INDONESIA NATIONAL ROADS IMPROVEMENT PROJECT WESTERN INDONESIA PROJECT INFORMATION DOCUMENT CONCEPT STAGE Report No.:AB2075 Project Name

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1 INDONESIA NATIONAL ROADS IMPROVEMENT PROJECT WESTERN INDONESIA PROJECT INFORMATION DOCUMENT CONCEPT STAGE Report No.:AB2075 Project Name ID-National Roads Improvement Project Western Indonesia Region EAST ASIA AND PACIFIC Sector Roads and highways (80%); General transportation sector (20%) Project ID P Borrower(s) REPUBLIC OF INDONESIA Implementing Agency Ministry of Public Works, Directorate General of Highways Environment Category [] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared December, 2007 Estimated Date of April, 2008 Appraisal Authorization Estimated Date of Board June, 2008 Approval 1. Key development issues and rationale for Bank involvement 1.1 The proposed Project would support the Government of Indonesia s objective to invest substantially in infrastructure to reverse the decline in services. Public investment after the East Asia financial crisis is still recovering and remains low at about 3.4 percent of GDP with a recommended level of 6 percent of GDP and there is a significant backlog in infrastructure needs 1. In the road sector the Government is concerned about i) the need to maintain the quality of the national road network, which although good at 80 percent in good/fair condition has dropped from an earlier condition of about 87 percent in good/fair condition in 2000, ii) the need to address the severe congestion particularly around large cities, and about iii) the need to address the generally poor condition of the sub-national roads. 1.2 The Government s commitment to these objectives is evidenced by the substantial increase in the budget allocations to the road sector for FY This has been possible due to stable macroeconomic conditions and a reduced fiscal deficit. The Government has submitted and the Bank has approved an Infrastructure Development Policy Loan 2 in support of their agenda (approved by the Board December 4, 2007). 1.3 The proposed Project is in line with the Country Assistance Strategy of November 2003 (and the update of September 2006). Development of a new Country Partnership Strategy is in process and expected to be presented to the Board in June 2008 and is expected to continue support to infrastructure. 1.4 The proposed Project reflects lessons learned from ongoing Bank-assisted projects in the sector including the Strategic Roads Infrastructure Project (SRIP) 3 approved by the Board in July 1 Public Expenditure Review IDPL Infrastructure Development Policy Loan (US$ 200 million) 3 Loan approved July 2006 (US$ 208 million) 1

2 2006 and the Eastern Indonesia Regional Transport Project 4. Some key lessons include i) implementation is slow due to cumbersome procurement management; ii) there are institutional constraints in the road sector however there is little action in addressing them, and iii) corruption is a serious problem, and while not confined to the Ministry of Public Works it is heightened in the Ministry as often is the case where large construction contracts are involved. 1.5 Several key partners are involved in the road sector including the ADB, JBIC and more recently AusAID. The Bank has been engaged in the road sector in Indonesia for more than 30 years and the Ministry wishes to continue to be engaged with the Bank. Despite implementation difficulties on some previous projects, they recognize the contribution of the Bank to the sector. 1.6 The Government of Indonesia has included the Project in its blue book, the planning document of the Ministry of Planning (Bappenas). This is a nation-wide project in support of the Government s road sector strategy with two funding sources - the Eastern part of Indonesia is funded by AusAID 5 and the Western part of Indonesia funded by this World Bank supported Project. The Government signed an AU$300 million 6 Loan with AusAID in September To date the delay in Project preparation of the Bank funded part, has been due to a technical procurement issue delaying the signing of the project preparation contract which will now commence in December Proposed Objective(s) The objective of the Project is to support regional economic and social development in Indonesia by improving the condition of the national road network Preliminary Project description 3.1. Project Framework. Although the activities in east (EINRIP) will be financed by AusAID and the west (WINRIP) by the Bank, these are essentially two sources of funds contributing to an overall nation- wide project and will be executed in parallel with harmonized implementation procedures and from a technical and implementation point of view they will be consistent. Both sets of activities will have the same project development objectives, monitoring indicators, etc Preparation. The Bank team has been working closely with the AusAID-EINRIP team to ensure that their project preparation can be used by the Bank supported project, thus a lot of the preparation work has already been done. AusAID is providing about US$3-5 million Bank administered Recipient executed trust fund for preparation of feasibility studies, designs and bidding documents to complement a US$1 million PHRD. 4 Comprises the ongoing Second Eastern Indonesia Regional Transport Project (EIRTP-2) Loan approved July 2005 (US$ 200 million) and the first Eastern Indonesia Region Transport Project (EIRTP-1) (US$ 200 million) which closed June Eastern Indonesia National Roads Improvement Project (EINRIP) 6 Approximately US$260 million equivalent 7 This is the same development objective already adopted for the AusAID financed activities under the project in Eastern Indonesia. 2

