Letter No. CD-399/PAMSIMAS/X/2013 October 30, 2013

Public Disclosure Authorized THE WORLD BANK I BANK DUNIA Sharing Development Solutions for an Emerging Indonesia OFFPCIAL LZ DOCUMENTS, Rodrigo A. Chaves Country Director, Indonesia Letter No. CD-399/PAMSIMAS/X/2013 October 30, 2013 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Mr. Robert Pakpahan Expert Staff of Minister of Finance on State Revenue With Full Mandate as Director General of Debt Management Ministry of Finance Gedung Frans Seda Jalan Dr. Wahidin No. 1 Jakarta 10710 Dear Mr. Pakpahan: Re: Third Water Supply and Sanitation for Low-Income Communities Project - PAMSIMAS Credit No. 4204-IND; Amendment No. 2 1 refer to the financing agreement ("Financing Agreement"), dated December 27, 2007, as amended on October 19, 2011, between the Republic of Indonesia (the "Recipient") and the International Development Association (the "Association") for the Third Water Supply and Sanitation for Low-Income Communities Project -- PAMSIMAS (the "Project"). I refer also to the aide memoire of the Project's appraisal mission on November 26 to December 17, 2012 and to the meeting held between representatives of the Recipient and the Association on March 22, 2013, reflecting the Recipient request of a Project restructuring and an amendment to the Financing Agreement to: (a) adjust the objective of the Project to include the under-served population; (b) revise the Project description, (c) reflect changes to the Project's implementation arrangements; and (d) revise definitions to reflect the changes referred to in (b) and (c) above. After due consideration, the Association agreed with the proposed changes, and accordingly the Association proposes to amend the Financing Agreement as set out below. I Schedule I to the Financing Agreement is amended and restated to reflect the revised Project objective and revised Project description as set out in Annex 1 to this letter. 2. (a) A sub-paragraph (e) is added to paragraph I of Section I.A of Schedule 2 to the Financing Agreement to include a training and development service team as set out below: ISEB Tower 2, 1 2 th Floor, JI. Jend. Sudirman Kay. 52-53, Jakarta 12190 a +6221 5299 3000 6 +6221 5299 3111 O www.worldbank.org/id

2 of 10 Credit No. 4204-IND "(e) establish and maintain, a Training and Development Service (TDS) team at the national level, whose mandate, composition and terms of reference shall be acceptable to the Recipient and the Bank, responsible for providing support to PPMUs and DPMUs, including strategic planning, preparation and quality assurance for training and capacity building activities." (b) Subsequently, the word "and" at the end of sub-paragraph (c) is deleted and the word "and" is added at the end of sub-paragraph (d). 3. Paragraph 2(b) of Section L.A of Schedule 2 to the Financing Agreement is amended and restated as set out below in order to reflect the structures of ROMS, 5-member Community Facilitation Teams and Stakeholders Committees in each PPMU and DPMU: "(b) each PPMU and DPMU shall be provided with adequate funds and other resources, and supported by suitably qualified and experienced personnel in adequate numbers as needed to accomplish the objectives of the Project, including: (i) ROMS responsible for overall coordination, day-to-day management, budgeting, financial administration, monitoring and reporting, of the Project at the Province- and District-level; (ii) (iii) five-member Community Facilitation Teams with expertise in technical, health promotion and community development skills to assist in the development and strengthening of equitable community institutions to ensure sustainable improvements in WSS facilities and related behaviors; and Stakeholders Committees at the District-level, which shall be established in accordance with the Project Operations Manual, and which shall be in charge of evaluating CAPs." 4. The Appendix to the Financing Agreement is amended and restated to reflect the revised definitions of terminologies as set out in Annex 2 to this letter. Except as specifically set out in this letter, all terms and conditions in the Financing Agreement remain unchanged. The Association will disclose this letter agreement and related information on this Credit in accordance with the World Bank Policy on Access to Information. By entering into this agreement, the Recipient consents to disclosure of this agreement and related information on this Credit. ISEB Tower 2, 1 2 th Floor, JL Jend. Sudirman Kay. 52-53, Jakarta 12190 8+6221 5299 3000 0+6221 5299 3111 owww.worldbank.org/id

3 of 10 Credit No. 4204-IND Please confirm your agreement to the foregoing by signing and dating both enclosed copies of this letter in the space provided and returning one signed copy to us. The above amendment will become effective as of the date of countersignature of this letter by the Recipient. Sincerely yours, Rodrigo arv :Country Director, In sia CONFIRMED AND AGREED: REPUBLIC OF INDONESIA By: Name: Robert Pakpahan Title: Expert Staff of Minister of Finance on State Revenue With Full Mandate as Director General of Debt Management Date: November 15,2013 ISEB Tower 2, 12 th Floor, JI. Jend. Sudirman Kay. 52-53, Jakarta 12190 8+6221 5299 3000 0 +6221 5299 3111 0 www.worldbank.org/id

