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Report No: 23588-11ND

IMPT EMEMNTATION COMPT TTION RFPOPRT

(CPL-37490; SCL-3749A; SCPD-3749S)

ON A

LOAN

IN THE AMOUNT OF US$174 MILLION EQUIVALENT

TO THE

REPUBLIC OF INDONESIA

FOR A SEMARANG SURAKARTA URBAN DEVELOPMENT PROJECT

June 27, 2002

Urban Development Sector UnitEast Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

In-alg e Efetlv Apr. 2 202

Currency Unit = Rupiah (Rp)1 Rp = US$ 0.000101730

US$1 = Rpn 9,Rl

FISCAL. YEAR

January 1 December 31

ABBREVIATIONS AND ACRONYMSDAPPE'NAS A------ n. v .. .. AA..4I_A

BTN National Savings BankCAS Country Assistance StrategyCR Cost RecoveryDED Detailed Engineering DesignFRR Financial Rate of RetumERR Economic Rate of ReturnGOI Government of IndonesiaHC House ConnectionHH Household[MG IUIDP Management Group, BappenasIUIDP Integrated Urban Infrastructure Development ProjectKIP Kampung (poor neighborhood) Improvement ProjectLARAP Land Acquisition Resettlement Action PlanMCK B-athing, w^_-hirg,, toilet fhacitliy n de_a.: .nandi. cuci, .kaku.....................-s)MIIP Market Infrastructure Improvement ProjectMOF Ministry of FinanceMSRi Ministry of Settlement wd Regional infrassnicture (Kirnpraawii)NGO Non Govemmental OrganizationNRR Northem Ring RoadO&M Operations & MaintenanceOED Operation Evaluation DepartmentPadat karya Labor-intensive public worksPAD Local RevenuesPDAM Water UtilityPJM Medium-Term Investment ProgramRAP Resettlement Action PlanRIAP Revenue Improvement Action PlanSAR StafFApra,i5 Renort

STP Sludge Treatment PlantSURIP Strategic Urban Roads Infrastructure Project (Ln.4054-lND)T .41.-2 Second Te,h"'.' … A s-r-o for Publ:c=PHn.ate Partnership Io inf ructure (Ln.39!3-fNn'TKPP Urban Development Coordination TeamTRIBINA Activities under KIP that involve components of physical, social and local economyUfw Unaccounted for WaterWTP Water Treatment Plant

WWTP Wastewater Treatment Plant

Virp Prpeidipnt: Mr Tnmil Kanssmi, FAPVP

Country Director: Mr. Mark Baird, EACIFel hx X.. T7 - 17..-.- 17- A LITTfl

aSecor Tmrector: Mr. Rishav VaSulkna, EASuR| ~~~~~~~Tasok Teazm Leader: Mr. Risyana Sukarma, EASUR

FOR OFFICIAL USE ONLY

T1WPTI. MENTFATION rnCMPLTr.1-N RWPARTINDONESIA: SEMARANG SURAKARTA URBAN DEVELOPMENT PROJECT

(IT .n 17A10_11Y

CONTENTS

Page No.1. rruject Data I

2. Principal Performance Ratings I3. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 55. Major Factors Affecting Implementation and Outcome 186. Sustainability 207. Bank and Borrower Performance 218. Lessons Learned 249. Partner Comments 25!0. Addl,tin5al Infnrnmitinn 27

Annex 1. Key Performnance Indicators/Log Framne Matrix 28An-ex 2. r.o-ec ots and Finarcing 29ruui~ L. riujL 1-VW C11uu ""11r LY

Annex 3. Economic Costs and Benefits 31Annex 4. Bank inputs 34Annex 5. Ratings for Achievement of Objectives/Outputs of Components 37Annex 6. Ratings of Bank and Borrower Performance 38Annex 7. List of Supporting Documents 39

I 'his document has a restricted distribution and may be used by recipients only inIthe performance of their officia! duties. I ts contentf may not be ntherwicp dkie1ln-ed|without World Bank authorization.

Project ID: P003890 Project Name: Semarang Surakarta UrbanDevelopment Project

Team Leader: Risyana Sukanna I TL Unit: EACIFICR 7ype: Core ICR Report Date: June 27, 2002

1. Project Data

Name: Semarang Surakarta Urban Development Project LICITF Number: CPL-37490;

0%LL-3 I$yt%,

SCPD-3749SCou, ,y/Dea,.If.e fl.Tk1VOVXT: A D---o:- V-* Asi ad -LOUr4uryiVvyjur Iflclas. ACS§Ur#. L~aOL F-LId aJIU XW.d11.M

Region

&-cto.L- bsec Tor.- ATM - Urbn M&nangeLn.e.-!

KEFY DATES

Original Revised/ActualPCD: i 272/7lQl Fifect"ive: 10./20/94

Appraisal: 09/15/93 MTR: 10/09/97Annrnvanl 06/07/94 C'9sing: 09/30!99 09/3n0/2001

Borrrnwrl/lmnpementingAgenSv: REPUiRTi-rOF JNrN_pSIAlOCT.ATL.OV FRNM NTS °FS FMARANr.ANfl

SURAKARTA AND THEIR WATER ENTERPRISES

Other Partners:

STAFF Current At Aooraisal

Vice President: Jemal-ud-din Kassum

Countrv Manager: Mark Baird Marianne Haua

Sector Manager: Keshav Varma Anupam Khanna

Team Leader at ICR: Risvana Sukarma Heinrich K. Unger

ICR Primary Author:

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactoqy, U=Unsatisfactory, HLaHighly Likely, L=Likely, UN=Unlikely, HUN=Highly

Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: Sc..B_:_B1:^. I TM..IMo.I.,u,.55.r. '.4.

Institutional Development Impact: M

Bank Performance: S

Borrower Performance: S

I'. A f1- 1.'& IQAG% (if availab:e ICR

Quality at Entry: S SAIUJC- -i Df'Lj -UAf� -. IUI T [I1-tvect aitaRk atA,.y I,.me: No

3. Assessame-t of flaven1pm.ut~ flii.4jnv and lDes;u,u~ s ist oflQoa'--ty at Ent,4,3.1 es n O- IFana Obj ctive

3.) Original Objective:

J. Assessment of Development O'bjecive and Design, and of Quailty at Entry

3.1 Original Objective:Introduction. The concept of Integrated Urban Infrastructure Development Programming (UIDP) wasintroduced by the Govemment of Indonesia (GOI) in the mid 1980s to integrate the development of urbaninfrastructure investments in urban transport, water supply, sewerage and sanitation, flood control,drainage. solid waste management and kampung (neighborhood) improvements (known as KIP) under onepackage. In the early 1990s, following the RIUIP concept, GOI planned a series of projects designed toimplement urban infrastructure investments in five large cities: Malang (East Java)- Semarang; andSurakarta (Central Java), Bogor (West Java) and Palembang (South Sumatra). However, due to the largesize and complexity of these cities. a decision was made to snlit investments for them into several lendingpackages. The cities of Semarang and Surakarta were thus combined under the Semarang Surakarta UrbanDevelonment Proiect (SSUDP)

When the nrmiect was d-eve1oned the citipr of Remarrngn and .nrnk-nrtn CPrntral T2v.a'g tuwn largPet citispcwere experiencing rapid urban population growth rates; however this growth was not being matched witha Correepnnrinina PYin2ninn of infran ctntmre sPrviPe. TIn RPamaran", thb Int 'l u2tnr antern,.s (DPTIAL

was supplying piped water to only 40% of the population, while the rest relied on wells and other sources.There wnIc no Sn2nitnru cpwpr cuctPm antiA nnn etfnm Ar,,nc ,,Pvp ,cp to ,n n11-t ),4h Q .-., onA

wastewater flows. Over 40% of solid waste was dumped into vacant lots, canals and rivers. Frequentflonodng oc rcured in the north.er and eat.ern rmoJyin.g parts of the city. Deficien.ciesir "-"-

were also apparent.

In Surakarta, the PDAM supplies of piped water were very limited, causing 61% of the population to relyon sha-l-w v3ells for v,vat.er. To sep _--te s -a s . 1- + +ie 1-- one -1-- '

central areas of the city, was only partially operational due to improper maintenance practices.

collection was better than Semarang's with about 80% of the population being served regularly. UrbanUGAUJ VtL L UIttl1nee Were zlso appa.-ent.

O'uJcfUva. .'he uoiru.al obUJeUVes oL SS'.Jf were Lv. (a) iUi1ijiuv ulW piruvisioin ol uriuaL m JinLaucturcservices and the efficiency of urban investments; (b) promote stronger, more autonomous, and financiallym-ore independent; mnlicipal goverimient; ad (c) cotlribute towards urban poverty alieviation, mainliythrough better access to essential services and an improved urban environment.

Assessment of Objectives. The project objectives were clear and realistic especially given Indonesia'sstability at the time of appraisal and Board. Tne projectts objectives were fully consistent with andimportant to the Bank Group's 1994 Country Assistance Strategy (CAS) for Indonesia, which highlightedthe need to focus on interregional equity, delivering higher quality services and enhancing competitivenessin a climate of macroeconomic stability.

The project was rather complex. On one hand, the project was limited to only two medium-sized cities,located in a single province spatially close to Jakarta. Thus, the geographic scope of the project wasmanageable. It was also less complex institutionally, as the decision-making locus was fully decentralizedto the two municipalities. On the other hand, the project was complex in that it covered seven subsectorsand included several large infrastructure components. Nonetheless, the riskiness of the operation wasacceptable.

The project was reasonably demanding for the two municipal governnents given their limited institutional

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capacity and the size and level of complexity of certain components, which required strong leadership atthe municipal level. This level of responsibility was appropriate and responded well to GOI's developmentpriority of promoting stronger and more independent municipal governments.

3.2 Revised Objective:In 1998, the Loan Agreement was amended to include the execution of small infrastructure works inaddition to the sub-projects already in the program. Tnese small infrastructure works were labor-intensiveworks (known as padat karya in Indonesian) and were designed to address the growing unemploymentproblem resulting from the economic crisis that began in September 1997 and continued into the late1990s.

3.3 Original Components:Tne project was to achieve mhe a'oove objectives in each city oy implementung tie followvMing COmpuneFitS.urban roads, water supply, sanitation and sewerage, solid waste management, kampung (poorneighborhood) improvement program/market improvement progrrm ir/Mvi-r), housing and urbanrenewal, and implementation support and capacity building. The components are summarized in detail bycity below.

Table 1. Project Components

Project I - r no.aI no wow ... l

Components Costs Semarang Costs I . SurakartaI I.-n P-oI. 31. I IP Im,nvpmenk (76 km- and maLntAn- n a 20. Road improvements (36 km) and maintenannne

(78 km); bridge construction (4); traffic d (4.7 km) and bridges (3);management traffic management

WaterSuppiy 4.6 Upgradin and cUnstruction of new 'vvI WI we;; jVuIU pIIIUIIL VI IV OWlbt; weII; r-iniea.ce;

maintenance program; UfW reducion; service UfW reduction; water resources developmentIJI expansion (55,000 of pipes, 68,000 new HCs). _ study; service expansion (18,000 new HCs).

Sardtation and 12.3 WWTP and STP; ewer system expansbn (14 7.3 Rehablitation of sewer systems (65 and 55 ha);Sewerage jkm of sewer); pilot sewer (45 ha); credit scheme 2 WWTP, STP (1.5 ha); credit scheme on

on on-site sanitation (450 HH): MCKs (272 ,on-site sanitation (2.300 HH): MCKs (200 units):units); desludging trucks (5 units). I desludging trucks (2 units).

Drainage & Flood 23.7 Imprvemmenb of primary drains (28 km); 5.0 Improvement of primary drains (3 km);

|equipment for periodF maintenance. stations; equipment for perodic maintenance.

Solid Waste j 5.6 |Improvement of final disposal site, development | 1.6 |Upgrading of final disposal site, development of |Management pf new site (11 ha); heavy equipment for inew site; heavy equipment for operations.I I loperations. I I IlUrban I 6.7 lInfrastructure development in low income areas: | 4.8 Infratructure deveopment in low income areas;

RenewaWKIP/MIP micredit scheme for home improvement and Imicro-credit scheme for horme improvement and

inoome generation (credit scheme); KIP (412 Incofime generation (credit scheme); KIP (389ihal; MIP 1 9 markes hal- MIP (Q masrkIAtql

Historic Areas Pilot physical improvements to selected historic Pilot revitalization of the old historic areaConservation buildings and areas developing the strategy, institutional fameork,|

spatial plan, adu imp uvemeiuni uo uli IncanI I I I linfra~~~~~~~~~~~~~~1, structure I

lImplementation I iFor both cies, TA overed cntract engineering | iFor both cUes, TA covered contract engineering|

Support & Insfitudional services, program management and services, program management and

Capacity Bldg. | Implmenbtaion, sector development and implementation, sector development and

I I limolementation related studies. i limDlementation related studies.

lInvestment Cost 125.0 |49.3 t Total Investment I

ICost' for Semarang I1 t4.3

land Surakarta I

Infrastructure base cost only, excluding physical contingencies, DED & supervision, technical assistance, routineO&M costs, overheads and taxes.

2Investment cost represents 70% of total base cost.

Assessment of Components. Several large project components (water supply, urban road and drainage)were reasonably well designed to address objective (a), improving the provision of urban infrastructureservices and the efficiency of urban investments. However, successfluly implementing these largecomponents placed prime importance on the municipalities' ability to plan and implement them. Concernsregarding the limited capacity of the implementing agencies, including their administrative and financialcapacity, were reflected under objective (b), and were adequately addressed by the project through theinstitutional capacity building component. Capacity building at the local level was recognized as along-term process. With regard to objective (c), the project supported KIP and urban renewal activities toaddress poverty alleviation.

