Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN AND A CREDIT

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$32.8 MILLION AND A CREDIT Report No: IND IN THE AMOUNT OF SDR 21.9 MILLION (US$32.8 MILLION EQUIVALENT) TO THE GOVERNMENT OF THE REPUBLIC OF INDONESIA FOR A LAND MANAGEMENT AND POLICY DEVELOPMENT PROJECT March 3 1, 2004 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mav not otherwise be disclosed without World Bank authorization. I

2 CURRENCY EQUIVALENTS (Exchange Rate Effective February 16,2004) Currency Unit = Rupiah IDR 1,000 = US$.118 US$l.OO = Rp. 8,500 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS Adat APL AT AWP Bapedalda B APPENAS BPKP BPN CAS CFAA CPAR cso EKON FMR GDP GO1 ICB IDA ILAP ILGRIP Izin Lokasi Kabupaten Kanwil Keppress Kotamady a LIS LMPDP LOC MOHA MSUKP NGO OCSPR OED Customary Land Tenure Adaptable Program Loan Adjudication Teams Annual Work Program Local Government Environmental Office National Development Planning Agency Internal Audit Agency National Land Administration Agency Country Assistance Strategy Country Financial Accountability Assessment Country Procurement Assessment Review Civil Society Organization Coordinating Ministry of Economic Affairs Financial Monitoring Report Gross Development Project Government of Indonesia International Competitive Bidding International Development Association Indonesia Land Administration Project Initiatives for Local Governance Reform Project Commercial Entreprises Licence District Provinsional Regional Office Presidential Decree Municipality Land Information System Land Management and Policy Development Project Land Office Computerization in BPN Ministry of Home Affairs Provincial Project Implementation Unit Non-government Agency Operational Core Services Procurement World Bank Operation and Evaluation Department

3 PAD PBB PCAR PIU PMM PMU PSR SDR SMERU SOE TA TOR UNDP USDRP UUPA UUPK Wilayah WB FOR OFFICIAL USE ONLY Project Appraisal Document Annual Property Tax Procurement Capability Assessment Report Project Implementaion Unit Project Management Manual Project Management Unit Project Summary Report Special Drawing Right Social Monitoring and Economic Research Unit Statement of Expenses Technical Assistance Terms of Reference United Nations Development Project Urban Sector Development and Reform Project Basic Agrarian Law Basic Forestry Law Province World Bank Vice President: Country ManagerDirector: Sector ManagedDirector: Task Team Leader/Task Manager: Jemal-ud-din Kassum, EAPVP Andrew Steer, EACIF Mark D. Wilson, EASRD Wael Zakout, EASRD This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

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5 INDONESIA LAND MANAGEMENT AND POLICY DEVELOPMENT PROJECT CONTENTS A. Project Development Objective 1. Project development objective 2. Key performance indicators Page 3 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Main sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices C. Project Description Summary 1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements D. Project Rationale 1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies 3. Lessons learned and reflected in the project design 4. Indications of borrower commitment and ownership 5. Value added of Bank support in this project E. Summary Project Analysis 1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies

6 F. Sustainability and Risks 1, Sustainability 2. Critical risks 3. Possible controversial aspects G. Main Loan Conditions 1. Effectiveness Condition 2. Other H. Readiness for Implementation I. Compliance with Bank Policies Annexes Annex 1 : Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary Annex 6: (A) Procurement Arrangements (B) Financial Management and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project File Annex 9: Statement of Loans and Credits Annex 10: Country at a Glance Annex 11 : Environmental Analyis Annex 12: Social Analysis Annex 13: Transparency and Accountability Strategy MAP(S) IBRD#33066

7 Date: March 3 1,2004 Sector ManagedDirector: Mark D. Wilson Country Director: Andrew D. Steer Project ID: PO64728 INDONESIA Land Management and Policy Development Project Project Appraisal Document East Asia and Pacific Region EASRD Team Leader: Wael Zakout Sector(s): Central government administration (50%), Sub-national government administration (50%) Theme@): Personal and property rights (P), Land For LoanslC redi tslothe rs : Loan Currency: United States Dollar Amount (US$m): IBRD Loan: US$32.8 million; IDA Credit: SDR21.94 million (US$32.8 million) Borrower Rationale for Choice of Loan Terms Available on File: Yes Proposed Terms (IBRD): Variable-Spread Loan (VSL) Grace period (years): 5 Commitment fee: 0.75% Years to maturity: 20 Front end fee (FEF) on Bank loan: 1.00% Payment for FEF: Capitalize from Loan Proceeds Proposed Terms (IDA): Standard Credit Grace period (years): 10 Commitment fee: 00% - 0.5% Years to maturity: 35 BORROWER Responsible agency: BPN, BAPPENAS, MINISTRY OF HOME AFFAIRS BPN (National Land Agency) Address: J1. Sisingamangaraja No. 2, Jakarta, Indonesia Contact Person: Dr. Lufthi Nasution, Chairman, BPN Tel: (62-21) /4 Fax: (62-2 1) Other Agency(ies): BAPPENAS Address: Address: J1. Madiun No. 4, Jakarta 10310, Indonesia Contact Person: Ir. Tatag Wiranto, Deputy Chairman, Autonomy & Regional Development Tel: (62-21) Fax: (62-21) Ministry of Home Affairs Address: J1. Medan Merdeka Utara No.7, Jakarta , Indonesia Contact Person: Mr. Bambang Setyadi,Director of Inter Institution Reg. Autonomy, D.G. Regional Autonomy Tel: (62-21) Fax: (62-21)

8 -2- g date: 12/31/2009

9 A. Project Development Objective 1. Project development objective: (see Annex 1) 1.1 The overall goal of the project is to contribute to government programs in achieving poverty reduction, economic growth and promote full utilization of land resources in a sustainable manner. The proposed objectives of the project are: (i) improve land tenure security and enhance the efficiency, transparency, and improve service delivery of land titling and registration; and (ii) enhance local government capacity to undertake land management functions with great efficiency and transparency. These objectives will be achieved through: (a) development of land policies and related laws and regulations to bring coherence and consistency of laws and regulations related to administration and management of land affairs; (b) institutional development and support to the central and local institutions responsible for land administration and management with a focus on improving service delivery of land offices through establishment and monitoring of minimum service standards; (c) accelerating and expanding the systematic land titling program and developing a Land Information System (LIS); and (d) review the experience of local government management of land affairs, provision of training and capacity building to all local governments in standard operating procedures, and support to selected local governments (around 5) to be models of how local governments can efficiently and effectively undertake their new fimctions on land affairs. 2. Key performance indicators: (see Annex 1) 2.1 The progress in achieving project s development objectives will be monitored through a set of key indicators which include: (i) key land policies developed and regulations are drafted; (ii) compliance with the minimum service standards; (iii) number of titles issued; (iv) improvement in land tenure security and speed in resolving land disputes; and (v) increase in land market activities and increase in registration of subsequent transactions. Detailed performance indicators are included in Annex 1. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: IND Date of latest CAS discussion: November 25, The objectives of the current CAS for Indonesia are: (i) improving the investment climate; and (ii) making service delivery responsive to the poor. The CAS highlights the need for advances on the core issue of govemance for realizing these objectives. The proposed project will contribute to the first objective by supporting the development of national land policy, which will bring coherence to the various government laws and regulations which regulate land administration and management and by issuing 2.5 million land titles in areas of high poverty and high economic potential. The project will contribute to the second objective by transforming the National Land Agency (BPN) into a transparent and efficient institution, through the development, implementation and monitoring of minimum service standards for land services. The project will also develop guidelines and build the local government capacity to undertake its new mandate in land services. Improved land tenure security would reduce land conflicts, induce more land-related investment, and increase lending through land titles as collateral, which will all contribute to sustaining economic recovery. In the long term, the project will contribute to increased government revenues from land related taxes and fees, which could be utilized for better public services to the community. -3-

10 2. Main sector issues and Government strategy: 2.1 Indonesia is the world s largest archipelago with over 17,000 islands (6,000 inhabited) straddling the equator. Its area is over 1.9 million square kilometers (sq. km), of which about 1.8 million sq. km is land. All the larger islands have a central volcanic mountainous area flanked by coastal plains. The population is about 215 million, of which about 45 percent are employed in agriculture, and about half live on the island of Java. More than 300 languages are spoken in Indonesia, but Bahasa Indonesia (regarded as the purest Malay), is the official language and is now understood in all but the most remote villages. Almost 90 percent of the population is Muslim, slightly less than 10 percent is Christian, and about 2 percent is Hindu and 1 percent Buddhist. 2.2 Although crude oil and natural gas are Indonesia s most valuable natural resources, agriculture accounts for about 16 percent of the Gross Development Project (GDP) and employs over 40 percent of the labor force. Indonesia is one of the world s major rubber producers; other plantation crops include sugarcane, coffee, tea, tobacco, palm oil, cinchona, cloves, cocoa, sisal, coconuts, and spices, Despite plantation cultivation, Indonesia has a wide landholding base; the majority of rural people are largely self-sufficient in food. Rice is the major crop; cassava, corn, yams, soybeans, peanuts, and fruit are also grown. Fish are abundant, both in the ocean and in inland ponds. 2.3 In natural-resource potential, Indonesia has great timberlands. Vast rain forests containing teak, sandalwood, ironwood, camphor, and ebony cover the mountain slopes. Palm, rattan, and bamboo abound, and a great variety of forest products are produced. Indonesia is a major exporter of timber, accounting for nearly half of the world s tropical hardwood trade. However, the rapid deforestation of Indonesia s hardwoods, mainly due to its expanding population and growing timber-related industries, has caused concern amongst international environmental groups. 2.4 The land sector in Indonesia is perceived as one of the most inefficient sectors in the economy. This is attributed to an old and fragmented legal framework for land tenure, institutional arrangements unable to provide adequate land administration and management services, and weak local government being unable to undertake their new mandate in land management. Old and fragmented legal framework for land tenure 2.5 Land is classified into forest and non-forest land. Non-forest land is administered according to the Basic Agrarian Law of 1960 (UUPA) and is divided into state land and adat land. 2.6 The Basic Agrarian Law (UUPA) replaced the pre-1960 system of land rights based on the Dutch Civil Code and clearly stipulate that all Indonesia land laws would be based on unwritten customary (adat) law. However, there is no clear policy for the legal framework to support it and most of the implementing laws, decrees, and regulations needed to define the land rights specified in the UUPA have neither been developed or enacted. The fact is that laws, regulations, and policies which have been passed since 1967 did not even refer to the UUPA. At present, land belonging to Adat (traditional) communities can become registered in hak milik only if it acquires the characteristics of tenure in individual ownership and its use is recognized by the community. 2.7 A similar fragmented legal framework governs land tenure in forest land, which is administered by the Ministry of Forestry under the Basic Forestry Law of 1967 (UUPK). Under UUPK, rights to the land are tenures for resources: no land tenure can exist in this land although there are private dwellings, farms, and even cities within forest land. Recent estimates suggest that only about 80 percent of the forest land actually has forest cover. Moreover, some forest land overlaps with land that previously enjoyed -4-

11 traditional land rights (Adat). While the UUPK recognizes that these traditional land rights exist, it places those rights in a subsidiary position. 2.8 The result has been a complex array of incidental laws, ministerial and other decrees, and ad-hoc regulations. This gives administrators a wide amount of discretion in interpreting the law and in allocation of land rights with little basis for fair resolution of tenure disputes. The rights of private landholders are still not adequately defined whereas regulations defining State land rights have proliferated. Private landowners are in a weak legal position in land assembly negotiations with the state institutions on behalf of commercial enterprises (izin lokasi) and, until 1998, communal rights of traditional societies (hak ulayat) were ignored by formal policy. Contrary to the requirement of Law No. 20 of 1961 on Revocation of Rights on Land, formal land expropriation procedures are not used and unfair bargaining mechanisms are used to force out landholders. Appeals to the courts are rarely successful and confidence in the court's impartiality in enforcing the laws and their intent has been eroded. Legal and regulatory reform is needed but must be preceded by an inclusive consensus on the policies and objectives that they will support. Institutional arrangements unable to provide adequate service 2.9 Because of the large number of communities spread over many islands, the organizational task of land titling and management is similarly challenging. The Republic of Indonesia is divided into 32 provinces (Wilayah) which are subdivided into 348 Districts (Kabupaten), and 86 Municipalities ( Kotamadya). In addition, the Capital City of Jakarta, and the Provinces of Yogyakarta and Aceh are special territories. Until 1999, non-forest land matters were administered by the National Land Administration Agency (BPN), a central agency reporting directly to the President, through a network of Provincial Offices in every Province, Land Offices in 293 Kabupaten/Kotmadya, and some representative offices at the sub-district level. The quality of service from BPN left much to be desired. Since 1999, under the Law on Regional Autonomy (Law No ) and the executive order Keppres No , land title certification is now being carried out by BPN, whereas nine key activities such as issuance of location permits are with the local government, without any perceptible change in the quality of service Perhaps the biggest inadequacy lies in pace of land titling. Only about 27 million of the nation's estimated 80 million land parcels (30 percent) have been registered in the 40 years since land registration began. If the current pace of registration continues, land registration will never catch up with the total number of parcels, since this total is estimated to be growing by more than 1 million parcels per year. The main reasons for such low coverage are the weak institutional capacity of the BPN Land Offices, complex and overlapping patterns of land tenure, absence of documentation, long-term disputes and unclear procedures for adjudication, large numbers of parcels, and rapid increases in the number of parcels due to fragmentation. Even where titling has been substantially completed, the number of registrations of transactions subsequent to the titling are low and threaten the integrity of the land records as does poor records management. Titled land is estimated at three to five percent of total land area and is the only land which can be subject of a private property market system The underdeveloped land registration system has significant negative impacts on economic development. Purchasers and vendors of land face a high transaction risk because of unclear land titles and as a result, neither efficient nor fair land markets can develop. Land cannot generally be used as collateral to mobilize financial resources and the development of financial markets, especially rural financial markets, is constrained. Corporations cannot own land and residential land is commonly held under relatively short-term leases (Jakarta, 25 year hak HGB) with resulting insecurity, financial hardship, and opportunities for rent seeking. Unclear land titles, unreliable and inaccessible land records, refusal to recognize informal but valid land tenures all lead to social conflict, particularly during the recent period of rapid change in Indonesia in recent decades, and this distorts private investment. -5-

12 Weak local government unable to undertake their new mandate 2.12 According to law 22 and Keppres , local government has the authority over nine land service functions: These are: (a) issuance of location permit; (b) provision of land for public interest; (c) cultivated land dispute settlement; (d) resolution of compensation for land allocated for development; (e) to determine the list of occupants land distribution and compensating for excess land; (f) determination and resolution of ulayat land problems; (g) resolution of neglected land problems; (h) land opening permit provision; and (i) land use planning within the local government jurisdiction. Most are unsure how to proceed ahead Law 22 and Keppres has assigned these functions without transferring personnel, buildings, and other assets to local government to undertake these functions fully and effectively. Furthermore, the central government did not provide adequate training to local government officials on how to provide the services efficiently. Therefore, most of local government are not able to undertake these functions and, on several occasions, the lack of clear guidelines and capacity have contributed to mis-management of land services by local officials. Government Strategy 2.14 The strategy of the Government on land affairs is to decentralize public administration, including land administration and management, to make it responsive and accountable to local communities. On land matters, the responsibilities between BPN and Districts have been defined by Keppres The responsibility for the nine functions indicated in the last paragraph is with the District Administration (Kabupatens) while BPN is entrusted with other activities, such as, provision of new titles, activities related to land transfer, developing land policies, and establishing and monitoring standards, and training The Government is also in agreement that major land policy changes are needed, as reflected by People s Assembly s call (Decree No. IW2001) for developing a comprehensive land policy reform agenda through a consultative process and public hearings. Given that land affairs are cross-cutting, multi-sector issues, another strategy of the Government has been to set up a Land Affairs Coordinating Team in 2001, which is chaired by the Coordinating Ministry of Economic Affairs (EKON) with members from Ministry of Home Affairs (MOHA), National Development Planning Agency (BAPPENAS), and BPN. The Coordinating Team has a very broad agenda including giving guidance and supervising land policy reform as well as acting as a steering committee for the formulation of the Land Management and Policy Development Project. Furthermore, the government has requested BAPPENAS to prepare a National Land Policy, and BPN to prepare a revised Basic Agrarian Law by August BAPPENAS has initiated the process of public consultations on the draft National Land Policy. The formulation of the National Land Policy is expected to be finalized around March 2005, and will be an input to the preparation of the revised Basic Agrarian Law The proposed project would assist the various government institutions to implement the above strategy, including developing clear guidelines for those functions delegated to local government, and build the capacity of local government to undertake these functions effectively. In addition, the project is expected to assist in transforming BPN into a more efficient, open, transparent and effective institution, including developing, implementing and monitoring clear service standards. -6-

13 3. Sector issues to be addressed by the project and strategic choices: 3.1 The number of untitled land parcels in Indonesia is estimated to be 60 million (around 70 percent of privately held land), compared to around 10 percent in Thailand and Malaysia and 40 percent in the Philippines. Consequently, the main strategy is not to attempt full coverage, but to use the project as a spring-board for multiple land titling initiatives to be financed by the government or various donors. 3.2 The spring-board nature of the project suggests the sector issues to be addressed by the project: Phasing. Based on the previous project s experience of producing around 1 million parcels a year, it will take more than 60 years to title the entire country. Consequently, to title the entire country within a 20-year period (similar to targets established in other East Asian countries), this project, covering the island of Java and some urban centers outside Java, must lead to: (i) parallel projects to cover Sumatra, Bali, and Sulawesi, the other three big islands; and (ii) improving the efficiency and speed of sporadic titling (titling on demand). Focus on transparency. BPN, the national land agency in Indonesia, is perceived as inefficient, ineffective and non-transparent. Therefore, the goal is to transform BPN into an efficient, more open, and transparent agency. Fully achieving this goal will take time, and may be extended well after the completion of the project. BPN will establish clear service standards for all of its functions, with internal and external monitoring including involvement of civil society organizations to monitor these standards. Achievement of these standards will be part of BPN s new Strategic Plan and the new HR policy (both to be developed under the proposed project), with clear rewards for those who achieve them and sanctions for those who do not. BPN management has agreed to this principle and requested the project to provide the needed support to achieve this goal. Support to local government to implement their mandate effectively. It is important that local governments are trained and have the resources to undertake their new mandate. However, the project with its limited resources will not be able to provide support to all local governments. The project will limit its support to key areas: (i) development of guidelines; (ii) training and capacity building to all local governments; and (iii) piloting in five selected local government units. The guidelines need to be developed at the national level through a consultative process with the participation of key national government and local government institutions and feedback from civil society. Training will be provided to all local governments. The pilots will use the pilot local governments as training grounds. The piloting will provide resources to around five local governments to develop their capacity to implement their new mandate. They will serve as a model for other local governments. The national government can then decide to provide similar support to other local governments through the local government budget, or through donor funding. 3.3 The proposed project will dovetail its support to local government on land management with other WB Projects supporting local government. Selection of the Districts to be covered under Component V will be coordinated with ILGRIP and UGRIP projects to find complimentarities between this work with the local governments. Since the number of Districts and Cities are limited under Component V (see paragraph above), it is proposed that the proposed project would include local governments supported under ILGRIP and USDW. The project will also provide the Ministry of Home Affairs with TA and the resources for development of a strategic plan for scaling up support to all local governments in the land management function. Implementation of the strategic plan could be supported under a future Bank project if the pilots are successful. -7-

14 Strategic choices in project design: 3.4 Geographical Focus and Phased Implementation. As mentioned above, the proposed project will focus activities primarily on the island of Java and selected urban centers outside Java. This choice is based first on Java s concentration of population, as well as parcels, permitting the project to maximize its impact. Moreover, this strategy will allow close monitoring and supervision of the development of an integrated package of land titling, land office improvement, land information system development and land dispute resolution. Once developed, the package can be replicated at more distant locations without the accompanied risk during development. Finally, the strategy recognizes that until policies for land administration and management of traditional land tenure arrangements are in place, it is preferable not to move land titling into rural areas outside Java to islands where such conflicting tenure arrangements are widespread, Under the Land Management and Policy Development Project (LMPDP) the policy questions of such tenures will be addressed with consultations, studies and the development of more appropriate regulatory frameworks which recognize traditional land rules and complex tenure arrangements. 3.5 The project plans recognize that the benefits of land management and land administration improvements are also desired by stakeholders outside Java. The government has expressed a strong desire to see project activities expanded beyond Java. The LMPDP, through working in major selected cities outside Java, will also strengthen the local capacity in these areas. Future projects in other areas, therefore, could be phased in quickly at any time after these policy developments, capacity strengthening, and appropriate piloting activities have been accomplished. 3.6 Balance of Policy, Institutional Development and Titling Operations. The project design emphasizes a balance of activities which aim for achievements in policy, institutional development and titling operations. Other projects, such as LAP I, had less focus on institutional development, particularly on local land offices, and a greater focus on titling. The balanced focus recognizes the large potential benefits from policy improvements to benefit the poor while helping to foster a climate for investment and growth. The project design also seeks a balance between the issuance of new titles and institutional development for improved land office hctioning. Service provision in land offices is essential for sustaining security of tenure and providing assurance for secondary rights such as mortgage. Focusing on improved service provision is also strategic for reducing the scope for corruption, which burdens inordinately on poorer groups. 3.7 Encouraging Civil Society Organizations (CSOs) Participation. The project will support Civil Society Organizations (CSOs) participation in several aspects of project implementation. CSOs will be employed in providing community information and participation in land titling activities. CSOs will also play a significant role in land policy consultation. Although relying on CSOs has certain risks and their scope of activity must be carefully delimited, CSOs are expected to improve relationships with communities. -a-

