INDONESIA RESIDENT MISSION 8 February 2018 008/URBAN/2018 Mr. Wahyu Utomo Deputy Minister for Infrastructure Acceleration and Regional Development The Coordinating Ministry of Economic Affairs Jl. Lapangan Banteng Timur 2-4, Jakarta Ms. Tri Dewi Virgiyanti Director of Housing, Settlements, and Urban BAPPENAS Jl. Taman Suropati, Jakarta Dear Pak Wahyu and Ibu Virgi January 2018 Indonesia Urban Programming Mission Submission of Aide Memoire The Country Urban Programming Mission was fielded from 9 to 12 January 2018. Attached is the Aide Memoire of the mission summarizing the findings and agreements based on the discussions held during the mission, for your consideration We confirm our support to both BAPPENAS and the Coordinating Ministry of Economic Affairs with policy and capacity development assistance within the framework of the preparation and implementation of the next five-year national medium-term development plan (RPJMN 2020 ~ 2024) and the National Urban Development Policy. A mission to further detail the above is planned to be fielded from 20 to 22 February 2019, Should you need further clarification or have comments regarding the aide memoire, please contact our officer, Siti Hasanah, via email shasanah@adb.org or through phone at 021-2992 7388, We would appreciate receiving your comments (if any) by 15 February 2018 We appreciate your support, assistance and hospitality extended to the Mission incerely, > Md jinfried { Wicklein Country Director Indonesia Resident Mission cc: Director General of Human Settlements Ministry of Public Works and Housing Director of Integration of Infrastructure Settlements, DGHS Director of Loans and Grants Management, Ministry of Finance JIM.H. Thamrin Kav. 28-30, Jakarta 10350, Indonesia mal ateAsian Development Bank AIDE MEMOIRE INO: Urban Programming Mission (9 - 12 January 2018) 1. INTRODUCTION 1. An Asian Development Bank (ADB) urban programming mission (the Mission)' visited Jakarta from 9 to 12 January 2018 to scope out possible ADB assistance to sustainable urban development in Indonesia through knowledge support, sovereign lending and other financing modalities. 2. This Aide Memoire (AM) records Mission findings and understandings reached, which are subject to review and concurrence of higher authorities of the Government and ADB. Appendix 1 contains a list of persons met. ll BACKGROUND 3. By 2020 Indonesia is expected to be 56.7% urbanized. The population living in urban areas is expected to further increase to 66.6% by 2035.7 As no country has ever reached middle income status without a significant population shift from village into cities, urbanization and growth go together. While urbanization does not necessarily drive a growth, urbanization is necessary to sustain growth in developing countries, and it yields other benefits as well, such as skilled labor provision, unemployment reduction and better education. 4. Compared to India and China, Indonesia has faced challenges in translating rapid urbanization into sustained economic growth.’ As a result the key challenge for Indonesia is on how to embrace a process of urbanization that creates livable cities which are competitive, green and inclusive. 5. ADB's urban development and water sector currently covers just 7% of ADB's Indonesia's Country Operations and Business Plan with $229.4 million in loans and $6.62 million in grants under implementation (Appendix 2). Given the opportunities and challenges which urbanization creates for Indonesia, ADB is keen to further expand its urban development and water portfolio. 1 The Mission comprised Vay Padmanabhan Director South East Asia Urban Development and Water Division, cconcurerty Chef of Urban Sector Group ADB, Jors van Etten, Unit Head Gites Development native for Asia (CIA). ‘Sector Advisory Service Cluster ADB; Siti Hasanah. Senior Project Officer (Urban Development), ADB Indonesia Resident Mission, The Mission was supported by Winiied Weklen, County Director ADB Indonesia Resident, David ‘Adams, Senior Infrastructure Consultant ADB and Julian Syah, Senior Urban Infrastructure Specialist COIA. 7 indonesia National Statics Agency, 2017 3 During Voyage to Indonesia Seminar on Urbanization, Managing Urbanization for Sustainable Cities, Jakarta, 18-20, December 2047, World Bank presented every pereentage of ursanization in India leverages 9% of economic growth in Chine ths percentage is 11% percentage while in Indonesia every percentage of urvanizaton leverage just 4% of ecenome gramIl, MISSION FINDINGS 6. 