|Project Rationale and Linkage to Country/Regional Strategy
Indonesia is one of the fastest urbanizing countries in Asia. Today, about half of the population (51%) lives in cities. The rapid urbanization rate is set to continue. By 2025, it is projected that about 68% of the population will live in urban areas. Many of Indonesia's growing cities face issues to cope with the rapid growth of in-migrants, who are seeking new economic opportunities in cities, but forced to settle in disadvantaged neighborhoods due to limited financial resources, lack of affordable adequate housing and/or failure to find well paid jobs . In 2011, about 12% of the urban population was forced to live in slum areas.
Better public infrastructure is considered vital to sustain inclusive economic growth and further stimulate economic opportunities of the growing urban population. Yet infrastructure improvements have not been able to keep up with the rapid urbanization and infrastructure investment has lagged economic development. Mostly, infrastructure and public services in poor neighborhoods are inadequate to serve the needs of their growing inhabitants. Environmental and social problems related to accessibility to adequate services for the people's daily needs are increasing due to widespread constraints in provision of clean water, insufficient sanitation facilities, deteriorating roads, pathways and drainages, ineffective flood control, lack of constant power supply, and poor solid waste management. Only about 40% of the urban population has access to safe water, and about 28% do not have access to improved sanitation facilities. About 35% of urban areas lack proper drainage systems. Problems are further aggravated by the absence of sound land use planning and land management regulations that are contributing to increased congestion and haphazard informal development. A multi-faceted approach is required to address these challenges, which include strengthening the capacities of city administrations to manage urban development in an environmentally and socially sustainable manner, modernization of land policies and permitting regulations; expanding access to, and targeting of, housing finance and subsidies; increasing community involvement in spatial planning; and engaging the private sector in development planning. Aside from investment in basic urban infrastructure, the rapid urbanization has triggered a growing demand for housing, which needs additional attention. The availability of affordable housing in cities for low-income groups appears to be declining. While estimates of Indonesia's housing deficit vary, all indicate a significant backlog in supply.
Insufficient investments in infrastructure had been identified as one cause for poverty in the National Medium Term Development Plan 2010-2015 (RPJMN), thus improving basic infrastructure is considered an effective catalyst to alleviate poverty and close gaps in income inequality in disadvantaged urban neighborhoods. While Indonesia has generally made good progress towards accelerting achievement of the millennium development goals (MDG), the MDG targets for achieving significant improvement in the livelihood of slum dwellers (MDG target 7D) and halving the proportion of urban households without sustainable access to safe drinking water and basic sanitation (MDG target 7C) need special attention. The project's purpose of upgrading basic public infrastructure in slums will contribute towards meeting both MDG targets.
To address issues of the rapid urbanization the Government launched the Cities without Slums Program and issued Law No. 1/2011 on Housing and Settlement Areas . To contribute to the Cities without Slums Program the Government requested the ADB to prepare and partly finance the Neighborhood Upgrading and Shelter Project (NUSP). NUSP will assist about 20 large and medium sized towns to develop and implement inclusive pro-poor city development plans and improve living conditions in slums, through (i) providing resources to local governments and communities for upgrading basic infrastructure in slum areas; (ii) strengthening planning and management capacities of local administrations for inclusive pro-poor urban planning; (iii) establishing sustainable mechanisms to engage communities in urban development planning processes; and (iv) launching public private partnerships (PPPs) to establish affordable housing areas for poor families.
The proposed project is included in the ADB Country Operations Business Plan (COBP 2013-2014). Supporting government's efforts to achieve more inclusive growth through improving infrastructure, particularly by supporting catalytic projects to develop community-driven basic infrastructure for poor communities, and improving access to water supply and sanitation in selected cities is included in ADB's country partnership strategy (CPS) 2012-2014. The project will contribute to achieve the targets of the CPS Results Framework and ADB's Strategy 2020. The project is also aligned with ADB's Urban Operational Plan 2010-2012 as it (i) provides support to urban shelter sector programs; (ii) contributes to upgrading of local infrastructure in the four core areas of water supply, sanitation, water management and urban transport; and (iii) improves community services, employment opportunities and livelihood development. The proposed project builds on lessons from (i) the Neighborhood Upgrading and Shelter Sector Project (NUSSP, Loans 2072/2073-INO), which closed in December 2010 and was rated successful , (ii) the Rural Infrastructure Support to PNPM Mandiri Project (Loan 2449-INO), and (iii) the ongoing Urban Sanitation and Rural Infrastructure Support to PNPM Mandiri Project (Loan 2768-INO). All projects were/are implemented by MPW. In particular the following lessons have been incorporated into the project design: (i) the importance of involving beneficiaries in the planning and implementation of neighborhood upgrading, (ii) clearly defined landownership and strong political commitment to support pro-poor urban development, (iii) advantages to promote integrated development approaches and link upgrading investments of individual communities with the overall city development planning, (iv) reduce the number of project cities and neighborhoods to cut down transaction costs in project management, (v) increase the investment amount per neighborhood to boost up means for improving the living conditions in slums in a more broader way, (vi) transparent fund flow and implementation mechanisms and promoting community control of decision-making over resources and investment choices; (vii) strong accountability procedures, such as public disclosure of budgets and contracts; and (viii) training for communities in establishing effective mechanisms to operate and maintain new infrastructure.