3 3.3. Project components. The Project will consist of the following components: Component 1: Betterment and Capacity Expansion of National Roads (US$360 million). Betterment typically involves strengthening the base course, minor widening, providing a new asphalt wearing course, and improving drainage. In most cases, the road will already have an asphalt pavement. Capacity improvements envisaged are the upgrading of roads to national standards. The Project will focus on existing national roads in Western Indonesia. Component 2: Implementation Support (US$36.0 million). This is for the design and supervision costs of the roads in Component 1 and some limited operating costs of the implementing agency. Component 3: Road Sector Institutional Development (US$4.0 million) 8. The activities under this component will be determined during project preparation and will include support as needed for example to the development of the procurement unit, the expansion of the e-procurement system, providing a system of capacity support advisory services Alternatives considered. The Project is specifically targeted at national roads i.e. those legally under the responsibility of the Directorate General of Highways (DGH) in the national Ministry of Public Works with a focus on those roads recently re-classified as national roads. The alternative of including provincial and other sub-national/district roads into this particular Project is not workable due to the current institutional framework 9. The focus of this Project is on existing roads with the development of new Freeways being explored under another project which is presently under discussion. The use of Public Private Partnerships (PPP) is being explored under the PPITA 10 support from the Bank however the PPP approach has had disappointing results to date. Agreement on institutional development in DGH has been pursued through the recently approved IDPL 11 and is not included in this Project Lending instrument. The Bank funded part of the Project is estimated to have a total cost of about US$400 million (including about US$40 million in taxes). The IBRD Loan amount is preliminarily estimated at US$300 million. This will be a standard Sector Investment Loan. A programmatic SWAP-type project was considered however Government has indicated that while they are potentially interested in the approach they are not ready for it for this particular operation. Nevertheless projects in the sector are already implemented on a rolling program using standard agreed specifications, harmonized bidding documents, the DGH e-procurement system etc. Donors are in discussions with DGH to move towards a harmonized sector wide approach to ease implementation. 8 The Government of Indonesia does not wish to borrow for these aspects require that the total consultant services in total be limited to 10% of the loan amount. This limits the size of the institutional strengthening activities to a maximum of US$4m given the size of component 2. To overcome this limitation, parallel AusAID grant support is being used for additional institutional development activities under the EINRIP. 9 The Bank is exploring means to provide assistance to the sub-national governments in executing infrastructure investments. The MPW has made it clear to the Bank that national roads are their core responsibility and they only wish to have Bank supported projects to focus on these national roads. So while there is a severe need to address the conditions of the sub-national roads, the mechanism to do so is not well developed. 10 Public Private Partnership Technical Assistance Loan (US$40 million) due to close December See Annex 1 for the IDPL triggers relevant to the Road Sector in Indonesia 3

4 3.6. Sector program. The Project supports the Directorate General of Highways (DGH) national road program. Development of a Medium Term Expenditure Framework (MTEF) will be piloted in the roads ministry. 4. Safeguard policies that might apply Environmental and Social Safeguards. The Project is classified as Environment Category A. Most of the Project will focus on betterment of recently reclassified national roads within existing rights of way. The impact of these improvements on the environment is minimal and the requirements for land acquisition and resettlement are expected to be minor. However, the capacity expansion and bridge components are likely to have significant impacts and would require land acquisition and resettlement. The safeguards triggered include Environmental Assessment, Physical Cultural Resources, Indigenous Peoples and Involuntary Resettlement. A Land Acquisition and Resettlement Policy Framework (LARF) will be prepared, based on the LARFs adopted by DGH for the Strategic Roads Infrastructure Project (SRIP), updated to reflect latest government regulations 12. Land acquisition and resettlement is fully funded by Government. There have been no delays on implementation due to land acquisition on ongoing projects. Work is ongoing to establish standardized procedures for land acquisition plans, and other documents and procedures, and to review funding allocations and responsibilities including recent establishment of a Land Working Group 13. While the HIV/ AIDS rate in Indonesia is still relatively low there has been a significant increase. To mitigate the risks of HIV/AIDS transmission, the construction contracts include clauses requiring contractors to allow their workers to attend education sessions where materials such as awareness brochures and condoms will be distributed. This is a standard provision in the Standard Bidding Documents used for the works. Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in Bank Supported Projects (OP/BP 4.00) 12 Perpres 26/2005 and 65/2006 and BPN implementation guidelines 3/ Under the agreements under the Infrastructure Development Policy Loan approved December 4,

5 5. Tentative financing Source: (US$million) REPUBLIC OF INDONESIA 100 INTERNATIONAL BANK FOR RECONSTRUCTION AND 300 DEVELOPMENT Total Contact point Contact: Sally L. Burningham Title: Senior Transport Specialist, Task Team Leader, Jakarta, Indonesia Tel: (62-21) Fax: (62-21)