Water Supply and Sanitation Projects in Indonesia An Overview of Their Performance International Seminar on Water Supply and Sanitation Sector Reform in the Context of Regional Autonomy Jakarta, May 21-23, 2001 Klas Ringskog, OED, World Bank

The Role of OED OED reports to the Executive Board (and not to Bank Management) to give an independent evaluation of the integrity of the process and of the quality of the work OED distills the lessons from completed projects and feeds them back into the Bank’s accumulated knowledge

The OED Evaluation Methodology Evaluation Criteria Relevance Efficacy (Achievement of Objectives) Efficiency Outcome (Aggregates relevance,efficacy,and efficiency) Institutional Development Impact Sustainability Bank Performance Borrower Performance

Evaluating the Performance of Bank-financed Water and Sanitation Projects in Indonesia Evaluated Projects: Second Jabotabek Urban Development Project (Jakarta) Water Supply and Sanitation for Low Income Communities (WSSLIC) Semarang-Surakarta Urban Development Project

Five Lessons Learnt Integrated Urban Development Infrastructure (IUDI) projects have slowed water policy reform and progress Absence of credible sector regulation has hurt both consumers and service providers Private sector participation (PSP) is costly when the environment is risky but offers great promise Sound water resources management has not reached the city level Sustainable water and sanitation services depend on wider user participation and health education

Lesson One: Effect of IUDI on Water Supply and Sanitation Sector Integrated Urban Development Infrastructure (IUDI) + Support of decentralization but: - Excessive focus on investment rather than on efficient operations and maintenance Little success in creating financially and institutionally local utilities Little success with accountability and regulation

Effect of IUIDP on Service Levels Country GNP/capita US$, 1997 Urban water coverage,% Urban sewerage,% Bolivia 950 74% 41% Bulgaria 1,140 98% 18% China 860 95% 65% Indonesia 1,110 35% 0% Philippines 1,220 60% 4%

Alternative Water and Sanitation Sector Strategy Future domestic and external financing should go to: PDAMs willing to co-finance investments with surpluses from operations PDAMs with tariffs that reflect and recover the full costs of service PDAMs willing to willing to submit to national service quality and tariff regulation PDAMs independent from local politics

Alternative Financing Policies Future financing is better if: As a repayable loan, channeled through banks that compete for the business ( Example: FINDETER in Colombia) Subsidies are targeted to help the poor connect

Lesson Two: Absent Sector Regulation is Costly Consumers suffer from no regulation because: PDAMs are not accountable to consumers PDAMs lack incentives to serve consumers well PDAMs often offer intermittent service PDAMs often offer unsafe service

Lesson Two: Absent Sector Regulation is Costly PDAMs suffer from no regulation because: They are not financially independent and cannot become independent, professional providers They have few incentives to serve consumers well They are forced to think short-term in a long-term business

Recommended Sector Regulation National sector regulation is needed in order to: Allow cost and quality comparisons Minimize regulatory costs and use scarce staff Provide PDAMs with a benchmark for negotiations with private operators

National Sector Regulation Regulation should comprise: The coverage and quality of service The cost of service ( tariff regulation)

Quality Regulation Quality regulation should comprise: Percentage of households connected to piped water Percentage of households connected to public sewerage Percentage of households with continuous water supply Percentage of household with disinfected supplies

Tariff Regulation Tariff regulation should comprise: The efficiency of service since consumers should only be asked to the costs of efficient service providers The average tariff level The tariff structure to measure cross subsidies and affordability ( including of connection charges)

Indonesian and International Efficiency Data Company Indicator PAM Thames PALYJA PDAM Semarang Surakarta Best practice Unacctd Water,% 47 % 48% 41% 29% 5% Staff/000 connectns 5.3 5.6 6.0 7.5 2.0 Working ratio 60% 100% 70% 37% 35%

Lesson Three: More Private Sector Participation More private sector participation is justified to: Get accountability and contractual performance Allocate risks to whom can best manage them Separate operational and regulatory responsibility Raise the efficiency and quality of service Obtain financing without sovereign guarantees

Lesson Three: More Private Sector Participation BUT: More PSP must be competitively procured: PDAMs must decide on performance before PSP PDAMs must get expert assistance for bidding and negotiations PDAMs must resolve the treatment of employees before PSP Regulation should exist before PSP

Lesson Four: No Sound Water Management at Local Levels The World Bank provided a Water Resources Sector Adjustment Loan of US$ 300 million in 1999 but: At local levels ( such as in Jakarta and Semarang) groundwater is still overexploited with little control Groundwater extraction fees are too low and ineffective Coastal sections are sinking due to overexploitation The future drainage and sewerage cost is ballooning because pumped drainage will replace gravity drainage

Lesson Four: No Sound Water Management at Local Levels The Allocation of Raw Water Sources need: Consider all available raw water sources ( surface or groundwater) without excluding any one Select the source that is the cheapest Compensate the owner of the source selected Formalize the use of each source contractually because otherwise private sector participation is difficult

Lesson Five: More User Participation and Health Education The Water Supply and Sanitation Project for Low Income Communities teaches that: Users must be asked to signal how much they can pay Sustainable health improvement requires safe and continuous water; sanitary excreta disposal; and health education Service providers must offer service levels that are affordable in order to raise service levels