http://www.dsfindonesia.org/one/acn/en/p/ACN_3_ENG

ACTIVITY CONCEPT NOTES # 3 | ARRISING FROM THE DSF WORK PLAN 2009-2011

DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 3/2009 Summary: This activity is designed to improve monitoring and evaluation of Special Allocation Funds (DAK), and thereby to lead to the better utilization of such funds.

The activity does this by providing explanation on pilot project and improvement efforts of DAK monitoring and evaluation system. Proper implementation of the monitoring and evaluation scheme will provide feedback on the effectiveness of current DAK policies and lead to policy improvements concerning all aspects of the management of DAK.

Activity Title Improving and Piloting of Technical Monitoring for the Implementation and Evaluation of Special Allocation Funds (DAK) Utilization

Counterpart Agency and Key Government Contacts  The main beneficiaries for this activity are National Development Planning Agency (Badan Perencanaan dan Pembangunan Nasional/ Bappenas), Ministry of Finance (MoF), Ministry of Home Affairs (MoHA) and relevant Technical Ministries/Agencies and, to a lesser degree, Sub-national governments (SNGs).  Contact persons for this activity are: a. Drs. Wariki Sutikno, MCP, Head of the Sub Directorate of Regional Financial Capacity Building, Directorate of Regional Autonomy, Bappenas; and b. Agus Manshur, SE. MA, JFP and Head of the DAK Coordination, Planning, Monitoring and Evaluation Team (TKP2E-DAK) Secretariat, Bappenas.

Duration January-August 2010

Background and Rationale 1. Special Allocation Funds (DAK). Following the decentralization of 2001, central government plays an important role in intergovernmental transfers in Indonesia. Transfers from the central government are the main source of finance for sub-national governments.

There are several balance fund transfers from central government to SNGs. These include the General Allocation Fund (DAU), the Special Allocation Fund (DAK), and the Shared Revenue Fund (DBH).

2. DAK is a grant from the national budget (APBN) allocated to SNGs that is designed to finance specified activities which are determined by the central government but under the jurisdiction of SNG. There are 3 types of criteria which SNGs need to satisfy in order to receive DAK, namely: general, specific, and technical criteria.

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3. The DAK allocated to SNG has been rapidly growing, the number has increased from IDR 2.2 to 24.8 billion between 2003 and 2009. In 2009, there are 13 sectors eligible for DAK allocation (see Table 1). Eligible recipient regions are required to provide a 10 percent matching fund for each DAK sector, with an exceptions for regions with low fiscal capacity. The Government of Indonesia (GoI) is directing DAK general policy to support regions with low fiscal capacity, in order to provide physical infrastructure for basic public service delivery.1 Table 1: DAK allocations, 2001-2009 (in billion rupiah) Sector Education Health Road Infrastructure Irrigation Infrastructure Drinking Water and Sanitation Governance Infrastructure Marine and Fishery Agriculture Environment Family Planning Forestry Rural Infrastructure Trade Total

2003 625 375 843

2004 653 456 839

2005 1,221 620 945

2006 2,920 2,407 2,576

2007 5,195 3,381 3,113

2008 7,015 3,817 4,045

2009 9,335 4,017 4,501

339

357

385 204

628 608

859 1,062

1,497 1,142

1,549 1,142

88

228

148

449

539

362

562

305

322 170

776 1,095 113

1,100 1,492 352

1,100 1,492 352 279 100

2,839

4,014

11,570

17,094

21,202

1,100 1,492 352 329 100 190 150 24,820

2,269

Source: Pelengkap Buku Pegangan Penyelenggaraan Pemerintahan dan Pembangunan Daerah 2009: Pelaksanaan Desentralisasi Fiskal di Indonesia, published by Directorate of Fiscal Balance, Ministry of Finance, 2009.

4. The role of DAK in 2003, though still limited to particular sectors that in line with the national priority, has significantly support for the regions in providing basic public infrastructure. There are also a number of obstacles encountered during the implementation—in the regional and central level—despite the procedurally accurate process for allocation and selection of the regions. At the national level, the clarification of DAKfinanced sectors in technical manuals prepared by relevant ministries/agencies does not match with the regions’ needs and considered too rigid, thus provide less flexibility to the regions. At the regional level, the implementation of DAK activities do not start at the beginning of fiscal year, consequently the DAK does not fully absorbed at the end of the fiscal year. Furthermore, activity implementation that does not meet the technical manuals will lead to failure in achieving the national priorities in the regions. The implementation of DAKfinanced activities in regions depends heavily on human resources quality in the regions; this will eventually affect the quality of implementation and performance. Another problem is the 1

See Pelengkap Buku Pegangan Penyelenggaraan Pemerintahan dan Pembangunan Daerah 2009: Pelaksanaan Desentralisasi Fiskal di Indonesia, published by Directorate of Fiscal Balance, Ministry of Finance, 2009.

