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ASIAN DEVELOPMENT BANK PPA: INO 22264PPA: INO 23212PPA: INO 20104

PROJECT PERFORMANCE AUDIT REPORT

ON

THREE INTEGRATED URBAN INFRASTRUCTUREDEVELOPMENT PROJECTS:

SECONDARY CITIES URBAN DEVELOPMENT (SECTOR) PROJECTBOTABEK URBAN DEVELOPMENT PROJECT

BANDAR LAMPUNG URBAN DEVELOPMENT PROJECT(Loans 983/984[SF]/1077/1078-INO)

IN

INDONESIA

November 2000

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CURRENCY EQUIVALENTSCurrency Unit Rupiah (Rp)

Secondary Cities Urban Development (Sector) Project (Loans 983/984[SF]-INO)

At Appraisal(September 1989)

At Project Completion(June 1996)

At Operations Evaluation(April 2000)

Rp1.00 = $0.0006 Rp1.00 = $0.0004 Rp1.00 = $0.0001

$1.00 = Rp1,785 $1.00 = Rp2,341 $1.00 = Rp7,877

BOTABEK Urban Development Project (Loan 1077-INO)

At Appraisal(November 1990)

At Project Completion(December 1996)

At Operations Evaluation(March 2000)

Rp1.00 = $0.0005 Rp1.00 = $0.0004 Rp1.00 = $0.0001$1.00 = Rp1,875 $1.00 = Rp2,352 $1.00 = Rp7,412

Bandar Lampung Urban Development Project (Loan 1078-INO)

At Appraisal(November 1990)

At Project Completion(December 1996)

At Operations Evaluation(April 2000)

Rp1.00 = $0.0005 Rp1.00 = $0.0004 Rp1.00 = $0.0001$1.00 = Rp1,875 $1.00 = Rp2,348 $1.00 = Rp7,877

ABBREVIATIONS

ADB Asian Development BankBOTABEK Bogor, Tangerang, and Bekasi districtsDGHS Directorate General of Human SettlementsEA Executing AgencyEIRR economic internal rate of returnFIRR financial internal rate of returnGLD guided land developmentha hectareIA Implementing AgencyIUID integrated urban infrastructure developmentIUIDP integrated urban infrastructure development projectKIP kampungimprovement programkm kilometerl/s liter per secondM&E monitoring and evaluationMIIP market infrastructure improvement programNPV net present valueO&M operation and maintenanceOEM Operations Evaluation MissionPBME project benefit monitoring and evaluationPCR project completion reportPDAM local water enterprisePMU project monitoring unitPPAR project performance audit reportTA technical assistanceUFW unaccounted-for-water

NOTES

(i) The fiscal year (FY) of the Government and the Executing Agencies ends on 31 March.(ii) In this report, "$" refers to US dollars.

Operations Evaluation Office, PE-556

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CONTENTS

Page

BASIC DATA iiEXECUTIVE SUMMARY 1

MAPS Error! Bookmark not defined.

I. INTRODUCTION 1

A. Background 1B. Basic Information on the Three Projects 1C. Completion and Self-Evaluation 2D. Operations Evaluation 3E. Project Performance Audit Report 4

II. THEMATIC EVALUATION 5

A. Comparison of IUIDPs with Standalone Projects 5

B. Impact of the Economic Crisis on Project Sustainability 7C. Measuring Efficiency of Urban Service Delivery 8

III. PERFORMANCE EVALUATION OF THE THREE PROJECTS 9

A. Planning and Implementation Performance 9B. Achievement of Project Purpose 11C. Achievement of Development Impacts and Goals 14

IV. OVERALL ASSESSMENT 15

A. Secondary Cities Project 15B. BOTABEK Project 16C. Bandar Lampung Project 16D. Assessment of ADB and Borrower Performance 17E. Lessons Identified 18F. Follow-Up Actions 19

APPENDIXES 20

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BASIC DATASecondary Cities Urban Development (Sector) Project (Loans 983/984[SF]-INO)

A. Project Preparation/Institution BuildingTA No. TA Name Type Person-

MonthsAmount

($)Approval Date

725a Technical AssistanceProgram Loan

TA Loan 25,000,000 18 December 1984

= not available; TA = technical assistance.a A subloan (No. 4: West Java and Sumatera Integrated Urban Development Project, approved on 6 June 1986, for $5.38

million) under this TA loan was used to finance the preparation of supplementary feasibility studies and detailed design.

B. Key Project Data ($ million)As per ADB Loan

Documents Actual

Total Project Cost 150.21 166.93

Foreign Exchange Cost 62.70 67.09Local Currency Cost 87.51 99.84ADB Loan Amount/Utilization

983-INO 70.00 68.51984-INO(SF) 50.00 54.29

ADB Loan Amount/Cancellation

983-INO 1.49

984-INO(SF) 1.47

C. Key Dates

Expected Actual

Appraisal 24 May-8 Jun 1989Loan Negotiations 9-11 Oct 1989Board Approval 9 Nov 1989Loan Agreement 16 Apr 1990Loan Effectiveness 15 Jul 1990 21 Jun 1990Project Completion 31 Dec 1995 30 Jun 1996Loan Closing 30 Jun 1996 25 Mar 1997Months (effectiveness to completion) 66 72

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D. Key Performance Indicators (%)Appraisal PCR PPAR

a

Economic Internal Rate of ReturnDrainage

Kabupaten Karawang 43.5 15.9 Kotamadya Banda Aceh 18.0 30.1 Kotamadya Tanjung Balai 63.0 25.1 Kabupaten Deli Serdang 75.0 21.4 Kotamadya Bukit Tinggi 18.7 22.6

KIP

Kabupaten Karawang 40.0 28.8 Kotamadya Banda Aceh 17.0 31.0 Kotamadya Tanjung Balai 47.0 26.0 Kabupaten Deli Serdang 55.0 22.0 Kotamadya Bukit Tinggi 22.7

Urban Roads

Kabupaten Karawang 44.7 Kotamadya Banda Aceh 22.0

Kotamadya Tanjung Balai 34.0

Kabupaten Deli Serdang 60.0 Kotamadya Bukit Tinggi 354.1

Financial Internal Rate of ReturnWater Supply

Kabupaten Karawang 15.0 11.7 Kotamadya Banda Aceh 24.0 11.5 Kotamadya Tanjung Balai 16.0 11.3 Kabupaten Deli Serdang b 11.6 Kotamadya Bukit Tinggi 12.5

Sanitation

Kabupaten Karawang 18.0 12.9

Kotamadya Banda Aceh 23.0 12.7

Kotamadya Tanjung Balai 16.0 12.5 Kabupaten Deli Serdang b 12.0 Kotamadya Bukit Tinggi 18.2 12.0

Solid Waste

Kabupaten Karawang 14.0 10.9 Kotamadya Banda Aceh 32.0 11.1 Kotamadya Tanjung Balai 12.0 11.8 Kabupaten Deli Serdang 14.0 11.0 Kotamadya Bukit Tinggi 10.8

MIIP

Kabupaten Karawang 3.0 12.8 Kotamadya Banda Aceh 11.6

Kotamadya Tanjung Balai

12.0

Kabupaten Deli Serdang 12.8 Kotamadya Bukit Tinggi 12.4

= not calculated; KIP = kampung improvement program; MIIP = market infrastructure improvement program; PCR =project completion report; PPAR = project performance audit report.a The Operations Evaluation Mission did not estimate EIRRs as reliable information is unavailable.b FIRR was not calculated since this component was very small.

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E. Borrower Government of the Republic of Indonesia

F. Executing Agency Directorate General of Human Settlements

G. Mission DataType of Mission No. of Missions No. of Person-Days

Appraisal 1 96Project Administration

Special Project Administration 2 13.3Review 7 69.8Mid-Term Review 1 24Project Completion 1 24Operations Evaluationa 1 36

a The Operations Evaluation Mission evaluated two projects simultaneously: (i) Loan 1078-INO : Bandar Lampung UrbanDevelopment Project, and (ii) Loans 983/984(SF)-INO: Secondary Cities Urban Development (Sector) Project.

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BASIC DATABOTABEK Urban Development Project (Loan 1077-INO)

A. Project Preparation/Institution Building

TA No. TA Name TypePerson-Months

Amount($) Approval Date

574 West Java UrbanDevelopment Project

PP

250,000 23 December 1983

725a Technical AssistanceProgram Loan

TA Loan 25,000,000 18 December 1984

1471 BOTABEK InstitutionalDevelopment

A&O 56 600,000 31 January 1991

1472 Urban and RegionalDevelopment of EasternIslands

PP 60 600,000 31 January 1991

1473 Environmental Managementof Urban DevelopmentProjects

A&O 40 500,000 31 January 1991

= not available; A&O = advisory and operational; PP = project preparatory; TA = technical assistance.a

A subloan (No. 7: West Java (BOTABEK) Urban Development Project, approved on 18 June 1987, for $1.944 million)under this TA loan, was used to finance the preparation of a supplementary feasibility study and detailed engineeringdesigns for the proposed project.

