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Implementation Completion Report (ICR) Review - Water Resources Structural Adjustment

1. Project Data:   
ICR Review Date Posted:
Project Name:
Water Resources Structural Adjustment
Project Costs(US $M)
 300.0  150.0
Loan/Credit (US $M)
 300.0  150.0
Sector, Major Sect.:
Irrigation and drainage, Central government administration, Water supply,
Agriculture fishing and forestry; Law and justice and public administration; Water sanitation and flood protection
Cofinancing (US $M)
L/C Number:
Board Approval (FY)
Partners involved
Closing Date
12/31/2000 11/09/2004
Evaluator: Panel Reviewer: Group Manager: Group:  
Keith Robert A. Oblitas
Ridley Nelson Alain A. Barbu OEDSG

2. Project Objectives and Components:

a. Objectives

The Indonesia Water Resources Sector Adjustment Project (WATSAL) was a sector adjustment loan supporting a water sector reform program. It had four overarching objectives:

1. Improve the national institutional framework for water resources development and management.
2; Improve the organizational and administrative framework for river basin management.
3: Improve regional water quality management, regulatory institutions and implementation.
4: Improve irrigation management policy, institutions and regulations.

Each of these objectives had several sub-objectives, which are provided in Section 4.

b. Components (or Key Conditions in the case of Adjustment Loans):

Government's Letter of Sector Policy (LoSP) contains the agreed actions and monitorable indicators to achieve the four objectives above. Achievement is summarized in Section 4.

c. Comments on Project Cost, Financing, Borrower Contribution, and Dates
This Loan was to be disbursed in 3 tranches: US$50.0 million at commencement against 4 preconditions, a 2nd tranche of US$100.0 million against completion of a larger group of actions and a final US$150.0 million against achievement of all agreed actions. The first two tranches were completed successfully, but the 3rd tranche actions were only partly achieved, and the final disbursement was not made. The original project period of 18 months was extended four times, resulting in a 5 1/2 year project period. A revision of the legal documents was made in 2001 to accomodate Government's reforms in public administration, but there were no changes in project objectives.

3. Relevance of Objectives & Design:

WATSAL's overall relevance was high.

Relevance of project objectives: Over the previous two decades, water sector policies and institutions had largely stagnated. The top-down and narrowly focussed approach to water that had been used by Indonesia during an earlier phase of heavy investment in water infrastucture had persisted. Institutions and policies had become progressively more inappropriate to water scarcity, and to needs such as basin and intersectoral water allocation, maintaining water quality, regulating water use, maintenance of infrastructure, increasing water productivity and involving stakeholders in decisions and implementation. There was a clear need for reform, and a consensus for reform had progressively increased within Indonesia's government and civil society. The reform program also fitted within the CAS objectives to better manage natural resources, improve fiscal sustainability, provide better services and infrastructure, and develop public-private partnerships. WATSAL was also an explicit part of the Bank's overall fiscal support and policy adjustment program being provided to Indonesia (the country was in economic crisis and required both budget support and across-the board reforms).
The timing of WATSAL was well chosen. Indonesia had progressively built a strong interest in water sector reform and had itself prepared many elements of the reform package. Other reforms supporting the project were also going ahead, in particular as regards decentralization of administration.
Relevance of Project Design: Project design supported all of the project objectives. However, as also recognized in the ICR, the project was very ambitious in: (i) the extent of the reform program expected to be achieved; and (ii) in the planned 18 month project period. The reform program was major, involving a new policy and action plan, new legislation, establishment of most of the new institutions required for the sector, preparing an array of written procedures, and various other actions. Some actions - such as establishing water user associations, corporations, and river basin agencies - required significant grass-roots discussion, which needs time if the process is to be participatory and achieved by consensus. Thus, even with the project extension there were a number of incomplete actions. The ICR comments that the borrower insisted on a short duration project period, and was also the party advocating the ambitious reform program.

4. Achievement of Objectives (Efficacy) :

The efficacy of the project was Substantial overall, based on assessing the totality of the project's achievements against its (ambitious) objectives. The achievement of each of the project's objectives and their sub-objectives is assessed below:

Objective 1: Improve the national institutional framework for water resources development and management by:
(i) establishing a national water resources management coordination framework; (ii) adopting a national policy for water resources management; (iii) involving the private sector in development and stakeholders in basin management policy and decision making; (iv) improving the national water resources information and decision support systems; and (v) improving the national hydrological and water quality data collection and management system.
Achievement was High. A sound national institutional structure for water management coordination (sub-objective 1.1) was established comprising an apex inter-ministerial team and a technical secretariat. The former was established before project start-up. Concerning 1.2, a national water resources policy was prepared and included in existing legislation. Comprehensive provisions for stakeholder participation(1.3) were established, going further than envisaged at appraisal. Twenty eight river basin committees were established, exceeding appraisal targets. However, while informal involvement by stakeholders was good, formal involvement needed passing of the new water law. For (iv), as intended, an administrative structure was set up for a decision support system. Finally, progress under 1.5 was good with creation of more hydrology units than planned and commencement of staff build-up, though water sampling was not undertaken.