19 Ministry for Economic Affairs underlined the role which cities play in increasing Indonesia's competitiveness and invited ADB to contribute to the development of appropriate policies and strategy by bringing in international knowledge and experience. Interest was on the use of smart technologies to create competitive, green and inclusive cities. The policies, strategies and investments to be identified through such support should not be limited to a focus on infrastructure but also address financing and institutional capacities in cities. 7. __ Ministry of National Development Planning/National Development Planning Agency (BAPPENAS) stressed on the need to strengthen the technical capacity of cities to improve city planning and management. In particular, assistance was requested from ADB for (i) cities to Undertake strategic planning and subsequently enforcing these plans; (i) cities to prepare capital investments plan which cities could use to attract national, local or PPP resources; and (ii) a study the possibly move key national administrative functions from Jakarta to another location, 8. _ BAPPENAS clarified it is preparing the framework for the next 5-year national medium- term development plan (RPJMN 2019 - 2024).* However, following this framework, BAPPENAS Confirmed it would very much welcome long -term cooperation with ADB on urban development and on the preparation of the RPUMN. 9. Director of Water Resources and Irrigation at BAPPENAS requested the Mission’s assistance to expand on the Jakarta Emergency Dredging Initiative and update the 1897 flood masterplan by incorporating findings from a variety of other studies.° Flooding in Jakarta is mainly caused by water extractions for drinking water purposes. At this moment no alternative is available for water extractions as there Is a regional shortage of raw water for piped water supply. The sinking of the land does not only create a need for high dikes, but it also prevents 13 rivers and canals to flow freely to the sea causing North Jakarta to turn into a deep, densely populated polder. The Mission was requested to review both upstream and downstream investments for a greater Jakarta flood management project related to flood management, water supply, sanitation and drainage. A key institutional focus would be on the establishment of a Water Authority for Greater Jakarta, 10. Acourtesy visit was held at the Ministry of Finance, Directorate of Loans and Grants Management to introduce ADB's new Director for Urban Development and Water and to share ADB's urban development and water project pipeline. The Ministry staff reminded ADB of the importance fo have projects listed in the Blue Book for loan consideration. 11. _ Directorate General of Human Settlements (DGHS), Ministry of Public Works and Housing clarified the priorities of the ministry follow the vision of 100 percent access to water, zero percent of slum areas and 100 percent sanitation.’ ADB support along the lines of these priorities was welcomed. * Reference was made to TA 8518-INO: Green Cities CDTA which wes completed in 2016 for cities of Batam, Malang, Medan and Kendari and the possibilty fo expand this work to cities in Eastern Indonesia © RPJMN 2019 - 2024. ® Such as the National Capital Integrated Coastal Development (NCICO) master plan. 7 While achieving the 100-0 - 100 vision by 2019 is challenging, the targets are stl the key drivers of programming for the Ministry.12. A review of ongoing ADB projects was presented (Appendix 2). Key lessons related to project implementation were discussed including (j) land availability; (i) community consultations and (il) local procurement capacity. 13. ADB shared its interest to further contribute to priority areas of the Ministry of Public Works and Housing. Besides the Sewerage System Development Project (SSDP).° ADB expressed interest to finance or co-finance (i) SSOP for Pontianak and Semarang; (ii) Regional Water Supply in selected river basins; (ii) Slum Improvement in Strategic Human Settlement Areas (SISHA); and (iv) Greater Jakarta flood management project. All these projects are currently already included in the Blue Book. In addition, ADB expressed interest in providing grant support for strategic capacity development in priority urban sectors, 14, Director General Human Settlements welcomed ADB support in these areas and highlighted that possible support for Jakarta flood management should be coordinated with Directorate General for Water Resources as well. Capacity development initiatives could be suggested by the Directorate General Human Settlement but coordinate through the Ministry of Public Works Human Resource Development Division. 15. _ ADB stressed the interest to effectively utilize Loan 3455-INO: Accelerating Infrastructure Delivery Through Better Engineering Services Project (ESP) for feasibility studies, detailed engineering design and contract supervision. Ideally, all ESP resources should be committed for call-downs in 2018 so that in 2019 a next phase of ESP can be prepared (ESP-lI) which among others could also cover the detailed engineering design for SISHA. 