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Project Appraisal Document- Dec-15-2005 - Project Concept Note

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Project Appraisal Document- Dec-15-2005 - Project Concept Note Powered By Docstoc
					                                             Document of
                                           The World Bank

                                    FOR OFFICIAL USE ONLY




                                       APPRAISAL REPORT


                                                FOR A


                                 PROPOSED MDTFANS GRANT

                            IN THE AMOUNT OF US$ 4.5 MILLION

                                                  TO


                                            MUSLIM AID

                                              FOR THE

          EMERGENCY REHABILITATION OF THE DRAINAGE AND FLOOD
               PROTECTION SYSTEM OF BANDA ACEH PROJECT




                                          December 15, 2005



  Infrastructure Department
  East Asia and the Pacific Region


This document has a restricted distribution and maybe used by recipients only in the performance of
 their official duties. It contents may not otherwise be disclosed without World Bank authorization
                         CURRENCY EQUIVALENTS
                    (Exchange Rate Effective October 25, 2005)
                       Currency Unit = Indonesian Rupiah
                          IDR 1,000 = US$ 0.0994
                              US$ 1 = IDR 10,065

                                  FISCAL YEAR
                              January 1 –  December 31

                      ABBREVIATIONS AND ACRONIMS

ADB        Asian Development Bank
BRR        Bureau for Rehabilitation and Reconstruction for Aceh and Nias
CQ         Selection based on Consultants‘ Qualifications
EA         Environmental Assessment
EIA        Environment Impact Assessment
EMP        Environmental Management Plan
FM         Financial Management
FMA        Financial Management Agent
FMR        Financial Management Report
GAM        Free Aceh Movement
GOI        Government of Indonesia
IBRD       International Bank for Reconstruction and Development
IAP        Immediate Action Program
ICB        International Competitive Bidding
IC         Individual Consultants
IDA        International Development Association
JICA       Japan International Cooperation Agency
LCS        Least Cost Selection
MA         Muslim Aid
MDTFANS    Multi-Donor Trust Fund for Aceh and North Sumatra
MOF        Ministry of Finance
MOU        Memorandum of Understanding
NCB        National Competitive Bidding
NGO        Non-Government Organization
NS         National Shopping
O&M        Operations and Maintenance Manual
PIU        Project Implementation Unit
PSC        Project Steering Committee
PU         Public Works Department
QBS        Quality-Based Selection
QCBS       Quality and Cost Based Selection
RFP        Request For Proposal
SA         Special Account
SOE        Statement of Expenditure
SSS        Single-Source Selection
TA         Technical Assistance
TOR        Terms of Reference
TNI        Indonesian National Army
UNICEF     United Nations International Children's Emergency Fund
UN         United Nations
URRP       Urgent Reconstruction and Rehabilitation Plan
UN         United Nations

                           Vice President:         Jemal-ud-din Kassum
                        Country Director:          Andrew D. Steer
          Sector Director/Sector Manager:          Christain Delvoire/Keshav Varma
                       Task Team Leader            Jerry A. Lebo
                                                            CONTENTS

                                                                                                                                       Page

A. STRATEGIC CONTEXT AND RATIONALE ..................................................................1
   1.     Country and sector issues............................................................................................... 1
   2.     Rationale for MTDFANS Involvement ......................................................................... 3
   3.     Higher level objectives to which the project contributes ............................................... 4

B. PROJECT DESCRIPTION ..................................................................................................4
   1.     Project development objective and key indicators......................................................... 4
   2.     Project components ........................................................................................................ 4
   3.     Lessons learned and reflected in the project design ....................................................... 5
   4.     Alternatives considered and reasons for rejection ......................................................... 6

C. IMPLEMENTATION ..........................................................................................................6
   1.     Institutional and implementation arrangements ............................................................. 6
   2.     Monitoring and evaluation of outcomes/results ............................................................. 8
   3.     Sustainability.................................................................................................................. 8
   4.     Critical risks and possible controversial aspects ............................................................ 8

D. APPRAISAL SUMMARY ..................................................................................................9
   1.     Economic and financial analyses ................................................................................... 9
   2.     Technical ...................................................................................................................... 10
   3.     Social............................................................................................................................ 12
   4.     Environment ................................................................................................................. 13
   5.     Policy Exceptions and Readiness................................................................................. 14


Annex 1: Background and Technical Issues ............................................................................15

Annex 2: Detailed Project Description ....................................................................................23

Annex 3: Project Results Summary .........................................................................................25

Annex 4: Project Costs.............................................................................................................27

Annex 5: Implementation Arrangements .................................................................................40

Annex 6: Procurement Arrangements ......................................................................................31

Annex 7: Financial Management and Disbursement Arrangements .......................................51
Annex 8: Safeguards ................................................................................................................52

Annex 9: Policy Framework for Land Acquisition and Resettlements ...................................52

Annex 10: Anti Corruption Action Plan ..................................................................................51

Annex 11: Project Preparation and Supervision ......................................................................51

Annex 12: Documents in the Project File ................................................................................51

MAP
IBRD 34428
                                                INDONESIA

              EMERGENCY REHABILITATION OF THE DRAINANGE AND FLOOD
                   PROTECTION SYSTEM OF BANDA ACEH PROJECT

                                    EAST ASIA AND PACIFIC REGION
                                                EASIN

Date: December 11, 2005                                Team Leader: Jerry A. Lebo
Country Director: Andrew Steer                         Sectors: Urban Drainage and Flood Protection
Sector Director/Sector Manager: Christian              Themes: Infrastructure Services, Risk Management
Delvoie/Keshav Varma                                   Environmental Screening Category: B
Project ID: P099185                                    Safeguard Screening Category: Limited Impact
Lending Instrument: Grant (MDTFANS)
                                            Project Financing Data
[ ] Loan [ ] Credit [ X ] Grant       [ ] Guarantee[ ] Other:
Total Project Costs: US$4.5 million
MDTFANS Grant Amount: US$4.5
Government Contribution: N/A
                                                Financing Plan (US$m)
           Source                         Local                        Foreign                       Total
          Borrower
        MDTFANS                            3.25                          1.25                          4.5
            Total                          3.25                          1.25                          4.5
Grant Recipient: Muslim Aid
Responsible Agency: Muslim Aid, Indonesia
Address: Jalan Bintara Pineung No. 27, Banda Aceh, Indonesia
Contact Person: H. Fadlullah Wilmot, Director, Muslim Aid Indonesia; +62 81362484859;
<fadlullah@gmail.com>
Estimated disbursements (CY/US$m)
FY                               FY06                FY07                FY08              FY09             FY10
Annual                                  0.45                   2.5            1.55
Cumulative                              0.45                 2.95              4.5
Project implementation period: Start: Dec 31, 2005 End: Dec 31, 2007
Expected closing date: June 30, 2008
Does the project depart from the CAS in content or other significant respects?
                                                                                             [ ]Yes [ X ] No
Does the project require any exceptions from Bank policies?                      [ ]Yes [ X ] No
Have these been approved by Bank management?                                     [ ]Yes [ X ] No
Is approval for any policy exception sought from the Board?                      [ ]Yes [ X ] No
Does the project include any critical risks rated ―substantial‖ or ―high‖?       [ X ]Yes [ ] No
Does the project meet the Regional criteria for readiness for implementation? []Yes        [ X ] No:
Project development objective: The objective of the Emergency Rehabilitation of the Drainage System of Banda
Aceh project is to quickly re-establish functionality of the storm water and marine flood protection systems
damaged or destroyed by the tsunami and earthquake.
Project description [one-sentence summary of each component]
      (i) Urgent Tidal Flood Protection Program. Supply and install six (6) one-way flow valves at points in the
            system where currently sea water incursion occurs at high tides.
      (ii) Storm Water Flood Protection Program. Reconstruction of approximately ten pumping stations, about
            90 one-way flow valves, and repairing/renewing of drainage channel embankments; secondary channels;
            and other minor civil works.
      (iii) Implementation Support and Capacity Building Program. Consulting services to support executing
            agency during implementation and training.
Which safeguard policies are triggered, if any? The project will not have any large scale or irreversible adverse
environmental impacts. The project triggers the World Bank Environmental Safeguards Policies on Environmental
Assessment (OP/BP 4.01) and Involuntary Resettlement (OP/BP 4.12). The project is classified as environment
Category ―B‖.
Significant, non-standard conditions, if any: None
A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

The Tsunami and Earthquake Disaster

1.        Aceh and Nias bore the brunt of the tsunami and earthquake which impacted Indonesia
in late 2005 and early 2006. The scale of the disaster was unprecedented, with an estimated
170,000 people killed or missing, over 500,000 persons displaced, and hundreds of communities
washed away. Nearly one year after the disaster, normal social and economic life is slowly
returning, although full reconstruction and restoration of livelihoods will take years. The
availability of housing remains the main priority, and various efforts are being made to remove
people from emergency tents and houses to temporary shelters, while the construction of
permanent houses continues. Overall peace efforts in Aceh are progressing well, and will be
essential to long-term development in Aceh.

2.      The tsunami caused extensive and severe damage to the sea defense and flood protection
along the west coast and in the greater Banda Aceh area. Many sea defense and river training
embankments were totally destroyed and extensive areas of land were washed away. Land
subsidence of up to 1.5 meters has been reported along the west coast areas and southern region
of Aceh Province. In greater Banda Aceh, while detailed measurements are still underway, it is
estimated that the land area subsided 0.4-0.6 meters.

3.      Most of the Banda Aceh City‘s drainage control systems (flap valves, tidal gates and
pumping stations) were destroyed or damaged by the tsunami and primary and secondary
drainage channels were damaged and filled with debris. Even before the tsunami, major floods
were a regular occurrence in the city. These were usually a combination of high tidal flooding in
low lying areas and/or storm water flooding as a result of heavy rainfall and from over-topping
of river embankments. Major storm water flooding occurs on average every seven years in
Banda Aceh and would flood over 50% of the city area. Banda Aceh is the economic center of
the province and has an official population of around 300,000 (unofficial estimates are around
25% higher).

Pre-Tsunami and Earthquake Drainage

4.       Prior to the tsunami, Banda Aceh had incrementally established a drainage and tidal
protection system based on the City of Banda Aceh Technical Drainage Plan (1989). The Plan
proposed a series of pumping stations to discharge the principal drain outfalls into the natural
rivers (including the floodway), as well as tide gates on several of the smaller rivers. The Plan
had been progressively implemented as funding became available. At the time of the tsunami,
the system included eight pumping stations and over 90 one-way flow valves (‗flap valves‘), as
well as a substantial network of internal drainage channels. With the system in place, the urban
area of Banda Aceh was reasonably protected from storm water and tidal flooding—although
periodic flooding was still experienced due to poor maintenance and inadequate capacity of the
system.




                                                1
5.       As in most cities in Indonesia, the drainage system in Banda Aceh acts as a wastewater
disposal system. The City has no separate sewerage system, and all wastewater eventually flows
into the storm water drainage system. Before the Tsunami, the city of Banda Aceh had one
sludge treatment facility with a capacity of 30 cubic meters per day. This facility was fully
destroyed by the tsunami, along with the city land fill. The Japanese Government is assisting
with rebuilding the facility, and in light of the large number of septic tanks planned for Banda
Aceh, UNICEF is supporting the Banda Aceh city council to build a new sludge treatment
facility with a daily capacity of 60 cubic meters. Until these facilities are operating, flooding
will represent a serious potential health hazard in Banda Aceh.

Government Strategy

6.      The 1989 Drainage Plan remains the guiding document for the city‘s vision to provide a
safe and sustainable environment for the urban population. The Plan calls for providing a system
of internal drainage to keep the vulnerable areas free from flooding for predetermined levels of
rainfall events (‗design storms‘), as well as providing an efficient and effective means of
preventing tidal incursion, again for predetermined ‗design‘ tidal levels. The city‘s Public
Works Department (PU) is responsible for implementing the Plan and is responsible for
approving all designs for improvements and extensions to the city drainage system. Drainage is
under the city‘s Water Resources Unit of the Department of Road Infrastructure and Water
Resources. Main drainage, larger river embankments, and the city‘s main flood canal falls under
the responsibility of the Provincial Department of Water Resources.

7.      Funding for capital works related to drainage and flood control, and for operation and
training, comes from annual government budget allocations. Prior to the tsunami, IDR 200
million ($20,000) had been allocated for drainage under the City‘s 2005 budget, which was
mainly used for cleaning and minor repair. The entire budget for the city Department of Road
Infrastructure and Water Resources in FY 2005 is IDR 600 million ($60,000). The Department
is preparing the FY 2006 budget, but they do not expect any significant increase for the drainage
due to limited availability of the FY 2006 allocations.

Agency for Rehabilitation and Reconstruction (BRR)

8.     The Agency for Rehabilitation and Reconstruction was set up to instill more coherence,
leadership and momentum into the reconstruction process. The BRR comprises a high-level
Advisory Board to guide the reconstruction strategy, an Executing Agency (Bapel), a senior
management team, plus an Oversight Board to monitor activities, handle public complaints, and
conduct audits. All three report directly to the President of Indonesia.

9.      The BRR‘s infrastructure program unit is now established and is tasked with the role of
coordinating donor support, reviewing proposals, and prioritizing projects. BRR‘s estimate for
the costs for reconstruction of water and sanitation systems throughout Aceh is US$345 million,
with US$175 million already allocated to projects in the sector, divided between NGOs (US$95
million) and Donors (US$80 million). However, this does not account for the level of
investment needed to restore basic storm water drainage (local level and main drainage systems).
There are no current commitments to reconstruct the drainage system in Banda Aceh, although



                                                2
the Japanese and Dutch Governments are in the process of identifying possible projects, but
these would take several years to fully develop and implement.

Sector Issues

10.     The BRR and World Bank have been working together preparing regular ―stocktaking‖
reports on the progress and pace of the reconstruction effort. The most recent of these reports,
published in October 2005, presented the main issues in the water and sanitation sectors
(including drainage). The issues relevant to the proposed project are:

      Lack of Basic Mapping and Land Information. Ground levels are reported to have
       changed in many areas. The implications for the water table changes and provision of
       sewerage and local level drainage are formidable. Currently, accurate base maps for
       reconstruction works are not available.

