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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$150 MILLION TO THE REPUBLIC OF INDONESIA FOR THE Report No: ID WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) Indonesia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region February 25, 2011 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.

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3 CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2010) Currency Unit = Indonesian Rupiah IDR = US$ US$ * = IDR 9,250 *All $ in this document refer to US currency unless otherwise noted. GOI FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AMDAL APBD(K) APBD(P) APBN APL AWP Balai PSDA Bangda Bappeda Bappenas B (B)WS BPKP BWRC BWRM BWRMP CDD CDP CPS CSO DA DAS DGWR DGAIF DGRD Dinas Pertanian Dinas PUP Dinas SDA EMP FMR GOI GP3A/IP3A IBRD ICR IFR IMEU KIIF KLH KOMIR KPIU KPMU Full Environmental Assessment Kabupaten (District) Government Budget Provincial Government Budget Central Government Budget Adaptable Program Loan Annual Work Program Provincial River Basin Management Organization DG Regional Development, MoHA Local Government Development Planning Board National Development Planning Board National River Basin Management Organization Central Government Audit Agency Basin Water Resources Council (Committee) Basin Water Resources Management Basin Water Resources Management Planning Community-driven development Community Development Plan Country Partnership Strategy Civil Society Organization Designated Account River Basin Directorate General of Water Resources, MoPW Directorate General of Agriculture Infrastructure and Facilities Directorate General of Regional Development Local Government Agriculture Department Local Government Public Works Department Local Government Water Resources Department Environmental Management Plan Financial Monitoring Report Government of Indonesia Federation/Apex Body of Water Users Associations (WUAF) International Bank for Reconstruction and Development Implementation Completion Report Interim Financial Reports Impact Monitoring and Evaluation Unit Kabupaten Irrigation Improvement Facility (DPIK) State Ministry of Environment Irrigation Commission (Committee) Kabupaten Project Implementation Unit Kabupaten Project Management Unit

4 MIS MoA MOF MoHA MoPW NPIU NPMU NSCWR NWC O&M PAD PDO Perda PIM PIU PJT I/II PKPI PMU PMM PPIU PPMU PPTPA PWRC SRI RBC RIM TA WISMP WS WUA WUAF WUR Management Information System Ministry of Agriculture Ministry of Finance Ministry of Home Affairs Ministry of Public Works National Project Implementation Unit National Project Management Unit National Steering Committee for Water Resources National Water Resources Council Operation and Maintenance Project Appraisal Document Project Development Objectives Local Government Regulation Participatory Irrigation Management Project Implementation Unit Bulk Water Supply Corporation I/II Irrigation Management Reform Policy Project Management Unit Project Management Manual Provincial Project Implementation Unit Provincial Project Management Unit River Basin Water Resources Management Committee Provincial Water Resources Council (Committee) System of Rice Intensification River Basin Corporation River Infrastructure Maintenance Technical Assistance Water Resources and Irrigation Sector Management Program River Territory Water User Associations Water User Association Federation (GP3A/IP3A) Water Use Right Vice President: James Adams, EAPVP Country Director: Stefan Koeberle, EACIF Sector Director: John Roome, EASSD Sector Managers: Franz Drees-Gross, EASIS Vijay Jagannathan, EASIN Task Team Leader: Xiaokai Li, EASIN

5 Table of Contents I. Strategic Context... 1 A. Country Context... 1 B. Sectoral and Institutional Context... 1 C. Higher Level Objectives to Which the Project Contributes... 4 II. Project Development Objectives... 5 A. Project Development Objectives (PDO)... 5 B. Project Beneficiaries... 5 C. PDO Level Results Indicators... 5 III. Project Description... 6 A. Project Components... 6 B. Project Financing... 7 IV. Implementation... 9 A. Institutional and Implementation Arrangements... 9 B. Results Monitoring and Evaluation... 9 C.Sustainability V. Key Risks and Mitigation Measures VI. Appraisal Summary A. Economic and Financial Analysis B. Technical C. Financial Management D. Procurement E. Social F. Environmental... 14

6 Annex 1. Results Framework and Key Monitoring Indicators Annex 2: Detailed Project Description Annex 3: Implementation Arrangements Annex 4. Operational Risk Assessment Framework (ORAF) Annex 5: Implementation Support Plan Annex 6: Team Composition Annex 7: Economic and Financial Analysis Annex 8. Better Governance Action Plan Annex 9: Status of WISMP APL Triggers Annex 10: Statements of Loans and Credits.63 Annex 11: Country at a Glance.66 Map : IBRD 38329

7 INDONESIA Water Resources and Irrigation Sector Management Program (Phase II) Date: February 25, 2011 Country Director: Stefan Koeberle Sector Director: John Roome Sector Managers: Franz Drees-Gross and Vijay Jagannathan Team Leader: Xiaokai Li Co-Team Leader: Paulus van Hofwegen Project ID: P Lending Instrument: Adjustable Program Loan PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC Indonesia Sustainable Development Unit (EASIS) Sustainable Development Department Sector(s): Irrigation and drainage (50%); General water, sanitation and flood protection sector (50%) Theme(s): Water resource management (P); Irrigation & Drainage (P); Rural governance and institution building (S) EA Category: B Project Financing Data: Proposed terms: [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Total Project Cost: Borrower: Source Total Bank Financing: IBRD IDA Borrower: Republic of Indonesia Responsible Agency: Ministry of Public Works Contact Person: Director for Programming, DGWR Telephone No.: Fax No.: Address: Jl. Patimura 20, Jakarta Selatan, Indonesia Estimated Disbursements (Bank FY/US$ m) Total Amount (US$M) Fiscal Year Annual Cumulative

8 Project Implementation Period: Start: May 1, 2011 End: May 31, 2016 Expected effectiveness date: May 1, 2011 Expected closing date: November 30, 2016 Does the project depart from the CAS in content or other significant respects? If yes, please explain: Yes No Does the project require any exceptions from Bank policies? Have these been approved/endorsed (as appropriate by Bank management? Is approval for any policy exception sought from the Board? If yes, please explain: Yes No Yes No Yes No Does the project meet the Regional criteria for readiness for Yes No implementation? If no, please explain: Project Development Objective: The project development objective is to assist the Borrower to improve its capacity for basin water resource and irrigation management and increase irrigated agriculture productivity in the Project area. Project description: The project consists of the following four components: Component 1. Basin Water Resource Management Improvement: (a). Improvement of operational effectiveness of basin management institutions and community-based catchment management at: (i) central level in selected national and provincial river basins; and (ii) Province level in selected provincial river basins in Participating Provinces; and (b). Improvement of physical system performance of river basins at: (i) central level in selected national river basins; and (ii) Province level in selected provincial river basins in Participating Provinces. Component 2. Participatory Irrigation Management Improvement: (a) Improvement of participatory irrigation management institutions in: (i) Participating Provinces; and (ii) Participating Kabupaten, including establishment and enhancement of local participatory irrigation management regulatory frameworks and capacity building of local institutions such as government irrigation and agriculture agencies, Irrigation Commissions, and Water Users Associations Federations; (b) Light and moderate rehabilitation and repair of: (i) Participating Province; and (ii) Participating Kabupaten irrigation system infrastructure; (c) Provision of support to irrigated agriculture, and carrying out of climate change adaptation measures, including support to farmers in relation to: (i) adoption of new technology and development of agribusiness management skills in: (A) Participating Provinces; and (B) Participating Kabupaten; and (ii) establishment of public-private partnerships for farming and marketing through the implementation of Community Subprojects in: (A) Participating Provinces;

