Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 28 178-IND

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$32.8 MILLION

AND A CREDIT

IN THE AMOUNT OF SDR 21.9 MILLION (US$32.8 MILLION EQUIVALENT)

TO THE

GOVERNMENT OF THE REPUBLIC OF INDONESIA

FOR A

LAND MANAGEMENT AND POLICY DEVELOPMENT PROJECT

March 3 1, 2004

Rura l Development and Natural Resources Sector Unit East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I ts contents mav not otherwise be disclosed without World Bank authorization. I

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CURRENCY EQUIVALENTS

(Exchange Rate Effective February 16,2004)

Currency Unit = Rupiah IDR 1,000 = US$.118

US$l .OO = Rp. 8,500

Adat APL AT AWP Bapedalda B APPENAS BPKP BPN CAS CFAA CPAR cso E K O N FMR GDP GO1 I C B IDA ILAP ILGRIP Iz in Lokasi Kabupaten Kanwil Keppress Kotamady a L I S LMPDP LOC M O H A MSUKP N G O OCSPR OED

FISCAL YEAR January 1 -- December 31

ABBREVIATIONS AND ACRONYMS

Customary Land Tenure Adaptable Program Loan Adjudication Teams Annual Work Program Local Government Environmental Office National Development Planning Agency Internal Audit Agency National Land Administration Agency Country Assistance Strategy Country Financial Accountability Assessment Country Procurement Assessment Review Civ i l Society Organization Coordinating Ministry o f Economic Affairs Financial Monitoring Report Gross Development Project Government o f Indonesia International Competitive Bidding International Development Association Indonesia Land Administration Project Initiatives for Local Governance Reform Project Commercial Entreprises Licence District Provinsional Regional Office Presidential Decree Municipality Land Information System Land Management and Policy Development Project Land Office Computerization in BPN Ministry o f Home Affairs Provincial Project Implementation Unit Non-government Agency Operational Core Services Procurement World Bank Operation and Evaluation Department

P A D P B B P C A R PIU P M M P M U PSR S D R SMERU SOE TA TOR U N D P USDRP U U P A UUPK Wilayah WB

FOR OFFICIAL USE ONLY Project Appraisal Document Annual Property Tax Procurement Capability Assessment Report Project Implementaion Unit Project Management Manual Project Management Unit Project Summary Report Special Drawing Right Social Monitor ing and Economic Research Unit Statement o f Expenses Technical Assistance Terms o f Reference United Nations Development Project Urban Sector Development and Reform Project Basic Agrarian L a w Basic Forestry L a w Province Wor ld Bank

Vice President: Jemal-ud-din Kassum, EAPVP Country ManagerDirector: Andrew Steer, EACIF

Sector ManagedDirector: Mark D. Wilson, EASRD Task Team Leader/Task Manager: Wael Zakout, EASRD

This document has a restricted distribution and may be used b y recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization.

INDONESIA LAND MANAGEMENT AND POLICY DEVELOPMENT PROJECT

CONTENTS

A. Project Development Objective

1. Project development objective 2. Key performance indicators

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Ma in sector issues and Government strategy 3. Sector issues to be addressed b y the project and strategic choices

C. Project Description Summary

1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements

D. Project Rationale

1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies 3 . Lessons learned and reflected in the project design 4. Indications o f borrower commitment and ownership 5. Value added o f Bank support in this project

E. Summary Project Analysis

1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies

Page

3 3

3 4 7

9 10 10 11

11 13 13 14 14

15 15 16 16 19 21 22

F. Sustainability and Risks

1, Sustainability 2. Critical risks 3. Possible controversial aspects

G. M a i n Loan Conditions

1. Effectiveness Condition 2. Other

H. Readiness for Implementation

I. Compliance w i th Bank Policies

Annexes

Annex 1 : Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary Annex 6: (A) Procurement Arrangements

(B) Financial Management and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project File Annex 9: Statement o f Loans and Credits Annex 10: Country at a Glance Annex 1 1 : Environmental Analyis Annex 12: Social Analysis Annex 13: Transparency and Accountability Strategy

23 23 24

24 24

25

25

26 32 41 42 47 48 59 66 67 68 70 72 79 88

MAP(S) IBRD#33066

INDONESIA Land Management and Policy Development Project

Project Appraisal Document East Asia and Pacific Region

EASRD

Date: March 3 1,2004 Sector ManagedDirector: Mark D. Wilson

T e a m Leader: Wael Zakout Sector(s): Central government administration (50%),

Country Director: Andrew D. Steer Project ID: PO64728

Sub-national government administration (50%) Theme@): Personal and property rights (P), Land

For LoanslC redi tslOthe rs : Loan Currency: United States Dollar Amount (US$m): IBRD Loan: US$32.8 million; IDA Credit: SDR21.94 million (US$32.8 million) Borrower Rationale for Choice of Loan Terms Available on File: Proposed Terms (IBRD): Variable-Spread Loan (VSL) Grace period (years): 5 Commitment fee: 0.75%

Yes

Years to maturity: 20 Front end fee (FEF) on Bank loan: 1.00% Payment for FEF: Capitalize from Loan Proceeds

Proposed Terms (IDA): Standard Credit Grace period (years): 10 Commitment fee: 00% - 0.5%

BORROWER

Years to maturity: 35

Responsible agency: BPN, BAPPENAS, MINISTRY OF HOME AFFAIRS BPN (National Land Agency) Address: J1. Sisingamangaraja No. 2, Jakarta, Indonesia Contact Person: Dr. Lufthi Nasution, Chairman, BPN

Tel: (62-21)-722-8723/4 Fax: (62-2 1)-726-753 1 Email: Other Agency(ies): BAPPENAS Address: Address: J1. Madiun No. 4, Jakarta 103 10, Indonesia Contact Person: Ir. Tatag Wiranto, Deputy Chairman, Autonomy & Regional Development Tel: (62-21) - 319 34731 Fax: (62-21) - 319 34731 Ministry o f Home Affairs Address: J1. Medan Merdeka Utara No.7, Jakarta 101 10, Indonesia Contact Person: Mr. Bambang Setyadi,Director o f Inter Institution Reg. Autonomy, D.G. Regional Autonomy Tel: (62-21) - 345 3503

Email:

Fax: (62-21) - 351 8767 Email:

g date: 12/31/2009

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A. Project Development Objective

1. Project development objective: (see Annex 1)

1.1 The overall goal of the project i s to contribute to government programs in achieving poverty reduction, economic growth and promote full utilization o f land resources in a sustainable manner. The proposed objectives o f the project are: (i) improve land tenure security and enhance the efficiency, transparency, and improve service delivery o f land titling and registration; and (ii) enhance local government capacity to undertake land management functions wi th great efficiency and transparency. These objectives w i l l be achieved through: (a) development o f land policies and related laws and regulations to bring coherence and consistency o f laws and regulations related to administration and management o f land affairs; (b) institutional development and support to the central and local institutions responsible for land administration and management w i th a focus on improving service delivery o f land offices through establishment and monitoring o f minimum service standards; (c) accelerating and expanding the systematic land titling program and developing a Land Information System (LIS); and (d) review the experience o f local government management o f land affairs, provision o f training and capacity building to al l local governments in standard operating procedures, and support to selected local governments (around 5) to be models o f how local governments can efficiently and effectively undertake their new fimctions on land affairs.

2. Key performance indicators: (see Annex 1)

2.1 The progress in achieving project’s development objectives w i l l be monitored through a set o f key indicators which include: (i) key land policies developed and regulations are drafted; (ii) compliance w i th the minimum service standards; (iii) number o f tit les issued; (iv) improvement in land tenure security and speed in resolving land disputes; and (v) increase in land market activities and increase in registration o f subsequent transactions. Detailed performance indicators are included in Annex 1.

B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 27108-IND Date of latest CAS discussion: November 25, 2003

1.1 The objectives o f the current CAS for Indonesia are: (i) improving the investment climate; and (ii) making service delivery responsive to the poor. The CAS highlights the need for advances on the core issue o f govemance for realizing these objectives. The proposed project w i l l contribute to the f i rst objective by supporting the development o f national land policy, which will bring coherence to the various government laws and regulations which regulate land administration and management and by issuing 2.5 mi l l ion land tit les in areas o f high poverty and high economic potential. The project w i l l contribute to the second objective by transforming the National Land Agency (BPN) into a transparent and efficient institution, through the development, implementation and monitoring o f minimum service standards for land services. The project will also develop guidelines and build the local government capacity to undertake its new mandate in land services. Improved land tenure security would reduce land conflicts, induce more land-related investment, and increase lending through land titles as collateral, which wil l al l contribute to sustaining economic recovery. In the long term, the project w i l l contribute to increased government revenues from land related taxes and fees, which could be utilized for better public services to the community.

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2. M a i n sector issues and Government strategy:

2.1 Indonesia i s the world’s largest archipelago w i th over 17,000 islands (6,000 inhabited) straddling the equator. I t s area i s over 1.9 mi l l ion square kilometers (sq. km), o f which about 1.8 mi l l ion sq. km i s land. All the larger islands have a central volcanic mountainous area flanked by coastal plains. The population i s about 215 million, of which about 45 percent are employed in agriculture, and about ha l f live on the island of Java. More than 300 languages are spoken in Indonesia, but Bahasa Indonesia (regarded as the purest Malay), i s the official language and i s now understood in al l but the most remote villages. Almost 90 percent of the population is Muslim, slightly less than 10 percent i s Christian, and about 2 percent i s Hindu and 1 percent Buddhist.

2.2 Although crude o i l and natural gas are Indonesia’s most valuable natural resources, agriculture accounts for about 16 percent of the Gross Development Project (GDP) and employs over 40 percent o f the labor force. Indonesia i s one o f the world‘s major rubber producers; other plantation crops include sugarcane, coffee, tea, tobacco, palm oil, cinchona, cloves, cocoa, sisal, coconuts, and spices, Despite plantation cultivation, Indonesia has a wide landholding base; the majority o f rural people are largely self-sufficient in food. Rice i s the major crop; cassava, corn, yams, soybeans, peanuts, and fruit are also grown. Fish are abundant, both in the ocean and in inland ponds.

2.3 In natural-resource potential, Indonesia has great timberlands. Vast rain forests containing teak, sandalwood, ironwood, camphor, and ebony cover the mountain slopes. Palm, rattan, and bamboo abound, and a great variety o f forest products are produced. Indonesia i s a major exporter o f timber, accounting for nearly ha l f o f the world’s tropical hardwood trade. However, the rapid deforestation o f Indonesia’s hardwoods, mainly due to i t s expanding population and growing timber-related industries, has caused concern amongst international environmental groups.

2.4 The land sector in Indonesia i s perceived as one o f the most inefficient sectors in the economy. This i s attributed to an old and fragmented legal framework for land tenure, institutional arrangements unable to provide adequate land administration and management services, and weak local government being unable to undertake their new mandate in land management.

Old and fragmented legal framework for land tenure

2.5 Basic Agrarian Law o f 1960 (UUPA) and i s divided into state land and adat land.

2.6 The Basic Agrarian L a w (UUPA) replaced the pre-1960 system o f land rights based on the Dutch C iv i l Code and clearly stipulate that al l Indonesia land laws would be based on unwritten customary (adat) law. However, there i s no clear policy for the legal framework to support it and most o f the implementing laws, decrees, and regulations needed to define the land rights specified in the U U P A have neither been developed or enacted. The fact i s that laws, regulations, and policies which have been passed since 1967 did not even refer to the UUPA. At present, land belonging to Adat (traditional) communities can become registered in hak milik only if i t acquires the characteristics o f tenure in individual ownership and i t s use i s recognized by the community.

2.7 A similar fragmented legal framework governs land tenure in forest land, which i s administered b y the Ministry o f Forestry under the Basic Forestry Law o f 1967 (UUPK). Under UUPK, rights to the land are tenures for resources: no land tenure can exist in this land although there are private dwellings, farms, and even cities within “forest” land. Recent estimates suggest that only about 80 percent o f the “forest” land actually has forest cover. Moreover, some forest land overlaps with land that previously enjoyed

Land i s classified into forest and non-forest land. Non-forest land i s administered according to the

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traditional land rights (Adat). While the U U P K recognizes that these traditional land rights exist, it places those rights in a subsidiary position.

2.8 The result has been a complex array o f incidental laws, ministerial and other decrees, and ad-hoc regulations. This gives administrators a wide amount o f discretion in interpreting the law and in allocation o f land rights with little basis for fair resolution o f tenure disputes. The rights o f private landholders are st i l l not adequately defined whereas regulations defining State land rights have proliferated. Private landowners are in a weak legal position in land assembly negotiations with the state institutions on behalf o f commercial enterprises (izin lokasi) and, until 1998, communal rights o f traditional societies (hak ulayat) were ignored by formal policy. Contrary to the requirement o f Law No. 20 o f 1961 on Revocation o f Rights on Land, formal land expropriation procedures are not used and unfair bargaining mechanisms are used to force out landholders. Appeals to the courts are rarely successful and confidence in the court's impartiality in enforcing the laws and their intent has been eroded. Legal and regulatory reform i s needed but must be preceded by an inclusive consensus on the policies and objectives that they wil l support.

Institutional arrangements unable to provide adequate service

2.9 Because o f the large number o f communities spread over many islands, the organizational task o f land titling and management i s similarly challenging. The Republic o f Indonesia i s divided into 32 provinces (Wilayah) which are subdivided into 348 Districts (Kabupaten), and 86 Municipalities ( Kotamadya). In addition, the Capital City o f Jakarta, and the Provinces o f Yogyakarta and Aceh are special territories. Until 1999, non-forest land matters were administered by the National Land Administration Agency (BPN), a central agency reporting directly to the President, through a network o f Provincial Offices in every Province, Land Offices in 293 Kabupaten/Kotmadya, and some representative offices at the sub-district level. The quality o f service from B P N left much to be desired. Since 1999, under the Law on Regional Autonomy (Law No.2211999) and the executive order Keppres No. 3412003, land title certification i s now being carried out by BPN, whereas nine key activities such as issuance o f location permits are with the local government, without any perceptible change in the quality o f service.

2.10 Perhaps the biggest inadequacy lies in pace of land titling. Only about 27 mi l l ion o f the nation's estimated 80 mi l l ion land parcels (30 percent) have been registered in the 40 years since land registration began. I f the current pace o f registration continues, land registration w i l l never catch up with the total number o f parcels, since this total i s estimated to be growing by more than 1 mi l l ion parcels per year. The main reasons for such low coverage are the weak institutional capacity o f the B P N Land Offices, complex and overlapping patterns o f land tenure, absence o f documentation, long-term disputes and unclear procedures for adjudication, large numbers o f parcels, and rapid increases in the number o f parcels due to fragmentation. Even where titling has been substantially completed, the number o f registrations o f transactions subsequent to the titling are l ow and threaten the integrity o f the land records as does poor records management. Titled land i s estimated at three to five percent o f total land area and i s the only land which can be subject o f a private property market system.

2.1 1 The underdeveloped land registration system has significant negative impacts on economic development. Purchasers and vendors o f land face a high transaction risk because o f unclear land titles and as a result, neither efficient nor fair land markets can develop. Land cannot generally be used as collateral to mobilize financial resources and the development o f financial markets, especially rural financial markets, i s constrained. Corporations cannot own land and residential land i s commonly held under relatively short-term leases (Jakarta, 25 year hak HGB) with resulting insecurity, financial hardship, and opportunities for rent seeking. Unclear land titles, unreliable and inaccessible land records, refusal to recognize informal but val id land tenures al l lead to social conflict, particularly during the recent period o f rapid change in Indonesia in recent decades, and this distorts private investment.

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Weak local government unable to undertake their new mandate

2.12 According to law 22 and Keppres 3412003, local government has the authority over nine land service functions: These are: (a) issuance o f location permit; (b) provision o f land for public interest; (c) cultivated land dispute settlement; (d) resolution o f compensation for land allocated for development; (e) to determine the l i s t o f occupants land distribution and compensating for excess land; ( f ) determination and resolution o f ulayat land problems; (g) resolution o f neglected land problems; (h) land opening permit provision; and (i) land use planning within the local government jurisdiction. Most are unsure how to proceed ahead.

2.13 Law 22 and Keppres 3412003 has assigned these functions without transferring personnel, buildings, and other assets to local government to undertake these functions fully and effectively. Furthermore, the central government did not provide adequate training to local government officials on how to provide the services efficiently. Therefore, most o f local government are not able to undertake these functions and, on several occasions, the lack o f clear guidelines and capacity have contributed to mis-management o f land services by local officials.

Government Strategy

2.14 The strategy o f the Government on land affairs i s to decentralize public administration, including land administration and management, to make i t responsive and accountable to local communities. On land matters, the responsibilities between B P N and Districts have been defined by Keppres 3412003. The responsibility for the nine functions indicated in the last paragraph i s wi th the District Administration (Kabupatens) while B P N i s entrusted with other activities, such as, provision o f new titles, activities related to land transfer, developing land policies, and establishing and monitoring standards, and training.

2.15 The Government i s also in agreement that major land policy changes are needed, as reflected by People’s Assembly’s call (Decree No. IW2001) for developing a comprehensive land policy reform agenda through a consultative process and public hearings. Given that land affairs are cross-cutting, multi-sector issues, another strategy o f the Government has been to set up a Land Affairs Coordinating Team in 2001, which i s chaired by the Coordinating Ministry o f Economic Affairs (EKON) with members from Ministry o f Home Affairs (MOHA), National Development Planning Agency (BAPPENAS), and BPN. The Coordinating Team has a very broad agenda including giving guidance and supervising land policy reform as wel l as acting as a steering committee for the formulation o f the Land Management and Policy Development Project. Furthermore, the government has requested BAPPENAS to prepare a National Land Policy, and B P N to prepare a revised Basic Agrarian Law by August 2004. BAPPENAS has initiated the process o f public consultations o n the draft National Land Policy. The formulation o f the National Land Policy i s expected to be finalized around March 2005, and w i l l be an input to the preparation o f the revised Basic Agrarian Law.

2.16 The proposed project would assist the various government institutions to implement the above strategy, including developing clear guidelines for those functions delegated to local government, and build the capacity o f local government to undertake these functions effectively. In addition, the project i s expected to assist in transforming B P N into a more efficient, open, transparent and effective institution, including developing, implementing and monitoring clear service standards.

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3. Sector issues to b e addressed b y the project and strategic choices:

3.1 The number o f untitled land parcels in Indonesia i s estimated to be 60 mi l l ion (around 70 percent o f privately held land), compared to around 10 percent in Thailand and Malaysia and 40 percent in the Philippines. Consequently, the main strategy i s not to attempt full coverage, but to use the project as a spring-board for multiple land titling initiatives to be financed by the government or various donors.

3.2 The spring-board nature o f the project suggests the sector issues to be addressed by the project:

Phasing. Based on the previous project’s experience o f producing around 1 mi l l ion parcels a year, it w i l l take more than 60 years to title the entire country. Consequently, to title the entire country within a 20-year period (similar to targets established in other East Asian countries), th is project, covering the island o f Java and some urban centers outside Java, must lead to: (i) parallel projects to cover Sumatra, Bali, and Sulawesi, the other three big islands; and (ii) improving the efficiency and speed o f sporadic titling (titling on demand).

Focus on transparency. BPN, the national land agency in Indonesia, i s perceived as inefficient, ineffective and non-transparent. Therefore, the goal i s to transform B P N into an efficient, more open, and transparent agency. Fully achieving this goal w i l l take time, and may be extended wel l after the completion o f the project. B P N w i l l establish clear service standards for al l o f i t s functions, w i th internal and external monitoring including involvement o f civi l society organizations to monitor these standards. Achievement o f these standards w i l l be part o f BPN’s new Strategic Plan and the new HR policy (both to be developed under the proposed project), wi th clear rewards for those who achieve them and sanctions for those who do not. B P N management has agreed to this principle and requested the project to provide the needed support to achieve this goal.

Support to local government to implement their mandate effectively. I t i s important that local governments are trained and have the resources to undertake their new mandate. However, the project wi th i t s limited resources w i l l not be able to provide support to al l local governments. The project w i l l limit i t s support to key areas: (i) development o f guidelines; (ii) training and capacity building to al l local governments; and (iii) piloting in five selected local government units. The guidelines need to be developed at the national level through a consultative process with the participation o f key national government and local government institutions and feedback from civ i l society. Training w i l l be provided to al l local governments. The pilots wil l use the pilot local governments as training grounds. The piloting will provide resources to around five local governments to develop their capacity to implement their new mandate. They wil l serve as a model for other local governments. The national government can then decide to provide similar support to other local governments through the local government budget, or through donor funding.

3.3 The proposed project w i l l dovetail i ts support to local government on land management with other WB Projects supporting local government. Selection o f the Districts to be covered under Component V w i l l be coordinated with ILGRIP and UGRIP projects to find complimentarities between this work wi th the local governments. Since the number o f Districts and Cities are l imited under Component V (see paragraph above), i t i s proposed that the proposed project would include local governments supported under ILGRIP and U S D W . The project wil l also provide the Ministry o f Home Affairs wi th TA and the resources for development o f a strategic plan for scaling up support to al l local governments in the land management function. Implementation o f the strategic plan could be supported under a future Bank project if the pilots are successful.

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Strategic choices in project design:

3.4 Geographical Focus and Phased Implementation. As mentioned above, the proposed project wil l focus activities primarily on the island o f Java and selected urban centers outside Java. This choice i s based first on Java’s concentration o f population, as wel l as parcels, permitting the project to maximize its impact. Moreover, this strategy will allow close monitoring and supervision o f the development o f an integrated package o f land titling, land office improvement, land information system development and land dispute resolution. Once developed, the package can be replicated at more distant locations without the accompanied risk during development. Finally, the strategy recognizes that until policies for land administration and management o f traditional land tenure arrangements are in place, it i s preferable not to move land titling into rural areas outside Java to islands where such conflicting tenure arrangements are widespread, Under the Land Management and Policy Development Project (LMPDP) the policy questions o f such tenures w i l l be addressed with consultations, studies and the development o f more appropriate regulatory frameworks which recognize traditional land rules and complex tenure arrangements.

3.5 The project plans recognize that the benefits o f land management and land administration improvements are also desired by stakeholders outside Java. The government has expressed a strong desire to see project activities expanded beyond Java. The LMPDP, through working in major selected cities outside Java, w i l l also strengthen the local capacity in these areas. Future projects in other areas, therefore, could be phased in quickly at any time after these policy developments, capacity strengthening, and appropriate piloting activities have been accomplished.

3.6 The project design emphasizes a balance o f activities which aim for achievements in policy, institutional development and titling operations. Other projects, such as L A P I, had less focus o n institutional development, particularly on local land offices, and a greater focus on titling. The balanced focus recognizes the large potential benefits from policy improvements to benefit the poor while helping to foster a climate for investment and growth. The project design also seeks a balance between the issuance o f new tit les and institutional development for improved land office hc t i on ing . Service provision in land offices i s essential for sustaining security o f tenure and providing assurance for secondary rights such as mortgage. Focusing on improved service provision i s also strategic for reducing the scope for corruption, which burdens inordinately on poorer groups.

Balance o f Policy, Inst i tut ional Development and T i t l ing Operations.

3.7 Encouraging Civil Society Organizations (CSOs) Participation. The project w i l l support C iv i l Society Organizations (CSOs) participation in several aspects o f project implementation. CSOs will be employed in providing community information and participation in land titling activities. CSOs w i l l also play a significant role in land policy consultation. Although relying o n CSOs has certain risks and their scope o f activity must be carefully delimited, CSOs are expected to improve relationships wi th communities.

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C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

Component 1: Development o f L a n d Policy and Regulatory Framework

Subcomponent 1.1 Development o f Government Capacity to Formulate Land Policy Subcomponent 1.2 Development o f a National Land Policy Subcomponent 1.3 Formulation o f Specific Land Policy/Regulatory Instruments

Component 2: Inst i tut ional Development, Capacity Building, and Tra in ing

Subcomponent 2.1 Development and Implementation o f BPN Long-term Strategic Plan Subcomponent 2.2 Re-Engineering o f Land Offices Subcomponent 2.3 Support to the Legal Department o f BPN Subcomponent 2.4 Education and Training Subcomponent 2.5 Overall Project Management

Component 3: Implementation o f An Accelerated L a n d Ti t l ing Program

Subcomponent 3.1 Community Awareness and Participation Subcomponent 3.2 Systematic Land Titling Subcomponent 3.3 Streamlining Land Office Registration Processes Subcomponent 3.4 Development o f the Private Surveying Sector

Component 4: Development o f L a n d In fo rmat ion System

Subcomponent 4.1 Development o f a National Land Information Strategy Subcomponent 4.2 Establishment o f L I S Infrastructure Subcomponent 4.3 Develop L I S Pilot Study

Component 5. Capacity Bui ld ing Support fo r Loca l Government

Subcomponent 5.1 Assessment o f Local Government’s Capacity to Undertake Land

Subcomponent 5.2 Training and Capacity Building Subcomponent 5.3 Preparation Strategic Plan for Broader Strengthening o f Local

Government Land Management Subcomponent 5.4 Support to Project Management Unit

Administration and Management Functions

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Component

Component 1 : Land Policy Component Component 2: Institutional Development, Capacity Building, and Training Component 3: Implementation o f an Accelerated Land Titling Program Component 4: Development o f a Land Information System Comnonent 5: Canacitv Building for Local Government

% of Total

3.4 10.6

76.0

3.3 6.7

Indicative costs

(US$M) 2.94 9.29

66.62

2.86 5.91

Bank- financing (US$M)

2.66 7.29

48.07

2.37 5.37

Front-end fee Total Financing Required

% of Bank-

financing 4.0

11.1

73.1

3.6 8.2

0.00 0.0 0.00 0.0 87.62 100.0 65.76 100.0

2. K e y policy and inst i tut ional reforms supported by the project:

2.1 The project w i l l support broad policy and institutional reforms. In the policy reform area, the support w i l l focus on two areas. First, the project w i l l support the government to develop and adopt a National Land Policy which would be the basis for overall policy and regulatory changes over the medium term (see Component 1.1, Annex 2). Second, based on the principles stipulated in National Land Policy, the project w i l l support government development and adoption o f specific land polices which have already been identified as priority, including land dispute resolution, recognition and registration o f adat land rights, simplification o f property rights, and land distributiodland reform including creation o f an inventory o f available state lands and extension o f lease terms (see Component 1.2, Annex 2).

