40 O4 9- x. Document of The World Bank FOR OFFICIAL USE ONLY. Report No IND

Transcription

1 Public Disclosure Authorized 40 O4 9- x Document of The World Bank FOR OFFICIAL USE ONLY Report No IND Public Disclosure Authorized STAFF APPRAISAL REPORT INDONESIA Public Disclosure Authorized JAKARTA-CIKAMPEK HIGHWAY PROJECT August 19, 1981 Public Disclosure Authorized Transportation Division Regional Projects Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS Currency Unit - Rupiah (Rp) US$1 Rp 625 Rp 100 = US$0.16 Rp 1 million = US$1,600 WEIGHTS AND MEASURES Metric 1 millimeter (mm) = 0.04 inch 1 centimeter (cm) inch 1 meter (m) = feet 1 cubic meter (cu m) = cubic feet 1 kilometer (km) = 0.62 miles 1 square kilometer (sq km) = 0.39 square miles 1 hectare (ha) acres 1 liter (1) 0 Oc22 British gallons 0.26 US gallons 1 kilogram (kg) pounds 1 metric ton (m ton) pounds ABBREVIATIONS AND ACRONYMS ADT - Average Daily Traffic BAPPENAS - National Planning Council CIPTA KARYA - Directorate General of Housing and Urban/Regional Development (Ministry of Public Works) DGH - Directorate General of Highways DKI - Special Provincial Government of Jakarta DPUK - Kabupaten (District) Public Works Office DPUP - Provincial Public Works Office ERR - Economic Rate of Return GDP - Gross Domestic Product GOt - Government os Indonesia GNP - Gross National Product INDOC - Project Preparation Consultants JABOTABEK - Greater Jakarta Metropolitan Region JASA MARGA - P.T. (Persero) Jasa Marga (toll road corporation) KFAED - Kuwait Fund for Arab Economic Development MHA - Ministry of Home Affairs MOC - Ministry of Transport, Communications and Tourism MOF - Ministry of Finance MPW - Ministry of Public Works NPV - Net Present Value OECF - Overseas Economic Cooperation Fund (Japan) PCU - Passenger Car Unit PJKA - Indonesian State Railway PPAR - Project Performance Audit Report REPELITA - National Development Plan FISCAL YEAR April 1 - March 31

3 FOR OFFICIAL USE ONLY INDONESIA JAKARTA-CIKAMPEK HIGHWAY PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE TRANSPORT SECTOR A. Sector Development Trends B. Transport Development Plans and Financing... 2 C. Transport Sector Issues D. Functional Organizations for Transport E. Development and Administration of Toll Roads F. Experience Under Previous Bank Group Financed Highway Projects II. THE GREATER JAKARTA METROPOLITAN REGION A. Regional Development Trends B. Metropolitan Finance C. Regional Planning I9. Regional Transport E. Regional Development Strategy III. THE PROJECT A. Project Objectives B. Project Scope C. Detailed Project Description D. Project Costs E. Project Financing F. Implementation, Procurement, and Environmental Aspects. 25 G. Disbursement IV. PROJECT JUSTIFICATION A. General A. Geea This report is based on the findings of two Bank missions which visited Indonesia in April-May and October-November 1980, comprising Messrs. P. Jensen (engineer), T. Neuner (economist)(bank), M. Powills and J. Revis (consultants) on the first mission, and Messrs. P. Jensen (engineer), P. Levy (financial analyst), and H. Peters (economist) on the second mission. This document has a restricted distribution and may be used by recipients only in the performance of their official duties, Its contenst may not otherwise be disclosed without World Bank authorization.

4 Page No. B. The Jakarta-Cikampek Corridor C. Traffic Projections D. Project Benefits E. Economic Analysis F. Financial Aspects G. Project Risks V. AGREEMENTS AND RECOMMENDATIONS TABLES 1. Road Transport Resources by Region 2. National Government Budgets by Output Category, 1978/79 and 1979/80 3. Gross Domestic Project by Industrial Origin 4. Comparison of Regional Allocations under Repelita III and Proposed Development Budgets in the Greater Jakarta Metropolitan Region 5. Government Agencies Involved in Transport in Jakarta and Surrounding Kabupatens 6. Estimated Regional Road Freight Flows 7. DGH Geometric Highway Design Standards 8. Project Costs 9. Project Implementation Schedule 10. Disbursement Schedule 11. Jakarta-Cikampek Highway: Traffic Volume Counts and Observed Traffic Composition 12a.} 12b.} Traffic Forecasts 12c. } 13. Vehicle Operating Costs 14a.} 14b.} Estimated Cost and Benefit Streams 14c.} ANNEX 1. Related Documents and Data Av7ailable in the Project File CHARTS 1. Organization of the Ceritral and Provincial Highway Administration 2. P.T. Jasa Marga Organization Chart 3. Observed Traffic Composition on the Jakarta-CLkampek Highway MAP IBRD Jakarta-Cikampek Highway. Prcjcet Location and Highway Details