9 and (B) Participating Kabupaten; and (d) provision of technical assistance in relation to implementation of Parts 2 (a), (b), and (c) of the Project. Component 3. Jatiluhur Irrigation Management Improvement: (a) Improvement of Jatiluhur irrigation system management institutions, including: (i)establishment and strengthening of participatory irrigation management institutions at various levels; (ii) development of effective interagency management arrangements; (iii) development of a funding mechanism for management of the Jatiluhur irrigation system; (b) Rehabilitation and improvement of irrigation and drainage infrastructure in the Jatiluhur irrigation system, including: (i) removal of bottlenecks in East and North Tarum Canals; and (ii) rehabilitation of secondary irrigation systems; and (c) Preparation for overall rehabilitation and modernization of the Jatiluhur irrigation system, including provision of technical assistance in relation to: (i) implementation of Part 3 (b) of the Project; and (ii) preparation of management, institutional, and technical design documents and tender documents for future modernization of East and North Tarum Canals and future rehabilitation of additional secondary irrigation systems. Component 4. Project Management and Implementation Support: Provision of advisory support to entities involved in Project implementation in relation to Project management, implementation, including administrative and financial management, disbursement, and procurement, and monitoring and evaluation, at: (a) central; (b) Participating Province; and (c) Participating Kabupaten levels. Safeguard policies triggered Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Loan Agreement Reference Article 5.01 Summary of Main Legal Covenants Description of Condition/Covenant The Borrower shall adopt a Project Management Manual, in form and substance satisfactory to the Bank, setting out implementation, organizational, administrative, monitoring and evaluation, financial management, disbursement, and procurement arrangements for purposes of project implementation, and including the Governance and Anti- Corruption Plan. Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Date Due Entire project period

10 Schedule 2. Section I. A. Schedule 2. Section I. D. (a) Schedule 2. Section I. D. (b) Schedule 2. Section I. G The Borrower shall maintain throughout project implementation, the National Steering Committee for Water Resources, National Project Management Unit, National Project Implementation Units, Basin Project Implementation Units, Jatiluhur Project Implementation Unit, Provincial Project Management Units, Provincial Project Implementation Units, Kabupaten Project Management Units and Kabupaten Project Implementation Units, with an adequate composition, institutional framework, functions and resources. The Borrower shall issue a circular, in form and substance satisfactory to the Bank, setting forth the procedures to be applied by the Participating Province or Kabupaten for the flow of funds, the role of the various parties, and the sanctions to be applied in the event of the use of funds for expenditures other than those required for the carrying out of the Project. The Borrower shall enter into, and thereafter maintain in effect throughout Project implementation, an on-granting agreement with the Participating Province or Kabupaten on terms and conditions approved by the Bank, specified in the Project Management Manual, and including the obligation of the Participating Province or Kabupaten to: (i) provide, promptly as needed, its contribution in respect of expenditures for Parts 1 (a) (ii) and (b) (ii), 2, and 4 (b) and (c) of the Project in accordance with the PMM; and (ii) monitor and evaluate the progress of the Project on the basis of the performance indicators. The Borrower shall ensure that the Project is carried out in accordance with the provisions of the Environmental and Social Safeguards Framework, the Environmental Management Plan, any additional environmental management plans, Integrated Pest Management Plan, Land Acquisition and Resettlement Policy Framework and Action Plans, and Indigenous Peoples Policy Framework and Plans. The Borrower shall take all measures necessary on its part to regularly collect, compile, and submit to the Bank, as part of Project Reports, information on the status of implementation of the dam safety measures agreed in relation to the Jatiluhur dam under the Dam Operational Improvement and Safety Project. Entire project period No later than three (3) months after the Effective Date Prior to implementation of Parts 1 (a) (ii) and (b) (ii), 2, and 4 (b) and (c) of the Project Recurrent in entire project period

11 Schedule 2. Section II. A.1 Schedule 2. Section II. D. 2 Schedule 2. Section II. D.3 The Borrower shall monitor and evaluate the progress of the Project and prepare semi-annual Project Reports on the basis of the agreed indicators. The Borrower shall prepare and furnish to the Bank, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Bank. The Borrower shall have its Financial Statements audited by independent auditors acceptable to the Bank in accordance with terms of reference satisfactory to the Bank. Each audit of such financial statements shall cover the period of one (1) fiscal year of the Borrower. The audited Financial Statements for each such period shall be furnished to the Bank. Not later than forty-five (45) days after the end of the period covered by such report Not later than forty-five (45) days after the end of each calendar quarter Not later than six (6) months after the end of such period

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13 I. Strategic Context A. Country Context 1. Indonesia has made remarkable progress over the last decade in terms of macroeconomic and political stability. Macroeconomic performance since the late 1990s has seen consistent output growth and rapid decline in external imbalances. With inflation under control and rising incomes, Indonesians have been enjoying improving living standards and poverty levels have fallen, although many remain close to the poverty line. Indonesia was less affected by the global economic downturn of than most economies, and by late 2009 the economy had recovered to grow faster than pre-crisis averages. The outlook is that Indonesia s economic momentum will continue to build, with growth rising above 6 percent in 2011 and with scope for growth to average 7 percent by mid-decade, despite the weaker global economic outlook. 2. Water resources management and irrigation play a very important role in Indonesia s socio-economic development in terms of food security (bulk of the grain crops is from irrigated areas) and water security particularly because of the country s high exposure to climate change impacts. Though Indonesia is in general a water rich country, spatial and seasonal variation of water availability poses high risks for water security for domestic, municipal, industrial and agricultural uses. Population growth, urbanization, economic development, and the impacts of climate change place increasingly high pressure on land and water resources and increase the vulnerability of the nation to water related risks such as floods. As a result, many catchments are degrading rapidly with severe soil erosion and sedimentation of storage reservoirs, increased floods, landslides and reduced availability of water in dry seasons. Urbanization and economic development is leading to rising water pollution and farmland conversion endangering food security. Furthermore, increasing seasonal water shortage over wide areas worsens use competition for water and groundwater overexploitation in different provinces, especially in urban areas, and threatens water security for socio-economic development. B. Sectoral and Institutional Context 3. Over the past decades, Indonesia s water resources and irrigation sector has gone through a transformation from a centralized development and investment system to a decentralized system of service delivery in which more efficient use of resources and service quality are emphasized. Development of water resources and irrigation between the 1970s and mid 1990s focused on achieving self sufficiency in rice after a period of serious food shortages. During five consecutive five-year plan periods starting 1969, some 2.5 million hectares of irrigation schemes were rehabilitated and 1.7 million hectares of new areas were developed. River basin management was mainly seen as a requirement for securing irrigation supplies and flood protection. This effort was supported by massive expansion and farm input programs leading to self sufficiency in rice in However, the government could not maintain this selfsufficiency. One of the reasons was the lack of attention to and underfunding for O&M of the newly rehabilitated and developed irrigation systems. The rapid deterioration of the physical systems led to frequent and premature rehabilitation to address the deferred maintenance of infrastructure. 1