15 C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Component 1: Development of Land Policy and Regulatory Framework Subcomponent 1.1 Development of Government Capacity to Formulate Land Policy Subcomponent 1.2 Development of a National Land Policy Subcomponent 1.3 Formulation of Specific Land Policy/Regulatory Instruments Component 2: Institutional Development, Capacity Building, and Training Subcomponent 2.1 Development and Implementation of BPN Long-term Strategic Plan Subcomponent 2.2 Re-Engineering of Land Offices Subcomponent 2.3 Support to the Legal Department of BPN Subcomponent 2.4 Education and Training Subcomponent 2.5 Overall Project Management Component 3: Implementation of An Accelerated Land Titling Program Subcomponent 3.1 Community Awareness and Participation Subcomponent 3.2 Systematic Land Titling Subcomponent 3.3 Streamlining Land Office Registration Processes Subcomponent 3.4 Development of the Private Surveying Sector Component 4: Development of Land Information System Subcomponent 4.1 Development of a National Land Information Strategy Subcomponent 4.2 Establishment of LIS Infrastructure Subcomponent 4.3 Develop LIS Pilot Study Component 5. Capacity Building Support for Local Government Subcomponent 5.1 Assessment of Local Government s Capacity to Undertake Land Administration and Management Functions Subcomponent 5.2 Training and Capacity Building Subcomponent 5.3 Preparation Strategic Plan for Broader Strengthening of Local Government Land Management Subcomponent 5.4 Support to Project Management Unit -9-

16 Component Component 1 : Land Policy Component Component 2: Institutional Development, Capacity Building, and Training Component 3: Implementation of an Accelerated Land Titling Program Component 4: Development of a Land Information System Comnonent 5: Canacitv Building for Local Government Indicative costs (US$M) % of Total Bankfinancing (US$M) % of Bankfinancing Front-end fee Total Financing Required Key policy and institutional reforms supported by the project: 2.1 The project will support broad policy and institutional reforms. In the policy reform area, the support will focus on two areas. First, the project will support the government to develop and adopt a National Land Policy which would be the basis for overall policy and regulatory changes over the medium term (see Component 1.1, Annex 2). Second, based on the principles stipulated in National Land Policy, the project will support government development and adoption of specific land polices which have already been identified as priority, including land dispute resolution, recognition and registration of adat land rights, simplification of property rights, and land distributiodland reform including creation of an inventory of available state lands and extension of lease terms (see Component 1.2, Annex 2). 2.2 The project will support major institutional reforms in two areas. First, the project will support the implementation of Keppres 34/2003 on land affairs and provide support to local government to undertake their new fbctions with efficiency and transparency. Second, the project will support the transformation of BPN to a more transparent and effective agency, by establishing, implementing and monitoring service standards. 3. Benefits and target population: 3.1 By improving the land administration system, the project will stimulate the development of more efficient land markets, facilitating the allocation of land to its best use. Moreover, under the proposed project, about 2.5 million households will receive land titles. The beneficiaries of land titles will enjoy the benefits associated with land titles, including increased tenure security, access to credit and opportunities to increase investments and productivity. Many of the expected beneficiaries are the poor and vulnerable who, because of time and resource constraints, have not obtained land titles through the existing system. The emphasis on information dissemination and community participation will be strengthened under the project to ensure that women and other vulnerable groups are fully aware of their rights. 3.2 Improving the efficiency and transparency of the land agency will reduce the time and cost of registration of land transactions and therefore will encourage the development of a formal land market, which protects property rights and reduce lands disputes. The project will also assist in the development of policies with regard to the recognition and registration of adat and ulayat land. This will, in the medium term, protect the rights of indigenous groups on their land

17 4. Institutional and implementation arrangements: 4.1 BPN will be the executive agency to implement the project, while BAPPENAS and the Ministry of Home Affairs will implement specific components. BAPPENAS will be the implementing agency for Component I of the project, MOHA will be the implementing agency for Component V, and BPN will be the implementing agency for Components 11, I11 and IV, and will be responsible for consolidating project accounts and progress reports. 4.2 BAPPENAS will establish a land policy secretariat in the Department of Spatial Planning and Land under the Deputy of Regional Autonomy to manage Component I of the project and coordinate land policy development. The secretariat will be chaired by a BAPPENAS staff member, who will report to the Director, and will include 4-5 professional staff. 4.3 BPN will coordinate the implementation of Components 11, 111, and IV through LMPDP project office, in addition to its role as the lead agency of the project. The Director of LMPDP will act as the project director and the LMPDP Management Unit (PMU) in BPN will coordinate implementation of all project activities. BPN will establish Provincial Project Implementation Units (MSUK) to support project implementation in each of the project provinces and be responsible for: (i) project administration; (ii) planning, monitoring, and evaluation, (iii) procurement; (iv) finance and verification, (v) technical quality control. Furthermore, Project Implementation Units (MSUK) will be established in each of the project Kabupaten, which will be responsible for organizing and implementing the systematic land titling component. 4.4 MOHA will coordinate the implementation of Component V of the project. A Project Implementation Unit (PIU) will be established under the Director of Institution for Decentralization under the Director General of the Directorate of Regional Autonomy. 4.5 The LMPDP Steering Committee will serve as a project steering committee to provide overall guidance during implementation, and ensure coordination among the various agencies implementing various parts of the project. The committee will also serve as a steering committee for land policy development. The existing Technical Team will support the Steering Committee in overseeing land policy development and ensure good coordination among the implementing agencies. D. Project Rationale 1. Project alternatives considered and reasons for rejection: Lending Instrument 1.1 An APL could be an alternative approach to address the uncertainties of a reform program, both with regard to getting a consensus among key players and to the ability of the government to carry it out. However, there is a long list of very sensitive issues and the government s ability to reach consensus on these issues are not certain at the moment. Therefore, triggers for the subsequent phases of APL cannot be formulated easily. Furthermore, the proposed project is expected to investigate the viability of full cost recovery of land titling issuance and, if this is found viable, then external funding for the continuation of the program may not be needed. For these reasons, an SIL lending instrument is more appropriate for the proposed project

18 Titling off Java 1.2 Since land titling will contribute to poverty reduction, the project design considered the extension of the systematic land titling to islands other than Java where the poverty is even greater. This alternative was rejected due to the lack of govemment s clear policies on the recognition and registration of adat/ulayat land. Rural areas outside Java are mostly under customary land tenure, and issuance of individual land titles in these areas may cause land conflicts and may not be acceptable to the communities. Instead the project would: (i) assist the government to develop policies on the recognition and registration of adat/ulayat land; and (ii) include selected urban centers outside Java to be covered by systematic land titling. Supporting a larger Number of Local Governments under Component V 1.3 Since most of local government does not have the capacity nor the resources to undertake their new mandate, one option was considered to support a large number of local governments under Component V. This option was rejected for the following reasons: (i) the project is already complex, and adding a large number of districts under Component V would add multiple complexities to the project and may affect the overall project outcome; (ii) there is a need for testing and piloting before extending the support to a large number of local governments; and (iii) Component V includes two sub-components which will benefit all local governments, namely training and the development of clear standard operating procedures and guidelines. Supporting Land Reform 1.4 everal CSOs have requested that the Bank to support land reform. While land reform (land distribution and re-distribution) will contribute significantly to poverty reduction, the task team opted against direct support to land reform at this point. Land Reform is often very political, and currently, there is no national consensus on land reform. As a result, the project would support policy studies instead to assess the viability and scope of land reform, and try to bring a national consensus on the issue. If a national consensus is reached, and the government adopts an approach which is acceptable to civil society and CSOs, then the Bank could consider providing funds under a separate lending mechanism to pilot the approved scheme

19 2. Major related projects financed by the Bank andlor other development agencies (completed, ongoing and planned). Sector Issue Ban k-f inanced Land titling and administration Distribution of land rights to the land poor Land Titling and Administration Land Titling and Administration Land Titling and Administration Land Titling and Administration Land Titling and Administration Land Titling and Administration Other development agencies Project Indonesia Land Administration Project I (Ln IND) Thailand Land Reform Areas Project (Ln TH) Thailand First Land Titling Project (LTPI) (Ln TH) Thailand LTP 11 (Ln TH: Thailand LTP I11 (Ln TH) (Laos Land Titling Project) Cambodia: Land Management and Administration Project Philippines: Land Administation and Managemenl Project P/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), t Latest Supervision (PSR) Ratings (Bank-finance projects only) Implementation Progress (IP) S U HS S S S S S (Highly Unsatis Development Objective (DO) ICtOry) S U HS S S S S S 3. Lessons learned and reflected in the project design: 3.1 The World Bank has implemented many land reform and titling projects since the formulation of its "Land Reform Policy Paper" in Three major lessons can be drawn from the Bank's experience. First, land policy should be viewed as an integral element of a broader policy dialogue rather than as a string of narrowly oriented technical interventions. Experience shows that a lack of consensus on the broader subject of land policy has often compromised the effect on development of specific interventions, for example, land titling. In countries where land issues have in the past resulted in civil strife, revolution, and war, reaching a consensus requires time and involves all the relevant sectors of civil society. Second, land titling should be area-based, that is, it should cover an entire area at once (systematic registration), and fit within a broader strategy of rural development. Otherwise, imperfections in other factor markets may undermine or even eliminate the advantages from possession of title. Third, there is a rediscovery of the value of traditional land rights arrangements. In some areas, compared to freehold titles, traditional tenure arrangements may be more cost-effective in increasing tenure security and even provide a (limited) basis for land transactions. The proposed project takes inta account the above lesson by emphasizing broader policy dialogue, systematic registration, and traditional (adat/ulayat) land issues. Lessons Learned from the Thailand Land Titling Projects 3.2 Based on a intemal Bank's review and an OED audit report, the following factors contributed to the success of the Thailand land titling program: (i) strong high level government commitment to the land - 13-

20 titling program; (ii) a graduated increase in cost recovery for land titlinghegistration services; (iii) specially formed and trained systematic adjudication teams which involved the communities concemed; and (iv) use of efficient new technologies. These success factors are fully reflected in the design of the proposed project. Lessons Learned from LAP I 3.3 Formulate land policies now. While part C of the project produced excellent policy analysis reports, the overall outcome was not as successful. None of the policy recommendations were adopted. This was due to the fact that the Suharto government was not open to policy reform to bring transparency and accountability to the land sector. During the preparation of the project, it was evident that there is now a window of opportunity for major policy formulation. Because of this, the land policy component was designed to deliver key policy formulations, rather than mere policy studies. 3.4 Transform BPN to deliver longer-term results. While the systematic land titling component was successful in issuing around two million land titles, the institutional development component was less than successful. There were no major changes in the functions and operations of land offices, resulting in no change in efficiency and accountability of these offices. Because of this, the thrust in the proposed project is to transform BPN into an efficient and transparent land agency. Clearly, this is not expected to be a rapid process, but the project would develop a strategic plan and a human resources plan to be the basis for this change. This direction was endorsed by BPN leadership. 3.5 Establish land dispute resolution mechanisms. Another lesson learned from the LAP I is that grievance resolution mechanisms must be established to settle land disputes according to the rule of law. The large backlog of unsettled land disputes, the settlement of so many in favor of elites, and the obscurity of the process, bring into question the value of the rights being registered. The design of the proposed project also reflects these lessons by emphasizing the establishment of grievance resolution facilities and expanding the role of the Ombudsman in reviewing grievances independently. 4. Indications of borrower commitment and ownership: 4.1 The government has shown strong commitment to address issues of land administration and management. The commitment has been demonstrated in various ways. First, the 25-year program for titling all non-forest land was initiated by the Government in early 1990s. Second, during the economic crisis, when public expenditure in all sectors was cut to stabilize the economy, Government continued to provide the resources needed by the program. Third, the Government has established an inter-ministerial Coordinating Team for Land Affairs, which includes MOHA, EKON, BAPPENAS, and BPN, to guide and supervise the project preparation work. Fourth, recognizing the urgency and importance of having an integrated land policy framework, the Coordinating Team has already established a committee to develop the National Land Policy through a nation-wide consultative process. 5. Value added of Bank support in this project: 5.1 The.value of the Bank s involvement is reflected in three aspects. First, the World Bank has supported many land administration and management projects throughout the world, including in four countries within the East Asia and Pacific Region (Lao People s Democratic Republic, Philippines, Thailand, and Cambodia). Through these projects, the Bank has developed considerable expertise which enables it to share experience from other countries and provide impartial technical, institutional, and policy advice to our client countries. Second, through LAP I, the Bank and Government have developed good working relationships, which makes it possible to maintain the dialogue needed to resolve the difficult - 14-

21 issues that inevitably will arise during the implementation of the project. Third, the World Bank has developed an effective relationship with other donors in Indonesia, and some of them are actively involved in land issues or issues closely related to land, including governance, environment, poverty reduction, resettlement, and community mapping. The World Bank s involvement would also bring greater coherence to the donors program. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): 0 Cost benefit NPV=US$114.2 million; ERR = 33 % (see Annex 4) 0 Cost effectiveness 0 Other (specify) 1.1 Based on the household- and plot-level data collected by Social Monitoring and Economic Research Unit (SMERU) Research Institute, we used a standard econometric methodology (linear regression) to calculate the economic rate of return. Land prices are used as a proxy for economic value of land to calculate ERR under the assumption that all titling benefits will eventually be reflected by changes of land price; that is, the changes of land price capture the net effect of all the benefits of land titling. Increasingly active land markets in Java, as reflected by a gradual increasexf land turnover rate and by the observations from our field visits, give us additional confidence on using land price as a proxy for economic benefits. 1.2 There are many factors affect the land prices besides the land title; therefore, the factors other than the land title must be controlled in order to have a meaningful analysis. In our analysis, we controlled family characteristics and plot characteristics. We also controlled the regional impacts by using provincial dummy variables (7 provinces). To analyze the different impacts of land titling in urban and rural areas, we also conduct sub-group analysis in addition to pooling the whole sample (groups from both project and non-project area) together. The total plot sample number is The overall economic rate of retum of holding a land title is about 33 percent, and the ERR is higher in rural areas (47 percent) than that in urban areas (32 percent). The coefficient of the title is statistically significant at 99 percent confidence level and the result is thus robust across different specifications. The result means that the value of a plot with a title will be 33 percent higher than that of a plot without a title, holding other factors constant (Annex 4 presents a detailed economic analysis). 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = 17 % (see Annex 4) 2.1 The government generated incremental benefits) mainly from three sources. The first is the registration fee, which is around US$3.0 per parcel. The second is the tax on right acquisition (BPHTB) which is 5 percent of land value. The first Rp.30,000,000 is exempted from tax up to This exemption figure will be increased by Rp.5 million every subsequent 5 years. The third sources is the payment of income tax on transfer of rights on landhuilding (5 percent sellers tax, Government Regulation No. 48/1994). 2.2 Thefinancial costs to the government are the all project costs and the loan interest costs (about 4 percent) and the Government s future management costs associated with each title issued by the project (2 percent of total project cost)

22 All calculations are based on the estimated project costs of LMPDP and data of actual benefits associated with the LAP I ( ). For the sake of simplicity, the actual benefits (revenues) are extrapolated over a 35 year period and no further assumptions are made regarding any expected changes or enhancements to these current actual benefits. The capital discount factor is 0.1, Derivative registrations (turnover rate) are 1 percent for year 2-6, 3 percent for year 7-20, and 5 percent for year Under these assumptions, the financial rate of retum (FRR) is 17 percent and the NPV is US$114.2 million. Fiscal Impact: 2.3 The fiscal impact of the proposed project should be neutral in the short-run given that only about a quarter of the total project cost will be financed by the Government. In the long-run, it is expected that the fiscal impact of the proposed project will be very positive as shown by the relatively high FRR. 3. Technical: 3.1 The choice of technology for this project was selected based on the experience of LAP I and the experiences of other similar projects. The surveying technology to be used in the systematic land titling is that which produces the appropriate level of accuracy at the lowest cost. The difference in this project from those in most East Asia land projects is that surveying for systematic land titling would be done solely by private surveyors. Competition among private surveyors will determine the kind of technology to be used to achieve the accuracy requirements. 3.2 On the development of Land Information System, the project would support a strategy for the development of a land information system and focus on data sharing amongst various government agencies. The project would also support piloting a land information system in one district. Expansion of the pilot will be done only after completing a thorough evaluation of the pilot. 4. Institutional: 4.1 Executing agencies: Presidential Decree (Keppres) No. 34 (May 21, 2003) confirmed the transfer of government s authority on nine activities to local governments. These nine activities are: (i) location permit issuance; (ii) taking of land in the public interest; (iii) cultivated land dispute settlement; (iv) compensation determination for land taken for development; (v) to determine of the list of owners for land distribution and compensation for land held in excess of standards; (vii) determination and resolution of tllayat land problems; (viii) resolution of un-utilized land problems; (ix) land opening permit provision; and (xi) land use planning in local government jurisdictions. The residual functions (including land registration, titling, surveying and mapping) are delivered by BPN through provincial, district and local land offices Under Component 2, the project is designed to assist BPN to develop a long-term Strategic Plan and Human Resources Management Plan to transform the agency into a more transparent, efficient, accountable and open agency, and taking into account the more focused mandate on land registration and titling. Component 5 will assist local government to undertake their mandate efficiently and effectively through development of guidelines, training, and piloting in selected local governments. Since the number of local governments is large, it is not realistic to support all of them under this project. Therefore, the government would make a decision once the assessment and piloting are complete on how the government - 16-

23 will support the remaining local governments. This support will be financed by a follow up project. In order to transform BPN into a transparent and an accountable agency, the project will establish clear service standards for delivery of BPN land office functions. These standards will be uniform across all land offices. Furthermore, the project will support internal and an independent external monitoring of these service standards. It is recognized that this change will require change of culture of BPN management and staff, changes in operational and technical processes, and human resources incentive structure, and may take until well after the completion of the project to show clear results of a more efficient, accountable, and transparent agency. The project will, however, build the foundation for BPN to achieve this goal in the medium to long term The project will be implemented by three agencies (BAPPENAS, MOHA, and BPN). BPN will take the lead on Component 11, I11 and IV, while BAPPENAS will take the lead on Component I, and MOHA will take the lead on Component V. BPN will be the executive agency and will be responsible for consolidating project accounts and progress reports. The fact that three agencies involved in implementation require strong leadership by the LMPDP Coordinating Committee. It is also important that there will be close coordination between BAPPENAS and BPN in land policy formulation and legal drafting. 4.2 Project management: Each of the three implementing agencies will establish a Project Implementation Unit to manage project implementation. BPN will act as the Executive Agency to implement the project. BPN is familiar with managing Bank-financed projects as they were the responsible agency for ILAP project. BAPPENAS also familiar with World Bank-financed projects. The MOHA team is not familiar with Bank processes, and therefore, BPN Project Implementation Unit will provide the support to MOHA PIU in the first few years of project implementation. Furthermore, the government has prepared a detailed project management manual, including a financial management manual and a procurement manual to guide the three PIUs in managing the project. 4.3 Procurement issues: Major procurement in the project will be for contract services for cadastral surveys and mapping which will be carried out in the provinces and data conversion for systematic land registration; international and national consultants for technical assistance and studies; civil works for construction and rehabilitation of offices; computers, office and mapping equipment; and records management software. BPN as the lead agency already has experience in Bank procurement procedures through LAP-I. However, because some of the trained staff have been transferred to other sectionshnits, the proposed project is more complex with revisions to Bank s procurement guidelines, the procurement fimction in BPN will need to be upgraded by training BPN procurement staff. Procurement will be carried out by PIUs at other central government agencies (BAPPENAS and MOHA), provincial (Kanwil BPN) and kabupaten Land Offices. These provincial and kabupaten entities in general have little or no experience with Bank procurement procedures. Furthermore, to ensure that procurement at all levels will be done in accordance with the Bank s guidelines, the following actions would be taken: (i) assistance and training will be provided to the PIUs that are not fully conversant with Bank procedures; and (ii) standard bidding documents will be used for all Bank-financed procurement. The key issues identified in Indonesia CPAR (see Annex 6A) that are likely to have an impact on procurement under the project will be addressed during the preparation of the Project Procurement Manual (as a part of the Project Management Manual). The PIP or AWPs will provide a framework and procurement plan of the project activities. The capacity of the implementing agencies to implement procurement has been assessed, taking into account the requirement specified in Operational - 17-