2.2 The project w i l l support major institutional reforms in two areas. First, the project w i l l support the implementation o f Keppres 34/2003 on land affairs and provide support to local government to undertake their new fbc t ions wi th efficiency and transparency. Second, the project w i l l support the transformation o f B P N to a more transparent and effective agency, by establishing, implementing and monitoring service standards.

3. Benef i ts and target population:

3.1 By improving the land administration system, the project wil l stimulate the development o f more efficient land markets, facilitating the allocation o f land to i t s best use. Moreover, under the proposed project, about 2.5 mi l l ion households w i l l receive land titles. The beneficiaries o f land titles will enjoy the benefits associated w i th land titles, including increased tenure security, access to credit and opportunities to increase investments and productivity. Many o f the expected beneficiaries are the poor and vulnerable who, because o f time and resource constraints, have not obtained land tit les through the existing system. The emphasis on information dissemination and community participation w i l l be strengthened under the project to ensure that women and other vulnerable groups are fully aware o f their rights.

3.2 Improving the efficiency and transparency o f the land agency w i l l reduce the time and cost o f registration o f land transactions and therefore w i l l encourage the development o f a formal land market, which protects property rights and reduce lands disputes. The project wil l also assist in the development o f policies wi th regard to the recognition and registration o f adat and ulayat land. This wil l , in the medium term, protect the rights o f indigenous groups on their land.

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4. Institutional and implementation arrangements:

4.1 B P N will be the executive agency to implement the project, while BAPPENAS and the Ministry o f Home Affairs w i l l implement specific components. BAPPENAS wi l l be the implementing agency for Component I o f the project, MOHA w i l l be the implementing agency for Component V, and B P N w i l l be the implementing agency for Components 11, I11 and IV, and wil l be responsible for consolidating project accounts and progress reports.

4.2 BAPPENAS w i l l establish a land policy secretariat in the Department o f Spatial Planning and Land under the Deputy o f Regional Autonomy to manage Component I o f the project and coordinate land policy development. The secretariat w i l l be chaired by a BAPPENAS staff member, who w i l l report to the Director, and wil l include 4-5 professional staff.

4.3 B P N wil l coordinate the implementation o f Components 11, 111, and IV through LMPDP project office, in addition to i t s role as the lead agency o f the project. The Director o f LMPDP w i l l act as the project director and the LMPDP Management Unit (PMU) in B P N w i l l coordinate implementation o f al l project activities. B P N w i l l establish Provincial Project Implementation Units (MSUK) to support project implementation in each o f the project provinces and be responsible for: (i) project administration; (ii) planning, monitoring, and evaluation, (iii) procurement; (iv) finance and verification, (v) technical quality control. Furthermore, Project Implementation Units (MSUK) w i l l be established in each o f the project Kabupaten, which wil l be responsible for organizing and implementing the systematic land titling component.

4.4 MOHA will coordinate the implementation o f Component V o f the project. A Project Implementation Unit (PIU) w i l l be established under the Director o f Institution for Decentralization under the Director General o f the Directorate o f Regional Autonomy.

4.5 The LMPDP Steering Committee w i l l serve as a project steering committee to provide overall guidance during implementation, and ensure coordination among the various agencies implementing various parts o f the project. The committee will also serve as a steering committee for land policy development. The existing Technical Team will support the Steering Committee in overseeing land policy development and ensure good coordination among the implementing agencies.

D. Project Rationale 1. Project alternatives considered and reasons for rejection:

Lending Instrument

1.1 An A P L could be an alternative approach to address the uncertainties o f a reform program, both wi th regard to getting a consensus among key players and to the ability o f the government to carry it out. However, there i s a long l i s t o f very sensitive issues and the government’s ability to reach consensus on these issues are not certain at the moment. Therefore, triggers for the subsequent phases o f A P L cannot be formulated easily. Furthermore, the proposed project i s expected to investigate the viability o f full cost recovery o f land titling issuance and, if this i s found viable, then external funding for the continuation o f the program may not be needed. For these reasons, an SIL lending instrument i s more appropriate for the proposed project.

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Titling off Java

1.2 Since land titling will contribute to poverty reduction, the project design considered the extension o f the systematic land titling to islands other than Java where the poverty i s even greater. This alternative was rejected due to the lack o f govemment’s clear policies on the recognition and registration o f adat/ulayat land. Rural areas outside Java are mostly under customary land tenure, and issuance o f individual land tit les in these areas may cause land conflicts and may not be acceptable to the communities. Instead the project would: (i) assist the government to develop policies on the recognition and registration o f adat/ulayat land; and (ii) include selected urban centers outside Java to be covered by systematic land titling.

Supporting a larger Number of Local Governments under Component V

1.3 Since most o f local government does not have the capacity nor the resources to undertake their new mandate, one option was considered to support a large number o f local governments under Component V. This option was rejected for the following reasons: (i) the project i s already complex, and adding a large number o f districts under Component V would add multiple complexities to the project and may affect the overall project outcome; (ii) there i s a need for testing and piloting before extending the support to a large number o f local governments; and (iii) Component V includes two sub-components which w i l l benefit al l local governments, namely training and the development o f clear standard operating procedures and guidelines.

Supporting Land Reform

1.4 everal CSOs have requested that the Bank to support land reform. While land reform (land distribution and re-distribution) w i l l contribute significantly to poverty reduction, the task team opted against direct support to land reform at this point. Land Reform i s often very political, and currently, there i s no national consensus on land reform. As a result, the project would support policy studies instead to assess the viability and scope o f land reform, and try to bring a national consensus on the issue. I f a national consensus i s reached, and the government adopts an approach which i s acceptable to c iv i l society and CSOs, then the Bank could consider providing funds under a separate lending mechanism to pi lot the approved scheme.

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2. Major related projects financed by the Bank andlor other development agencies (completed, ongoing and planned).

Sector Issue Project

Ban k-f inanced Land titling and administration

Distribution o f land rights to the land poor Land Tit l ing and Administration

Land Tit l ing and Administration Land Tit l ing and Administration

Land Titling and Administration Land Tit l ing and Administration

Land Tit l ing and Administration

Indonesia Land Administration Project I (Ln. 3792-IND) Thailand Land Reform Areas Project (Ln. 2198-TH) Thailand First Land Tit l ing Project (LTPI) (Ln. 2440-TH) Thailand L T P 11 (Ln. 3254-TH: Thailand L T P I11 (Ln.

(Laos Land Tit l ing Project) Cambodia: Land Management and Administration Project Philippines: Land Administation and Managemenl

3797-TH)

Project Other development agencies P/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), t

Latest Supervision (PSR) Ratings

(Bank-finance Implementation

Progress (IP)

S

U

H S

S S

S S

S

(Highly Unsatis

projects only) Development

Objective (DO)

S

U

HS

S S

S S

S

ICtOry)

3. Lessons learned and reflected in the project design:

3.1 The World Bank has implemented many land reform and titling projects since the formulation o f i t s "Land Reform Policy Paper" in 1975. Three major lessons can be drawn from the Bank's experience. First, land policy should be viewed as an integral element o f a broader pol icy dialogue rather than as a string o f narrowly oriented technical interventions. Experience shows that a lack o f consensus on the broader subject o f land policy has often compromised the effect on development o f specific interventions, for example, land titling. In countries where land issues have in the past resulted in civ i l strife, revolution, and war, reaching a consensus requires time and involves al l the relevant sectors o f c iv i l society. Second, land titling should be area-based, that is, it should cover an entire area at once (systematic registration), and fit within a broader strategy o f rural development. Otherwise, imperfections in other factor markets may undermine or even eliminate the advantages from possession o f title. Third, there i s a rediscovery o f the value o f traditional land rights arrangements. In some areas, compared to freehold titles, traditional tenure arrangements may be more cost-effective in increasing tenure security and even provide a (limited) basis for land transactions. The proposed project takes inta account the above lesson by emphasizing broader policy dialogue, systematic registration, and traditional (adat/ulayat) land issues.

Lessons Learned from the Thailand Land Titling Projects

3.2 Based o n a intemal Bank's review and an OED audit report, the fol lowing factors contributed to the success o f the Thailand land titling program: (i) strong high level government commitment to the land

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titl ing program; (ii) a graduated increase in cost recovery for land titlinghegistration services; (iii) specially formed and trained systematic adjudication teams which involved the communities concemed; and (iv) use o f efficient new technologies. These success factors are fully reflected in the design o f the proposed project.

Lessons Learned from LAP I

3.3 Formulate land policies now. While part C o f the project produced excellent policy analysis reports, the overall outcome was not as successful. None o f the policy recommendations were adopted. This was due to the fact that the Suharto government was not open to policy reform to bring transparency and accountability to the land sector. During the preparation o f the project, it was evident that there i s now a window o f opportunity for major policy formulation. Because o f this, the land policy component was designed to deliver key policy formulations, rather than mere policy studies.

3.4 Transform BPN to deliver longer-term results. While the systematic land titling component was successful in issuing around two mi l l ion land titles, the institutional development component was less than successful. There were no major changes in the functions and operations o f land offices, resulting in no change in efficiency and accountability o f these offices. Because o f this, the thrust in the proposed project i s to transform B P N into an efficient and transparent land agency. Clearly, this i s not expected to be a rapid process, but the project would develop a strategic plan and a human resources plan to be the basis for this change. This direction was endorsed by B P N leadership.

3.5 Establish land dispute resolution mechanisms. Another lesson learned from the L A P I i s that grievance resolution mechanisms must be established to settle land disputes according to the rule o f law. The large backlog o f unsettled land disputes, the settlement o f so many in favor o f elites, and the obscurity o f the process, bring into question the value o f the rights being registered. The design o f the proposed project also reflects these lessons by emphasizing the establishment o f grievance resolution facilities and expanding the role o f the Ombudsman in reviewing grievances independently.

4. Indications o f borrower commitment and ownership:

4.1 The government has shown strong commitment to address issues o f land administration and management. The commitment has been demonstrated in various ways. First, the 25-year program for titling al l non-forest land was initiated by the Government in early 1990s. Second, during the economic crisis, when public expenditure in al l sectors was cut to stabilize the economy, Government continued to provide the resources needed by the program. Third, the Government has established an inter-ministerial Coordinating Team for Land Affairs, which includes MOHA, EKON, BAPPENAS, and BPN, to guide and supervise the project preparation work. Fourth, recognizing the urgency and importance o f having an integrated land policy framework, the Coordinating Team has already established a committee to develop the National Land Policy through a nation-wide consultative process.

5. Value added o f Bank support in this project:

5.1 The.value o f the Bank’s involvement i s reflected in three aspects. First, the Wor ld Bank has supported many land administration and management projects throughout the world, including in four countries within the East Asia and Pacific Region (Lao People’s Democratic Republic, Philippines, Thailand, and Cambodia). Through these projects, the Bank has developed considerable expertise which enables i t to share experience from other countries and provide impartial technical, institutional, and pol icy advice to our client countries. Second, through L A P I, the Bank and Government have developed good working relationships, which makes it possible to maintain the dialogue needed to resolve the difficult

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issues that inevitably w i l l arise during the implementation o f the project. Third, the Wor ld Bank has developed an effective relationship with other donors in Indonesia, and some o f them are actively involved in land issues or issues closely related to land, including governance, environment, poverty reduction, resettlement, and community mapping. The World Bank’s involvement would also bring greater coherence to the donors’ program.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4): 0 Cost benefit NPV=US$114.2 million; ERR = 33 % (see Annex 4) 0 Cost effectiveness 0 Other (specify)

1.1 Based on the household- and plot-level data collected by Social Monitoring and Economic Research Unit (SMERU) Research Institute, we used a standard econometric methodology (linear regression) to calculate the economic rate o f return. Land prices are used as a proxy for economic value o f land to calculate ERR under the assumption that al l titling benefits w i l l eventually be reflected by changes o f land price; that is, the changes o f land price capture the net effect o f a l l the benefits o f land titling. Increasingly active land markets in Java, as reflected by a gradual increasexf land turnover rate and by the observations from our field visits, give us additional confidence on using land price as a proxy for economic benefits.

1.2 There are many factors affect the land prices besides the land title; therefore, the factors other than the land t i t le must be controlled in order to have a meaningful analysis. In our analysis, we controlled family characteristics and plot characteristics. We also controlled the regional impacts by using provincial dummy variables (7 provinces). To analyze the different impacts o f land titling in urban and rural areas, we also conduct sub-group analysis in addition to pooling the whole sample (groups from both project and non-project area) together. The total plot sample number i s 977.

1.3 The overall economic rate o f retum o f holding a land t i t le i s about 33 percent, and the ERR i s higher in rural areas (47 percent) than that in urban areas (32 percent). The coefficient o f the t i t le i s statistically significant at 99 percent confidence level and the result i s thus robust across different specifications. The result means that the value o f a plot w i th a title w i l l be 33 percent higher than that o f a plot without a title, holding other factors constant (Annex 4 presents a detailed economic analysis).

2. Financial (see Annex 4 and Annex 5): NPV=US$ 1 14.2 million; FRR = 17 % (see Annex 4)

2.1 The government generated incremental revenues @uncial benefits) mainly f rom three sources. The f irst i s the registration fee, which is around US$3.0 per parcel. The second i s the tax on right acquisition (BPHTB) which i s 5 percent o f land value. The first Rp.30,000,000 i s exempted from tax up to 2001. This exemption figure w i l l be increased by Rp.5 mi l l ion every subsequent 5 years. The third sources i s the payment o f income tax on transfer o f rights on landhuilding (5 percent sellers tax, Government Regulation No. 48/1994).

2.2 Thefinancial costs to the government are the al l project costs and the loan interest costs (about 4 percent) and the Government’s future management costs associated w i th each title issued by the project (2 percent o f total project cost).

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All calculations are based on the estimated project costs of LMPDP and data o f actual benefits associated w i th the L A P I (1 994-2001). For the sake o f simplicity, the actual benefits (revenues) are extrapolated over a 35 year period and no further assumptions are made regarding any expected changes or enhancements to these current actual benefits. The capital discount factor i s 0.1, Derivative registrations (turnover rate) are 1 percent for year 2-6, 3 percent for year 7-20, and 5 percent for year 21-35. Under these assumptions, the financial rate o f retum (FRR) i s 17 percent and the N P V i s US$114.2 million.

Fiscal Impact:

2.3 The fiscal impact o f the proposed project should be neutral in the short-run given that only about a quarter o f the total project cost w i l l be financed by the Government. In the long-run, it i s expected that the fiscal impact o f the proposed project w i l l be very positive as shown by the relatively high FRR.

3. Technical:

3.1 The choice o f technology for this project was selected based o n the experience o f L A P I and the experiences o f other similar projects. The surveying technology to be used in the systematic land titling i s that which produces the appropriate level o f accuracy at the lowest cost. The difference in this project from those in most East Asia land projects i s that surveying for systematic land titling would be done solely by private surveyors. Competition among private surveyors will determine the kind o f technology to be used to achieve the accuracy requirements.

3.2 On the development o f Land Information System, the project would support a strategy for the development o f a land information system and focus on data sharing amongst various government agencies. The project would also support piloting a land information system in one district. Expansion o f the pi lot w i l l be done only after completing a thorough evaluation o f the pilot.

4. Institutional:

4.1 Executing agencies:

4.1.1 Presidential Decree (Keppres) No. 34 (May 21, 2003) confirmed the transfer o f government’s authority on nine activities to local governments. These nine activities are: (i) location permit issuance; (ii) taking o f land in the public interest; (iii) cultivated land dispute settlement; (iv) compensation determination for land taken for development; (v) to determine o f the list o f owners for land distribution and compensation for land held in excess o f standards; (vii) determination and resolution o f tllayat land problems; (viii) resolution o f un-utilized land problems; (ix) land opening permit provision; and (xi) land use planning in local government jurisdictions. The residual functions (including land registration, titling, surveying and mapping) are delivered by B P N through provincial, district and local land offices.

4.1.2 Under Component 2, the project i s designed to assist B P N to develop a long-term Strategic Plan and Human Resources Management Plan to transform the agency into a more transparent, efficient, accountable and open agency, and taking into account the more focused mandate o n land registration and titling. Component 5 w i l l assist local government to undertake their mandate efficiently and effectively through development o f guidelines, training, and piloting in selected local governments. Since the number o f local governments i s large, it i s not realistic to support a l l o f them under this project. Therefore, the government would make a decision once the assessment and piloting are complete on how the government

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w i l l support the remaining local governments. This support w i l l be financed by a fol low up project. In order to transform B P N into a transparent and an accountable agency, the project wi l l establish clear service standards for delivery o f B P N land office functions. These standards wil l be uniform across al l land offices. Furthermore, the project w i l l support internal and an independent external monitoring o f these service standards. I t i s recognized that this change w i l l require change o f culture o f B P N management and staff, changes in operational and technical processes, and human resources incentive structure, and may take until wel l after the completion o f the project to show clear results o f a more efficient, accountable, and transparent agency. The project will, however, build the foundation for B P N to achieve this goal in the medium to long term.

4.1.3 The project w i l l be implemented by three agencies (BAPPENAS, MOHA, and BPN). B P N wil l take the lead on Component 11, I11 and IV, while BAPPENAS w i l l take the lead on Component I, and MOHA will take the lead on Component V. B P N wil l be the executive agency and w i l l be responsible for consolidating project accounts and progress reports. The fact that three agencies involved in implementation require strong leadership by the LMPDP Coordinating Committee. I t is also important that there w i l l be close coordination between BAPPENAS and B P N in land policy formulation and legal drafting.

4.2 Project management:

4.2.1 Each o f the three implementing agencies w i l l establish a Project Implementation Unit to manage project implementation. B P N w i l l act as the Executive Agency to implement the project. B P N i s familiar wi th managing Bank-financed projects as they were the responsible agency for I L A P project. BAPPENAS also familiar wi th World Bank-financed projects. The MOHA team i s not familiar with Bank processes, and therefore, B P N Project Implementation Unit w i l l provide the support to MOHA P I U in the f i rst few years o f project implementation. Furthermore, the government has prepared a detailed project management manual, including a financial management manual and a procurement manual to guide the three PIUs in managing the project.

4.3 Procurement issues:

4.3.1 Major procurement in the project wil l be for contract services for cadastral surveys and mapping which w i l l be carried out in the provinces and data conversion for systematic land registration; international and national consultants for technical assistance and studies; c iv i l works for construction and rehabilitation o f offices; computers, office and mapping equipment; and records management software. B P N as the lead agency already has experience in Bank procurement procedures through LAP- I . However, because some o f the trained staff have been transferred to other sectionshnits, the proposed project i s more complex with revisions to Bank’s procurement guidelines, the procurement fimction in B P N w i l l need to be upgraded by training B P N procurement staff. Procurement wil l be carried out by PIUs at other central government agencies (BAPPENAS and MOHA), provincial (Kanwil BPN) and kabupaten Land Offices. These provincial and kabupaten entities in general have little or no experience with Bank procurement procedures. Furthermore, to ensure that procurement at a l l levels wil l be done in accordance with the Bank’s guidelines, the fol lowing actions would be taken: (i) assistance and training wil l be provided to the PIUs that are not fully conversant with Bank procedures; and (ii) standard bidding documents wil l be used for al l Bank-financed procurement. The key issues identified in Indonesia CPAR (see Annex 6A) that are l ikely to have an impact on procurement under the project wil l be addressed during the preparation o f the Project Procurement Manual (as a part o f the Project Management Manual). The PIP or AWPs w i l l provide a framework and procurement plan o f the project activities. The capacity o f the implementing agencies to implement procurement has been assessed, taking into account the requirement specified in Operational

’

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Core Services Procurement's (OCSPR) instruction dated July 15, 2002. Based o n the assessments, an action plan was developed to build the capacity o f the PIUs through training and supervision during project implementation. Results o f the procurement capacity assessment and the action plans are summarized in Annex 6A.

4.4 Financial management issues:

4.4.1 In July and August 2003, a financial management assessment o f the risks inherent in the choice o f B P N as the primary project implementing entity, as wel l as specific risks arising f rom the proposed project design and implementation arrangements was conducted. In addition, consideration was given to the overall control environment in the country, as determined by the Country Financial Accountability Assessment Report, a diagnostic study undertaken by the Bank in year 2001. Results o f the assessment are summarized in Annex 6 (B).

4.4.2 The financial management assessment concluded that the overall financial management risks are substantial. The wide geographic spread o f the project imposes substantial risks on financial accounting and reporting. Although BPN, which i s designated as the lead agency, has prior experience in managing donor financed projects, audit feedback in L A P I has indicated that intemal controls, especially payment validation procedures, are an area that need strengthening. Outside the central office, at the provincial and kubuputen level where a large part o f project resources w i l l be spent, financial management capacity i s generally weak and variable. All these factors could weaken financial accountability o f expenditures under this project, and measures have accordingly been proposed to mitigate these risks.

4.4.3 t i s proposed that financial accounting for project expenditure w i l l be consolidated at 12 selected Provincial B P N offices, where accounting and project implementation information wil l be collected from about 76 Land Offices o f BPN. Responsibility for financial controls and accountability w i l l however be decentralized to the Land Offices where project staff w i l l be located. Current Government accounting systems do not generate the information that wil l be required for monitoring project expenditure, for instance, by expenditure categories as well as by program components. Quarterly Financial Management Reports and annual financial statements w i l l therefore be generated by stand-alone computer systems and in simplified formats prescribed by the Bank and in line wi th Bank guidelines. These would also be reconciled quarterly wi th intemal Government reporting to ensure consistency.

4.4.4 I t i s proposed that financial management consultants w i l l be appointed to assist B P N to design and install a computerized financial accounting system at al l participating B P N provincial offices. Such a system would meet al l financial reporting requirements o f the project as specified in the Financial Management Manual, and wil l be utilized to the extent possible given the existing accounting systems and resources in use at B P N Head Office and their offices. The consultants w i l l also be tasked with training B P N staff in the operation o f the project financial management system. Detailed procedures for financial management, including strengthened financial controls w i l l be included in the Project Financial Management Manual which w i l l be finalized before the project becomes effective.

4.4.5 The national internal audit agency (BPKP) wil l be accepted as auditors for this project. Terms o f Reference for these audits w i l l be agreed before negotiations and w i l l be based o n a single audit opinion o f project financial statements, Statements o f Expenditure and Special Accounts. I t is intended that al l project audit reports w i l l be publicly disclosed, as a measure to enhance transparency and accountability.

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4.4.6

e

e

4.4.7

The fol lowing disbursement procedures are proposed:

About 85 percent o f the project expenditure i s expected to be below prior review thresholds, and w i l l initially be disbursed based on Statements o f Expenditure (SOE) procedures. Expenditures in excess o f this amount for contracts will be paid under Summary Sheet procedures. N o disbursements through Special Commitments or Direct Payments are anticipated. SOE based disbursements w i l l be converted to quarterly replenishments supported by Financial Monitoring Reports (FMRs) after a satisfactory and regular generation o f such reports during implementation.

Payments to contractors w i l l be authorized from central treasury offices based o n Central Government Budgets documents under normal Government documentary procedures.

A Special Account w i l l be opened in Bank Indonesia wi th an authorized allocation o f US$6 mil l ion w i th an initial allocation o f US$2 million. The full allocation o f the Special Account wil l be triggered once disbursement have reached US$10 million. I t i s proposed that the Withdrawal Applications for reimbursements into this account wil l be prepared by B P N as the Lead Project Management Unit and authorized by Ministry o f Finance.

5. Environmental: 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis.

5.2 Environmental and social assessments have been undertaken as part o f the project’s preparatory activities. This shows that the project i s not expected to have large scale, or irreversible adverse environmental impacts. The project i s therefore classified as environmental assessment Category B.

Environmental Category: B (Partial Assessment)

5.3 Other than rehabilitation and construction o f land office buildings, the project w i l l not support c iv i l works, land conversion, resource extraction, industrial production or any activity that could potentially damage the environment. Contracts for c iv i l works under the project w i l l be subject to screening for environmental impacts by the local environmental entities (bupelda), which are responsible for this activity. All contracts w i l l include measures acceptable to the bapeldu to minimize or mitigate environmental damage. The project wil l not support land acquisition or associated involuntary resettlement. Policy formulation and institutional development (about 25 percent the total project cost) are environmental assessment Category C. They are not subject to special environmental review requirements.

5.4 Among other goals, the project seeks to improve natural resources management by supporting the development o f policies, laws, and regulations to clarify rights o f people to land, by enhancing transparency in land administration and management, and by strengthening security o f tenure through the issuance o f titles to households wi th legitimate legal claims to the land. Establishing clear property rights to land and natural resources creates incentives for owners to manage the resources for their long-term benefit. This encourages investment in soil conservation, watershed protection, reforestation, and sustainable use o f w i l d animals and plants. B y formalizing rights to residential plots, the project encourages investment in activities and infrastructure that improve environmental conditions where people l ive and work, such as solid waste management, water supply systems, and sanitation facilities. Indeed a social assessment o f the earlier Indonesia Land Administration Project shows that peri-urban dwellers invested substantially in their homes and neighborhoods after receiving titles. In this way the project i s expected to directly contribute to improved environmental management in Indonesia.

