Philippines - First Rural Infrastructure Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2276-PH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF THE PHILIPPINES FOR A RURAL INFRASTRUCTURE PROJECT March 29, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their ofical duties. Its centents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$1.00 = Pesos (P) 7.40 P 1.00 = US$0.135 WEIGHTS AND MEASURES - METRIC SYSTEM 1 hectare (ha) = 2.47 acres 1 kilometer (km) = 0.62 miles 1 kilogram (kg) = 2.2 pounds 1 cavan (paddy) = 50 kg ABBREVIATIONS ADB - Asian Development Bank AID - Agency for International Development BBR - Bureau of Barangay Roads (DPH) BHS - Barangay Health Station BPW - Bureau of Public Works DA - Department of Agriculture DAR - Department of Agrarian Reform DLGCD - Department of Local Government and Community Development DOH - Department of Health DPH - Department of Public Highways DPWTC - Department of Public Works, Transportion and Communications FAO - Food and Agriculture Organization of the United Nations FSDC - Farm Systems Development Corporation ISA - Irrigation Service Association NEDA - National Economic and Development Authority NFAC - National Food and Agricultural Council (DA) NIA - National Irrigation Administration PDAP - Provincial Development Assistance Program PPA - Philippine Port Authority RHU - Rural Health Unit GLOSSARY Barangay - Village FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY PHILIPPINES RURAL INFRASTRUCTURE PROJECT Credit and Project Summary Borrower: Republic of the Philippines Amount: US$28.0 million equivalent Terms: Standard Project Description: The proposed project consists of (a) construction of new irrigation facilities on about 8,500 ha of currently rainfed land and rehabilitation of two existing communal irrigation systems serving 900 ha; (b) construction of about 1,150 km of new barangay (village) roads and improvement of about 240 km of existing barangay roads; (c) rehabilitation and improvement of three ports; (d) construction of about 60 barangay health stations; and (e) construction of about 300 wells serving villages of 300 to 400 inhabitants. The project would increase yields and farm incomes on about 9,400 ha dispersed in the six provinces of Abra and Kalinga-Apayao in Northern Luzon; Aklan, Antique and Capiz in Western Visayas; and Bohol in Central Visayas. At full development, this would result in additional annual paddy production of about 29,000 tons. Some 7,000 farm families and 1,500 landless laborers' families, practically all of whom are below the poverty line, would benefit directly from the increased production and subsequent employment. The road component is tentatively expected to improve access for some 78,000 families, or 430,000 people, by linking relatively isolated villages to the mainstream of economic life of the provinces. About 47,000 families, all of whom are estimated to be below the poverty line, would benefit from the health facilities to be provided under the project, while the 300 village wells would improve the availability and quality of water for some 100,000 villagers. The main risks concern the maintenance of irrigation facilities, the provision of agricultural supporting services, and the maintenance of barangay roads. The project provides measures to minimize these risks. 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. - 11 - Estimated Cost: Foreign Local Foreign Total exchange (US$ million) ------ (%) Communal irrigation systems 4.4 4.3 8.7 49 Barangay roads 12.4 12.0 24.4 49 Improvement of ports 1.0 0.8 1.8 44 Rural health stations 0 5 0 2 0.7 29 Barangay water supply 0.7 2.0 2.7 74 Preparation of future rural infrastructure project 0.8 0.3 1.1 27 Engineering, administration 2.8 1.0 3.8 26 and supervision Base cost estimate 22.6 20.6 43.2 48 Physical contingencies 3.5 2.9 6.4 45 Expected price increases 4.9 4.5 9.4 48 Total project cost 31.0 28.0 59.0 48 Financing Plan: Association Government Total ----------- (us$ million) ---------- 28.0 31.0 59.0 Estimated Disbursements: Association's Annual Cumulative Fiscal Year disbursements disbursements ------ (US$ million) -------- 1979 0.2 0.2 1980 5.3 5.5 1981 8.5 14.0 1982 7.0 21.0 1983 5.0 26.0 1984 2.0 28.0 Rate of Return: The weighted average rate of return, excluding the health and water supply components (10% of the project cost) for which benefits were not quantified, is approximately 17%. Appraisal Report: No. 1884a-PH, dated March 23, 1978. REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF THE PHILIPPINES FOR A RURAL INFRASTRUCTURE PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of the Philippines for an equivalent of US$28 million for a Rural Infrastructure Project. The credit would be on standard IDA terms. PART I - THE ECONOMY /l 2. An economic mission visited the Philippines in July/August 1977 and its report, "The Philippines: Country Economic Memorandum" (No. 1765-PH of October 26, 1977), was distributed to the Executive Directors under Secretary's Memorandum SecM 77-764 on October 27, 1977. A basic economic report, entitled The Philippines: Priorities and Prospects for Development (SecM-76/366), was previously distributed to the Executive Directors on May 18, 1976. Macroeconomic Performance 3. During the 1960s, the Philippine economy grew in real terms at an annual rate of about 5-1/2%. However, the rate of growth was less than what might have been achieved if the country's considerable natural and human resources had been utilized more effectively. The benefits of growth were also distributed relatively unevenly, both with respect to regions and income classes. While overall agricultural growth was reasonably satisfactory, repeated food deficits were experienced. The growth of productive employment opportunities failed to keep pace with the expansion of the population and labor force. Low levels of taxation resulted in inadequate public expenditure for necessary infrastructure and social services. Poor export performance combined with the heavy import dependence of domestic industry led to chronic weakness in the balance of payments. 4. The growth of the Philippine economy accelerated slightly to an annual rate of 6% in the 1970s. Fluctuations, however, have been significant. In the period 1970-72, when the effects of a balance of payments stabilization program initiated in 1970 were being felt, the economy grew less rapidly, exports and imports of goods and services were roughly equal, and the shares of public and private fixed investment in GNP were stable at still relatively low levels. Economic growth was unusually good in 1973 as sharply higher prices for traditional export commodities stimulated demand, agricultural production rebounded strongly from the natural disasters of the previous year, and the balance of payments registered a substantial current account surplus. The export-led income boom of 1973 was followed by an investment boom. The resulting high investment rate, together with favorable sugar prices, temporarily sheltered the economy from the impact of the oil price increase in late 1973 and the following world recession, and real GNP growth /1 This part of the report is not substantially changed from Part I of the Rural Electrification Project (Sec M/R 78-63), which is scheduled to be considered by the Executive Directors on April 4, 1978. - 2 - was maintained at 6% in 1974-75. The first half of the 1970s also saw significant structural changes in the economy, the most important of which were an increase in the level of public investment, financed in large part by a greater tax effort, a recovery in export growth, a shift of the domestic terms of trade in favor of agriculture, and the slowing of the population growth rate. 5. The collapse of sugar prices in late 1975, following earlier declines in the prices of other major export commodities, altered the external situation dramatically. The terms of trade dropped by 23% in 1975, and, as a result, the current account deficit rose to 6% of GNP, and the overall balance of payments deficit to $500 million. Thus, the necessity of restoring balance to the external accounts was superimposed on the Government's longer-term objectives of faster economic growth and a better distribution of its benefits. To maintain the momentum of growth and investment, the Government adopted a policy of increasing capital inflows in the near term to finance the resulting expanded current account deficits while accelerating export growth in the longer term. In 1976-77, the economy - led by exports, public investment, agriculture and construction - has continued to grow at 6% per year. Unfor- tunately, much of the stimulus from an expansion in export volume was offset by further deterioration in the terms of trade. However, inflation, which reached a peak of 31% in 1974 as a result of externally generated pressure on domestic prices, has slowed to a rate of about 7% because of the deceleration in international inflation and a conservative monetary-fiscal policy. Development Strategy 6. The Government's development objectives and policies, which were recently set out in a five-year plan for the period 1978-82, call for further acceleration of economic growth, first to 7% and then to 8%. The development strategy focuses on an expansion of more productive employment opportunities at a rate of 3.6% per annum, reduction of income disparities, greater self- sufficiency in food and energy, strengthening of the balance of payments, and increased development in rural areas. In addition, the plan includes strategies for development in each of the country's thirteen regions. In general, the plan is an elaboration of the policy directions pursued by the Government in recent years. It is also broadly consistent with the Bank's basic economic report, although investment, manufacturing output, and exports are projected to grow more rapidly than visualized therein. It should be feasible to accelerate the overall growth rate to 7% as the terms of trade stabilize, but more rapid expansion of manufacturing is necessary to do so, and efforts need to focus on improving the efficiency of investment. Agriculture 7. For a country with fairly good soils and a reasonably literate rural population, agricultural yields in the Philippines are relatively low. Possible reasons for this situation are the low quantity and quality of irrigation facilities and high vulnerability to weather risks; land tenure patterns; and weak agricultural credit, extension, and other supporting services. Agricultural production has, nevertheless, grown at an average rate of 4-1/2% per year in the 1970s. The performance of the sector was exceptionally strong in 1976 and 1977, as production increased by 7%, and the Philippines became self-sufficient in rice, its main staple. - 3 - 8. The Government gives high priority to agriculture and rural development. It has undertaken a number of steps to increase the availability of irrigation and supporting services, and has also expanded programs to improve living conditions in rural areas, including rural electrification, health and family planning, and rural roads. However, while irrigation investment has been raised substantially, improvements in the quality of supporting services - particularly credit and extension - are still necessary. 