Third Water Supply and Sanitation for Low Income Communities Project (PAMSIMAS) Region

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB1291 Project Name Third Water Supply and Sanitation for Low Income Communities Project (PAMSIMAS) Region EAST ASIA AND PACIFIC Sector Water supply (60%), Health (20%); Sanitation (20%) Project ID P Borrower(s) GOVT. OF INDONESIA Executing Agency Ministry of Public Work Implementing Agencies Ministry of Public Work, Ministry of Health, Ministry of Home Affairs Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S 1 [X] S 2 [ ] S 3 [ ] S F [ ] TBD (to be determined) Date PID Prepared March 10, 2006 Estimated Date of April 17, 2006 Appraisal Authorization Estimated Date of Board June 27, 2006 Approval 1. Key Development Issues and Rationale for Bank Involvement Indonesia s achievement of the Millenium Development Goals (MDGs) critically depends on the sustained improvement of its water sources, sanitation, and hygiene practices. Bringing about such improvement is an enormous challenge for which the Government of Indonesia (GOI) has asked the Bank for assistance. This proposed Project responds to that request and addresses the following issues: Sector performance. Despite its notable successes in the past, coverage remains a huge issue. Only 50 percent of the population has access to water sources considered safe (2002, SUSENAS). In rural areas, access is even lower at 41%. Moreover, a mere 1.3 percent of the urban population is reached by sewerage services. While access to basic sanitation in rural areas is reported to be 52 percent, the figure is probably much lower since the data do not indicate ownership of sanitation facilities, or if they meet technical and hygiene standards. The country s water and sanitation (WS) sector on the whole remains among the poorest performing in the region. Disease control. The lack of adequate service coverage and quality has had severe consequences on public health, the economy, and the environment. The need for improving hygiene practices can be gleaned from health statistics and is being underscored currently by the threat of avian flu epidemic. Although infant mortality averaged across provinces at 35 per 1000 live births (Indonesia Demographic and Health Survey, 2002), it is known to have reached 121 per 1,000 in 2001 in low-income areas. Of the four most important direct causes of Under-5 mortality in Indonesia, two are diarrhea and typhoid (MOH, Rencana Strategi Nasional) -- both fecal borne illnesses are linked to water, sanitation, and hygiene (WSH) issues. Indonesia has one of the highest incidences of typhoid in the region, which is inconsistent with its per capita GNI over $700. Investment and financing requirements. Achieving the MDG targets for water supply and sanitation will require improving WS services for an estimated 70 million more people every year until Very conservatively estimated, a sum of Rp. 5.1 trillion (US$573 million) will need to be invested annually. 1 But typically current annual government spending, even when optimistically estimated, is only 1 Indonesia Country Report prepared for Kyoto Global Water Summit, 2003.

2 US$250 million, most of which is spent in the urban areas through PDAMs (public sector utilities) which at present reach less than one fifth of the total population. Remarkably, the WS sector has historically received only a small share of the development budget, averaging 2.5% of central government budgets between Arguably, additional WS investment is clearly desirable, as economic losses from inadequate sanitation and poor quality water are huge (over 2.4% of GDP in 2002) and returns to invest are high (about $5-$28 per dollar invested). Moreover, WS investments have been deemed to be progressively pro-poor (Larsen, Lan Pham and Rama, 2004). Scaling up and mainstreaming effective practices. A key challenge in Indonesia is the slow dissemination of successful interventions. This is illustrated by the Water and Sanitation for Low Income Communities (WSLIC) projects, a pioneer WSH project that has been in the making for the last decade and a half. A recent evaluation of WSLIC gave it high marks for economic rate of return, impact on the beneficiaries quality of life, and technical/project management quality. Yet, until now, WSLIC coverage remains limited. This is due not only to financial and implementation capacity constraint but also to the failure to establish the evolutionary dynamics that stimulates self-sustaining adoption and expansion by the District Governments (DGs) across the nation. Clearly, there is a need to develop ways to stimulate sustainable expansion and mainstreaming of good WSLIC principles and practices. For this, the DGs would have to be in the driver s seat. By law, they are now responsible for water and sanitation issues and have been allocated discretionary resources to pursue their own developmental objectives. Consequently, they would have to fully adopt the WSLIC principles and practices into their development strategy and planning/budgeting. Because of this the actual role of the Central Government (CG) would have to be adapted. Nevertheless, it is generally recognized that the CG s role in promoting water supply, sanitation and hygiene improvements remains critical, especially for low income people. Policy, investment, and financing framework. GOI has developed and established a national policy framework for community-based water supply and environmental sanitation (WSES). The challenge is to operationalize and implement it. In particular, there is a need for Indonesia to establish an investment/financing framework to guide the sector and meet the MDGs. This framework should be worked out by the Central Government; but equally important, it should