24 Core Services Procurement's (OCSPR) instruction dated July 15, Based on the assessments, an action plan was developed to build the capacity of the PIUs through training and supervision during project implementation. Results of the procurement capacity assessment and the action plans are summarized in Annex 6A. 4.4 Financial management issues: In July and August 2003, a financial management assessment of the risks inherent in the choice of BPN as the primary project implementing entity, as well as specific risks arising from the proposed project design and implementation arrangements was conducted. In addition, consideration was given to the overall control environment in the country, as determined by the Country Financial Accountability Assessment Report, a diagnostic study undertaken by the Bank in year Results of the assessment are summarized in Annex 6 (B) The financial management assessment concluded that the overall financial management risks are substantial. The wide geographic spread of the project imposes substantial risks on financial accounting and reporting. Although BPN, which is designated as the lead agency, has prior experience in managing donor financed projects, audit feedback in LAP I has indicated that intemal controls, especially payment validation procedures, are an area that need strengthening. Outside the central office, at the provincial and kubuputen level where a large part of project resources will be spent, financial management capacity is generally weak and variable. All these factors could weaken financial accountability of expenditures under this project, and measures have accordingly been proposed to mitigate these risks t is proposed that financial accounting for project expenditure will be consolidated at 12 selected Provincial BPN offices, where accounting and project implementation information will be collected from about 76 Land Offices of BPN. Responsibility for financial controls and accountability will however be decentralized to the Land Offices where project staff will be located. Current Government accounting systems do not generate the information that will be required for monitoring project expenditure, for instance, by expenditure categories as well as by program components. Quarterly Financial Management Reports and annual financial statements will therefore be generated by stand-alone computer systems and in simplified formats prescribed by the Bank and in line with Bank guidelines. These would also be reconciled quarterly with intemal Government reporting to ensure consistency It is proposed that financial management consultants will be appointed to assist BPN to design and install a computerized financial accounting system at all participating BPN provincial offices. Such a system would meet all financial reporting requirements of the project as specified in the Financial Management Manual, and will be utilized to the extent possible given the existing accounting systems and resources in use at BPN Head Office and their offices. The consultants will also be tasked with training BPN staff in the operation of the project financial management system. Detailed procedures for financial management, including strengthened financial controls will be included in the Project Financial Management Manual which will be finalized before the project becomes effective The national internal audit agency (BPKP) will be accepted as auditors for this project. Terms of Reference for these audits will be agreed before negotiations and will be based on a single audit opinion of project financial statements, Statements of Expenditure and Special Accounts. It is intended that all project audit reports will be publicly disclosed, as a measure to enhance transparency and accountability

25 4.4.6 e e The following disbursement procedures are proposed: About 85 percent of the project expenditure is expected to be below prior review thresholds, and will initially be disbursed based on Statements of Expenditure (SOE) procedures. Expenditures in excess of this amount for contracts will be paid under Summary Sheet procedures. No disbursements through Special Commitments or Direct Payments are anticipated. SOE based disbursements will be converted to quarterly replenishments supported by Financial Monitoring Reports (FMRs) after a satisfactory and regular generation of such reports during implementation. Payments to contractors will be authorized from central treasury offices based on Central Government Budgets documents under normal Government documentary procedures A Special Account will be opened in Bank Indonesia with an authorized allocation of US$6 million with an initial allocation of US$2 million. The full allocation of the Special Account will be triggered once disbursement have reached US$10 million. It is proposed that the Withdrawal Applications for reimbursements into this account will be prepared by BPN as the Lead Project Management Unit and authorized by Ministry of Finance. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. 5.2 Environmental and social assessments have been undertaken as part of the project s preparatory activities. This shows that the project is not expected to have large scale, or irreversible adverse environmental impacts. The project i s therefore classified as environmental assessment Category B. 5.3 Other than rehabilitation and construction of land office buildings, the project will not support civil works, land conversion, resource extraction, industrial production or any activity that could potentially damage the environment. Contracts for civil works under the project will be subject to screening for environmental impacts by the local environmental entities (bupelda), which are responsible for this activity. All contracts will include measures acceptable to the bapeldu to minimize or mitigate environmental damage. The project will not support land acquisition or associated involuntary resettlement. Policy formulation and institutional development (about 25 percent the total project cost) are environmental assessment Category C. They are not subject to special environmental review requirements. 5.4 Among other goals, the project seeks to improve natural resources management by supporting the development of policies, laws, and regulations to clarify rights of people to land, by enhancing transparency in land administration and management, and by strengthening security of tenure through the issuance of titles to households with legitimate legal claims to the land. Establishing clear property rights to land and natural resources creates incentives for owners to manage the resources for their long-term benefit. This encourages investment in soil conservation, watershed protection, reforestation, and sustainable use of wild animals and plants. By formalizing rights to residential plots, the project encourages investment in activities and infrastructure that improve environmental conditions where people live and work, such as solid waste management, water supply systems, and sanitation facilities. Indeed a social assessment of the earlier Indonesia Land Administration Project shows that peri-urban dwellers invested substantially in their homes and neighborhoods after receiving titles. In this way the project is expected to directly contribute to improved environmental management in Indonesia

26 5.2 What are the main features of the EMP and are they adequate? The project has been designed to promote sound environmental management and to mitigate potentially negative affects arising directly from project activities. To promote sound environmental management, the project includes support for land policies that clearly define the rules for delimiting boundaries between the public and private domains, and creation of capacity for land management. To minimize negative impacts on the environment several measures are important. First, titles will not be issued in areas designated as forest areas, protected areas, the coastal zone, and riverbanks. Second, policies and regulations formulated under the project will include the input of the Ministries of Environment and Forestry and from nongovernmental organizations with an interest in sound environmental management and in environmental protection. For example, the policy on formally recognizing adat land in areas now classified as forest or state land must be based on a good analysis of the environmental implications of changing the classification of land and be formulated with the input of environmental constituencies in addition to that of other interests. Third, guidelines have been developed to ensure that project implementers comply with the World Bank environmental and social safeguards (see Annexes 11 and 12 for details). Finally, the project will encourage local governments to include representatives of environmental groups in the stakeholder forums regarding matters such as the issuance of location permits, opening of new lands, land distribution, and land use planning. These functions of local government all have implications for the environment, and decisions should not be made without understanding clearly those implications The measures are adequate to promote sound environmental management. assessment and the EMP appear in Annex For Category A and B projects, timeline and status of EA: Date of receipt of final draft: July 2003 The environmental 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Stakeholders have been consulted regularly throughout the design phase of the project, and their input was reflected in the draft EA. A workshop with all stakeholders discussed the draft EA and EMP. Comments from the discussions were incorporated in the final draft. The World Bank preparation team independently met with CSOs during the preparation missions to leam first hand the concems of the various stakeholders. These included Legal Aid and the Foundation to Strengthen and Study the Community, both of whom are involved with helping traditional communities gain formal recognition of their land rights. Other groups consulted include the Association of Adat (an apex organization representing the interests of traditional communities) and the Association of Bupatis (representing mayors). While the groups have diverse interests, they generally express support for the project. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? The project will finance a socio-economic and environmental impact study to assess the social, economic and environmental impact of the project. Supervision missions and the midterm review will note any issues and if necessary take steps to ensure that the project complies with the Bank s environmental safeguards. Bank specialists located in the Jakarta office will consult regularly with CSOs and be able to deal with issues as they arise

27 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project s social development outcomes. 6.2 A social assessment of the systematic land titling program of the Land Administration Project was carried out 1999 at the midterm of the project. This was followed in 2002 with an impact evaluation of the program. Altogether, about 2,200 people in 23 of the 49 districts and cities covered under the program participated in focus group discussions, interviews, or surveys regarding the program and land matters in general. The full social assessment and impact evaluation are available in project files. These showed first that land registration has increased the security of tenure for all, and the program has benefited the poor the most. The program did not discriminate on the basis of income or social status, providing title to all in the program area who were able to prove their claims. However, the poor benefit most by being able to obtain security of tenure inexpensively and quickly, because they cannot afford the costs and time of obtaining title through the sporadic titling program. Second, the positive impacts of the project were strongest in the cases where state land was converted to private land. The benefits of moving households from completely insecure land tenure to completely secure land tenure were substantial. New investment in land, housing, and public water and sewerage systems and other public amenities was higher in such communities than in those occupying land already recognized as private. Third, the position of women with regard to land that they have inherited was strengthened because the land was titled in the woman s name, but weakened with respect to land purchased after marriage because most such land was titled in the name of the husband alone. Fourth, access to credit, investment in land and businesses, and land values increased in the project areas, which helped in stimulating the development of land markets and economic growth. Overall the project was found to have significant positive social impacts and no significant adverse social impacts. 6.3 The project s primary social development outcome is to increase land tenure security, especially of the poor and vulnerable and of women. A second social development outcome is to reduce conflict over land by supporting the development of land policies that addresses the issues of adat land, land reform and distribution, and alternative dispute resolution mechanisms. The social analysis is presented in Annex Participatory Approach: How are key stakeholders participating in the project? Key stakeholders will continue to be consulted or involved in most aspects of project implementation. The project will finance public consultations with stakeholders in developing national land policies. It will also finance the contracting of CSOs to facilitate community participation in the systematic titling program. They will carry out activities such as raising awareness of the program, conducting village tenure profiles and informing communities of the importance of registering subsequent transactions of titled land and explaining how to do so. The project will provide the selected CSOs with on the job training in participatory techniques to ensure that they reach both women and men, members of marginalized groups, and the poor. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? CSOs have been consulted regularly throughout the design phase of the project. The preparation team met with CSOs during the missions to learn first hand the concerns of the various stakeholders. These included Legal Aid and the Foundation to Strengthen and Study the Community, both of which are involved with helping traditional communities gain formal recognition of their land rights. Other groups consulted include the Association of Adat (an apex organization representing the interests of traditional communities) and the Association of Bupatis (representing mayors). While the groups have diverse interests, they -21 -

28 generally express support for the project. Consultations with CSOs will be held regularly and on an ad-hoc basis throughout project implementation. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The project contains several measures to ensure that it achieves its social development objectives. To ensure that the project reaches the poor: (i) poverty indicators will be included among the criteria for selection of areas to be covered under the systematic land titling program; (ii) adjudication teams will be trained in techniques designed specifically to reach the poor; and (iii) a fee structure for titling that exempts the poor from fees for systematic titling will be studies. To ensure that national land policies and local decisions regarding land reflect the views of all stakeholders, the project will encourage the government to include CSOs representing the interests of poor and vulnerable groups, women, and udut communities in extensive consultations. To ensure that no people are harmed by the project, it will not title any land with unclear status. To assist people who are currently holding little land or who have weak claims to land they occupy, the project will finance the development of policy on land reform. 6.5 How will the project monitor performance in terms of social development outcomes? The project will finance a socio-economic and environmental impact assessment to measure the social, economic and environmental impact of the project. The Study will include a base line survey to be completed in year 1 of the project and a follow up survey to be completed in year 5 of the project. Supervision missions and the midterm review will focus in particular on the project s social issues. Bank specialists located in the Jakarta office will consult regularly with NGOs and be able to deal with issues as they arise. 7. Safeguard Policies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies Bank supervision missions will thoroughly review compliance and if needed propose actions to improve performance. Bank specialists located in the Jakarta office will be available to address any issues as they arise

29 ~ F. Sustainability and Risks 1. Sustainability: 1.1 A number of actions will be taken to ensure project sustainability. To ensure the benefits of the first land titling project are sustained through the registration of subsequent transactions, the project will: (i) support public information campaigns to explain the importance of formal land registration; (ii) improve the service delivery of land offices to eliminate the red tapes and informal fees; and (iii) include a policy study on land taxes and fee structure to assess the current fee structure on land registration. To ensure the continuation of the land titling program after Bank funding is over, a study will be undertaken to investigate the viability of establishing a fund, to be financed by the collected fees on first titling land registration; these funds could be used after the Bank loan is closed to continue the land titling program. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Vom Outputs to Objective I, Domestic macro-economic environment becomes unfavorable. 2. Political stability does not continue. 3. Commitment of BPN for openness and change weakens. 1. Commitment of local governments for openness and reform weakens. 5. Inherent risks arising from weaknesses in country control environment and financial accountability systems. 5. The regulatory framework (laws or regulations) have changed in away which affects project implementation. From Components to Outputs 7. The Steering Committee is not effective in coordinating project implementation among the three implementing agencies. 5. Counterpart funds are not available. 3. Serious opposition from CSOs and Risk Rating S S S N S M M M M Risk Mitigation Measure Outside the control of the project. Project activities will be scaled down in case there is a down turn in the economy and the government could not provide the needed counterpart funds. Outside the control of the project. Project activities will be scaled down in case of non-favorable political situation. Project expansion will be limited and activities could be scaled down if BPN management's commitment is weak. Suspension of the loan may be considered if BPN is clearly not proceeding with reforms. Local government to be supported under component 5 will follow the proposed Bank-financed local government initiative projects (formerly KGRIP and UGRIP). The transparency requirements of these projects would be adopted. Continue country dialogue to expedite public financial management reforms and introduce project specific measures such as enhanced financial reporting and additional payment validation procedures. This will be assessed in due course. The project includes support to the LMPDP Coordinating Team to ensure it performs coordination role effectively. Project activities will be scaled down if this happen. Project activities will be scaled down. The project has developed a participation plan

30 I other stakeholders. ll_-_l _ - to ensure that CSOs are engagedin project implementation and monitoring. Continue dialogue with CSOs and other stakeholders during implementation. 10. BPN fails to implement the transparency and accountability strategy Registration of subsequent land transaction does not increase. 12. Financial management risks arising from weak internal control systems and payment validation procedures Overall Risk Rating Risk Rating - H (High Risk), S (Substantial Ri! S M S S, M (Modest Risk), Continue engagement with BPN management. Project activities would be scaled down or disbursement may be suspended if the it is clear that BPN is not committed to reform. The project will include a set of interventions to understand the reasons for the low rate of subsequent registration. If after government actions, this rate continues to be on the low end, a more significant analysis will be undertaken. Community disclosure and oversight mechanisms and more intensive payment validation procedures. Negligible or Low Risk) 3. Possible Controversial Aspects: None G. Main Loan Conditions 1. Effectiveness Condition 0 0 Adoption by BPN of the Project Management Manual (Which includes Procurement Manual; Financial Management Manual) acceptable to the Bank; and Selection of a financial management consultant to design and install a computerized financial accounting system, train BPN staff in accordance to TORS acceptable to the Bank. 2. Other [classify according to covenant types used in the Legal Agreements.] BAPPENAS will complete the consultation process on the development of the national land policy by December 31, 2004 and submit the final land policy for government consideration by March 31, BPN will develop and adopt a Long-term Strategic Plan and a Human Resources Management plan no later than January 3 1, BPN will develop minimum service standards, including a detailed plan to implement and monitor these standards no later than December 3 1, BPN will hire the independent monitor (Academic Institution or CSO) no later than December 3 1, 2006 to monitor the compliance of land offices with minimum service standards. BPN will submit to the Bank, for review and no objection, a list of Kabupaten and cities to be added to the program every year. Selection of these Kabupatens and cities will be done in accordance to the selection criteria agreed upon during negotiations. A Strategy on Land Information will be developed and submitted to the Bank for review by June 30,

31 MOHA will prepare and fimish to the Bank for review and comments, a training plan for component 5, no later than October 31 of each year, starting October 3 1, MOHA will prepare, by December 31, 2007, a strategic plan for scaling up the support to local government covering activities, timeframe and resources needed. BPN will consolidate the work plans and budget from the implementing agencies and hmish it to the Bank for review and comments no later than July 31 of each year starting July 31, 2004; and finalize the work plan no later than October 31 of each year; implement the work plan taking into account the Bank comments. BPN will ensure the following reports are submitted to the Bank: (i) semi-annual progress reports by March 1 and September 1 of each year, commencing on September 1,2004; (ii) a report on the project mid-term review by March 1, 2007; and (iii) within six months after project completion, the government contribution to the Implementation Completion Report evaluating project performance. A mid-term review will be conducted no later than March 31, A monitoring and evaluation system to monitor project input, output and outcomes will be developed and implemented by June The base line of the socio-economic and environmental impact study would be commenced no later than March 31, 2005 and the second round of surveys would be commenced no later than December 31, H. Readiness for Implementation 0 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. lz 1. b) Not applicable The procurement documents for the first year's activities are complete and ready for the start of project implementation. 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality The following items are lacking and are discussed under loan conditions (Section G): I. Compliance with Bank Policies Kl 1. This project complies with all applicable Bank policies. CI 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Wael Zakout Team Leader Andrew D. Steer Country Director

32 Hierarchy of Objectives,ector-related CAS Goal:.ffective implementation of ecentralization. Annex 1: Project Design Summary INDONESIA: Land Management and Policy Development Project Key Performance lata Collection Strategy Indicators Sector indicators: ector/ country reports: I Clearer clarity in functions at :ach level of government through law 22 and law 25. ovemment s reports on )cia1 and economic welopment. Critical Assumptions rom Goal to Bank Mission) ustainable income-creating pportunities for poor ouseholds. roject Development Ibjective:.and tenure security mproved. Land rights policies and legislation reformed and improved. Outcome / impact indicators: Strengthened perception of land tenure security. Increase access to formal credit. ank s sector studies.?om Objective to Goal) :redit is available to meet emand; lomestic macro-economic nvironment remains avorable; Increase of formal land market activities. olitical stability continued. Increase investment in agriculture land and property development. Efficiency and transparency )f land titling and registration mproved. Increase in land values. Increased satisfaction rate in land registration. Increased percentage o f subsequent transactions registered in land office. Decreased number of complaints about land registration. locio-economic impact ssessment. Yient Feedback Surveys. Continued commitment within BPN for openness and :hange. Decrease in informal paymen in land registration process. Zapacity of local government n land management mhanced. Satisfaction o f land services (land management) rises. Xent Feedback Surveys. Zontinued commitment of local government for opennes ind reform

33 Hierarchy of Objectives Output from each Component: Component 1 Government's capacity to formulate land policy improved. Key Performance Indicators Output Indicators: 1.1 Completion of consultation of National Land Policy by December 3 1, 2004, submission of white paper by March 3 1, 2005 for government consideration and adoption. Data Collection Strategy Voject reports: jovernment reports. Critical Assumptions :Tom Outputs to Objective) iovernment commitment nd political support are dequate.,eadership of the steering ommittee is strong. New National Land Policy Framework developed. Priority land policies and regulatory instruments formulated and adopted. 1.2 Policies on adat and communal land prepared; draft regulations prepared and submitted for adoption by September 30, Policy on land use and spatial planning will be prepared and submitted for adoption by December Policy on land distribution prepared and submitted for adoption by June Study on simplification of land tenure instruments, including state land completed and submitted foi adoption by June Tax and fee structure study completed by December Land markets study complete by December 3 1, Study on provision of land for public infrastructure and compensation completed by Dec

34 :omponent 2,and administration istitutions strengthened and perational capacity and mice levels improved. 2.1 BPN long-term strategic plan and Human Resources Management Development Plan is prepared and adopted by January 3 1, Five model land office re-engineered and operational by June 2007, and 15 by the end of the project. 2.3 Minimum service standards developed by December 3 1,2005 and monitoring system in place by December 3 1, All re-engineered land offices meeting 70% of services standards by December 3 1,2007 and 90% of the standards by the project. 2.5 Land Administration and Management education program established and operational by August 'roject quarterly report. ntemal and External donitoring Reports. :ommitment of BPN to :form remains strong. 2omponent 3 ritles are issued effectively md efficiently,. 'rivate surveying sector ieveloped. 3.1 One million titles issued by systematic land titling by mid-term review and 1.5 million more titles by the end of the project % of titles collected by beneficiaries % of systematic titling parcels adjudicated, surveyed and registered. 'roject quarterly report. :nternal and External Monitoring Reports. 3ank's supervision report. Industry workshop Feedback. Zounterpart funds are wailable. 3.4 Percentage of land titles issued in name of

35 women or in joint ownership. Zomponent 4 nformation system for lecentralized and improved and administration and nanagement is created and hctioning well. 4.1 LIS strategy developed by June 30, Key LIS data sharing, access and pricing policy, and data standards (as identified in LIS strategy) finalized and adopted by June 30,2007. 'roject quarterly report. lank supervision reports. 'here is a political will for :oordination among various :overnment agencies egarding sharing of land nformation Zomponent 5 Zxperience of local ;overnment in land nanagement h ction,eviewed and capacity issessed.,oca1 governments trengthened to efficiently mdertake land management knctions. 4.3 National LIS implementation plan completed by December 31, I 5.1 Assessment Report completed by March 2006 and national regulations developed and issued by December 3 1, local governments receive training by mid term review (March 2007) and all local governments by the end of the project. 'roject quarterly report. 3ank's supervision report.,oca1 governments are :ommitted to reform. ivailability of counterpart imding. 5.3 Piloting of local land management initiatives initiated by January

36 Hierarchy of Objectives Project Components I Su b-components: 1. Development of Land Policies Key Performance Indicators nputs: (budget for each :omponent) JS$ 2.94 Data Collection Strategy 'roject reports: Critical Assumptions :Tom Components to )ut pu t s) 1.1 Development of a national land policy. Formulation of specific land polices and regulatory instruments. 2. Institutional Development, Capacity Building, and Training JSs Development and implementation of BPN Strategic Plan 2.2 Re-engineering of Land Offices Development and implementation of plan to support local governments to take over decentralized land functions 3. Implementation of An Accelerated Land Titling Program JSs Systematic titling 3.2 Sporadic titling Development of private surveying 4. Development of Land Information System JS$ Initiation of national Land Information System (LIS) program 4.2 Establishment of LIS infrastructure

37 [Develop LIS pilot study 5. Capacity Building for Local Government in land management. JS$ Assessment of local government capacity to undertake land management; 5.2 Training and capacity building; 5.3. Development of strategic plan to support local governments. 5.4 MOHA project management support

