INDONESIA

Indonesia DecentralizationIndonesia Decentralization

Population: 232 millionPopulation: 232 million

Decentralization Big-bang started in 2001

33 Provinces and over 550 Districts / Municipalities

Population growth: 1.3% (annual)

Urban population 50%Urban population 50%

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Resources and responsibilities shifted to LGs

Since decentralization

50%1,000 Trends of Central, Provinces, and Districts Spendingdecentralization, provincial and districts governments have experienced

b t ti l i

37%40%

35%

33%35%

40%

35%37% 40%800

antp

rice

200

7)

substantial increases in financial resources.

16%

19% 20%

27%

20%

30%

400

600

DR

Tri

llion

s(co

nsta

Local Governments now manage nearly 40% of total public expenditures and

10%200

ID

expenditures and carry out more than 50% public investments.

0%-

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Central Govt (excluding transfers) Provincial Govt (excluding transfer to Kab/Kota)

3

Kabupaten/Kota Govt % SNG to All (including transfers)

Own-source revenue still low

Own-source revenue Own source revenue

(PAD) accounts for 17% of

LG revenue.

PAD17%DAK

7%

Others9%

Local governments rely

heavily on interDBH

heavily on inter-

government transfers:

Block grants DAU

18%

DAU Block grants, DAU

Capital grants, DAK

Shared revenue, DBH

DAU49%

4

Challenges for LGs

Delivering basic services

g

Delivering basic services

Increasing transparency and accountabilityaccountability

Planning and budgeting

Investments, rehabilitation and maintenance

Role of communities

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CPS and LG Framework

CPS Objective: to provide a framework of engagement whereby the World Bank “will support Indonesia in implementation of its own programs and

l f dd d l h ll ” solutions for addressing its development challenges.” (CPS, page 10).

LG Engagement ObjectiveLG Engagement ObjectiveSupport local governments by promoting well-targeted and sustainable public

spending through the co-financing of sub-national expenditure programs.(CPS, page 17)

OutcomeOutcomeMore focused World Bank support to local governments:

More pro-poor targeting and increased access to services at LG levelSustainable public financing and a better public spending in LG

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LG has a better understanding of the World Bank products

DAK Engagement Approachg g

Lack of transparencyand accountability

Inadequate and cumbersome reporting

Weak monitoring and

Strengthen Country Institutions

Target large set of LGsgevaluation

Very little verification

Target large set of LGs

Improve LG internal controls

Work through existing transfer system

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Project Development Objectives (DO)Project Development Objectives (DO)and Results Framework (RF)

RF I fi i l d PDO:

Improve the accountability and reporting of the central

RF: Improve financial and technical reporting

p ggovernment’s Specific Purpose Grants (DAK) for the infrastructure sectors.

RF: Conduct output verification of projects financed by DAK funds financed by DAK funds

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Verification of Outputs (VO)

The State Finance and Development Supervisory Board (BPKP) will carry out the output verification Board (BPKP) will carry out the output verification process on a representative sample basis for projects in LGs.

BPKP will finance the VO function.

BPKP will report its finding and recommendations in BPKP will report its finding and recommendations in an Output Verification Report (OVR).

OVR will be the only basis to request Bank y qdisbursements.

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Institutional Arrangements

MoF BAPPENAS MoHA MPW

NATIONAL STEERING COMMITTEE

Monitoring & Evaluation of DAK Program

Executing Agency

DGFBWB

Integrated Financial and Output Verification Reports

OVR

Reimbursement

MPW LGBPKP

Secretariat General PROV KAB KOT

DINAS/SKPDDGBM

DGSDA

DGCK

ItJen

10Outputs

Overview of DAK Reimbursement Program

Th P j t ill b il t ith d i f US$ 220

Overview of DAK Reimbursement Program

The Project will be a pilot with a proposed size of US$ 220million over four years.

The pilot will be in five provinces: Jambi East Java The pilot will be in five provinces: Jambi, East Java, Central Kalimantan, West Sulawesi, and North Maluku.

The Project will be designed as a Specific Investment The Project will be designed as a Specific Investment Lending and the mechanism will be Output-Based Disbursement (OBD) triggered by achievement of results.

The project will focus on the infrastructure sector (road, irrigation, water and sanitation).

