Philippines - Second Urban Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2048a-PH FILE1 COP- Y'- PHILIPPINES SECOND URBAN DEVELOPMENT PROJECT STAFF APPRAISAL REPORT December 1, 1978 Urban Projects Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Peso (P) 1 Peso = US$0.1351 US$1 = P 7.4 WEIGHTS AND MEASURES 1 meter (m) = 39.37 inches (in) 1 square meter (sq m) = 10.8 square feet (sq ft) 1 cubic meter (cu m) = 35.3 cubic feet (cu ft) 1 kilometer (km) = 0.62 mile (mi) 1 square kilometer (sq km) 3.386 square mile (sq mi) 1 hectare (ha) = 10,000 square meters (sq m or 2.47 acres (ac) 1 liter (1) = 1.057 quarts liquid or 0.26 US gal- lon (gal) or 0.908 quart dry (qt) 1 liter per capita per day (lpcd) = 0.26 US gallon per capita (gcd) ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank BDCN - Barangay Daycare Nutrition Centers BPW - Bureau of Public Works COA - Commission on Audit DDPO - Dagat-Dagatan Project Office GNP - Gross National Product GSIS - Government 'Service Insurance System HSC - Human Settlements 'Commission IBRD - International Bank for Reconstruction and Development IPICS - Inter-Agency Project Implementation Coordination Staff LOI - Letters of Instruction MASICAP - Medium and Small Industries Coordinated Action Program MEC - Ministry of Education and Culture MHS - Ministry of Human Settlements MLGCD - Ministry of Local Government and Community Development MMA - Metro Manila Area MMC - Metro Manila Commission MMCHO - Metro Manila Commission Health Office MOH - Ministry of Health MPH - Ministry of Public Highways MPWTC - Ministry of Public Works, Transportation and Communication MSSD - Ministry of Social Services NEDA - National Economic and Development Authority NHA - National Housing Authority NNC - National Nutrition Council PID - Project Implementation Department PNB - Pambansang Bagong Nayon Program POPCOM - Population Commission ROW - Right of Way SBAC - Small Business Advisory Centers SIR - Slum Improvement and Resettlement Program SSS - Social Security System UNDP - United Nations Development Program USAID - United States Agency of International Development ZIP - Zonal Improvement Program Fiscal Year January 1 to December 31  FOR OFFICIAL USE ONLY PHILIPPINES STAFF PROJECT REPORT SECOND URBAN DEVELOPMENT PROJECT Table of Contents Chapter Page No. I. SECTOR BACKGROUND ....... 1 A. Urban Trends, Institutions and Policy .1 B. Shelter and Sanitation in the Project Cities ..... 4 C. Experience Gained under the First Project ........ 6 II. PROJECT COMPONENTS, COSTS AND FINANCE .. ....... 7 A. The Project ........ .... 7 B. Detailed Project Description . ........ 9 C. Cost Estimates ................................... 17 D. Financing Plan ... ................................ 20 III. BORROWING AND EXECUTING AGENCIES ...................... 22 A. Project Organization and Management ............. . 22 B. National Housing Authority ....................... 24 C. Local Government ....................................... 29 IV. DESIGN STANDARDS AND PROJECT SPECIFICATIONS .......... . 31 V. PROJECT IMPLEMENTATION ..................................... 34 A. Procurement ............ . ......................... 34 B. Disbursements .... ............................ 34 C. Supervision ......................................... 35 D. Community Participation .................... ...... 35 E. Lot Allocation Procedures for Sites and Services Areas.. 36 F. Land Tenure...... 36 G. Implementation Schedule. 37 This report is based on the findings of Messrs. Pellegrini, Whitehead, Williams and Ms. Sewell and Messrs. Ellis and Jorgenson (Consultants) who visited the Philippines in October/November 1977 to commence the Appraisal. A follow-up mission comprising Messrs. Pellegrini (chief of mission), Whitehead and Ms. Sewell and Mr. Ellis (Consultant) visited the Philippines in February/ March 1978 to complete the Appraisal. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- Chapter Page No. VI. FINANCIAL ANALYSIS ......... ............... .. .............. 37 A. Cost Recovery ... .* .......... .............. ..... 37 B. Demand and Affordability ............ 39 C. Impact on Municipal Finance .............. ..... 41 D. Replicability of the National SIR Program ....... . 41 VII. JUSTIFICATION AND RISKS ............................... 42 VIII. RECOMMENDATIONS ................ .. . ............................ 45 ANNEXES Supporting Tables and Charts T-1 Detailed Cost Estimates ...... .................... 47 T-2 Agency Responsibilities for Project Implementation 48 T-3 Project Standards . .............................. . 49 T-4 Project Cash Flow ........ . ...................... 50 T-5 Design and Construction Standards .... ............ 51 Chart IBRD 18948 ........................ ................ 0.... 52 List of Data Available in Project File ..................... 53 MAPS Project Location 13471 Dagat-Dagatan Sites and Services 13472 Regional Cities 13473  PHILIPPINES SECOND URBAN DEVELOPMENT PROJECT I. SECTOR BACKGROUND A. Urban Trends, Institutions and Policy 1.01 Urban Structure and Growth - Urban structure in the Philippines is characterized by a highly dominant capital, Metro Manila, together with a large number of lower-middle size cities. The 1975 total population of the Philippines was estimated at 41.5 million persons, of which 13.8 million or 33% live in areas classified as urban. Of these, 5.5 million persons, almost 40% of the national urban population live in Metro Manila 1/. Another 20% of the urban population live in other cities with populations greater than 100,000 while the remaining 40% live in cities with populations below 100,000. 1.02 During the period 1960 to 1970, the urban population grew at approxi- mately 4.0% per annum compared to about 3.1% per annum overall. Growth rates have been uneven among cities of different sizes with Metro Manila and smaller cities growing fastest. By the turn of the century, the population of the Philippines will have grown to 75 or 80 million persons, almost double its present population and up to two thirds of the added population may have to be absorbed in urban areas even under optimistic projections of rural employment. Before the end of the century, the percentage of families living in urban areas is expected to reach 46% of the total population. Urban Poverty/Employment 1.03 The urban poverty threshold estimated for the Philippines is P 1,880 (US$254) per person per year in 1977. Although available data is not precise. it indicates that approximately 40% of families in urban areas and about 80% of families in typical slum areas of major cities have per capita incomes below this level. Recent data on unemployment show a steady decline in rates of urban unemployment to an estimated level of only about 5% of the work force in 1975. However, high levels of underemployment are evidenced by the high ?roportion of household heads employed on a part-time basis and by low wages of P 10 per day (US$1.40) for a typical urban laborer. The real income of unskilled workers in recent years has remained constant. A number of national programs exist to promote industrial and business expansion, including smallscale industry. Among these are new efforts to integrate small commercial and industrial areas within new low-income residential. estates financed by the National Housing Authority (NHA). 1/ In the 13 municipalities and 4 cities of the Metro Manila Commission.  -2- Urban Services 1.04 Most of the country's regional centers and smaller towns have been unable to keep pace with expanding demands for extension of basic infrastruc- ture partly because of financial constraints at the local level and partly because of other national priorities. As a result, municipal infrastructure is generally inadequate to accommodate the basic needs of large segments of the urban population. In urban areas only about half of the population has access to a relatively safe water supply. Only about 58% of households in Metro Manila have any type of sanitary toilets and for the country as a whole only about 25% of households have such facilities. In larger urban centers, typhoid, cholera and gastroenteritis are endemic and the most recent National Health Plan 1975-80 cited poor environmental health as a major factor in the high national incidence of communicable diseases. 1.05 A particularly serious problem has been the formation and growth of large squatter areas which have developed since World War II. A recent survey indicated that almost 25% of all urban households in the Philippines live in squatter settlements or low-income slums without safe water supply, drainage, human waste disposal or paved footpaths. Health and sanitation conditions in these urban slums are appalling. Available studies indicate that slum families in urban areas are more malnourished and in poorer health than their low-income counterparts in rural areas. Records from a clinic in Macabalan, for example, a typical squatter area in Cagayan de Oro, indicate that mortality from gastroenteritis is almost ten times higher in that slum than in the region as a whole. The total rate of infant mortality which is high in the Philippines - variously estimated at 68 to 80 per 1,000 births - is even higher in slum areas where a rate of about 130 per 1,000 is common. Urban Issues 1.06 The two overriding urban issues facing the Philippines and on which the Bank's urban lending strategy is increasingly being focused, are: (i) the need to implement an effective urban/regional development strategy; and (ii) the need to reduce the great disparities in access to basic sanitation and public health infrastructure that characterize urban areas. 1.07 Regional Development and Urbanization Strategy - Any realistic regional development plan should balance public investment in Metro Manila against investment in other regions. In the past, the intermediate cities and their municipal infrastructure needs have been neglected as a focus of policy. More recently an urban/regional spatial development strategy is being evolved, based partly on a UNDP-financed and Bank-executed Regional Development Study and partly on the work of the National Economic and Devel- opment Authority (NEDA) in conjunction with the newly established Ministry of Human Settlements (MHS). This is expected to lead to more effective planning on a regional basis. However, the development of effective national level support to budgeting and investment programming by local and municipal gov- ernments still remains a high priority need. Local governments alone, with inadequate technical staff and inadequate financial capacity, will be unable to fulfill these functions. Technical assistance to support such efforts in the three largest regional cities is included in this project.  -3- 1.08 Distribution of Services - The need to improve the equity of the distribution of basic infrastructure within urbanized centers is particularly urgent. For decades, legal impasse over property rights in large urban squatter areas has prevented not only private investment but also the exten- sion of public services resulting in the perpetuation of these unserviced and highly congested "shanty towns" and a perpetuation of the consequent public health problems. The Government's newly established Slum Improvement and Resettlement (SIR) Program, which provides for acquisition, where necessary, of squatter land from absentee landowners (through expropriation if required) and resale to residents, provides the legislative basis and the national level support necessary to begin dealing with these problems. A parallel program of c low-cost sites and services in locations close to employment has also been developed in an attempt to reduce the shortage of low income plots that leads to squatting. Urban Institutions 1.09 Since 1975, a number of important new institutions have been estab- lished and are beginning to significantly affect the development of national urbanization policies. In July 1975 the National Housing Authority was established to consolidate Government housing efforts, previously dispersed among six separate national bodies. The Ministry of Human Settlement (MHS) was established in July 1978 with responsibilities for national human settle- ments planning, especially land use planning, environmental management, regional monitoring and planning assistance regulation and technology re- search. Coordination of planning in the metropolitan Manila area has been enhanced recently with the establishment of the Metro Manila Commission (MMC). The Commission sets overall planning priorities in the metro area, establishes budget guidelines and has responsibility for review and approval of the budgets of the 4 cities and 13 municipalities of the MMC area. The Government has also recently established the National Home Mortgage Finance Corporation to provide a secondary market for home mortgages, but this corporation is not yet operational. Housing Policies 1.10 Housing policies have evolved rapidly over the last year or so. In a major policy development, the Government has established, and has given highest priority among infrastructure developments, to programs of slum improvement in Manila and other major urban areas. 