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obligation of regional government to prepare and submit reports to ministries/agencies still not yet properly executed. Likewise, many regions complain about their obligation to allocate counterpart funds. The monitoring and evaluation activity proposed in this paper is designed to address these problems.

5. Monitoring and evaluation of DAK. Monitoring and evaluation of projects/activities funded by DAK are integral to effective, efficient and transparent DAK implementation.

Monitoring is intended to measure (and help to control) DAK management in terms of planning, budgeting, and implementation. The benefits of monitoring include identifying problems and means for necessary improvement in implementation. Monitoring report will be used to evaluate program activity at the end of fiscal year. On the other hand, evaluation examines outcomes, benefits and impacts of DAK by comparing indicators before and after the DAK implementation using baseline data. Section 64 of Government Regulation or Peraturan Pemerintah (PP) No. 55/2005 states that the Minister of National Development Planning/Head of National Development Planning Agency (Bappenas) and technical ministers are responsible for monitoring and evaluating the use and technical implementation of DAK-financed activities.

6. Empirical evidence on DAK. A recent study undertaken by Bappenas reveals that DAK management over the last five years has encountered financial, technical, institutional and good governance problems. In the financial aspect, the main problem is regions’ less than optimal DAK performance due to a mismatch between the amounts of allocation and local needs. As suggested above, from a technical standpoint, it is suggested that DAK policies are in need of careful review.

7. To date, SNGs have not defined clearly the purposes to which the DAK are to be put and not specified precise, time bound targets for achievement using the DAK. From an institutional standpoint, problems are said to include: weak and less than optimal institutional coordination between the center and regions; no coordination team established in the center and provinces; and less than optimal performance of coordination teams in the districts.

8. From the point of view of good governance, the main problems arise in relation to the application of the principles of transparency, accountability and participation in DAK management. Especially, the supply of technical data and information required for calculating DAK allocations is still relatively insufficient.

9. According to a study by The SMERU Institute, monitoring and evaluation of development projects, especially those related to DAK-financed activities, is still inadequate.2 In a number of ways, the findings of this study corroborate those of the Bappenas study. Focus group discussion (FGD) participants (such as Secretary of Region, Head of Regional Development Board, Heads of various Dinas that receive DAK, Regional Supervisory Boards, NonGovernment Organization, etc.) gave a relatively low ranking to the monitoring and evaluation 2

See Newsletter, No. 25, January-April 2008, published by The SMERU Research Institute.

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aspect of DAK. One of the problems highlighted by informants was that both central government and SNGs do not allocate any funds in their budgets for monitoring and evaluation. In addition to the lack of funds, the superficial nature of monitoring and evaluation activities is related to the perceived benefit (or lack thereof) for the region. DAK recipient staff in some SNGs stated that they did not receive any feedback on their reports made to respective line ministries. This lack of response means that officials in the regions do not know whether their reports have even been received or accepted.

10. Similar to the case of Indonesia, the central government of South Africa has direct fiscal relations with provinces and local governments and there the general grant constitutes the largest central government transfer. The decentralization process in South Africa started in the late 90s and thus is in a transitional phase in its general and special grants policy.

Municipalities in South Africa have struggled with reporting on their use of the various transfers they receive from the national and provincial levels. It is also reported that the timeliness and quality of data on these processes within municipalities, or data on the relationship between municipalities and higher spheres of government, remain poor.3 The South African approach to measuring intergovernmental and municipal performance started with a focused initiative on municipal grant monitoring. The grant monitoring agenda has been characterized by efforts: (a) to balance both the service delivery and empowerment objectives of decentralization; (b) to build monitoring systems—both in terms of what they measure and how they measure it—in a sequenced manner; and (c) to complement upward accountability relationships (from municipalities to central government transferring departments) with downward ones (from municipalities to their citizens).