B. Key Project Data ($ million)As per ADB Loan

Documents Actual

Total Project Cost 111.60 101.91Foreign Exchange Cost 47.90 49.64Local Currency Cost 63.70 52.27ADB Loan Amount/Utilization 80.00 76.12ADB Loan Amount/Cancellation 3.88

C. Key DatesExpected Actual

Appraisal 30 Jul-14 Aug 1990Loan Negotiations 21-22 Nov 1990Board Approval 31 Jan 1991Loan Agreement 01 Mar 1991Loan Effectiveness 30 May 1991 11 Apr 1991Project Completiona Mar 1996 Dec 1996Loan Closing 30 Sep 1996 1 Dec 1997Months (effectiveness to completion) 58 69

aPara. 13 of the PCR states except for water supply in Tangerang district, however, all components of the Project were

substantially completed by 31 December 1996.

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D. Key Performance Indicators (%)Appraisal PCR PPAR

Economic Internal Rate of ReturnDrainage (Overall) 15.7

Bogor 41.6 59.1 8.4

Tangerang 25.3 116.4 30.9

Bekasi 23.1 39.3 14.7

KIP/MIIP (Overall) 22.6

Bogor 50.8 115.5 19.2

Tangerang 24.5 212.3 26.1

Bekasi 24.5 250.7 27.7

GLD (Overall) 2.4

Bogor

Tangerang 51.5 136.8 -0.5

Bekasi 45.1 150.3 5.3

Urban Roads (Overall) 46.1

Bogor 29.9 48.8 45.0

Tangerang 207.1 59.7 62.9

Bekasi 44.3 41.2 39.0Sanitation (Overall) 12.2

Bogor 15.0

Tangerang 13.0

Bekasi 9.4

Solid Waste (Overall) 17.8

Bogor 36.0

Tangerang 11.9

Bekasi 17.9

Water Supply (Overall) 22.0

Bogor 18.0

Tangerang 24.8

Bekasi 21.0

Financial Internal Rate of ReturnWater Supply

Bogor 22.0 7.7

Tangerang 64.0 10.6

Bekasi 12.0 7.9

Solid Waste Management

Bogor 37.0 35.1

Tangerang 12.7 14.5

Bekasi 4.5 20.4

Sanitation

Bogor 8.4 9.8

Tangerang 24.9 10.6

Bekasi 28.0 9.4

= not available, not calculated; GLD = guided land development; KIP = kampung improvement program; MIIP =market infrastructure improvement program; PCR = project completion report, PPAR = project performance audit report.

E. Borrower Government of the Republic of Indonesia

F. Executing Agency Directorate General of Human Settlements

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G. Mission DataType of Mission No. of Missions No. of Person-Days

Appraisal 1 59Project Administration

Review 7 85

Mid-Term Review 1 39Project Completion 2 32Operations Evaluation 1 24

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BASIC DATABandar Lampung Urban Development Project (Loan 1078-INO)

A. Project Preparation/Institution Building

TA No. TA Name TypePerson-Months

Amount($) Approval Date

725a

Technical AssistanceProgram Loan

TA Loan 25,000,000 18 December 1984

1474 Bandar Lampung WaterSupply and SewerageDisposal Study

A&O 42 320,000 31 January 1991

1475 Bandar Lampung UrbanPlanning and TransportStudy

A&O 59 440,000 31 January 1991

= not available; A&O = advisory and operational; TA = technical assistance.a

A subloan (No. 6: Bandar Lampung Integrated Urban Development Project, for $1.36 million) under this TA loan was usedto finance the preparation of a supplementary feasibility study and detailed design for the proposed project.

B. Key Project Data ($ million)

As per ADB LoanDocuments Actual

Total Project Cost 47.14 49.98Foreign Exchange Cost 20.50 19.02Local Currency Cost 26.64 30.96ADB Loan Amount/Utilization 33.00 30.77ADB Loan Amount/Cancellation 2.23

C. Key DatesExpected Actual

Appraisal 11-26 Jun 1990

Loan Negotiations 21-23 Nov 1990Board Approval 31 Jan 1991Loan Agreement 01 Mar 1991Loan Effectiveness 30 May 1991 11 Apr 1991Project Completion Jun 1996 Dec 1996Loan Closing 31 Dec 1996 22 Oct 1997Months (effectiveness to completion) 61 69

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EXECUTIVE SUMMARY

This project performance audit report covers the first three integrated urban infrastructuredevelopment projects (IUIDPs) in Indonesia: Loans 983/984(SF)-INO (Secondary Cities Urban

Development [Sector] Project), Loan 1077-INO (BOTABEK Urban Development Project), and Loan1078-INO (Bandar Lampung Urban Development Project). The common objectives of the projectswere to improve urban living conditions and enhance urban management capabilities in theirrespective local governments. The Secondary Cities Project was appraised in June 1989 and twoAsian Development Bank (ADB) loans ($70 million from ordinary capital resources and $50 millionfrom the Asian Development Fund) were approved on 9 November 1989. The Bandar Lampung andBOTABEK projects were appraised in June and August 1990, respectively; the two ADB loans fromordinary capital resources for $33 million and $80 million, respectively, were approved on 31January 1991.

The Secondary Cities Project contributed to rehabilitating and constructing urbaninfrastructure in 51 secondary cities in nine provinces of Sumatra and West Java; the BOTABEKProject covered eight towns in three kabupatens of Bogor, Tangerang, and Bekasi; and the third

project focused on the city of Bandar Lampung. The three projects included eight similar physicalcomponents, namely water supply, drainage, sanitation, solid waste, kampung1 improvementprogram (KIP), market infrastructure improvement program, urban roads, and guided landdevelopment (GLD). The water supply component accounted for more than 30 percent of eachprojects cost, followed by urban roads, drainage, and sanitation. The Executing Agencies for theprojects included the Directorate General of Human Settlements (DGHS) of the Ministry of PublicWorks, Directorate General of Highways, and Directorate General of Water ResourcesDevelopment.

The Operations Evaluation Mission (the Mission) undertook a thematic evaluation, in additionto a typical audit of individual components under each project, focusing on common issues, to drawlessons for ADB operations in the urban infrastructure development sector. The Mission alsoreviewed experiences of other aid agencies in Indonesia.

A. Comparison of IUIDPs with Standalone Projects

IUIDPs typically comprise components covering many sectors such as water supply,sanitation, roads, and housing, while standalone projects upgrade municipal services in one or twosectors. ADB finances both types of project. The Mission identified, from the experiences in the threeevaluated projects, the following advantages of IUIDPs vis--vis standalone projects.

(i) Flexibility in Responding to Changing Needs. Needs for improving various items ofinfrastructure and services change as urbanization proceeds. Some needs may be identifiedor may evolve only after project implementation begins. IUIDPs allow objective-oriented

modifications of project design and components in such a way that the objective is bestattained using the synergy available among sectors. The Bandar Lampung Project was mostsuccessful in demonstrating this advantage.

(ii) Ability to Incorporate Social and Environmental Concerns. IUIDPs allow social andenvironmental concerns to be more effectively incorporated into urban infrastructure

1 A kampungis a densely populated settlement on the margins of an urban area.

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improvements. A sense of community ownership and participation, successfully establishedthrough the KIP component in all three projects, efficiently supported the delivery of socialservices.

(iii) Opportunities for Improving Urban Management. IUIDPs provide opportunities andmeans to improve urban management, which inherently involves many functions, sectors,

and agencies. Although the three projects were centrally planned as initial IUIDPs, theenhancement of development planning and management capabilities of local governmentswas an explicit objective of each project. For subsequent ADB projects, the projectmanagement setup has been integrated in the respective local governments.

The Mission established that IUIDPs were most appropriate for project cities in thepopulation range of 100,000-500,000. The efficiency of service delivery could be further improved bydemand-side management, especially for environment-related components.

B. Impact of the Economic Crisis on Project Sustainability

The three projects were completed in 1996 and their facilities were fully operating when the

economic crisis occurred. All the project completion reports (PCRs), which were prepared after theonset of the crisis in 1998, were concerned about the impact of the crisis on the projects. TheMission assessed the impact of the crisis on the performance of individual components under eachproject and identified the factors that affected the operation and maintenance (O&M) and thesustainability of project facilities. The Mission concurred with the PCRs that the impact of the crisiswas felt most in the water supply and sanitation components. As the tariffs could not be raised, O&Mwas affected. But the impact of slower economic growth on the other project components varied. Forexample, as a sense of community ownership and participation was good in Bandar Lampung, O&Mfor all the other components was practically unaffected by the economic slowdown; in the BOTABEKproject, a similar effect was visible in the KIP and market infrastructure improvement programcomponents. The Mission also estimated the impact of the crisis on the efficiency of performance ofBOTABEK project components, measured in terms of the economic internal rate of return (EIRR).The estimates revealed that, due to a strong sense of community ownership and participation, theproject facilities continued to be highly efficient, in spite of the economic slowdown after the crisis.

C. Measuring Efficiency of Urban Service Delivery

To maximize the developmental impact of IUIDPs, which involve many sectors, propermonitoring and evaluation of service delivery is essential. The three projects aimed to improve urbanliving conditions and enhance urban management capabilities. In the Secondary Cities andBOTABEK projects, local governments considered the projects as investments for improving thephysical infrastructure rather than vehicles for supporting the long-term delivery of services.Consequently, in the project benefit monitoring and evaluation activities, the government agenciesrelied on data on physical achievements for the components. The Mission observed that the delivery

of services was mixed in the BOTABEK Project. In the Secondary Cities Project, the improvementswere difficult to measure in the cities visited, as project contributions were small when compared tothe need for these services. In contrast, the Bandar Lampung Project demonstrated thatperformance monitoring could be effectively carried out only by substantial community participation.In addition, such participation in monitoring contributed to improving O&M activities by stimulating asense of ownership among beneficiary communities.

