Project Number: TA-9506 INO:

Sustainable Infrastructure Assistance Program

Enhanced Water Security Investment Project

Cimanuk Cisanggarung River Basin

Babakan River Sub-basin Subproject

Economic and Financial Analysis (EFA) Report

Project number: 51157-001

Consultant: David Corderi Novoa

1
Table of Contents
A. Summary for RRP 4
B. Introduction 5
C. Economic Analysis Approach and Methodology 5
D. Economic Evaluation 6
a. Benefit estimation 6
b. Cost estimation 9
E. Economic Analysis Results 12
a. Summary of Benefits and EIRR 12
b. Sensitivity Analysis 12
F. Distribution and Poverty Impact Analysis 13
G. Financial Analysis 15

List of Tables
Table 1: Flood Depth-Damage factor for Buildings 7
Table 2: Number of Residential Buildings Affected and Total Value Exposed by Flood Return
Period 7
Table 3 : Number of Residential Buildings Affected and Value of Damage by Flood Return
Period (Without and With Project) 8
Table 4: Investment, Routine and Periodic O&M Costs (Financial and Economic prices) 10
Table 5: Babakan Subproject Economic Cash Flow (IDR billion) 12
Table 6: Babakan – Summary Sensitivity Analysis 13
Table 7 Expected Project Impacts 14
Table 8 Estimated Operation and Maintenance Costs for the Babakan Core Subproject
2025-2029 (Rp. million) 15
Table 9 DGWR and BBWSCC Budget Allocation, 2015-2019 (Rp. million) 16
Table 10 DGWR and BBWSCC Budget Allocation, 2020-2024 (Rp. million) 16

2
3
 ABBREVIATIONS

ADB – Asian Development Bank

BBWS – Balai Besar Wilaya Sungai (Large River Basin Management
Unit)
BBWSCC – Balai Besar Wilaya Sungai Cimanuk Cisanggarung
BNPB – National Body for Flood Prevention
DGWR – Directorate General of Water Resources
EIRR – economic internal rate of return
EOCC – economic opportunity cost of capital
ENPV – economic net present value
FIRR – financial internal rate of return
FNPV – financial net present value
FRM – flood risk management
GDP – Gross domestic product
HH – households
IDR – Indonesian Rupee
km – kilometer
LAR – land acquisition and resettlement
MPWH – Ministry of Public Works and Housing
NPV – Net Present Value
O&M – operation and maintenance
RRP – Report and Recommendation of the President
SERF – shadow exchange rate factor
SI – sensitivity indicator
SV – switching value
SWRF – shadow wage rate factor
TA -- technical assistance
VAT -- value added tax

4
 A. Summary for RRP

Economic and financial analyses have been undertaken on the representative Babakan
subproject1. The annual economic benefit of flood protection on the Babakan river is estimated
at $2.28 million, stemming from the protection of residential buildings. The economic internal
rate of return of the subproject is estimated at 15.75%, higher than the assumed cutoff rate for
economic viability of 9.0%. Sensitivity analysis indicates that the economic viability of the
subproject is highly robust with respect to adverse movements in the values of key variables,
and assumptions relating to asset values. The financial analysis concluded that the required
O&M budget level is assessed as affordable for DGWR, Balai Besar Wilayah Sungai Cimanuk
Cisanggarung.

1
The core subproject consists of investments in flood risk management (FRM) in the Cimanuk Cisanggarung River
Basin, located in the West Java province. Investments will take place along the 25.1 km of the Babakan river and
starting at the coast. The project consists of the following components: (i) modification of weirs, canals and
spillways; (ii) construction of a flood storage reservoir; (iii) constructions of small flood storage ponds and improved
drainage; (iv) construction of additional control gates at the Malahayu’s reservoir; (v) construction of a detention
basin in the Kluwut River.