14 4. Within this context, the key development issues in the water resources and irrigation sector,i as detailed in the Project appraisal document of the Water Resources and Irrigation Sector Management Program Phase I) (WISMP1, World Bank, May 23, 2003) are: (i) strong need for strengthening sector governance and management institutions to meet the changing paradigm of water resources and irrigation management; (ii) requirement for improving fiscal sustainability of the sector; (iii) high demand for upgrading of water resources and irrigation infrastructure; and (iv) substantial room for increasing agricultural water productivity. The government started to tackle these inter-related issues beginning in the late 1990s with the assistance of development partners, including the Bank. While such issues require sustained interventions over a long period, they have evolved over the years with significant improvement in many aspects, particularly through the Bank-supported Water Resources Sector Adjustment Loan (WATSAL, ), the Indonesia Water Resources and Irrigation Reform Implementation Program (IWIRIP, ) and the WISMP Program (See sections below and Annex 2). These programs still remain highly relevant today. 5. Government Strategy. The government strategy for the sector is to adopt a basin-based integrated water resources management approach, and to improve sector governance for accountability and effective service delivery of bulk water supply, irrigation, flood management and other services in different basins. This is to be accomplished through the establishment and strengthening of multi-stakeholder institutions and platforms for planning and decision making, inter-agency coordination and role-sharing mechanisms, as well as related technical and management capacity building interventions. The government proposes to address the long-term fiscal sustainability of systems through the introduction of asset management practices and needs-based O&M arrangements with increasing contributions from local governments and from different users. On the irrigation front, the key strategy is to promote participatory management which centers around modernizing infrastructure and management institutions, empowering farmer user communities through the establishment of WUAs and WUAFs, and linking them to irrigation and agricultural services through the multi-stakeholder irrigation committees at the district levels, for better governance and accountability for service delivery. This participatory management approach also serves to address the issue of cost recovery for irrigation schemes through joint management and a sharing of O&M responsibilities, and that of system performance in connection with agricultural water productivity increases which enable higher levels of food security and farm income. 6. The Government of Indonesia envisions, by 2025, that integrated water resources management would be rooted and practiced in the country to ensure sustainable use of its water resources for different productive uses and the wellbeing of the people of Indonesia. All basins need to have long term strategic plans and sustainability-focused water resources master plans which outline key actions for conservation of water resources in terms of quantity and quality, for use of water resources to deliver high quality water services, for managing and reducing risks associated with water, and for increasing the capacity of water management institutions to implement these plans under a multi-stakeholder governance umbrella. At the time, national food self-sufficiency will be maintained through two channels. One is to substantially increase agricultural water productivity of existing irrigation systems through the modernization of physical systems and management institutions integrated with necessary agricultural production chain investments, leading to much more reliable water supply, much higher use efficiency and farm incomes. In parallel, efforts will be stepped up to enforce control over land conversion, and 2

15 to develop new irrigation areas, especially off-java. The WISMP Program was formulated to support the government in implementing its strategy through an adaptable approach in existing irrigation schemes. 7. WISMP-APL Context. The Water Resources and Irrigation Sector Management Program (WISMP APL) was launched in 2003 as a three-phase adaptable program loan, to continue the strategic support for reform of Indonesia s water resources and irrigation sector initiated through the WATSAL. The Program objectives are: (a) sustainable and equitable management of surface water resources and their utilization infrastructure by (i) transparent sector governance institutions and, (ii) more accountable and better performing sector agencies; (b) increased irrigation farm household incomes and improved regional food security as a result of raising the overall productivity of irrigated agriculture, and reducing its vulnerability to natural and economic shocks through (i) sustainable participatory irrigation management for more reliable and equitable water provision, and (ii) better agricultural and marketing support services for members of irrigation water user associations; and (c) more cost-effective and fiscally sustainable management of sector agencies. 8. The first phase of WISMP APL (WISMP 1) closed in December The main achievements of WISMP 1 in relation to the Project s objectives are: (i) Part A Basin Water Resources Management (BWRM): Under the new Law on Water Resources (Law 7/2004) and its downstream government and ministerial regulations, which form a new institutional framework of the sector for decentralization, stakeholder participation, transparency and accountability, a large number of provincial and national river basin organizations have been established and their capacity strengthened through WISMP1. With the issuance of a Presidential Regulation in March 2009, the National Water Resources Council was officially established. The Council Secretariat, hosted by the Ministry of Public Works, has been active since mid Also following this regulation, several provinces and river basins established multi-stakeholder Provincial Water Resources Councils and Basin Water Resources Councils (also referred to as Basin Coordination Committees). (ii) Part B Participatory Irrigation Management (PIM): Government regulation 20/2006 on irrigation and its related Ministerial Regulations laid out the PIM policy and principles and provided the legal basis for empowering farmers through their WUAs/WUAFs in all management processes from planning, design, and construction to operation and maintenance. With most of the facilitating national-government regulations now issued and most of the institutions in place, local governments are starting to operationalize them. To date, over 1,000 Water User Association Federations (WUAFs), covering some 800,000 hectares of irrigation command areas, have been legally established and strengthened. In most of the participating districts and provinces, Irrigation Committees have been established with WUAF representation. Provincial and district-level implementing regulations on irrigation management have been issued, reflecting the provisions of new government and ministerial regulations. 9. Preliminary qualitative results of independent surveys by the technical assistance consultants, the independent monitoring & evaluation unit (IMEU) and the Padjadjaran University show that with the partnerships established between irrigation services and WUAFs, and the linking of irrigation management programs with agricultural improvement programs, the 3