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D. Performance Rating of the Projects

1. Secondary Cities Urban Development (Sector) Project

The Project was ADBs first IUIDP in Indonesia. It was complex, involving many

implementing agencies and 27 project implementing units. During project implementation, DGHSextensively modified the project components to the extent that the project components were onlypartly relevant to the original objectives. Decisions on project modifications were made mostly at theprovincial level, while fund allocation was centrally controlled. In addition, efficacy (in terms ofachieving the project purpose of improving living conditions) was only efficacious. Allocation underthe Project (approximately $2 million-$3 million equivalent) in many cities was relatively lowcompared to each citys overall development budget. Consequently, local government involvementwas limited, and community consultation minimal. The local water enterprises generally suppliedonly clean water but not potable water. Public toilets ceased to function after a few years of use dueto lack of water from their associated hand pumps, lack of organized maintenance, and low demandfor public toilets as households built individual toilets and septic tanks. The Mission did not estimateEIRRs, as reliable information was unavailable. Based on estimates in the PCR, efficiency is ratedefficient. Sustainability is rated less likely for all components due to lack of ownership at the local

government level. The Projects contribution to institutional development is rated negligible. TheProject did not include an advisory technical assistance for capacity building. Overall, the Project israted less than successful.

2. BOTABEK Urban Development Project

All components, except the GLD component, were relevant. Efficacy is rated efficacious asthe project purpose was generally achieved. However, the unaccounted-for-water levels were notreduced in all project cities. The effects of GLD in Bekasi and Tangerang were so small as to make itimpossible to distinguish them from development spilling over from neighboring areas. Most roadsimproved by the Project were well used or in fact overused in some sections, resulting in earlydegradation of surface conditions as maintenance was less than adequate. The Mission observedvarying conditions of drainage. In Bogor, roadside drains that were provided as part of the roadimprovements were physically in good condition, but the maintenance of secondary drains wasproblematic due to limited local participation. In Bekasi and Tangerang, maintenance of urbandrainage works was tied to road maintenance, and it was better in Bekasi. The KIP was highlysuccessful with community participation. The reestimated EIRRs confirmed that the projectcomponents were highly efficient. Sustainability is rated likely for all components. The KIP inTangerang now includes training for entrepreneurs. The Projects contribution to institutionaldevelopment is rated little. The transfer of responsibility from the project monitoring unit to the localgovernment for ownership of O&M was insufficient. Overall, the Project is rated successful.

3. Bandar Lampung Urban Development Project

The Project was highly successful in attaining the objectives of improving living conditionsand enhancing urban management. The project components were highly relevant. Efficacy is ratedhighly efficacious. Although the Project was centrally planned and controlled, the city governmentplayed a major role in implementing some components under a clearly defined division ofresponsibilities, and in training and community information programs, supported by consultants. TheMission accepted the high EIRRs reported in the PCR for all the project components. Efficiency israted highly efficient. Tariff collection for water supply covered almost 100 percent of consumersafter 1996. Flood control works were very well done, aesthetically as well as technically, and

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enhanced a sense of security and social cohesiveness of local communities. Solid waste wascollected daily, covering an increasing population, with collection fees charged to households andcommercial entities, and disposed of in a sanitary landfill. Desludging and sludge treatment werefully operational using the trucks and facilities provided by the Project, although demand for theservice was not as high as expected. Project sustainability is rated most likely. The O&M of allproject facilities was highly satisfactory. Urban roads, notably those supported by ADB, were

generally well maintained. Kampungs that were improved under the Project were generally wellmaintained. The Project made a moderate contribution to institutional development. The Missionobserved, during the meetings at the mayors office and the field visits, a strong sense of ownershipamong the local government and communities. Overall, the Project is rated highly successful.

E. Lessons Identified

Of the many lessons identified from the evaluation exercise, the important one was thatpotable water need not be distributed through a piped water supply. In the project areas, the localwater enterprises produce only clean water, not potable water. People prefer to buy drinking waterfrom vendors who tap the shallow-well groundwater with hand pumps. Most tropical areas ofdeveloping member countries are endowed with sufficient annual rainfall for shallow groundwater to

be the most accessible and sustainable source. The fundamental problem is the pollution of thisgroundwater, due to inadequate sanitation practices. This problem cannot be overcome byextending piped water supply alone, which requires greater investment. Potable water, which is insmaller quantities, is better delivered when distributed in bottles, through public-private sectorparticipation.

F. Follow-Up Actions

The Mission provided early feedback from the evaluation to ADBs Projects Department andthe Executing Agencies through several workshops. ADB and the Government identified actionspending since the PCRs; they also appropriately incorporated, under ongoing projects, the additionalproject-specific follow-up actions suggested by the Mission.

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I. INTRODUCTION

A. Background

1. The Asian Development Bank (ADB) had approved loans and technical assistance (TA) forthe urban development and housing sector in developing member countries amounting to $3,546.85million for loans, and $67.12 million for TAs as of February 2000. Of these, 14 projects have beenevaluated. In 1997, an impact evaluation study,1 covering 12 loans in four countries, underscoredimportant issues. This project performance audit report (PPAR) covers three integrated urbaninfrastructure development projects (IUIDPs) in Indonesia (Loans 983/984[SF]-INO, 1077-INO, and1078-INO) that were evaluated.2

2. The projects were evaluated together, focusing on the sector issues that they have incommon. This evaluation report therefore concentrates on such issues. A thematic evaluation ofIUIDPs focusing on the synergies among these sectors was undertaken in this exercise (para. 14).

B. Basic Information on the Three Projects

3. The three IUIDPs were accorded high priority in the Governments Fifth Five-YearDevelopment Plan. They had similar general objectives: (i) to improve urban living conditions, and(ii) to enhance urban management capabilities. The three projects included eight similar physicalcomponents: water supply, drainage, sanitation, solid waste, kampung3improvement program (KIP),market infrastructure improvement program (MIIP), urban roads, and guided land development(GLD). The water supply component accounted for more than 30 percent of the project cost,followed by urban roads, drainage, and sanitation. The details of the rationale, formulation of mainobjectives, scope of activities, cost, financing, and executing arrangements for each project aresummarized in Appendix 1. Each project is briefly described below.

4. Secondary Cities UrbanDevelopment (Sector) Project. The Secondary Cities Project wasADBs first IUIDP in Indonesia.4 The Project was appraised in June 1989 and approved on 9November 1989. ADB approved two loans to finance this project: $70 million from the ordinarycapital resources (OCR) and $50 million equivalent from the Asian Development Fund. The Projectcontributed to rehabilitating and constructing urban infrastructure in 51 secondary cities in nineprovinces of Sumatra and West Java.5 ADB adopted the sector lending approach and subprojects

1 IES: REG 97019: Impact Evaluation Study of Bank Assistance to the Urban Development and Housing Sector, December1997.

2 Loan 983-INO: Secondary Cities Urban Development (Sector) Project, for $70.0 million, approved on 9 November 1989;Loan 984(SF)-INO: Secondary Cities Urban Development (Sector) Project, for $50.0 million, approved on 9

November 1989; Loan 1077-INO: BOTABEK Urban Development Project, for $80.0 million, approved on 31

January 1991; and Loan 1078-INO: Bandar Lampung Urban Development Project, for $33.0 million, approved on 31January 1991.3 A kampungis a densely populated settlement on the margins of an urban area.4 Earlier feasibility studies were prepared for (i) West Java (by Louis Berger International [United States], in association with

P.T. Virama Karya [Indonesia] and P.T. Alfacon [Indonesia]); (ii) the five provinces of Sumatra, i.e., Aceh, Bengkulu,Jambi, Lampung, and Riau (by TPOSullivan and Partners [United Kingdom], in association with P.T. Hasfarm DianKonsultan [Indonesia] and P.T. Lenggogeni [Indonesia]); and (iii) the remaining three provinces of Sumatra, i.e., NorthSumatra, South Sumatra, and West Sumatra (by UNDP-financed consultants Hasfarm Dian Konsultan [Indonesia]).Under Subloan No. 4: West Java and Sumatera Integrated Urban Development Project, which was approved on 6 June1986, for $5.38 million, supplementary feasibility work was carried out. This subloan was part of TA Loan 725-INO:Technical Assistance Program Loan, for $25.0 million, approved on 18 December 1984.

5 Bengkulu, D.I. Aceh, Jambi, Lampung, North Sumatra, Riau, South Sumatra, West Java, and West Sumatra.

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were formulated at the level of kabupatens6 or kotamadyas.7 The Directorate General of HumanSettlements (DGHS) was the Executing Agency (EA) for the Project.