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Indonesia at a Glance

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(S ifi P G t )

Dana Alokasi Khusus (Specific Purpose Grants) is a

(Specific Purpose Grants)

Dana Alokasi Khusus (Specific Purpose Grants) is a grant from the national budget (APBN) allocated to LGs that is designed to finance specified activities which are determined by the central government y gbut under the jurisdiction of LG.

The amount of DAK allocation is determined on annual basis ithi th ti l b d t Th th t f it i within the national budget. There are three types of criteria

that LGs must be satisfied in order to receive DAK, namely: general, specific, and technical criteria.

Total DAK allocation for 2010 is about US$2.32 billion. Infrastructure sector allocation (road, irrigation, water, and sanitation) is about 21% of total DAK allocation.

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sanitation) is about 21% of total DAK allocation.

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DAK (Specific Purpose Grants)In 2003, DAK was allocated only for 3 sectors: education, health, and infrastructure.

In 2009, there are 13 sectors financed by DAK.

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Program Componentsg

DAK Reimbursement ($220 million)DAK Reimbursement ($220 million)

This component will be implemented using an Output Based Disbursement (OBD) financing This component will be implemented using an Output Based Disbursement (OBD) financingapproach.

The project will reimburse the existing DAK for infrastructure (roads, irrigation, water, andsanitation) based on reported and verified physical outputs delivered by LGs.

Institutional Strengthening to Central and Local Governments and Institutional Strengthening to Central and Local Governments and Project Management Support (US$8.5 million)Project Management Support (US$8.5 million)

Subcomponent 2 1: Developing M&E System Subcomponent 2.1: Developing M&E System

Subcomponent 2.2: Web-Based Monitoring and Reporting System

Subcomponent 2.3: Technical Assistance for Central and LGs

Subcomponent 2.4: Project Management Support to implement and monitorp j g pp p

Verification of Outputs (US$4.5 million)Verification of Outputs (US$4.5 million)

This component will constitute the BPKP’s (State Financial and Development Supervisory

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This component will constitute the BPKP s (State Financial and Development Supervisory Board) verification of outputs.

Output Eligibility Criteria for ReimbursementOutput Eligibility Criteria for Reimbursement

Physical Realization of Outputs

Compliance with National

Procurement

Compliance with Environmental &

Social Safeguards:

• Construction Completion Certificates.

• Compliance with

• National Procurement

Law and Regulations

(Perpres 54/2010)

• Compliance with

Indicators listed in the

Project Operations • Compliance with Technical Specifications (Form P-4, column 3, of Technical Guidelines).

through competitive

procedures in hiring of

contractors.

j p

Manual.

• MPW Minister Issue

S l t t T h i l Supplement to Technical

Guidelines.

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Disbursement MechanismCalculation Definition

STEP 1: Calculate for each LG Value of Potential Reimbursement Sum of reported outputs by their reference unitValue of Potential Reimbursement (VPR)

Sum of reported outputs by their reference unit costs.

Qualifying Percentage (QP) Number of outputs in the sample that meet the eligibility criteria, expressed as a share of sampled outputs.

Value of Qualifying Reimbursement (VQR)

QP multiplied by VPR.

STEP 2: Sum across LGsValue of Total Reimbursement (VTR) Sum of Value of Qualifying Reimbursement

(VQR) across all LGs. STEP 3: Determine World Bank reimbursement:Ad P t (AP) S f th G I’ fi t DAK t t hAdvance Payment (AP) Sum of the GoI’s first DAK payment to each

LG that has received its first DAK payment. Value of Final Reimbursement (VFR) VTR – AP LG Reimbursement 10 percent (currently) of VQR

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p ( y) Q 

DAK Project Cycle

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr MayYear n+1Year n

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

GOI DAK 30%DAK 30% DAK 45% DAK 25%

BPKP

Verification of DAK 1received  by LGs Output

Verification

DAK 1 to LGs

AP

WBAdvanced Payment (AP)

Reimbursement

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Economy and efficiency requirements Most efficient production systems and pricing is economically sound

Financial Management Assessment based on PEFA reviews

Procurement

Value for money

Economy & efficiency

Competition & transparency

Judgments

Strategic context

Expenditure frameworkJudgments p

Results framework

Assessment Overall acceptability of program d it

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process and capacity

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• Follow national procurement procedures Perpres 54/2010Procurement

