links with Malaysia.

7 This subproject showed marginal returns at the time of appraisal and may remain marginal. The road link ends at a wide river crossing (1 km), where the ferry service is unavailable for long periods at times of low water. A bridge is planned for this location, and bid preparation for this is under way. Experience in similar situations indicates that traffic levels could increase substantially and the road improvement could eventually have a satisfactory rate of return.

12

conditions are concerned. The works on road sections in difficult soil conditions will require particular attention in the coming years. Regarding the effectiveness of maintenance policies and practices during the remaining life of the investment, the performance of DGH has improved over the years. The implementation arrangements for the management of national roads have been streamlined, with clearer lines of authority and responsibility than in the past. The fund allocation for the routine maintenance of national roads has increased and is on the order of Rp40 million per kilometer per year. 47. The greatest uncertainty as to the sustainability of some road investments derives from the continued poor enforcement of vehicle axle load limits. The government, however, seems committed to addressing this issue and is drafting more effective policies in part as a follow-up to the review of existing weighbridges. One element of the approach it is considering is to design roads on the basis of the actual axle loads observed on the roads rather than the legal limits. But implementing such policies could take time; meanwhile, some road sections could suffer damage from heavily loaded trucks. One encouraging sign is the initiative taken by some provinces to issue decrees on truck overloading, and thus begin addressing the issue independently from the central government. In 2008, the provincial government of South Kalimantan banned trucks carrying coal from the public road network, and the mines have subsequently built their own access roads to seashore loading points. The government of West Sumatra does not allow overloaded trucks to enter the province.

E. Impact

48. At appraisal, the project was classified under environmental category B (sensitive). Initial environmental examinations (IEEs) were prepared and public consultations were held during project processing. The IEEs confirmed that the project would have no major adverse environmental impact. During project implementation, a team of environmental and socioeconomic specialists was recruited under the CTC to help manage and mitigate any possible environmental and social issues. The team (i) drafted environmental management and monitoring guidelines, (ii) drew up a checklist of environmental compliance for each contract package, (iii) prepared and implemented a program for monitoring environmental impact during construction, and (iv) reported on the implementation of the environmental monitoring program. For the social aspects, the team prepared a land acquisition and resettlement plan (LARP), and assisted local governments in (i) forming a land acquisition team, (ii) disseminating the LARP and consulting with affected people, (iii) setting a compensation structure, and (iv) forming an independent monitoring assessment (IMA) team. These measures and activities were carried out effectively. 49. The project design did not provide for any land acquisition, but the increase in road width standards to 7 meters in Sumatra and 6 meters in Kalimantan during implementation created a need for some minor land acquisition in two cases: (i) subproject RI-01-I in Riau province (Sumatra), and (ii) subproject BV-02-I in Central Kalimantan province. In subproject RI-01-I, the original pavement design varied between 5.0 meters and 6.0 meters. The increase to a uniform standard of 7.0 meters involved the resettlement of 191 households living along the ROW of the first 7 km section of the total 54.60 km of road being rehabilitated. DGH, with the assistance of the CTC, prepared the LARP, which was approved by ADB and was a condition for contract signing. The LARP implementation was completed and was reported to ADB in September 2008. An IMA team was hired to confirm actions carried out by the local government and the contractor, and to record the satisfaction of the affected households with the remedial measures.

13

50. In the case of subproject BV-02-1, before project implementation, some land for shoulder widening and drainage construction had already been acquired from families living along the road and a due-diligence or tracer study was required. Three surveys were fielded to assess the extent and impact of the land take. These surveys concluded that 20 households, all in the district of Lamandau, had been affected. A due-diligence report was prepared by DGH, and the affected people were informed of their entitlements. The intent was to ensure that the land was acquired properly and in accordance with ADB’s Involuntary Resettlement Policy (1995). The local government of Lamandau district agreed to provide appropriate compensation in accordance with the due-diligence report. Final confirmation has been provided by the IMA team that all measures agreed to by the local government in compliance with the LARP have been satisfactorily implemented.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

51. Although the project was delayed at the start, mainly by a protracted prequalification process, it was implemented substantially as conceived and was completed by the closing date of the loan. The project can be expected to help foster economic growth and improve living conditions in at least some of the project areas. It has raised community awareness of road safety and provided safer roads for the use of nonmotorized traffic and pedestrians. The project has also effectively strengthened institutional capacity in road engineering and contract management, and in social and environmental impact management. The reevaluated EIRR of 26.9%, on average, confirms the economic viability of the project. 52. The project was successful. It was (i) highly relevant to the government’s and ADB’s development strategy, (ii) effective in achieving outcomes, (iii) efficient in achieving outcomes and output, and (iv) likely to be sustainable.

B. Lessons

53. Project readiness. Advance procurement was used for the first time in the recruitment of consultants under a project with DGH, and consultant recruitment was not a cause of delays. The time for completing the procurement process for the civil works, however, was underestimated; the process took 1 year longer than planned. The lesson here is that the time required for completing the various steps has to be estimated much more carefully, on the basis of experience. 54. Adequacy of designs for works in difficult soil conditions. For the reconstruction of road sections in difficult terrain and soil conditions, the initial designs were not based on adequate geotechnical investigations. The design reviews therefore took longer, contributing to cost increases and delays in the start of the works. 55. Recruitment of supervision consultants. Delays in contract signing were a factor behind the decision of the consulting firms to replace the initially proposed experts, including the team leader. Although the replacements had to have the same qualifications as the people they replaced, consulting firms in such a situation generally propose less-qualified replacements. 56. Contingencies. The physical and price contingencies were inadequate, in particular given the extensive design changes required for a number of subprojects, the expected

14

increase in the scope of rehabilitation works over time as the roads continue to deteriorate further, and the significant unit price adjustments resulting from the fuel price increases. 57. Premature road failure caused by overloaded vehicles. The government has not yet developed and implemented a more effective policy to control vehicle overloading. Local initiatives are more easily implemented and achieve significant results. Also, DGH is reviewing its policy of designing roads on the basis of legal axle load limits and considering other options such as designing roads on the basis of actual axle loads. For the near term, such initiatives should be strongly encouraged. 58. Specifications for the use of coal in asphalt plant. The two cases where low-quality asphalt pavement resulted from the use of inappropriate coal as fuel for the asphalt mixing plant burners indicate a need to develop specifications and exercise stringent supervision when coal is to be used as fuel.