16. _ PT Sarana Multi Infrastructur (PT SMi) expressed its appreciation for the collaboration with CDIA for capacity development and project preparation in the past 7 years and provided updates on its recent activities. PT SMi currently provides project development and PPP transaction support as well as lending to local governments. However, it is expected that in the near its mandate is further expanded to also cover the financing of Water Supply Companies (PDAS). 17. _ Given the weak financial status and poor financial management capacities of many local governments, PT SMi is also aiding local governments with managing financial resources provided by national government and assisting with the innovative financing approaches such as the introduction of blended financing and climate financing, 18. In 2018 the US$ 200 million World Bank/Asian Infrastructure Investment Bank (AlIB) supported Regional infrastructure Development Fund (RIDF) is expected to finance 7 projects in 4 local governments with a total investment of US$ 26 million. PT SMi welcomed ADB to contribute to a second phase of RIDF. 19. Furthermore, PT SMi requested ADB's support to assess credit worthiness of local governments and PDAMSs so to manage their debt and access the domestic capital market. ADB Suggested to, based on a technical and financial capacity assessment, select a limited number of PDAMSs to enhance their management capacities through peer-to-peer learning, ® Currently being prepared for Banda Aceh, Bekasi and Materam through both Cities Development Intative for Asia (CDIA) and the Project Preparation Technical Assistance 9198-INO.20. _ JICA Indonesia Office clarified the status of support to their Jakarta sewerage project. In Zone 1 a 20M USD loan for detailed engineering design has been processed while for zone 6* a loan is being prepared for detailed engineering design and construction (estimated loan size assistance to enforce household connections is provided, It was furthermore clarified the Jakarta water supply and waste water organizations may merge into one authority. IV, CONCLUSIONS 21. Based on the discussions held, the Mission agreed to consider outcomes as part of ADB's Country programming while ADB will prepare the necessary steps to mobilize the grant assistance to support various requests 22. More importantly, the Mission agreed with the DGHS that the call down for the SSDP through ESP was critical to ensure ADB loan approval in 2019. The Mission offered to provide all required assistances to support the loan approval. The Mission and DGHS also agreed to identify the bulk water supply projects that could be considered for ADB loans. A preliminary list for discussion with DGHS is attached in Appendix 3 for discussions with DGHS. Finally, the Mission expressed interest for ADB to support to concept development Slum Improvement in Strategic Human Settlement Areas (SISHA) 23, The Mission offered to support both BAPPENAS and the Coordinating Ministry for Economic Affairs with both policy and capacity development assistance within the framework of the preparation and implementation of the next 5-year national medium- term development plan (RPJMN 2019 — 2024) and the National Urban Development Program. Follow-up discussions will be held in February 2018 to detail the exact support to be provided by ADB. 24. The Mission expresses its appreciation to the officials of the Government and donors for their support, assistance, and hospitality. wi Vijay Padmanabhan Director South East Asia Urban and Water division Concurrently Chief, Urban Sector Group Jakarta, Indonesia, 12 January 2018 ® Jakarta sewerage coverage is divided into 14 zones,ADB; Asian Development Bank Appendix 1 List of Persons Met Coordinating Ministry for Economic Affairs + Wahyu Utomo, Deputy Minister for Infrastructure Acceleration and Regional Development * Ir Eddy Satriya, Deputy Assistant for ICT and Utility, Deputy for Infrastructure and Regional Development, Coordinating Ministry for Economic Affairs ‘+ Rainier Haryanto, Program Director Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Ministry of National Development Planning/National Development Planning Agency (BAPPENAS) © Rudy S. Prawiradinata, Deputy Minister for Regional Development + Tri Dewi Virgiyanti, Director of Housing Settlements and Urban, Directorate for Urban Housing and Settlement * Abdul Mail Sadar Irdris, Director of Water Resources and Irrigation, Directorate of water resources and irrigation Ministry of Public Works