Objective 2: Improve the organizational and administrative framework for river basin management by:
(i) Improving provincial regulatory management of river basins and aquifers; (ii) developing a sustainable corporate framework for management of strategic river basins; and (iii) introducing secure, equitable and efficient water allocation.
Achievement was Modest. Concerning 2.1, regulatory guidelines were drafted but could not be issued until the new water sector law was passed, and was not achieved by project closure. However, 43 basin management agencies were established over 12 provinces; in excess of appraisal expectations. The ICR does not contain an assessment of the functionality of these agencies. Under 2.2, there was some progress in drafting relevant guidelines and government orders, but issuance depended on passing the new water law and they were not issued. One of the targeted 4 river basin corporations was established. The legal provisions for water rights, water allocation and licensing were provided for in the new water law, fulfilling 2.3.

Objective 3: Improve regional water quality management, regulatory institutions and implementation by:
(i) establishing an effective and enforceable national regulatory framework for water pollution control; and (ii) implementing integrated water quality management in six highly developed river basins.
Achievement was Modest. Concerning 3.1, A largely satisfactory regulatory framework was established through Government Regulation, but actions to provide an incentives framework for industries and municipalities to reduce pollution and improve water quality were not developed. The ambitious sub-objective under 3.2 - to implement pollution control and water quality management in six river basins - was not achieved as only two of the basins had sufficiently competent basin agencies. The water quality guidelines were, however, issued.

Objective 4: Improve irrigation management policy, institutions and regulations by:
(i) Improving irrigation governance, transparency and accountability through farmer empowerment and management transfer; (ii) improving regional government irrigation services; and (iii) ensuring fiscal sustainabality and efficiency of O&M and rehabilitation of irrigation schemes.
Achievement was Substantial. Sub-objective 4.1 was initially substantially achieved in that a satisfactory framework for irrigation management transfer, water user associations and federations, and autonomous management and financial authority of farmer organizations was established. The new water law, however, contained no provisions for irrigation management transfer, and in this respect would have taken these reforms backwards. But guidelines were subsequently developed enabling management transfer. The respective roles (4.2) of central, regional, provincial and district governments, and of farmer organizations, were satisfactorily defined. Again, when the new water law was passed, WUA autonomy was significantly reduced, but GOI and the Bank agreed on interim measures to get round this difficulty, pending issuance of an intended government regulation enabling farmer management. Finally (4.3), a decree was passed allowing farmer organizations to collect irrigation fees for their maintenance needs.
The ICR comments that a significant parallel achievement, funded from other sources, was the ongoing program during the WATSAL period to establish Federations of WUAs. About 800 Federations were established covering 600,000 hectares of irrigated area (about 13% of the country's irrigated area).

The monitorable indicators by financing tranche are at page 47 of the ICR. The first tranche requirements, achieved before Board presentation, were to establish a WATSAL task force, an implementation plan and a project coordinating team, and issuance of a Presidential Instruction on irrigation management reform. The most important elements of the 2nd tranche requirements, which were all achieved, were issuance of procedures for establishing WUA's, adoption of a national water resources policy, and developing procedures and regulations for controlling water pollution. There were sixteen 3rd tranche conditions, of which 10 were achieved. The most significant of the achieved conditions were the passing of the Law on Water Resources, establishment of a national apex body for water resources management, establishment of provincial, basin and district water councils including stakeholder participation, establishing a framework for water rights, issuance of decrees and implementation guidelines on water pollution control and water quality, establishing guidelines for revised roles of government and farmer organizations, and adoption of a framework for financing of operations and maintenance. While the passing of the Law on Water Resources was a major achievement, as it was only passed in February 2004, the last year of the project, there was insufficient time to implement several other actions dependent on the passed law.

5. Efficiency:

Usually an ERR is not calculated for a sector adjustment operation. In WATSAL's case, while the project had substantial achievements (in efficacy above), these have been over a longer period than targeted. Based on this, efficiency is rated Modest, though the longer project duration was a design rather than implementation weakness. Given this, in assessing Outcome, greater weight has been placed on relevance and efficacy than on efficiency.
6. M&E Design, Implementation, & Utilization:

Design: An excellent monitoring system was devised for the project, which was essential as tranche releases were predicated on achievement of the reform program, and objectives thus had to be clearly expressed in terms of actions to be done, with specific and measurable monitorable indicators. GOI's letter of sector policy had a matrix table with three columns of such objectives, actions and monitorable indicators.