38 By Component: Annex 2: Detailed Project Description INDONESIA: Land Management and Policy Development Project Project Component 1 - US$2.94 million Development of Land Policy and Regulatory Framework This component will support the development of a land policy and regulatory framework for land management through: (i) the development of government capacity to coordinate the formulation of land policies through consultative processes; (ii) the development of a national land policy; (iii) the formulation and studies of specific key policies in the areas of land management and administration and the development and drafting of the regulatory framework to implement them. The Basic Agrarian Law of Indonesia has not been substantially reviewed and updated since it was adopted in Since then many laws and regulations governing land matters in Indonesia have been developed on an ad-hoc basis without regard to either the Basic Agrarian Law or other laws dealing with land issues. As a result laws regarding land are now inconsistent with the Basic Agrarian Law and with each other, and furthermore out of step with actual practice. The government now wishes to revise and update the Basic Agrarian Law and has mandated BPN to undertake this exercise. However, it also wishes to broaden its scope to make it more relevant for the current conditions of Indonesia. Revising the Basic Agrarian Law should be done within the context of a comprehensive and coherent land policy consultation process which is being supported under this component of the project Development of Government Capacity to Formulate Land Policy This subcomponent will support the creation of a small land policy secretariat to undertake policy analysis and studies, coordinate public consultations, and propose policy recommendations for the LMPDP Coordinating Committee for consideration. The existing LMPDP Coordinating Committee will continue to provide oversight and guidance to the policy development process and will approve policy study recommendations. This LMPDP Coordinating Committee will continue to facilitate the inclusion of all sector ministries and agencies in the land policy development and implementation process and will make recommendations on which agency is best suited to take the lead in developing each of the policy areas. The subcomponent will finance the rental of a small office for the Secretariat, one vehicle and a motorcycle, office equipment and furniture, public consultations, salaries and travel costs of contractual staff, travel costs of government staff, seminars, and events, and the publication and dissemination of policy papers, laws, and regulations. The subcomponent would also finance international and national technical assistance Development of a National Land Policy The Coordinating Minister of Economic Affairs has requested the LMPDP Coordinating Committee to develop a draft national land policy for cabinet consideration. Following this request the LMPDP coordinating committee commissioned the preparation of a discussion paper on land policy which addresses issues related to land administration, use, management, and outlines the various options for policy recommendations. The government is planning workshop consultations and focus group discussions in various regions of the country. This consultation will take place from June to December

39 The national land policy will provide valuable input to the proposed revisions in the Basic Agrarian Law and other important laws in the country related to land and land resources such forest and mining. This subcomponent will also support the consultation process of the revised Basic Agrarian Law. The subcomponent will finance consultant services, cost of consultation workshops and focus group workshops, and government staff travel expense. The subcomponent will also finance dissemination of the land policy once approved by the LMPDP steering committee and the Cabinet Formulation of Specific Land Policy/Regulatory Instruments. This subcomponent will support the formulation of key land policies for land administration and management, and the drafting of required regulatory and legal instruments to implement them. The subcomponent will provide support for reviews of policy and where necessary studies on these issues are available, provide policy development and any changes in regulations or amendments to the laws. A number of policy issues have been tentatively identified during project preparation including: recognition of communal land, land distribution, and the simplification of land tenure instruments and definition and management of state land. In addition a number of policy studies will be supported. These include a land markets study, land taxes and fee structures, sustainability of the land registration system, improvement of spatial and land use management for local government, and provision of land for public infrastructure schemes. Funding is also provided for two additional studies whose theme are yet to be determined. The formulation of policies will be done first through the analysis and preparation of discussion papers identifying the issues and options, discussions with the legal department of BPN, undertaking appropriate public consultation in the various regions of the country and among various interest groups. The final outputs will be draft policies and regulations on the subject matter to be submitted to the LMPDP Coordinating Committee for consideration. Once approved the regulatory framework will be prepared and submitted to the relevant govemment body for adoption. The subcomponent will finance consultant services, consultation workshops, travel expense of government staff and expenses on contractual staff. The subcomponent will also finance the publication and dissemination of the approved policies and regulatory framework. Project Component 2 - US$9.29 million Institutional Development, Capacity Building, and Training. The objectives of this component are to support BPN s transformation into a transparent, responsive and more service-oriented institution and to develop the capacity of local academic institutions to provide land administration education and training. Presidential Decree (Keppres) No. 34 (May 2003) confirmed the transfer of government s authority on nine activities to local governments. These nine activities are: (i) location permit issuance; (ii) taking of land in the public interest; (iii) cultivated land dispute settlement; (iv) compensation determination for land taken for development; (v) land distribution and compensation for land held in excess of standards; (vi) determination and resolution of ulayat land problems; (vii) resolution of un-utilized land problems; (viii) land opening permit provision; and (ix) land use planning in local government jurisdictions. The residual functions (including land registration, titling, surveying and mapping) are delivered by BPN through provincial, district and local land offices

40 This component supports the transformation of BPN through two subcomponents covering: (i) development and implementation of long-term strategic planning for BPN; and (ii) re-engineering of land offices to deliver transparent and efficient land administration services to the community at the local level. A third subcomponent will provide support to the legal department of BPN to develop policy and prepare laws and regulations. The fourth subcomponent will address education and training to strengthen land administration expertise. The final subcomponent will finance overall project management which will be coordinated by BPN Development and Implementation of BPN Long-term Strategic Plan This subcomponent will assist the development and implementation of a strategic plan to strengthen BPN as the central government agency responsible for oversight of the national system of land administration. The strategic plan will include early confirmation with stakeholders of the organizational structural arrangements between central and local levels and progressive implementation of the deconcentrated structural model. Specific subcomponent activities will include development of standard operating procedures for human resource management and development and the introduction of a modular training program. Uniform procedures for records management and increased levels of computerization will be developed in this subcomponent. The subcomponent will finance intemational and local consultants to assist BPN to develop a long-term strategic plan and human resources plan. The component will finance comprehensive training programs as well as a program of regular national stakeholder workshops as part of the community awareness and participation process Re-engineering of Land Offices The focus of the subcomponent is streamlining access to services to especially encourage and facilitate community participation in land registration. Assistance will be provided to implement standard operational procedures, improve service standards and monitor community satisfaction with service delivery. This subcomponent will support the development, implementation and monitoring of uniform standards for transparent and efficient service delivery and the engagement of stakeholders in programs for monitoring of land office performance and responsiveness. The focus. will be on re-engineering a maximum of 15 land offices (Le. model land offices), where systematic adjudication will be undertaken (Component 3). The performance of these offices will be monitored. An independent organization, such as an academic institution or NGO, will be hired to monitor land office minimum service standard compliance. BPN has previously classified land offices on the basis of size and capacity and this subcomponent will develop model land offices for different classifications. Specific activities will include modernization of land documentation and implementation of uniform records management procedures based on computer-based techniques in conjunction with the parallel Land Office Computerization (LOC) project. The subcomponent will support community education and participation programs to promote the benefits of land titles and to maximize security of tenure by ensuring all subsequent land transactions are formally registered at the land office. This subcomponent will finance the construction and renovation of model land offices, office equipment and furniture and installation of Information Technology. It will also finance international and national technical assistance in land registration, office operations and community education and participation

41 2.3. Support to the Legal Department of BPN The subcomponent will provide support to the legal department of BPN to develop policy and prepare laws and regulations. The legal department of BPN is active in preparation of several laws and regulations and the subcomponent will strengthen this section by financing Technical Assistance, both local and intemational consultants, and financing consultation workshops, public education and dissemination of legal changes and reforms. To ensure better linkage with the land policy sub-component under Component I, work on policy and law reform will be coordinated through the LMPDP steering committee or its successor in coordinating land policy development Education and Training The focus of this subcomponent is in developing the capacity of local academic institutions in the provision of quality programs in a range of land administration disciplinary areas through formal courses of study and short courses. Through these programs, BPN, other government agencies, local government and the private sector will have access to a range of local graduates, post-graduates and other qualified personnel. Relationships will be developed with recognized intemational universities, through exchange fellowships, development of curricula and other arrangements, will be used to develop and strengthen land administration programs offered by Indonesian academic institutions Overall Project Management This subcomponent will support BPN to manage the project. The sub-component will also support monitoring and evaluation, including financing the socio-economic and environmental impact assessment study. It includes financing of intemational and national technical assistance, contract staff, incremental operating costs including travel cost of government staff supervising the project. Project Component 3 - US$ million Implementation of an Accelerated Land Titling Program This component will support an accelerated national land titling program through: (i) community awareness and participation; (ii) systematic land titling; (iii) streamlining of Land Office registration processes (such as the process of sporadic registration); and (iv) increased capacity of the private surveying sector. The component proposes a program of systematic registration that initially focuses on five provinces in Java with modest expansion to 4-5 selected urban centers outside Java Community Awareness and Participation This subcomponent will support information dissemination through mass media (television, radio and newspapers) and posters about systematic, sporadic land titling program, and land transaction registration. The information dissemination also includes support for information dissemination to communities undergoing systematic' adjudication. Prior to the commencement of the land titling activities in the community, the project will organize an information campaign, through focus groups discussions and workshops to explain the project objectives, rationale and benefits, and also explain the forms, the costs, the procedures and legal rights to the communities, covering men and women separately. The information campaign will commence about one month before the surveying and adjudication starts. The project will hire and provide on the job training to local CSOs or community members to undertake the village level information dissemination and community awareness and participation campaigns

42 This subcomponent will also include support for the collection of community land profiles to define village boundaries, describe land distribution and identify any pre-existing land disputes. This information will be used in the planning of the titling program and later for monitoring the socioeconomic impacts of the project. A standard form for gathering the data will be developed during the pre-implementation period. This subcomponent will finance consultants, CSOs involvement in the implementation of this sub-component, office and equipment, and incremental operating costs Systematic Land Titling This subcomponent will issue about 2.5 million land title certificates through systematic registration in selected land ofice jurisdictions. Subcomponent activities include an active program of community education and participation to be undertaken throughout the preliminary, operational and post-operational stages of the program Management will be decentralized through Management Support Units established in respective provinces and district land offices. Community members will be recruited to join the systematic adjudication teams (SATs) and will be provided by on the job training under this subcomponent. The cadastral survey component of the systematic program will be fully contracted to the private sector and standard specifications and contracts will be reviewed and re-developed on the basis of experience in LAP I. The subcomponent will finance vehicles, motorbikes and equipment purchase and the provision of base mapping and cadastral surveys. The subcomponent will also finance contract staff, and travel expenses of govemment staff Streamlining Land Office Registration Processes At present about 1.3 million parcels are registered each year by sporadic means, however this number must increase significantly if the backlog of unregistered land (estimated to be million parcels) is to be realistically challenged. Sporadic titling (Titling on demand) currently takes a long time and very costly because of the formal and informal fees. As a result, only the rich and wealthy can afford sporadic titling, and this left most of the poor without land titles. The subcomponent would streamline the processes to enable the speedy and cheap sporadic titling activities. Specific activities include a study aimed at rationalizing fee structures on the basis of moving towards full cost recovery and the use of the private sector to undertake cadastral surveys. Other activities include review of service standards and community programs to encourage application for first title registration as well the registration of subsequent property transactions. The swadaya, or community initiated funded program of systematic registration will be encouraged under this sub-component The streamlining of operations will be coordinated with the model land office approach under Component 2. The sub-component will also support a study on reviewing the derivative (subsequent) registration to gauge community understanding of the benefit of titles, and barriers for subsequent transactions, including perception, cost both formal and informal, access to land office, and time taken. The subcomponent will finance international and national technical assistance and training Development of the Private Surveying Sector Sustainability of the title system, and in particular systematic adjudication, is reliant on a viable private sector to undertake cadastral surveying. Development of the private sector will benefit the community by introducing competition and reducing the opportunities for rent-seeking by government officials who

43 dominate the performance of cadastral surveys for sporadic title applications (refer to subcomponents 2B and 3C). The focus will be on stimulating the private cadastral surveying sector using the considerable business potential generated through the strategic contracts under the systematic titling program. The subcommittee will support an industry study on the basis of existing and required capacity. This will be a basis for a review of the courses established in academic institutions to ensure education capacity matches demand. The legislation for licensing of surveyors will be reviewed and assistance provided in the development of regulations to govern industry practice. The subcomponent will finance technical assistance and training to private sector surveyors. Support for the establishment of a viable industry association will also be provided with strong encouragement to exercise control over industry standards and regulatory controls. Project Component 4 - US$2.86 million Development of a Land Information System The objective of this component is develop a framework for a Land Information System (LIS) to facilitate improved access to land information for government agencies and civil society, promote transparency and facilitate public participation in land management, and improve land administration services. The need for this LIS is based on the premise that land information is critical for effective decision making on social, economic and environmental issues at all levels of government. Presidential Decree (Article 1) recognizes this need and calls for the accelerated development of a national land information system that covers: an inventory of land assets managed by all levels of government; textual and spatial data supporting land registration and, in the future, the delivery of land registration services as part of the e-government program; cadastral mapping; and land use management data. LIS development will require strong coordination within BPN and other government agencies. It is also critical that the development of this component be linked and coordinated with the Land Office Computerization Project (LOC). There will be linkages to all other projects undertaken within BPN, especially those related to re-engineering of land office functions. The component will support: (i) development of a national land information strategy; (ii) establishment of LIS infrastructure; and (iii) an LIS pilot study covering one district Development of a National Land Information Strategy This subcomponent will establish an appropriate administration and governance structure to be responsible for the inter agency coordination of LIS activities. The LIS objective can only be achieved if the major stakeholders express a willingness to cooperate. A Land Information System Steering Committee will be established under the chairmanship of BPN with representatives from the major stakeholder organizations already developing land related systems and representatives from local government and community groups with an interest in land issues. A permanent LIS Support Group dedicated to providing technical advisory support to the Steering Committee will also be established. The major activity of this subcomponent is to support the preparation of a LIS strategy outlining the key initiatives and features that need to be incorporated in the development of a national LIS

44 The subcomponent will finance an LIS strategic planner; travel costs of government staff and workshop and meeting expenses Establishment of LIS Infrastructure This subcomponent will support the development of key technical standards and the formulation of key LIS policies required for the development of a national LIS as identified in the LIS strategy (from the first subcomponent). Technical standards will include data standards (required to produce integrated information products), a regime of data administration spanning all involved government agencies, data dictionariedfeature catalogues, metadata and a corporate LIS data model. Key policies to be dealt with include data sharing and data maintenance arrangements involving all contributing agencies; LIS training needs; fees and charges; public access to land information and data privacy. The subcomponent will finance (national) consultant services, consultation workshops and training initiatives including study tours Develop LIS Pilot Study This subcomponent will support a two year pilot study spanning in one district (to be selected in consultation with Component 5) and will incorporate data and information relating to land management contributed by a range of agencies. It will create a range of potential integrated land information products and services including a prototype inventory of all land assets managed by different levels of government, potential land management e-government services and inter-agency data maintenance linkages. It will test the technical issues associated with providing these products and services. This improved understanding will provide the experience required to finalize the design and implementation plan of the national land information system as is required by the Presidential Decree 34/2003 Article 1. It will also demonstrate how improved transparency in land management can be achieved. The subcomponent will finance hardware and software, data conversion contracts, (national) consultant services (software development) and consultation workshops. Project Component 5 - US$5.91 million Capacity Building Support for Local Government This component will seek to strengthen the exercise by local governments of their fbnctions in land management with efficiency and transparency. It will be administered by the Ministry of Home Affairs, the ministry responsible for local government. Presidential Decree (Keppres) No. 34 (May 31, 2003) confirmed the transfer of government s authority on nine activities to local governments. These nine activities are: (a) location permit issuance; (b) taking of land in the public interest; (c) cultivated land dispute settlement; (d) compensation determination for land taken for development; (e) land distribution and compensation for land held in excess of standards; (f) determination and resolution of ulayat land problems; (g) resolution of unutilized land problems; (h) land opening permit provision; and (i) land use planning in local government jurisdictions. The component will undertake: (a) an in-depth assessment of the local government s capacity to undertake the above nine functions, with proposals for changes in existing norms and standard operating procedures; (b) capacity building through training and support for five local government pilots to develop sound

45 practices that can be replicated elsewhere; (c) TA for MOHA in developing a national strategy for strengthening local government land administration, and (d) TA and modest project management unit development for MOHA s implementation of this component Assessment of Local Government s Capacity to Undertake Land Administration and Management Functions This subcomponent will assess local government s capacity in this area based on a review of their practice developed over the past five years. The assessment will in the first year of the project conduct ten case studies of selected local government units. The local government units to be studied will be selected for :(i) commitment to undertake significant land management activities, (ii) willingness to participate in the case studies, and (iii) geographic breadth. They will be selected by the PIU and subjected to agreement of the Bank. The five pilot local government units under subcomponent B should be included among the ten case study units. The case studies will involve interviews with local government staff, clients, NGOs, and other stakeholders, and will use participatory appraisal tools such as stakeholder workshops and focus groups. Village land profiles will be carried out. The assessment will evaluate the current norms, standard operating procedures and practices; existing human and other resources for implementation, and corruption issues and ways to address them. Based on these ten case studies the PIU and consultants will develop a self-assessment instrument to be used nationally. The assessment final report will recommend organizational options, norms and operating procedures, and resource flows in light of the experience on the ground. It will identify and prioritize training and other needs, responding to demand from local government units. The subcomponent will finance consultant services, consultationlfocus-groups and workshops, production of reports, travel expenses and other incremental operational costs of staff and consultants Training and Capacity Building This subcomponent will provide training for staff of local government entities on a variety of topics, tentatively including participatory land use planning, community mapping, participatory decision-making for issuance of izin lokasi (location permit), land dispute resolution, and identification of land to be acquired for public purposes. The training program will respond to the demand for training by local government units. The PIU and consultants will develop a training curriculum and training materials (including case studies) based on the case studies and assessment, and will conduct training workshops and other training sessions. Five pilot local government units will be identified for this subcomponent. They will be selected on the basis of their initiative in undertaking their land management responsibilities and their willingness to participate in the pilot activity. Training activities will initially be undertaken in these five pilot local government units, then expanded to other parts of the country through regional training workshops and other learning events, reaching 100 local government units by project mid-term and virtually all the 400 plus units by the end of the project. The training will be coordinated by MOHA, with input from other concerned government agencies, including BPN, BAPPENAS and the Ministry of Settlement and Regional Infrastructure. The five pilot local government units will be the focus for capacity building through action learning. The subcomponent will provide support to initiative of these local government units to help them achieve more

46 effective and transparent land management, enabling them to become models and training grounds for other local governments. The local government planning office will act as the secretariat for the pilot, coordinating the local government staff with land responsibilities for their participation. This a modest pilot effort but if successful, the approaches developed under this component may be taken up by other operations in support of local governments, such as ILGRIP and USDRP, or serve as the basis for a self-standing project to assist a much larger number of local government entities in carrying out their land management functions. The sub-component will in connection with training finance study tours for local government officials, consultant services, workshops and other training events, and travel expenses and other incremental operating expenses of staff and consultants. In the five pilot districts, it will in addition support minor civil works, office and other equipment and fumiture, community land profiling, public consultations and other participatory planning, and survey and mapping activities Preparation Strategic Plan for Broader Strengthening of Local Government Land Management This subcomponent will provide resources for preparation by MOHA in the second or third year of the project of a Strategic Plan for strengthening of local government land management. The effort will draw upon the learning from the assessment under sub-component A and the work in the pilot local government units under sub-component B. It will develop a strategy for scaling up good norms and practices on a broader geographic basis. The strategic plan will set out tasks to be undertaken and resources required. This subcomponent will support consultant services, costs of regional workshops and a national workshop in connection with preparation of the plan, and travel expenses and other incremental costs of consultants and staff Support to Project Implementation Unit Development This subcomponent will support MOHA in carrying out its role in support of local government land management. MOHA has limited experience in undertaking large international projects. This subcomponent will build its capacity to serve the decentralized management system and help it ready itself to manage much larger initiatives in support of local government entities. A small project management unit will be established under the Director of Institution for Decentralization under the Director General of Regional Autonomy. The PIU will be responsible for all procurement and contracting under this component, including that requested by the pilot local government units. This subcomponent will support contractual staff services, consultant services, office equipment and furniture, and travel and other incidental operating costs of consultants and staff

47 Annex 3: Estimated Project Costs INDONESIA: Land Management and Policy Development Project Component 1: Land Policy Component Component 2: Institutional Development, Capacity Building, and Training Component 3: Implementation of an Accelerated Land Titling Program Component 4: Development of a Land Information System Component 5: Support to Local Government Local I Foreign 1 Total Proiect Cost Bv ComDonent I US $million I US $million I US $million Price Contingencies Total Project Costs Total Financina Rewired I I Project Cost By Category** Local US $million Foreign US $million Total US million Goods Works Consultant Services and Studies Contract Services for Mapping and Cadastral Surveys Training and Workshops Land Registration Costs Incremental Operating Cost Vehicles Total Project Costs I Total Financina Reauiredl I I