16 harvested area and crop yields have increased. Conflicts among water users appear to have been reduced, and through better management, additional income is generated through a higher level of involvement of the WUAFs in the maintenance and rehabilitation works of the irrigation agencies. Nevertheless, for the majority of schemes, the participatory process has just started and needs consolidation support in line with the new local regulations. This development progresses at a slow pace as it needs to adjust to the rate at which the regional and local government agencies and civil society-based organizations can develop the requisite local consensus, and adapt to the new paradigm. Moreover, the newly formulated tasks, responsibilities and associated activities need to be consolidated and firmly embedded in routine government and user communities systems of operations. 10. Triggers for initiating WISMP2. Four triggers were provided in the program appraisal document (PAD) of WISMP for initiating WISMP APL2. These include: (a) four fully functional provincial river basin management units (Balai PSDA); (b) fifty WUAFs legally established and functional with respect to governance, maintenance and rehabilitation of schemes, financial sustainability, and using extension services and credit; (c) operational guidelines agreed on river basin management including environmental and social safeguards; and (d) fifty percent of external funding disbursed. As of November 2010, the summary status of these triggers are as follows: (a) at least eight provincial river basin management units are fully functioning; (b) 1,175 WUAFs are legally established and some 170 WUAFs are fully functional; (c) operational guidelines on river basin management have been issued; and (d) over 90% of the external funding has been disbursed. A detailed account of the status of triggers is provided in Annex 9. All the triggers have been fully met and in several cases exceeded, confirming that the WISMP APL program is ready for the next phase. 11. Rationale for Continued Bank Support. The Bank has unique sector experience, particularly since 1999, including Bank-financed operations such as WATSAL and WISMP, as well as other projects piloting the reforms, e.g., West Nusa Tenggara Province (NTB) funded by the Government of Netherlands and European Union Trust Funds administered by the Bank 1. The WISMP Program was designed to address the critical sector issues of governance and institutional capacity, and remains fully in line with the national decentralization policy. While some aspects of the Program have changed since WISMP 1 was approved in 2003 prior to the issue of UU 7/2004, such as rearrangement of basin water resources management authority and mandates, the key elements of an integrated and participatory management approach and interventions for improving planning and management capacity and fiscal sustainability at the river basin level and below, are still highly relevant and in line with the WATSAL Letter of Sector Policy upon which WISMP is based. The Bank is well positioned to support the sector reform efforts under the WATSAL-initiated enabling framework now enshrined in national legislation and regulations. C. Higher Level Objectives to Which the Project Contributes 12. The higher level government objectives are presented in GOI's Medium Term Development Plan Through improved agricultural productivity and water security, 1 Indonesia Water Resources and Irrigation Reform Implementation Program (IWIRIP) (GoN TFs & 27756) ( ) and NTB Water Resources Management Project (NTB-WRMP) (EU TF No ) ( ). 4

17 the project contributes to economic growth, poverty reduction and food security. Food security is still a concern of GOI, and the irrigation systems included under the program are the backbone of Indonesia's staple food supply. Most of the country's poor are still in rural areas, and will benefit more than others from the project. The principal policy interest relates to the decentralization of public services, improvement of water resources and irrigation management governance, and infrastructure development and management efficiency, all of which are leading themes of the Country Partnership Strategy for Indonesia, "Investing in Indonesian Institutions for Inclusive and Sustainable Development". II. Project Development Objectives A. Project Development Objectives (PDO) 13. The Project Development Objective of WISMP 2 is to assist the Borrower to improve its capacity for basin water resource and irrigation management and increase irrigated agriculture productivity in the Project area. 14. As a result of a WISMP 1 implementation review, it was decided in consultation with the GOI that APL2 and APL 3 would be combined into one final phase - WISMP 2. This is in consideration of the long delays incurred in WISMP 1 implementation caused by late issuance of the enabling law and regulations. The WISMP program would therefore end with closure of WISMP 2. WISMP2 serves to complete the key institutional development interventions of the Program with some modifications to the scope, while infrastructure improvement will be the focus of possible follow-up sector programs. B. Project Beneficiaries 15. The main beneficiaries of the project are over 500,000 farmer households which directly benefit from more reliable and efficient irrigation water supply and increased agricultural productivity through improved irrigation water management and agricultural interventions in 390,000 ha of irrigated area in 101 districts. The numbers of men and women are virtually the same. In addition, some 600,000 farmer household beneficiaries of WISMP 1 will continue to benefit from the WISMP 2 activities. Another group of beneficiaries include the national, provincial and district water resources and irrigation management agencies, and agricultural support services in the project areas. They benefit directly through institutional development and capacity building activities and improved infrastructure for water resources and irrigation service delivery. Further, non-agricultural water user groups in the project basins and districts will indirectly benefit from the project in terms of increased water security through improvement in water resources and irrigation governance and management capacity, as well as improvement of river infrastructure in 18 river basins. C. PDO Level Results Indicators 16. Achievement of project development objectives would be evaluated through the following key performance indicators: (a) number of national and provincial basin management agencies fully functional; (b) number of Irrigation Commissions fully functional; and (c) increase in irrigated areas with over 15% increase in agricultural production. There will be many sub- 5

18 indicators based on which to obtain these indicators (details are in the PMM). In addition, there are a number of intermediate outcome indicators related to different components. III. Project Description A. Project Components 17. The Project covers a total 18 river basins, 14 provinces and 101 districts. The basins, provinces and districts largely overlap with the WISMP1 and the EU funded and Bank administered sister program NTB Water Resources Management Project. They were selected based on an evaluation of their performance under those projects through an extensive consultation process with participating national, provincial and district agencies. The Project consists of the following four components (details in Annex 2). Component 1. Basin water resources management improvement (US$41.32 million): (a) Improvement of operational effectiveness of basin management institutions and communitybased catchment management at: (i) central level in selected national and provincial river basins; and (ii) Province level in selected provincial river basins in Participating Provinces; and (b) Improvement of physical system performance of river basins at: (i) central level in selected national river basins; and (ii) Province level in selected provincial river basins in Participating Provinces. Component 2. Participatory irrigation management improvement (US$81.83 million): (a) Improvement of participatory irrigation management institutions in: (i) Participating Provinces; and (ii) Participating Kabupaten, including establishment and enhancement of local participatory irrigation management regulatory frameworks and capacity building of local institutions such as government irrigation and agriculture agencies, Irrigation Commissions, and Water Users Associations Federations; (b) Light and moderate rehabilitation and repair of: (i) Participating Province; and (ii) Participating Kabupaten irrigation system infrastructure; (c) Provision of support to irrigated agriculture, and carrying out of climate change adaptation measures, including support to farmers in relation to: (i) adoption of new technology and development of agribusiness management skills in: (A) Participating Provinces; and (B) Participating Kabupaten; and (ii) establishment of public-private partnerships for farming and marketing through the implementation of Community Subprojects in: (A) Participating Provinces; and (B) Participating Kabupaten; and (d) provision of technical assistance in relation to implementation of Parts 2 (a), (b), and (c) of the Project. Component 3. Jatiluhur Irrigation Management Improvement (US$ 62.73million): (a) Improvement of Jatiluhur irrigation system management institutions, including: (i)establishment and strengthening of participatory irrigation management institutions at various levels; (ii) development of effective inter-agency management arrangements; (iii) development of a funding mechanism for management of the Jatiluhur irrigation system; (b) Rehabilitation and improvement of irrigation and drainage infrastructure in the Jatiluhur irrigation system, including: (i) removal of bottlenecks in East and North Tarum Canals; and (ii) rehabilitation of secondary irrigation systems; and (c) Preparation for overall rehabilitation and modernization of the Jatiluhur irrigation system, including provision of technical assistance in relation to: (i) implementation of Part 3 (b) of the Project; and (ii) preparation of management, institutional, and 6

