01 SOW.docx

Statement of Work Advisor to Support Compact Development Team (CDT) Transport Infrastructure Indonesia II

Introduction

The Millennium Challenge Corporation (MCC) is a Federal Corporation created under Title VI of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2004. Its mission is to provide assistance that will support economic growth and poverty reduction in carefully selected developing countries that demonstrate a commitment to just and democratic governance, economic freedom, and investments in their citizenry.

Compacts typically include the planning, design, construction, operations and maintenance of major infrastructure elements. Since its inception, MCC has developed and implemented many Compacts in various low and lower-middle income countries that included the planning, design, and construction of transport and vertical structure infrastructure.

The MCC requires professional services to provide advisory expertise to support Indonesia II compact development team (CDT) based in Jakarta focusing on assessing and developing investments in transport and logistics sector within the framework of Indonesia II compact.

Background

In recent years, Indonesia has routinely documented its growing infrastructure needs, and its inability to finance these needs from state budgets alone. The Study for Development Funding Strategy 2020-24 issued by BAPPENAS in 2019 suggested that the Rp 17,508 trillion ($1.2T) available from the government budget over the 5-year planning period would need to be supplemented by a further Rp 21,000 trillion ($1.4T) to meet investment needs in essential services to support the Sustainable Development Goals, meet climate change commitments, develop the economy, reduce poverty, and create basic infrastructure to support Indonesia as a prosperous middle‐income country. Unsurprisingly, the financing shortfall has dominated the Government’s infrastructure policy agenda in recent years and as a consequence little attention has been given to the quality aspects of infrastructure investment, although these are equally important, and are of particular concern in Indonesia where current planning practices lead to the selection of sub-optimal projects and project preparation is notoriously of insufficient quality to attract private investment. Also, the condition of many public infrastructure assets, especially the sub-national road network, has fallen well below acceptable service levels adversely affecting regional connectivity and mobility. This is a result of low-quality initial design and construction, and sub-standard maintenance. Infrastructure investment, only when accompanied by high quality planning, delivery and preservation can fully contribute to sustainable growth and development, by maximizing economic efficiency across the full project lifecycle. Poorly planned and low-quality projects cannot reap their full economic and social benefit because they may be unfit for purpose, deteriorate quickly or provide a sub-standard level of service to users. Furthermore, low quality projects are generally more likely to be vulnerable to natural disasters or to the effects of climate change, thus reducing long-term value for money further.

Infrastructure development in Indonesia faces challenges at both the supply and demand sides of financing. On the supply side, the problem is prompted by shallow, costly financial intermediation. On the demand side, the absence of financially viable infrastructure project pipelines, caused by weaknesses in project planning/prioritization combined with low readiness and poor delivery of projects, restricts the ability to absorb the existing supply of infrastructure financing, and to attract commercial sources of funding. Existing infrastructure financing practices by state-owned enterprises, commercial banks and weak involvement of institutional investors, lead to inefficient financing structures over the lifecycle of infrastructure assets, which dampens enthusiasm to invest and as a result restricts innovative types of financing from emerging.

Poor project preparation and lack of expertise to match the needs of different investors and the characteristics of projects are among the challenges on the demand side. Lack of such capacity has contributed to the scarcity of financially viable infrastructure projects. At the central government level, another problem relates to public investment framework that is not yet reflecting the best practice to leverage private financing. There is no clear criteria nor procedure governing the ways in which projects can be undertaken by a government unit through public procurement, or through which they can be assigned to SOEs or be offered to the private sector through a PPP scheme. The current public investment framework may also limit the number of financially viable infrastructure projects bid out to the private sector.

Focus on Transport and Logistic Sector: The impact of lagging transport and logistic infrastructure currently appears in a number of forms in Indonesia. Congested ports, underdeveloped inter-island and inter-area transport systems, and deteriorating road systems at the province and district level have led to expensive logistics costs. Logistics costs in Indonesia are estimated at about 14% of total production costs, much larger than the current 5% in Japan, the highest performing country surveyed. 2019 World Bank Logistics Performance Index (LPI) ranks Indonesia 51, (lower than Thailand at 34, and Malaysia at 35) but does better that the Philippines which is ranked at 64. A World Bank survey of logistics costs for manufacturers in five big cities in Indonesia, i.e. Jakarta, Surabaya, Semarang (Java), Palembang (Sumatra), and Makassar (Sulawesi), suggested that the average total logistics cost is 20% of sales, broken down into 17% logistics administration, 26% inventory, 17% warehousing, and 40% percent transport and cargo handling. Congested and underdeveloped international ports also limit the efficient integration of Indonesia’s manufacturing sector into international production networks. As a result, when a business cannot operate as efficiently as possible, its overall productivity is harmed. Therefore, the development bottleneck created from Indonesia’s currently lagging infrastructure compromises the sustainability of medium- and long-term economic growth.