11. Joint Circular Letter (SEB). The above suggests that significant problems exist with all aspects of the DAK – from policy formulation and implementation through to monitoring and evaluation and that these problems occur at different levels within the system of decentralization. Among other things, remedial action would therefore need to address policy formulation, planning, budgeting, implementation, and monitoring and evaluation. Bappenas together with MoF, MoHA, and relevant ministries/agencies have prepared a system for monitoring the technical implementation - and evaluating the use - of DAK, in the form of Guidelines for Monitoring Technical Implementation and Evaluating DAK-Financed Activities through a Joint Circular Letter (SEB) of the State Ministry of National Development Planning/Head of Bappenas, Ministry of Finance, and Ministry of Home Affairs Number 0239/M.PPN/11/2008; SE 1722/MK.07/2008; 900/3556/SJ dated 21 November 2008 on Guidelines for Monitoring Technical Implementation and Evaluating the Use of DAK. 12. The goal of the SEB is to achieve an integrated and systematic technical monitoring activity and evaluation of the use of DAK among different levels of government. While the objectives of the guidelines are to: (a) provide a basis to carry out the monitoring and evaluation activity 3

See Girishankar, Navin, David DeGroot and T.V. Pillay. 2006. “Measuring Intergovernmental Fiscal Performance in South Africa: Issues in Municipal Grant Monitoring”. Working Paper Series No. 98. The World Bank: African Region.

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on DAK implementation; (b) provide a basis for better coordination among institutions managing the DAK at the central, provincial and kabupaten/kota levels in undertaking monitoring and evaluation of the DAK; and (c) provide a basis to maintain consistency and coordination between the Central Government and SNG in managing DAK. 13. The SEB is not yet effectively implemented as it was just recently ratified. Operational protocols, data collection instruments, and facilitation (technical assistance) guidance to implement the SEB are not yet in place.

Goal and Objectives 14. The goal of the proposed activity is to conduct pilot activity and improving technical monitoring and evaluation system of the use of DAK funds, as set out in the SEB. 15. The objectives of the activity are: a. To complete the implementation of pilot activity for DAK monitoring and evaluation system; b. To complete facilitation (technical assistance) for SNG staffs in conducting the technical monitoring and evaluating DAK utilization; c. To improve technical monitoring and evaluation system of DAK utilization; d. To collect data/information regarding experience on DAK management in the pilot regions along with ideas and recommendations; e. To collect data and report of DAK implementation in the regions, especially for road infrastructure and health sectors.

Scope of Services and Sub-activities 16. The stated goal and objectives will be attained through the following activities and subactivities.

17. Preparation. The preparation comprises two sub-activities: a. Pre test activity. This activity aims at: i. Disseminate and provide comprehensive information on technical monitoring and evaluation system of DAK utilization in accordance with SEB on Guidelines for Monitoring Technical Implementation and Evaluating the Use of DAK. ii. Identification of obstacles and challenges in the implementation of technical monitoring and evaluation system of DAK utilization. iii. Inventorying various inputs from the regions regarding the effectiveness of implementing SEB on Guidelines for Monitoring Technical Implementation and Evaluating the Use of DAK b. Field Facilitators training. Before undertaking their task and functions, the field facilitators will receive training on comprehensive DAK concept module, and module on implementation of technical monitoring and evaluation system of DAK utilization. This training will involve secretariat of TKP2E-DAK, Bappenas.

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18. Dissemination of DAK Monitoring and Evaluation System. This activity will be conducted in 5 capitals of pilot provinces. The purpose of this activity is to provide complete understanding on implementation of technical monitoring and evaluation system of DAK utilization, information on pilot activity and improvement of technical monitoring and evaluation system of DAK utilization, and introduce the field facilitators who will assist the regions in this activity.

19. Local government facilitation in pilot activity of DAK monitoring and evaluation system.

This activity aims to provide consultation for relevant SNG staffs (Bappeda, Regional Secretariat, and other related dinas) in conducting monitoring, evaluation, reporting, and establishing coordination team for DAK Management at the region. This particular activity is one of the main activities in this program, and the result from this activity will be disseminated through workshops in the regions.

20. Fieldwork: data/information collection. As a clarification and evaluation of DAK management, there will be a fieldwork to collect relevant data and information, especially data on DAK management on road infrastructure and health sectors. The data collection process will be started from procurement contract award, implementation, and observation and validation of physical results of the fieldwork on those particular two sectors (health and road infrastructure). Although data collection activity is not the main activity and does not specifically mentioned in the SEB, it is expected that this activity will generate feedbacks to improve monitoring and evaluation of DAK management as well as improving the future DAK policy.