be anchored to the District Governments development planning and budgeting, since, as mentioned, they are now by law responsible for the delivery of water, sanitation and health services. This means that the DGs will have to be encouraged to establish their local WSES policy, investment, and finance framework one that is consistent with the new national policy and local priorities. The new sector policy provides direction for sector reform by radically changing the policy goals from achieving coverage targets counted in terms of construction of systems/facilities, to the twin goals of sustainability and effective use of WSES services. It espouses strategies that empower communities to choose, finance and manage their own services, encourages participation by all sections of the Indonesia communities and, in this regard, promotes gender-and poverty-sensitive approaches in engaging and working with beneficiary communities. Equally important, it strongly supports improved community sanitation and hygiene practices. Better partnership needed. The above issue can be addressed by the development of a more effective partnership between Central and District Governments in a way that recognizes their respective responsibilities and make use of their comparative advantage, where they overlap. In addition to the institutional rationale, the economic argument for the DGs to be in the driver s seat lies in the subsidiarity principle: they are closer to the ground and should, therefore, have better information. Nevertheless, as noted, the CG continues to be a critical player because of two reasons. First, even under the current intergovernmental assignment of responsibilities, CG continues to have the mandate as part of its social assistance responsibility to ensure that the poor communities have access to basic amenities such as water, sanitation and health. Second, economically, there are jurisdictional externalities related to poor water, sanitation and hygiene that the CG is in a better position to handle that the DGs. In short, CG s role is necessary to optimize the national level of WSH investment and the propagation of good practices.

3 The above tension between central and local governments roles and responsibilities points to the need for a program to establish improved coordination and partnership. This proposed operation will assist in developing and institutionalizing a partnership program for improved water, sanitation and hygiene between CGs and DGs and between communities and these governmental entities. Rationale for Bank involvement. Preparing the proposed water and sanitation lending operation at this time is propitious. The policy framework is in place. There is strong and broad support for its content and timely implementation among the various stakeholders in government and the donor community 2. Furthermore, GOI wants Bank assistance in translating the above-mentioned policy framework into reality. Bank involvement is justified for the following reasons. First, the proposed loan will facilitate the achievement of the MDGs and will support implementation of the Bank s Country Assistance Strategy, particularly in regard to poverty reduction and making services work for the poor. Second, the Bank has valuable global and Indonesian experience with WSH improvements, especially WSLIC and other CDD projects such as KDP and UPP. Third, as mentioned, because of the Bank s extensive experience and potential value-added, GOI has explicitly asked the Bank for the proposed loan for immediately Board delivery to help Indonesia in translating the above-mentioned new WSES policy framework into reality. Fourth, the proposed operation will ensure sustained nationwide adoption of good WSH practices and lessons learned from GOI-Bank operations such as WSLIC, KDP and UPP. Last but not least, the Bank can further its learning on scaling up and mainstreaming issues that because of its global role in knowledge generation and dissemination can be beneficial to its other client countries. 2. Proposed Development Objectives for Community-managed WSS Program The proposed project nicknamed the PAMSIMAS 3 would seek to: 3 Facilitate sustained expansion of people s access to improved water supply and sanitation at a sufficiently rapid rate to make the WSS-MDGs achievable; 3 Promote widespread adoption of recommended hygiene practices to reduce transmission of waterborne diseases, promote healthier lives and protect the environment; 3 Establish a coherent institutional arrangement for the finance and implementation of WSH improvements involving CG, DGs and the communities; and 3 Develop ways by which poor villages with proven capacity for community action (as evidenced by the success of their WSH project) can broaden that capacity and enable them to grow their village economy, leading to more WSH improvements in the long run. 3. Preliminary Project Description for PAMSIMAS General architecture. The KASIH project would build a national partnership framework by which DGs that are highly committed to improving water access, sanitation, hygiene practices and livelihood opportunities in low income communities and want to build their institutional capability -- 2 The World Bank is currently the primary external support agency in the RWSS sector, both in terms of operations and policy reform. AusAID is the leading bilateral aid agency, through it s funding of the WASPOLA (US$ 5 million) and co-financing of WSLIC 2 through Bank-executed trust funds (US$6.5 million). In 2005 the ADB has launched the Community Water, Sanitation and Health (CWSH) project which is closely modeled on WSLIC 2. It will operate in parts of four provinces in Sumatra and Kalimantan. GTZ and KfW are jointly supporting a RWSS initiative in a few districts