5. BOTABEK Urban Development Project. The BOTABEK Project was prepared by twoADB-financed feasibility studies8 and was appraised in August 1990. The ADB loan amounting to$80 million from OCR was approved on 31 January 1991. The Project covered eight towns in three

kabupatens of Bogor, Tangerang, and Bekasi. DGHS was the EA for this project as well. Three TAswere attached to this: (i) TA 1471-INO: BOTABEK Institutional Development, for $600,000; (ii) TA1472-INO: Urban and Regional Development of Eastern Islands, for $600,000; and (iii) TA 1473-INO: Environmental Management of Urban Development Projects, for $500,000.

6. Bandar Lampung Urban Development Project. The Bandar Lampung Project wasappraised in June 1990.9 The ADB loan for $33 million from OCR was approved on 31 January1991. The Project followed an integrated approach to enable cost-effective service provision, withdue consideration to the bottom-up planning process. The EAs for the Project were DGHS of theMinistry of Public Works, Directorate General of Highways, and Directorate General of WaterResources Development. Two advisory and operational TAs were attached to this project: (i) TA1474-INO: Bandar Lampung Water Supply and Sewerage Disposal Study, for $320,000; and (ii) TA1475-INO: Bandar Lampung Urban Planning and Transportation Study, for $440,000.

C. Completion and Self-Evaluation

7. Secondary Cities Urban Development (Sector) Project. The Secondary Cities Project wascomplex, involving many implementing agencies (IAs) and 27 project implementing units. Followingthe sector lending approach, ADB appraised four pilot subprojects and the central Governmentapproved the remaining 47 subprojects. The Project suffered from a start-up delay of nearly threeyears. The Project was nevertheless completed in June 1996, six months behind the originalschedule. The total project cost was $166.9 million, 11.1 percent more than the appraisal estimate.The project completion report (PCR) was circulated on 3 December 1998. The PCR rated the projectas generally successful, based on the review of physical achievement in three cities.10 However, thePCR did not present additional information and analysis for supporting the achievement of projectpurpose. In the three subprojects, the physical targets at appraisal were generally met (Appendix 2,Table A2.1a-A2.1f). The attainment of benefits in terms of target beneficiaries exceeded appraisaltargets by 10 percent for solid waste management and market improvement components, while itranged between 60 and 75 percent of appraisal targets for other components. Moreover, the PCRreported that there were problems relating to institutional capacity and coordination among variousIAs and consultants but did not examine their impact on project implementation and performance.The PCR did not signal poor compliance with respect to covenants relating to institutional andfinancial aspects as a concern affecting operation and maintenance (O&M) of subprojects. The PCR

6 District: administrative subdivision of a province; rural in character.7 Municipality: administrative subdivision of a province; urban in character.8

An Asian Development Bank (ADB)-financed feasibility study (under TA 574-INO: West Java Urban Development Project,for $250,000, approved on 23 December 1983) for urban infrastructure investments in five fast-growing towns in the threekabupatens of Bogor, Tangerang, and Bekasi (BOTABEK) was completed in early 1986. A supplementary feasibility studyand detailed engineering designs were prepared through subloan No. 7: West Java (BOTABEK) Urban DevelopmentProject, for $1.944 million. This subloan was part of TA Loan 725-INO: Technical Assistance Program Loan, for $25.0million, approved on 18 December 1984.

9 The Government prepared feasibility studies for the water supply of Bandar Lampung and other elements of urbaninfrastructure improvements needed in the city, including drainage and flood control, human and solid waste disposal, andkampung improvement. As these studies were found to be inadequate, ADB prepared a supplementary feasibility study,which was financed through subloan No. 6: Bandar Lampung Integrated Urban Development Project, for $1.36 million.This was part of TA Loan 725-INO.

10 Banda Aceh in Aceh Province, Bukit Tinggi in West Sumatra, and Karawang in West Java.

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also recorded that subprojects yielded lower financial and economic internal rates of return(FIRRs/EIRRs) than estimated at appraisal. The impact of the economic crisis on the allocation offunds for O&M was expected to affect the sustainability of the subprojects and consequently result ineven lower FIRRs and EIRRs. The PCR included an action plan for outstanding issues emergingfrom the project, to be implemented under the follow-up projects (Loans 1383/1384-INO: SumatraUrban Development [Sector]/West Java Urban Development [Sector] Projects, respectively).

8. BOTABEK Urban Development Project. The total actual project cost was $101.91 millionequivalent, compared to $111.60 million equivalent at appraisal. The Project was completed inDecember 1996, except for one water supply component in Tangerang (Appendix 2, Table A2.2a-A2.2c). The overall completion was nine months behind the original schedule. The PCR, circulatedon 4 December 1998, reported satisfactory performance of consultants and contracts. All covenantswere complied with. The PCR identified the need for strengthening local governments in overallplanning and management, and reported that the issue was being addressed under the follow-upproject.11 The impact of the financial crisis on project achievement and O&M plans wasacknowledged but not analyzed quantitatively. The PCR included a detailed list of future issues andactions taken/to be taken, covering design of urban development projects, local institution building,private sector participation, community involvement, and cost recovery, among others. The PCRrated the project and the attached TAs as generally successful. The FIRRs and EIRRs were

reestimated along with relevant information on the methodology and assumptions. The OperationsEvaluation Mission (the Mission) generally concurred with the PCR findings.

9. Bandar Lampung Urban Development Project. The total actual project cost was $49.98million equivalent, an increase of 6 percent from the appraisal estimate. The Project wasimplemented close to appraisal schedule, and was completed in December 1996, six months behindschedule. Except for the installation of house connections and related distribution network under thewater supply component, all works originally envisaged at appraisal were completed satisfactorily(Table A2.3). The PCR, which was circulated on 28 July 1998, was very well written. The Missiongenerally confirmed PCRs key statements and the project performance rating. Both consultants andcontractors performed satisfactorily. Major covenants were complied with. PDAM (local waterenterprise) Way Rilau was unable to achieve the covenanted unaccounted-for-water (UFW) target of25 percent. The PCR reported UFW at 37 percent in September 1997. The Project had positiveenvironmental impacts. The city government of Bandar Lampung received two national awards:cleanest city and traffic congestion-free city (dates of the awards were not reported). The Projectgenerally achieved its intended benefits. The PCR considered these benefits sustainable. TheEIRRs and FIRRs were reestimated, and PCR estimates were lower than appraisal estimates.Overall, the Project and the attached TAs were rated generally successful. The PCR included anaction plan with deadlines for improving UFW levels.

D. Operations Evaluation

10. The Operations Evaluation undertook a thematic evaluation, in addition to a typical audit ofindividual components under each project, focusing on common issues, to draw lessons for ADB

operations in the urban infrastructure development sector. Three themes were identified based onthe Missions judgment of their relevance to ADB operations. The themes also emerged from theconclusions in the PCRs.

(i) Comparison of IUIDPs with Standalone Projects. IUIDPs typically comprisecomponents covering many sectors such as water supply, sanitation, roads, and

11 Loan 1511-INO: Metro BOTABEK Urban Development (Sector) Project, for $80.0 million, approved on 19December 1996.

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housing, while standalone projects upgrade municipal services in one or two sectors.ADB finances both types of project. The Mission investigated the relative merits ofIUIDPs when compared to standalone projects to assess the preferred approach forfuture projects.

(ii) Impact of the Economic Crisis on Project Sustainability. The three projects were

completed in 1996 and their facilities were fully operating when the economic crisisoccurred. The PCRs, which were prepared after the onset of the crisis in 1998, wereconcerned about the impact of the crisis on the projects. The Mission assessed thisimpact on the performance of individual components under each project andidentified the factors affecting O&M and sustainability of project facilities.

(iii) Measuring Efficiency of Urban Services Delivery. The Secondary Cities andBOTABEK projects could not report on improvements in the delivery of urbanservices. The improvements were difficult to measure, especially for projectcomponents whose contributions were small when compared to the need for theseservices. The Mission evaluated the benefit monitoring and evaluation arrangementsin these projects and assessed the preferred monitoring and evaluation (M&E)techniques for future IUIDPs.

11. The Mission visited Indonesia on 23-31 March 2000 (BOTABEK Urban Development Project)and on 26 April-5 May 2000 (Secondary Cities and Bandar Lampung Urban Development projects).The Mission organized workshops for representatives from ADBs operations departments beforefield missions on 22 March 2000 and 26 April 2000 to collect relevant information on the individualprojects, and after field visits on 15 May 2000 to provide early feedback. The Mission organizedworkshops for government agencies on 30 March and 27 April 2000 to review and assess theperformance of the three projects and the actions taken with respect to the follow-up actions andrecommendations in the PCRs. The Mission also held discussions with the representatives from theproject implementing units, for ongoing ADB projects, and provided suggestions for improving theimplementation of these projects.

E. Project Performance Audit Report

12. Report Organization. The themes are elaborated in Chapter II. The key points onperformance evaluation of individual projects are highlighted in Chapter III. The details on theassessment of implementation and operational performance are in Appendixes 2-6. Theconclusions, including overall assessment, lessons, and recommendations for the future, arepresented in Chapter IV.

13. Report Finalization. The PPAR is based on a review of the appraisal reports, PCRs andmaterials in ADB files for the three IUIDPs; and discussions with staff from ADBs ProjectsDepartment, Directorate General for Urban Development, PDAMs, Badan PerencanaanPembangunan Derah (Provincial Planning Agency), Badan Perencanaan Pembangunan Nasional

(National Development Planning Agency), the World Bank, provincial and local government officials,project management units (PMUs), consultants of ongoing follow-up projects, and projectbeneficiaries. Copies of the draft PPAR were sent to the Government, EAs, and ADB staffconcerned for review and comment. Comments received were taken into consideration in finalizingthis report.

