Adaptation of MTEF and Performance- Based Budgeting in DJ Bina Marga (DGH)

William D. Paterson and Ir. Gandhi Harahap

November 2009

Outline of Presentation

•Scope and purpose of study•MTEF and PBB – international & Indonesia•Adopting MTEF in DGH program cycle•DGH Performance 2005-2009•Evaluation of RPJM2 2010-2014•PBB proposals for DGH•Recommendations on future steps

Study Outline and Context

“Capacity Building Support to strengthen medium-term planning, programming, budgeting and performance management in Bina Marga, through the preparation of an MTEF” – 3 phases

1. Assist finalization of 2010 RPJM and MPW RENSTRA2. Capacity-building to implement budget reforms3. Assist preparation of 2011-2013 budget and program

AusAID assistance to GoI under Indonesia Infrastructure Initiative (IndII) (managed by SMEC International Ltd.)

MTEF and PBB – International Success Factors•Integrate MTEF with budget in single unified process

•Improve public expenditure management at sector level first

•Develop a performance-oriented budgeting system

•Comprehensive - all budget resources available to sector

•Detail in sector activities to encourage budget reallocation

•Key stakeholders should participate in MTEF process – MOF, Planning, sector & beneficiaries, civil society

•Accountability requires transparency - political & managerial

•Monitor execution against planned outputs at activity level

•Efficiency and effectiveness of resource use in implementation

MTEF & PBB in Indonesia – MOF and Bappenas Guidelines

•Authorization in Budget Law 17/2003•Medium-Term Expenditure Framework (MTEF)

Guide, February 2005•Implementation of Performance-Based Budgeting

and Medium-Term Expenditure Framework, June 2009•Pilot implementation for 2010-2014 now extended

to all LMs•Sector reform (“Reformasi Burakrasi”) added for

2010

Performance-Based Budgeting (PBB)Current Issues:Formulation of long-term plan and strategies do not include the resource envelopeNeed to measure ‘achievement effectiveness’ and ‘expenditure efficiency’ of national development targetsPerformance accountability of work unitsNeed to connect planning and budget at operational level

Concepts – Logical frameworkMoney follows function, function follows structureLet the manager manageAccountabilityTop-down and bottom-up views both important

Medium-Term Expenditure Framework (MTEF)

Concepts:– Connectivity of planning and budgeting – Basis for resource allocation & predictability of future

budgets; – Impact of alternative policies on budget and outcomes

Baseline budget: Entire cost of implementing current policies in current year and in subsequent years

– current prices, full costing, inputs, price parameters– Y0 (current), Y1 (budget), Y2-Y4 (Forward estimates)– Indicate Activity budgets and outputs by year

New Work Plan and Budget Document (RKA-KL): Output details, Outcome Achievement Strategy; Revenue Plan; Detail of Output Costs

DGH PROGRAM CYCLE – ADAPTATION TO MTEF

No. BRIEF ACTIVITY Y2 Y3 Y4

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

PREPARATION - Program, Budget, Project

0 Survey Network surveys1a IIRMS System-based network program

1b Asset Update Asset-level program

2 RENJA-KL Indicative budget MOF

3 KONREG Regional consultation & inputs

4 RKP National consultation draft work plan

5a Design Design of committed projects

5b RKA-KL Project design, Socialization

6 RAPBN, NK Budget Note, Draft APBN

7 RDP DPR-RI MPW meet V-DPR on RAPBN

8 Satuan 3 Agreed program, budget

9 PP APBN Decree on APBN allocation

10 SIP, DIPA Detailed project commitment

PROJECT IMPLEMENTATION

11 SK-PPK Appointment of PPK project mgr

12 Establishment procurement ctte

13a Procurement

13b Procurement committed projects

14 Implementation

15 Handover & Evaluation

16 Performance evaluation

14a Multi-yr proj implementation

15a Multi-yr proj evaluation

Y0 - CURRENT YEAR Y1 - BUDGET YEAR

DG HIGHWAYS - PROPOSED MEDIUM-TERM EXPENDITURE PROGRAM CYCLE

Performance of Bina Marga/DGH –Business results 2004-2009

Traffic Demand doubled

Resources nearly 4-fold higher after mid-term

National network extended 36% by reclassification and upgrading

Maintained 90% paved and 89% stable condition

Business Parameter 2004 2009 Change %DEMANDVehicle Fleet (million) 41,0 80,8 39,8 97%