9. For historical reasons, land ownership in the Philippines is inequitably distributed. The land transfer program, which has been in operation for five years and covers rice and corn growing areas, proceeded quite rapidly when larger landholdings were the focus of concentration, but progress has been slower recently as the focus has been on a larger number of medium-sized holdings, which often belong to middle-class landowners. As of June 1977, an estimated 120,000 tenants, or 30% of the total tenants under the program, had received Certificates of Land Transfer, which established their claim to the land. Despite the difficulties in the process of implemen- tation, the transfer program remains an important part of the Government's rural development strategy. Industry 10. During the 1960s, Philippine industrialization was promoted by high tariff protection and subsidized finance, and consequently industrial growth was primarily in the area of import-substitution with a high capital intensity. Performance was disappointing with respect to employment, exports, and the overall rate of growth of output. In the early 1970s the Government floated the exchange rate, which then depreciated significantly, and introduced policy changes to reduce tariffs and realign industrial incentives. Further efforts to reduce remaining biases in favor of import-substitution and capital intensity will still be needed, however, to accelerate the rate of industrial growth as projected in the Five-Year Development Plan. 11. The manufacturing industry has grown at a relatively slow average rate of about 6% in the 1970s. Moreover, due to the slow increase in national income and demand because of the decline in the terms of trade in the last two years, manufacturing growth has also slowed, and investment has stagnated. On the other hand, industries producing nontraditional exports have expanded rapidly from a very low base, as their exports increased almost fivefold in the four-year period 1973-76, in response to exchange rate adjustment and special measures designed to alleviate existing restrictions on imports and thus reduce the bias towards production for the domestic market. As noted above, further efforts in this direction will be needed if industrial exports are to continue to grow at a rapid rate. The construction industry has also grown rapidly as the expansion of relatively construction-intensive public investment and large tourism investments in the Manila area raised construction expendi- ture from 6% of GNP in the early 1970s to 12% in 1976. Employment, Incomes and Population 12. Employment increased by about 4.6% annually during 1973-76, a considerable improvement over the historical growth rate of 2.4%, and was able to keep pace with the rapid growth of the labor force. Particularly noteworthy was the growth of employment in manufacturing, which essentially stagnated during 1970-74, but grew by 8% annually during 1975/76, resulting in part from the growth of labor-intensive production for export. However, because manufacturing's share of total employment is small, agriculture and services continue to function as residual sources of employment and account for most of the growth in total employment. 13. Preliminary survey data show that the share of income received by the poorest 40% of families, which remained constant during the 1961-71 period, increased from 12% in 1971 to 15% in 1975. The income share of the top 20% of families remained about the same as in 1971, while that of middle income families declined correspondingly. Due to the improvement in agriculture's terms of trade, the growth of agricultural production, the decline in urban real wages following the devaluation in 1970, and the stagnation of industrial employment until 1975, the ratio of the average rural income to the average urban income rose from 48% in 1971 to 57% in 1975. Real per capita consumption increased by about 2% annually in 1971-75. Hence, after allowance for price increases, real incomes in rural areas, where most of the poor live, have probably increased somewhat, while real urban incomes have remained about the same. 14. The population is estimated at 43.3 million in 1976 and is currently growing at 2.8% as compared to a 3.0% growth rate during the 1960s. The Philippines has an active family planning program registering approximately 650,000 new acceptors per year. Although the number of new acceptors has reached a plateau as the program faces the increasingly difficult problem of reaching rural areas, the estimated proportion of married women of reproductive age practicing family planning increased from 20% in 1974 to 25% in 1977. Investment and Savings 15. Due largely to the buoyant export performance in 1973 and the subsequent increase in incomes, investment boomed in 1974-75. Private investment rose from 14% of GNP in the early 1970s to 20% in 1975. Public investment was raised from 2% to 4% of GNP with the growth in revenue from international trade taxes, improvements in tax administration, and improved project implementation capacity. Subsequently, public investment has been raised further to an estimated level of 6-1/2% of GNP in 1977. The private investment rate, on the other hand, has fallen somewhat to an estimated 18% of GNP. Although the private investment rate is well over the 14% average of the early 1970s, the revival of private investment is an important short-term problem. Furthermore, the high incremental capital-output ratio, the relatively modest growth of manufacturing output and employment, and the structural underutilization of capacity in some industries suggest that the efficiency of investment also needs to be improved. 16. Aggregate savings performance has improved during the last decade and is comparable to that of other countries at a similar stage of economic development. In 1976-77, gross domestic savings maintained the level of 25% of GNP achieved in 1975 and financed about 80% of total investment, with the balance coming from foreign savings. In order to increase the efficiency of - 5 - financial markets in intermediating between savers and investors, the Govern- ment has made significant improvements in financial policy. Organized banking institutions have been strengthened. Interest rates were realigned in 1976 and again in 1977 to encourage a greater flow of financial savings into time and savings deposits relative to short-term deposit substitutes, and to reduce tne spread between borrowing and lending rates. Further reforms are required to increase the availability of long-term domestic currency resources. Special credit programs have been adopted to expand lending to the credit-short agricultural sector and rural areas and to serve the needs of medium- and small-scale industries. However, a deterioration of loan recovery rates has been experienced by all government financial institutions and credit programs, creating a difficult policy dilemma. On the one hand, the programs have become costly means of achieving their objectives, and the growth of arrears reduces the overall efficiency of resource mobilization and allocation. On the other hand, the programs do redress imbalances in the availability of credit. The Government has already taken a number of steps to improve collections; however, further efforts in this direction are necessary to improve financial discipline and ensure an adequate flow of credit to the productive sectors. Government Expenditures and Revenues 17. Public expenditures and revenues have historically claimed a much smaller share of national resources in the Philippines than in many other developing countries. In the early 1970s, general government expenditure averaged only 12% of GNP, public investment was strikingly low at about 2% of GNP, and tax revenues stood at 11% of GNP. Government expenditures were dominated by general administration and social services, particularly education. This situation had resulted from a variety of factors including difficulties in raising tax revenue and weak implementation capacity in the public sector. Since the early 1970s, the Government has taken steps to correct the situation and raise both the overall level of expenditures and the share going to economic services and public investment. By 1977 govern- ment expenditures had reached an estimated 18% of GNP, and public investment, which has risen very rapidly in the last two years, equaled about 6-1/2% of GNP. 18. Recognizing that a large