In the very early 1990s, it was recognized that central government was not able to meet the infrastructureservice requirements of rapidly growing urban populations, and that municipal governments would have toincrease their management capacity. The project's design took into account the Bank experiences thatconfirmed that: (a) limited nlanning and imnlementation canacitv at the central level reduced theefficiency of mass delivery programs; (b) capacity building at the local level was a long-term process thatneeded to he accompanied hy an increase in local resnonsihility and autonomy; (c) financial relationshipsbetween the central and local levels needed to promote more autonomy; and (d) private sector participationnppdpA tn he enhRnnetl

3.4 Revised Components:Over the life of the project, the Semarang sewerage component was modified and the labor-intensiveworks and on-roof pennit system were added.

Semarang Sewerage. As the mid-term review approached in September 1997, it was obvious that theSemarang sewerage component could not be implemented and that led to cancellation of the component.Instead, during the mid-term review, agreement was reached to prepare a "Sanitation StrategicDevelopment Plan", emphasizing a demand-driven approach. This approach involved extensivecommunity consultations to select a technology that the community was comfortable with and that wasaffordable. The menu of options would take into account the feasibility of various options, investmentcosts, operations and maintenance, and a breakdown of responsibilitv between the communitv and thelocal government. In parallel, a more traditional analysis of the "backbone" of the sewerage system wouldbe undertaken. This study would look at the location of any future wastewater treatment plant(s), theavailability of sites of sufficient size, and the hydrography of the site. Towards the project end, the Bankaccented GCTI's reauest to imnlement a nilot sewerage system in limited areas. (See nara 4.2 for resultsi)

I aghnr-1ntPni,vP Wnrks. AR mentioned 2hnv. the ennnnmit, rn-iqS resiltd in increnqed iineninlnvmentwith the local construction industry being particularly hard hit. To relieve the growing unemploymentSit ̂ inntn anr. fiwrther a,ddress thpe nnverty allv:intinn nhip't.ivf- MT Adeoidpd to offer chort-tprm

labor-intensive employment to the poor by amending the Loan Agreement to include the new componentThese ,,,o,4,,, were fii,,n^p tb,rvnub project -oct o,.i,,gs Of so.e US$10 n .illio..,,de -_,_l e firvn,, thedepreciating Rupiah.

One-Roof Permit System. Towards the end of the project, the Bank and central government (Ministry ofHor,*iic 1i%UdU) seleLcu evaSI4L4ll Lt L'eL 4l a.:iU4UVe or.VIe-IUUI bf sILrv bys.Iii lul fo pv11t.. 1bsUeU uy uic

municipality. This initiative was introduced to improve municipal governance, and was geared towardnelpmig the proJU IIImeL UUJG;LIVe (U) Uo PrUII g aUI sUtrUong 11muiipal goUVernU11mt.

3. c I..al a; En-'-,J.u iUU5Ly UL 117111y.

(hulitv at entrv iS iudced satisfactorv. Prenaration of each nroiect comnonent was extremely thorough,considering the huge infrastructure deficiencies in both municipalities. The project was consistent withCAR nhiptriveq nf foruisingr on the need for interregional enuitvy delivering higher oualitv services andenhancing competitiveness. It was also designed to overcome bottlenecks in infrastructure and humanresourCes, to decentralie7 res-onsibilitv for Service delivery, and tn reduce noliution, through GOT's lJIDPapproach. The project objectives were in line with GOI priorities in Repelita VI (sixth five-yeardevelonpTment plnnnniin) and thl. Secnnd 75-Vpnr Pin, which enp-hasizedi susainable lurban deveonnmentthrough improving the quality of the living environment, support for economic growth, reduction inrg.,nona ,mbl2alrnPe ,,i ar.d jp rt~., a!!ev:ati^n.

The risks w ere wvel idertified and measurps to mrtaiato these ridsk are clear in the S^AR anrd legaldocuments. For example water tariff increases by the water utilities (PDAMs) were covenanted in ther ,.c,. A cnW.en,+ ;. ore to ens-h .e

4,,on'r.ia 2 o,tbld, o~f th PflA1M,s. The r.sks -^-fliniteA ir.tiht.laora

capacity and the mnitigating factor of the strong "ownership" of the proposed program by the local officialsi erc A ;--Auyd suse

.,el mauA a&-' aaAUe,ua... policieso were applied. cnd n. ut addressedn. Evnthog th pro,ect wffflff asflJ~

expected to have a net positive environmental impact through improvements to sewerage, solid wastedisposal ar. u.caae, ult, project was ,tlUy cL'.eVrLUd za., ..MiL v -5-n..nla assesnt (EA) category

"A" due to its interventions in solid waste, sewerage and urban roads. The environmental assessmentprocess also aaddressed UIU BJjaI,u a ICu11eC.IIaES onL myVoluuiY i n.lr.eL uy ir U.cludu.g pp-.-Mo

detailed resettlement action plans (RAPs) involving NGOs, surveys, and public consultations.

The appraisal mission's assumptions about external factors were valid given the stability of Indonesia in1-7-5. nt:IlilbU UlWuU llUt I1aVt; lUVIVIbC U1t; 1771/0 tiUUIIWIIltv; lILlUmnatU amlU. IUUUCa C11SI W1110I

severely affected project implementation.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:The achievement of objectives for the Semarang Surakarta Urban Development Project is consideredmarginally satisfactory.

Objective 1: Improve the provision of urban infrastructure services and the efficiency of urbaninvestments

Achievement of this objective is rated marginally satisfactory. The majority of the project componentswere satisfactorily completed and have achieved the majority of their objectives with a significantdevelopment impact. These include: urban roads investments including improvement in traffic management(both cities); improvements to river embankments and alignments in Seringin (Semarang), solid wastemanagement. urban renewal and kamvung improvement (both cities) and water supply in Surakarta.

Better quality roads have significantly improved both cities' economies. Similarly, the completed drainageworks in Semarang, although they have not fully resolved the city's severe flooding problems, have at leastshortened the inundation periods in the project area. Improved solid waste management in both cities hascontributed to a healthier urban environment.

Two large, complex components experienced significant delays and were not fully completed at Loan

- 5 -

closing. SemCalrnaUdls seweC chi dge-uepo-iL to LaaL la of IiiULuy dUIIMIIL4UOiI

during preparation. A river (Tenggang) improvement project, also in Semarang, was cancelled due to landacquisition problems. Insiead, drainage Linprovcrnes in uie r areas VI B-,uu ad-- rwa L"aun (old ciLy) wre

implemented.

In addition, prolonged delays occurred in the implementation of the Semarang water supply and Surakartase-werage comjponelits. ThLhe water treatument planrL n Kudu (1,250 I's), const-Ucted to supply cleaLn water to77,930 additional house connections in Semarang is not being fully utilized because the canal supplyingrAA__w__ wee._o sL__A __:__1-__A _-_1-:_IX_A _ AA .1_. , T_[11W WdlUIC LU UI F14UIL Ir.IIIILU LLWILpICLU, dIU AL uI.OM11,, L1au al Uallyil LF44;ALY U1 VLll aIU0UL -JVo. Ul1

Surakarta, the sewerage system expansion component was to serve 10,500 connections. However, thenumIner 01 new RnICULioIis -was uoiiy 0-/o 0l -uiaL figure ilL CdIUSIg. INU VILlue:ess, a IInw Wastew1LeW

treatment plant in Mojosongo (Kedung Tungkul) and preliminary treatment in Semanggi were completedand in operation to treat wastewater from hne expanded sewer system in the northern area ThLis has reducedthe pollution rate to the ground and surface water considerably, in particular, to the Bengawan Solo river.

With this mixed performance, the achievement of the primary objective of improving the provision of urbaninfrastructure services and the efficiency of urban investments is rated marginally satisfactory.

Object ve 2: Promnote strunger, more autonomo-us and financally more independent muncilpalgovermments

Municipal planning and implementation. This objective was satisfactorily met, despite the economic crisisstarting 1997 and countrys s-ubseqsuent political ins ability. u iL thie decisiois rel ied Uo piaiming anu

implementation were taken at the municipal level. In planning the mid-term investment program and theannual plans, a systematic planning process was consistently followed. In uhe context of projectimplementation management, the role of the project management unit was significant, as it was able tocoordinate severai agencies with different roles and tasks. However, imnplementation could have beensmoother had the original mayors displayed higher quality leadership (see para 5.3). The leadershipsituation improved towards the end of project period when tne new mayors began tneir terms, but theearlier implementation delays could not be overcome.

PDAMs. Important steps towards improving the autonomy of the municipal water enterprises (PDAM)were tak-en by UOUI citUs. I iu uuciipUsitli Ulo ui0i LuperUvis[ry boaids UU Wl wLiigedu ill da[cuoudacc Wiui

Ministry of Home Affairs Regulation No. 7/1998 on the Management of Water Enterprises. At projectstart-up, the PDr vi BoardUs were crUaireu oy uie mrayor andu copn-lpHseu iv-C loca govexnmen1 of1ficias. Bycontrast, there are now three Board members, with one local government official. The other members are aconsumer representative and any qualified individuai.

Despite these changes in Board membership, both PDAMs were still unable to refuse their localgovernments requests to remit advance dividend payments, even when there was no profit for the year.Under the leadership of the new mayor of Semarang, these advance payments were returned to the PDAMafter the intent of the loan covenant disallowing these payments was clarified. In Surakarta, the localgovernment fimded water supply-reiated investments for the PDAM in return for the advance dividendpayments.

Another noteworthy institutional change took place in Surakarta, where responsibility for the operation andmanagement of the sewerage system constructed under the project has been transferred to the PDAM; itsorganizational structure has been modified accordingly.

- 6 -

Municipal Finance. The growth of local revenues (pendapatan asli daerah or PAD) of both cities fellbelow appraisal estirates. Up to FY1997/98, local revenues of both cities were exceeding SARprojections. But after that, the economic crisis and political unrest resulted in an economic slowdown, anddepreciation of the Rupiah (from Rp2,105:US$1 at project appraisal in 1994 to Rp 2,909 in 1996, to Rp10,014 in 1997). Then, Tax Reform Law No. 18/1997 was issued, abolishing some local taxes andcharges, in exchange for some new ones. While there was immediate implementation of the abolition ofthe old taxes and charges, there was a delay in the implementation of the new ones. The drop in the value ofthe local revenues collected can be seen if they are converted to constant prices (see Table 2 below). At theend of the project, the growth rate of the local revenues of Kota Semarang was only 10%, as compared to19% projected at appraisal. For Kota Surakarta. the attained growth rate of 10% is not so far from the13% projected at appraisal, in spite of the fact that a major market and many business establishments wereburned down during the 1998 riots.

Table 2. Local Revenues Improvement. Semarang and Surakarta

|199394 [ 199495 [ 1995196 1996197 [ 19978 1998/99 1999X00 2000 | Growth

SEMARANG l KateLocal Revenue, SAR 23,209 28,337 34,829 40,005 46,817 55,473 63,237 77,029Projecions I I I ILocal Revenues, constant 25,722 33,460 30,346 32,477 32,350 18,362 19,278 16,596 -6%

roce Revenues, current 25,722 33,460 38,725 44,843 50,063 46,810 [ 53,306 [ 48,741 10%

SURAKARTA I I I I Il13%Local Revenue, SAR 9,856 11.542 13,885 15,238 17,520 19,484 21,301 23,287 13%Proiecfionsl llLocal Revenues, constantl 10,496 | 12,977 | 12,222 | 12,432 | 15,638 | 6,851 7,192 | 7,184 | 5%lprice + + + + +,~ I.O

rice|XV|W>Wll|| I V,'u,,U | tL,1:w1t { lU,J.,7U l ug I ,U [ i 00 'O IU7b 1

Utility Finance. The financial situation of the PDAMs of Semarang and Surakarta had not improved atclosing. Delavs in the comnletion of the water treatment nlant in Semarane and the nmvicion of raw watersupply to operate it, as well as the delay in completing production wells in Surakarta affected the build-upof new connectionsn and even the monthly con nclmnhion hv cnnsumers= Unarccounted-fnr water has not hePnbrought down much to supplement available water for sale. Tariff increases remain very much undernoliti5al contmi so incre2ses At cm.ld not he imnleneonted 2S rimiured At c4nn hoth PD.AMz t-iili not

service the subsidiary loans arising from the project. Both PDAMs committed to catching up withinctnllinv new rn'nnPetinne nnd tn rnicing tnriff. PTlAM irnsirnna will imnlPmpnt a 7f0X. inre!1ce in Anril

2002. Recent infonnation showed that the increase of 272% will be realized in June 2002, while PDAMS kr_karta has already circulated its plan to ip et a100% increase in Nove -r 2002 to its custom.Both PDAMs need to reschedule their subsidiary loan from the project, in addition to implementing theirr.nrnifrnntn, ,,nd4er tbP -rn.a.tA to r.e .Inrnan.i., 9Anj,l0 See A nex ! forna-coma.4son oir ke

financial indicators estimated at appraisal against actual figures.