21. Data and Information Analysis. This activity intended to analyze data and information gathered from the fieldwork, the analysis will be conducted by experts, and will be done at the central level. The analysis result is expected to be able to provide clear illustration of the implementation of DAK activity in the region and provide recommendations for policy improvement in DAK management (planning, budgeting, implementation, monitoring and evaluation).

22. Improvement of DAK monitoring and evaluation system. The purpose of this activity is to improve the substance and operational of technical monitoring and evaluation system of DAK utilization either through desk study or system test in the field. This activity will be done in parallel with other activities. In addition, this activity is also expected to pose as a follow up activity for the Local government facilitation activity, data/information collection, and data/information analysis. Thus, the improvement efforts of DAK monitoring and evaluation system should be based on inputs from the field (pilot areas).

23. Dissemination of central level improvement of DAK monitoring and evaluation system.

The result from improvement of DAK monitoring and evaluation system will be socialized and discussed at the central level. This process will involve coordination team for DAK management at the central level. The expected result is an agreement on improved technical monitoring and evaluation of DAK utilization system.

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24. Socialization of regional level improvement of DAK monitoring and evaluation system.

This activity is expected to follow up the result from the previous activity at the central level through socialization of the final result of improvement of technical monitoring and evaluation of DAK utilization system.

25. Reporting. This activity seeks to provide comprehensive progress report of implementation and result of the entire processes of pilot activity and improvement of technical monitoring and evaluation of DAK utilization system.

26. Coverage area. This activity will be conducted in 5 (five) provinces (which encompass the kabupaten/kota within the province), which receives DAK in 2009, those provinces are: West Sumatera, Yogyakarta, East Kalimantan, Southeast Sulawesi, and West Nusa Tenggara. Those provinces are expected to be able to reflect geographic representation based on regional distribution of DAK recipients.

27. Program Supervision. In order to ensure program effectiveness, each stage of activity will be supervised. The supervision will cover substantial, administrative and technical aspects, related to the technical monitoring and evaluation of DAK utilization, also DAK management in overall. This activity will be imposed by a supervision team that involve Bappenas, MoHA, MoF, and coordinated by The Secretariat of TKP2E- DAK, Bappenas.

Deliverables 28. This activity will produce the following: a. Improvement of DAK Monitoring and Evaluation, based from desk study and field test processes. b. Capacity development of SNG staff in conducting monitoring, evaluation, and reporting of DAK implementation. c. Data and information related with DAK management in the pilot regions, especially for road infrastructure and health sectors. d. Pre test report e. Training of Trainer (ToT) report f. Socialization, facilitation, and data collection report g. Dissemination report h. Inception, midterm, and overall final report

Sustainability 29. This activity is a pilot project that is designed to provide the basis for a fully-fledged DAK monitoring and evaluation scheme to be implemented by GoI. The success (or the lack of it) of this project will provide valuable inputs for GoI continuing initiatives on monitoring and evaluation of DAK and other intergovernmental transfers schemes and, to the extent that this happens, will be institutionalized. Questions of transfer of technical skills and knowledge are therefore of paramount importance in the implementation of this activity, and the implementing agent will need to demonstrate that such matters are receiving the level of attention required for institutionalization.

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Project Management, Execution and Implementation 30. The role of the Directorate of Regional Autonomy, Bappenas and DAK Coordination, Planning, Monitoring and Evaluation Team (TKP2E-DAK) Secretariat, Bappenas in this program is as sponsor/owner of the program with responsibilities for steering; monitoring of program implementation; coordination with the implementing firm; and submission of program documents to DSF MC. The DSF Executive will be responsible for procurement and contracting of the implementing firm; facilitation of program implementation; providing assistance with program monitoring and quality assurance; and along with Bappenas jointly responsible for submitting program documents to the DSF Management Committee. The Implementing firm is responsible for implementing the program according to the Terms of Reference, Technical Proposal and Financial Proposal; coordinating with Bappenas on a regular basis, and submitting reports/deliverables to Bappenas and DSF according to schedule for review. See table below for a summary of roles and responsibilities.

Bappenas-Directorate of Regional Autonomy and TKP2E-DAK Secretariat: sponsor/owner of program; responsible for steering, monitoring of program implementation, and coordination with implementing firm DSF Executive: responsible for procurement and contracting of implementing firm; facilitation of program implementation, assistance with program monitoring and quality assurance, submission of program reports to DSF management committee Implementing Firm: implementation of the program according to the Terms of Reference, Technical Proposal, and Financial Proposal; coordination with Bappenas on a regular basis (including one key personnel based in Bappenas), and submission of reports/deliverables to Bappenas and DSF for review 31. Based on the decision of the Directorate of Regional Autonomy and TKP2E-DAK Secretariat, this Improving and piloting of DAK Implementation on technical monitoring and evaluation of DAK utilization will be implemented using the on-budget, off-treasury mechanism known as “Bank executed� (responsibility of the World Bank). Under this mechanism, the DSF Executive is responsible for ensuring that procurement follows World Bank procedures4 and that the results of the program meet the specified standards.