increase in tax revenues would be required to finance expansion of the public investment program, the Government has undertaken a comprehensive program of tax reform to raise the needed revenues equitably and efficiently. In the short term, needed revenues have been raised through revisions in indirect taxes. In the long term, structural changes are to be made to raise the built-in elasticity of the tax system, to reduce distor- tions in economic incentives and dependence on cyclically volatile taxes on international trade, and to improve equity by increasing the proportion of revenues coming from direct taxes. The Government has increased the ratio of domestic taxes to GNP by an impressive 1.5 percentge points between 1975 and 1977 through new tax measures and vigorous efforts to improve taxpayer compli- ance and collection performance. However, much of the success in mobilizing revenue from domestic sources has been offset by a sharp decline in the yield of export taxes and import duties due to cyclical fluctuations. Total tax revenues, which had been raised from 11% of GNP to 13.6% by 1975, rose to only an estimated 14.1% in 1977. Greater resource mobilization by government financial institutions and government corporations, whose investment programs have grown rapidly, is also needed. - 6- ernal Trade and Capital Flows 19. Largely as the result of a 23% decline in the terms of trade in 1975, the current account recorded a deficit of $900 million, or 6% of GNP. To meet the immediate payments problem, the Government drew down its international reserves, obtained loans under various IMF facilities, and expanded its borrowing program to finance necessary imports. For the longer term, a strategy was adopted of accelerating export growth both to hold the current account deficit about constant, while it declined relative to GNP, and to meet the debt service payments on the higher level of external borrowing. 20. Some progress in these directions was made in the last two years. In 1976, in spite of a further 11% deterioration in the terms of trade, a substantial increase in export volume and slow growth of import payments narrowed the trade deficit and partly offset the higher net interest payments. Although somewhat larger than in 1975, the current account deficit was stabil- ized at 6% of GNP. Net capital inflows were nearly doubled to $1.1 billion. Most of the inflow was from medium- and long-term loans, two-thirds of which were public loans reflecting in part increased disbursements from official sources. Estimates for 1977 show a further substantial expansion in export volume which, with little expected change in the terms of trade, import volume, services or transfers, would reduce the current account deficit to 4% of GNP and eliminate the overall payments deficit. Hence, on the whole, the balance of payments position has strengthened significantly. 21. To achieve a 7% growth rate in real GNP, as projected for the period 1978-82, imports will have to grow faster than they have recently and a net capital inflow of at least $1 billion per year will be required. Assum- ing continued sound debt management and the maintenance of a balanced maturity structure of foreign borrowings, the overall level of external debt of the Philippines is expected to remain within reasonable limits. The ratio of debt service payments to exports and nonfactor services would average about 19%, of which 7% would be public debt service, during the plan period (1978-82). 22. In order to ensure that the long-term capital transfer is commensu- rate with the level of development expenditures which will be required during 1978-82 and that debt service obligations remain within reasonable limits, the Government sought commitments of official assistance of $750-800 million in 1978 at the meeting of the Consultative Group for the Philippines, held in Tokyo on December 1 and 2, 1977. This amount is likely to be available. However, since many of the planned projects which are to be financed from external sources have a low foreign exchange component, some local cost finan- cing is necessary, in appropriate cases, to meet the Philippines' external financing requirements. PART II - BANK GROUP OPERATIONS IN THE PHILIPPINES 23. By March 31, 1978, the Philippines had received 52 Bank loans /1 /l Including the loan for the Second National Irrigation Systems Improvement Project for $65 million (approved on February 28, 1978) and the loan for the Educational Radio Technical Assistance Project for $2 million (approved on March 21, 1978). - 7 - (of which two were on Third Window terms) and three IDA credits for a total of $1,364.7 million, net of cancellations. About one-third of Bank Group lending ($465.4 million) has been for infrastructure projects in power, transporta- tion, and water supply and another third ($493.4 million) has been for agriculture. Of the remainder, $278.4 million has been for iudustry and $127.6 million has been for social sector projects in education, population and urban development. There has been a marked improvement in the execution of Bank-financed projects in the last four years compared with experience in the 1960s, when there were serious problems caused by a shortage of local currency and poor administration. All ongoing projects are now being imple- mented reasonably well. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of February 28, 1978, and notes on the execution of ongoing projects. 24. The Bank's lending program has been designed to continue to support the Philippine development effort with its emphasis on agriculture and infra- structure and its growing attention to the needs of lower income groups. More than 40% of Bank lending planned for the next few years would be for agricul- ture and rural development projects and about a quarter would be for needed basic infrastructure projects, mainly in the fields of transportation and power. The amount of lending for social sector projects, including education, popula- tion and urban development, is expected to continue to grow rapidly and account for more than 15% of future lending. The balance of future lending would be for industrial development, where growing attention is being given to the needs of small and medium industries with high employment potential. The rapid growth in public revenues during the past five years has allowed for a significant expansion in public investment and both the ambitious Philippine development program and the Bank's growing lending program have been designed to meet the country's substantial future needs. In view of the per capita income of the Philippines, its level of external debt, and the generally good management of the economy, a limited amount of IDA financing will be proposed in the Bank Group's overall lending to the Philippines. 25. This is the sixth loan to be presented to the Executive Directors in FY78. Loans for industrial finance and for a multipurpose dam project are expected to be ready for consideration by the Executive Directors within the next few months. 26. As of February 28, 1977, IFC had made commitments in the Philippines totalling $86.3 million for investment in 16 projects in the fields of develop- ment banking, power, telecommunications, ceramic tiles, petroleum products, nickel mining and refining, chemicals and synthetic fibres and edible oils. Of these investments, $36.5 million had been sold, cancelled and repaid, leaving a net portfolio of $49.8 million, including $5.0 million undisbursed. 27. At present the share of the Bank Group in the Philippines' total external debt disbursed and outstanding is about 11% and its share in debt service is about 5%. These ratios are expected to increase to around 19% and 8% by the end of the present decade. - 8 - PART III - THE RURAL SECTOR The Rural and Agricultural Sector 28. Some 31 million people, or 70% of the population of the Philippines, live in rural areas where infrastructure and social services are of poor quality, economic activities limited, agricultural productivity low and underemployment high. The rural population is growing at 2.7% per year, net of an annual rate of migration to the cities of 0.5%. 29. Agriculture is the predominant sector in the Philippine economy, accounting for about 30% of gross domestic product and over one-half of total employment. Small farms provide the main income for 65% of the rural population. Other sources of income include forestry, fishing, mining, small-scale manufacturing and service industries. Farming is chiefly oriented towards food grain production for domestic consumption, while coconuts and sugar are the main export crops. Recent trends in the agriculture sector are described in paras. 7-9 of this report. Rural Infrastructure 30. Except for some of the more developed lowland areas in Central Luzon, rural infrastructure is inadequate. Development to date has been, to an important degree, concentrated in areas suited for large-scale projects, particularly in lowland areas where arable land, irrigation water, and markets are readily available and rapid production increases could be achieved more easily. The Government is, however, giving increasing priority to economically isolated and depressed rural areas. Programs include small-scale communal irrigation systems, barangay roads, rural electrifica- tion, supervised credit for small farmers, and improved provision of social services. 