and Housing + Sti Hartoyo, Director General of Human Settlements ‘© Dwityo A. Soeranto, Director of integration on Settlements Infrastructure, Directorate General of Human Settlements (DGHS) + Agus Ahyar, Head of Sub-directorate of Integration on Implementation, Directorate General of Human Settlements + Chandra Situmorang, Head of Section for Integration Implementation, DGHS Ministry of Finance ‘+ Zandi Rassat, Aisyah Mayuliyani, Kurnia Remadani, staff Directorate of Loans and Grants Management PT Sarana Multi Infrastructur (PT SMi) ‘* Darwin Djajawinata, Director for Project Development and Advisory + Erdian Dharmaputra, Head Municipal Loan and Public infrastructure Financing Division + Astri Saraswati Gautama, Relationships manager, Municipal Loan and Public Infrastructure Financing Division * Tata Sumirat, Project Development and Advisory JICA, Indonesia Office * Harada Tetsuya, Senior Representative ‘= Kitamura Keiko, Project Formulation AdvisorAppendix 2: ADB's Urban Development and Water Sector support to Indonesia (2017-2023) Wodait ToanfGrant | Technical Assistance and GranvLeane Team Proram y ‘Contents ‘2017 | 2018 | 2018 | 2020 | 2021 | 2022 | 2023 ‘Comunity Nebization for Fnproved Metrpotton Santaton | oan | Heathand Hygiene. Inastusure | .2884INO | Ongcing Development er Sewerage. end | ($25milion) Pioteet (MSMHE) Project Implementation Support. [ean 3723500) Infrastructure development fo° off-site | _($80 million) Onan: beseial Loan | wastewater systems! and Instutonal [Loan 6200(AF ma Sippor INO ongeing |sanitatio| Metropolitan Sanitation ($40 milion) n, | Management and Establish wastewater management Cert [prainane| oui ee instivtons in each projet eas, boise ene cova _ | Croatoa operational remenork for} —zllan Santaton senices, and Prove (08.208 | training to ensure the sustanabity of |M&tMG@ S28) Ongoing sane ($0.97 million) Sewerage System To suppor the implementation in T9198 | Ongai Development Project als Bekasi, Banda Aceh, and Ma:aram (81.6 million) Onesie) ae ~~ | Strengthen Institutional capacity for Neighborhood Upgrading & loan ar22sno| Neahoarond Yeoretna 8! Loan | prepoor ban dbvlepmont Uograce |'2223"22:N0] ongoing Sng constuctinrastncture slums Revialzaton of informal Settornents and ter Plt approach for ho proposod RISE Urban | Environment (RISE) using KSTA | in Makassar (Indonesia) and Suva $750,000 Proposed ieee the water sensitive a) rent, | approach - planning ‘smart, isystoms| Promoting Smart Systems Promote smart infrastructure and ‘TAS170 REG nADB's Future Cites. | RETA | systemsin selecid cies unertne | "UFPR(S2 | Ongoing Proarem DBs Future Gites Program miior)Appendix 3: Regional Water Supply Development Projects {as included under ESP and additional locations for consideration) 1. Regional Water Supply Development Projects as currently included under ESP" Regional Water Supply Development Program ]___ Estimated] Estimated Project | Tevestment Costs | Preparation Costs (U3) (uss) 1] Davelopment of Regional Water Supply System of Agam Bukit Tinggr 160,000,000 TAS 121 2_ | Development of Regional Water Supply System in Gorontalo Raya 83,000,000 3,900,000 3 | Development of Regional Water Supply System in Kutai Kartanegai nl "100,000,000 4447 873 ‘4 [ Development of Regional Water Supply System in Mandar (Majene-Polewali-Mandar) 135,000,000 1132,117 '_[ Development of Regional Water Supply System in Bimantara (Kota Bitung, Kota Manado, Kab_Minahasa 100,000,000 2,300,000, '5_| Development of Regional Water Supply System in Pekankampar Tahap IL 85,000,000 1.844311 ‘T_| Development of Regional Water Supply System Ajatapareng (Sidrap, Pare-pare. Enrekang) 135,000,000 4,080,000, '&_ | Development of Regionel Water Supply System in Karian 135,000,000 2,500,000 [8 [Development of Regionel Water Supply System of Tebing Tinggi-Serdana Beadagai 45,000,000 71193,113 ‘Subtotal 4,088,000,000 19,168,335, 2. Additional Drinking Water/Regional Water Supply Projects which could be considered under ESP"* Regional Water Supply Development Program Tink with ongoing or proposed ADB projects | Estimated | Estimated Project Investment | Proparation Costs Costs (USS) (uss) 7 | Bevsiopmient of Regional Water Supply Sytem of Musi | "MSMIP, Palerbang Metopolian Spatial Planing | To be confrmed TBC River Basin, Palembang dBc) 7 | Development of Regional Water Supply System in Enhance Water Secariy mprovernent Project Tac Tac Seluna River Sasn, Semarang FJ Developmen’ of Regional Weler Supply Syaien in| Proposed Sevarage System Development Projet TEE Tac Lomboe Rhee Basin Mataram si] TEE Tae *® Also refered to asin ESP as Regional SPAM (Sistem Penyediaan Air Minum) ** Based on synergy with other ADB investments in the selected iver-basins,