Indonesia-Lombok Poverty Alleviation and... Environmental Infrastructure Project

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name Region Sector Project ID Borrower(s) Implementing Agency Regional Dev. & Ntb Environment Category Report No. PID8710 Indonesia-Lombok Poverty Alleviation and... Environmental Infrastructure Project East Asia and Pacific Region Other Urban Development IDPE40522 REPUBLIC OF INDONESIA Date PID Prepared February 8, 2000 Projected Appraisal Date June 15, 2000 Projected Board Date October 24, Country and Sector Background Sector Issues Ministry of Human Settlements and B (a) Poverty. Per-capita income in Indonesia had increased steadily for several years, and the 1996 government estimate of the absolute poor was seven million in urban areas (with a 10 percent incidence) and 15 million in rural areas (with a 12 percent incidence). However, a significant percentage of the population remained just above the poverty line. As a result of the economic crisis, which started in the second half of 1997, poverty levels increased substantially, especially in urban areas; mid-1998 urban poverty estimates started at 20%. (b) Access to basic services and income opportunities. Poverty in Indonesia is associated with lack of income opportunities, lack of access to basic environmental infrastructure services and lack of basic social services, e.g., education and health. In the post-crisis period, unemployment was estimated to have risen to 15 million (out of a labor force of 90 million), and underemployment was estimated at 45 percent (up from the pre-crisis estimate of 35 percent). The poor are inadequately covered by most basic environmental infrastructure services, including clean water, sanitation, storm drainage, and access roads. While the effects of the economic crisis on environmental infrastructure are yet to be empirically investigated, preliminary findings indicate that the poor are particularly affected by lack of government funds for: maintenance of existing infrastructure, and urgently needed new investments. (c) Centralized government, weak local fiscal, administrative and human capacities. Weak government capacity, especially in the provision of infrastructure services, has been a major problem. Though changing, the Indonesian government's planning and implementation mechanisms are still predominantly centralized. In the context of greater decentralization from central government, weak fiscal, administrative, and human capacities at local and provincial government levels have become even more critical. Government Strategy

2 (a) Poverty alleviation. Prior to the crisis, Government targeted its poverty alleviation efforts to the "left behind" villages, through a series of own funded and donor supported programs that provided basic infrastructure through labor intensive methods. With the onset of the crisis, Government increased the range and scale of its poverty interventions in both rural and in urban areas, to include: (a) labor-intensive public works programs; (b) subsidy programs for food and medicine; (c) school fee waivers; (d) food coupons and food stamps; and (e) implementation by local governments of their own programs, including promotion of food production on idle urban land. (b) Improved service provision to clear up back logs and to stimulate economic development. The Integrated Urban Infrastructure Development Program (IUIDP), and its more recent slightly enlarged version, have been the corner-stone of Government strategy for the last decade to ensure efficient delivery of basic urban services and to stimulate economic development in urban areas. The operational approach of the policy requires local governments to prepare action plans for institutional strengthening and improvements in resource mobilization, sector programming, and financing arrangements. IUIDP has received substantial donor support through various projects in the country. (c) Decentralization. Government's somewhat measured approach of the past towards decentralization has accelerated considerably with the recent enactment of laws on regional governance (Law no. 22/1999), fiscal balance (Law no 25/1999), and urban rural spatial planning. Major civil service reform is under discussion, with inputs from donors. Drafting of necessary regulations to implement the decentralization laws is underway, and Government estimates that there will be a transition period of up to two years. Government is currently making efforts to strengthen local and provincial government institutional and human capacities, and is seeking donor support in this regard. Sector Issues and Government Strategy in Lombok NTB is one of the poorest provinces in Indonesia. In 1996, prior to the crisis, Lombok (which accounts for three-fourths of the NTB population) had a poverty incidence of 17.6 percent, compared to the national incidence of 11 percent. Further, over 53 percent of the population was in the "near poor" and below category, with an expenditure level of Rp. 39,000 per month, compared with the national average of 30 percent. As an already backward province, NTB did not lose further ground during the crisis, and the postcrisis estimate of poverty is about 17 percent. Consistent with the overall poverty picture, Lombok has some of the poorest health indicators in Indonesia. According to a 1993 survey, average life expectancy was years, compared to the national average of years. Infant mortality rate was twice the national average, at 101 deaths per 1000 births, compared to the national average of 51. Service coverage for essential infrastructure services like water supply and sanitation was also extremely low. The Government of NTB province, with support from the national government, intends to undertake poverty alleviation measures through targeted income generation activities for the poor and improved provision of environmental infrastructure, public health and education services, as well as through tourism led economic growth. In this context, the provincial government is -2 -