19 technical design documents and tender documents for future modernization of East and North Tarum Canals and future rehabilitation of additional secondary irrigation systems. Component 4. Project Management and Implementation Support (US$16.68 million): Provision of advisory support to entities involved in Project implementation in relation to Project management, implementation, including administrative and financial management, disbursement, and procurement, and monitoring and evaluation, at: (a) central; (b) Participating Province; and (c) Participating Kabupaten levels. B. Project Financing Lending Instrument 18. This is the second and final phase of the WISMP APL (APL 2). It follows WISMP 1 (APL 1) which was completed in The lending terms call for a Variable Spread Loan (VSL) in US Dollars with a 24.5 year repayment and a 9 year grace period. Project Cost and Financing 19. The total project cost is US$ million, and total financing required (including Bank front-end fee and interest during construction) is US$ million, of which the Bank will finance US$150 million or 73% while the central and local governments will finance the remaining US$56.75 million or 27% of the total cost. The central government will provide the required counterpart funds through co-financing arrangement from central source of funds, while the local governments will provide parallel financing from their local sources of funds. The table below shows the project costs and IBRD financing by component. Project Cost and Financing Summary by Component ( in US$ Million) Project Cost IBRD Financing % of IBRD Financing Component A. Improvement of Basin Water Resources Management B. Improvement of Participatory Irrigation Management C. Jatiluhur Irrigation Management Improvement D. Project Management and Implementation Support Total Base Project Costs Physical Contingencies 0 0 Price Contingencies Total Project Costs Front-end fees Interest During Construction Total Financing Required % 7

20 Lessons Learned and Reflected in the Project Design 20. The lesson learned from Bank supported analytical work and investments in Indonesia and elsewhere as highlighted in the IEG studies on water resources and participatory irrigation management, as well as the Asian Development Bank (ADB) and Japanese International Cooperation Agency (JICA) supported participatory irrigation management operations in Indonesia, were analyzed and incorporated in the design of WISMP2. Particular attention was given to the experiences of WISMP 1. The key issues identified and reflected in WIMSP 2 design are: (a) A participatory approach in basin water resources and irrigation management not only helps improve decision-making effectiveness, but also enhances ownership of the solutions by different stakeholders. More emphasis is given in WIMSP 2 to the development and strengthening of the basin and irrigation management stakeholder platforms. (b) The integration of irrigation sector reform interventions and agricultural production activities of interest to communities creates incentives for active participation of beneficiaries and enhances project sustainability. (c) The division of authority, responsibilities and tasks between national, provincial and district agencies for both river basin water resources management (BWRM) and irrigation management in the systems under central government authority appeared insufficiently regulated. Many of the issues on distribution of tasks and responsibilities are presently being addressed by MOUs. A more structured approach is incorporated in WISMP 2 through new or modified ministerial (for Jatiluhur irrigation system) and Director-General level (for BWRM) regulations. (d) Human resources in both central and local government agencies are scarce in terms of quantity and quality. Serious efforts are required to design and implement a human resource development strategy. The possibility of outsourcing of certain activities in both basin and irrigation management may be considered to meet the immediate capacity needs and reduce the medium to long term burden on government agencies. Providing WUAFs with more management tasks and responsibilities is one part of the outsourcing and has been given more emphasis in WISMP 2. (e) Local governments have a high staff rotation rate resulting in a continuous need to train new people and transfer knowledge in WISMP processes. To address such issues, WIMSP2 will continue the practice of preparing institutional and program profiles for each project district and province as part of its knowledge base development. (f) Lack of implementation readiness and delays in procurement due to weak procurement, financial management and monitoring & evaluation capacity of government teams are often significant contributors to slow project progress. Additional efforts have been made to enhance the project teams procurement, financial management, and monitoring & evaluation capacity, and to ensure project readiness. (g) In the course of WISMP implementation, budget (DIPA) release had always been late leading to delays in implementation and only partial disbursement. Adopting advance procurement and flexible contracting arrangements, where appropriate, will help a great deal in completing much of the works planned. 8

21 IV. Implementation A. Institutional and Implementation Arrangements 21. Overall Implementation Arrangements. The implementation arrangements for WISMP 2 resemble those of WISMP1. The main line ministry agencies to be involved in the project are: MoPW-DGWR; MoA DG Agricultural Infrastructure and Facilities (DGAIF); and MoHA-DG Regional Development (DGRD). MoPW is the anchor ministry and the National Development Planning Board (Bappenas) will be the cross-sector coordination agency. Project management units (PMUs) and implementation units (PIUs) have been established at national, provincial and district levels. These units are, and will remain, part of the (local) government structure. 22. The NPMU is located in DGWR in the Directorate of Planning and Programming and works under the supervision of the National Steering Committee for Water Resources (NSCWR). Four national level NPIUs will be established at the MoPW-DGWR (for Basin Water Resources Management and Irrigation), MoA DG AIF, and MoHA-DGRD respectively. A special PIU will be established for the Jatiluhur Component in BBWS Citarum, under the NPIU Irrigation, DGWR. A Basin PIU will be established for each concerned National River Basin Organization under the WRM NPIU, DGWR. 23. At the provincial and district levels, PIUs will be established for all participating provinces and districts at the respective development planning board (Bappeda), water resources department (Dinas SDA) and agriculture department (Dinas Pertanian). Coordination will be the responsibility of PMUs established at the local Bappedas. 24. The project management and implementation units will be assisted by a number of technical assistance consultant teams. Detailed implementation arrangements are described in Annex Community Participation: Civil society organizations will be engaged in project investment identification and selection, as well as social mobilization and capacity building of irrigation water user community organizations (WUAs and WUAFs). WUAs and WUAFs will be actively involved in participatory planning, design and construction of lower canal system improvement. WUAFs will take responsibility for managing completed lower canal systems. Communities will also be involved in the construction of small river infrastructure improvement works. B. Results Monitoring and Evaluation 26. Building on the experience of WISMP1, the results monitoring framework has been simplified and the number of indicators has been reduced. Project input, process, output and outcome indicators will be tracked and reported through a web-based project management information system (PMIS) managed by the NPMU. Outcome and impact monitoring will be carried out by the impact monitoring and evaluation unit (IMEU) under the National Steering Committee Secretariat. Incremental costs of the project M&E arrangements, including M&E TA, will be financed from loan proceeds. 9