1.11 Three implementing Letters of Instruction (LOI) which are issued by the President and carry the force of law, outline the basis for the new approach. The first, LOI 557, adopts slum improvement as a national policy and specifies that relocation of squatters will occur only if necessitated by important public infrastructure works, and that squatters would not be relocated to distant sites. The second, LOI 555, (as amended by LOI 686) institutes a program of slum improvement specifying NHA as the national coordinating agency and requiring local governments to organize their planning staff and to prepare 3-year, 5-year and long-term programs of improving slums in place.  -4- 1.12 In Metro Manila this slum upgrading program is known as the Zonal Improvement Program (ZIP). With financial and technical support from NHA, all 17 local governments in the Manila metropolitan area have established permanent technical teams to undertake design and feasibility studies for upgrading slums in their respective municipalities. Some 212 major slum areas in Metro Manila with a population of almost one million persons are already included in this program. In the regional cities, this program is known as the Slum Improvement and Resettlement Program (SIR). SIR programs have now been established in the cities of Cebu, Davao, Cagayan de Oro and Baguio and NHA is evaluating other cities in terms of their priority for participation in the program. Because of the importance attached to these programs by the Government, the Minister of Local Government and Community Development has directed all regional directors to consider the funding requirements of the SIR program as a priority in the utilization of the local government development fund. If these programs are successful, they will have a major beneficial impact over the next ten years on the lives of the poorest 30 to 40% in the country's towns and cities. 1.13 With these initiatives as an important element, the National Housing Authority has recently proposed a new three-year program plan in which about 50% of total units would be devoted to slum improvement, 25% to new sites and services and 25% to fully completed housing units. While these are new pro- grams being implemented by a new agency, and many institutional improvements must be carried out over the coming years, the program is rapidly becoming both well-balanced and innovative in its approaches toward improving the living conditions of the urban poor. B. Shelter and Sanitation in the Project Cities 1.14 The project supports development efforts in the four most important metropolitan areas of the Philippines: Metro Manila, Cebu, Davao and Cagayan de Oro. 1.15 Metro Manila - Metro Manila, with a population of about 5.5 million, exhibits some of the worst housing conditions in the country. In 1972, approximately 50% of physically inadequate dwelling units in the Philippines and 80% in all urban areas were in Metro Manila. About 1.8 million persons live in slum and squatter areas with very low levels of environmental sanita- tion. 1.16 The 1975 Urban Sector Survey of metropolitan Manila recommended two general goals for Bank assistance: a short-term goal of removing or reducing the worst of the existing disparities; and a longer-term goal of arresting or attenuating haphazard patterns of growth. The large new community at Dagat- Dagatan will both address the shelter needs of very low-income families and assist in the strategy of urban "infilling" recommended as the alternative to more haphazard growth. Such increases in the supply of residential units are particularly important in meeting the shelter needs of a population growing  -5- at a rate of about a quarter of a million persons per year. Slum improvement through the Zonal Improvement Program has recently been accorded a very high priority and is in advanced stage of preparation. 1.17 Other priority areas for investment in Metro Manila include water supply, drainage, and transport and traffic management. A major project jointly funded by the Asian Development Bank (ADB) and the Bank will double available water supply capacity and extend distribution facilities by 1982. Flood control has also been a chronic annual problem in Metro Manila. Short- ages of dredging equipment have seriously hindered Government efforts and continued filling-in of drainage canals over the past 15 years by uncontrolled development has led to significant alterations of drainage patterns. The flood control master plan originally prepared in 1952 is in need of a thorough revision. Traffic management should be significantly improved by the forma- tion of a Traffic Management Authority for Metro Manila and by civil works improvements to key junctions and signalization works financed under the Manila Urban Development Project. 1.18 Cebu - The metropolitan area with a total population of about one million persons is growing rapidly because of mining and industrial potential. Its strategic location and accessibility make it the trading center for the central part of the Philippine archipelago. The Metropolitan Water District in Cebu is implementing short-term and longer-range plans to improve water supply capacity in the city, including a reservoir and trunk mains, funded, in part, from an ADB loan, and construction of deep wells and pumping stations to further augment capacity. Estimates indicate that 25% of the total city population live in slum and squatter areas. 1.19 Davao - Davao City in Southern Mindanao has a population of about 525,000 and is basically oriented towards agriculture. The Davao City Water District is extending and modernising the water supply system. Work on the trunk mains, funded by USAID, is underway way and the scheme is expected to come into operation during 1978. However, some 115,000 persons or 22% of the population, live in slum and squatter settlements, located mainly near the coastal creeks and rivers, near work opportunities. Shortage of land suitable for residential purposes has led to very high densities in these slum and squatter areas typically 900 to 1,600 persons per hectare. 1.20 Cagayan de Oro - Cagayan de Oro with a population of about 85,000 persons has significant industrial growth potential. The growth rate of the city has probably been at least 5% per year in recent years. The Cagayan de Oro city water supply system has recently been completely reconstructed and extensions of trunk mains should be completed by end 1978. About 26% of the total city population, live in slum and squatter areas. Extensions to the port which handles 300,000 passengers and over 2,500 ships per annum are well advanced, and should be an important factor in expanded employment opportu- nities. About 26% of the total city population live in slum and squatter areas.  -6- C. Experience Gained under the First Project 1.21 The Manila Urban Development Project, the first urban project in the Philippines financed by the Bank, provided assistance to the Government in the areas of slum upgrading, traffic and transport, and metropolitan tax administration. Progress in the Manila Urban Development Project is generally very satisfactory. The staffing problems of the Tondo Project Office which caused delays in production of designs and slow disbursements have been largely resolved. Filling remaining key positions was a condition of negoti- ating the proposed project. NHA as a whole has been facing large and growing responsibilities, and in order to assist them in dealing with these responsi- bilities, the second project has focused on longer-term institutional improve- ments within NHA. Each component of the first project is discussed separately below. 1.22 Through the Tondo Foreshore/Dagat-Dagatan Component, urban services are being extended to approximately 180,000 persons. Some 2,000 serviced sites are also provided at Dagat-Dagatan for squatter families affected by the expansion of the International Port and construction of the R10 roadway. In the Tondo, main infrastructure is about 85% complete and about 25% of the upgrading is in various stages of completion. A new health clinic has been finished and health programs are under- way in mother and child care, nutrition, deworming, TB, XRay, vermin and rodent control, improved garbage collection and health education. Health workers trained under the project and working on a part-time basis are con- sidered a model for similar health workers being considered under other population and health projects. The new Tondo High School has been completed and additional classrooms for four existing elementary schools will begin shortly. There is as yet, insufficient experience to judge the success or failure of the small business loan program, but this will be monitored care- fully. Construction costs for the Tondo Foreshore/Dagat-Dagatan component are expected to be slightly below original estimates. 1.23 In early 1976, after appraisal of the first project, the Government established a high priority program to relieve chronic flooding in Metro Manila. The program involved widening and dredging and removing squatters from drainage canals throughout the MMC area, (but not the project area). Because of a lack of readily available land for settling these squatter families in close proximity to the city, distant sites at Sapang Palay and Dasmarinas were utilized as relocation centers. Because of unhappiness with the distant location of these sites, various squatter groups of the Metro area, many of whose leaders reside in Tondo, expressed fears that the Tondo project would not be implemented as agreed and that families in the project areas also would be relocated to distant relocation centers. They also argued strongly for the right to purchase freehold title to the land at a value considerably below the market value. Despite the fears that have been expressed, no families in the Tondo Project area were affected by the estero widening program and no relocation to distant sites has taken place. The  project is being implemented as planned and enjoys the very strong support of the residents. In fact with the upgrading complete in one section of Tondo, the Tondo project has become a visible model of the type of improvements sought by residents of depressed areas throughout metropolitan Manila. A detailed status report on these components was distributed to the Executive Directors on December 31, 1977. 1.24 The Tondo Foreshore Dagat-Dagatan component of the project is already demonstrating the validity of the basic concepts which underly the Government's current approach to shelter. Available evidence appears to confirm that the project has brought the area to the "take-off" point, and has stimulated private investment by residents to an even greater extent than previously predicted. This is being systematically reviewed by a special monitoring unit which is conducting studies of the long-term impact of the project. Pre- liminary information indicates that private investment in substantial house construction is being done by hired artisans and family labor at a cost per unit of 20-50% below the cost of similar work when constructed using normal contracting methods by the Government. Because of this, and to promote the participation of small private sector contractors, NHA is expanding its efforts to produce low-cost building lots and to expand the use of building materials loans. A great deal has also been learned about appropriate imple- mentation procedures including the importance of (i) community participation in neighborhood planning; (ii) coordination between involved agencies in the provision of community facilities; and (iii) building materials loans. 1.25 Progress in other components of the Manila Urban Development Project is as follows: contract documents for the R10 road and the major roads component are completed. Final design of the C2 roadway will be complete by June 1979. The cost of the component is expected to be P 115 million versus an appraisal estimate of P 105 million due to sea wall and stabilization costs that are higher than originally anticipated. Based on experiments in exclusive bus and jeepney lanes, a network of such public transport lanes along with other traffic engineering measures is about to be established. Tenders have been received for 88 linked traffic signals and a number of junction improve- ments are underway. 1.26 Assistance in metropolitan finance has led to the establishment of a consolidated budget and uniform property tax rates for the metropolitan area. Efforts are now underway to improve property tax collection performance. II. PROJECT COMPONENTS, COSTS AND FINANCE A. The Project Project Objectives 2.01 The proposed project would be the Bank's second urban project in the Philippines. It would be addressed to the provision of basic needs for the lowest income families in each project city. Building on the experience of  -8- the first urban project, it is designed to assist the Government in developing affordable solutions to the problems of poverty, shelter and environmental sanitation in Metro Manila and regional cities through: (a) support to the establishment of the new national Slum Improvement Program that would regularize land tenure and install sanitation and other basic infrastructure; (b) support to NHA in establishing its program of sites and services by developing well-located vacant land into small residential plots; (c) promotion and expansion of employment through commercial and industrial sites, business loans and technical assistance; and (d) institutional assistance to the NHA and local governments to improve program planning and project execution and to train staff. 