report no: 17301-ind - world bank filedocument of the world bank report no: 17301-ind project...

Document ofThe World Bank

Report No: 17301-IND

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$20.5 MILLION

TO THE

REPUBLIC OF INDONESIA

FOR A

BENGKULU REGIONAL DEVELOPMENT PROJECT

January 14, 1998

Rural Development and Natural Resources Sector UnitIndonesia Country UnitEast Asia and Pacific Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Used at Appraisal in October 1997)

Currency Unit = Indonesian RupiahRp. 1.0 US$ 0.00033US$ 1.0 = Rp. 3,000

ABBREVIATIONS AND ACRONYMS

ADB Asian Development BankAARD Agency for Agricultural Research and DevelopmentAEKI Indonesian Coffee Exporters AssociationAPBD Annual district government development budgetAPBN Annual central government development budgetBANGDA Directorate General of Regional Development, the Ministry of

Home AffairsBAPPEDA Provincial Development Planning AgencyBAPPENAS National Development Planning AgencyBBI A government hatcheryBIPP Agricultural Information and Extension CenterBPKP Financial and Development Supervisory BoardBPP Rural Extension CenterBPTP Assessment Institute for Agriculture TechnologyBRDP Bengkulu Regional Development ProjectBRI Bank Rakyat IndonesiaCamat Head of Sub-districtsCAS Country Assistance StrategyCEM Country Economic MemorandumCGC Central Guidance CommitteeDinas Government technical agenciesDG PUOD Directorate General for Public Administration and Regional

Autonomy, the Ministry of Home AffairsERR Economic rate of returnFY Fiscal YearGAPKINDO Association of Indonesian Rubber ProducersGEF Global Environment FacilityGIS Geographic Information SystemsGOI Government of IndonesiaGTZ Deutsche Gesellschaft fur Technische ZusammenarbeitICB International Competitive BiddingICDP Integrated Conservation and Development ProjectIDT Inpres Desa Tertinggal - Program for villages left behindIFAD International Fund for Agricultural DevelopmentINPPTP Assessment Unit for Agriculture TechnologyINPRES Presidential Instruction, including a class of GOI grantsJICA Japan International Cooperation Agencyjuklak General Guidelines for Project Implementationjuknis Technical Guidelines for Project Implementation

Vice President Jean-Michel SeverinoCountry Director Dennis de TraySector Manager Geoffrey B. FoxTask Team Leader Akihiko Nishio

Kabupaten District in a rural area (or Regency)Kecamatan Sub DistrictKotamadya Municipalitykepala adat Customary leaderskepala desa Head of village and of LKMDKUD GOI-backed rural cooperativeLKMD Village Council (Lembaga Ketahanan Masyarakat Desa)marga Customary institutions (in Bengkulu)NA Needs AssessmentNBF Not Bank-FinancedNCB National Competitive BiddingNGO Non-government organizationOECF Overseas Economic Cooperation Fund (of Japan)OED Operations Evaluation Department (World Bank)pendamping Community development facilitatorPMD Agency for Village Community Development,

Ministry of Home AffairsPP Agricultural Extension WorkerPRA Participatory Rural AppraisalPIADP Provincial Integrated Agriculture Development ProjectPimBagPro Project Sub-ManagerPimpro Project ManagerPIR Nucleus estate and smallholdersPPL Field Extension WorkerPHBK Project Linking Bank and Self-Help GroupsPRA Participatory Rural AppraisalPokja Task ForceP4K Income Generating Project for Marginal Farmers and LandlessPTP A government owned estatePU Public worksPY Project yearSECAL Sector adjustment loanSOE Statement of expenditureSPABP Grants from central to local governmentSPPB Village Implementation AgreementsTA Technical assistanceTCSSP Tree Crops Smallholder Subsector ProjectTim Koordinasi Coordination TeamVAP Village Action PlanVIC Village Infrastructure ComponentVIP Village Infrastructure Project

Indonesia

Bengkulu Regional Development Project

Table of ContentsPAGE NO.:

A. Project Description ............ ..................................... 4.2.............2

1. Project development objectives ................................................................. 22. Project components .................... ............................................. 23. Project benefits and target population .............................................................. 24. Institutional and implementation arrangements ......................... ...................... 2

B. Project Rationale .................................................................. 5

5. CAS objectives supported by the project . ........................................................ 56. Main sector issues and Government strategy .............................. ..................... 57. Sector issues to be addressed by the project and strategic choices ................... 68. Project alternatives considered and reasons for rejection ................................. 69. Major related projects fnanced by the Bank and/or other development

agencies ................................................................. 710. Lessons learned and reflected in the project design ................... ...................... 811. Indications of borrower commitment and ownership ....................................... 812. Value added of Bank support ................................................................. 8

C. Summary Project Assessments ................................................................. 9

13. Economic Assessment ...................... ........................................... 914. Financial Assessment ..................... ........................................... 915. Technical Assessment ...................... ........................................... 916. Institutional Assessment ................................................................. 1017. Social Assessment ................................................................. 1118. Environmental Assessment .................................. .............................. 1219. Participatory Approach ................................................................ 12

D. Project Sustainability and Risks ................................................................ 12

20. Project Sustainability ................................................................ 1221 Critical Risks ................................................................ 1322. Possible Controversial Aspects ............................................................. ... 13

E. Main Loan Conditions ................................................................ 14

23. Conditions of Board Presentation ................................................................ 1424. Others ................................................................ 14

F. Compliance with Bank Policies ........................ ........................................ 14

PAGE NO.:

ANNEXES

Annex 1. Project Design Summary ................................................... 15Annex 2. Detailed Project Description ..................... .............................. 17Annex 3. Estimated Project Costs ................................................... 22Annex 4. Cost-Benefit Analysis Summary ................................................... 23Annex 5. Financial Summary ................................................... 27Annex 6. Procurement and Disbursement Arrangements ........................................ 28

Table A. Project Costs by Procurement Arrangements . .31Table B. Thresholds for Procurement Methods and Prior Review . .32Table C. Allocation of Loan Proceeds .. 33Table D. Procurement Plan .. 34

Annex 7. Financial Reporting and Auditing Framework ......................................... 35Annex 8. Project Processing Budget and Schedule ................................................. 39Annex 9. Documents in the Project File ................................................... 41Annex 10. Statement of Loans and Credit .................................................. 42Annex 11. Country at a Glance .................................................. 46

MAP

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCiATiON

East Asia and Pacific Regional OfficeIndonesia

Project Appraisal Document

IndonesiaBengkulu Regional Development Project

Date: January 14, 1998 Draft X FinalTask Team Leader: Akihiko Nishio Country Director: Dennis de TrayProject ID: ID-PE40061 Sector: Rural DevelopmentLending instrument: SIL PTI: X Yes No

Project Financing Data x Loan D Credit D Guarantee Q Other [Specifyl

For Loans/Credits/Others:

Amount (US$m/SDRm): US$20.5 million................................................................................................................................................................................................. __

Proposed Terms: a Multicurrency X Single currencyGrace period (years): 3 O Standard Variable X Fixed a LIBOR-based

Years to maturity: 15Commitment fee: 0.75%

Service charge: %

Financing pla S$mj-Source Local Foreign Total

Govemment 2.4 0.2 2.6Farmers (in form of labor) \a 2.7 0.0 2.7IBRDAIDA 15.8 4.7 20.5Total 20.8 4.9 25.7Borrower: Republic of Indonesia

Responsible agencies: Provincial Govemment of BengkuluThree District Governments in the Province of Bengkulu (Districts of North Bengkulu, South Bengkulu, Rejang Lebong)Central govemment coordination agency (Deputy V of BAPPENAS, the National Development Planning Agency) and the projectsecretariat at the central level (the Directorate of Area Development, BANGDA, Ministry of Home Affiirs).

Estimated disbursements (Bank FY/US$M): 1998 1999 2000 2001 2002 2003 2004Annual 0.6 2.3 3.3 3.5 3.9 4.3 2.6

Cumulative 0.6 2.9 6.2 9.7 13.6 17.9 20.5

Expected effectiveness date: April 22, 1998 Closing date: August 31, 2004

\a: Denotes farmers' in-kind (non-cash) contribution, of their own labor on their own plots.

Block A: Project Description1. Project development objectives (see Annex I for key performance indicators):The objectives of the proposed project are: (a) to alleviate poverty through rural development in Bengkulu, the second poorestprovince in Sumatra on the basis of GDP per capita and proportion of the population living below the poverty line; and (b) to generateeconomic growth in rural areas of Bengkulu where growth potential is high.

I.....................................................................................................................................................................................................................................................2. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

Component Category Cost Incl. Contingencies % of Total(US$M)

Village Infrastructure Physical 7.6 29Village-Based Technology Adoption Physical 12.9 50Capacity Building/Implementation Support Project management/ Institution- 5.2 21

buildingTotal 25.7 100

....................................................................................................... ........ ............................................................................................................. ..................................................................................3. Project benefits and target population:

The quantifiable benefits of the project are increased farm incomes from adoption of new agricultural technologies, and benefitsfrom different types of village infrastructure investments (e.g., savings in transport costs for village roads, consumer surplus for water,increased farn incomes for village irrigation). The non-quantifiable benefits are the strengthening of village institutions, building ofgovernment agencies' capacity to support village-based initiatives, and development of rural markets for agricultural inputs.

About 40,000 households living in the 220 project villages located in 16 kecamatans (sub-districts) should benefit directly from theproject, in terms of increased farm incomes and improved village infrastructure. These villages were chosen from each of the threerural districts or regencies (kabupaten) of Bengkulu, namely North Bengkulu, South Bengkulu and Rejang Lebong, based on suchcriteria as poverty, absence of other major development projects and possibility of clustering by three to five villages. (Villagesalready participating in relatively large government projects and oil palm/rubber estates have been excluded. About thirteen villagessupported under the Second Village Infrastructure Project are included, but only for agricultural activities.) Another 100,000households living in the 16 kecamatans covered by the project should also benefit indirectly from improved extension services,increased availability of quality seedlings, etc.

........................................................................................................................................................................................................................... ..................................4. Institutional and implementation arrangements:

Implementation period: The project will be implemented over a six-year period, from GOI's FY 1998/99 (which starts on April 1,1998) to FY 2003/04 (which ends on March 31, 2004).

Implementing agencies: Based on the successful model of the two Bank-assisted Village Infrastructure Projects (VIP, see Section15 B), the main implementors will be the villages, which will manage 60 percent of the total project cost. A major difference betweenthe VIPs and this project is that villages will directly implement activities in both infrastructure and agriculture, not only infrastructure,for the first time under a Bank project in Indonesia. The government agencies at the provincial and district levels will mainly supportthe villages in project implementation: they include the agricultural Dinas (technical agencies), which have managed most of the fundsdirectly under previous Bank agricultural projects. The project will be implemented by existing organizations; no new organizationswill be established to implement the project. At the different administrative levels, the following agencies/groups would be involvedin the implementation of various project activities:

Village Level:The LKMD (village community resilience institution, often translated as "village council") will be responsible formanaging a village grant, organizing villagers and procuring materials, to implement the Village InfrastructureComponent and the Village-Based Technology Adoption Component. This approach has been highly successful forinfrastructure development under the Bank-assisted Village Infrastructure Projects; it would be applied to agriculture forthe first time under the project. The LKMD would be supported by the agricultural extension workers (abbreviated as PPfor penyuluh pertanian, called PPS and PPL until 1996) on agriculture, and by the Field Engineers on infrastructure, withspecific additional support provided by the kecamatan-based community development facilitators or pendamping (e.g. onconducting Participatory Rural Appraisal up front, disseminating information on the revolving fund).

District (kabzpaten) Level:* BAPPEDA Level II (District Development Planning Agency) will be responsible for the coordination, supervision and

progress monitoring of BRDP at the district level.* Dinas PU (public works) at Level II will delegate technical and field work to the consultant Field Engineers, and be

responsible for administrative aspects of the Village Infrastructure Component, for instance signing of the villageimplementation agreements with LKMDs and enabling fund withdrawal by LKMDs. There will be a Project Manager(Pimpro) appointed at the Dinas PU Level II (called DPUK) in each kabupaten. This is based on the VIP model.

* BIPP (Agricultural Information and Extension Center) in each project-supported kabupaten will, mainly through the PPs(agricultural extension workers) they manage, assist villages in developing and implementing programs for adoption ofnew agricultural technologies, review technology adoption plans prepared by the villages, and be responsible for theoverall administration/supervision of the Village-Based Technology Adoption Component. There will be a Pimproappointed at the BIPP in each kabupaten. The BIPP will also be responsible for training and other capacity buildingactivities, targeted at the BIPP, the BPP (Rural Extension Center, each usually covering one kecamatan) and the PPs.

* The PPs, managed by BIPP, would: (i) provide technical support to the project villages, both at the testing stage (e.g.,especially in identifying farming systems for testing of the technologies to be conducted by "pioneer farmers") andreplication stage; and (ii) observe/record the results of farmer-based tests and report them to INPPTP which will assessthe progress of technology testing.

* Dinas for agriculture at Level II will provide technical advice to INPPTP on development of technology packages underthe Village-Based Technology Adoption Component.

Provincial Level.* BAPPEDA Level I (Provincial Development Planning Agency) will be responsible for: (i) the overall coordination and

monitoring of the project; (ii) management of Technical Assistance for Capacity Building/Implementation Support; (iii)farmer-based technology testing (to be contracted to INPPTP); and (iv) province-level implementation support. It willalso prepare, with inputs from the TA Team for Capacity Building/Implementation Support, the General Guidelines forProject Implementation (uklak) to be assisted and verified by the Central Guidance Committee (see below), and theTechnical Guidelines for Project Implementation (juknis), both for use by villages and government agencies. There willbe a Pimpro for the whole project appointed by BAPPEDA Level I.

* INPPTP (Assessment Unit for Agricultural Technology) located in Bengkulu will be contracted by BAPPEDA Level I, toconduct: (i) development of recommended technology packages for farmer-managed trials; (ii) supervision, monitoring,and analysis of the trials; and (iii) compilation/analysis of their results and refinement of the packages. The INPPTP willbe assisted by the PPs in the supervision and monitoring of trials, especially for the second and third batches of villages.(Contracting out of research-related activities to a public institution has been done under the First and SecondAgricultural Research Management Projects, both Bank-supported. For the Bengkulu project, this approach will be usedto channel funds through the Pimpro at BAPPEDA Level I.)

* Dinas PU (public works) Level I will manage the Field Engineering Services consultancy, as well as the training of FieldEngineers and relevant government personnel.

* PMD (village community development agency) Level I will be responsible for dissemination of key project-relatedinformation (e.g., the principles of bottom-up and community-based approaches) to the communities and governmentagencies through notices, newspaper articles, radio spots, etc.

Project coordination: Due to the decentralized nature of the project, most day-to-day coordination would be undertaken at thedistrict and provincial levels, by the BAPPEDA. The institutional framework for coordination is as follows:

District Level:* BAPPEDA Level II will coordinate project activities, between the various executing agencies and across the different

project components. A coordination team (Tim Koordinasi), represented by the government agencies concerned, will beset up to meet from time to time.

Provincial Level:* BAPPEDA Level I will coordinate project activities, between the various executing agencies and across the different

project components. A coordination team (Tim Koordinasi), represented by the government agencies concerned, will beset up to meet from time to time.

Central Level:* BAPPENAS (National Development Planning Agency), or more specifically its Deputy V for Regional Development,

will coordinate policy matters pertaining to the project, as a chairing agency of the Central Guidance Committee (CGC).The other central government agencies which would be members of the CGC and support project implementationinclude: the Directorate General of Budget of the Ministry of Finance; the Directorate General of Regional Development(BANGDA), more specifically its Directorate of Area Development, and the Directorate General for Public

Administration and Regional Autonomy (PUOD), of the Ministry of Home Affairs; and the Secretariat General (morespecifically its Bureau of Planning and the National Center for Agricultural Extension) as well as the Agency forAgricultural Research and Development or AARD (its Center for Agricultural Socio-economic Research) of the Ministryof Agriculture.

* BANGDA's Directorate of Area Development will act as the secretariat for the CGC, to assist the provincial and localgovernments in preparing the project-related annual budgets, organize inter-agency meetings at the central level, andliaise with the Bank.

Project oversight (policy guidance, etc.): As described above in the "project coordination" section, the CGC coordinated byDeputy V of BAPPENAS and BANGDA acting as its secretariat will provide the overall oversight for the project.

Accounting, financial reporting and auditing arrangements: Since about 60 percent of the project cost will be managed by thevillages, much of the financial records will be kept by the LKMD, to be assisted by the Field Engineers who will be available at thebeginning of the village activities. The overall institutional arrangements for accounting, financial reporting and auditingarrangements are as follows:

Accountine/financial reporting. The Government accounting system will be applied. In addition, specific project accountingsystems and procedures will be described in the Guidelines for Project Implementation, which will be distributed to theparticipating villages. The details of the accounting/financial reporting arrangements are provided in Annex 7. Each implementingagency, including LKMD, would establish and maintain an adequate and separate account from the beginning of projectimplementation, and the institutional responsibilities are summarized below:

Village Level:* The LKMD would prepare quarterly progress reports, including financial reports, and submit them to the Pimpros

concerned at the district level, on the second week of the fourth month. Largely in line with the Bank-supported VIPprojects, each village will keep track of the village grant, through: (i) their own accounts at BRI (Bank Rakyat Indonesia,a state commercial bank); (ii) bank statements issued by BRI; (iii) data related to the Village Infrastructure Componentcollected by the LKMD, concerning for instance employment, outputs and remuneration; and (iv) data related to theVillage-Based Technology Adoption Component, concerning the allocation of grants to "pioneer farmers" for testing,and of loans to other farmers during the replication phase. The village accounts will be kept in a nearby BRI unit desa;BRI's district office (cabang) will oversee records of withdrawals and deposits. After the revolving fund is startedduring the third year of project activities in each village, BRI cabang will assist the villages in the following ways:training of village administrators; provision of advisory services for financial management; reconciliation of accountbalances; and screening of the village treasurer.