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5.2 What are the main features o f the E M P and are they adequate?

5.2.1 The project has been designed to promote sound environmental management and to mitigate potentially negative affects arising directly f rom project activities. To promote sound environmental management, the project includes support for land policies that clearly define the rules for delimiting boundaries between the public and private domains, and creation o f capacity for land management. To minimize negative impacts on the environment several measures are important. First, tit les w i l l not be issued in areas designated as forest areas, protected areas, the coastal zone, and riverbanks. Second, policies and regulations formulated under the project w i l l include the input o f the Ministr ies o f Environment and Forestry and from nongovernmental organizations wi th an interest in sound environmental management and in environmental protection. For example, the policy on formally recognizing adat land in areas now classified as forest or state land must be based on a good analysis o f the environmental implications o f changing the classification o f land and be formulated with the input o f environmental constituencies in addition to that o f other interests. Third, guidelines have been developed to ensure that project implementers comply wi th the World Bank environmental and social safeguards (see Annexes 11 and 12 for details). Finally, the project w i l l encourage local governments to include representatives o f environmental groups in the stakeholder forums regarding matters such as the issuance o f location permits, opening o f new lands, land distribution, and land use planning. These functions o f local government al l have implications for the environment, and decisions should not be made without understanding clearly those implications.

5.2.2 assessment and the E M P appear in Annex 1 1.

5.3 For Category A and B projects, timeline and status o f EA:

The measures are adequate to promote sound environmental management. The environmental

Date o f receipt o f final draft: July 2003

5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted?

5.4.1 Stakeholders have been consulted regularly throughout the design phase o f the project, and their input was reflected in the draft EA. A workshop w i th al l stakeholders discussed the draft EA and EMP. Comments from the discussions were incorporated in the final draft. The World Bank preparation team independently met wi th CSOs during the preparation missions to leam first hand the concems o f the various stakeholders. These included Legal Aid and the Foundation to Strengthen and Study the Community, both o f whom are involved with helping traditional communities gain formal recognition o f their land rights. Other groups consulted include the Association o f Adat (an apex organization representing the interests o f traditional communities) and the Association o f Bupatis (representing mayors). While the groups have diverse interests, they generally express support for the project.

5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? Do the indicators reflect the objectives and results o f the EMP?

5.5.1 The project will finance a socio-economic and environmental impact study to assess the social, economic and environmental impact o f the project. Supervision missions and the midterm review w i l l note any issues and if necessary take steps to ensure that the project complies wi th the Bank’s environmental safeguards. Bank specialists located in the Jakarta office w i l l consult regularly wi th CSOs and be able to deal w i th issues as they arise.

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6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project’s social development outcomes.

6.2 A social assessment o f the systematic land titling program o f the Land Administration Project was carried out 1999 at the midterm o f the project. This was followed in 2002 w i th an impact evaluation o f the program. Altogether, about 2,200 people in 23 o f the 49 districts and cities covered under the program participated in focus group discussions, interviews, or surveys regarding the program and land matters in general. The full social assessment and impact evaluation are available in project files. These showed first that land registration has increased the security o f tenure for all, and the program has benefited the poor the most. The program did not discriminate on the basis o f income or social status, providing title to al l in the program area who were able to prove their claims. However, the poor benefit most by being able to obtain security o f tenure inexpensively and quickly, because they cannot afford the costs and time o f obtaining title through the sporadic titling program. Second, the positive impacts o f the project were strongest in the cases where state land was converted to private land. The benefits o f moving households from completely insecure land tenure to completely secure land tenure were substantial. New investment in land, housing, and public water and sewerage systems and other public amenities was higher in such communities than in those occupying land already recognized as private. Third, the position o f women with regard to land that they have inherited was strengthened because the land was titled in the woman’s name, but weakened with respect to land purchased after marriage because most such land was titled in the name o f the husband alone. Fourth, access to credit, investment in land and businesses, and land values increased in the project areas, which helped in stimulating the development o f land markets and economic growth. Overall the project was found to have significant positive social impacts and no significant adverse social impacts.

6.3 The project’s primary social development outcome i s to increase land tenure security, especially o f the poor and vulnerable and o f women. A second social development outcome i s to reduce conflict over land by supporting the development o f land policies that addresses the issues o f adat land, land reform and distribution, and alternative dispute resolution mechanisms. The social analysis i s presented in Annex 12.

6.2 Participatory Approach: H o w are key stakeholders participating in the project?

6.2.1 Key stakeholders w i l l continue to be consulted or involved in most aspects o f project implementation. The project wil l finance public consultations w i th stakeholders in developing national land policies. I t w i l l also finance the contracting o f CSOs to facilitate community participation in the systematic titling program. They w i l l carry out activities such as raising awareness o f the program, conducting village tenure profiles and informing communities o f the importance o f registering subsequent transactions o f titled land and explaining how to do so. The project will provide the selected CSOs with on the j o b training in participatory techniques to ensure that they reach both women and men, members o f marginalized groups, and the poor.

6.3 How does the project involve consultations or collaboration wi th NGOs or other c iv i l society organizations?

6.3.1 CSOs have been consulted regularly throughout the design phase o f the project. The preparation team met wi th CSOs during the missions to learn first hand the concerns o f the various stakeholders. These included Legal Aid and the Foundation to Strengthen and Study the Community, both o f which are involved with helping traditional communities gain formal recognition o f their land rights. Other groups consulted include the Association o f Adat (an apex organization representing the interests o f traditional communities) and the Association o f Bupatis (representing mayors). While the groups have diverse interests, they

- 2 1 -

generally express support for the project. Consultations w i th CSOs w i l l be held regularly and on an ad-hoc basis throughout project implementation.

6.4 What institutional arrangements have been provided to ensure the project achieves i t s social development outcomes?

6.4.1 The project contains several measures to ensure that it achieves its social development objectives. To ensure that the project reaches the poor: (i) poverty indicators w i l l be included among the criteria for selection o f areas to be covered under the systematic land titling program; (ii) adjudication teams w i l l be trained in techniques designed specifically to reach the poor; and (iii) a fee structure for titling that exempts the poor f rom fees for systematic titling w i l l be studies. T o ensure that national land policies and local decisions regarding land reflect the views o f a l l stakeholders, the project w i l l encourage the government to include CSOs representing the interests o f poor and vulnerable groups, women, and udut communities in extensive consultations. To ensure that no people are harmed by the project, it w i l l not title any land with unclear status. To assist people who are currently holding l i t t le land or who have weak claims to land they occupy, the project w i l l finance the development o f policy on land reform.

6.5 H o w w i l l the project monitor performance in terms o f social development outcomes?

6.5.1 The project w i l l finance a socio-economic and environmental impact assessment to measure the social, economic and environmental impact o f the project. The Study w i l l include a base line survey to be completed in year 1 o f the project and a follow up survey to be completed in year 5 o f the project. Supervision missions and the midterm review w i l l focus in particular on the project’s social issues. Bank specialists located in the Jakarta office w i l l consult regularly w i th NGOs and be able to deal w i th issues as they arise.

7. Safeguard Policies:

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

7.2.1 Bank supervision missions w i l l thoroughly review compliance and if needed propose actions to improve performance. Bank specialists located in the Jakarta office wil l be available to address any issues as they arise.

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F. Sustainability and Risks 1. Sustainability:

1.1 A number o f actions w i l l be taken to ensure project sustainability. To ensure the benefits o f the first land titling project are sustained through the registration o f subsequent transactions, the project wi l l : (i) support public information campaigns to explain the importance o f formal land registration; (ii) improve the service delivery o f land offices to eliminate the red tapes and informal fees; and (iii) include a policy study on land taxes and fee structure to assess the current fee structure on land registration. T o ensure the continuation o f the land titling program after Bank funding i s over, a study w i l l be undertaken to investigate the viability o f establishing a fund, to be financed by the collected fees o n first titling land registration; these funds could be used after the Bank loan i s closed to continue the land titling program.

Risk Rating

S

S

S

N

S

M

2. Critical Risks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):

Risk Mitigation Measure

Outside the control o f the project. Project activities w i l l be scaled down in case there i s a down turn in the economy and the government could not provide the needed counterpart funds. Outside the control o f the project. Project activities w i l l be scaled down in case o f non-favorable political situation. Project expansion w i l l be limited and activities could be scaled down if B P N management's commitment i s weak. Suspension o f the loan may be considered if B P N i s clearly not proceeding with reforms. Local government to be supported under component 5 will follow the proposed Bank-financed local government initiative projects (formerly KGRIP and UGRIP). The transparency requirements o f these projects would be adopted. Continue country dialogue to expedite public financial management reforms and introduce project specific measures such as enhanced financial reporting and additional payment validation procedures. This w i l l be assessed in due course.

Risk Vom Outputs to Objective I, Domestic macro-economic

environment becomes unfavorable.

M

M M

2. Political stability does not continue.

The project includes support to the LMPDP Coordinating Team to ensure i t performs coordination role effectively. Project activities w i l l be scaled down if this happen. Project activities wil l be scaled down. The project has developed a participation plan

3. Commitment o f BPN for openness and change weakens.

1. Commitment o f local governments for openness and reform weakens.

5 . Inherent risks arising f rom weaknesses in country control environment and financial accountability systems.

5. The regulatory framework (laws or regulations) have changed in away which affects project implementation.

From Components to Outputs 7. The Steering Committee i s not

effective in coordinating project implementation among the three implementing agencies.

5. Counterpart funds are not available. 3. Serious opposition from CSOs and

~

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I other stakeholders.

10. B P N fails to implement the transparency and accountability strategy.

1 1. Registration o f subsequent land transaction does not increase.

12. Financial management risks arising from weak internal control systems and payment validation procedures

Overall Risk Rating

Risk Rating - H (High Risk), S (Substantial Ri!

3. Possible Controversial Aspects:

None

S

M

S

S , M (Modest Risk),

ll_-_l_ _ _ - to ensure that CSOs are engagedin project implementation and monitoring. Continue dialogue with CSOs and other stakeholders during implementation.

Continue engagement with B P N management. Project activities would be scaled down or disbursement may be suspended if the it i s clear that B P N i s not committed to reform. The project w i l l include a set o f interventions to understand the reasons for the l ow rate o f subsequent registration. If after government actions, this rate continues to be on the low end, a more significant analysis w i l l be undertaken. Community disclosure and oversight mechanisms and more intensive payment validation procedures.

Negligible or Low Risk)

G. Main Loan Conditions 1. Effectiveness Condit ion

0

0

Adoption by B P N o f the Project Management Manual (Which includes Procurement Manual; Financial Management Manual) acceptable to the Bank; and Selection o f a financial management consultant to design and install a computerized financial accounting system, train B P N staff in accordance to TORS acceptable to the Bank.

2. Other [classify according to covenant types used in the Legal Agreements.]

BAPPENAS w i l l complete the consultation process on the development o f the national land policy by December 31, 2004 and submit the final land policy for government consideration by March 31, 2005. B P N w i l l develop and adopt a Long-term Strategic Plan and a Human Resources Management plan no later than January 3 1, 2006. B P N w i l l develop minimum service standards, including a detailed plan to implement and monitor these standards no later than December 3 1, 2005. B P N w i l l hire the independent monitor (Academic Institution or CSO) no later than December 3 1, 2006 to monitor the compliance o f land offices with minimum service standards. B P N w i l l submit to the Bank, for review and no objection, a l i s t o f Kabupaten and cities to be added to the program every year. Selection o f these Kabupatens and cities w i l l be done in accordance to the selection criteria agreed upon during negotiations. A Strategy on Land Information w i l l be developed and submitted to the Bank for review by June 30,2006.

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MOHA will prepare and fimish to the Bank for review and comments, a training plan for component 5, no later than October 3 1 o f each year, starting October 3 1, 2004. MOHA w i l l prepare, by December 31, 2007, a strategic plan for scaling up the support to local government covering activities, timeframe and resources needed. B P N wil l consolidate the work plans and budget from the implementing agencies and hmish it to the Bank for review and comments no later than July 3 1 o f each year starting July 3 1, 2004; and finalize the work plan no later than October 3 1 o f each year; implement the work plan taking into account the Bank comments. B P N w i l l ensure the following reports are submitted to the Bank: (i) semi-annual progress reports by March 1 and September 1 o f each year, commencing o n September 1,2004; (ii) a report on the project mid-term review b y March 1, 2007; and (iii) within six months after project completion, the government contribution to the Implementation Completion Report evaluating project performance. A mid-term review wil l be conducted no later than March 31, 2007. A monitoring and evaluation system to monitor project input, output and outcomes w i l l be developed and implemented by June 2004. The base l ine o f the socio-economic and environmental impact study would be commenced no later than March 31, 2005 and the second round o f surveys would be commenced no later than December 31, 2008.

H. Readiness for Implementation 0 1. a) The engineering design documents for the first year's activities are complete and ready for the start

o f project implementation. lZ 1. b) N o t applicable.

€4 2. The procurement documents for the first year's activities are complete and ready for the start o f

3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory

0 4. The following items are lacking and are discussed under loan conditions (Section G):

project implementation.

quality.

I. Compliance with Bank Policies

Kl 1. This project complies w i th al l applicable Bank policies. CI 2. The following exceptions to Bank policies are recommended for approval. The project complies w i th

al l other applicable Bank policies.

Wael Zakout Andrew D. Steer Team Leader Country Director

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Annex 1: Project Design Summary INDONESIA: Land Management and Policy Development Project

ector/ country reports: I ovemment’s reports o n )cia1 and economic welopment.

ank’s sector studies.

Hierarchy of Objectives ,ector-related CAS Goal: .ffective implementation of ecentralization.

ustainable income-creating pportunities for poor ouseholds. ’roject Development Ibjective: .and tenure security mproved.

Efficiency and transparency )f land titling and registration mproved.

Zapacity o f local government n land management mhanced.

Key Performance Indicators

Sector indicators: Clearer clarity in functions at :ach level o f government through law 22 and law 25.

Land rights policies and legislation reformed and improved. Outcome / impact indicators:

Strengthened perception of land tenure security.

Increase access to formal credit.

Increase o f formal land market activities.

Increase investment in agriculture land and property development.

Increase in land values.

Increased satisfaction rate in land registration.

Increased percentage o f subsequent transactions registered in land office.

Decreased number o f complaints about land registration.

Decrease in informal paymen in land registration process.

Satisfaction o f land services (land management) rises.

lata Collection Strategy

locio-economic impact ssessment.

Yient Feedback Surveys.

Xent Feedback Surveys.

Critical Assumptions rom Goal to Bank Mission)

?om Objective to Goal)

:redit i s available to meet emand;

lomestic macro-economic nvironment remains avorable;

’olit ical stability continued.

Continued commitment within BPN for openness and :hange.

Zontinued commitment o f local government fo r opennes ind reform.

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Hierarchy of Objectives Output from each Component:

Component 1

Government's capacity to formulate land policy improved.

New National Land Policy Framework developed.

Priority land policies and regulatory instruments formulated and adopted.

Key Performance Indicators

Output Indicators:

1.1 Completion o f consultation o f National Land Policy by December 3 1, 2004, submission of white paper by March 3 1, 2005 for government consideration and adoption.

1.2 Policies on adat and communal land prepared; draft regulations prepared and submitted for adoption by September 30,2007.

1.3 Policy on land use and spatial planning wi l l be prepared and submitted for adoption by December 2007.

1.4 Policy on land distribution prepared and submitted for adoption by June 2006.

1.5 Study on simplification o f land tenure instruments, including state land completed and submitted foi adoption by June 2008.

1.6 Tax and fee structure study completed by December 2006.

1.7 Land markets study complete by December 3 1, 2006.

1.8 Study on provision o f land for public infra- structure and compensation completed by Dec. 2006.

Data Collection Strategy

Voject reports:

jovernment reports.

Critical Assumptions :Tom Outputs to Objective)

iovernment commitment nd political support are dequate.

,eadership o f the steering ommittee i s strong.

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:omponent 2

,and administration istitutions strengthened and perational capacity and m i c e levels improved.

2omponent 3

r i t les are issued effectively md efficiently,.

'rivate surveying sector ieveloped.

2.1 B P N long-term strategic plan and Human Resources Management Development Plan i s prepared and adopted by January 3 1,2006.

2.2 Five model land office re-engineered and operational by June 2007, and 15 by the end o f the project.

2.3 Minimum service standards developed by December 3 1,2005 and monitoring system in place by December 3 1,2006.

2.4 All re-engineered land offices meeting 70% o f services standards by December 3 1,2007 and 90% o f the standards by the project.

2.5 Land Administration and Management education program established and operational by August 2007.

3.1 One mil l ion titles issued by systematic land titling by mid-term review and 1.5 mi l l ion more titles by the end o f the project.

3.2 95% o f titles collected by beneficiaries.

3.3 90% o f systematic titling parcels adjudicated, surveyed and registered.

3.4 Percentage o f land tit les issued in name o f

'roject quarterly report.

ntemal and External donitoring Reports.

'roject quarterly report.

:nternal and External Monitoring Reports.

3ank's supervision report.

Industry workshop Feedback.

:ommitment o f B P N to :form remains strong.

Zounterpart funds are wailable.

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Zomponent 4

nformation system for lecentralized and improved and administration and nanagement i s created and hc t i on ing well.

I

women or in joint ownership.

4.1 L I S strategy developed by June 30,2006.

4.2 Key L I S data sharing, access and pricing policy, and data standards (as identified in L I S strategy) finalized and adopted by June 30,2007.

4.3 National LIS implementation plan completed by December 3 1, 2007.

Zomponent 5

Zxperience o f local ;overnment in land nanagement h c t i o n ,eviewed and capacity issessed.

,oca1 governments trengthened to efficiently mdertake land management knctions.

'roject quarterly report.

lank supervision reports.

5.1 Assessment Report completed by March 2006 and national regulations developed and issued by December 3 1,2006.

5.2 100 local governments receive training by mid term review (March 2007) and al l local governments by the end o f the project.

5.3 Piloting o f local land management initiatives initiated by January 2006.

'roject quarterly report.

3ank's supervision report.

'here i s a political w i l l for :oordination among various :overnment agencies egarding sharing o f land nformation

,oca1 governments are :ommitted to reform.

ivai labi l i ty o f counterpart imding.

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Hierarchy of Objectives Project Components I Su b-components: 1. Development of Land Policies

1.1 Development o f a national land policy.

Formulation o f specific land polices and regulatory instruments. 2. Institutional Development, Capacity Building, and Training

2.1 Development and implementation o f BPN Strategic Plan

2.2 Re-engineering o f Land Offices

Development and implementation o f plan to support local governments to take over decentralized land functions 3. Implementation of An Accelerated Land Titling Program

3.1 Systematic titling

3.2 Sporadic titling

Development o f private surveying 4. Development of Land Information System

4.1 Initiation o f national Land Information System (LIS) program

4.2 Establishment o f L I S infrastructure

Key Performance Indicators

nputs: (budget for each :omponent) JS$ 2.94

JSs9.29

JSs66.62

JS$2.86

Data Collection Strategy

'roject reports: Critical Assumptions

:Tom Components to )ut pu t s)

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[Develop L I S pi lot study 5. Capacity Building for Local Government in land management.

5.1 Assessment o f local government capacity to undertake land management;

5.2 Training and capacity building;

5.3. Development o f strategic plan to support local governments.

5.4 M O H A project management support.

JS$5.91

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Annex 2: Detailed Project Description INDONESIA: Land Management and Policy Development Project

By Component:

Project Component 1 - US$2.94 million Development of Land Policy and Regulatory Framework

This component will support the development o f a land policy and regulatory framework for land management through: (i) the development o f government capacity to coordinate the formulation o f land policies through consultative processes; (ii) the development o f a national land policy; (iii) the formulation and studies o f specific key policies in the areas o f land management and administration and the development and drafting o f the regulatory framework to implement them.

The Basic Agrarian Law o f Indonesia has not been substantially reviewed and updated since it was adopted in 1960. Since then many laws and regulations governing land matters in Indonesia have been developed on an ad-hoc basis without regard to either the Basic Agrarian Law or other laws dealing w i th land issues. As a result laws regarding land are now inconsistent wi th the Basic Agrarian L a w and w i th each other, and furthermore out o f step with actual practice. The government now wishes to revise and update the Basic Agrarian Law and has mandated B P N to undertake this exercise. However, it also wishes to broaden i t s scope to make it more relevant for the current conditions o f Indonesia. Revising the Basic Agrarian Law should be done within the context o f a comprehensive and coherent land policy consultation process which i s being supported under this component o f the project.

1.1. Development of Government Capacity to Formulate Land Policy

This subcomponent w i l l support the creation o f a small land policy secretariat to undertake policy analysis and studies, coordinate public consultations, and propose pol icy recommendations for the LMPDP Coordinating Committee for consideration.

The existing LMPDP Coordinating Committee w i l l continue to provide oversight and guidance to the policy development process and w i l l approve policy study recommendations. This LMPDP Coordinating Committee w i l l continue to facilitate the inclusion o f al l sector ministries and agencies in the land policy development and implementation process and w i l l make recommendations on which agency i s best suited to take the lead in developing each o f the policy areas.

The subcomponent will finance the rental o f a small office for the Secretariat, one vehicle and a motorcycle, office equipment and furniture, public consultations, salaries and travel costs o f contractual staff, travel costs o f government staff, seminars, and events, and the publication and dissemination o f policy papers, laws, and regulations. The subcomponent would also finance international and national technical assistance.

1.2. Development of a National Land Policy

The Coordinating Minister o f Economic Affairs has requested the LMPDP Coordinating Committee to develop a draft national land pol icy for cabinet consideration. Fol lowing this request the LMPDP coordinating committee commissioned the preparation o f a discussion paper on land policy which addresses issues related to land administration, use, management, and outlines the various options for policy recommendations. The government i s planning workshop consultations and focus group discussions in various regions o f the country. This consultation w i l l take place from June to December 2004.

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The national land policy w i l l provide valuable input to the proposed revisions in the Basic Agrarian Law and other important laws in the country related to land and land resources such forest and mining. This subcomponent wil l also support the consultation process o f the revised Basic Agrarian Law.

The subcomponent w i l l finance consultant services, cost o f consultation workshops and focus group workshops, and government staff travel expense. The subcomponent w i l l also finance dissemination o f the land policy once approved by the LMPDP steering committee and the Cabinet.

1.3. Formulation of Specific Land Policy/Regulatory Instruments.

This subcomponent w i l l support the formulation o f key land policies for land administration and management, and the drafting o f required regulatory and legal instruments to implement them. The subcomponent w i l l provide support for reviews o f policy and where necessary studies on these issues are available, provide policy development and any changes in regulations or amendments to the laws. A number o f policy issues have been tentatively identified during project preparation including: recognition o f communal land, land distribution, and the simplification o f land tenure instruments and definition and management o f state land. In addition a number o f policy studies wil l be supported. These include a land markets study, land taxes and fee structures, sustainability o f the land registration system, improvement o f spatial and land use management for local government, and provision o f land for public infrastructure schemes. Funding i s also provided for two additional studies whose theme are yet to be determined.

The formulation o f policies w i l l be done first through the analysis and preparation o f discussion papers identifying the issues and options, discussions with the legal department o f BPN, undertaking appropriate public consultation in the various regions o f the country and among various interest groups. The final outputs w i l l be draft policies and regulations o n the subject matter to be submitted to the LMPDP Coordinating Committee for consideration. Once approved the regulatory framework w i l l be prepared and submitted to the relevant govemment body for adoption.

The subcomponent w i l l finance consultant services, consultation workshops, travel expense o f government staff and expenses on contractual staff. The subcomponent w i l l also finance the publication and dissemination o f the approved policies and regulatory framework.

Project Component 2 - US$9.29 million Institutional Development, Capacity Building, and Training.

The objectives o f this component are to support BPN’s transformation into a transparent, responsive and more service-oriented institution and to develop the capacity o f local academic institutions to provide land administration education and training.

Presidential Decree (Keppres) No. 34 (May 2003) confirmed the transfer o f government’s authority on nine activities to local governments. These nine activities are: (i) location permit issuance; (ii) taking o f land in the public interest; (iii) cultivated land dispute settlement; (iv) compensation determination for land taken for development; (v) land distribution and compensation for land held in excess o f standards; (vi) determination and resolution o f ulayat land problems; (vii) resolution o f un-utilized land problems; (viii) land opening permit provision; and (ix) land use planning in local government jurisdictions. The residual functions (including land registration, titling, surveying and mapping) are delivered by B P N through provincial, district and local land offices.

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This component supports the transformation o f B P N through two subcomponents covering: (i) development and implementation o f long-term strategic planning for BPN; and (ii) re-engineering o f land offices to deliver transparent and efficient land administration services to the community at the local level. A third subcomponent w i l l provide support to the legal department o f B P N to develop policy and prepare laws and regulations. The fourth subcomponent w i l l address education and training to strengthen land administration expertise. The final subcomponent w i l l finance overall project management which w i l l be coordinated b y BPN.

2.1. Development and Implementation of BPN Long-term Strategic Plan

This subcomponent w i l l assist the development and implementation o f a strategic plan to strengthen B P N as the central government agency responsible for oversight o f the national system o f land administration. The strategic plan w i l l include early confirmation w i th stakeholders o f the organizational structural arrangements between central and local levels and progressive implementation o f the deconcentrated structural model. Specific subcomponent activities will include development o f standard operating procedures for human resource management and development and the introduction o f a modular training program. Uni form procedures for records management and increased levels o f computerization w i l l be developed in this subcomponent.

