World Bank Support to the Infrastructure Program in Indonesia

M. Benmaamar Developing Indonesia Seminar 2010, Jakarta, November 8th, 2010

Contents
Overview of infrastructure expenditure and needs Infrastructure and RPJMN (2010-2014) World Bank Support:
Energy Water and Sanitation Urban and Local Government Transport CDD Program and Climate Change

Investment in Infrastructure by Sector and by Source (% of GDP)

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

TELECOMS WSS

TRANSPORT ENERGY

IRRIGATION

9.0%

8.0%

SOE

Private

Sub-national

National Gov't

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

Total investment in infrastructure by sectors

Total investment in infrastructure by sources

Sources: Indonesian Government for statistics on national and sub-national governments; Annual reports for state-owned enterprises; World Bank PPI database for private investment, excluding cancelled projects.

Infrastructure spending represented less than 10% of total national spending and well below the spending on subsidies
30
Share of total national expenditure (%)

25

Subsidies Int. payments

20

Education
15

Government Admin Infrastructure

10

Agriculture Health

0 2001 2002 2003 2004 2005 2006 2007* 2008* 2009** 2010**
Note: The chart includes central and sub-national spending

Private participation in infrastructures investment has slowly recovered recently, dominating by telecommunication and energy sectors 0.5% GDP in 2005 target 0.75% in 2010
8,000
7,000 Transport Water & Sewerage

6,000

Telecom
Energy

US$ Million

5,000

4,000
3,000 2,000 1,000 0
Source: World Banks1996 PPI database. These figures record investments promised at the time of contracting. 1994 1998 2000 2002 2004 2006

2008

and well below Indonesias regional peers

Investment in infrastructure (% of GDP)

Source: Philippines Transport for Growth, 2009 (World Bank), various years

Indonesia ranks among the lowest in the region with regard to the quality of infrastructure
GCI 2009-2010: Quality of Infrastructure Vietnam (rank 94) Philipines (rank 98) Indonesia (rank 84) India (rank 76)
Quality of port infrastructure Quality of electricity supply Quality of air transport infrastructure GCI 2009-2010: Quality of Indonesia's infrastructure

China (rank 46)

Thailand (rank 40)
Quality of railroad infrastructure Quality of roads

Malaysia (rank 26)

0 1 2 3 4 5 6 7

Indices (scale 0-7; 7 is being the best)

Source: Global Competitiveness Index 2009-2010

Indices (scale 0-7; 7 is being the best)

The government has set ambitious development targets to be achieved by 2014

Selected development targets Construction of roads: Trans Sumatera, Trans Java, Trans Kalimantan, Trans Sulawesi, Trans West Nusa Tenggara, Trans East Nusa Tenggara, and Trans Papua Development of integrated infrastructure and transportation network inter-modes and inter-islands Completing optical fiber network development in Eastern Indonesia Refinement the transportation system and network in the 4 biggest cities (Jakarta, Bandung, Surabaya, Medan) Power plant capacity improvement Increasing electrification ratio Increasing access to water supply Target

19,370 km (by end 2014)

Completed by 2014
Completed before 2013 Completed by 2014 3,000 MW per annum

80 % (by 2014)
70% (by 2014)

Selected priority activities in Infrastructure in the 2010-2014 RPJMN

No
1 2 3 4 5 6 7 8

Priority activities
Land utilization regulation harmonization to build integrated spatial planning and management Completing Sumatera, Java, Bali, Kalimantan, Sulawesi, NTB, NTT and Papua highway reaching 19,370 km Building transportation infrastructure based on National Transportation System and Transportation Blue Print Building 685,000 subsidized houses, 180 Rusunami and 650 twin blocks by 2012 Finishing flood canal in Jakarta by 2012 and Solo by 2013 Completing optic fiber network in eastern Indonesia before 2013 Improvement of transportation system in 4 biggest cities based on urban transportation blue print Increasing power capacity at average 3,000 MW per annum and oil production 1.2 million barrel per day

Indicative budget 2010-14 (IDR Tlns) 3.05 143.2 36.8 36.7 14.2 9.8 2.8 54.3

WORLD BANK ENERGY SECTOR ENGAGEMENT IN INDONESIA

Key Challenges Facing Indonesias Power Sector

Looming power shortages in face of growing economy Only about 70% of population with formal access to electricity Lack of clear vision due to legal, policy and regulatory uncertainties Sub-optimal power generation mix is dominated by fossil fuels - with heavy reliance on diesel and substantial expansion of coal underway Momentous investment needs of around $4-$5 billion annually to meet demand

Geothermal 3.2%

Geothermal 7.0%

2007 29 GW

2018 87 GW

World Bank in the Power Sector

Sector/Institutional Reform
Deployment of Energy Resource Planning System, ERP
(under implementation) Deployment of an ERP system through three phases to strengthen PLN management capabilities and governance

Electricity Network System Strengthening

Java-Bali Power sector Restructuring and Strengthening Project
(under implementation)

Optimizing Power Generation Mix

Upper Cisokan Pumped Storage Project
(under preparation) Finance first pumped storage in Indonesia is key for managing peak demand in the distribution system and helps reduce the cost and reliability Estimated investment around $800 million.