in NTT. The World Bank Netherlands Program for Water and Sanitation Sector Development and Capacity Building (WASAP) is starting up in 2005 as a 4-year sector reform and investment support Trust Fund administered by the World Bank. The US Government has declared Indonesia to be a priority country for their Water for the Poor Program (this is under development, and likely to be focused on water resources management and water utilities). In addition, most multi-sector CDD projects (KDP, UPP, AusAID s Area-Focused Approach) finance some RWSS interventions through grants to communities, but the proportion of WSS sub-projects relative to alternatives (e.g. roads, micro enterprises) tends to be low. 3 The name of the proposed Indonesian program is PAMIMAS, which stands for Penyediaan Air Minum dan Sanitasi Berbasis Masyarakat (Provision of Drinking Water, Sanitation and Hygiene Services).

4 can get additional resources from the CG (albeit, at a price) and subsequently be held accountable for their performance. At the core of the framework is a Partnership Agreement (PA). The PA, which will specify the rights and obligations of the partners, will center on the mainstreaming and sustained propagation of a community demand-driven assistance model built around the experience of WSLIC 1 and 2 projects. (In recognition of the contribution of these pioneering projects, the CDD business model underlying the Partnership overarching strategy can reasonably be called WSLIC Plus.) A Presidential Decree (or other suitable legal instrument) will be sought to establish the KASIH program. The decree will provide the general guidelines for regulating the PA 4. Among the Partnership requirements is the production of a systematic assessment of the various water, sanitation and hygiene programs in the district, its local medium-term WSES Strategic and Financial Plan, and the corresponding Annual Action Plan, all of which will have to be approved by Bappeda (the district s development planning agency). The Partnership is not only about financing. Equally important, it is also about creating a venue to get peer recognition for outstanding achievements and a forum to exchange information on best practices, innovations, emerging issues and lessons learned. For the purpose, it will hold an annual national conference, produce and disseminate regular Briefs, and develop and maintain an Internet-based forum. The Partnership will cover all provinces and eligible districts in principle, but project implementation might have to be done in phases, given the enormous size of the country. It is expected that the project would be financed by a CG loan, which is consistent with its social assistance mandate mentioned above. Although loan repayment would be shouldered by the CG alone, the total cost of the project will be shared by the DGs and the communities in the form of cash and in-kind counterpart funding. Detailed arrangements for the flow of funds, counterpart requirements, and financial management will be worked out during project preparation. Components and loan amounts. The total loan amount has yet to be agreed with GOI. A tentative estimate is that loan size would be around US$160 million. This will be use to support the following components (tentative loan amounts in parenthesis): 1. Community water supply infrastructure ($100 million). This component will provide grants to finance community water improvement subprojects similar to those of WSLIC 2, or possibly the opportunity to use a sectoral window in the CDD platform such KDP and UPP where the villages are overlapping. Communities will plan, build, manage and sustain improved water systems of their choice, in ways that are environmentally friendly and takes into account household consumption and business demands. In this process the community will be supported by facilitators hired by the project. Participating communities will receive a menu of possible technical options and sufficient information on benefits/disadvantages and costs of construction, operation and maintenance to be able to make the optimal informed choices for themselves 5. They will directly control block grants provided by the project for construction and contribute a minimum of 20% of subproject costs for basic service levels (more for higher levels). 2. Improving sanitation and hygiene practices ($20 million). The project will support interventions to improve sustained and more rapid adoption of key recommended sanitation and hygiene 4 The regulations to be established and developed around current WSLIC-2 rules will include: (i) CG-DG-Community costsharing formula; (ii) practice standards, based on adaptation of WSLIC 2 and other CDD models (e.g. UPP, KDP); (iii) output and standards compliant formula for determining level of assistance and release of grants (these can be based on achievement of agreed outputs and satisfactory implementation quality rating); (iv) criteria and procedures for annual rating of the districts implementation quality, based on the delivery of agreed outputs and Partnership practice standards; (v) direct channeling of CG CDD grants to the community s bank account, upon certification of availability of agreed counterpart funding from the DG and the beneficiary community; (vi) SIGP type of independent audit of use of grants and system of conflict resolution and anticorruption sanctions; (vii) criteria and process for determining partners in good standing certification, a requirement for the DG to be able to continue to avail of the Partnership s benefits; and (viii) selection of partners through competitive e-bidding. 5 Such catalogues of options for community water supply and sanitation have been developed and are already being used to facilitate community choice in WSLIC 2.