The subcomponent w i l l finance intemational and local consultants to assist B P N to develop a long-term strategic plan and human resources plan. The component w i l l finance comprehensive training programs as well as a program o f regular national stakeholder workshops as part o f the community awareness and participation process.

2.2. Re-engineering o f Land Offices

The focus o f the subcomponent i s streamlining access to services to especially encourage and facilitate community participation in land registration. Assistance w i l l be provided to implement standard operational procedures, improve service standards and monitor community satisfaction with service delivery. This subcomponent w i l l support the development, implementation and monitoring o f uniform standards for transparent and efficient service delivery and the engagement o f stakeholders in programs for monitoring o f land office performance and responsiveness. The focus. w i l l be on re-engineering a maximum o f 15 land offices (Le. model land offices), where systematic adjudication wil l be undertaken (Component 3). The performance o f these offices wil l be monitored. An independent organization, such as an academic institution or NGO, w i l l be hired to monitor land office minimum service standard compliance.

B P N has previously classified land offices on the basis o f size and capacity and this subcomponent wil l develop model land offices for different classifications. Specific activities wil l include modernization of land documentation and implementation o f uniform records management procedures based on computer-based techniques in conjunction with the parallel Land Office Computerization (LOC) project. The subcomponent w i l l support community education and participation programs to promote the benefits o f land titles and to maximize security o f tenure b y ensuring al l subsequent land transactions are formally registered at the land office.

This subcomponent w i l l finance the construction and renovation o f model land offices, office equipment and furniture and installation o f Information Technology. I t will also finance international and national technical assistance in land registration, office operations and community education and participation.

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2.3. Support to the Legal Department of BPN

The subcomponent wil l provide support to the legal department o f B P N to develop policy and prepare laws and regulations. The legal department o f B P N i s active in preparation o f several laws and regulations and the subcomponent w i l l strengthen this section by financing Technical Assistance, both local and intemational consultants, and financing consultation workshops, public education and dissemination o f legal changes and reforms. To ensure better linkage with the land policy sub-component under Component I, work on policy and law reform w i l l be coordinated through the LMPDP steering committee or i t s successor in coordinating land policy development.

2.4. Education and Training

The focus o f this subcomponent i s in developing the capacity o f local academic institutions in the provision o f quality programs in a range o f land administration disciplinary areas through formal courses o f study and short courses. Through these programs, BPN, other government agencies, local government and the private sector w i l l have access to a range o f local graduates, post-graduates and other qualified personnel. Relationships w i l l be developed with recognized intemational universities, through exchange fellowships, development o f curricula and other arrangements, w i l l be used to develop and strengthen land administration programs offered by Indonesian academic institutions.

2.5. Overall Project Management

This subcomponent w i l l support B P N to manage the project. The sub-component wil l also support monitoring and evaluation, including financing the socio-economic and environmental impact assessment study. I t includes financing o f intemational and national technical assistance, contract staff, incremental operating costs including travel cost o f government staff supervising the project.

Project Component 3 - US$ 66.62 million Implementation of an Accelerated Land Titling Program

This component w i l l support an accelerated national land titling program through: (i) community awareness and participation; (ii) systematic land titling; (iii) streamlining o f Land Office registration processes (such as the process o f sporadic registration); and (iv) increased capacity o f the private surveying sector. The component proposes a program o f systematic registration that initially focuses on five provinces in Java with modest expansion to 4-5 selected urban centers outside Java.

3.1. Community Awareness and Participation

This subcomponent wil l support information dissemination through mass media (television, radio and newspapers) and posters about systematic, sporadic land titling program, and land transaction registration. The information dissemination also includes support for information dissemination to communities undergoing systematic' adjudication. Prior to the commencement o f the land titling activities in the community, the project w i l l organize an information campaign, through focus groups discussions and workshops to explain the project objectives, rationale and benefits, and also explain the forms, the costs, the procedures and legal rights to the communities, covering men and women separately. The information campaign w i l l commence about one month before the surveying and adjudication starts. The project w i l l hire and provide on the j ob training to local CSOs or community members to undertake the village level information dissemination and community awareness and participation campaigns.

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This subcomponent w i l l also include support for the collection o f community land profiles to define village boundaries, describe land distribution and identify any pre-existing land disputes. This information w i l l be used in the planning o f the titling program and later for monitoring the socioeconomic impacts o f the project. A standard form for gathering the data w i l l be developed during the pre-implementation period.

This subcomponent will finance consultants, CSOs involvement in the implementation o f this sub-component, office and equipment, and incremental operating costs.

3.2. Systematic Land Titling

This subcomponent will issue about 2.5 mil l ion land title certificates through systematic registration in selected land o f i c e jurisdictions. Subcomponent activities include an active program o f community education and participation to be undertaken throughout the preliminary, operational and post-operational stages o f the program Management w i l l be decentralized through Management Support Units established in respective provinces and district land offices. Community members wil l be recruited to j o in the systematic adjudication teams (SATs) and w i l l be provided by o n the job training under this subcomponent. The cadastral survey component o f the systematic program wil l be fully contracted to the private sector and standard specifications and contracts w i l l be reviewed and re-developed o n the basis o f experience in LAP I.

The subcomponent w i l l finance vehicles, motorbikes and equipment purchase and the provision o f base mapping and cadastral surveys. The subcomponent wil l also finance contract staff, and travel expenses o f govemment staff.

3.3. Streamlining Land Office Registration Processes

At present about 1.3 mi l l ion parcels are registered each year by sporadic means, however this number must increase significantly if the backlog o f unregistered land (estimated to be 50-60 mi l l ion parcels) i s to be realistically challenged. Sporadic titling (Titling on demand) currently takes a long time and very costly because o f the formal and informal fees. As a result, only the r ich and wealthy can afford sporadic titling, and this l e f t most o f the poor without land titles. The subcomponent would streamline the processes to enable the speedy and cheap sporadic titling activities. Specific activities include a study aimed at rationalizing fee structures on the basis o f moving towards full cost recovery and the use o f the private sector to undertake cadastral surveys. Other activities include review o f service standards and community programs to encourage application for first t i t le registration as wel l the registration o f subsequent property transactions. The swadaya, or community ini t iated funded program o f systematic registration wil l be encouraged under this sub-component

The streamlining o f operations w i l l be coordinated with the model land office approach under Component 2. The sub-component w i l l also support a study on reviewing the derivative (subsequent) registration to gauge community understanding o f the benefit o f titles, and barriers for subsequent transactions, including perception, cost both formal and informal, access to land office, and t ime taken.

The subcomponent wil l finance international and national technical assistance and training.

3.4. Development o f the Private Surveying Sector

Sustainability o f the title system, and in particular systematic adjudication, i s reliant o n a viable private sector to undertake cadastral surveying. Development o f the private sector w i l l benefit the community by introducing competition and reducing the opportunities for rent-seeking by government officials who

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dominate the performance o f cadastral surveys for sporadic t i t le applications (refer to subcomponents 2B and 3C).

The focus w i l l be on stimulating the private cadastral surveying sector using the considerable business potential generated through the strategic contracts under the systematic titling program. The subcommittee w i l l support an industry study on the basis o f existing and required capacity. This wil l be a basis for a review o f the courses established in academic institutions to ensure education capacity matches demand. The legislation for licensing o f surveyors will be reviewed and assistance provided in the development o f regulations to govern industry practice. The subcomponent w i l l finance technical assistance and training to private sector surveyors. Support for the establishment o f a viable industry association wil l also be provided with strong encouragement to exercise control over industry standards and regulatory controls.

Project Component 4 - US$2.86 million

Development of a Land Information System

The objective o f this component i s develop a framework for a Land Information System (LIS) to facilitate improved access to land information for government agencies and civ i l society, promote transparency and facilitate public participation in land management, and improve land administration services.

The need for this L I S i s based on the premise that land information i s critical for effective decision making on social, economic and environmental issues at al l levels o f government. Presidential Decree 3412003 (Article 1) recognizes this need and calls for the accelerated development o f a national land information system that covers:

an inventory o f land assets managed by al l levels o f government; textual and spatial data supporting land registration and, in the future, the delivery o f land registration services as part o f the e-government program; cadastral mapping; and land use management data.

L I S development w i l l require strong coordination within B P N and other government agencies. I t i s also critical that the development o f this component be linked and coordinated w i th the Land Office Computerization Project (LOC). There w i l l be linkages to al l other projects undertaken within BPN, especially those related to re-engineering o f land office functions.

The component w i l l support: (i) development o f a national land information strategy; (ii) establishment o f L I S infrastructure; and (iii) an L I S pi lot study covering one district.

4.1. Development of a National L a n d Information Strategy

This subcomponent wil l establish an appropriate administration and governance structure to be responsible for the inter agency coordination o f L I S activities. The LIS objective can only be achieved if the major stakeholders express a willingness to cooperate. A Land Information System Steering Committee w i l l be established under the chairmanship o f B P N with representatives from the major stakeholder organizations already developing land related systems and representatives from local government and community groups with an interest in land issues. A permanent L I S Support Group dedicated to providing technical advisory support to the Steering Committee w i l l also be established. The major activity o f this subcomponent i s to support the preparation o f a L I S strategy outlining the key initiatives and features that need to be incorporated in the development o f a national LIS.

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The subcomponent w i l l finance an L I S strategic planner; travel costs o f government staff and workshop and meeting expenses.

4.2. Establishment of L I S Infrastructure

This subcomponent will support the development o f key technical standards and the formulation o f key L I S policies required for the development o f a national L I S as identified in the L I S strategy (from the first subcomponent). Technical standards w i l l include data standards (required to produce integrated information products), a regime o f data administration spanning a l l involved government agencies, data dictionariedfeature catalogues, metadata and a corporate L IS data model. Key policies to be dealt w i th include data sharing and data maintenance arrangements involving al l contributing agencies; L IS training needs; fees and charges; public access to land information and data privacy.

The subcomponent w i l l finance (national) consultant services, consultation workshops and training initiatives including study tours.

4.3. Develop L I S Pilot Study

This subcomponent will support a two year pilot study spanning in one district (to be selected in consultation w i th Component 5) and w i l l incorporate data and information relating to land management contributed by a range o f agencies. I t w i l l create a range o f potential integrated land information products and services including a prototype inventory o f a l l land assets managed by different levels o f government, potential land management e-government services and inter-agency data maintenance linkages. I t w i l l test the technical issues associated with providing these products and services. This improved understanding will provide the experience required to finalize the design and implementation plan o f the national land information system as i s required by the Presidential Decree 34/2003 Article 1. I t w i l l also demonstrate how improved transparency in land management can be achieved.

The subcomponent wil l finance hardware and software, data conversion contracts, (national) consultant services (software development) and consultation workshops.

Project Component 5 - US$5.91 million

Capacity Building Support for Local Government

This component wil l seek to strengthen the exercise by local governments o f their fbnctions in land management wi th efficiency and transparency. I t w i l l be administered by the Ministry o f Home Affairs, the ministry responsible for local government.

Presidential Decree (Keppres) No. 34 (May 3 1, 2003) confirmed the transfer o f government’s authority on nine activities to local governments. These nine activities are: (a) location permit issuance; (b) taking o f land in the public interest; (c) cultivated land dispute settlement; (d) compensation determination for land taken for development; (e) land distribution and compensation for land held in excess o f standards; (f) determination and resolution o f ulayat land problems; (g) resolution o f unutilized land problems; (h) land opening permit provision; and (i) land use planning in local government jurisdictions.

The component wil l undertake: (a) an in-depth assessment o f the local government’s capacity to undertake the above nine functions, w i th proposals for changes in existing norms and standard operating procedures; (b) capacity building through training and support for five local government pilots to develop sound

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practices that can be replicated elsewhere; (c) TA for MOHA in developing a national strategy for strengthening local government land administration, and (d) TA and modest project management unit development for MOHA’s implementation o f this component.

5.1. Assessment of Local Government’s Capacity to Undertake Land Administration and Management Functions

This subcomponent w i l l assess local government’s capacity in this area based on a review o f their practice developed over the past five years. The assessment will in the first year o f the project conduct ten case studies o f selected local government un i ts . The local government uni ts to be studied w i l l be selected for :(i) commitment to undertake significant land management activities, (ii) willingness to participate in the case studies, and (iii) geographic breadth. They w i l l be selected by the P I U and subjected to agreement o f the Bank. The five pi lot local government uni ts under subcomponent B should be included among the ten case study units.

The case studies will involve interviews with local government staff, clients, NGOs, and other stakeholders, and w i l l use participatory appraisal tools such as stakeholder workshops and focus groups. Village land profiles w i l l be carried out. The assessment w i l l evaluate the current norms, standard operating procedures and practices; existing human and other resources for implementation, and corruption issues and ways to address them. Based on these ten case studies the P I U and consultants w i l l develop a self-assessment instrument to be used nationally. The assessment final report w i l l recommend organizational options, norms and operating procedures, and resource flows in light o f the experience on the ground. I t w i l l identify and prioritize training and other needs, responding to demand from local government units.

The subcomponent w i l l finance consultant services, consultationlfocus-groups and workshops, production o f reports, travel expenses and other incremental operational costs o f staff and consultants.

5.2. Training and Capacity Building

This subcomponent w i l l provide training for staff o f local government entities on a variety o f topics, tentatively including participatory land use planning, community mapping, participatory decision-making for issuance o f iz in lokasi (location permit), land dispute resolution, and identification o f land to be acquired for public purposes. The training program w i l l respond to the demand for training by local government units. The P I U and consultants wil l develop a training curriculum and training materials (including case studies) based on the case studies and assessment, and will conduct training workshops and other training sessions.

Five pilot local government uni ts w i l l be identified for th is subcomponent. They w i l l be selected on the basis o f their initiative in undertaking their land management responsibilities and their willingness to participate in the pi lot activity.

Training activities w i l l initially be undertaken in these five pi lot local government units, then expanded to other parts o f the country through regional training workshops and other learning events, reaching 100 local government units by project mid-term and virtually al l the 400 plus units by the end o f the project. The training wil l be coordinated by MOHA, with input from other concerned government agencies, including BPN, BAPPENAS and the Ministry o f Settlement and Regional Infrastructure.

The five pi lot local government u n i t s w i l l be the focus for capacity building through action learning. The subcomponent will provide support to initiative o f these local government units to help them achieve more

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effective and transparent land management, enabling them to become models and training grounds for other local governments. The local government planning office w i l l act as the secretariat for the pilot, coordinating the local government staff wi th land responsibilities for their participation. This a modest pi lot effort but if successful, the approaches developed under this component may be taken up by other operations in support o f local governments, such as ILGRIP and USDRP, or serve as the basis for a self-standing project to assist a much larger number o f local government entities in carrying out their land management functions.

The sub-component w i l l in connection wi th training finance study tours for local government officials, consultant services, workshops and other training events, and travel expenses and other incremental operating expenses o f staff and consultants. In the five pilot districts, it w i l l in addition support minor c iv i l works, office and other equipment and fumiture, community land profiling, public consultations and other participatory planning, and survey and mapping activities.

5.3. Preparation Strategic Plan for Broader Strengthening o f Local Government Land Management

This subcomponent w i l l provide resources for preparation by MOHA in the second or third year o f the project o f a Strategic Plan for strengthening o f local government land management. The effort w i l l draw upon the learning from the assessment under sub-component A and the work in the pi lot local government units under sub-component B. I t will develop a strategy for scaling up good norms and practices on a broader geographic basis. The strategic plan w i l l set out tasks to be undertaken and resources required. This subcomponent wil l support consultant services, costs o f regional workshops and a national workshop in connection w i th preparation o f the plan, and travel expenses and other incremental costs o f consultants and staff.

5.4. Support to Project Implementation Unit Development

This subcomponent w i l l support MOHA in carrying out i t s role in support o f local government land management. MOHA has limited experience in undertaking large international projects. This subcomponent will build i ts capacity to serve the decentralized management system and help it ready i tse l f to manage much larger initiatives in support o f local government entities. A small project management unit w i l l be established under the Director o f Institution for Decentralization under the Director General o f Regional Autonomy. The P I U w i l l be responsible for a l l procurement and contracting under this component, including that requested by the pi lot local government units. This subcomponent w i l l support contractual staff services, consultant services, office equipment and furniture, and travel and other incidental operating costs o f consultants and staff.

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Annex 3: Estimated Project Costs INDONESIA: Land Management and Policy Development Project

Component 1: Land Policy Component Component 2: Institutional Development, Capacity Building, and Training Component 3: Implementation of an Accelerated Land Titling Program

Local I Foreign 1 Total Proiect Cost Bv ComDonent I US $million I US $million I US $million

2.17 0.69 2.86 7.40 1.66 9.06

50.86 14.10 64.96

Component 4: Development of a Land Information System Component 5: Support to Local Government

1.85 0.94 2.79 4.98 0.78 5.76

Price Contingencies Total Project Costs

1 Total Financina Rewired1 68.99 I 18.63 I 87.62 1

1.73 0.47 2.20 68.99 18.63 87.62

Local US $million Project Cost By Category**

Foreign Total US $million US million

Goods Works Consultant Services and Studies Contract Services for Mapping and Cadastral

1.28 1.92 3.20 1.01 0.43 1.45 5.41 2.21 7.62

22.1 1 5.53 27.64

I Total Financina Reauiredl 68.99 I 18.63 I 87.62 1

Surveys Training and Workshops Land Registration Costs

Vehicles Incremental Operating Cost

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3.92 0.98 4.90 26.02 6.50 32.52 8.97 0.0 9.97 0.26 1.05 1.31

Total Project Costs 68.99 18.63 87.62

Annex 4: Cost Benefit Analysis Summary

INDONESIA: Land Management and Policy Development Project

A. Economic Rate of Return (ERR)

W e use data including household- and plot-level variables to measure the economic rate o f return (ERR) from holding a land title. The dataset i s collected from a beneficiary survey, which was conducted b y the SEMERU Research Institute for the I C R work o f L A P I, in early 2002. About 1,600 households were randomly selected from both the project as wel l as the non-project areas. We believe the dataset lays a good foundation to measure the ERR for L M P D P due to the fol lowing two reasons: (a) there has been no significant changes in Indonesia’s macroeconomic situation since early 2002; and (b) the L M P D P basically covers the same geographic area as LAP I did.

Qualitative benefits

We need to develop‘a good qualitative understanding o f the benefits before quantifying it. The beneficiary survey showed that the major economic and social benefits from obtaining a land title are the following:

1.

2.

First, land titles improved tenure security. 70 percent o f respondents believed that they now have a greater tenure security than before because o f obtaining land titles; Second, land tit les improved landholders’ access to credit from financial institutions. According to the survey, the rate o f using title as collateral to obtain credit in the project area was 12.8 percentage point higher than that in the non-project area;

3. Third, there was evidence showing that land tit les strengthened investment incentives o f landholders. In the non-project area, 18 percent o f households reported that they had made land-improvement-related investments; in the project areas, the number was 24 percent; and Fourth, in the project area land markets became more active and land prices were higher than that in the non-project area. About 2 percent o f households reported that they had sold their land since the LAP’S implementation in the non-project area; however, the number was 4 percent in the project area. Preliminary analysis also shows that the land price in the project area is about 65 percentage point higher than that in the non-project area.

4.

There are some other benefits which are difficult to be quantified, such as reducing land conflicts and strengthening landholders’ negotiation position in the process o f land acquisition, etc.

Methodology

We use a standard econometric methodology (linear regression) to analyze the impact o f titling on land prices to calculate the economic rate o f return. Land prices are used as a proxy for economic value o f land to calculate ERR under the assumption that al l titl ing benefits wil l eventually be reflected by the change o f land prices; that is, the change o f land prices captures the net effect o f a l l the benefits o f land titling. Increasingly active land markets in Java, reflected by a gradual increase o f land turnover rate and confirmed by the observations f rom our f ield visits, give us additional confidence for using land price as a proxy for economic benefits. Generally speaking, the results f rom analyzing the land prices should be more accurate than results from other methodologies, for example, analyzing increased productivity.

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There are many factors that affect land prices besides possession o f a land title; therefore, factors other than land tit les must be controlled in order to have a meaningful analysis. In our analysis, we control family characteristics (e.g., consumption per capita, education level, age, and gender o f the household head) and plot characteristics (e.g., whether there i s a land-improvement investment on the plot since obtaining title, if the plot has a house, the construction materials o f the house). We also control the regional impacts by using provincial dummy variables (7 provinces). To analyze the different impacts o f land titling in urban and rural areas, we also conduct sub-group analysis. The total p lot sample number i s 977.

Results

The overall economic rate o f return o f holding a land title i s about 33 percent, and the ERR i s higher in rural area (47 percent) than that in urban area (32 percent). The coefficient o f title i s statistically significant at 99 percent confidence level and the result i s robust across different specifications. The result means that the value o f a plot wi th a title w i l l be 33 percent higher than that o f a plot without a title, holding other factors constant.

Two additional pieces o f evidence give us more confidence to the above results. First, SMERU's study found that the land tax (PBB) in the project area has increased about 33.2 percentage point higher than that in the non-project area, which i s very close to our estimated ERR. I t should be noticed that the PBB i s calculated independently by the tax authority based on the market land prices in different areas. Second, findings from the studies conducted by the World Bank for land projects in other countries also show similar range o f ERRs. For example, in the case o f Thailand, where the Bank has successfully completed a 18-year-long land titling program, the ERR was ranged from 30 percent to 34 percent. In the case o f Ghana, the expected ERR for the land administration project i s about 38 percent.

However, the ERR, as calculated here, may overvalue the net benefits f rom the perspective o f the society as a whole, The overvaluation stems from, as argued by Feder et. al. (1988), the fact that landowners are risk averse, while society i s risk neural (or less risk verse). Therefore the landowners pay a higher risk premium to security than the society does. To reflect the ERR to the society, the ERR to farmers should be discounted, particularly in areas with very high tenure security risk. Taking into account this risk premium factor and assuming the discount rate ranging from 30 percent to 40 percent, the ERR o f titling to the society w i l l range from 20 percent to 23 percent, which i s s t i l l relatively high.

B. Financial Rate o f Return (F'RR)

The purpose o f conducting financial analysis i s to assess whether the net financial benefits expected from the project are attractive enough for the project participants. In the proposed LMPDP, there are two key project participants: the landholders and the Government.

Financial benefits and costs for landholders

As in many other countries, two considerations motivate individual landholders to obtain land titles: a) to improve land ownership security and b) to access a cheaper as wel l as a larger amount o f credit f rom formal financial institutions by using land title as collateral. As a result o f an improved tenure security and improved credit access, the value o f land will increase. Under the normal situation where tit les are issued upon request by landholders (Le., sporadic registration which requires landholders to pay the full cost), the landholders who request a titling service do so with the expectation that the financial retum from acquiring the title would be higher than the cost o f the title.

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In most cases, land titling projects adopt a systematic adjudication method to undertake land tilting in large volumes. To ensure a high participation o f landholders on a voluntary basis, the cost o f land titling has been kept at a level significantly lower than the cost o f producing a tit le. The affordability o f the poorest landholders i s one major criteria o f setting an appropriate registration fee. For example, in the case o f Thailand, landholders are charged less than US$5 per title, comparing to the actual cost o f US$36 per title. In the case o f L A P I, landholders were charged about US$3 per title while the actual cost was around US$26. The difference between the actual titling cost and the fee charged to landholders i s the subsidy from the Government, and the Governments will recover the subsidy by a) charging full registration fee on subsequent land transactions and b) expected revenue increase from land-related taxes. Both the Government and the Bank agreed that a similar arrangement would be kept in the LMPDP. This arrangement should be attractive enough to individual landholders (evidence from many sources show that actual cost o f sporadic titling i s around US$600, and maybe even higher).

Financial benefits and costs for the Government

The government generated incremental revenues Cfinancial benefits) mainly from the following three sources:

1. Registration fee which i s about US$3 per parcel.

2. Right Acquisition Tax on Land and Building (BPHTB). Act. No. 21 o f 1997 introduced 5 percent buyers tax which applies on a l l derivative registrations and on f irst time registration o f State land. The first Rp.30,000,000 i s exempted from tax up to 2001, This exemption figure wil l be increased by Rp.5 mi l l ion every subsequent 5 years. Based on the data supplied by BPN, first time registration o f State land represents about 20 percent o f al l registrations; and

3. Payment o f income tax on transfer o f right on landbuilding (5 percent sellers tax, Government Regulation No. 48/1994). Any subsequent sales o f systematic registration titles should be included as these taxes would not have been collected had the project not commenced.

Thefinancial costs to the government are the al l project costs and the loan interest costs (about 4 percent) and the Government’s future management costs associated with each t i t le issued by the project (2 percent o f total project cost). The reason why the loan interest costs are included i s that the govemment w i l l pay interests on loans that support the project and this i s a direct additional cost o f the project. Should the interest costs be excluded, the FRR w i l l be 17 percent.

Methodology and major assumptions

All calculations are based on the estimated project costs o f LMPDP and information o f actual benefits associated with the L A P I (1994-2001). For the sake o f simplicity, the actual benefits (revenues) are extrapolated over a 35 year period and no further assumptions are made regarding any expected changes or enhancements to these current actual benefits. The capital discount factor i s 0.1, Derivative registrations (turnover rate) i s 1 percent for year 2-6, 3 percent for year 7-20, and 5 percent for year 21-35. These figures are based on the observations made by TA consultants during the implementation o f L A P I and have been confirmed through discussions with the National Land Agency.

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Results

The results are shown in Table 1 o f the Annex. The fmancial rate o f return (FRR) i s 16 percent and the NPV i s US$107.5 million. The FRR i s financially sensitive to the changes o f the base assumption o f derivate registration. Should the assumption be changed to 5 percent turnover rate for a l l periods, then the FRR w i l l increase to about 21 percent.