District Level:* Each executing agency compiles its own financial records: Dinas PU Level II for the Village Infrastructure Component;

the BIPPs and participating agricultural Dinases for the Village-Based Technology Adoption Component; andBAPPEDA Level II for the Capacity Building/Implementation Support Component.

* BAPPEDA Level II consolidates the financial records for each kabupaten, on a quarterly basis.

Provincial Level:* BAPPEDA Level I would: (i) compile the financial records for all project activities conducted at the provincial level, in

particular the two consulting services packages and the INPPTP contract (see Annex 6); (ii) consolidate the financialrecords from three project kabupaten on a quarterly basis; and (iii) prepare consolidated financial reports for the projectas a whole, including records to be received from BANGDA concerning the project secretariat at the central level, andprovide them to the Bank on a quarterly basis.

Central Level:* BANGDA compiles the financial records for the project secretariat at the central level, and provides them to BAPPEDA

Level I on a quarterly basis.

Auditing:Village accounts will be reviewed by the local governments, consultants engaged under the Capacity Building/Implementation Support Component, and Bank supervision missions on a random sampling basis. BPKP (Financial andDevelopment Supervisory Board) audits the consolidated project account put together by BANGDA, based on a consolidatedreport prepared by BAPPEDA Level I and audited by the Perwakilan (provincial office) of BPKP, as well as the SOE and theSpecial Account prepared by DG Budget, Ministry of Finance.

Monitoring and evaluation arrangements: Each implementing agency (see above) will be responsible for the monitoring of keyprogress indicators for its component in its district, and reporting them to the BAPPEDA Levels I and II on a monthly basis.BAPPEDA Levels I and 11 will be responsible for coordinating the monitoring/evaluation of the project activities at the provincial anddistrict levels, and BAPPEDA Level I will prepare quarterly project progress reports and provide them to the Bank. The TAconsultants for Capacity Building/Implementation Support will assist in establishing procedures and institutional arrangements formonitoring and evaluation.

Block B: Project Rationale

5. CAS objective(s) supported by the project Document number and date of latest CAS discussion: 1669 I-IND of June 13, 1997

The Bank's latest CAS (Country Assistance Strategy) for Indonesia identifies the following as the main agenda: (a) maintainingmacroeconomic stability; (b) increasing efficiency and productivity in the private and public sectors; and (c) enhancing equitable andsustainable development. The last is to be addressed through efforts in the following three areas: promoting regional development;reducing poverty and inequality; and managing the environment sustainably. The project is one of "a series of region-specific ruraldevelopment programs" (the CAS) designed to contribute to the first two efforts, by assisting development of the second poorestprovince in Sumatra. The project is also consistent with a CAS objective to manage the environment sustainably, as it should helpreduce encroachment pressures on the Kerinci-Seblat National Park through poverty alleviation/growth generation outside the Park.Improvement of park management is being assisted by the Bank/GEF-financed Kerinci Seblat Integrated Conservation andDevelopment Project (ICDP).

~~~~~~~~~~~~~~................................................................................................................................................................................................................................6. Main sector issues and Government strategy:

The key sectoral issues that concern the project, and GO's strategies to address these issues, are as follows.

A. High incidence of povertv in Bengkulu. In 1990, 24.56 percent of Bengkulu's population was living below the poverty line (interms of consumption adjusted for cost of living), which was the second highest among the eight Sumatra provinces (after Lampung),and considerably higher than the average for Indonesia (19.63 percent). There are other indicators demonstrating the province's lowlevel of income: its GDP per capita which was the second lowest in Sumatra and 40 percent lower than the national average in 1992;and its people were more dependent on unsafe sources of drinking water than most places in Indonesia (with 22 percent of householdsdirectly deriving water from rivers). Poverty has induced farmers to encroach the National Park area. GOI has been implementingthe IDT (Inpres Desa Tertinggal - Program for Villages Left Behind) program in the province, with mixed results.

B. Natural/physical constraints to development in Bengkulu. Bengkulu is faced with formidable natural/physical constraints toeconomic development. First, its land is mountainous, with the Bukit Barisan mountain range running from north to south and steephills leading down to the coastal strip. Second, while the rich biodiversity in the Kerinci-Seblat area (e.g., raflesia, tigers, rhinos) is aprecious asset to the province, it has also caused 21 percent of Bengkulu's land to come under the National Park, which limitseconomic activities in the area. Third, despite its long coastline extending 400 kilometers, the waters of the Indian Ocean are oftenrough, making marine fisheries difficult, particularly during the rainy season (November - April) when the winds blow from the west.

C. Poor soils and soil management. Fertile soils (mostly andosol and regosol) are concentrated in plateau areas in and around theKerinci-Seblat National Park. Soils in lowland areas are notoriously poor (mostly podsolic and latosol), with expanses of peatswamps along the coast. The limited use of fertilizers in Bengkulu (lowest in Sumatra and accounting for only 0.3 percent ofIndonesia's total fertilizer consumption) is compounding the problem. Most of the province's rubber (64,000 ha) is grown on ultisols(red-yellow podzolic soils), where phosphorus deficiency is endemic, and in coffee growing areas, potassium deficiency is common(as large amounts of potassium have been removed through coffee harvests over an extended period, without much replenishment).

D. Low agricultural productivity in Bengkulu. Although agriculture dominates Bengkulu's economy, accounting for 36 percent ofGDP and 72 percent of employment in 1994, its agricultural productivity is low, even compared with the other Sumatra provinces. Itswetland paddy yield (3.6 tons/ha) was considerably lower than the Sumatra average (4.0 tons/ha), and similarly for coffee, rubber, oilpalm, dryland paddy and cassava. In areas far from growing markets such as the kotamadya (municipality) of Bengkulu, subsistencefarming is common. The low agricultural productivity can be traced to poor soils, lack of new technologies and weak linkages withmarkets. GOI has been addressing this issue with project interventions, especially the ADB-financed Tree Crop SmallholderSubsector Project (TCSSP) and the Bank-supported Provincial Integrated Agricultural Development Project (PIADP).

E. Institutional constraints to agricultural extension. GOI institutions have not had great success in disseminating new agricultural

technologies to smallholders, especially in upland areas for a number of reasons. First, the extension service has traditionallyextended a fixed package of technology and inputs for rice production in lowland areas, and it is not geared towards developingupland agriculture, for which the environment is extremely heterogeneous (Hayami, 1996). Second, the extension service wascompartmentalized into four subsectors in 1991, making it difficult to take a holistic, farming systems-based approach to extension,and has lacked the institutional capacity to interact with farmers in a participatory manner. Third, the reliance on demonstration plotsmanaged by the agricultural Dinas has not been effective in disseminating technologies, partly due to delays and inefficiencies indisbursing funds (see Section 8 below). GOI has taken steps in recent years to address the first two issues: after conducting a studywith the Bank during 1995-96, they have promulgated a new policy, integrating all extension workers in a district to work under asingle new lead extension center (BIPP) which reports directly to the kabupaten governments. For this fiscal year, GOI has allocatedRp. 75 billion as a central government grant (Inpres) to support the extension workers in implementing the new policy. The proposedDecentralized Agriculture and Forestry Extension Project (board presentation expected for FYI 998 or 1999) is envisaged to supportimplementation of this policy in eight selected kabupaten.

F. Smallholders' access to agricultural credit. While Indonesia is well known for the success of a rural credit program, the BRI unitdesa system, formal financial institutions are generally reluctant to provide loans to smallholders for agriculture. GOI-backed ruralcooperatives (KUDs) have the mandate to provide loans to smallholders, but they are often poorly managed and not operational. GOIhas achieved some success with donor-assisted rural credit programs, most notably the IFAD-assisted P4K (Income-GeneratingProject for Marginal Farmers and Landless) now being implemented in many provinces, and the GTZ - assisted PHBK (ProjectLinking Banks and Self-Help Groups), but their overhead costs are high and their sustainability is not clear. Moreover, most ruralcredit programs (including these donor-assisted schemes) lend almost exclusively to quick-return, non-agricultural activities (e.g.trade, processing), and the lack of formal funding is particularly problematic for tree crop development, which requires several yearsbefore the planted trees become productive.

7. Sector issues to be addressed by the project and strategic choices:

A. On high incidence of povertv in Bengkulu. As mentioned above, poor villages were given priority in selecting project villages.

B. On natural/physical constraints to development in Bengkulu. The project will assist with the balanced development/conservationstrategy for the province, by investing in small-scale, village-based agricultural and infrastructural development activities away fromthe Kerinci-Seblat National Park.

C. On poor soils and soil management. Village-based testing and dissemination of new agricultural technologies will involve soilrecapitalization techniques (in particular an initial ameliorative application of rock phosphate to recapitalize soil phosphorus on acidupland soils), successfully implemented in the nearby provinces of West Sumatra and Lampung by GOI's Center for Soils andAgroclimate Research with assistance from GTZ. GOI is becoming aware of the potential for this technique, and has madearrangements to import large amounts of high-quality Tunisian rock phosphate for direct application in upland farming systems.

D. On low agricultural productivity in Bengkulu. The low agricultural productivity will be addressed through village-basedtechnology testing and adoption.

E. On constraints to agricultural extension. Under the project, budgetary resources will be provided directly to the beneficiaries (notthe service providers), and the PPs (agricultural extension workers) will serve them under contracts to be signed with the LKMD. Theproject will also help establish the new decentralized extension system now being introduced in Indonesia, as described above. Sincethe details of the new system (e.g. incentive structure) are being finalized by GOI, the project will support some capacity buildingefforts which are necessary regardless of the final policy decision, namely training of GOI extension staff in participatory methodsand farming systems approaches, and training of farmers to conduct farmer-to-farmer training, which has been successful in WestSumatra.

F. On smallholders' access to agricultural "redit. The project will provide a grant directly to each village, about 44 percent of whichwill be used as a "revolving fund" to finance adoption of new agricultural technologies by farmers. The grant will be used by thevillage itself (through LKMD) to procure the necessary inputs, and farmers will repay into the village account as a loan, basically atmarket terms (see Annexes 2 and 4 for details).

ec altemratives considered and reasons for rejection;

The main alternative considered was a more conventional project design, where the government technical agencies (Dinas) wouldbe the main implementing agency, in the sense that they would receive the bulk of project budget and use it to execute project

activities (e.g., procurement/distribution of agricultural inputs, letting of construction contracts). In fact this was the proposal putforth early in the preparation process; the central part of their design was a large-scale program of demonstration plots ("demplots")executed by the subsectorally-divided agricultural Dinases. This design was replaced by the current design (a village-based approach)during pre-appraisal, mainly for the following reasons:

(a) although timing is essential with agricultural activities, field demonstrations by government agencies are often untimelyand rushed, since the government's usual budgetary procedures make funds available at the local level only at a certain time,from fund release (at the earliest in September) to the end of the fiscal year (the following March). Demplots, especiallythose involving tree crops, often collapse and farmers associate these with failure. The availability of a grant at the villagelevel, if provided in a timely manner, would help ensure effective implementation of technology trials/demonstration;

(b) in adopting technologies, farmers listen more to well-performing farmers (especially those nearby) than anybody else.The success of the fanner-to-farmer extension scheme in West Sumatra is an excellent example;

(c) villages seem to have adequate institutional capacity to organize village-level development activities, as demonstrated bythe first VIP project. VIP II has been started in Sumatra, including four kecamatans in Bengkulu, all covered by BRDP;

(d) few, if any, farmers conduct monocropping, thereby making it sensible to work closely with BIPPs which are not dividedalong subsectoral lines; and

(e) transferring funds directly to villages would help link farmers with the input providers, and hence lead to development ofmarkets for agricultural inputs.

Compared with the alternative, the new project design should be able to support the beneficiaries in a more timely, demand-driven, community-managed, and market-based manner.

9. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).

A. EPrjects supporting sustainable natural resource management in Sumatra: Kerinci-Seblat Integrated Conservation andDevelopment Project (Loan 4008-IND), Social Forestry Development Project in the Upper Musi Watershed (JICA project underpreparation)

B. Projects supporting community-based infrastructure development in Sumatra: Second Village Infrastructure Project (Loan 4100-IND), Rural Area Infrastructure Development Project II (OECF)

C. Projects supporting community-based upland agricultural development on degraded land: Rehabilitation of Critical Lands Projector ProRLK (GTZ ongoing), Kalimantan Upland Farming or KUF Project (GTZ ongoing)

D. Poiects supporting agriculture-based regional development: Yogyakarta Upland Area Development Project (Loan 3305-IND),Nusa Tenggara Agricultural Support Project (Loan 2638-IND), Nusa Tenggara Agricultural Area Development Project (Loan 3948-IND), Sulawesi Agricultural Area Development Project (Loan 3984-IND)

E. Prlects supp=orting agricultural/infrastructure development specifically in Bengkulu: Provincial Irrigated AgriculturalDevelopment Project (Loan 3302-IND), Third Kabupaten Roads Project (Loan 3490-IND)

F. Projects supporting decentralized agricultural extension: Proposed Decentralized Agricultural and Forestry Extension Project

G. Projects supporting smallholder tree crop development: Tree Crop Smallholder Development Project (Loan 3464-IND), Tree CropSmallholder Subsector Project (ADB ongoing)

H. Projects supporting rural credit to the poor: Income-Generating Project for Marginal Farmers and Landless or P4K (IFADongoing), Project Linking Banks and Self-Help Groups or PHBK (GTZ ongoing)

I. Projects supporting decentralized agricultural research: Second Agricultural Research Management Project (Loan 3745-IND),Participatory Development of Agricultural Technology Project (ADB ongoing)

...................................................................................................................................................................................................................................................10. Lessons learned and reflected in the project design:

OED's report on area development projects (1993) has highlighted a number of key lessons. Probably the most relevant are thelessons on project design. A "process approach", which concentrates upon building problem-solving capacity among the peopleinvolved, has been successful. Short-term benefits are powerful incentives for people to participate in the project during the early"confidence-building" stage (e.g., the Aga Khan Rural Support Program in Pakistan). Project design should be as simple and flexibleas possible, and implementation of different components in an integrated manner has been "accident-prone." It is useful to build in a"preparation for implementation" or capacity-building phase at the beginning of a project. Binswanger (1994) listed lack ofbeneficiary participation, complexity of coordination and lack of appropriate technology among the causes of failure with integratedrural development projects in the past.

In Indonesia, the "first generation" of agriculture-based regional development projects, five projects approved by the board duringFY1980 - 91, focused on specific provinces and involved the regional governments substantially in their preparation andimplementation. These projects have generated location-specific upland farming technologies, contributed to development of localinstitutions, experimented with approaches for cooperation with project-area NGOs, and fostered operational linkages betweenresearch and extension. However, the central government agencies still played major roles. Partly because of this, local conditions,such as local market situations, social factors, needs and incentives of stakeholders (especially communities), could have been morefully incorporated into the design of these projects. The first project was judged unsatisfactory in the Bank's Project PerformanceAudit Report, on grounds of over-ambitious project objectives, problems with project design, and non-replicable/non-sustainable landdevelopment strategy. The performance of the other projects has been better.

The two "second generation" projects were approved during FY1996, and prepared in line with GOI's policy and the Bank'sCountry Assistance Strategy, which aimed at promoting decentralization. Their main features included: collaborating directly andintensively with the regional governments; adopting a menu-based approach for sub-projects; dove-tailing with ongoing sectoralprojects (for instance in research); and supporting larger-scale NGO participation.

It can be said that the proposed project marks the start of "third generation" projects. It differs from the previous generations ofprojects in the following respects: the project activities are implemented largely by the communities, while government agenciesmainly provide technical assistance to villages; a participatory needs assessment is conducted at the beginning of preparation; andprivate sector organizations are involved in implementation.

~~~~~~~~~~~~........................................................................................................................................................................................................I..............................11. Indications of borrower commitment and ownership:

A. Borrower's establishment and funding of preparation task forces. GOI established apokja (task force) at the provincial and districtlevels, specifically for project preparation. Each task force is represented by GOI agencies concerned and has been operational sinceApril 1996. They will be transformed into Coordination Teams (Tim Koordinasi) for project implementation.

B. Appointment of senior staff for BIPPs. During pre-appraisal in April/May 1997, it was agreed that GOI would appoint, as acondition of appraisal, qualified specialists as senior staff for the three newly-created BIPPs, due to their importance to projectimplementation. (In this case "senior staff' was understood to mean, for each BIPP, the head and five PPS or Subject MatterSpecialists.) The appointments were formally completed before appraisal.

ja ............................................................................................................................................................................................................I..............................12. Value added of Bank support:

The Bank is well placed to support GOI in implementing the project, for the following reasons:

(a) the Bank is supporting an innovative community-based project (the Second Village Infrastructure Project or VIP 11),being implemented in Sumatran provinces including Bengkulu (40 villages in four kecamatans to be supported during fiscalyears 1997/98 -1998/99), which provides a sound basis on which to build a community-based operation;

(b) the Bank has established a close working relationship with the regional governments concerned and built up a soundunderstanding of economic development issues in the province, through such projects as VIP 11 and PIADP; and

(c) the Bank has accumulated useful experience from the previous regional development projects.

............................................................................................................................................................................................................................. ...... ..........................

