water indonesia water investment roadmap 2011 2014

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Water Investment in Indonesia

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  • The opinions expressed herein are those of the authors and do not necessarily represent the

    official position of the World Bank Group. The data provided in the tables and figures are not

    official Bank data. Permission is granted to reproduce this publication in whole or in part for

    noncommercial purposes only and with proper attribution to the authors, the Directorate General of

    Human Settlements of the Ministry of Public Works, the Water Partnership Program and the Bank.

    DISCLAIMER

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  • Mr. Franz Drees-Gross, Sector Manager, EASIS, World Bank Office, Jakarta

    Since the economic crisis of 1998, the development of water

    supply in Indonesia has been constrained by a number of factors

    including limited funding and a lack of capacity in most local

    water companies (Perusahaan Daerah Air Minum - PDAMs) and local

    governments to support additional infrastructure and provide

    new connections. Provision of water infrastructure has not kept

    pace with population growth because rapid decentralization and

    outstanding PDAM debt arrears resulted in an interruption of on-

    lending for large scale water supply investments.

    Between 1998 and 2008 the proportion of Indonesias urban

    population served by piped water decreased from 36 percent to

    only 31 percent. To reach the water Millennium Development Goal

    (MDG) target, local governments have to increase piped water

    coverage in urban areas to 55 percent of the urban population

    by the end of 2014. The government has launched a national

    program to add more than 10 million (mainly piped) new water

    connections from 2010 to 2015. To achieve this ambitious

    program in an orderly manner, an investment plan or roadmap

    is required. For this reason, in mid 2010, the Directorate General

    of Cipta Karya (DGCK), Ministry of Public Works, asked the World

    Bank to provide technical assistance to prepare a national water

    supply roadmap that will help guide the government in reaching

    the MDG target. The objective of the assistance is to produce and

    disseminate a national roadmap for investment from government

    as well as multilateral, bilateral, and private sector institutions

    in water supply projects during the period from 2011 to 2015.

    A grant was provided by the Water Partnership Program (WPP)

    to support this technical assistance including a (i) review of

    data and documents on national policy statements; and (ii)

    review of current and planned water supply investments in

    the next 3-5 years. These tasks included interviewing officers

    in concerned departments regarding issues, priorities, and

    lessons learned to date. The findings were discussed in a

    workshop held on June 1, 2011 and attended by stakeholders in

    the water supply sector including Directorate General of Water

    Resources (DGWR), DG Cipta Karya, Ministry of Finance (MOF)

    (fiscal balance, treasury, debt management, budget), Sarana

    Multi Infrastructure (SMI), Indonesia Infrastructure Guarantee

    Fund (I IGF), Bappenas, Badan Pendukung Pengembangan Sarana

    Air Minum (BPP SPAM), and the Ministry of Home Affairs.

    The sector needs more than the current level of investments in

    order to meet the Governments targets. The funding gap and

    the annual sector investment from all resources have been

    quantified in the Roadmap. The current GOI strategy to achieve

    the water MDG target relies heavily on local government

    investment, but the amount of the central governments

    stimulus budget and its scope for intervention are limited.

    The current strategy also relies heavily on other non-central

    government sources such as Public Private Partnerships (PPP),

    internal cash generation, and revolving funds.

    Although there has been recent progress, much remains to

    be done to address the investment absorption capacity of

    the sector and the ability of service providers to sustain

    and maintain the new and existing infrastructure. Estimates

    of actual central government and local government/PDAM

    expenditure for water in 2009 and 2010 were about Rp 2.5 trillion

    (about USD280 million) per year, still a small fraction of the

    investment levels needed to meet Indonesias water MDG target.

    In addition, PDAMs and other service providers may not be able

    to absorb and use increased funding without timely technical

    assistance and the enabling activities described in this roadmap.

    The World Bank is honored to work in partnership with the

    Government of Indonesia as it confronts the formidable challenges

    of increasing access to sustainable sources of safe water. We

    hope that this Roadmap for Water Investments 2011-2014 will

    prove useful to decision makers in the national government as

    well as in local governments.

    Jakarta, February 2012

    SECTOR MANAGER

    INFRASTRUCTURE, ENVIRONMENT, RURAl AND SOCIAl DEVElOPMENT

    THE WORlD BANK OFFICE, JAKARTA

    Franz Drees-Gross

    FOREWORD I.

    Ir. Budi Yuwono, Director General of Human Settlements, Ministry of Public Works

    Indonesia continues to face the dual challenges of low water

    supply coverage and low service quality. Nation-wide, in 2010,

    only 47.71 percent of the total population had access to a

    sustainable source of safe water, and only about 25.56 percent of

    the population had access to piped water. An ambitious target of

    access to safe water for 68.87 percent of the population in 2015

    has been set. To reach the target, about 56 million new people

    will need to gain access between 2011 and the end of 2014. In

    addition, an instruction from the President calls fir provision of

    water to prevent future water crises in remote, dry areas and

    areas with water scarcity.

    Under the Water Resources law 7 of 2004, the responsibility

    for providing water services rests with the local government.

    Considering the weak fiscal capacity of most local governments,

    the central government needs to stimulate local governments

    through targeted incentives to provide an adequate stock of

    infrastructure to meet national development targets for urban

    and rural areas. So ,far, there has been satisfactory progress in

    rural areas, but in urban areas, policies must confront the weak

    capacity of the PDAM and a low sense of responsibility for water

    supply in most local governments.

    The Government strategy for water supply development includes

    central government support for raw water source development,

    poverty alleviation, areas with water scarcity, remote and dry

    areas, fishing villages and areas near borders with neighboring

    countries. This strategy is translated into various programs such

    as a program,for IKK (capital of subdistricts), raw water source

    development, transmission pipeline, water treatment plants and main

    distribution networks. For rural areas, central government support

    includes continuation of projects for community-based water supply

    and water supply for low-income communities such as WSSlIC/

    PAMSIMAS. To reach the MDG water target, the Government estimates

    that a total of Rp. 65.25 trillion will be needed between 2011 and 2014,

    leaving a probable funding gap in the amount of Rp. 36.76 trillion.

    The Directorate General Cipta Karya, working jointly with the World

    Bank team, has prepared and developed this Roadmap for Water

    Investment, 2011-2014. This important document proceeds from an

    assessment of the problems and issues to identification of activities

    and funding sources needed to reach the water MDG. This is the first

    time such a document has been prepared. It will be used for policy

    guidance by the government, particularly Directorate General of Cipta

    Karya of the Ministry of Public Works, as well as by related ministries,

    government agencies, and donor agencies.

    Jakarta, February 2012

    DIRECTOR GENERAl OF HUMAN SETTlEMENTS (CIPTA KARyA)

    MINISTRy OF PUBlIC WORKS

    Ir. Budi Yuwono, Dipl. SE

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  • The period 2009-2015 was intended to mark a transition

    from predominantly centrally-funded to predominantly

    locally-funded local water infrastructure programs. During

    this period, the Government of Indonesia is undertaking

    the largest investment program in water supply in the last

    20 years to reach the Millennium Development Goal for

    increasing access to a sustainable source of safe water

    by 2015. But as of 2011, local government funding of

    urban water infrastructure programs still lags well behind

    annual targets (funding targets as well as coverage), and

    recent investment in the urban water sector has not kept

    pace with population growth or depreciation. There has

    been more success in the rural water sector where central

    government-stimulated community-based programs

    continue to proliferate and reach more beneficiaries.

    In addition to the lack of sufficient expenditure, mainly

    in urban areas, water sector developme

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