48 Annex 4: Cost Benefit Analysis Summary INDONESIA: Land Management and Policy Development Project A. Economic Rate of Return (ERR) We use data including household- and plot-level variables to measure the economic rate o f return (ERR) from holding a land title. The dataset is collected from a beneficiary survey, which was conducted by the SEMERU Research Institute for the ICR work of LAP I, in early About 1,600 households were randomly selected from both the project as well as the non-project areas. We believe the dataset lays a good foundation to measure the ERR for LMPDP due to the following two reasons: (a) there has been no significant changes in Indonesia s macroeconomic situation since early 2002; and (b) the LMPDP basically covers the same geographic area as LAP I did. Qualitative benefits We need to develop a good qualitative understanding of the benefits before quantifying it. The beneficiary survey showed that the major economic and social benefits from obtaining a land title are the following: 1. First, land titles improved tenure security. 70 percent of respondents believed that they now have a greater tenure security than before because of obtaining land titles; 2. Second, land titles improved landholders access to credit from financial institutions. According to the survey, the rate of using title as collateral to obtain credit in the project area was 12.8 percentage point higher than that in the non-project area; 3. Third, there was evidence showing that land titles strengthened investment incentives of landholders. In the non-project area, 18 percent of households reported that they had made land-improvement-related investments; in the project areas, the number was 24 percent; and 4. Fourth, in the project area land markets became more active and land prices were higher than that in the non-project area. About 2 percent of households reported that they had sold their land since the LAP S implementation in the non-project area; however, the number was 4 percent in the project area. Preliminary analysis also shows that the land price in the project area is about 65 percentage point higher than that in the non-project area. There are some other benefits which are difficult to be quantified, such as reducing land conflicts and strengthening landholders negotiation position in the process of land acquisition, etc. Methodology We use a standard econometric methodology (linear regression) to analyze the impact of titling on land prices to calculate the economic rate of return. Land prices are used as a proxy for economic value of land to calculate ERR under the assumption that all titling benefits will eventually be reflected by the change of land prices; that is, the change of land prices captures the net effect of all the benefits of land titling. Increasingly active land markets in Java, reflected by a gradual increase of land turnover rate and confirmed by the observations from our field visits, give us additional confidence for using land price as a proxy for economic benefits. Generally speaking, the results from analyzing the land prices should be more accurate than results from other methodologies, for example, analyzing increased productivity

49 There are many factors that affect land prices besides possession of a land title; therefore, factors other than land titles must be controlled in order to have a meaningful analysis. In our analysis, we control family characteristics (e.g., consumption per capita, education level, age, and gender of the household head) and plot characteristics (e.g., whether there is a land-improvement investment on the plot since obtaining title, if the plot has a house, the construction materials of the house). We also control the regional impacts by using provincial dummy variables (7 provinces). To analyze the different impacts of land titling in urban and rural areas, we also conduct sub-group analysis. The total plot sample number is 977. Results The overall economic rate of return of holding a land title is about 33 percent, and the ERR is higher in rural area (47 percent) than that in urban area (32 percent). The coefficient of title is statistically significant at 99 percent confidence level and the result is robust across different specifications. The result means that the value of a plot with a title will be 33 percent higher than that of a plot without a title, holding other factors constant. Two additional pieces of evidence give us more confidence to the above results. First, SMERU's study found that the land tax (PBB) in the project area has increased about 33.2 percentage point higher than that in the non-project area, which is very close to our estimated ERR. It should be noticed that the PBB is calculated independently by the tax authority based on the market land prices in different areas. Second, findings from the studies conducted by the World Bank for land projects in other countries also show similar range of ERRs. For example, in the case of Thailand, where the Bank has successfully completed a 18-year-long land titling program, the ERR was ranged from 30 percent to 34 percent. In the case of Ghana, the expected ERR for the land administration project is about 38 percent. However, the ERR, as calculated here, may overvalue the net benefits from the perspective of the society as a whole, The overvaluation stems from, as argued by Feder et. al. (1988), the fact that landowners are risk averse, while society is risk neural (or less risk verse). Therefore the landowners pay a higher risk premium to security than the society does. To reflect the ERR to the society, the ERR to farmers should be discounted, particularly in areas with very high tenure security risk. Taking into account this risk premium factor and assuming the discount rate ranging from 30 percent to 40 percent, the ERR of titling to the society will range from 20 percent to 23 percent, which is still relatively high. B. Financial Rate of Return (F'RR) The purpose of conducting financial analysis is to assess whether the net financial benefits expected from the project are attractive enough for the project participants. In the proposed LMPDP, there are two key project participants: the landholders and the Government. Financial benefits and costs for landholders As in many other countries, two considerations motivate individual landholders to obtain land titles: a) to improve land ownership security and b) to access a cheaper as well as a larger amount of credit from formal financial institutions by using land title as collateral. As a result of an improved tenure security and improved credit access, the value of land will increase. Under the normal situation where titles are issued upon request by landholders (Le., sporadic registration which requires landholders to pay the full cost), the landholders who request a titling service do so with the expectation that the financial retum from acquiring the title would be higher than the cost of the title

50 In most cases, land titling projects adopt a systematic adjudication method to undertake land tilting in large volumes. To ensure a high participation of landholders on a voluntary basis, the cost of land titling has been kept at a level significantly lower than the cost of producing a title. The affordability of the poorest landholders is one major criteria of setting an appropriate registration fee. For example, in the case of Thailand, landholders are charged less than US$5 per title, comparing to the actual cost of US$36 per title. In the case of LAP I, landholders were charged about US$3 per title while the actual cost was around US$26. The difference between the actual titling cost and the fee charged to landholders is the subsidy from the Government, and the Governments will recover the subsidy by a) charging full registration fee on subsequent land transactions and b) expected revenue increase from land-related taxes. Both the Government and the Bank agreed that a similar arrangement would be kept in the LMPDP. This arrangement should be attractive enough to individual landholders (evidence from many sources show that actual cost of sporadic titling is around US$600, and maybe even higher). Financial benefits and costs for the Government The government generated incremental revenues Cfinancial benefits) mainly from the following three sources: 1. Registration fee which is about US$3 per parcel. 2. Right Acquisition Tax on Land and Building (BPHTB). Act. No. 21 of 1997 introduced 5 percent buyers tax which applies on all derivative registrations and on first time registration of State land. The first Rp.30,000,000 is exempted from tax up to 2001, This exemption figure will be increased by Rp.5 million every subsequent 5 years. Based on the data supplied by BPN, first time registration of State land represents about 20 percent of all registrations; and 3. Payment of income tax on transfer of right on landbuilding (5 percent sellers tax, Government Regulation No. 48/1994). Any subsequent sales of systematic registration titles should be included as these taxes would not have been collected had the project not commenced. Thefinancial costs to the government are the all project costs and the loan interest costs (about 4 percent) and the Government s future management costs associated with each title issued by the project (2 percent of total project cost). The reason why the loan interest costs are included is that the govemment will pay interests on loans that support the project and this is a direct additional cost of the project. Should the interest costs be excluded, the FRR will be 17 percent. Methodology and major assumptions All calculations are based on the estimated project costs of LMPDP and information of actual benefits associated with the LAP I ( ). For the sake of simplicity, the actual benefits (revenues) are extrapolated over a 35 year period and no further assumptions are made regarding any expected changes or enhancements to these current actual benefits. The capital discount factor is 0.1, Derivative registrations (turnover rate) is 1 percent for year 2-6, 3 percent for year 7-20, and 5 percent for year These figures are based on the observations made by TA consultants during the implementation of LAP I and have been confirmed through discussions with the National Land Agency

51 Results The results are shown in Table 1 of the Annex. The fmancial rate of return (FRR) is 16 percent and the NPV is US$107.5 million. The FRR is financially sensitive to the changes of the base assumption of derivate registration. Should the assumption be changed to 5 percent turnover rate for all periods, then the FRR will increase to about 21 percent. The fiscal impact of the proposed project should be neutral in the short-run given that only about a quarter of the total project cost will be financed by the Government. In the long-run, it is expected that the fiscal impact of the proposed project will be very positive as shown by the relatively high FRR

52 Table 1 Calculation of Financial Rate of Return (unit: US$ Million) Year costs Benefits BPHTB BPHTB Seller Net First Registration Derivative Tax Benefits NPV=US$I 07.5 million FRR=16%

53 Annex 5: Financial Summary INDONESIA: Land Management and Policy Development Project Years Ending January 1 - December 31 I M PLE M E NTATION P ERI 0 D I Year1 I year2 I Year3 I year4 j Yearti I Year6 1 Year 7 Total Financing Required Project Costs Investment Costs Recurrent Costs Total Project Costs Front-end fee Total Financing Financing IBRDllDA Government Central Provincial Co-financiers User FeeslBeneficiaries Other Total Project Financing Main assumptions:

54 Procurement Annex 6(A): Procurement Arrangements INDONESIA: Land Management and Policy Development Project 1. Procurement Responsibilities. Procurement under the project will be carried out by Project Implementation Units (PIUs) located in three levels of government organizations, i.e at: (a) national government level (within BPN, BAPPENAS and Directorate General of Regional Autonomy, MOHA); (b) provincial level (Kanwil BPN); and (c) kabupaten level (District Land Offices). BAPPENAS will be responsible for the procurement under Component 1; BPN, Kanwil BPN and District Land Offices will be responsible for procurement under Components 2, 3 and 4; and MOHA will be responsible for procurement under Component 5 of the Project. 2. Procurement Categories. Expenditures under the Project will consist of the following categories: Civil Works (US$1.45 million); Service Contracts related to works for mapping, cadastral surveys and data conversion for land adjudication (US$27.64 million); Goods including vehicles (US$4.5 1 million); Consultants Services and Studies (US$7.62 million); Training and Workshops (US$4.90 million); Land Registration costs (US$32.52 million); and Incremental Operating Cost (US$8.97 million). Procurement Procedures 3. Procurement of goods and works will be carried out in accordance with the World Bank s Guidelines on Procurement Under IBRD Loans and IDA Credits (January 1995, revised January and August 1996, September 1997, January 1999, and November 2003). Procurement of consultant services will be done in accordance with the World Bank s Guidelines on Selection and Employment of Consultants by World Bank Borrowers (January 1997, revised September 1997, January 1999, May 2002, and November 2003). Any procurement procedure not financed, in whole or in part, by the Bank may be carried out in accordance with the public procurement regulations. Standard Bidding Documents 4. The World Bank s standard bidding documents for goods and works will be used for ICB. Model bidding documents for NCB for Procurement of Goods, Procurement of Small Civil Works, a quotation solicitation form, and contract forms for small civil works and goods will be developed and approved by the Bank for procurement under the project. For consulting services, the Bank s standard Request for Proposals, sample evaluation report, and standard contract forms will be used. The development of standard documentation will be completed prior to the issuance of the Project Management Manual and should be included therein. Advertisement 5. A draft General Procurement Notice (GPN) will be prepared and submitted to the Bank. The Bank will arrange for its publication in Development Business online (UNDB online) and in the Development Gateway Market (DGMarket), announcing all procurement on the basis of International Competitive Bidding (ICB) and major consulting services to be procured under the project. Invitation for Expression of Interests for all consulting assignments at and above US$200,000 equivalent per contract will also be published in UNDB online and in DGMarket. Specific Procurement Notices for specific contracts and contracts with consultant firms will be advertised in the national gazette or in at least one newspaper of national or regional circulation in the country, in accordance with the Bank s letter to the government dated

55 September 23, 2002, or in an electronic portal with free access. The use of Development Gateway (electronic advertising) and arrangements for it will be discussed prior to the project launch workshop. Summary of Procurement Capacity Assessment of Implementing Agencies and Suggested Measures for Strengthening 6. Procurement Capacity Assessment Report (PCAR). In accordance with the Bank s Operational Policies and Procedures (OPBP 11.00), an assessment of the procurement capacity of the PIUs at the central, provincial and kabupaten levels was conducted prior to the appraisal mission. The assessment covers legal aspects and procurement practices, procurement cycle management, support and control system, record keeping, staffing, and general procurement environment. The assessment also covers overall risk assessment and proposes an action plan to strengthen the PIUs capacity. 7. The risk assessment has come out with the overall rating as high. The central and provincial level PIUs are rated as average risk and kabupaten level PIUs, the risk can be rated as very high. This different risk level is translated into action plans to strengthen the PIUs capacity. The reasons for such assessment results are as follows: The procurement will be carried out in central, provincial and kabupaten level PIUs. The bulk of procurement activities (systematic land adjudication) will be in the project provinces and kabupatens. Although the central level and some provincial level PIUs have some experience with Bank-financed projects, some of the staff assigned or to be assigned to these PIUs do not necessarily have adequate experience with Bank-financed projects. Many of the government staff in the kabupatens have almost no experience of Bank-financed projects, nor do they have adequate experience of handling contracts larger than US$ 100,000. The Presidential Decree (Keppres ) which is the main guidelines for public procurement is adequately understood by procurement staff at all levels, however, its explanation do not have detailed and handy procedures that can be used easily by procurement staff in the field. If there are additional guidelines produced by Governors or Bupatis, they only consists of general guidance and lack of details and no provision of procurement ethics. There are some disparities between the Presidential Decree (Keppres ) apd the Bank s Guidelines. In general, there is limited staff available with sufficient procurement capacity. The general procurement environment is unhealthy and collusive practices have been reported in past projects. Sanctions against such practices were not enforced adequately and have encouraged further collusion. The new decentralization laws and the increasing power of Kabupaten government will put more pressure on PIUs staff to favor local suppliers or contractors. Proposed actions to reduce or mitigate the risks 8. Procurement Capacity Enhancement. All Project Implementing Units (PIUs) should include in their team a procurement staff with a minimum of two years experience in the procurements of goods, works and consultant selection. Since the mentioned staff may not be available, the central project management unit (MSUP at BPN) will engage a procurement specialist who have adequate experience in Bank financed projects to assist all PIUs at least for the first one year of project implementation, until all proposed procurement training for PIU s staff has been successfully completed

56 9. Procurement Training. Procurement training for trainers (TOT) will be conducted and completed before the loan becomes effective. The BPN, BAPPENAS and MOHA will jointly arrange the events, while the Bank will provide inputs for training materials. The participants will come from central and pre-selected staff from provincial govemment offices. The selected trainees will be assigned as trainers during the course of project implementation. The training will be provided to PIU staff in project provinces and kabupatens by the trainers mentioned above, with assistance from implementation management consultants, if needed. The trainings will consist of overall procurement aspects for small contracts, preparation of procurement plan and procurement ethics. Furthermore, the PMM will provide very detailed guidelines on procurement in bahasa Indonesia, and offer best practices. 10. Enhanced planning and controlling mechanisms. A draft general procurement plan for the project implementation period and for the first- 18 months detailed procurement plan will be prepared by all PIUs, consolidated by central PMU to be reviewed and approved by the Bank before loan negotiations. All PIUs will update their LMPDP procurement plans as mentioned above every year covering the next 18 months of project implementation and send it to the Bank through central PMU for its review and approval. Clarification on NCB procedures, as detailed in Appendix 1, to be included in the draft Loan Agreement. Contracts costing more than US$lOO,OOO equivalent per contract will be carried out by provincial andor central level PIUs. Prior review thresholds are set up for procurement of works, goods and consultant services in accordance with the risk levels. Procurement Manual acceptable to the Bank shall be prepared before negotiation, consisting of procedures to be followed by all PIUs. The procurement section in the manual will include: (i) Procurement methods and procedures that reflect the clarifications/modifications on NCB and NS procedures acceptable to the Bank; (ii) TOR of procurement specialist'officers; (iii) Standard bidding documents for ICB, NCB and RFP, adopted from Bank's standard documents; (iv) Reporting requirements complete with standard reporting forms in line with the FMR; (v) Guidelines on project documentation and filing system in order to get easy access, from time to time, to project files; and (vi) Project Organization and Staffing. The draft organization structure should be prepared immediately, discussed during appraisal and made available before negotiation. The Project Managemenflmplementation Units (PMUPIUs) in central as well as in regions, shall be established and key staff assigned before negotiations. Procurement Arrangements 11. Procurement Methods (Table A). Project cost by categories and procurement methods are summarized in Table A. The section on methods for procurement of consultant services are summarized in Table A. 1, and the thresholds for each category are given in Table B

57 (a) Procurement of Goods (US$4.51 million). Goods, including equipment and materials (except vehicles) to be financed under the project will be procured under the following procedures: Intemational Competitive Bidding (ICB): Procurement of goods with a value at or above US$200,000 equivalent per contract shall be carried out through ICB procedures. National Competitive Bidding (NCB): Procurement of goods between US$25,000 and US$200,000 equivalent per contract with an aggregated amount of US$740,000 shall follow NCB procedures acceptable to the Bank, and any interested foreign suppliers shall be allowed to participate. National Shopping (NS): Procurement of simple office equipment with the estimated cost is less than US$25,000 equivalent per contract with the aggregated amount of US$1,830,000 will be carried out through NS procedures. Most of this procurement will be carried out at district land offices (over 60 districts in 10 provinces). Vehicles estimated to cost US$1.31 million will be financed 100 percent by GOI. (b) Procurement of Civil Works (US$I.45 million). Since the construction works are small contracts (ranging from US$lOO,OOO to a maximum of US$975,000 per contract), all construction works for land offices and training center will follow NCB procedures. A model bidding document for NCB which has been developed under other project and approved by the Bank will be used. Procurement shall follow the Bank s clarification on the NCB procedures described in the Loan Agreement. (c) Contract Services related to Works for Cadastral Surveys, Mapping and Data Conversion (US$27.64 million). There will be contracting of many local small survey teams and mapping. The procurement procedure for this will be similar to procurement of small works in which NCB procedure will be used. To attract foreign firms to participate in these works, some of the contracts will be packaged as such to be big enough (US$200,000 or more per contract) which will be carried out under ICB procedure. (d) Consultant Services and Studies (US$7.62 million). Quality and Cost Based Selection (QCBS): Selection for consulting services with f m s for the national technical assistance under Component 4 and for the training and institutional capacity building under Component 5 of the Project with an aggregated amount of US$2,280,000 will follow the QCBS method. The weight factor used for financial proposal in combined-evaluation of technical and financial proposal should be not be less than 20 percent and not more than 30 percent. The latter will apply to simple assignments with Bank s prior concurrence. Selection Based on Consultants Qualifications (CQ): CQ method may be used to select consultant services for monitoring of BPN service standards under Component 2 of the Project with a cost of less than US$lOO,OOO equivalent per contract, with an aggregated amount of US$110,000. Single-Source Selection (SSS): For specific activities and studies such as engaging NGOs or academic institutions who will be involved in community participation and carrying out social/socio-economic base-line and impact assessments under Component 3 of the Project with an aggregated amount of US$ 210,000 when there is only one institution is qualified or has the exceptional relevant experience with a cost of less than US$lOO,OOO equivalent per contract may be procured under SSS procedures with Bank s prior approval

58 Individual Consultants (IC): Individual consultants needed during project implementation for certain activities such as for development of land policies and studies under Component 1, technical assistance for institutional capacity building under Component 2, and short term specialists in other components which the experience and qualifications of the individual are paramount requirement and teams of personnel and additional outside (home office) professional support are not required will be selected on a competitive basis, based on their qualifications for the assignment, following the provisions in paragraph 5.1 to 5.3 of the Bank s Guidelines. The aggregated amount for the individual consultants is about US$5,020,000. In exceptional cases where sole source selection is justified such as for continuation of previous work and very small, the Borrower may select the consultants on a sole source basis with the Bank s prior approval. (e) Others. Incremental Operating Cost (US$8.97 million): This cost is an incrementalladditional cost to the agency recurrenthoutine budget as a consequence of the project implementation. It covers the costs of the incremental cost of project staff for supervision and implementation guidance, coordination, surveillance and monitoring activities, collection of information and reporting. Eligible expenditures will consist of travel and per diems, meeting facilities, stipends (not staff salary/honorarium), office supplies and consumables, and communication. These expenditures will follow the government procedures and will be audited in accordance with the Loan Agreement. Training and Workshops (US$ 4.90 million): Training and workshops are an integral parts of the project s institutional capacity building component. Most of the training program will be conducted in the country and in the form of on the job training. Costs of training and workshop materials, renting of facilities, transportation, meal and accommodation, and tuition fees excluding any consultant costs, will be funded through the Statement of Expenditures (SOE) using Government procedures, audited and acceptable to the Bank. Land Titling Registration Costs (US$32.52 million): About US$32.52 million would be allocated to cover the costs related to land title adjudication, production, registration, and distribution of land certificates. The costs will cover transport and travel costs of adjudication teams, cost of contract staff/personnel, material and miscellaneous supplies such as stationery and computer consumables used for mapping and title production, and all other costs incurred by the adjudication and registration teams. Costs of title registration would be funded through the Statement of Expenditures (SOE) using Government procedures, audited and acceptable to the Bank. 12. Prior Review Thresholds (Table B). The thresholds for Bank s prior review are summarized in Table B. Goods. Contracts for goods with an estimated contract value at or above US$lOO,OOO equivalent per contract will be subject to prior review. Civil Works. Contracts for civil works with an estimated value at or above US$200,000 equivalent per contract will be subject to prior review. Consulting Services. Contracts for Consulting Firms valued at or above US$lOO,OOO equivalent and contracts for Individual Consultants valued at or above US$50,000 equivalent will be subject to prior review

59 Contract Services related to works for mapping, cadastral surveys and data conversion. Contracts valued at or above US$lOO,OOO equivalent per contract will be subject to prior review. In addition, the first contract for NCB, NS and consulting services under the prior review thresholds implemented by each PIU will be subject to Bank prior review. All contracts awarded based on single source selection will be subject to Bank prior review. Frequency of procurement supervisions proposed. 13. Since the overall procurement risk assessment is rated as high, supervision mission is scheduled at least once every six months, including special procurement supervision for post-review/audits once a year. 14. Procurement Plan. Based on the annual budgeting, the PMU (MSUP) shall prepare Annual Work Plan (AWP) in September/October each year for the following year. The AWP will be discussed and agreed with the PIUs and based on the AWP, each PIU will prepare a detailed Procurement Plan and submit it to PMU for consolidation. The consolidated procurement plan will be reviewed and approved annually by Bank s project team and shall be monitored and implemented in accordance with the Bank s guidelines and the project legal agreement. Should there be a need to change the procurement method or the aggregated amount for a particular method, the Borrower shall seek the Bank s prior approval