Objective 3: Contribute towards poverty alleviation mainly through better access to essential servicesand ar. Lumpro-ied urblan en-vronment

lIUS UUJeWLUV w UaLs Mily mLet as eXML-iDited in Ud1e fIUIUowiIg ways.

a) Ine Panpung improvement rrogram (ir), uie iviarKet nrastructure improvement rrogram l'fPU1)and urban renewal efforts in both cities were all successful. The urban renewal efforts in Bandarhaijo

-7-

(Semarang) have significantly improved the living conditions of the poor, and have generated economicactivity in the community. In Bandarhario, site improvements have generated new activity in retail andfurniture-making. The people in the area also have access to improved drainage. Similarly, KIP and urbanrenewal in Moiosongo (Surakarta) were successful in improving living conditions and the local economy.The people in urban renewal areas have access to the new sewer system.

b) Although not targeted to the poor, the sewerage investments in Surakarta have significantly improved thecity enviromnent generally.

c) In Semarang, a pilot sanitation scheme at neighborhood level was developed in two locations, and servesa limited number of people. This pilot scheme was designed to be replicated throughout the city.

d) The social impact on the famnilies affected by the project's flood control works in Kali Banger, wasmitigated by the preparation of new sites in Karangroto, following a detailed resettlement action planprepared by the municipal govemment during project preparation.

e) The alleviation of urban poverty, addressed through provision of clean water via public hydrants was notsianificant. Provision of sanitation facilities (MCKs) was also less effective.

f) Added in 1998, the labor-intensive work lpadat karva) component temporarily relieved theunemployment problem brought about by the economic crisis. This activity covered the province of CentralJava, with works being carried out in Semarang and Surakarta. The works consisted mostly of constructingfootpaths and side drains in densely populated poor areas. In Semarang the padat karya workssupplemented the works under the KIP and urban renewal components, and improved some of the areasprone to flooding in the northem part of the city.

4.2 Outputs by components:

Urban Road and Traffic Management - Semarang ($31.1 million SAR, $36.9 million actual). Theurban road and traffic management component was by far the most successful component. Actualimplementation far exceeds SAR targets as shown below. In the recalculated ERRs, the lowest ERR was-3.1% for the Lingkar Utara road, which underwent a substantial redesign to include widening and afly-over, where an at-grade crossing was originally proposed. The highest ERR was 247% for theMajapahit Road. The overall average ERR for the roads component in Semarang was a very satisfactory75%. (See also Annex 3.)

Table 3. SAR vs Actual Implementation, Urban Roads and Management - Semarang

I Subpoject SAR ' Auuua; nRur19LmeninunhExtension of NRR + bridges 3 km ext _ 7 bfidges 3.1 km +4 bridges S

Road imDrovements 73 km 106 km S|Rehab. Periodic maintenanoe 59 km 45 km Israffic management none 1 package -S-This component was inserted

ERR average range 37-50% -3.1% -247% S Road with low ERR was designedto indude fly-over instead of at-grade

l _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ | crossing.

The Northem Ring Road (NRR) extension has relieved traffic congestion considerably and has facilitatedaccess to other economic infrastructure such as the harbor and airport. The road also connects to thetoll-road, and will complement a future toll road. This NRR supplements another road program being

- 8 -

implemented under the ongoing Strategic Urban Roads Intrastructure Project, SUKIP (Ln. 4WA4-IN U).

Road construction, as well as overall implementation progress are currently rated highly satisfactory, so thelikelihood of finishing these road projects is strong.

Urban Roads and Traffic Management - Surakarta ($20.4 million SAR, $11 million actual).Although less successful than in Semarang, the Surakarta road component is also rated satisfactory with anaverage ERR of 46%. Actual expenditures on this component are lower than foreseen because five out of38 contract packages for local roads were cancelled due to misprocurement. Nevertheless, the extension ofthe NRR and construction of 11 bridges have facilitated traffic flow around the city, and connect the city toother roads, thereby reducing travel times. The Urban Transport Study recommended improvements to thetransport system in and around the city. Some proposed projects rnight have been incorporated into thisproject, if funds for land acquisition had been available. Past and current municipal governments have notbeen able to pursue those recommendations because land acquisition costs were considered prohibitive.

Table 4. SAR vs Actual Implementation, Urban Roads and Traffic Management - Surakarta

Subproject I SARK Actuai RaiungcommenisExtension of NRR + bridges 5 km n 3 bdges 5.7 km -11 S

Road imorovements 27 km 1 1.9 km U - Improvements are of relativelyIpoor quality

[Periodic maintenance 59 km 56 km _

mid-term

Urban Transport Study Completed MS -Completed but little follow-upI_____________________________I___ _____________________ I due to m unidpal fiscal constraintsERR 17-50% 0.5%- 170% S Road vith low ERR was designed1

I lto include fl-over instead of at-radel_________l_________ I icrossing.

Water Supply - Semarang ($45.7 million SAR, $24.9 million actual). This component is ratedunsatisfactory, as seen in the table below:

Table 5. SAR vs Actual Implementation, Water Supply - Semarang

I O. .A__ AAIAJOI p _s"' ASJ*III~*I ItC D iA . mm Onts

Raise service levels (from 40%) 64% 45% UBridging program 360 Vs J 470 Vs SProvide 2000 Vs from Kelambu Barrage 2000 Vs J 500 Vs HUNew house connections 68,000 45,761 U

Innf A I I i - G A -

|_______________ _ I f or public taps.

Households beneitting 90,000 | 46,862 U|Reduction in LFW (from 46%) I 26% I 41% U, UfW study was canceled andl l _____________________ I converted to system expansion

mne bnuging prugrdin successfiuly increased water suppiy anu exceeueu i15 atu¶ waget 0f 360 us by

achieving 470 VIs at project end. This achievement was accomplished through the maintenance andrefurbishment of 14 of ihie existing 60 deepweIIs. 'w'iti ts own funds, t-e PDArivi was able to increase mneexisting treatment plant in Kali Garang by 340 Vs, while the upgrading of the Gajah Mungkur WTP wascancelled for lack of a secure source of raw water.

However, the rest of the Semarang water component did not achieve its objectives. Ine ufw reduction

-9-

program was cancelled, as there was no agreement on the proposed concept, and the fimds were utilized toexpand the distribution network. Delays of more than two years occurred on the construction of two 5,000 m

reservoirs, the Kelambu-Kudu raw water canal (42 km long), and the Kudu WTP (1,250 l/s). Some of thedelays were due to procurement issues (one case of misprocurement was declared). The raw water canalwas supposed to be 100% financed by GOI, but due to a shortage of funds, it was only partially completed.In 1999, the Bank agreed to completing the canal using loan funds and a labor-intensive constructionmethods. Problems with completing the canal, mainly due to incompetent contractors and weak managementcapacity at the proiect implementing agency level, contributed to delays in fully onerating the WTP. At Loanclosing, the Kudu WTP was completed and was undergoing testing, but it had not been commissioned. As aresult. the service level achieved was 45% instead of the nlanned 64%.

Eventuallv the Kelambu-Kudu canal mav hecome fullv onerational- hbt at cln-ing it was not at fill rArrvingcapacity, thus the Kudu WTP could not operate at capacity. Plans and a budget for emergency works torepair the rcanal were made available to seculre 750 I/s of raw water hy SeptPmhe.r 2002. Plans matchedwith financing, have been made to complete these works by December 2002. If the works are completed, thefill hbenefifts f these inve-tmPntq enn he renli7pd. Th.e PDAM P_t-imtPc thnt pvpnti2llv snme 80 000

additional house connections would be possible by 2005 if the system is rnning at capacity. Additionalfinting tn rnntimni mndePrnte ciwrvwvicinn nf thic -rrnmnPnt wuniilA 6 h hnpfit-inl

C(Ol ini ntitd tn invnlvi- the nrivate sprttr in a R i11t.-Inpernt.-T.Trnnfr (fl[TP scher.. for thA Kw T UITP

transmission, storage and major distribution facilities could not be materialized as the negotiations betweenGOI agencies anrd the private sectnr joint v'.nhire could not finally be concluded.

= 10 =

Water Supply - Surakarta ($10 million SAR, $7.39 million actual) Implementation of the water supplycomponent in Surakarta was satisfactorily completed.

Table 6. SAR vs Actual Implementation, Water Supply - Surakarta

I Indicators SAR Actual Rating/Commentsiaise service ievels (from 30%) 58S 58% *S

Construct 10 new deepwells 30k Vs each 30k Vs each SDistributlon system augmented, #km new 1 30 km 216 km S. New targets for pipe lenalh werepipes aI greed at mid-termNew house connecdons 14,000 21,418 wHSN"-. pu-Cc I--- 50- 0 N,h,ere*waSH:.epbl ea,

ofr public taps.Households benftting 18,000 16,000 S

|UFW reduced fhom 34% to: | 22% 1 30% ISFRR 1 12% 1 22% l

Serious implementation delays occurred because the former mayor of Surakarta took more than three yearsto decide on a water source for the project. Finally, tme option endorsed in the SAR-- that of i0 deep weiis- was chosen. The project financed the construction of the 10 deep wells at design capacity, along with amuch larger distrbDution networK of 216 Km Of pipes, enaDlimg a net positve increase of /,418 houseconnections over the SAR estimate. The new public taps were abandoned as demand for public tapsdiminished. Construction quality was good and the well yields have exceeded design capacity.

Drainage and Flood Control - Semarang ($23.7 million SAK, $23.5 million actual). This component israted satisfactory, as the works carried out have spared Semarang from frequent flooding. For many years,the city's northem area was prone to flooding due to land subsidence and seawater intrusion, combined withthe upstream flow. The works included construction of 20 km of primary drains, 53 km of secondary andtertiary drains, construction of two retention basins (polder) in two areas, one of which is the old-cityconservation area, rehabilitation of canals and rivers, and construction of a diversion channel. The retensionbasin systems were equipped with two pumping stations. The reduced inundation period has resulted inincreased land values, and has stimulated the local economy. These drainage works were to be part of alarger flood control scheme, whose master plan and feasibility study were prepared during projectimplementation. The studies were financed through the Bank's Technical Assistance Project for the Privateand Public Provision of Infrastructure (TAP4I-2, Ln. 3913-IND, now closed). The Govemment of Japanwas to have financed the works identified in the feasibility study, but in the end, they did not. Parts ofSemarang still flood during heavy rains, and a follow-on flood control project would be beneficial.

Drainage - Surakarta ($5 million SAR, $11.5 milion actual) This component satisfactorily achieved itsobjectives. The drainage works in Surakarta are about twice the scope of the program described in theSAR. A considerable number of new local drainage works were added to overcome local drainage problemsand bottlenecks. The project laid some 4.6 km of primary drains (from 3 km planned), and about 31 km ofsecondary and tertiary drains (against 17 km planned). It also included the construction of water gates inDemangan to protect the city from flooding. About 200 ha of the formerly flooded areas now remain dry asa result of these facilities.

Sewerage and Sanitation - Semarang ($12.2 million SAR, $0.88 million actual) This component isconsidered unsatisfactory. A summary of activities follows.

- jj -

Table 7. SAR vs Actual Implementation, Sewerage and Sanitation - Semarang

I Indicator SAR Actual IRatingCommentsConstruction of trunk and interceptor 14 km 0 NRsewers I_I

Construction of WTP 29 ha 0 NRPilot area with full sewerage and house 59 ha 0 NR1connecdionsGunsWruWcFun UlreaUnenL iy NrMCKs (community sanitary facilty) 272 131 U

[Credit scheme for private toilets and septic 4500 0 Utanks I IPilot off-site sanitation I not in original project 2 areas S

l,lesee,gewok -ecie i.n sLIe A n wee-a,cleda I-r,e fr,- ar,d u-sf_ sb:tyoL iiC, buwular't WOIfz Uc;b%.IUUU 111 Ulu WCIC-L wcc .Lk.dlluvl db LUC II1L&VL IUI, dilU UILLb IUdMUL)IlLY 01' a

sewerage system could not be established. The feasibility study proposed several scheme options that werernot suppor ted by UoJt-eLU11U,UlVC 4UlU LU 1iclUjly soundU 4LC1I I1UVieF. VWII, IL oUanIIIe UUVI-ous uiaL tLhe Ongiiia;

component would not go ahead, the city govenmment requested that the component be restructured to includea siiiall scale Sani'ULUion pilot SchIUiM, LU UC consiL[ULI-eU aL LWo LVUUUfils. I LIU PiUL projects were planned andimplemented in such a way that the community is responsibility for operation and maintenance. The pilotoperations are also consistent technically wi-th tie existing master plan for a fuli separate sewer system. Tneworks were satisfactory, particularly from the point of view of involvement of the local people. About 120families were benefited from the scneme. Althougn small in scale, the scheme has potential for replication inanother sites within the city area, subject to active participation of the local community and strongcommitment from the city govenmment

Sewerage and Sanitation - Surakarta (S7.3 miiiion SAR, $4.5 million actual). This component is ratedunsatisfactory.