C. Recommendations

1. Project-Related

59. Future monitoring. In view of the importance of maintenance for the sustainability of the investments, DGH should continue reporting annually on its total expenditures on routine and periodic maintenance and on the condition of the national road network in each project province. In addition, vehicle axle loads and the effects of truck overloading on the life of road investments should be periodically monitored. DGH should also continue reporting annually on the results of its vehicle axle weight surveys in the project provinces. 60. Monitoring of socioeconomic impact. While monitoring the socioeconomic impact of each project is a worthwhile objective, it has two major shortcomings in the case of road rehabilitation projects. First, the fragmented nature of the subprojects is usually not well suited to the design of a scheme for monitoring significant socioeconomic impact and for the establishment of a control group of roads to isolate the impact of the road investments from the impact of other factors affecting socioeconomic conditions in the project area. Second, once the project is completed, funds and human resources are rarely allocated for continuous monitoring for the required period of time. Since the impact generally materializes only after several years, the socioeconomic impact of road rehabilitation can be much better monitored and studied when the monitoring can be done over an extended period of time and when the sample of study roads and control roads is drawn from a national pool of road projects. The lending agencies should pool a small amount in a trust fund for the monitoring of socioeconomic impact. This fund would provide a sustainable basis for much more effective and properly designed monitoring of the impact of different kinds of roadworks. The monitoring and research could be contracted to universities and thereby be done more cost-effectively. 61. Covenants. Most loan covenants adequately address the project implementation requirements and can be maintained in their present form. However, the covenant requiring the borrower to ensure the continued measurement of monitoring indicators for 3 years after completion is ambitious. Funds and human resources are rarely allocated for that purpose (para. 60). The covenant can still be maintained if funds for post-project monitoring are secured. 62. Design and monitoring framework. Regional income and traffic growth are not appropriate indicators of the impact of road rehabilitation and betterment works, as the outcome of these indicators is affected by a multitude of factors. However, transport time savings and a

15

reduction in passenger fares and transport rates on specific road sections can be monitored and are effective indicators of project impact. Greater care should be taken to identify performance indicators that can reasonably be expected to be affected by the roadworks and for which the impact can be isolated with some certainty from the impact of other developments. 63. Procurement. As the time required to complete the prequalification of contractors is still unduly long, more generalized adoption of post-qualification in future road projects should be considered to avoid delays. 64. Use of the economic review module of the integrated road management system for economic evaluation and reevaluation. In future projects economic evaluation and reevaluation should be carried out independently of the economic review module in DGH’s integrated road management system. Instead a self-standing recognized software program based on the Highway Design Model and calibrated to the Indonesia-specific relationships already developed for the IRMS should be used.

2. General

65. In general, start-up delays remain an urgent issue to be resolved not only in this project but also in most other ADB-funded projects in the country. However, start-up delays could be minimized if the ADB resident mission were to be involved as early as possible in project implementation. In future projects, start-up delays could be minimized if administration and supervision of projects were to be transferred to the resident mission at an early stage of project implementation, i.e., when advance procurement action is conducted. Given the close proximity of the resident mission to government counterparts, communications could be intensified, bimonthly meetings conducted, and missions fielded on short notice.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets

and Indicators

Data Sources and Monitoring

Mechanisms

Assumptions and

Risks Achievements

Goals

Economic growth and improved living conditions in poor areas of Sumatra and Kalimantan

Increase in provincial gross domestic product at national rate Increased in incomes of selected households

Provincial socioeconomic statistics Structured interview surveys of 10 representative communities

Assumption Sustained overall economic growth for Indonesia Risk Inadequate financial resources for road funding

Initial findings indicate general increase in household income especially in Kalimantan region.

Purpose

1. Improve vehicular access on strategic national/international roads in Sumatra and Kalimantan (including Asian and ASEAN highways)

5% annual increase in average daily traffic Transport time savings on all project roads

Periodic traffic counts and surveys

Preliminary findings indicate traffic increase in excess of 5% on most of the project roads.

2. Reduce road transport tariffs

Decline in average one-way passenger fares and freight transport rates on 10 selected road trips

Periodic surveys

Assumption Central government commitment to implement new road policies Appropriateness of road sector responsibilities at central and subnational level Competitiveness of road transport services industry

This issue is currently being studied by BAPPENAS through the Developing New Approach to an Integrated Transport Management System project.

3. Reduce premature breaking of roads

20% reduction in average truck axle loads

Measurement on weighbridges and nearby weigh-in-motion (WIM) equipment

Risk Irregular operation of facilities

BAPPENAS, with the aid of national consultants, is tasked with the study and formulation of proposals for the solution of early pavement deterioration due to excessive traffic load.

4. Improve road safety awareness

Safe road use practices among vulnerable pedestrians

Structured interview surveys of 10 representative communities

Assumptions Commitment of DGLT to awareness campaigns Fiduciary control, fraud, and anticorruption action sufficient to bring improvements

Awareness of road safety was promoted by DGLT among road users in 4 provinces of Kalimantan. The campaign focused on minimizing driver’s fatigue and improving driving habits.

5. Improve governance in project implementation

Reduction of complaints and related delays

Progress reports, project review missions, PCR, and post-evaluation reports

No major complaints have been received thus far.

Appendix 1 17

Design Summary

Performance Targets and Indicators

Data Sources and Monitoring

Mechanisms Assumptions and

Risks Achievements

Output

1. Civil Works Assumptions

Reconstruction of 436 kilometers (km) of road; resurfacing and widening of 807 km; replacement or widening of 26 bridges

Lowering of pavement roughness index to less than 5 m/km

Direct measurement, progress reports, PCR, and post-evaluation reports

Good-quality contractor performance Risk Insufficient funds for routine maintenance

Although no maximum IRI is specified in the contract documents for the finished road surface, the aim of lowering the pavement roughness to less than 5 m/km has generally been achieved.

2. Road Sector Policies Assumptions

2.1a Strengthening of controls over truck overloading

Installation of one weighbridge in Sumatra and three in Kalimantan and their effective operation under private sector management

2.1b Provision of equipment to enforce vehicle axle load limits.

Progress reports, project review missions, PCR, and post evaluation report

Effective private sector management in collaboration with government agencies

BAPPENAS, through a team of domestic consultants, will investigate the existing situation and formulate improvement methods. The Provision of weighing equipment was dropped from the project.

2.2 Better awareness of road safety issues among affected communities

Actively involved and better-informed community leaders

Changes in road-related behavior

Surveys conducted, progress and task completion reports, project review missions, and PCR

Application of road safety principles by targeted communities, especially vulnerable groups

Together with the awareness campaign addressed to road users, DGLT also initiated the formation of community groups for the spread of road safety awareness.

2.3 Development of new approach to road maintenance management

Diagnostic assessment of the road agencies

Review of existing means and methods of road maintenance

Development and implementation of new road maintenance and management procedures

Consultant progress and task completion reports, project review missions, and PCR

Willingness of Directorate General of Highways to apply new approach to road maintenance management

The scope was broadened to encompass new approaches to the development of an integrated transportation management system (ITMS), which would not be limited to the road sector but would also cover the government’s strategy for the management and maintenance of the country’s transportation system.

3. Capacity Building and Training

18 Appendix 1

Design Summary

Performance Targets and Indicators

Data Sources and Monitoring

Mechanisms Assumptions and

Risks Achievements 3.1 Training in project

management and engineering support practices

Training of 400 staff of P2JN in the provinces

Consultant progress and task completion reports, project review missions, and PCR

Efficient application of diagnosis methods and procedures, and training in working practices

The training was attended by 193 DGH staff. The conduct of similar training by DGH under various funding sources accounted for the relatively low turnout. The training program introduced the most updated project management including Performance-Based Contract Management.