Strengthen power transmission network to relieve key bottlenecks

Tariff Rationalization Study

(ongoing) Provide guidance on tariff setting and policy

Power Transmission Development Project

(under implementation) Improve reliability of transmission network

The World Bank in Geothermal Development

Geothermal Sector Reform
$4 million GEF Grant
(under implementation) Enhance policy framework by: Pricing & Incentives Upstream Risk Mitigation Legal & policy review and amendments Transactions to tender projects for development Long-term domestic capacity building

Carbon Finance and Climate Change

Lahendong II CDM Transaction
(under implementation) Purchase CER from PLN for 20 MW geothermal project

Investment Lending to Strengthen Institutions

IBRD/CTF Loan to Pertamina Geothermal Energy (PGE)
(under preparation) Immediately scale-up investment Blended concessional financing from IBRD and CTF (up to $350 million) Strengthen institutional capacity for continued expansion

Carbon Finance Framework for Geothermal

(under preparation) Wholesale provision of carbon revenues through streamlined programmatic approach

The World Bank in Energy Sector

Domestic Gas Development
Domestic Gas Market Development Project
(under implementation) Expand the use of natural gas in West Java market Improve efficiency and reduce pollution by substituting cleaner fuel PGN Restructuring Pricing Study

Regional Electrification and Rural Access ???

Rural Electrification Project
(dropped) Conducted surveys and prepared RE Masterplans for 4 regions

Energy Efficiency ???

Request from Ministry of Industries

(under identification) Preliminary request to explore EE enhancements within steel and cement sectors

Policy Framework for Regional Electrification and Rural Access

(completed) Significantly influenced current electricity law

WORLD BANK/INDONESIA PARTNERSHIPS IN ENERGY SECTOR

Focus Activity
Geothermal Sector Reform Project (GEF)

Concept/Status
Under Implementation: Policy reforms & transaction support to address key barriers to investment, funded by GEF grant

Cost (million)
$4
(GEF Grant)

Geothermal

Carbon Finance Framework for Geothermal Development

Lahendong Geothermal Project Geothermal Clean Energy Investment Project Java-Bali Power Sector Restructuring and Strengthening Project

Under Preparation: Programmatic application of CDM to provide streamlined access to carbon financing and reduce uncertainty for geothermal developers.
Under Implementation: Facilitate the carbon off-set transaction on behalf of PLN Under Preparation: Support Pertamina/PGE develop up to 150 MW of additional power generation capacity in Ulubelu and Lahendong geothermal fields. Under Implementation, help PLN w/ strengthening power system and improving management capailities (also $6 million TA to PGN) Additional Financing, Board approved, 2010: Extended Deployment of the ERP System, building on successful pilot in original project

$20-$40 in initial
ER purchases from first tranche

up to $ 350
(IBRD and CTF)

$141
(loan amount)

$30
(loan amount)

Power Sector
Power Transmission Development Project Upper Cisokan Pumped Storage Project

Under Implementation, Board approved, 2010: Help PLN strengthen bottlenecks in transmission network Under Preparation: Develop pump storage site in Java to reduce high reliance on oil and gas for peaking Under Implementation: Improve the distribution network in West Java to accommodate new gas supplies from Sumatra

$ 225
(loan amount)

$800
(loan amount)

Gas Sector

Domestic Gas Market Development Project

$80
(loan amount)

WATER AND SANITATION

The Gaps
2009 coverage Non -Piped Water (protected) Urban Rural Piped Water Urban Rural Sanitation Urban Rural 63% 30% 79% 60% 16% 30% 44% 12% 68% 20% 24% 8% 50% 46% 78% 62% 28% 16% MDG Targets Coverage gaps Estimated costs needed to achieve MDGs Targets in water and sanitation:

Estimated costs needed to achieve MDGs Targets in water and sanitation: USD 450 M annually

