Document of The World Bank FOR OFFICIAL USE ONLY Report No: 87027 v1 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF URBAN WATER SUPPLY AND SANITATION PROJECT IBRD LOAN NO. 7730-ID TO THE REPUBLIC OF INDONESIA December 19, 2013 INDONESIA SUSTAINABLE DEVELOPMENT UNIT EAST ASIA PACIFIC REGION This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS IBRD International Bank for Reconstruction and Development KPI Key Performance Indicator PA Performance Agreement PAD Project Appraisal Document PCU Project Coordination Unit PDAM Perusahaan Daerah Air Minum (local water utility) PIU Project Implementation Unit PMM Project Management Manual Regional Vice President: Axel van Trotsenburg Country Director: Rodrigo A. Chaves Sector Manager: Nathan M. Belete Task Team Leader: Irma Magdalena Setiono 2 INDONESIA ID-URBAN WATER SUPPLY AND SANITATION CONTENTS Page A. SUMMARY ........................................................................................................................... 4 B. PROJECT STATUS .............................................................................................................. 4 C. PROPOSED CHANGES ...................................................................................................... 4 ANNEX 1: RESULTS FRAMEWORK AND MONITORING ................................................. 6 ANNEX 2: LETTER FROM MINISTRY OF FINANCE PROPOSING PROJECT RESTRUCTURING ...................................................................................................................... 9 3 ID–URBAN WATER SUPPLY AND SANITATION RESTRUCTURING PAPER A. SUMMARY The proposed restructuring involves revision and update to the Results Framework and its key performance indicators described in the Project Appraisal Document (PAD) to ensure that a more efficient set of indicators are applied during project implementation and they are consistently presented in the Performance Agreements between Local Governments and their respective PDAMs. This revision will also include retrofitting inclusion of the core indicator for water supply, and to make correction and update to the baseline data and targets. This restructuring will better reflect progress of project implementation and its impact in improving service performance. The proposed restructuring does not involve changes to the project implementation period, the total loan amount, loan allocation between different categories, or changes to the mechanisms to ensure compliance with the safeguard policies. The proposed changes will also not result in change of impact in any other sections of the PAD. B. PROJECT STATUS Based on the latest implementation support mission conducted in April and May 2013, project implementation progress is rated as “Moderately Satisfactory”. The project is currently rated as Satisfactory towards achievement of its Project Development Objectives and overall Implementation Progress is rated as Moderately Satisfactory. All other ISR ratings are either S or MS and there are no major issues pending. Procurement processes and implementation of construction contracts have started and are progressing in all locations (some are already completed). Disbursements have been improving and will continue to improve in the future. Disbursement rate is at 59.93% and with completion of most project activities by end of June 2014, it is very likely that all funds will be used by closing date. All budgets to fund project activities has been fully allocated in the government’s budgeting system (DIPA allocation) and all key ingredients for project implementation are in place (the Project Management Manual, the Project Coordination Unit – PCU, the PCU Advisory Consultant, the