3.2 Strengthening of environmental and social impact management

Training of 300 staff of the environmental and forest departments

Progress report and task completion reports, project review missions, and PCR

Application of training in road design Ten training programs

and four workshops have been carried out in 10 provinces in Sumatra and Kalimantan, which were attended by a total of 398 staff of various agencies. Some subprojects were used as case studies in the training programs.

ASEAN = Association of Southeast Asian Nations, BAPPENAS = National Agency for Planning and Development, DGH = Directorate General for Highways, DGLT = Directorate General for Land Transport, IRI = international roughness index, ITMS = integrated transportation management system, km = kilometer, P2JJ is named as P2JN = National Roads Planning and Development Agency, PCR = project completion report, WIM = weigh-in-motion. Source: Project Completion Report of the Directorate General for Highways.

Appendix 2 19

CHRONOLOGY OF MAJOR EVENTS

Year Date Event 2004 22 January–6 February Fact-finding mission fielded

2 April Management review meeting held 8–24 September Appraisal mission fielded 15 October Staff review mission committee meeting held

2005 31 May–2 June Loan negotiations held 29 September Loan approved

2006 16 June Loan agreement signed 12 September Loan declared effective 16–26 September Inception mission fielded 17 November Contract for core team consultants signed

2007 17 January First disbursement made 16 February Contract for design and construction supervision

consultants signed 30 May First civil works contract signed 23–31 August Loan review mission fielded

2008 11 August–9 September Loan review mission fielded 26 September Change made in project implementation

arrangements 26 September Loan reallocation made 2–23 December Special project administration mission fielded

2009 27 May–19 June Loan review mission fielded 17 November–31 December Midterm review mission fielded 7 December Last contract for civil works awarded

2010 19 April–20 May Loan review mission fielded 26 April Change made in project scope and implementation

arrangements 26 April Reallocation of loan proceeds made 7 October–5 November Loan review mission fielded 22 December Last civil works completed 31 December Loan closed

2011 19 April Loan account closed Source: Asian Development Bank

20 Appendix 3

No. Package NamePackage

Code Financing Sources

PROJECT OUTPUT

Completion Contract Price

(Including VAT) Starting

DateDuration

(days)

Revised Duration

(days)

Final Completion

DateTreat- ment

Functional Length

(km)

Effective Length

(km)

Bridge Length

(m)1 2 3 4 5 6 7 8 9 10 11 12 13

PHASE 11 PROVINCE: NORTH SUMATRA

Pd Sidempuan-Bts TapSel II SU-01-I Loan and GOI 92,665,165,797 7-Jan-08 600 600 28-Aug-09 B 36.85 36.85 Sp Kawat-Bts Labuhan Batu SU-02-I Loan and GOI 78,656,382,272 7-Jan-08 600 600 15-Apr-10 B 47.45 38.34 50.40 Bts Labuhan Batu-Rantau Prapat SU-03-I Loan and GOI 91,850,567,727 7-Jan-08 660 660 29-Mar-10 B 52.10 48.40 113.20 Rantau Prapat-Aek Nabara SU-04-I Loan and GOI 77,091,712,697 7-Jan-08 540 540 22-Feb-10 B 47.70 36.86 22.10 Aek Nabara-Sp Kota Pinang

2 PROVINCE: WEST SUMATRA Kiliranjau-Sei Dareh SB-01-I Loan and GOI 132,008,455,217 2-Jan-08 540 755 26-Jan-10 B 53.30 32.30 Sei Dareh-Junction

3 PROVINCE: RIAU Sp Batang-Sp Balam RI-01-I Loan and GOI 226,380,428,031 6-Nov-08 720 720 25-Nov-10 B 54.60 54.60 Sp Balam-Bagan Batu RI-02-I Loan and GOI 80,732,164,394 20-Aug-08 365 365 19-Aug-09 B 30.40 30.40

4 PROVINCE: SOUTH SUMATRA Lubuk Linggau-Terawas SS-01-I Loan and GOI 42,427,548,167 5-Sep-07 540 614 11-May-09 B 26.80 26.63 Muara Enim-Sp Sugih Waras SS-02-I Loan and GOI 61,432,590,124 7-Sep-07 540 588 19-Apr-09 B 51.27 51.27

5 PROVINCE: LAMPUNG Tegineneng-Gunung Sugih LP-01-I Loan and GOI 45,635,311,785 27-Jun-07 540 540 17-Dec-08 36.94 36.94 Gunung Sugih-Terbanggi Besar B

6 PROVINCE: WEST KALIMANTAN Tayan-Teraju BU-01-I Loan and GOI 145,529,540,000 1-May-08 900 938 15-Dec-10 B 80.20 71.50 34.00 Teraju-Bts Balai Bekuak

7 PROVINCE: CENTRAL KALIMANTAN Km.65-Sampit BV-01-I Loan and GOI 53,869,471,573 18-Sep-07 450 592 2-May-09 B 30.00 30.00 Sp Runtu-Runtu BV-02-I Loan and GOI 146,496,484,604 26-Sep-07 730 1,054 14-Aug-10 B 64.17 64.17 80.00 Runtu-Kujan

8 PROVINCE: SOUTH KALIMANTAN Kintap-Sebamban BX-01-I Loan and GOI 119,866,682,802 2-Aug-07 720 836 15-Nov-09 B 69.75 69.75 20.00 Sebamban-Pagatan BX-02-I Loan and GOI 107,028,634,308 15-Aug-07 720 839 23-Nov-09 B 57.02 57.02 Pagatan-Batu LicinTotal Lengths - Phase 1 738.54 685.02 319.70

B = betterment, km = kilometer, m = meter, VAT = value added tax, GOI = Government of Indonesia

Table 3.1: PROJECT O OMPONENT, PHASE 1UTPUT - ROAD AND BRIDGE C

Source: Project Completion Report of the Directorate General for Highway

21 Appendix 3

No. Package NamePackage

Code Financing Sources

Contract Price

(Including VAT) Starting

DateDuration

(days)

Revised Duration

(days)

Final Completion

DateTreat- ment

Functional Length

(km)

Effective Length

(km)

Bridge Length

(m)1 2 3 4 5 6 7 8 9 10 11 12 13

PHASE 21 PROVINCE: WEST SUMATRA

Bukit Tinggi-Lubuk Sikaping SB-02-II Bts Kota Lubuk Sikaping-Panti SB-03B-II Panti-Bts Sumut SB-03A-II Loan and GOI 34,985,047,657 7-Dec-09 360 360 4-Dec-10 PM 17.09 17.09

2 PROVINCE: JAMBI Muara Tembesi-Bts Sarko JM-01-II Loan and GOI 143,887,813,006 20-Nov-08 600 600 10-Nov-10 PM 102.39 60.48 Bts Sarko-Sarolangun

3 PROVINCE: SOUTH SUMATRA Baturaja-Martapura SS-03-II Loan and GOI 77,958,782,595 1-Dec-08 480 525 11-May-10 B 39.93 39.93 Martapura-Bts Lampung

4 PROVINCE: LAMPUNG Terbanggi Besar-Kota Bumi LP-02-II Loan and GOI 77,015,631,571 1-Dec-08 548 548 1-Jun-10 B 41.44 41.44