Source: Indonesia National MDG Reports 2008 and Cipta Karya Renstra 2010

Indonesia vs other SE Asia countries

Thailand

Improved Sanitation Rural Sanitation

Vietnam

Improved Sanitation Urban Sanitation

Philippines

Country

Indonesia

Improved Water Supply Rural Water Supply

Cambodia

Improved Water Supply Urban Water Supply

Myanmar

Lao

20

40

60 Coverage

80

100

120

Source: JMP Report 2010

GOI PROGRAMS & WB SUPPORT in WATER SECTOR

URBAN
GOI Programs: IKK ~ USD 480 M Poor households ~ USD 120 M Special areas ~ USD 30 M WB Support: UWSSP USD 23.5 M GPOBA Jakarta USD 2.6 M GPOBA Surabaya USD 2.4 M Various TAs ~ USD 400,000 Greater Bandung (pipeline) ~ USD50M Umbulan (pipeline) ~ USD 200 M WSS Financing (pipeline) ~ USD300M GOI Programs: Debt Restructuring for PDAMs Interest Rate Subsidy & Guarantee Water Hibah Support for regional facilities Raw water support (with SDA)

Total GOI budget 2010-2014: ~USD 1,267 M RURAL

GOI Programs: PAMSIMAS & Arid/isolated villages and small islands ~USD 460 M DAK Water Supply ~ USD 175 M

WB Support: PAMSIMAS USD 150 M WSP studies

WB Support: WASAP USD 25 M National Road Map USD 180,000 IDPL DAK

NATIONAL POLICY AND REGULATIONS

GOI PROGRAMS & WB SUPPORT in SANITATION

URBAN
GOI Programs: Sanitary landfill in 210 cities Integrated 3R in 250 locations Sewerage and Waste Water Treatment Plant in 11 cities Drainage improvement to cover area of 4,600 ha WB Support: Greater Bandung (pipeline) ~ USD 50 M JUFMP USD 150 M

Total GOI budget 2010-2014: ~USD 1,436 M

RURAL
GOI Programs: PAMSIMAS DAK Sanitation ~ USD 175 M

WB Support: PAMSIMAS USD 150 M TA in Sanitation Marketing (WSP)

GOI Programs: Sanitation Hibah APBN Support for regional facilities

WB Support: WASAP USD 25 M IDPL

NATIONAL POLICY AND REGULATIONS

21

Cities accommodate half of Indonesias population and are responsible for a major share of national GDP Urbanization rate expected to be 68% by 2025 Metropolitan Jakarta produces 20% of national GDP, with about 6% of population The Largest Cities are growing at an annual average 6-8% real GRDP

Yet, cities are not delivering services as one would expect Delivery of basic services in Indonesia is low in terms of access, service coverage, and quality 90 million people do not have an electricity connection Water utilities serve only 14 percent of the population Only 1.3 percent of the population having access to a sewerage network.

Investment in infrastructure is urgently needed in urban areas Investments in major infrastructure services has declined since the 1990s Government does not have enough resources to cope with huge infrastructure investment needs.

Urban Poverty is increasing, yet not well understood

22

Urban$&LG Program (I)

LG & Decentralization Project (DAK Reimbursement)

PDO: Improve the accountability and reporting of the Central Governments Specific Purpose Grants (DAK) for the infrastructure sectors The Project will be a pilot in 5 Provinces, with a proposed size of US$ 220 million over four years and designed as a Specific Investment Lending and the proposed mechanism will be Output-Based Disbursement (OBD). Key Issues: Result-Based mechanism and use of country system
PDO: To pilot support to district governments in improving transparency, accountability and public participatory practices and in undertaking reforms in financial management and procurement The Project is a pilot in nine provinces and 14 districts with total Loan/Credit of US$ 29.5 million Main components: Local Governance Reform, Poverty Targeted Investment, and Implementation Support
23

Initiatives for Local Governance Reform Project (ILGRP)

Urban$&LG Program (II)

Urban Sector Development Reform Project (USDRP) PDO: The project will strengthen local governance and improve the provision of selected urban services by participating ULGs and additional participating ULGs. The Project area coverage includes five provinces and 10 municipalities/districts, with total Loan of US$ 45 million. Main components: core governance reforms, urban institutional development program (UIDP) and investment.

PNPM Urban / UPP Project

PDO: Asist GOI to ensure that the urban poor benefit from improved socio-economic and local governance conditions. Community driven program in urban areas.