5
 B. Introduction

1. Subproject description. The Babakan subproject comprises investments in flood risk

management (FRM) in the Cimanuk Cisanggarung River Basin, located in the West Java
province. Investments will take place along the 25.1 km of the Babakan river and starting at the
coast2. The project consists of the following components: (i) modification of weirs, canals and
spillways; (ii) construction of a flood storage reservoir; (iii) constructions of small flood storage
ponds and improved drainage; (iv) construction of additional control gates at the Malahayu’s
reservoir; (v) construction of a detention basin in the Kluwut River.

2. Identification of Project Alternatives. During project preparation, detailed hydrological

and engineering studies were carried out for the Babakan core subproject. A two- dimensional
hydrodynamic model was developed and calibrated based on existing flood records, flood
marks and other field observations. The best technically feasible options to prevent those floods
were identified along the 25.1 km stretch of the Babakan river. The design of the proposed
interventions has been hydraulically optimized by considering sedimentation, spill way and
retention basin capacity to absorb flood flows.

3. Economic and financial analysis was carried out for the subproject. The analysis was
undertaken in accordance with the following ADB’s guidelines: Framework for the Economic and
Financial Appraisal of Urban Development Sector Projects, Guidelines for the Economic
Analysis of Projects, and Cost-Benefit Analysis for Development3. The main objective of the
analysis is to assess the economic viability of the core subproject proposed for implementation.

C. Economic Analysis Approach and Methodology

4. The evaluation was conducted through a comparison of the without-project and

with-project scenarios. The assumptions used in the evaluation were as follows:
i. Economic and financial analyses and the calculation of the economic internal rate of
return (EIRR) and financial internal rate of return (FIRR) were undertaken at constant
2019 prices; the domestic price numeraire was adopted in the analysis. The economic
life of the sub-project is assumed to be 30 years.
ii. The exchange rate used was based on US$ 1.00 equal to Indonesian Rupiah (IDR)
14,319, which was the prevailing rate at the time of the analysis at the end of December
2019.
iii. The investment, O&M and replacement costs were based on field investigations and
extracted from the technical feasibility study4, which was part of the technical assistance
TA-9506 INO: Sustainable Infrastructure Assistance Program.
iv. Subproject investment and operation and maintenance (O&M) costs have been
converted to economic values by the removal of tax component of costs in financial
prices since they represent transfer payments with no economic cost. In the estimation
of all subproject costs, the prevailing rate of value added tax (VAT) in Indonesia of 10%
has been used.

2
River channels through the coastal floodplain are becoming perched partly as a result of straightening the river to
maximize land use either side which results in increased sedimentation. Some dikes have breached, flooding both
agricultural and village areas. Houses in some reaches are up to 6m below dike levels leaving them very
vulnerable to breaches and high velocity flood flows.
3
ADB. 1994. Framework for the Economic and Financial Appraisal of Urban Development Sector Projects. Manila;
ADB. 2016. Guidelines for the Economic Analysis of Projects. Manila; ADB. 2013. Cost-benefit Analysis for
Development: A Practical Guide. Manila.
4
Babakan River Sub-basin Subproject: Flood Risk Management Technical Report 2019 (draft April 2019).

6
 v. Furthermore, in the economic analysis, the financial values were converted to their
economic values using the appropriate conversion factors: tradable goods were
converted using the shadow exchange rate factor (SERF) of 1.03 based on trade
statistics for 20195; for non-tradable goods, a conversion factor of 1.00 was used; a
shadow wage rate factor (SWRF) of 0.8.
vi. The economic opportunity cost of capital (EOCC) is assumed at 9%.

D. Economic Evaluation

a. Benefit estimation

5. Benefits are expected to derive from multiple sources related to the type and scale of
work undertaken in the districts where the subproject is implemented. Benefits are both direct
and indirect, though not all have been quantified. Direct benefits include the prevention of future
flooding of land and the protection of (a) assets (infrastructure, public and private buildings, etc.)
located on such land, and (b) productive activity (agriculture, commerce, etc.) that is currently
undertaken on such land. Indirect benefits include the incremental value of commercial activity
that is expected to take place once protection measures are in place. The analysis quantifies
the direct benefits associated with the protection of residential buildings, while acknowledging
other potential benefits that could not be quantified due to data limitations.