The fiscal impact o f the proposed project should be neutral in the short-run given that only about a quarter of the total project cost will be financed by the Government. In the long-run, i t is expected that the fiscal impact o f the proposed project w i l l be very positive as shown by the relatively high FRR.

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Table 1 Calculation of Financial Rate of Return (unit: US$ Million) Year costs Benefits

BPHTB BPHTB Seller Net First Registration Derivative Tax Benefits

1 6.31 0.39 -5.92 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

16.31 25.31 23.31 18.31 13.91 3.23 3.23 3.23 3.23 3.23 3.23 3.23 3.23 3.23 3.23 3.23 3.23 3.23 3.23 1.91 1.91 1.91 1.91 1.91 1.91 1.91 1.91 1.91 1.91 1.91 1.91 1.91 1.91 1.91

NPV=US$I 07.5 million

1.18 0.23 1.88 0.67 1.73 1.09 1.33 1.64

2.67 3.74 4.88 6.08 4.62 5.94 7.32 8.77 10.30 9.19 10.86 12.62 14.48 22.85 26.26 29.82 33.58 37.52 37.14 41.48 46.05 50.85 55.88 56.64 62.18 68.01 74.1 1 80.78 88.05 95.98

0.23 0.67 1.09 1.64 2.67 3.74 4.88 6.08 4.62 5.94 7.32 8.77 10.30 9.19 10.86 12.62 14.48 22.85 26.26 29.82 33.58 37.52 37.14 41.48 46.05 50.85 55.88 56.64 62.1 8 68.01 74.1 1 80.78 88.05 95.98

-14.67 -22.08 -1 9.42 -13.71 -7.59 4.25 6.54 8.93 6.01 8.65 11.40 14.32 17.37 15.14 18.50 22.02 25.73 42.48 49.30 57.74 65.24 73.14 72.37 81.06 90.19 99.78 109.85 11 1.36 122.44 134.10 146.31 159.65 174.19 190.04

FRR=16%

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Annex 5: Financial Summary INDONESIA: Land Management and Policy Development Project

Years Ending January 1 - December 31

I M PLE M E NTATION P ERI 0 D I Year1 I year2 I Year3 I year4 j Yearti I Year6 1 Year 7

Total Financing Required

Project Costs Investment Costs 2.0 15.6 17.5 17.5 15.9 10.1 0.0

Recurrent Costs 0.7 1.6 1.8 1.8 1.7 1.4 0.0 Total Project Costs 2.7 17.2 19.3 19.3 17.6 11.5 0.0

Front-end fee 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Financing 2.7 17.2 19.3 19.3 17.6 11.5 0.0

Financing IBRDllDA 2.4 13.5 15.0 14.0 12.7 8.2 0.0 Government 0.3 3.7 4.3 5.3 4.9 3.3 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 2.7 17.2 19.3 19.3 17.6 11.5 0.0

Main assumptions:

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Annex 6(A): Procurement Arrangements INDONESIA: Land Management and Policy Development Project

Procurement

1. Procurement under the project will be carried out by Project Implementation Units (PIUs) located in three levels o f government organizations, i.e at: (a) national government level (within BPN, BAPPENAS and Directorate General o f Regional Autonomy, MOHA); (b) provincial level (Kanwil BPN); and (c) kabupaten level (District Land Offices). BAPPENAS wil l be responsible for the procurement under Component 1; BPN, Kanwi l B P N and District Land Offices w i l l be responsible for procurement under Components 2, 3 and 4; and MOHA w i l l be responsible for procurement under Component 5 o f the Project.

Procurement Responsibilities.

2. Procurement Categories. Expenditures under the Project w i l l consist o f the following categories: C iv i l Works (US$1.45 million); Service Contracts related to works for mapping, cadastral surveys and data conversion for land adjudication (US$27.64 million); Goods including vehicles (US$4.5 1 million); Consultants’ Services and Studies (US$7.62 million); Training and Workshops (US$4.90 million); Land Registration costs (US$32.52 million); and Incremental Operating Cost (US$8.97 million).

Procurement Procedures

3. Procurement o f goods and works w i l l be carried out in accordance with the World Bank’s Guidelines on Procurement Under IBRD Loans and I D A Credits (January 1995, revised January and August 1996, September 1997, January 1999, and November 2003). Procurement o f consultant services will be done in accordance w i th the World Bank’s Guidelines on Selection and Employment of Consultants by World Bank Borrowers (January 1997, revised September 1997, January 1999, M a y 2002, and November 2003). Any procurement procedure not financed, in whole or in part, by the Bank may be carried out in accordance with the public procurement regulations.

Standard Bidding Documents

4. The Wor ld Bank’s standard bidding documents for goods and works w i l l be used for ICB. Model bidding documents for N C B for Procurement o f Goods, Procurement o f Small C i v i l Works, a quotation solicitation form, and contract forms for small c iv i l works and goods wil l be developed and approved by the Bank for procurement under the project. For consulting services, the Bank’s standard Request for Proposals, sample evaluation report, and standard contract forms w i l l be used. The development o f standard documentation will be completed prior to the issuance o f the Project Management Manual and should be included therein.

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5. A draft General Procurement Notice (GPN) w i l l be prepared and submitted to the Bank. The Bank w i l l arrange for i t s publication in Development Business online (UNDB online) and in the Development Gateway Market (DGMarket), announcing al l procurement on the basis o f International Competitive Bidding (ICB) and major consulting services to be procured under the project. Invitation for Expression o f Interests for a l l consulting assignments at and above US$200,000 equivalent per contract wil l also be published in UNDB online and in DGMarket. Specific Procurement Notices for specific contracts and contracts wi th consultant f i r m s wil l be advertised in the national gazette or in at least one newspaper o f national or regional circulation in the country, in accordance with the Bank’s letter to the government dated

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September 23, 2002, or in an electronic portal with free access. The use o f Development Gateway (electronic advertising) and arrangements for it w i l l be discussed prior to the project launch workshop.

Summary of Procurement Capacity Assessment of Implementing Agencies and Suggested Measures for Strengthening

6. Procurement Capacity Assessment Report (PCAR). In accordance with the Bank’s Operational Policies and Procedures (OPBP 11.00), an assessment o f the procurement capacity o f the PIUs at the central, provincial and kabupaten levels was conducted prior to the appraisal mission. The assessment covers legal aspects and procurement practices, procurement cycle management, support and control system, record keeping, staffing, and general procurement environment. The assessment also covers overall risk assessment and proposes an action plan to strengthen the PIUs’ capacity.

7. The risk assessment has come out wi th the overall rating as “high”. The central and provincial level PIUs are rated as “average r isk ” and kabupaten level PIUs , the risk can be rated as “very high”. This different risk level i s translated into action plans to strengthen the PIUs’ capacity. The reasons for such assessment results are as follows:

The procurement w i l l be carried out in central, provincial and kabupaten level PIUs. The bulk o f procurement activities (systematic land adjudication) wil l be in the project provinces and kabupatens. Although the central level and some provincial level PIUs have some experience with Bank-financed projects, some o f the staff assigned or to be assigned to these PIUs do not necessarily have adequate experience with Bank-financed projects. Many o f the government staff in the kabupatens have almost no experience o f Bank-financed projects, nor do they have adequate experience o f handling contracts larger than US$ 100,000. The Presidential Decree (Keppres 8012003) which i s the main guidelines for public procurement i s adequately understood by procurement staff at a l l levels, however, i t s explanation do not have detailed and handy procedures that can be used easily by procurement staff in the field. If there are additional guidelines produced by Governors or Bupatis, they only consists o f general guidance and lack o f details and no provision o f procurement ethics. There are some disparities between the Presidential Decree (Keppres 8012003) apd the Bank’s Guidelines. In general, there i s limited staff available with sufficient procurement capacity. The general procurement environment i s unhealthy and collusive practices have been reported in past projects. Sanctions against such practices were not enforced adequately and have encouraged further collusion. The new decentralization laws and the increasing power o f Kabupaten government w i l l put more pressure on PIUs’ staff to favor local suppliers or contractors.

Proposed actions to reduce or mitigate the risks

8. Procurement Capacity Enhancement. All Project Implementing Units (PIUs) should include in their team a procurement staff wi th a minimum o f two years’ experience in the procurements o f goods, works and consultant selection. Since the mentioned staff may not be available, the central project management unit (MSUP at BPN) w i l l engage a procurement specialist who have adequate experience in Bank financed projects to assist a l l PIUs at least for the first one year o f project implementation, until al l proposed procurement training for PIU’s staff has been successfully completed.

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9. Procurement Training. Procurement training for trainers (TOT) wil l be conducted and completed before the loan becomes effective. The BPN, BAPPENAS and MOHA will joint ly arrange the events, while the Bank wil l provide inputs for training materials. The participants w i l l come from central and pre-selected staff from provincial govemment offices. The selected trainees wil l be assigned as trainers during the course o f project implementation. The training w i l l be provided to P I U staff in project provinces and kabupatens by the trainers mentioned above, wi th assistance from implementation management consultants, if needed. The trainings w i l l consist o f overall procurement aspects for small contracts, preparation o f procurement plan and procurement ethics. Furthermore, the P M M w i l l provide very detailed guidelines on procurement in bahasa Indonesia, and offer best practices.

10. Enhanced planning and controlling mechanisms.

A draft general procurement plan for the project implementation period and for the first- 18 months

All PIUs w i l l update their LMPDP procurement plans as mentioned above every year covering the

Clarification on N C B procedures, as detailed in Appendix 1, to be included in the draft Loan

Contracts costing more than US$lOO,OOO equivalent per contract w i l l be carried out by provincial

Prior review thresholds are set up for procurement o f works, goods and consultant services in

Procurement Manual acceptable to the Bank shall be prepared before negotiation, consisting of

detailed procurement plan will be prepared by al l PIUs, consolidated by central P M U to be reviewed and approved by the Bank before loan negotiations.

next 18 months o f project implementation and send it to the Bank through central P M U for i t s review and approval.

Agreement.

andor central level PIUs.

accordance with the risk levels.

procedures to be followed by al l PIUs. The procurement section in the manual w i l l include:

(i)

(ii) TOR o f procurement specialist'officers; (iii)

(iv) (v)

(vi)

Procurement methods and procedures that reflect the clarifications/modifications on N C B and N S procedures acceptable to the Bank;

Standard bidding documents for ICB, N C B and RFP, adopted from Bank's standard documents; Reporting requirements complete wi th standard reporting forms in line w i th the FMR; Guidelines on project documentation and filing system in order to get easy access, from time to time, to project files; and Project Organization and Staffing. The draft organization structure should be prepared immediately, discussed during appraisal and made available before negotiation. The Project Managemenflmplementation Units (PMUPIUs) in central as wel l as in regions, shall be established and key staff assigned before negotiations.

Procurement Arrangements

11. Project cost by categories and procurement methods are summarized in Table A. The section on methods for procurement o f consultant services are summarized in Table A. 1, and the thresholds for each category are given in Table B.

Procurement Methods (Table A).

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(a) vehicles) to be financed under the project w i l l be procured under the following procedures:

Procurement of Goods (US$4.51 million). Goods, including equipment and materials (except

Intemational Competitive Bidding (ICB): Procurement o f goods with a value at or above US$200,000 equivalent per contract shall be carried out through I C B procedures.

National Competitive Bidding (NCB): Procurement o f goods between US$25,000 and US$200,000 equivalent per contract wi th an aggregated amount o f US$740,000 shall fol low N C B procedures acceptable to the Bank, and any interested foreign suppliers shall be allowed to participate.

National Shopping (NS): Procurement o f simple office equipment wi th the estimated cost i s less than US$25,000 equivalent per contract wi th the aggregated amount o f US$1,830,000 wil l be carried out through N S procedures. Most o f this procurement w i l l be carried out at district land offices (over 60 districts in 10 provinces).

Vehicles estimated to cost US$1.31 mi l l ion w i l l be financed 100 percent by GOI.

(b) Procurement of Civil Works (US$I.45 million). Since the construction works are small contracts (ranging from US$lOO,OOO to a maximum o f US$975,000 per contract), a l l construction works for land offices and training center w i l l fol low N C B procedures. A model bidding document for N C B which has been developed under other project and approved by the Bank w i l l be used. Procurement shall follow the Bank’s clarification on the N C B procedures described in the Loan Agreement.

(c) Contract Services related to Works for Cadastral Surveys, Mapping and Data Conversion (US$27.64 million). There w i l l be contracting o f many local small survey teams and mapping. The procurement procedure for this w i l l be similar to procurement o f small works in which N C B procedure w i l l be used. To attract foreign firms to participate in these works, some o f the contracts w i l l be packaged as such to be b ig enough (US$200,000 or more per contract) which w i l l be carried out under I C B procedure.

(d)

Quality and Cost Based Selection (QCBS): Selection for consulting services w i th f m s for the national technical assistance under Component 4 and for the training and institutional capacity building under Component 5 o f the Project with an aggregated amount o f US$2,280,000 wil l fol low the QCBS method. The weight factor used for financial proposal in combined-evaluation o f technical and financial proposal should be not be less than 20 percent and not more than 30 percent. The latter w i l l apply to simple assignments with Bank’s prior concurrence.

Selection Based on Consultants’ Qualifications (CQ): CQ method may be used to select consultant services for monitoring o f B P N service standards under Component 2 o f the Project w i th a cost o f less than US$lOO,OOO equivalent per contract, w i th an aggregated amount o f US$110,000.

Consultant Services and Studies (US$7.62 million).

Single-Source Selection (SSS): For specific activities and studies such as engaging NGOs or academic institutions who w i l l be involved in community participation and carrying out social/socio-economic base-line and impact assessments under Component 3 o f the Project wi th an aggregated amount o f US$ 210,000 when there i s only one institution is qualified or has the exceptional relevant experience with a cost o f less than US$lOO,OOO equivalent per contract may be procured under SSS procedures with Bank’s prior approval.

- 5 1 -

Individual Consultants (IC): Individual consultants needed during project implementation for certain activities such as for development o f land policies and studies under Component 1, technical assistance for institutional capacity building under Component 2, and short term specialists in other components which the experience and qualifications o f the individual are paramount requirement and teams o f personnel and additional outside (home office) professional support are not required w i l l be selected on a competitive basis, based on their qualifications for the assignment, fol lowing the provisions in paragraph 5.1 to 5.3 o f the Bank’s Guidelines. The aggregated amount for the individual consultants i s about US$5,020,000.

In exceptional cases where sole source selection i s justified such as for continuation o f previous work and very small, the Borrower may select the consultants on a sole source basis with the Bank’s prior approval.

(e) Others.

Incremental Operating Cost (US$8.97 million): This cost i s an incrementalladditional cost to the agency recurrenthoutine budget as a consequence o f the project implementation. I t covers the costs o f the incremental cost o f project staff for supervision and implementation guidance, coordination, surveillance and monitoring activities, collection o f information and reporting. Eligible expenditures w i l l consist o f travel and per diems, meeting facilities, stipends (not staff salary/honorarium), office supplies and consumables, and communication. These expenditures wil l fol low the government procedures and w i l l be audited in accordance with the Loan Agreement.

Training and Workshops (US$ 4.90 million): Training and workshops are an integral parts o f the project’s institutional capacity building component. Most o f the training program w i l l be conducted in the country and in the form o f on the j ob training. Costs o f training and workshop materials, renting o f facilities, transportation, meal and accommodation, and tuition fees excluding any consultant costs, w i l l be funded through the Statement o f Expenditures (SOE) using Government procedures, audited and acceptable to the Bank.

Land Titling Registration Costs (US$32.52 million): About US$32.52 mi l l ion would be allocated to cover the costs related to land title adjudication, production, registration, and distribution o f land certificates. The costs w i l l cover transport and travel costs o f adjudication teams, cost o f contract staff/personnel, material and miscellaneous supplies such as stationery and computer consumables used for mapping and title production, and al l other costs incurred by the adjudication and registration teams. Costs o f title registration would be funded through the Statement o f Expenditures (SOE) using Government procedures, audited and acceptable to the Bank.

12. Table B.

Prior Review Thresholds (Table B). The thresholds for Bank’s prior review are summarized in

Goods. Contracts for goods with an estimated contract value at or above US$lOO,OOO equivalent per contract w i l l be subject to prior review.

Civil Works. Contracts for c iv i l works w i th an estimated value at or above US$200,000 equivalent per contract wil l be subject to prior review.

Consulting Services. Contracts for Consulting Firms valued at or above US$lOO,OOO equivalent and contracts for Individual Consultants valued at or above US$50,000 equivalent w i l l be subject to prior review.

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Contract Services related to works for mapping, cadastral surveys and data conversion. Contracts valued at or above US$lOO,OOO equivalent per contract w i l l be subject to prior review.

In addition, the first contract for NCB, N S and consulting services under the prior review thresholds implemented by each P I U w i l l be subject to Bank prior review.

Al l contracts awarded based on single source selection w i l l be subject to Bank prior review.

Frequency of procurement supervisions proposed.

13. Since the overall procurement risk assessment i s rated as “high”, supervision mission i s scheduled at least once every six months, including special procurement supervision for post-review/audits once a year.

14. Procurement Plan. Based on the annual budgeting, the P M U (MSUP) shall prepare Annual Work Plan (AWP) in September/October each year for the following year. The A W P w i l l be discussed and agreed with the PIUs and based on the AWP, each P I U wil l prepare a detailed Procurement Plan and submit it to P M U for consolidation. The consolidated procurement plan w i l l be reviewed and approved annually by Bank’s project team and shall be monitored and implemented in accordance with the Bank’s guidelines and the project legal agreement. Should there be a need to change the procurement method or the aggregated amount for a particular method, the Borrower shall seek the Bank’s prior approval.

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Procurement methods (Table A)

Expenditure Category I. Works

Table A: Project Costs by Procurement Arrangements (US$ million equivalent)

ICB NCB Othe: N.B.F. Total Cost 0.00 1.45 0.00 0.00 1.45

Procurement Method'

2. Goods (0.00) (1.01) (0.00) (0.00) (1 . O l ) 0.63 0.74 1.83 1.31 4.51

3. Services Consultant Services and Studies 4. Codastral Survey and Mapping Contracts

5. Training and Workshops

(0.50) (0.59) (1.47) (0.00) (2.56) 0.00 0.00 7.62 0.00 7.62

(0.00) (0.00) (7.62) (0.00) (7.62) 1.25 26.40 0.00 0.00 27.64

(1 .OO) (21.12) (0.00) (0.00) (22.12) 0.00 0.00 4.90 0.00 4.90

6. Land Registration Cost

7. Incremental Operating Cost

(0.00) (0.00) (4.90) (0.00) (4.90) 0.00 0.00 32.52 0.00 32.52

(0.00) (0.00) (22.77) (0.00) (22.77) 00.00 00.00 8.98 0.00 8.98 (0. * 00) (00.00) (4.62) I (0.00) 1 (4.62)

contingencies.

Total 1.87 28.59 55.85

21 Includes goods procured through national shopping, consulting services, land registration cost, training, and incremental operating costs.

1.31 1 87.62

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(1 S O ) (22.73) (41.38) 1 (0.00) I (65.6) I

Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent)

Consultant Services

Total (0.00) (0.00) (0.00) (0.00) (0.00) (5.02) (0.00) (5.02) 2.28 0.00 0.00 0.00 0.11 5.34 0.00 7.62 1 (2.28) I (0.00) I (0.00) I (0.00) I (0.11) 1 (5.34) I (0.00) I (7.62) I

Including contingencies

Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Single Sources Selection, and Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Loan/Credit.

1.

2.

Prior review thresholds (Table B)

Expenditure Category

Works

Goods (except vehicles)

Table B: Thresholds for Procurement Methods and Prior Review 1

(US$ thousands) 1 (US$ million)

Contract Value Procurement Method Contracts subject to Thresholds Prior Review i 200orabove I NCB Yes (3.6) Below 200

200 and above Between 100 to 200 BetweenAbove 25

and 100

NCB No, except for theonly first contract by PIUeach implementing unit

ICB Yes (0.9)

Below 25

Yes (0.2)

No, except for the only first contract by PIU each implementing unit

0, except for the first contract b)

NCB

NCB

NS

PIU

- 55 -

Consultant services and studies

bo, except for the first contract b

Contract services related to works for

surveys & data conversion Training & workshops Land registration costs Incremental operating costs

mapping,

n.a Individual:

50 and above Below 50

Firms; 100 and above

Below 100

Single Source Selection

IC

QCBS CQ

Firms: 200 and above

5etween 100 and 200 Below 100

A l l

ICBQCBS NCB

NCB

Other

Yes (0.9) No, except the TORs and the

first contract by PIU Yes (0.21)

Yes (4.6) No, except TORs and the first

contract bv PIU

A l l Other

A l l

I (SOE mechanism)

Other No (SOE mechanism)

Yes (1.3) Yes (1.2)

No

I

Total value o f contracts subject to prior review: Overall Procurement Risk Assessment: High Frequency o f procurement supervisions proposed:

US$18.9 million

Once every 6 months (includes special procurement supervision for post-review/audits once per year)

Appendix 1

Clarification on NCB o f Keppres 80/2003 procedures to be included in the Loan Agreement.

The procedures to be followed for N C B shall be those set forth in Presidential Decree (Keppres 8012003) o f the Republic o f Indonesia w i th the clarifications and modifications described in the fol lowing paragraphs required for compliance w i th the provisions o f the “Guidelines for Procurement under IBRD Loans and IDA Credits” (the Guidelines). These clarifications are included in the Procurement Section o f the Loan Agreement.

Registration

(a) (b)

Bidding shall not be restricted to pre-registered f i rms. Where registration i s required, bidders: (i) shall be allowed a reasonable time to complete the registration process, and (ii) shall not be denied registration for reasons not related to their capability and resources to successfully perform the contract, which shall be verified through post-qualification.

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Pre-qualification

Pre-qualification shall not be required under this project. However, for large or complex works, wi th Bank’s prior concurrence, pre-qualification may be allowed and should be in accordance with the following:

(a) (b)

Eligible bidders (both national and foreign) shall not be denied pre-qualification; and Invitations to pre-qualify for bidding shall be advertised in at least one widely circulated national daily newspaper for a minimum o f 30 days prior to the deadline for the submission o f pre-qualification applications.

Joint Ventures

A bidder declared as the lowest evaluated responsive bidder shall not be required to form a jo int venture or to sub-contract part o f the work or part o f the supply o f goods as a condition o f award o f the contract.

Preferences

(a) (b)

N o preference o f any kind shall be given to national bidders; and Regulations issued by a sectoral ministry, provincial and local regulations which restrict national competitive bidding procedures to a class o f contractors or a class o f suppliers shall not be applicable to procurement procedures financed under the Loan.

Advertising

(a) Invitations to bid shall be advertised in at least one widely circulated national daily newspaper allowing a minimum o f 30 days for the preparation and submission o f bids and allowing potential bidders to purchase bidding documents up to 24 hours prior to the deadline for submission o f bids; Bid documents shall be made available, by mai l or in person, to al l who are wi l l ing to pay the required fee; Bidders domiciled outside the areddistricVprovince o f the unit responsible for procurement shall be allowed to participate regardless o f the estimated value o f the contract; and Foreign bidders shall not be precluded from bidding. If a registration process i s required, a foreign fm declared as the lowest evaluated bidder shall be given a reasonable opportunity to register.

(b)

(c)

(d)

Bid Security

Bid security, at the bidders’ option, shall be in the form o f a letter o f credit or bank guarantee from a reputable bank.

Bid Opening and Evaluation

(a)

(b)

(c)

(d)

Bids shall be opened in public, immediately after the deadline for submission o f bids, and if bids are invited in two envelopes, both envelopes (technical and price) shall be opened at the same time; Evaluation o f bids shall be made in strict adherence to the criteria declared in the bidding documents and contracts shall be awarded to the lowest evaluated bidder; Bidders shall not be eliminated from detailed evaluation on the basis o f minor, non-substantial deviations; and No bidder shall be rejected merely on the basis o f a comparison with the owner’s estimate and budget ceiling without the Bank’s prior concurrence.

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Rejection of Bids

(a) (b)

All bids shall not be rejected and new bids solicited without the Bank’s prior concurrence; and When the number of responsive bids i s less than three, re-bidding shall not be carried out without the Bank’s prior concurrence.

Supplemental letter

The supplemental letter should reserve the right to require that in contracts financed by the Bank under this project, a provision w i l l be included requiring suppliers and contractors to permit the Bank to inspect their accounts and records relating to performance o f the contract and to have them audited by auditors appointed by the Bank.

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Annex 6(B): Financial Management and Disbursement Arrangements INDONESIA: Land Management and Policy Development Project

Financial Management

1. Summary of the Financial Management Assessment Overall Summary

1. The Financial Management assessment for this project has been completed in August 2003, including an assessment o f financial management capacity at the implementing agencies as wel l as an analysis o f financial management risks. Taking into account the results o f this assessment, the financial management arrangements as outlined herein are considered acceptable for the purposes o f the project, subject to the satisfactory completion o f the next steps and action plan summarized below.

2. The lead Executing Agency for this project w i l l be the National Land Agency (BPN), which will manage 88 percent o f the total project expenditure on the components related to accelerated land titling and land information system. The National Planning Agency (BAPPENAS) and Ministry o f Home Affairs (MOHA) w i l l separately manage the balance expenditure on Land Policy and Regulatory Framework and Support to Local Government. A national Steering Committee will be formed w i th representation from al l related agencies, including an NGO. Given the nature o f components in the project, it i s anticipated that a large proportion o f the project activities and expenditure w i l l be managed by BPN’s decentralized land offices in some 91 regional and provincial locations across the country. Although B P N as the lead implementing agency has had prior experience in managing Bank financed projects, it i s anticipated that weak implementation and financial management capacity in the regions w i l l impose special challenges. Based on these factors, financial management risks inherent in the project entity have been rated as substantial.