5 I. THE TRANSPORT SECTOR A. Sector Development Trends 1.01 Indonesia, the world's largest archipelago nation, ranks fifth in population with over 145 million people. The archipelago extends some 5,000 km across the equator from northwestern Sumatra to Irian Jaya and comprises over 13,000 islands of which Java, Sumatra, Kalimantan and Sulawesi are the largest. Indonesia has a total land area of 2 million sq km. The extent of the country.zd its archipelagic nature imply diverse climatic conditions, factor endowments and resource potentials. Economic integration of the different regions and the pursuit of political and national uniity among such diversity are important objectives of the Government of Indonesia (GOI). Transportation has a leading role in this effort. Over the past decade Indonesia has made great strides in developing its economy. Between 1971 and 1978 the gross domestic product (GDP) rose from Rp 5,600 billion to Rp 9,250 billion, in real terms, an average annual growth rate of 7.4%. The transport sector is estimated to have grown about 12% per annum during the 1970s and its contribution to GDP varied between 4% and 5%. GOI planners predict the sector's share to increase to around 6% of GDP by the end of the century which means a continuation of the annual growth trend of around 10% Within the Indonesian transport system road transport is the principal mode. In terms of volumes, about 93% of all goods and about 99% of all passengers transported in Indonesia in the mid-seven.ies were accommodated by road. Road infrastructure expanded from 85,000 km to 115,000 km between 1971 and 1977 while the annual growth of the road vehicle population was about 15% for commercial vehicles and 22.5% for cars. Maritime transport, including interisland ferries, is the second mode. Its importance derives from the archipelago setting of the country. About 95% of all freight movements and roughly 75% of all person-trips between the islands are handled by sea transport. In 1977 there were about 7,800 vessels with a total deadweight tonnage of 2.5 million available for interisland transport. Domestic marine dry cargo traffic increased by roughly 15% annually during the past decade. Approximately 300 ports and numerous landing points constitute the basic infrastrujcture for maritime transport. The railway system, the third mode in terms of importarnce, inicludes about 6,800 route-km. During the 1970s the share of the railways in passenger and freight traffic has declined substantially by <.s much as 45% and 20%, respectively. In 1978, the railway system carried about 29 million passengers and 4.4 million tons of freight. Lately, there has been a slight recovery from the earlier losses in patronage. Domestic air transport increased rapidly during the 1970s; the average annual growth rate for passenger traffic was 22% and the volume of cargo carried in 1978 was seven times higher than in In 1978, Indonesian air carriers disposed of a fleet of about 550 aircraft which carried about 4 million passengers during that year. River transport has a potentially important role in addressing demand for movement of people

6 -2- and goods in Indonesia. There are at least 10,000 km of navigable waterways among about 50 river systems. By 1977, over 41,000 river craft of varying size and capacity were registered. B. Transport Development Plans and Financing 1.03 In 1969, GOI initiated its first five-year national development plan, Repelita I, covering the period through About 15% of the Repelita I resources was allocated to the transport sector, representing Rp 342 billion. Only Rp 297 billion were actually spent in the sector, and rouahly 55% of this amount was invested in road development. Repelita II, spanning the period between 1974 and 1978, initially provided Rp 500 billion to the transport sector, which constituted 16% of the total development effort; Rp 753 billion were actually spent. This sizeable increase of expenditures was due to the extra revenue accruing to GOI after the 1973 oil price increase, which particularly benefitted the transport sector. Road development accounted for about 42% of all expenditures in the transport sector during Repelita II. GOI's explicit policy for the sector during the period emphasized rehabilitation and improvement of existing transport infrastructure and services rather than an extension of the network and expansion of the transport industry. Repelita III, covering the period between 1979 and 1983, provides for Rp 2,998 billion to be invested in transport development; this represents about 14% of the total plan effort. Proposed expenditures for road infrastructure constitute more than half of the allocation to the transport sector under Repelita III. The increased share for roads over the corresponding allocation under Repelita II is partly attributable to GOI's new emphasis on rural roads as an explicit component of the broader rural development strategy. The higher share of investments in roads is compensated primarily by a decline in the relative allocation for maritime transport. Compared with the provisions under Repelita II, the allocation for air transport has also risen, while funds available to the railways have been reduced. These changes conform to the growth experienced by the various modes in recent years - fast for aviation and road transport, modest for shipping, and stagnant for railways. It also reflects the need to improve modal performance in the light of projected transport growth during Repelita III, viz. 20% in air transport, 12% in road transport, 10% in sea transport, and 5% to 12% for various categories of rail transport. There are additional transport sector provisions in Repelita III which are not specified under the sector heading. For instance, nearly Rp 600 billion of the Rp 2,100 billion to be allocated by the Ministry of Home Affairs (MHA) to lower levels of government will be spent on roads Despite increasing budget allocations to, and private investments in, transport, the system's ability to effectively address existing and evolving transport demand within the national economy remains far from