31. Communal Irrigation Systems. About 0.9 million ha are irrigated in the Philippines. Half of the irrigated area is served by national irriga- tion systems, most larger than 1,000 ha, under the jurisdiction of the National Irrigation Administration (NIA). The remaining area consists of about 1,350 communal irrigation systems, which vary in size from a few hectares to a few hundred hectares and are owned by 176,400 farmers grouped into about 2,000 Irrigation Associations. Communal systems are mostly run-of-the-river type projects where pumps or temporary weirs supply water from rivers which usually have small catchments and limited dry season flows. Structures are simple, sometimes primitive, and frequently damaged by floods. Communal irrigation projects are developed as self-help schemes in which farmers donate labor for construction and maintenance. Maintenance is seldom carried out because of shortage of funds, poor organization, and lack of equipment. Average yields for these systems probably do not exceed 2 ton/ha, compared with 2.6 ton/ha on the national systems. Under the NIA's ten-year irrigation development program, communal projects represent about 14% of the target area. The Farms Systems Development Corporation (FSDC), a Government-owned corporation, has been in charge of implementing communal pump irrigation systems and organizing farmers into Irrigation Service Associations (ISAs). Development of communal irrigation projects has been slow due to lack of funds, the relatively small size of - 9 - projects and inability of farmers to form ISAs. The project is designed to assist the Government in developing a more effective program for small-scale irrigation in six provinces which would provide the basis for replicating this program throughout the Philippines. 32. Barangay Roads. Road transportation accounts for nearly 40% of freight movement and over 80% of passenger traffic in the Philippines. The road network is composed of some 100,000 km of highways and other roads. Only 38% of national roads and 13% of provincial roads are paved. Less than half of the villages in rural areas have direct access to roads, and movement of farm produce is initially by headloads, animal-drawn sleds and wheeled carts. During the period 1971-75, the Department of Public Highways (DPH) constructed or improved about 4,000 km of feeder roads at a total cost of about P 53 million. In May 1974, Presidential Decree No. 701 established the Bureau of Barangay Roads (BBR) in DPH to accelerate the systematic construction and maintenance of roads serving rural areas. While a significant beginning has been made, BBR will have to strengthen its capacity considerably if it is to construct and maintain a rapidly growing network of rural roads in the years ahead. 33. Ports. Water transportation is essential for the island communi- ties of the Philippines. The naturally sheltered harbors have led to the proliferation of ports which have been classified into 80 national ports and some 400 municipal ports. In many cases, operations in these ports have been inefficient because of poor planning, maintenance and management. With the recent establishment of the Philippine Port Authority (PPA), however, the situation is improving. Responsibility for operating, maintaining and managing national ports has been transferred from the Customs Bureau to PPA which has also assumed the initial responsibility for planning ports development nation- ally. An analysis of commodity movements reveals that a substantial part of the trade generally uses a combination of land and water transportation. For this reason, efficient transportation in remote islands requires the integra- tion of barangay roads, district roads and nearby ports into a mutually supporting system. 34. Rural Health Services. The Government's health care delivery system, run by the Department of Health (DOH), is responsible for basic health services as well as family planning services and nutrition. There are some 1,500 Rural Health Units (RHU) under the control of DOH. Inadequate staff training and lack of equipment and delays are common reasons for the inability of the RHUs to provide sound services to patients. Moreover, even this relatively large number of facilities can provide health care and family planning services to only about a third of the rural population. 35. Under the first Bank-assisted Population Project (Loan 1035-PH), which provides for the construction of 200 Rural Health Units, the Government's health care delivery system is being restructured through retraining of all rural health services staff and employment of about 2,400 new midwives to provide comprehensive health and family planning services to rural areas. At present, each midwife serves at a rural health unit and must cover a population of over 5,000, scattered among three or four villages. In order to improve the efficiency and effectiveness of the program, the Government is developing a program to extend integrated national nutrition, family planning and health - 10 - ,,rvices to the village level. The major re6ponsibilit) fur carrying out this program would fall upon a barangay health worker, directly supervised by the rural health midwife, trained under the First Population Project. The focal point for this program would be the Barangay -ealLh Station (BHS), a small, simple health outpost at the village level to house records, supplies and morning clinic sessions. 36. Village Water Supply. Less than half of the 31 million people living in rural areas have safe domestic water, generally supplied from either springs or wells. Poor design, low standards of construction and lack of maintenance have reduced the efficiency of these systems and many have been abandoned. Construction is subsidized by the national government, but the recipient community donates labor for construction and takes care of operati3a and maintenance. Rural wells are normally designed to serve 250-300 persons. They are fitted with hand pumps, have no distribution systems and cost about P 100-300 per capita (compared with P 750 for urban systems). In the last four years, about 2,000 wells and springs, serving almost a million people, have been constructed, but accomplishments have fallen short of expectations because of lack of equipment, budget and staff. The Government aims, during the next 10 years, to rehabilitate or construct new water supply systems for about 80% of the rural population who are inadequately served at present. Experience with Past Lending 37. The proposed project would be the first Rural Infrastructure Project and follows two other Bank Group-assisted rural development projects (Mindoro: Loan 1020-PH and Land Settlement: Loan 1421-PH). The Mindoro Project is somewhat similar to the proposed project with components of communal irrigation, provincial roads and upgrading of a port. The progress was slow in the early stages due to inadequate budgeting by the various agencies which led to funding constraints. The Government has made institu- tional adjustments to improve budgetary planning, and adequate funds have been provided during the current fiscal year, so all works are expected to be implemented rapidly. The loan for the land settlement project became effec- tive on October 27, 1977, so the project is in its early stages of implemen- tation. Budgeting constraints have caused initial delays; however, the Government is taking several steps to resolve these problems and implementa- tion is expected to improve during 1978. The past lending of nine loans for irrigation and three loans for highways dealt with national irrigation systems and national highways which have little similarity with the components of the proposed project. This would be the first Bank Group credit entirely directed to assisting government agencies in expanding small-scale infra- structure programs in rural areas. PART IV - THE PROJECT 38. The proposed project was prepared by various government agencies under the coordination of the National Economic and Development Authority (NEDA) of the Government of the Philippines, with the assistance of the FAO/ World Bank Cooperative Program. It is supportive of the Government's - 11 - development strategy for the rural sector and meets the objectives of improving real incomes in the less developed provinces, assisting the national program for food grain self-sufficiency, and developing the capacity of government agencies to carry out effective rural infrastructure programs. The proposed project was appraised in October-November 1977. Negotiations were held in Washington, March 6-10, 1978; the Philippine delegation was led by the Honorable Alfredo L. Juinio, Secretary of Public Works, Transportation, and Communications. A Staff Appraisal Report, entitled "Philippines - Rural Infrastructure Project" (No. 1884a-PH dated March 23, 1978), is being distributed separately. Supple- mentary project data are provided in Annex III. 39. The principal features of the project are summarized below: (a) construction of new irrigation facilities on about 8,500 ha of currently rainfed land, and rehabilitation of two existing communal irrigation systems serving 900 ha; (b) construction of about 1,150 km of new barangay roads and improve- ment of about 240 km of existing barangay roads; (c) rehabilitation and improvement of three ports; (d) construction of about 60 barangay health stations; and (e) construction of about 300 wells serving villages of 300 to 400 inhabitants. The Project Area 40. The project covers six provinces: Abra (Region 1) and Kalinga- Apayao (Region 2) in Northern Luzon; Aklan, Antique and Capiz (Region 6) in the Western Visayas; and Bohol (Region 7) in the Central Visayas. The selection of these provinces took into account their present low level of per capita rural income and inadequacy of basic infrastructure facilities. These provinces lag behind other provinces in terms of economic development. The six provinces, with a total population of 2.1 million, are predominantly rural with only 15% of the population living in the urban areas, compared to the Philippines' average of 32%. 