Block C: Summary Project Assessments (Detailed assessments are in the project file. See Annex 8)

13. Economic X Cost-Benefit Analysis: NPV=US$ 11.2 million; f Cost Effectiveness Q OtherAssessment (see Annex ERR= 19.4 % Analysis: [Specify]4):Fiscal impact (for all projects): Since the project is relatively small, and as the loan will fnance 79.6 percent of the project cost, thefiscal impact on GOI is not significant, at US$2.6 million over six years.

.. Z ... ......................................................................................................................... I...........................................................................I...........................................14. Financial Assessment (see Annex 5) NPV=US$ million; FRR= %See Annex 4 for crop budget and financial analysis. Financial NPV and FRR not applicable.

. B.. F E G ............................. ...........................................................................................................................................................................................................15. Technical Assessment:

A. Agricultural development.

Overall concept of technology testing and dissemination. Under the project, villagers themselves would manage a grant, toperform two types of technical activities usually conducted by government agencies: testing of selected proven technologies; anddisseminating them to farmers. Through a PRA process, villagers would select farming systems for testing/dissemination, frompackages identified by INPPTP and included in the Technical Guidelines for Project Implementation (juknis). Villages would prepareannual plans for testing/dissemination, which would be reviewed by the BPP concerned. Testing of technologies would first beconducted by five "pioneer farmers" on their own plots during the first year, who will enter into a contract with the LKMD and theBPP, to share the experience with other farmers. After further testing by another ten farmers the second year, widedissemination/replication will be supported by a revolving fund (see Annex 2) from the third year onwards.

Menu of technology packages. The menu of technology packages to be tested and replicated by the villages will comprise thefollowing three broad categories of farming systems. The initial packages will be finalized during PYI by INPPTP with help fromconsultants engaged under the TA for Capacity Building/Implementation Support. While the four following packages have alreadybeen identified, other packages may be added by INPPTP upon approval by the Bank, based on INPPTP's financial, social andagronomic analysis of such packages (through farm budget analysis, etc.). It should be noted that rubber has been excluded frompackages to be supported under the revolving fund, since the long gestation period of rubber does not fit well with the specificrequirements of the revolving fund, i.e. to revolve reasonably fast to cover more beneficiaries each year. Rubber will be supportedunder an extension pilot based on a partnership with the private sector (see Annex 2).

(a) estate crop-based systems

(i) oil palm aystems. (Including inter-crop system with groundnuts.) Planted areas for oil palm have been expanding inSumatra, given the favorable world prices. Since oil palm smallholdings are viable only when production is sufficient towarrant a weekly fruit collection visit, oil palm will be supported under the project only when at least 25 farmers showinterest in participating. Villages may well decide to test oil palm in South Bengkulu, where oil palm is already plantedon about 6,000 hectares under PIR (nucleus estate and smallholders) schemes, and a PTP (a government-owned estate"Nusantara VII") is in operation with excess processing capacity. The PTP has expressed an interest to purchase the freshfruit bunches and make available seedlings for purchase under the project.

(ii) coffee system. (Including inter-crop system with groundnuts.) Bengkulu is the third largest coffee producingprovince in Indonesia, with around 40,000 tons produced annually from about 90,000 hectares, almost all of themrobusta coffee produced by smallholders. While some coffee is planted on land cleared by slash-and-bum farners in theNational Park area, intensive planting of coffee on own plots would be an attractive alternative, given its high returns.Rejuvinative pruning is particularly promising, since many of the coffee stands are very old (sometimes in excess of fiftyyears) and yields are quite low. Coffee farmers can also obtain help from the project to improve quality of green beans,by choosing drying floors and hullers under the Village Infrastructure Component. The branch of AEKI (IndonesianCoffee Exporters Association) in Bengkulu will implement a pilot program of private sector participation in themarketing/processing aspects of the extension service.

(iii) fruit trees system. (Including inter-crop system with maize.) Fruit trees are promising, especially in areas not farfrom markets. Durian is particularly attractive; improved seedlings produced by private nurseries in the province ofSouth Sumatra can be purchased under the project.

(b) other upland systems. Maize, groundnuts, ginger, etc. are promising in various parts of Bengkulu. Packages may be

......... a.................................................................................................................................I................................................................................................................

developed on the basis of these crops.

(c) wetland-based systems

rice/fish systems. In Bengkulu, many irrigated rice fields are presently cropped only once a year with traditionalvarieties, and hence productivity is poor. There is scope for intensification, following the normal government program.Further, farmers may want to introduce or improve rice-fish combination or rotation systems, which are attractive in areasnot far from the market and where good quality fingerlings are available. There are private hatcheries (e.g., six forgoldfish in Rejang Lebong), and the Government of South Bengkulu is planning to build a BBI (a government hatchery).

B. Infrastructure development

Overall strategy for ensuring technical standards. On technical aspects, the project will largely follow the concept of VIP II. Thismeans that the community through the LKMD will act as implementation agency, relying on participation of the village community.Field Engineers from the private sector would be trained and deployed under the project, to assist villages with design andimplementation. Villages would select infrastructure sub-projects from a menu, through a PRA process assisted by the Field Engineers.Standard designs are made available through the Technical Guidelines for Project Implementation (juknis). At the end ofplanning/design, a village implementation agreement is produced, which is certified by the Field Engineers. Funds amounting up toRp. 90 million per village (lower than Rp. 120 million under VIP II) are disbursed into a bank account, according to progress.

Menu of infrastructure investments. The menu includes the following types of small village infrastructure: village roads, bridges,jetties, improvement of small scale irrigation facilities (maximum area of 50 ha), water supplies, sanitary facilities, coffee drying floor,huller machines for coffee, fish drying facilities, agricultural input storages, fish smoking houses, and fingerling ponds. The menu issimilar to the one for VIP, but includes irrigation improvement and post-harvest facilities mentioned above.

16. Institutional Assessment:

a. Implementing agencies: There are key implementing agencies at the provincial and district levels. At both levels, support wouldbe provided by the TA consultants for Capacity Building/Implementation Support.

At the provincial level, BAPPEDA Level I will be responsible for planning, coordinating and monitoring, which is consistent withits main mandates in the province. It has coordinated the government's preparation efforts at the regional level, as the chairing agencyof the preparation task force. It has 71 staff, including 42 with university-level education.

INPPTP, which would manage the technology testing program, is the sole agency mandated to test and assess agriculturaltechnologies in the province, under the guidance of BPTP (Assessment Institute for Agricultural Technology) in Sukarami, WestSumatra, where much relevant research has been conducted under similar agro-climatic conditions. Both agencies are beingstrengthened through the ongoing ADB - assisted Participatory Development of Agricultural Technology Project (mostly thoughprovision of facilities and equipment), and are guided by the Agency for Agricultural Research and Development (Ministry ofAgriculture) in Jakarta, which manages a wide network of research covering the whole country. Given its critical role in the project,INPPTP has been authorized to increase its professional staff substantially from the current thirteen.

At the district level, BAPPEDA Level II's role in the project is well justified, in the same way it is at the provincial level. Each hasled the project preparation effort in its respective kabupaten, as the chairing agency of the preparation task force. Each BAPPEDA hasabout 28 - 30 staff, of which one-third to a half have university degrees.

BIPPs have just been established in 1996, one for each kabupaten, and at appraisal all three BIPPs were still operating in temporaryoffices. All PPs in the province, including the 620 formerly-called PPLs, would come under the auspices of one of the BIPPs, andassigned to one of the 34 BPPs (Rural Extension Centers, with at least one in each kecamatan).

Dinas PU Level II is a large organization, especially in South Bengkulu which counts more than 350 staff. (The are 80 - 90 in eachof the other two kabupatens.) They comprise three different sections, bina marga (roads), pengairan (irrigation) and cipta karya(settlements). The staff have been accumulating valuable experience from implementing the OECF-financed Rural Area InfrastructureDevelopment Project, and the Bank-financed VIP II.

The agricultural Dinas Level II, four of them existing in each district (food crops, tree crops, fisheries, livestock), will providetechnical advice to INPPTP, especially site-specific information on farming systems. There are around 150 - 170 agricultural Dinasstaff in each of the kabupatens.

b. Project management: The project was initially conceived to cover three of the four provinces overlapping with the Kerinci-Seblat National Park: Bengkulu, Jambi and West Sumatra. However, in late 1995, it was agreed between GOI and the Bank thatBengkulu will be covered under one free-standing project which will be prepared first, because of the difficulty indesigning/implementing such a large project and Bengkulu's relative poverty. (In June 1996, the other two provinces were also agreedto be covered by two separate projects.) Being a single-province project will make project management much easier than otherwise.