22 27. NPMU will prepare and submit to the Bank, semi-annual progress reports with inputs from the project implementing units at different levels through the PMIS. IMEU will produce independent evaluation reports on project results. C. Sustainability 28. To ensure technical sustainability, the project will engage international and national technical assistance consultants to guide the implementing units and ensure that technical designs of project facilities are in line with modern practices and the works will be of good quality. Participatory planning, design and construction, involving the key stakeholders (WUAFs, in the case of irrigation system rehabilitation) will further improve the quality and sustainability of works. 29. From the institutional perspective, the project has a strong institutional development and capacity-building element to equip basin and irrigation management staff with the skills and knowledge needed for implementing and managing the project basins, irrigation systems and different facilities. The participatory approach of the project design and implementation arrangements help build a strong sense of ownership, and create a favorable environment for the sustainable use of project facilities. Establishment of irrigation committees will enable better accountability for system performance and timely technical and extension services to farm communities. The empowerment and capacity building of WUAFs in irrigation management, and the new coordination and role-sharing mechanisms to be established for basin water resources management, will strengthen institutional sustainability. 30. From the financial perspective, the project would promote need-based asset management for both river infrastructure and irrigation systems. Management of lower canal systems by WUAFs and joint management of the main system will contribute significantly to better fiscal sustainability of the systems through improved O&M. Farm communities direct and indirect contributions to canal system O&M will help greatly enhance the fiscal sustainability of the physical systems. V. Key Risks and Mitigation Measures 31. The main risks are related to fraud & corruption, procurement and financial management capacity, social safeguards management and fund flow. A summary of the project risks and mitigation measures are presented below while detailed information is presented in Annex 4. The overall project risk is rated as moderate. 10

23 Fraud and Corruption. Previous experience indicates that a project of this nature is vulnerable to fraud and corruption risk as bidders, contractors, consultants, suppliers or project personnel may engage in fraudulent and corrupt practices during tendering processes, contract implementation and financial transactions. A better governance action plan (see Annex 8) has been developed and included in the PMM. Good practices developed under WISMP 1 (e.g., participatory procurement, use of a project website for information disclosure, and independent monitoring and oversight of project results) will be continued. Construction supervision and quantity surveyors will be included in the TA consultancy for bigger contracts, and sample verification of third party payment documentation and risk-based audits will be undertaken. Procurement and Financial Management Capacity. Inadequate staff procurement capacity at provincial and district levels might lead to unacceptable procurement practices that affect project progress and results. Similarly, inadequate staff capacity to manage the financial aspects of project implementation, especially in a number of PIUs that have no prior experience with WISMP or similar programs, could potentially result in misuse of funds. To mitigate these risks, detailed procurement and financial management manuals have been developed to guide project staff, and hand-on training will be provided to PIU staff before and during implementation. Major procurement will be carried out by NPIUs, while province and district PIUs will carry out small value procurement for goods and works. A TA team with experienced procurement and financial management specialists will support project teams and assist the PMU to verify third party invoices prior to payment. Social Safeguards Management. Lack of due diligence in implementing applicable social and environmental policies for sub-project impact assessment and screening and mitigation planning and execution under different components may lead to less than satisfactory project results. The main mitigation measures include the development of an environmental and social safeguards framework (ESSF) for the entire project and an environmental assessment & management plan (EMP) for the first year work program, and practical training for PMU and PIU staff on Bank safeguards policies and application of the ESSF prior to the start of implementation. New Fund Flow Mechanism. The adoption of a new fund flow mechanism for local government activities increases the uncertainty for timely implementation of certain project interventions. Mitigation measures include: (a) clear rules and operational procedures detailed in the PMM; (b) starting the process for signing the on-granting agreement well before loan effectiveness; (c) preventing delay of project implementation, by mainly focusing on the APBN components in year 1, while APBD components start after signing of on-granting agreements; and (d) having the NPMU/NPIU closely monitor and evaluate the operation of the new fund flow mechanism and take timely corrective actions during implementation. VI. Appraisal Summary A. Economic and Financial Analysis 32. Economic Analysis. The major quantifiable benefits (on an incremental basis) of the project include: (a) increased agricultural productivity derived from the integrated project interventions in irrigation infrastructure improvement, and in water management and agronomic practices; and (b) losses avoided from improved flood management capacity, and benefits from 11

24 industrial and drinking water supply, brought about by investments in upgrading basin water resources management and multi-purpose river infrastructure. Substantial non-agricultural benefits which will directly accrue from the project are not accounted for in the analysis: (a) savings from appropriate and timely river and irrigation infrastructure maintenance; (b) flood damage reduction; and (c) efficiency gains from institutional development and capacity building. The project would generate an ERR of 22%, 21% and 23% for Components 1 to 3 respectively, while the ERR for the entire project is estimated at 19%. 33. Financial analysis. The project is financially attractive to farmers engaged in different types of improved irrigated agricultural practices. An income analysis using crop budgets and farm models under with and without project scenarios shows a substantial increase in farmers income from improved crop production. This will provide incentives for farmers to participate in investments, and take responsibility for O&M of the on-farm irrigation system through WUAs/WUAFs. 34. Fiscal Impact. Counterpart funding of US$56.75 million will be provided by local and national governments. The Project will introduce participatory operation and maintenance (O&M) practices for target irrigation schemes. The funding for O&M for tertiary canal systems after rehabilitation will be fully covered by the WUAs and WUAFs, while the O&M costs for the improved secondary and main canals will be covered by the government as per current water sector policies. This indicates that the project will have some fiscal impacts. More details of the economic and financial analyses are provided in Annex 7. B. Technical 35. Technologies and approaches to be adopted for project interventions are well known to the implementing agencies concerned. Technical studies and designs based on modern design standards will be carried out as part of the sub-project (scheme) selection and design process. Agreed sub-project (scheme) selection criteria and process, covering technical, institutional, cost-effectiveness and safeguards aspects, have been defined in the PMM and will be enforced during implementation. Large civil works (which are not common under this project) will be undertaken by contractor firms working under construction supervision teams. For small scale irrigation works improvements, participatory design and construction will be carried out with technical assistance from implementing units to enhance ownership and build the capacities of WUAFs. Small scale river improvement works will be implemented through community participation. In the case of agricultural technology interventions, technical guidance will be provided to farmer communities by agriculture sector experts. 36. With regard to the Jatiluhur Irrigation System Improvement Component, feasibility studies were undertaken by international consultants. The studies demonstrated the need to improve both the physical and management systems, as well as institutional arrangements for system operation and maintenance. The proposed project will improve a number of high priority sub-systems where a participatory irrigation management approach will be piloted, and carry out limited priority rehabilitation along the East and North Canals to remove bottlenecks. The main system improvement will be further studied under WISMP2 for implementation at a later stage. 12