• BPK as auditor of programFinancial

Managementg

• Comply with Bank policies on social and environment• Environmental AMDAL acceptablef d • Environmental AMDAL acceptable• Social Addendum to Technical Guidelines for compliance

with Involuntary Resettlement and Indigenous People

Safeguards

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C t lNo O tp t UnitProvince (IDR)

Reference of Unit CostsJambi East Java Central

KalimantanWest Sulawesi North Maluku

A Road Sub-sectorA.1 Road: Periodic Maintenance

1 Pavement width 3,00 - 5,00 m km 559,518,000.00 523,190,000.00 522,325,000.00 502,259,000.00 597,619,000.00 2 Pavement width 5,00 - 7,00 m km 775,167,000.00 724,970,000.00 721,132,000.00 693,331,000.00 825,870,000.00 3 Pavement width 7 00 - 14 00 m km 1 465 544 000 00 1 374 292 000 00 1 360 668 000 00 1 308 085 000 00 1 560 483 000 00

No Output Unit

3 Pavement width 7,00 14,00 m km 1,465,544,000.00 1,374,292,000.00 1,360,668,000.00 1,308,085,000.00 1,560,483,000.00A.2 Road: Betterment from Soil to AC-WC

1 Pavement width 3,00 - 5,00 m, km 2,221,553,000 2,095,329,000 2,117,334,000 2,033,748,000 2,398,456,000 2 Pavement width 5,00 - 7,00 m, km 3,098,824,000 2,923,663,000 2,945,502,000 2,829,886,000 3,351,901,000 2 Pavement width 7,00 - 14,00 m km 5,942,582,000 5,622,564,000 5,650,731,000 5,431,068,000 6,467,602,000

A.3 Bridge: Periodic Maintenance1 Bridge A class, pavement width 7,00 m m' 5,325,949.00 4,792,855 5,644,418 5,335,118.41 6,466,549.00 g , p , , , , , , , , , , ,2 Bridge B class, pavement width 6,00 m m' 4,468,466.00 4,009,702 4,739,699 4,470,072.93 5,427,702.00 3 Bridge C class, pavement width 4.5 m m' 3,703,959.00 3,313,297 3,933,934 3,698,176.45 4,483,581.00

B Irrigation Sub-sector1 Light and Medium Rehabilitation ha 1,500,000 1,250,000 2,250,000 3,000,000 4,250,000 2 Heavy Rehabilitation and Upgrading ha 2,500,000 2,250,000 3,500,000 7,500,000 10,000,000

C Water Sub-sector 2010*)1 Water Intake Rehabilitation l/s 157,719,100 174,379,700 174,379,700 209,284,900 209,284,900 2 Deep Well l/s 200,531,100 205,166,500 205,166,500 257,813,600 257,813,600 3 Water Treatment Instalation l/s 1,355,092,200 1,364,121,000 1,364,121,000 1,412,955,500 1,412,955,500 4 Pipeline Network m 170,940 173,360 173,360 252,120 252,120 5 House Connection unit 4,874,100 5,308,600 5,308,600 7,305,100 7,305,100 6 Public Hydrant/ Water Tank unit 9,990,200 10,830,600 10,830,600 13,564,100 13,564,100

D S it ti S b tD Sanitation Sub-sector1 Public Toilet**) unit 324,000,000 300,000,000 324,000,000 420,000,000 600,000,000 2 Communal Waste Water Treatment Plan**) unit 324,000,000 300,000,000 324,000,000 420,000,000 600,000,000 3 Communal Septic Tank***) unit 54,000,000 50,000,000 54,000,000 70,000,000 100,000,000 4 Waste Drainage m' 324,000,000 300,000,000 324,000,000 420,000,000 600,000,000 5 Solid Waste Treatment Facility unit 324,000,000 300,000,000 324,000,000 420,000,000 600,000,000

*) segregattion based on the AB-K2 form by Cipta Karya

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**) for 100 - 150 house hold***) for 10 house hold

) segregattion based on the AB K2 form by Cipta Karya

Key Features of DAK Program

Results focused• Reward Performance with grants• Reward Performance with grants• Reimburse eligible outputs

Strengthen Government Systemsg y• Central government ownership and control

Strengthen LG Internal ControlsWeb-based Monitoring and Reporting SystemsNext phase:

• Scale up to more Provinces• Promote improved accountability downwards• Improve efficiency and effectiveness of expenditures

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Improve efficiency and effectiveness of expenditures

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