The challenges of managing this project would come from the relative lack of experience of the government staff in implementingdonor-assisted projects, a unorthodox project design, and direct implementation of most project activities by the numerous villages. Inview of these challenges, the project will be implemented in a phased manner, with the first year being largely preparatory, graduallyinvolving more villages over the years (40 starting in PY1, 76 next, then 104), and with a 3.5-year, phased program of community-based development activities for each village.

~~~~~~~...............................................................................................................................................................................................................................................17. Social Assessment:

A three-step approach to social analysis was taken during preparation. At the start of preparation, a participatory NeedsAssessment (NA) was conducted in 14 selected villages across the province, to obtain an initial review of the principle social,economic and institutional characteristics. The NA was conducted by local consultants, with the participation of Bank staff in fieldwork, and focused on farming practices, local institutions, social customs, economic needs, and effectiveness of past/ongoingdevelopment projects. A variety of methods (e.g., rapid rural appraisal, ZOPP, focus group sessions, drawing village institutiondiagrams) were used for this purpose.

The second step was a GIS-based Spatial Analysis, which showed different land uses, population densities, road networks andother useful information on maps, to serve as a tool for project design, for instance in selecting project villages clusters.

The third step was a Social Analysis, conducted by a sociologist on the preparation consultant team.From the above three efforts, the following have emerged as the main findings:

(a) the high degree of social/economic heterogeneity across villages, in terms of the roles of village institutions, types offarning systems, linkages with markets, etc.;

(b) LKMD is the focal village institution as far as economic development activities are concerned. Basically all villages haveLKMDs. While there are clearly LKMDs with low level of activity, it can be argued that this is to a great part because theyhave had neither the opportunity nor resources to actively engage themselves in development activities;

(c) customary leaders (kepala adat) often exist, are well respected, and play a vital social role in the village. In general, theirmain roles are social, including dispute resolution and organizing ceremonies. However, customary institutions in Bengkulu(Marga) were officially taken over by the modem government system in 1979, and it has been reported that the last Marga inBengkulu stopped functioning in 1981. In Rejang Lebong, a Council of Marga Representatives was recently established,mostly to preserve local culture and customs;

(d) ethnically, the province is mixed. Two of the four large ethnic groups of Sumatra are represented, the Malays from theeast and south, and the Minangkabau with their heartland in West Sumatra. Other groups can be further identified, on thebasis of language and culture: for instance, the Rejang in Rejang Lebong; the Serawai, Pasemah and Kaur in South Bengkulu;and the Pekal in North Bengkulu. There are also about 140,000 government-sponsored transmigrants from Java/Bali(accounting for about 10 percent of the population), mostly in North Bengkulu. There are no "Indigenous People" as definedby the Bank's OD 4.20 in the province;

(e) for the past ten years, there has been seasonal/permanent migration of people into the National Park area including thosefrom far away villages (e.g., from the southern end of South Bengkulu which is about 140 km away), drawn by greatereconomic opportunities (mainly slash-and-burn); and

(f) women play a significant role in the rural economy, particularly in maintaining tree crop seedlings, tending small livestock(e.g., chickens) and processing agricultural products (e.g., fish drying).

The project design has taken the above fndings into account. It has: (a) focused project activities at the village level, and adopteda menu-based, participatory approach (rather than being prescriptive); (b) selected the LKMD as the main implementing agency; (c)recognized customary leaders as important players in the village activities; (d) placed an important role on locally-recruitedpendamping, who should be assigned to communities with which they are familiar culturally; (e) included a large number of villages inSouth Bengkulu with known migration to the National Park area; and (f) supporting activities which are usually conducted by women,namely tending of seedlings.

LandAcquisition. There may be minimal land acquisition under the Village Infrastructure Component, but it is not possible toassess how much land will be acquired, since the scale, type and location of infrastructure will be determined though a participatoryprocess (with basically the same approach as the two Village Infrastructure Projects in Indonesia. As has been the case with theseprojects, land acquisition will be minimal, since the infrastructure will be: (a) of a small scale (at Rp. 90 million per village, smallerthan the VIP allocation of Rp. 120 million); (b) constructed in low population density, rural areas; (c) simple in design (e.g., upgradingof a footpath into a gravel road); and (d) often improvement of existing infrastructure.

Compensation. The agreed VIP guidelines for land/asset acquisition and compensation will be applied. The guidelines allow forvoluntary contribution, which is a traditional practice. However, if land area needed is substantial (e.g., exceeds 20 percent of thevillager's plot), the affected villager will be given replacement land, equivalent productive assets or other in-kind compensation asnegotiated during village consultation meetings. (If land acquisition is proposed, the sub-project will not be approved by the FieldEngineers unless adequate compensation arrangements have been agreed by the villagers affected and the LKMD.) Field supervisionby Bank missions, the Field Engineers and government staff will monitor compliance with the guidelines.

Resettlement. In the unlikely event that a large number of persons are negatively affected due to a village sub-project (e.g., morethan 200 persons each losing more than 20 percent of his/her land), and if the consultant Field Engineer found no alternative thatwould reduce the number of affected persons, then the Bank approval of a related compensation/resettlement plan would be soughtprior to proceeding with the sub-project. (This is the same approach as the one taken for VIPs.)

.. w T ; i ..................................................................................................................................................... .................................................................................. 18. Environmental Assessment: Environmental Category Q A X B Q C

The project is classified as "Category B" since the project is not expected to have major negative impacts on the environment.Potential adverse impacts are not significant in complexity, severity or extent and are amenable to management by adherence tostandard operating procedures and good practice. The project is not expected to have major negative impacts on the environment,according to an Environmental Analysis which was undertaken as part of project preparation.

Environmental considerations have been incorporated into the project design in the following ways. First, environmental concernshave been a key criterion in selecting the project villages. To be consistent with the ICDP, villages have been selected in areas outsidethe National Park (mostly outside its buffer zone), and villages with known migration to the Park area have been included. Second, onagricultural activities, the selected technology packages will be based on sound environmental practices, and farmers would receiveguidance in adopting these technologies from INPPTP staff and the PPs. The technologies will be tested first over two years in eachvillage, monitored by INPPTP, before replication. Third, on infrastructure activities, standard operating procedures will be appliedthrough TA and monitoring conducted by Field Engineers, use of the Technical Guidelines for Project Implementation (based on theVIP manual, which include designs based on environmental guidelines in accordance with the Bank's requirements), and review ofdesign by GOI's technical staff (Dinas PU). Fourth, environmental awareness will be promoted through community participationexercises and government workshops.

................................ .... 19. Participatory Approach: Identification/Preparation Implementation Operation

Beneficiaries/community groups CON COL COLIntermediary NGOs CON COL COL

Academic institutions COL COL COLLocal government COL COL COL

Other donors COL CON CON

Block D: Project Sustainability and Risks

20. Project Sustainability:

The key activity for enhancing project sustainability is the capacity building of the villages through a continuous 3.5-year programof community development for each village. Other features which will contribute to sustainability are the following:

(a) selection of relatively low-cost, simple technologies, both for agriculture and infrastructure;

(b) requiring most of the agricultural part of the village grant to be repaid, so that more people can benefit from the revolvingfund;

(c) requiring the LKMDs to place the revolving fund in a BRI account, and to be assisted by BRI in managing the fundthrough fee-based services;

(d) involving the private sector associations for rubber and coffee, which have strong interests in improving the productionperformance in the province; and

(e) including capacity building activities for government services (especially the extension service).

...................................................................................................................................................................................................21. Critical Risks (see fourth column of Annex 1):

Project outputs to development objectivesRisk Risk Rating Risk Minimization Measure

1. Successful implementation of other Medium Information sharing (on lessons learned) at the provincial and districtpoverty alleviation/growth generation levels.projects implemented in the province.

2. Strong commitment by GOI, especially Medium The project supports training and workshops for government officers atat the provincial and local levels, to provincial/local levels, to become more aware of the advantages ofparticipatory rural development. participatory approaches and the techniques available.

Project components to outputsRisk Risk Rating Risk Minimization Measure

I. Timely, adequate and efficient Medium Village grants are financed 100 percent under the loan. This is possibledisbursement of village grants. because GOI does not levy taxes on goods, works and services to be

procured by villages under the village grants, because the project activitiesare implemented by the LKMDs themselves (based on the GovernmentRegulation No. 42/1995 and others).

2. Adequate capacity of LKMD. Medium Assistance to be provided by the Field Engineers and the communitydevelopment facilitators. Gradual, phased capacity building strategy.

3. Assignment (and maintenance) of Medium Clear definition of roles (and their importance) of GOI institutions inqualified staff to the GOI agencies implementing the project.concerned, especially at the provincialand local levels.

4. Timely appointment and mobilization Medium Loan covenants require that the TA consultants for Capacityof qualified consultants. Building/Implementation Support be employed by July 31, 1998, and that

the Field Engineers be employed by January 31, 1999.

5. Sustained management of the revolving Medium Assistance to be provided by BRI through advisory services for fundfund, by the villages. management, training of village administration, etc.

Overall project risk ratingRisk Risk RatingSee above. Medium

ossible ontroversial Aspects:

First, the use of the revolving fund. The revolving fund has not performed well in certain projects financed by the Bank and otherdonors. It is argued that the proposed mechanism is justifiable for the proposed project, since: (a) a well-performing financialinstitution (BRI) will provide fee-based services to assist the villages in managing the revolving funds (namely advisory services forfund management, training of village administrators, reconciliation of account balances and screening of village treasurers); (b) theloans from the fund will be at basically market terms, with market interest rates; (b) each village is prepared for 2.5 years before therevolving fund is started (during which problems can be detected); (c) each loan package can only be provided for half hectaremaximum at a time (with the possible exception of oil palm), and farmers' interest to re-borrow and further apply the technology will

be an incentive for repayment; and (d) there are successes with revolving funds in other projects, such as the Yogyakarta Upland AreaDevelopment Project in Indonesia and the Environment and Natural Resources SECAL in the Philippines. The implementationprocedures of the revolving fund will be detailed in the Guidelines for Project Implementation.

Second, the high level of responsibility vested with the villages and LKMDs. While many of the LKMDs have not been active, thisis largely because they have not had the resources or opportunity to implement large development projects in the past. Although manyLKMDs are weak, the "learning by doing" approach under the project, through gradual implementation and on-the-job training, wouldbuild up the capacity of village institutions.

Block E: Main Loan Conditions

23. Conditions of Board Presentation

None.

24. Others

Condition of disbursement of loan proceeds under the category "Goods, works and services under Grants":For the Borrower to issue both the General Guidelines for Project Implementation (petunjukpelaksanaan orjuklak) and the TechnicalGuidelines for Project Implementation (petunjuk teknis orjuknis) for PY2-6, satisfactory to the Bank. (BAPPEDA Level I will preparedrafts of both the juklak and juknis, with assistance from the TA consultants for Capacity Building/Implementation Support.BANGDA will provide them to the Bank. After Bank approval, BANGDA will issue the juklak and the provincial government willissue the juknis as an attachment to a Governor's decree.)

Dated loan covenants:

I. For BAPPEDA Level I to employ the TA consultants for Capacity Building/Implementation Support, by not later thanJuly 31, 1998.2. For BAPPEDA Level I to enter into a contract with the INPPTP, by not later than July 15, 1998.3. For BAPPEDAs Level II to select the participating villages from the list of villages agreed between GOI and the Bank beforeJuly 31, 1998, and for BAPPEDA Level I to furnish the consolidated list to the Bank for approval by not later than August 1, 1998.4. For Dinas PU Level I to employ the Field Engineers by not later than January 31, 1999.5. A mid-term review of the project to be conducted by June 30, 2000.6. For BAPPEDA Level I to conduct a Beneficiary Survey by October 31 during PY2-6 (fiscal years 1999/2000-2003/04), and informthe Bank of its results by not later than December 31 of each year.

Block F: Compliance with Bank Policies

X This project complies with all applicable Bank policies.E] [The following exceptions to Bank policies are recommended for approval: The project complies wfth all other applicable Bank

policies.]

[signature]Task Team Lea r:Akihiko Nishio

[signature]Sector Manage eoffrrx

[signature] Y & >Country Director: Dennis de Tray

Annex 1

Project Design Summary

Narrative Summary Key Performance Indicators Monitoring and Supervision Critical Assumptions and RisksCAS Objective: 1. Less growth gap between CAS and CEM reports.To promote regional regions.development. 2. Within each region, better

distribution of economicgrowth.

Project Development (Development Objectives toObjectives CAS Objective)A. To alleviate poverty in the Al. Lower incidence of Al. GOI surveys (SUSENAS, 1. Firm and sustainedprovince. poverty, in absolute and PODES, household surveys) commitment by GOI (at the

relative terms. central, provincial and locallevels), to alleviating poverty

B. To generate growth in areas B 1. Higher growth rate for the B 1. GOI statistics, CEM and generating growth in thewhere potential is high. province and the kabupaten reports province.

concerned. 2. Successful implementationof other policies/projects beingimplemented in the province.

Project Outputs (Outputs to DevelopmentA. Improvement of Al. Number of completed Al, A2. Dinas PU Level II Objectives)infrastructure in the project (and incomplete) village 1. Successful implementationvillages. infrastructure works. (Targets: of other poverty alleviation/

construction completed for at growth generation projectsleast 25 villages by March 31, being implemented in the2000, and for at least 116 province.villages by March 31, 2002.) 2. Strong commitment byA2. Quality of village GOI, especially at theinfrastructure works. provincial and local levels, to

participatory ruralB. Adoption of new B I. Number of farmer-based B I, B2, B3, B4. INPPTP (for development.agricultural technologies in the tests executed. (Targets: at testing), BIPP and BPP (forproject villages. least 160 farmers to conduct replication)

the testing by March 31, 2000,and at least 1,800 farmers byMarch 31, 2002.)B2. Number of farmersparticipating in (and areacovered by) the replicationprogram.B3. Increase in yields andoutput, per crop.B4. Number of PPs trained.

C. Greater capacity for Cl . Number of government Cl, C2. BAPPEDA Level I.villages and government staff trained in PRA.agencies to implement projects. C2. Number of VAPs

I prepared. I

Project Components Inputs (costs): The project's progress will be (Components to Outputs)[See Annex 2 for a detailed monitored by the implementing l. Timely, adequate anddescription.] agencies concerned, and efficient disbursement of

assisted by the Technical village grants.A. Village Infrastructure US$ 7.6 million Assistance consultants 2. Assignment (and

concerned. Overall maintenance) of qualified staffB. Village-Based Technology US$12.9 million coordination of the monitoring to the GOI agencies concerned,Adoption will be conducted by especially at the provincial and

BAPPEDA Levels I and II. local levels.C. Implementation Support/ US$ 5.2 million 3. Timely appointment andCapacity Building mobilization of qualified TA

consultants.4. Sustainable management ofthe revolving fund, by thevillages.

Annex 2

Detailed Project Description

Overall Project Design

The project structure centers around a village grant equivalent to Rp. 180 million per village, which accounts for 60 percentof the total project cost. The grant will be disbursed directly into a bank account at BRI unit desa and released to villages afterdocumentation is checked by Project Managers (Pimpros) at the Kabupaten level.

The LKMD will manage the grant to implement infrastructure and agricultural activities at the village level, to be supportedby INPPTP, BIPP/BPP and the Field Engineers. (For the revolving fund, the LKMD will be assisted by BRI.) The LKMDs are notalways active and usually require some capacity building, but the project design provides an opportunity for the villages to benefitfrom "learning by doing," under the 3.5-year program of gradual implementation and on-the-job training. The infrastructure andagricultural activities should be complementary to each other as much as possible: for instance, investment in tree crop plots can becombined with a farm access road from the village to the plots. Each village will be supported over 3.5 years under the village grant,and this program would be started with 40 villages in PYI, 76 in PY2 and 104 in PY3.

It should be noted that the project components (and more specifically their detailed cost tables) have been structured in linewith the location of Pimpros, to facilitate budgeting, planning and disbursement of project funds. Namely, the Village InfrastructureComponent and the Village-Based Technology Adoption Component only include kabupaten-level expenditures to be administeredby the Pimpros in each kabupaten. On the other hand, the Capacity Building/Implementation Support Component only compriseprovince-level expenditures which are administered by the Pimpros at the provincial level.

Project Component 1 - Village Infrastructure Component - Total Cost US$ 7.6 million