      Capacity of Local Government and Water Utilities. The capacity of local governments
       following years of conflict, coupled with the disaster, is not sufficient to fully address the
       demands of reconstruction efforts. Reconstruction activities thus need to address
       capacity building, to ensure local governments can manage facilities in the future.

      Need for Technical Assistance to Support Project Design, Review, and Preparation
       Works. Project preparation work is beyond the scope of the BRR‘s mandate, and the
       sheer volume of proposals submitted for review is already large. Local governments,
       utilities, and the provincial technical agencies lack the resources to handle the work load
       of detailed technical analysis needed.

11.     Given the emergency nature of the project, the above issues have been addressed through
the provision of technical assistance, which will support the implementing agency to address
these issues by carrying out the needed land surveys in the project area, training local
government staff in the operation and maintenance of the system, and providing support for
preparation of engineering designs, bidding documents, and construction supervision.

2. Rationale for MTDFANS Involvement

12.     Since the tsunami, the international response has moved beyond the emergency phase to
reconstruction. However, significant work has yet to start on repairing, reconstructing or
replacing the major road infrastructure, logistics, sea defense, river flood protection works and
internal drainage systems necessary for rapid reconstruction and economic recovery of the
affected areas. In Banda Aceh, regular tidal flooding, and the continuing possibility of major
storm water flooding during the current and subsequent rainy seasons, would likely further slow
reconstruction efforts. Neither the provincial nor city governments currently have sufficient
financial and human resources to undertake this project. The BRR is coordinating projects, but
does not have the needed implementation capacity for emergency needs. The Government does
not currently have a mechanism to transfer reconstruction funds to NGOs who might have
capacity to deliver on its behalf.




                                                 3
3. Higher level objectives to which the project contributes

13.     BRR requested the Japan International Cooperation Agency (JICA) to develop a study
titled Urgent Reconstruction and Rehabilitation Plan (URRP) for Banda Aceh city. The initial
report was completed in August 2005. The report included proposals for rehabilitation of all
flood control and drainage infrastructure to pre-tsunami conditions. In addition, the report
includes plans for significant upgrading of the infrastructure. The detailed designs for these are
yet to be developed and BRR is actively seeking support to implement these plans. The project
as proposed by Muslim Aid (MA) is fully consistent with the JICA proposal for overall
rehabilitation of the drainage and flood control infrastructure.

14.     BRR has proposed an ―Immediate Action Program (IAP)‖ to respond to pressing
infrastructure issues. This program seeks to address the key infrastructure bottlenecks that
already exist or will emerge in the next few months. BRR plans to implement this program
immediately through selected partner agencies. These agencies have been selected because they
are successfully carrying out similar activities and are capable of implementing parts of the
Program. The Program will include four separate projects, each designed and implemented by
separate agencies with comparative advantage and are on-the-ground in Aceh. BRR has
proposed to partner with MA to respond to the drainage and flooding problems of Banda Aceh.

B. PROJECT DESCRIPTION

1. Project development objective and key indicators

15.     The objective of the Emergency Rehabilitation of the Drainage System and Flood
Protection of Banda Aceh project is to quickly re-establish functionality of the storm water and
marine flood protection systems damaged or destroyed by the tsunami and earthquake.

16.           The Key Performance Indicators for this development objective are:

      (i.)       Protection against storm water flooding and tidal flooding, provided progressively
                 (over an 18 month period);

      (ii.)      Tidal incursion in the project area prevented (within 3 months);

      (iii.)     Emergency Works compatible within existing Long-Term plans; and

      (iv.)      Staff responsible for maintenance of Banda Aceh drainage system trained and capable
                 of routine maintenance and small repairs.

2. Project components

17.           The Project has three components:

              Component 1: Urgent Tidal Flood Protection Program (USD 0.14 million). In order to
              address the most urgent problem of tidal flooding, the project will include an immediate



                                                      4
       component to supply and install six (6) one-way flow valves and undertake other minor
       civil works at the point in the system where currently sea water incursion occurs at high
       tides.

       Component 2: Storm Water Flood Protection Program (USD 4.06 million). The work
       will involve reconstruction of approximately ten pumping stations and associated civil
       and hydraulic structures; installation of about 90 one-way flow valves to prevent tidal and
       storm water incursion into the internal drainage system; repairing, renewing and
       enhancing up to 500 m river and drainage channel embankments; clearing of up to 5 km
       of secondary channels of debris; and other minor civil works associated with these
       drainage improvements.

       Component 3: Implementation Support and Capacity Building Program (USD 0.3
       million). In order to promote the sustainable operation of the system, the project will
       include an appropriate level of institutional strengthening and training for the
       implementing agency (the City Public Works Department - PU). In addition, the project
       will include capacity building and consulting services for the executing agency in order
       to support project implementation.

Total project costs are estimated at US$4.5 million to finance civil works, consulting services,
and goods and equipment. A detailed breakdown of project costs is provided in Annex 5.

18.     Project Area. The project map (IBRD 34428) shows the extent of the areas subject to
chronic flooding in the urban area of Banda Aceh, which represents the project area
(approximately 35 square km of the 62 square km city area). New drainage facilities outside this
area will not be included within the project. It is expected that three new pumping stations will
be added to the pre-tsunami system to increase its capacity and two pre-existing pumping
stations will be consolidated into a new single station. The placement and need for new pumping
stations will be confirmed during detailed engineering and land surveys during implementation.

3. Lessons learned and reflected in the project design

19.    The following are the lessons learned based on a review of the existing drainage system
as operated pre-tsunami in Banda Aceh:

      The need for an adaptive approach: The preliminary layout of the drainage system was
       based on the 1989 City Plan. The implementation of this plan was developed by the PU
       over time, using the ‗observational principle‘ (i.e., when funding was available the PU
       decided on the basis of observed need which intervention would be effective). Given the
       limitations of funding, operation and maintenance, the system was probably well-suited
       to the need. The preliminary layout currently proposed will be reviewed by the
       consultant selected by Muslim Aid to support implementation and capacity building.
       Appropriate modifications will be included consistent with the selected design
       parameters.




                                                 5
      The need to minimize maintenance costs: In place of steel or wooden sluice gates, for
       which a degree of maintenance and operation is required, it is proposed to use vulcanized
       flow check valves (―duck valves‖) that have no moving parts and work at low water
       pressures providing complete cut-off to prevent back-flooding. The design is very low
       maintenance and will allow for local drainage (at 5 cm/sec flow rates) without having to
       manually open the check valve. Past experience has shown that very little budget, except
       for drain clearing and minor works, is allocated to drainage issues under Provincial and
       City budgets and systems must be low cost to maintain and service. Also, tampering with
       sluice gates and flap valves was common under the previous system.

4. Alternatives considered and reasons for rejection

20.     In general, there is no reasonable alternative to the project as proposed. Alternatives to
the valve design have been considered, but rejected on grounds of maintenance costs,
vulnerability to tampering, and demonstrated failure in the pre-tsunami system of gates and
valves. Several alternatives for project implementation were considered, but were also rejected:

      Delay implementation until the JICA Plan is funded and prepared: This plan is more
       comprehensive in its scope than the current project, and aims to bring the whole of the
       drainage system to a high standard. The estimated costs are as much as US$40-50
       million. Both the JICA plan and this current project would cover similar spatial areas.
       However, the JICA plan cannot be prepared and implemented quickly to address the
       current needs of the affected population. The advantage of the current project is in the
       potential for fast-track implementation of design, including its immediate works to install
       tidal valves within 3 months. The proposed project will closely mirror the first phase of
       the JICA recommendations.

      Use the PU as Executing Agency rather than Muslim Aid (an NGO): Both would require
       substantial capacity building in order to implement the project. MA is motivated by this
       project‘s links with other humanitarian work in the project area. MA also has some
       experience of project implementation in Medan (Metropolitan Medan Urban
       Development Project for ADB). Moreover, MA is able to mobilize is resources readily to
       set up the PIU, and can use its financial resources to avail the retroactive financing
       facility available within Bank procedures. PU has many different foci, and it would be
       difficult to engage the best staff required for the project period. PU resources to
       implement the project are limited, and a lack of operating costs could greatly slow project
       implementation.

C. IMPLEMENTATION

1. Institutional and implementation arrangements

21.    Oversight. BRR will establish a four member Project Steering Committee (PSC) to
oversee and provide high-level management and supervision for the project. BRR will act as
Chairman for the committee. Muslim Aid and the Provincial and City‘s Public Works
Departments (PUs) will each assign one member to the PSC to represent their organizations.


                                                 6
The PSC will be responsible for overall project oversight and high-level decision-making and
coordination among project agencies.

22.     Project Management. The project will be managed and implemented by Muslim Aid.
Muslim Aid will establish a Project Implementation Unit (PIU) with adequate staffing to carry
out the project. Muslim Aid will recruit an international quality engineering firm to support the
PIU. The consultant will be expected, inter alia, to undertake the detailed design, prepare the bid
documents, prepare the environmental assessment and EMP, supervise and monitor the
contractors, and provide institutional strengthening and training services to the relevant local
government agencies. The Implementation arrangements are shown schematically below:

                                                 Project Implementation

                                                     MDTF
                                                                        Project Steering
                                                                        Committee
                                                 Special Account        (BRR, PU, MA)



                   World Bank training               Project Implementation Unit                 Consultant Services


                                   MA Financial                   MA Project         MA
                                   Management System              Management         Procurement
                                                                  Team               Team
                                   Financial Management
                                   Reports                        Schedule           Committee
                                                                  Social issues      Plan
                                                                  Environmental
                                                                  issues




                                     Project Implementation – Contractors and Suppliers


               MDTF = Multi Donor Trust Fund
               BRR = Agency for Reconstruction of Aceh and Nias
               PU = Public Works Department
               MA = Muslim Aid



23.     The program will be implemented within two years. Construction works will be
completed within the first year, and operations, maintenance, and training will continue through
the second year.

24.       In addition to the roles mentioned above, BRR and PUs will have the following roles:

         Provincial and City Public Works Departments: Approval of all design proposals for the
          works.

         BRR: Coordination of all projects in this sector and area. BRR will also be responsible to
          work with local governments and MA to ensure the project is implemented in accordance
          with World Bank policies on Land Acquisition and Resettlement (World Bank OP 4.12).




                                                                    7
24.     Muslim Aid and the City of Banda Aceh have signed a Memorandum of Understanding
(MOU) dated May 10, 2005 covering the scope of the project. The MOU also covers exchange
of information, reporting, and indemnification of MA with respect to loss, damage, or injury and
second party liabilities. The MOU also sets standards for project delivery and procedures for
resolving disputes.

2. Monitoring and evaluation of outcomes/results

25.    Muslim Aid will be responsible to develop and implement a monitoring and evaluation
system for the project:

  (i)      Overall project implementation will be tracked using the project‘s key development
           indicators. In addition, physical implementation progress, financial indicators, and
           system performance will be measured by the PIU and construction supervision team.

  (ii)     Project social and environmental aspects will be tracked based on the findings of the
           social and environmental assessments. The EMP will include a key monitoring
           indicator which will be followed during project implementation by the supervision
           team and reported on regularly as part of project reporting systems.

  (iii)    Effectiveness of the interventions in preventing flooding in the project area.

26.     The project steering committee will be responsible for monitoring overall project
implementation. Each month the PIU will prepare a summary report and send it to BRR, PU and
the Bank to briefly describe exceptional events and conditions identified during the monitoring
process, as well as indications of the actions to be taken in response to these events. The Bank,
as partner agency under the MDTFANS legal framework, will be responsible for project
supervision of the project on behalf of the MDTFANS.

3. Sustainability

27.      The project is not designed to deal in a comprehensive way with the management,
institutional, operational, maintenance and other issues related to long-term sustainability of the
drainage system. The project is designed to quickly bring relief to the urban population which is
currently suffering flooding. The City of Banda Aceh at the end of the project will accept
ownership of the new flow valves and pumping stations. The project has sufficient funds to
operate and maintain the infrastructure for a two (2) year period. The new equipment will
incorporate a low-maintenance design, thus lowering the costs of O&M once handed over.

4. Critical risks and possible controversial aspects
 RISK                               RATING   MITIGATION                                              RATING
                                                                                                     AFTER
                                                                                                   MITIGATION
 Misuse of and failure to account     H      Outsourcing of accounting and reporting functions.        M
 for project funds                           FMA will provide pre-audit verification of all
                                             payments in excess of $10,000. Public disclosure of
                                             audit report and anti-corruption initiatives as
                                             outlined in the Anti-corruption Action Plan.



                                                       8
  Ineffective audit functions             H        Inclusion of internal audit function into FMA‘s        M
                                                   TOR and employment of professional best
                                                   practices.
  Political involvement in funds           S       Off-budget implementation by Muslim Aid.               M
  flow process
  Lack of involvement and                  S       A Project Steering Committee will be established to    M
  support of key government                        ensure the appropriate engagement of BRR and the
  agencies                                         relevant PU staff.
  Inadequate Capacity of the               S       TA Consultants will provide the required capacity.     M
  Executing Agency                                 Muslim Aid will establish a PIU staffed by
                                                   experienced technical staff, administration staff,
                                                   procurement and financial management
                                                   staff/accountants. Employment of a specialist to
                                                   support the PIU in managing the procurement
                                                   processes.
  Limited availability of goods           M        Key equipment to be procured internationally           N
  and equipment                                    through Shopping. Commonly available equipment
                                                   (e.g. small motor units and pumps) will be procured
                                                   through the Main Works contractor, rather than
                                                   directly by the executing agency.
  Need to deliver the project on a        M        Model bidding documents have been developed and        M
  fast track basis                                 agreed with the Bank. Specific procurement
                                                   provisions elaborated to deliver the works, goods
                                                   and services quickly in response to the emergency
                                                   nature of the project. Use of retroactive financing
                                                   and advance procurement procedures.
  Weak procurement                        H        All packages that will be funded on a retroactive      M
  environment and collusive                        basis will be subject to prior review. To ensure
  practices in past projects                       transparency in the procurement process, enhanced
                                                   procurement procedures are included in the Anti-
                                                   Corruption Action Plan.
  Low capacity of the PUs                  S       The project includes a significant institutional       M
                                                   strengthening and training component to promote
                                                   sustainable management, operation and
                                                   maintenance by the PU. The PUs are not directly
                                                   involved in project execution, which will be handled
                                                   by Muslim Aid.
  OVERALL RISK LEVEL                       S                                                              M
Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)


D. APPRAISAL SUMMARY

1. Economic and financial analyses

28.      The overall benefit from the project will be improved health and security from the effects
of tidal and storm water flooding in the city of Banda Aceh. This will enable a safer habitable
environment for the vast housing reconstruction program required in Banda Aceh, and provide
relief from flooding for the people returning to their land. It will also provide a less risky
physical environment for the economic recovery, facilitating investment and long term



                                                              9
sustainability of the affected areas. Most of the benefits from the project are not easily
quantifiable in direct monetary terms, but are expected to be substantial, such as lowered health
costs and incidence of disease. The project will also allow for recovery of otherwise
uninhabitable land and reduced cost for construction and can be expected to greatly improve
livelihoods and quality-of-life.