5 PROVINCE: WEST KALIMANTAN Bts Balai Bekuak-Aur Kuning BU-02-II-1 GOI 86,575,094,000 22-Jun-08 850 890 29-Nov-10 B 35.00 32.00 36.00

BU-02-II-2 GOI 85,538,631,000 19-Jun-08 540 750 9-Jul-10 B 35.00 33.006 PROVINCE: CENTRAL KALIMANTAN

Kujan-Penopa BV-03-II GOI 117,610,230,000 23-May-08 683 880 20-Oct-10 B 61.40 43.00 Penopa-Kudangan BV-04-II GOI 102,767,790,000 23-May-08 721 823 16-Oct-10 B 51.90 28.81 40.00

7 PROVINCE: SOUTH KALIMANTAN Sei Kupang-Magalau BX-03-II GOI 80,835,979,763 30-May-08 563 883 18-Oct-10 B 57.30 57.30 Magalau-Bts Kaltim BX-04-II GOI 84,780,320,000 9-Jun-08 554 918 14-Dec-10 B 63.19 63.19

8 PROVINCE: EAST KALIMANTAN Sp Batu Ampar-Sp Perdau BW-01-II GOI 102,089,270,000 … … … … B 97.99 43.82Total Lengths - Phase 2 602.63 460.06Total Lengths - Phase 1 and Phase 2 1341.17 1145.08

B = betterment, km = kilometer, m = meter, PM = periodic maintenance, VAT = value added tax, GOI = Government of IndonesiaPackages SB-02-II and SB-03B-II were excluded from the Project as they are still under the Government's routine maintenance

Table 3.2: PROJECT OUTPUT - ROAD AND BRIDGE COMPONENT, PHASE 2

Source: Project Completion Report of the Directorate General for Highway

22 Appendix 4

PROJECT COST AND FINANCING ($’000)

Foreign Local Total Foreign Local Total Exchange Currency Cost Exchange Currency Cost

A Road and Bridge Rehabilitation1. Civil Works

a. Sumatra 36,631 49,560 86,191 65,345 20,846 45,595 75,034 120,629 89,402 31,227 b. Kalimantan 25,836 44,226 70,062 53,138 16,924 20,645 105,734 126,379 40,480 85,899

2. Consulting Servicesa. Core Team 1,466 1,734 3,200 3,200 - 632 1,596 2,228 2,228 - b. Field Team 1,198 4,701 5,899 5,899 - 1,475 4,206 5,681 5,681 -

Sub Total 65,131 100,221 165,352 127,582 37,770 68,347 186,570 254,917 137,791 117,126 B Road Sector Policy

1. Enforcing Control on Truck Overloadinga. Consulting Services 218 335 553 553 - - - - - - b. Civil Works 364 146 510 510 - - - - - - c. Equipment 1,381 650 2,031 2,031 - - - - - -

2. Road Safety - 204 204 204 - - 206 206 206 - 3. New Approach to Road Maintenance/ITMS 232 368 600 600 - 51 742 793 793 -

Sub Total 2,195 1,703 3,898 3,898 - 51 948 999 999 - C Capacity Building and Training

1. Environmental and Social Impact Management 46 254 300 300 - - 292 292 292 - 2. Project Management and Engineering Training - 277 277 277 - - 219 219 219 -

Sub Total 46 531 577 577 - - 511 511 511 -

D Contingencies - 10,446 10,446 1,500 8,946 - - - - - E Taxes - 18,027 18,027 - 18,027 - 13,930 13,930 - 13,930 F Interest During Construction 8,799 8,644 17,443 17,443 - 1,892 1,858 3,750 3,750 -

76,171 139,572 215,743 151,000 64,743 70,290 203,817 274,107 143,051 131,056

GOI ADB GOI

Total

t Item

Appraisal Actual

ADBCa

ADB = Asian Development Bank, Cat. = Category, GOI = Government of Indonesia, ITMS = Integrated Transportation Management System Source: ADB Staff Estimates

Appendix 5 23

DISBURSEMENTS

Table A5: Projected and Actual Disbursements ($ million)

Disbursements

Year Projected Actual Cumulative

Actual/Projected (%)

2006 7.00 0.00 0.00 0

2007 14.00 6.50 6.50 47

2008 28.70 25.46 31.96 88

2009 35.30 52.66 84.62 149

2010 40.80 47.93 132.55 117

2011 25.20 10.50 143.05 42

Total 151.00 143.05 143.05 95 Source: Asian Development Bank

Source: Asian Development Bank

14.00

28.7025.20

0.00

52.66

7.00

40.80

35.30

6.50

10.50

47.93

25.46

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2006 2007 2008 2009 2010 2011

$ m

illio

n

Figure A5: Projected And Actual Disbursements ($ million)

Projected Actual

Year

IMPLEMENTATION SCHEDULE Plan/ Duration

Actual (days)A. Project Management Unit

1. Office Setup Plan 2190Actual 2190

2. Recruitment of Core Team Consultant (CTC) Plan 290Actual 724

3. Implementation Plan 1640Actual 1480

B. Road and Bridge Rehabilitation1. Design and Supervision Consultants

a. Recruitment Plan 290Actual 822

b. Implementation Plan 1480Actual 1414

2. Civil Works (Phase 1)a. Bidding Plan 302

Actual 835b. Implementation Plan 1100

Actual 12733. Civil Works (Phase 2)

a. Bidding Plan 302Actual 527

b. Implementation Plan 900Actual 755

C. Road Sector Policies1. Control of Truck Overloading Plan 730

Actual2. Road Safety Awareness Campaign Plan 365

Actual 3653. Developing New Approaches to road Plan 425

Maintenance Management Actual 380D. Capacity Building and Training

1. Training in Project Management and Plan 600Engineering Support Practices Actual 360

2. Strengthening Capabilities in Environmental Plan 545Impact Management and Social Impact Actual 376

2009H2 H1 H2 H1

2005 2006 2007 2008 2010COMPONENT H2H1H1 H2 H1 H2 H1 H2

Implementation schedule based report and recommendation of the presidentActual implementation Implementation schedule with change in scope

Legend:

24 Appendix 6

Source: Project Completion Report of the Directorate General for Highways

25 Appendix 7

PROJECT ORGANIZATION STRUCTURE

Source: Directorate General for Highways

26 Appendix 8

STATUS OF COMPLIANCE WITH LOAN COVENANTS

No. Covenant Reference in

Loan Agreement Status of Compliance Project Implementation and Coordination

1. DGH shall be responsible for the Executing Agency for the execution of the overall Project.

Schedule 6, para 1 Complied with. DGH was assigned as the Executing Agency of the Project. DGH has conducted overall supervision and coordination among implementing agencies effectively.

2. An SC shall be established with representatives from BAPPENAS, MOF, MPW and MOC, under the chairmanship of BAPPENAS.

Schedule 6, para 2 Complied with. Two major decisions were made: (i) shifting the financing of seven contract package from the loan to the government to resolve the cost overrun issue; and (ii) canceling the installation of the weighbridges in recognition of the ineffective operation of the existing weighbridges and the ADB recommendation.