3 conscious of the need to strengthen local capacity, protect the environment, and preserve Lombok's sasak culture. 2. Objectives The objective of the project, which is the first phase of a three phase program, is to: (a) support the preparation of a Medium Term Poverty Alleviation Action Plan in NTB province; (b) assist in providing basic environmental infrastructure to the poor; (c) support assistance to the poor for income generation; and (d) assist in the provision of environmental infrastructure to support economic development. The major portion of the investments under (b) to (d) will be in Lombok, while the remainder (about 15%) will be in Sumbawa. 3. Rationale for Bank's Involvement GOI believes that the Bank's in-country and international experience in poverty alleviation and urban environmental infrastructure would provide a strong impetus for poverty alleviation in one of the poorest provinces in Indonesia. In addition to direct support, Bank involvement in the project will likely attract assistance from other donors to poverty alleviation efforts in Lombok/NTB. GOI would also seek the involvement of other Bank units to complement the project's poverty alleviation efforts. Further, this project provides an ideal opportunity to operationalize government's decentralization efforts in a small island. 4. Description Possible project components are grouped according to the project's objectives of poverty alleviation through: (a) preparation of Medium Term Poverty Alleviation Action Plan; (b) targeted provision of basic services and support for income generation for the poor; and (c) infrastructure provision to support economic development. A. Preparation of Medium-term Poverty Alleviation Action Plan B. Environmental Infrastructure in Lombok - Oriented towards poverty groups - For economic development C. Support for Income Generation D. Investment for A & B above in Sumbawa (programmatic) E. Technical Assistance and Training. 5. Financing Total ( US$m) Government 2.5 IBRD 10.0 IDA Total Project Cost Implementation January 1, 2001 to December 31, 2003, i.e., three GOI fiscal years. The remaining two phases of the program will be implemented over the following six GOI fiscal years, ending December 31, Executing Agency and Principle Implementing Agency -3 -

4 The Directorate General of Urban Development in the Ministry of Human Settlements and Regional Development will be the Executing Agency for the project. NTB province will be the principle Implementing Agency. DG Urban (and its predecessor, DG Human Settlements) and NTB province have been responsible for project preparation. Project Implementation arrangements proposed by Government will be reviewed at pre-appraisal and the agreed arrangements will be a part of the draft PIP. It is likely that implementation will be fully decentralized to the province during Phase 2 of the APL. 7. Sustainability The benefits of the project in the area of poverty alleviation, through both the direct and the indirect means envisaged in the project, are expected to be sustainable because of the strong commitment of the provincial and local governments. In the current more democratic political environment in Indonesia, poverty alleviation will remain a major priority for the national, provincial, and local governments, especially in Lombok/NTB. The major risks are: (a) lack of clarity in roles and responsibilities at central, provincial, and local levels during the current period of transition, which could affect project processing and implementation; and (b) limited institutional and human capacity in NTB. 8. Lessons learned from past operations in the country/sector Overall Bank Experience. Bank involvement in the urban environmental infrastructure sector started in the early 1970s with low cost investment projects in shelter, water supply, sanitation, and urban transport, aimed at alleviating urban poverty. The primary lesson from these projects was the need for decentralization of responsibility for service delivery and management to appropriate local levels. Please also see the Operations Evaluation Department's retrospective, "OED: Twenty Years of Lending for Urban Development ", Report No , Experience in Indonesia. The Bank's core poverty-targeted interventions include the Village Infrastructure Projects (VIP, Lns and 4100-IND), the Kecamatan Development Project (KDP, Ln IND), and the Urban Poverty Project (UPP, Cr IND). The central learning of the VIP project, which closed recently, was that a large scale project can be used to address village level needs at considerable speed, and that villages are capable and willing under the right conditions to "be the subject of development rather than the object of development." (Please see the VIP project ICR, report no , for a more detailed discussion). The ongoing VIP2 is rated satisfactory both in development objectives and implementation progress. The KDP provides block grants to raise rural incomes and to build public infrastructure through labor intensive methods, using sub-district and village level government and community institutions. The project is rated highly satisfactory in development objectives and satisfactory in implementation progress. The UPP, which is similar in concept to the KDP, became effective in June 1999, and implementation has just started. Urban environmental infrastructure lending in Indonesia has progressed from demonstration projects in Jakarta, through more programmatic investments in - 4 -