41. There are 166,000 farms in the six provinces, occupying about 426,000 ha. The average size of farm varies from 1.7 ha in Abra to 3.5 ha in Capiz. Per capita incomes derived from farming in the areas to be served by the project generally range from $35 to $80, compared to the absolute poverty level income for rural areas in the Philippines in 1978 of $193 per capita. Only 12% of the arable land is irrigated during wet season in the six provinces. The existing irrigation systems, serving about 52,000 ha, consist of about 13,000 ha of national systems, 34,000 ha of communal irrigation systems and 5,000 ha of privately operated systems, which have seriously deteriorated due to poor initial design, inadequate diversion and conveyance facilities and neglect of maintenance. In addition, most of the systems lack access roads, which has made movement of inputs and produce difficult. These factors contribute to the low average paddy yields of about 2.0 ton/ha for the irrigated wet-season crop, compared to 1.5 ton/ha for the rainfed areas. - 12 - 42. There are about 8,700 km of roads in the six provinces classified as national, provincial, municipal and barangay roads. Only 20% of the barangay roads are considered to be in good condition. Due to poor surfacing and inadequate cross drainage structures, many segments of these roads are impassable during the wet season. There are many villages and potential agricultural areas in each province which have no access to roads within a 5-10 km radius. As agriculture is the mainstay of the project provinces, improvement in the road network is essential for rural development. 43. There are 31 ports in four of the six project provinces. Many of the existing minor ports in the project provinces operate inefficiently because of initial poor planning, lack of maintenance and inefficient management. Most facilities require basic rehabilitation and improvements. The ports identified for improvement are of major importance to the rural population, whose livelihood depends on being able to trade with other regions of the country. 44. Rural Health Units (RHUs) are being improved and built throughout the Philippines under a Bank-assisted Population Project (Loan 1035-PH) to serve municipalities with populations of 5,000 to 50,000. Barangay Health Stations (BHSs) serve villages with populations of less than 5,000, and are manned by a midwife and supported by the nearby RHU. Under the proposed project, 60 barangay health stations would be built, which would complement the rural health units built or improved under the population project. 45. An ongoing barangay water program is administered under the Pro- vincial Development Assistance Program (PDAP). This program, developed jointly by the Department of Local Government and Community Development (DLGCD) and the US Agency for International Development (AID), includes 28 provinces. The program at present is limited to serve villages of 300 to 5,000 inhabitants, but will eventually cover villages and towns of up to 30,000 people. In order to complement this program, and to provide water supply to rural areas not covered by this program, the water supply component would provide facilities to serve mostly villages of less than 300 inhabitants and a few with up to 400 inhabitants. Detailed Features of Project Components 46. Communal Irrigation Systems. This component would consist of about 55 systems ranging in size from 50 to 1,100 ha and covering 9,400 ha in the six provinces. The selection is based on preliminary project planning studies, design, cost estimates and evaluation of 10 representative systems, accounting for about 2,400 ha, or 25% of total area. The evaluation of the remaining 45 systems would be based on the basic criteria of a minimum cropping intensity of 130%, farm size of 1.0 to 1.5 ha or less for at least 70% farms, and a minimum economic rate of return of 10%. It has been agreed that NIA would submit an evaluation report for review by the Association prior to implementation for the systems costing more than P 3.0 million and summary data forms for the remaining irrigation works for review by the Association (Section 3.10 of the draft Development Credit Agreement). 47. Two systems in Bohol would include small impounding reservoirs. The other systems would be gravity run-of-the-river type projects. The - 13 - proposed level of on-farm distribution would be similar to that being implemented in other Bank Group-assisted projects. Gravel-surfaced O&M roads would be built along all main canals. Access roads to and within the systems would be built under the barangay road component of the project. For systems with dams to be built under the project, the Government would make arrangements satisfactory to the Association for their periodic inspec- tion to ensure their safety (Section 4.02(c) of the draft Development Credit Agreement). 48. Barangay Roads. This component of the project would consist of about 155 stretches of roads for a total length of about 1,400 km in the six provinces of the project. The preliminary alignment of each stretch was surveyed in the field and detailed cross sections were prepared for one project road in each of the three areas representative of the type of terrain to determine earthwork quantities and cost estimates. For economic evaluation, 11 road stretches were used which account for about 170 km or 12% of total length. The evaluation of the remaining 144 segments would be based on the basic criteria of a minimum of two villages and/or a population of 100 inhabitants per km to be served, and a minimum economic rate of return of 10%. DPH would submit a detailed evaluation report for review by the Association prior to implementation for the road stretches costing more than P 4.0 million and summary data forms for the remaining road stretches for review by the Association (Section 3.11 of the draft Development Credit Agreement). 49. Improvement of Ports. Three ports located in three project provinces would be rehabilitated and improved under the project. These are national ports at San Jose de Buena Vista in Antique Province, Culasi in Capiz and the municipal port of Dumaguit in Aklan. The improvement works would include extension or realignment of breakwaters, installation of navigational aids, reclaiming and surfacing for storage area and provision of independent water supply. 50. Barangay Health Stations. About 60 rural health stations located in villages approximately 5-10 km from a rural health unit would be constructed under the project. The facilities at the stations would include a waiting porch, receiving area, treatment and examination rooms, and an independent water supply system. Since some of the stations in the provinces of Abra and Kalinga-Apayao have no access roads, these roads would be provided under the barangay road component. 51. Rural Water Supply. The 300 wells to be constructed in small villages would be equipped with hand pumps, but would not be provided with a storage or distribution system. Easy access to the well would be ensured and a concrete basin facility for washing clothes would be provided at each site. Project Cost and Financing 52. Total project costs are estimated at $59 million, of which $28 mil- lion, or 48%, is foreign exchange. A physical contingency factor of 20% has been applied to the base cost estimates for civil works, communal irrigation systems and barangay roads; a factor of 10% was used for other components. - 14 - Costs due to expected price increases over the implementation period are about 19% of base cost plus physical contingencies, assuming the following annual inflation rates: civil works and services 8% in 1978, 7.5% in 1979 and 7% in 1980-82; equipment and vehicles 7% in 1978, 6.5% in 1979 and 5% in 1980-82. The proposed IDA credit of $28 million would finance the full foreign exchange cost of the project. Local costs, representing the estimated balance of project costs, would be met through annual government budgetary allocations to the various agencies. Budget funds required for the project are included in the 1978 budget, and future budgetary requirements for each component were discussed in detail during negotiations with line agency and Budget Commission staff. Detailed cost estimates are given in the Credit and Project Summary. Procurement 53. Contracts for the supply of equipment and materials, costing about US$5.2 million, would be awarded on the basis of international competitive bidding in accordance with Bank Group Guidelines. For purposes of bid comparison, local manufacturers would receive a preference of 15% of the c.i.f. price of imported goods, or the custom duties, whichever is lower. Off-the-shelf items costing less than $10,000 each would be procured through existing Government procedures, which are acceptable to the Association, because any advantage of international competitive bidding would be clearly outweighed by the administrative costs involved. The total cost of such items for all components of the project would not exceed $300,000 (para. B.2 of Schedule 3 to the draft Development Credit Agreement). Civil works on the project service area ($38 million) would be scattered over about 500 separate locations in six different provinces, executed by six different agencies and would therefore not be suitable for international competitive bidding. Most of the larger communal irrigation systems, barangay roads, ports and health stations would be done by contract. The remaining works such as small communal irriga- tion systems (less than 100 ha) and barangay roads less than 5 km length in inaccessible areas and water supply wells, which would amount to about 30% of total project works, would be carried out by force account. The Government has agreed to limit civil works done by force account to 40% of the total cost of the works. The balance of civil works would be carried out on the basis of competitive bidding in accordance with local procedures which are acceptable to the Association (para. B.1 of Schedule 3 to the draft Development Credit Agreement). Foreign firms would be eligible to participate. Disbursements 54. The