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II. THEMATIC EVALUATION

A. Comparison of IUIDPs with Standalone Projects

14. IUIDPs comprise components covering many sectors such as water supply, sanitation,

roads, and housing. For the purpose of this evaluation, standalone projects are defined as thosewhich upgrade municipal services through investment in two or three sectors (for example, watersupply, sanitation, and drainage).

1. Advantages of IUIDPs

15. The Mission identified, from the three evaluated projects, the following advantages of IUIDPsvis--vis standalone projects.

a. Flexibility in Responding to Changing Needs

16. Needs for improving various items of infrastructure and services change as urbanizationproceeds. Some needs may be identified or evolve only after project implementation begins. IUIDPsallow objective-oriented modifications of project design and components in such a way that theobjective is best attained using the synergy available among sectors.

17. The Bandar Lampung Project was most successful in demonstrating this advantage. Theroad component was modified with more widening and less maintenance of existing roads andimprovement of five junctions originally not planned to achieve the full benefits as appraised. Morekampungs were covered by the KIP component within the allocated budget. Moreover, theGovernments own programs were also implemented to complement the project, such as additionalprotective walling for flood protection and additional rehabilitation of roads.12 For the BOTABEKProject, strong economic growth and rapid urbanization during project implementation caused costincreases and necessitated modification such as the following:13 (i) decrease in demand for publicpipes, (ii) increase in road improvement needs, (iii) relocation of GLD sites to fringes, and (iv) delayin land acquisition for sanitation and solid waste facilities. While these changes caused fundshortages and delays in implementation, overall project performance was not sacrificed as a result ofcomplementary modifications.14

b. Ability to Incorporate Social and Environmental Concerns

18. IUIDPs allow social and environmental concerns to be more effectively incorporated intourban infrastructure improvements.15 One example is vertical integration of water-related projectcomponents such as water supply, sanitation, sewerage, and drainage. Location of septic tanks toavoid interference with shallow wells is another example. IUIDPs can also build in social concerns in

12 Loan 1078-INO: Bandar Lampung Urban Development Project, for $33.0 million, approved on 31 January 1991.13 Loan 1077-INO: BOTABEK Urban Development Project, for $80.0 million, approved on 31 January 1991.14 In the Secondary Cities Project, this advantage of flexibility was rather abused with extensive modifications. At the project

site level, it is difficult to see the correspondence between what was planned and what was realized, indicating that needswere ill identified at the beginning or the modifications were not objective oriented.

15 In Bandar Lampung, flood control measures contributed to enhancing a sense of security and social cohesiveness amongresidents in formerly flooded areas. The cross-subsidizing mechanism existed in some project areas, where the watersupply for higher income groups provides partial support for other components under local government responsibilities.Incorporation of social and environmental concerns was not explicitly stated in any of the three projects evaluated.

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2. Suggestions for Future IUIDPs

22. The Missions other findings and suggestions for the formulation and implementation offuture IUIDPs are briefly described here; the details are presented in Appendix 7.

(i) City size and location are the most important factors affecting the success of IUIDPs.

Other factors are urban dynamics, functions of agencies, and use and availability ofland.

(ii) Water supply and sanitation constituted important components in these three IUIDPs.While the projects included a water treatment plant, a piped water supply system,communal toilet facilities, family latrines, desludging trucks, and sludge treatmentfacilities for sanitation, they did not approach the fundamental problem of pollutedshallow groundwater in an integrated manner.20 An alternative model (with theacronym WATERsee Appendix 7) is suggested by the Mission to address thisproblem in an integrated manner. Moreover, an integrated basin-wide approach tourban infrastructure development is possible in IUIDPs, though not attempted in thethree projects evaluated.21

B. Impact of the Economic Crisis on the Sustainability of the Projects

23. The economic crisis that affected Indonesia in 1998 had a serious impact upon urban areasthroughout the country, resulting in lost jobs and declines in incomes for urban workers. The localwater enterprises suffered from declining revenues and became unable to meet their O&M costs.The PCRs, which were prepared after the economic crisis occurred, expressed concern about thesustainability of the projects, particularly the water supply component. The Mission concurred withthe PCRs that the impact of the crisis was felt most in the water supply and sanitation components.As the tariffs could not be raised, O&M was affected. But the impact of slower economic growth onthe other project components varied. For example, the O&M of the KIP, MIIP, and drainagecomponents required basically good ownership and participation at community level, and no tariffswere collected. The Mission rated from field observations (i) the availability of funds for O&M, (ii)proper ownership and participation by beneficiaries, and (iii) their effect on benefits generated andthe sustainability of facilities (Appendix 6).

1. Sensitivity Analysis on EIRRs

24. The Mission estimated the impact of the crisis on the efficiency of performance of projectcomponents, measured in terms of the EIRR. The precrisis situation was considered as the basecase, signified by healthy economic growth and proper O&M. The second scenario was based onthe PCRs prediction that the crisis would result in poor O&M and a shorter useful life for allcomponents. It was assumed that O&M would not be proper for all components. Moreover, in thecase of urban roads and KIP components, poor O&M was also assumed to result in a shorter useful

life. EIRRs for all components were substantially lower than the base case. The third scenario wasmade up of the Missions observations. The Mission confirmed the PCRs prediction regarding O&M

20 Shallow groundwater, which is the most accessible source of water for the majority of people in tropical and subtropicalAsia, is often polluted as a result of inadequate sanitation practices. This problem cannot be overcome by extending pipedwater supply alone, which requires a large investment and still does not assure the delivery of safe drinking water ataffordable prices, for various technical and administrative reasons.

21 The river basin would constitute a basic planning unit for water-related urban infrastructure including water supply,sanitation, drainage and sewerage, and solid waste management.

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for the water supply and sanitation components. However, as ownership and participation weregood, O&M for the other components was virtually unaffected by the economic slowdown in BandarLampung; in the BOTABEK Project, a similar effect was visible in the KIP and MIIP components. Forthese components, the EIRR estimates in the third scenario were higher than the estimates in thePCR scenario. This revealed that in spite of the economic slowdown induced by the crisis, theproject facilities continued to be highly efficient.

2. Suggestions for Improving Stakeholder Participation

25. The Mission reviewed the institutional arrangements in ongoing projects in Indonesia andidentified possible variants for improving participation of stakeholders in future IUIDPs. For theCommunity and Local Government Support Sector Development Program,22 a working group wasproposed under BAPPENAS to act as PMU to coordinate the investment project's day-to-daymanagement, budgeting, and monitoring activities. This central control would be complemented withvisits from the PMU to each of the districts to conduct public meetings and workshops withrepresentatives of districts, subdistricts, villages, and civil society groups and organizations.23 Thiswould enhance the accountability of project planning and management. Another proposal toenhance accountability was to pilot-test consultation procedures between local government and the

community using provincial or local urban development coordination forums formed as umbrellaunits to support improved planning, programming, and monitoring of urban investment programs.24Involving the private sector would also contribute to increasing urban management capacity andenhancing accountability. In a World Bank-supported project, each local government was requestedduring project preparation to identify subprojects, O&M activities, and other project actions, whichcould be implemented by the private sector.25 The possibility of separate sewerage enterprises, andof sludge collection and disposal services by private operators, was also suggested.

C. Measuring Efficiency of Urban Service Delivery

26. To maximize the developmental impact of IUIDPs, which involve many sectors, proper M&Eof the delivery of services is essential. The three projects aimed to improve urban living conditionsand enhance urban management capabilities. Local governments considered the Secondary Citiesand BOTABEK projects as investments for improving the physical infrastructure instead of vehiclessupporting the long-term delivery of services. Consequently, in the project benefit monitoring andevaluation (PBME) activities, the government agencies relied on data on physical achievements forthe components (Appendix 2). The data were useful for the water supply components but not theothers, whose impact could be measured only by indicators on the quality of the living environment.

1. PBME Arrangements in the Projects

27. Performance monitoring is essential to ensure that the facilities are actually used to deliverservices. M&E in fact links facilities provision and services delivery. This element, however, was by

far the weakest, and the covenant for preparing a PBME report one year after the PCR was met onlyin the Bandar Lampung Project. In the Secondary Cities and BOTABEK projects, where the PBME

22 Loan 1678-INO: Community and Local Government Support Sector Development Program ProjectLoan, for $120 million,approved on 25 March 1999, p. 21, paras. 79-80.

23 Op.cit., p. 27, para. 10.24 Loan 1572-INO: Capacity Building in Urban Infrastructure Management Project, for $42.0 million, approved on 4

November 1997, p.7, para. 23.25 SAR No. 15045-IND: Second East Java Urban Development Project, p. 27, para. 5.5. World Bank, 1996.

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activities were not properly undertaken, the delivery of services was mixed. Given the resourceconstraints, such performance monitoring could be effectively carried out only by substantialcommunity participation. As observed in Bandar Lampung, M&E activities with the participation oftarget beneficiaries also contributed to improving O&M activities through establishing ownershipamong beneficiary communities.