3. DGH shall appoint a PMU with responsibility for day-to-day implementation, preparation of Project reports, ensuring financial and reporting requirements are met and ADB procurement procedures implemented. The PMU shall be headed by a manager experienced in managing donor loan projects and appointed for the duration of the Project. The Project manager shall be assisted by an experienced accountant, a Project analyst, and a Project engineer, at a minimum. Consultants will assist the Project Manager and PMU in management, administration, monitoring, procurement, and construction supervision.

Schedule 6, para 3 Complied with. The PMU was established on 26 June 2006. The Director for Planning was appointed as head of the PMU assisted by qualified project engineer, financial specialist and analyst. An international core team consultants assisted the project manager.

4. Schedule 6, para 4 Complied with. Coordination was done through the PMU. DGLC was renamed as DGLT (Directorate General for Land Transport).

As part of its Project execution responsibilities, DGH shall carry out all coordination and liaison responsibilities as required with DGLC and BAPPENAS in order to ensure that DGLC and BAPPENAS carry out their responsibilities as described in para.7 and para.8 of this schedule.

The DGH, acting as IA to coordinate design, implementation, supervision of road rehabilitation, road maintenance and capacity building components of the project. The DGH shall also supervise the P3JJ units in the project provinces which shall supervise and manage road and bridge rehabilitation works carried out by contractors.

Schedule 6, para 5 Complied with Responsibilities assigned. Minor changes were made. A project manager was established to manage the civil works of each subproject, and the P3JJ (now renamed as P2JN) was responsible for the design preparation. Both the project managers and P2JN were under the DGH’s Regional Agency for Road and Bridge Implementation (The Balai Besar)

5.

6. The P3JJ units shall be responsible for pre-construction activities (preparation and acceptance of detailed designs), and Procurement Committee appointed by the Project Manager shall be responsible for preparation and acceptance of detailed designs, preparation of tender documents, prequalification of contractors, and bid evaluations and awards of civil work contracts.

Schedule 6, para 6 Complied with.

Appendix 8 27

No. Covenant Reference in

Loan Agreement Status of Compliance 7. DGLC shall act as IA to implement the truck overloading

prevention and road safety awareness campaign components of the Project. DGLT shall also be responsible for preparing and awarding consulting service and operational management contracts, minor civil works, and related equipment procurement and installation.

Schedule 6, para 7 Partly Complied with. DGLT was assigned as the IA for the truck overloading prevention and the road safety campaign. Whilst the road safety campaign was implemented as conceived, the procurement of equipment and civil works for the truck overloading prevention was changed to an evaluation of the existing operation of selected weighbridge and the associated policy. This study, together with several initiatives that are being conducted by various resources including other donors, will be used by the government to decide the most appropriate methods to minimize truck overloading.

8. BAPPENAS, acting as an IA to implement the developing new policy approaches to road maintenance and management.

Schedule 6, para 8 Complied with. The scope of the study on new policy approaches to road maintenance was broadened to new approaches to integrated transportation management system.

Counterpart Funding 9. The Borrower shall ensure implementation arrangements,

the provisions of funds from the proceeds of the Loan, and counterpart contributions of the Borrower shall continue throughout the period of Project implementation in a manner agreed with ADB.

Schedule 6, para 9 Complied with. Loan proceeds and the counterpart funds have been provided timely.

10. The Borrower shall ensure funding for (i) regular maintenance of roads rehabilitated under the Project and (ii) expenditures for weighbridge operations and training for operating and maintaining weighbridges installed under the Project.

Schedule 6, para 10 Complied with. Routine road maintenance budget is adequately provided (on average Rp 40 million or $4700 per km). Following cancellation of the weighbridge installation, this provision is not applicable.

Reporting 11 The PMU shall (i) collect and consolidate all Project

reports, site reports, technical and financial reports, and submit them to ADB; and (ii) prepare quarterly progress reports, midterm Project evaluation report and overall Project completion report.

Schedule 6, para 11 Complied with. All reports related to project implementation were submitted timely.

12 The IAs shall (i) prepare project progress, technical and financial reports covering site-specific activities, (ii) collect field data and feedback from local participating agencies and contractors. The IAs shall submit monthly and quarterly reports and data to the PMU within one week of the end of each month or quarter, as applicable.

Schedule 6, para 12 Complied with. All reports were submitted to PMU in a timely manner as input for the PMU’s quarterly report to ADB.

13 If and when available, DGH shall periodically submit to ADB progress reports on the revised Policy Statement and Action Plan (PSAP) and consult with ADB on further road sector policy measures.

Schedule 6, para 13 Complied with. The reports were submitted based on request.

14 The Borrower will keep ADB informed and provide copies of all transport sector and road sub-sector studies and ensure ADB has the opportunity to comment on recommendations contained therein.

Schedule 6, para 14 Complied with. The reports were submitted based on request.

28 Appendix 8

No. Covenant Reference in

Loan Agreement Status of Compliance 15 The Borrower shall keep ADB informed of progress on

financial mechanisms that may be available for maintenance of national roads.

Schedule 6, para 15 Complied with.

Environmental Management 16 The Borrower shall ensure the Borrower’s laws and

regulations governing environmental and social impact assessments, as well as ADB’s Environmental Policy (2002) are followed.

Schedule 6, para 16 Complied with.

17 The Borrower and DGH shall ensure contract documents for civil works include specific measures to mitigate negative environmental impacts caused by Project activities. The Borrower and DGH shall cause (i) the contractors to comply strictly with all environmental impact mitigation requirements, and (ii) construction supervision consultants monitor closely contractor compliance. DGH shall submit semi-annual reports on implementation of the EMP.

Schedule 6, para 17 Complied with. The provisions have been incorporated in the civil work contract documents.

18 When roads rehabilitated under this Project are near protected or sensitive areas, the Borrower shall ensure that a monitoring program is in place and DGH shall monitor performance of contractors. The Borrower and DGH shall ensure that civil works contracts include a provision requiring implementation of identified environmental protective measures.

Schedule 6, para 18 Complied with. The provisions have been incorporated in the contract documents, and the implementation was closely supervised by the supervision consultants. Specific Mission to the environmentally sensitive areas was fielded.

19 DGH shall establish an EMP to ensure that environmental mitigation measures are implemented as planned. DGH shall make arrangements for independent monitoring of environmental mitigation measures of contractors.

Schedule 6, para 19 Complied with.

In the event land acquisition or resettlement is needed, the Borrower shall ensure that a Resettlement Plan is developed and no civil works contract shall be awarded or works commence prior to completion of all approved resettlement activities. The Borrower shall ensure all land acquisition and resettlement activities are carried out in accordance with the CPFPG developed by DGH, the Borrower’s laws, regulations and procedures and ADB’s requirements defined in ADB’s Policy on Involuntary Resettlement (1995).

Schedule 6, para 20 Complied with. Two subprojects: RI-01-I in Riau Province, and BV-02-I in Central Kalimantan required additional land. The land acquisition was done in accordance with ADB’s Policy on Involuntary Resettlement.

20

21 The Borrower shall ensure that, to the extent that any Indigenous peoples are likely to be effected, the measures in the CPFPG. The Borrower’s laws, regulations, and procedures, and ADB requirements as defined in ADB’s Policy on Indigenous People (1998) shall apply. Health and Safety.