29.     While much of the population is still residing in temporary barracks or tent facilities,
housing reconstruction has started in the project area. It is estimated that the project will
immediately improve conditions for around 100,000 persons (25,000 families). As more
families rebuild, another 100,000 persons could eventually benefit from the project. Many
families are keen to rebuild if they can be assured that flooding will be unlikely—and thus the
project is expected to increase the rate of housing construction in the project area.

30.     The appraisal team worked with Muslim Aid to determine the relative cost effectiveness
of the proposed approach. In this regard, it is estimated that direct construction saving as the
result of reduced need for land fill and protection foundation works would save as much as 10-
20% of the construction costs of a house in the project area. In addition, the elevation of many
houses that have already been built would need to increase in the future if the project does not
take place. Based on an estimate of the current cost of housing construction of US$4,800 per
house, the total savings in construction cost alone in the project area was estimated to be in the
range of US$10-50 million for the estimated 25,000-50,000 houses that need to be rebuilt or
improved in the project area.

2. Technical

31.     There are no outstanding technical issues identified during appraisal. The PIU will be
supported through the provision of consulting services with adequate engineering and
construction supervision skills. The effectiveness and maintenance requirements for the chosen
valve design are low. The valves are designed to be self-cleaning and flow levels are sufficient
to scour debris from the valve. The capacity of pumps used to move storm water from the land
area into the drainage channels/rivers will be increased through higher capacity facilities,
following the findings of the JICA study. The project includes training in their use and
maintenance. Most critical works are expected to be substantially complete by December 2006.
Capacity building support and training will continue for the next 18 months. Muslim Aid will
prepare and submit a comprehensive activity chart by April 2006, this will be reviewed and
updated as work proceeds.


Procurement

32.     Procurement for the proposed project would be carried out in accordance with the World
Bank‘s ―Guidelines: Procurement under IBRD Loans and IDA Credits‖ dated May 2004; and
―Guidelines: Selection and Employment of Consultants by World Bank Borrowers‖ dated May
2004, and the provisions stipulated in the Legal Agreement. Given the emergency nature of the
project special procurement provisions have been agreed on an exceptional basis, which are
outlined in Annex 6.



                                                10
33.      An assessment on the procurement capacity of the agency was conducted in Aceh during
November 16-17, 2005. The assessment concluded that the procurement risk under the project is
rated as “high” due to the following reasons: (a) procurement capacity of the executing agency
and their ability to develop specifications and Bill of Quantities for the packages is weak and no
procurement staff are currently available in Aceh; (b) limited availability of goods and
equipment in general in post-tsunami Aceh, and the limited availability of specific goods, e.g.
tidal flow valves, in the country; (c) need to deliver the project on a fast-track basis; and (d)
general weakness of the procurement environment and collusive practices under past World
Bank projects. Mitigation measures to address these findings of the PCA have been agreed and
are outlined in Annex 6 and project Anti-Corruption Action Plan (Annex 10).

Fiduciary

34.     A formal assessment of the financial management capacity, using FM Assessment
Guidelines issued by the Financial Management Sector Board on October 15, 2003, was
performed on the project implementing agency, Muslim Aid/ Indonesia Aceh Branch. The
findings indicate the need to strengthen the financial management capacity in the Aceh Branch to
meet the Bank's minimum requirements for financial management of this specific operation. To
ensure smooth implementation of the project, Muslim Aid has agreed to hire a professional
consulting firm (Financial Management Agent, FMA) to develop and install an adequate
financial management system and capacity including Internal Control and an integrated financial
management information and accounting systems that are capable to provide, with reasonable
assurance, that funds are used for the intended purposes and to generate the reporting
information to meet project requirements. In addition, the FMA will provide pre-audit
verification of all payments in excess of $10,000.

Audits

35.     Project accounts will be audited annually in accordance with international auditing
standards by an independent auditor acceptable to the Bank. The auditor's report will be made
available to the Bank within six months of the close of the fiscal year. The audits will include a
separate opinion on the SOE, the Special Account and project assets. The first audit will include
a review and commentary on the adequacy of internal controls and a post-review of any
retroactive expenditure. A qualified, independent firm, acceptable to the Bank, will be appointed
as external auditor within six months after grant agreement signing. The costs of annual audits
will be financed from the proceeds of the Grant.

Anti-Corruption

36.    Beside the actions outlined above, Muslim Aid and BRR will implement the anti-
corruption action plan as presented in Annex 10.

Funds Flow




                                                11
37.     About US$3.3 million will be disbursed using direct payment procedure for civil works
for drainage system rehabilitation. For the remaining balance, disbursement will be made on a
transactional basis. Muslim Aid will establish a Special Account (SA) at a commercial bank in
Banda Aceh, Indonesia which is capable of providing efficient payment and clearing facilities.
The Bank would, upon request, make an authorized allocation of US$50,000. The SA will be
maintained by the project implementation unit. These amounts would be used only for the
purposes of the project to cover its project expenditures. Disbursements under the Grant will be
made using SOEs for: (a) goods; (b) services of consulting firms costing less than US$100,000
equivalent per contract; (c) of individual consultants costing less than US$50,000 equivalent per
contract; (d) training and workshops; and (e) incremental operating costs. Supporting documents
will be maintained by the coordinating team, and made available to the Bank's visiting missions
and auditors as required. The project implementation unit will also prepare and provide to the
Bank quarterly reports on implementation progress along with Financial Monitoring Reports
(FMRs) in formats agreed with the Bank. The FMRs will be used for monitoring purposes. Use
of direct payment method for disbursement will be maximized.

Retroactive Financing

38.    Retroactive financing of up to US$450,000 would be available for eligible expenditures
incurred since November 15, 2005, which is the date of completion of the Bank's appraisal,
provided they comply with the agreed procurement guidelines. In addition, documentation
requirements for expenditures claimed under retroactive financing are the same as those for
disbursement against payments made after the Grant Agreement is signed. This Retroactive
financing provision would allow for the Grant to cover initial setup costs for the PIU, hiring of
consultants, and for the implementation of the required steps for grant agreement signing,
including development of the financial management system.

3. Social

39.     The majority of the social impacts of the project will be positive. Any negative aspects
arising will be handled during the development of the project through ongoing monitoring by the
supervision team (PIU and consultant) and Bank. There are expected to be only minor negative
social impacts related to the need to acquire small plots (about 100 square meters each) of private
land to install new pumping stations. This land will be purchased by the city government
following World Bank and GoI policies based on the Policy Framework in Annex 9. It is
expected that up to three of these sites will be for new pumping stations and possibly one site
will be for consolidation of two existing pumping stations into a single unit. The location and
need for these sites will be confirmed by the engineering consultant during detailed land and
engineering surveys.

40.    A Policy Framework for Land Acquisition and Resettlement (PF) has been developed and
agreed for the project (see Annex 9). The City Government of Banda Aceh has substantial
experience in land acquisition based on GOI regulations of Keppres 55/1993 and Perpres No.
36/2005, but limited experience in carrying out land acquisition in accordance with the World
Bank Resettlement Policy. A Tim Pengadaan/Pembebasan Tanah (Land Acquisition Team) and
a Tim Penilai Tanah (Land Assessment Team) were established by the City in 2005 in response



                                                12
to Presidential Regulation No. 36/2005 on the Land Acquisition for the Development for the
Public Purposes. This team will be responsible for land acquisition under the project under the
oversight of BRR and the project Steering Committee. The City Government of Banda Aceh has
agreed to make the budget required for land acquisition under the project available in FY 2006.
If the land is not made available by the time of signature of the contract for civil works, the new
pumping stations will be dropped from the project.

41.     A land acquisition/resettlement expert will be hired to support the PIU, particularly in the
early stage of the project. This consultant will provide training for the City Public Works
Agency, as well as the Land Acquisition and Land Assessment Teams as needed. This expert
will also monitor the project to ensure that this Policy Framework is implemented. The expert
will also prepare a report for the PIU, the Executing Agency and the Steering Committee on
implementation of the framework.

4. Environment

42.     The project‘s environmental impacts are expected to be minor and overwhelmingly
positive. The large scale impact of the project would be the alleviation of chronic flooding in the
urban area of Banda Aceh. Such flood waters are contaminated by septic discharge due to
destruction of the septic sludge treatment facility and breakdown of the city‘s septic tank
maintenance system of pump trucks. There is now direct discharge from septic tanks into the
drainage ways that are prone to flooding. Control of the contaminated water flooding residential
areas, temporary tent camps of the homeless and other sensitive receptors would permanently
improve this public health risk, as well as increase water quality. Proper drainage can also
reduce disease vectors. Malaria and dengue are endemic to Banda Aceh.

43.     The potential negative environmental impacts of the project are mainly related to
construction and will be handled by the development of a project-specific EMP which will be
carried out by the contractor under oversight of the PIU. The potential negative construction
impacts include disruption of traffic flow, dust, noise, disposal of spoils from ditch cleaning, and
disposal of hazardous materials such as crankcase oil from equipment maintenance.

44.     The project does not trigger Indonesian EIA requirements. The project has been
classified as category ―B‖ under World Bank OP 4.01, ―Environmental Assessment‖. A focused
environmental assessment and EMP, including one round of public consultation, will therefore
be prepared by the PIU with support of an international consultant, prior to the mobilization of
the main civil works contractor. The EA/EMP and PF will be publicly disclosed in accordance
with IDA policies.
Safeguard policies

 Safeguard Policies Triggered by the Project                            Yes               No
 Environmental Assessment (OP/BP/GP 4.01)                               [X]               []
 Natural Habitats (OP/BP 4.04)                                           []               []
 Pest Management (OP 4.09)                                               []               []
 Cultural Property (OPN 11.03, being revised as OP 4.11)                 []               []
 Involuntary Resettlement (OP/BP 4.12)                                  [X]               []



                                                 13
    Indigenous Peoples (OD 4.20, being revised as OP 4.10)                                     []                    []
    Forests (OP/BP 4.36)                                                                       []                    []
    Safety of Dams (OP/BP 4.37)                                                                []                    []
    Projects in Disputed Areas (OP/BP/GP 7.60)*                                                []                    []
    Projects on International Waterways (OP/BP/GP 7.50)                                        []                    []
5. Policy Exceptions and Readiness

45.   No policy exceptions are required. The project is being executed under the World Bank‘s
OP 8.50, Emergency Recovery Assistance.

46.    The first phase of the project is ready for execution (Urgent Tidal Protection Program)
and a draft Terms of Reference for implementation support to the Executing Agency has been
agreed. Procurement for both of these items will begin prior to signature of the Grant Agreement
under advance procurement and retroactive financing.

Grant conditions and covenants

47.    Standard World Bank conditions and covenants apply. There are no Grant effectiveness
conditions. The following actions will be taken prior to the signing of the Grant Agreement.

         Muslim Aid will recruit a Financial Management Agent using terms of reference
          agreeable to IBRD; and

         The FMA will prepare a Financial Management Manual, including annual and quarterly
          reporting (FMRs) formats and established internal audit procedures.




*
 By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the
disputed areas


                                                               14
                                   Annex 1: Background and Technical Issues

Background

The Government carried out a multi-sectoral damage assessment1 in January 2005 with support
from the donor community and jointly prepared a Technical Report and associated Notes on
Reconstruction,2 to help donors and bilateral and multi-lateral financing institutions in assessing
the impacts of the disaster and in identifying possible areas of assistance. According to the
Damage Assessment, it is estimated that some 4,000 villages and urban communities have been
affected, approximately 127,000 houses completed destroyed and approximately 153,000
partially damaged. The preliminary estimate of damages and losses in Aceh and North Sumatra
is estimated at Rp. 41.4 trillion (US$ 4.45 billion).

The damage to the sea defense and flood protection infrastructure was extensive and severe.
Many sea defense embankments and river training embankments were totally destroyed, and
extensive areas of land were washed away. In addition, the land has subsided by up to a reported
1.5 m in the west coast areas in the south of Aceh Province and 0.4 m in Banda Aceh itself.

Even before the tsunami, major floods were a regular occurrence in Banda Aceh due to high
tides flooding low lying areas and to storm water flooding as a result of heavy rainfall and from
overtopping of river embankments along the rivers running through the urban area. Major storm
water flooding occurs on average every seven years, but currently the big problem is tidal
incursion via the damaged drainage system and onto the urban land areas. This happens at each
lunar cycle (i.e. monthly), the severity depending on the moon‘s phase. Major storm water
floods occurred in 1953, 1971, 1978 (twice), 1986, 2000 and 2002 i.e. on average every seven
years. The 2000 flood lasted 15 days and flooded over 60% of Banda Aceh. Apart from these
major floods there are less severe annual flood events.

Most of the city‘s flood gates and pumping stations have been destroyed or damaged and are no
longer effective. The primary and secondary drainage channels have been damaged and filled
with debris by the tsunami, and many have since been blocked in an attempt to reduce flooding.

Since the tsunami struck in December 2004, the international response has moved beyond the
Emergency Phase to the Rehabilitation Phase. However, work has yet to start on repairing,
reconstructing or replacing the sea defense, river flood protection works and internal drainage
systems necessary for the economic recovery of the affected areas.