2.02 Whereas the first Bank-financed urban project in Manila was compre- hensive, involving upgrading the Tondo Foreshore, major road links, traffic engineering and management, and assistance in the finance and delivery of services, the second project is focused on developing important new institu- tional arrangements to alleviate the worst conditions of service level dis- parities. A major goal of the regional cities component of the project therefore has been to assist the Government in establishing slum upgrading on a programatic basis in each city. The project cities of Cagayan de Oro, Davao and Cebu were identified as priority cities for slum improvement by NHA and its Board and are the first cities outside of Metro Manila to have formulated their program and to have established staff for this purpose. The Metro Manila component of the project establishes the first NRA sites and services development that would not be tied to a relocation program, but would instead provide a substantial addition to the housing stock. This component would provide infrastructure works at Dagat-Dagatan sufficient to establish the area as a balanced residential and commercial center for the north-central part of Metro Manila. Project Components 2.03 The proposed project would consist of: (a) Sites and services in Metro Manila ($33.57 million equivalent) at Dagat-Dagatan for about 8,600 residential plots on about 90 ha including (i) land, (ii) infra- structure, (iii) core houses with sanitary facilities, (iv) materials loans for house completion through self- help, (v) health, education and social facilities.  -9- (b) Slum improvement in the 3 regional cities of Cebu, Davao and Cagayan de Oro ($9.31 million equiva- lent) involving basic infrastructure services and community facilities for about 7,600 households. (c) Sites and services in the regional cities ($6.53 mil- lion equivalent) (i) about 3,800 plots on open land, (ii) about 800 infill plots in low-density slums and adjacent to high-density slums, (iii) sanitary facil- ities, (iv) building materials loans, (v) community facilities. (d) Industrial/commercial development ($9.40 million equiv- alent) involving 40 ha of serviced land in Metro Manila and 15.3 ha in regional cities for income generation and employment purposes. (e) Small business development ($2.19 million equivalent) including markets, technical assistance and loan funds for equipment and working capital. In Dagat-Dagatan approximately 2 ha and in the regional cities about 1 ha of serviced land will be provided for cottage industries integrated within residential areas. (f) Flood control equipment ($2.22 million equivalent) pur- chase of special dredging equipment to control flooding in Metro Manila. (g) Technical assistance and training. ($6.72 million equivalent) Assistance: to NHA for planning and policy development, training, project execution, monitoring and feasibility studies; to MPWTC for flood control studies; to NEDA for feasibility studies for metropolitan program analysis in Cebu, Davao and Cagayan de Oro, and for review of national small-scale business programs; to MHS for assistance in policy and program planning and to the MMC for training and planning studies. B. Detailed Project Description Metro Manila Sites and Services 2.06 The sites and services component in Metro Manila will be located at Dagat-Dagatan (Map 13472). The Government owned site is very well located, approximately 3 km north of the major employment centers of the International Port and the central commercial area. Site access will be enhanced through completion of the RIO roadway in 1979 financed under the Manila Urban Develop- ment Project. The site comprises reclaimed fish ponds originally expropriated as a relocation center for families from the Tondo. Following the decision to -upgrade the Tondo by providing services in place, feasibility studies were  - 10 - initiated to utilize the already reclaimed land by planning the area as a new integrated community with developed plots for low-income families and for industrial/commercial uses. 2.07 The project provides 8,600 residential plots on 90 ha plus services for 40 ha of land zoned for commercial and industrial purposes. This is part of a larger development totalling 377 ha, and involving a total of about 20,000 residential plots and 75 ha industrial/commercial land. Primary infrastructure provided under the project would serve a larger population in areas ad acent to the project. Rsidential lot sizes will range from 48 m to 150 m with an average of 72 m to attract a mix of income groups and to respond to the general demand for housing at both low and middle-income lev- els. The smallest lots would be affordable by families at the 10th percentile of the income curve for Metro Manila who would earn about P 270 (US$36) per month. Each lot will be provided with individual water supply and sewerage connections. Five types of on-lot development will be available, ranging from service connections to a shell house. Also, 80 demonstration units will be built to show alternative development approaches and use of different mate- rials. Designs maximize ventilation, the multiple use of space, and oppor- tunities for building rental rooms. Schools, health centers, and community facilities will be provided to serve the 16 Barangays (a local political unit) within the project area. Regional Cities SIR Programs 2.08 The regional cities component of the project finances the first three years of a long-term program of improving slums in the regional cities through the Slum Improvement and Resettlement (SIR) Program. This program comprises an interrelated mix of components including slum upgrading, develop- ment of new sites and services units, and servicing of land for commercial/ industrial uses. The approach emphasizes self-help, affordable standards, secure tenure and community participation. The component in each city generally involves formal specification and registration of residential lots, provision of safe water supply, human waste disposal facilities, surface water drainage, paved footpaths and streets, schools, clinics and loans for building materials for house improvement. Upgrading sites in regional cities will generally be provided with public water taps and septic tanks or pit privies except where physical conditions require an alternative solution. Sites and services areas will have individual lot connections. Land acquisition is well underway. 2.09 In Cebu, improvements would be provided to 26.6 ha of existing squatter areas and 4 ha of vacant land developed for residential purposes. Estimates indicate that there are about 27,000 households, or 165,000 persons, living in areas which need upgrading in Cebu. During the first 3 years of the program financed by the project, approximately 22,000 persons, or about 13% of the total slum and squatter population would receive services. Project sites include:  - 11 - Alaska-Mambalang (A 9 ha squatter settlement to be upgraded plus 4 ha of "infill" sites). The site is located 1.5 km to the south-west of the city center with a population of 5,770 and a density of about 641 people per hectare. The site already has one small primary school which will be expanded under the project and will also provide health, day-care/nutrition, community and workshop facilities. Land fill of approximately 2.2 m and drainage will be provided together with pathways, water supply and sanitation. Pasil/Ermita (Two adjacent squatter settlements totalling 16.6 ha). The area has a population of 15,365 people living at a density of 926 persons per hectare. The site is located at the edge of the sea and requires stabiliza- tion and containment of the edge from erosion. Rubbish is still being dumped at an adjacent site, although plans exist to use alternative sites and convert the unsquatted on portion of the dump to community open spaces following suitable site preparation. In the interim, a more sanitary method of dumping on the existing site, including rolling and soiling, will be employed. Exist- ing roads in the area would be improved and pathways and drainage channels would provide internal circulation and access within existing blocks. Water mains will be constructed along the lines of roads and footpaths. Pit privies will be provided. An existing elementary school and health center will be upgraded, and two new community centers will provide eight daycare/nutrition/ workshop facilities. Carbon (1 ha squatter settlement). The site (population of 1,050) is adjacent to Pasil, but at a lower elevation and subject to tidal flooding and overflow of the adjacent stream. Many of the houses are built over water and further study is required to determine the most appropriate drainage/filling solution. Access, water, sanitation and community services can be supplied to suit either condition. 2.10 In Davao, improvements would be provided to 19.6 ha of existing squatter areas, 37 ha of vacant land developed for residential purposes, and 11.0 ha of land for commercial/industrial purposes. There are an estimated 18,000 households or 115,000 persons living in areas which need upgrading. During the first 3 years of the program financed by the project, approximately 15,500 persons, or about 13% of the total slum and squatter population would receive services. New sites would be provided for an additional 16,000 people. Project sites include: New Matina (Of the total of 57.6 ha, 9.6 ha of the existing slum area will be upgraded, 37 ha of vacant land will be developed for new residential sites and services and 11.0 ha will be developed for commercial/industrial uses). About 3,800 persons now live there at a density of 404 persons per hectare, and about 200 infill sites will be constructed within the area to be upgraded. In addition, 2,493 sites and services units will be provided on the 36 ha of adjacent land. The site is just across the river from the town center and the city is considering use of part of the commercial/industrial site as a new transport terminal. About 40% of the site is low-lying and will require draining and some fill. The project includes an earth levee about 1 m high along the river to protect both new housing and upgrading areas from off-site flooding. Sanitation will be provided by pit privies. A new 24 classroom  - 12 - elementary school will be built and 2 high schools will be upgraded. A health center and 4 multi-purpose centers will provide day care/nutrition and workshop facilities. Piapi (10 ha of existing slum area). Piapi is the largest, most densely populated squatter area in Davao and has been nominated by the Mayor and City Council as a high priority area for upgrading. The full site comprises about 22 ha within which about 4,500 households reside in extremely crowded con- ditions at a population density of 1,200 persons per ha. The site suffers from severe sanitation and drainage problems due to daily tidal ingress. Many houses are built on stilts with suspended board-walk access. Because of the high densities and technical difficulties, only 10 ha have been included in the project. Drainage and protection works will be provided and land filling behind these works will be carried out gradually by the residents. Access roads, footpaths and water mains will be constructed above flood level and sanitation will be provided in toilet blocks adjacent to the drainage system. A new 18 classroom elementary school, a health center and two day- care/nutrition/workshop centers will be provided. 2.11 In Cagayan de Oro, improvements would be provided to approximately 27.5 ha of existing squatter areas, 14 ha of vacant land developed for sites and services and 5 ha of land for commercial/industrial purposes. Due in part to its smaller size, the extent and conditions of slum areas in Cagayan de Oro are not as severe as in Davao and Cebu. Nevertheless, the city is growing quickly and action at this stage will enable the authorities to prevent rapid deterioration. Estimates indicate that there are about 5,600 households or 34,200 persons in areas which need upgrading. Under the project, approxi- mately 11,000 persons or 32% of the total slum and squatter population would receive services. New sites would be provided for an additional 7,000 people. Project sites include: Macabalan (24.5 ha existing slum area to be upgraded plus 5 ha commercial/ industrial land). The site is a low lying peninsula bounded by the Cagayan River estuary and the port. Employment in the docks and ancillary industry has made it very attractive for squatters despite its marshy nature. Its present population of 9,460 is growing rapidly. Five ha of developed land will be provided for expansion of the commercial/industrial area which is conveniently located adjacent to the expanding port area. About 120 infill plots will be provided on vacant land adjacent to the upgrading site. Part of the residential area has been reclaimed by residents themselves using a cheap sawdust which will remain under the houses. Under the roads, footpaths and permanent buildings, the sawdust will be dug out and replaced with suitable permanent materials. Residents will be given the choice of having the reclamation done exclusively by contractors or through self-help at a lower cost. Each resident will be allowed to make use of more suitable material provided as part of the project. Storm water and household sullage will be discharged into shallow concrete lined drainage ditches provided along each road and footpath. Pipes with flap gates will be provided under the coastal levees to permit the ingress and egress of flushing water. Soil conditions are suitable for pit privies, assuming fill to new levels in certain areas. An existing elementary school and health center will be upgraded and a day- care/nutrition/workshop facility provided.  - 13 - Lapasan (3 ha existing slum area to be upgraded and 4 ha new sites). The site is close to the new port expansion area on the eastern side of the city. It is near the new regional road and a trunk water main. The site suffers from occasional flooding and will need drainage and some land fill. Space for about 300 new infill plots is available. Existing community facilities will be upgraded and a new daycare/nutrition/workshop center will be built. Kauswagen (10 ha sites and services area). The site is a former coconut plantation located 2 km from the town center on the west side of the Cagayan River. Because the site is not subject to flooding and the soils are well drained, the cost of servicing will be small. The project will provide a new elementary school, health center, daycare/nutrition center and the upgrading of a high school. Employment Promotion 2.12 The Government attaches very high priority to employment promotion in low-income areas and is experimenting with a number of approaches. In- dustrial/commercial areas related to project sites will be developed and serviced as part of the project. These will provide substantial employment opportunities for the low-income residents. Complementing these developments will be loan funds for small cottage industries, and extension agents through the Medium and Small-scale Industries Coordinated Action Program (MASICAP) and the Small Business Advisory Council (SBAC). MASICAP and SBAC have in the past been directed to small and medium industries in the modern sector. Arrange- ments are being made for these organizations to provide special assistance to smaller enterprises in the SIR areas and in Dagat-Dagatan. Two thirds of employment in manufacturing is in household and sole proprietorship enterprises with assets of less than P O.1 million; a yet larger volume of employment is provided by very small commercial and repair service activities. For these reasons, the project also includes funds to finance an investigation into the nature and problems of these very small enterprises, and of the appropriate means and institutional arrangements for assisting them.l/ 2.13 The employment component involves: Industrial/Commercial Land Development: In Metro Manila 40 ha of industrial/ commercial land will be serviced at Dagat-Dagatan with employment after development estimated by NHA's consultants at 19,000 jobs plus a further 3,500 jobs in small scattered sites. In the regional cities, 11.0 ha of industrial/ commercial land will be serviced in Davao and 5.0 in Cagayan de Oro. Employ- ment in regional cities is estimated at about 2,000 jobs. Profits obtained from commercial/industrial land development will be used to offset residential charges to low-income beneficiaries and to finance program expansion. Cottage Business and Industry Loan Fund: The project provides US$2.2 million for loan funds designed to specifically assist small businesses and cottage 1/ This is consistent with the recommendations of the Bank's Sector Policy Paper on Employment and Development of Small Enterprises, February 1978.  - 14 - industries with capitalization below P 100,000. An interesting aspect of this component is the special efforts that have been made to enlist private commercial banks to administer the fund in the regional cities. While this arrangement is administratively more complicated, it offers potential advantages in broadening institutional support to small businesses and for generally increasing knowledge of private sector banking constraints. Terms of these loans are expected to be at not exceeding 16% for up to 7 years together with an administration charge of 2% to offset the cost of local bank services. Draft agreements were brought to negotiations outlining arrange- ments by NRA and each local government with a local financial institution for administering these loans. The objective of this employment lending is to demonstrate the feasibility of creating long-term employment at a signi- ficantly reduced capital cost per job. Technical Field Agents: Field agents will be provided under the project with responsibility for (i) identification and review of suitable businesses, (ii) technical assistance with project preparation and referral to various Govern- ment training programs, and (iii) supervision of accounts. Loan supervision will be emphasised by MASICAP teams in order to minimise arrearages, and technical assistance will be provided by SBAC. Loans for Building Materials Packages 2.14 Loans averaging between P 600 and P 3,000 will be made available at 12% interest for up to 15 years to ownerbuilders, amounts loaned depending on affordability. Average loans of P 1,500 are estimated for the minimum service level plot in a new site, and P 1,000 for house-owners in upgrading areas. About 60% of project beneficiaries are expected to apply for the loan packages. Social and Community Facilities 2.15 Educational and health facilities will be provided in the project areas to bring the level of facilities up to the level of service existing elsewhere in the city. Elementary schools will be built to accommodate a 90% enrollment in Dagat-Dagatan and 80% in the regional cities of 7 to 12 year olds in two shifts. Secondary schools are planned for a 65% enrollment of ages 13 to 16 on a double shift basis. Health centers in Dagat-Dagatan will be provided serving a population of one to 20,000-30,000. One of the centers will include maternity and rehydration facilities to reduce pressure on nearby facilities. Staffing and maintenance of the schools and health centers have been agreed with the Ministry of Education and Culture and the Ministry of Health. 2.16 Metro Manila has volunteers for health and nutrition called Barangay Health and Nutrition Scholars and is about to develop a corps of workers and volunteers for family planning (full-time outreach workers and barangay volunteers). It is anticipated that various workers and volunteers in these fields will make use of the multi-purpose community centers for the provision  - 15 - of services or as a base for their operations. Currently, however, ways to rationalize various cadres of partially overlapping community level workers and volunteers in health, family planning and nutrition are under review at the national level. A program using community level workers and volunteers will be developed for the project area, with assistance from UNICEF. 2.17 Barangay, Daycare/Nutrition Centers (BDCN) - Multi-purpose faci- lities will be constructed to be used: in daycare programs established by the Ministry of Social Services (MSSD) for children of working mothers; for nutrition sessions for malnourished children and classes on nutrition for mothers; as workshops for training programs to assist employment of women; and for community meetings. The centers will be operated by the MSSD in cooperation with community organizations. Food supplements are being made available to MSSD from bi-laterial donors. Flood Control Equipment 2.18 Finance for equipment is included in the project to assist the Bureau of Public Works (BPW) in improving flood control measures through its Estero Improvement Program. The ten-year program for improving drainage in Metro Manila, established in 1972, has suffered extensive delays in part due to lack of suitable equipment. Improved drainage would also reduce the danger of flooding to the approximately 8,000 families, mostly lower income, who currently live in flood prone areas. A consultant report reviewing this program has recommended about US$2 million of specialized dredging and related equipment be provided to augment equipment now operated by BPW and equipment received under bilateral arrangements with the Japanese Government. This equipment includes amphibious mini-dredgers and push barges, cranes, a truck- tractor trailer, survey boats, pumps and shop equipment for maintenance. Progress in implementing the flood control master plan would be reported to the Bank by BPW annually. Technical Assistance and Training 2.19 A package of technical assistance has been developed to support the national agencies and the local governments that are involved in planning and implementing the Government's new approach to urban shelter. This package involves support to both policy formation and project execution while estab- lishing training programs to enhance local capacity. Because the Government's approach to shelter involves new programs, the technical assistance component is particularly important to the early establishment of sound operational pro- cedures. To the maximum extent possible, the employment of local consultants would be encouraged. Depending on the extent that local consultants are available, approximately 475 man-months of foreign technical assistance and 534 man-months of local assistance would be employed at an average total man-month cost of US$8,100 and 3,500 respectively. The technical assistance component includes the following items: (a) Program Advisors: Approximately 96 man-months of support to assist NHA in developing policy guidelines supporting its housing efforts and developing financial and engineer- ing standards for NHA projects;  - 16 - (b) Regional City Supervisory Consultants: Approximately 120 man-months of technical support over a 2-year period to assist NHA in supervising SIR projects to be implemented in Cebu, Davao and Cagayan de Oro. Assistance would be in the form of site planning, engineering design, procurement, financial audit and contract supervision. (c) Dagat-Dagatan Project Management: Approximately 156 man-months of assistance in construction management, engineering design and training over a 3-year period for implementation of Dagat-Dagatan component. s (d) Metro Manila Slum Improvement: Approximately 54 man- months of assistance for design and engineering sup- port to the Zonal Improvement Program of Metro Manila. (e) Feasibility Studies: Approximately 40 man-months of technical assistance for feasibility studies to the National Housing Authority for programs in regional cities. (f) Training: Approximately 72 man-months of consultant support to assist in the establishment of a training office for NHA and for project monitoring and evaluation. Also, 5 man-years of fellowships will be funded for advanced formal training of NHA staff in planning, engineering and finance. In addition, field trips for 5 senior officials will be arranged to enable NHA staff members to observe similar on-going projects in neighboring countries. To NEDA: (a) Regional City Program Support: Approximately 108 man- months of physical planning and financial planning support over an 18-month period to the Metro Cebu Development Project and to the cities of Davao and Cagayan de Oro to assist in (i) formulation, evaluation and review of development programs and project proposals and (ii) improving the delivery system of municipal services especially to low- income areas. (b) Urban Regional Feasibility Studies: Approximately 54 man- months of assistance will be provided to NEDA to conduct feasibility studies of urban/regional projects, and for the preparation of broadly focused regional program plans. (c) National Small-Scale Business Program Analysis: Approximately 45 man-months for in-depth review and assessment of small-scale business programs and needs.  - 17 - To MHS: (a) Approximately 69 man months of policy planning and program development support over a period of two years. To MMC and M11PWTC: (a) Training and Staff Development: Funds to MMC and MPWTC for staff training and for monitoring the effectiveness of various infrastructure programs. (b) Flood Control Master Plan: Approximately 183 man-months of assistance to MPWTC for updating the Metro Manila Flood Control Master Plan. C. Cost Estimates 2.20 Total project costs are estimated at P 517.70 million ($69.94 million equivalent) of which approximately P 236.86 million ($32.00 million equivalent) is the foreign exchange requirement. Cost estimates are based on final engineering designs which are available for major infrastructure in the Dagat-Dagatan component in Metro Manila and preliminary engineering designs for one site in each regional city. Cost estimates for other sites are based on extrapolation of unit prices. Physical contingencies are included at 10% for Dagat-Dagatan and 15% for components in the regional cities except for land acquisition costs, building materials and small business loans, consulting and advisory services and the flood control equipment for which no physical contingency is required. Price contingencies averaging 21% of project costs, excluding loans, are based on current estimates of 7-1/2% per year for local costs and for foreigncosts, 8% reducing to 7% for civil works and 7% reducing to 6% for equipment projected from the project implementation schedule. Unit Costs 2.21 The table below shows a breakdown of unit costs for Dagat-Dagatan and for new sites and upgraded sites in the regional cities. The costs of on-site infrastructure at Dagat-Dagatan are higher than in the regional cities since major drainage and sewerage works are involved.  - 18 - Residential Unit Cost US$.- Site Capita Household Plot Ha Dagat-Dagatan /2 Land and reclamation 77 515 773 74,172 On-site development /4 165 1,094 1,642 157,639 Community facilities 27 183 276 26,465 Total 269 1,792 2,691 258,276 Regional Cities, Sites and Services Land and reclamation 14 95 114 8,703 On-site development /4 120 807 968 73,864 Community facilities 21 143 172 13,135 Total 155 1,045 1,254 95,702 Regional Cities Upgrading /3 Land and reclamation 27 185 233 18,911 On-site development /4 37 252 316 25,703 Community facilities 10 68 85 6,944 Total 74 505 634 51,558 /1 Includes physical contingencies, design and supervision. 77 Based on total resident area of 214 ha. /3 Includes new infill sites in upgrading areas but excludes the possible additional cost of landfil by contract at Macabalan. /4 Includes drainage and site preparation, roads and footpaths, water supply, sanitation and street lighting. At Dagat-Dagatan, also includes major drainage and oxidation ponds.  - 19 - SECOND PHILIPPINES URBAN DEVELOPMENT PROJECT Table II.1: PROJECT SUMMARY COST ESTIMATES P Millions US$ Million % of Foreign Local Foreign Total Local Foreign Total Exchange A. DAGAT DAGATAN Infrastructure 98.53 77.42 175.95 13.32 10.46 23.78 44 Core Housing 16.84 5.61 22.45 2.27 0.76 3.03 25 Building Materials Loans 5.83 1.95 7.78 0.79 0.26 1.05 25 Conmnunity Facilities 1A.61 9.07 22.68 1.84 1.22 3.06 40 Sub-total 134.81 94.05 228,86 18,22 12.70 30.92 B. CEBU Land & Reclamation 3.40 2.26 5.66 0.45 0.31 0.76 40 Infrastructure 2.31 1.81 4.12 0.32 0.24 0.56 44 Core Housing 0,45. 0.15 0.60 0.06 0.02 0.08 25 Building Materials Loans 1.09 0.36 1.45 0.15 0.05 0.20 25 Community Facilities 1.01 0.44 1.45 0.14 0.06 0.20 30 Sub-total 8.25 5.02 13.27 1.12 0.68 1.80 C. CAGAYAN DE ORO Land & Reclamation 12.41 8.27 20.68 1.67 1.12 2.79 40 Infrastructure 8.29 6.52 14.81 1.12 0.88 2.00 44 Core Housing 1.57 0.52 2.09 0.21 0.07 0.28 25 Building Materials Loans 1.27 0.43 1.70 0.17 0.06 0.23 25 Community Facilities 1.36 0.59 1.95 0.18 0.08 0.26 30 Sub-total 24.90 16.33 41.23 3.35 2.21 5.56 D. DAVAO Land & Reclamation 0.85 0.56 1.41 0.12 0.07 0.19 40 Infrastructure 15.52 12.20 27.72 2.09 1.65 3.74 44 Core Housing 3.87 1.29 5.16 0.53 0.17 0.70 25 Building Materials Loans 2.21 0.74 2.95 0,30 0.10 0.40 25 Community Facilities 2.18 0.93 3.11 0.29 0.13 0.42 30 Sub-total 24.63 15.72 40.35 3.33 2.12 5.45 E. SMALL BUSINESS LOANS 8.00 8.00 16.00 1.08 1.08 2.16 50 F. TECHNICAL ASSISTANCE AND TRAINING 13.84 28.48 42.32 1.87 3.85 5.72 67 G. FLOOD CONTROL EQUIPMENT - 14.00 14.00 - 1.89 1.89 100 H. CONTINGENCIES Physical 17.20 14.34 31.54 2.32 1.94 4.26 46 Price 49.21 40.92 90.13 6.65 5.53 12.18 45 TOTAL 280.84 236.86 517.70 37.94 32.00 69.94 46  - 20 - D. Financing Plan 2.22 The proposed Bank loan of US$32 million equivalent would finance the full foreign exchange costs. The loan would be made to the Government, who would bear the foreign exchange risk, for a term of 20 years including a 5-year grace period at 7.35% interest. NHA and other agencies involved will be exempt from taxation on project-related expenditures. 2.23 Of the total proceeds of the loan, approximately US$26.24 millions equivalent would be on-lent to NHA under a subsidiary loan agreement at the same terms as the Bank loan to finance project construction works and tech- nical assistance, and to open up lines of credit for house materials and small business/cottage industry loans. US$1.19 millions equivalent would be allo- cated to NEDA, MMC and MHS to finance technical assistance. US$4.57 millions equivalent would be allocated to MPWTC for procurement of flood control equipment and master plan studies and for major infrastructure including sea defense works. The project financing plan is tabulated below. 2.24 Funds for the regional cities SIR Program will be passed on to each city on the basis of forecast construction expenditures as 25-year loans 1/ at an interest rate estimated at 11%, corresponding to NHA's average prevailing borrowing costs, together with a spread sufficient to cover allocable adminis- trative costs. Financial surpluses and cash flow generated from the lease and sale of developed residential and industrial/commercial land would accrue to each city and NRA proportional to the initial equity contributions and would be available to extend the program into other areas within each city. 2.25 Funds to financial intermediaries for programs of small business loans would be passed on at an interest rate currently estimated at 10% to provide an adequate spread to cover administrative costs and bad debts, etc. NRA would enter into an agreement satisfactory to the Bank with a financial institution to be nominated by the local jurisdiction to administer these loan programs. 2.26 Retroactive financing not exceeding US$0.7 million is recommended for expenditures incurred from February 1, 1978, on consultant design services and on civil works. 1/ Including a 3-year grace period.  - 21 - Project Financing Plan (1978-1982) (P millions) Dagat- Cagayan Cebu Davao Others Total Dagatan De Oro _ Project Outlays SIR Operations w ~~~~~~~1./ Slum Improvement 16.07 11.47 5.60 33.14 Sites and Services 162.28 8.42 27.38 198.08 Commercial/Industrial Land 58.90 3.90 6.75 69.55 Other Agencies Infrastructure 34.88 5.23 1.43 6.98 48.52 Community Facilities 30.40 2.70 1.92 4.22 39.24 Utility Facilities 13.32 1.13 0.58 1.14 16.17 Building Materials Loans 13.88 13.88 Small BusinesE Loans 2/ 16.00 16.00 Additional Reclamation Costs - 16.88 16.88 Flood Control Equipment 22.37 22,37 Technical Assistance 43.87 43.87 SUB-TOTAL 299.78 37.45 15.40 52.07 113.00 517.70 Debt Service and Administration 31 17.92 8.99 5.99 8.71 61.61 Surplus on Operations -4 35.78 0.96 0.55 0.80 38.09 373.48 47.40 21.94 61.58 l13.00 617.40 Financed By Beneficiary Charges -/ 187.51 16.99 4.18 25.95 234.63 Budget Appropriations a) National Agencies (i) BPW 24.28 3.53 5.55 33.36 (ii) MWSS 13.59 13.59 (iii) Others 42.10 1.13 0.58 1.29 9.06 54,16 b) City 6/ 1.75 1.18 1.94 4.87 Loans - IBRD ) 1o6.00 24.00 16.00 26.85 163.94 276.79 NRA Bond Issues) 373.48 47.40 21.94 61.58 113.06 617.40 1/ Includes infil sites and services 2/ Additional provision for reclamation by contract at Cagayan de Oro. Residents are expected to choose a low cost self-help method in which case the funds would be used to extend the program to additional sites. 3/ Estimates of debt service costs based on on-lending terms of 11%, 20 year loans including 3 years grace. 4/ Results primarily from marketing of industrial/commercial land. 5/ Net of arrearages at 15% of gross revenues for first 3 vears, 12Z for next 2 years, and R% thereafter. 6/ Represents debt service on loans for costs allocated to city budgets.  - 22 - III. BORROWING AND EXECUTING AGENCIES A. Project Organization and Management General Responsibilities 3.01 The National Housing Authority (NHA) will execute the Dagat-Dagatan component of the project. Responsibility for executing the Slum Improvement component in the regional cities, lies with the local governments of Cebu, Davao and Cagayan de Oro under the supervision of the NRA. The Bureau of Public Works (BPW) of the Ministry of Public Works Transportation and Com- munication (MPWTC) will procure flood control equipment and update the Metro Manila Flood Control Master Plan. SIR Program 3.02 The NHA is responsible for policy formulation and coordination of the national Slum Improvement and Resettlement (SIR) Program and provides loan funds to local governments for program implementation. Local govern- ments are responsible for the planning of individual slum improvement proj- ects within the program, and for detailed design and contract supervision in their respective cities. Operations in regional cities will be supervised by the NHA which would approve designs and contract documents and review implementation. 3.03 In each regional city, SIR Program Offices have been established under the direction of a program manager responsible directly to the Mayor. In order to support the local effort, NHA has engaged consultants to assist program planning and project design and has provided financial assistance to local governments to hire the additional staff required for this new program. Each program office will maintain a project office on each site to supervise the construction of physical works, administer collection of lease payments and repayments of loans for plot purchase, building materials and small busi- nesses, provide on-site technical assistance for self-help construction and coordinate and supervise business support services. 3.04 SIR units in all three regional cities have sufficient staff and adequate technical capacity for the present initial phase of program planning and design but will continue to rely on technical supervision by the resident consultant appointed by NHA. In Davao, 10 technical and 25 support staff have been appointed under the direction of the program manager who is an ex- perienced urban planner. After a comparatively slow start, Cebu has appointed 7 technical and 6 support staff under the direction of a program manager who is an experienced engineer. Cagayan de Oro has appointed a local consulting team initially comprising 5 full-time and 3 part-time technical staff together with support staff under the full-time direction of a well qualified program manager who is a financial analyst. The city proposes to directly employ the same team for project execution and retain the consultant program manager.  - 23 - 3.05 Assurances were received at negotiations that staff in regional cities will be augmented as the program proceeds and that provision of funds for adequate staffing will be made in municipal budgets. Agreement was also reached that a project manager and a works engineer for each site would be appointed prior to tendering the first contract for any site. NHA's advisory consultant will review staffing of the regional city SIR units every 6 months. 3.06 NHA regional teams from headquarters in Manila, have been assisting with technical coordination and supervision matters on an intermittent basis. The appointment by NHA of a consultant as resident adviser for each city has proven effective in program coordination and in developing detailed project designs. This consultant support to the regional cities would be extended over a period of two years. Supporting the three resident advisors would be a consultant financial analyst and a consultant program planning analyst to work in all three cities. Technical assistance is included in the project for this purpose. In addition, NHA will attach, from its staff, an architect/planner or an engineer to each regional city SIR unit together with one additional staff member to work with each Regional City SIR program office on a full-time basis. Local SIR staff will also qualify for attendance at the training office to be established by NHA (see para 3.15). Dagat-Dagatan Project 3.07 A project office to implement the Dagat-Dagatan component of the project is being formed within the NHA, staffed in part with technical per- sonnel from the team responsible for design and feasibility work. The or- ganizational structure for the Dagat-Dagatan Project Office includes depart- ments of Construction, Estate Management and Administration. NHA has been actively filling staff positions and agreement was received at negotiations that the following positions have been filled: senior design engineer, site design engineer, and three field engineers and that other key appointments would be made by January 15, 1979. 3.08 A construction management contract has been signed, and the con- struction division is already headed by a qualified consultant engineer with many years experience of managing large contracts. The department is being organized into six functional divisions: architecture, engineer- ing design, construction supervision, contract management and administra- tion, coordination and training. In order to improve design skills and supervision and management of construction projects, NBA proposes, as part of its training program, to attach trainees to the staff of the construction department on a one-to-one basis from division head to professional level. The estate management department will be organized into units responsible for lot sales and rental, commercial property, community relations, economic development programs, land transfer and legal matters. Training programs will be necessary to develop these skills. NBA would retain responsibility for maintenance of project facilities until the site is transferred to a municipal jurisdiction. A finance department would be set up to prepare project budgets, process payments to contractors, manage revenues from the  - 24 - lease and sale of developed lots, and administer the project accounting and financial control systems. NHA confirmation was received at negotia- tions that the construction management contract would be maintained and that adequate budgetary provision will be made for full staffing of the project office. 