Table 8. SAR vs Actual Implementation, Sewerage and Sanitation - Surakarta

nSubproject SAR I Actual I Rating/CommentsI Imnrvement nmora m-Dutdh svstem I I Comniated I U th pnIanned 10600 swAr

connection was not achieved, only5,430 connections were installed at

IRehab of Mojosongo sev,erage || Completed I On-site program, comprising a small credit 2300 304 Uschem.^ c for oonstruction of indvidual septictanksI nnqtnuin of MCKs and mrrmunal 200 1 111 U

I toilets l l__ _ _ l

In Surakarta, the sewerage scheme included (a) rehabilitation and expansion of the old Dutch sewer systemm the southern part of the city; and (b) rehabilitation of the existing sewerage system in Mojonsongo area,which included the rehabilitation and expansion of the existing sewer network serving low-income housing,and construction of a new wastewater treatment plant in Kedung Tungkuil. The central treatment plant(planned to be located in Demangan) to serve the southem scheme was cancelled because (a) cost increasesrendered the plant infeasible, and (b) the present quality of the effluent can still be dissolved naturally by thereceiving water body (Bengawan Solo river). However, the preliminary sedimentation tanks wereconstructed to treat the effluent before it is discharged to the river. The new interceptors, secondary sewers

- 12 -

and additional sewer connections have been added to ensure cost recovery. Overall, the scheme (both northand south) was designed to serve about 10,600 connections, but due to a lack of counterpart funds, only60% of the connections could be made by closing. Plans to complete the system with an additional 4,170sewer connections have been prepared and funds secured by the city government, for completion by the endof 2003, with central government assistance. Bank funding to supervise these activities would be beneficial.

Solid Waste - Semarang ($5.6 miliion SAR, MI miliion actuai). T nis component is rated satisfactory.Service levels improved from 60% to 76% compared to the SAR target of 80%. The old disposal site wasclosed and the new site was improved. These changes have led to an improved urban environment. Tne cityhas, however, neglected to apply sanitary landfill procedures in recent years, and the leachete treatment wasnot functioning. The city expects to improve its cost recovery for solid waste management by revising its taxcode, and the cost recovery ratios for the last FYs (2000 and 2001) have been very promising.

Solid Waste - Surakarta ($1.6 million SAR, $3.1 million actual). This component is rated unsatisfactory.In terms of money spent, the actual expenditures are nearly double the SAR plan. This component has alsoimproved the city environment, but the operation of solid waste final disposal is unsatisfactory. Servicelevels stagnated at 80%. The city also has shown a deterioration in cost recovery for solid waste, andalthough the budget for FY2001 increased, it did not make up for a bigger increase in O&M expenditures.As continually advised, closer coordination between the revenue collecting unit (Dispenda) and theoperational unit (city cleaning agency) must be pursued.

KIUP/MIP - Semarang ($3.1 million SAR, $3.6 million actual). Implementation of the KIP and MIPcomponents are both rated satisfactory. These two programs have significantly improved the selected slumareas in the city. At appraisal an estimated 197,000 poor were to benefit; at project close an estimated287,965 had been assisted. However, most KIP work has focused on road/footpath construction.Improvement of sanitation was not prioritized, and micro credit facility and assistance to small businesses asemphasized by TRIBINA (activities to promote physical, social and local economy generation) policy wasnot fully developed. Following a Bank recommendation, in the last two years, the implementation of KIP hasbeen modified to include the social and economic dimensions, including a micro-credit facility, in addition tonhvcirin npgmrading. (A fuller discussion of KIP evolution is found in the ICR for the Third JabotabekUrban Development Project.)

KIP/MIP - Surakarta ($2.8 and 2.2 million SAR, $2.3 and 0.32 million actual). Similar to experiencesin Semarang, the KTP and MTP rnmpnnents hbth are rated satisfactorvy The KTP component targeted 313700

poor in the SAR and reached some 165,500 at project close. However, a lot of the investments in KIP havebenefitted midilp inconmp arnin r2thPr thAn thP Inwect incnme omrnmn The. proiect waS unahle to Ineatei the

real poor community, and was too focused on road and drainage construction. The micro credit facility wasn.ot su*fficiently deeloped to eTncouage job rreation AAnd inrcme generation for the low.ct ine gr amsiDue to social riots in 1998, some of the markets (including those improved by the project) were burned

-o... A y-s later. at . reqetoft cf . rnten r.aretc was r-nc ,urtel wAith find ngtUVVRII. A X f .VV yta a -t., -a -f ~ p... -n --, .. asltf. ,a .a... -w. -. …- -

assistance from the central government.

Housing and Urban Renewal Semarang ($3.6 million SAR, $0.29 million actual). This component issduisWd.oLy. viui close cons U1aion11ULW4I uLwte.n %UI co1LLuMUL.Y, LUIC JUCa l vr.MAUTIC111.., uJe cons-uulLIL auu

NGOs, the program went very well from the beginning. The people participated in the site planning of thearea and tiiey were willing th re-arange Ueir houses to rie space for a footpaul, Wailaar, othUer pubLicfacilities. The people also took an active role in community solidwaste management and in landscaping thearea. Tne project, together with mie comiiunuity, has signiiuanuy irnpruveu Lue area pnysicanIy andu souialiy.

=13

Social interaction has improved, and the people are more motivatea, have improved seaf esteem and capacityto further develop their settlements. The Action Plan for Urban Renewal in Bandarhaijo, provided under theTA, was able to support the establishment of local regulations for spatial planning in the renewal area.However, the low-ost housing program in the same area was fully implemented. The project could notdemonstrate the revolving fund mechanism in the housing component, because the model for low-costhousing was cancelled. This initiative was continued under other program (COBUILD/UNDP/DutchGovernment).

Urban Renewal Surakarta ($2.2 million SAR, $0.32 million actual). Similarly, despite the absence ofhousing activities, the urban renewal component in Mojosongo, along the Anyar River, has considerablychanged the physical and social appearance of the area. Improvements to the existing housing along theriver, using the National Saving Bank (BTN) have proven very successful, with the assistance of localNGOs. On one side of the river, the slum area was completely renewed by re-arranging and reorganizing it,and bestowing formal land titles to residents. On the other side further north, the kampung improvementprocess employed introduced a new framework for interaction between local govemrnment agencies and thecommunity in improving the settlement. This involves an interactive forum created in this area. Facilitatorsfrom various NGOs were very helpful in establishing the new process. Mojosongo is a good example of astrong, community-based development project.

Historic Areas Conservation - Semarang. For a long time the old historic area of Semarang wasneglected. The area frequently flooded, the infrastructure deteriorated, and many businesses left the area.With project support, the Heritage Society inventoried the existing historic assets, and prepared a policyand strategy to revitalize the historic area. The people established a community organization that takes anactive role in shaping the framework for future development. Through a long participatory process, anoverall spatial plan was prepared including building guidelines and mechanisms to manage futuredevelopment. At closing, the draft spatial plan and the proposed institutional structure were ready to besubmitted to the City Council. With the improved infrastructure such as roads and the main drainagesystem, many businesses have returned and are generating new economic activity in the old area. The routineflooding has disappeared, thanks to the construction of the polder system and its pump station near therailway station.

One-Roof Permit System. This component was added in 2000 and has been considered successful indemonstrating the improvement of good governance by simplifying the permit system and centralizing thepermit issuance under one unit developed under the project. Nine types of pernits from five local agencies(i.e., tourism and culture, city planning and development, surface communication, park, industry and trade)are included in the system.On-line computer system was developed connecting the Unit office, the office ofcity planning and development and several kecamatans (subdistrict). Commitments from the mayor and theparticipating agencies are the mayor factor in making the system successful.

Snrakarta As the caital of the old Mataram Kingdon in the l8th centirvy Suralkarta has a ninqie urannstructure and many historic buildings. The Heritage Society in Surakarta is active in promoting urbanhe-ritage cnnservatinn Most of the ncrie still fniqus mainly on imprnving physical infiatcttre. Thprp isa local regulation on heritage conservation but it is not strongly enforced.

The project allocated funds for the rehabilitation of the historic cultural square (alun-alun) in front of theS-n'. - 1.~. on~lf.lOl cm- ,+nn eon +h. troA

4,^noi To-,on... ;ft ci-r,r- TJ--nn,a, -- h0 0 16 .,- rnln-+;n.Sunan ' s p a .ace, ar. ir.n .. &.r..f.t site i.,t2. v .. 0..!Jaoa.e cty s.. *e -.t Hwver beaV t,CfAO. rlilt o

of the illegal street vendors was difficult, and the component was cancelled.

Small traditional activities in Laweyan, a famous batik craft production center, were supported to revitalize

- 14-

the old areas, which suffered a downturn due to increased competition. Tne community wanied :to revitalizethe traditional batik craft focusing on specific products. They strengthened their organizations and localeconomic activities, and improved the roads and footpaths, preserved the old buiidings, and tried to promotecommunity-based tourism. These activities are still at an early phase and will need more time to come tofruition.

Many Javanese cities have strong historical and traditional flavors. Strengthening and revitaiizing thecultural centers will significantly help sustain economic and tourism development, and more importantlyprovide a strong basis for commitment and self-esteem building. SSUDP tried to introduce the appropriateframeworks, but difficulties persist. It would be useful if the Bank could provide further technicalassistance to strengthen the movement, as conservation and revitalization of urban heritage will spurtourism, promote job creation, and strengthen socially and culturally important cities.

Overall the project components were appropriate for achieving the objectives. Ample perfornanceindicators were developed to judge progress toward the achievement of objectives.

4.3 Net Present Value/Economic rate of return:

^M -,l_- ^IA_T^TDO/TDn - A _ A l.A AAA_ A_ ---111w MbUILb Ul U1S r r1 jI -. aLLIauu11 d1s DIIUWU Ul r1iA J.

Urbaln Roads. lulle of u,z 17 roa suu b yloJeUCts hav EsVr rr is,e 111 arC Sll Ot s,...,atesL. F-ive hadve E

lower than the appraisal estimates for reasons of lower-than-expected traffic volume and higher investmnentcosts due to changes in design (e.g., cor uuc io1 of a fly-over instead of an at-grade crossing because of anew GOI regulation). The bypass (arterial ring) road subprojects in both Semarang and Surakarta have notachieved the expected ERR set a ppraisal. Aultough uotu ruads were con-,p:eted, uiey are not yet fullyfunctional because the road links being financed by GOI and the SURIP are not yet completed. Once theselinks are completed, the bypass su'oprojects built under this project are expected to achieve satisfactoryERRs.

Water Supply. The financial rates of return for the two subprojects in Semarang and Surakarta werere-estimated (see Section 4.4). No economic analysis was done, as in the SARK

Sewerage and Sanitation. No economic evaluation was made in the SAK for this component, for eitherSemarang or Surakarta. In Semarang, the cancellation of the original plan for an expanded sewer system inthe city in favor of a small-scale pilot sanitation scheme (for replication purposes) in two neighborhoodsdoes not necessitate an EIRR calculation. Based on actual accomplishments, however, the pilot subprojectwas able to install 125 house connections. The on-site sanitation component was able to provide 131 MCKs(more than the 80 MCKs targeted in the revised plan). The environmental and health impact of this pilotscheme could be significant to those who have directly benefitted.

Drainage and Flood Control. At project appraisal, the economic feasibility of the drainage subprojectswas not measured in terms of an EIRR but on the basis of the minimum land value increase that wouldrecover both capital investments and O&M costs. In the re-evaluation, EIRR was computed for eachsubproject using actual land value increases as the sole economic benefit considered. From the re-evaluation,five of the seven subprojects have EIRRs exceeding 50%. These subprojects have effectively reducedflooding and inundation in areas where the drainage canals have been constructed. Kali Tengang and KaliBangger in Semarang are. the only subprojects that did not achieve an EIRR greater than 50%. KaliTenggang's EIRR is 11%. Because of land acquisition problems and lack of GOI counterpart funds, thesubproject scope was changed from the original plan of constructing a primary drainage canal to improving

- 15 -

secondary canals. As such, the impact of this particular subproject was not as significant as originallyintended.

Solid Waste. For the solid waste management subprojects, a financial cost-recovery analysis was preparedinstead of an EIRR or FIRR calculation. (See discussion in Section 4.4).

4.4 Financial rate of return:Water Supply.Semarang. At Loan closing, PDAM Kota Semarang was having difficulty servicing the project loan. Debtservice arrears have reached Rp 67 billion. The Kudu WTP cannot yet operate at its full capacity of 1,250I/s due to an insufficient flow of raw water from the Kelambu-Kudu Canal. Consumption per connectionwas lower than estimated at appraisal because of the water shortage resulting from the late completion of thetreatment plant. Installation of new connections slowed down between 1998 - 2001 because of low watersupply. The PDAM even had to suspend accepting applications for some time, because monthlyconsumption of existing consumers was already declining. This was made worse by a high Ufw rate of 37%at the end of the project. The PDAM was not spared from the effects of the economic crisis that started inmid 1997. Prices of chemicals rose 234% in 1998. Power costs climbed between 23% to 45% between1997 - 2001. Tariff increases could not be implemented as required. The PDAM became unable to pay debtservice requirements on time starting in 2001. Its debt service coverage ratio dipped to 0.77. Grossrevenues could not cover operating expenses and depreciation, as required under the financial covenants. Ontop of these, the PDAM could not refuse the local government when asked to remit advance payment ofdividends. It was only towards the end of the project, when there was a change in the mayor, that thispractice stopped.

For the PDAM to be financially stable, it needs to have its repayments of the project loan rescheduled. ThePDAM has to implement its commnitment to increase tariffs 70% in April 2000, followed by a 60% increasein January 2004, and a 20% increase every other year thereafter. (Recent information showed that tariffincrease of 272% will be materialized in June 2002). It must also catch up with installing 80,000 newconnections by 2005 to make use of the water supplied by the new WTP. With these commitments,projections indicate that the PDAM's operations should be sustainable. The resulting FIRR of 15% wouldbe an improvement over he 13% at appraisal. Please see tables in Annex 3 for a comparison of keyfinancial indicators estimated at appraisal vs. actual figures for the years 1994 to 2002, and a comparisonof appraisal vs. projections for years 2003 to 2010.