7 -3- adequate. The country's enormous dimensions and the still uneven distribution of income within the national population make it extremely difficult and expensive for GOI to pursue a transport strategy aimed at providing both equal transport facilities to all segments of the population and transport investments required by the accelerating economic development. This difficulty is compounded by the high percentage of existing transport: infrastructure which is still badly deteriorated and needs considerable rehabilitation and often upgrading to effectively fulfill its function. Also, serious shortcomings exist in the management and operation of existing transport infrastructure and services. As a result, the capacity potential of most transport resources is underutilized. The wide variations in the availability of transport infrastructure and services in the different regions of the country aggravate the problems. Most regions where presently economic activities and highest population densities are concentrated enjoy better availability of transport infrastructure and services over other regions. In particular, both Java and Sumatra dispose of an existing transport system which is far more extensive than that of the other islands Due to historical trends, factor endowments and regional advantages, Java and Sumatra generate the highest contributions to GDP; they also have the highest population concentrations in the country. Table 1 provides an overview of the road transport infrastructure in the different parts of Indonesia. Java and Sumatra rank highest in terms of road length and transport fleet. Statistics for air and maritime transport compare similarly. In addition, both islands have a network of railvways. GOI's difficult task is to ensure that the transport requirements of the Java and Sumatra regional economies are effectively met but at the same time a major effort is urgently required to develop transport infrastructure a-nd services in other regions of the country in order to spur local economic and social development. During the past decade high proportions of the capital and current budgets have benefitted the Java and Sumatra economies. Also, foreign and domestic private investments were primarily made in Java and Sumatra. In the transport sector, an estimated 65% of the national development budgets were spent in these two regional economies. GOI is concerned about regional equity in the transport sector, and local governments throughout the country are pressing to receive a fair share of the annual budgets allocated to transport. On the other hand, Sumatra and even more so Java are considerably burdened with the need to integrate their sizeable populations into economic and social development. The average per capita income of Java's population is still 10% below the national average. To serve the overall transport needs of the regional population requires continued public sector intervention Over the years GOI has introduced several measures aimed at overcoming inefficiencies in the transport system. Among other things, GOI provided subsidies in several instances where cost-based pricing for transport services were thought to prevent many segments of the national population and several remote regions from participating in economic and social development. In particular, pioneer services were instituted, providing for subsidized sea, air and land traclsport to underdeveloped regions of the country. But capital and current budget allocations to the transport sector in order to

8 - 4 - ensure adequate transport supply would be overwhelming. To fully comply, GOI would have to divert funds allocated to other productive sectors, thereby constraining the development of other elements of the national economy. As an indication of the importance GOI attaches to the different elements of the national economy and their respective development, the capital expenditure budgets for fiscal years 1978/79 and 1979/80 are shown in Table 2. C. Transport Sector Issues 1.07 GOI has sought and analyzed ways and means to improve the transport system's countrywide performance to more effectively and equitably meet existing and evolving transport demand, subject to budget constraints. Several areas have been identified as critical impediments to overall transport sector performance. Essentially, they fall into four categories: (a) inefficient utilization of existing transport facilities; (b) uncoordinated and fragmented arrangements for transport development planning and transport system management; (c) a regulatory system which causes distortions in the consumption of transport; and (d) limited recovery of the costs of developing, operating and maintaining transport infrastructure and services The Bank's transport sector survey carried out in 1980 has helped identify transport sector issues and assess their consequences. In December 1980, extensive discussions took place between GOI and the Bank to review the economic and social impact of transport sector shortcomings and scrutinize possible ways of dealing with the problems. GOI is now planning to prepare an action program aimed at improving the performance of the transport system and at controlling budget requirements Eor its management and development. Substantial assistance will be required during this process, and the proposed project will provide for initiating measures and arrangements to improve transport systems performance in the Greater Jakarta Metropolitan Region The key features of a desirable action program would be: (a) improved management and operation of transport infrastructure and services; (b) coordinated procedures for transport development planning; and (c) reforms in transport regulation to improve system responsiveness to transport demand by different population groups and segments of the national economy, and to increase the recovery of costs incurred in transport system development, maintenance and operation.