32. A small team will be established with representatives from Directorate of Regional Autonomy and TKP2E-DAK Secretariat, Bappenas and representatives from the DSF Executive to formulate the procurement documents, review and evaluate proposals from candidate implementing agencies, and negotiate with the top ranked organization. The DSF Executive will be responsible for procurement and contracting of the implementing firm. During program implementation the Bappenas-Directorate of Regional Autonomy and TKP2E-DAK Secretariat and DSF Executive will discuss the reports submitted by the implementing firm and monitor activities as appropriate (joint monitoring missions with DSF MC members agencies and organizations might be arranged).

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Procurement in Bank Executed programs will follow the Guidelines: Selection and Employment of Consultants by World Bank, Revised October 2006 using the World Bank e-procurement system (e-consult).

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Implementing Agency 33. The project will be implemented by a firm to be selected following the World Bank procurement procedures. Bappenas will be actively engaged throughout the selection process.

34. The firm should assemble a core team of specialists that will undertake the project under the direction and supervision of Bappenas with additional quality assurance from the DSF Executive. The core team should comprise: a. Team leader, this position requires someone with extensive experience as team leader with the qualification of master degree or PhD in Economics/Public Finance with minimum 8 years relevant experience especially in public finance field; b. Public Policy Specialist, this position requires someone with an expertise in public policy with the qualification of a bachelor degree (S1) in relevant field with minimum 12 years experience in public policy area. c. Monitoring and Evaluation Specialist, this position requires someone with an expertise in monitoring and evaluation with the qualification of a bachelor degree (S1) in relevant field with minimum 12 years experience in government monitoring and evaluation program; d. Assistant for Public Finance Specialist, with the qualification of bachelor degree (S1) in relevant field, and minimum 4 years work experience in public finance; e. Assistant for monitoring and evaluation specialist, with the qualification of bachelor degree (S1) in relevant field, and minimum 4 years work experience in monitoring and evaluation; f. Facilitators in the field, this post requires candidates with minimum education bachelor degree in relevant field and minimum 2 years experience conducting field facilitation for government program.

35. Implementing agency – other required inputs. The project requires full engagement with (and from) Bappenas and the TKP2E-DAK team throughout project implementation. During the preparation stage, staffs from the directorate for regional autonomy, Bappenas and TKP2EDAK will involve in preparing materials and conducting training since these staffs have a thorough understanding of monitoring and evaluation of DAK as mandated by the SEB. 36. The DSF Executive will provide additional support, mostly related to quality assurance during project implementation. All inputs and support rendered to the project by the three main parties – Directorate for Regional Autonomy, Bappenas and TKP2E-DAK secretariat; the implementing agent; and the DSF Executive – will be arranged in the most collaborative manner to ensure effectiveness and efficiency of project implementation.

Procurement and Implementation Schedule 37. The following estimated schedule is proposed:  November 2009 – January 2010: Procurement of consultant: Request for and review of Expression of Interests (EOI) from implementing agencies; approval of short listed

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        

organizations; issuance of Request for Proposals (RFP); evaluation of proposals; approval of top ranked firm; technical and financial negotiations; issuance of contract.

January 2010: Pre test.

February 2010: Training.

February 2010: Dissemination of DAK Monitoring and Evaluation System.

February - May 2010: Facilitation for local government in piloting of DAK monitoring and evaluation system .

February - May 2010: Field work: data/information collecting.

May-June 2010: Analysis of the findings.

June 2010: Improvement of DAK Monitoring and Evaluation System.

July 2010: Socialization of the improvement of DAK Monitoring and Evaluation System at the regions.

August 2010: Reporting: Submission of final report.

Budget 38. Indicative budget is US$550,000 from DSF. An estimate of costs is detailed below based on eligible expenses. The budget amounts are subject to change based on the procurement process.

Estimated Costs (USD)

10

Consultant Services Firm

525,000

Individual Consultant Operational Cost Total Budget

10,000 15,000 550,000

Description

Improving and piloting of Technical Monitoring for the Implementation and Evaluation of Special Allocation Funds (DAK) Utilization