6. Flood protection benefits. Flood protection benefits are generally estimated on the
basis of the number and value of the main assets located within the area of influence of the
subproject to be protected from future flooding, and the probability of damage under various
flood scenarios. Based on the level of damage (total or partial) inflicted on assets by a sample6
of floods an expected level of damage for floods of various sizes (return period) can be
estimated. Combining this with the probability of the return period of each flood type, an
expected annual damage can be calculated.

7. The approach adopted has therefore been to estimate benefits on the basis of flood
modelling both without and with protection under the project. The model has been calibrated
with historical flood extent records, benchmarked in the field. This provides an estimate of the
area in hectares (ha) by the depth of flooding in meters (m) for five flood return periods (5, 10,
25, 50 and 100 years, Q5 to Q100) for a range of land-use categories, including rural and urban
settlement areas.

8. The area affected by floods is estimated on the basis of geographic information system
(GIS) data. For settlements, GIS data has been overlaid with satellite maps to estimate the
number of residential buildings affected. For each depth of flooding the number of buildings
affected and the level of damage incurred have been estimated. The estimate of the level of
damage is based on the depth generated through the two-dimensional hydrodynamic model
which integrates a digital elevation model, cross sections and computed hydrograph for each
return period. For buildings the valuation of damage prevented is based upon the estimated
number of buildings and the value of each type of building. Building values are generated for
each depth category (0.0 – 0.5 m, 0.5 – 1.0 m, 1.0 – 1.5 m, and 2.0 m – 5.0 m, and > 5.0 m)
5
Export and import values and import duties and export taxes used in the calculation have been derived from
https://wits.worldbank.org/CountryProfile/en/Country/IDN/Year/LTST/Summary
6
Historic data on flood damage in the subproject area are sparse. They provide only the number of subproject assets
damaged, without a detailed categorization, and the return period associated with the recorded flood damages is
not provided either.

7
using damage curves. A damage factor was used to estimate the percentage loss of residential
building’s total value for different levels of flood depths. Table 1 presents the damage factors
used in the analysis.
Table 1: Flood Depth-Damage factor for Buildings

4.
Depth (m) 0 0.5 1 1.5 2 2.5 3 3.5 4 5 5 6
0.1 0.2 0.3 0.3 0.4 0.5 0.5 0.6 0. 0.7 0.8
Dam. Factor 0 9 5 2 8 4 1 7 4 7 7 9
Source: Engineer’s team

9. Settlement areas also contain a variety of other assets including roads, utilities and other
infrastructure, the number and value of which varies by location. In the absence of a detailed
inventory, valuation and historical flood damage assessment of such assets, they have not been
included in the analysis. As a result, the valuation of settlement areas underestimates the actual
value of flood protection benefits resulting in a more conservative EIRR, especially for areas
where these assets constitute a significant proportion of total settlement area assets.

10. Based on the GIS computation, the number of residential buildings potentially affected
by floods within the subproject area is approximately 291,766 for the 100-year return period.
Table 2 shows the total number of buildings affected and the total value exposed by flood return
period. The total number of buildings affected by floods ranges from the 59 thousand to 291
thousand for a 5 year and a 100-year return period flood, respectively. The total value exposed
ranges from US$ 348 million to US$ 1,709 million. The unit value of building amounts to US$
5,8567.

Table 2: Number of Residential Buildings Affected and Total Value Exposed by Flood
Return Period

Flood Return Period Total buildings Total Value*

  (no) (mil US$)
5-year (Q5) 59,425 348
10-year (Q10) 71,653 420
25-year (Q25) 108,339 634
50-year (Q50) 169,481 993
100-year (Q100) 291,766 1,709
* Includes the value of both the structure and contents such as furniture, fixtures, electronics, etc.
Source: Engineer’s team calculations

11. The results of the flood damage estimations without and with the project are presented in
table 3. The net number of buildings protected, and the net value of damage prevented is also
presented in the table. Expected annual damage8 in the without project scenario amounts to
US$ 8.9 million. The total damage per return period ranges from US$ 31.15 million to US$
152.96 million for a 5-year and 100-year flood respectively. Expected annual damage in the with

7
The value includes the structure value ($ 5,324) and the content value ($532), assumed to be 10% of the structure
value. The source of the building value is a provincial housing finance database which contains information on the
number of units and the average value of the assets by class type for years 2017 and 2018.
8
Expected annual damage is calculated using the trapezoidal rule following the methodology contained in USACE
(2013) Flood Risk Management. Institute for Water Resources.