Objectives The overall objective of the proposed infrastructure program under due diligence is:

· To support the goal of poverty reduction through economic growth, the primary objective of the project is more efficiently designed, implemented, and financed infrastructure projects from improved public planning and the increased participation ofo private capital. To this aim, it is necessary to deepen and broaden the financial sector, create new instruments (models) that are replicable, and diversify the investor base by: (1) using innovative financing approaches and blended finance structures that can be the catalyst for a new supply of capital and attract domestic and international institutional investors into infrastructure financing while maximizing financing for development, as contextualized through the so-called “Cascade[footnoteRef:1]”; and (2) strengthening the capacities and business processes of all relevant stakeholders on the demand side, including (a) better public investment planning and management, (b) improve quality of project preparation (c) institutionalize public investment planning and management. [1: ]

To support the project objectives, the CDT recommended a number of strategic interlinked project components with the broad objective of driving and demonstrating significant reform in the planning, preparation, financing, procurement, delivery and preservation of regional transport infrastructure. The projects are recommended with the following broad objectives in mind: (i) to create a system for lasting, transformational improvement through reform of Indonesia’s transport infrastructure sector, (ii) to improve value for money of Indonesia’s infrastructure investment over the long term, and (iii) to implement demonstration projects which act as proof of concept for reformed infrastructure processes including the introduction of innovative financing models.

The CDT Project Proposal recommends four key components: (i) the development of Public Investment Management Guidelines for infrastructure, (ii) the design and operationalization of a Project Preparation Facility to support sub-national governments, (iii) strengthening financial intermediation (supply side) for infrastructure, and (iv) Demonstration Projects in selected target provinces.

The following broad observations and recommended adjustments are made in respect of the current CDT Project Proposals for the PIMG, PPF, Financial Intermediation and Demonstration Projects.

PIMG: Whilst the ultimate goal is for the Government to create and formally adopt a PIMG framework covering all Indonesian infrastructure, the complexity and enormity of that challenge means that it is unlikely to be met during a five-year compact period. Therefore, it is recommended that the PIMG scope under the compact be limited to: (i) regional multi-modal transport infrastructure and services during the planning phase up to definition of transport project pipelines, and (ii) sub-national roads only from project pipeline through preparation, delivery and preservation phases. Once this ‘limited scope’ PIMG has been developed and implemented successfully, it may then be used by the Government as a template for the development of similar PIMGs for: (i) other sub-national transport infrastructure and services, (ii) national transport infrastructure and services, and (iii) other public infrastructure sectors, such as water and sanitation. The rationale for recommending an initial limited PIMG focused on sub-national roads is based upon: the importance of sub-national roads for regional transport, (ii) the generally poor condition of sub-national roads which constrains regional connectivity and growth[footnoteRef:2] and (iii) the potential for an improved regional road network to generate the growth of new and upgraded public transport services. [2: ]

PPF: The CDT Proposal is now explicit in requesting support for a PPF wider in scope than traditional Project Development Facilities which already exist in Indonesia to support PPP projects. The wider scope requested by the CDT includes all projects regardless of funding and financing mechanisms, and they propose that the PPF manages the project lifecycle from initial planning through to transaction completion. In line with the transport focus of the compact, it is recommended that the PPF be restricted to supporting transport projects only, so that the spread of technical advisory services and number of technical stakeholders remains manageable. It is also recommended that the PPF scope be extended to remain involved with the oversight and management of projects beyond transaction so that they provide a portfolio management function at least through to completion of construction and handover of completed assets to the government. This is in response to one of the key IMF PIMA recommendations to strengthen portfolio and project management of capital projects.

Strengthening Financial Intermediation: On the supply side of infrastructure finance, the CDT is proposing to develop structured financing approaches for infrastructure including support across four pillars. This includes interventions designed to: (i) encourage the use of limited recourse project financing; (ii) expand the market for project bonds/sukuk structures; (iii) promote financial asset recycling via commercial bank debt sales; and (iv) develop the foreign exchange market. The compact would support these intervention areas through: (a) legal, regulatory, policy, and institutional reforms; (b) sell-side Transaction Advisory; (c) development of financial market infrastructure; (d) provision of credit enhancements through blended finance instruments; and (e) investor education.