Surakarta. At closing, PDAM Surakarta was also having difficulties servicing its project loan. Debtservice nrrears amounted to Rn 14 hillion= The delay in the completion of the producrtion wells neg'ativelvaffected the growth of new connections as well as the average monthly consumption by consumers. Tariffincreases were n^t implemented as . renuiri-ed. UfW was higher than estimatedatnapprisal. Grss re-venuescould cover operating expenses and depreciation, but not when interest on loans was added. The debtSeDTViC COVeP'- T ratrio which shAotid beno less ccahn I times, was att lnpest hptw n !999-200!ranging from 0.41 to 0.71.

The PDAM participated in the ASEM-financed PDAM Rescue Program in year 2002, where a financialrecovery atilton p.an waa. -Ae . Ut4VV.4A Dn A ASA -- A a + 51 -W a., -l. -a.ls;vuvssF,y auu J wa G0w-uv s wvs alsw UA Is M.U -Vi *WVS b V V 11 =sWs VV9l

Ministry of Finance, to reschedule the project loan. The PDAM has committed to implementing a 100%tainrei ubL;lV uy yea.-u.ud ar.u Lo akzela.-At. u1g n-.uirg m .arcu vcr.nLectios. vv iui uio . wininr.veL., uie

PDAM can be expected to have continuous net income over the next five years and a debt service coverageratio -uiai is a;-ways hgiluhr Uii I.3. Al, UeroUsieUIr,rg *ese, luh rtivi s rirT. Was esLimiU W UV be22%O,

a big improvement from the estimate at appraisal of only 12%. See tables in Annex 3 for the comparison

- 16 -

ol key Lid..lu,1i I11ULCaLULO erUiLAteG aL appiaLDai Vs. acutu 1 iruICS iLu lu yeUaILz I 7t LU 20, adiu

comparison of appraisal vs. projections for years 2003 to 2010.

Solid Waste Management.

Semarang In Semarang, revenue from solid waste management services in FY 1997/98 and FY 1998/99exceeded costs. Howeve-, dring thae succeeidmng t,uors t rever.ues that -vere gepr.erated prei slgtly,

below costs, resulting in a cost recovery rate of 98% and 83%, respectively. For the first six months of FY2001, cost recovery was 179%, as a result of appr-opriatme chan.ges in the ta code.

Table 9. Solid Waste Cost Rernvery; Semarang in Rn Millinn

I 1 199687 1 1997898 1 199889 1 199980 1 2000 1 Jun-01Cost Recovery 96% 115% 110% 98% 83% 179%Revenues 2,124 2,602 2,622 2,733 2,792 2,836

| ditures I I I I 1.OU1 1

Surakarta Cost recovery for Surakarta in FY 1996/97 was 106%. But from FY 1997/98 to FY 2000,reveniues iwe.re nnt ahlp tn mppt thp. ifiI ncstc nf the csr.vAcss rpcslting in cosct rcrverp.pc betvupeen

6 7 0/% and

99%. As of June 2001, cost recovery was 64%.

Table 10. Solid Waste Cost Recovery, Surakarta, in Rp Million

1 1996197 1 199798 1 1998X9 1 19990 2000 Jun-01Cost Recovery 106% 1 99% r 99% 1 93% T 67% 1 64%Revenues 1,172 1,159 1,127 1,128 849 617Direct 1.103 1,173 1,136 1,213 1,270 964

4.5 Institutional development impact:The project's second objective was to promote stronger, more autonomous, and financially more independentmunicipal govenmments. In addressing this objective in terms of institutional development, each municipalgovernment established project management units (PMUs) and project implementation units (PIUs) in bothcities with a provincial project management unit (PPMU) and a provincial project management office(PPMO) for coordination purposes. Although the latter management tools were not as effective as those atthe city level, they provided excellent support early in implementation, but receded towards completion. Theestablishment of these management units provided significant contributions in making effective use of humanand financial resources which could be used to optimize the resources in managing similar projects in thefuture.

With regard to post project implementation, the project has also provided guidance and assistance inimproving the capacity of local agencies to manage and operate the completed facilities. The most prominentexample is the establishment of a unit within PDAM Surakarta to be responsible for managing and operatingthe sewerage system.When the Loan was closed, the partial completion of the raw water canal for the city of Semarang (KelambuKudu canal) was not properly followed up with the establishment of a more permanent agency in charge ofmaintaining the canal. Only three months after (in December 2001); a transitional unit was formed and fimldssecured by the Govemor of Central Java Province, to operate and maintain the canal. This is the mostreGnni7nhle qhortcominr nf the initimtionnl fievelonment nrnres in the nrmiect that will qffect the

- 17 -

sustainability of raw water supply to the city. The government's longer-term plan to establish anindependent commercially based government-owned enterprise for water resources management in the area,and to include the management of the canal, could ensure long-term sustainaibility of the system.

5. Major Factors Affecting implementation and Outcome

5.1 Factors outside the control ofgovernment or implementing agency:

Three factors outside the control of government or the implementing agencies occurred: (a) the economiccrisis of 1997/98, (b) the political riots in Surakarta in 1998, and (c) the poor performance of a number ofcontractors.

Economic Crisis. The economic crisis of 1997/98 and the political turmoil in 1998 greatly affected theproject's pace of imnplementation. The significant depreciation of the Rupiah as a result of the crisis not onlyincreased the total cost of the project (in Rupiah terms) but also severely constrained the ability of both thecentral government and the two city governments to provide counterpart funding. The economic downturnalso severely affected local economic activity, leading to declines in tax revenues and making the two citygovermnents unable to achieve their fiscal revenue targets after the crisis hit

The crisis also had a negative impact on the PDAMs. Operating costs rose sharply: (a) chemical costs roseas much as four-fold; (b) power rates went up sharply; and (c) maintenance material costs, as well as otheroperating costs (including staff salaries) went up sharply due to hyper-inflation (78% in 1998). At the sametime, the PDAMs were unable to increase water tariffs for nolitical reasons. They were unable to tackleleakages, replace faulty meters or undertake minor capital expenditures to distribute water to customersseeking new connections. Therefore; it is small wonder that the two PDAMs had difficulty complving withfinancial covenants and did not make great strides in reducing UfW.

Civil Disturbances. In 1998, political riots broke out in Surakarta. As a result, the main building of cityhail the central market and a few other markets that had heen imnr.ved tnder the rnmiert'q MTTP rnmnnnentwere bumed down, causing considerable implementation delays. The city requested Bank financing torebhuild the facilities- hilt it did not fiulfill the eligihilitv riterin Thp main markpt nhtained rentrnlgovernment financing and is being re-built.

Poor performance of contractors is also a factor outside government control. Delays in the completion ofthie Keirr,bu-rludul canalI were datl ue to-nn pOO csnctri^,tn .q *lit, Adespite the ef.frts of the or. -or to

rehabilitate and repair parts of the canal. Poor consultant supervision for construction of the WTP inSemonr. nM011ltoA in -nar nmtoltw, nnetrt,nn A l-n tho onn.ooe rnn;ln r .a Aoo;nA A tho

Surakarta Northern Ring Road misjudged the soil conditions, thus necessiting a re-alignment of the road.Poo ergi.er., deig is alot C-n for i rpl"+-44-- prblm- -ith 'Ue Bu-lu -u_ s++: On.

5.2 F,ctonre generallu cu,hiort to cnvn.rnm,.rnt cont.rno

Three factors generally subject to central government control had an negative effect on project

i1elhilplfdPflt-alffla

Qelcon of Q_L_fiad and Experenced Conl*on~ c T.h lor.g,rnnout cns t&n.t selectnrocess

resulted in hiring lower quality consulting services, which in tur, resulted in poor quality designs and

during the early years caused delays in project implementation. The counterpart funding problem becarne

acute at times during the height of the crisis from 1998-2000, during a period of intensive construction forUJ. roetLtee bde- uoc Otios f.-on^.- vIV^.Ue cwnrVV gove.-.^ M u^. Q11 r,.artLt co Vr' for key ork,

goods and services could not be let, and payments for ongoing contracts were delayed. Added to thisprob Uem waS the U1flbiliy VI Ul g rulliUa rUV1UuL1IL LU fJLUVIUV, ULiI'.dI1IL IUIUU IVI LIC LUOU UULIUI of 0u

Kelambu - Kudu canal, causing completion delays.

Passing of Key Legislation. The new Laws No. 22 and 25/1999 on decentralization and local autonomytnat were promulgated during the crisis in conjuncton with several changes in the cent-al guvem-nenistructure caused confusion among local governments, and negatively affected the project. The enactment ofLaw No i8ii997 on tax reform considerably reduced the taxes and fees that cities could collect, iuere'oymaking it extremely difficult for the cities to improve revenues. Reduced revenues adversely affected cities'capacity to generate counterpart funcing for the project

5.3 ractors generally subject to implementing agency conr w:

Mayoral Indecision. Tn Sravreta fi-nderc in n nfthp m ayor rparnrAing the wntpr soienrrP ci^nupA with the

lack of local participation, led to a two-year delay in the implementation of that city's water component, andled to the n.isition of unneeded transmriceinn pipe.o

Juk_. _l_ ovnaar,, aF ;rauunax rres; v FISA inn otewr-gTAer -1--r-;.ct not oonlly delaed,

implementation of the component but also led to the eventual cancellation of the original plan and a changeILI cUjJ LV a srIU.'-sc.ale pJIIUL sa-U1LLflU sIe.e

IYSprFuiv-Urniii WaS Udcla.-ed *LWo L*UIVe (sixF pakLages, one uir HIma.iuai w a'.er anu a Oui iii 3uiazu La

roads) and resulted in cancellations amounting to US$5.01 million. Misprocurement and the subsequentnecessity of re-tendering u'I worKs relatLued *LoUUI ule Se....- 5 iev- e i"r ar.d 'w I r ,e UUV LUr .n4ayo. 1ia

intervention, delayed implementation of the Semarang water component for over two years. Misprocurementin the urban roads componeni for Surakarka also caused delays. The separation of larger o-k packages in.tosmaller ones may have resulted in lower quality tenders, and may have contributed to the poor quality ofwork in some of the subprojects.

Management Effectiveness of the PDAMis. Failure of the two PDAMts to implement agreed covenants ontariff rate increases seriously jeopardized the financial condition of both enterprises, even if the reason forSemarang's failure is grounded in its inability to deliver tne expected treated water from the Kudu piant. 1-necancellation of the latter's UfW program also contributed to its poor revenue performance.

Beneficiary Participation. Lack of beneficiary participation in the spring source development forSurakart, and in prepauaion of Semaurag sewerage cor.ponen s delayed prUject completion. OLn th.e otherhand, active community participation in KIP in both cities, and in the conservation of the old city section ofSemarang, resulted in 'mbeter project im-plementation.

5.4 J5n(*nuyGcing:

The nriinal prnject cost was US$297-3 million (Rn. 625.7 billion) based on October 1993 prices. TheBank's Loan was for US$174 million equivalent. The central government's contribution was US$41.8million; Cepntrl Java prnvincia! gnvemrnment'r cnntrihiitinn was US3= million; the local govemments'contributions amounted to US$50.9 million and the PDAMs' contribution was US$27.5 million. Interestah-n n pnntchi fnn was ,etiAm^tprd at 52.59 millinn

19-

The actual project cost was about US$173.7 million or about 58% of the appraisal estimate. A total ofUS$1D I 15.7 I oIILIn Was .diLLLUUIVU IVIIU Le Ba411.' LoVanI. LJUIS$4.t Iu'LIIJII Was I1'edL1U UU,gILr

implementation and another US$16.7 million remained undisbursed at the end of the project. Project costvUilgs rebLULtUL IoUII UIe UdpjrecIatUIo of1 Ue RupWL, RUp1six cases of. miLplULU-I. lu a rd cnceill,Ii; VI Ule.

large sewerage component in Semarang. Financing percentages for works (and equipment) were increasedfor FY98 and FY99 to alle-viate co-unierpart fUnding constats. T Lu cbl 1 date was e-xtended thretimes totaling two years in order to provide extra time to complete some of the larger, more complexsuDprojects. See Annex 2 for detailed information on project costs and financing.

6. Sustainabifity

6.1 Rationale for sustainability rating:

Except for roads, project sustainability for most of the project components is unlikely. Some componentsmay have difficulty in ensuring sustainability, as discussed below. One of the key components for aproject's sustainability is the commitment of the concerned local government to ensure allocation ofsufficient O&M costs under its annual budget. Tnis applies to water supply and drainage components. inthis respect, sufficiently experienced and competent staff exist to maintain project-assisted facilities.However, witn low priority given by local govemnment, only limited budgets will likely be secured forO&M.

For water supply, the financial situation of the PDAM will be a condition for ensuring sufficient budget forrunning the system efficiently and sustainably.

The sustainabiiity of the community-based components such as KIP, urban renewal and the pilot sanitationscheme is likely, as demonstrated by the active participation of the beneficiaries since preparation. From alarger perspective, the decentralization process that is now underway, coupled with the decreasing role ofcentral government and lack of future grant funding for urban infrastructure, including water supply, willbe factors conducive to sustainability. The other conducive factors for sustainability are greater democracyat the local level, with the city council (DPRD) and mayor being elected and accountable, and greatertransparency and openness.