credit would be disbursed for 100% of the foreign exchange cost of directly imported equipment and materials, and 100% of ex-factory price of locally manufactured equipment and 65% for imported equipment procured locally. For consulting services, technical assistance and training, disburse- ments would equal 100% of total expenditures. Disbursements for civil works would be 40% of certified monthly progress payments or expenditures. For civil works, contractor's mobilization and equipment, disbursements would be at 100% of foreign exchange cost. Disbursements for force account work would be made against certificates of expenditure, the documentation for which would not be submitted to the Association for review, but would be - 15 - retained by the Borrower and made available for inspection by the Association supervision missions. Disbursements are expected to be completed by December 31, 1983, one year after the scheduled completion of all project works. The disbursement schedule is given in the Credit and Project Summary. Organization and Management 55. The project would be implemented by a number of national line departments and agencies, coordinated by a Central Project Office (CPO) under the Cabinet Coordinating Committee on Rural Development (CCC). The CPO, which has already been established, would be directed by a qualified and experienced Project Director who has been appointed by the Government after consultation with the Association. It has been agreed that the Govern- ment will consult with the Association prior to making any new appointments to the position of Project Director (Section 3.05 (a) of the draft Development Credit Agreement). The Project Director would approve detailed budgets, work programs and project activities prepared by the participating agencies, and would see that reporting requirements of the Association are met, including continuous monitoring of the agricultural development associated with selected roads and communal irrigation systems in each of the project provinces. The Project Director would be assisted by a Steering Committee, which has already been established, chaired by an Assistant Secretary of the Department of Public Works, Transportation and Communications (DPWTC), and composed of senior officers from each of the departments and agencies involved in the project and a representative of the Budget Commission. The Project Director would maintain contact with the individual components of the project through Project Officers appointed by the implementing line agencies. 56. Communal Irrigation Systems. The National Irrigation Administration (NIA) would be responsible for the selection, evaluation and construction of the systems in close coordination with the Farm Systems Development Corpora- tion (FSDC), which would organize farmers in the subproject areas in Irrigation Service Associations, and subsequently assist them in operating and maintain- ing the systems and improving farm management practices. It has been agreed that FSDC would complete the recruitment and training of about 45 institu- tional officers (with a minimum of two years college education) according to an agreed schedule by June 30, 1980 (Section 3.07 of the draft Development Credit Agreement). It was also agreed that the Government would include the communal irrigation component of the project within the scope of the plan of action for provision of agricultural supporting services to Bank Group- assisted projects being prepared under the Second National Irrigation Systems Improvement Project (Loan 1526-PH) (Section 3.12 of the draft Development Credit Agreement). 57. Barangay Roads. The Bureau of Barangay Roads (BBR), within the Department of Public Highways (DPH), would implement this component. DPH has appointed the Assistant Director of BBR as the Project Manager, based in Manila, to be directly responsible for execution. An engineer, experienced in rural roads planning, design, construction and maintenance, would be employed before December 31, 1978 for a period of two years to assist the Director of BBR in project implementation. To augment the design staff of BBR - 16 - at its headquarters and in the regions, consultants would be employed by DPH to assist in the preparation of detailed design and contract documents. It has been agreed that DPH would employ the rural roads engineer and consultants on terms and conditions acceptable to the Association (Section 3.02(a) and (b) of the draft Development Credit Agreement). 58. DPH's field activities are administered through regional offices headed by Regional Directors and each region in turn has district offices which are administered by highway district engineers. A new Barangay Roads Section, headed by a Project Engineer, would be established in each project district to assume responsibility for the project's field activities. The total number of field staff required to implement this component of the project would be about 40 at the regional level and 300 at the district level, composed of engineers and technicians. Senior positions would be filled largely by transfers from headquarters. Graduate engineers would be recruited to junior engineering positions. About 200 technician positions, requiring a minimum of two years of college education or a degree from a technical high school, would be filled by transfer of existing staff at headquarters and new recruitment. There is no shortage of engineering and technical graduates in the Philippines. It has been agreed that DPH would appoint experienced engineers of district engineer level to the posts of Project Engineers before September 30, 1978 and assign the additional personnel required for project implementation at headquarters, regional and district offices according to an agreed schedule, by December 31, 1979 (Section 3.08 of the draft Development Credit Agreement). 59. Certain aspects of these roads are well suited for labor-based construction and maintenance methods. To help develop the institutional capacity within DPH to carry out a large part of the Government's future plans for rural roads with labor-based methods, it has been agreed that DPH would employ a rural roads engineer to help prepare a plan of action for labor-based construction methods by June 30, 1979. After review of the plan by the Association, DPH would proceed with its implementation by December 31, 1979 (Section 3.08 (iii) and 3.02(c) of the draft Development Credit Agreement). The plan would identify about 50 km of project roads as a pilot project to be implemented during the last two years of project implementation. 60. BBR, through the regional and district offices, has the responsi- bility of maintaining barangay roads. The district engineer's office would consequently have responsibility for maintaining these roads. The annual maintenance fund provided for barangay roads at present amounts to about P 2,500 per km, which is inadequate for the task. It has been agreed that within five years of completion of construction of project roads, the annual maintenance funds for all barangay roads within the six project provinces would be raised gradually to the equivalent of P 6,000 per km. This would allow for annual maintenance at the rate of P 4,000 per km and periodic maintenance of P 10,000 per km at five-year intervals. It has been inform- ally agreed that this target amount would be based on mid-1978 peso values. Also, agreement was reached that the Government would consult annually with the Association on the adequacy of the amount (Section 4.02 [b][ii] of the draft Development Credit Agreement). A set of barangay road maintenance equipment would be provided under the project for each of the eight districts - 17 - in the six project provinces. This equipment would be used not only for the project roads, but also for maintenance of the other barangay roads in the district. It was agreed that DPH would ensure that the equipment supplied under the project would remain under the operational control of district engineers and would be used exclusively for maintenance of barangay roads in these districts (Section 4.02 (b) (iii) of the draft Development Credit Agreement). 61. Ports. The Bureau of Public Works (BPW) of DPWTC would be respon- sible for the design and construction of ports. BPW would establish a field office at each of the three ports. The Philippine Port Authority (PPA) would continue to operate the ports after construction. It has been agreed that: (i) the Government would provide adequate funds annually to PPA for maintaining these ports; and (ii) PPA would prepare a plan of action, by June 30, 1979, outlining the procedures and fees to be levied for the use of the port facilities, which would adequately cover the costs of operating and maintaining each port as well as recovering part of the cost of the improve- ments. After review of the plan by the Association, the Government would proceed with its implementation by December 31, 1979 (Section 4.02 (b) (iv) of the draft Development Credit Agreement). 62. Rural Health Stations. The Project Management Staff (PMS) of the Department of Health (DOH), established for the Bank-assisted Population Project (Loan 1035-PH), would be responsible for contract administration, construction, procurement of supplies and materials, training and hiring of midwives and the operation of 60 barangay health stations to be built under the project. The district offices of BPW in the six provinces would supervise the construction of the stations. The Department of Local Government and Community Development (DLGCD) is currently providing coordination and monitoring services and the maintenance of Rural Health Units built under the Population Project. Similar arrangements would be continued for the proposed project. 