RESOURCESBudget (IDR trillion) 4,5 17,0 12,5 278%

OUTPUT

National Road Infra (km) 34.889 47.588 12.699 36%

- Expressways 619 688

- Arterial & Strategic 34.270 46.900 Paved Length 90%Road Space (Lane-km) 74.930 85.000 10.070 13%Road in good condition (km) 23.120 30.820 7.700 33%% Network good condition 88% 89%

DGH RPJM1 Performance: Resource Allocation and Output

2005 2006 2007 2008 2009 2010*0

5000

10000

15000

20000

Budget Allocation 2005-2009 (IDR m)

Good Governance Emergency ReconPreservation R & B Development R&B

2005 2006 2007 2008 2009 2010*0

1000

2000

3000

4000

5000

6000

Output 2005-2009 (ef-km)

Preservation R & B Development R&B

•The Budget rose steeply 2007-08•Development expenditures up 80%

2008•Preservation expenditures up 75% 2009

•Output increased only slightly•Preservation 1,400 km/yr

= 4% of network•Development 3,000 km/yr

= 9% of network

Preservation

RPJM1 2005-2009 Program and Resource Use

2005 2006 2007 2008 2009 20100.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Activity Average Cost IDRm /km

Preservation R & B Development R&B

But - Activity Average Cost increased by 2-3 timesReasons? could be due to increased design standard, inflation, weaker competition or other factorsAverage cost high:

Preservation: IDR 2-3.5b/km

= 2-3 x benchmarkDevelopment: IDR 3-6b/km = 1-2 x benchmarkTotal coverage 12% network = 8 yr effective life

DGH Effectiveness: Distribution of Condition Improvements

PAPUASULSELSUMUT

JATIMSULTENG

N. ACEH D.KALTENG

KALBARKALTIMJATENGSULTRASUMSEL

NTTSULUT

SUMBARJABAR

RIAULAMPUNG

MALUKUKALSELJAMBI

BENGKULUGORONTALO

NTBBABEL

BALIBANTEN

MALUKU-UTDI.YOGJA

DKI J

0 500 1000 1500 2000 2500

GoodFairPoorBad-D

Sumatra Java

Kalimantan

Sulawesi

Bali-NT

Maluku

-Papua0%

20%

40%

60%

80%

100%

20052008

Change in extent Stable condition: by Island Group – 2005-2008Network length, condition by Province

Effectiveness of Preservation Program: Improvement of Poor Conditions by Province

0% 20% 40% 60% 80%0%

20%

40%

60%

80%

Unstable: Poor and Bad

2005 Before Program

2008

Aft

er 3

-yr P

rogr

am

0% 10% 20% 30% 40% 50%0%

10%

20%

30%

40%

50%Bad Condition, % Network

2005 Before Program

2008

Aft

er 3

-yr P

rogr

am

ImprovedImproved

•Only minor improvements in extent of Unstable condition in most provinces•Targeted program eliminated Bad condition in many provinces•Overall Preservation program barely sufficient to counter deterioration

DGH Performance Managing Expressway Network

Past development rate 20 km/yPlanned rate 80-150 km/yPlanned expressway density 100 km/million pop. < MY, CN, PHCorridor travel demand increasing rapidly and speeds slow - needs analysis to show impacts and adequacyRequires IDR 7-15 T/yrAverage cost IDR 70-85 billion/km = 15 x cost of 2-lane highwayAPBN 12% of costs 2010-2014, rest PPPExpressways largest user of PPP funds 2009-2011What is optimal use of APBN, public funds to achieve the targets?

>30 >20 >10 >0 F10 F200

500

1000

1500

2000

2500

3000

3500

Expressway Network Length (km) by Age Decade Past and

Future

Age (decades)Ex

pres

sway

Len

gth

km

National Arterial and Strategic Road Networks

Issues– 3 parts for planning purposes,

4 functional parts (trunk route,trans-route, arterial, metro)

– Road program costs appear high – avg. IDR 3 billion/effective-km ($300k/eff-km) – development content?