28. For consistent and systematic M&E activities, an effective M&E system needs to beestablished, which would allow easy M&E by people. Monitoring should be conducted usingindicators that are easy to understand and measure, and evaluation should not involve sophisticatedanalysis and complicated calculations. A sort of self-monitoring system based mainly onobservations should be established initially to allow continuous monitoring at minimal cost. A self-monitoring system that can be used at the community level is presented in Appendix 7.

2. Demand-Side Management for Solid Waste and Sanitation

29. The efficient delivery of services can also be improved by demand-side management,especially for environment-related components. This has two aspects: demand suppression anddemand development. For solid waste management, waste generation may be suppressed by

encouraging recycling and other less resource-wasteful practices through proper incentives, as wellas information and education campaigns. Demand for final disposal of waste may be reduced byintroducing more environment-friendly intermediate treatment such as composting, as practiced insome secondary cities. Demand for piped water supply can be controlled by proper pricing andmarket segmentation.26

30. The Mission observed that demand for desludging services of human waste was still muchlower than expected at appraisal in all projects.27 Demand should be developed for both thedesludging service and compost by establishing a proper incentive mechanism. One way could be toprovide the desludging service free of charge and operate the sludge treatment as a sustainableeconomic activity with compost sales. More advanced solid waste management practices could beintroduced in future IUIDPs. Waste segregation and sorting and recycling at household orcommunity level may be introduced first on a pilot scale.28

III. PERFORMANCE EVALUATION OF THE THREE PROJECTS

A. Planning and Implementation Performance

31. Formulation and Design. The designs in the three projects were relevant to the sectoralobjectives and generally consistent with the ADB country operational strategy in Indonesia. Allprojects adopted an integrated approach with due consideration to cost-effectiveness in the deliveryof services, and increasing financial and institutional capacities at the local level. The subprojectswere formulated by local governments (kabupatensandkotamadyas) and approved by the central

26 Introduction of the alternative models described above may provide an effective tool for this. Given the wide variance inprices for bottled and piped water, ample room exists to rationalize water pricing in such a way to benefit low-incomepeople, while discouraging wasteful use of water by large consumers.

27 In Bandar Lampung, only two out of nine vacuum trucks are operational and only one of three sludge treatment tanksprovided by the Project is used. There are two reasons: limited willingness by residents to pay for the services, and somehouseholds selling human waste directly to farmers. For environmental sanitation, more households should be covered bythe desludging service, and it is better to apply treated sludge as compost rather than applying human waste directly.

28 Bandar Lampung, with well-established ownership and institutionalized O&M, may be a good candidate to pilot-test thenew practices. Alternative models may be experimented with to establish the most appropriate one through M&E.

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Government. Only in the Secondary Cities Project were the project components modified extensivelyduring implementation to the extent that it was difficult to see the correspondence between what wasplanned and what was realized at the subproject site level. The Mission observed that needs wereill-identified in some subproject appraisal reports and that the modifications were not objective-oriented.29 The Mission concurred with the PCR statements on the satisfactory performance ofconsultants. Consultant support was particularly important for the preparation of local institutional

development and revenue improvement action plans (Appendix 3, Table A3.2).

32. Cost and Scheduling. The actual costs of the three projects varied from appraisalestimates. The Secondary Cities and Bandar Lampung projects incurred overruns in local currencycosts.30 The cost of consulting services and training in the BOTABEK Project increased by 19percent due to extra work on institutional strengthening and benefit monitoring and evaluation. TheMission observed that the cost variances in the projects did not affect the economic efficiency oftheir respective outputs, which were properly utilized and maintained (Appendix 3, Table A3.3). Allprojects were completed six months behind their appraisal schedules. Being the first IUIDP inIndonesia, the Secondary Cities Project incurred substantial start-up delays due to delays infinalizing the subproject appraisal reports (paras. 14-19, PCR); some of the institutional supportpackages did not begin until three years after programmed

29 In the Secondary Cities Project, the adverse impact of the lack of proper coordination between the central level ExecutingAgency and the local governments on the project performance was visible. In hindsight, the need for an advisory TA wasoverlooked. The Government and DGHS made considerable efforts to improve implementation, speeding up contractawards and appointing an international consultant to coordinate the work of domestic consultants.

30 The total cost of the Secondary Cities Project was 11 percent higher than the appraisal estimate of $150.2 million. Thelocal currency cost increased by 14 percent mainly due to increases in civil works costs for the expanded scope of work.The total cost of the BOTABEK Project was $101.9 million, 9 percent lower than the appraisal estimate; the decrease wasdue mainly to a smaller cost increase as compared to contingencies. The total cost of the Bandar Lampung Project was$50.0 million, 6 percent higher than the appraisal estimate; the local currency cost incurred a 16 percent overrun, duemainly to training programs carried out by IAs.

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start-up.31Again, the Mission observed that none of the delays in the projects adversely affected theachievement of intended project outputs (Appendix 3, Table A3.4).

33. Procurement and Construction. Procurement of civil works was carried out essentially asappraised in all projects. The Mission concurs with the statements in the three PCRs on thesatisfactory performance of contractors and suppliers. The quality of construction was highly

satisfactory in the Bandar Lampung Project and satisfactory in the BOTABEK Project. In theSecondary Cities Project, limited coordination and exchange of information between DGHS and localgovernments sometimes resulted in poor quality construction for some components.

34. Organization and Management. The institutional arrangements were similar in the threeprojects. However, the performance varied. In the Secondary Cities Project, DGHS had difficultycoordinating the Project due to the complex arrangements involving many agencies from manycities, given the limited experience of its staff within PMUs and project implementation units.Additional emphasis on the capacity building of participating agencies, particularly at the localgovernment level, was needed. This has been addressed in the ongoing projects (Loans 1383/1384-INO: Sumatra Urban Development [Sector]/West Java Urban Development [Sector] Projects), whichhave delegated more responsibility to the local governments. In the BOTABEK Project, theorganizational structure for project implementation with PMU/sub-PMUs outside the permanent

organizational structure of provincial and local governments did not prove to be conducive for asmooth transfer of responsibility for O&M. This has been corrected under the ongoing MetroBOTABEK Urban Development (Sector) Project(Loan 1511-INO).

35. Covenants. In all projects,compliance with covenants was generally satisfactory (Appendix3, Table A3.5). The few covenants that were only partly complied with did not adversely affectproject performance. However, in the Secondary Cities Project, local governments were unable toallocate adequate funds for subproject O&M.32

B. Achievement of Project Purpose

1. Operational Performance

36. The Mission visited five secondary cities in three provinces and updated the operationalperformance of components under the Secondary Cities Project (Appendix 2, Tables A2.1a-e).33 TheProject did not achieve the physical targets in all components, except solid waste.34 The Project

31 The Project nevertheless was completed in June 1996, six months behind the original schedule. The BOTABEK Projectstarted in May 1991, delayed by seven months due to delays in land acquisition and recruitment of consultants. Allcomponents of the Project were substantially completed by the end of 1996, except for water supply in Tangerang, whichwas delayed because of complications in implementing arrangements resulting from the establishment of the newTangerang municipality. The Bandar Lampung Project started in January 1991 as scheduled, and was completed by theend of 1996 with a six-month delay caused mainly by a delay in the installation of house connections for water supply.

32

The situation would be worse, as local water enterprises (PDAMs) still continue to transfer a share of their net profit tolocal governments. PDAMs, which are autonomous, need not transfer their incomes to local governments. Moreover,PDAMs are unable to cover O&M expenses, as they have not been allowed to increase tariffs since the economic crisis.

33 The Mission visited kabupatens Deli Serdang and Rejang Lebong (Curup), city of Bandar Lampung, and KotamadyaBengkulu. Additional information on other subprojects was collected from representatives of project implementing units ata meeting on 3 May 2000 in Jakarta, chaired by the Directorate General for Urban Development, the executing agency inthe central Government.

34 In the water supply component, house connections largely reached targets, but some connections are inactive due to lowpressure. Public taps reached only 30 percent of appraisal target. Unaccounted-for-water (UFW) was not significantlyreduced, and in some cities UFW increased. The equipment for the solid waste component exceeded targets. Poorcoordination between PDAM in charge of O&M of desludging trucks and Dinas Kebersihan (in charge of disposal)hampered sanitation operation (e.g., in Deli Serdang).

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could not establish adequate ownership at the local level, as most local governments were notactively involved in project planning and modifications, and community consultation was minimal.Consequently, the capacity of local governments for O&M was not substantially improved by theproject, and the delivery of services was mixed (Appendix 4, Table A4.1). The Mission experienceddifficulty in measuring the contribution of the Project to improving the living environment. In the citiesvisited, the investment under the Project components was small when compared to the overall need

for services.

37. The BOTABEK Pro ject was generally successful in achieving the physical targets for thewater supply component.35 Appendix 2, Table A2.2 provides an update of the operational status ofthe project components. The water supply component was operating satisfactorily (Table 1). Thehigh UFW ratios are the result of both technical and administrative problems; the latter include lowbill collection rates, illegal connections, and defective meters. The sanitation and solid wastecomponents were operating less than satisfactorily. Communal toilet facilities, desludging trucks,and sedimentation facilities were not well used and sedimentation facilities were not fully operational.The operational performance of roads and drainage improved by the project was good, but neededmaintenance to ensure sustainability. In particular, the participation of local communities forsecondary drains seems limited, while the main responsibility for this lies in the local governmentspublic works division (Dinas PU). O&M of most KIP sites was largely under community responsibility,

but the levels of community participation varied among the sites. Some KIP sites in Tangerangneeded local government support for maintenance.