3. An analysis o f project specific r isks indicates that substantial r isks may arise f rom several features. The geographically diverse spread o f the project and inherently weak and variable financial management capacity in the regions imposes substantial r isks on financial accounting and reporting,. This i s sought to be mitigated by concentrating project accounting activities at the 12 participating provincial offices rather than 91 locations and the deployment o f financial management consultants to assist B P N to design and install a computerized financial accounting system at al l participating B P N office. Such a system would meet al l financial reporting requirements o f the project as specified in the Financial Management Manual, and w i l l be utilized to the extent possible the existing accounting systems in use at B P N and their offices. The consultants w i l l also be tasked w i th training B P N staff in the operation o f the project financial management system. Payment validation systems have traditionally been weak in Bank financed projects in Indonesia. Therefore more comprehensive validation procedures, including community disclosure and oversight mechanisms where applicable, w i l l be prescribed and documented in a Project Management Manual.

4. Following the recent completion o f a peer review o f BPKP (such a review o f B P K has not yet been done) it i s proposed that the Bank accept BPKP as project auditors. Audit coverage presents moderate r isks arising f rom the fact that under recent Government regulations the external audit agency (BPK) has jurisdiction over regional public expenditure, not BPKP. Some regions may therefore resist audit by BPKP. To overcome this clear instructions on this wil l be sought f rom central and regional authorities as a condition for effectiveness.

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Internal controls and risk analysis

5 . A summary o f the main financial management risks i s as follows.

Risks I Assessment A. Inherent Country

Risks Budgetary procedures Substantial

Public Sector Accounting Substantial

I

Auditing Arrangements Moderate

Organization

2. Accounting capacity, I Substantial staffing. I

3. Funds Flow Moderate

4. Audit arrangements Moderate

5. Information systems. Substantial Reporting and

~~

I 1. Organization Structure

2. Completion o f project works & services

Moderate

I

Summary Comments A detailed risk assessment is available in project documents.

CFAA diagnostic completed in 200 1 rated country control environment as weak. White Paper has been prepared by Government in M a y 2002 to address reform issues. New State Finance law has been passed, but the laws on Treasury and Audit are yet to be legislated. Minimal progress in implementation o f C F A A recommendations.

National accounting continues on a single entry and cash basis wi th a partially computerized system. Public expenditure accounting standards not yet issued, though an Accounting Standards Board has been constituted and a long te rm strategy to move towards accrual accounting i s being prepared. B P K now has legal mandate for extemal audit o f regional governments, though coverage i s currently very limited. Institutional Development Plan for B P K under slow implementation. Audit reports are not publicly disclosed.

Lead implementing agency has prior experience in managing Bank projects. But r isks arise f rom wide geographical spread o f PIUs and poor legacy o f BPN. Risk mitigation possible through clear documentation o f oDeratine authorities and mocedures. Generally poor accounting capacity in the provincial and regional offices. Mit igation through use o f project financial management consultants. Risks may arise f rom inherent weaknesses and delays in budget approval systems o f GOI. Risks arise f rom B P N i s audited by intemal and external audit agencies o f GOI. Risks arise f rom manual accounting systems in government agencies.

I Large no. (91) o f potential accounting locations in regions; generally poor accounting capacity. Tit l ing surveys, adjudication and soft expenditures on training and TA are generally vulnerable to collusion and misuse. Mitigation through oversight by community members and public disclosure mechanisms proposed.

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3.Receipt o f project goods L o w

4. Payment validation Substantial

5. Disbursement and fund flows

Overall Project Specific Risks I Substantial

Substantial

Project Financial Management arrangements.

6. Project monitoring and reporting

Procurement o f goods relatively small, mostly computers and

Substantial

proprietary equipment. Traditionally a weak area in Bank financed projects, hr ther

8. Extemal audits

corroborated by audit reports o f previous L A P i project. To mitigate risks, additional documentation and internal control requirements w i l l be prescribed in Project Management Manual to enhance documentary trails. Risks arise from use o f geographically dispersed offices o f KPKN for disbursements, which could lead to vulnerability in overall reconciliation o f Special Accounts. Responsibility for Special Account management to be decentralized to BPN. Transaction based SOE disbursements proposed initially, FMR

Moderate

based disbursement to be considered later. ~

Geographical spread o f spending units under a common Budget and chronic delays in approval o f D I P warrants could prove a hurdle to smooth implementation. FMR reoortincr w i l l be introduced from inceotion. Geographical spread o f accounting locations and poor capacity increase risks. Use o f trained FM consultants proposed. Computerized accounting to be concentrated in selected 12 provinces. Delays in audit reports have been experienced in the past projects. Jurisdiction o f BPKP for audit in regions can become contentious.

6. proposed:

Organization. For purposes o f financial management the following project organization i s

Payments processing. Payment requests (SPP) wil l be prepared and validated by project treasurers at each participating regional B P N Land Office. A total o f 91 such offices are l ikely to be involved in project financial management, with respect to contract management and maintenance o f financial controls. A team o f project managers (Pimpros) and project treasurers w i l l be formally appointed at each land off icePIU. Their capacity i s assessed to be generally weak, based on experience w i th other projects and analysis o f findings o f the Implementation Completion Report Report No. 23684 dated 19 June 2002. o f the preceding Land Administration Project 1. For activities undertaken at Bappenas and Ministry o f Home Affairs, payments will be processed at the respective Project Implementing Units (PIUs).

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Accounting. The geographical spread o f project implementation B P N Land offices will l ikely impose a strain on project financial accounting, especially at the regional level, and hence could disrupt preparation o f acceptable financial statements. Given capacity constraints expected in the regional offices, financial accounting wil l done at 12 participating provincial B P N offices instead o f regions, for which the source documents w i l l be collected from regional Land offices and reconciled monthly or quarterly wi th records o f KPKN. Detailed arrangements for this w i l l be incorporated in the project management manual. A local accounting firm w i l l be hired as financial management consultants at provincial and central project offices, who will be tasked with: (i) designing and installing computerized accounting system capable o f ensuring that project financial accounting reports and FMRs are prepared accurately and at regular quarterly intervals at each Province, analyzed, and consolidated at central level; and (ii) building the capacity o f government staff to operate the system and perform these functions.

7 . Accounting policies and procedures. Project management and implementing uni ts will be required to maintain financial accounting for al l project resources and expenditure. Accounting for al l project resources will be cash basis, in line wi th government accounting standards. The accounting reports currently prepared by B P N for internal financial reporting to the Government do not include reporting for project expenditure per activities or components, and hence would not be suitable for the reporting needs for this project from the point o f view o f effective project and financial management. The agreed formats for project financial statements w i l l include accounting for categories as specified in the Loan Agreement as well as components as stated in the PAD. Procedures w i l l be agreed with project management to reconcile project financial accounts with financial reporting to local and central governments o n a quarterly basis. The Financial Monitoring Reports (FMRs) wil l be required from the Project on a quarterly basis, initially for reporting purposes only, and subsequently to support disbursements also. These reports w i l l comprise information on procurement activity, implementation progress, sources and uses o f funds and a forecast o f funds required for the project. Detailed formats for these w i l l be agreed before negotiations. The first such reports w i l l be required to be submitted no later than 45 days after the end o f the first quarter after effectiveness, and thereafter every quarter within 45 days o f the quarter-end.

2. Audit Arrangements

The national internal audit agency (BPKP) wil l be accepted as auditors for this project. Terms o f reference for these audits w i l l be agreed before negotiations, leading up to a single audit opinion on the project financial statements, Statements o f Expenditure (SOE) and Special Account. Audit reports will be due 6 months after the end o f the project fiscal year. The detailed mechanisms for this w i l l be agreed at negotiations. Central directives would therefore be required to ensure that BPKP i s provided unrestricted access to a l l project activities for purposes o f audit.

3. Disbursement Arrangements

1. Fund flows for project expenditure w i l l follow traditional Government budgeting and payment mechanisms (DIPP). These wil l have to be included in central budgets every year by each PIU. Each o f the three central project agencies w i l l budget for their share o f project expenditure respectively. Existing government budgeting and payment mechanisms supplemented by the additional procedures on payment verification w i l l be used for both these disbursement streams. Payments from K P K N offices w i l l be based on duly approved payment requests (SPP) and contracts, and payment vouchers (SPMs) will be sent to project offices for accounting purposes. Funds required for meeting transportation and other expenses of adjudication teams in the regions w i l l be channeled to separate sub-project bank accounts managed by Project Managers on an imprest basis and accounted for to Central Treasury Offices (KPKN) on a monthly basis.

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2. activities and wil l be included in the Project Management Manual:

Detailed procedures for validation o f payments are being developed for each o f the following

(a) C iv i l Works arranged directly by the B P N regional and provincial Land Offices and funded by

(b) Technical Assistance and training activities procured and arranged at the central Ministerial level; (c) Training and technical assistance at decentralized levels in the regions; (d) Adjudication and survey expenses that w i l l be incurred and paid out in the regional offices; and (e) Incremental operating expenses to be reimbursed under the project.

both the Bank and GOI;

3. Financial controls requirements for each o f these activities are different and payment validation procedures will be based on the following principles to strengthen controls and reduce risks o f fraud and corruption. These measures take into account experience gained in project supervision in other projects as wel l as feedback from recent audit reports:

(9

(ii)

(iii)

(iv)

4.

C iv i l work completion w i l l be verified and certified by independent committees appointed by Project managers for this purpose;

All decentralized project activities w i l l be, certified b y community members and publicly disclosed

at the offices o f local administrative officials:

For technical assistance and training activities the agency receiving training wil l be required to certify satisfactory completion before training expenses are reimbursed to the provider. Direct evidence o f training imparted and travel incurred will be required before payments to contractors are authorized; and

Land survey and adjudication expenses at land offices will be authorized under jo int authorities and work completion publicly disclosed. Land titling adjudication teams w i l l include local community members. Completion o f work w i l l be documented in B P N formal records and completion reports certified by team members and communities, evidenced with copies o f land certificates for expenditure accounting.

Special Account management and replenishments. A special Account wil l be opened in Bank Indonesiawith an authorized allocation o f US$ 6.00 mi l l ion wi th & initial allocation o f US$2.0 mi l l ion till commulative disbursement reaches US$ 10.0 million. Withdrawal from the Special Account w i l l be based on payment orders by the KPKN offices once these have been approved by project managers. Replenishments into the Special Account w i l l be based on Withdrawal Applications supported by Statements o f Expenditures (SOE). For payments in excess o f prior review thresholds, “summary sheet” procedures wil l be used. Financial Monitoring Reports (FMRs) based disbursements wil l be introduced later in the project, after satisfactory introduction o f FMR reporting. The task o f preparation o f Withdrawal Applications for replenishment o f the Special Account wil l be located at the C P M U at BPN, subject to approval o f the Ministry o f Finance (Director General Budgets).

- 63 -

Allocation of loanlcredit proceeds (Table C)

Clontract Services for Mapping and Cadastral Surveys

rraining and Workshops

Land Registration Zosts

(3)

6,470,000 1 1,650,000

1,480,000 2,480,000

7,615,000 10,650,000

(9)

-

Unallocated

TOTAL

Category

2,152,000

21,940,000 32,800,000

Clivi1 Works

3oods

Zonsultants’ services md studies

Amount of the Credit Allocated

(Expressed in SDR Eauivalent)

490,000

860,000

Amount of the Loan Allocated (Expressed in

Dollars)

240,000

1,200,000

2,300,000 1 3,550,000

[ncremental Operating 1 2,725,000 I 550,000 Zosts

Front -end Fee 328,000

Percent of Expenditures

to be Financed

70 percent

100 percent o f foreign expenditures, 100 percent o f local expenditures (ex-factory cost) and 80 percent o f local expenditures for other items Drocured locallv

100 percent

80 percent

100 percent

70 percent

100 percent until December 3 1, 2006 and 50 percent thereafter

Amount due under Section 2.04 o f the Loan Agreement

- 64 -

Conclusion & Action Plan

The financial management arrangements as outlined herein are considered acceptable for the purposes of the project, subject to the satisfactory completion o f the next steps and action plan summarized below:

Issue 1 .Organizational arrangements

2. Accounting

3. Audit

4. Project Implementation

Action required Project financial management consultants to be selected based on TORS acceptable to the Bank.

Qualified staff to be designated for project financial accounting at B P N Head Office and at each Provincial P M U expected to participate in the f i rst vear o f the uroiect. Formats for Financial Monitoring Reports (FMRs) to be agreed w i th Bank.

TOR for audit o f project financial statements to be agreed with Borrower.

Mechanisms for public disclosure o f al l audit reports to be agreed w i th Bank.

Draft Project Management Manual, including approved specific procedures for payment validation and other financial management procedures to be ready by negotiations

Adoption o f the project management manual, acceptable to the Bank

Responsibility Project Director

Project Director

CPMU, Project Director

CPMU, Project Director

C P M U Project Director

CPMU, Project Director

B P N

Due Date Before loan effectiveness

Before loan negotiations

Before negotiations

Before negotiations

Before negotiations

Before negotiations

Before Effectiveness

Supervision arrangements

Given the geographic spread and complexity o f the project, and i t s overall risk classification, financial management supervision w i l l be undertaken through annual supervision visits by Bank FM staff. Such supervision work w i l l include review o f internal controls surrounding land titling expenses in the regions. Quarterly FMR reports wil l be reviewed regularly through the year where financial, procurement and contract management issues w i l l be reviewed. Risk ratings at appraisal wil l be refreshed annually following supervision.

- 65 -

Annex 7: Project Processing Schedule INDONESIA: Land Management and Policy Development Project

Project Schedule Planned Time taken to prepare the project (months)

First Bank mission (identification) 04/01/2000 ADDraisal mission departure 0910 1 /200 1

12 Actual

36 04/01/2000 11/04/2003

Negotiations 0 112 1 12004 03/03/2004

Prepared by: The Government of Indonesia. Project preparation was overseen by the LMPDP Coordinating Committee, which includes EKUIN, Bappenas, B P N and MOHA.

Planned Date of Effectiveness

Preparation assistance: Landmark consulting financed by a Japanese PHRD Grant.

06/26/2004

Bank staff who worked on the project included: Name

Wael Zakout Li Guo Sulistiowati Nainggolan John Bruce Anthony Toft Rajiv Sondhi Wendy Schreiber Ayres Surajit Goswami Yogana Prasta Cecilia Belita Cynthia Dharmajaya Isono Sadoko Sumaryo Soemardjo Gershon Feder Cora Shaw Steven Dice Hilarion Bruneau

Speciality Task Team Leader Economist Social Development Land Tenure Lawyer Legal Counsel Financial Management Environment Economist Disbursement Program Assistant Program Assistant Social Developmenflarticipation Procurement Peer Reviewer Peer Reviewer Peer Reviewer Disbursement

- 66 -

Annex 8: Documents in the Project File* INDONESIA: Land Management and Policy Development Project

A. Project Implementation Plan

Project Management Manual Procurement Manual Financial Management Manual

B. Bank Staff Assessments

Project Concept Paper Working Paper on Decentralization o f Land Affairs Procurement Assessment Financial Management Assessment

C. Other

Project Preparation Report; Social Assessment o f Certification Program under the Land Administration

An Impact Evaluation of Systematic Land Titling under the Land Administration Project (The SMERU

Decentralizing Indonesia’s Land Administration System: Are Local Gvoernmetns and Land

Agrarian Policy Reform Dialogues (Sediono M.P. Tjondronegoro); 2001 Final Report: Land Policy Reform Dialogues in Indonesia (Ekuin and WBOJ); Report and Views regarding Discussion on Land Issues Customary (Adat) Land Perspective and

Project (Joan Harjono, 1999);

Research Team, May 2002); Legislative for Land (Pieter J. Evers, June 2001);

Offices Ready? Evidence from 27 Districts (COMO Consultant);

Comprehensive Approach Towards Solutions o f Land Disputes (Professor Arie S. Hutagalung, Nov. 2002);

Land Policy in Indonesia: An Evaluation Paper for the World Bank (Professor Sediono Tjondronegoro, Feb. 2003);

Report on Land Dialogue: Land Problems in the Context o f Regional Autonomy (by Gunawan Wiradi and Endang Suhendar, Feb. 2003); and

Good Practices Initiated by Local Governments and NGOs (by Endang and Juni, Dec. 2002).

*Including electronic files

- 67 -

Annex 9: Statement of Loans and Credits INDONESIA: Land Management and Policy Development Project

30-Mar-2004 Difference between expected

and actual disbursements' Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO59931 2003 ID-Water Resources & Irr.Sector Mgt Prog 45.00 25.00 0.00 0.00 70.09 PO63913 P 0 7 3 7 7 2 PO76271 PO79156 PO72852 PO73970 PO40578 PO49539 PO68949 PO40528 PO66051 PO73025 PO59930 PO59477 PO49545 PO03967 PO36049 PO64118 PO40196 PO41895 PO55821 PO03993 PO48715 PO36956 PO39644 PO40061 PO40062 PO36048 PO03967 PO41894 PO40195 PO04026 PO36047 PO49051 PO37097

2003 2003 2003 2003 2002 2002 2002 2001 2001 2001 2001 2001 2000 2000 2000 1999 1999 1999 1999 1999 1999 1998 1998 1998 1996 1998 1998 1998 1997 1997 1997 1997 1997 1997 1996

ID-Java-Bali Pwr Sector & Strength ID-Health Workforce 8 Services (PHP 3) ID-PPITA ID Third Kecamatan Development Project ID-URBAN POVERTY II ID-GLOBAL DEV LEARNING (LIL) ID-Eastem Indonesia Region Transport ID-PROVINCIAL HEALTH II ID-LIBRARY DEVELOPMENT PROJECT - LIL ID-W. JAVA ENVMT MGMT ID-GEF-W. JAVA ENVT MGMT ID-SECOND KECAMATAN DEVELOPMENT PROJ ID-DECNT. AGRICULTURAUFORESTRY EXT ID-WSSLIC II ID-PROVINCIAL HEALTH I ID-FIFTH HEALTH PROJECT ID-EARLY CHILD DEVELOPMENT ID-WATSAL ID-SUMATRA BASIC EDUCUATION ID-SULAWESI BASIC EDUC. ID-URBAN POVERTY ID-SUMATRA REG'L RDS Indonesia - IlDP ID-SAFE MOTHERHOOD ID-W. JAVA BASIC EDUCATION ID - BENGKULU REGIONAL DEVELOPMENT ID ~ CORAL REEF MGMT REHA ID - CORAL REEF MGM REHAB ID-CENTRAL INDONESIA SEC. EDU. ID-SUMATRA SECONDARY EDUCATION ID-QUALITY OF UNDERGRADUATE EDUC (QUE ID-Railway Efficiency ID-BALi URBAN INFRA. BEPEKA AUDIT MODERNIZATION PROJECT ID-E.JAVA SEC.EDUC.

141.00 31.10 17.10

204.30 29.50

2.66 200.00

63.20 0.00

11.70 0.00

206.90 13.00 0.00 0.00

44.70 21.50

300.00 54.50 47.90 0.00

234.00 34.50 42.50

103.50 20.50

0.00 6.90

104.00 96.00 71.20

105.00 110.00

18.40 99.00

0.00 0.00

74.50 0.00 0.00 0.00

45.50 0.00 70.50 0.00 0.00 0.00 0.00 0.00

40.00 0.00 4.15 0.00 5.75 0.00

0.00 2.54 111.30 0.00

5.00 0.00 77.40 0.00 38.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

20.10 0.00 15.93 0.00

100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 4.10 0.00 4.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 5.01

10.65 0.00 0.00 0.00

0.00 50.00

6.50 9.15 3.76 5.00 0.00 0.00 0.00

0.23 9.89

47.33 36.03

1.77 3.90

141.00 110.73

16.01 249.36 102.33

2.13 107.76 103.81

2.35 15.13 2.72

223.73 5.80

62.58 25.16 11.01 2.78

150.00 11.40 20.13 20.57 21.72

2.55 3.76 2.21 8.77 0.53 0.69

11.37 4.51 7.55 3.51 9.12 2.42 8.13

0.00 0.00

-0.31 1.24 0.04

15.47 1.13

18.76 55.15

1.09 8.93 5.56

-111.38 2.65

-21.26 7.42

16.01 13.42

150.00 9.14

20.88 20.03 64.72 11 .05 12.92

-11.19 13.77 0.42 0.69

11.37 4.74

17.44 50.63 45.15

4.19 12.04

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

13.42 150.00

0.00 0.00

19.48 -8.61 2.55 6.92 0.00 8.77 1.81 0.66 0.00 0.00 7.55

-6.56 0.78 3.29 0.00

Total: 2461.56 633.13 10.74 191.22 1543.50 452.12 200.03

- 68 -

INDONESIA STATEMENT OF IFC's

Held and Disbursed Portfolio Feb 29 - 2004

In Millions US Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1995 2000102 1997 1993196 199 1195199101103 1992196 1995 1997 2000 1998 1993 1996 1993 1997 200 1 1992195 1997 2003 2001 2003 '

2003 1999 1985 2002 1997 1989 1997 1989194103

PT Astra Graphia PT Astra Otopart PT Bakrie Pipe PT Bank NISP PT Berlian PT Bina Danatama PT Grahawita PT Indo-Rama PT KIA Keramik PT KIA Serpih PT Kalimantan PT Makro PT Megaplast PT Nusantara PT Pramindo Ikat PT Samudera PT Sayap PT Sigma PT Viscose PT Wings SMM Sunson Verdaine Buana Bank ITCF LYON-MLF-Ibis Manulife P.T. Gawi PT AdeS Alfindo PT Agro Muko PT Alumindo PT Astra

Total Portfolio:

0.00 0.00

23.71 0.00 5.95 8.92 0.00 5.00 1.65 4.50

20.00 0.00 5.25 7.63 0.00 0.00 5.00 0.00

15.63 4.34

12.00 12.41 14.00 0.00

40.00 2.01 0.00

11.50 0.00 0.00

10.15

2.00 1.07 0.00 3.59

17.58 0.00 0.00 0.00 0.00 0.00

15.00 2.61 2.50 0.00 1.82 5.00 0.00 3.00 0.00 0.00 0.00 0.00 0.00

15.36 0.00 0.00 0.32 0.00 6.98 2.20 0.00

0.00 0.00 9.53 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

12.24 16.93 0.00 0.00

53.49 49.50

2.09 0.00 0.00 5.93 0.00 0.00 0.00 0.00

14.58 0.00 0.00 7.85 0.00 0.00 0.00 2.01 0.00

10.00 0.00 0.00 4.00

0.00 2.00 0.00 1.07

23.71 0.00 0.00 3.59 5.95 14.24 8.92 0.00 0.00 0.00 4.88 0.00 1.65 0.00 4.50 0.00

20.00 15.00 0.00 2.61 5.25 2.50 7.63 0.00 0.00 1.82 '

0.00 5.00 5.00 0.00 0.00 3.00

15.63 0.00 4.34 0.00 9.00 0.00

12.41 0.00 14.00 0.00 0.00 15.36 0.00 0.00 2.01 0.00 0.00 0.32 5.35 0.00 0.00 6.98 0.00 2.20

10.15 0.00

0.00 0.00 0.00 0.00 9.53 0.00 0.00 0.00 0.00 12.24 0.00 16.93 5.00 0.00 0.00 0.00 0.00 53.49 0.00 49.50 0.00 2.09 0.00 0.00 0.00 0.00 0.00 5.93 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14.58 0.00 0.00 0.00 0.00 0.00 7.85 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.01 0.00 0.00 0.00 4.65 0.00 0.00 0.00 0.00 0.00 4.00

0.00 1.29 0.00 0.00 0.00 1.29 0.00 0.00 209.65 80.32 14.53 178.62 160.38 76.98 14.53 173.27

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic 2004 Ecogreen 0.03 0.00 0.00 0.00 2003 PT SPA 0.01 0.00 0.00 0.00

Total Pending Commitment: 0.04 0.00 0.00 0.00

- 69 -

Annex I O : Country at a Glance INDONESIA: Land Management and Policy Development Project

59.5 57.8 67.3 70.7 11.5 8.8 7.8 8.2

POVERTY and SOCIAL

2002 Population, mid-year (millions) GNi per capita (Atlas method, US5) GNI (Atlas method, US$ billions)

Average annual growth, 1996-02

Population 1%) Labor force (%)

Most recent estimate (latest year available, 1996.02) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% ofpopulation) Illiteracy (% ofpopulation age 15+) Gross primary enrollment (% of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

-60 1 -GDi -GDP

GDP (US$ billions) Gross domestic investmentiGDP’ Exports of goods and sewiceslGDP Gross domestic savings/GDP Gross national savings/GDP

Current account baianceIGDP Interest paymentslGDP Total debVGDP Total debt sewice/exporls Present value of debt/GDP Present value of debtlexports

1982-92 1992-02 2o01 2o02 (average annual growth) Agriculture 3.8 1.6 1 .o 1.7 Industry 9.2 3.2 3.3 3.7

Manufacturing 12.6 4.7 4.1 4.0 Services 6.5 2.3 4.6 4.4 Private consumption 4.4 5.2 4.4 4.7

Gross domestic investment 9.6 -4.7 Imports of goods and sewices 3.0 1.9 8.1 -8.3

General government consumption 4.9 0.4 9.0 12.8 6.3 -12.5

1982

94.7 27.8 25.3 29.0

-5.6 1.6

26.5 18.1

Growth of exports and imports ( O h )

40

20

0

.20

-40

-60

-Exports --O-lmports -

1982.92 1992-02 (average annual growth) GDP 6.9 2.5 GDP per capita 5.0 1.1

Indonesia

21 1.7 710

149.9

1.3 2.2

16 43 67 34 25 78 12

110 111 109

1992

139.1 30.5 27.9 33.4 21.4

-2.0 2.7

63.3 32.6

2001

3.4 2.1

East Asia 8 Pacific

1,838 950

1,740

1 .o 1.2

38 69 33 15 76 13

106 105 106

2001

141.3 21.8 42.3 24.9 22.8

4.9 3.2

94.2 25.9 93.0

235.5

2002

3.7

Low- income

2,495 430

1,072

1.9 2.3

30 59 81

76 37 95

103 87

2002

172.9 20.2 35.4 21.1 17.1

4.3 1.8

74.5 23.7

2003-07

3.9 2.3 2.4

Development dlamond’

Life expectancy

-r

GNI Gross per primary capita nroilment

1

Access to improved water source

-Indonesia Low-income group

Economic ratios’

Trade

1 T

Indebtedness

-Indonesia ~ Low-income group I

STRUCTURE of the ECONOMY

(% of GDP) Agricuiture Industry

Services

Private consumption General government consumption Imports of goods and sewices

Manufacturing I 23.9 18.7 2o 17.0 17.5 37.9 39.6 45.6 44.5 11.9 22.0 25.0 25.0 -20 38.2 41.7 37.5 38.1

- 70 -

Indonesia PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overaii surplusldeficit

TRADE

(US$ millions) Total exports (fob)

Fuel Rubber Manufactures

Total imports (ci0 Food Fuel and energy Capital goods

Export price index (1995=100) import price index (1995=100) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and sewices Imports of goods and sewices Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

1982 1992

.. 7.6 6.1 5.4

1982 1992

.. 33,796

.. 10,671

.. 684

.. 14,224

.. 27,280

.. 1,274

.. 2,104

.. 11,700

1982 1992

20,251 37,167 22,716 34,674 -2,465 2,313

-2,993 -5,664 134 571

-5,324 -2,780

3,471 4,850 1,853 -2,070

2001

11.5 10.8

20.7 0.0

-2.9

2001

57,364 12,648

872 22,275 34,669 2,497 5,523 9,050

2001

82,864 50,549 12,315

-8,143 2,728

6,900

-8,278 1.378

.. 27,890 661.4 2,029.9 10,260.9

1982 1992 2001

25,133 88,002 133,072 1,735 10,640 11,435

707 814 722

3,856 12,457 14,445 207 1,515 1,753

8 22 32

92 298 0 1,067 3,097 615 1,401 2,655 -6,199

225 1,777 -5,877 0 146 1,145

977 1,256 845 583 1,003 585

82 692 853 501 311 -268 133 845 932 368 -533 -1,200

2002

11.9 7.2

18.9 0.6

-1.7

2002

58,817 12,139

1,238 19,119 35,805

2,852 6,558 8,606

2002

64,004 51,498 12,506

-6,506 1,453

7,451

-3,430 -4,021

31,911 9,311.2

2002

128,765 10,729

794

13,893 1,905

33

0 -440

-2,915 -7,066 1,243

103 419

1,065 -646 873

-1,519

87 98 99 00 01 02

-GDP deflator +CPI

I Export and Import levels (US$ mill.)