Project Context

The Aceh and Nias Post Tsunami and earthquake Reconstruction program consists of a number
of initiatives, each designed to address the needs of discrete infrastructure areas. These include;


1
  BAPPENAS and the International Donor Community (eds.) (2005): Indonesia: Preliminary Damage and Loss Assessment – The December 26,
2004 Natural Disaster, Jakarta, 19 January.
2
  BAPPENAS and the International Donor Community (eds.) (2005): Indonesia: Notes on Reconstruction – The December 26, 2004 Natural
Disaster, Jakarta, 19 January.




                                                                15
      Initiative 1: Housing/shelter infrastructure initiative including water, sanitation, drainage,
       solid waste management, and local transport

      Initiative 2: Sea defence, flood protection, refuge and early warnings systems initiative

      Initiative 3: Primary and Secondary Provincial Level infrastructure including intra
       settlement/village roads, connector roads and ports, power, water resources, etc.

      Initiative 4: Economic infrastructure

      Initiative 5: A separate Nias program

       This project focuses on Initiative 2, Sea defense, flood protection, refuge and early
warnings systems, and specifically on the need for emergency rehabilitation of the drainage
system of Banda Aceh.

Technical Approach

Basis of Design: The preliminary layout of the drainage system is based on the 1989 City Plan.
The implementation of this plan was developed by the PU over time, using the ‗observational
principle‘ (i.e. when funding was available the PU decided on the basis of observed need which
intervention would be most effective). Despite the limitations of funding, operation and
maintenance, the system was probably reasonably well suited to the need. The preliminary layout
currently proposed will be reviewed by the TA Consultants appointed as part of the capacity
building component, and appropriate modifications included consistent with the selected design
parameters. The project design is based on the 20-year rainfall event.

Type of one-way flow valve:

In place of the usual steel or wooden sluice gates, for which a degree of maintenance is required,
it is proposed to use vulcanized flow check valves that have no moving parts and work at low
water pressures providing complete cut-off to prevent back-flooding. The design is known
generically as variable orifice and is reasonably sophisticated with the elastomer a composite
something akin to a tire. The most common materials are Buna-N and Neoprene. Neoprene is
more resistant to UV and would be more appropriate for Aceh. A lifespan of 30-50 years is
claimed which although obviously not confirmed seems a reasonable projection. The design
seems to ensure a reasonable flow velocity at low heads. They are designed to be self-cleaning
so this flow is designed to be sufficient to scour debris from the valve. If very large debris does
block the valve it can be manually opened to be cleared although this is apparently a rare
occurrence. The valves can be designed for a given installation by varying the pre-stressing in
order to achieve a certain degree of back-pressure resistance and leak-tightness at the cost of
higher pressure drop. A design which is not pre-stressed should be able to resist at least 6m head
and be able to open under very small forward head The O&M manual indicates zero
maintenance is required for the lifetime of the valve. The valves' only weak points other than
cost seem to be susceptibility to ozone and solvents neither of which would appear to be a
consideration and no current means of indicating when the valve is open. Operational



                                                 16
temperature range far exceeds Aceh ambient conditions. The valve also appears to be resilient to
ocean waves up to 15m fully submerged but of unknown size in the breaking zone.

Existing System, Relevant Studies and Reports

The pre-tsunami drainage system was based on the City of Banda Aceh Technical Drainage Plan
(1989). This sub-divided the city into drainage areas, each with a system of tertiary and
secondary drainage channels flowing to primary drains. These in turn discharged into the City‘s
natural surface water channels – principally the Rivers Aceh, Doy, Neng, Daroy, Tipit Creek and
the City Floodway. The Plan proposed pumping stations to discharge the principal drain outfalls
into the natural rivers (including the floodway), as well as tidal gates on several of the smaller
rivers. Since the Plan was prepared, the City Public Works Department (PU) has progressively
implemented drainage channel improvements and constructed pumping stations and tidal valves
as funding became available, in accordance with the perceived priority. At the time of the
tsunami, the system included eight pumping stations and over 90 one-way flow valves (‗flap
valves‘), as well as internal drainage channels. The urban areas were protected from storm water
and tidal flooding by a combination of flood prevention embankments on the rivers, flap valves
and tidal gates.

It is also important to understand that the City‘s drainage system also acts as its wastewater
disposal system. The City has no separate sewerage system, and all wastewater flows eventually
(sometimes through septic tanks) to the drains. Flooding, both tidal and storm water, therefore
poses a significant health hazard to the affected urban population.

Most of the city‘s flap valves, tidal gates and pumping stations have been destroyed or damaged
and are no longer effective. The primary and secondary drainage channels have been damaged
and filled with debris by the tsunami, and many have since been blocked in an attempt to reduce
flooding.

During the eleven months since the disaster there have been many emergency physical
interventions and many studies, strategy papers and other initiatives.

A number of the most relevant are:

(a)    The GoI has formulated a Blueprint for Rehabilitation and Reconstruction in Aceh and
Nias, which guides the coordination and implementation of all recovery programs being
introduced in Aceh. As one of the blueprint‘s components, the Comprehensive Human
Settlements Rehabilitation and Reconstruction Strategy provides an overall approach for
programming the repair and reconstruction of housing and settlements for the affected
population. The strategy aims to support settlement of refugees, public facilitates and housing
based on a spatial plan, to rehabilitate water treatment plants and distribution systems, and to
adopt a community approach as much as possible. The estimated demand for rehabilitation and
reconstruction of water supply and sanitation in the Blueprint was US$345 million.

(b)    The Japanese International Cooperation Agency (JICA) produced a Study on the Urgent
Rehabilitation and Reconstruction Support Program for Aceh Province and Affected Areas in
North Sumatra – Urgent Rehabilitation and Reconstruction Plan for Banda Aceh City (August


                                               17
2005). This is reviewed in Annex 1.1. Local Government (Dinas) plans to submit a request to
MDTF to design and implement extensive rehabilitation/renewal of secondary and tertiary
stormwater drainage systems based on the JICA study.

(c)     At the request of the City of Banda Aceh, Muslim Aid prepared a proposal to provide
emergency damage rehabilitation for flood flow valves and drainage pumping stations in Banda
Aceh to replace those destroyed by the Tsunami and to renew drainage channels and other works
to prevent Banda Aceh from being flooded from the sea or from the river or from extreme
rainfall events.

Review of JICA proposals

The JICA report calculated the runoff from each of the drainage areas and sub-areas (eight in
total) and concluded that the capacity of the primary drainage conduits and pumping stations are
inadequate. The report identifies significant areas of the city which are ‗habitually inundated‘.
Note that in this case the inundation is caused by rain water falling on or draining into the
drainage areas (including some overtopping of river embankments), not by tidal flooding caused
by sea water breaching or overtopping the defences.

Table 1 shows details of the run off from the drainage areas and the capacity of drains and
pumping stations as calculated by the JICA team.

                  Table 1: Capacities of Existing Drainage Facilities and Runoff
      Drainage          Drain to          Run off          Capacity of      Pumping
      area/sub area                       m3/s             drain            capacity
                                                           M3/s             m3/s
      1.3               Aceh River        1.205            1.082            0.245
      1.2               Aceh River        0.268            0.470            0.200
      1,1               Aceh River        1.254            0.357            0.270
      11.1              Daroy River       1.480            1.099            0.745
      13.5              Doy River         0.359            0.510            0.824
      13.1              Doy River         2.628            0.512            0,225
      13.6              Doy River         2.552            4.022            0.200
      3                 Titi Panjan       11.080           0.686            0.225
        Source: JICA study

The data shown in bold font indicate the drain and/or pump capacities which are less than the
calculated runoff. Only one of the pre-tsunami pump capacities was greater than the runoff.

The report states that urgent rehabilitation work is required on the urban drainage system, river
dykes and flood walls to counter flooding from high tides and storm water in the latter part of
2005. Although the report goes on to make some preliminary proposals, it is emphasized that
more detailed studies are required before final proposals for implementation of long-term
drainage facilities can be made.




                                                18
The proposals cover an urban area of 61 km2 with an estimated 2009 population of 254,000
(2009 is selected because this is the target date for completion of the proposed works). The
design storm used for calculation of storm water quantities is 165mm with a return period of 5
years.

The proposals basically follow the existing drainage system, modified where necessary in
accordance with the City Development Plan. The proposals are grouped into five priority classes
according to criteria developed by the study team. Table 2 shows the details.

                                   Table 2: JICA proposed works:
     Priority           Nr of Pump         Length of       Length of new       Nr of new
                        stations           drainage        drainage            flood retention
                        rehabilitated      channel         channel (m)         basins
                                           rehabilitated
                                           (m)
     1                  4                  766                                 1
     2                                     4620                                1
     3                  4                  1896
     4                                     3691
     5                                     622             8108
     Total              8                  11595           8108                2

The proposed capacities of the two flood retention basins are 450,000m3 and 75,000m3. The
proposals also include the replacement or rehabilitation of 30 of the original 98 sluice gates.

Identification and Scope of program

Based on field surveys, the number of sites in the various drainage sub-system in Banda Aceh
requiring new floodgates/valves and pumping stations are as follows:

                                                                            Total
   Item                                                                     No
 1 Flow check valves & installation                                         90
 2 Pumping Stations (8 are rehabilitation of existing pump stations)        10
 3 Pumps                                                                    12

In place of the usual steel or wooden sluice gates, it is proposed to use vulcanized flow check
valves that have no moving parts and work at low water pressures providing complete cut-off to
prevent back-flooding. They are said to last 30 to 50 years. It is estimated that 90 of these valves
will be needed.




                                                 19
                                Annex 2: Detailed Project Description

Project Development Objective

The objective of the Emergency Rehabilitation of the Drainage System of Banda Aceh project is
to quickly re-establish functionality of the storm water and marine flood protection systems
damaged or destroyed by the tsunami and earthquake. This will enable a safe habitable
environment for the vast housing reconstruction program required in Banda Aceh, and provide
immediate relief from flooding for the people returning to their land. It will also provide a less
risky physical environment for the economic recovery, facilitating investment and long term
sustainability of the affected areas.

Key Indicators

The Key Performance Indicators for this development objective are:

   (i.)       Protection of population against design intensity (20 year) storm water flooding and
              tidal flooding, provided progressively over an 18 month period;

   (ii.)      Tidal incursion in the project area prevented within 3 months;

   (iii.)     Emergency Works compatible within existing Long-Term plans; and

   (iv.)      Staff responsible for maintenance of Banda Aceh drainage system trained and capable
              of routine maintenance and small repair.

Project Components

The Project has three components:

           Component 1: Urgent Tidal Flood Protection Program (USD 0.14 million). In order to
           address the most urgent problem of tidal flooding, the project will include an immediate
           component to supply and install six (6) one-way flow valves and undertake other minor
           civil works at the point in the system where currently sea water incursion occurs at high
           tides.

           Component 2: Storm Water Flood Protection Program (USD 4.06 million). The work
           will involve reconstruction of approximately ten pumping stations and associated civil
           and hydraulic structures; installation of about 90 one-way flow valves to prevent tidal and
           storm water incursion into the internal drainage system; repairing, renewing and
           enhancing up to 500 m river and drainage channel embankments; clearing of up to 5 km
           of secondary channels of debris; and other minor civil works associated with these
           drainage improvements.

           Component 3: Implementation Support and Capacity Building Program (USD 0.3
           million). In order to promote the sustainable operation of the system, the project will



                                                   20
       include an appropriate level of institutional strengthening and training for the
       implementing agency (the City Public Works Department - PU). In addition, the project
       will include capacity building and consulting services for the executing agency in order
       to support project implementation.

Total project costs are estimated at USD 4.5 million to finance civil works, consulting services,
and goods. A detailed breakdown of project costs is provided in Annex 4.

Although the project area covers the main parts of the drainage system of Banda Aceh, the
project is not designed to deal in a comprehensive way with all the management, institutional,
operational, maintenance and other issues currently afflicting the system. It is designed to
quickly bring relief to the urban population which is currently suffering both marine and storm
water flooding, and the public health risk associated with it.

While the main works will not be complete in time for this rainy season, the project aims to
deliver fast track (i.e. within two months) relief from the chronic tidal flooding which is causing
misery to the affected population. The main works are scheduled to be delivered progressively
within 10 to 15 months.

The project includes capacity building to enable the Executing Agency to deliver the project, and
for the PU to operate and maintain the emergency interventions provided.

The project is scheduled to take two years to complete. The principal work to review the physical
conditions, existing plans, and prepare the detailed designs and contract documents, and
implement the works will take place in the first 18 months. There will be a period of
management, operation and maintenance training (12 months duration) which overlaps with the
construction phase and extends a further six months, giving a total project period of 24 months.

Project Area

The extent of the areas subject to chronic flooding in the urban area of Banda Aceh is shown in
the project map. Although this area covers the main parts of the City (the MA and JICA plans
both consider this area) any drainage facilities outside this area will not be considered within this
project as their condition is not considered to constitute an emergency situation.




                                                 21
                               Annex 3: Projects Results Summary

Project Intervention Verifiable Indicators Means of Verification                 Assumptions
Logic                   of Achievement
Overall Goal
Sustainable post-tsunami reconstruction and development in Aceh
Project Purpose         75% protection of        Absence of visual evidence      System designs are
Re-establish            local level population and reports of flooding           appropriate.
sustainable first steps against design           events associated with design
in provision of a       intensity storm water    intensity events.               Operation and
urban environment in flooding and tidal                                          maintenance of the
Banda Aceh to           flooding                                                 systems are sustained.
provide a less risky
physical environment                                                             Long-term drainage
for the economic                                                                 planning is appropriate
recovery, facilitating                                                           to the growing needs of
investment and long                                                              Banda Aceh
term sustainability of
the affected areas.
Objective 1             Chronic tidal            Absence of visual evidence      System designs are
Fast track protection   incursion in the         and reports of flooding         appropriate.
against tidal incursion project area is          events associated with design
to vulnerable areas.    prevented within 3       intensity events.               Construction is
                        months.                                                  appropriate.
Objective 2             Chronic tidal and        Absence of visual evidence      System designs are
Emergency protection storm water incursion and reports of flooding               appropriate.
against stormwater      in the project area is   events associated with design
and tidal incursion to  progressively            intensity events.               Construction is
vulnerable areas.       prevented over an 10                                     appropriate.
                        - 15 month period

Objective 3             Pumps and valves         Records of pump operation.      Operators maintain
Sustainable operation   operate correctly as                                     records.
and maintenance of      and when required.       Visual inspection of valve
drainage system in                               operation.                      Managers inspect
Banda Aceh              Marine incursions are                                    records.
                        prevented                Absence of visual evidence
                                                 and reports of flooding         Operators inspect
                        Storm water is           events associated with design   valves.
                        removed without          intensity events.
                        causing flooding                                         Institutional
                                                                                 strengthening is
                                                                                 effective.