8
project scenario amounts to US$ 6.6 million. The total damage per return period ranges from
US$ 21.95 million to US$ 122.3 million for a 5-year and 100-year flood respectively. The
estimated expected annual damages avoided due to the project are US$ 2.28 million.

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Table 3 : Number of Residential Buildings Affected and Value of Damage by Flood Return Period (Without and With Project)

    Flood Depth
Total
    0-0.5m 0.5-1m 1-2m 2-3m 3-4m 4-6m Damag
No $ No $ No $ No $ No $ No $ e ($
    ('000) ('000) ('000) ('000) ('000) ('000) ('000) ('000) ('000) ('000) ('000) ('000) 000)
Without Project                          
  5-year (Q5) 35.0 3,921 14.1 3,308 8.0 5,545 1.2 4,715 1.2 4,892 0.1 8,775 31,155
10,58
  10-year (Q10) 41.3 4,624 17.8 4,081 9.7 6,706 1.4 5,680 1.4 5,889 0.1 7 37,567
10,18 16,02
  25-year (Q25) 60.2 6,733 29.0 6,401 15.0 9 2.0 8,574 2.0 8,880 0.2 3 56,800
10,24 10,26 15,99 13,39 13,86 25,08
  50-year (Q50) 91.6 7 47.7 7 23.8 4 3.0 9 3.0 6 0.3 3 88,856
17,27 18,00 27,60 23,04 23,83 43,20
  100-year (Q100) 154.3 5 85.2 0 41.4 5 5.1 7 5.1 6 0.6 4 152,967
Expected Annual Damage
($ 000) 8,933                        
With Project                          
  5-year (Q5) 24.7 2,763 9.3 2,330 5.4 3,909 0.9 3,323 0.9 3,448 0.0 6,184 21,957
  10-year (Q10) 28.8 3,325 12.1 2,950 6.8 4,838 1.0 4,096 1.0 4,307 0.1 7,660 27,175
12,13
  25-year (Q25) 41.3 5,051 20.4 4,830 10.9 7,656 1.5 6,448 1.5 6,878 0.1 1 42,993
12,41 10,42 11,01 19,60
  50-year (Q50) 62.1 7,981 34.2 7,994 17.8 5 2.3 1 2.3 5 0.3 2 69,428
13,89 14,35 22,03 18,43 19,03 34,54
  100-year (Q100) 103.6 4 61.8 4 31.6 8 3.9 9 3.9 2 0.6 3 122,300
Expected Annual Damage
($ 000) 6,644                        
Avoided Damage due to
Project                          
  5-year (Q5) 10.4 1,158 4.7 978 2.6 1,636 0.3 1,391 0.3 1,444 0.0 2,590 9,198
  10-year (Q10) 12.5 1,299 5.7 1,131 3.0 1,868 0.3 1,584 0.3 1,583 0.0 2,927 10,392
  25-year (Q25) 18.9 1,682 8.7 1,571 4.1 2,534 0.5 2,127 0.5 2,002 0.0 3,892 13,807
  50-year (Q50) 29.5 2,266 13.6 2,272 6.0 3,579 0.7 2,977 0.7 2,851 0.0 5,481 19,427

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  100-year (Q100) 50.7 3,381 23.4 3,645 9.8 5,567 1.2 4,609 1.2 4,804 0.1 8,660 30,667
Expected Annual Damage
($ 000) 2,288                        