Table 1: BOTABEK Water Supply Component

UFW (%) House ConnectionsAt PCR Present At PCR Present

Depok, Bogor 25 39 7,200 > 7,600Tangerang 20 29 5,700 8,000Bekasi 26 47 27,000 36,000

PCR = project completion report; UFW = unaccounted-for-water.

38. The Bandar Lampung Project fully achieved appraisal targets for all components. The citygovernment played an active role not only in implementing solid waste management, sanitation, KIP,urban roads, and drainage components but also in extensive training and community informationprograms; the latter helped to establish a sense of ownership among the local government andcommunities. A summary of the current operational status of the project components is shown inAppendix 2, Table A2.3. After the PCR, the equipment and facilities for the solid waste componentwere increased. The original equipment provided by the Project is still fully used. The floodprotection works under the Project were improved with an additional protective wall on the riverbankbuilt under the Governments own program. Similarly, the Government took responsibility forrehabilitation and maintenance of roads and used project funds for more road-widening works. Thedivision of responsibilities was clearly established at the outset and followed at the local level thetechnical guidance, and direction on administrative matters of the EA and IAs.

35 Despite the fewer than targeted house connections in Bogor and Tangerang, water demand has been firm in all districts.In Bekasi, house connections increased steadily to exceed the appraisal target. Except for the solid waste component, thephysical achievements exceeded targets at appraisal. However, UFW was not reduced, and remained at 29-47 percent.

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2. Financial Performance

39. In the Secondary Cities Project, fund management at the central level was satisfactory;however, when extensive project modifications were made (mainly at the provincial level), localgovernments were inadequately involved, and community consultation was minimal (Appendix 4,Table A4.2). In the cities visited, the PDAMs faced increasing financial problems, and community

participation in O&M was generally less than expected. In the BOTABEK Project, PDAMs facedsimilar problems. Although tariff recovery was good, tariff levels were low and have not beenrevised. In the Bandar Lampung Project, PDAM Way Rilau exhibited sound financial performance,but was likely to face difficulties when O&M costs increased, unless tariffs were increased (Appendix5).36 On the other hand, the Mission found that the financial performance of the local governmentswas generally sound in all projects. The audited financial statements submitted to the Missionreported revenues sufficient to cover both routine and development expenses.37

3. Sustainability

40. The sustainability of project components was not a problem in the Bandar Lampung Project,in which the Mission observed well-established ownership among the local government and

communities.38 Except for the GLD component, sustainability was likely for all components in theBOTABEK Project, although the likelihood varied with the components.39 However, in the SecondaryCities Project, sustainability was less likely for all components due to lack of ownership at the localgovernment level.40

36 The PDAMs in Bandar Lampung and Bengkulu have been experiencing financial difficulties, although both PDAMs haveexperienced an improvement in the recorded annual net loss for the past two years (Appendix 5, Tables A5.3 and A5.5).

This improvement could be attributed to a faster rate of increase in revenues than expenditures. Both PDAMs have beenoperating at a loss at least for the last six years (except for 1996 when PDAM Way Rilau posted net income of Rp595million). This is indicative of the need to review the present tariff levels.

37 The local government of the city of Bandar Lampung and district of Deli Serdang in Medan reported revenues sufficient tocover both routine and development expenses (Appendix 5, Tables A5.1 and A5.2). However, the financial performanceof Bandar Lampung deteriorated in FY1999, although the city still managed to break even. This can mainly be attributedto the sharp increase in expenditures, particularly those for development purposes, as against the relatively slower rate ofincrease in revenues. The district of Deli Serdang, on the other hand, showed a marked improvement in its performancefor FY1998/99 relative to the previous two years. FY1996/97 and FY1997/98 registered declines in net income asexpenditures grew faster than revenues.

38 Sludge treatment facilities have excess capacity and could face degradation without proper maintenance and utilization bydeveloping demand for desludging services and composting. Presently, PDAM Way Rilaus water supply operation issustainable. Nevertheless, financial problems foreseen for PDAM Way Rilau may undermine the future sustainability inthe absence of a tariff increase in the immediate future.

39 Sustainability of facilities provided under KIP is most likely as ownership is well established. Communal toilet facilities

within KIP sites are well maintained and will be sustained. Sustainability of solid waste and sanitation facilities depends onongoing rehabilitation efforts and constant maintenance and supply of equipment. Further increases in input costs mayundermine the sustainability of water supply operations, as financial performance of PDAMs is already marginal.Sustainability of GLD facilities would be unlikely where people move in only after the facilities are improved. This isparticularly true for the GLD area in Bekasi, where facilities were constructed by contractors rather than through self-helpefforts of local communities.

40 Sustainability of solid waste management and sanitation operations depends on constant maintenance and supply ofequipment as the useful life of pushcarts, containers, and trucks is fairly short; local governments and communityorganizations may be capable of O&M but not of capital investment (Appendix 4, Table A4.5). The quality of some civilworks is low and causes such problems as degraded surface conditions of roads, collapsed drains, and cracked retentionwalls; sustainability of these facilities is questionable. Some facilities without adequate ownership such as communaltoilets may not be sustained as they are not well maintained, or even used.

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C. Achievement of Development Impacts and Goals

1. Performance of Operating Entity

41. In the Secondary Cities Project, the Mission noted that the facilities were performing poorly

and there was no reliable information on project benefits; therefore, reevaluation could not beattempted. The Mission conducted a detailed reevaluation of the BOTABEK Project and estimatedthe EIRRs for all components. The methodology used to recalculate the EIRR for eachcomponent/area was similar to that in the appraisal report and PCR. The assumptions on futureperformance were based on the Missions observations. The details are in Appendix 6. The Missionalso simulated, for the purpose of the thematic evaluation, the impact of the economic crisis onEIRRs. The Mission observed that the Bandar Lampung Projects facilities were performing well, asstated in the PCR. The Mission concurred with the PCR on the highly efficient performance of theProject.

42. On a per component or per area basis, the recalculated EIRRs were generally lower thanappraisal and PCR estimates.41 The difference is due to larger capital costs, extendedimplementation periods, and delays in benefit realization. In all three projects, the high EIRRs

confirmed the overall economic viability of the project components, except the GLD component.

2. Socioeconomic and Sociocultural Impacts

43. All projects improved living conditions, which benefited low-income people equally as thesefacilities did not exclude any users (Appendix 4, Table A4.7). Improved living conditions by the KIPcomponent benefited more low-income people, including women.42 The improved living conditionsbenefited housewives more as most of them stayed at home and in the neighborhood longer thantheir husbands; better conditions such as paved footpaths and flood- free house compoundsoccasionally made cleaning easier. Increased solid waste collection generated limited livelihoodopportunities at both transfer depots and disposal sites for waste recycling.

44. The water supply component might not have benefited low-income groups as much asexpected because PDAMs provide only clean water, not drinking water, and low-income groupscontinued to rely on alternative sources for this most essential item. The firm demand for the waterthat the Projects provided came from high-income groups and other bulk water consumers as theservice coverage is still generally low. Where the water supply was improved, women receivedincidental benefits from time saving; the real benefits from productive use of the time saved couldnot be quantified. The real benefits would be more for women in Bandar Lampung, as the city hasmore opportunities for economic activity, than most secondary cities.

41 Estimates for the drainage and KIP/MIIP at Tangerang, KIP/MIIP at Bekasi, urban roads at Bogor, and urban roads atTangerang were higher than appraisal and PCR estimates.

42 Such benefits were not large in areas influenced by the megacity (Jakarta)in the BOTABEK Project as more substantialemployment opportunities in the megacity discouraged community-based socioeconomic activities. The improved livingconditions also contributed to urban efficiency and promotion of various economic and livelihood activities, irrespective ofincome classes; this was particularly visible in Bandar Lampung, which had a strong economic performance after the ADBProject. At KIP sites, the Mission observed people gardening (mainly women) and arranging office plants (Appendix 4,Table A4.6).