Schedule 6, para 21 Complied with. No indigenous people were affected by the Project.

22 The Borrower shall ensure that civil works contract documents include mandatory provisions on health, sanitation and appropriate working conditions, including health, safety and accommodation, for construction workers at campsites during the construction period. In addition contractors shall be contractually required to allow workers to attend awareness campaigns on sexually transmitted diseases and HIV/AIDS as those campaign occur in their respective locales. DGH shall ensure that contract documentation contains such requirements.

Schedule 6, para 22 Complied with. The contract documents contain the provisions.

23 The Borrower shall ensure that the civil works contractors comply with all applicable labor laws, specifically including those related to gender, and further ensure that female workers receive equal benefits as male workers for work of

Schedule 6, para 23 Complied with.

Appendix 8 29

No. Covenant Reference in

Loan Agreement Status of Compliance an equal type. DGH shall ensure that contract documentation contains such provision.

24 The Borrower shall ensure that the civil works contracts include mandatory provisions on road safety enhancement measures identified during Project preparation or identified by the consultants engaged under the Project are incorporated in to the design of the Project and implemented. Such road safety measures enhancements shall include adequate road warning signs and marking, guardrails, and staff training in road safety and traffic engineering. DGH shall ensure that the contract contains such requirements.

Schedule 6, para 24 Complied with.

Auditing The Borrower shall ensure that any independent auditors financed from proceeds of the Loan shall be selected and engaged in accordance with competitive selection procedures acceptable to ADB.

Schedule 6, para 25 Complied with. ADB agreed that BPKP (State Auditors) is the auditor for the Project.

25

The Borrower shall ensure a separate accounting system for Project expenditures is maintained in accordance with sound accounting principles All Project accounts including financial statements, statements of expenditures and account records, shall be audited annually as part of the regular audit accounts and financial statements by a single independent auditor. The consolidated audit reports (in English) shall be submitted to ADB in accordance with the requirements and within the deadlines stated in Section 4.05 (a) of the Loan Agreement. The audited opinion shall include (i) an assessment of the adequacy of accounting and internal control systems with respect to project expenditures and other financial transactions, and to ensure safe custody of Project-financed assets; (ii) a determination as to whether the Borrower, DGH and IAs have maintained adequate documentation for all financial transactions, specifically including the SOE and Imprest account procedure; (iii) confirmation that expenditures submitted to ADB are eligible for financing and identification of any ineligible expenses; and (iv) confirmation of compliance with the Loan Agreement’s financial covenants and ADB requirements for project management.

Schedule 6, para 26 Complied with. 26

27 The Borrower shall ensure that the Borrower’s Inspectorate General performs audits required under the Borrower’s laws and regulations and that these audits include an assessment of Project’s financial accounts as well as an audit of the effectiveness of financial control mechanisms established by the Project. The Inspectorate General shall make recommendations on strengthening financial controls, if appropriate, and such recommendations are made. The inspectorate General’s full annual report shall be submitted to ADB within 30 days of its completion, but in no event later than six (6) months subsequent to the year being audited.

Schedule 6, para 27 Complied with. The Inspectorate General was considered as the Ministry of Public Works’ internal auditor. Although the Inspectorate General has performed its tasks, the produced report was for internal purposes.

28 Findings of ADB review missions shall be posted and made available to the public through the ADB web site or other means of public posting.

Schedule 6, para 28 Complied with.

Fiduciary and Ethics Control 29 The Borrower and DGH shall ensure that the Fiduciary

Control and Anti-Corruption Action Plan (FCACAP) is fully implemented in the carrying out of Project activities.

Schedule 6, para 29 Complied with. The contract documents contain the provision.

30 Appendix 8

No. Covenant Reference in

Loan Agreement Status of Compliance Monitoring

30 At least two (2) months prior to civil works in a project province, DGH shall have established project indicators (baseline data) in the Project Province, on the basis of selected road links (as agreed by DGH and ADB), for: (i) traffic volumes; (ii) average roughness; (iii) annual expenditures on maintenance (routine and periodic) in the provincial level national network; and (iv) social and economic impact indicators.

Schedule 6, para 30 Complied with. The indicators available before the start of construction include the International Roughness Indices of the roads (2006), daily traffic (2006), and socio economic indicators. These indicators are being updated following completion of the road works.

31 At least two (2) months prior to commencement of civil works in a Project Province, DGLC shall have established project indicators (baseline data) in the Project Province, on the basis of selected road links, for: (i) impact of road safety awareness campaign; truck axle loads as measured at the four weighbridge and weigh-in-motion monitoring equipment; and (ii) average one-way passenger fares and freight transport rates for general cargo for selected routes (as agreed by the DGLC and ADB).

Schedule 6, para 31 Complied with.

32 The Borrower shall ensure that monitoring indicators are measured before project implementation and for three years after completion. Each assessment shall contain an evaluation of changes that have occurred within the preceding year.

Schedule 6, para 32 Complied with. The monitoring indicators for the three years after completion are not yet due.

Particular Covenants 33 The Borrower shall cause the Project to be carried out with

due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental, and highway and bridge construction practices.

Article IV, section 4.01(a)

Complied with.

24 The Borrower shall make available, promptly as needed, the funds, facilities, services, land and other resources which are required, in addition to the proceeds of the loan for the carrying out of the Project and for the operation and maintenance of the Project facilities.

Article IV, section 4.02

Complied with. Counterpart funds were provided timely.

35 The Borrower shall cause competent and qualified consultants and contractors, acceptable to the ADB, to be employed to an extent and upon terms and conditions satisfactory to the Borrower and ADB.

Article IV, section 4.03 (a)

Complied with. The selection of contractors was conducted through a pre and post qualification procedure, and the consultants were selected through Quality and Cost Based Selection.

36 The Borrower shall cause the Project to be carried out in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to the ADB. The Borrower shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

Article IV, section 4.03 (b)

Complied with.

37 The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

Article IV, section 4.04

Complied with.

38 The Borrower shall (i) maintain, or cause to be maintained, separate accounts for the Projects; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards

Article IV, section 4.05 (a)

Complied with. The Imprest Account with a ceiling of $1.50 million as provided for in the Loan Agreement was not used,

Appendix 8 31

No. Covenant Reference in

Loan Agreement Status of Compliance consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than 6 (six) months after the end of each related fiscal year, certified copies of such auditing accounts and financial statements and the report of auditors relating thereto (including the auditor’s opinion on the use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement as well as on the use of the procedures for imprest account/statement of expenditures), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

as the contracts were of a sufficiently large size to justify direct payment.

39 The Borrower shall enable the ADB, upon ADB’s request, to discuss the Borrower’s financial statements for the Project and its financial affairs related to the Project from time to time with the Borrower’s auditors, and shall authorize and require any representative of such auditors to participate in any discussions requested by ADB, provided that any such discussion shall be conducted only in presence of an authorized officer of the Borrower, unless the Borrower shall otherwise agree.

Article IV, section 4.05 (b)

Complied with. Routine meetings on audited project account were conducted with ADB.