Demonstration Projects: The CDT Project Proposal included 160 indicative projects for compact support[footnoteRef:3]. Little detail of the proposed projects has been provided at this stage. The CDT Project Proposal suggests that the number of target provinces for demonstration projects be increased to five by adding Riau Islands and Bali to the original three provinces of South Sumatra, Riau and North Sulawesi. In principle, expanding the number of selected provinces is not an issue as long as all demonstration projects: (i) contribute to the overarching compact goal of poverty reduction by stimulating regional economic growth through improving inclusive regional connectivity and mobility; (ii) demonstrate innovative financing models (preferably with each project testing the viability of a different approach); (iii) comply with wider MCC policy objectives in relation to economic return, environmental and social performance, gender and social integration, climate change, value for money and sustainability, (iv) can be comfortably prepared, transacted and implemented within the compact 5-year timeframe, and (v) can be accommodated within an acceptable overall budget envelope for the compact. During the next stages of compact development, it will be necessary to screen and bundle these indicative projects to create a meaningful and manageable set of regional transport demonstration projects which is agreed with the CDT and the Government of Indonesia. [3: ]

Country

Indonesia and any other eligible MCC country.

Overall Scope

MCC seeks an individual, Indonesia-based (Jakarta preferred), consultant to assist the CDT to undertake various assignments aimed at providing direct professional services to help coordinate identification, assessment, and development of transport and logistics infrastructure demonstration projects for investment consideration by MCC under the Indonesia II compact. The scope of the consultant includes advising the CDT on various aspects of transport infrastructure: planning, engineering, design, construction, operations, maintenance, finance, budgeting, policy, regulatory, as well as assessing institutional frameworks, and/or capacity building/ technical assistance (TA) interventions that may be considered/proposed as part of the MCC in the sector.

Tasks

TASK I: Overall Support to CDT transport and logistic infrastructure sector

Within the context of project identification, planning and the Indonesia II compact development process, the consultant shall:

· Review all relevant documents pertaining to the sector demonstration project(s) that are under consideration such as conceptual/preliminary studies, pre-feasibility and full feasibility studies, etc., and communicate to CDT pertinent points/findings as applicable;

· Interface with all the relevant government and non-governmental institutions including State Owned Enterprises (SOEs), private sector, and civil societies and the donor community for the purposes of gathering information pertaining to potential demonstration projects in the sector;

· Provide inputs and feedbacks to the baseline understanding of the public investment management processes as well as project preparation and development practices including the application of blended financing practices in the transport sector.

· Contribute to the understanding of the project pipeline in the transport and logistics sector in terms of level of preparedness, technical feasibility, relevance, institutional framework, priority, impenetrability, etc.

· Assist in the identification of parameters to be considered as part of monitoring and evaluation exercise for transport and logistics projects that may be considered as art of MCC compact investments.

· Undertake analysis and studies in the transport infrastructure to support planning and decision support to the CDT during compact development process as may be required;

· Participate and or conduct trainings and capacity building activities in specific areas of specialization/expertise of the consultant as may be required

· Coordinate with MCC staff including legal, financial, procurement, gender and social inclusion, environmental and social performance as well as consultants/contractors that provide services to the CDT as may be required.

· Develop study reports, meeting minutes, presentations and short-term action plans and other routine correspondences for the CDT as may be required.

· Undertake both domestic and international business travel(s) as may be requested and produce relevant trip reports.

TASK II: Technical Support in Planning, Development and decision Support

The consultant shall provide rigorous technical analysis/studies to the CDT to support decision making in the planning and development of transport infrastructure that include the following:

· Assist in the due diligence and program development of selected infrastructure projects in the sector that may be considered for MCC investment as demonstration project(s);

· Undertake data collection, analysis and studies in the sector to support planning and decision making by the CDT as may be required including infrastructure climate resilience considerations that could potentially be supported as part of the compact;

· Assist the CDT in reviewing the relevant institutional, policy and regulatory framework governing the sector in planning design, development, financing, and implementation of transport infrastructure projects and identify gaps and areas requiring improvement for consideration under Indonesia II compact;

· Review and advise the CDT on the quality and standards of conceptual, pre-feasibility, feasibility, designs and other relevant technical studies of candidate demonstration projects in the sector and identify gaps relative to best international practices and areas for improvements for consideration under Indonesia II compact;

· Review and assess order-of-magnitude cost estimates, plans, specifications and construction schedule, works bid documents of selected demonstration infrastructure projects in the sector to support decision making on the part of the CDT;

· Assess the management and technical capacities of potential compact II partners on national and sub-national levels in terms of project planning, development and implementation and identify areas of improvements.

· Review the applicable or appropriate implementation arrangements and program/project management processes particularly involving PPPs and blended financing that may be under consideration for demonstration projects;

· Review the appropriate technologies, construction processes, and means and methods of construction of proposed demonstration infrastructure projects;

· Review all documents related to compact development and reports such as Compact Administration Manual, Risk Assessment and Management Plan, and Preliminary Engineering Design Report leading up to the approval of the investment project.