25 C. Financial Management 37. The project financial management arrangements follow the government system, especially budgeting, flow of funds, and auditing mechanism. The project uses the same fund flow mechanism as in WISMP 1, except for local government activities that will follow the ongranting mechanism to channel loan funds. For these activities, the central government will transfer funds to the local government s account prior to final payment to the third party. The adoption of this new fund flow mechanism will increase the risk of the project. The project has substantial risk arising from inadequate staff capacity to manage financial aspects of project implementation, especially in the local implementing agencies. This includes payment verification at the NPMU level, particularly for non-physical activities such as training, workshops and consultant services. 38. Financial management risks will be mitigated by providing financial management consultants to assist NPMU/PIU in financial management and in carrying out a financial management training program for project staff. NPMU has developed detailed operational procedures, and will monitor its performance closely and take appropriate corrective action. An action plan to enhance fiduciary oversight and minimize corruption risks has been developed as part of the PMM. D. Procurement 39. Procurement will be carried out in accordance with World Bank Procurement Guidelines and the provisions stipulated in the Loan Agreement. Procurement procedures and standard bidding documents to be used for each procurement method are included in the PMM. Works to be procured consist of irrigation canal improvement and small scale river infrastructure under components 1 to 3. Components 1 and 2 include small scale works contracts for rehabilitation work, whereas some major works will be financed in component 3. Contracts for goods include monitoring equipment for the hydrology program, equipment for operation and maintenance, and small-value office equipment for project implementation and management. Consultant services include technical assistance contracts for supporting the implementation of different components, and project management at the central level covering project administration, procurement, financial management and monitoring & evaluation. 40. The procurement capacity assessment of the project implementing units (PIUs) indicates that they have the basic capacity to carry out procurement activities under the proposed project. Project procurement arrangements take into account lessons learned from WISMP in monitoring and quality control of procurement transactions that are heavily decentralized to the provinces and districts. WISMP 2 will have an increased consultant input for procurement management, in addition to regular post-review visits for quality control and need-based training on Bank procurement. To avoid delays in recruiting the key consultants, the NPMU and the PIUs will carry out advance procurement by initiating short-listing processes and request for proposal (RFP) preparation for priority consultancies prior to loan negotiations. Continued support will be provided by the Bank team for hands-on procurement training and workshops before loan effectiveness. 13

26 E. Social (including Safeguards) 41. Most project impacts are expected to be positive in terms of social indicators, and no significant negative impacts are expected in terms of land acquisition. An environmental and social safeguards framework (ESSF), including environmental management guidelines, land acquisition and resettlement policy framework as well as indigenous peoples policy framework, has been developed through pubic consultation and disclosed publicly. The ESSF will guide project staff on safeguards screening, assessment and management. The social safeguards policies triggered include the Indigenous Peoples Policy and Involuntary Resettlement Policy. 42. Indigenous Peoples (OP/BP4.10). Some indigenous peoples live in several participating provinces. Since the proposed project will be carried out over several years and the exact activities and sites for year 2 and beyond are yet to be identified under Components 1 and 2, it is possibile that project activities could affect indigenous groups at subproject sites where Indigenous People (IP) are present. No adverse impacts on IP communities are anticipated. However, to ensure that IP share the social and economic benefits from the project, an Indigenous Peoples Policy Framework (IPPF), acceptable to the Bank, has been developed and is included in the ESSF. 43. Involuntary Resettlement (OP/B 4.12) No significant negative impacts are expected beyond very small scale land acquisition that may be required for the construction of works. The project adopts a programmatic approach, and a social safeguards assessment will be carried out as an integral part of the sub-project (scheme) screening and assessment process. Where land acquisition and/or resettlement is needed, a land acquisition and resettlement action plan (LARAP) will be developed and implemented per the policy framework in the PMM. The GOI project team has confirmed that neither land acquisition nor resettlement is involved in the first year work program. F. Environmental (including Safeguards) 44. Environmental safeguards policies triggered include Environmental Assessment, Pest Management and Dam Safety. The overall project document guiding environmental safeguards management is the PMM, which contains detailed procedures to ensure that potential environmental and social impacts of sub-projects or activities are adequately addressed and monitored in accordance with the requirements of GoI and Bank policies. The PMM also contains standard good design and construction practices for physical works under the project. 45. Environmental Assessment (OP/BP4.01). The Project is expected to have positive environmental impacts. The small-scale physical project investments in the river and irrigation works under Components 1 and 2 may have temporary localized adverse environmental impacts. These can be readily mitigated by good engineering design and construction practice by following agreed environmental management guidelines, reinforced by adequate field supervision. Small to medium scale activities under Component 3 that support rehabilitation of irrigation and drainage structures (including canal lining, desilting, and cross structure repairs), may have negative environmental impacts, e.g., increased erosion, temporary deterioration of water quality, scouring of canals, and other construction related impacts. No works will be undertaken that could affect protected or vulnerable ecosystems and forests. Given the project s programmatic approach, an environmental assessment and environmental management plan (EMP) has been prepared for the first year work program, and has been disclosed publicly. 14

27 46. Pest Management (OP 4.09). This policy is triggered because the improved irrigation management may result in an increased use of agricultural inputs. The project will not finance procurement or application of pesticides. Where pesticides are in use in the WISMP 2 project area, the Integrated Pest Management Plan (IPMP) developed as part of the PMM will be adopted. WUAFs will be trained to adopt good practices for pest management described in the IPMP. 47. Safety of Dams (OP/BP 4.37). This policy is triggered because the Jatiluhur irrigation system is partially fed by the Jatiluhur dam/reservoir. The Jatiluhur dam is part of an on going Bank financed Dam Operational Improvement and Safety Project (DOISP). The necessary actions required by Bank policy are included under DOISP. Progress of such activities will be monitored and included in the regular WISMP 2 project reports. 15

28 Annex 1. Results Framework and Key Monitoring Indicators WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) Project Development Objective (PDO): The project development objectives are to assist the Borrower to improve its capacity for basin water resource and irrigation management and increase irrigated agriculture productivity in the Project area. PDO Level Results Indicators* Indicator 1. PO-1 No. of national and provincial basin agencies fully functional* Indicator 2: PO-2 No. of Irrigation Commissions fully functional** Core Unit of Measure Baseline (FY2011) Cumulative Target Values** Frequenc y YR 1 (FY2012) YR 2 (FY2013) YR3 (FY2014) YR 4 (FY2015) YR5 (FY2016) No Semiannually No Semiannually Data Source/ Methodology PMIS PMIS Responsibility for Data Collection PPIUs & NPIU for Component 1 NPIUs and IMEU Description (indicator definition etc.) Cumulative Cumulative Indicator 3: PO-3 Increase in irrigated areas with over 15% increase in agricultural production Ha. 0 20, , , , ,000 Annually Field sampling on representative plots NPIU(MOA) and IMEU Cumulative INTERMEDIATE RESULTS Intermediate Result (Component One): To increase institutional capacity for basin water resource management and improve river infrastructure sustainability. Intermediate Result indicator One: IO-1.1. No. of basin water allocation plans operational Intermediate Result indicator Two: IO-1.2a. No. of river infrastructure O&M plans formulated and implemented Intermediate Result indicator Three: IO-1.2b. Percentage of river No Semiannually No Semiannually % Semiannually PMIS PMIS PMIS NPIU for Component 1 NPIU for Component 1 NPIU for Component 1 Cumulative Cumulative Cumulative 16