80.000 T

96 97 98 99 00 01

ta Exports Imports

Current account balance to GDP (Oh)

6 7

I I Composition of 2002 debt (US$ mill.)

I A - IBRD E . IDA D .Other multilateral F ~ Private C ~ IMF G -Short-term

E - Bilateral

- 71 -

Additional Annex 11 : Environmental Analysis INDONESIA: Land Management and Policy Development Project

Environmental Conditions of Indonesia

Indonesia i s a country o f highly varied landscapes, modern and fast-growing cities, and vast endowments o f natural resources. Indonesia i s also a land o f extraordinary biodiversity. I t i s home to 10 percent o f the world’s mammal species, 11 percent o f i t s plant species, 16 percent o f i t s reptiles and amphibians, 17 percent o f i ts bird species, and 25 percent o f i t s fish species. Most o f these species are found in the nation’s forests. About 60 percent o f Indonesia’s land i s forested and a significant portion i s also mountainous and volcanic. Centuries o f volcanic activity has led to high soil fertility on Java and Bali, contributing to their high population densities and intensive land use.

Mil l ions o f Indonesians depend directly on fishing, farming, and forestry for their livelihoods. Large plantation operators, timber concerns, and mining and o i l companies operate over large tracts o f land, often employing highly destructive practices as they seek short-term profits. The poorer communities that depend most directly on the natural resources for their livelihoods are hurt the most from the loss of resources.

Deforestation i s occurring at an alarming rates in Indonesia, due to clearing o f land w i th f i re for timber or estate crop plantations or for agriculture, and poorly controlled commercial logging. The forests provide habitats to many large animals including tigers, orangutans, gibbons, elephants, w i l d cattle, rhinos and countless bird species. Loss o f habitat and uncontrolled hunting are decimating many o f these animal species. The problem o f deforestation i s most acute in Kalimantan, Sumatra, Sulawesi, and West Papua, islands w i th relatively l ow population densities and high value natural resources.

Slightly less than 10 percent o f Indonesia’s land area i s designated as conservation areas through a protected area network that comprises 35 national parks and 339 other reserves. The system itself i s incomplete, wi th 36 o f 80 areas designated as critical reserves remaining legally unprotected. Moreover, only one national park has been h l l y gazetted: Kerinci-Seblat National Park. In addition, the boundaries o f the parks, protected areas, and remaining forests are not clearly defined and encroachment, illegal hunting, timber cutting, and other activities are widespread.

Although Indonesia extends across more than 17,500 islands, fewer than ha l f are inhabited. About two-thirds o f Indonesia’s estimated 203 mi l l ion people l ive on Java, Bali, and Madura, although these islands make up only 7 percent o f the land mass o f the country. About 42 percent o f the population lives in urban areas, and the numbers are growing rapidly. Environmental conditions in Indonesia are thus very location-specific. Java and Bali, where land titling activities w i l l be confined, have few forest resources and only a small proportion o f i t s biodiversity. Rather the most serious environmental problems in these regions are air and water pollution.

Another environmental concern i s the lack o f access to clean water and sanitation facilities in Indonesia, particularly in peri-urban areas, which contributes to Indonesia’s high rate o f preventable diarrheal diseases and repeated local outbreaks o f typhoid. Investments in piped water supplies and especially sewerage have been wel l below what are needed to provide universal coverage. I t i s estimated that over 43 mi l l ion people lacked access to piped water supplies and an even larger number lacked access to sewerage systems.

- 72 -

Impacts of the Project on the Environment

Adverse environmental impacts of the project are likely to range from minor to negligible. Among other goals, the project seeks to improve natural resources management by supporting the development o f policies, laws, and regulations to clarify rights o f people to land, by enhancing transparency in land matters, and by strengthening security o f tenure through the issuance o f titles to households wi th legitimate legal claims to the land. Establishing clear property rights to land and natural resources creates incentives for owners to manage the resources for their long-term benefit. This encourages investment in soil conservation, watershed protection, reforestation, and sustainable use o f w i l d animals and plants. B y formalizing rights to residential plots, the project encourages investment in activities and infrastructure that improve environmental conditions where people live and work, such as solid waste management, water supply systems, and sanitation facilities. Indeed a social assessment o f the earlier Indonesia Land Administration Project shows that peri-urban dwellers invested substantially in their homes and neighborhoods after receiving titles. In this way the project i s expected to directly contribute to improved environmental management in Indonesia.

Indirectly, by stimulating new investment in industries, agriculture, urban housing and offices, the project has the potential to affect the environment negatively. Without proper management, new investment in industry and other facilities can harm the environment. To minimize or mitigate the potential impacts requires effective environmental laws and regulations, and the strengthening o f capacity o f the ministry o f environment and the regional and local environmental agencies to monitor compliance with and enforce environmental the laws and regulations.

New investment due to titling will occur outside the scope of the project, and no specific measures have been designed to deal with i t s potential impacts under project financing. Indonesia has a fairly well-developed system for managing environmental matters at both the central and subnational levels. The Ministry o f Environment i s responsible for providing the legal framework that defines the responsibilities and services to be provided at the central, provincial, and local levels; setting the policy; specifying environmental standards; monitoring and enforcing compliance with national minimum standards; providing training; conducting research; and collecting and disseminating data. Authority for subnational level environmental management and control was largely decentralized in 1999 to provincial and kabupaten and kota levels o f government (bapedal at the provincial level and bapelda at the kabupaten and kota levels). These agencies are responsible for environmental impact assessment o f projects. Handling these services at the subnational level i s expected to result in an improved process o f environmental impact assessment, and improved monitoring and enforcement o f national minimum standards, although decentralization o f important functions o f environmental management has in some cases led to weakened controls over the exploitation o f natural resources and the management o f the environment. Two important functions have not been devolved to subnational governments - the determination o f forest boundaries and changes in their status and function (including conversion), and the management o f conservation and protected areas - and remain under the control o f the national government.

Many multilateral and bilateral donors and NGOs are working with both the central and local government environmental entities to strengthen their capacity for environmental and natural resources management. The European Union, the United States, Canada, Japan, United Nations agencies, the World Wild Fund for Nature, the Nature Conservancy, Conservation International, and others have programs that aim specifically to promote decentralized and strengthened management o f Indonesia's forests, protected areas, and coastal resources. Many donors have provided technical assistance and training to the Ministry o f Environment and the Ministry o f Forestry to strengthen their capacity to develop policies and standards to soundly manage natural resources and the environment.

- 73 -

Project Approach with regard to Environmental Issues

The project i s classified as World Bank environmental assessment Category B because it i s not expected to have significant, large scale, or irreversible adverse environmental impacts. The project has been designed to promote sound environmental management and to mitigate potentially negative affects arising directly from project activities. Measures include:

Sequencing of systematic titling activities. The project wil l not provide tit les in areas designated as forest areas, protected areas, the coastal zone, riverbanks, areas o f cultural and religious significance, or areas for public purposes or public facilities.

Incorporating environmental input into land policy formulation. Wherever appropriate, the land policies and regulations being developed under the project w i l l include input from the ministries o f environment and forestry and from nongovernmental organizations with an interest in sound environmental management and in environmental protection. The Ministry o f Environment w i l l be a member o f the national land committee that i s responsible for formulating land policies and regulations. The three ministries managing natural resources (ministry o f forestry, ministry o f mining, and the ministry o f agriculture) wil l also be members. NGOs concerned with the environment w i l l participate in the public consultations and focus group discussions intended to build consensus on the national land policies. They w i l l also be consulted regularly throughout project implementation, Advice w i l l also be sought f rom multilateral and bilateral donors working in the area o f environmental management.

Ensuring that construction of buildings complies with World Bank social and environmental safeguards. The project w i l l support rehabilitation or construction o f up to fifteen land office buildings. The buildings will be constructed on land that i s already occupied by local government offices or on land that i s vacant. N o people will be involuntarily resettled under project-supported activities. Al l buildings w i l l be designed and constructed in accordance with sound architectural and engineering practices. Care w i l l be taken during construction to control dust and noise, provide appropriate sanitation facilities for workers and protect worker safety, and dispose o f solid waste appropriately. Proposals for c iv i l works w i l l contain a plan for minimizing and mitigating environmental impacts. Local environmental entities w i l l review al l proposals for construction o f buildings and civ i l works in accordance with the normal environmental assessment processes.

Encouraging local governments to include environmental representations in stakeholder consultations. Through i t s support to local governments, the project w i l l encourage local governments to include NGOs concerned with the environment to participate in the stakeholder forums regarding matters such as the issuance o f location permits, opening o f new lands, land distribution, and land use planning. These fimctions o f local government al l have implications for the environment, and decisions should not be made without understanding clearly those implications.

Monitoring and evaluating the impact of the project on the environment. Most o f the positive environmental impacts o f the project w i l l result from strengthening security o f tenure and from developing policies that reflect concems for improved environmental management. The key output indicators include the number o f policies developed with environmental input. I t i s not expected that outcomes, such as evidence o f improved environmental management wil l be measurable during the project lifetime. I t i s expected that the project’s environmental impacts wil l ultimately be measurable through monitoring o f environmental indicators regularly carried out by the Indonesia Ministry o f Environment.

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Compliance with World Bank Environmental Safeguard Policies

Environmental assessment (OP 4.01). The project i s classified as category B because i t i s not expected to have significant adverse environmental impacts. Other than construction o f office space and related facilities, the project w i l l not support c iv i l works, land conversion, resource extraction, industrial production or any activity that could potentially damage the environment. Contracts for c iv i l works under the project w i l l be subject to screening for environmental impacts by the local environmental entities (bapelda), which are responsible for this activity. All contracts wil l include measures acceptable to the bapelda to minimize or mitigate environmental damage. The project w i l l not support land acquisition or associated involuntary resettlement. Policy formulation and institutional development (about 25 percent the total project cost) are environmental assessment category C. They are not subject to special environmental review requirements.

Natural habitats (OP 4.04). The project w i l l not provide titles in areas designated as protected areas b y the Government o f Indonesia or in areas that, in the Bank’s opinion, are o f potential environmental significance. These include forests; marine and coastal areas; areas along riverbanks; conservation areas; areas surrounding springs, lakes and reservoirs; coastal mangrove areas, and the like.

Cultural property (OPN 11.03). Indonesia has sites o f great cultural significance, not al l o f which are currently known. The project w i l l not provide titles in areas with known cultural artifacts or in areas deemed by the government as high priority for further study. The project w i l l in addition not t i t le lands considered sacred or o f spiritual importance.

Forests (OP 4.36). The project w i l l not provide tit les in areas classified as forest land by the state, unless the state agrees to release the land for individual titling.

Pest management (OP 4.09). This pol icy does not apply to the project. While farmers may increase their use o f pesticides while intensifying cultivation, the increase i s not expected to be significant. In should be noted that the government o f Indonesia has pursued a strategy o f integrated pest management since 1989, which it scaled up to national level in the mid-1990s. The World Bank, the Asian Development Bank, and U S A I D have been supporting the government in implementing the strategy. The Food and Agriculture Organization has also been training farmers through the farmer f ield school approach in the use o f integrated pest management practices.

Environmental Guidelines

The project w i l l finance the expansion or construction o f about fifteen small land office buildings. The buildings w i l l be expanded or constructed on land already under the control o f B P N or local government or on vacant land. N o resettlement wil l be involved. Other than construction o f office space and related facilities, the project w i l l not support c iv i l works, land conversion, resource extraction, industrial production or any activity that could potentially damage the environment. The maximum value o f the construction and related civ i l works at any one location w i l l be U S $ l million. Construction o f the buildings i s expected to have l i t t le or no significant, large scale, or irreversible adverse environmental impacts. Environmental impacts would arise primarily from poor site management during the construction o f the buildings. The project i s classified as safeguards category BlS2 because it i s not expected to have adverse environmental or social impacts. Policy formulation and institutional development activities (about 25 percent the total project cost) wil l not have direct impacts on the environment and are considered environmental assessment category C. They are not subject to special environmental review requirements.

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These guidelines outline the principles and procedures that implementing entities w i l l follow to ensure that project-supported activities comply wi th the Bank’s environmental safeguards and with the environmental laws o f Indonesia. Indonesia’s environmental review procedures are generally consistent wi th the Bank’s and wil l form the framework for the project’s approach to environmental management.

Basic Principles

Construction activities supported under the project should seek to avoid, minimize, or mitigate negative environmental impacts. Those responsible for construction or related civ i l works w i l l do so by following the guidelines in the project implementation plan for design and construction. Construction and other project activities w i l l be designed to promote improved practices o f environmental management wherever possible. They may include, for example, drainage systems that minimize negative impacts on nearby wetlands or drinking water sources. Measures to avoid, minimize, or mitigate environmental impacts w i l l be included in the project documents specifying the design and construction o f the buildings and the standard operating procedures to be followed during construction. N o subproject that would require a full environmental assessment under Indonesian regulations or that would be considered Bank environmental assessment category A w i l l be approved for financing under the project.

Environmental Screening Procedures

The bapelda, the local government agency responsible for environmental impact assessment o f projects w i th strictly local impacts, w i l l screen al l proposals for construction and civ i l works in accordance with the screening criteria established by the government. The initial classification w i l l be based on the characteristics o f the construction site, the scale o f construction, and the nature o f the surrounding area. Depending on i t s potential impacts, the bapelda w i l l place the project into one o f four categories in accordance with the criteria o f the Government o f Indonesia:

(i) Projects requiring a full environmental assessment in accordance with Indonesian regulations. No projects are expected to fal l into this category;

(ii) Those requiring environmental management and monitoring plans. The Ministry o f Settlement and Regional Infrastructure has set criteria for projects requiring such plans. Most construction activities to be supported under the project are expected to fall into this category;

(iii) Those for which generic good practice, following standard operating procedures w i l l apply. Some projects may fall into this category; and

(iv) Those requiring no environmental study, where no construction, disturbance o f land or water, or discharge o f pollutants i s involved. No construction activities w i l l fall under this category.

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Government screening criteria for construction of apartments and office buildings

According to KEP- 17iMENLW2001 (concerning types o f businesses activities required to complete an environmental impact assessment) the following rules apply for construction o f apartments and office buildings:

A full environmental assessment (ANDAL) i s required for buildings:

0 Covering a land area greater than or equal to 5 hectares

0 Having a floor area per building greater than or equal to 10,000 square meters.

Under Kepmen Kimpraswil-l7/KPTS/2003 (concerning decisions on types o f activities in the field o f public works that are required to prepare U P L and UKL) site-specific environmental management and environmental monitoring plans (UKLAJPL) are required for al l buildings:

0 Having a floor area less than 10,000 square meters.

All the buildings to be constructed under the project are expected to have a floor area less than 10,000 square meters. Some o f the construction activities are likely to be the addition o f a room or two to existing buildings, for which a UKLAJPL w i l l not be required. Standard operating procedures wil l be used instead.

Environmental Management

The project implementation plan w i l l contain a matrix o f l ikely environmental impacts related to construction o f buildings, and the steps to be followed with which to avoid, minimize, or mitigate them. Standard operating procedures w i l l include measures applying to construction in general, such as measures to control dust, noise, and traffic at construction sites and guidelines for controlling erosion.

The entities responsible for implementing the construction activities, whether local government or local offices o f BPN, w i l l be responsible for preparing the environmental management and environmental monitoring plans (UKLAJPL), where required. They w i l l also be responsible for ensuring that the measures specified in the UKLAJPL are incorporated into the designs, construction contracts, and post-construction operating procedures, as appropriate. The appropriate central level project management unit (BPN or o f the Ministry o f Home Affairs) through the project-financed consultant w i l l review the final construction proposals to ensure that they are in compliance with the guidelines. Proposals for buildings and related civ i l works costing over US$150,000 wil l in any case be submitted to the Bank for prior review and final approval, giving the Bank a chance to review and approve the proposed environmental management and environmental monitoring plans. Smaller projects will be subject to post-implementation review.

The implementing entities w i l l be responsible for supervising construction and ensuring that the construction i s in compliance with the agreed measures to minimize and mitigate negative environmental impacts, whether based on the UKLAJPL or on the standard operating procedures as laid out in the project implementation plan. The appropriate central project management unit through the project-financed consultant w i l l check on the performance o f the local-level entities in filfilling their responsibilities by randomly checking the construction sites.

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Bank supervision missions w i l l randomly visit construction sites and those responsible for implementing the projects to ensure that the projects comply wi th the national laws regarding environmental impact assessment.

Monitoring and Reporting

Periodic progress reports w i l l include a review o f the performance o f the contractors and o f the implementing agency in avoiding, minimizing, and mitigating environmental damage arising from construction and related civi l works financed under the project. The Socio-economic and environmental impact study would be undertaken to monitor land titling on the environment

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Additional Annex 12: Social Analysis INDONESIA: Land Management and Policy Development Project

A social assessment o f the systematic land titling program o f the Land Administration Project was carried out 1999 at the mid-term o f the project. This was followed in 2002 with an impact evaluation o f the program. Altogether, about 2,200 people in 23 o f the 49 districts and cities covered under the program participated in focus group discussions, interviews, or surveys regarding the program and land matters in general. The full social assessment and impact evaluation are available in project files. The key findings o f the studies are summarized below.

Land registration has increased the security o f tenure for all, but the program has benefited the poor the most. The great majority o f respondents indicated that registering land through the program has provided them with a higher level o f security than other documents showing ownership o f land (such as documents recording the payment o f land taxes) and that having such security has strengthened their bargaining power should the state or investors wish to take over their land. The program did not discriminate on the basis o f income or social status, providing title to al l in the program area who were able to prove their claims. However, the poor benefit most b y being able to obtain security o f tenure inexpensively and quickly, because they cannot afford the costs and time o f obtaining t i t le through the sporadic titling program. Respondents indicate that the project teams made special efforts to ensure that the poor were not overlooked in the titling process. In most cases the poor paid l i t t le or nothing for their land titles as better o f f members o f the community paid higher fees to cover the costs o f titles for the poor.

The program had the greatest impact in cases where state land was converted to private land. The benefits o f moving households from completely insecure land tenure to completely secure land tenure were substantial. N e w investment in land, housing, and public water and sewerage systems and other public amenities was higher in such communities than in those occupying land already recognized as private. This suggests that resolving the difficult cases involving occupants o f state land and, where appropriate, converting state land to private land could have a substantial development impact. Eliminating the 5 percent tax that households pay when registering for the first time land classified as state land would help speed the process. Currently many households living on such land cannot afford this fee.

The position of women with regard to land that they have inherited has been strengthened. However, the opposite i s true with regard to land that has been purchased after marriage. Over 20 percent o f the land held by the people participating in the social assessment and the impact evaluation has been passed down through the female line. This land has nearly always been registered in the names o f the female heirs. Similarly, land inherited by men has been registered in the names o f the male heirs. In these areas, joint ownership o f inherited land by husband and wife i s unknown and neither the husband nor the wife have legal claim to property inherited by the other.

The only area o f disadvantage women have experienced under the program has been with regard to land purchased after marriage. In most cases, this land has been registered in the names o f the husbands and not in the names o f both partners. According to traditional law, land and other assets acquired during marriage must be divided equally if the couple divorces. Registering the land in the name o f only the husband may place the wife in a less secure position than prior to registration, simply by converting traditional land tenure to a more formal legal status. An important reason for not registering the tit les in both names appears to have been the failure o f the adjudication teams to explain

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that such land could be so registered and that doing so would provide the wife wi th legal protections in the event o f the death o f the husband or o f divorce. The solution i s to train adjudication teams to inform participants o f both the right o f the wife to request that her name be included on the t i t le o f land purchased after marriage and o f the benefits o f doing so.

Access to and use o f credit has risen. A higher proportion o f households wi th land certificates have obtained formal bank loans than households without such certificates. Most o f the loans have been used for investment in non-farm businesses, such as in the expansion o f a store, in small-scale h i t u r e production, or in the purchase o f a small vehicle for use as a taxi. Households in urban and peri-urban areas have used credit to replace bamboo houses with brick houses, to connect their houses to electricity, and to contribute to the construction o f public water and sewerage systems and paved paths, thus helping to improve their neighborhood as a whole.

Land values have increased. Titled land appears to be worth 10-65 percent more than untitled land. The r ise in value i s especially pronounced in urban areas, where land i s undergoing rapid changes in use and land markets are most active. Having t i t le i s especially important in this context, because developers and their financiers do not want to deal wi th uncertainties regarding the status o f land.

Investments in land increased. Having greater security o f tenure has encouraged households to invest in land, although the change has not been great. Most o f the investment has been in land used for house plots. L i t t l e new investment was made in agricultural land, as much o f the land is already under intensive irrigated rice production and it would be virtually impossible for any individual to make any investment that would improve i t s productivity.

Tax revenues have risen. Revenues from taxes on land and buildings rose after titling, due to increases in land values. The increases are most pronounced in urban areas, where land values are rising sharply.

Registering of subsequent transactions has remained low, which may over time erode the benefits of the program. Beneficiaries o f the systematic land titling program stated that they did not register subsequent transactions wi th B P N because they believe that the costs and time required to do so are too high. Instead, they record their transactions w i th the local (kelurahan) office. Over time, this practice will erode the benefits o f the program, as the new owners will not have the security o f tenure offered through formal registration. The solution i s to reduce the costs and time required to register transactions o f titled land with BPN.

Project approach with regard to social issues

The findings of both the social assessment and the impact evaluation have been reflected in the project design. In particular, they have been used to inform the choice o f the land polices to be developed under the project and to design the framework and guidelines for community participation intended to ensure that women, the poor, and marginalized groups benefit h l l y from the project. Details follow.

Incorporating measures to ensure that women and men benefit equally from the project. The project has been designed to ensure that women are not disadvantaged through land titling o f land. Adjudication teams and NGOs contracted under the project to facilitate community participation w i l l be instructed to clearly explain to both men and women the advantages o f titling land purchased after marriage in the names o f both husband and wife and o f the wife’s right to have her name included on the title. They w i l l also be required to invite both men and women to al l meetings related to systematic

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land titling, and to organize special meetings for women to ensure that women have opportunities to ask questions and voice concems. An indicator o f the success o f the project w i l l be that 90 percent o f women participating in surveys state that they had the opportunity to discuss the project and were aware o f their right to have their name recorded on land titles.