                                                                                 Funding is sustainable.

                                                                                 Qualified staff are
                                                                                 recruited and retained.
Objective 4             Emergency Works are      Long-term, city wide            Long-term plan is
Integration of          hydraulically            drainage plan includes the      based on similar design



                                                  22
Emergency program          compatible with          Emergency Works         assumptions as
into long-term City        Long-term plan.          efficiently.            Emergency Works.
wide drainage system

Objective 5                Population in affected   Comparison of regular   Counter influences do
Economic recovery          areas.                   data/statistics sets:   not compromise
takes place facilitating                                 Population        beneficial effects of
investment                 GDP of population.            GDP               drainage system, e.g.
                                                         Investment        air pollution, slum
                           Investment in affected        Health            development, and
                           area.                                            economic disruption.

                           Illness and disease                              Other urban services
                           associated with water-                           are providedat
                           borne vectors.                                   appropriate levels e.g.
                                                                            roads, public transport,
                                                                            and commercial and
                                                                            leisure facilities.




                                                     23
                                   Annex 4: Implementation Arrangements

The Project will be located in Banda Aceh and will be under the supervision of a Steering
Committee that will include a representative from BRR and from the relevant provincial and city
agencies. A representative of Muslim Aid will also be a member. The committee will be chaired
by BRR.

The Implementation arrangements are shown schematically below:

                                  Project Implementation

                                      MDTF
                                                         Project Steering
                                                         Committee
                                  Special Account        (BRR, PU, MA)



    World Bank training               Project Implementation Unit                   Consultant Services


                    MA Financial                   MA Project           MA
                    Management System              Management           Procurement
                                                   Team                 Team
                    Financial Management
                    Reports                        Schedule             Committee
                                                   Social issues        Plan
                                                   Environmental
                                                   issues




                      Project Implementation – Contractors and Suppliers


MDTF = Multi Donor Trust Fund
BRR = Agency for Reconstruction of Aceh and Nias
PU = Public Works Department
MA = Muslim Aid




The Steering Committee will be responsible for:

        Ensuring good coordination between the Executing Agency and the government agencies
        facilitating communication between the executing agency, government agencies and the
         MDTFANS
        liaison with Government on behalf of the project
        media releases regarding the project
        for the project‘s overall compliance with all World Bank safeguards policies, anti-
         corruption procedures and policies, procurement policies, and sound financial
         management practices




                                                                   24
Project implementation will be the responsibility of the Project Implementation Unit (PIU). The
PIU will be in charge of the correct disbursement of funds and the control of the Special
Account. The PIU will be subjected to financial audit and will be evaluated by the
MDTFANS/World Bank supervision missions. The PIU will establish internal and ground level
checks and monitoring systems to assess project performance as well as involve local
stakeholders in project planning and review meetings.

Muslim Aid will appoint consultants to undertake the detailed design, prepare the bid documents,
prepare the environmental assessment and EMP, supervise and monitor the contractors and
provide institutional strengthening and training services. The consultant will report to
management of the PIU, who will be the head of MA‘s current program in Indonesia.

In addition to the roles mentioned above, BRR and PUs will have the following roles:

       Provincial and City Public Works Departments: Approval of all design proposals for the
        works.

       BRR: Coordination of all projects in this sector and area. BRR will also be responsible to
        work with local governments and MA to ensure the project is implemented in accordance
        with World Bank policies on Land Acquisition and Resettlement (World Bank OP 4.12).

Muslim Aid and the City of Banda Aceh have signed a Memorandum of Understanding (MOU)
dated May 10th 2005 covering the scope of the project. The MOU also covers exchange of
information, reporting, and indemnification of MA with respect to loss, damage, or injury and
second party liabilities. The MOU also sets standards for project delivery and procedures for
resolving disputes.

Monitoring and Evaluation of Outcomes/Results

Muslim Aid, with the assistance of the consulting firm hired under the project for engineering
and construction supervision, will be responsible to develop and implement a monitoring and
evaluation system for the project:

  (i)     Overall project implementation will be tracked suing the project‘s key development
          indicators. In addition, physical implementation progress, financial indicators, and
          system performance will be measured.

(ii)    Project social and environmental aspects: the framework for this is described in the social
and environmental assessments. The EMP will include a key monitoring indicator which will be
followed during project implementation by the supervision team and reported on regularly as
part of project reporting systems.

(iii) Effectiveness of the interventions in preventing flooding in the project area.

The project steering committee will be responsible for monitoring overall project
implementation.


                                                 25
                                       Annex 5: Project Costs

                                   Estimated Project Costs
                              Component and Expenditure Category

                                                                   Expenditure US $
                                                                    Category   Million
1. Urgent Tidal Flood Protection Program
Tidal Flow Control Values                                               G        0.075
Installation of Tidal Flow Control Valves                              CW         0.05
                                                        Subtotal                  0.12
2. Storm Water Flood Protection Program
Installation and purchase of pump and valve                            CW         3.27
Management, engineering, and construction supervision                  CS        0.785

                                                        Subtotal                  4.08
3. Implementation Support and Capacity Building
Program
Annul Audit                                                            CS         0.04
Local Specialists to Support PIU                                       CS         0.12
Training and workshops for Operators                                   CS          0.1
Financial Management System                                            CS         0.06
                                                        Subtotal                  0.30
                                                     Grand Total                  4.50
CS=Consulting Services; G=Goods; CW=Civil Works
All estimates include contingencies and taxes.




                                                26
                             Annex 6: Procurement Arrangements

General. Procurement for the proposed project would be carried out in accordance with the
World Bank‘s ―Guidelines: Procurement under IBRD Loans and IDA Credits‖ dated May 2004;
and ―Guidelines: Selection and Employment of Consultants by World Bank Borrowers‖ dated
May 2004, and the provisions stipulated in the Legal Agreement. The general description of
various items under different expenditure category is included below. For each contract to be
financed by the Grant from the MDTFANS, the different procurement methods or consultant
selection methods, estimated costs, prior review requirements, and time frame are agreed
between the Grant Recipient and the Bank project team in the Procurement Plan. This plan will
be updated at least annually or as required to reflect the actual project implementation needs and
improvements in institutional capacity.

Special Procurement Provisions. Considering the emergency nature of the project and to
accelerate the procurement process, the following special procurement provisions will be made:
   i)       The design and supervision consultant (est. contract amount USD 785,000) which is
            key to accelerate the design and procurement of the main rehabilitation works
            package will be selected through Selection Based on Consultant‘s Qualification
            (CQS) method.
   ii)      The main rehabilitation goods and works packages (total contract amount USD
            3,270,000) will be procured through National Competitive Bidding (NCB).
   iii)     The procurement of initial tidal flow valves (est. contract amount USD 75,000) will
            be procured through Shopping.
   iv)      There will be five procurement packages that will be procured prior to effectiveness
            of the Grant. These contracts will be funded on a retroactive finance basis. These are:
            a. A Technical Specialist to support PIU awarded to an Individual Consultant (IC),
            b. An accounting firm, selected through Single Source Selection (SSS),
            c. Design and Supervision Consultant, selected through CQS,
            d. Procurement of Tidal Flow Valves, procured using Shopping from international
                suppliers,
            e. Procurement of small works for the Tidal Flow Valves installation using
                Shopping.

Procurement of Goods. Goods procured under this project would include the immediate
procurement of approximately six tidal flow valves with an estimated contract amount of $
85,000. The procurement of this package will use Shopping method to accelerate the
procurement process and this package will be funded on a retroactive financing basis.
Additional tidal valves will be procured estimated to costs $470,000.

A model request for quotation for Shopping will be developed and approved by the Bank before
negotiations.

Procurement of Works. Works procured under this project, will include:




                                                27
   i)      Procurement of small works for the immediate installation of tidal flow valves with
           estimated contract amount of USD 50,000. This package will be procured through
           Shopping prior to effectiveness of the project on a retroactive finance basis.
   ii)     procurement of works for the main rehabilitation works for the drainage system. The
           estimated contract amounts for these package is USD 2,800,000 and will include the
           supply and installation of small pumps, motors, valves, etc. Considering the
           emergency nature of the project this package will be selected through NCB. Any
           interested foreign contractors will be allowed to participate.

A model bidding document for NCB and request for quotation for Shopping will be developed
and approved by the Bank before negotiations.

Selection of Consultants. Consultant services under this project will include:
    i) Consulting Services to Support PIU capacity, which consist of: a) an Individual
         Engineering and Procurement Specialist to assist in the engineering design of the
         immediate small works for flood control package, manage the four immediate
         procurement packages, and supervise the Design and Engineering Consultant firm during
         implementation, and b) an accounting firm to assist Muslim Aid in improving the PIU‘s
         financial management and accounting system. The accounting firm will be selected
         through Single Source Selection based on the emergency nature of the project and small
         value of the assignment. This package will be funded on a retroactive financing basis.
    ii) Design and Supervision Consultant Firm to initially design the specifications for the
         main works and then supervise the implementation of the main rehabilitation works. The
         estimated contract for this package is USD 785,000. However, due to its vital role in the
         project this package will be procured through CQS on an exceptional basis to accelerate
         the procurement process. A draft TOR of this package has been prepared by Muslim Aid
         and has been agreed in principle with the Bank. This package will be funded on a
         retroactive financing basis.
    iii) Consulting Firms for Annual Audit and Training and Workshops for operations of the
         Drainage System. Workshops and training will include events at national, provincial, and
         district level. Training courses will be conducted for capacity building of management,
         operation and maintenance of urban drainage systems. The Audit firm will be selected
         using Least Cost Selection (LCS) method and the Training and workshop consultant will
         be selected using CQS.

A simplified RFP document will be developed based on the Bank‘s standard RFP and will be
approved by the Bank before negotiations.

Assessment of the agency’s capacity to implement procurement. The Executing Agency is
Muslim Aid. Muslim Aid was established 20 years ago during the Ethiopian famine and now
operates in 50 countries. Muslim Aid United Kingdom is a registered charity with the Charities
Commission and Muslim Aid Australia is recognised by the Australian Government. Projects in
Sri Lanka and Indonesia are funded jointly by Muslim Aid United Kingdom and Muslim Aid
Australia. Muslim Aid has been involved in global reconstruction and relief efforts Muslim
Aid‘s Indonesian budget for 2006 is over 12 million USD. Muslim Aid‘s current work in Aceh is
primarily focused on housing and water and sanitation in Banda Aceh & Sabang, working with



                                               28
local governments in both areas. In addition, the financial skills needed in Muslim Aid for
underpinning implementation would be strengthened through on-going programs implemented
by the internationally experienced Faith Regan Foundation, their management advisers.

Muslim Aid‘s procurement capacity in Aceh is weak, with very limited procurement experience
of small purchases for office equipments and utensils, and procurement of seven works packages
under their housing program with contract amounts ranging from around USD 25,000 to USD
325,000, to build a total of 280 48 m2 type traditional Aceh houses. The Executing Agency in
Aceh does not have formal procurement guidelines. However, the procurement of works for the
housing program adopted the principle steps of a generic bidding process with advertisement,
pre-qualification (including meetings with firms), technical and financial evaluation,
negotiations/clarifications, and contract award. The procurement is conducted by a committee
consisting of the Housing Program Coordinator, the Financial and Accounting manager and the
Director. Muslim Aid Aceh has no designated procurement staff in their current organization. No
procurement filing system is in place and there are no standard procurement forms available. The
executing agency‘s very limited capacity to execute this project needs to be augmented.

Most of the issues/ risks concerning the procurement component for implementation of the
project have been identified and include: i) the procurement capacity of the executing agency and
their ability to develop specs and Bill of Quantities for the packages is weak and no procurement
staff is currently available, ii) the limited availability of goods and equipment in general in post-
tsunami Aceh, and the limited availability of specific goods, e.g. tidal flow valves, in the
country, iii) the need to deliver the project on a fast track basis, iii) the general procurement
environment is weak and collusive practices have been found in past projects at various levels.

The corrective measures which have been agreed are:

      Employment by Muslim Aid of a Technical Specialist to support the PIU in managing the
       procurement processes, and in particular the immediate procurement packages.
       Procurement capacity will be further increased once the Design and Supervision
       Consultant is on board, by having a contracts and procurement expert included in the
       consultant firm‘s team. The Design and Supervision consultant will be preparing the
       bidding documents with the supervision of the Engineering and Procurement Specialist.
      Model bidding documents for NCB, RFQ for Shopping, and RFP for Consultant Firm
       selection will be developed and agreed with the Bank.
      All packages that will be funded on a retroactive basis will be subject to prior review.
       Key equipments, e.g. tidal flow valves, will be procured internationally through
       Shopping;
      Specific Procurement provisions as elaborated above are made to deliver the works,
       goods and services quickly in response to the emergency nature of the project,
      Training of PIU staff on procurement will be provided by the World Bank at the earliest
       opportunity once the Engineering and Procurement Specialist is on board;
      To ensure transparency in the procurement process, enhanced procurement procedures
       will be included in the Grant Agreement which includes disclosure of procurement
       documents and information to the public promptly upon request.



                                                 29
 The overall project risk for procurement is ‘High’.

 Procurement Plan. A Procurement Plan for project implementation has been developed which
 provides the basis for the procurement methods and prior review requirements. This plan has
 been agreed between the Executing Agency and the Bank in November 2005, and is available in
 project file. The plan will also be available in the Project‘s database and in the Bank‘s external
 website. The Procurement Plan will be updated in agreement with the Project Team annually or
 as required to reflect the actual project implementation needs and improvements in institutional
 capacity.

 Frequency of Procurement Supervision. In addition to the prior review supervision to carried
 out from Bank offices, the capacity assessment of the executing agency recommends that field
 supervision will be carried out at least once every six months.