3.09 The Dagat-Dagatan Project Office of NHA and the SIR Program Offices in the regional cities will be required to maintain separate project accounts and make arrangements acceptable to the Bank for annual financial and tech- nical audit. An appropriate project accounting and financial control system has been developed by NHA with consultant assistance. Responsibility for supervising financial control will rest with the program manager in each city. Separate bank accounts will be operated for the small business and building materials loans programs by a local financial institution who will prepare regular financial statements and annual final accounts. Inter-Agency Coordination 3.10 In view of the number of agencies responsible for planning, coordi- nation, funding and operating project components, inter-agency coordination will be an important feature of project execution. To ensure proper coordi- nation of drainage and other infrastructure activities in the Dagat-Dagatan area, an Inter-Agency Project Implementation Coordination Staff (IPICS) has been established including NHA, BPW, MPWTC and NHA's consultants. This committee meets weekly to coordinate activities. Similar committees have been established on a less formal basis in the regional cities. Steering committees have also been organized to review the provision of health and education facilities under the project. These committees are responsible for detailing institutional relationships, formulating acceptable design standards, and reviewing budgets for staffs and programs. UNICEF is providing substantial assistance in this regard to the project in the Regional cities. For implementation of economic support programs, the NHA and local SIR units have drafted inter-agency agreements with MASICAP, SBAC and the local finan- cial intermediaries which were reviewed at negotiations. B. National Housing Authority 3.11 NHA was established by Presidential Decree in 1975 to consolidate the planning, programming and implementation of a broad range of housing policies and programs. Sector responsibilities had previously been dis- persed among six different agencies. NHA's Charter (Presidential Decree 757) provides basic policy directives and stipulates general limits to NRA's jurisdiction. Subsequent decrees and Letters of Instruction have expanded NHA's program responsibilities, most recently in the field of slum upgrading. Organization and Management 3.12 NHA is governed by a Board of Directors comprised of the General Manager of the Authority; the Minister of Human Settlements (Chairman); the  - 25 - Minister of Public Works Transportation and Communications; the Director, National Economic and Development Authority; the Minister of Finance; the Minister of Labor, and the Minister of Industry. The General Manager is appointed by the President. 3.13 During the past year NHA's responsibilities have risen sharply as its programs have achieved increased popular and political support. Since the programs being developed are major policy initiatives, and are new for the country, they have required a great deal of attention by key executive staff. Serious strains have been placed on the staff that have affected the NHA's ability to keep up with day-to-day responsibilities. While the steps outlined in the previous section related to project office staffing should ensure satisfactory implementation of the works financed under the project, the NRA, with the assistance of its advisory consultants, has out- lined a number of important additional measures to improve the operations of the organization as a whole. These steps involve organizational adjust- ments, a special effort in staffing, training and use of consultants, crea- tion of a new position for financial management, and developing procedures for the preparation of more realistic and coordinated multi-year program plans with associated staffing and financial plans. 3.14 Organization - NRA's previous management structure (Chart 18948) comprises 14 office and departmental heads. Each of these offices report directly and independently to the General Manager. This organization was adopted in accordance with the intention of the General Manager to closely and directly supervise each department until the activities of the Authority had stabilized. It is recognized, however, that staffing adjustments are needed to broaden the middle-management base and to expand the technical capacity for program review, financial development and project management. One long term option being considered would involve consolidating all activities under the three major functions of: (i) Forward Programming and Evaluation, (ii) Project Development and Implementation and (iii) Administration. These would form three major directorates under the General Manager. Such a structure would open up new positions of responsi- bility at the Assistant General Manager level and below and would facilitate development of middle-level management staff. Further consideration and consultation are required before such a change in structure can take effect. In the interim, NHA has therefore reorganized its key operational departments as of November 1978 along lines more related to client needs and has established departments of: Local Government Projects; Private Sector Projects; and NBA Construction Management. This organization would improve utilization of staff who were scattered in the Planning and Develpoment Office, the Project Implementation Department and the Slum Improvement and Resettlement Department. These proposals would inter alia strengthen NBA's capacity for slum improvement projects. NRA will also conduct an overall review of its staff development policies and develop by August 30, 1979 with consultant assistance, a program for strengthening middle and senior manage- ment level positions. 3.15 Staffing, Training and Use of Consultants - Difficulties in staff- ing, training and recruitment have arisen out of low government salary scales  - 26 - which affect new agencies more severely than established agencies. Private sector salaries for engineers with even limited experience are two to three times the rates that NHA can pay. As a result, NHA is hiring almost exclu- sively junior people with little or no experience. Although many of these individuals are very bright and energetic, they lack the experience and training required by NHA's programs. Furthermore, being a new organization, NHA does not have the reservoir of seasoned middle-level staff to train less experienced personnel. Normal recruitment plans may not, therefore, provide sufficient experienced staff to meet NHA's needs for some years into the future. A recent redefinition of job descriptions has provided some improve- ments in average salary levels which should ease this problem somewhat. In addition, two major undertakings in training and consultant support have been recommended. (a) Establishment of Training Office - In order to pro- vide training to the recent graduates hired by NHA in specific operational areas, a training office will be established within NHA. This office would provide short courses to train staff in: site planning and layout design; municipal engineering; project super- vision; procurement; real estate marketing; financial analysis; project planning; management and review; and planning for social services provision, etc. The office would combine lectures with practical problem- solving associated with ongoing projects. NHA's consultants will develop the details of this pro- posal which would be brought to negotiations, when agreement would be sought on the timetable for establishment of the training office. (b) Expanded Use of Consultants - The training program would provide long-term relief. However, in the meantime, given the size of NHA's programs and the fact that acceleration of a number of these programs has been "mandated," adequate design, control and supervision will require heavy reliance on consultant support. For a period of years, therefore, NHA should employ consultants to help in: policy and program devel- opment; support to new and innovative projects such as ZIP and SIR, which have received strong political support; and support in feasibility studies and design. Technical assistance for this purpose is included in the project. 3.16 Financial Management - Another measure to be implemented involves the designation of a position within NHA to assist in external financial relations and development of new sources of finance. This position would be at a senior level, carrying at least departmental head rank, and would be established with executive and operational responsibility for: planning new financial resources; negotiations on bond issues; representation on technical  - 27 - committees and consultative bodies concerned with housing finance; and super- vising financial control systems. Assurances were received at negotiations that the position would be filled by an officer with qualifications and experience acceptable to the Bank by January 31, 1978. Program Planning 3.17 Overall program analyses has hitherto been conducted through the preparation of 5 and 10 year program plans. However, these plans provided only general targets and did not satisfactorily reflect either financial resources limitations or staffing availability. The plan prepared for 1978-82 was very ambitious in targeting production at a total 280,000 units over the 5-year period at a cost of P 6.66 billion (US$900 million equiva- lent). In order to facilitate the programming of NHA's activities on a more rational basis, a planning manual has recently been developed with consultant assistance. This manual outlines detailed procedures for estimating financial requirements and sources, as well as manpower requirement's of projects at each stage of the project cycle by each NRA department involved and provides the basis for long-term financing from bond issues and for earmarking appro- priations from national agencies. NHA's draft program and financial plans will be routinely reviewed by an Inter-Agency Technical Committee recently established under the chairmanship of NEDA which will focus especially on NHA's proposed borrowing program. A revised program, staffing and financial plan, based on this planning manual has been approved by NHA's board for the 4-year period 1978-81 involving investments amounting to P 3.4 billion (US$459 million) compared to P 4.70 billion included for the same period in the present 5-year NEDA plan. This revised program plan differentiates between projects already defined and under preparation, amounting to 2.5 billion (US$338 million equivalent); and new projects yet to be identified amounting to a further P 850 million.  - 28 - /1 NHA - Program Budget P Million Sources of Funds 1978 1979 1980 1981 Total Balances 30 10 45 40 125 Capitalization 100 375 375 200 1050 Bond Issues /2 - 50 125 175 350 Foreign Loans /3 40 65 120 150 375 Budgetary Appropriations 175 90 75 75 415 Corporate Receipts /4 35 80 120 175 410 380 670 860 815 2725 Less: Application of Funds Administration, working capital debt and service 60 90 110 150 410 Funds Availabile for Program Outlays 320 580 750 665 2315 Projects Identified 320 695 995 535 2545 Unidentified - - - 850 850 Additional Funds Required -0- 115 245 720 11080 Source: NHA and Mission estimates. /1 1978 prices. /2 Estimates for issues to SSS initially. /3 Including IBRD loan for NHA portion of first and second urban loan and assuming international finance available for Zonal Improvement Program. /4 Includes surplus revenues from Industrial/Commercial land at Dagat-Dagatan. 