– Road work activity costs seem high v benchmarks– Incremental approach to geometric improvement is costly in long-

run– Short design life norm for preservation results in patchwork– Quality: how much life actually achieved?– Package size small (1000 @ 3 km avg)– Project management & procurement delivery fragmented, remote

2005-2009 2010-2014Arterial/K1 26,270 km 34,600 km

Reclassified 7,670 km 4,300 km

Strategic 8,000 km 8,000 km

Evaluation of Draft RPJM2 & RENSTRA 2010-2014

Evaluated on basis of Output v. Needs, Average Activity Cost, and Allocation to ActivitiesBaseline Coverage:

– Preservation & Development 5% each just adequate v. RPJM1

– Bridges – 33% of unstable, 5.5% overall – OK if prioritized well

Alternative fiscal envelopes: Review prefers more priority to Development, more efficiency in Preservation

DGH Performance Evaluation – Review Findings

Enhance trans-regional and metropolitan mobility:

• Accelerate expressway development to >100 km/yr• Prioritize resource allocation in trans-regional corridors between expressway and

trunk route programs

Improve efficiency and effectiveness of preservation program• Allocation of IDR 200 m/km is adequate but not improving condition• Needs more effective prioritization, value for money, and improved cost efficiency

Improve effectiveness of development program• Incremental widening is expensive and not optimal in long-term• Adopt road renewal policy with long-term comprehensive standards

Develop stronger accountability for results in DGH• Identify performance measures of quality and cost• Extend accountability for sector performance to the work units at activity and

sub-activity level

DGH Core Business and Performance Measures – Proposed PBB Focus•Access to

sustainable integrated reliable road system available nation-wide to support economic growth and social well-being

Vision:

•Improve major road infrastructure to support competitiveness of regional trade and production

•Improve quality and capacity of national arterial road network to connect remote and central regions

•Improve performance and accountability of central and local road agencies in providing sustainable and cost effective local road infrastructure

Mission

DGH - Key Performance Indicators – E1

•Improved connectivity, mobility and safety on the national road network, with improved accessibility in strategic areas

Outcome:

•National trunk route roads improved to applicable service standards, over x percent of length

Strategic Target:

•Expressway development projects issued for preparation, length

•Trunk and regional route roads meet minimum width standard, percent length

•Road condition on national arterial roads is stable, percent length

•Strategic roads meet functional standard and stable condition, percent length

•Unsafe performance on national roads, number links > x fatalities/yr

•Local road network in stable condition, percent length

Program Main Performance

Indicators:

Improving Performance:(1) Trans-Regional Travel

Trans-regional Road Systems: Asian Hwy; ASEAN hwy; GoIUniform standard along route

Trunk routes (lintas): width, condition; existing alignment, friction, Vdes 60 km/h

Main trunk routes (lintas utama): improve width, condition, friction; minor realignment Vdes 80 km/h?

Expressways (Jl. bebas hambatan): Vdes 100 km/h, new alignment, limited access, staged; finance PPP, some direct toll

•Long-term development plan (25+ yr)•Connectivity - % LTDP•Extent open (by route) km, %•Travel time (hr per 100 km direct)•Vehicle travel – veh-km by route•Safety – fatality/10k veh, star-rating•Condition – congestion, structural, %•Cost – constr. cost/km by route•Finance – budget plan, by P-P source

Trans-regional networks – program delivery

New Vision• Backbone for major Trans-Regional trade corridors, metro cities• Major infrastructure for 21st century: 50-100 yr service• Drive by 25-50 yr plan, implement by 5-yr programs • Stage to provide reduced but high class facility in low demand areas• Trunk routes provide support until new system connected

Expressway program • Current rate 14 km/y – need 100 km/y• Resources IDR 10-20 T/yr needed (equiv. to NAR program budget)• Deserves integrated separate focus as program, accountable for delivery• Review institutional arrangement:

• Integrate planning, implementation, administration “Expressway Authority”?• Keep regulatory function independent; Commercial corporations for

implementation• Streamline financing models, incl public (GoI) and private• Address land acquisition issues, use long-term plan

Improving Performance:(2) Enhancing Effectiveness, Value for Money

Effectiveness – improving performance with same funds

(a) Extend Design Life:

Annualized Whole Life Cost =

Routine maint/yr + periodic maint/life + rehab/reconstruction/lifeShort design life (5, 10 yrs) was good policy in 1980s-90s – but

Full design life (10, 20 yr) saves 30% in long-term average cost, despite 40% higher initial cost