Semarang Water Supply. Ensuring a continuous and sufficient supply of bulk raw water for water supplyin Semarang will require serious attention with regard to sustainability. With the absence of a formalagreement between the PDAM and the bulk raw water supplier (Jratunseluna Project), the sustainability ofsupplying raw water is questionable, and it places the Semarang water system at high risk. (JratunselunaProject is responsible for the construction of water resources facilities, under the Provincial Public WorksDepartment. The project area covers the following river basins: Jragung, Tuntang, Serang, Lusi andJuana). A study for regional water supply operation in Semarang and surrounding areas, with possibleprivate financing, was conducted for Semarang. The study was financed by TAP4I-2, but after it wascompleted, no satisfactory follow up was taken by the provincial as well as city govenmment.

Surakarta Sewerage. The agreement reached during appraisal was that PDAM Surakarta will beresponsible for operating the sewerage scheme. With the limited number of sewer connections at present,there is a financial risk that the PDAM has to bear, which will affect its financial condition. This matter ofthe necessity of subsidies provided by the central govermment for annual O&M costs is a Bank concem forat least the furst two years of operations.

6.2 Transition arrangement to regular operations:

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All project components were implemented by the agency ultimately responsible for operation andmanagment. The transition arrangement to regular operations is not an issue.

7. Bank and Borrower Performance

Bank7.1 Lending:

The Bank's performance in project identification was satisfactory. The project was prepared at a timewii~ir;,U� uIV, ulv51Lamu aJJLu4a Vil ULUU41 LIL IMUU%WULV. USVVIUjJIIIVIIL W3 ALIPULy jIWaIoU Hi Ul

Government's policy agenda, and when the inter-mninisterial coordination team (TKPP and [MG) stillexisted. 'LlIe projDct waSb conslbis'Len-t -w-iuI GvWI's deVVCloprrserst bstLrategIlprlor iULU ar,d wiu. M Br-'CUrLtU

Assistance Strategy. Unfortunately, however, economic and sector work for the water supply andsanitation subsectors was not available. This nmeant the project did not ha-ve a solid sector policyframework agreed with GOI for reference during implementation.

The Bank's performance in preparation was also satisfactory. The project was prepared over a period ofsix years with the active involvement of the two municipai governments concerned. Of tne eightpreparation missions on record, four of them had five or more mission members, and were well roundedwith expertise in engineering, financial analysis, environmental expertise, economics, communitydevelopment, and urban planning. The environmental and community development experts ensuredcompliance with Bank safeguard policies concerning the environrnent and involuntary resettlenentrespectively.

The project preparation process included extensive consultations and reviews, particularly during the finalstages of preparation. The entire process was guided by !MG and endorsed by Bappenas, the NationalDevelopment Planning Agency. The quality of preparation was sufficient to allow for immediateimplementation of most components.

The Bank's performance in appraisal was satisfactory. The mission was well staffed with eight experts insanitary and municipal engineering, urban transport, institutional expertise, economics, land management,environment, and financial analysis. During appraisal, particular attention was given to the readiness ofthe project for implementation. Considering project design and complexity, the risks were identified andmitigated. Safeguard policies addressed. The environmental assessment was made public and distributed tothe EDs before appraisal. A detailed resettlement plan involving NGOs, public meetings and consultationswith affected people, as well as a socio-economc survey of the population, were prepared as part of theenvironmental assessment process.

Assurances for completing the Kelambu-Kudu canal under GOI financing were given by GOI duringappraisal. However, with the canal now completed unsatisfactorily, the appraisal mission should haverequired a strong covenant about finishing the canal on time with secured funding, or made it a condition ofdisbursement for associated Bank-funded works.

7.2 Supervision:

Bank performance during supervision was satisfactory. The supervision missions were carried out at leastt-ice a yesU -UUU-gILU-UL UIVLLrIVI.IIaIL4onII pJIiLUU. LU pIrlVUUIII, UI4aL adVi Wui idnifiedLI adIIU

addressed, and loan covenants were repeatedly enforced. This was particularly true when Bank guidelines

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on procurement were violated which ultimately led to declarations of misprocurement on some contractpackages. The skiil mix and adequacy of tne mission members' skiils were maintained, and independentconsultants to provide advice when needed. Reporting was regular and sufficiently detailed. Ratings werereasonabie; however, more realism in the ratings of the water and sanitation components would have beendesirable.

In the last two years of the project, supervision was handed over to a national staff with a long history ofinvolvement in the project. This move allowed for on-the-spot, vigilant supervision of the project, andparticularly in supervising the completion of Kudu water treatment plant, Kelambu-Kudu canal andsewerage works in Surakarta. The staff member, a sanitary engineer, was effective in speeding up projectprogress, but even so, these works remained incomplete due to factors beyond the Bank's control. TheBank provided high quality advice and demonstrated ample flexibility in addressing the problems that arosedue to numerous changes to the project scope. Several examples of this are: (a) accepting a pilot schemewhen the Semarang sanitation component was cancelled, (b) introducing padat karya works to assist theunemployed; (c) increasing Bank disbursement levels to accommodate the lack of counterpart funds duringthe height of the economic crisis; (d) introducing the KIP micro-credit scheme; and (e) implementing theone-roof perrnit system in Semarang.

7.3 Overall Bank performance:

The Bank's overall performance is rating satisfactory.

Borrower7.4 Preparation:

During preparation, the borrower's performance was satisfactory. SSUDP was the second generation ofintegrated approach for urban development, where it dealt with metropolitan and large cities. TheGovernment indicated that preparing large project components in large cities required a different approachas compared to preparing projects for smaller cities such as in the East Java Bali Urban DevelopmentProject (EJB; Ln. 3304-IND) or the Sulawesi Irian Jaya Urban Development Project (Suliria,Ln.3340-IND) both of which had a much greater number (more than 40 in the case of EJB) of small cities.The nronosals nut forward by GOI for appraisal were well-founded. coherent and consistent, and Dresent abalanced investment program, together with the necessary institutional and financial support actions. Withthe exception of lack of commni ty particination in some nroject comnonents (Surakarta sewerage andwater supply), all project components were thoroughly prepared, and the government's project managementstnrctulre was cle:irlv outlined

7.5 Government implementation performance:

The Borrower's performance m implementation was also satisfactory. Borrower's commitment to projectimplementation was high, as expressed in regular participation on the supervision mission and candidfollow up. However, the borrower's performance would have significantly improved if (a) strongcommitment from the mayors of both cities could be demostrated to implement the project; (b) selection ofconsultants could be made properly; and (c) timely provision of counterpart funds could be made available.The newly promulgated Laws on decentralization and tax reform, coupled with changes in the governmentstructure, have negatively affected the government performance. Another shortcoming is the failure of GOIto provide sufficient budget to complete the raw water canal to Semarang.

7.6 Implementing Agency:

- 22 -

The project had one executing agency, the Ministry of Setutement and Regional lnfastructure (MSRI), andthree implementing agencies: Central Java provincial government, Semarang and Surakarta municipalgovernments and their PDAMs.

MSRI's performance was satisfactory. Being the executing agency, MSRI was not involved inimplementation, but provided general policy and guidance. However, the Ministry was responsible fortechnical assistance (TA) and several studies, which were implemented for the benefit of both cities. Thestudies carried out under MSRI were well completed but there has been no significant follow-up onrecommendations. The central ministries continually participated in the Bank's supervision mission andwere actively involved in the discussions.

Central Java province's performance was satisfactory. It provided coordination and support, and alsoimplemented project components under its responsibility (national roads, sewerage, drainage). TheProvincial Project Management Office (PPMO) was heavily involved during the early years of projectimplementation and gradually receded toward the project end, when the PMU/PMO offices were takinghigher role.

Municipal Governments. The Project Management Office (PMO) and PMU in each municipality wereresponsible for project coordination, whereas the Project Implementation Units were responsible for thequality of project implementation of its subprojects, where PDAM under the ostensibly autonomous watercompany (PDAM) is one of the PIU.

The performance of these implementing agencies varied over implementation period. During start-up,delays occurred in the design and mobilization of the TAs, but these delays were overcome over time.During the implementation period, the performance of city governments would have been better if themayors of both cities had avoided being involved in the day-to-day operation of the proiect, including theprocurement process (in Semarang) and decision on the water source (in Surakarta). Both casestremendously delayed project implementation. It is important to say, however, that project management.particularly in Semarang, worked effectively and efficiently. Towards the end of project period (with twoyears extension). after the new mayors took office, the situation greatly improved. The new players haveshown strong commnitment to rectify the situation, and to complete the project satisfactorily. With thisvaried performance, the rating of implementing agencies is satisfactory.

PDAMs. Similarly, the performance of its PDAM. as one of the PIUs, varied over inplemnentation period.Both the PDAMs, if financially healthy, have the obligation to pay dividends to the municipalities. Therewere incidents that PDAMs paid dividends, and were asked not to do so. as it violated the loan covenantsPDAM Surakarta has had problems with the mayor's indecision on its water source, but was performningsatisfactorily towards the end of the nroiect. PDAM Semarang has performed ponrly mnce the projectcommenced. The PDAM's one-sided decision to involve the private sector in the investment of WTP duringthe early vears of the nroiect, and nrocnrement isiueq dlirinn imnlementatinn t1laPvA the p nrojet fnrseveral years. The issues were lately resolved, but the performance of PDAM Semarang remained1mstisfctor.tv 5av qnmPthinh about whprie, theyv utnd an tnriff inorine g T TlFW., nnnliinnpp w ,tlhcovenants, audits.

7.7 Overall Borrower performance:

The Borrower's overall performance was satisfactory. Most obstacles during implementation were able to

- 23 -

ue resolvdU towards uhe e-1,nUd fI uhe jrJVI., UUL UdepI'e U'UrCeVaU Ln ucloir. VAetIZnsUion, a fIw aL=Me UIIjJUILaL

works remain to be caried out. Central government largely delegated implementation to municipalgovenm,ents. Closer rnorituoling aui fUoU-W-up co-uuU a-ve rsu:vedu ni-UsL pr:uuim,^s ricu d;huu ua-ve avoiueu

completion delays.

8. Lessons Learn.ed

Tne project's integrated approach to urban infrastructure development for iarge cities offers a numDer ofnoteworthy lessons for the sector and country.

Lesson One: The integrated approach is not always appropriate for large cities, and the absence of afirm sector policy framework can inhibit success.

Water and sanitation components were traditionaily included in IUIJPs. However, the lUliJPs designedbefore SSUDP included relatively simple subprojects (usually rehabilitation with small-scale expansion),where the lack of policy direction in the sector did not seriously inhibit imnplementation. SSUDP coveredwater and sanitation/sewerage subprojects that required significant policy direction, especially with regardto securing raw water supply, tariff-setting, UfW reduction, and community consultation. In June 2001,the Bank's Operations Evaluation Department (OED) carried out a performance audit covering three watersupply and sanitation projects included in SSUDP, the Second Jabotabek Urban Development Project (Ln.3219-IND) and the Water Supply and Sanitation for Low Income Communities Project (Ln. 3629-IND).As the audit focused exclusively on the water supply, sanitation and health education aspects of the threeprojects, its recommendations cover those components exclusively. The Bank endorses OED'srecommendation that large water and sanitation components be linked to policy reform. The Bank alsoendorses OED's recommendation that sustainable water supply and sanitation wastewater services requiresound water resources management at the project level.

In June 2001 the ICR (Report no. 22214-IND) for the Surabaya Urban Development Project (Ln.3726-IND) was completed. (Surabaya is Indonesia's second largest city with more than one millioninhabitants.) The project was rated highly unsatisfactory, mainly because of very substantial butincomplete project components including water supply. Experiences from the Surabaya Project and theSemarang Surakarta project both support the importance of having policy direction for major infrastructurecomponents in large cities.

In support of OED recommendations, and from the experience with the Surabaya and SemarangSurakarta Urban Development Projects, the first lesson learned is that when considering using theintegrated urban approach, it is necessary to take into account the size of the city (especially one millioninhabitants or more), especially in addressing sectors that do not have a clear policy framework.

Lesson Two: Quality of Leadership of the Mayor

The new paradigm of democracy under the new govemment, along with decentralized and autonomouslocal government and decreased role of central government, coupled with the unforeseen 1997/98 crisis ledto tremendous delays, some of which can be attributed to the quality of leadership of the mayor/head oflocal/municipal government. Careful consideration of the quality of leadership of the mayor should be aprerequisite in preparing a new project.

Delays due to procurement problems in Semarang and indecision regarding a water source for Surakarta

-24 -

both indicate that high caliber leadership at the head of a municipal government is of prime importance forsuccessful implementation. Good quality leadership is not so much indicated by intelligence or knowledge;rather quality leadership is linked to an individual's proper use of authority and commitment to projectobjectives. The support provided by the project management staff may be excellent, but it cannot make upfor poor quality leadership at the top. Project progress significantly improved when the new mayors,committed to the success of the project, were in place.

The second lesson learned is thatfor decentralized projects, it is important to have a local governmenthead who is committed to the project and who uses his/her authority for the greatest benefit of thepeople. Further, the same principle applies to the head of the coordinating and implementing units andthe chairperson of important positions in project implementation (project managers, procurementcommittees).

9. Partner Comments

(a) Borrower/implementing agency:T.he borower's comm..en,ts on t-he Br's TP as r. i letter rn ! T/256 -f J.e. 2002 fror. theMinistry of Settlement and Regional Infrastructure, will appear in full in the final gray cover ICR.