9 -5- The expected effects of the different measures to be taken will be manifold. A reduction of capital budget allocations will become possible as a result of better utilization of existing transport infrastructure which will obviate the need for constructing new facilities in many parts of the country for several years. Concerted transport planning procedures, in which central and local governments will play complementary roles, will enable the assessment of the appropriate timing for critically required transport network extensions, and of the most cost-effective way of achieving suich extensions. But improved utilization of existing transport resources will necessitate substantially increased current budget allocations for transport to meet the financial requirements of appropriate routine and periodic maintenance and the efficient operation of transport infrastructure A special effort is required to assess the costs and benefits of the various subsidy schemes in the transport sector in light of broader fiscal policy, and economic and social development objectives. At present, GOI-s annual budgets are heavily burdened by substantial expenditures for direct and indirect subsidies in the transport sector. The prime effect of all these subsidies in the transport system is that funds available for developing, maintaining and operating transport infrastructure are unduly limited. The bulk of the subsidies is widely diffused in the prices for all transport services and benefit more those elements of the population who are already well provided with transport than those who are not, and those who can pay more than those who are truly poor. The first aim of IO]fs pricing policy in the transport sector has been to control transport fares and tariffs in order to reduce regional disparities in the availability and costs of transport. However, this subsidy policy has not contributed significantly to economic development and equity. Subsidies aimed at reducing regional transport disparities have had limited impact in that they masked the real inefficiencies in the system and impeded i, iovation in transport and the search for low-cost solutions because cost reductions became less urgent as long as GOI covered losses. In addition, subsidies tended to be absorbed by operators and were not always reflected in fares and tariffs. In the context of the proposed action program for improving transport performance (para. 1.08), GOI plans to review in depth its present subsidy policies with the aim to eliminate generalized subsidies and to restrict the benefit of those subsidies, which have been determined to be cost-effective, to particular regions or population groups. To achieve this goal GOI would have to establish a systemized arrangement for analyzing the cost and the benefit of each subsidy and for monitoring its actual impact on the targetted regions or beneficiaries. Special studies have been initiated under Bank-financed highway and shipping projects to review the subsidy schemes and formulate reform proposals directed at improving cost recovery in the transport sector without limiting broader economic and social development objectives The aggregate value of all direct and indirect subsidies in the transport sector amounted to roughly 1% of the gross national product (GNP), or Rp 300 billion in This amount represents cash subsidies out of the annual budget. Ilowever, the implied economic subsidies are substantially higher. The economic subsidies for petroleum derivates used in transport

10 - 6 - alone are estimated to have been Rp 750 billion in 1980, comparable to the total transport development budget or about 2% of the GNP. About Rp 136 billicn of GOI subsidies were required to cover the difference between production costs and sale revenues of fuel oil used in the transport sector. In 1980, retail prices of gasoline and diesel (Rp 150 and Rp 53) were 36% and 72% below world market rates, respectively. The already serious burden on the national budget of all existing subsidies in the transport sector is further aggravated by the fact that taxes levied on most users of the transport system are far from covering the development costs of the network. For instance, in FY1980 GOI invested Rp 400 billion to develop arld maintain the road infrastructure whereas road users contributed only Rp 190 billion to these expenditures. The situation in the other subsectors is similar. The tax regime thus provides for an implicit and significant additional subsidy to transport as a whole. In particular, commercial vehicles are subject to extremely low taxes with the result that they contribute only 2% to the cost of developing and maintaining road infrastructure while accounting for almost 80% of total road traffic. A first review of the road user taxation system has been carried out by consultants under the Fourth Highway Project (para. 1.26). Another consultant team financed under the Filth Highway Project (para. 1.27) is presently formulating reform proposals aimed at improving cost recovery in road transport As a first measure to improve the recovery of capital and current expenditures for transport, GOI has decided to single out the richer population groups in Java and Sumatra which have benefitted from high sector allocations in the past and advanced rapidly in economic and social development. It plans to gradually introduce a pricing system for the use of selected network extensions which would imply that users participate more in the costs of constructing and maintaining these extensions. Such extensions will be established and operated as high capacity toll roads; their layouts will ensure significant benefits to the regional economies. A considerable proportion of these benefits will accrue to population groups and businesses which can afford to pay the proposed tolls. But the expected impact of the toll roads will not be limited to enhancing efficiency in the functioning of the regional economies; there will also be a broad social impact in that traffic diverting to the toll roads will induce decongestion of existing roads in densely populated areas. GOI plans to capture the effect of decongestion by promoting public transport, which would be extremely difficult to develop without the extra capacity provided through the proposed toll roads The areas to benefit fromn the toll road developraent program are the already well established economic growth poles in Java and Sumatra. Included in the program are the greater metropolitan areas and hinterlands of Jakarta, Bandung and Surabaya in Java and of Mledan in Sumatra. As a further step to relieving its budgets from financial requirements of the transport sector, GOI intends to finance the necessary investments for sections of the proposed toll road development program partially through bonds floated in the domestic capital market. The proposed project will contribute to increasing cost recovery from road transport using toll facilities.