Project Implementation Units – PIUs and their supervision consultants). There are still delays in some construction activities although there will still be adequate time to complete all constructions prior to the end of project period. The PCU and PIUs are still having issues with monitoring and evaluation and reporting the progress of Key Performance Indicators achievement due to some confusion caused by inconsistencies of definition between the KPIs stated in their respective Performance Agreement and the definition stated in their regular reporting systems, as well as in the PAD 4 C. PROPOSED CHANGES The proposed changes to be included in this restructuring include: (i) revision and update of the Results Framework (description and definition of Key Performance Indicators to include core indicator and to ensure consistency between all project documents); and (ii) to correct and update baseline data and targets. The changes are proposed to assist the PCU and PIUs in having more clarity and streamlined monitoring and evaluation process, thus improving the project’s reporting mechanism. With this improved monitoring and evaluation process, the project will be better positioned to reflect the progress of implementation and its impact. Changes to the results/indicators include clarification of the definitions, correction and updating baseline data and targets, as well as inclusion of core indicator of water sector. The new sets of indicators are realistic, achievable and measurable, and take into account the capacities of the PIUs. The changes to the results/indicators are shown in the Annex 1. 5 ANNEX 1: Results Framework and Monitoring Project Development Objective (PDO): Improved and expand water supply services in project areas by strengthening local water utilities to become operationally efficient and financially sustainable Revised Project Development Objective: N/A D=Dropped Cumulative Target Values** C=Continue Responsibility Core PDO Level Results N= New Unit of Baseline Data Source/ Frequency for Data Indicators* R=Revised Measure (2009) 2010 2011 2012 2013 2014 Methodology Collection Indicator One: Increment in R l/s (1) 1,710 (1) 1,710 (1) 1,710 (1) 1,910 (1) 2,310 (1) 2,310 Semi-annual PDAM’s PIU/PDAM/ capacity of production Increment in (2) 197 (2) 197 (2) 202 (2) 202 (2) 307 (2) 307 project Annual Audited PEMDA system installed (3) 190 (3) 425 (3) 460 (3) 460 (3) 500 (3) 650 progress Report report PCU (1) Kota Bogor production PDAM’s (2) Kapuas capacity Semi-annual Monthly Report Independent (3) Muara Enim financial Financial Auditor Indicator Two: Increment in C HC (1) 86,587 (1) 95,087 (1) 103,587 (1) 112,087 (1) 120,587 (1) 129,087 management Procurement (BPKP) number of connections (2) 12,250 (2) 12,250 (2) 12,974 (2) 13,484 (2) 15,200 (2) 17,700 reports Post Reviews (1) Kota Bogor (3) 16,421 (3) 18,021 (3) 19,521 (3) 22,021 (3) 24,521 (3) 27,021 (2) Kapuas Annual Audit PCU (3) Muara Enim Reports Monitoring and Evaluations Indicator Three: Number of N HC (1) 0 (1) 8,500 (1) 17,000 (1) 25,500 (1) 34,000 (1) 42,500 Annual or bi- new piped household water (2) 0 (2) 0 (2) 1,125 (2)1,635 (2) 3,351 (2) 5,851 annual Bank connections that are resulting (3) 0 (3) 1,600 (3) 3,100 (3) 2,500 (3) 2,500 (3) 2,500 Procurement Implementation from the project intervention Audit Reports Support (1) Kota Bogor Missions and (2) Kapuas Annual Field Visits (3) Muara Enim Reviews Indicator Four: R (a) % (1) Bogor (1) Bogor (1) Bogor (1) Bogor (1) Bogor (1) Bogor Mid Term Improvements in customer Improvements (b) Hours (a) 100 (a) 100 (a) 100 (a) 100 (a) 100 (a) 100 (b) 23 (b) 23.5 (b) 24 (b) 24 (b) 24 (b) 24 Reviews satisfaction, indicated by: in customer (c) % (c) 99.68 (c) 95.86 (c) 94.69 (c) 82.50 (c) >90.00 (c) >95.00 (a) Quality satisfaction, Final (b) Service Hours indicated by: Completion (c) Reliability (a) Quality (2) Kapuas (2) Kapuas (2) Kapuas (2) Kapuas (2) Kapuas (2) Kapuas Reports (b) Service (a) 100 (a) 100 (a) 100 (a) 100 (a) 100 (a) 100 Hours (b) 8.62 (b) 10.41 (b) 9.5 (b) 8.43 (b) 14 (b) 18 (c) Complaint (c) 95.59 (c) 91 (c) 90 (c) 100 (c) >95 (c) >95 handling (3) M. Enim (3 M. Enim (3) M. Enim (3)M. Enim (3)M. Enim (3)M. Enim (a) 100 (a) 100 (a) 100 (a) 100 (a) >90 (a) >90 (b) 5 (b) 5 (b) 5 (b) 5 (b) 6 (b) 12 (c) 100 (c) 89.2 (c) 100 (c) 100 (c) >90 (c) >90 Indicator Five: C (1) 0.91 (1) <1 (1) <1 (1) <1 (1) <1 (1) <1 Same as Same as Same as above Operating Ratio (2) 1.31 (2) 1.5 (2) 1.5 (2) <1 (2) <1 (2) <1 above above (1) Kota Bogor (3) 1.2 (3) 1.06 (3) 0.98 (3) <1 (3) <1 (3) <1 (2) Kapuas (3) Muara Enim Indicator Six: C 2.68 >1.3 >1.3 >1.3 >1.3 >1.3 Debt Service Coverage Ratio (only for Bogor) INTERMEDIATE RESULTS Intermediate Result (Outcome 1): Improved PDAM Operations Revised Intermediate Result (Outcome 1): N/A Intermediate Result indicator R (1) 1,322 (1) 1,452 (1) 1,582 (1) 1,712 (1) 1,842 (1) 1,972 Same as Same as above Same as above One: Increment l/s (2) 120.8 (2) 125 (2) 125.2 (2) 137.5 (2) 160 (2) 200 above Additional volume of water volume of water (3) 114.6 (3) 188 (3) 250 (3) 300 (3) 350 (3) 400 produced produced (1) Kota Bogor (2) Kapuas (3) Muara Enim Intermediate Result indicator C (1) 34.39 (1) 33.39 (1) 32.39 (1) 31.39 (1) 30.39 (1) 29.39 Two: % (2) 42 (2) 48.10 (2) 39.90 (2) 36.20 (2) 35.00 (2) 34.00 Non-Revenue Water (3) 25 (3) 24 (3) 23 (3) 22 (3) 21 (3) 20 (1) Kota Bogor (2) Kapuas (3) Muara Enim Intermediate Result indicator D (1) (1) (1) (1) (1) (1) Three: Unit (2) (2) (2) (2) (2) (2) Number of bulk meters replaced, (3) (3) (3) (3) (3) (3) repaired or installed (1) Kota Bogor (2) Kapuas (3) Muara Enim 7 Intermediate Result indicator R (1) 19,437 (1) 21,000 (1) 21,164 (1) 20,113 (1) 27,000 (1) 30,000 Same as Same as above Same as above Four: Number of Unit (2) 0 (2) 202 (2) 94 (2) 416 (2) 500 (2) 750 above Number of individual meters individual (3) 238 (3) 238 (3) 600 (3) 600 (3) 600 (3) 600 replaced or repaired meters (1) Kota Bogor replaced or (2) Kapuas repaired, or (3) Muara Enim calibrated Intermediate Result (Outcome Two): Improvement of PDAM Corporate Management Revised Intermediate Result (Outcome Two): N/A Intermediate Result indicator R (1) 6.54 (1) 6.00 (1) 6.00 (1) 5.00 (1) 5.00 (1) 5.00 Same as Same as above One: Number of Staff (2) 10.13 (2) 13.33 (2) 12.18 (2) 11.72 (2) 10.20 (2) 8.00 above Number of employees per employees per (3) 9.07 (3) 11.67 (3) 9.71 (3) 9 (3) 8.5 (3) 8.0 1,000 connection connections (1) Kota Bogor (2) Kapuas (3) Muara Enim Intermediate Result indicator R (1) 94 (1) 94 (1) 95 (1) 95 (1) 96 (1) 96 Two: Water tariffs % (2) 90 (2) 96 (2) 97 (2) 97 (2) >95 (2) >95 Water tariffs collection period collection (3) 84.48 (3) 89.33 (3) 91.30 (3) >90 (3) >90 (3) >90 efficiency (1) Kota Bogor (2) Kapuas (3) Muara Enim Intermediate Result (Outcome Two): Improvement in PEMDA Corporate Ownership Revised Intermediate Result (Outcome Two): N/A Intermediate Result indicator C (1) 10 (1) 10 (1) 10 (1) 20 (1) 0 (1) 0 Same as Same as above One: % (2) 0 (2) 0 (2) 0 (2) 0 (2) 0 (2) 0 above Tariff increases to maintain (3) 0 (3) 60 (3) 0 (3) 0 (3) 0 (3) 30 operating ratio (1) Kota Bogor (2) Kapuas (3) Muara Enim *Please indicate whether the indicator is a Core Sector Indicator (see further http://coreindicators) **Target values should be entered for the years data will be available, not necessarily annually. 8 Annex 2 Letter from Ministry of Finance