SSUDP-Com-scan-let.d,

i a 7| MINISTRY OF SETTLEMENT AND REGIONAL INFRASTRUCTURES7 I1t C&D'"ECTOR^T C 'NPRAL OF URBAN AND RURAL DEVELoPMeNr

PMI. ,,0 38 0.b,r0 , 3)Io. SdaI?) 12110, lob. t.5h11 7f1ns5, P.O. f,7*61jS

Our Rc£No: HL.02.0LDKI256Jaata, June 2002

Mr. lCeshav VarmaDirector Urban Dcveloprnct Sector UnitEast Asia and Pasific Region.L5 a r ±1 Sre .wWashington 2C 20433USA

Subject : Loan 3749-ID ,SemurangSuraaraa Dvdopmnt Project - Fp-atl rLno8nIaLa*n Canml&eimo Rkmo,

Dear Mr.Varma,Referring to your lettr of June 12, 2002, we herewith submit our response to the DraB FinaJICR ofthe World Bank which we have received.

In principle. our comment is the same 'with the onc we have outlired in our Ictter No.02.02.DK 35, dsteed March 28. 2002 whir, we h. e,hwM h.f,-e (sY

we feel it necessary to add the following comment:

I. Waowr Supply Searng (pg i. poragraph: 2.3.4)

The main origiLal progmm of Semarang Water Supply actually has bcen corpleted.However, raw water channel of Kiambu- Kudu which should be outside the SSUDP projectand me actually under the responsibality of 001 to compJy with, has finally become part of

,hk' SS pjLM P - Ta labor intensive pattern and implemented under supervision the Bank and 0orunfomruately until now the channel are not fumctionings epected.To overcome the problem, a managemenr body of Kiambu - Kudu Channel has already:stablished under Govemoor Decree No.: 332001 (see attachment).This raw water problem are now taken into the altertion of 001 so as to _naraatee E rawwater sapply to the VWP Kudu.

2. S,C.-ra fe:1.JS;;c.JUo'nww, 5,g . e-- 7. ,5lQ 2;

Semarang Sewerage System Program was agrced to be cancelled at the Mid Term Reviewand was replaced by Sewerage System Pilot Project which has becn implemented and wasevaluared as being successful. It is true that from the original progam point of view, thepLrnnect uwas nnt -ncscessuL- but on the other hans lonking al them from *he r ei d rnnversion, the project has been successfuL

3. Sewerage Sys)m of Swakarra City. (page 1;, parograph 3J

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System Improvement Program at the closing date has not reached the aF*. taraea of 10,600units. However. an action plan financcd by both local and central 2overnment has beenagred so as to reach on the year 2003 targeted house connccdon.

4. Solid Wafte 5urakm'ta (page i4, puragraph 3)

Accordine to the BME & ICR Consultants investieation. there has been mie in the 7ewdata of the existing solid waste service of the PJISAPR which quoted 80%. The corect levelof the service before the SSUDP Project should have been 67% and after thc implementationof SSuDP it improved to 8;%, close to 90, fc rget 01 of the S.R. J ne=re, aittough metarget according to SAR has not bcen reached, neverthess, sinificam service improvementhas been materialized.

Based on uhu ebovc cnnsidera-ions, our evaluation the impiementation of SSUDP wassatisfactory and gencrally achicvcd tc objectives or the project

We taks for your cooperation.With kind regards.

s'z 7 relyyour,

Director General of Urban and Rural Developmcnt

CC:lIvfr.Mark Baird, Country Director, World Bank Ofice , Jak'ar2.Mr.Ri.yana Suklana, Task Te. Leadcr SStU3P: Wb,d,d4 03.Director of Urban and Rural DeveIoDme=t, Rappenas4.Director Settlement and Vrban Development, BappaeaS.Director KfAhetern W,,4 MOF

6..1hc Mayor of Semarang7.The Mayor of Surak)ara5.D rector of Central Region, DGiJRD. MSltl9.Director of 1 ecbnical Developmcnt,GURDMS,RI

12.PMU Suremarta

(b) Cofinanciers:not applicable

(c) Other partners (NGOs/private sector):not applicable

10. Additional Information

- 27 -

Annex 1. Key Performance Indicators/Log Frame Matrix

The projecfs perfonnance against key performance indicators is discussed in detail in the achievementsection.

- 28 -

Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent) _ A_t_____at__ ----I Anpralsa! Actua!!i-atestI Percentage of1

Estimah'te stimnate AppraisalProlect Cost Bv ComDonent US$ million US$ million

[Water Supply & Distribution 55.70 35.00 62.8| . ianag 28.70 | 31!.40 Z 109.3 |Urban Roads & Transport 51.50 52.10 101.2

Sanitation & Sewerage 19.60 5.90 30.3K1P/MIP 6.00 6.40 107.2Housing/Urban Renewal 5.70 0.70 11.6Padat Karya 0.00 5.80 174.1Contract Services 11.30 19.70 0Technical Assistance 13.80 0.00 25.8Taxes 18.90 4.90 0Overheads 5.30 0.00 0ianntinp f^M 230 In n nn0

Total Baseline Cost | 250.00 | 173.70 |Physical Contingencies 12.80 0.00 0Price Contingencies 34.30 0.00 0

Total Project Costs 297.10 3.70lnterest durinn onnntnirtinn 23.50 AA

| Total Financing Required 320.60 173.70 |Total Project Cost: Appraisal estimate inciuding taxes and duties amounting to US$28 million equivalentand land acquisition amounting to US$9.5 million.

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) _

I I ~~~~~~~~Procurement MethodIIExpenditure Category ICB NCB other2 N.B.F. Total Cost

1. Works | 23.50 1 122.90 0.00 1 0.00 146.401

|_________________ _ | . .(17 (0) (8 8) | (f0.0 ) (0.0 I (1070 0n)2. Goods | 46.70 8.00 0.00 1.70 56.40

I(3.30 J2 (7Il.5 I (I.00) (0.00) I *3\.0)

3. Services 0.00 1 0.00 26.40 0.00 26.40(0.00j) (0.00) 1 (23.20) I (0.00) 1 (23.20)

4. Land [ 0.00 I 0.00 I 0.00 I 11.00 I 11.00 I

I _____________________ (0.00) I (0.00) I (0.00) I (0.00) I (0.00) 115. Taxes | 0.00 I 0.00 I 0.00 | 21.50 I 21.50 1

1 (0.00) 1 (0.00) 1 (0.00) 1 (0.00) (0.00)16. O&M. ProJect Admin. 0.00 I 0.00 0.00 35.70 135.70

_______________I______ (0.00) I (°.°°)__- - I (0.00) [ .0( 0) (0.00)I Total 1 70.20 1 130.90 1 26.40 1 69.90(0.) 1 297.4 1Tntni 17A In 1 In OA 'M AA 40 OA -)Q-7 AA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I A ~nn Of

(53.50) (97.30) ] (23.20) [ (0.00) J (174.00

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Note: NBF (Not Bank Financed), imcluded also procurement of vehicles funded by GOI.

p^O_P__ ...s.....Dn . A4A Pr... _cur_em__en1 c _& _ _ _ _ A.....-...................: _ 1 _ 1r; IUJOUL1 yr LU IIII UIEiDI ii %# % M1IuaII IaLUdL 6.0113III iiD %%JsJIP gilituIll qIVICOI4uva)

n r i - Procurement Method 1_________________ I _______ _ 0NCB Other N.B.F. -T

1I. Works I 31.00 1 75.70 1 0.00 0.00 1 106.70

1 { (25.90) 1 (55.30) 1 (0.00) (0.00) (81.20)2. Goods (505.30) (0.00 10A I 24.60

1______________________ I (15.00) (3.40) (0.00) (0.00) (18.40)

I4. Services u.uu 0.uu IO.UU U.UU 16.UU

(0.00) [ (0.00) (16.00) 1 (0.00) (16.00)4. Land 0.00 0.00 0.00 6.60 6.60

(0.00) (0.00) (0.00) (0.00) (0.00)

5. Taxes 0.00 Q.00 0.00 15.80 15.80(0.00) (0.00) (0.00) (0.00) (0.00)

6. O&M, Project Admin. 0.30 0.00 0.00 3.70 4.00(0-30) I (0 00) (000) (0.00) 0.30)

Total 1 48.50 81.60 16.00 1 27.60 173.70IA (42 I ')(.0 fQln I (16.00)A n (0n.nA (11 C

Note: Labor-intensive subprojects are included under Works under NCB.I nigurcs in pareenthesis a - e -u. U-r ------ *. be fiar.ce byl ThB -'--La. Al cssincuecnfrgniesF- II ~WIUIV0I4 al~ LIM GLLUWIj.kV LU ~ U XIIlOlai..U lJ) LIIM ~M LAMIa. F1 U OIZUUU III*.IUU~ "UII1iJI'IIR'.Ib

2' Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staffof the project management office, training, technical assistance services, and incremental operating costs related to (i)managing the project, and (ii) re-lending project funds to local govemnment units.

Frrje_. r _IdF_l_I L.. riIIaIu _IUi toll .. e iII...U: i __..ul.v. ul _

1 A u....I 1o I4..I11 Percentage of Appraisal 1Bank | Govt. CoF | Bank Gov CoF | Bank IGovt. CoF.

ILocal Governments I 10 .YU 0 U.W I .UU Z9.ZU U.UU + T9.5 7.4 U.0WaterEnterprises 56.30 27.50 0.00 23.70 11.10 0.00 42.1 40.4 0.0Provincial Government 0.00 3.30 0.00 0.00 1i.00 0.00 0.0 30.3 0.0Central Government 67.70 41.80 0.00 47.20 16.50 0.00 69.7 39.5 0.0

Central Government 33.40 U.U U0.00 32.00 U 0.00 U 0.00 9.

interest Dung 13.JV V.

Constructlon I

Numbers may not add up due to rounding.

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Annex 3. Economic Costs and Benefits

Tne economic analysis of the urban road and drainage/fiood conirol subprojects considered omy dir-ctiyquantifiable costs and benefits. Like in the SAR, VOC savings and travel time savings constitute the onlyeconomic benefits used in tne ERR caicuiation for urban road subprojects. For the drainageiflood controlsubprojects, the sole economic benefit considered was the increase in land value in areas directly affectedby the drainage/fiood control facility construction.

All costs and benefits were valued at 2001 prices.

The following table (Table 1) shows comparative FIRR and EIRR (SAR Targets vs. Actuals). Table 2 and3 are PI-JAM Financial indicators, Appraisal vs. Actual (1994 - 2002) and Appraisal vs. Projections (2003- 2005), for both Semarang and Surakarta.

Table 1. Comparative FIRR and EIRR: SAR Targets vs. Actuals

Sector/SubproJect I SAR Target Actual EstmateFIKR tlIRR FIKK EiRR

1. Urban RoadKota Semarang1.Jl M,apaht 1) 44% 247%

f2.JI. 44% 48%Kanfinarann-gPIar ni.h I 44% 44%3J. Pedununganziiarum 44% 73%

44% 80%

2)1. rcuuIu,I~osI,v,,.~a,, -37% -3.1%5. Jl. >50% 124%

Sampangan4tunungpau >50% 23%j2) >50% 69%6. JI. Genuk-Pedwingan >50% 31%

>50% 124%7J. Lingkar Utara 4)8. Jl. Kokrosono 5) | 17% 0.5%

19. JI. Kawi-Tegasarl 5) 1 >50% 117%10. JI. Widoha4o-Maksum >50% 23%ir) > A W.50% 170%1. JI. Barito 5) >50% 41%12. JI. Siliwangi 5)

|1Jl.Ligkar Utara 4) |2.Jl. A. Yani-Sutami 5) .Ji. KH

IDemantor-Mansyur 5)14JI. Yos Sudarso 5)* JI. Sutoyo 5) I I I I

!!. Watnr Su nv

|1. PDAM Semarang 13% 16%* PDAM Surakarta 12% 22%

li,,- DralnCage/Flood

Control| Kota Semarang >50%Ftve (5) subprojects |50%

wo (2) subprioectsKOtA Surakarta >50%

|Three (3) subpmject >50%u I I I I I .J ( p

Table 2a. PDAM Semarang Financial Indicators, Appraisal vs Actual, 1994 - 2002

1 1994 J 1995 1996 1997 ] 1998 ] 1999 2000 2001 g 2002pAppirasal I I

Total Connectlons 74,170 86,170 102,170 118,170 134,170 150,170 166,170 176,170 186,170New Connecons 8,000 12,000 16,000 16,000 16,000 16.000 16,000 10,000 10,000C -o.^ pp.n4IoImn/rionn (m3) 27 29 97 26 926 26 2 97 I 7

Unaccounted-or Water (%) 44% 40% 36% 33% 29% 26% 26% 26% 26%Average Tarff (Rp/rn3) 636 784 896 1,102 1,086 1,340 1,322 1,648 1,657G.r^se 1.04 1.18 1.31 1.52 1.44 1.78 1.73 2.03 1.96

lRevenuest(OPEXt preciaton l I Debt Serve Coveraae Ratio I 0.09 0.62 1.37 12-79 1 2.91 I 1.24 11.32 2.18 1 2.35 1

jActual I i i i i i ! i f

|TotalConnections | 71,107 | 82,444 | 97,775 | 105,168 | 107,112| 108,728 1 110,5361 111,348 1131,348 1NSw Connections 5,305 j 11,337 J 15,331 7,393 1,944 1,616 1,808 _ 812 | 20,000 IConsumption/mokonn 1 30 1 28 1 27 1 26 1 24 1 23 1 23 1 24 1 24 1(M3)_ 1 1 I I I I I I I