5 practices. These will include: (i) raising public awareness and social demand for improvements in key sanitation and hygiene behaviors through interventions centering on the Community-Led Total Sanitation (CLTS) approach 6 ; (ii) strengthening of hygiene education and practices in schools among students and their parents; (iii) provision of incentives for demonstrable improvements in community sanitation and hygiene practices; 7 (iv) developing community-based surveillance and strategic prevention measures to minimize transmission of water-borne and other communicable diseases that can be avoided through good sanitation and hygiene practices; (v) support for the development of market capability to supply sanitation/hygiene services and respond to increased demand arising from above-mentioned interventions; and (vi) building local government capacity to use evidence-based state-of-the-art knowledge about behavior changing communication. To support these interventions, the Project will finance expenditures for workshops, provision of incentive grants, cost of school latrine construction, supply of soaps to schools, promotional materials, mass media purchases and communications consultants. 3. Development of institutional, financial and manpower support ($20 million). There are three subcomponents to be financed here. (i) Community facilitation. Under this subcomponent, the Project will finance the fees of facilitators and other expenses incidental to their facilitation work such as transportation and training costs. At the community level there will be two kind of facilitators i.e. community development facilitators and technical facilitators. These facilitators will support communities for situation analysis, evaluation of existing conditions and potentials, and helping the community make informed choices about cost-effective and sustainable ways of water supply and sanitation services in their respective areas. Where the project overlaps with UPP areas, the use of joint facilitators will be explored. 8 The Project will work with selected national and regional training resource organizations to develop them as sources of trained and skilled facilitators for local governments to employ for scaling up their KASIH program. (ii) Strengthening districts capacity and incentives. Here the project will help the districts achieve their institutional, financial and manpower capability to take lead in reaching the relevant MDG targets. To this effect, the Project will finance training, workshops, data collection, and analysis to improve local development planning and budgeting, facilitation of the expansion of sustainable and effective community centered water, sanitation and hygiene programs, development of quality assurance systems and support mechanisms, and institution of systematic monitoring and evaluation (in line with the new National Policy for Community-based WSES). 9 A motivational cum support strategy for engaging a range of key local stakeholders and scaling up their readiness would be a key output from this component. The Project will also finance performance-based matching grants to DGs who qualify for the above-mentioned Partnership Program to motivate them to increase their WSH investments and take over WSES leadership as befits their responsibility under the current decentralization law. Distribution of the grants through an e-bidding process 10 is under consideration. The cost of development, installation, application and updating of the e-bidding process would also be financed by the project. (iii) Modeling supra-community post-construction support services. This subcomponent will provide grants and technical assistance for the development and piloting of alternative ways of providing 6 The CLTS, properly facilitated, has been found to trigger local action to stop open defecation totally without external sanitation program providing subsidies or prescriptions for latrine models. 7 For example, support for output-based aid for whole communities when they achieve 100 % access to household latrines. 8 The BKM, a community representative board supported under UPP, will be used wherever they have been established, as the interlocutor for this component of the project in the community. WSLIC s experience of the need to ensure social and gender inclusion in such community bodies will guide their final composition. 9 GOI currently estimates that it will take years to build local government preparedness to begin to do this at a national scale. 10 This will be developed during preparation. To address issues of equity, the bidding process could be structured, separating low and high fiscal capacity districts. The following factors would be considered for development the scoring formula to determine the winners: (i) the rate at which a DG is willing to match the CG iwsh grants; (ii) the number of villages the district will cover; (iii) the resources the DG is willing to commit for training and deployment of facilitors; and (iv) approval by the local parliament of the District s iwsh commitments to CG and the program budget. Actual level of CG funding could be made dependent on actual fulfillment of the DGs previous year s commitments.