Transport

TransJakarata

26

About 80 percent of infrastructure public spending is concentrated on transport sector

Sectoral composition of national public spending on infrastructure (%)
100 90 80 70
% of total

Sectoral composition of national public spending on infrastructure by level of government, 2009 (%)

100

Districts 80

60
50 40 30 20

60 Province 40

10
0 2001 2002 2003 2004
Irrigation

20

Central

2005
WSS

2006
Energy

2007
Telecom

2008

2009

Transport

Transport

Irrigation

WSS

Energy

Telecom

Transport: recent development and key issues

The transport sector has been the main priority of infrastructure public spending representing 70 percent of infrastructure budget Yet the current level of investment (< 2% of GDP) has not been sufficient to meet the growing demand for transport infrastructure The current expressway networks (650 km) is only one third of the estimated needs (2000 km) Around 10 km/year last 10 years - need 400km/year More than a third of the provincial roads and more than half of the districtlevel road network is in bad condition Land acquisition remains one of the main obstacles to expressway development The contribution of the railways to total traffic is still very low (only 0.7%) Passengers railway has decreased since the deregulation of the aviation industry. The performance of PT Kereta Api, KAI (the Railway Corporation) has deteriorated recently Despite its important role in Indonesia domestic logistics system and interisland shipping, the port capacity has not improved and much below the capacity of the international trans-shipment ports.

Road Status National Provincial Regency City Toll Total

Length (km) 34,629 46,499 240,946 25,518 649 348,241

: Road network conditions Share Condition (%) 10 13 69 7 0 100 Good & Fair (%) 83 63 43 96 100 54 Bad (%) 17 37 57 4 0 46

Source: PJM 2005 and KMPU 2006 and DGH 2008

Railways traffic demand

Figure 1 Traffic demand 1998-2009
250000 25000 200000 20000

150000

15000

100000

10000

50000

5000

0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Passenger

Tonnes

Passenger-km

Tonne-km

Pax/tonne-km (mill)

Pax/tonnes (000)

Exponential growth in cars and motorcycles in Indonesia

50 45 40 Millions 35
Passenger cars

30
Bus

25 20 15 10 5 2001 2002 2003 2004 2005 2006 2007 2008*

Truck Motorcycle

31

Transport Program (I)

Strategic Road Improvement Project, SRIP (USD200m) Second Eastern Indonesia Road Transport Project- EIRTP-2 (USD200m)Marine Electronic Highway Project, GEF (Malaysia, Singapore and Indonesia):
USD17m

Improvements to Strategic National Roads Implementation Support (PAS) Road Sector Institutional Development

improve condition o f the strategic road network support decentralization of planning and management responsibilities for civil works on Provincial and Kabupaten roads
Developing the MEH for the narrowest and most congested 300 km section of the Straits and demonstrating its value for improving navigation safety and marine environmental protection, (b) Facilitating the integration of marine environment systems and data flow and information exchange through the MEH system
32

Transport Program (II)

Western Indonesia Road Improvement Project, WINRIP($US300m) 700 km Road betterment along the Western Sumatera corridor 530 meters of bridges Disaster mitigation measure (including landslide mitigations) A contingent emergency response component Empowering the procurement service units

Road Asset Preservation Project, RAPP (FY12, $US300m)

Refinancing using country systems along Outputbased disbursement approach

33

Indonesia connectivity agenda

Economic growth will be unbalanced, but development still can be inclusive.

Economic agglomeration rather than spatial evenness Make that high growth inclusive:-Provide access to affordable basic services across the country and targeted interventions to promote convergence in living standards -Join lagging regions to leading regions -Connect regions through inter-modal, efficient chain systems
The challenge of connectivity in Indonesia

Moving Ahead Consolidation, Review And Prioritization

Moving from a framework to actions

Suggested priorities for action:

1. Provide performance-based transfers for local
governments to build and maintain infrastructure (especially roads)

2. Complete Trans-Java expressway and

coordinate with rail services

3. Reduce cost of inter-island shipping - Provide

transparent on-budget subsidies for pioneer shipping in Eastern Indonesia, and develop RORO nautical highways

4. Improve operational efficiency at Tanjung Priok

and move ahead plans to develop a new deep water port

5. Development of an efficient public transport

system in Jabodetabek

Sustainable Development
Disaster Risk Management Community-based program, PNPM I-DPL series CC-DPL series Indonesia Guarantee Fund, IGF Analytical Work (i.e. Infrastructure Public Expenditure Review)

WB contacts
- ENERGY :
- Migara Wayawardena: mjayawardena@worldbank.org - Leiping Wang: lwang3@worldbank.org and - Khairy Al-Jamal: kaljamal@worldbank.org

- WATER & SANITATION:

- Fook Chuan: feng@worldbank.org

- Urban& LG:
- George Soraya: Gsoraya@worldbank.org and - Peter Ellis: pellis@worldbank.org

- TRANSPORT:
Mustapha Benmaamar: mbenmaamar@worldbank.org

Thank you