11 -7- D. Functional Organizations for Transport 1.14 Three government agencies have prime responsibility for developing the transport system and organizing its operation. The Ministry of Communications (MOC) plans, regulates and controls all transport modes, except highways. Development, maintenance, and administration of the road system are in the hands of the Ministry of Public Works (MPW), through its Directorate General of Highways (DGH). The national planning agency, Badan Perencanaan Nasional (BAPPENAS), reviews sectoral investment plans drawn up by MOC and MPW and prepares jointly with the Ministry of Finance (MOF) related financing plans under the development budget. Both MOC and MPW are large bureaucracies, whereas BAPPENAS is a small organization of about 100 professionals, with less than ten for transport. DGH has some 4,000 employees, including a significant proportion of Indonesia's civil engineers. MPW½-s own organization is replicated at the provincial and kabupaten (district) levels by integrated public works organizations (DPUPs and DPUKs) which report directly to the chiefs of the provincial and kabupaten governments, which in turn are under MRA. DPUPs have a functional relationship with MPW; the Ministry provides them with technical direction and some of their senior staff. DPUKs submit their road plans to the DPUP for review, but they are technically quite independent. The organization of the central and provincial public works organizations in relation to highway administration is shown in Chart 1. Planning 1.15 The planning process varies among the modes in MOC. For some of the modes, especially lesser ports, river transport and ferries, the central authorities receive proposals for improvements from regional offices and these are then combined in Jakarta into an overall program for each mode. Major port installations and ship supply are planned with some attempt to integrate the two systems. The aviation sector uses the most systematic planning and considerable coordination takes -place with plans for other modes, particularly at the regional level. Major investments under the MOC are subject to feasibility studies. MOC organizes periodic meetings with provincial authorities to review its development proposals but in the past MPW was not formally represented on these occasions although the provincial road authorities do participate. The proposed project will provide for arrangements aimed at improving inter-agency coordination in transport systems management and development planning for the Greater Jakarta Metropolitan Region Highway planning within MPW is most sophisticated and centralized. For some years, DGH has prepared annually a detailed five-year program for all national and provincial roads, totalling about 40,000 km. These programs were based on complete road and bridge inventories and on economic projections for all kabupatens in the country. The programs outline the appropriate treatment for each road section, ranging from maintenance, support works (heavy deferred maintenance), betterment works (improvement on existing

12 -8- alignment) to new construction. Regional development has always been a significant factor in DGH planning, but there was limited allowance in the analyses for the potential role of other transport modes. In 1979, DGH shifted its long range planning functions to the Directorate General of Housing and Urban/Regional Development (Cipta Karya), one of the main departments of MPW. Cipta Karya has also assumed responsibility for planning guidelines for expanded assistance by GOI to district roads. A national inventory of 70,000 km of distriet roads is underway and Cipta Karya proposes to develop with DGH a road programming system for such roads, similar to that for national and provincial roads. The road planning system thus has a well-defined theoretical framework but it depends on large volumes of information being fed into one central location. Until recently the system allowed little scope for priorities and needs as articulated by the provincial authorities. DGH also did not correlate its plans with those of other transport agencies of GOI and instances have been cited of ports and airports without adequate road access, nor did it have explicit discussions with other technical ministries such as agriculture and industry to ensure coordination with their plans. In pursuing transport sector work in Indonesia, the Bank is giving special attention to arrangements for appropriate measures to improve road planning, consistent with regional transport requirements DGH recently introduced a functional classification of roads in accordance with regional hierarchies and distinguishing between arterial, collector and feeder roads. This new classification is incorporated in the national road law wlhich was passed by the National Assembly in December The new law establishes the functional responsibilities and basic technical criteria for road development and maintenance. The provisions of the law are sound. Construction and Maintenance of Infrastructure 1.18 As with planning for transport development, the construction and maintenance of the transport infrastructure is the responsibility of MOC and MPW. Typically, the national railways corporation (PJKA) performs these functions for the railway system. MOC through its Directorate General of Sea Communications looks after the expansion and maintenance of ports, shipping lanes and other sea transport related installations; MOC's Directorate General of Air Communications fulfills this function with respect to airports, air control facilities and other air transport related installations MIPW through DGH manages the expansion and maintenance of the road system. Responsibility for highway construction lies with DGH's Directorate of Construction and is executed under a variety of arrangements. The DPUPs are responsible for road works financed under the ppovincial budgets. With the expansion of its road betterment program, DGH plans to delegate the technical and administrative authority for execution of most DGH-financed road betterment projects or bridge replacement projects on national and provincial roads to the DPUPs. Maintenance of the national and provincial roads is carried out by the DPUPs.