63. Rural Water Supply. BPW would be responsible for the construction of wells. New drilling teams would be assigned to work under the district engineer of BPW in each province. After construction, the Barangay councils would be responsible for maintenance of these wells. It has been agreed that BPW would strengthen its staff in the field offices in the project areas as well as at headquarters, and complete the recruitment and training of personnel for the water supply component before June 30, 1979 (Section 3.09 of the draft Development Credit Agreement). Cost Recovery - Irrigation Component 64. The NIA would undertake the construction of the irrigation works and charge the cost to the Irrigation Service Association (ISA) of each system. NIA's present (December 31, 1977) terms of repayment for communal systems treat 10% of the capital cost as a grant, 70% as an interest free loan and 20% as a loan with an annual interest of 6%. The loan is repayable in 25 years, including a 4-1/2 year grace period. Using an average estimated cost of construction and discounting the project charges, costs, and benefits at a rate of 10% per annum, the cost recovery index (ratio of incremental - 18 - .Lt from project charges to incremental public sector _ouLiays), and rent recovery index (ratio of incremental project charges paid by a typical farm family to incremental project rent) for the project are 25% and 41%, pe y. This rent recovery index of 41% _6 hIgher than the other Bank-assisted irrigation projects in the Philippines though the overall cost ecove.ry index of 25% is comparable to the other Bank irrigation projects. The higher rent recovery index is due to the modest increases in yields axpected to result from the project. To ensure an equitable contribution towards recovery of project cost by beneficiaries, all of whom presently eaia incomes below IDA's estimated absolute poverty level of $193, it has been agreed that the beneficiaries of the communal irrigation systems wjuld LuLtinlue L.o contribute to the capital cost of the facilities at existing levels of repayment, and that NIA would consult annually with the ci on ne adequacy of such levels (Section 4.02 (b) (i) of the draft Development Credit Agreement). Environmental Effects 65. In all six provinces of the project, malaria is effectively con- trolled by the Government program of house spraying with residual insecti- cides. Schistosomiasis is found only in a very small area in the northeastern corner of Bohol Island, well removed from the proposed irrigation systems. The principal health problems in the six provinces are protein deficiencies in small children, tuberculosis and enteric diseases. The project would have a beneficial effect in the remote areas of the provinces through the provision of roads, health stations and potable water supply. Procet Benefits and Justification 66. The project forms part of the Government's effort to upgrade the quality of rural life and to increase the production opportunities in some of the poorest areas of the Philippines. While the project involves relatively heavy expenditures in the six project provinces, these provinces have been neglected in the past and large investments are necessary to provide the basic infrastructure necessary for their future development. The experience gained in implementing this project is expected to provide the necessary basis for developing similar rural infrastructure programs in other poor rural areas of the Philippines. The weighted average rate of return for the project, excluding the health and water supply components (10% of the project cost), for which benefits were not quantified, is approximately 17%. 67. Communal Irrigation Systems. Approximately 7,000 farm families and 1,500 landless laborers' families would benefit directly from increased prodi >ion and consequent employment. The project would create a demand for an r"'itional 390,000 man-days of farm labor per year equivalent to some 1,600 full-time jobs. At full agricultural development this component would result in an additional yearly paddy production of about 29,000 tons and an import saving of $5.6 million at the forecast world market prices. Based on the assumptions of a three- to four-year construction period and full development being attained in five years, the overall economic rate of return of the irrigation component is 21%. - 19 - 68. Barangay Roads. The estimated 155 road segments which would total 1,386 km are tentatively expected to improve access for some 78,000 families or 430,000 people, at an average cost of $365 per family. These low-standard access roads would link relatively isolated villages to the mainstream of economic life of the provinces. Presently, these villages are accessible only by dirt tracks, and sometimes only in the dry season. The lack of accessibility is a serious constraint to increasing the production and incomes of the rural poor. The economic rates of return for the various test roads range from about 10% in Abra and Kalinga-Apayao to 24% in Bohol. The relatively low rate of return for the test road in Abra and Kalinga-Apayao is likely to be typical for most of the roads there, due to the small area of influence per km and the higher costs of construction per km due to the mountainous terrain. If this investment in village roads were not undertaken in Abra and Kalinga-Apayao, there is little that could be done to help these farmers who are some of the poorest in the country. 69. Ports. The project ports are important to the poor rural population who depend on shipping for their linkages with other regions and for marketing of their products. Due to the ports' deteriorated condition, goods are being transported an average of 150 km to other ports by inefficient roads. Most of these ports handle the present traffic with difficulty and will not be able to handle increases in traffic unless facilities are rehabilitated. The economic evaluation of these ports has been done by estimating the incremental volume of traffic which would use the rehabilitated port instead of using the road to the next nearest port. It has been assumed that the cost incurred at the two ports is the same and therefore the saving is only the cost of transport by road. The economic rate of return ranges from 15% for San Jose port to 30% for Culasi port. 70. Barangay Health Stations. The barangay health stations would provide physical facilities and medical supplies to deliver first level health care, family planning services, and nutrition advice to families in the rural areas. The majority of these families cannot pay for such services and presently have to travel considerable distances to the nearest town to obtain them. The services provided by these stations would be aimed at infants, children, pregnant women, and lactating mothers in an effort to reduce maternal and child mortality and morbidity and increase the use of family planning services. The main beneficiaries of this component would be the poorer families of the rural population, estimated at 47,000, and the estimated cost would be about $19 per family served. 71. Rural Water Supply. The project would provide about 300 village wells and thereby improve considerably the availability and quality of water for about 100,000 villagers. The benefits from a safe and reliable water supply would arise primarily from a reduction in waterborne diseases and the elimination of a considerable amount of unproductive time and effort devoted to hauling water over long distances. These benefits have not been quantified but are judged to justify the small per capita investment of about $15. - 20 - Risks 72. To allow for the wide geographic spread of the project and the fact that the staff and resources of the various agencies at headquarters and in the regional offices would have to be mobilized and deployed, a five-year implementation period has been adopted. The element of risk for the irriga- tion component concerns: (a) the capacity of Irrigation Service Associations to take over the responsibility of maintaining these systems to ensure the efficient use of irrigation water; and (b) the provision of the entire package of agriculture supporting services to small systems dispersed in all corners of the six provinces. The first risk has been minimized by ensuring that FSDC would supervise the maintenance of these systems and monitor the performance of these associations for five years after completion of con- struction. The second risk has been minimized by including the communal irrigation component of the project within the scope of the plan of action for provision of agricultural supporting services to Bank Group-assisted projects being prepared under the Second National Irrigation Systems Improve- ment Project (Loan 1526-PH) (Section 3.12 of the draft Development Credit Agreement). The element of risk for the barangay roads concerns maintenance, which would be minimized by an assurance that the Government would guarantee sufficient funds for the annual and periodic maintenance of these roads (Section 4.02 (b) (ii) of the draft Development Credit Agreement). PART V - LEGAL INSTRUMENTS AND AUTHORITY 73. The draft Development Credit Agreement between the Republic of the Philippines and the Association and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors. Special conditions of the project are listed in Section III of Annex III of this Report. 74. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 75. I recommend that the Executive Directors approve the credit. Robert S. McNamara President Attachments March 29, 1978 Washington, D.C. ANNEX I TABLE 3A Page 1 of 4 pages PHILIPPINES - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) ------------------ ------------------------- ---------------. PHILIPPINES REFERENCE COUNTRIES (1970) TOTAL 300.0 MOST RECENT AGRIC. 