The component would support villages in construction of village infrastructure, following the VIP (P3DT-World Bank)model, with half (Rp.90 million) of the village grant allocated for this purpose. Consultant Field Engineers would be trained anddeployed to assist the villages in planning, design, construction supervision and maintenance. (The Field Engineering Services areincluded in the Capacity Building/Implementation Support Component under a Pimpro at Dinas PU Level I, for the reason explainedabove).

The component supports a short program of village infrastructure development in each village: preparation during April -May/June; construction during June - October; and maintenance during November - March. (For each village, the infrastructureactivities are implemented during the same year as the first year of farmer-based testing, as described below.) Based on a VillageAction Plan developed before the start of the fiscal year through the PRA (participatory rural appraisal) process facilitated by thependamping, and by using designs prepared with assistance of the Field Engineers, the civil works should be implemented by thecommunity before the rainy (planting) season begins.

The menu of infrastructure investments, from which communities can choose to build themselves based on their needs,include the following: (a) village roads; (b) bridges; (c) jetties; (d) improvement of small-scale irrigation facilities (maximum area of50 hectares); (e) water supply facilities; (f) sanitation facilities (MCK, simple drainage, etc.); and (g) simple processing facilities(coffee drying floors, fish drying floors, coffee hullers, agricultural input storage, product storage, fish smoking houses, fingerlingponds). These are basically the same as the P3DT-World Bank projects, except for the additions of small-scale irrigation facilitiesand simple processing facilities. The idea is that the infrastructure should be beneficial to the village as a whole (not only to certainindividuals), and yield economic returns.

Project Component 2 - Village-Based Technology Adoption Component - Total cost US$ 12.9 million

This component supports agricultural development of the project villages, through implementation of a 3.5-year support fortechnology testing and replication in each village, using half (Rp.90 million) of the grant for each village. INPPTP and BIPP/BPPwill be the main providers of support for the villages. (INPPTP activities are included in the Capacity Building/ImplementationSupport Component, for the reason explained above.)

During PYl (fiscal year 1998/99), INPPTP would, together with research and assessment institutes under AARD, and incoordination with Dinas Level II, BIPP/BPP and TA consultants for Capacity Building/Implementation Support, identify specifictechnology packages suitable for Bengkulu, and prepare implementation guidelines for each identified technology package, based onthe model of the Rubber KIT used in the GTZ-supported ProRLK project in West Sumatra. BAPPEDA Level I would coordinatepreparation of the Guidelines for Project Implementation (juklak andjuknis), for use by the implementing agencies and projectvillages. Also during PY1, PRA training of relevant staff (pendamping and PPs) would be started by TA consultants for CapacityBuilding/ Implementation Support.

Starting the end of PY I and continuing until PY6, the project will provide support for each project village over 3.5 years, inthree batches (40, 76 and 104 villages) in a phased manner. The 3.5-year program is structured as follows:

(a) the initial 0.5 year. During this period, PRA exercises would be conducted by a team coordinated by the pendamping andincluding the PPs (and Field Engineers), to assist each village in preparing a Village Action Plan (VAP) which will includethe village's choice of agricultural testing (in addition to infrastructure development) which the village will want toimplement under the project. Farmer involvement in PRA exercises will help identify the main constraints to theachievement of farming goals in the village as perceived by farmers. The PRA team would present various relevant optionsfor technological improvement, and the village prepares a plan for testing the chosen option. The agricultural part of the VAPwill be reviewed by the BPP responsible for the village.

The menu of agricultural packages would include three types of agricultural systems: estate crop-based systems; other uplandsystems; and sawah-based systems. The initial packages will be finalized during PYI by INPPTP, assisted by the TAconsultants. Financial, social and agronomic viability of each package should be analyzed in detail (through farm budgetanalysis, etc.), for approval by the Bank. Four specific systems have been identified as promising in Bengkulu and will beincluded among such packages: (a) oil palm-based intercropping system; (b) coffee-based intercropping system; (c) fruittree-based intercropping system; and (d) rice/fish combination and rotation systems (minapad). (It should be noted thatAARD uses the term "farming systems" instead of "intercropping systems.")

(b) first year. The village selectsfzve pioneerfarmers. This is a critical step in the process: every effort must be made by thePRA team to identify and select farmers with a proven track record of commitment, knowledge, creativity and initiative inthe chosen farming system. The LKMD signs a contract with the five farmers and the relevant BPP, which commits eachparty to their rights and obligations under the project. The pioneer farmers take the risk of testing the new technology ontheir own plots, and take on the responsibility of sharing their knowledge with other farmers; the agricultural inputs neededfor the trial are thus provided free of charge by the LKMD (at the amount of about Rp.0.6 - 0.8 million per farmer for halfha, depending on the farming system model).

During the testing, INPPTP (assisted by PPs) would visit the village, to monitor the performance of trials. By the end of theyear, performance of the chosen farming systems would be analyzed and, if necessary, recommendations modified before thenext group of ten pioneer farmers per village begin their trials.

(c) second year, ten more pioneer farmers, who should also share their experience with fellow farmers, would be selected byLKMD to conduct further testing through trials on their farms under the same contract arrangements as for the first fivefarmers per village. These farmers would also receive free inputs, at the amount of about Rp.0.6 - 0.8 million per farmer forhalf ha, depending on the farming system model. Monitoring of the trials would be carried out by INPPTP (assisted by PPsand the pendamping). In the meantime, preparation would be done to start a revolvingfiund during the following year, usingthe credit management expertise of BRI (with back stopping to be provided by the TA advisorslpendamping). For oil palm,replication may be started in the second year if there is clear, written agreement to do so between the farmer and thepurchaser/processor.

(d) third year. Conditional upon sound management of the village grant and reasonable progress made with the agriculturaltrials, the remainder of the village grant (about Rp.78 million) would be released into the village bank account as "seed

money" for a revolvingfund, to finance replication of technology packages by interested farmers, covering initial (first year)investments for up to half hectare per farmer (which can be raised up to one hectare for oil palm if the village so requests),basically at a market-based interest rate. (The interest rate has been agreed at 22.0% p.a., which is comparable with 21.0%for TCSDP/TCSSP and 22.15% for P4K. This will be revisited each year, as part of reviewing the Guidelines for ProjectImplementation.) The maximum area per loan is set relatively low at 0.5 ha, to keep low the amount of debt perfarmer,maximize the number of initial borrowers, and diversifr the risk of no or late repayment. Guidelines for the use of therevolving fund, especially the selection criteria for eligible borrowers and repayment terms, will also be detailed in theTechnical Guidelines for Project Implementation (juknis). The maximum loan amounts per one farner per application(excluding labor) for the four main packages estimated at appraisal (to be reviewed during implementation) are as follows:

(i) oil palm-based systems: at Rp.767,500 per 0.5 ha with inter-cropping and Rp. 564,500 without;

(ii) coffee-based systems, at Rp.779,500 per 0.5 ha with inter-cropping system and Rp. 660,500 without;

(iii) fruit tree-based inter-cropping system at Rp.617,000 per 0.5 ha with inter-cropping system and Rp. 340,000 without;and

(iv) rice/fish (minapadi) systems: rotation at Rp. 651,500 per 0.5 ha, and combination at Rp.609,000 per 0.5 ha.

The main features of the revolving fund are as follows:

(a) It is a market-based fund channeling mechanism for agricultural development, and not a village bank or a savings andloan scheme (the Kepres of 1992 requires that all village banks with capital of Rp. 50 million or more be established as aBPR or a cooperative, both of which are not practical for the Bengkulu project);

(b) The fund will be managed by villagers (three administrators for each village appointed by the LKMD - a supervisor, atreasurer and a collector - the treasurer would need to go through BRI screening), and BRI will provide assistance to thevillage as fee-based service, as described below;

(c) There will be basically two different loan terms under the revolving fund. For oil palm, coffee and fruit tree-basedsystems, the period is four years. For annual crops, the period is two years. The repayment is to be made monthly in equalinstallments, so that the revolving fund is gradually replenished and new loans are made possible. For each loan, the farmercan choose between two grace periods: either a six-month grace to allow for revenues from annual crops (interest capitalized)and at a lower monthly installment, or a fifteen-month grace which reduces farmers' cash flow pressures when trees arebeing planted but at a higher monthly installment;

(d) The proposed loan terms would better fit the revolving fund mechanism than longer-term loans with longer grace periods.Cash flow simulations show that, to take oil palm/groundnuts system as an example, all of the funds can be used to provideloans for 102 farmers initially (assuming 0.5 ha each and a grace period of six months), and four new borrowers can takeloans every month from repaid installments - meaning that 57 percent of the average number of all households in projectvillages (178) can benefit from the fund in the initial round, at least for half ha each. Each monthly installment wouldamount to about Rp.34,000 with intercropping and Rp.25,000 without intercropping;

(e) Repayment would be encouraged through financial incentives (e.g., monthly rates), peer pressure (e.g., announcingborrowers waiting in the next round) and the small loan size (covering only up to half hectare per application), whichrequires the borrower to make repayments on time in order to apply for a second loan; and

(f) The fees would be debited from the villages' project accounts (the grant and the interest accruing on the grant), based onthe terms stipulated in the Guidelines and on a written agreement between BRI and BAPPEDA Level 1. (BRI confrmed thatno taxes will be levied on its services to farmers, and hence BRI fees can be covered by the village grants and their interestearnings, although the village grants are financed 100 percent under the loan.)

The villages would be assisted in fund management by BRI, which would basically act as the channeling bank but wouldalso provide support services to the villages (namely, advisory services for fund management, provision of training reconciliation ofaccount balances and screening of village treasurers) on a fee basis. Interest would accrue to the deposited village grants, and the feeswould be deducted from the grant and accrued interest based on the Guidelines and BRI/BAPPEDA Level I agreement. This systemof BRI support is similar to the system established to support some 4,000 BKD or Badan Kredit Desa in Java/Madura, as well asnumerous TPSP or Tempat Pelayanan Simpan Pinjam which started operation in various parts of Indonesia, including Bengkulu.

BRI would be a natural participant in the revolving fund scheme, since it is expected to be involved in the Village InfrastructureComponent as the "operational bank," as in the case of the Village Infrastructure Projects.

BRI provided in December 1997 a tentative fee proposal comprising a lump sum fee for the training of thesupervisors/collectors and treasurers (Rp. 530 million), annual fees for additional staff to work specifically on BRDP (Rp. 85 million),and recurrent fees to be charged at I percent of disbursements from the revolving fund, and I percent of repayments into therevolving fund. These terms will be finalized and specified in the Guidelines for Project Implementation, before the revolving fundsstart (as early as in PY3 or FY2000/2001 for oil palm, and PY4 or FY2001/2002 for other crops).

As for the oil palm-based inter-cropping system, PTP Nusantara VII would participate in the project, specifically bypurchasing fruits which may be produced by BRDP-supported farmers, for processing in its own plant located in Kecamatan Talo,Bengkulu Selatan. It would involve itself in village discussions at the beginning of the 3.5-year cycle for each village (with the BRDPpendamping), to propose the terms of partnership and identify interested farmers. BRDP would conduct farmer-based tests andprovide funds which villages can use for oil palm development. Although GOI policy requires that the standard prices set by theMinistry of Agriculture (DG Estates) be applied to all oil palm purchases including BRDP as the minimum purchase price, thestandard deductions of fruits from farmers (to service loan repayment) would not apply to BRDP farmers, since BRDP farmers wouldbe financed under the project (not under the standard GOI loan).

To complement the village-based testing and replication of agricultural technologies, the following sub-components are alsoincluded in the component:

(a) support for decentralized agricultural extension, to prepare the BIPPs and PPs for the above activities. This activitysupports the new decentralized extension system now being implemented in Indonesia, which emphasizes the role of farmersin developing demand driven extension programs. The activity includes: on-site training of farmers by PPs; training of PPsin training management, technical issues and information management techniques; and provision of equipment/vehicles(mostly motorcycles) and rehabilitation of buildings for some BIPPs/BPPs.

(b) Kabupaten-level implementation support, mainly to coordinate Kabupaien government activities aimed at supporting thevillage activities. The sub-component would assist BAPPEDAs Level II in coordinating the advisory inputs provided byagricultural Dinas Level II for development of technology packages, and more generally in functioning as the projectcoordinating agency at the Kabupaten level, through provision of equipment, furniture, etc.

(c) a pilot program ofprivate sector participation in the marketing/progressing aspects of the extension service, to beconducted jointly by AEKI (Association of Indonesian Coffee Exporters) and BIPP in 10 villages in Kecamatan Kepahyang,Kab. Rejang Lebong over two years;

(d) an expanded program of partnership (kamitraan) between GAPKINDO (Association of Indonesian Rubber Producers)and BIPP in providing extension services to 27 project villages in Kecamatan Kerkap, North Bengkulu, over two years.;

(e) strengthening of the Dinas Tree Crops nursery in North Bengkulu, to diversify sources of supply for rubber plantingmaterials in the short run; and

(f) production of annual crop seeds by seed farmers in each Kabupaten.

Project Component 3 - Capacity Building / Implementation Support Component - Total cost US$ 5.2 million

The Capacity Building/Implementation Support Component includes the following activities designed to assist thegovernment agencies concerned in implementing the project and build their institutional capacity: Field Engineering Services forvillage infrastructure; development of technology packages and monitoring/analysis of farmer-based testing by INPPTP; technicalassistance for Capacity Building/Implementation Support; dissemination of project-related information; and province-levelimplementation support. Their details are as follows:

(a) field engineering services for village infrastructure. A team of Field Engineers would be mobilized to assist the villagesin planning, design, construction supervision and maintenance of the village infrastructure;

(b) development of technology packages and monitoring/analysis of farmer-based testing by INPPTP. As a contractor toBAPPEDA Level I, INPPTP would identify relevant technology packages and prepare implementation guidelines for eachidentified technology package during PYI (in consultation with agricultural Dinas Level II, regional/ national research

institutions and TA consultants for Capacity Building/Implementation Support), and monitor/analyze the tests to beconducted by pioneer farmers during PY2 -5;

(c) technical assistance for Capacity Building/Implementation Support. The technical assistance consultant team will mainlyinclude five experts, who are specialists in farming systems (one national and the other international), training and humanresources, civil engineering/procurement and fnancial management. The total staff months are 20 international and 102national. The team will select, engage and manage a group of 32 pendamping, in principle two for each Kecamatan, who areexpected to be young facilitators preferably with experience in implementing NGO projects and/or background inagriculture. The pendamping's main responsibilities are to: (i) promote transparency at the village level, for instance byinforming target groups on overall project design; (ii) arranging for and coordinating PRA exercises; and (iii) help LKMDsin agricultural activities, including provision of information on the revolving fund and input procurement.

The consultancy package will also include a PRA training courses to be conducted over three years for the pendamping, PPsand BIPP staff, which should be sub-contracted to an experienced group such as a well-established national NGO.

The consultancy package will also include a series of "beneficiary surveys" to be conducted every year during PY2 - 6 invillages selected on a random sampling basis, to assess the delivery of services to the project villages and the villagers'response.

The consultant team will be contracted by and report to BAPPEDA Level I.

(d) information dissemination. This activity is intended to disseminate key project-related information (e.g., the principles ofbottom-up and community-based approach), to the communities and government agencies through notices, newspaperarticles, radio spots, etc. This will be conducted by PMD Level I.

(e) province-level implementation support. This activity is intended to assist BAPPEDA Level I in performing its role as theproject coordinating agency at the province level, through provision of equipment, furniture, etc.

Annex 3

Estimated Project Costs

Table 1. Projectt Summary

Project Component Local Foreign Total-------------------------US $ million----------------

Village Infrastructure 4.7 1.9 6.6Village-Based Technology Adoption 7.9 2.3 10.2Implementation Support/Capacity Building 4.1 0.3 4.4

Total Baseline Cost 16.7 4.5 21.2

Physical Contingencies 0.1 0.0 0.1Price Contingencies 4.0 0.4 4.4

Total Project Cost 20.8 4.9 25.7

Table 2. Expenditure Accounts by Components - Totals Including Contingencies (US '000)

Village -Based ImplementationVillage Technology Support/Capacity

Infrastructure Adoption Building TotalInvestment CostsA. Labor - 2,662.5 - 2,662.5B. Vehicles 76.9 326.5 80.9 484.3C. Village Grants 7,193.1 8,314.1 - 15,507.2D. Consulting Services - - 2,671.4 2,671.4E. Training - 184.1 117.4 301.5F. Goods - 309.8 39.4 349.3G. Civil Works - 201.9 41.5 243.3H. Service Delivery Contractors - - 1,125.9 1,125.9I. Service Contracts - 57.3 563.5 620.9

(Agricultural SupportServices)

Total Investment Costs 7,270.1 12,056.2 4,640.0 23,966.3Recurrent CostsA. Honoraria 28.5 325.5 54.5 408.5B. Travel Allowance 269.0 98.0 157.1 524.1C. Operation and Maintenance 51.1 290.4 45.8 387.3D. Other Administrative Cost 38.7 105.0 277.6 421.3

Total Recurrent Costs 387.3 818.8 535.0 1,741.2Total PROJECT COSTS 7,657.4 12,875.1 5,175.0 25,707.5