Implementation and Utilization: Both implementation and utilization were good. The sector policy matrix was used throughout implementation, by both Government and the Bank, as a check list to monitor progress and highlight actions to be done by GOI.

7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative):

8. Ratings:
OED Review
Reason for Disagreement/Comments
SatisfactorySatisfactoryActions under the 1st and 2nd tranches were completed with several outputs achieving more progress than targeted. For the 3rd tranche, the key Law on Water Resources was passed and most other 3rd tranche outputs were prepared in substance.
Institutional Dev.: 
Highly LikelyLikelyAn impressive array of institutions have been created, but it is premature to assess that they are highly likely to succeed. Nevertheless, the follow-on Water Resources and Irrigation Sector Management Project (WSIMP) will support continued institutional development, and given also the strong stakeholder interest in the reform program, a "likely" assessment for sustainability can reasonably be assessed at this time.
Bank Perf.: 
SatisfactorySatisfactoryHigh professional quality both in preparation and implementation. Good synergy with Government, facilitating "ownership" (section 9). While there were highly unrealistic targets for implementation, this is given less weight than for a more normal situation, due to the extreme urgency for budget support at the time of the financial crisis.
Borrower Perf.: 
UnsatisfactorySatisfactoryGOI persevered and remained commited to an ambitious reform agenda despite several changes in Government. Achievements were significant and made in a participatory manner. The remaining and partly prepared 3rd Tranche actions stand reasonable chance of implementation, as the new Government has reaffirmed the reform policy. Thus, on balance, despite a somewhat checkered record, overall performance can be considered satisfactory. A factor in this assessment is that the implementing agency had to operate during a period of exceptionally difficult political upheaval.
Quality of ICR: 

- When insufficient information is provided by the Bank for OED to arrive at a clear rating, OED will downgrade the relevant ratings as warranted beginning July 1, 2006.
- ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.

9. Lessons:

A strong enabling environment significantly contributes to successful reforms: Indonesia had several factors that helped its reform program: (i) a trigger for reform (Indonesia needed urgent budgetary support to finance food imports in the wake of the East Asian economic crisis and the El Nino drought); (ii) a coinciding national reform drive that included a decentralization objective; (iii) a reform champion in a highly reformist Minister; and (iv) a popular reaction to several prior decades of limited reform and transparency.

Ownership of moderately ambitious reforms may have greater impact than more extensive reforms with less ownership. Ownership may have design implications: Indonesia's reform program was largely devised by government and other stakeholders over nearly a year of intensive and highly participatory discussions. The reform components prepared during project implementation (such as the national water policy, legal provisions, etc.) were also the product of extensive home-grown interaction. The Bank successfully played an advisory but unobtrusive role. A participatory approach does, however, have implications. First, consensus takes time; the original 18 month project period was far too short for this, and the extensions were inevitable. Second, homegrown reform may need to be less than perfect in design. The ICR expresses the implications well: "Prioritize achieving sustainability and local ownership over the perfection of what is delivered, and over the adherence to time schedules imposed by non-essential interests." And "better a 70% product that sticks than a 100% product that doesnt."

Project design and the implementation period need assessment for realism. Indonesia's comprehensive water sector reform program was professionally sound, but was too demanding to expect full implementation. The project, in addition to its complex policy, legislative and institutional reforms, contained field implementation actions such as establishing a water quality network, forming fully functional basin management units in 8 provinces, establishing 4 river basin corporations, and implementing water pollution control in six river basins. The initial project period of 18 months (accepted by the Bank under pressure from Government) was patently unrealistic. In such a situation, the 4 years of extension could even be regarded less as an implementation weakness but as a sensible correction.
Assessment of an appropriate project period could use standard analytical tools. OED has commented before that reform action including drafting of regulations can be projected and scheduled in the same way that large construction projects can be, and using similar tools: e.g. computerized project management techniques.

10. Assessment Recommended?  Yes

          Why?   To further assess the outcome and sustainability of Indonesia's water sector reform program, including its further evolution under the WSIMP. This has relevance both to Indonesia's current and future program, and possible utility for water sector reform strategies in other countries.

11. Comments on Quality of ICR:

Strong in its perceptive discussion and in the clarity and detail of its performance log frame, which is logically presented following the LoSP. Some areas where further analysis might have been interesting are: (i) highlighting more systematically, perhaps with a grading and weighting system as objectively as possible, the sub-objectives and achievements which are particularly important; and (ii) more discussion of the complexity of the project and possible alternative approaches to catalyzing reforms.

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