13 DGH distinguislhes between unstable roads (roads in poor condition) which require support works and represent the bulk of the network and stable roads (roads in good condition) which require only routine maintenance. Allocations for support works and routine maintenance are made from the development budget. Under DGH practice, activities such as ditch cleaning and shoulder repair, normally included under routine maintenance, are not applied to all parts of the network but only to stable roads, even though they could obviate some of the large sums needed for support works. There is an obvious lack of a conventional maintenance system, which is not primarily a problem of available funds, because support works budgets could be diverted to routine maintenance, but primarily a problem of organization and administrative rules. Such road maintenance is executed by the lower tiers of the administration and it is subject to complex restrictions in the use of funds, supply of materials, and deployment of staff. This situation has lead to the neglect of routine maintenance. The Fifth Highway Project addresses these issues with DPUPs, and a rural roads project which is being prepared by GOI for Bank assistance will incorporate more specific measures to improve road maintenance in DPUKs. Regulation 1.21 MOC has the sole responsibility for regulating the transport industry, its expansion and operation. It is also MOC½s domain to control and enforce the compliance of the different segments of the transport industry with established rules and ordinances. Transport related fees, tariffs, taxes and other charges are fixed and enforced by MOC in cooperation with MOF. Within MOC, the Directorate General of Sea Communications controls the maritime sector, the Directorate General of Air Communications controls the aviation sector, and the Directorate General of Land Communications controls the trucking industry, public transport operation and the private use of motor vehicles. E. Development and Administration of Toll Roads 1.22 The new road law (para. 1.17) establishes the legal framework for the administration of the proposed toll road system (para. 1.12). The relevant provisions of the law are that "... the Government will transfer jurisdiction over the operationl of toll roads to a State Toll Road Corporation." This provision is a confirmation of Government Regulation No. 4 of 1978 regarding the establishment of a "State Enterprise/ Corporation in the Field of Management, Building and Mlaintenance of a Toll Road Network, and the Operations Provisions". The regulation assigned the responsibility for estab'lishing the toll road corporation to the Minister of Finance who in turn delegated the authority to the Minister of Public Works. The enterprise was officially established as the Indonesian Highway Corporation (Jasa Marga) on March 1, Legally, Jasa Marga is a Persero, i.e., a State Corporation with limited liability. The act establishing Jasa Marga specifies that the purpose and goal of the corporation are to manage, construct and maintain toll roads. The basic capital of Jasa Marga is fixed at Rp 10 billion of which GOI actually holds Rp 2 billion as preferred shares. The remaining Rp 8 billion are to be obtained throuligh the sale of common shares.

14 Jasa Marga officially assumed its functions in March 1978 by taking over the collection of tolls on the Jakarta-Bogor-Ciawi (Jagorawi) Highway. This highway was officially designated as toll road through Presidential Decree No. 3 of The only other toll facility in Indonesia is the Citarum Rajamandala Bridge near Bandung which was declared a toll bridge by Presidential Decree No. 34 in Through its three years of existence, Jasa Marga's activities have been limited to the collection of tolls on the Jagorawi Highway and the Citarum Bridge. The design and construction of toll facilities are being handled by DGH. In January 1981 DGH decided to pass responsibility for maintaining the Jagorawi Highway to Jasa Marga. While the legal, financial and institutional/operational arrangements have been specified, it is presently not possible to fully assess the ability of Jasa Marga to carry out this new responsibility. The organization of Jasa Marga is shown in Chart 2. The proposed project will assist DGH in establishing sound institutional and procedural arrangements for Jasa Marga To date there are no overall criteria established for deciding whether a proposed road should be made a toll facility. Likewise, no explicit economic, financial or technical guidelines have been set for establishing and adjusting the structure and levels of tolls levied on roads or bridges. According to existing legislation, roads or bridges will be declared toll facilities and toll levels fixed through Presidential Decree. There is an obvious need to clarify and/or to formulate criteria for setting the levels of tolls. The proposed project would help formulate such criteria and guidelines. During negotiations, GOI agreed (i) to prepare a study of the structure and levels of tolls to be proposed for the Jakarta- Cikampek toll road, which will be constructed under the project, and (ii) to submit a report on the study to the Bank for its review not later than six months prior to opening of the first section of the toll road. F. Experience under Previous Bank-Group Financed Highway Projects 1.25 Bank Group lending for 'iighways in Indonesia has been adapted to the evolving needs of the highway system. The First Highway Project ($28 million, Credit 154-IND) helped restore communications in Indonesia after a long period of neglect, by providing eqaipment and materials for rehabilitation of about 3,000 km of roads. The Second and Third Highway projects supported the next phase of Indonesia's road program: construction of major links in remote areas of the country. The Second Highway Project ($34 million, Credit 260-IND) primarily helped rebuild a section of the TransSumatra Highway in an area which is a major site for transmigration development under the Second Transmigration Project (Loan 1707-IND). The Third Highway Project ($14 million, Credit 388-IND) reconstructed a road to a new irrigation area in Sulawesi. It also included an important training component, which initiated courses and set up a nationwide training system for highway personnel, and studies and design of road improvements subsequently financed under the Fourth Highway Project. The construction under the Second Highway Project was completed in 1977 and under the Third Highway Project in