 Detail of the Procurement Arrangements

 (a) The following table explains the procurement arrangements under this project:

 1              2                 3             4             5           6                 7

No.         Description       #Packages    Procurement     Amount      Prior           Remarks
                                             Method         (USD)     Review
                                                                      by Bank

Implementation Procurement Packages
1      Specialist to Support PIU 3-4             IC        120,000       Yes     Retroactive Financing
2      Accounting Firm            1             SSS         60,000       Yes     Retroactive Financing
3      Design and Supervision     1             CQS        785,000       Yes     Retroactive Financing
       Consultant
4      Procurement of Small       1          Shopping      50,000        Yes     Retroactive Financing
       Works for Tidal Valves
       installation
5      Procurement of Tidal       1          Shopping      75,000        Yes     Retroactive Financing
       Flow Valves
Main Rehabilitation Works
6      Procurement of Civil       1            NCB        3,270,000      Yes     Including supply and
       Works for Drainage                                                        installation of pumps
       System Rehabilitation                                                     and valves
Audit and Training & Workshop Consultant Services
7      Annual Audit               1             LCS         40,000       No
8      Training and Workshops     1             CQS        100,000       No
       TOTAL                                              4,500,000


 (b) Prior review threshold for goods is $ 50,000 and works is $500,000 and for consulting firms
 is $100,000. For consulting contracts with individuals the prior review threshold is $50,000. All
 immediate procurement packages funded through retroactive financing will be subject to prior
 review.




                                                 30
(c) Short lists composed entirely of national consultants: Short lists of consultants for services
estimated to cost less than US$ 400,000 equivalent per contract, may be composed entirely of
national consultants in accordance with the provisions of paragraph 2.7 of the Consultant
Guidelines.




                                                 31
             Annex 7: Financial Management and Disbursement Arrangements


FINANCIAL MANAGEMENT ASSESSMENT SUMMARY

1.      Indonesia is one of the countries with the highest levels of corruption. The 2005
Transparency International Corruption Perceptions Index ranking dated October 18, 2005 places
Indonesia in position 137 out of 159 countries. The most corrupt countries often have weak
control environments and lack of transparency and accountability necessary to prevent misuse of
funds. In such high-risk environments, a set of fiduciary policies and procedures need to be set
up to ensure that proceeds of the grant are used only for the purposes intended, with due regard
to economy and efficiency. These policies include those relating to Procurement, Financial
Management and Disbursement. Financial management normally comes in at the end, and in a
corrupt environment, at this stage most of it is possible that the damage could have already taken
place - collusion in procurement and corrupt commitments may have been made.

2.      The purpose of the project‘s financial management assessment is to determine whether
the financial management system of the implementing agency is capable of producing timely,
understandable, relevant, and reliable financial information that would allow the Bank, other
donors and Government to monitor compliance with agreed procedures, and appraise progress
towards its objectives. The assessment aimed at ensuring that effective institutional risk
management arrangements are in place by project effectiveness.

3.     The project will be managed by MA (Muslim Aid) who is a branch of an International
NGO based in London. MA has just established its field office in Aceh 3-4 months ago. Banda
Aceh field office employs about 10 staff including senior finance officer and administration
supervisor (an accountant) and an assistant. The finance unit doesn‘t have an appropriate internal
control and accounting systems in place which result in weak control environment and lack of
transparency and accountability necessary to prevent misuses of funds. A brief of the findings
following financial management assessment is as follows:

4.     Risk management and internal control arrangements – There are a number of critical
weaknesses that must be addressed before such arrangements are considered acceptable. The
following institutional arrangements to address risk management concerns have been agreed by
Muslim Aid:

     (a) Outsourced of Funds management and accounting functions to an Accounting
         Firm (Financial Management Agent, FMA) – Owing to (i) the newly established of
         MA/Indonesia Aceh; (ii) the requirement for detailed review and approval of proposals
         to be funded; (iii) the need for timely follow-up of fund accountabilities; and (iv)
         requirement to collate large volumes of financial information for preparation of
         quarterly FMRs;

         FMA terms of reference - It is proposed that the mandate and functioning of the FMA
         will be provided by the Bank. Specific proposals comprise (i) fund accountability
         oversight function; (ii) prepare a quarterly FMRs to be submitted to the Bank; and (iii)
         prepare financial statement to be audited by an independent auditor.


                                               32
     (b) Internal auditor - An internal auditor will be recruited to oversight the activities of the
         accounting and internal control functions of the Muslim Aid. The auditor will also
         conduct independent risk management on an ongoing basis, monitoring compliance
         with laid down policies and procedures, and reviewing and recommending
         enhancement of accounting and internal controls. An internal auditor will provide copy
         of the reports to the Bank on a quarterly basis.


5.     Given this high risk environment, it is important that proactive and innovative control and
oversight functions are in place to address associated risks. The following practical arrangements
for public oversight are proposed:

         Anti-corruption hotlines including toll free communication lines should be established
         with explicit arrangements for collation of information, follow-up action and public
         reporting. It is proposed that collation and follow-up responsibilities are vested in
         Internal Audit arrangements and overseen by the MDTF Committee.

6.     Funds flow and accountability arrangements – There are a number of critical
weaknesses that must be addressed before such arrangements are considered acceptable under
proposed funding arrangements. These comprise:

     1. Accounting processes – FMA will be responsible for payment processing procedures
        with a view to improving efficiency, effective control and timeliness. Key
        considerations in the process will include (i) oversight functions from involvement in
        routine transaction processing to conducting independent reviews; (ii) developing
        effective accountability follow-up processes by consolidating the responsibility under
        the FMA.

     2. Operation of the Special Account -- About $3.3Million will be disbursed using direct
        payment procedure for civil work for drainage system rehabilitation. For the remaining
        balance, disbursement will be made on a transactional basis. Muslim Aid will establish
        a Special Account (SA) at a commercial bank in Banda Aceh, Indonesia which is
        capable of providing efficient payment and clearing facilities. The Bank would, upon
        request, make an authorized allocation of US$50,000. Use of direct payment method
        for disbursement will be maximized.

     3. Quarterly financial monitoring reporting will include the following: (i) Financial
        Reports, (ii) Physical progress (output monitoring) report and (iii) a procurement plan.

7.      Institutional and staffing arrangements – MA/Indonesia Aceh will be responsible for
the overall financial management of the project. Matters requiring attention in order to ensure the
establishment of reliable accounting and internal control systems include Outsourced of a
financial management and accounting to an Accounting Firm (FMA)




                                                33
8.      Annual financial reporting and independent audit arrangement -- The project will be
audited on an annual basis in accordance with international auditing standards by an independent
auditor acceptable to the Bank. The auditor's report will be made available to the Bank within
six months of the close of the fiscal year for the annual audit. The audits will include a separate
opinion on the SOE, the Special Account and project assets. The first audit will include a review
and commentary on the adequacy of internal controls and a post-review of any retroactive
expenditures. A qualified, independent firm, acceptable to the Bank, will be appointed as
external auditor within six months after grant agreement signing. The costs of annual audits will
be financed from the proceeds of the Grant.

9.      Financial management action plan – The outcome of this review is included in a
financial management improvement plan comprising actions to be completed prior to signing of
the grant and ongoing actions to be followed up during project implementation.

10.     Conclusion – The project financial management risk is assessed as being high. Overall
conclusion of the assessment is that with the implementation of the action plan, the proposed
financial management arrangements for the project satisfy the Bank‘s minimum requirements
under OP/BP10.02 and are adequate to provide, with reasonable assurance, accurate and timely
information on the status of the project required by the Bank.

Country issues

11.     The past deficiencies in Indonesia‘s PFM system have been well documented. While
donor led diagnostic studies such as the CFAA of 2001 and various IMF reports over the past six
to eight years have outlined these deficiencies in some detail the problems have also been
generally well understood by the Indonesian authorities. But the will and commitment to reform
(rather than the capacity to reform) had been lacking. The major acknowledged deficiencies have
been:

   -   an outdated legal environment for PFM
   -   an opaque and inefficient budget formulation process, including the dividing of the
       budget into separate recurrent and development budgets administered by different
       agencies (MOF and Bappenas respectively)
   -   difficulties in implementing the budget, due to an inefficient payments system and weak
       monitoring arrangements
   -   Fragmented cash management and government banking arrangements
   -   fragmented and unreliable accounting and reporting systems.
   -   inadequate auditing of government finances, reflecting unclear roles and responsibilities
       in external and internal auditing arrangements and some lack of capacity in audit
       institutions

12.     Recent PFM reforms in Indonesia have been part of a broader reform agenda of
macroeconomic stability set out in the EPP or White Paper of 2001. A Financial Management
Reform Committee (FMRC) was established in November 2001 to oversee and coordinate PFM
reforms and produced a White Paper on PFM reform in May 2003. The Government has
articulated an objective of having a ―state of the art‖ PFM system by 2008. The Indonesia PFM


                                                34
reform agenda is thus clearly led by the Government, but with technical support being provided
by a range of donors – World Bank, IMF and Asian Development Bank being the main players.

13.     Major progress has occurred in establishing the legal framework for improved PFM, and
in the restructuring of MOF. Other important changes in the classification and structure of the
budget also occurred in 2005 budget.

FINANCIAL MANAGEMENT SYSTEMS

14.     Internal controls and financial management guidelines – The project‘s internal
controls are based on the FMA‘s established accounting and internal control systems and
documented in the financial operations manual and guidelines. The manual is to be drafted and
will be subject to review by the World Bank FMS prior to signing of the grant.

15.     Planning and budgeting –The proposed periodic reporting guidelines require periodic
activity, cash flow and procurement projection, analysis and review on an ongoing basis,
included in quarterly FMRs.

16.    Books of account – The project‘s accounting records will be maintained by the FMA.

AUDIT ARRANGEMENTS

17.     Internal audit -- An internal auditor responsible for oversight of the activities of the
accounting and internal control functions of the MA/Indonesia Aceh will be recruited. The
auditor will also conduct independent risk management on an ongoing basis, monitoring
compliance with laid down policies and procedures, and reviewing and recommending
enhancement of accounting and internal controls. An internal auditor will provide copy of the
reports to the Bank on a quarterly basis.

18.     External audit -- The project will be audited on an annual basis in accordance with
international auditing standards by an independent auditor acceptable to the Bank. An auditor is
implicitly expected to assess the project implementing agency‘s internal control arrangements
over financial reporting. Audits are also expected to evaluate and confirm that all project
disbursements have been for expenditures that were eligible for financing. However, financial
statement audits are not meant to identify fraud and corruption, which require different auditing
skills and methodology, but financial audits are the only authorized instrument we have to work
with. In this context, some suggestions could be emphasized: Enlarge Audit terms of reference
by seeking a specific assertion on the adequacy of project internal control systems and their
satisfactory operation during the period under review. The Bank funding agreements require the
submission of audited financial statements, taking into consideration the 2003 Audit Policy
Guidelines of the World Bank, within six months after the year-end. The audits will include a
separate opinion on the SOE, the Special Account and project assets. The first audit will include
a review and commentary on the adequacy of internal controls and a post-review of any
retroactive expenditures.




                                               35
A qualified, independent firm, acceptable to the Bank, will be appointed as external auditor
within six months after grant agreement signing. The costs of annual audits will be financed from
the proceeds of the Grant.

Reporting and monitoring

19.     Financial monitoring reports – The form and content of periodic financial monitoring
reports (FMRs) will be developed and agreed ahead of signing of the grant. Primary contents of
quarterly FMRs will comprise (i) Financial Reports, including a statement of sources and uses of
funds by funding source, a statement of uses of funds by project activity/component; and fund
balance statements supported by bank statements (ii) Physical progress (output monitoring)
report and (iii) a procurement plan and progress report. FMRs will cover all project activities,
including MA counterpart funding, resources provided by other Development Partners (if any)
and non-cash contributions wherever reasonably quantifiable.

20.    Annual financial statements – MA/Indonesia Aceh financial statements shall be
prepared in accordance with International Accounting Standards. Indicative formats of financial
statements will be agreed ahead of signing of the grant.

IMPLEMENTATION SUPPORT PLAN

21.     Implementation support missions by the Bank will be conducted at least every six
months. The mission‘s objectives will include that of ensuring that strong financial management
systems are maintained for the project throughout its life. In addition, Statement of Expenditure
reviews will be carried out regularly to ensure that expenditures incurred by the project remain
eligible.

1.     B      DISBURSEMENT ARRANGEMENTS

22.     Requests for disbursement by the Bank for activities to be financed will be made using
the transaction based mechanism. Another acceptable method of withdrawing funds under this
arrangement is the direct payment method, involving direct payments to suppliers for works,
goods and services upon request from the executing agency (MA). Payments may also be made
to a commercial bank for expenditures against pre-agreed special commitments. The
Disbursement Letter will stipulate the minimum application value for direct payment and special
commitment procedures.

23.     About $3.3Million will be disbursed using direct payment procedure for civil work for
drainage system rehabilitation. For the remaining balance, disbursement will be made on a
transactional basis. Muslim Aid will establish a Special Account (SA) at a commercial bank in
Banda Aceh, Indonesia which is capable of providing efficient payment and clearing facilities.

24.     The Bank would, upon request, make an authorized allocation of US$50,000. The SA
will be maintained by the project implementation unit. These amounts would be used only for the
purposes of the project to cover its project expenditures.



                                               36
25.     Subsequent replenishment of the Special Account will be based on Withdrawal
Applications supported by statement of expenditures (SOEs) for (a) goods, (b) services of
consulting firms costing less than US$100,000 equivalent per contract, (c) of individual
consultants costing less than US$50,000 equivalent per contract; (d) training and workshops, and
(e) incremental operating costs.

26.     Supporting documents will be maintained by the project implementation team, and made
available to the Bank's visiting missions and auditors as required. The project implementation
unit will also prepare and provide to the bank its quarterly reports on implementation progress
along with Financial Monitoring Reports (FMRs) in formats agreed with the Bank. The FMRs
will be used for monitoring purposes.