5 other large cities, to sector lending within an agreed policy and institutional framework. For a comprehensive review of the Bank's support for urban environmental infrastructure projects in Indonesia till the eighties, please refer to a 1995 study carried out by OED entitled, "Indonesia: Impact Evaluation Report, Enhancing the Quality of Life in Urban Indonesia - The Legacy of the Kampung Improvement Program," Report no IND. Eight on-going and completed urban infrastructure projects were approved during the nineties and have contributed to a number of successful innovations - decentralization of urban services, integrated urban infrastructure development, development of local government capacity, improving local resource mobilization and utilization of borrowing capacities. Greater consultation of local communities on their needs and in the design of individual sub-projects is becoming an increasing feature in the more recent projects. A major lesson from the on-going and completed IUIDP projects is that given weak institutional and human capacities at local government levels, both the geographical and sectoral scope of individual interventions should be limited to a manageable level. Impact on the Lombok Project. The Lombok project will build on the lessons of previous experience, especially in Indonesia, in poverty alleviation and in environmental infrastructure interventions. Poverty interventions will be targeted through a poverty profile and community consultations/involvement will be an integral part of the project, right from preparation through an Initial Social Assessment and civil society representation in local level committees. In order to avoid project complexity, the geographical scope is limited to Lombok and to selected areas of Sumbawa, and the sectoral scope is limited to environmental infrastructure and income generation. 9. Program of Targeted Intervention (PTI) Y 10. Environment Aspects (including any public consultation) Issues According to the Umbrella Environmental Assessment (UEA) that is already in draft form, the most significant environmental problem on Lombok is degradation of coastal water quality and beaches, and destruction of the coral reef ecosystem in the vicinity of the Gili Islands and Senggigi, which were the two main areas of coastal tourism until development began in Kuta. Localized land-based pollution sources, coral mining, and destructive fishing practices are the principal causes. If coastal tourism proceeds in other parts of Lombok, as it is doing in Kuta, the risk of similar degradation is significant. The project will directly address several of these problems by providing infrastructure for sanitation, wastewater collection and treatment, and solid waste management. It may indirectly address destructive fishing coral mining if it is successful in alleviating poverty and in instilling environmentally sensitive developmental guidelines in coastal tourism projects. Given the scale of infrastructure sub-projects, the project itself is unlikely to cause major adverse impacts. Lombok's other environmental problems include: localized surface and groundwater contamination related to inadequate waste water management in unorganized areas; lack of sufficient, well managed solid waste disposal facilities; and erosion and sedimentation caused by deforestation and by sand and gravel mining in rivers. According to the draft UEA, there are also occasional violations of air quality standards in high traffic areas, and lime kilns are a source of air pollution. The project will directly address water pollution and solid waste disposal problems, thus having a significant - 5 -

6 positive impact. Potential negative impacts include: erosion, dust, noise, flooding and water quality degradation caused by various types of construction activities; air pollution and noise from road construction and operation; decline in water availability or quality from raw water extraction; water pollution from increased amounts of waste water that are generated when public water supplies are available; water pollution from incomplete or improperly operated waste water treatment plants; and water pollution, nuisance odors and vermin from solid waste facilities. A preliminary environmental screening of prospective infrastructure sub-projects indicates that very few might have sufficient potential adverse impacts to require ANDALs under GOI EA regulations, which are generally consistent with Bank guidelines. The impacts of nearly all of the sub-projects under consideration for funding are expected to be relatively minor. 11. Contact Points: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Task Manager Rajagopal S. Iyer The World Bank 1818 H Street, NW Washington D.C Telephone: (202) Fax: (202) Note: This is information on an involving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending Fabruary 18,

7 Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID). If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. -7-