15 December As detailed in the Project Performance Audit Report (PPAR) SecM81-4, January 6, 1981, the second project had relatively small delays and cost overruns, while the third project had significant delays (mobilization problems in a very remote area and unusually wet weather) and increased construction costs (due to underestimate of quantities and sharp price increases after the oil price rise). The PPAR also noted the importance of providing adequate leadership for and guidance to the study team for regional development plans The Fourth Highvay Project ($130 million, Loan 1236-IND) represented a new departure in several ways. The project (a) sponsored the establishment of four regional Road Betterment Offices; (b) supported a large-scale and complex program for the betterment of existing roads; (c) included assistance to strengthen virtually all functions of DGH; (d) helped initiate studies of other institutions concerned with highways such as provincial and kabupaten public works agencies, and consultants and contractors engaged in highway works; and (e) provided for studies of highway laws, road user charges, and vehicle weights and dimensions regulations. The fourth project responded to the sudden increase in DGH½s betterment program which was made possible by the new funds available to Indonesia after the oil price rise in The project contributed not only to providing matching funds for construction but also to helping DGH cope with its expanded workload. Although the project is about two years behind schedule because of the multiplicity of contracts, over 1,200 km of road betterments have been put under contract, and 90% of the project had been completed by mid Positive changes have also been effected in planning, design, budgeting, and control procedures of DGH The Fifth Highway Project (US$130 million, Loan 1696-IND) participates in all important programs of DGH, particularly at the regional level. The project includes: (a) components of DGH's bridge replacement program; (b) road construction and maintenance works executed by eight provincial public works organizations; (c) measures to study and improve the highway institutions in some provincial governments;. (d) expenditures to upgrade road maintenance; and (e) technical assistance to strengthen Indonesian highway consultants and contractors. There have been start-up delays in many components of the project. Road betterment contracts for 531 km out of the 800 km planned have been awarded, and the balance was scheduled for tendering in August Consultants are in place for construction' supervision, project monitoring, management assistance, a study of the construction industry, and assistance in transport planning and regulation, and consultants are being mobilized for provision of teclhnical assistance to MOC for a national highway safety scheme and development of new regulations for vehicle weights and dimensions. The eight DPUP programs have been defined and equipment tenders have been evaluated; however, increases in the GOI budget for these programs will lead to an expansion of road works.

16 II. THE GREATER JAKARTA METROPOLITAN REGION 2.01 The Greater Jakarta Metropolitan Region constitutes the most important growth center within the Indonesian economy and has advanced more rapidly in economic and social development than other regions of the country. Greater Jakarta has benefitted from high budget allocations in the past, particularly in the transport sector. But population growth and expanding economic activities require a continuous increase in the capacity of the road transport system to meet rising transport demand. To improve cost recovery oif road development outlays, GOI has decided to levy tolls on key road extensions in Greater Jakarta. This decision is consistent with GOI's new fiscal policy objectives in the transport sector (para. 1.12). A. Regional Development Trends 2.02 Jakarta is the capital of Indonesia, located on the north coast of Java (Map ). It constitutes a separate administrative province. Together with the four surrounding kabupatens (districts) of the West Java Province, Tangerang, Bogor, Bekasi and Karawang, it forms the Greater Jakarta Metropolitan Region. About 30% of the country's maritime trade is handled in the port of Tanjung Priok, located within Jakarta's city limits. Besides the functions of a service and trade center for the country, Greater Jakarta has increasingly assumed the lead in national manufacturing. Currently, about 6% of the national GDP is produced in Jakarta; adding the immediate hinterlands, the contribution of Greater Jakarta to the total national economic effort is close to 10% (Table 3). In 1978, Jakarta had a total population of 6 million, and the four surrounding kabupatens about 5.6 million. Compared with the country's total population of about 145 million, more than 8% of all Indonesians were living in the Greater Jakarta region. The presently observed annual population growth of Greater Jakarta is in the order of 420,000, composed of 220,000 natural increase and 200,000 in-migration. Jakarta and its hinterlands receive close to 40% of national migration and account for as much as 46% of national urban growth. It is estimated that Greater Jakarta will exceed 20 million inhabitants by the end of the century The total employment in Greater Jakarta was close to 3.4 million in 1978, including about 1.75 million in Jakarta and 1.65 million in the surrounding kabupatens. About 6.5% of all employment in Indonesia is concentrated in the Jakarta growth center. For the year 2000 an employment level of 8.5 million is projected. The regional GDP is expected to grow faster than the national GDP to reach 11.5% of national GDP by the end of the century. The large-scale manufacturing sector is expected to grow fastest, leading to further regional specialization. Reflecting the booming economy of Jakarta and its satellite kabupatens are the observed increases in per capita income, which is about 10% above the national average.