60 Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Expenditure Category I. Works 2. Goods 3. Services Consultant Services and Studies 4. Codastral Survey and Mapping Contracts 5. Training and Workshops 6. Land Registration Cost 7. Incremental Operating Cost Procurement Method' ICB NCB Othe: N.B.F. Total Cost (0.00) (1.01) (0.00) (0.00) (1.Ol) (0.50) (0.59) (1.47) (0.00) (2.56) (0.00) (0.00) (7.62) (0.00) (7.62) (1.OO) (21.12) (0.00) (0.00) (22.12) (0.00) (0.00) (4.90) (0.00) (4.90) (0.00) (0.00) (22.77) (0.00) (22.77) (0.* 00) (00.00) (4.62) I (0.00) 1 (4.62) Total contingencies (1 SO) (22.73) (41.38) 1 (0.00) I (65.6) I 21 Includes goods procured through national shopping, consulting services, land registration cost, training, and incremental operating costs

61 Table AI : Consultant Selection Arrangements (optional) (US$ million equivalent) Consultant Services Total Including contingencies (0.00) (0.00) (0.00) (0.00) (0.00) (5.02) (0.00) (5.02) (2.28) I (0.00) I (0.00) I (0.00) I (0.11) 1 (5.34) I (0.00) I (7.62) I Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Single Sources Selection, and Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Loan/Credit. Prior review thresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review 1 Expenditure Contract Value Procurement Method Contracts subject to Category Thresholds Prior Review (US$ thousands) 1 (US$ million) 1. Works 200orabove I NCB Yes (3.6) i Below 200 NCB No, except for theonly first contract by PIUeach implementing unit 2. Goods (except 200 and above ICB Yes (0.9) vehicles) Between 100 to 200 NCB Yes (0.2) BetweenAbove 25 and 100 NCB No, except for the only first contract by PIU each Below 25 implementing unit NS 0, except for the first contract b) PIU

62 Consultant services and studies Contract services related to works for mapping, surveys & data conversion Training & workshops Land registration costs Incremental operating costs Firms; 100 and above Below 100 n.a Individual: 50 and above Below 50 Firms: 200 and above 5etween 100 and 200 Below 100 All All All I QCBS CQ Single Source Selection IC ICBQCBS NCB NCB Other Other (SOE mechanism) Other (SOE mechanism) Yes (0.9) No, except the TORs and the first contract by PIU Yes (0.21) Yes (4.6) No, except TORs and the first contract bv PIU Yes (1.3) Yes (1.2) bo, except for the first contract b I No No Total value of contracts subject to prior review: Overall Procurement Risk Assessment: Frequency of procurement supervisions proposed: US$18.9 million High Once every 6 months (includes special procurement supervision for post-review/audits once per year) Appendix 1 Clarification on NCB of Keppres 80/2003 procedures to be included in the Loan Agreement. The procedures to be followed for NCB shall be those set forth in Presidential Decree (Keppres ) of the Republic of Indonesia with the clarifications and modifications described in the following paragraphs required for compliance with the provisions of the Guidelines for Procurement under IBRD Loans and IDA Credits (the Guidelines). These clarifications are included in the Procurement Section of the Loan Agreement. Registration (a) (b) Bidding shall not be restricted to pre-registered firms. Where registration is required, bidders: (i) shall be allowed a reasonable time to complete the registration process, and (ii) shall not be denied registration for reasons not related to their capability and resources to successfully perform the contract, which shall be verified through post-qualification

63 Pre-qualification Pre-qualification shall not be required under this project. However, for large or complex works, with Bank s prior concurrence, pre-qualification may be allowed and should be in accordance with the following: (a) (b) Eligible bidders (both national and foreign) shall not be denied pre-qualification; and Invitations to pre-qualify for bidding shall be advertised in at least one widely circulated national daily newspaper for a minimum of 30 days prior to the deadline for the submission of pre-qualification applications. Joint Ventures A bidder declared as the lowest evaluated responsive bidder shall not be required to form a joint venture or to sub-contract part of the work or part of the supply of goods as a condition of award of the contract. Preferences (a) (b) No preference of any kind shall be given to national bidders; and Regulations issued by a sectoral ministry, provincial and local regulations which restrict national competitive bidding procedures to a class of contractors or a class of suppliers shall not be applicable to procurement procedures financed under the Loan. Advertising (a) (b) (c) (d) Invitations to bid shall be advertised in at least one widely circulated national daily newspaper allowing a minimum of 30 days for the preparation and submission of bids and allowing potential bidders to purchase bidding documents up to 24 hours prior to the deadline for submission of bids; Bid documents shall be made available, by mail or in person, to all who are willing to pay the required fee; Bidders domiciled outside the areddistricvprovince of the unit responsible for procurement shall be allowed to participate regardless of the estimated value of the contract; and Foreign bidders shall not be precluded from bidding. If a registration process is required, a foreign fm declared as the lowest evaluated bidder shall be given a reasonable opportunity to register. Bid Security Bid security, at the bidders option, shall be in the form of a letter of credit or bank guarantee from a reputable bank. Bid Opening and Evaluation (a) (b) (c) (d) Bids shall be opened in public, immediately after the deadline for submission of bids, and if bids are invited in two envelopes, both envelopes (technical and price) shall be opened at the same time; Evaluation of bids shall be made in strict adherence to the criteria declared in the bidding documents and contracts shall be awarded to the lowest evaluated bidder; Bidders shall not be eliminated from detailed evaluation on the basis of minor, non-substantial deviations; and No bidder shall be rejected merely on the basis of a comparison with the owner s estimate and budget ceiling without the Bank s prior concurrence

64 Rejection of Bids (a) (b) All bids shall not be rejected and new bids solicited without the Bank s prior concurrence; and When the number of responsive bids is less than three, re-bidding shall not be carried out without the Bank s prior concurrence. Supplemental letter The supplemental letter should reserve the right to require that in contracts financed by the Bank under this project, a provision will be included requiring suppliers and contractors to permit the Bank to inspect their accounts and records relating to performance of the contract and to have them audited by auditors appointed by the Bank

65 Annex 6(B): Financial Management and Disbursement Arrangements INDONESIA: Land Management and Policy Development Project Financial Management 1. Summary of the Financial Management Assessment Overall Summary 1. The Financial Management assessment for this project has been completed in August 2003, including an assessment of financial management capacity at the implementing agencies as well as an analysis of financial management risks. Taking into account the results of this assessment, the financial management arrangements as outlined herein are considered acceptable for the purposes of the project, subject to the satisfactory completion of the next steps and action plan summarized below. 2. The lead Executing Agency for this project will be the National Land Agency (BPN), which will manage 88 percent of the total project expenditure on the components related to accelerated land titling and land information system. The National Planning Agency (BAPPENAS) and Ministry of Home Affairs (MOHA) will separately manage the balance expenditure on Land Policy and Regulatory Framework and Support to Local Government. A national Steering Committee will be formed with representation from all related agencies, including an NGO. Given the nature of components in the project, it is anticipated that a large proportion of the project activities and expenditure will be managed by BPN s decentralized land offices in some 91 regional and provincial locations across the country. Although BPN as the lead implementing agency has had prior experience in managing Bank financed projects, it is anticipated that weak implementation and financial management capacity in the regions will impose special challenges. Based on these factors, financial management risks inherent in the project entity have been rated as substantial. 3. An analysis of project specific risks indicates that substantial risks may arise from several features. The geographically diverse spread of the project and inherently weak and variable financial management capacity in the regions imposes substantial risks on financial accounting and reporting,. This is sought to be mitigated by concentrating project accounting activities at the 12 participating provincial offices rather than 91 locations and the deployment of financial management consultants to assist BPN to design and install a computerized financial accounting system at all participating BPN office. Such a system would meet all financial reporting requirements of the project as specified in the Financial Management Manual, and will be utilized to the extent possible the existing accounting systems in use at BPN and their offices. The consultants will also be tasked with training BPN staff in the operation of the project financial management system. Payment validation systems have traditionally been weak in Bank financed projects in Indonesia. Therefore more comprehensive validation procedures, including community disclosure and oversight mechanisms where applicable, will be prescribed and documented in a Project Management Manual. 4. Following the recent completion of a peer review of BPKP (such a review of BPK has not yet been done) it is proposed that the Bank accept BPKP as project auditors. Audit coverage presents moderate risks arising from the fact that under recent Government regulations the external audit agency (BPK) has jurisdiction over regional public expenditure, not BPKP. Some regions may therefore resist audit by BPKP. To overcome this clear instructions on this will be sought from central and regional authorities as a condition for effectiveness

66 ~~ Internal controls and risk analysis 5. A summary of the main financial management risks is as follows. Risks A. Inherent Country Risks Budgetary procedures I Assessment Substantial Summary Comments A detailed risk assessment is available in project documents. CFAA diagnostic completed in rated country control environment as weak. White Paper has been prepared by Government in May 2002 to address reform issues. New State Finance law has been passed, but the laws on Treasury and Audit are yet to be legislated. Minimal progress in implementation of CFAA recommendations. Public Sector Accounting Auditing Arrangements I Substantial Moderate National accounting continues on a single entry and cash basis with a partially computerized system. Public expenditure accounting standards not yet issued, though an Accounting Standards Board has been constituted and a long term strategy to move towards accrual accounting is being prepared. BPK now has legal mandate for extemal audit of regional governments, though coverage is currently very limited. Institutional Development Plan for BPK under slow implementation. Audit reports are not publicly disclosed. Organization 2. Accounting capacity, Substantial staffing. I 3. Funds Flow Moderate 4. Audit arrangements Moderate 5. Information systems. Substantial Reporting and Lead implementing agency has prior experience in managing Bank projects. But risks arise from wide geographical spread of PIUs and poor legacy of BPN. Risk mitigation possible through clear documentation of oderatine authorities and mocedures. Generally poor accounting capacity in the provincial and regional offices. Mitigation through use of project financial management consultants. Risks may arise from inherent weaknesses and delays in budget approval systems of GOI. Risks arise from BPN is audited by intemal and external audit agencies of GOI. Risks arise from manual accounting systems in government agencies. 1. Organization Structure 2. Completion of project works & services I I Moderate ILarge no. (91) of potential accounting locations in regions; generally poor accounting capacity. Titling surveys, adjudication and soft expenditures on training and TA are generally vulnerable to collusion and misuse. Mitigation through oversight by community members and public disclosure mechanisms proposed

67 3.Receipt of project goods Low 4. Payment validation Substantial 5. Disbursement and fund flows 6. Project monitoring and reporting 8. Extemal audits Substantial Substantial Moderate Overall Project Specific Risks I Substantial Procurement of goods relatively small, mostly computers and proprietary equipment. Traditionally a weak area in Bank financed projects, hrther corroborated by audit reports of previous LAPi project. To mitigate risks, additional documentation and internal control requirements will be prescribed in Project Management Manual to enhance documentary trails. Risks arise from use of geographically dispersed offices of KPKN for disbursements, which could lead to vulnerability in overall reconciliation of Special Accounts. Responsibility for Special Account management to be decentralized to BPN. Transaction based SOE disbursements proposed initially, FMR based disbursement to be considered later. ~ Geographical spread of spending units under a common Budget and chronic delays in approval of DIP warrants could prove a hurdle to smooth implementation. FMR reoortincr will be introduced from inceotion. Geographical spread of accounting locations and poor capacity increase risks. Use of trained FM consultants proposed. Computerized accounting to be concentrated in selected 12 provinces. Delays in audit reports have been experienced in the past projects. Jurisdiction of BPKP for audit in regions can become contentious. Project Financial Management arrangements. 6. Organization. For purposes of financial management the following project organization is proposed: Payments processing. Payment requests (SPP) will be prepared and validated by project treasurers at each participating regional BPN Land Office. A total of 91 such offices are likely to be involved in project financial management, with respect to contract management and maintenance of financial controls. A team of project managers (Pimpros) and project treasurers will be formally appointed at each land officepiu. Their capacity is assessed to be generally weak, based on experience with other projects and analysis of findings of the Implementation Completion Report Report No dated 19 June of the preceding Land Administration Project 1. For activities undertaken at Bappenas and Ministry of Home Affairs, payments will be processed at the respective Project Implementing Units (PIUs)

68 Accounting. The geographical spread of project implementation BPN Land offices will likely impose a strain on project financial accounting, especially at the regional level, and hence could disrupt preparation of acceptable financial statements. Given capacity constraints expected in the regional offices, financial accounting will done at 12 participating provincial BPN offices instead of regions, for which the source documents will be collected from regional Land offices and reconciled monthly or quarterly with records of KPKN. Detailed arrangements for this will be incorporated in the project management manual. A local accounting firm will be hired as financial management consultants at provincial and central project offices, who will be tasked with: (i) designing and installing computerized accounting system capable of ensuring that project financial accounting reports and FMRs are prepared accurately and at regular quarterly intervals at each Province, analyzed, and consolidated at central level; and (ii) building the capacity of government staff to operate the system and perform these functions. 7. Accounting policies and procedures. Project management and implementing units will be required to maintain financial accounting for all project resources and expenditure. Accounting for all project resources will be cash basis, in line with government accounting standards. The accounting reports currently prepared by BPN for internal financial reporting to the Government do not include reporting for project expenditure per activities or components, and hence would not be suitable for the reporting needs for this project from the point of view of effective project and financial management. The agreed formats for project financial statements will include accounting for categories as specified in the Loan Agreement as well as components as stated in the PAD. Procedures will be agreed with project management to reconcile project financial accounts with financial reporting to local and central governments on a quarterly basis. The Financial Monitoring Reports (FMRs) will be required from the Project on a quarterly basis, initially for reporting purposes only, and subsequently to support disbursements also. These reports will comprise information on procurement activity, implementation progress, sources and uses of funds and a forecast of funds required for the project. Detailed formats for these will be agreed before negotiations. The first such reports will be required to be submitted no later than 45 days after the end of the first quarter after effectiveness, and thereafter every quarter within 45 days of the quarter-end. 2. Audit Arrangements The national internal audit agency (BPKP) will be accepted as auditors for this project. Terms of reference for these audits will be agreed before negotiations, leading up to a single audit opinion on the project financial statements, Statements of Expenditure (SOE) and Special Account. Audit reports will be due 6 months after the end of the project fiscal year. The detailed mechanisms for this will be agreed at negotiations. Central directives would therefore be required to ensure that BPKP is provided unrestricted access to all project activities for purposes of audit. 3. Disbursement Arrangements 1. Fund flows for project expenditure will follow traditional Government budgeting and payment mechanisms (DIPP). These will have to be included in central budgets every year by each PIU. Each of the three central project agencies will budget for their share of project expenditure respectively. Existing government budgeting and payment mechanisms supplemented by the additional procedures on payment verification will be used for both these disbursement streams. Payments from KPKN offices will be based on duly approved payment requests (SPP) and contracts, and payment vouchers (SPMs) will be sent to project offices for accounting purposes. Funds required for meeting transportation and other expenses of adjudication teams in the regions will be channeled to separate sub-project bank accounts managed by Project Managers on an imprest basis and accounted for to Central Treasury Offices (KPKN) on a monthly basis

69 2. Detailed procedures for validation of payments are being developed for each of the following activities and will be included in the Project Management Manual: (a) Civil Works arranged directly by the BPN regional and provincial Land Offices and funded by both the Bank and GOI; (b) Technical Assistance and training activities procured and arranged at the central Ministerial level; (c) Training and technical assistance at decentralized levels in the regions; (d) Adjudication and survey expenses that will be incurred and paid out in the regional offices; and (e) Incremental operating expenses to be reimbursed under the project. 3. Financial controls requirements for each of these activities are different and payment validation procedures will be based on the following principles to strengthen controls and reduce risks of fraud and corruption. These measures take into account experience gained in project supervision in other projects as well as feedback from recent audit reports: (9 (ii) Civil work completion will be verified and certified by independent committees appointed by Project managers for this purpose; All decentralized project activities will be, certified by community members and publicly disclosed at the offices of local administrative officials: (iii) (iv) For technical assistance and training activities the agency receiving training will be required to certify satisfactory completion before training expenses are reimbursed to the provider. Direct evidence of training imparted and travel incurred will be required before payments to contractors are authorized; and Land survey and adjudication expenses at land offices will be authorized under joint authorities and work completion publicly disclosed. Land titling adjudication teams will include local community members. Completion of work will be documented in BPN formal records and completion reports certified by team members and communities, evidenced with copies of land certificates for expenditure accounting. 4. Special Account management and replenishments. A special Account will be opened in Bank Indonesiawith an authorized allocation of US$ 6.00 million with & initial allocation of US$2.0 million till commulative disbursement reaches US$ 10.0 million. Withdrawal from the Special Account will be based on payment orders by the KPKN offices once these have been approved by project managers. Replenishments into the Special Account will be based on Withdrawal Applications supported by Statements of Expenditures (SOE). For payments in excess of prior review thresholds, summary sheet procedures will be used. Financial Monitoring Reports (FMRs) based disbursements will be introduced later in the project, after satisfactory introduction of FMR reporting. The task of preparation of Withdrawal Applications for replenishment of the Special Account will be located at the CPMU at BPN, subject to approval of the Ministry of Finance (Director General Budgets)

70 Allocation of loanlcredit proceeds (Table C) Category Amount of the Credit Allocated (Expressed in SDR Eauivalent) Amount of the Loan Allocated (Expressed in Dollars) Percent of Expenditures to be Financed Clivi1 Works 490, , percent 3oods 860,000 1,200, percent of foreign expenditures, 100 percent of local expenditures (ex-factory cost) and 80 percent of local expenditures for other items Drocured locallv (3) Zonsultants services md studies 2,300, ,550, percent Clontract Services for Mapping and Cadastral Surveys 6,470, ,650, percent rraining and Workshops 1,480,000 2,480, percent (9) - Land Registration Zosts Unallocated TOTAL 7,615,000 10,650,000 [ncremental Operating 1 2,725,000 I 550,000 Zosts Front -end Fee 328,000 2,152,000 21,940,000 32,800, percent 100 percent until December 3 1, 2006 and 50 percent thereafter Amount due under Section 2.04 of the Loan Agreement

71 Conclusion & Action Plan The financial management arrangements as outlined herein are considered acceptable for the purposes of the project, subject to the satisfactory completion of the next steps and action plan summarized below: Issue 1.Organizational arrangements Action required Project financial management consultants to be selected based on TORS acceptable to the Bank. Responsibility Project Director Due Date Before loan effectiveness 2. Accounting Qualified staff to be designated for project financial accounting at BPN Head Office and at each Provincial PMU expected to participate in the first vear of the uroiect. Formats for Financial Monitoring Reports (FMRs) to be agreed with Bank. Project Director CPMU, Project Director Before loan negotiations Before negotiations 3. Audit TOR for audit of project financial statements to be agreed with Borrower. Mechanisms for public disclosure of all audit reports to be agreed with Bank. CPMU, Project Director CPMU Project Director Before negotiations Before negotiations 4. Project Implementation Draft Project Management Manual, including approved specific procedures for payment validation and other financial management procedures to be ready by negotiations CPMU, Project Director Before negotiations Adoption of the project management manual, acceptable to the Bank BPN Before Effectiveness Supervision arrangements Given the geographic spread and complexity of the project, and its overall risk classification, financial management supervision will be undertaken through annual supervision visits by Bank FM staff. Such supervision work will include review of internal controls surrounding land titling expenses in the regions. Quarterly FMR reports will be reviewed regularly through the year where financial, procurement and contract management issues will be reviewed. Risk ratings at appraisal will be refreshed annually following supervision

72 Annex 7: Project Processing Schedule INDONESIA: Land Management and Policy Development Project Project Schedule Time taken to prepare the project (months) Planned First Bank mission (identification) 04/01/2000 ADDraisal mission departure / Actual 04/01/ /04/2003 Negotiations /03/2004 Planned Date of Effectiveness 06/26/2004 Prepared by: The Government of Indonesia. Project preparation was overseen by the LMPDP Coordinating Committee, which includes EKUIN, Bappenas, BPN and MOHA. Preparation assistance: Landmark consulting financed by a Japanese PHRD Grant. Bank staff who worked on the project included: Name Speciality Wael Zakout Task Team Leader Li Guo Economist Sulistiowati Nainggolan Social Development John Bruce Land Tenure Lawyer Anthony Toft Legal Counsel Rajiv Sondhi Financial Management Wendy Schreiber Ayres Environment Surajit Goswami Economist Yogana Prasta Cecilia Belita Cynthia Dharmajaya Isono Sadoko Sumaryo Soemardjo Gershon Feder Cora Shaw Steven Dice Hilarion Bruneau Disbursement Program Assistant Program Assistant Social Developmenflarticipation Procurement Peer Reviewer Peer Reviewer Peer Reviewer Disbursement