3.18 NHA proposes to update this program plan on an annual basis and further modifications are likely to be made as experience is gained in project design and execution and in mobilizing additional funding. However, as a result of recent increases in NHA's capitalization and provided agree- ment can be reached on bond issues to SSS, resources available to NHA would provide almost full funding for projects already defined and under prepara- tion. A favorable climate now exists for bond issues and for mobilizing additional funding sources. Assurances.were received at negotiations that the Bank would be informed of any material changes. Financial Position 3.19 At the time NHA was established, accounts consolidating the finan- cial position of the preceeding agencies were not available. With con- sultant assistance, consolidated accounts have now been prepared. NHA'S assets and liabilities as of December 31, 1977, show total government equity holdings of P 524 million, including P 127 millions paid in capital. Short terms deposits and securities amounted to P 140 million compared to current liabilities of P 104 million. Properties available for sale or investment,  - 29 - or under construction, were valued at P 270 million. However, the high level of liquidity on that date, attributable to a slower than expected pace in implementation due primarily to staff constraints, has decrease markedly during the current fiscal year. 3.20 In establishing NRA, the government guaranteed its capitalization at P 500 million and prescribed that particular programs such as SIR and PNB (low cost conventional housing) are to be financed from long-term bond issues to government and private sector social security systems (GSIS and SSS) and from budgetary appropriations from other national agencies. GSIS and SSS were initially reluctant to agree to new issues because of the low yield based on terms originally proposed by NHA, and because the interest charged to beneficiaries is higher than that presently charged on their own housing loans. Moreover, because of the lack of provision in the budgets of national agencies, NHA has funded major infrastructure works and community facilities on their behalf. In recognition of the urgent need for improved funding arrangements as a pre-requisite of program formulation, the Government retro- actively increased NHA's capitalization fourfold to P 2 billion, to be subscribed at P 200 million annually together with adjustments for previous years, and created a national housing fund, under NHA control, with con- tributions from national agencies. In addition, recent discussions with financial institutions indicates a favorable climate for NHA bonds and dis- cussions are now proceeding with SSS and other financial institutions over the timing and terms of individual issues. As a result of the foregoing, funding arrangements have now been established to support an NHA program of meaningful dimensions. C. Local Government 3.21 The structure of local government in the Philippines comprises regional, provincial and municipal authorities, except in metropolitan areas where city governments operate and maintain all municipal services. Tech- nical, administrative and fiscal capacity for development varies consider- ably among authorities. Cities have a more buoyant revenue base than either provinces or municipalities, and are generally better able to attract expe- rienced staff. Administrative and fiscal reforms initiated in recent years have considerably improved the funding of local services. The Department of Local Government and Community Development is training senior personnel and helping upgrade organization and development planning. 3.22 Budget support from the national government represents about 23% of local government revenues. Close supervision of local fiscal management is therefore maintained by government through the Ministry of Finance. Local governments are expected to operate to balanced budgets and to maintain financial reserves at an acceptable level. 1/ Administrative and fiscal 1/ Prescribed at 2% of regular current revenues including Government budget support.  - 30 - reforms initiated by the government have helped to stabilize the fiscal position in the regional cities included in the project. Rapidly in- creasing revenues in these cities have encouraged real per capita growth in service expenditures. In Cagayan de Oro, revenue growth has also been adequate to support an increasing proportion of an expanding capital works program whereas, in Davao and Cebu, increasing governmental financial sup- port has been provided in accordance with the established revenue sharing formula. Davao and Cagayan de Oro have substantial financial reserves whereas Cebu has been able to maintain only the statutory minimum required. For the period to 1982 slower revenue growth is likely however and the main- tenance of effective fiscal management will therefore be of paramount importance if service standards are not to deteriorate. Project cash flow estimates indicate that a financial surplus is likely to accrue in each project city (see para. 6.08). Moreover, additional tax revenues are expected to exceed incremental service costs incurred as a result of the project. Model project accounting and financial control systems have been developed by NHA, with consultant assistance, and are presently being reviewed by the Commission on Audit (COA) for installation and operation in each project city. These systems incorporate program and project budgeting and would institute financial performance reporting to management in the SIR units, city mayors and other concerned municipal officers and to NHA management. COA is presently developing, with consultant assistance, comprehensive audit programs which would be designed to review the economic efficiency of local government services and programs. 3.23 The investment requirements of the proposed project are significant in relation to existing capital works programs in these cities particularly in Cagayan de Oro and Davao, and funds would in large part be provided by NHA loans. The borrowing capacity of local governments is limited by a debt ceiling established for each authority on the basis of the assessed value of taxable property. The present borrowing capacity in relation to existing debt, in Cagayan de Oro is inadequate, under present procedures, to accom- modate project requirements. The implementation schedule for the component in the city has therefore been extended to enable project related debt to accumulate at an acceptable rate. Government is considering this issue and has instructed COA to prescribe a new formula for determining reasonable borrowing capacity of local governments. However, this review relates to broader questions of local government finance and the government has confirmed that the existing procedures will continue to apply in the interim. Indi- vidual agreements between NRA and each local government specify the equity participation by the local government and the formula for distributing project surpluses etc. between NHA and the local government. 3.24 Development planning is not yet well established at the city level. Moreover, local government salary scales have effectively hindered cities from recruiting technicians experienced in physical or financial/economic planning and programming. Technical assistance is included in the proposed project for each regional city, to provide physical and financial planning assistance in metropolitan-wide capital improvements planning, especially for programs directed toward improving access to municipal services by low- income groups.  - 31 - IV. DESIGN STANDARDS AND PROJECT SPECIFICATIONS 4.01 Standards and guidelines were developed by NHA's consultant's (Table IV.1) and are sufficiently flexible to allow for variations in physical site conditions, population characteristics such as density and optional service level standards in different communities. In existing slums the residents will be involved continuously in the planning process. They will * choose from service level options and street and footpath layout alternatives. In new sites and services areas in the regional cities the design standards are based in part on normal land sub-division regulations at the minimum level for low-cost housing development. Sites and Services 4.02 A wide range of plot types and on-plot development options will be provided to encourage a good social mix, opportunities for renting, and for diffe ential pricing. The average plot size is smaller in Dagat-Dagatan (72 m ) than for the regional cities (100 m ). The options to be available in Dagat-Dagatan are: (a) service connection; (b) service connection plus sanitary core; (c) service connection plus sanitary core plus shared firewall; (d) service connection, sanitary core plus shared firewall, post and slab; (e) shell house; and (f) demonstration unit. In the regional cities, the sites and services lot options will range between (a) and (c) developments. 4.03 Flexible facility planning and layout standards have been developed for the basic infrastructure services. Road layouts in the regional cities are planned on a 150m grid and in Dagat-Dagatan on a 250m grid but access used by emergency service vehicles is provided on 140m grid. Drainage and water reticulation have been planned on the same grids for optimum efficiency. Layout designs within residential areas are such that the net land utilization for residential, market and small business lots is expected to account for 65% to 70% of the gross residential area, circulation about 15% and open space and community facilities, about 17%. In the large commercial/industrial areas, circulation will absorb about 7-10% of the site space. To ensure that a low cost approach is maintained, assurances were received at negotia- tions that no buildings will be constructed by NHA or local governments on commercial/industrial sites within project areas without prior consultation with the Bank. Slum Upgrading 4.04 The design objective is to fit infrastructure and social facilities into the existing settlement configuration without demolition of dwellings. Densities in project sites range from 500 to 1,600 persons per hectare and in the areas with densities above 1,200 per hectare, a minimum provision of access for emergency service vehicles may require street construction involv- ing some relocation. Where this occurs, a planning target of under 5% reloca- tion and a maximum of 10% has been agreed with NHA and the local governments. Agreement has also been reached that displaced families will be relocated in  - 32 - adjacent locations, and in no case further than 2 km from their existing location. Site designs take existing infrastructure into account and the layout of circulation is designed to follow natural drainage channels to minimize land take and future maintenance. Final layout and servicing will be decided in conjunction with the community. 4.05 In upgrading areas two levels of service are identified, a basic level and a desired level. The basic level indicates a minimum servicing level which will improve public health and safety and which will be very low cost and affordable by all except the destitute. The "desired" level of servicing indicates a similar improvement in public health and safety but includes the introduction of a measure of convenience into the designs for which an extra price must be paid (see Table T3). In site and service projects the "desired" level of service has been chosen as the basis of design. Table IV-1: RANGE OF PLOT TYPES IN DAGAT-DAGATAN Plot % of No. of % of Plots with Options Size Plots Plots A B C D E F 2 48m2 10% 860 - - 80 10 91 60 m 40% 3,440 - - 90 5 4 1 72 m2 20% 1,720 - - 80 10 9 1 84 m2 10% 860 - 75 24 - -1 98 m2 10% 860 99 - - - - 112 m ) 2 ) 8% 688 100 120 m2 ) 121 m2 to 150 m 2% 172 100 Total 100% 8,600 Community Facilities 4.06 The Barangay Day-Care Nutrition (BDCN) Centers Vave four 48 2 multi-use spaces and two open air-meeting spaces of 200 m . Also 96 m are allowed for toilets, storage, 2 kitchens and 4 offices. The community may enc ose the Barangay meeting space at a later date. A site area of 2,000 m will accommodate these functions with room for expansion. The build- ing will be a simple concrete hollow block structure, with plain cement floor  - 33 - slab, and corrugated galvanized iron sheet roof. Interior sliding partitions between the multi-use spaces can be made of bamboo mat or a similar light- weight material. The building cost of-P 220,000 includes contingencies of 20% each for site development and P 55,000 for basketball courts. The2 serviced sites for markets will comprise a drained paved area of 324 m with 4 standpipes. The total cost per site is estimated at P 40,000. The nea ele entary and secondary school classrooms based on 40 students per 48 m - 5 m classroom will be constructed of an improved Bagong Lipunan type build- ing. The cost of P 825 per square meter includes the cost of all support facilities for the school (circulation, toilets, and administration) plus a 6% contingency for special foundations. The new health centers will be constructed of hollow concrete block with plain cement walls and floors and corrugated galvanized iron roof. A building cost of P 375,000 for the 300 m unit, includes a 20% site development cost and a 20% contingency for special foundations. Also included in this cost is P 57,000 for equipment. In the regional cities the Bagong Lipunan type building will be constructed at a cost of P 237,000 which includes site development, special foundations and equip- ment. Service levels and design standards for health, education and community facilities were discussed and agreed with the relevant agencies during ap- praisal. Table IV-2 lists all facilities to be provided by site. The project will finance buildings and equipment. Table IV-2: DISTRIBUTION OF COMMUNITY FACILITIES BDCN Centers Primary Schools Secondary Schools Barangay Number of Nimber Number Number Number Multi- Multi- Number Site Classrooms Schools Classrooms Schools Health Centers. purpose Use of Markets new upgr. new upgr. new upgr. new upgr. new upgr. Spaces Spaces Centers Manila14 27 3 Dagat Dagatan 170 - 5 - 72 - 2 2 2 14 28 7 3 /Ermta 8 _ 1 _ _ _ _ 1 _ 8 2 Pa,il ~ - Alaska 12 _ _ 1 _ _ _ _ 1 - - 4 1 CaRasan de Oro Macabalan - 6 _ 1 _ _ _ _ _ 1 - 4 1 Lapasan - 6 - 1 - - - - - - - 4 1 Kauswagen 16 - 1 12 - 1 1 - - 4 1 Davao TewMatina 24 _ 1 _ 12 - 2 1 - - 16 4 Piapi 18 - 1 - - - - - - 1 - 8 2 TOTAL 240 20 8 4 72 12 2 3 5 5 14 76 19 3  - 34 - V. PROJECT IMPLEMENTATION A. Procurement 5.01 Civil works contracts of more than US$1 million each, estimated to amount to a total of US$20 million would be awarded