Assumptions:US$1 = Rp. 3,000 (Agreed with GOI at anpraisal in October 1997. It is GOI's general policy to use the appraisalexchange rate for loan negotiations, which was applied to the proposed project as well, particularly in view of the widelyfluctuating Rupiah -dollar rate.)Foreign inflation: 2.2 percent p.a. for 1997 -2004 (agreed within the Bank prior to appraisal}.Local inflation: 6.5 percent p.a. for 1997 -2004 (agreed within the Bank prior to appraisal)Physical contingencies: civil works - 10 percent; goods - 5 percent; vehicles - 5 percent; consulting services - 0 percent;training - 0 percent; community development - 5 percent; service delivery contractors - 0 percent;service contracts - 0 percent; village grant - 0 percent; recurrent cost -5 percent.

Annex 4

Cost Benefit Analysis Summary

[For projects with benefits that are measured in monetary terms]

(US$ million in 1997 prices)

Present Value of Flows ( 10% / Fiscal ImpactEconomic FinancialAnalysis Analysis Taxes Subsidies

Benefits 32.6 N.A. 0.4* 2.2**

Costs 21.4 N.A.

Net Benefits: 11.2

IRR: 19.4%

D Defined as duties and taxes expected to incur with the project.D * Defined as net government budget outlay (net of duties and taxes).

3enefits and Beneficiaries

Benefits

The quantifiable benefits of the project are increased farm incomes from adoption of new agricultural technologies, and benefitsfrom different types of investments in village infrastructure (e.g., savings in transport costs for village roads, increased farm incomesfor village irrigation). The non-quantifiable benefits are the strengthening of village institutions, building of government agencies'.capacity to support village-based initiatives, and development of rural markets for agricultural inputs.

The increased farm incomes from adoption of new agricultural technologies are expected to be significant, mainly for tworeasons. First, the current level of production (the "without project" case) is low in many of the villages, due to suchtechnical/institutional constraints as low availability of improved seeds/seedlings, inappropriate soil management, inadequate pestmanagement techniques, and inefficient methods for dissemination of new technologies. Second, the new agricultural technologies tobe introduced under the project are relatively low cost: in the case of rubber, less than half the level of large donor-financedsmallholder projects, on a per unit area basis.

Beneficiaries

About 40,000 households living in the 220 project villages should benefit directly from the project, in terms of increased farmincomes and improved village infrastructure. Another 100,000 households living in the 16 kecamatans-(sub-districts) covered by theproject should also benefit indirectly from improved extension services, increased availability of quality seedlings, etc.

As stated above, the main beneficiaries will be farmers whose incomes rise by participating in the replication program. For eachvillage, the number of families benefiting from the replication program will increase as years go on. Simulation results show that,assuming each household receives project support only for half (0.5) hectare, up to 128 - 368 households (depending on the farningsystem chosen) will have received project support five years after the initial "pioneer farmer" testing started in each village. Sincethere are 178 households on average in a project village, a vast majority of the farmers in each village will have benefited directlyfrom the testing/replication program after five years. Because the average size of land controlled by household is 1.82 ha inBengkulu, it is expected that many farmers will re-apply to the replication program after the first one ha.

Assumptions

Since it is not possible to foresee how many hectares will come under each of the four identified farming systems, due to theprogrammatic/participatory nature of the project, assumptions were made on these areas based on existing information about agro-climatic conditions, current farming practices, and the information on interests of farmers collected during field visits. It is assumedthat the oil palm/groundnuts system will cover 40 percent of the total area to be covered by the testing/replication program,coffee/groundnuts 30 percent, fruit trees/maize 20 percent, and rice/fish 10 percent. For the purposes of financial/economic analysis,it is assumed that 80 percent of the farmers borrowing from the revolving fund will repay each year.

Farmgate prices in economic terms for coffee beans (robusta), maize, groundnuts, rice, urea, TSP, muriate of potash and rockphosphate were derived from the Bank's short and long-term projections (Commodity Markets and the Developing Countries, May1997). In consideration of the general unemployment/underemployment levels in the region, a conversion rate of 0.9 was used tocalculate the shadow wage rate.

With the new technology packages, the yields are assumed to be the following:

(a) oil palm/groundnuts: 22 tons ffb/ha for oil palm at full maturity; 1,600 - 1,300 kg/ha for groundnuts during years one -three. (Without project: 10 tons ffb/ha for oil palm at full maturity; 1,600 - 800 kg/ha for groundnuts during years one -two.)

(b) coffee/groundnuts: 1,800 kg/ha for coffee at full maturity; 1,750 kg/ha for groundnuts the first year. (Without project:1,500 kg/ha for coffee at full maturity; no annual crops.)

(c) fruit trees/maize: 3,000 kg/ha for durian at full maturity; 5,000 - 2,000 kg/ha for maize during years one - three. (Withoutproject: 1,500 kg/ha for durian at full maturity; 2,500 - 1,000 kg/ha for maize during years one-three.)

(d) rice/fish combination: 6,000 kg/ha for rice; 1,560 kg/ha for fish over two seasons in a year. (Without project:4,000 kg/ha for rice; 1,000 kg/ha for fish.)

(e) rice/fish rotation: 3,000 kg/ha for rice; 900 kg/ha for fish over two seasons in a year. (Without project:2,000 kg/ha for rice; 800 kg/ha for fish.)

The assumed project life is 20 years.

Farm Budgets

Detailed farm budgets were constructed for each of the four identified farning systems, to examine cash flows to farmers, variousfinancing scenarios, requirements/availability of family labor, etc. They are included in the Project Implementation Plan.

While tree crop systems are generally prone to cash flow problems due to long gestation periods, these problems will be alleviatedsubstantially under the technology packages proposed, through: (a) inter-cropping with annual crops, which will generate cash incomein the early years before canopy closes; (b) adoption of relatively low-cost technologies; and (c) provision of four-year loans withgrace periods of six or fifteen months.

The labor requirements/availability analysis shows that the demands on family labor will be higher at the start-up stage, and fortree crops when the trees are fully mature and productive. For tree crop-based systems, 39 - 50 percent of family labor in a typicalfarming household (175 to 225 work days per year) will be necessary to start the new technology on one hectare of land, mainly forland clearing, land preparation, and planting of seedlings. If more labor is available, a farmer will be interested in re-applying forproject support. Labor requirements will start to grow after the tree stands mature; for one hectare with fully-matured tree stands, thecoffee/maize system would need 200 work days of labor per year, and 120 work days for oil palm/groundnuts. (It should be notedthat available family labor should grow over time.)

Results of Economic Analvsis

By using increased farm incomes as the project benefit and including all project costs (including overheads), the project's ERR isestimated at 19.4 percent. The detailed tables for net incremental returns, etc. are included in the Project Implementation Plan.

Economic benefits of the Village Infrastructure Component have not been estimated for the cost-benefit analysis, for tworeasons. First, it is not clear (less so than the case of agricultural activities) as to which types of village infrastructure will be selectedin how many villages, due to the project's programmatic and participatory nature. The level of economic benefits would vary widelyamong such infrastructure investments as village roads, water supply facilities and coffee drying floors, and without a reasonablyreliable forecast of how much of each investment will be selected, an estimate of economic benefits from the component would not bevery meaningful. Second, since the project deals with investments at the level of villages, which are widely dispersed geographically,there is a scarcity of data needed to estimate economic benefits (e.g., transport volume between project villages).

Meanwhile, the SAR for the Second Village Infrastructure Project (Report No. 15467-IND) estimates an ERR of about 20percent for the project. It also states that a simulation of village road improvement resulted in an ERR of up to 200 percent (with amedian of about 50 percent ), and that water supply improvements have rates of return exceeding 20 percent. It may therefore be saidthat the ERR for the Village Infrastructure Component should not be far off.

By treating the Village Infrastructure Component as a separate project and excluding its cost from the project cost, the ERR forthe project would increase substantially to 31.1 percent.

By assuming that the Village Infrastructure Component has an ERR of 20.0 percent (as with the Second Village InfrastructureProject - see above), the combined ERR for the whole project will rise slightly to 19.6 percent.

Sensitivity Analysis and Switching Values

T'he main project risks identified in Annex 1 (timnely disbursement of village grants, assignment of qualified staff, timelyappointment of TA consultants, sustainable management of revolving funds) can lead to three types of negative impacts on theproject's economic viability: higher project cost; lower level of benefits; and delays in benefits.

First on the project cost, a 10 percent increase will lower the ERR to 17.0 percent, and a 20 percent increase to an ERR of 15.0percent. The project cost will have to rise by 52 percent, for the ERR to fall to 10 percent.

Second, on lower project benefits, a 10 percent decrease will lower the ERR to 16.8 percent, and a 20 percent decrease to an ERRof 14.0 percent. The project benefits will have to fall by 35 percent, for the ERR to fall to 10 percent.

Third, on the delays in project benefits, a one-year delay will reduce the ERR to 15.3 percent, and a two-year delay to 12.2percent. Project benefits will have to be delayed by nearly three years, for the ERR to fall to 10 percent.

The programmatic nature of the project makes it difficult to estimate the effect of international commodity price fluctuations onthe project's economic returns. If we conduct simulations on the basis of the assumed areas under adopted farming systems describedabove, price of coffee would be a good variable to use, since its breakdown of the f.o.b. price structure is well known, and alsobecause it is assumed to be one of the major crops to be supported under the project. If world coffee prices fall by 10 percent fromthe Bank's long-term projection prices throughout the project period of 20 years (a highly unlikely scenario), the ERR will fall to 17.9percent. With a 20 percent fall, the ERR will fall to 16.4 percent.

The results of the sensitivity analysis are summarized below. The results show that the project can sustain significant increases incost, delays in benefits and world price deterioration, without compromising its economic viability.

Results of Sensitivity Analysis

ERR (%) NPV @ 10% (US$ million)Costs 1.0 1.1 1.2 Costs 1.0 1.1 1.2

Benefits Benefits :

1.0 19.4 17.0 15.0 1.0 11.2 9.0 6.90.9 16.8 14.6 12.7 0.9 7.9 .5.8 3.60.8 14.1 12.3 10.3 0.8 4.7 2.5 0.4

Further, a sensitivity analysis using lower exchange rates for the Rupiah was undertaken, in view of the Rupiah's sharpdepreciation which coincided with the project's appraisal and loan negotiations. Depreciation of the Rupiah would generally improvethe project's ERR, since it would raise the border prices in local currency of exported crops such as coffee, and as most (81 percent)of the project cost items are local currency costs. Assuming for simplicity that costs of imported items rise in proportion to the ratewith which Rupiah depreciates from the base (appraisal) rate of US$ I = Rp. 3,000, the project's ERR at the exchange rates of US$ 1= Rp. 4,000, US$ I = Rp. 6,000 and US$1 = Rp 8,000 are 23.4 percent, 30.5 percent and 36.1 percent, respectively. These valuesare significantly higher than the base case ERR of 19.4 percent, and suggest that lower exchange rates for the Rupiah would improvethe economic viability of the project.

Fiscal Impact

Impact on Expenditures

In consideration of the Bengkulu governments' low revenue base and their limited capacity to contribute funds toward the project,efforts have been made to keep the project cost as low as possible without compromising project performance. The loan will finance79.6 percent of the total project cost.

Of the GOI counterpart funds amounting to US$ 2.6 million (10.0 percent of the project cost), all is contributed from APBD,through Inpres PPWT Level I ( a central government grant allocated to provincial governments for regional development) andLevel II.

Impact on Revenues

The project will not generate direct revenues for the government. The project will have some indirect impact on the revenues, byraising the general level of rural economic activity, and hence increasing local tax/levy revenues (e.g., value added tax on assortedagricultural and non-agricultural commodities).

While the level of expenditures to be borne by the provincial and local governments are not too significant as described above,increases in regional revenues would enhance the project's financial sustainability. GOI has been considering ways to augmentregional revenues.

Annex 5


Financial Summary

Indonesian Fiscal Years(US$ million, current prices)

Implementation Period Operational Period(Indonesian fiscal year)

98/99 99/00 00/01 01/02 02/03 03/04Project Costs

Investment Costs 1.2 2.4 4.5 7.6 4.1 4.2 Most government expenditures notRecurrent Costs 0.2 0.2 0.3 0.3 0.3 0.4 expected to be continued after the

Total 1.4 2.6 4.8 7.9 4.4 4.6 implementation period. Resourceallocation for agricultural extension

Financing Sources may stay at a level higher than pre-project period, benefiting not only the

IBRD 0.7 2.3 4.2 6.9 3.1 3.2 project villages but other villages asGovernment 0.7 0.3 0.4 0.4 0.4 0.4 well.In-kind (not cash) 0.0 0.0 0.2 0.6 0.9 1.0contribution by farmers, inthe form of labor

Total 1.4 2.6 4.8 7.9 4.4 4.6

Annex 6


Procurement and Disbursement Arrangements

Procurement

Procurement of works and goods will follow the "Guidelines for Procurement under IBRD Loans and IDA Credits" datedJanuary 1995, which were revised in January/August 1996. Standard Bidding Documents will be used for all Bank-financedprocurement. Employment of consultants and the format for consultants' contracts will be based on the "Guidelines forSelection and Employment of Consultants by World Bank Borrowers" of January 1997, as revised in September 1997. Theprocurement methods to be used for the project are indicated in Table A of this Annex.

Since all procurement under the project will be conducted by the provincial and district governments of Bengkulu, whichhave limited experience with procurement under Bank loans, the TA consultants for Capacity Building/ImplementationSupport will assist with the procurement.

Procurement Methods (Table A)

Goods, Works and Services under Village Grants (US$ 15.5 million). Village grants, to be provided by GOI to theproject villages, will account for about 60 percent of the total project cost, and will be used by the villages (LKMDs) toimplement the civil works and agricultural testing/replication activities, basically following the VIP procedures. The grantwill be financed 100 percent under the loan to prevent disbursement delays which are inevitable when combining loan fundswith regional government funds. The 100 percent loan financing is possible because there will be no taxes on goods, worksand services to be procured by the villages, as long as the project activities are implemented by the LKMDs themselves,based on the Government Regulation No. 42/1995 and others.

For civil works under the Village Infrastructure Component, the LKMDs will carry them out oy direct village labor(community participation) under Village Implementation Agreements (SPPB) with a Pimpro in each Dinas PU Level II. TheLKMDs may also procure supplies of materials, following National Shopping procedures, but may not procure small workssince a Value Added Tax will be levied on the contract. Simplified implementation agreements and documentation forNational Shopping, agreed and used under the VIP, will be used for the Bengkulu project as well and included in theTechnical Guidelines for Project Implementation. The Field Engineers will assist the LKMDs in: (a) organizing villagelabor; (b) hiring equipment; and (c) purchasing materials/tools.

For the testing/replication of agricultural technologies to be conducted under the Village-Based Technology AdoptionComponent, basically the same approach to procurement will be applied, with the notable difference that the Pimpro will beat each BIPP. Based on the Village Action Plan reviewed by the BPP concerned, the LKMDs (or the farmers themselvesthrough fund allocation by LKMD) will use the village grant to purchase agricultural inputs (mainly seedlings, seeds,fertilizers, pesticides, herbicides, tools, wild pig snares) following National Shopping procedures, to be detailed in theGeneral Guidelines for Project Implementation (juklak). The LKMDs are not allowed to contract the testing/replicationprogram to other parties, as participatory and demand-driven management of the program is considered a key element of theproject.

Consulting Services (US$ 2.7 million). There will be three consulting services packages to be procured under theproject. The two relatively large packages to be contracted to consulting firms will be procured on the basis of a short list tobe agreed with the Bank, after advertisement in Development Business. One is the technical assistance for CapacityBuilding/Implementation Support, which would include the community development facilitators (see below), beneficiarysurveys and PRA trainers (total estimated cost: US$ 1.2 million). The PRA trainers may be sub-contracted to qualifiedNGOs and other groups.

The second package is for the Field Engineers. Firms are not allowed to be party to both of the technical assistancepackages. The estimated cost of the package is US$ 1.4 million.

The third package is for an individual consultant who will be assigned to assist the Project Secretariat at the central level,to be located in BANGDA for a total of 48 months. The estimated cost of the package is US$ 78,000.

Service Delivery Contractors (US$1. Imillion). The 32 community development facilitators or the pendamping (totalingUS$1.1 million), who will: be sub-contracted by the TA consultants for Capacity Building/Implementation Support, will beappointed as "service delivery contractors" under the Bank's Guidelines of January 1997. They will be recruited locallybased on agreed criteria, for a duration of 3.5 years each.

Service Contracts for Agricultural Support Activities (US$0.6 million). There is one large package and several smallones to be procured as service contracts. The largest is for the packaging, testing and monitoring of new agriculturaltechnologies by INPPTP: BAPPEDA Level I would cause INPPTP to cany out the services under a contract to be enteredinto between the two agencies (cost estimated at US$ 564,000). Contracting out of research-related activities to a publicinstitution has been done under the First and Second Agricultural Research Management Projects, both Bank-financed. Forthe Bengkulu project, this approach will be used so that GOI counterpart funds can come from the same source as for all theother project activities (Inpres PPW), which would facilitate planning, budgeting and monitoring. The other contracts will befor two small pilot private sector participation schemes in partnership with the government extension service, for coffee andrubber (US$ 29,000 each), as well as smaller contracts for newspaper articles and radio spots to disseminate project-relatedinformation.

Training (US$ 0.3 million). Training will be conducted through GOI procedures acceptable to the Bank, by theBAPPEDA, Dinas PU Level I and BIPP offices concerned.

Goods (US$ 0.3 million). This category includes equipment and furniture to be procured by the BAPPEDAs, PMD,BIPPs and BPPs, as well as agricultural inputs to be procured by the Dinas Tree Crops' Rubber Nursery in North Bengkuluand Dinas Food Crops for annual crop seed production. Due to the small size of the packages, NCB procurement is notexpected, except when the implementing agencies decide to lump small packages together to arrive at a contract at or aboveUS$50,000. Contracts of less than US$50,000 will be procured through National Shopping procedures.