4 of 10 Credit No. 4204-IND SCHEDULE 1 Project Description ANNEX 1 The objective of the Project is to increase the number of under-served and low income rural and peri-urban populations accessing improved and sustained water and sanitation services and practicing improved hygiene behaviors as part of the Borrower's efforts to achieve WSS-MDG Targets through programmatic mainstreaming and scaling-up of a nationwide community-driven approach. The Project consists of the Original Project as modified below: Part A: Community Empowerment and Local Institutional Development 1. Provision of technical advisory services and training for both governmental and nongovernmental organizations and low income communities to support the preparation and implementation of Community Action Plans (CAPs), focusing on informed choice, design and costs of community and school water supply and peri-urban sanitation services, community and school hygiene behavior change activities, school sanitation facilities and post-construction management and sustainability. 2. Provision of technical advisory services and training to strengthen inter-agency cooperation at the Province- and District-level and to develop the institutional capacity of the units, teams and related personnel involved in the implementation of the Project, including development and revision of guidelines and manuals, and training materials to ensure compliance with the relevant rules and procedures. 3. Provision of training, through the recruitment of a Training and Development Service (TDS) team at the national level, to provide support to PPMUs and DPMUs, including strategic planning, preparation and quality assurance for training and capacity building activities. 4. Provision of training, through the recruitment of Community Facilitation Teams, to facilitate community empowerment and institution building at the Village-level. 5. Implementation of a program of activities designed to support capacity building and advocacy activities for governments and civil society to improve overall WSS delivery, encourage increase or reallocations in overall local government budgets in favor of community-driven development WSS efforts, and promote post-construction innovations to enhance the sustainability of WSS services. ISEB Tower 2, 121h Floor, JI. Jend. Sudirman Kay. 52-53, Jakarta 12190 i+6221 5299 3000 6+6221 5299 3111 C#www.worldbank.org/Id

5 of 10 Credit No. 4204-IND Part B: Improving Hygiene and Sanitation Behavior and Services 1. Provision of technical advisory services and training to support implementation of a phased program of community behavior change, consisting of the promotion of the community-led total sanitation approach to safe excreta management, hand-washing and other locally relevant environmental sanitation practices, including water storing and handling, food hygiene, solid waste and wastewater management, and water quality surveillance. 2. Provision of technical advisory services and training, and carrying out of studies, to support a sanitation and hygiene marketing program designed to generate consumer demand for improved sanitation, facilitate the ability of local markets to respond to this demand, and promote improved hygiene behavior. 3. Provision of technical advisory services and training to support school-based hygiene promotion training and facilitation, and facilitate workshops designed to incorporate and integrate school-based hygiene promotion programs into routine curricula and health education programs. 4. Provision of technical advisory services and training to strengthen the capacity of the units responsible for environmental health and hygiene promotion in Participating Provinces and Participating Districts to monitor progress in meeting their WSS-MDG Targets, assess performance of their sanitation and hygiene programs and evaluate their impact on hygiene behavior. Part C: Water Supply and Public Sanitation Infrastructure 1. Provision of technical advisory services and training to support: (a) water supply systems for new villages; (b) the scaling up and expansion of existing village water supply systems; and (c) optimization of existing underperforming village water supply systems, through the design, construction and commissioning and operation of water supply infrastructure at the community-level, based on a menu of technical options, including: rapid technical assessments and community WSS situation analysis to determine water demand and system options; informed water system technology choice; technical surveys and development of the detailed engineering designs; construction, supervision and quality control; operations, maintenance and repair training. 2. Provision of grants to support activities under CAPs. Part D: District and Village Incentives 1. Provision of DVI Grants to Participating Districts that meet or exceed predetermined project performance criteria based on the Participating District's achievement of WSS coverage, contribution to CAP Grants, and management information system performance, to support activities under CAPs. ISEB Tower 2, 1 2 th Floor, J. Jend. Sudirman Kay. 52-53, Jakarta 12190 2+6221 5299 3000 0+6221 5299 3111 Owww.worldbank.org/id