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3. Environmental Impacts

45. All projects aimed to improve living conditions. Although the improvements could not bemeasured, as discussed in the thematic evaluation, the environmental improvements weresignificant (Appendix 4, Table A4.4). In the Secondary Cities Project, the flood control and drainagefacilities improved socioeconomic conditions of people in formerly flooded areas; further

improvements are provided under the ongoing project.43

In the BOTABEK Project, increased solidwaste collection has improved sanitary conditions, but substantial portions of solid waste are stilluncollected, and, especially in suburban areas, are disposed of in situ in open dump sites. Sanitaryconditions are expected to further improve in the future as the local governments are rehabilitatingunused sludge treatment facilities. Any improvement of the urban environment by GLD was difficultto see as it was overwhelmed by the overall urban development of the various neighboring areas. Inthe Bandar Lampung Project, the KIP component was so successful in improving living conditionsthat even some large high quality houses were built and economic activity flourished.44

4. Impacts on Institutions and Policy

46. In the Secondary Cities Project, which was the first IUIDP in Indonesia, the need for TA was

not foreseen and local governments lacked the capacities to operate project facilities and deliverurban services. In the other two projects, the institutional development impact was highlysatisfactory. In the BOTABEK Project, the BOTABEK Institutional Development Study (TA 1471-INO) provided a comprehensive BOTABEK institutional development strategy and institutional actionplans. The TA on Environmental Management of Urban Development Projects (TA 1473-INO)contributed toward the revision of relevant legislation and regulations governing environmentalimpact assessments, established a computerized monitoring system for such assessments, andprovided operational guidelines and training for environmental management under urbandevelopment efforts. The outcomes of these TAs were satisfactory and these were reflected insubsequent DGHS projects. In the Bandar Lampung Project, the Bandar Lampung Water Supplyand Sewerage Disposal Study (TA 1474-INO) specified future water supply components exceptsource location, and identified a site for a future sewage treatment plant. The Bandar LampungUrban Planning and Transport Study (TA 1475-INO) prepared an updated city spatial plan and asector development plan, and analyzed the planning, operational, and financial performance of thepublic transport system. The TA results were used to revise the city master plan and improve thepublic transport system.

IV. OVERALL ASSESSMENT

A. Secondary Cities Urban Development (Sector) Project

47. The Project was ADBs first IUIDP in Indonesia, and aimed to rehabilitate and constructurban infrastructure in 51 secondary cities in nine provinces of Sumatra and West Java. It was

complex, involving many IAs and 27 project implementing units. During project implementation,

43 Some solid waste that is collected is disposed of improperly, e.g., burned at transfer depots or dumped into rivers. Furtherenvironmental education is considered necessary to change some undesirable social habits of people, e.g., the use ofrivers to dispose of human waste. In Bengkulu, improved access to the solid waste disposal site stimulated housingdevelopment along the access road, preventing expansion of the disposal site.

44 Extensive training and public education programs raised environmental awareness and improved environmentalmanagement capacities of the local government. Solid waste is collected daily with collection fees charged to householdsand commercial units, and disposed of with soil cover, although this is not a sanitary landfill. Desludging, though onlypartially operational, and increased solid waste collection have improved sanitary conditions.

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DGHS extensively modified the project components to the extent that they were only partly relevantto the original objectives. Decisions on project modifications were made mostly at the provinciallevel, while fund allocation was centrally controlled. In addition, efficacy (in terms of achieving theproject purpose of improving living conditions) was only efficacious. Project allocation (approximately$2 million-$3 million equivalent) in many cities was relatively low compared to each citys overalldevelopment budget. Consequently, local government involvement was limited, and community

consultation minimal. For modified project components, little accounting of cost-effectiveness waswarranted. PDAMs generally supplied only clean water and not potable water. People preferred tobuy drinking water from water vendors who tap the shallow-well groundwater with hand pumps. 45Public toilets ceased to function after a few years due to lack of water from their associated handpumps, lack of organized maintenance, and low demand for public toilets as households builtindividual toilets and septic tanks. The Mission did not estimate EIRRs as reliable information wasunavailable. Based on estimates in the PCR, efficiency is rated efficient.46 Sustainability is rated lesslikely for all components due to lack of ownership at the local government level. The Projectscontribution to institutional development is rated negligible. The Project did not include an advisoryTA for capacity building. Overall, the Project is rated less than successful.

B. BOTABEK Urban Development Project

48. All components, except the GLD component, were relevant. Efficacy is rated efficacious asthe project purpose was not fully achieved. PDAMs generally supplied only clean water and notpotable water. The UFW levels were not reduced in all project cities. The effects of GLD in Bekasiand Tangerang were so small as to make it impossible to distinguish them from development spillingover from neighboring areas. Most roads improved by the Project were well used or in fact overusedin some sections, resulting in early degradation of surface conditions as maintenance appears to beless than adequate. The Mission observed varying drainage conditions. In Bogor, roadside drainsprovided as part of the road improvements were in physically good condition, but the maintenance ofsecondary drains faced problems due to limited local participation. In Bekasi and Tangerang, themaintenance of urban drainage works was tied to road maintenance; it was better in Bekasi. 47 KIPwas highly successful with community participation. The reestimated EIRRs above 12 percentconfirmed that the project components were highly efficient. Sustainability is rated likely for allcomponents. The KIP in Tangerang now includes training for entrepreneurs. The Projectscontribution to institutional development is rated little. The transfer of responsibility from the PMU tothe local government for ownership of O&M was insufficient. Overall, the Project is ratedsuccessful.

C. Bandar Lampung Urban Development Project

49. The Project was highly successful in attaining the objectives of improving living conditionsand enhancing urban management. The project components were highly relevant. Efficacy is ratedhighly efficacious. Although the Project was centrally planned and controlled, the city governmentplayed a major role in implementing some components under a clearly defined division of

responsibilities and training and community information programs that consultants supported. TheMission accepted the high EIRRs reported in the PCR for the project components: efficiency is ratedhighly efficient. Tariff collection for water supply covered almost 100 percent of consumers after

45 The Mission was concerned that septic tanks and shallow wells were located too close to each other.46 The Mission was unable to rate the Project as highly efficient, as these economic internal rates of return (all above 12

percent) represented facilities in only 3 out of the 52 cities included under the Project.47 Drainage along a secondary road in Bekasi was poor in some sections, constrained by the road design itself with a

winding alignment and a small gradient.

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1996. Flood control works were very well done, aesthetically as well as technically, and enhanced asense of security and social cohesiveness of local communities. Solid waste was collected daily,covering an increasing population, with collection fees charged to households and commercialentities, and disposed of in a sanitary landfill. Desludging and sludge treatment were fully operationalusing the trucks and facilities provided by the Project, although demand for the service was not ashigh as expected. Project sustainability is rated most likely. O&M of all project facilities was highly

satisfactory. Urban roads, notably those supported by ADB, were generally well maintained.Kampungs that were improved under the Project were generally well maintained. The Project madea moderate contribution to institution development. The Mission observed, during the meetings atthe mayors office and the field visits, a strong sense of ownership among the local government andcommunities. Overall the Project is rated highly successful.

50. Following the guidelines for project performance audit reports, the project components wereindividually rated with respect to the five criteria: relevance, efficacy, efficiency, sustainability, andinstitutional development and other impacts. A weighted score was calculated to arrive at the overallperformance rating. The individual ratings are summarized in Table 5. The details are provided inAppendix 8.

Table 5: Assessment of Overall Project Performance

Secondary Cities BOTABEK Bandar Lampung

Criteria Weights(%)

RatingValue

WeightedRating

RatingValue

WeightedRating

RatingValue

WeightedRating

Relevance 20 1 0.20 2 0.40 3 0.60Efficacy 25 2 0.50 2 0.50 3 0.75Efficiency 20 2 0.40 3 0.60 3 0.60Sustainability 20 1 0.20 2 0.40 3 0.60Institutional Development

and Other Impacts15 0 0.00 1 0.15 2 0.30

Overall Rating 1.30 2.05 2.85LS S HS

Assessment Ratings:Relevance: 3 = highly relevant; 2 = relevant; 1 = partly relevant; 0 = irrelevant.

Efficacy: 3 = highly efficacious; 2 = efficacious; 1 = less efficacious; 0 = inefficacious.Efficiency: 3 = highly efficient; 2 = efficient; 1 = less efficient; 0 = inefficient.Sustainability: 3 = most likely; 2 = likely; 1 = less likely; 0 = unlikely.Institutional Development and Other Impacts: 3 = substantial; 2 = moderate; 1 = little; 0 = negligible.

Overall Rating:HS = highly successful 2.5< HS < 3.0S = successful 1.6 < S < 2.5LS = less than successful 0.6< LS < 1.6U = unsuccessful < 0.6

D. Assessment of ADB and Borrower Performance

51. ADB provided effective and timely guidance to project implementation. Efficient project

management compensated for the initial start-up delays. However, more attention should have beenpaid to institutional strengthening, especially for the Secondary Cities Project, in which ADBperformance is rated satisfactory. In the other two projects, ADB performance is rated highlysatisfactory (Appendix 8, Table A8.4).

52. The performance of the Borrower and respective EAs varied in each project. It is rated lessthan satisfactory in the Secondary Cities Project, where DGHS had difficulty, in particular at the locallevel, due to complex implementing arrangements. In the BOTABEK Project, the performance israted satisfactory; the Governments inability to provide sufficient counterpart funds on time delayed

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project implementation in some cities. In the Bandar Lampung Project, the performance of DGHSand IAs is rated highly satisfactory; the agencies (EAs and IAs) assessed the changing needs of theProject and made timely decisions to realize maximum developmental impact.

E. Lessons Identified

53. Common lessons identified in these three projects include the following:

(i) The integrated approach for urban infrastructure development allows objective-oriented modifications of project design and components, which is very effective forimproving the urban living environment. IUIDPs are most appropriate for project citiesin the population range of 100,000-500,000. For smaller cities, without strong urbandynamics, the sector lending approach could be applied, focusing on individualsectors. For larger cities and urban areas influenced by a megacity, standaloneprojects would be appropriate to affect urbanization patterns and have a measurableimpact on urban living conditions.

(ii) Success in IUIDPs largely depends on how well the implementation arra