Report “Expected Life” of asset – similar to residual life

0 2 4 6 8 10 12 14 16 18 200

10

20

30

40

50

60

70

80

90

100

UnstableStable

2 * DESIGN LIFE= 0.70 * LIFE-CYCLE COST/YR

Condition %

Age, yr

Improving Performance:(2) Enhancing Effectiveness, Value (c)

(b) Improve Quality and Performance:

• Quality is complex – simple measure is actual life of work– e.g., 30% lost life due to poor

quality causes 42% increase in budget requirements

• Historical Life: life since previous surfacing to new work or to ‘unstable’ condition

• Record the spending history and work activities on asset

• Monitor the actual life achieved at asset level

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

Year Work activity Road condition

Rehabilitation Stable condition

Resurfacing Unstable condition

•Historical Pavement Life•Historical Pavement Age•Historical Surfacing Life

• Road SLD – Work History•9+00 •28+00

Improving Performance: (3) Efficiency in Work Program Delivery

Monitor Execution Times – in calendar days, Time over-run %

• Preparation • Procurement• Implementation• Evaluation

Monitor Contract Costs – percent changes during project cycle

• Preliminary cost estimate• Owner’s cost estimate• Contract award price (% Owner’s cost estimate)• Contract completion cost (% Contract Award; % Preliminary Estimate)• Contract completion output (% preliminary project output)

FO

RW

AR

D

ES

TIM

AT

E

FUNDS SCHEDULE

PROJECT MILESTONES

PROJECT PHASE

PHO FHO EV

FP Bond

PI PA PFD BD ITB

CAR CS NTP

DIPA AP IPC ………..

PREPARATION PROCUREMENT IMPLEMENTATION EVALUATION

SK-PPK

PROJECT CYCLE TIMELINE

RAPBN

SAT 3

Project Cycle Timeline and Linkages

Improving Performance: (3) Efficiency in Work Program Delivery (cont)

Contract Size – Measure of Competition & Efficiency• Reduce fragmentation of contracts, enhance management

accountability• Monitor: (i) the total effective output; (ii) the total number of

contract packages; (iii) the total value of contract packages; and (iv) statistics of contract package size

Benchmarking Cost of Output• Annual program-level average cost indicators• Activity or sub-program average cost indicators• Supplemental indicators for cross-country comparison, e.g.

Equivalent asphalt thickness, disaggregation by construction type

Improving Performance: (4) Institutional Implications

DGH strongly decentralized structure• project management devolved to PPK level• nearly 700 staff managing >1000 contract packages

Accountability for Effectiveness – value – is spread• Bintek for technical policy• Ditpel and Balai for monitoring and management• Satkers and PPK for execution

Accountability for Efficiency – work delivery - unclear • Directly with PPK, indirectly with Balai, Ditpel• Management accountability unclear

Arterial and Metro – Areas for Consideration

For multi-year optimization (5-yr, 3-yr and life-cycle), resource requirements and allocation at national level – use existing IRMS planning system

For asset-specific project identification and life-cycle design within allocated resource envelope - new “Asset Program Optimization Tool”

– Simple linear and map views for managing design and consultation

– Develop 3-5-yr periodic, reconstruction & renewal program for each route, minimizing costs within allocation

For integrated delivery of work activity implementation – Assess options to consolidate and focus competencies and staff

– Procurement process – Engineering design and supervision

Facilitation of Road Management in Local Government Road Agencies

Existing role – technical standards and guides, and professional trainingNew leading role - To fulfil vision & accountability for an “integrated road system”, DGH would need:

– Providing tools for program preparation and project design

– Improving budget allocation and network performance– Advise on institutional options, eg. Road Board & Fund for

managing user revenues and road management

Monitoring & Evaluation – sustain effectivenessPropose Outcome Indicator: “Condition of local road network” (Prov, Kota, Kab) - % stable, % paved

Implications for Next Steps

•Finalization of new PBB-structure for DGH program•Capacity-building in applying MTEF, PBB•Analysis and scoping of potential reform options:

– Expressway administration and integration– Streamlining or consolidation of program

implementation function – PAN, Bintek, Wilaya, Balai, Satker, PPK

– Appraisal for potential new tool for life-cycle design and performance monitoring

•Preparation of 2010 and 2011-2013 program – what support, timing?

Terima kasih

Thank you