Civil works (US$ 0.2 million). Civil works would be procured by BAPPEDA Level I and the BIPPs concerned. Due tothe small size of the packages, NCB procurement is not expected, except when the implementing agencies decide to lumpsmall packages together to arrive at a contract at or above US$50,000. Contracts of less than US$50,000 will be procuredthrough National Shopping procedures.

Vehicles (US$ 0.5 million). GOI will provide the vehicles for the project under their own procedures, in accordance withthe schedule agreed with the Bank.

Prior Review Thresholds (Table B)

Table B of this Annex indicates the thresholds for prior review. For procurement under the village grants, given the smallamounts of contracts and their large number, as well as the built-in safeguards (Field Engiiieers, the TA consultants forCapacity Building/Implementation Support, Bank supervision), only the first contract in each of the ten clusters of the "firstbatch" villages (total of 40 villages) at or above US$5,000 equivalent will be subject to prior review. Ex-post review ofdocumentation on a sampling basis will cover 20 percent of the value of the village grants during PYI-2; the percentage maybe lowered to 10 percent starting PY3 depending on supervision results.

Prior review for selection of consultants will follow the Bank's Guidelines of January 1997, which requires contracts forconsulting firms valued at or above US$ 100,000 and contracts with individual contracts at or above US$ 50,000 be subjectto prior review. This means that all three TA packages will be subject to prior review.

Contracts for goods and civil works equivalent to or above US$ 100,000 will be subject to prior review.

Procurement Plan (Table D)

The procurement plan for the project is attached as Table D of this Annex.

Disbursement

Allocation of Loan Proceeds. The allocation of loan proceeds is shown in Table C of this Annex.

Disbursement of Village Grants at Local Level. For the Village Infrastructure Component, VIP disbursement procedureswill be used at the local level. For cost efficiency reasons, the project will pay for outputs (itemized works) against measuredprogress and prorated lump-sum contracts. Village Implementation Agreements (grant contracts) will be signed between theLKMD and the component's Pimpro at Dinas PU Level II. Grant disbursements would be based on the LKMD's reports ofwork progress and use of funds, certified by the Field Engineers, and submitted to the Pimpro who will in turn forward theoriginal to the respective Treasury Office (KPKN) of the Ministry of Finance. KPKN will transfer the funds to the LKMD'saccount at the closest Operational Bank branch. The LKMD will then withdraw funds from the bank branch whenpresenting their request, certified by the Field Engineer, according to progress of works. Evidence of expenditures, recordsof labor paid for, and invoices of materials procured will be kept at the village.

Disbursement of the village grant under the Village-Based Technology Adoption Component will be basically the same asthe above, except that certification will be done by BPP/PPs instead of the Field Engineers. Grant disbursements will bebased on LKMD's reports on testing/replication activities and use of funds, certified by BPP/PPs.

Special Account. In order to facilitate loan disbursements, and reduce the volume of withdrawal applications, GOI willestablish a Special Account at Bank Indonesia, to be maintained in US dollars. The authorized ceiling for the account(equivalent to four-months average project disbursements) will be US$ 1.2 million. The account will be managed by theDirectorate General of Budget, Ministry of Finance. Replenishment of the account will be made on a monthly basis, or when20 percent of the authorized ceiling has been disbursed, whichever is earlier.

Use of Statement ofExpenditures (SOEs). Disbursements will be against Statement of Expenditures (SOEs) for: civilworks, goods and service contracts less than US$100,000 equivalent; contracts with individual consultants and servicedelivery contractors less than US$50,000 equivalent; contracts with consulting firms less than US$100,000; all training; andprocurement of goods, works and services under village grants, except for the first procurement of goods, services or worksin each of the first ten clusters of Participating Villages, costing US$5,000 equivalent or more. Documentation for theseexpenditures would be retained by the implementing agencies, and made available to the Bank on request. All otherdisbursements from the loan will be fully documented.

Table A: Project Costs by Procurement Arrangements

(in US$ million equivalent) a/

Procurement Method Total CostExpenditure Category (including contingencies)

Otherb/ N.B.F c/

1. Civil Works 0.2 0.2(0.2) (0.2)

2. Goods 0.3 0.3(0.3) (0.3)

3. Vehicles 0.5 0.5

4. Service Delivery 1.1 1.1Contractors (1.0) (1.0)

5. Service Contracts 0.6 0.6(Agricultural Support (0.5) (0.5)Activities)

6. Consulting Services 2.7 2.7(2.7) (2.7)

7. Training 0.3 0.3(0.3) (0.3)

8. Labor d/ 2.7 2.7

9. Goods, Works and 15.5 15.5Services under Village (15.5) (15.5)Grants

10. Recurrent Costs 1.8 1.8

Total 20.7 5.0 25.7(20.5) -- (20.5)

Notes: a/ Figures in parenthesis are the amounts to be financed by the Bank loan.b/ "Other" includes comnmunity participation, national shopping, procurement of small works,

consultant selection following the Bank Guidelines for the Use of Consultants, and GOI proceduresacceptable to the Bank.

c/ N.B.F. = Not Bank-financed.d/ Contribution by participating farmers, in the form of their own labor (not cash), for testing and

replication of agricultural technologies on their own plots.

Table B: Thresholds for Procurement Methods and Prior Review

Expenditure Contract Value Procurement ContractsCategory (Threshold) Method Subject to

Prior Review

1. Civil Works Individual contracts of $100,000 or above NCB \a Yes

Individual contracts at or above $50,000, NCB \a Noless than $100,000

Individual contracts of less than $50,000 Small Works No

2. Goods $100,000 and over NCB\a Yes

At or above $50,000, less than $100,000 NCB\a No

Individual contracts of less than $50,000 National Shopping No

3. Service Delivery As per 1997 Bank NoContractors Guidelines

4. Service Contracts Direct Contracting Yes \b(Agricultural SupportActivities)

5. Consulting Services Contracts for consulting firms valued at As per 1997 Bank Yes \cor over $100,000 Guidelines

Contracts for consulting firns valued at As per 1997 Bankless than $100,000 Guidelines No

Contracts with individual consultants at As per 1997 Bankor over $50,000 Guidelines Yes \d

Contracts with individual consultants at As per 1997 Bank Noless than $50,000 Guidelines

6. Training Not applicable GOI procedures N.A.acceptable to theBank

7. Goods, Works and Community No \eServices under Participation,Village Grants National Shopping

\a A contract may amount to $50,000 or higher, if an implementing agency decides to let some packages together.\b The services to be provided by the INPPTP would be under prior review, while the

contracts for private sector participation pilots in extension services will not.\c The two TA packages with consulting firms fall into this category.\d The individual consultant for the Project Secretariat at CGC will fall into this category.\e Only the first contract in each of the ten-village clusters of the "first batch" for goods or works

at or above $5,000 will be subject to prior review.

Table C: Allocation of Loan Proceeds

Expenditure Category Amount in US$ Financing Percentagemillion

1. Civil Works 0.2 90

2. Goods 0.3 100 percent of foreignexpenditures for directlyimported items; or 100 percentof local expenditures (ex-factory, net of taxes) of locallymanufactured items; or 65percent of local expendituresfor other locally procureditems.

3. Service Delivery Contractors 1.0 90

4. Contract Services (Agricultural Support 0.5 90Activities)

5. Consulting Services 2.3 100 (excluding duties andtaxes)

6. Training 0.3 90

7. Goods, Works and Services under 15.5 100 (excluding duties andVillage Grants taxes)

8. Unallocated 0.4

Total: 20.5

Table D: Procurement Plan

(US$'OOO)

Main Items FY98/99 FY99/00 FYOO/_l FYOI/O2 FY02/03 FY03/04 TOTAL

1. Goods, Works and Servicesunder Village Grants /a

a) infrastructure - 1,004.1 2,455.0 3,734.0 . - 7,193.1(C.P.) (C.P.) (C.P.) (C.P.)

b) agricultural technologytesting/replication - 108.0 443.2 1,843.1 2,811.3 3,108.4 8,314.0

(C.P.) (C.P.) (C.P.) (C.P.) (C.P.) (C.P.)

2. Consulting Services /b

a) Capacity Building/ 229.0 438.4 285.4 184.2 87.2 1,224.1Implementation Support

b) Field Engineering Services - 271.1 460.9 637.4 . . 1,369.4

c) CGC Secretariat 12.4 11.0 11.7 12.5 13.3 17.0 77.8

3. Service Delivery Contractors 56.7 203.0 360.7 278.7 147.5 79.5 1,125.9

4. Service Contracts /c 104.4 96.1 151.4 163.4 105.7 - 620.9(Agricultural Support (D.A.) (D.A.) (D.A.) (D.A.) (D.A.) (D.A.)Activities)

5. Training 28.3 74.1 91.8 72.9 28.3 6.1 301.5(F.A.) (F.A.) (F.A.) (F.A.) (F.A.) (F.A.) (F.A.)

6. Goods 100.5 74.0 87.2 70.5 17.0 349.3(NCB/NS) (NCB/NS) (NCB/NS) (NCB/NS) (NCB/NS) (NCB/NS)

7. Civil Works 228.9 7.0 7.4 243.3(NCB/NS) (NCB/NS) (NCB/NS) (NCB/NS)

8. Vehicles 416.3 33.2 34.8 - - 484.3(GOI) (GOI) (GOI) (GOI)

TOTAL: 1,164.1 2,309.0 4,377.81 6,984.2 3,196.8 3,194.0 21,225.9

NOTE:

(C.P.) = Community Participation(D.A.) = Direct Appointment(F.A.) = GOI procedures acceptable to the Bank(NCB/NS) = NCB for contracts of $50,000 or more, and National Shopping for contract less than $50,000.(N.S.) = National Shopping(GOI) = 100% financed by Government

/a = Prior review of the first contract of more than $5,000 in each of the first 10 clusters/b = Prior review (TORs, short lists, negotiation)/c = The INPPTP contract subject to prior review

Annex 7Financial Reporting and Auditing Framework

Internal Control Framework

The Internal Control (IC) framework for the Bengkulu Regional Development Project (BRDP) consists of projectmanagement policies and procedures. It would follow the existing government internal control system, which is basically satisfactoryto the Bank. The IC structure comprises three elements: (a) organization (institutional framework); (b) accounting system; and (c)control procedures.

The existing government IC system is deemed adequate, based on the following factors:

* Accounting system.* Organizational structure (institutional framework).* Practices pertaining to the delegation of authority and responsibility, including job description.* Management control methods, including intemal auditing, budgeting, variance analysis and forecasting.* Enforcement policies.* Authorized execution of transaction.* Limited access to assets.* Comparison of recorded amounts with assets in existence.* Trained, competent personnel.- Segregation of staff functions in ways which prevent staff from perpetrating or concealing errors and irregularities.

Under the project, the concept of transparency would be emphasized, particularly at the village level (towards LKMDs,villagers, etc.), as part of the IC.

Organization

Each implementing unit would have a Pimpro (Project Manager) and a Bendaharawan (treasurer). They would have someassistance (as necessary) on procurement, and technical and financial matters. The standard requirements for a Pimpro are as follows:

* Staff of implementing unit.* Competence* Sarjana Degree* Minimum staff level (echelon) IllIc for Pimpro (III/a for Pimbagpro if any)* Having a Project Management Certificate or equivalent.* Two years' working experience with govermnent projects

The standard requirements for a treasurer are as follows:

* Staff of implementing unit* Competence* D III Degree* Minimum staff level 11/c* Having treasury (bendaharawan) certificate or equivalent.* One year working experience in government projects

The project's implementing agencies would train their staff (as necessary), to fulfill the requirements. They should fulfill therequirements from the beginning of the project. All government implementing agencies have adequate capacity, except for BIPP forwhich on-the-job training would be provided under the TA for Capacity Building/ Implementation Support.

Accounting System and Procedures

The general accounting system and procedures would follow government accounting system which is in line with theGenerally Accepted Accounting Principles (GAAP). The existing government accounting system is satisfactory to the Bank. Inaddition, specific project accounting system and procedures would be spelled out in the Guidelines for Project Implementation (jukiak

and juknis). The Guidelines should be available in each LKMD/village implementation team for reference. If a villageimplementation team encounters difficulties even after referring to the Guidelines, the Field Engineer (FE) and/or the communitydevelopment facilitator (pendamping) concerned would assist the villagers and explain how the problem can be addressed.

The project's financial statement should show the financial position of BRDP at the end of fiscal year, and the funds receivedand expended during the fiscal year which ends on March 31. The financial statement should be prepared in accordance with GAAP,and should include a Project Account (PA) report and a Special Account/Statement of Expenditures (SA/SOE). Each ProjectImplementing Unit (PIU, namely the Pimpro and the Treasurer) will prepare the PA report. The DG Budget, MOF would prepare theSA/SOE report.

The PA report should include:* Summary of funds received from the Bank, other donors and the govermment's counterpart fund sources separately.* Summary of expenditures shown under the project, broken down by project component and expenditure categories (see

below), both for the current fiscal year and cumulative.

The PIUs will use the consolidated PA format (attached to the Project Implementation Plan).

The SA/SOE should include:* Deposits and replenishments received from the Bank.* Withdrawals from SA and other sources, including all SOEs used as the basis for the submission of withdrawal

application.* The remaining balances at the end of each fiscal year.e Reconciliation between SA and amount being disbursed.

SA/SOE report would use a format developed and conveyed to DG Budget on June 8, 1992.

Financial Management and Reporting Requirements under the Project

Each implementing agency, including the LKMD, would establish and maintain an adequate and separate account from thebeginning of project implementation. The LKMD would prepare a progress report, including a financial report, and submit it to thePimpros in the Kabupaten on the second week of the fourth month. The FEs would assist LKMDs in preparing the financial report.Reports on the Village-Based Adoption of Agricultural Technologies (VBAAT) component should be furnished to the BIPP Pimpros;reports on the Village Infrastructures (VI) component to the Pimpro at Dinas PU Level II.

All Pimpros would prepare quarterly progress reports, which are consolidated from reports prepared by LKMD and othersources. All reports from BANGDA, BAPPEDA Levels I/II, BIPP, and DPU Levels I and II would be submitted to Pimpro inBAPPEDA Level I on the third week of the fourth month. This report would be consolidated with other components by Pimpro inBAPPEDA Level I, who would submit the consolidated report to the Bank on the last week of the fourth month. The consolidatedfinancial report would be submitted to the Financial and Development Supervisory Board (BPKP) or other qualified auditorsacceptable to the Bank for audit.

Audit Requirements

The implementing agencies concerned are required under the BRDP to:

a) maintain records and accounts to reflect, in accordance with sound accounting practices, the operations, resources andexpenditures in respect of the activities for which they are responsible for implementation.

b) have these records and accounts audited for each fiscal year, to include disbursements made under the project during theperiod.

c) furnish audit reports to the Bank as soon as available, but in any case no later than six months after the end of each fiscalyear.

The specific audit requirement are as described below:

a) DG Budget, MOF would be responsible for preparing financial statements for the Special Account. DG Budget shouldfurnish to the Bank an SA/SOE audit report, not later than six months after the end of each fiscal year (by September 30of each year).

b) Pimpro in BAPPEDA Level I would be responsible for producing consolidated project reports, as well as progressreports, on a quarterly basis. The Pimpro should furnish to the Bank a consolidated PA audit report not later than 6months after the end of each fiscal year (by September 30, 1997)

A financial statement, including the PA and SA/SOE, would be audited annually by the auditor. The financial statementswould be audited by BPKP in accordance with procedures satisfactory to the Bank. Draft of Term of Reference (TOR) of the auditprogram is attached to the Project Implementation Plan.

Beside the annual audit, the Bank would conduct ex-post reviews of all documents based on random sampling duringsupervision missions.

Description of Expenditure Categories, for Use in Financial Reporting and Auditing

Part A: Village Infrastructure Component

Village grants, comprising grants to villages which the LKMDs will manage, to construct infrastructure in selected villages, whichconsists of village roads, bridges, jetties, improvement of small-scale irrigation facilities (maximum area of 50 Ha), water supplyfacilities, sanitary facilities, coffee drying floors, fish drying floors, coffee hullers, agricultural input storages, product storages, fishsmoking houses and fingerling ponds.

Recurrent Costs, to cover honoraria, travel allowance, operation and maintenance and other administration costs to be incurred inDinas PU Level II.

YVhils, to cover vehicles which use for project implementation in Dinas PU Level II.

Part B. Village Based Technology Adoption Component

CivilWD1rkU, comprising construction of a BIPP office in each of the three project Kabupatens (North Bengkulu, South Bengkulu andRejang Lebong), as well as the renovation of 16 BPP offices in selected kecamatan of the project area.

Good, comprising purchases of office fumiture and equipment for BAPPEDA Level II, BIPPs and BPPs. They include generatorsets, books and leaflets, equipment model (e.g. chicken house, etc.) for BPP, as well as goods for the Dinas Tree Crops rubber nurseryin North Bengkulu and for food crop seed producers in participating kabupatens through BAPPEDAs Level II.

Village grants, comprising grants to villages which the LKMDs will manage, to test agricultural technologies starting in PY 2 andcontinuing until PY 5, in three batches (40, 76 and 104 villages), and replicate the technologies starting in PY 4 and continuing untilPY 6. Testing of agricultural technologies for each village will be implemented over two years: the first year is for 5 pioneerfarmers/village and the second year for 10 farmers/village. Wide dissemination/ replication will be implemented in each village afterthe second year testing, to be financed through a village revolving fund.

Training, comprising on-site training to be provided by the PPs in strengthening the LKMD for testing and replication; visits toSembawa research center for Dinas Level II; training of BIPP and BPP staff in, among others, participatory rural appraisal (PRA)techniques, human resources development, information packaging techniques, dissemination information and agricultural extensiontechniques; training of farmers in participating villages to conduct farmer-to-farner extension; training of Field Engineers andrelevant government staff on the village infrastructure activities; and workshops on project supervision, monitoring and evaluation.

Service Contracts (Agrcultural Suppo Activitie comprising two small contract packages between BIPP and AEKI for coffee inKecamatan Kepahyangan, Rejang Lebong and between BIPP and GAPKINDO for rubber in Kecamatan Kerkap, North Bengkulu.

RecurTent Costs, comprising honoraria, travel allowance, operation & maintenance and other administration costs to be incurred byBIPPs, BPPs and the BAPPEDAs Level II.

Vehicles comprising vehicles to be used for project implementation by BIPPs and the BAPPEDAs Level TI.

Part C. Capacity Building / Implementation Support Component

Civil Works, comprising the construction of the BRDP office at BAPPEDA Level I in the kotamadya (municipality) of Bengkulu.

Go comprising office furniture and equipment for BAPPEDA and PMD offices at the provincial level.

Training, comprising a project launch workshop and progress review workshops on project supervision, monitoring and evaluation.