17 There has been a considerable difference in population and economic growth within the regional system of Greater Jakarta. While Jakarta's population increased about 4% per year between 1971 and 1978, the surrounding kabupatens experienced annual growth rates as follows: Bogor 3.1%, Tangerang 2.4%, Bekasi 1.8% and Karawang 2.0%. Such of the growth in the kabupatens has been generated by the overspill of new manufacturing jobs from Jakarta along the national roads to the east and west due to the comparatively low cost of industrial land further out from Jakarta along these routes. The kabupatens around Jakarta are still considerably rural in character with almost two-thirds of employment in agriculture and about 25% in trade and services. Less than 5% of the kabupaten population is presently employed in modern manufacturing jobs. Projections have been made of population growth in the region and these are based on trends in natural increase and intraregional migration, and the likely employment creation across the region. The population growth of Jakarta is expected to slow whilst the surrournding kabupatens will increasingly account for the overflow of Jakarta population, particularly Tangerang and Bekasi which are expected to expand their roles in the metropolitan Jakarta system. The estimated interregional population increases are as follows: Average annual increase (%) Jakarta 6,005,160 9,720,000 11,315, Bogor 2,278,470 3,903,000 4,398, Tangerang 1,257,210 2,041,000 2,819, Bekasi 949,690 1,721,000 2,258, Karawang 1,003,000 1,517,000 1,999, From a review of key economic activities in the Jakarta region, their recent trends and likely future development, it is envisaged that a deconcentration of leading economic activities from Jakarta to the surrounding kabupatens is likely to occur. There are several features in this forecast pattern of regional development which would contribute to the longer term structure of the regional hierarchy. This is largely due to the rapidly increasing expansion of economic activities, growing demand on Jakarta to fulfill its function as principal trade center of the country, and a population which increases daily by about 600, all of which has put an enormous pressure on Jakarta's infrastructure and finances. Jakarta has reached a population size and growth trend which causes the urban economy to become increasingly inefficient. In addition, growing demand for land, infrastructure and basic services will rapidly limit Jakarta's ability to meet such needs equitably, given its actuial resource constraints. The consequences of changes in regional hierarchy will include substantial

18 restructuring in the subregional economies. The relative share of agriculture as part of the economic activities in the suburban kabupatens will decline, and the importance of other activities will increase, notably that of manufacturing. The expected percentage changes in employment by sector in three subregional economies are as follows: Jakarta Tangerang Bekasi Agriculture Manufacturing Government Trade and services Total employment The projected changes will have the highest impact on Bekasi where required structural adjustments to accommodate population growth and to provide the required infrastructure for rapidly expanding economic activities will be considerable. B. Metropolitan Finance 2.06 Substantial budgetary allocations will be necessary to meet the financial requirements of the structural adjustments in the regional economy. Several plans have been drawn up to establish the infrastructure which will be necessary to adjust the region to anticipated population shifts and spatial changes in the location of economic activities. The estimated costs of some of the major related projects and the regional development budget allocations in Repelita III are shown in Table 4. The estimated investment requirements of the transport system alone represent almost 70% of the total development budget for the region. There is a resource gap of 36% in the capital budget requirements. The regional economy is already receiving 40% of all investments in urban areas in Indonesia, and 30% of private investment throughout the national economy. Over the last six years, GOI expenditures in Jakarta alone have amounted to 15% of all national public development expenditures. Looking at the current budget requirements of maintaining and operating public services and infrastructure in the region an even bleaker picture emerges. The local governments of both Jakarta and the surrounding kabupatens require substantial transfers from GOI to cope with their responsibilities. Total GOI transfers to Jakarta have increased at 10.6% annually in real terms between 1972 and They presently

19 amount to 27% of all revenues accruing to Jakarta's government. More than 50% of the annual revenues available to the kabupaten governments in the region come from GOI in the form of subsidies. Reforms are urgently required to increase the region's internal revenue base and to reduce the costs of coping with the development and maintenance of the regional economy, essentially through better regional management. GOI has become increasingly concerned about the growing proportions of the annual national budgets which have to be allocated to Greater Jakarta. C. Regional Planning 2.07 In 1976 a planning team was established under a Presidential Instruction. This team includes representatives of central and local government institutions and has the mandate to draw up a development plan for Jakarta and the kabupatens of Bogor, Tangerang and Bekasi. This area is called JABOTABEK, an acronym formed of the first letters of Jakarta and the names of these entities. The planning team was to review the regional and sectoral development plans prepared by central and provincial government agencies. The team was also to review the existing organizational arrangements, the policy framework and general practices of managing the Greater Jakarta Metropolitan Region. The Second Urban Development Project (Loan 1336-IND) provides technical assistance to the JABOTABEK planning team. The team has already prepared a series of specific recommendations for controlling regional growth and improving management of the regional economy. GOI is presently reviewing these recommendations; it is expected that several reforms of existing practices and arrangements in regional management will be instituted. Specifically it is expected that an overall technical secretariat will be established by mid-1982 supported by three specialist subcommittees for transport, water resources, and land use planning. Furthermore, there are indications that a regional development strategy will be adopted in line with the JABOTABEK planning team's recommendations. The recommended regional development strategy is based on obse*rved growth trends (para. 2.05) and identified locational advantages. D. Regional Transport 2.08 A critical factor in the region's development is transport. Through.ts direct impact on land-use development, the regional transport system will exert considerable influence on spatial growth. If Greater Jakarta is to achieve a high economic efficiency, transport infrastructure and services must be developed and maintained which respond to existing and emerging transport demand generated by various economic activities. At the same time it is mandatory that the regional transport system be geared to effectively address the transport needs of all segments of the population. The region's existing