Complied with. 40 The Borrower shall enable ADB’s representative to inspect the Project, the goods financed out of the proceeds of the Loan, and any relevant records and documents.

Article IV, section 4.06

Complied with. 41 The Borrower shall ensure that the Project facilities are operated, maintained and repaired in accordance with sound administrative, financial, engineering, environmental, highway and bridge construction, and maintenance and operational practices.

Article IV, section 4.07

ADB = Asian Development Bank, BAPPENAS = Badan Perencanaan Pembangunan Nasional (National Planning and Development Agency), BPKP = Badan Pengawasan Keuangan dan Pembangunan (State Auditor Board), CPFPG = Compensation Policy Framework and Procedural Guidelines, DGH = Directorate General for Highways, DGLC = Directorate General for Land Communication, DGLT = Directorate General for Land Transport, EMP = environment management plan, IA = implementing agency, FCACAP = fiduciary control and anti-corruption action plan, MOC = Ministry of Communication, MOF = Ministry of Finance, MPW = Ministry of Public Works, P3JJ = proyek perencanaan dan pengawasan jalan dan jembatan (road and bridge planning and management unit), P2JN = perencanaan dan pengawasan jalan nasional (agency for planning and supervision of national road works), PSAP = policy statement action plan, SOE = statement of expenditures. Sources: Asian Development Bank and Directorate General for Highways.

32 Appendix 9

ECONOMIC REEVALUATION

A. General

1. The civil works component underwent economic reevaluation. The works were carried out on existing road sections and consisted of (i) road rehabilitation, and the widening, strengthening, and resurfacing of pavements; and (ii) reconstruction of bridges associated with some of the roads. The road sections form part of the strategic national road network in Sumatra and Kalimantan and also serve as the international road links connecting Indonesia with its neighbors. At appraisal, the rehabilitation and improvement works had been identified and selected after extensive screening and complementary surveys and analyses to identify the road sections most in need of improvement and the type of works that were most appropriate to remedy their poor condition. 2. The economic reevaluation used the same analysis framework as that used at appraisal, and compared “with-the project” and “without-the-project” scenarios. The “without–the-project” case assumed minimum maintenance to keep the road section trafficable, while the “with-the-project” case took into account the various types of rehabilitation and improvement works that were carried out, followed by routine and periodic maintenance over the life of the investment. 3. As at project appraisal, the evaluation program used was the economic review module (ERM) of the integrated road management system (IRMS) of the Directorate General of Highways (DGH). The IRMS system, developed over the years, is a network management and expenditure evaluation program designed to develop optimal expenditure strategies under budget constraints. The ERM, under the IRMS, is designed to assess the economic internal rate of return (EIRR) of individual subprojects that form part of the overall work program of DGH. 4. The IRMS databases contain detailed road inventory data and road condition and traffic data, section by section, for each link in the national road network. The system is well suited to the evaluation of the annual road expenditure programs for Indonesia’s road network, which has been improved incrementally and consequently requires differentiated treatment varying from link to link and section by section. A further advantage of the system is that it enables all road expenditures on the network to be evaluated with the same assumptions and principles so that prioritization is done consistently between regions and types of works. 5. Because of its detailed databases, the system and the associated ERM is also well suited to the evaluation of roadworks financed by lending agencies when the project consists of many subprojects requiring differentiated treatment (e.g., widening, reconstruction, strengthening, periodic maintenance) in accordance with the actual requirements of each section of a road link. 6. The evaluation was carried out over a 25-year period, including a construction period of 2–4 years, depending on the contract. All costs and benefits were expressed in constant 2006 prices.1

1 The ERM uses the year before the start of construction as the default for the base year

Appendix 9 33

B. Traffic Forecasts

7. Traffic data from the IRMS were used to determine the 2006 baseline traffic data. Traffic levels were cross-checked and validated against the results of more recent automatic traffic counts obtained from the provincial design offices. To validate the available data for the North Sumatra subprojects a resurvey was carried out. 8. The IRMS holds databases of traffic on the complete national network, and traffic growth by province is periodically analyzed and traffic growth assumptions for the purpose of evaluating roadworks in each province are updated accordingly. Recently, more automatic traffic counters have been put into operation to validate the classified counts carried out manually and obtain better information on hourly, daily, and weekly fluctuations in traffic. Since the IRMS is primarily designed to evaluate optimal treatment strategies for the whole network under budget constraints, link specific traffic forecasts are not developed. The traffic growth projections, which are introduced as program defaults, are intended as network averages and are set conservatively. Thus, the traffic growth assumption is currently 4.5% for Kalimantan and 4% for Sumatra. These traffic growth assumptions were adopted in the reevaluation.

C. Costs

9. For the “with-the-project” case, the road costs included the costs of the various categories of works carried out on the links according to the completed contracts, as well as the routine and periodic maintenance costs over the life of the investment. The costs were expressed in economic terms and were based on the final contract amounts, adjusted for taxes. The costs included the cost of construction supervision. The costs were distributed over the construction period in accordance with actual disbursements. For the “without-the-project” case, the road costs included maintenance expenditures to prevent the road from deteriorating.

D. Benefits

10. The benefits that were quantified for the economic reevaluation were the road user cost (RUC) savings comprising the reduction in vehicle operating costs (VOCs) (the reduction in road roughness leading to better vehicle running conditions and higher speeds) and passenger time savings. RUC data are also an integral part of the IRMS and are based on the vehicle types registered in the course of classified traffic counts and vehicle occupancy. The RUCs for the different links in the network vary with road condition, as measured by the international roughness index (IRI). 11. Other benefits that are of some significance but were not quantified are briefly discussed in section F below.

E. Results of the Reevaluation

12. The EIRR reevaluation results are summarized in Table A.9.

34 Appendix 9

Table A9: Summary of Economic Reevaluation

Length

Province Package Link No. Link Name Road (km)

Bridge (m)

Cost/Km (Rp

million) AADT 2006

TrafficGrowth

(%) EIRR (%)

SU-01 19.1 Pd Sidempuan–Bts TapSel II 36.85 2,482 2,220 4 22.9 SU-02 057.1 Sp Kawat–Bts Labuhan Batu 38.34 50.40 1,638 5,851 4 45.7 SU-03 057.2 Bts Labuhan Batu–Rantau Prapat 48.40 113.20 1,791 4,807 4 38.5

North Sumatra

SU-04 052.2, 058.06 36.86 22.10 1,585

4,520 4 26.5 SB-03A 032 Panti–Bts Sumut 17.09 1,587 1,569 4 16.3

051 Kiliranjau–Sei Dareh 32.30 3,460 4,578 4 26.1 West Sumatra SB-01

052 Sei Dareh–Junction 4,116 4 RI-01 019.1 Simpang Batang–Simpang Balam 54.60 4,176 8,150 4 26.2 Riau RI-02 019.2 Simpang Balam–Bagan Batu 30.40 2,866 5,369 4 21.4

Jambi JM-01 011.1,2,3 Ma.Tembesi–Sorolangun 60.48 2,586 13,982 4 26.1 SS-01 010 Lubuk Linggau–Terawas 26.63 1,578 2,580 4 23.1 SS-02 011 Muara Enim–Sp Sugih Waras 51.27 1,197 5,543 4 39.1

