|Project Rationale and Linkage to Country/Regional Strategy
The well-being of the Indonesian people depends heavily on water. As Indonesia grows, enjoying annual economic expansion that averaged 5.7% in 2005 2010 and accelerated to 6.5% in 2011, water challenges intensify and jeopardize sustained development. To guide its economic development, Indonesia prepared the Acceleration and Expansion of Indonesia Economic Development, 2011 2025 (MP3EI) that is based on three pillars (i) developing the economic potential of six regional corridors; (ii) strengthening national connectivity locally and internationally; and (iii) strengthening human resource capacity, science, and technology. The MP3EI recognizes food security and improved water and energy policies as prerequisites for its implementation. In 2014, Indonesia will update its National Medium-Term Development Plan (RPJMN), 2015 2019, which guides planning within and across sectors. Together, the RPJMN and the MP3EI provide the economic and development planning framework for Indonesia, within which the government wants to prioritize water concerns to sustain economic growth.
The government's development agenda requires assistance to analyze the water concerns and priorities of the MP3EI. A country water assessment (CWA) will help provide the analytical foundation for water planning, management, and development, including investment to further economic development. The MP3EI can guide the priorities to be addressed under the CWA, and detailed water sector plans can support the economic development agendas of the regional corridors under the MP3EI. The CWA can advance water reform across Indonesia while providing guidance for planning, management, policy, and investment in the MP3EI economic corridors. Analysis for the CWA and its associated regional plans can support RPJMN development and ensure synergy with the MP3EI, but the CWA alone cannot overcome all challenges to effective water resources management (WRM) and reliable water service delivery in Indonesia.
Indonesia's economic growth spurs urbanization, with the percentage of Indonesians living in urban areas expected to grow from 53% in 2010 to 65% by 2025. Government decentralization has tasked local governments with managing water supply agencies (PDAMs), 70% of which are heavily indebted and have extremely high nonrevenue water losses, some exceeding 50%. Rates of access to water supply and sanitation (WSS) have been declining, with piped water supply reaching only about 31% of urban residents and 12% of rural. PDAMs supply water to only 18% of all Indonesians. Sewage treatment coverage is very low, serving less than 1% of the urban population.
Significant WRM challenges exist. Sediment caused by watershed degradation damages water infrastructure and raises water treatment costs. On Java alone from 2003 to 2009, flooding annually took an average of 140 lives, 20,000 homes, and 100,000 hectares (ha) of crops. Both land-use changes and excessive groundwater extraction that causes land subsidence have worsened flooding, which is now an annual occurrence throughout much of Indonesia. It is estimated that 70% of groundwater sources and 75% of rivers are polluted, limiting water resource sustainability and posing risks to public health. In 2005, 5.2 million ha of the total irrigated area of 6.7 million ha, or 78%, was served by infrastructure considered in good condition. As the irrigated area expanded to 7.2 million ha in 2010, the area in good condition shrank to only 3.5 million ha, or 48%. Climate change will further challenge Indonesia's WRM as water scarcity worsens in some areas, extreme weather events become more frequent, and rainfall patterns become less favorable for agriculture.
Many of the same problems affect both WSS and WRM as water challenges become increasingly interdependent and confront policy makers with trade-offs. Institutional arrangements and fiscal options for water operations, maintenance, and management need to be strengthened. The regulatory framework for WSS is inadequate to support sector development. WSS operations generally fail to recover operation and maintenance costs, and farmers pay no irrigation service fees. Technical and administrative capacity constraints hamper effective planning, management, and development as Indonesia's decentralized government structure heightens capacity challenges. District, provincial, and central government roles and fund flows need to be clearer and better coordinated, and different agencies' program, policy, and management responsibilities harmonized. Although economic growth has been robust, planning and infrastructure investment have been inadequate to meet rising water sector demands. Importantly, the private sector has been underutilized and should play a larger role not only for WSS but increasingly for WRM.
Improved WRM is vital for WSS and economic growth. Increased bulk water supply is needed to (i) support WSS expansion as PDAMs restructure; (ii) meet growing municipal, industrial, and agricultural service demand; and (iii) ease overreliance on groundwater. An urgent concern is to enhance the policy framework and capacity toward facilitating the development of new bulk water sources and improving water allocation among competing demands. The water food energy nexus provides an important paradigm to assess the economic trade-offs in sound water policy and planning decisions. Agriculture currently uses 88% of the developed water supply in Indonesia, and food security is a growing government priority. In 2011, the government called for rice production to increase by 10 million tons, or 15%, to address food insecurity, and the MP3EI prioritizes (i) security in both the production and consumption of food and (ii) developing new food-production areas, in particular outside of Java. Energy demand is increasing at twice the rate of GDP growth, and water is critical to develop hydropower and service thermal energy production, which is expanding rapidly. Energy typically comprises 50% of the cost of urban water supply. The water food energy nexus provides an informed and transparent framework for determining and resolving trade-offs to meet rising demand while addressing sustainability. This type of analysis is needed to support the CWA and ensure sound water planning that will achieve the goals of Indonesia's MP3EI and the next RPJMN.
ADB has a broad water program, with both sovereign and private sector operations. The TA project Water Supply and Sanitation Sector Development is helping BAPPENAS to assess WSS and develop a policy road map. ADB supports sanitation with the ongoing Metropolitan Sanitation Management and Health Project and a new sanitation project under preparation. The TA project Institutional Strengthening for the Water Resources Sector is reviewing role-sharing by national, provincial, and district governments for irrigation and river basin management to improve coordination. The Directorate General of Water Resources under the Ministry of Public Works is adopting irrigation reforms based on experience from the Participatory Irrigation Sector Project. The Integrated Citarum Water Resources Management Investment Program provides comprehensive support to the government to advance river basin planning and management through a 15-year commitment. Capacity building is an important part of ADB's program, and ADB TA for Supporting Water Operators' Partnerships facilitates water practitioner exchange to develop PDAM capacity. ADB's Private Sector Operations Department has invested in Jakarta's water supply concessionaires and has other water-related proposals pending. ADB directly supports the MP3EI through 3-year policy-based lending for the Inclusive Growth through Improved Connectivity Program. ADB has a