6 of 10 Credit No. 4204-IND 2. Provision of DVI Grants to Participating Villages that meet or exceed predetermined project performance criteria based on the Participating Village's achievement of component specific objectives of hygiene, community mobilization and contribution, and WSS coverage to support complementary activities in view of the scaling up and expansion of existing community WSS services. Part E: Implementation Support and Project Management 1. Provision of technical advisory services and training, through the recruitment of Central Management Advisory Consultants (CMAC), to provide support, for the benefit of CPMU, in terms of overall Project management, monitoring of implementation and outcomes, expansion of the national WSS program, and technical and financial reporting, as well as in the fields of sustainable WSS, hygiene promotion, capacity building, institutional strengthening, social and environmental safeguards and community empowerment. 2. Provision of technical advisory services and training, through the recruitment of Regional Oversight Management Services (ROMS) teams, to provide support, for the benefit of PPMUs and DPMUs, in terms of day-to-day Project management, technical matters, implementation of community-driven processes, institutional capacity building, social inclusion and environmental safeguards, monitoring of implementation and sustainability of outcomes, and technical and financial reporting at the Province-, District- and Village-level. 3. Provision of technical advisory services and training, through the recruitment of independent Project evaluation consultants, to evaluate Project performance, having regard to the performance indicators referred to in paragraph 1(b) of Section II.A of Schedule 2 to this Agreement. 4. Provision of technical advisory services and training to support preparations for a sector-wide program for the WSS sector. ISEB Tower 2, 1 2 th Floor, JI. Jend. Sudirman Kay. 52-53, Jakarta 12190 3 +6221 5299 3000 0 +6221 5299 3111 0 www.worldbank.org/id

7 of 10 Credit No. 4204-IND APPENDIX Definitions ANNEX 2 1. "Anti-Corruption Action Plan" means a stand-alone chapter of the Project Operations Manual exclusively dedicated to the Recipient's anti-corruption action plan, giving details of a program of actions, measures and policies designed to reduce or eliminate fraud and corruption in all its forms under the Project, including enhanced information disclosure provisions, civil society oversight provisions, mitigation measures to deal with the risks associated with collusion, forgery and fraud, a complaint handling mechanism, and an appropriate regime of sanctions and remedies. 2. "Bappeda" means Badan Perencanaan Pembangunan Daerah or the Regional Development Planning Agency of a Province or a District, as the case may be, or any successor thereto. 3. "Bappenas" means Badan Perencanaan Pembangunan Nasional or the National Development Planning Board of the Recipient, or any successor thereto. 4. "Beneficiary" means a Participating District or Participating Village, as represented by a Village Implementation Team, which is the recipient of a Grant and party to a Sub-project Grant Agreement; and "Beneficiaries" means more than one Beneficiary. 5. "CAP" or "Community Action Plan" means a community action plan referred to under Part A. 1 of the Project and "CAPs" means more than one CAP. 6. "CAP Grant" means a grant to be financed out of the proceeds of the Credit and designed to finance a Sub-project under Part C.2 of the Project. 7. "Category" means a category set forth in the table in Section IV of Schedule 2 to this Agreement. 8. "CMAC" means the Central Management Advisory Consultants referred to under Part D. 1 of the Project. 9. "Community Facilitation Team" means a Community Facilitation Team referred to under paragraph 2(b)(ii) of Section L.A of Schedule 2 to this Agreement. 10. "Consultant Guidelines" means the "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" published by the Bank in May 2004. 11. "CPMU" means the Central Project Management Unit referred to in paragraph 1(c) of Section L.A of Schedule 2 to this Agreement. 12. "DCC" means a District Coordinating Committee [or a District Pokja AMPL] referred to in paragraph 2(a)(ii)(A) of Section L.A of Schedule 2 to this Agreement or any successor thereof ISEB Tower 2, 1 2 th Floor, JI. Jend. Sudirman Kay. 52-53, Jakarta 12190 2+6221 5299 3000 0+6221 5299 3111 owww.worldbank.org/id

8 of 10 Credit No. 4204-IND 13. "DGHS" means the Directorate General of Human Settlements of MoPW, or any successor thereto. 14. "District" means an administrative subdivision of a Province. 15. "DPMU" means a District Project Management Unit referred to in paragraph 2(a)(ii)(B) of Section L.A of Schedule 2 to this Agreement. 16. "DVI Grant" means a District Village Incentive grant, a grant to be financed out of the proceeds of the Credit and designed to finance a Sub-project under Parts C.3 and C.4 of the Project, and "DVI Grants" means more than one DVI Grant. 17. "Environmental Management Framework" means the Environmental Management Framework issued by the Recipient on April 21, 2006. giving details of a program of actions, measures and policies designed to maximize the benefits accruing under the Project, avoid or mitigate any adverse impacts arising thereunder, or, if such adverse impacts cannot be avoided altogether, reduce such impacts to acceptable levels, as the same may be updated from time to time in agreement with the Association. 18. "Fiscal Year" means the Recipient's fiscal year commencing January I and ending December 31. 19. "Gender Plan" means the Gender Plan, issued by the Recipient, dated April 21, 2006, giving details of a program of actions, measures and policies designed to integrate gender considerations and promote gender equity in the design and implementation of the Project. 20. "General Conditions" means the "International Development Association General Conditions for Credits and Grants", dated July 1, 2005. 21. "Grant" means a CAP Grant or DVI Grant, or both. 22. "Isolated Vulnerable People" means those social groups in Indonesia that have a distinct social and cultural identity, and that are susceptible to being disadvantaged in the development process induced by the Project or any part thereof 23. "Isolated Vulnerable People Framework" means the Isolated Vulnerable People Framework issued by the Recipient on April 21, 2006, giving details of a program of actions, measures and policies designed to facilitate a process of free, prior and informed consultation involving Isolated Vulnerable People in the design and implementation of every Sub-project, and to ensure that such Isolated Vulnerable People derive benefits from the Sub-project which are socially, economically and culturally appropriate, and gender and inter-generationally inclusive. 24. "MDG" means Millenium Development Goals, a set of time-bound and measurable goals and targets for combating poverty, hunger, disease, illiteracy, environmental degradation and discrimination against women, which was formally approved by the international community at the United Nations Millennium Summit in September 2000. ISEB Tower 2, 1 2 th Floor, JI. Jend. Sudirman Kay. 52-53, Jakarta 12190 a +6221 5299 3000 6 +6221 5299 3111 O www.worldbank.org/id