6 supra-community post-construction support to communities for the maintenance of their water supply systems. These could include schemes that pool communities and provide them service maintenance agreements/contracts for a fee (using their user fee contributions and subsidized perhaps by the DG in the case of extremely poor villages). The modeling work here will deal with the sustainability issue arising from expensive community water supply systems breakdowns and need for repairs and replacements. The pilot testing could involve cooperatives, market providers, NGOs and PDAMs. The project will also finance efforts to develop needed regulatory framework and strengthening of mechanisms for the enforcement of service agreements and conflict resolution. 4. Piloting expanded conditional village development grants ($10 million). The grants to be financed under this component are meant to: (i) reward villages with exemplary performance in improving their WSH performance; and (ii) leverage their proven organizational capacity for community action to undertake a broader range of activities, including economic ones; and (iii) allow village households to make economic use of the time freed up due to improved water access. As mentioned, the expectation is that this component will facilitate the development of community activities that will spur local economic growth leading to continuous WSH improvements in the long run. As with the community grant for water supply, this expanded grant will similarly require minimum co-financing from beneficiary villages. 11. Support for this component will depend on Local Government interest and commitment. Trained facilitators will assist Self-Help Groups of poor households/poor women s groups interested in developing small scale income-generating enterprises. This component will include funding for the rigorous monitoring and evaluation of this pilot. 5. Project Management and Support ($10 million). This will fund consultants, office supplies, travel and other expenses incidental to the management, coordination, monitoring/evaluation, and oversight activities at various levels. It will cover expenditures aimed at developing the capacity of the Executing Agency and participating implementing organizations to carry out their assignments. Equally important, it will also finance expenditures needed to establish the national capability to build and manage the Partnership across Indonesia into a viable long-term institution. The Executing Agency is expected to coordinate and promote collaboration with the other key actors. To this effect, a mechanism for efficient coordination will be established to address issues arising from the multi-sectoral and multi-level assignment of responsibilities. 12 A Central Project Management Unit (CPMU) will be established and located under the Executing Agency. The lead line Ministry (possibly the Public Works or the Health ministry) has yet to be chosen by GOI. Finally, the Project will hire a team of consultants to assist the national management team in supervising and providing program implementation at various levels. 5. Potential Risks and Mitigation Potential risks include: (a) inadequate community capacity to sustain chosen WSS services financially, technically, institutionally or environmentally; (b) elite minority in communities capturing control of and benefits from improved services; (c) inadequate local government capacity and commitment to apply sector policy principles in managing WSES interventions; (d) low technical quality of community implemented sub-projects; (e) irregularities in the management of funds channeled directly to communities, (f) lack of improvement in community hygiene behavior leading to poor health improvement outcomes; (g) lack of local government interest in and demand for the project and (h) 11 Along the lines of the Self-Help Action groups currently being scaled up successfully with the involvement of public and private financial institutions, in District Poverty Initiative Projects in South Asia 12 At the ground level, communities will be in charge of planning, organizing, implementing, operating and maintaining their iwsh program. The DGs will provide funds to match iwsh grants and will be in charge of planning project coverage for their districts, performance monitoring, and regulatory oversight. They will also be responsible for facilitation and technical support to communities, including the development of supra-community institutions providing service maintenance contracts. The CG, on the other hand, will be responsible for loan administration, development and updating of project guidelines and regulations, and monitoring and evaluation.