Services Delivery Contractors, comprising the employment of services by 32 community development facilitators (pendamping) whowould assist LKMDs to identify sub-projects, prepare village action plans for proposed sub-projects, and implement approved sub-projects.

Service Contracts (Agricultural Support Activities!, comprising INPPTP's identification of relevant agricultural technology packages,preparation of BPP and PP guidelines for each agricultural technology package, and monitoring and analysis of tests conducted byfarmers. Contracts to be let by PMD Level I for newspaper articles and radio spots to disseminate project-related information are alsoincluded in this category.

Consulting Services, comprising the Technical Assistance for Capacity Building/Implementation Support, which include internationaland national advisors, PRA trainers, and beneficiary surveys, Field Engineering Services (FES) to support village infrastructureactivities and assistance to the Project Secretariat at the central level and TA for monitoring and evaluation in central office(BANGDA).

ecurrent Costs, comprising honoraria, travel allowance, operation and maintenance and other administration costs, to be incurred byBANGDA, BAPPEDA Level I, PMD Level I and Dinas PU Level I.

Vehicles, comprising vehicles to be used for project implementation by BAPPEDA Level 1, PMD Level I and Dinas PU Level 1.

Annex 8


Project Processing Budget anid Schedule

A. Project Budget (US$000): Planned Actual(At fmal PCD stage)

US$ 245,000 US$ 346,000B. Project Schedule Planned Actual

(At final PCD stage)Time taken to prepare the project (months) 18 months 26 monthsFirst Bank mission (identification) 07/31/1995 07/31/1995Appraisal mission departure 02/07/1997 09/30/1997Negotiations 08/25/1997 12/18/1997Planned Date of Effectiveness 08/19/1997 04/22/1998

Prepared by: The provincial/kabupaten governments of Bengkulu(Assistance provided by BAPPENAS and BANGDA)

Preparation assistance: the Danish Consultant Trust Fund

Bank staff/consultants who worked on the project included:

Core Task Team

Akihiko Nishio, economics (task team leader), EASRD

Charles Maguire, human resources, RDV

Thomas Fairhurst, agriculture (consultant)

Thamrin Nurdin, institutions, EACIF

Asmeen Khan, participation, EACIF

Maria Triyani, agricultural economics (consultant)

Titie Hadiyatie, civil engineering (consultant)

Mohamad Rum Ali, economics (consultant)

Karin Nordlander, legal, LEGEA

Yogana Prasta, disbursement, EACIF

Sumaryo Soemardjo, tree crops/procurement. EACIF

Unggul Suprayitno, financial management, EACIF

Hudi Sartono, rural finance (consultant)

Adi Wiyana, institutions, EACIF

Dennis Goonting, community development (consultant)

Johannes ter Vrugt, agriculture, EASRD

Thomas Walton, environment, EACIF

Esme Abedin, operations assistant, ASTEN

Bridie Champion, disbursement, LOAAS

Yani Wiguna, task assistant, EASRD

Peer Reviewers

Hans Binswanger (AFTAE) on decentralization

Charles Ameur (MNSRE) on extension

Dina Umali-Deininger (SASRD) on economics

]2mt PAD Revieer

Gershon Feder (DECRG) on economics

Amnon Golan (consultant) on overall design

Ben Fisher (EACIF) on institutions, social issues

Scott Guggenheim (EACIF) on institutions, social issues

Graciela Lituma (LCSES) on agricultural development

Annex 9


Documents in the Project File*

A. Project Implementation Plan:

* Final Draft Report Project Implementation Plan, DARUDEC A/S, February 1997* Project Implementation Plan for the Village Infrastucture Component* Project Implementation Plan for the Village-Based Technology Adoption Component and the Capacity

Building/lmplementation Support Component

B. Bank Staff Assessments

* Village Profiles and Community Needs in Three Kabupatens in Bengkulu, Draft, July 8, 1996

C. Preparation Documents:

X Preparation Reports:- Volume 1: The Report, Draft, DARUDEC A/S, November 1996- Volume 2a: Annexes 1 - 5, Draft, DARUDEC A/S, November 1996

* Preparation Consultancy Inception Report, Draft, DARUDEC A/S

D. Others:

* Decentralized Agricultural Extension Study, Draft Main Report, December 29, 1995* Agricultural Extension Consultancy for the Kerinci Seblat National Park, Integrated Conservation and Development

Project, Deutsche Gesellschaft far Technische Zusammenarbeit, May 8-25, 1995* Smallholder Tree Crops Financing and Cost Recovery: A Review, Draft, by Anne Gouyon/ldd-Force, April 20, 1997* In Search of Modern Sustainable Agriculture: A View from Upland Indonesia, Yujiro Hayami, Asian Journal of

Agricultural Economics, Vol. 2, No. 1, August 1996.

*Including electronic files.

Annex 10Statement of Loans and Credits

Status of Bank Group Operations in IndonesiaIBRD Loans and IDA Credits in the Operations Portfolio

Difference

in US$ Millions between expected

Loan or Fiscal Original Amount and actual

Project ID Credit No. Year Borrower Purpose IBRD IDA Cancellations Undisbursed disbursements /a

Number of Closed Loans: 153/Credits: 48

ID-PE-3873 L31580 1990 GOI Second Secondary Education 154.20 0.00 0.00 15.93 15.93ID-PE-3960 L32090 1990 GO Gas Utilization 86.00 0.00 0.00 31.12 31.12ID-PE-3868 L32190 1990 GOI Second Jabotabek Urban 190.00 0.00 0.00 21.66 21.66

DevelopmentID-PE-3977 L32460 1991 GOI Third Jabotabek Urban Development 61.00 0.00 0.00 17.70 17.70

ID-PE-3959 L32820 1991 001 Fertilizer Restructuring 221.70 0.00 0.24 7.37 7.62ID-PE-3981 L33020 1991 GOI Provincial Irrigated Agriculture Dev. 125.00 0.00 21.50 13.26 34.76

ID-PE-3943 L33040 1991 GOI East Java/Bali Urban Development 180.30 0.00 0.00 9.13 9.13ID-PE-3912 L33050 1991 GOI YogyakartaUplandArea 15.50 0.00 1.30 0.62 1.92

DevelopmentID-PE-3975 L33490 1991 GOI Power Transmission 275.00 0.00 103.40 10.66 114.06ID-PE-3928 L34020 1992 GOI Agricultural Financing 106.10 0.00 0.00 42.89 42.89ID-PE-3966 L34310 1992 GOI Third Non-Formal Education 69.50 0.00 0.00 6.68 3.48

ID-PE-3940 L34480 1992 GOI Primary Education Quality 37.00 0.00 0.00 14.53 11.43Improvement

ID-PE-4012 L34540 1992 GOI BAPEDAL Development 12.00 0.00 0.00 0.57 0.57

ID-PE-3860 L34640 1992 GOI Treecrops Smallholder 87.60 0.00 0.00 30.66 15.56ID-PE-3997 L34820 1992 GOI Fourth Telecommunications 375.00 0.00 0.00 167.65 67.65

ID-PE-3969 L34960 1992 GOI Primary School Teacher Development 36.60 0.00 0.00 9.67 8.37

ID-PE-3916 L35010 1992 GOI Suralaya Thermal Power 423.60 0.00 100.00 105.14 91.54ID-PE-3970 L35260 1993 GOI Financial Sector Development 307.00 0.00 39.81 41.22 81.03ID-PE-3914 L35500 1993 GO Third Community Health & Nutrition 93.50 0.00 0.00 35.54 4.79

ID-PE-4006 L35790 1993 GO E. Indonesia Kabupaten Roads 155.00 0.00 0.00 22.12 18.12ID-PE4009 L35860 1993 GOI Integrated Pest Management 32.00 0.00 0.00 15.90 9.90

ID-PE-3999 L35880 1993 GOI Groundwater Development 54.00 0.00 18.94 12.42 5.46ID-PE-4018 L35890 1993 GOI Flores Earthquake Reconstruction 42.10 0.00 0.00 3.43 3.43ID-PE-4007 L36020 1993 GOI Cirata Hydroelectric Phase 11 104.00 0.00 0.00 66.81 56.81

ID-PE-3990 L36290 1993 GOI Water Supply & Sanitation for Low 80.00 0.00 0.00 47.27 27.27Income

ID-PE-3985 L36580 1994 GOI National Watershed Mgmt and 56.50 0.00 0.00 45.23 9.93Conservation

ID-PE-3945 L37120 1994 GOI Second Highway Sector Investment 350.00 0.00 0.00 209.02 129.02ID-PE-3952 L37210 1994 GOI Skills Development 27.70 0.00 0.00 17.97 17.97ID-PE-3998 L37260 1994 GOI Surabaya Urban Development 175.00 0.00 0.00 124.52 58.22ID-PE-4020 L37320 1994 GOI Fifth Kabupaten Roads 101.50 0.00 0.00 35.10 0.10ID-PE-4010 L37420 1994 GOI Dam Safety 55.00 0.00 0.00 40.14 14.54ID-PE-3890 L37490 1994 GOI Semarang-Surakarta Urban 174.00 0.00 0.00 118.31 48.01

DevelopmentID-PE-4017 L37540 1994 GO University Research for Graduation 58.90 0.00 0.00 34.81 3.91

StudyID-PE-3937 L37550 1994 GOI Integrated Swamps 65.00 0.00 0.00 42A9 6.19

ID-PE-3910 L37610 1994 0OI Sumatera & Kalimantan Power 260.50 0.00 0.00 228.57 76.07ID-PE-3954 L37620 1994 GOI Java Irrigation Improvements and Wtr 165.70 0.00 0.00 114.67 28.47

Resource Mgmt.ID-PE-3984 L37920 1995 GOI Land Administration 80.00 0.00 0.00 62.65 11.41ID-PE-4019 L38010 1995 GOI Second Accountancy Development 25.00 0.00 0.00 19.82 12.62ID-PE-3988 L38250 1995 GOI Second Professional Resource 69.00 0.00 0.00 46.23 5.23

DevelopmentID-PE-3979 L38450 1995 GOI Second Rural Electrification 398.00 0.00 0.00 286.25 121.65

ID-PE-3951 L38540 1995 GOI Kalimantan Urban Development 136.00 0.00 0.00 91.29 32.29ID-PE-3972 L38866 1995 GOI Second Agriculture Research 63.00 0.00 0.00 57.01 -3.99 ID

ManagementID-PE-3968 L38870/6 1995 GOI Book & Reading Development 132.50 0.00 0.00 116.10 -16.28 IDID-PE-34891 L38880/6 1995 GOI Village Infrastructure 72.50 0.00 0.00 3.90 -43.20 ID

ID-PE-4001 L39046 1995 GOI Telecommunications Sector 325.00 0.00 0.00 310.22 70.22 IDModemization

ID-PE-3965 L39050/6 1995 GOI Fourth Health 88.00 0.00 0.00 81.43 -6.46ID-PE-39754 L39130/6 1995 GOI Second Technical Assistance for 28.00 0.00 0.00 26.62 6.12

InfrastructureID-PE-3978 L39720 1996 GOI Industrial Technology Development 47.00 0.00 0.00 42.87 17.43

ID-PE-4021 L39780 1996 GOI Second Power Transmission and 373.00 0.00 0.00 373.00 58.40Distribution

ID-PE-4003 L39790 1996 GOI Second Teacher Training 60A0 0.00 0.00 57.49 14.09ID-PE-39643 L39810 1996 GOI STD/AIDS 24.80 0.00 0.00 24.07 7.77ID-PE-4008 L39840 1996 GO Nusa Tenggara Agriculture 27.00 0.00 0.00 25.45 2.45

DevelopmentID-PE-4011 L40070 1996 GOI Sulawesi Agriculture Area 26.80 0.00 0.00 24.81 0.61

DevelopmentID-PE-4014 L40080 1996 GOI Kerinci Seblat ICDP 19.10 0.00 0.00 18.20 1.50

ID-PE-39312 L40170 1996 GOI Second E. Java Urban Development 142.70 0.00 0.00 134.73 26.93ID-PE-41896 L40300 1996 GOI Human Resource Capacity Building 20.00 0.00 0.00 19.41 1.41ID-PE-37097 L40420 1996 GOI E. Java Junior Secondary Education 99.00 0.00 0.00 96.50 2.00ID-PE-4004 L40430 1996 GOI Higher Education Support 65.00 0.00 0.00 60.43 0.43

ID-PE-4016 L40540 1996 GOI Strategic Urban Roads 86.90 0.00 0.00 80.10 3.20ID-PE-3987 L40620 1997 GOI C. Indonesia Secondary Education 104.00 0.00 0.00 101.50 3.50ID-PE-41894 L40950 1997 GOI Sumatra Secondary Education 98.00 0.00 0.00 95.00 0.00

ID-PE-40521 L41000 1997 GOI Second Village Infrastructure 140.10 0.00 0.00 133.10 3.00

ID-PE-36053 L41050 1997 GOI Second Sulawesi Urban Development 155.00 0.00 0.00 150.00 2.40ID-PE-4026 L41060 1997 GO Railway Efficiency 105.00 0.00 0.00 105.00 3.00ID-PE-42540 L41250 1997 GOI Iodine Deficiency Control 28.50 0.00 0.00 27.50 -0.40ID-PE-35544 L41320 1997 GOI Solar Homes Systems 20.00 0.00 0.00 20.00 0.00

ID-PE-36047 L41550 1997 GOI Bali Urban Infrastructure 110.00 0.00 0.00 110.00 0.00ID-PE40195 L41930 1997 GOI Undergraduate Education 71.20 0.00 0.00 71.20 0.00ID-PE-49051 L41940 1997 GOI BEPEKA Audit Modernization 16.40 0.00 0.00 16.40 0.00ID-PE-42882 LA1980 1997 GOI Renewable Energy Small Power 66.40 0.00 0.00 66.40 0.00ID-PE-36956 L42070 1998 GOI Safe Motherhood 42.50 0.00 0.00 42.50 0.00

Total 8.151.90 M000 2520 4.757.95

Active Loans Closed Loans Total

Total Disbursed (IBRD and IDA): 3.108.75 15.066.98 18.175.73

of which has been repaid: 54.93 7.089.63 7144.56

Total now held by IBRD and IDA: 7.811.77 7.989.97 15.801.74

Amount sold: 0D00 88.0

Of which repaid: 0.00

Total Undisbursed: 4.757.95 4.770,56

/a Intended disbursements to date minus actual disbursements to date as projected at appraisal.

Note:Les donnees de decaissement sont actualis6es a la fin de la premiere semaine du mois.

STATEMENT OF IFC'sCommitted and Disbursed Portfolio

As of 30-Jun-97(In US Dollar Millions)

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic0 PT Astra Dian 0.00 1.07 0.00 0.00 0.00 1.07 0.00 0.000 PT Karabha 0.00 10.43 0.00 0.00 0.00 10.43 0.00 0.00

1971 Unitex 0.00 .35 0.00 0.00 0.00 .35 0.00 0.001980/87 Semen Andalas 8.14 10.02 0.00 8.99 8.14 10.02 0.00 8.991982/84/93 Saseka Finance 0.00 .38 0.00 0.00 0.00 .38 0.00 0.001988 Manulife 0.00 .32 0.00 0.00 0.00 .32 0.00 0.001989 PT Agro Muko 2.94 2.20 0.00 3.18 2.94 2.20 0.00 3.181989/91/94 PT Astra 0.00 12.16 0.00 0.00 0.00 12.16 0.00 0.001990/91/93/95 PT Indo-Rama 36.54 8.72 0.00 61.68 36.54 8.72 0.00 61.681991 LYON-MLF-Ibis 2.11 0.00 0.00 2.11 2.11 0.00 0.00 2.111991 PT Argo Pantes 15.00 13.00 0.00 22.71 15.00 13.00 0.00 22.711991 PT Indaci .40 0.00 1.83 0.00 .40 0.00 1.44 0.001991 PT RIMBA 7.00 .60 0.00 3.33 7.00 .60 0.00 3.331991 SEAVI Indonesia 0.00 1.50 0.00 0.00 0.00 1.50 0.00 0.001992 PT Swadharma 23.33 0.00 0.00 39.83 23.33 0.00 0.00 39.831992/94/96 PT KIA Keramik 25.83 9.09 0.00 85.91 17.34 4.05 0.00 58.401992/95 PT Bakrie Kasei 48.69 3.00 9.63 69.02 48.69 3.00 9.63 69.021992/95 PT Viscose 32.13 0.00 0.00 46.43 32.13 0.00 0.00 46.431993 PT Nusantara 4.00 0.00 0.00 12.00 3.58 0.00 0.00 11.671993 PT Samudera 1.91 5.00 0.00 5.84 1.91 5.00 0.00 5.841993/96 PT BBL Dharmala 15.34 0.00 0.00 35.55 15.34 0.00 0.00 35.551994 KDLC Bali 12.00 1.14 0.00 0.00 12.00 1.14 0.00 0.001994 Prudential Asia 0.00 6.75 0.00 0.00 0.00 4.19 0.00 0.001994 PAMA (Indonesia) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001994 PTPAMA 0.00 .71 0.00 0.00 0.00 .71 0.00 0.001994 PT Saripuri 7.56 0.00 0.00 20.00 7.56 0.00 0.00 20.001995 PT Bakrie Pet 11.08 2.00 0.00 0.00 11.08 2.00 0.00 0.001995 PT Bakrie Pipe 18.57 0.00 9.50 0.00 18.57 0.00 9.50 0.001995 PT Bunas Finance 8.55 0.00 0.00 4.50 8.55 0.00 0.00 4.501995 PT Citimas Captl 0.00 1.31 0.00 0.00 0.00 1.31 0.00 0.001995 PT Grahawita 0.00 0.00 5.00 0.00 0.00 0.00 5.00 0.001995 PT Hotel Santika 9.00 0.00 0.00 0.00 4.50 0.00 0.00 0.001995 PT KIA Serpih 15.00 6.35 0.00 55.00 15.00 6.24 0.00 55.001995 PTPanin Finance 6.00 1.93 0.00 8.00 6.00 1.93 0.00 8.001996 PT Dharmala 20.00 0.00 0.00 15.00 20.00 0.00 0.00 10.001996 PT Pramindo Ikat 25.00 8.18 25.00 300.00 25.00 3.27 25.00 0.001997 PT Alumindo 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001997 PT Astra Graphia 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.001997 PT Kalimantan 20.00 15.00 0.00 6.00 0.00 15.00 0.00 0.00

Total Portfolio: 391.12 123.21 50.96 805.08 342.71 110.59 50.57 466.24

Approvals Pending Commitment

Loan Equity Quasi Partic1997 ADES ALFINDO 24.00 7.00 0.00 46.001997 NISP A LOAN INCR 5.00 0.00 0.00 0.001997 P.T. SAYAP 14.00 0.00 0.00 28.00

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1997 P.T. WINGS 11.00 0.00 0.00 27.001996 PANIN FINANCE 11 6.00 0.00 0.00 4.001996 PANIN It - BLINC 0.00 0.00 0.00 4.001996 PT ASIANAGRO 40.00 0.00 0.00 40.001995 PT BAKRIE PIPE 0.00 0.00 0.00 13.001997 PT BANK NISP 5.00 0.00 0.00 0.001997 PT BLT 22.00 20.00 0.00 68.001995 PT INt)O-RAMA RI 0.00 2.50 0.00 0.001995 PT VISCOSE 11 0.00 5.00 0.00 0.00

Total Pending Commitment: 127.00 34.50 0.00 230.00

Annex 11Country at a Glance

Indonesia at a glance 2120/i7

Lower-POVERTY and SOCIAL East middle-

Indonesia Asia Income Developimnt dtsmond^

Population mid-1995 (nillons) 193.3 1,706 1,153GNP per capita 1995 (USS) 980 800 1.670 ! LifeexpectancyGNP 1995 (billions USS) 190.1 1,365 1926

Average annual growth, 1990-95

Population (%) 1.6 1.3 1.4 GNP GrossLabor force (%) 2.5 1.4 1.7 per Iprta.

Most recent estimate (latest year available since 1969) capita enrol

Poverty: headcount index (% ofpopulabon) 17Urban populafion (% of totalpopulaton) 34 31 56 ILife expectancy at birth (years) 64 68 67Infant mortality (per 1,000 live bifhs) 51 40 41 Access to safe walerChild malnutrition (% ofchildren underl5) 39 23 22Access to safe water (% of populaton) 63 77Illiteracy (% of populabion age 15+) 16 17 . - ndonestaGross primary enrollment (% of schoo-age populaon) 114 117 104

Male 116 120 105 -LowertiddleltonegIoopFemale 112 116 101

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1975 1985 1995 10968Economidc retlos

GDP (billions US$) 32.1 87.2 201.2 232.8Gross domestc investmentlGDP 23.7 26.1 31.5 31.6 Openness of economyExports of goods and non-factor services/GDP 23.2 22.2 26.0 25.8Gross domestic savings/GDP 25.9 27.8 32.3 32.3Gross national savings/GDP 23.4 22.8 28.2 28.2

Current account balance/GDP -3.4 -2.2 -2.6 -3.3 a nInterest payments/GDP 1.0 2.3 2.5 2.2 Savings InvesmentTotal debt/GDP 35.8 42.1 53.6 44.2Total debt servicelexports 15.1 28.8 29.9 30.0Present value of debtVGDP .. 51.3Present value of debVexports .1 87.7 Indebtedness

197665 1986-96 1995 1996 1997.06(average annual growth) IndonesGDP 7.0 7.9 8.2 7.6 6.6 _Lo _n gmuPGNP per capita 4.3 6.2 5.8 6.0 ..Exports of goods and nfs -1.0 9.3 8.0 9.6 7.6 |

STRUCTURE of the ECONOMY1975 1985 1995 1996

(% of GDP) Growt rate of output and inv nt (%)Agriculture 30.2 23.2 16.9 155 20Industry 33.5 35.9 40.9 39.9

Manufacturing 9.8 16.0 23.9 23.3 o _Services 36.3 40.9 42.2 44.6 .

aIo Private consumpbon 65.1 60.4 59.6 60.7 91 92 93 94 95 91General govemrment consumption 9.0 11.8 8.1 7.0 1 GW GDpImports of goods and non-factor servces 21.0 20.5 25.2 25.2 G

1975-85 1986-96 1995 1996(average annual growth) Gtowt of r and i t (%Agriculture 4.2 34 4.0 3.0 30 TIndustry 7.0 9.9 10.3 9.4

Manufacturing 14.5 11.2 11.1 99Services 9.0 8.1 7.9 716Private consumpbon 9.8 6.9 8.7 7 103General govemment consumpton 10.5 4.8 3.4 3.5Gross domestic investment 12.1 10.7 15.0 8.3 01 92 93 94 59 95imports of goods and non-factor services 8.8 9.4 15.8 8.7 Expo ImGross national product 6.5 7.9 7.4 7.5 E t -I t

Note: 1996 data are preliminary esaliates. Figures In italics are for years other han tose spelfied.The diamonds show four key indicators In the country On bold) compared wih its Income-group average. n data are mi sing, the diamond willbe Incomplete.

Indonesia

PRiCES and GOVERNMENT FINANCE1975 1985 1995 1996

omestic prices Inflation(%)

(% change) 15 TConsumerpnces 19.1 4.7 5.1 8.3 10

Implidt GDP deflator 11.2 4.3 9.4 11.8

Govemrnment finance(% of GDP) 0

Currentrevenue .. 19.2 15.5 15.0 91 92 93 94 9s 96Current budget balance .. 6.0 6.4 6.4 GDPdet CPIOverall surplus/deficit .. -3.2 -0.2 0.7

TRADE1975 1985 1995 1996

(milDlons US$) Eport and import levels (mill. US$)Total exports (fob) .. 18.823 44,792 53.286 90.00o T

Fuel .. 12,804 8,638 11.771 Go.=Rubber .. 714 1,554 2.589 . rManufactures .. 2.287 23,487 32.964 40.000 0 r

Total imports (cat)i 14.056 41,286 51,347 320000 r 1111 r 1 I iiFood .. 812 888 997 20.000 liiII111111IIIH iiFuel and energy .. 2.870 3,841 4,333 10.000 Jfl]jJftflJ [ j j Jj[ ,Capital goods * 5.394 16,712 21.114

Export prce index (1987=100) *. 121 137 90 01 92 93 94 9s 96Import pdce index (1987=100) .. 85 127 .. Exports n importsTermssoftrade(1987=1X) .. 143 108

BALANCE of PAYMENTS1975 1985 1995 1996

(milDons USS) Current account balance to GDP ratio I(%)Exports of goods and non-factor series 6.981 19,371 51,812 59474Imports of goods andnon-factorservices 6,775 17,840 50.086 57,967 |fl 1 - [ 94 95 I9' 6Resource balance 207 1,531 1.726 1,508

Net factor income -1,342 -3,542 -7,457 4,935 tNet current transfers 27 88 487 337 -2

Current account balance, L J[

before official transfers -1.108 -1,923 -5,244 -7.766 -38

Financing items (net) 257 962 6.621 12,733Changes in net reserves 851 961 -1.377 -4,968 -4

Merno: _ __Reserves Including goid (mill US$) 592 13,184 26,139 27,519Conversion rate (IocalVSS) 415.0 1,110.6 2,248.6 2.337S5

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1994 1995

(nions USS) 8 Composition of total debt, 1995 (mill. USS)Total debt outstanding and disbursed 11.498 36,715 96,543 107,831

IBRD 57 3.590 12,008 12,503 AIDA 318 844 776 756 I G 12503 B

22350

Totaldebtservice 1,060 5,823 14,272 16,419 I 2rIBRD 2 384 2,156 1,875 6750

IDA 2 12 26 26 |

Composition of net resource flowsOttcial grants 69 136 218 249 EOFfialcreditoms 515 980 1,615 1,101 31221Private creditors 1,749 154 1.967 2,428 F .s \,

Foreign direct invesSTent 476 310 2.109 4,600 1 34251Portfoio equity 0 0 3,672 4,873 I

World Bank programCommitments 311 1.068 1.538 1,312 A -IBRD E - BilateralDisbursements 164 777 1.184 1,044 !8-IDA D-Othermutlateral F-PrivatePrinciparepayments 0 133 1.259 975 C-IMF G - Short-tamrNettlows 164 644 -76 69 1Interest payments 3 282 922 926Netransfers 160 382 -998 -857

Intermational Economics Department 2/20197

Note: Govemmentfinence and trade fiscal year (Aprl to March). 1g99trade data are pmiections and are not comparable with historical data.

, 10- b.Fob ^ or ior

INDONESIABENGKULU REGIONAL

DEVELOPMENT PROJECT

T.lilW 0 9 <_ / A_io Large Villages/Towns Elevaions in Meters:NL. ^ s s Kabupoten Capitols 0 - 100

@ Province Capital 100 - 400* National Capital (inset) 400 - 1000

5 J/ 1 l lil l _i + ~~~~Airport _ 1000 - 1500tz \ s | 1 sL ~~~~~~~Pbrt _1500 -3000

> > _--Kabupaten Roads Mountain Peaks, Meters

-r 2L - / \ - Province Roads Kabupalen BoundariesW -= / \ ~~~~~~~~~~~~~~~~~~~~Province Boundaries

~1 - I fnternational Boundaries (inset)

0 ~ ~~ 25 10 11 0ittt

INDIAN > v

OCEAN 64~~~~OEA

M!s 8~~~~~ENGO S,t

°0 O7EAN l5 50 7T 1OF

0, ____________________________________ __________________ _- __i

B:~~~~~~~~~mo M nmt, T. &.k