27.    Preparation and presentation of FMRs will be required regardless of the selected method
of funding disbursement.

Retroactive Financing

28.    Retroactive financing of up to US$450,000 would be available for eligible expenditures
incurred since November 15, 2005, which is the date of completion of the Bank's appraisal,
provided they comply with the agreed procurement guidelines. In addition, documentation
requirements for expenditures claimed under retroactive financing are the same as those for
disbursement against payments made after the Grant Agreement is signed. This Retroactive
financing provision would allow for the Grant to cover initial setup costs for the PIU, hiring of
consultants, and for the implementation of the required steps for grant agreement signing,
including development of the financial management system.

REMEDIES

29.    If ineligible expenditures are found to have been made from the Special Account, the
executing agency will be obligated to refund the same. If Special Account remains inactive for
more than six months, the Bank may reduce the amount advanced.

30.    The Bank will have the right, as to be reflected in the Grant agreement, to suspend
disbursement of the funds if significant terms of the Grant agreements, including reporting
requirements, are not complied with.

2.       C       OVERALL RISK ASSESSMENT

31.      SUMMARY OF POSSIBLE RISKS AND AGREED MITIGATING ARRANGEMENTS

      Possible   Risk   in Rating Agreed Mitigating arrangements             Rating
      Aceh                                                                   with
                                                                             mitigation
 1 Misuse      of    and H         Outsourcing of accounting and reporting M
   failure to account              functions. FMA will provide pre-audit
   for project funds               verification of all payments in excess of



                                                37
                                    $10,000.


                                    Public disclosure of audit report and anti-
                                    corruption initiatives as outlined in the
                                    Anti-corruption Action Plan.
 2 Ineffective     audit H          Inclusion of internal audit function into M
   functions                        FMA‘s TORs and employ professional
                                    best practices.
 3 Political             S   Off-budget implementation by Muslim M
   involvement        in     Aid.
   funds flow process
3.    RISK RATING - H (HIGH RISK), S (SUBSTANTIAL RISK), M (MODERATE RISK)

OVERALL RISK ASSESSMENT:

32.    The project‘s overall risk assessment and summary of mitigating measures is as follows:

 Type of Risk                   Risk        Risk Mitigating Measures
                                Rating
 Inherent Risk
 1. Corruption                  S           Anti-corruption hotlines including toll free
                                            communication lines should be established with
                                            explicit arrangements for collation of information,
                                            follow-up action and public reporting. It is
                                            proposed      that  collation     and     follow-up
                                            responsibilities are vested in Internal Audit
                                            arrangements and overseen by the MDTF
                                            Committee.

 2. Weak management             H           - Effective internal audit, risk management
    capacity.                               function and effective oversight.
                                            - Outsourcing of financial management and
                                            accounting functions. Introduction of accounting
                                            oversight and payment function at MA/Indonesia
                                            Aceh.

 Overall Inherent Risk          H

 Control Risk
 1. Implementing entities       H           Risks arise from poor control environment. Risk
                                            mitigation possible through clear Internal Control
                                            Arrangements, Financial Management and
                                            Accounting Procedures.

 2. Funds flow                  S           Risk mitigation possible through pre-audit
                                            verification by FMA of all payments in excess of
                                            $10,000.
 3. Staffing                    H           Risks arise from weak staff capacity. Permanent


                                                 38
                                         staff have only six months contract. Risk
                                         mitigation possible through outsourcing of
                                         internal audit and accounting functions.
 4. Accounting policies and    H         Risks arise from lack of project‘s FM manual.
    procedures                           FMA will draft financial management and
                                         accounting procedures.

 5. Internal audit             H         Risks arise from lack of internal control
                                         arrangements. Effective internal audit function in
                                         place, accounting and auditing firm (FMA)
                                         recruited with TORs acceptable to the Bank.

 6. Externat audit             S         The project will be audited by an Independent
                                         Auditing Firm.

 7. Reporting and monitoring   S         Risks arise from lack of reporting and monitoring
                                         systems in implementing agency. A Financial
                                         Monitoring and Reporting will be prepared by the
                                         FMA.

 8. Information systems        S         MA/Indonesia Aceh existing systems are assessed
                                         as insufficiently capable of accounting and
                                         reporting for project activities.

 Overall Control Risk          H

The project financial management risk is assessed as being high. Overall conclusion of the
assessment is that with the implementation of the following action plan, the proposed financial
management arrangements for the project satisfy the Bank‘s minimum requirements under
OP/BP10.02 and are adequate to provide, with reasonable assurance, accurate and timely
information on the status of the project required by the Bank.
                                              4.
               5.      D       FINANCIAL MANAGEMENT ACTION PLAN

33.    Actions agreed prior to signing of the grant agreement:
                                            Action
 1    Financial Management Agent contracting completed on agreed terms of
      reference.
 2    Financial Management Manual related to the Bank‘s procedures, approved by the
      Bank‘s FMS, Annual and quarterly reporting (FMRs) formats agreed.
 3    Internal Control procedures in place.

Actions required following signing of the grant agreement:
                                            Action
 1    Selection of an auditor with TOR approved by the Bank completed not later than
      six months after the grant agreement is signed.




                                              39
                                      Annex 8: Safeguards
Environment

The project area is located in North Sumatra, and is visually dominated by a mountain ridge
extending west to southeast. The coastal plains have been developed in the area and Banda Aceh
City has been urbanized. There are no national parks near the project area. There is one cultural
landmark, Syiah Kuala Tomb; however, it is located well outside of the project area on the
seacoast. The terrestrial ecosystem in the project area is common to other urbanized areas of
Indonesia.

The mangrove areas in and around Banda Aceh were cleared prior to the tsunami and converted
into fish or shrimp ponds, leaving mangrove areas only in shallow lagoons or near river mouths.
While no quantitative data are available, the mangrove areas in Banda Aceh were almost
completely destroyed. Mangrove reclamation projects have already been undertaken within the
devastated areas of the city, and creation of a coastal zone mangrove belt is part of the
rehabilitation and construction master plan for disaster mitigation. There project is not located in
the coastal zone slated for mangrove forest establishment. Moreover, the majority of the project
works would consist of rehabilitation of existing structures and would not impact mangrove
reclamation projects.

Most of the city of Banda Aceh is built on a coastal flood plain which is liable to flooding from
three sources: From high spring tides, from floods in the rivers which overtop the levee banks
and from local flooding due to extreme rainfall events. The destruction of the flood relief
gates/valves and pumping stations has resulted in periodic flooding of low lying areas in Banda
Aceh. The flooding has been made worse because Banda Aceh has sunk an estimated 30 to 40
cm as a result of the land movement caused by the massive earthquakes. Over 50% of Banda
Aceh city is liable to flooding from extreme tidal or extreme rainfall events.

Major floods occur in Banda Aceh due to high tides flooding low lying areas and due to sheet
flooding from spillover from the Aceh River [Kreung Aceh] and other rivers running through
Banda Aceh as a result of extreme rainfall events. Major floods have occurred on average every
7 years: 1953, 1971, 1978 (twice), 1986, 2000 and 2002. Thus Banda Aceh could get a major
flood this year or next year. The flood in 2000 lasted 15 days and flooded over 60% of Banda
Aceh. Apart from these major floods there are annual flood events. The flood gates and pumping
stations were installed gradually step by step to minimize flooding. Pumps were installed starting
with one in 1978, then 5 in 1984-5, 2 in 1994, 6 in 1995-6 and 2 in 2000.

Now that most of the flood gates and pumps have been destroyed or damaged they are no longer
effective, and Banda Aceh is liable to widespread, major flooding.

Muslim Aid reports that level runs have been made to verify that the system will work once
restored. The design storm used was the 20-year return, since there is not much difference in
rainfall from the 50-year storm (unlike temperate climates).

Environmental Assessment



                                                40
The project does not trigger Indonesian EIA requirements. If new retention ponds were to be
built, then an EIA would be required. No new retention ponds are planned in this project.

Six check valves will be installed to replace damaged valves at the existing tide control structure
between Meuraxa and Kuta Raja. These replace pre-existing damaged structures; therefore the
work will be done on an emergency basis prior to a ―b‖ category EA. As part of the project
Integrated TA, a focused EA with an EMP will be developed as a condition of Contractor
mobilization for the balance of the works. This EA will be disclosed and a public consultation
meeting will be held.

Project Alternatives:

The no action alternative will result in the increased risk of a waterborne disease epidemic in a
vulnerable population struggling to rebuild after a devastating natural disaster.

Project Impacts:

The large scale impact of the project would be the alleviation of chronic flooding in the urban
area of Banda Aceh. The flood waters are contaminated by septic discharge due to destruction of
the septic sludge treatment facility and breakdown of the city‘s septic tank maintenance system
of pump trucks. There is now direct discharge from septic tanks into the drainage ways that are
prone to flooding. Control of the contaminated water flooding residential areas, temporary tent
camps of the homeless and other sensitive receptors would permanently improve this public
health risk. It is reported that flood waters are often knee-deep in the temporary tent sites of the
homeless.

Drainage would also reduce proliferation of disease vectors; malaria and dengue fever are
endemic in the area. Effective vector control would require that the drains be cleaned to
completely prevent pooling of water. The dengue mosquito vector will breed in the smallest
puddles.

Construction impacts could include: disruption of traffic flow, dust, noise, disposal of spoils
from drainage ditch cleaning and disposal of hazardous materials such as crankcase oil from
heavy equipment maintenance. As part of the project Integrated TA, a focused EA with an EMP
to cover the construction impacts listed above will be developed as a condition of Contractor
mobilization.

Operations impacts could include: contamination of receiving water with septage effluent,
lowering of the surficial aquifer (draining flooded land), and a change back to the (pre-tsunami)
regime of rainfall and river recharge of the surficial aquifer.

Contamination of Receiving Water with Septage Effluent: This project is an emergency action,
and only represents the beginning of implementation of a developing plan that includes
installation of sewers and wastewater treatment facilities (see anticipated future projects below).




                                                41
Lowering of the Surficial Aquifer: The current flooded conditions make the reconstruction of
much of the urban area impossible. A drainage program that would lower the water table to pre-
tsunami levels will enable reconstruction.

Saline Recharge from Tidal Flooding: Seawater from tidal flooding has brought saline water into
the recharge zones of the surficial aquifer. This aquifer is used locally for supply from
tubewells. Removal of saline water recharge of the surficial aquifer through control of tidal
seawater flooding will remove this source of salinization of the surficial wells experienced in the
area.

Anticipated Future Projects:

The Emergency Rehabilitation of the Drainage System for Banda Aceh will be integrated with
the City Master Drainage Plan. The JICA Study on Urgent Rehabilitation and Reconstruction
Support for Banda Aceh details plans for a sewage system and wastewater treatment facilities
(implementation after 2009). JICA has committed to rehabilitate the damaged wastewater
(septage sludge) treatment plant as an urgent measure (2005). Additional septage treatment
work is planned by JICA for service in 2007.

Construction of Pump Stations and Flow Control Structures: Six check valves will be
installed to replace damaged valves at the existing tide control structure between Meuraxa and
Kuta Raja. These replace pre-existing damaged structures; therefore the work will be done on an
emergency basis prior to a ―b‖ category EA. As part of the project Integrated TA, a focused EA
with an EMP will be developed as a condition of Contractor mobilization for the balance of the
works. This EA will be disclosed and a public consultation meeting will be held.

6. Social

39.     The majority of the social impacts of the project will be positive. Any negative aspects
arising will be handled during the development of the project through ongoing monitoring by the
supervision team (PIU and consultant) and Bank. There are expected to be only minor negative
social impacts related to the need to acquire four small plots (about 100 square meters each) of
private land to install new pumping stations. This land will be purchased by the city
government following World Bank and GoI policies based on the Policy Framework in Annex 9.

40.     A Policy Framework for Land Acquisition and Resettlement (PF) has been developed and
agreed for the project (see Annex 9). The City Government of Banda Aceh has substantial
experience in land acquisition based on GOI regulations of Keppres 55/1993 and Perpres No.
36/2005, but limited experience in carrying out land acquisition in accordance with the World
Bank Resettlement Policy. A Tim Pengadaan/Pembebasan Tanah (Land Acquisition Team) and
a Tim Penilai Tanah (Land Assessment Team) were established by the City in 2005 in response
to Presidential Regulation No. 36/2005 on the Land Acquisition for the Development for the
Public Purposes. This team will be responsible for land acquisition under the project under the
oversight of BRR and the project Steering Committee. The City Government of Banda Aceh has
agreed to make the budget required for land acquisition under the project available in FY 2006.




                                                42
If the land is not made available by the time of signature of the contract for civil works, the new
pumping stations will be dropped from the project.

41.     A land acquisition/resettlement expert will be hired to support the PIU, particularly in the
early stage of the project. This consultant will provide training for the City Public Works
Agency, as well as the Land Acquisition and Land Assessment Teams as needed. This expert
will also monitor the project to ensure that this Policy Framework is implemented. The expert
will also prepare a report for the PIU, the Executing Agency and the Steering Committee on
implementation of the framework.