UnaccouInted-for Water 39% 38% 38% 36% 37% 39% [ 41% 39%

Average Tariff (Rp/rri3) 606 742 I 731 712 j 890 977 967 j 899 ] 1,371| Gross l 1.17 1.27 f 1.23 1.26 1.10 j 1.10 1.00 j 0.84 1 1.55

Grut oss vlw wve.agc^5 *.97 1.99 230 11.92 1.40 1.8 L 1.72 0.7 3.44Rabon R atio j~~~~~ 4_ _ _ [' 1 Q_ _ I _ _4_ _ -__ _ _ 4_ _ _ I _ _ _ _ _ _ _ _ _ _ _

Table 2b. PDAM Semarang Financial Indicators, Appraisal vs. Projections, 2003-2010

| 2003 2004 2005 [ 2006 [ 2007 2008 [ 2009 2010|At Appralsal I ITotal Connectons J 196,170 206,170 216,170 1New Connecdions I10,000 I 10,000 10,000 I! Gon-.tmon/Manmn./onn (m3) ! 277 2R I 28 I I

Unaccountedfor Water(%) 26% [ 26% 26%lAvemge Tartf(Rpm3) 2,085 2,100 1 2,646 | _____ 1Gross 2.30 2.26 2.69 l l l l

Revenues/(OPEX+Depredation) 3 4 6 I I _ _ I _I Debt Sevwice Coveraae Rato 1_3.81 1 4.31 l 6.76 1 1 1_ 1 1_1

ctuallProjected I i _ _ _ _ _ I _ _

Total Connections | 151,348 | 171,348 1 191,348 206,348 221,348 | 236,348 251,3481 266,348| New Connections 1 20,000 l 20,000 20,000 205000 15,000 15,000 15,000 15.000115,00

onsumpon/mo/conn (m3) 24 I 24 24 24 24 24 J 24 24

IunaccounleO-iorWvaier k7b) I JD70 I .3J)b I 15b I ZtY70 IZ Zr I ZO% I ZJ7b I 21% I

|Average Tarff (Rp/rrG) 1,529 2446 2,446 1 2,935 12,935 1 3,52213,522 1 ,226n-. Q0 1.A3 1.91 GI 1.61 l 1..7 I 1.33 I 1.33 I 1.10 I 1.10

Revenues/(OPEX+DepreciaffIon) i _I - I - I -_ I -_ I "-- I "-- I -- I __ II Debt Service Cverage Rabo| 3.95 7.38 | 1.58 1.91 | 1.61 |2.07 1.20 | 1.38

Tahle 3a. PDAM Surakarta Financial Indicators, Appraisal vs. Actual, 1994 - 2002

.1 .. . ... --- T- T----,.~

Appraisal I I I__ __I I 1 I I 2

I Total Connecions 129,790 132.460 135.131 138.293 41,562 144,089 146,682 49,346 51,614New Connections 4,537 2,670 2,671 3,162 3,269 2,528 2,592 2,664 2,268Consumption/nolconn (m3) 33 33 32 32 31 31 131 30 30unaccounteador 'water (5j 31 %b 2 276 24% 2 2b1870 20%b 20% 20

AverageTarffl(Rp/m3) 444 495 559 624 720 8181 9501 1,07111,1311Gross I 1.15 1.11 11.08 [ 1.13 1 1.20 1 1.28 11.36 11.40 1 1.35 1

lRevenuest(OPEXtDepreciation)l I I I I I I I I I Debv ervues/Coverage Rato 1.96 1.34 1.11 1.36 11.47 i 1.49 1.50 1.77 2.29 1I. C t a i r j i u ._ _ __ _ _ __ _ _ _ t _ ._ __ _ _ __ _ _ __ ________ i_ _ _ _ i i_ _ _ _ i i_ _ _ _ i__T__i_r

Total Connections 27,719 30,410 35,201 [ 41,247 ] 43,568 ] 44,502 f 46,096 ] 48,540 s 50.540 1I Naw Cnnnar4innn 1 1.944 1 2.691 i4.791 1 6.046 i 2.321 i 934 i 1.594 1 2.411 1 2.000 1Consumption/mokconn 34 | 32 30 29 27 26 | 26 28 | 28(m 3) _ _ _ I I I I_I_I _ I

Unaccounted-for Water T 36% 39% I 38% 33% 33% 32% 30% 29% 27%

I/Average antpr) I 4 I 54 o I _ _ I oo I ou I I

Gross I 1.34 11.26 11.24 11.26 11.23 1 1.17 1.11 11.23 11.10IRAvPmnIjAqOPEX+Denrea I I I Ilation)Debt Service Coverage 2.91 | 4.45 4.38 | 2.52 1.86 0.71 ] 0.41 |0.44 1 1.6

jRatio

Table 3b. PDAM Surakarta Financial Indicators, Appraisal vs. Projections, 2003-2010

T 03 1' T 2004 ',u. 2005 ' 2006 ' 'I

|At Appraisal I _ | _

1Total Connections | 53,882| 56,170 1 _

New Connecons |2,268 2.288 | _ _ I _ TConsump0on/molconn (m3') __30_ 30Unaccounterior 'water (7%) I 20% 1 2% 1 1 1Average Tariff (Rp/m3) | 1,202 1,283 | I j _ rGross | 1.35 1.35

IRevenuesf(OPEX+Deprecatbon) 2.92I I IDeb Service Coveraqe Ratio 1 2.92 1 1 Mi L dI' UJUa: r.o UU I _ _ _ _ _ I _ _ _ _ __I I__ _ _ _ _ _ _ _ _ I _ _ _ _ __I T II

Total Connections 5 57,040 59,290 | 61,490 63,690 65,890 f 68,090 70,290 72,490I New Cnnnedins 1 6.500 1 2.250 1 2.200 1 2.200 1 2,200 1 2.200 1 2.200 1 2,200O1

Consumpion/mo/conn (m3) 28 28 28 28 28 28 28 28 |I Unaccounted-forWater (%) 5 2 5% 25%25% i 25% 25% ] 25%Average Tariff (Rp/rn3) | 1.631 1,631 [ 1,957 f 2,332 J 2,332 2,565 [ 2,565 | 2,822Gross 2.02 1.76 1.78 1.90 1 1.69 1.62 1.42 1.34Kevenues((uvt:Atuepreciau I I I I I Io n ) I I__ _ _ _ _ _ _ I I___ _ i__ _ _ I _ _ _ _ _ _ _ I I___ _ I__ _

Debt Service Coveraen Ratiol 228 ! 305 ! 376 ! 324 ! 322 1 3.60 1 3.45 1 3.72 !

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Annex 4. Bank Inputs

(a MIssions:

Stage of Project Cycle No. of Persons and Specialty Performance Rating___ .g. ___ _ VUIIUWIiWn5, I r1via, Lm.p lementanon Development

Month/Year Count Specialty Progress Objective

Identiflcation/PreparationNovember 1988 3 2 Financialist Analysts, I

Municipal EngineerApril 1989 2 1 Financial Analyst, I Urban

PiannerJuly 1989 5 2 Financial Analysts, I Urban

riawuIs, I r leWJlU st,Operations Officer

C,^r19-I.icpal Engine,: 1a w num

Planner, I Operations Officer, II I I ~~~~~~~~~~~Fmnironmentil qnpeinli.st, I

Financial AnalystFebruary 1991 2 1 Financial Analyst, I

Operations Officer

July 1991 9 1 Municipal Engineer, 1 UrbanPlanner, I Land Expert, 2Operations Officers, I Operationsand Maintenance Specialist, ICommunity DevelopmentSpecialist, I Financial Analyst, 1Environmental Specialist

NovemDer i'yi 2 1 Municipai Engineer, i UrbanPlanner

Preappraisa;: July 8 1 Mv'unicipal Engineer, I1993 Economist, I Urban Transport

I -'SUafis, 2 SaP.f,4 Enineers,III

I Land Information Specialist, IEnvironmental Snecialist I

Financial Analyst

Appraisal/NegotiationOct/Nov. 1993 8 1 Municipal Engineer, I

Urban Transport Specialist,I Institutional Specialist,

I I I Eco~~~~~~~~nounnist,;LnI I Ianl I Management Specialist, 1

I = | 11E-4zonment SpecialiSt, I.l l | ~~~~~~~~~~~Water Supply Specialist, I

IFinancial Analyst

April 1994 6 1 Chief, I Municipal Engineer, IFinancial Analyst. I InstitutionalSpecialist, I Economist, I UrbanPlanner

|SupervisionSuperviso Decemher 1994 6 1 Economist I I I

_ I | Environmental engineer, I

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Operafions Officer, !Municipal Engineer, IFinancial Analvyt, I LandMgt. Specialist

April 1995 3 1 Operations Officer, I S SMunicipal Engineer, I FinancialAnalyst

August 1995 6 1 Environmental Specialist, 1 S SOperations Officer, I MunicipalEngineer, I Financial Analyst, IUrban Transport Specialist, IInstitutional Specialist

February 1996 6 1 Sanitary Engineer, 1 S SOperations Officer, i FinanciaiAnalyst, I Urban TransportSpecialist, I Inst:iLULIona:Specialist, I Resettlementqnpeil,ikt

May 1996 5 1 Sanitary Engineer, 1 S SOnerations Officer. 1 FinancialAnalyst, I InstitutionalSpecialist, I ResettlementSpecialist

October 1997 9 1 Sanitary Engineer, I | SInstitutional Specialist, IEnvironmental Specialist, IUrban Transport Specialist, IFinancial Analyst, I Economist,I iviunicipa; Engineer, I Waterand Sanitation Specialist, 1

April 1998 4 1 Institutional Specialist, I | SI IMinirinnl Pnoinper 1 Finsnrin.l

Analyst, I Water Supply &I Sanitation SpecialistI

May 1999 5 I Institutional Specialist, I S SMunicipal Engineer, I SanitaryEngineer, I Financial Analyst, IResettlement Specialist

March 2000 4 1 Municipal Engineer, I | SFinancial Analyst, I CulturalHeritage/Urban Specialist, IWater Supply & SanitaryEngineer

September 2000 6 1 Water Supply & Sanitation S SIEngineer, I Iuicipa: sng.nesr, 1

I Financial Analyst, I UrbanI Development Specialist, lUrbanOperations Specialist, ITransnort Snecialist

I'D

March2001 | 6 1 Sanitary Engineer, I s S

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II I MA..icipa! Engneer,

Financial Analyst, 1Community DevelonmentSpecialist, I LandManagement Specialist, IEnvironmental Specialist

September 2001 7 1 Sanitary Engineer, I S SMunicipal Engineer, I FinancialAnalyst, I Cultural HeritageSpecialist, I CommunityDevelopment Specialist, I_conomis_, i EnvironmentaiSpecialist

(0) S~taff:-rDj~~~~~~~~~~~~~ -.- ff -, -11:a

S tage of rr uject C.y cle __ _ __ _ __ _ __ _ _ .n_._ . *_A __________________________xs _

I _______________________ No. Staff weeksi us$ Etiat (000)identiticationrreparanon i06.90u 354.7Appraisal/Negotiation 68.40 256.8Supervision 337.74 923.5ICR 13.00 30.1T-total 526.04 i,565.i

Costs incurred up to FY99 were increased 15% to take into account the new accounting system begun inFYOO.

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components

(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)Rating

IOI Macro policies O H OSUOM O N * NAO Sector Policies O H OSU*M O N O NAO Physical OH OSU*M ON O NAOi Financial O H OSU*M O N O NAOI Institutional Development 0 H O SU *M 0 N 0 NAEl Environmental O H OSUOM O N O NA

SocialO Poverty RedICuctliol n- 11 H Li Sw In \fIV O J I O11

LI Gender OH OSUOM ON *NAOi Litner (rFeUJC Yejc1Jyy) O/ H7 O JU J MrW IVO N O IV'/A

Resettlement..In nE. l, n cr r . , n x LJ rFTVWC .t-ur ur nuVCUp/aval '' 11 %-/ JU \.-/J V71 \.J 1W Wlfr _IA

OL Public sector management 0 H O SU O M 0 N 0 NAOI Other (DI ----. y OLH 0 SU 0 M OAN O Nl A

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Hignly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

LIC I DUfl n'pUFflUL IlanIfe6.1 Ba, k pero, a c atn

15L fending O HS * S O n O HU3 Supervision OHS OS O U O HU

M Overall OHS OS OU O HU

6.2 Borrowerperformance Rating

E Preparation OHS OS O U O HU12 Government implementation performance 0 HS OS 0 U 0 HUX Implementation agency performance O HS OS 0 U 0 HU2 Overall OHS OS O U O HU

Annex 7. List of Supporting Documents

1. Final Report, Program impiementation Support Phase H, DHiv Consultants and Associates, March 20012. Quarterly Progress Reports, Program Implementation Support, DHV Consultants and Associates3. Final Report, Implementation Completion Report, PT. infratama Yakti and Associates, September 20014. Staff Appraisal Report, Semarang Surakarta Urban Development Project, May 16, 19945. Aide Memoire, Mid-term Review Mission, September-October 19976. Aide Memoires of appraisal and various supervision missions7. Implementation Completion Report, East Java Bali Urban Development Project, March 25, 19988. Inplementation Completion Report, Third Jabotabek Urban Development Project, June 29, 20009. Performance Audit Report for Second Jabotabek Urban Development Project, Semarang SurakartaUrban Development Project, Water Supply and Sanitation Project for Low-Income Communities, June 20,2001

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i - uiro I met

ii Report No.: 23588| Type: ICR

< ______LI4AdlUNJ ~_ ----__ -