South Sumatra

SS-03 013,014 Baturaja–Martapura–Bts.Lampung 39.93 2,041 5,068 4 25.2 002.1 Tegineneng–Gunung Sugih 36.94 1,222 14,094 4 41.9 LP-01 003 Gunung Sugih–Terbanggi Besar 17,974 4 Lampung

LP-02 004 Terbanggi Besar–Kota Bumi 41.44 1,850 9,750 4 35.8 079.1 Tayan–Teraju 71.50 34.00 1,872 - - - West

Kalimantan BU-01 079.2 Teraju–Bts Balai Bekuak

BV-01 010.2 Km.65–Sampit 30.00 1,832 2,771 4.5 39.9 024.1 Sp Runtu–Runtu 64.17 80.00 2,360 332 4.5 17.6

Central Kalimantan BV-02

024.2 Runtu–Kujan 1,510 4.5 BX-01 039 Kintap–Sebamban 69.75 20.00 1,752 2,489 4.5 19.5

035 Sebamba–Pagatan 1,054 4.5 15.2 South Kalimantan

57.02 BX-02

036 1,918

Pagatan–Batu Licin 1,830 4.5 AADT = annual average daily traffic, EIRR = economic internal rate of return, IRI = international roughness index. Sources: Directorate General for Highways and ADB Staff Estimates

13. The reevaluation showed that the EIRRs ranged from 16% to 46% for the Sumatra subprojects and from 15.2% to 40% for the Kalimantan subprojects, and that overall EIRR was 26.9%. This overall result excludes a reevaluation of subproject BU-01-I in West Kalimantan, for which accurate roughness and traffic data were not yet available. The road link connects West and Central Kalimantan provinces and starts at a wide river crossing (1 kilometer [km]), where the ferry service is often unavailable for long periods at times of low water. The link had a marginal return at the time of appraisal and the return is likely to remain marginal if future traffic generated by a new bridge at the ferry location is not taken into account. DGH has confirmed, however, that a bridge will be constructed at this location and that the bid preparation is under way. When the construction of the bridge is completed, the traffic levels are expected to increase substantially on account of induced development and growth in interregional traffic. Spot observations indicate that the improvement and widening of this road section has cut RUCs significantly. It has also successfully opened up this remote area in West Kalimantan province, and provided access to Central Kalimantan province.

Appendix 9 35

14. In general, despite the significantly higher costs, these EIRRs were broadly in the same range as at appraisal. The impact of the cost increase was counterbalanced by (i) higher RUC savings resulting from the averted deterioration of the roads; (ii) for the majority of subprojects, higher RUC savings resulting from improvements that were more substantial than anticipated at appraisal; and (iii) higher traffic volumes than predicted at appraisal, in more than half of the cases. These results were quite robust considering (i) the condition of the roads before the improvements, (ii) the levels of traffic on the roads, (iii) the improvements that were applied, and (iv) the cost of the works.

F. Non-quantified Benefits

15. Motorcycles. On most roads in Kalimantan and Sumatra, motorcycles form an important proportion of total traffic, varying between 20% and 60%. The impact of improved road conditions on the life of the motorcycle and the comfort of the driver and passengers is as significant as if not greater than the impact on four-wheel or larger vehicles. If the operating costs of motorcycles are are assumed to be on the order of 10% of those of the average vehicle on the road, the RUC savings accruing to motorcycle traffic would range from 2% to 6% of the total RUC savings. 16. Induced development and generated traffic. The roads improved under the project are existing roads that form part of the national road network in less-developed parts of the country. Normally, therefore, induced development already took place after their original construction. However, for selected links where the road had deteriorated considerably over large parts of the length of the link, the investment will give rise to a significant change in road conditions and reliability of transport services. Provided the improvements are sustained, they are likely to generate some new development and support increased agricultural production. 17. Improved access to services. To the extent that the roadworks give rise to a significant improvement in road conditions and reliability of transport services, the population living in the villages along the road will have much-improved and safer access to various public and social services such as schools, clinics, and health centers. Access by motorcycle to such facilities becomes more affordable, as was noted in the post-construction Socioeconomic Monitoring and Evaluation Program (SEMEP), which found that in all villages surveyed the use of bus transport had declined while the use of motorcycle transport had increased significantly. 18. Nonmotorized traffic. In rural areas in Indonesia, new population settlements still largely arise in the form of strip developments along the public roads. In these settlements, the road therefore becomes the locus of all kinds of commercial and social activities. The wider roads and wider shoulders will benefit nonmotorized traffic, thanks to the availability of more and safer road space.

G. Conclusion

19. The reevaluation indicated that the investments were well justified. The key parameters of the reevaluation—the condition of the roads before the improvement, the levels of traffic on the roads, the improvements that were applied, and the cost of the works—exceeded the generally accepted minimum warranted for the types of roadworks that were carried out. The use of default values and assumptions under current conditions and practices at DGH represents a shortcoming of the IRMS/ERM for the evaluation and reevaluation of rehabilitation projects.

36 Appendix 9

20. Future use of the economic review module of the integrated road management system for the economic evaluation and reevaluation of externally funded projects. The IRMS is a very powerful network and expenditure program evaluation tool that was custom-designed to assist in the development of expenditure strategies and annual road expenditure programs for Indonesia’s greatly differentiated road network. Another advantage of the IRMS/ERM as an evaluation tool, when used in a generalized manner for the evaluation of all road expenditures, is its assurance of a high degree of comparability between project proposals, regardless of category of works or funding source, as all investments are evaluated with the same principles, assumptions, and parameters.

21. The ERM is designed to assess the EIRR of works on individual links that are part of the overall expenditure program. It has advanced features that enable the analyst to change several of the default parameters—such as traffic composition, traffic growth rates, IRI, base year of evaluation—used in the network analysis. These advanced features, however, are as yet not well mastered by DGH staff. This is unfortunate, as there are situations where the ERM needs to be used for more advanced evaluations, such as those required to examine project design alternatives or to reevaluate the EIRR of individual links at the time of project completion, and the ERM program can be run only on DGH workstations and by DGH staff. 22. Despite the above outlined advantages of a generalized use of the IRMS/ERM by both government and lending agencies for the evaluation of roadworks that are part of the government’s expenditure program, continuing with this approach in the future for externally funded projects has disadvantages, particularly when more complex roadworks are involved. Another consideration is that there have been issues with the systematic updating and archiving of network data, which can complicate the reevaluation of completed projects. Furthermore, DGH may in the future adopt a different software for program and project evaluation. 23. In view of the above, it is recommended that:

(i) the economic evaluation of future projects be carried out independently of the IRMS/ERM, with a recognized self-standing evaluation program that is based on the Highway Design and Maintenance (HDM) Model and calibrated with the Indonesia-specific technical relationships that have already been developed for the IRMS;

(ii) the software program, project analysis files, and all the project-related data be tested and then archived digitally together with the other project documents; and

(iii) upon project completion, the reevaluation be carried out with exactly the same program and updated data on construction costs, traffic, and road condition.