BUDGETING AND FUND AVAILABILITY PAYMENT PROCEDURES

ANNEX 8 FinManPlan_FINAL240212 Page A.8.3 of 10 9182012

3. BUDGETING AND FUND AVAILABILITY

The Government budget preparation procedures are described in Section 3.3.2 of the PIP Main Text. These are supposed to be completed in early January with the issue of the final budget document DIPA. At that time the Ministry of Finance advises each Budget User Pengguna Anggaran - eg. Line Ministry of its total allocation and how this is divided between its Directorates and ultimately Work Units Satker, such as individual projects. Efficient project management is essential to ensure that realistic forecasts of funding needs are prepared and submitted in a timely manner during planning and budgeting process so that the DIPA reflects the real needs of the project. A problem outside the control of the project is that in most years there have been delays in the issue of DIPA. The effect of this on project implementation is reviewed in Section 4, Risk Management. It should also be noted that current regulations require all Satker officials to be formally reappointed at the beginning of each fiscal year. The large number of these officials has led to delays in the formal appointments, by way of official letter, of some. Until such letters of appointment are received, no official has the authority to act and project implementation must be temporarily halted. This risk is referred to in the PIP in Section 4.1, Risk Management. Budgetary or organizational problems may result in delays in payments to contractors. Where permitted under the Terms and Conditions of Contract, this may result in claims for compensation being submitted. This represents a financial risk to the Project.

4. DISBURSEMENT PLAN

Based on the Project Implementation Schedule in Annex 12 of the PIP, the estimated disbursement schedule during each six-month period during the Project is shown in Table 1. The amount estimated to be required during the first six months is US 19 million. The average amount for each six month period is US 44 million, peaking at US 88 million during the 5 th six month period. Table 1 : Estimated Disbursement per Six Month Periods US millions Period Estimated Amount US millions Start Finish 6 Month Period Cumulative January 2012 June 2012 July 2012 December 2012 18.78

18.78 January 2013

June 2013 33.25

52.03 July 2013

December 2013 49.88 101.91 July 2014 December 2014 58.78 160.69 July 2014 December 2014 88.17 248.86 January 2015 June 2015 53.00 301.86 ANNEX 8 FinManPlan_FINAL240212 Page A.8.4 of 10 9182012 July 2105 December 2015

35.33 337.19

January 2016 June 2016

12.81 350.00

5. DISBURSEMENT MECHANISMS As noted in Section 3.3.3a, there are three channels for disbursement of loan funds. These channels are described briefly hereunder and in more detail in the Project Management Manual PMM. 5.1. S PECIAL A CCOUNT RK It is expected that a Special Account RK will be set up in Bank Indonesia BI specifically for the Project to handle WINRIP funding and disbursements. IBRD will provide initial forward funding in an agreed sum to be deposited in this Special Account. When a payment is made for eligible expenditure, as evidenced by the payment documentation SP2D, Bank Indonesia BI is advised by KPPN and BI debits the project Special Account with the equivalent sum in loan currency. To replenish the Special Account, the FMR quarterly financial reporting system is used to furnish IBRD with forecasts of disbursements expected to be required during the next three months. If there are insufficient funds in the Special Account to meet this expenditure, IBRD will transfer sufficient funds to meet forecast needs. The FMR also provides the data needed by IBRD to record actual disbursements made in its own loan account records. The Special Account will be liquidated at the end of the Project and all unspent funds returned to the IBRD. For some small items of expenditure, where activities are implemented through self- management, funds are advanced by government to the Satker. Such advances cannot be drawn from the Loan funds, unless and until, the expenditure is duly accounted for through the Payment Order. Such expenditures are identified by a special suffix GU They are included with other payments SPM-LS when reimbursement from the Loan Account is sought. 5.2. D IRECT P AYMENTS DP Exceptionally, the Government of Indonesia may request direct payment to a contractor from IBRD. This request must be in writing and require the prior agreement of the IBRD. If agreed to by them, the IBRD would then arrange for funds to be transferred direct to the bank account of the supplier, contractor or consultant. Such requests need to be submitted at least 30 days in advance of the payments due date. The rate of exchange to be used for determining the amount of US Dollar withdrawal will be the cost on the date of withdrawal of purchasing the currency required by the supplier, contractor or consultant. ANNEX 8 FinManPlan_FINAL240212 Page A.8.5 of 10 9182012

5.3. R

EIMBURSEMENT TO G O I BY IBRD In exceptional circumstances there may be insufficient funds on the Special Account to reimburse GoI. If and when such occasions arise, the GoI will send a claim for reimbursement direct to IBRD and funds are to be transferred to the central treasury Bendahara Umum Negara or BUN account in Indonesia. Such reimbursements will be made in Indonesian Rupiah. The amount of each withdrawal from the Project Loan shall be calculated as the equivalent in terms of the cost in US on the date of withdrawal of purchasing Rupiah.

6. PAYMENT PROCEDURES

Payments due to contractors under civil works contracts will be certified by the Engineer. Other payments will be approved using procedures as set out in the PMM. The payment procedure prescribed by the Government must be adhered to. It is described in brief hereunder: a A request for payment invoice, approved by the Engineer, is presented to the Satker by the contractor; b Head of Work Unit Satker checks for conformity and issues a payment request SPP to the SPM Verifier Issuer in the Satker; c The SPM Verifier Issuer checks both the supporting documentation and the adequacy of the unspent budget allocation for that type of expense. If satisfactory, the SPM Verifier Issuer issues the payment request SPM and sends it to the Treasury Office KPPN; d KPPN carries out additional conformity checks and if satisfied issues the payment order SP2D; e The SP2D is then forwarded from KPPN to Bank Indonesia who then transfers funds from the Special Account to the contractor’s nominated bank account; f Copies of the SP2D are then provided from KPPN to the appropriate Satker for their records; g When payment is made to the contractor, Bank Indonesia notifies KPPN that the transaction is completed. There are to be no processing fees or fees of any kind charged for any of the above procedures. Steps b, c, and d, noted above, are expected to be completed within 5 working days each. In the case where a step takes more than five days, the PMU will inform IBRD in the Monthly Progress Report explaining in detail where and why the delays have occurred and the likely payment date. Payments eligible for funding from the Special Account are assigned the suffix “RK” on the SP2D and SPM documents. Copies of SP2D-RK are provided to MoF which lists them and attaches the list to a Statement of Expenditure SOE which will be submitted to the IBRD for the latter’s own record keeping. If the Loan funds were withdrawn through Special Account, the withdrawal reference serial number is followed by the suffix “PB” eg. xxx PB. If the funds were ANNEX 8 FinManPlan_FINAL240212 Page A.8.6 of 10 9182012 through “Reimbursement”, “SBUN” is added as suffix to the reference serial number eg. xxx SBUN. Direct payments which do not pass through the Special Account will be booked against the Loan account by IBRD directly. The flows of funds and documents are shown in the following figures: • Figure 1: Foreign exchange payments from the Special Account, • Figure 2: Rupiah payments from the Special Account for contracted activities, • Figure 3: Rupiah payments from the Special Account fro self-managed activities, • Figure 4: Direct Payment procedure, • Figure 5: Rupiah payments when Special Account has insufficient funds.

7. PROJECT COST RECORDS AND FINANCIAL MIS