on the basis of inter- national competitive bidding in accordance with the Bank's guidelines. How- ever, the local construction industry in the Philippines is well developed and most contracts under this project are expected to go to Philippine firms. Because of the need to undertake the work in small areas on a block- by-block basis working with the residents of the project communities, civil works contracts of less than US$1 million each for a total of about US$22 million, are not suitable for international competitive bidding. These would be awarded on the basis of competitive bidding, locally advertised in accord- ance with procedures satisfactory to the Bank. 5.02 For equipment and material procurement, except materials for house improvement, all contracts over US$100,000 and amounting to about US$2.5 million equivalent would be awarded on the basis of international competitive bidding in accordance with Bank guidelines. Contracts below US$100,000 totalling about US$1.0 million equivalent would be tendered on the basis of competitive bidding, locally advertised in accordance with procedures satis- factory to the Bank. 5.03 All contracts executed under the SIR Program in the regional cities to be financed under the project will be submitted to NHA for review prior to bids being invited. Contracts in the regional cities having a value of over US$100,000 would be advertised in a nationally circulated newspaper. Prior review by the Bank of contract specifications and bidding documents will extend to all contracts for community facilities, and for all contracts for civil works and equipment estimated to cost US$1 million or more. NHA's consultants would provide a commentary on prequalification bidding procedures, and evaluation and award of all contracts prior to NHA approval of contract award. B. Disbursements 5.04 Disbursements would be made at the rate of 43% for civil works against normal documentation; disbursements for equipment and materials would be at the rate of 100% for direct imports, 100% local expenditures ex-factory for locally manufactured goods and 65% for other locally pro- cured equipment and materials; 100% of the expenditures for technical assis- tance and training and 50% of the proceeds of the Small Business Loans for materials and equipment and for house building materials, certified by NHA. A maximum amount of $700,000 is recommended for retroactive financing from February 1, 1978 for design and program advisory support and technical assis- tance to the Metro Cebu Development Project under the technical assistance  - 35 - category and for civil works. The estimated schedule of disbursements is as follows: $ Million Amount Cumulative % Cumulative Quarter Ending Disbursed Disbursements Disbursements March 1979 0.90 0.90 2.8 June 1979 0.63 1.53 4.7 September 1979 0.36 1.89 5.9 December 1979 0.75 2.64 8.2 March 1980 1.17 3.81 11.9 June 1980 1.86 5.67 17.7 September 1980 2.31 7.98 24.9 December 1980 3.45 11.43 35.7 March 1981 3.75 15.18 47.4 June 1981 3.63 18.81 58.7 September 1981 3.51 22.32 69.7 December 1981 3.42 25.74 80.4 March 1982 2.13 27.87 87.1 June 1982 1.44 29.31 91.6 September 1982 1.11 30.42 95.0 December 1982 1.03 31.45 98.3 March 1983 0.55 32.00 100.0 C. Supervision 5.05 Supervision by Bank staff will require approximately 8 man-weeks of field effort per year during the 5-year implementation period. For every man-week in the field approximately 2 man-weeks of office work in Washington would be required. D. Community Participation 5.06 An important aspect of the SIR program is the high level of com- munity participation designed into the program. SIR program offices have been working closely with residents in the first sites to be upgraded in each city. Project offices will be established at each site to facilitate discussions with residents, and a community planning council is being estab- lished in each area for continuous review of technical options and proposals. Alignment of roads and footpaths and location of public facilities are being determined in association with residents working jointly with SIR staff. Special assistance to the project in community participation is being pro- vided by UNICEF who is working with the SIR units and with community groups in the three project cities. In Cagayan de Oro and Davao, UNICEF has spon- sored week long planning seminars with up to 15 participants drawn from Gov- ernment offices involved in implementing SIR and up to 25 residents. These  - 36 - seminars have been very helpful in establishing community understanding of the projects and are expected to continue on a periodic basis. E. Lot Allocation Procedures for Sites and Services Areas 5.07 For sites and services areas and infill plots in upgrading areas, the only criteria for eligibility of applicants that would be applied are that the applicant: (i) own no other residential property in the city; and (ii) have family income in the range specified for lots of a given size and location. 5.08 At least four months prior to the expected commencement of construc- tion, the availability of the lots and the terms and allocation procedures, will be announced in the principal local paper in the particular city. All applications satisfying the above eligibility criteria will be assigned a number and a public drawing of numbers on a random basis will be sponsored by the Mayor's office in each city to select allottees. For the Dagat-Dagatan site, NHA will be responsible for assignment of lots to applicants using the same procedure as in the regional cities. Infill sites and upgrading areas will be allocated in the same way as sites and services lots. The only exception to the above will be the assignment of lots, as a first priority, to households displaced by installation of utilities in slum upgrading sites financed under the project. F. Land Tenure 5.09 Letter of Instruction 686 provides that all beneficiaries will be provided with a lease purchase contract and allowed to purchase freehold title after a qualifying period which will vary from city to city in accord- ance with local conditions, but which in no case will exceed 5 years. In Cagayan de Oro, all beneficiaries will be permitted to exercise this purchase option after 3 years, provided that a record of prompt payment of lease charges has been established by the lessee. At Dagat Dagatan and in Cebu, the lessee will be able to exercise this purchase option after two years, and in Davao within one year of signing the lease purchase contract. All leases will be freely transferable. The lease purchase contract issued to benefi- ciaries in all project sites will fully spell out: the amount of lease payments for the duration of the lease; the purchase price at the time the option is exercised; and the percent of monthly lease payment which will be counted towards the purchase price. The lease purchase contract for each city will be submitted to the Bank for review at least two months prior to the date when the first contract would be issued.  - 37 - G. Implementation Schedule 5.10 The project would be implemented over a 5-year period as indicated below: Major Components 1978 R 1979 1980 1981 1982 Manila Dagat-Dagatan Land Reclamation Infrastructure Core Housing & - -_ Materials Loans Community Facilities Regional Cities Cagayan De Oro Macabalan Lapasan _ Kauswagen _ Davao New Matina Piapi _ - - Cebu Pasil/Ermita Alaska - m Carbon Sniall Business Loans - Flood Control Equipment Technical Assistance tJ Retroactive World Bank -18949 VI. FINANCIAL ANALYSIS A. Cost Recovery 6.01 Because finance has been one of the critical constraints in programs for the expansion of housing and related services, the project aims to demon- strate, in a variety of physical and economic environments, the feasibility of city-wide programs which provide basic services to low-income groups without external subsidies. The level of payments affordable by beneficiaries was a principal factor in defining appropriate standards and financial terms. Project designs are based on extensive use of self-help construction, high  - 38 - densities and small-lot sizes, and provide for servicing of industrial/com- mercial land to generate additional revenues. The cost recovery approach distinguishes between public facilities normally financed from general tax sources and utility charges, and facilities normally paid for directly by beneficiaries. The general principle adopted was that costs normally borne by private developers in a private housing scheme would be recovered through the lease and sale of developed land. Other expenses normally incurred by Govern- ment agencies in support of private development schemes, such as community facilities, would be borne by the appropriate agency. On this basis, about 25% of project capital costs (for off-site works, community facilities, and water and electric utilities) will be recovered through fiscal revenues and consumer tariffs, and will not be included in lease/purchase charges. Cost recovery sources for the project are as follows: COST ITEM o b~~~~~~~~~~~~~~~o Lot sale price * * Lot charges * * * * Loan repayments Utility tariffs * Municipal revenues Government appropriations J . 11 For secondary distribution depending on tariff structure of local utility company 21 Except where allocable to non-recoverable items 3/ Recovery limited to project design and supervision World Bank - 18947  - 39 - 6.02 In defining the detailed arrangements for program implementation, LOI 555 called for a major role by a number of national agencies for the execution and financing of on-site infrastructure works. This arrangement would have considerably extended the normal responsibilities of those agencies and would have caused severe problems in coordinating project execution and financing. LOI 555 has therefore been satisfactorily revised through the issue of LOI 686 to reinstate the traditional institutional responsibilities. Terms to Beneficiaries 6.03 Residential beneficiaries will be offered a 25-year transferable lease which contains an option to purchase the freehold interest. A range of lot sizes with a variety of optional on-lot development will be available for different income groups within the target population. For residential bene- ficiaries who purchase freehold title, up to 90% mortgage financing will be avail- able at 12% for 20 years, thereby converting the public equity holdings in residential land. Although commercial financial institutions are presently extending mid-term housing mortgage finance at about 18%, the 12% 1/ rate of interest to beneficiaries is considered to be acceptable given even lower (i.e. 9%) interest rates historically charged for public housing, and given lower rates of return typically earned by public utilities on certain items of similar infrastructure. It should be noted that mortgage markets in the Philippines are not yet well developed and market rates fluctuate consider- ably. Developed industrial and commercial land will, in general, be sold at prevailing market value. However, NHA and local jurisdictions may, at their discretion, lease industrial/commercial land to entrepreneurs where this is financially more attractive. B. Demand and Affordability 6.04 Surveys undertaken during the course of project preparation provide up-to-date information on family incomes and other socio-economic data. In slum areas to be upgraded, the median-family income ranges between P 340 and P 380. For sites and services areas the target group falls generally between the 10th and 60th percentile on the income curve in each city. The project represents the initial phase of programs in each city which are expected to extend over 10-15 years in order to service the effective demand of the target population based on the proposed pricing policy. Monthly Payments 6.05 Under the proposed pricing policy, the lease rate for the smallest lot at Dagat-Dagatan would be affordable at about the 10th percentile of income for Metro Manila. In the regional cities, average sized sites and services lots would be affordable at about the 25th percentile and typical upgrading sites would be afforadable at about the 10th percentile. In the 1/ This rate would be positive relative to the rate of inflation, which at 7% per annum prevailing over the last three years, is expected to continue for the next three years.  - 40 - regional cities, residents who could not afford larger lots would receive smaller ones at a proportionately lower cost. Most of the lowest income families in each project site are transients or families who are currently renting individual rooms from the primary occupant of the lot. While it would be impractical to provide separate lots for all such families, they would benefit substantially from improved conditions in the project areas. Table VI.1 below, summarizes lot costs and beneficiary charges. 6.06 For families who can afford to purchase their lots, the plot purchase price will be obtained by adding the land and reclamation cost to the servicing cost. The chargeable land cost will be based on the average cost of land acquired and reclaimed under the program in each city. In the regional cities, the average purchase price for an upgraded lot and for a new site is correspondingly estimated at P 3,700 and P 6,370 respectively, requiring monthly payments o