Source: consultant’s estimation

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12. Phasing of Benefits. All benefits are phased over the life of the subproject in
accordance with the program of investment. In general, construction of subproject interventions
is expected to take place over six years, with benefits accruing proportionally to the degree of
implementation of project investments until reaching its full potential.

b. Cost estimation

13. Construction and future maintenance costs of subproject works have been estimated on
the basis of physical quantities of civil works, structures, etc. and the application of standard unit
rates used by the Ministry of Public Works and Housing and updated by engineering
consultants. Annual O&M costs have been assumed at the rate of 2% of initial construction cost,
with maintenance commencing in the year following completion of construction. The rate of 2%
is considered high but is used to take account of unforeseen larger-scale repairs that may
become necessary during the life of the subproject.

14. Subproject costs also include the costs of land acquisition and resettlement (LAR) for
people who will be resettled to allow subproject interventions to be implemented. Payments for
LAR represent an economic cost of the project, since there is an opportunity cost associated
with using such funds. While it may be argued that these funds represent a transfer payment
(from government to affected households) and that the funds may well be invested in developing
new residences or businesses, thereby generating economic activity, the extent of such
new/replacement economic activity cannot be assessed. The economic analysis includes the
full LAR cost and may therefore be regarded as conservative.

15. Babakan subproject direct investment costs comprise civil works for structures (storage
reservoirs, detention basin, storage ponds, drainage, control gates, flood warning, etc.) and LAR
costs. Total investment costs at financial prices amount to IDR 249,909 million ($ 17.45 million).
Civil works costs are IDR 180,114 million ($ 12.58 million) and LAR costs are IDR 69,795 million
($ 4.87 million). Investment costs are expected to be completed over a six-year period, phased
3%, 29%, 17%, 17% and 17% in Years 1, 2, 3, 4, 5 and 6 respectively. Annual O&M costs have
been estimated at the rate of 2% of civil works and are assumed to commence in the year
following completion of construction. Total O&M costs amount to IDR 5,498 million ($0.38
million) per year. Replacement costs are estimated at 5% of construction costs, occurring every
10 years after construction completion. Replacement costs amount to IDR 13,745 million ($0.96
million) per decade. Project costs are converted from financial to economic prices by deducting
taxes, duties and price contingencies from financial costs and applying conversion factors as
shown in table 4. Total investment costs are IDR 210,211 million ($ 14.68 million), O&M costs
IDR 4,899 million ($ 0.34 million), and replacement costs IDR 12,249 million ($ 0.86 million).

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 Table 4: Investment, Routine and Periodic O&M Costs (Financial and Economic prices)

    Content
Fin. Fin (excl.
Tax Trada Non-trad Skilled Unskilled Econ. CF
(incl. tax) tax)
    ble able labor labor
Conversion factor 1.03 1.00 1.00 0.76
Civil Work
mil 10
DED IDR 6,572 % 5,974 50% 20% 20% 10% 5,915 0.90
mil 10
FRM & RWS storage reservoirs IDR 72,948 % 66,317 50% 20% 20% 10% 65,663 0.90
Small storage ponds, improved mil 10
internal drainage IDR 12,645 % 11,496 50% 20% 20% 10% 11,382 0.90
Malahayu Dam additional control mil 10
gates IDR 2,124 % 1,931 50% 20% 20% 10% 1,912 0.90
Kluwut FRM Proposal detention mil 10
basin IDR 11,302 % 10,274 50% 20% 20% 10% 10,173 0.90
mil 10
Flood warning and SCADA system IDR 10,000 % 9,091 50% 20% 20% 10% 9,001 0.90
mil 10
Additional construction cost IDR 23,720 % 21,564 50% 20% 20% 10% 21,351 0.90
mil 10
Construction supervision IDR 6,572 % 5,974 50% 20% 20% 10% 5,915 0.90
mil 10
Physical contingencies IDR 17,857 % 16,234 50% 20% 20% 10% 16,074 0.90
Total Civil Work Cost (construction) mil
before taxes IDR 163,740 148,855 147,387 0.90
mil
Taxes IDR 16,374 0 - 50% 20% 20% 10% -
Total Civil Work Cost (construction) mil
including taxes IDR 180,114 148,855 147,387 0.82
Land Acquisition Costs