73 Annex 8: Documents in the Project File* INDONESIA: Land Management and Policy Development Project A. Project Implementation Plan Project Management Manual Procurement Manual Financial Management Manual B. Bank Staff Assessments Project Concept Paper Working Paper on Decentralization of Land Affairs Procurement Assessment Financial Management Assessment C. Other Project Preparation Report; Social Assessment of Certification Program under the Land Administration Project (Joan Harjono, 1999); An Impact Evaluation of Systematic Land Titling under the Land Administration Project (The SMERU Research Team, May 2002); Legislative for Land (Pieter J. Evers, June 2001); Decentralizing Indonesia s Land Administration System: Are Local Gvoernmetns and Land Offices Ready? Evidence from 27 Districts (COMO Consultant); Agrarian Policy Reform Dialogues (Sediono M.P. Tjondronegoro); 2001 Final Report: Land Policy Reform Dialogues in Indonesia (Ekuin and WBOJ); Report and Views regarding Discussion on Land Issues Customary (Adat) Land Perspective and Comprehensive Approach Towards Solutions of Land Disputes (Professor Arie S. Hutagalung, Nov. 2002); Land Policy in Indonesia: An Evaluation Paper for the World Bank (Professor Sediono Tjondronegoro, Feb. 2003); Report on Land Dialogue: Land Problems in the Context of Regional Autonomy (by Gunawan Wiradi and Endang Suhendar, Feb. 2003); and Good Practices Initiated by Local Governments and NGOs (by Endang and Juni, Dec. 2002). *Including electronic files

74 Annex 9: Statement of Loans and Credits INDONESIA: Land Management and Policy Development Project 30-Mar-2004 Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO ID-Water Resources & Irr.Sector Mgt Prog PO ID-Java-Bali Pwr Sector & Strength P ID-Health Workforce 8 Services (PHP 3) PO ID-PPITA PO ID Third Kecamatan Development Project PO ID-URBAN POVERTY II PO ID-GLOBAL DEV LEARNING (LIL) PO ID-Eastem Indonesia Region Transport PO ID-PROVINCIAL HEALTH II PO ID-LIBRARY DEVELOPMENT PROJECT - LIL PO ID-W. JAVA ENVMT MGMT PO ID-GEF-W. JAVA ENVT MGMT PO ID-SECOND KECAMATAN DEVELOPMENT PROJ PO ID-DECNT. AGRICULTURAUFORESTRY EXT PO ID-WSSLIC II PO ID-PROVINCIAL HEALTH I PO ID-FIFTH HEALTH PROJECT PO ID-EARLY CHILD DEVELOPMENT PO ID-WATSAL PO ID-SUMATRA BASIC EDUCUATION PO ID-SULAWESI BASIC EDUC PO ID-URBAN POVERTY PO ID-SUMATRA REG'L RDS PO Indonesia - IlDP PO ID-SAFE MOTHERHOOD PO ID-W. JAVA BASIC EDUCATION PO ID - BENGKULU REGIONAL DEVELOPMENT PO ID ~ CORAL REEF MGMT REHA PO ID - CORAL REEF MGM REHAB PO ID-CENTRAL INDONESIA SEC. EDU PO ID-SUMATRA SECONDARY EDUCATION PO ID-QUALITY OF UNDERGRADUATE EDUC (QUE PO ID-Railway Efficiency PO ID-BALi URBAN INFRA PO BEPEKA AUDIT MODERNIZATION PROJECT PO ID-E.JAVA SEC.EDUC Total:

75 INDONESIA STATEMENT OF IFC's Held and Disbursed Portfolio Feb In Millions US Dollars Committed IFC IFC Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1995 PT Astra Graphia PT Astra Otopart PT Bakrie Pipe PT Bank NISP PT Berlian PT Bina Danatama PT Grahawita PT Indo-Rama PT KIA Keramik PT KIA Serpih PT Kalimantan PT Makro PT Megaplast PT Nusantara PT Pramindo Ikat ' PT Samudera PT Sayap PT Sigma PT Viscose PT Wings ' SMM Sunson Verdaine Buana Bank ITCF LYON-MLF-Ibis Manulife P.T. Gawi PT AdeS Alfindo PT Agro Muko PT Alumindo PT Astra Total Portfolio: Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2004 Ecogreen PT SPA Total Pending Commitment:

76 ~ Low-income Annex IO: Country at a Glance INDONESIA: Land Management and Policy Development Project POVERTY and SOCIAL 2002 Population, mid-year (millions) GNi per capita (Atlas method, US5) GNI (Atlas method, US$ billions) Average annual growth, Population 1%) Labor force (%) Most recent estimate (latest year available, ) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% ofpopulation) Illiteracy (% ofpopulation age 15+) Gross primary enrollment (% of school-age population) Male Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 GDP (US$ billions) Gross domestic investmentigdp Exports of goods and sewiceslgdp Gross domestic savings/gdp Gross national savings/gdp Current account baianceigdp Interest paymentslgdp Total debvgdp Total debt sewice/exporls Present value of debt/gdp Present value of debtlexports (average annual growth) GDP GDP per capita Indonesia East Asia 8 Pacific 1, ,740 1.o Lowincome 2, , Development dlamond Life expectancy GNI per capita -r 1 Gross primary nroilment Access to improved water source -Indonesia Low-income group Economic ratios Trade 1 T Indebtedness -Indonesia group I STRUCTURE of the ECONOMY (% of GDP) Agricuiture Industry Manufacturing Services Private consumption General government consumption Imports of goods and sewices o GDi -GDP I o01 2o02 (average annual growth) Agriculture o 1.7 Industry Manufacturing Services Private consumption General government consumption Gross domestic investment Imports of goods and sewices Growth of exports and imports (Oh) Exports --O-lmports

77 IMF Private Indonesia PRICES and GOVERNMENT FINANCE Domestic prices (% change) Consumer prices Implicit GDP deflator Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overaii surplusldeficit GDP deflator +CPI TRADE (US$ millions) Total exports (fob) Fuel Rubber Manufactures Total imports (ci0 Food Fuel and energy Capital goods Export price index (1995=100) import price index (1995=100) Terms of trade (1995=100) , , , , , , , ,364 12, ,275 34,669 2,497 5,523 9, ,817 12,139 1,238 19,119 35,805 2,852 6,558 8,606 Export and Import levels (US$ mill.) T ta Exports Imports I BALANCE of PAYMENTS (US$ millions) Exports of goods and sewices Imports of goods and sewices Resource balance ,251 37,167 22,716 34,674-2,465 2, ,864 50,549 12, ,004 51,498 12,506 Current account balance to GDP (Oh) 6 7 Net income Net current transfers -2,993-5, ,143 2,728-6,506 1,453 Current account balance -5,324-2,780 6,900 7,451 Financing items (net) Changes in net reserves 3,471 4,850 1,853-2,070-8, ,430-4,021 Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/us$).. 27, , , ,911 9,311.2 EXTERNAL DEBT and RESOURCE FLOWS (US$ millions) Total debt outstanding and disbursed IBRD IDA ,133 88, ,072 1,735 10,640 11, ,765 10, I Composition of 2002 debt (US$ mill.) I Total debt service IBRD IDA 3,856 12,457 14, ,515 1, ,893 1, Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers ,067 3, ,401 2,655-6, ,777-5, , , , , ,915-7,066 1, , ,519 A - IBRD E - Bilateral E. IDA D.Other multilateral F ~ C ~ G -Short-term I

78 Additional Annex 11 : Environmental Analysis INDONESIA: Land Management and Policy Development Project Environmental Conditions of Indonesia Indonesia is a country of highly varied landscapes, modern and fast-growing cities, and vast endowments of natural resources. Indonesia is also a land of extraordinary biodiversity. It is home to 10 percent of the world s mammal species, 11 percent of its plant species, 16 percent of its reptiles and amphibians, 17 percent of its bird species, and 25 percent of its fish species. Most of these species are found in the nation s forests. About 60 percent of Indonesia s land is forested and a significant portion is also mountainous and volcanic. Centuries of volcanic activity has led to high soil fertility on Java and Bali, contributing to their high population densities and intensive land use. Millions of Indonesians depend directly on fishing, farming, and forestry for their livelihoods. Large plantation operators, timber concerns, and mining and oil companies operate over large tracts of land, often employing highly destructive practices as they seek short-term profits. The poorer communities that depend most directly on the natural resources for their livelihoods are hurt the most from the loss of resources. Deforestation is occurring at an alarming rates in Indonesia, due to clearing of land with fire for timber or estate crop plantations or for agriculture, and poorly controlled commercial logging. The forests provide habitats to many large animals including tigers, orangutans, gibbons, elephants, wild cattle, rhinos and countless bird species. Loss of habitat and uncontrolled hunting are decimating many of these animal species. The problem of deforestation is most acute in Kalimantan, Sumatra, Sulawesi, and West Papua, islands with relatively low population densities and high value natural resources. Slightly less than 10 percent of Indonesia s land area is designated as conservation areas through a protected area network that comprises 35 national parks and 339 other reserves. The system itself is incomplete, with 36 of 80 areas designated as critical reserves remaining legally unprotected. Moreover, only one national park has been hlly gazetted: Kerinci-Seblat National Park. In addition, the boundaries of the parks, protected areas, and remaining forests are not clearly defined and encroachment, illegal hunting, timber cutting, and other activities are widespread. Although Indonesia extends across more than 17,500 islands, fewer than half are inhabited. About two-thirds of Indonesia s estimated 203 million people live on Java, Bali, and Madura, although these islands make up only 7 percent of the land mass of the country. About 42 percent of the population lives in urban areas, and the numbers are growing rapidly. Environmental conditions in Indonesia are thus very location-specific. Java and Bali, where land titling activities will be confined, have few forest resources and only a small proportion of its biodiversity. Rather the most serious environmental problems in these regions are air and water pollution. Another environmental concern i s the lack of access to clean water and sanitation facilities in Indonesia, particularly in peri-urban areas, which contributes to Indonesia s high rate of preventable diarrheal diseases and repeated local outbreaks of typhoid. Investments in piped water supplies and especially sewerage have been well below what are needed to provide universal coverage. It is estimated that over 43 million people lacked access to piped water supplies and an even larger number lacked access to sewerage systems

79 Impacts of the Project on the Environment Adverse environmental impacts of the project are likely to range from minor to negligible. Among other goals, the project seeks to improve natural resources management by supporting the development of policies, laws, and regulations to clarify rights of people to land, by enhancing transparency in land matters, and by strengthening security of tenure through the issuance of titles to households with legitimate legal claims to the land. Establishing clear property rights to land and natural resources creates incentives for owners to manage the resources for their long-term benefit. This encourages investment in soil conservation, watershed protection, reforestation, and sustainable use of wild animals and plants. By formalizing rights to residential plots, the project encourages investment in activities and infrastructure that improve environmental conditions where people live and work, such as solid waste management, water supply systems, and sanitation facilities. Indeed a social assessment of the earlier Indonesia Land Administration Project shows that peri-urban dwellers invested substantially in their homes and neighborhoods after receiving titles. In this way the project is expected to directly contribute to improved environmental management in Indonesia. Indirectly, by stimulating new investment in industries, agriculture, urban housing and offices, the project has the potential to affect the environment negatively. Without proper management, new investment in industry and other facilities can harm the environment. To minimize or mitigate the potential impacts requires effective environmental laws and regulations, and the strengthening of capacity of the ministry of environment and the regional and local environmental agencies to monitor compliance with and enforce environmental the laws and regulations. New investment due to titling will occur outside the scope of the project, and no specific measures have been designed to deal with its potential impacts under project financing. Indonesia has a fairly well-developed system for managing environmental matters at both the central and subnational levels. The Ministry of Environment is responsible for providing the legal framework that defines the responsibilities and services to be provided at the central, provincial, and local levels; setting the policy; specifying environmental standards; monitoring and enforcing compliance with national minimum standards; providing training; conducting research; and collecting and disseminating data. Authority for subnational level environmental management and control was largely decentralized in 1999 to provincial and kabupaten and kota levels of government (bapedal at the provincial level and bapelda at the kabupaten and kota levels). These agencies are responsible for environmental impact assessment of projects. Handling these services at the subnational level is expected to result in an improved process of environmental impact assessment, and improved monitoring and enforcement of national minimum standards, although decentralization of important functions of environmental management has in some cases led to weakened controls over the exploitation of natural resources and the management of the environment. Two important functions have not been devolved to subnational governments - the determination of forest boundaries and changes in their status and function (including conversion), and the management of conservation and protected areas - and remain under the control of the national government. Many multilateral and bilateral donors and NGOs are working with both the central and local government environmental entities to strengthen their capacity for environmental and natural resources management. The European Union, the United States, Canada, Japan, United Nations agencies, the World Wild Fund for Nature, the Nature Conservancy, Conservation International, and others have programs that aim specifically to promote decentralized and strengthened management of Indonesia's forests, protected areas, and coastal resources. Many donors have provided technical assistance and training to the Ministry of Environment and the Ministry of Forestry to strengthen their capacity to develop policies and standards to soundly manage natural resources and the environment

80 Project Approach with regard to Environmental Issues The project is classified as World Bank environmental assessment Category B because it is not expected to have significant, large scale, or irreversible adverse environmental impacts. The project has been designed to promote sound environmental management and to mitigate potentially negative affects arising directly from project activities. Measures include: Sequencing of systematic titling activities. The project will not provide titles in areas designated as forest areas, protected areas, the coastal zone, riverbanks, areas of cultural and religious significance, or areas for public purposes or public facilities. Incorporating environmental input into land policy formulation. Wherever appropriate, the land policies and regulations being developed under the project will include input from the ministries of environment and forestry and from nongovernmental organizations with an interest in sound environmental management and in environmental protection. The Ministry of Environment will be a member of the national land committee that is responsible for formulating land policies and regulations. The three ministries managing natural resources (ministry of forestry, ministry of mining, and the ministry of agriculture) will also be members. NGOs concerned with the environment will participate in the public consultations and focus group discussions intended to build consensus on the national land policies. They will also be consulted regularly throughout project implementation, Advice will also be sought from multilateral and bilateral donors working in the area of environmental management. Ensuring that construction of buildings complies with World Bank social and environmental safeguards. The project will support rehabilitation or construction of up to fifteen land office buildings. The buildings will be constructed on land that is already occupied by local government offices or on land that is vacant. No people will be involuntarily resettled under project-supported activities. All buildings will be designed and constructed in accordance with sound architectural and engineering practices. Care will be taken during construction to control dust and noise, provide appropriate sanitation facilities for workers and protect worker safety, and dispose of solid waste appropriately. Proposals for civil works will contain a plan for minimizing and mitigating environmental impacts. Local environmental entities will review all proposals for construction of buildings and civil works in accordance with the normal environmental assessment processes. Encouraging local governments to include environmental representations in stakeholder consultations. Through its support to local governments, the project will encourage local governments to include NGOs concerned with the environment to participate in the stakeholder forums regarding matters such as the issuance of location permits, opening of new lands, land distribution, and land use planning. These fimctions of local government all have implications for the environment, and decisions should not be made without understanding clearly those implications. Monitoring and evaluating the impact of the project on the environment. Most of the positive environmental impacts of the project will result from strengthening security of tenure and from developing policies that reflect concems for improved environmental management. The key output indicators include the number of policies developed with environmental input. It is not expected that outcomes, such as evidence of improved environmental management will be measurable during the project lifetime. It is expected that the project s environmental impacts will ultimately be measurable through monitoring of environmental indicators regularly carried out by the Indonesia Ministry of Environment

81 Compliance with World Bank Environmental Safeguard Policies Environmental assessment (OP 4.01). The project is classified as category B because it is not expected to have significant adverse environmental impacts. Other than construction of office space and related facilities, the project will not support civil works, land conversion, resource extraction, industrial production or any activity that could potentially damage the environment. Contracts for civil works under the project will be subject to screening for environmental impacts by the local environmental entities (bapelda), which are responsible for this activity. All contracts will include measures acceptable to the bapelda to minimize or mitigate environmental damage. The project will not support land acquisition or associated involuntary resettlement. Policy formulation and institutional development (about 25 percent the total project cost) are environmental assessment category C. They are not subject to special environmental review requirements. Natural habitats (OP 4.04). The project will not provide titles in areas designated as protected areas by the Government of Indonesia or in areas that, in the Bank s opinion, are of potential environmental significance. These include forests; marine and coastal areas; areas along riverbanks; conservation areas; areas surrounding springs, lakes and reservoirs; coastal mangrove areas, and the like. Cultural property (OPN 11.03). Indonesia has sites of great cultural significance, not all of which are currently known. The project will not provide titles in areas with known cultural artifacts or in areas deemed by the government as high priority for further study. The project will in addition not title lands considered sacred or of spiritual importance. Forests (OP 4.36). The project will not provide titles in areas classified as forest land by the state, unless the state agrees to release the land for individual titling. Pest management (OP 4.09). This policy does not apply to the project. While farmers may increase their use of pesticides while intensifying cultivation, the increase is not expected to be significant. In should be noted that the government of Indonesia has pursued a strategy of integrated pest management since 1989, which it scaled up to national level in the mid-1990s. The World Bank, the Asian Development Bank, and USAID have been supporting the government in implementing the strategy. The Food and Agriculture Organization has also been training farmers through the farmer field school approach in the use of integrated pest management practices. Environmental Guidelines The project will finance the expansion or construction of about fifteen small land office buildings. The buildings will be expanded or constructed on land already under the control of BPN or local government or on vacant land. No resettlement will be involved. Other than construction of office space and related facilities, the project will not support civil works, land conversion, resource extraction, industrial production or any activity that could potentially damage the environment. The maximum value of the construction and related civil works at any one location will be US$l million. Construction of the buildings is expected to have little or no significant, large scale, or irreversible adverse environmental impacts. Environmental impacts would arise primarily from poor site management during the construction of the buildings. The project is classified as safeguards category BlS2 because it is not expected to have adverse environmental or social impacts. Policy formulation and institutional development activities (about 25 percent the total project cost) will not have direct impacts on the environment and are considered environmental assessment category C. They are not subject to special environmental review requirements

82 These guidelines outline the principles and procedures that implementing entities will follow to ensure that project-supported activities comply with the Bank s environmental safeguards and with the environmental laws of Indonesia. Indonesia s environmental review procedures are generally consistent with the Bank s and will form the framework for the project s approach to environmental management. Basic Principles Construction activities supported under the project should seek to avoid, minimize, or mitigate negative environmental impacts. Those responsible for construction or related civil works will do so by following the guidelines in the project implementation plan for design and construction. Construction and other project activities will be designed to promote improved practices of environmental management wherever possible. They may include, for example, drainage systems that minimize negative impacts on nearby wetlands or drinking water sources. Measures to avoid, minimize, or mitigate environmental impacts will be included in the project documents specifying the design and construction of the buildings and the standard operating procedures to be followed during construction. No subproject that would require a full environmental assessment under Indonesian regulations or that would be considered Bank environmental assessment category A will be approved for financing under the project. Environmental Screening Procedures The bapelda, the local government agency responsible for environmental impact assessment of projects with strictly local impacts, will screen all proposals for construction and civil works in accordance with the screening criteria established by the government. The initial classification will be based on the characteristics of the construction site, the scale of construction, and the nature of the surrounding area. Depending on its potential impacts, the bapelda will place the project into one of four categories in accordance with the criteria of the Government of Indonesia: (i) Projects requiring a full environmental assessment in accordance with Indonesian regulations. No projects are expected to fall into this category; (ii) Those requiring environmental management and monitoring plans. The Ministry of Settlement and Regional Infrastructure has set criteria for projects requiring such plans. Most construction activities to be supported under the project are expected to fall into this category; (iii) (iv) Those for which generic good practice, following standard operating procedures will apply. Some projects may fall into this category; and Those requiring no environmental study, where no construction, disturbance of land or water, or discharge of pollutants is involved. No construction activities will fall under this category

83 Government screening criteria for construction of apartments and office buildings According to KEP- 17iMENLW2001 (concerning types of businesses activities required to complete an environmental impact assessment) the following rules apply for construction of apartments and office buildings: A full environmental assessment (ANDAL) is required for buildings: 0 Covering a land area greater than or equal to 5 hectares 0 Having a floor area per building greater than or equal to 10,000 square meters. Under Kepmen Kimpraswil-l7/KPTS/2003 (concerning decisions on types of activities in the field of public works that are required to prepare UPL and UKL) site-specific environmental management and environmental monitoring plans (UKLAJPL) are required for all buildings: 0 Having a floor area less than 10,000 square meters. All the buildings to be constructed under the project are expected to have a floor area less than 10,000 square meters. Some of the construction activities are likely to be the addition of a room or two to existing buildings, for which a UKLAJPL will not be required. Standard operating procedures will be used instead. Environmental Management The project implementation plan will contain a matrix of likely environmental impacts related to construction of buildings, and the steps to be followed with which to avoid, minimize, or mitigate them. Standard operating procedures will include measures applying to construction in general, such as measures to control dust, noise, and traffic at construction sites and guidelines for controlling erosion. The entities responsible for implementing the construction activities, whether local government or local offices of BPN, will be responsible for preparing the environmental management and environmental monitoring plans (UKLAJPL), where required. They will also be responsible for ensuring that the measures specified in the UKLAJPL are incorporated into the designs, construction contracts, and post-construction operating procedures, as appropriate. The appropriate central level project management unit (BPN or of the Ministry of Home Affairs) through the project-financed consultant will review the final construction proposals to ensure that they are in compliance with the guidelines. Proposals for buildings and related civil works costing over US$150,000 will in any case be submitted to the Bank for prior review and final approval, giving the Bank a chance to review and approve the proposed environmental management and environmental monitoring plans. Smaller projects will be subject to post-implementation review. The implementing entities will be responsible for supervising construction and ensuring that the construction is in compliance with the agreed measures to minimize and mitigate negative environmental impacts, whether based on the UKLAJPL or on the standard operating procedures as laid out in the project implementation plan. The appropriate central project management unit through the project-financed consultant will check on the performance of the local-level entities in filfilling their responsibilities by randomly checking the construction sites