                                                 43
            Annex 9: Policy Framework for Land Acquisition and Resettlement

a.    Definitions

The definitions used in this Policy Framework are:

a) "Census" means the head count of those persons under a proposed sub-project that qualify as
   Displaced Persons. The date of the Census is the latest cut-off point to record the persons in
   the sub-project area that will receive compensation, resettlement and/or removal and
   rehabilitation assistance.
b) ―Compensation‖ means the compensation at replacement cost as determined in Section c of
   this Framework given in exchange for the taking of land and building, in whole or in part,
   and all fixed assets on the land and buildings and crops and trees.
c) ―Land acquisition‖ means an activity that requires obtaining land, buildings or other assets
   from Displaced Persons for purposes of the sub-project against provision of compensation
   and assistance.
d) ―Displaced Persons‖, in this Project is the land owners, means persons who, on account of
   the involuntary taking of land and other assets as part of the execution of the sub-project
   resulting in a direct economic and social adverse impact, whether or not said Displaced
   Persons must physically relocate, had or would have their: (i) standard of living adversely
   affected; (ii) right, title, interest in any house, land (including premises, agricultural and
   grazing land) or any other physical asset acquired or possessed, temporarily or permanently,
   adversely affected; (iii) access to productive assets adversely affected, temporarily or
   permanently; or (iv) business, occupation, work or place of residence or habitat adversely
   affected; and ―Displaced Person‖ means any of the Displaced Persons;
e) ―Physically Displaced Persons‖ means persons who are forced to move from their previous
   location because (i) all or a significant portion (50% or more) of their land or buildings are
   affected by the sub-project; or (ii) less than 50% of their land or buildings are affected by the
   sub-project if the remaining portion is not economically viable or habitable.
f) ―Rehabilitation Assistance‖ means the provision of cash or assets or other forms of support to
   enable Displaced Persons without legal rights to the assets taken by the Project to at least
   equal or improve their standard of living, income levels and production capacity to the level
   prior to the project.
g) ―Resettlement‖ means an effort /activity to relocate the Displaced Persons into a good new
   settlement so that they can develop a better life.
h) ―Involuntary Displacement‖ means any of the following actions, when they occur without the
   Displaced Person‘s informed consent or power of choice; (a) the taking of land resulting in:
   (i) relocation or loss of shelter; (ii) lost assets or access to assets; or (iii) loss of income
   sources or means of livelihood, whether or not the Displaced Person must move to another
   location; or (b) the involuntary restriction of access to legally designated parks and protected
   areas resulting in adverse impacts on the livelihoods of the displaced.
i) ―Sub-project‖ means a specific infrastructure investment project carried out with funds from
   the Project.

b.     Principles




                                                44
   The sub-projects, in this case, the four new pumping facilities, should minimize land and
    asset acquisition and involuntary displacement. The sub-projects should explore viable
    alternative designs or sites to minimize land and asset acquisition and displacement.
   The Project will use a transparent and participatory process to ensure that the land owners or
    the project affected persons agree on the proposed sub-projects that involve land acquisition
    or resettlement and agree upon the scheme and level of compensation.
   The Project should provide land owners of various options of the compensation schemes. The
    compensation costs will be covered by the GOI as the recipient of the MDTFANS. As the
    City of Banda Aceh is the beneficiary of the Project, the City Government of Banda Aceh
    will have to cover the compensation costs.
   In accordance with traditional practice, land owners may elect to voluntarily contribute land
    or assets. Voluntary in this context will mean the donation or granting of land and other
    assets with the full knowledge of the purposes for which the asset is being made available
    and the economic, social and legal consequences that such an act would have on the person
    providing the asset and which act is exercised freely and voluntarily, without any type of
    cohesion.
   The land owners should be assisted in their efforts to improve their livelihoods and standards
    of the living or at least to restore them, in real terms, to pre-displacement levels or to the
    levels prevailing prior to the beginning of the project implementation, whichever is higher.
   The land owners have the right to receive real replacement cost compensation. Real
    replacement cost means:

    a) for land in urban areas, the pre-displacement market value of land of equal size and use,
       with similar or improved public infrastructure facilities and services and located in the
       vicinity of the affected land, plus the cost of any registration and transfer taxes;

       b)      for agricultural land, the pre-sub-project or pre-displacement, whichever is higher,
       market value of land of equal productive potential or use located in the vicinity of the
       affected land, plus the cost of land preparation to levels similar to those of affected land,
       plus the cost of any registration and transfer taxes; and

    c) for houses and other structures, the market cost of the materials to build a replacement
       structure, or to repair a partially affected structure, plus the cost of transporting building
       materials to the construction site, plus the cost of any labor and contractors‘ fees, plus the
       cost of any registration and transfer taxes. In determining the replacement cost,
       depreciation of the asset and the value of salvage materials are not taken into account, nor
       the value of benefits to be derived from the sub-project deducted from the valuation of an
       affected asset. Compensation for trees, crops and other assets will be based on the
       replacement value using existing market prices per tree prepared by relevant agencies.

    d) Land owners whose: (i) remaining land and buildings cannot be used for housing or
       works; or (ii) whose remaining land is less than 60 sq meters; or (iii) whose remaining
       agricultural land is less than 50% of its initial size or is not economically viable; or (iv)
       whose remaining building is less than 21 sq meters; have the option of being included as
       Physically Displaced Persons and compensated for the taking of the affected asset.
       Displaced Persons whose remaining land is less than 60 sq meters and remaining building


                                                 45
        is less than 21 sq meters, will have an option to move to a new lot of 60 sq meters and
        building of 21 sq meters. They will be provided with compensation for the difference in
        area between what they lost and what is being provided to them.

d.      Framework

       The Project will have to acquire land/assets from a few land owners in each of the four
sites where the new pumping stations will be installed. In this situation, the City Government of
Banda Aceh will carry out the following:

    Prepare a simple agreement between them and the Displaced Persons (DP) which covers:
     agreement of the sub-project proposal, the location of the sub-project site; description of the
     investments that require land; the land area needed; the number, names and addresses of land
     owners including the land plot owned by each land owners that are affected by the sub-
     projects; the buildings, crops/trees and other assets affected by the sub-projects; the agreed
     scheme and compensation level as well as timing of payment; sources and timing of the
     budget availability; and, certification scheme for the remaining land area for the land owners.
    In cases where voluntary contributions of land or assets are indicated, clearly agreed and
     included in the agreement with all Displaced Persons: the name(s) of the contributor(s) and
     details of the contribution(s), verified by the PIU with the assistance of the TA Consultant.
     The agreement should state the rationale for the contribution and the fact that the person had
     the choice of not providing the asset. In the case of involuntary contribution, the agreement
     should include the manner followed for valuation of the assets, and this must be in
     compliance with Section c above.
    The details of both voluntary and involuntary schemes of land acquisition will be verified by
     the PIU with the assistant of the TA Consultant. In the event that no consensus has been
     reached on the form and amount of compensation, the sub-project will not be considered for
     financing.
    No Displaced Persons shall have their land or other assets taken before they have received
     the compensation and the resettlement site, if that is the case, as agreed upon and detailed in
     the sub-project proposal
    Payment of compensation, displacement of people, or preparation of a resettlement site as
     agreed upon should be completed before the construction of the respective sub-project is
     started.
    The agreement is to be made through a participatory and transparent process.

e.      Consultation, Complaint Handling Mechanisms and Monitoring

    The PIU, with the assistance of the TA Consultant, will ensure that sufficient
     consultation/negotiation is taking place during the land acquisition process.
    The DP or land owners will file complaints to the Mayor of Kota Banda Aceh through the
     PIU/TA Consultant if the land acquisition process is not properly carried out or if the
     agreement reached does not properly materialize.
    The PIU/TA Consultant will monitor consultation/negotiations during the land acquisition
     process and the implementation progress of the agreement between the City Government of
     Banda Aceh and the DP/land owners.


                                                 46
    In the case that Mayor is unable to resolve the complaints, the Project will report and ask
     facilitation from the BRR as part of the Steering Committee. If no resolution is reached, then
     the Project can not finance the proposed sub-project.

f.      Implementing Institution and Capacity Building

        The City Government of Banda Aceh, particularly the Public Works Agency, has limited
experience in carrying out land acquisition in accordance with the World Bank Resettlement
Policy as reflected in this framework, despite experience in land acquisition based on GOI
regulations of Keppres 55/1993 and Perpres No. 36/2005. A Tim Pengadaan/Pembebasan Tanah
(Land Acquisition Team) and a Tim Penilai Tanah (Land Assessment Team) have been
established by the City of Kota Banda Aceh as a follow up of the Presidential Regulation No.
36/2005 on the Land Acqusition for the Development for the Public Purposes. The Executing
Agency, Muslim Aid, may have experience in the process. There is a need to have a land
acquisition/resettlement expert in the TA Consultant team, particularly in the early stage of
Project preparation. Training for the Public Works Agency as well as the Land Acquisition and
Land Assessment Teams may be needed. This expert will help the Project to ensure that this
framework is implemented. The expert will also prepare a report for the PIU, the Executing
Agency and the Steering Committee on implementation of the framework.

g.      Time Frame

        The agreement between the City Government of Banda Aceh and the DPs/land owners
shall be completed prior to negotiation of the MDTFANS grant for this Project. Based on this
agreement, the City Government of Banda Aceh shall ensure that the budget for compensation is
available in the FY 2006.




                                                 47
                           Annex 10: Anti-Corruption Action Plan

Muslim Aid and BRR have jointly developed the following action plan with the objective to
reduce the potential for corruption, ensure proper control and accountability for project
funds, and raise public awareness and involvement during implementation of the project.

1. Enhanced disclosure provisions

i.         All project audit reports, bidding documents, and monthly implementation progress
           reports will be posted on the BRR‘s recovery and reconstruction web-site www.e-
           aceh-nias.org and the UN‘s web-site for reconstruction, www.humanitariainfo.org.

ii.        At least once per month, a representative of the Project Steering Committee (or
           Muslim Aid, if other members are unwilling or unavailable) will provide a short
           presentation of project progress at the regular ―Shelter Coordinating Meetings‖ in
           Aceh.

iii.       Muslim Aid will, not less than four times per year, prepare and provide to NGOs,
           communities involved in the project, and local press agencies, a short ―newsletter‖
           providing a summary of current and upcoming project activities and achievements.
           The Newsletter will include the location where further information can be found and
           contact information for relevant project officials.

2. Civil society oversight

      i.   Muslim Aid will establish a procurement committee to carry out procurement under
           the project. This committee will include at least one observer from civil society and
           at least one end-user/affected community representative (e.g. respected religious
           figure or traditional leader). These observers will not participate in the procurement
           process, but act as observers of the process.

     ii.   At least once every three months, Muslim Aid will arrange a project monitoring site
           visit that will include least one civil society group.

3. Complaints handling mechanism.

      i.   The BRR‘s existing complaints handling system will be used as the primary means of
           receiving and tracking complaints related to the project. The Project Steering
           Committee will be provided a regular monthly report on the status of any complaints
           received, their status, and/or resolution.

     ii.   Complaints from bidders or suppliers requiring further investigation will be handled
           by the BRR team established to investigate such complaints.

 iii.      For complaints that involve community disputes, or require other follow-up at the
           community-level, BRR will make available one of its staff to act as a



                                                48
        ―troubleshooter‖ who will visit locations and attempt to settle such disputes, if
        possible. This person will make written reports back to the Project Steering
        Committee and BRR management on the resolution or need for further follow up on
        such matters.

4. Policies to mitigate chances of collusion

   i.   Muslim Aid will hire a specialist to support the PIU in managing the procurement
        processes and assist the function of the procurement committee. The specialist will
        help ensure that the relevant elements of the ACAP are carried out.

 ii.    Model bidding documents will be developed and agreed with the Bank. These will be
        used for all procurement under the project
 iii.   Muslim Aid will be allowed to carry out the procurement process under the project
        using ―off budget‖ procedures, without interference from political interests.

5. Mitigation of fraud and forgery risks

   i.   The accounting and reporting functions related to financial management will be
        outsourced to a professional Financial Management Agent (FMA) acceptable to IDA.

 ii.    The FMA will provide pre-audit verification of all payments in excess of $10,000.

 iii.   All financial audit reports will be publicly disclosed

 iv.    The FMA will establish internal audit procedures to monitor project expenditures

  v.    The use of direct payment proceeds will be maximized.

6 Sanctions and remedies.

   i.   Any persons allegedly involved in the misuse of authority and/or trust in respect of
        the management of the project will be subject to audit and investigation by the BRR
        anti-corruption teams and/or the World Bank‘s Department of Institutional Integrity
        (INT).

 ii.    If substantiated, sanctions will be imposed in accordance with Bank Guidelines
        and/or Indonesia law.

 iii.   Muslim Aid will be responsible to ensure proper use of project funds. Funds found to
        have been used for purposes other than those intended under the project will be
        refunded to the Project Account by Muslim Aid.




                                             49
                        Annex 11: Project Preparation and Supervision



                                                    Planned                  Actual
Project Concept Review by MDTF                November 3, 2005           November 8, 2005
Initial PID to PIC                            December 15, 2005
Initial ISDS to PIC                           December 15, 2005
Appraisal                                     November 15, 2005          November 15, 2005
Board/RVP approval                             January 15, 2006
Planned date of effectiveness                 February 15, 2006
Planned closing date                             June 30, 2008

Key institutions responsible for preparation of the project:

1.     Agency for the Reconstruction of Aceh and Nias (BRR)
2.     Muslim Aid, Indonesia Office
3.     World Bank

Bank staff and consultants who worked on the project included:

Name                                                  Title                       Unit
Jerry Lebo                Task Team Leader                                       EASTR
Anirudda Dasgupta         Lead Urban Planner                                     EASUR
Geoffrey Read             Municipal Infrastructure Spec. (consultant)            EASUR
Agnes Albert-Loth         Senior Finance Officer                                 EAPCO
Iraj Talai                Manager, Financial Management                          EAPCO
Imad Saleh                Lead Procurement Specialist                            EAPCO
Firman Dharmawan          Procurement Specialist                                 EAPCO
Indira Dharmapatni        Sr. Operations Officer (resettlement/social)           EASUR
Melinda Good              Counsel                                                LEGEA
Alfred Picardi            Environmental Specialist (consultant)                  EASUR
Andre Bald                Operations Officer (consultant)                        EASUR
Alun Phillips             Infrastructure Specialist (consultant)                 EASTR
John Smithson             Urban Drainage Specialist (consultant)                 EASUR
Raja Iyer                 Quality Control Reviewer                               EASUR
Hatim Hajj                Reviewer                                               EASTR

Bank funds expended to date on project preparation:
   1. Bank resources:       $45,000
   2. Trust funds:          $150,000
   3. Total:                $195,000

Estimated Approval and Supervision costs:
    1. Remaining costs to approval: $50,000
    2. Estimated annual supervision cost: $65,000 per year



                                                 50
                      Annex 12: Documents in the Project File
1.   World Bank, Procurement Capacity Assessment of Muslim Aid, Indonesia, Dated
     November 2005
2.   World Bank, Financial Management Assessment of Muslim Aid, Indonesia, Dated
     November 2005
3.   Japan International Cooperation Agency (JICA), Urgent Rehabilitation and
     Reconstruction Plan for Banda Aceh City, Dated August 2005.
4.   Muslim Aid, Project Concept Note, Banda Aceh Flood Relief Flow Valves & Pump
     Stations, Dated November 2005.
5.   Memorandum of Understanding between Muslim Aid and City of Banda Aceh, dated
     May, 10 2005.




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             Map
IBRD 34428




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