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 mil 10
FRM & RWS storage reservoirs IDR 36,750 % 33,409 50% 20% 20% 10% 33,080 0.90
Small storage ponds, improved mil 10
internal drains IDR 2,700 % 2,455 50% 20% 20% 10% 2,430 0.90
Kluwut FRM Proposal, Detention mil 10
basin IDR 24,000 % 21,818 50% 20% 20% 10% 21,603 0.90
mil 10
Taxes IDR 6,345 % 5,768 50% 20% 20% 10% 5,711 0.90
mil
Total Land Acquisition Costs IDR 69,795 63,450 62,824 0.90
mil
Total Investment Costs IDR 249,909 212,305 210,211 0.84
mil 10
Routine O&M costs IDR 5,498 % 4,948 50% 20% 20% 10% 4,899 0.89
mil 10
Periodic O&M costs IDR 13,745 % 12,371 50% 20% 20% 10% 12,249 0.89
Source: consultant’s estimation

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 E. Economic Analysis Results

a. Summary of Benefits and EIRR

16. The estimated total economic benefits of flood protection under the Babakan subproject
amounts to IDR 264.3 billion ($ 18.46 million) in net present value (discounted at a 9% rate). Net
benefits after subtracting investment, O&M and replacement costs amount to IDR 75.4 billion ($
5.27 million). The EIRR of the subproject is estimated at 15.7%, higher than the assumed cut-off
rate for economic viability of 9%. The economic cash flow is presented in Table 5.

Table 5: Babakan Subproject Economic Cash Flow (IDR billion)

Incrementa Total Net

Investment Total
Year l O&M Benefit Benefi
Costs Costs
Costs s t
1 -6.3 0.0 -6.3 1.0 -5.3
2 -61.0 0.0 -61.0 10.5 -50.5
3 -35.7 0.0 -35.7 16.1 -19.7
4 -35.7 0.0 -35.7 21.6 -14.1
5 -35.7 0.0 -35.7 27.2 -8.5
6 -35.7 -4.9 -40.6 32.8 -7.9
7 0.0 -4.9 -4.9 32.8 27.9
8 0.0 -4.9 -4.9 32.8 27.9
9 0.0 -4.9 -4.9 32.8 27.9
10 0.0 -4.9 -4.9 32.8 27.9
11-30 0.0 -4.9 -4.9 32.8 27.9
NPV = -154.5 -34.4 -188.9 264.3 75.4
EIRR = 15.7%        
Source: consultant’s estimation

b. Sensitivity Analysis

17. Sensitivity analysis indicates that the economic viability of the subproject is robust with
respect to adverse movements in the value of key variables. A summary of the analysis is
presented in Table 6.

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 Table 6: Babakan – Summary Sensitivity Analysis

ENPV EIRR
  SIa (%) SVb
(billion IDR) (%)

Base Case 75.4 15.7%    

+10% investment cost 62.1 14.2% (1.77) -57%
+10% O&M costs 72.4 15.5% (0.40) -250%
+10% WP flood damage -1.4 8.9% (10.18) -10%
1 - year project delay 51.3 12.9%

Note: a\ SI = Sensitivity Indicator (ratio of % change in ENPV to % change in a variable)

b\ SV = Switching Value (% change in a variable to reduce the ENPV to the economic discount rate)
Source: consultant’s estimation

18. Switching values (SV) indicate that subproject viability is robust with respect to benefit
and cost streams. The SV for increased with-project damages is 10%, which is equivalent to a
reduction of 29% in expected annual project benefits. On the cost side, investment costs would
have to rise by 57% before the EIRR fell to 9%. On another hand, a delay in construction of
subproject structures has a limited impact on subproject viability. Assuming that costs are still
incurred in the implementation years and the benefits begin to accrue in the year after
construction is completed reduces EIRR to 12.9%. Overall, only a relatively large reduction in
the estimated benefits accruing from the protection of buildings would adversely affect
subproject viability.