84 Bank supervision missions will randomly visit construction sites and those responsible for implementing the projects to ensure that the projects comply with the national laws regarding environmental impact assessment. Monitoring and Reporting Periodic progress reports will include a review of the performance of the contractors and of the implementing agency in avoiding, minimizing, and mitigating environmental damage arising from construction and related civil works financed under the project. The Socio-economic and environmental impact study would be undertaken to monitor land titling on the environment

85 Additional Annex 12: Social Analysis INDONESIA: Land Management and Policy Development Project A social assessment of the systematic land titling program of the Land Administration Project was carried out 1999 at the mid-term of the project. This was followed in 2002 with an impact evaluation of the program. Altogether, about 2,200 people in 23 of the 49 districts and cities covered under the program participated in focus group discussions, interviews, or surveys regarding the program and land matters in general. The full social assessment and impact evaluation are available in project files. The key findings of the studies are summarized below. Land registration has increased the security of tenure for all, but the program has benefited the poor the most. The great majority of respondents indicated that registering land through the program has provided them with a higher level of security than other documents showing ownership of land (such as documents recording the payment of land taxes) and that having such security has strengthened their bargaining power should the state or investors wish to take over their land. The program did not discriminate on the basis of income or social status, providing title to all in the program area who were able to prove their claims. However, the poor benefit most by being able to obtain security of tenure inexpensively and quickly, because they cannot afford the costs and time of obtaining title through the sporadic titling program. Respondents indicate that the project teams made special efforts to ensure that the poor were not overlooked in the titling process. In most cases the poor paid little or nothing for their land titles as better off members of the community paid higher fees to cover the costs of titles for the poor. The program had the greatest impact in cases where state land was converted to private land. The benefits of moving households from completely insecure land tenure to completely secure land tenure were substantial. New investment in land, housing, and public water and sewerage systems and other public amenities was higher in such communities than in those occupying land already recognized as private. This suggests that resolving the difficult cases involving occupants of state land and, where appropriate, converting state land to private land could have a substantial development impact. Eliminating the 5 percent tax that households pay when registering for the first time land classified as state land would help speed the process. Currently many households living on such land cannot afford this fee. The position of women with regard to land that they have inherited has been strengthened. However, the opposite is true with regard to land that has been purchased after marriage. Over 20 percent of the land held by the people participating in the social assessment and the impact evaluation has been passed down through the female line. This land has nearly always been registered in the names of the female heirs. Similarly, land inherited by men has been registered in the names of the male heirs. In these areas, joint ownership of inherited land by husband and wife is unknown and neither the husband nor the wife have legal claim to property inherited by the other. The only area of disadvantage women have experienced under the program has been with regard to land purchased after marriage. In most cases, this land has been registered in the names of the husbands and not in the names of both partners. According to traditional law, land and other assets acquired during marriage must be divided equally if the couple divorces. Registering the land in the name of only the husband may place the wife in a less secure position than prior to registration, simply by converting traditional land tenure to a more formal legal status. An important reason for not registering the titles in both names appears to have been the failure of the adjudication teams to explain

86 that such land could be so registered and that doing so would provide the wife with legal protections in the event of the death of the husband or of divorce. The solution is to train adjudication teams to inform participants of both the right of the wife to request that her name be included on the title of land purchased after marriage and of the benefits of doing so. Access to and use of credit has risen. A higher proportion of households with land certificates have obtained formal bank loans than households without such certificates. Most of the loans have been used for investment in non-farm businesses, such as in the expansion of a store, in small-scale hiture production, or in the purchase of a small vehicle for use as a taxi. Households in urban and peri-urban areas have used credit to replace bamboo houses with brick houses, to connect their houses to electricity, and to contribute to the construction of public water and sewerage systems and paved paths, thus helping to improve their neighborhood as a whole. Land values have increased. Titled land appears to be worth percent more than untitled land. The rise in value is especially pronounced in urban areas, where land is undergoing rapid changes in use and land markets are most active. Having title is especially important in this context, because developers and their financiers do not want to deal with uncertainties regarding the status of land. Investments in land increased. Having greater security of tenure has encouraged households to invest in land, although the change has not been great. Most of the investment has been in land used for house plots. Little new investment was made in agricultural land, as much of the land is already under intensive irrigated rice production and it would be virtually impossible for any individual to make any investment that would improve its productivity. Tax revenues have risen. Revenues from taxes on land and buildings rose after titling, due to increases in land values. The increases are most pronounced in urban areas, where land values are rising sharply. Registering of subsequent transactions has remained low, which may over time erode the benefits of the program. Beneficiaries of the systematic land titling program stated that they did not register subsequent transactions with BPN because they believe that the costs and time required to do so are too high. Instead, they record their transactions with the local (kelurahan) office. Over time, this practice will erode the benefits of the program, as the new owners will not have the security of tenure offered through formal registration. The solution is to reduce the costs and time required to register transactions of titled land with BPN. Project approach with regard to social issues The findings of both the social assessment and the impact evaluation have been reflected in the project design. In particular, they have been used to inform the choice of the land polices to be developed under the project and to design the framework and guidelines for community participation intended to ensure that women, the poor, and marginalized groups benefit hlly from the project. Details follow. Incorporating measures to ensure that women and men benefit equally from the project. The project has been designed to ensure that women are not disadvantaged through land titling of land. Adjudication teams and NGOs contracted under the project to facilitate community participation will be instructed to clearly explain to both men and women the advantages of titling land purchased after marriage in the names of both husband and wife and of the wife s right to have her name included on the title. They will also be required to invite both men and women to all meetings related to systematic

87 land titling, and to organize special meetings for women to ensure that women have opportunities to ask questions and voice concems. An indicator of the success of the project will be that 90 percent of women participating in surveys state that they had the opportunity to discuss the project and were aware of their right to have their name recorded on land titles. In the development of land policies, NGOs focusing on women s rights will be invited to participate in the public consultations and the focus group discussions. Representatives of women s interests will also be involved in participatory land use planning and any other activities being undertaken with community participation. Ensuring the participation of stakeholders in all project activities. The project will finance public consultations with stakeholders in developing national land policies. It will also finance the contracting of NGOs to facilitate community participation in the systematic titling program (Component 3). They will carry out activities such as raising awareness of the program, conducting village tenure profiles, entering field data into the registration database, analyzing.registration records, producing consolidated village land files, and informing communities of the importance of registering subsequent transactions of titled land and explaining how to do so. The project will provide the selected NGOs with training in participatory techniques to ensure that they reach both women and men, members of marginalized groups, and the poor. The project will also finance the contracting of NGOs to independently monitor the performance of BPN in implementing the systematic land titling program and of local governments in carrying their responsibilities with regard to land management. This annex contains the detailed participation framework. Ensuring the project benefits the poor. The project will include several elements intended to ensure that the poor benefit fully from the project. The first is to include poverty indicators among the criteria for selection of areas to be covered under the systematic land titling program. The previous Land Administration Project required that the areas to be covered have a majority of low income households. This worked well, and the proposed project will follow the same approach. The second element is to train NGOs and adjudication teams in measures designed specifically to reach the poor. The third element is to establish a fee structure for titling that exempts the poor from fees for systematic titling. The precise fee structure will be agreed during appraisal. Supporting the establishment of a stakeholder forum at the local level to facilitate participation in decisions on land issues. The local governments are responsible for nine functions in relation to land issues, according to the Presidential Decree 34 signed on May These nine functions are: (i) issuance of location permits, (ii) provision of land for the public interest, (iii) settlement of disputes regarding cultivated land, (iv) resolution of compensation for land allocated for development, (v) land distribution and compensation for excess land, (vi) determination and resolution of conflicts regarding ulayat land, (vii) resolution of problems regarding neglected land, (viii) provision of permits to open new land, and (ix) land use planning within the jurisdiction of the local government. Local government will require considerable stakeholder input if they are to carry out these functions successfully. The project will assist local governments in establishing and maintaining participatory processes through which consensus on land matters can be built. These will include stakeholder forums involving representatives of government, academia, the private sector, NGO, investors, real estate interests, and others as appropriate

88 Supporting the development of conj7ict resolution mechanisms. The project through component 5 (support to local governments) will support the piloting of alternative dispute resolution mechanisms to enable parties to resolve disputes without resorting to costly and time-consuming legal proceedings. These may include establishment of local land dispute resolution councils, ulayat land management entities, or other bodies that will directly engage disputants in producing and implementing plans and rules and solving problems. Supporting the development of polices and procedures for recognizing and registering adat land rights. The project will support the development through nationwide consultations of a national policy on recognizing and registering adat land rights. The project will not title land in areas with adat land until a policy has been adopted and supporting legislation passed that makes clear the procedures that will be followed to define the boundaries of adat land and to register the land in the national cadastre. Supporting land distribution. The project will support the development of a national policy on distributing state and abandoned land to households who are either already settled on and cultivating the land or are lacking sufficient land to support themselves. Compliance with World Bank Social Safeguard Policies Indigenous Peoples (OD 4.20) The population of Indonesia consists of hundreds of culturally and socially distinct ethnic groups, many of which communicate in unique local languages. A particular ethnic group may constitute the majority or a large proportion of people in one area, but in another represent a vulnerable minority. A rigid system cannot therefore be used to identify the groups covered under OD Rather, the policy applies to culturally distinctive groups that are vulnerable and marginalized according to both self assessment and the judgment of those who are not members of the community. The project has been designed to protect the rights of vulnerable, marginalized indigenous groups in several ways. Off Java it will not support titling in rural areas, where most of the vulnerable and marginalized communities are located. Neither on or off Java will it support titling where ownership claims to land are unclear or contested. Thus, it will not provide title to lands that are claimed by indigenous people, any government entity, or a community. The project will support the development of a policy through a highly participatory process on methods for future formal recognition and registration of adat lands and adat rules for allocating and managing land. Involuntary Resettlement (OP 4.12). The project will not involve land acquisition. New buildings to be constructed under the project will be built on land already under the control of local government or on vacant land. The project will not support titling of land for which ownership claims are unclear. Neither the state nor its entities will receive title to land on which people are settled. Squatters on state land thus will not receive titles unless the state formally releases the land for individual titling. The project will follow a fully participatory approach, including posting public notices in villages, to ensure that the rightfbl owners of the land receive title

89 Social Guidelines Basic principles 0 No group should be left worse off because of the project than without it. Care will therefore be taken to reach women, the poor, and vulnerable and marginalized groups to ensure that they benefit fully from the project. 0 No project-supported activity should have an adverse impact on indigenous people. 0 No households should be involuntarily resettled. 0 Accountability and transparency with respect to the use of project fimds and fees for titling should be high. Ensuring that no land whose ownership is unclear or in dispute is titled To ensure that no such land is titled, a broad public awareness campaign will be undertaken by both the project implementing agencies (BPN or the Ministry of Home Affairs) and by the NGOs that are contracted by the project to facilitate community participation. An additional layer of oversight will be provided by NGOs contracted to independently monitor project implementation. Following adjudication, a map showing the boundaries of individual plots and the names of their owners will be posted in several prominent places in the community for a period of no less than 30 days. People who disagree with the findings shown on the map will be able to lodge their complaint with both the NGO and with the adjudication team working in the community without charge. They will work with the necessary authorities to correct simple mistakes. When the complaint involves a dispute between parties rather than a simple mistake, the parties will be encouraged to settle their disagreements through normal channels. Experience from the previous Land Administration Project shows that people are often able to reach agreement when motivated to do so by the opportunity of receiving a title to land at low cost. Raising community awareness and participation A weakness in the earlier Land Administration Project were its community awareness and community participation activities. Participation and community awareness will be significantly strengthened in the proposed project. NGOs will be contracted to work directly in communities that are participating in the systematic land titling to both publicize the program to the community as a whole and to ensure that the poor, the disadvantaged, women, and marginalized and vulnerable groups participate and benefit fully from the project. Brochures on procedures, requirements, costs, mechanisms for resolving complaints, women s rights to title under the law and the like will be produced and provided to both NGOs and to community leaders (lurah, rukan tetungga, and rukun wurga), who will be expected to distribute them to community members. A luruh is head of an urban kelurahan, a rukun tetungga is head of a neighborhood group, and a rukun wargu is head of a neighborhood association

90 Ensuring transparency and accountability Beneficiaries of the project have the right to know how much they will have to pay to obtain titles and how long the process will take under both the systematic and sporadic titling programs. All fees for titling (whether for sporadic or systematic titling) will be posted in the national and local BPN land offices. Fees for systematic titling will be postedjn participating communities, included in information materials, and announced by the NGOs contracted to facilitate community participation. NGOs contracted to independently monitor the implementation of the project will pay special attention to the adherence of BPN to the agreed fees and charges and to the performance standards. They will compile a report with their findings every six months and send it to the implementing agencies copied to the Bank. A social assessment to be undertaken at the mid-term of the systematic land titling program, and an impact evaluation to be undertaken at its conclusion will thoroughly explore the issues of charges and fees and overall performance of the implementing agencies. Measures will be taken immediately if irregularities are found. Handling grievances The project will support the handling of grievances in two ways. Firstly, a task force will be established in the LMPDP PIU unit in BPN. The unit will be responsible for handling complaints and grievances submitted by individuals or groups to local offices or directly to the central office. Secondly, the NGOs hired to support land titling will communicate the grievances and complains to the task force. BPN will record all complains and also record the actions taken. Titling land outside of Java The proposed project will not title land in rural areas outside of Java. It will title only land for which claims are not in dispute. Title will given only to individual households and not to any government entity, to a business, or to a community as a whole. The following steps will be taken to determine eligibility for titling and to enter the data into the national cadastre. Creating land tenure profiles. To determine eligibility of land for titling, the project will finance the training and work of NGOs to facilitate the development of community land tenure profiles. The profiles will show the boundaries of adat land, past and present administrative boundaries, and land for which rights are in dispute along with the nature of the dispute (between family members, between communities, between communities and a government entity, or between other disputants). The product of the exercise will be a land tenure profile and a request for titling. Reporting Periodic progress reports will include a review of the performance of the adjudication teams and the NGOs in ensuring that all members of the communities involved in systematic titling are able to participate in the program. They will also include a summary of the nature of complaints received and the steps that were taken to address them

91 Participatory framework Public participation will be an essential element of project activities, but will be handled differently depending on the executing entity and the nature of the activity. The processes to be followed for development of the national land policy, the systematic titling program, and support for local governments are described below. Development of land policies and revisions to the Basic Agrarian Law Principles 0 The public consultations should seek to gather the input of as wide a range of stakeholders as possible to ensure that the national land policy truly represents a national consensus. 0 The public consultations should be conducted in a way that ensures all are able to participate fully. This means that should be conducted in local languages and with professional facilitation. 0 The content of the consultations should be made available to all. Therefore a summary of the results of the individual consultations should be published in the local and national languages. Organization A secretariat will be established under BAPPENAS that will be responsible for the daily tasks of producing drafts of the various land policy papers and in conducting public consultations. The secretariat will include specialists in law, urban planning, agriculture, natural resource management, and the social sciences. It will also include a public communications specialist. An advisory panel of local government representatives (such as the Association of Bupatis) and nongovernmental experts (such as the Association of Real Estate Agents) will be created to advise the secretariat. The secretariat will also contract regional facilitators and resource persons who have expertise in land affairs, natural resource management, urban planning, public affairs, or other relevant area. Each regional facilitator will be responsible for the publicity, the running of the workshops, and synthesizing the results of the consultations. The regional facilitators will also be responsible for contracting individuals or organizations to undertake focus groups discussions. Some focus group discussions will involve special interest groups, such as environmental NGOs, and others will comprise ordinary people. The consultation process will involve all key stakeholder groups. These include central and local government officials representing the ministries of agriculture, forestry, justice, home affairs, economic planning, finance, mining, environment, defense, and others. The consultations will also involve NGOs (including those focusing on the environment, women, and adat land rights), and the private sector. To ensure that the consultations capture the views of the population in general, various mechanisms for consultation will have to be pursued simultaneously, including workshops, focus group discussions, and requests for comment through the media. - a5 -

92 Steps The public consultations will comprise the following steps: Consultations on the draft discussion paper on land policy; The LMPDP coordinating committee has prepared a discussion paper on national land policy that addresses issues of land administration, use, and management, and lays out policy options with their implications. The draft discussion paper will be published in newspapers, and broadcast over radio, television, and through other local media. Workshops and focus group discussions intended to obtain the views of as many stakeholder groups as possible will be held in various regions of the country. Once the consultations have been completed, the LMPDP coordinating committee will develop a draft national land policy. Consultations on the national land policy. Once the draft land policy paper is ready it will be disseminated through newspapers, radio, television, and other local media. Six regional workshops will be held, one in each of Indonesia s major regions. Two national-level workshops will also be held. Finalization and adoption of the national land policy. The secretariat will incorporate changes in the national land policy, reflecting the consensus that has been reached through the national dialogue. The national land committee will submit the final document to the cabinet for adoption. Systematic titling NGOs will be contracted to inform communities of the systematic land titling program and to facilitate the participation of community members in it. Specifically, NGOs will visit the villages prior to adjudication to disseminate information about the program and to facilitate meetings between the villagers and BPN. NGOs will conduct focus groups discussions and workshops to explain the project objectives, rationale and benefits, fees and charges, and the forms, the costs, the procedures and legal rights to the communities. They will make special efforts to ensure that women, the poor, and disadvantaged groups participate in the general meetings. In addition, NGOs will organize separate meetings with such groups, so that people who may otherwise be silent have the opportunity to ask questions and voice concerns. NGOs will also assist in the preparation of community land profiles to define plot boundaries, and to identify any existing land disputes. A standard form for gathering the data will be developed during the pre-implementation period. Data will be entered into a computerized database for easy reference and use. NGOs will also ensure that the results of the adjudication are posted in several prominent places in the community for a minimum of 30 days. They will assist community members in lodging complaints and grievances with the proper authorities and to follow-up when necessary. Support to local governments Success of local governments in carrying out their nine functions will depend critically on their ability to build consensus of local stakeholders through participation on the actions to take. The project will support the establishment and operation of participatory processes in each of the jurisdictions where it is supporting local governments. Two of the five local governments that the proposed project will support are also being supported under the Bank-financed K-GRIP project. In these communities, stakeholder forums are being created and local laws regarding participation being prepared and adopted. The LMPDP will link with the K-GRIP to reinforce the participatory processes and institutions established under that project. In the other communities, the project will assist local governments in instituting participatory processes that ensure that the diverse views of stakeholder groups are taken into account in all local decisions regarding land matters. It will therefore assist local

93 government in organizing and running stakeholder forums involving representatives of government, academia, the private sector, NGOs, local communities, investors, real estate interests, and others as appropriate. It will also assist with recording and publishing the results of meetings, and in instituting other processes that help to build public consensus for action

94 Additional Annex 13: Anti-corruption Framework INDONESIA: Land Management and Policy Development Project Summary Almost all transactions in this project are vulnerable to corruption. Apart from the corruption in procurement, including overcharges for honorariums and costs, the project is also vulnerable to corruption from government employees who expect thanksgiving money (bribes) from beneficiaries and contractors. Land owners also have to bribe the contractors for surveys and private individuals who are recruited from the community to become part of the adjudication teams. Overall, land owners usually have to bribe around three to five percent of fees to facilitate all the work. The contractors similarly have to bribe (usually an higher amount) to get the contract and to get paid. BPN and the other implementing agencies want to address corruption through better project design, and by strengthening intemal controls and mechanisms for transparency and accountability. They support the use of systematic land titling over a sporadic approach - a design which is not only less costly but results in less corruption as well. Similarly they will strengthen internal controls by adopting general Bank safeguards for procurement and financial management. In addition, they have agreed to the following specific mitigation measures: (a) Enhanced disclosure provisions; (b) Standardization of procurement and financial management processes and documents; (c) Development and monitoring of service standards for land management and administration institutions; (d) Partnership with the Civil Society for independent oversight and feedback; (e) Robust complaint handling mechanisms with sanctions in place for corruption, collusion, and nepotism; and (f) Financial accountability through strengthened internal controls on project implementation and payment validation. Most importantly, the implementing agencies have agreed to have a compliance/anti-corruption task force financed under the project to integrate the various efforts and develop the dialogue on the issue of thanksgiving money within the agencies. This task force will also spearhead the project s complaint handling mechanism and in turn will be monitored by an independent extemal (non-governmental) institution. The rest of the annex details the mitigation measures after giving a sense, with the use of corruption mapping, of where and how the project is most vulnerable to corruption. Corruption Mapping Substantial risk of corruption, particularly from bribes, exists at every step in this project. All key actors, BPN, BAPPENAS, and MOHA, are affected by it as are almost all institutions in Indonesia - in the public sector or private sector. Below we outline the areas which are most vulnerable in this project: procurement of goods and services, validation of payments to adjudication teams and survey contractors, and direct contact with the public/contractors. (i) On procurement, for all levels and all implementing agencies, the concern is to ensure efficient and effective use of funds through procedures such as national competitive bidding and national shopping. It is anticipated that since most project packages will be procured and implemented at the provincial level, where staff may not have prior training or experience in procurement, fiduciary risks will be pronounced. Some limited amount of procurement are planned at the kebupaten levels (below the provincial level) and would require similar attention to staff training. Moreover, because of the business is repeated, contractors have incentive to collude. Collusive practices amongst bidders have been reported in the past and sanctions have not always been