In the development o f land policies, NGOs focusing on women’s rights wil l be invited to participate in the public consultations and the focus group discussions. Representatives o f women’s interests w i l l also be involved in participatory land use planning and any other activities being undertaken with community participation.

Ensuring the participation of stakeholders in a l l project activities. The project w i l l finance public consultations wi th stakeholders in developing national land policies. It w i l l also finance the contracting o f NGOs to facilitate community participation in the systematic titling program (Component 3). They w i l l carry out activities such as raising awareness o f the program, conducting village tenure profiles, entering f ield data into the registration database, analyzing .registration records, producing consolidated village land files, and informing communities o f the importance o f registering subsequent transactions o f titled land and explaining how to do so. The project wil l provide the selected NGOs with training in participatory techniques to ensure that they reach both women and men, members o f marginalized groups, and the poor.

The project will also finance the contracting o f NGOs to independently monitor the performance of B P N in implementing the systematic land titling program and o f local governments in carrying their responsibilities wi th regard to land management. This annex contains the detailed participation framework.

Ensuring the project benefits the poor. The project w i l l include several elements intended to ensure that the poor benefit fully from the project. The first i s to include poverty indicators among the criteria for selection o f areas to be covered under the systematic land titling program. The previous Land Administration Project required that the areas to be covered have a majority o f l ow income households. This worked well, and the proposed project w i l l follow the same approach. The second element i s to train NGOs and adjudication teams in measures designed specifically to reach the poor. The third element i s to establish a fee structure for titling that exempts the poor f rom fees for systematic titling. The precise fee structure wil l be agreed during appraisal.

Supporting the establishment of a stakeholder forum at the local level to facilitate participation in decisions on land issues. The local governments are responsible for nine functions in relation to land issues, according to the Presidential Decree 34 signed on M a y 31 2003. These nine functions are: (i) issuance o f location permits, (ii) provision o f land for the public interest, (iii) settlement o f disputes regarding cultivated land, (iv) resolution o f compensation for land allocated for development, (v) land distribution and compensation for excess land, (vi) determination and resolution o f conflicts regarding ulayat land, (vii) resolution o f problems regarding neglected land, (viii) provision o f permits to open new land, and (ix) land use planning within the jurisdiction o f the local government. Local government w i l l require considerable stakeholder input if they are to carry out these functions successfully. The project w i l l assist local governments in establishing and maintaining participatory processes through which consensus on land matters can be built. These w i l l include stakeholder forums involving representatives o f government, academia, the private sector, NGO, investors, real estate interests, and others as appropriate.

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Supporting the development of conj7ict resolution mechanisms. The project through component 5 (support to local governments) w i l l support the piloting o f alternative dispute resolution mechanisms to enable parties to resolve disputes without resorting to costly and time-consuming legal proceedings. These may include establishment o f local land dispute resolution councils, ulayat land management entities, or other bodies that w i l l directly engage disputants in producing and implementing plans and rules and solving problems.

Supporting the development of polices and procedures for recognizing and registering adat land rights. The project will support the development through nationwide consultations o f a national policy on recognizing and registering adat land rights. The project wil l not title land in areas w i th adat land until a pol icy has been adopted and supporting legislation passed that makes clear the procedures that will be followed to define the boundaries o f adat land and to register the land in the national cadastre.

Supporting land distribution. The project w i l l support the development o f a national policy on distributing state and abandoned land to households who are either already settled on and cultivating the land or are lacking sufficient land to support themselves.

Compliance with Wor ld Bank Social Safeguard Policies

Indigenous Peoples (OD 4.20) The population o f Indonesia consists o f hundreds o f culturally and socially distinct ethnic groups, many o f which communicate in unique local languages. A particular ethnic group may constitute the majority or a large proportion o f people in one area, but in another represent a vulnerable minority. A rigid system cannot therefore be used to identify the groups covered under OD 4.20. Rather, the policy applies to culturally distinctive groups that are vulnerable and marginalized according to both se l f assessment and the judgment o f those who are not members o f the community.

The project has been designed to protect the rights o f vulnerable, marginalized indigenous groups in several ways. Off Java it w i l l not support titling in rural areas, where most o f the vulnerable and marginalized communities are located. Neither on or o f f Java w i l l it support titling where ownership claims to land are unclear or contested. Thus, it wil l not provide t i t le to lands that are claimed by indigenous people, any government entity, or a community. The project w i l l support the development o f a pol icy through a highly participatory process on methods for future formal recognition and registration o f adat lands and adat rules for allocating and managing land.

Involuntary Resettlement (OP 4.12). The project wil l not involve land acquisition. New buildings to be constructed under the project w i l l be built on land already under the control o f local government or on vacant land. The project w i l l not support titling o f land for which ownership claims are unclear. Neither the state nor its entities wil l receive t i t le to land on which people are settled.

Squatters on state land thus w i l l not receive titles unless the state formally releases the land for individual titling. The project w i l l fol low a fully participatory approach, including posting public notices in villages, to ensure that the rightfbl owners o f the land receive title.

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Social Guidelines

Basic principles

0 N o group should be l e f t worse o f f because o f the project than without it. Care w i l l therefore be taken to reach women, the poor, and vulnerable and marginalized groups to ensure that they benefit fully from the project.

0 N o project-supported activity should have an adverse impact on indigenous people.

0 N o households should be involuntarily resettled.

0 Accountability and transparency with respect to the use o f project fimds and fees for titling should be high.

Ensuring that no land whose ownership i s unclear or in dispute i s titled

To ensure that no such land i s titled, a broad public awareness campaign will be undertaken by both the project implementing agencies (BPN or the Ministry o f Home Affairs) and by the NGOs that are contracted b y the project to facilitate community participation. An additional layer o f oversight wil l be provided by NGOs contracted to independently monitor project implementation. Following adjudication, a map showing the boundaries o f individual plots and the names o f their owners w i l l be posted in several prominent places in the community for a period o f no less than 30 days. People who disagree with the findings shown on the map will be able to lodge their complaint w i th both the NGO and with the adjudication team working in the community without charge. They will work with the necessary authorities to correct simple mistakes. When the complaint involves a dispute between parties rather than a simple mistake, the parties w i l l be encouraged to settle their disagreements through normal channels. Experience from the previous Land Administration Project shows that people are often able to reach agreement when motivated to do so by the opportunity o f receiving a t i t le to land at l ow cost.

Raising community awareness and participation

A weakness in the earlier Land Administration Project were i ts community awareness and community participation activities. Participation and community awareness w i l l be significantly strengthened in the proposed project. NGOs w i l l be contracted to work directly in communities that are participating in the systematic land titling to both publicize the program to the community as a whole and to ensure that the poor, the disadvantaged, women, and marginalized and vulnerable groups participate and benefit ful ly from the project. Brochures o n procedures, requirements, costs, mechanisms for resolving complaints, women’s rights to title under the law and the like will be produced and provided to both NGOs and to community leaders (lurah, rukan tetungga, and rukun wurga), who wil l be expected to distribute them to community members. A luruh i s head o f an urban kelurahan, a rukun tetungga i s head o f a neighborhood group, and a rukun wargu i s head o f a neighborhood association.

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Ensuring transparency and accountability

Beneficiaries o f the project have the right to know how much they will have to pay to obtain tit les and how long the process w i l l take under both the systematic and sporadic titling programs. Al l fees for titling (whether for sporadic or systematic titling) w i l l be posted in the national and local B P N land offices. Fees for systematic titling w i l l be postedjn participating communities, included in information materials, and announced by the NGOs contracted to facilitate community participation. NGOs contracted to independently monitor the implementation o f the project wil l pay special attention to the adherence o f BPN to the agreed fees and charges and to the performance standards. They w i l l compile a report with their findings every six months and send it to the implementing agencies copied to the Bank. A social assessment to be undertaken at the mid-term o f the systematic land titling program, and an impact evaluation to be undertaken at i t s conclusion will thoroughly explore the issues o f charges and fees and overall performance o f the implementing agencies. Measures w i l l be taken immediately if irregularities are found.

Handling grievances

The project w i l l support the handling o f grievances in two ways. Firstly, a task force w i l l be established in the LMPDP P I U unit in BPN. The unit w i l l be responsible for handling complaints and grievances submitted by individuals or groups to local offices or directly to the central office. Secondly, the NGOs hired to support land titling w i l l communicate the grievances and complains to the task force. B P N w i l l record al l complains and also record the actions taken.

Titling land outside o f Java

The proposed project wil l not title land in rural areas outside o f Java. I t w i l l title only land for which claims are not in dispute. Title will given only to individual households and not to any government entity, to a business, or to a community as a whole. The following steps wil l be taken to determine eligibility for titling and to enter the data into the national cadastre.

Creating land tenure profiles. To determine eligibility o f land for titling, the project will finance the training and work o f NGOs to facilitate the development o f community land tenure profiles. The profiles w i l l show the boundaries o f adat land, past and present administrative boundaries, and land for which rights are in dispute along with the nature o f the dispute (between family members, between communities, between communities and a government entity, or between other disputants). The product o f the exercise wil l be a land tenure profile and a request for titling.

Reporting

Periodic progress reports w i l l include a review o f the performance o f the adjudication teams and the NGOs in ensuring that al l members o f the communities involved in systematic titling are able to participate in the program. They wil l also include a summary o f the nature o f complaints received and the steps that were taken to address them.

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Participatory framework

Public participation will be an essential element o f project activities, but w i l l be handled differently depending on the executing entity and the nature o f the activity. The processes to be followed for development o f the national land policy, the systematic titling program, and support for local governments are described below.

Development of land policies and revisions to the Basic Agrarian Law

Principles

0 The public consultations should seek to gather the input o f as wide a range o f stakeholders as possible to ensure that the national land policy truly represents a national consensus.

0 The public consultations should be conducted in a way that ensures al l are able to participate fully.

This means that should be conducted in local languages and wi th professional facilitation.

0 The content o f the consultations should be made available to all. Therefore a summary o f the results o f the individual consultations should be published in the local and national languages.

Organization

A secretariat w i l l be established under BAPPENAS that w i l l be responsible for the daily tasks o f producing drafts o f the various land policy papers and in conducting public consultations. The secretariat w i l l include specialists in law, urban planning, agriculture, natural resource management, and the social sciences. I t w i l l also include a public communications specialist. An advisory panel o f local government representatives (such as the Association o f Bupatis) and nongovernmental experts (such as the Association o f Real Estate Agents) w i l l be created to advise the secretariat.

The secretariat wil l also contract regional facilitators and resource persons who have expertise in land affairs, natural resource management, urban planning, public affairs, or other relevant area. Each regional facilitator wil l be responsible for the publicity, the running o f the workshops, and synthesizing the results o f the consultations. The regional facilitators wil l also be responsible for contracting individuals or organizations to undertake focus groups discussions. Some focus group discussions w i l l involve special interest groups, such as environmental NGOs, and others w i l l comprise ordinary people.

The consultation process w i l l involve al l key stakeholder groups. These include central and local government officials representing the ministries o f agriculture, forestry, justice, home affairs, economic planning, finance, mining, environment, defense, and others. The consultations w i l l also involve NGOs (including those focusing on the environment, women, and adat land rights), and the private sector. T o ensure that the consultations capture the views o f the population in general, various mechanisms for consultation w i l l have to be pursued simultaneously, including workshops, focus group discussions, and requests for comment through the media.

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Steps

The public consultations w i l l comprise the following steps:

Consultations on the draft discussion paper on land policy; The LMPDP coordinating committee has prepared a discussion paper on national land policy that addresses issues o f land administration, use, and management, and lays out policy options w i th their implications. The draft discussion paper wil l be published in newspapers, and broadcast over radio, television, and through other local media. Workshops and focus group discussions intended to obtain the views o f as many stakeholder groups as possible w i l l be held in various regions o f the country. Once the consultations have been completed, the LMPDP coordinating committee w i l l develop a draft national land policy.

Consultations on the national land policy. Once the draft land policy paper i s ready i t will be disseminated through newspapers, radio, television, and other local media. Six regional workshops w i l l be held, one in each o f Indonesia’s major regions. Two national-level workshops will also be held.

Finalization and adoption of the national land policy. The secretariat w i l l incorporate changes in the national land policy, reflecting the consensus that has been reached through the national dialogue. The national land committee w i l l submit the final document to the cabinet for adoption.

Systematic titling

NGOs w i l l be contracted to inform communities o f the systematic land titling program and to facilitate the participation o f community members in it. Specifically, NGOs w i l l visit the villages prior to adjudication to disseminate information about the program and to facilitate meetings between the villagers and BPN. NGOs w i l l conduct focus groups discussions and workshops to explain the project objectives, rationale and benefits, fees and charges, and the forms, the costs, the procedures and legal rights to the communities. They w i l l make special efforts to ensure that women, the poor, and disadvantaged groups participate in the general meetings. In addition, NGOs w i l l organize separate meetings with such groups, so that people who may otherwise be silent have the opportunity to ask questions and voice concerns. NGOs w i l l also assist in the preparation o f community land profiles to define plot boundaries, and to identify any existing land disputes. A standard form for gathering the data w i l l be developed during the pre-implementation period. Data w i l l be entered into a computerized database for easy reference and use. NGOs w i l l also ensure that the results o f the adjudication are posted in several prominent places in the community for a minimum o f 30 days. They wil l assist community members in lodging complaints and grievances w i th the proper authorities and to follow-up when necessary.

Support to local governments

Success o f local governments in carrying out their nine functions wil l depend critically on their ability to build consensus o f local stakeholders through participation o n the actions to take. The project w i l l support the establishment and operation o f participatory processes in each o f the jurisdictions where it i s supporting local governments. Two o f the five local governments that the proposed project will support are also being supported under the Bank-financed K-GRIP project. In these communities, stakeholder forums are being created and local laws regarding participation being prepared and adopted. The L M P D P w i l l link with the K-GRIP to reinforce the participatory processes and institutions established under that project. In the other communities, the project w i l l assist local governments in instituting participatory processes that ensure that the diverse views o f stakeholder groups are taken into account in al l local decisions regarding land matters. I t w i l l therefore assist local

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government in organizing and running stakeholder forums involving representatives o f government, academia, the private sector, NGOs, local communities, investors, real estate interests, and others as appropriate. I t wil l also assist w i th recording and publishing the results o f meetings, and in instituting other processes that help to build public consensus for action.

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Additional Annex 13: Anti-corruption Framework INDONESIA: Land Management and Policy Development Project

Summary

Almost al l transactions in this project are vulnerable to corruption. Apart from the corruption in procurement, including overcharges for honorariums and costs, the project i s also vulnerable to corruption f rom government employees who expect “thanksgiving money” (bribes) from beneficiaries and contractors. Land owners also have to bribe the contractors for surveys and private individuals who are recruited from the community to become part o f the adjudication teams. Overall, land owners usually have to bribe around three to five percent of fees to facilitate al l the work. The contractors similarly have to bribe (usually an higher amount) to get the contract and to get paid.

B P N and the other implementing agencies want to address corruption through better project design, and by strengthening intemal controls and mechanisms for transparency and accountability. They support the use o f systematic land titling over a sporadic approach - a design which i s not only less costly but results in less corruption as well. Similarly they will strengthen internal controls by adopting general Bank safeguards for procurement and financial management. In addition, they have agreed to the following specific mitigation measures: (a) Enhanced disclosure provisions; (b) Standardization o f procurement and financial management processes and documents; (c) Development and monitoring o f service standards for land management and administration institutions; (d) Partnership with the C iv i l Society for independent oversight and feedback; (e) Robust complaint handling mechanisms with sanctions in place for corruption, collusion, and nepotism; and (f) Financial accountability through strengthened internal controls o n project implementation and payment validation.

Most importantly, the implementing agencies have agreed to have a compliance/anti-corruption task force financed under the project to integrate the various efforts and develop ‘the dialogue on the issue o f “thanksgiving money” within the agencies. This task force wil l also spearhead the project’s complaint handling mechanism and in turn will be monitored by an independent extemal (non-governmental) institution. The rest o f the annex details the mitigation measures after giving a sense, with the use o f corruption mapping, o f where and how the project i s most vulnerable to corruption.

Corruption Mapping

Substantial risk o f corruption, particularly f rom bribes, exists at every step in this project. All key actors, BPN, BAPPENAS, and MOHA, are affected by it as are almost al l institutions in Indonesia - in the public sector or private sector. Below we outline the areas which are most vulnerable in this project: procurement o f goods and services, validation o f payments to adjudication teams and survey contractors, and direct contact w i th the public/contractors.

(i) On procurement, for a l l levels and al l implementing agencies, the concern i s to ensure efficient and effective use o f funds through procedures such as national competitive bidding and national shopping. I t is anticipated that since most project packages will be procured and implemented at the provincial level, where staff may not have prior training or experience in procurement, fiduciary risks w i l l be pronounced. Some limited amount o f procurement are planned at the kebupaten levels (below the provincial level) and would require similar attention to staff training. Moreover, because o f the business i s repeated, contractors have incentive to collude. Collusive practices amongst bidders have been reported in the past and sanctions have not always been

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enforced properly. At the national level, the staff i s better trained but s t i l l susceptible to the same practices o f accepting bribes. There w i l l be fewer procurement packages but the average amounts in these packages are larger, attracting corrupt practices from more powerful staff.

(ii) On validation o f payments to contractors and beneficiaries, prior experience in Bank financed projects suggests that current government procedures rely o n weak documentary trails, and have inadequate checks and balances over satisfactory completion o f work and authorization o f payments. This has been seen to apply particularly to ‘soft’ expenses o n different kinds o f services, such as training and workshop expenses and expenditure on consultants where outputs may be harder to measure and evaluate. In this project, payments for survey and adjudication are similar in nature and also o f a significant amount, and would therefore be equally vulnerable, given the very nature o f this expense and since these w i l l be authorized and paid out in each o f the 76 regional land offices.

(iii) Any interaction with the public or contractors are susceptible to corruption, because cash bribes or bribes-in-kind leave no paper trails, and the affected people want to move on or are resigned to the status quo. The beneficiary is quite happy as long as the service (such as, a new t i t le to his land) i s delivered, and the contractor/consultant i s happy to continue to prosper under the present system by paying the bribe and possibly building into the price any cost for doing Government business.

The corruption mapping needs to be developed further as the project progresses, particularly for activities financed under component five with MOHA. In that component, the initial step i s to study the performance o f local governments in undertaking land management related tasks which were recently devolved to them. As a part o f the study, the threats o f corruption in the work o f the local government functions w i l l be documented and measures to address them developed.

Mitigation measures

The standard measures to improve procurement and financial management are appended as Annex 6 A and 6B. Here we discuss the specific mitigation measures that would be utilized to reduce corruption under the project . Enhanced disclosure provisions

To facilitate external review in general, the project w i l l pursue an enhanced disclosure policy. For example, the various implementing agencies under the project will:

0

0

0

Make publicly available al l audit reports and the mid-term review; Make publicly available a l l annual procurement plans and schedules; Make publicly available al l bidding documents and requests; Make publicly available al l short l i s ts o f consultants and, in cases o f pre-qualification, lists o f

Disclose to a l l bidders and parties submitting proposals for specific contracts, promptly after the

Al low representatives o f the end-users o f the goods or works being procured to attend the public

pre-qualified contractors and suppliers;

notification o f award to the successful bidderlconsultant, the summary o f the evaluation o f a l l bids;

bid openings;

0

0

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0 Make available a l i s t o f a l l contracts awarded in the three months preceding the date o f such request in respect o f a project, including the name o f the contractoriconsultant, the contract amount, the number o f bidderdmakers o f proposals, and the procurement method followed and the purpose o f the contract; and

request for such a payment, wi th explanation for the reason for any inordinate delay in a payment. 0 Maintain and make publicly available the date o f each payment in any contract and the date o f

Standardization

The largest expenditure category under the project would be “Title Development Costs”, including costs o f surveying, transport costs and allowances o f adjudicators, and land recording and titling. These activities w i l l be systematically replicated at various locations and are, therefore, amenable to standardization. Some o f the standard procedures the project would consider are:

e Agreement on a standard wording o f advertisements (no changes to be allowed in general

Agreement on the list o f newspapers o f nation-wide circulation in which specific advertisements

Agreement on al l standard bidding and contract documents (including for NCB, NS), and request

Publication o f prices paid for items at different locations.

provisions during implementation except for provisions specific to a particular procurement).

w i l l be placed. The idea i s to advertise in national newspapers systematically, removing geographic and other restrictions, permitting greater competition among suppliers.

for proposals (for consultancy services), including an agreement that no f ir ther changes can be made in the documents without the Bank‘s prior approval.

0

0

0

The second largest expenditure category would be “Consultants”, including costs for TA and Training. Again many o f the activities under this category would be repeated in various locations and are, therefore, amenable to similar standardization.

Sewice Standards Development and Monitoring

B P N land offices and Kabupaten Government would provide the land related services. For these service, developing and monitoring service standards w i l l reduce opportunities o f corruption because o f greater transparency and greater comparability across locations. In case o f B P N land offices, 90 percent consistent compliance with service standards would be the goal, and when the performance falls below 70 percent, remedies would be agreed which would include special reviews.

Because o f the limited experience o f the Kabupaten Government, service standard development would have to preceded by an in-depth assessment o f the service, which wil l also propose changes in standard operating procedures. The assessment may also include corruption mapping.

These service standards would be publicly available. Also publicly available would be l i s t o f landowners who would receive tit les within one month, permitting the beneficiaries to find out the status o f their application for a title (subject to any privacy consideration).

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Civi l Society Oversight and Feedback

Overall, key project activities w i l l be monitored by an independent national consulting firm, university, or a NGO. Because procurement o f goods and services i s so vulnerable to corrupt practices, procurement committees will include external (non-governmental) members. In addition, for systematic land titling where 70 percent o f project expenditure i s planned, civi l society oversight and feedback will be maintained through the adjudication teams (AT).

About hal f the members of the AT w i l l come from B P N but the other half w i l l come from the communities where the titling activity i s undertaken. The ATs are expected to act as a bridge between land related service providers and beneficiaries. Beneficiaries come in contact wi th the land service providers infrequently and have l i t t le interest to invest substantial time understanding the processes o f the land service providers including their service standards. The ATs would simplify matters for the beneficiaries, making the processes o f the land service providers more transparent, bringing accountability in the providers, as well as recommending improvements. From the ATs, the beneficiaries w i l l learn how the project i s supposed to work, what their rights are and what to do if they are unhappy and suspect foul play. Focus groups and other mechanisms w i l l be employed to make a “democratic” selection o f the community members o f the ATs. The project will also encourage the selection o f members, both from B P N and from the community, more service oriented. Detailed procedures for these w i l l be included in the Project Management Manual to be adopted by the Borrower. Finally, the project w i l l also encourage students, wi th scholarships, so that they study various aspects o f the system as part o f their thesis work.

Complaints handling mechanisms and the use of sanctions

In the project management structure, a task force wil l deal w i th al l compliance issues. This task force w i l l ensure that al l complaints are recorded and results o f the investigations maintained for review. I t w i l l establish a reasonable time for dealing with complaints and seek explanations when delays are unreasonable. Anonymous complaints w i l l be treated in the same way as those that can be traced, and in al l cases the sources w i l l be kept strictly confidential. I t wil l maintain a hot line and a postal address to make it easier to make complaints. When appropriate, the task force wil l refer cases to the internal auditor, to the BPKP (state auditor) or to the Police. I f a case i s not resolved to the satisfaction o f the Bank, the case wil l be reviewed b y BPKP who might refer it then for hrther review by the Office o f the Attorney General. The activities o f the task team itself will be monitored by the independent institution which w i l l be hired under the project to monitor the project.

In addition, the project proposes to strengthen the existing mechanisms o f the implementing agencies to handle most o f the complaints. The complaints are expected to be investigated initially at the level where they originate. In BPN, this would be mainly at the land offices for titling related cases, or the provincial office for cases relating to contracting surveys. If they remain unresolved, they w i l l be taken up at a higher level. In BPN, the complaints handling unit (known as the conflict resolution unit) at the headquarters handles about 400 cases per year. Most o f these are actually conflicts between landowners, but there are conflicts between individuals and B P N as well, which are reviewed by this unit. On systematic land titling, most o f the complaints are handled by the adjudication team, may be because they have community members in those teams. Only three cases o n an average come per year to the unit at headquarters. Though rare, investigations by this unit has led to dismissal f rom service, or ja i l t e rm for the guilty (when they had defrauded the Treasury).

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In al l the implementing agencies, staff are responsible for enforcing and obeying the rules and regulations, and they make them subject to challenge and to sanction, when appropriate, for neglecting or bending those ru les and regulations. Similarly, there are guiding regulations (Keppres 18) for contractors which these agencies follow. For contractors found guilty, the project also proposes disbarment from any Bank financed contracts for a period o f three years.

Financial accountability through strengthened internal controls on project implementation and payment validation.

Financial accountability for project expenditure will be enhanced by incorporating strengthened internal control procedures, in particular for documenting completion o f project activities and validation o f payments. Existing internal control procedures for each kind o f activity, project expenditure and corresponding payment validation procedures w i l l be strengthened based on the following principles, to help reduce risks o f fraud and collusion.

(i) Land survey and adjudication expenses at land offices w i l l be authorized under jo int authorities involving community based members o f adjudication teams, and work completion w i l l be publicly disclosed. For technical assistance, workshop and training activities the agency receiving training wil l be required to certify satisfactory completion before training expenses are reimbursed to the provider. Direct evidence o f training imparted, details o f participants and documentary support for travel incurred w i l l be required before payments to contractors or vendors are authorized. Documentary trails required for completion o f project activities and claims for expenditure w i l l be specified.

(ii)

(iii)

Detailed procedures for these w i l l be included in the Project Management Manual to be adopted by the Borrower.

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