F. Distribution and Poverty Impact Analysis

19. The expected impacts of the project on poverty as well as distribution of project effects
among the main groups of the poor, non-poor and the government have been analyzed in a
qualitative manner9. The main objective of this distribution and poverty impact analysis is to
inform decision makers of the potential impact of the project and to specify the types of
parameters that should be monitored to quantify the impact of the project. Monitoring
parameters include those needed to identify unexpected impacts and potential structural
constraints that could hinder the access of certain groups such as the poor to project benefits.
This analysis will help project management to weigh options to improve the opportunities for
disadvantaged groups to access project benefits and mitigate undesirable negative project
impacts and to monitor the results of such actions.

20. Impact on stakeholders. Possible impacts of the project are expected to affect both
poor and non-poor communities, and are summarized in Table 7, grouped according to the key
areas of impact. Positive and negative impacts on provincial and local governments are also
included.

21. Impact on the poor. While official poverty is relatively low at 9.4% (2019), an additional
20.19 % of the population lives just above the poverty line10, and small shocks, most notably
price increases and health issues can drive them back into poverty. For the Babakan core

9
Given that this is a sector project, no project wide quantitative economic analysis had been carried out.
10
https://www.worldbank.org/en/country/indonesia/overview (accessed Dec 15, 2019)

16
subproject, most of the project beneficiaries are in urban and suburban areas. The impact of the
project on the poor can potentially be significant, even if the project is not designed to be directly
implementing poverty alleviation measures.

Table 7 Expected Project Impacts

Areas of Categories of Stakeholders
Impact Poor Non-Poor Provincial and Local
Governments
Short term Medium-long Short term Medium-long Short term Medium-long
term term term
Labor The project will Increased flood No significant Increased flood No significant Reduced
Market generate protection can impact protection can impact impacts from
employment attract new expected attract new expected floods can
opportunities industries and industries and improve
commercial commercial Government’s
enterprises in enterprises in planning and
the project the project uses of human
area, area, resources and
potentially potentially investments for
contributing to contributing to economic
increased increased growth
employment investment and
opportunities, employment
including for opportunities
unskilled
laborers
Product Disruption in More secured Increase in More secured No significant General local
Markets normal product product business product impact economic
(inputs and channels and markets and opportunities markets and expected growth from
markets closer proximity for supplying closer proximity increased flood
outputs)
caused by to building to production.
resettlement commercial material and commercial Potential
may result in enterprises and equipment enterprises and increase in tax
higher prices of factories would during factories would revenues
goods. reduce construction reduce
transaction transaction
costs and costs and
hence lower hence lower
prices of inputs prices of inputs
and outputs and outputs
Asset Acquisition of The land on Acquisition of Property Local Increase in
Markets (e.g. land and which resettled land and owners will governments land value and
land, building households will building benefit from need to acquire land or property
properties for be installed properties for rising asset land for tax collection
buildings)
the subproject should in the subproject values. Land construction of
theory be more values in the flood protection
secure in terms project areas works, which
of flood are expected to could
protection and increase. temporarily
hence more raise land
economically values.
productive
Service Increase of Increased No significant Improved flood No significant Reduced
Markets wage opportunities impact management impact expenditure for
employment for formal expected will decrease expected relief
opportunities employment the vulnerability operations
during will increase of residents implies more
construction the likelihood of budget
could mean securing available
higher access for investing in
affordability to basic the provision of
and services public services
better access (eg health care)
to
services. Improved flood

17
 management
will decrease
the vulnerability
of residents
Transfers Transfers No significant No significant Local
expected in the impact impact governments
form of expected expected will have to
resettlement reallocate
compensation budgets to
where relevant, cofinance
in order to the flood
restore income control works,
and livelihoods which may
reduce other
areas of public
expenditure.