29 infrastructure established under the Project functional Intermediate Result (Component Two): To develop/strengthen participatory irrigation institution and improve system performance. Intermediate Result indicator One: IO-2.1. No. of WUAFs duly constituted No. 1,175 1,275 1,375 1,445 2,000 2,030 Semiannually PMIS NPIUs for component 2 &KPIUs Cumulative Intermediate Result indicator Two: IO-2.2. Command area with improved irrigation infrastructure and services Ha. 0 50, , , , ,000 Semi- Annually Intermediate Result (Component Three): To improve Jatiluhur irrigation physical system and management/governance. Intermediate Result indicator One: IO-3.1. Establishment of effective institutional mechanism for Jatiluhur system management Intermediate Result indicator Two: IO-3.2. Command area with improved irrigation infrastructure and services Decree issued Descriptive DGWR- PJT2- Province- District role sharing agreement signed Detailed instituti onal arrange ments establis hed Mechanis m Functional with staffing and funding for O&M in place Semiannually Ha. 0 3,000 9,400 16,100 22,800 30,000 Semi- Annually Intermediate Result (Component Four): To ensure timely project inputs and implementation support. PMIS NPIUs for component 2 &KPIUs PMIS NPMU/DGWR Cumulative PMIS BBWS Citarum Cumulative IO-4 Establishment of webbased Project management information system in project management and implementation units Descriptive Not functional Functional Functional Functional Functional Functional Semiannually PMIS and special monitoring Notes: The PMM includes detailed criteria and sub-indicators for assessing the functionality of basin agencies and irrigation commissions. NPMU& IMEU 17

30 Annex 2: Detailed Project Description WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) 1. Sector Background. The main development issues and their evolution over the years with additional background information on the water resources and irrigation sector are summarized below. 2. Strong Need for Strengthening Sector Governance and Management Institutions. The new Water Law 7/2004 provides the framework for water resources management based on river basins (territories). Water resources in the provincial basins are managed by the Provincial Water Resources Services while that of cross-province basins and strategically important basins are managed by National River Basin Organizations (RBOs) under the authority of the Ministry of Public Works. The River Basin Organizations are given the responsibility for basin planning, development and management, and river infrastructure development and O&M. In national basins the water resources management function is to be carried out jointly with the Provincial River Basin Organizations. However, the role sharing between provincial and central government RBOs and associated financing mechanisms for this new institutional setup are yet to be formally established. To enable participation, transparency and accountability, multistakeholder governance platforms need to be established at national (National Water Council), provincial (Provincial Water Council) and basin (Basin Water Council) levels. 3. For irrigation systems, management responsibilities for a total of 7.4 million hectare of command areas have been divided among districts (3.2 million ha of schemes <1000ha), provinces (1.4 million ha of schemes between 1000 and 3000 ha and cross district boundary) and central government (2.7 million hectare of schemes larger than 3000 ha and cross province boundary). Main (primary and secondary) system management is to be implemented through partnership between the responsible irrigation services (National, Provincial or District) and the Water User Association Federations (WUAF) to improve the effectiveness of management and overcome the overall budget and staffing limitations of government agencies. Tertiary system management is the sole responsibility of the Water User Association (WUA). Participation, transparency and accountability in irrigation management culminate in the Irrigation Commissions composed of an equal number of representatives from government agencies and WUAFs. They have the task to prepare annual and multi-year plans for irrigation management and system improvement which include receiving, evaluating, verifying and prioritizing proposals for funding from the various government sources and WUAF contributions. Figure 1 shows the governance framework for participatory irrigation management. 4. With support from WISMP, many new governance and management institutions mentioned above have been established. These new institutions, such as provincial and river basin councils, require further strengthening and consolidation to function effectively as true representatives of their interest groups, and integrate into routine government operations. Furthermore, some second generation issues emerged during WISMP1 implementation which require close attention, e.g., there is a need to strengthen legal backing with more clarity for rolesharing in basin water resources, catchment and irrigation management among various 18

31 responsible management agencies at national, provincial and district levels, to enable them to fulfill their mandates. Figure 1. Governance Framework for Participatory Irrigation Management Head of District/Province Local Parliament Priorities for funding Budget APBD Irrigation Commission Proposals Proposals + Verification WUAF WUAF Participatory O&M, Design, Construction Irrigation Service WUAF WUAF Irrigated Agriculture Improvement Agricultural Service 5. Requirement for Further Improving Fiscal Sustainability of the Sector. Inadequate O&M financing has always been a major constraint to proper maintenance of river and irrigation infrastructure in the country. Since the new Water Law only permits water charges for commercial water services, and does not allow for water charges for smallholder irrigation, the sustainability of water infrastructure is dependent on timely allocation of sufficient O&M funds from central, provincial and district government budgets. Figure 2 illustrates the flow and the sources of funding for rehabilitation, new development and O&M across different tiers of government. 6. At the central level, irrigation spending is a joint mandate of MoPW and MoA. The DG Water Resources (DGWR) at MoPW is largely responsible for capital investment and O&M for national river territories and irrigation systems, while the DG Agriculture Facilities & Infrastructure (DGFAI) in e MoA is concerned with support for on-farm and tertiary irrigation development and conversion into irrigated land. 7. Each level of government is responsible for the O&M of the network under its authority. At the central level, DGWR at MPW funds O&M of its systems through the national budget (APBN) and utilizes the Tugas Pembantuan or TP transfers to the provincial irrigation services for O&M implementation that often use District agencies for implementation. At the provincial level, the Dinas Water Resources/Irrigation funds O&M of its systems through the provincial budget (APBD-P) originating from their own revenues (PAD) and the general purpose transfers (DAU). At the district level, the irrigation O&M budget comes from the district budget (APBD). The system O&M in all public irrigation systems is expected to be jointly executed with the WUAs/WUAFs under the current irrigation regulation. Such participatory management practice helps reduce the burden of O&M funding. 19

32 Figure 2. Flow of funds for river basin and irrigation system management Rehabilitation/improvement & New development Operation & Maintenance Nat. basins and irrigation systems APBN DGWR Nat. basins and Irrigation systems APBN DGWR through TP (for irrigation) Prov. basins and irrigation systems APBD P Prov. Basins and Irrigation Systems APBD P DAU, PAD DAK Irrig. DAU, PAD WUAF for Irrig. only District Irrigation Systems APBD District Irrigation System APBD DAU, PAD DAK Irrig. DAU, PAD WUAF contributions 8. Rehabilitation and new development for national basin infrastructure and irrigation systems are funded and executed through the APBN budget of MPW. Provinces and districts are allowed to invest in rehabilitation of schemes under their responsibility. Rehabilitation for provincial and district systems is primarily financed from the provincial or district budget and for a major part through transfers to the regions (Special Purpose Transfers, or DAK). The DAK and TP budget systems have already been established for irrigation systems; similar arrangements have yet to be developed for river infrastructure. 9. Government spending on irrigation has been quite unstable in the last decade (see Figure 3 from Bank s APER 2010). Central government spending on irrigation decreased in real terms in 2007 (the first year of DAK Irrigation transfers to the regions) and by 2009 it was still below the 2006 level. At the sub-national level, districts and provinces have significantly increased spending, providing more resources to support water systems after decentralization. During , the share of the agriculture budget that sub-national governments (both provinces and districts) allocated for water systems grew from 29 to 38 percent. Despite this welcome trend, continued awareness raising and establishment of incentive mechanisms are still required to further improve local budget allocations. Furthermore, the effectiveness of these financing mechanisms needs to be significantly improved. To this end, involvement of stakeholders in the planning and implementation process through the Irrigation Commissions has shown promising results in more efficient use of local financial resources. 20