9 of 10 Credit No. 4204-IND 25. "MoH" means the Ministry of Health of the Recipient or any successor thereto. 26. "MoHA" means the Ministry of Home Affairs of the Recipient or any successor thereto. 27. "MoPW" means the Ministry of Public Works of the Recipient or any successor thereto. 28. "Participating District" means any District in a Participating Province which is selected to participate in the Project in accordance with the provisions of the Project Operations Manual. 29. "Participating Province" means any Province which is selected to participate in the Project in accordance with the provisions of the Project Operations manual. 30. "Participating Village" means any Village in a Participating District which is selected to participate in the Project in accordance with the provisions of the Project Operations Manual. 31. "PCC" means a Provincial Coordinating Committee [or a Provincial Pokja AMPL] referred to in paragraph 2(a)(i)(A) of Section I.A of Schedule 2 to this Agreement, or any successor thereof. 32 "PCSC" means the Project Coordination and Steering Committee referred to in paragraph 1(a) of Section I.A of Schedule 2 to this Agreement. 33. "PPMU" means the Provincial Project Management Unit referred to in paragraph 2(a)(i)(B) of Section I.A of Schedule 2 of this Agreement. 34. "Procurement Guidelines" means the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Association in May 2004. 35. "Procurement Plan" means the Recipient's procurement plan for the Project, dated May 5, 2006 and referred to in paragraph 1.16 of the Procurement Guidelines and paragraph 1.24 of the Consultant Guidelines, as the same shall be updated from time to time in accordance with the provisions of said paragraphs. 36. "Project Operations Manual" means the Project Operations Manual referred to in paragraph 1(a) of Section 1.13 of Schedule 2 to this Agreement, as the same may be amended from time to time in agreement with the Association, and such term includes any schedules to the Project Operations Manual. 37. "Province" means an administrative subdivision of the Recipient's territory. 38. "Rupiah" and "Rp" means the currency of the Recipient. 39. "ROMS" means Regional Oversight Management Services referred to under paragraph 2(b)(i) of Section I.A of Schedule 2 to this Agreement. 40. "Sanctions Committee" means the committee established by the President of the Bank to review allegations of corruption under projects financed by the Bank, and to recommend appropriate sanctions to the President of the Bank, or any successor thereto. ISEB Tower 2, 12th Floor, J Jend. Sudirman Kay. 52-53, Jakarta 12190 Z +6221 5299 3000 *+6221 5299 3111 0 www.worldbank.org/id

10 of 10 Credit No. 4204-IND 41. "Stakeholders Committee" means the stakeholders committee referred to under paragraph 2(b)(iii) of Section L.A of Schedule 2 to this Agreement; and "Stakeholders Committees" means more than one Stakeholders Committee. 42. "Sub-project" means a WSS scheme under Part C of the Project, a school sanitation and hygiene improvement program, or complementary activities under Part C of the Project, to be financed in whole or in part out of the proceeds of a Grant. 43. "Sub-project Grant Agreement" means the Sub-project Grant Agreement referred to in paragraph 7 of Section I.C of Schedule 2 to this Agreement. 44. "TDS" means Training and Development Service referred to under Part D.2 of this Project. 45. "Village" means an administrative subdivision of a District. 46. "VIT" means a Village Implementation Team referred to in paragraph 2(a)(iii) of Section L.A of Schedule 2 to this Agreement. 47. "WSS" means water supply and sanitation. 48. "WSS-MDGs Targets" means the MDG targets in terms of WSS. ISEB Tower 2, 12 th Floor, J1. Jend. Sudirman Kay. 52-53, Jakarta 12190 a+6221 5299 3000 0 +6221 5299 3111 0 www.worldbank.org/id