G. Financial Analysis

a. Fiscal affordability and Sustainability

22. Sustainability of the Babakan subproject proposed by the Directorate General of Water
Resources (DGWR) is dependent on effective O&M of the infrastructure. Since the subproject is
in river basin territories (RBTs) that are under central government authority, the responsibility of
operating and maintaining the infrastructure lies with the Balai Besar Wilayah Sungai (BBWS).
For Babakan, the Balai Besar Wilayah Sungai Cimanuk Cisanggarung (BBWSCC) is the
implementing unit under the DGWR. Fiscal affordability is assessed by comparing annual (i)
capital expenditures, and (ii) recurrent costs for 2015 to 2020 for O&M for the executing and
implementing agencies. It is assumed that the trend will continue during the operational life of
the project facilities. Annual O&M costs are estimated following relevant domestic standards
and regulations.

23. To ensure adequate O&M of the investment during 2025–2049 in Babakan the BBWSCC
will need to allocate an estimated annual budget of IDR 5,498 million (in 2019 constant prices),
for O&M of the infrastructure (drainage, gates, spillways, etc.) to be financed by the project11.
For the core subproject, estimated O&M costs for 2025–2029 are shown in Table 8.

Table 8 Estimated Operation and Maintenance Costs for the Babakan Core Subproject
2025-2029 (Rp. million)

    2025 2026 2027 2028 2029

Operation and Maintenance costs 5,498 5,498 5,498 5,498 5,498
Source: consultant’s estimation

24. During 2015–2019, the DGWR has allocated an average budget of IDR 653,200 million
for O&M, at an average of 9.8% of its total budget. BBWSCC has allocated an average budget
of IDR 28,300 million to O&M budget, representing an average of 22.9% of its total budget.
Table 9 presents information on budget allocation for the two agencies responsible for flood
management expenditures.

11
2% of the total construction cost.

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 Table 9 DGWR and BBWSCC Budget Allocation, 2015-2019 (Rp. million)

      2015 2016 2017 2018 2019

DGWR              
9,698,66
Total Budget     1 8,340,862 6,094,769 5,026,519 5,272,747
O&M budget     800,000 730,000 556,300 570,900 608,800
O&M budget as a % of total budget 8.25% 8.75% 9.13% 11.36% 11.55%
BBWSCC    
Total Budget     326,576 148,418 173,799 151,091 44,400
O&M budget     51,000 22,000 24,500 18,200 25,800
O&M budget as a % of total budget 15.62% 14.82% 14.10% 12.05% 58.11%
Source: DGWR, Ministry of Public Works and Housing. 2020.

25. The 2015–2019 trend indicates that (i) the DGWR will be able to allocate annual budget
for infrastructure investment and O&M, (ii) the DGWR is committed to maintaining its O&M
budget in line with infrastructure investment, and (iii) the proposed 2.0% of O&M budget
allocation for infrastructure to be financed under the project is lower than the current percentage
of the total budget allocated by the executing and implementing agencies.

26. The projected budget allocation for O&M for 2020–2024 is presented in Table 10.

Table 10 DGWR and BBWSCC Budget Allocation, 2020-2024 (Rp. million)

      2020 2021 2022 2023 2024

BBWSC
C 50,050 1,278,523 1,405,273 1,484,123 682,978

Flood Management 9,745,14 36,330,32 40,180,42 28,136,95 23,602,01

Investment DGWR 5 3 7 1 3
BBWSC
C 27,450 28,208 30,048 32,664 35,922

Flood Management 1,286,63

O&M Budget DGWR 9 1,322,180 1,371,319 1,437,894 1,555,880
Source: DGWR, Ministry of Public Works and Housing. 2020. Unofficial figures, based on Balai's proposals.

27. The required O&M budget level is assessed as affordable for the DGWR and BBWSCC.
It is proposed that the project loan agreement include (i) a covenant to bind the DGWR to
allocate a budget for O&M of the newly constructed infrastructure, and (ii) a covenant to ensure
both BBWSCC receive adequate allocations for the O&M work under their responsibility.

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