7 inadequate numbers of trained and qualified facilitators due to conflicting demands of various CDD programs. The project has been designed and prepared in such a way as to mitigate the above risks, using lessons learned from relevant analytical work and experience of WSLIC 1 and 2 and other CDD projects. Relevant Project design features include: (i) strong emphasis on technical assistance and facilitation to ensure informed choice by communities from a range of technically feasible options; (ii) wide application of transparency and accountability tools as well as participatory planning and monitoring approaches developed and field-tested in WSLIC2; (iii) building on the strengths of WSLIC 2, which was found to have high economic returns and was given high marks by beneficiaries for its impact on their quality of life and for good management; (iv) putting the DGs in the driver s seat and using matching grants to encourage DG ownership and greater local government investments in WSH; (v) the possible use of competitive e-bidding for participation in the project; and (vi) strengthening of the hygiene and sanitation components through the introduction of CLTS and other community-wide behavior change strategies proven to work in comparable settings. Moreover, additional measures such dissemination of the positive WSLIC 2 experience and consultations with local government officials will be undertaken during preparation to stimulate demand and allow the Project Team to calibrate the size and design of the project accordingly. 6. Issues on which the team seeks guidance (a) Should the team consider the use of other lending instruments other than the SIL? The problem with the SIL, as shown by the WSLIC 1 and 2 projects, is the long time it takes to implement project activities and disburse the loans due to the complexity and wide-ranging nature of Bank procedures on top of well known delays in government budget release. Given the shrinking time frame to achieve the WSS-MDGs nationwide, this is a key issue. In the PCN meeting, some mention was made about the exploring the use of budget support operations. What criteria that should the team use to make a determination of its desirability and practically? (b) How should the team respond to the demands of key Bappenas counterparts to integrate a program to stimulate village economic activities? The fear is that this could put the project out of focus. Given the strong views of those counterparts regarding the matter, how should the team deal with it? Is the proposed pilot mentioned earlier the right response something that they appear willing to accept as a compromise? What are the limits within which the community grant program can be used to improve the economic livelihood of eligible villages? (c) Can we ask for additional resources, when needed, to accelerate preparation and appraisal to meet the desired current fiscal year delivery?

8 7. Proposed preparation schedule, team composition, and budget estimate Schedule agreed with government PCN review meeting February 2005 Quality enhancement review March 29, 2006 Decision meeting March 31, 2006 Appraisal April 1, 2006 Negotiations May 15, 2006 Board approval June 15, 2006 Effectiveness September 30, Proposed Team composition Preparation Task Team Leaders Vicente Paqueo and Nilanjana Mukherjee* Preparation Advisers Richard Pollard, Yogana Prasta, Hongjoo Ham Water and Sanitation specialist Risyana Sukarma, Jan Drodz, Alfred lambertus Hygiene, Sanitation and Health Communication Ratna I Josodipoero, Edhie S rahmat Specialist Infrastructure Economist Anthony Torrens Financial Management Novira Asra Disbursement Yogana Prasta Private Sector/SME development Specialist To be named Social Development (safeguards and local Dayu Dharmapatni institutions) Specialist Local Government institutions and Decentralization To be named Specialist Legal Counsel Anthony Toft Procurement Rizal Rivai. Strategic Communication Specialist To be named * Community-based WSS and Community Development specialist Safeguard policies that might apply Like in WISLICC2, Environmental Assessments, Indigenous Peoples and Involuntary Resettlement policies may be triggered. As a highly decentralized project, PAMSIMASS will support a large number of small WSS sub-project investments in rural areas. It is expected to finance small scale WSS, through the grants. Through the Grant to the local government WSS program, the project is expected to finance small scale infrastructure and services (the ceiling for individual activities is expected to Rp. 200 million or US$23,550). The low ceiling for individual activities, combined with the types of activities expected to be financed (water supply to individual households, and sanitation facilities) indicate that none of these investments is expected to have any large scale, significant or irreversible impacts. Environmental impacts would come mostly from poor site management during the project construction activity. The Local Government officials, facilitators and consultants will be equipped with project manuals that will provide information on the policies that applied and measure that needs to be taken when these policies are triggered. A training for these parties involved will also be provided specifically relating to the safeguards. 5. Tentative financing Source: ($m.) BORROWER/RECIPIENT 40

9 INTERNATIONAL DEVELOPMENT ASSOCIATION 160 BILATERAL AGENCIES (UNIDENTIFIED) 10 Total Contact point Contact: Vicente B. Paqueo Title: Senior Economist Tel: Fax: Location: Jakarta, Indonesia (IBRD)