TASK III: Design, Procurement, Construction, Operations and Maintenance (O&M) Services

The consultant shall assist the CDT in the various phases of formulating implementation arrangements with respect to procurement, construction, O&M processes including the following:

· Assist in the development and review of detailed work plan for infrastructure component of the compact including analysis of the critical path in coordination with other work streams and disciplines

· Assist in assessing local design, schedule, construction, operations and maintenance capabilities in the sector;

· Develop and/or review Terms of Reference (TOR)/Scope of Work (SOW), and Terms and Conditions for conceptual studies and technical assistance services to be procured by the CDT

· Review and assess estimated levels of effort and fees for design and construction management, program management services as may be required as part of implementing demonstration transport infrastructure projects, and

· Assist in reviewing and evaluating technical proposals/bids submitted by planning, design, and construction firms.

Deliverables

Deliverables will be outlined via Technical Directives that will be issued by the responsible CDT Officer. Deliverables may include some or all of the following:

· Technical Memorandums

· Technical Study Reports

· Trip Reports

· Presentations and Training Material

· Ad hoc reports as may be required

All deliverables shall be submitted in electronic form where feasible, and in hardcopy as necessary and/or required. For Technical Study Reports, deliverables will be considered “draft” upon initial receipt. Drafts will be reviewed and accepted or concerns raised/comments provided within one weeks of receipt. The Consultant shall appropriately address the Corporations’ concerns and provide final deliverables within one week of receiving the MCC response.

Period and Place of Performance

All work under this contract will be completed between effective date of the contract award through a one year base period with up to two option year periods. The estimated level of effort is estimated at up to 1200 hours for the Base year and 600 hours and 500 for Option 1 and 2 years, respectively. An estimated 5 domestic business travels and 2 international per year. MCC anticipates this level of effort but does not guarantee it, as it may decrease depending on actual project requirements.

The performance period of the contract is as follows:

The Consultant shall perform the tasks under this contract in Jakarta, Indonesia CDT office(s) and at his/her own facilities.

Subcontracting

Experts are authorized to subcontract data collection, data preparation, data or economic analysis, and related services as needed. The overall costs for subcontracting shall not exceed 25% of the expert’s total negotiated unloaded direct labor cost.

Conflict of Interest

The expert will be precluded from bidding on work and services (design, assessment, construction, and supervision) to be procured by the local accountable entity or using funds advanced under MCC work in the relevant country.

Timing and Reporting

All formal communication with MCC, including reports, will be submitted to the COR/PM. The COR/PM for this requirement will be identified via separate correspondence.

The COR/PM will have technical responsibility for monitoring the contractor’s performance. The COR/PM will review and evaluate the contractor’s performance, and also will coordinate any communications with relevant counterparts and other donor agencies and organizations.

Any changes in the terms of the Call Order will be made in writing and approved by the Contracting Officer. No representation of the COR/PM shall serve as a basis for an alteration in the general scope of this Call Order or of the terms and conditions of the Call Order unless confirmed in writing by the Contracting Officer. The contractor must communicate with the Contracting Officer on all matters that pertain to the Contract terms. Proceeding with the work without proper contractual coverage could result in nonpayment for that work.

The designated Expert would be expected to coordinate with local authorities responsible for MCC Compact implementation as well as other donors, where relevant. However, designated Expert would report directly to the designated COR/PM.

Evaluation Factors

· Master’s or advanced degree in civil engineering or the equivalent from a recognized university;

· Minimum 15 years successful experience in transportation and logistics infrastructure project that include project planning, preparation, financing, budgeting and implementation including knowledge of environmental assessment and land acquisition processes in Indonesia;

· Extensive knowledge of policy, regulatory, institutional, planning, budgetary processes with good understanding of private sector participation and PPP based project financing involving blended financing in the transport sector;

· Proven ability to navigate through a complex institutional environment both the governmental and nongovernmental spheres involved the identification, planning, preparation, financing, procurement, implementation, operations and maintenance of infrastructure both on a national and subnational levels in Indonesia;

· Demonstrated ability to work as part of a team of experts, and experience engineering design, project management, construction management, operations, maintenance, financial, policy and regulatory aspects and institutional capacity building,

· Written and spoken fluency in Bahasa Indonesia and English, including ability to conduct oral presentations and to produce reports of high quality

Other requirements:

Domestic travel within Indonesia is required. The Consultant may be requested to mobilize on a short notice and will be expected to deliver high quality finished products in a timely manner.