109.6 1960 1970 ESTIMATE THAILAND TURKEY KOREA SOUTH GNP PER CAPITA (US$) 140.0* 230.0* 410.0*/a 210.0 * 500.0* 280.0* POPULATION AND VITAL STATISTICS POPULATION JMID-YR. MILLION) 27.4 36.9 43.3/a 36.3 35.6 32.2 POPULATION DENSITY PER SQUARE KM. 91.0 123.0 144.0/a 71.0 46.0 327.0 PER SQ. KM. AGRICULTURAL LAND 328.0 375.0 395.0/a 263.0 65.0 1371.0 VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) 45.1 44.2 43.8 44.3 40.6 35.0 CRUDE DEATH RATE (/THOU.AV) 17.9 13.2 10.5 13.7 14.4 11.4 INFANT MORTALITY RATE (/THOU) . 1 . 80.0 153.0/a LIFE EXPECTANCY AT BIRTH (YRS) 3.5555 54.3. 65. GROSS REPRODUCTION RATE 3.5 3.3 3.3 3.2 2.6/ 2.6 POPULATION GROWTH RATE (%) TOTAL 3.0 3.0 2.8 3.1 2.5 2.3 URBAN 4.0 4.0 3.9 4.9 4.9/d 6.4 URBAN POPULATION (% OF TOTAL) 25.3 27.6 29.8 15.0 38.7 41.2 AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 45.7 45.6 43.2 45.1 41.7 42.1 15 TO 64 YEARS 51.6 51.6 54.0 51.8 54.0 54.5 65 YEARS AND OVER 2.7 2.8 2.8 3.1 4.3 3.4 AGE DEPENDENCY RATIO 0.9 0.9 0.9 0.9 0.9 0.8 ECONOMIC DEPENDENCY RArIO 1.3/b 1.5 1.3/b 1.1 1.1/ 1.4 FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .. 320.0 4065.0/a 470.0 .. 4424.7 USERS (% OF MARRIED WOMEN) .. 2.0 25.0/a 10.0 8.2 42.0 EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) 10100.0 12400.0 15400.0/a 16700.0 14500.0/f 10200.0 LABOR FORCE IN AGRICULTURE (%) 61.0 /C 55.o/a 52.67-a 79.0 67.0 50.4/a IINFMPICYV (% 0- LABOR FORCE) 6? 7.5 4.0 . 4.0/1 4.I INCOME, DISTRiBUTION % OF PRIVATE INCOME REC'D BY- HIGHEST 5% OF HOUSEHOLDS 28.8 . 22.0 32.8/ 17.1 HIGHEST 20% OF HOUSEHOLDS 56.2 5 . 5 . 51.1 60.6 / 44.5 LDWEST 20% OF HOUSEHOLDS 4.2 5.6 2.9 _ 7.1 LOWEST 40% OF HOUSEHOLDS 11.9 11.7 14.7 14.3 9.4/h 17.7 DISTRIBUTION OF LAND CWNZT;,ll % OWNED BY TOP 10% OF OWNERS.. .. 43.0/c .. 53.0 28.0 % OWNED BY SMALLEST 10% OWNERS .. .. 2.0/ .. 0.9 2.0 HEALTH AND NUTRITION POPULATION PER PHYSICIAN .. .. 1160.0/d 7970.0 2250.0 2110 0 POPULATION PER NURSING PERSON .. .. 470.071 6650.0 1770.0 2170:Lb POPULATION PER HOSPITAL BED 1180.0 850.0 880.0 890.0 500.0 1900.0 PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) 83.0 93.0 105.7 103.0 110.0 103.0 PROTE1N (GRAMS PER DAY) 44.0 45.0 55.6 52.0 78.0 65.0 -OF WHICH ANIMAL AND PULSE 19.0 22.0 . . 17.0 /a 22.011 19.0 DEATH RATE (/THOU) AGES 1-4 9,0/e 6.6 7.5 .. 14.7 /k EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 95.0 113.0 117.0 81.0 109.0 104.0 SECONDARY SCHOOL 26.0 49.0 49.0 16.0 28.0 41.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 10.0 10.0 10.0 12.0 11.0 12.0 VOCATIONAL ENROLLMENT (% OF SECONDARY) 14.0/f 6.0/b 9.0 14.0 /b 14.0 16.0 ADULT LITERACY RATE (%) .* ** 87.0 79.0 55.0 /1 87.0 HOUSING PERSONS PER ROOM (URBAN) .. ** .. .. 1.9 2.7 OCCUPIED DWELLINGS WITHOUT PIPED WATER (%) 80.0 76.0 ** .. 64.0 80.0/c ACCESS TO ELECTRICITY - (% OF ALL DWELLINGS) 17.0 23.0 31.0 .. 41.0 50.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (%) .. 7.0 10.0 .. 18.0 30.0 CONSUMPTION RADIO RECEIVERS (PER THOU POP) 22.0 72.0 * 78.0 89.0 126.0 PASSENGER CARS (PER THOU POP) 3.0 8.0 8.0 5.0 4.0 2.0 ELECTRICITY (KWH/YR PER CAP) 100.0 235.0 291.0 124.0 247.0 307.0 NEWSPRINT (KG/YR PER CAP) 1.3 2.0 1.5 1.0 0.7 3.5 SEE NOTES AND DEFINITIONS ON REVERSE ANNEX i Page 2 of 4 pages Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961, for 1970 between 1968 and 1970 and for Most Recent Estimate between 1973 and 1975. cNP per capita data are based on the World Bank Atlas methodology (1974-76 basis). ** Korea has been selected as an objective country on the basis of its similar population, location and income level and, like the Philippines, it is expected to grow rapidly in the coming years. PHILIPP7IES 1960 /A 1950-55; /b Ratio of population under 15 and 65 and over to total labor force; C As percentage of employment; /d 1960-62; /e 1962; /f Not including vocational short-term courses. 1970 /a As percentage of employment; /b Not Including private vocational schools or vocational Short-term courses. MOST RECENT ESTIMATE: /a 1976; /b Ratio of population under 15 and 65 and over to total labor force; Ic 1971; /d Registered only; believed to be avar-estimate of number actually practicing. THAILAND 1970 'a 1964-66; lb Public schools, which include technical education at the post-secondary level. 1970 ia 1967; ib Excludes 17 eastern provinces; /c 1965-67; /d 1965-70; /e Ratio of population under 15 and 65 ad over t labor force 15 years and over; If 15 years and over, excludes unemployed; /a Registered only; /h Disposable income; /i Including assistant nurses and midwives; j 1964-66; /k 1967-68; /1 Persons six years and ever who tell the census takers that they can read and write. KOREA REP. OF 1970 /a As percentage of employment; /b Registered, not all practicing in the country; c Water piped inside. R10, November 17, 1977 DEfINrTIOpS OF SOCIAL IN2DICATORS Land Area (thou km2) Population per nurain person - Population divided by number of practicing Total - Total surface area cooprising land area and inland waters. asle and femals graduate nurses, "trained" or "certified" nurses, and Agric- Most recent estimate of agricultural area used temporarily or peon.- auxiliary personnel with training or experfence. neotly for crops, pastures, narket & kitchen gardens or to lie fallow. Population per hospital bed - Population divided by number of hospital bads available in public and private general and specialised bospizal and GNP Per capita (USS) - GNP per capita estimates at current market prices, mebilitation centers; eacludes nursing homes and establishments for calculated by sane conversion method as World Bank Atlas (1973-75 basis); custodial and preventive cars. 1960; 1970 ad 1975 dats. Per capita supply of calories (12 of reiremets) - Computed from energy equivalent of net food supplies available in country per capita per day; Population and vital statistic! available supplies comprise domestic production, Imports less exports, and Population (mid-year million) As of July first: if not available, average changes in stock; net supplies exclude animal feed, seeds, quantities used of two end-pear estimates; 1960, 1970 and 1975 data, in food processing and losses in distribution; requirneents were estimated by FA0 based on physiological needs for normal activity and health consid- Population density - per square km - Mid-year population per square kilometer ering environantal temperature, body weights, age and sex distributions of (100 hectares) of total area, population, and allowing 107. for easte at household level. Population denaity - per square km of agric. land - Computed as above for Per capits supply of Protein (fams pear day) - Protein content of per capita agricultural land only. not supply of food per day; net supply of food is defined as shobe; require- ents for all countries established by USDA Econonir Research Servies Vital statistics provide for a minimum allowance of 60 gras of total protein per day, ad Crude birth rate per thousand, average - Annual live births per thousand of 20 gras of animal and pulse protein, of which 10 gras should be animal mid-year population; ten-year arithwetic averages ending in 1960 and 1970, protein; these standards are lower then those of 75 gras of total protein and five-year average ending in 1975 for most recent estimata. and 23 groas of animal protein as an average for the world, proposed by FAD Crude death rate per thousand, average - anal deaths per thousand of mid-year in the Third World Food Survey. population; ten-year arithmetic averages ending in 1960 and 1970 and five- Per capita protein supplv frm saimal and pulse - Protein supply of food year average ending in 1975 for most recent estimate, derived fra animals and pulses in grae per day. Infant mortality rate (i/thou) - Annual deaths of infants under one year of sge Death rate (/thou) ages 1-4 - Annual deaths per thousand in age group 1-4 per thousand live birthe. years, to children in this age group; suggested as an indicator of Life expectancy at birth (ye) - Average number of years of lif remaiing at malnutrition. birth; usually five-year averages ending in 1960, 1970 and 1975 for develop- ing countries. Education Gross reproduction rate - -rage number of live daughters a wonan will bear Adjusted enrollment ratio - erimary school - Eurollment of all ages as per- in her normal reproductive period if she experiences present age-pecific contage of primary achool-age population; includes children aged 6-11 years fertility rates; usually five-year averages ending in 1960, 1970 and 1975 but adjusted for different lengths of primary education; for countries with for developing countries. universal education, enrollment may exceed 100% since sas pupils are below Population arowth rate (%) - total - Compound annual growth rates of mid-year or aboe the official school age. population for 1950-60, 1960-70 and 1970-75. Adjusted enrollment ratio - secondary school - Computed as above; secondary Populotion growth rate (%) - urban - Computed like growth rate of total education requires at least four years of approved primary instruction; population; different definitions of urban areas may affect caparability of provides general, vocational or teacher training instructions for pupils data among countries. of 12 to 17 years of age; correspondence courses are generally excluded. Urban population (Z of total) - Ratio of urban to total population; different Years of schooling provided (first and second levels) - Total years of definition of urban areas may affect comparability of data among countries. schooling; at secondary level, vocational instruction may be partially or completely excluded. Age structure (percent) - children (0-14 years), working-age (15-64 years), Vocational enrollment (% of secondary) - Vocational institutions include and retired (65 years and oer) as percentages of mid-year population. technical, Industrial or other progras which operate independently or as Age dependency ratio - Ratio of population under 15 and 65 and over to these departments of secondary institutions. of ages L5 through 64. Adult literacy rate (n - Literate adults (able to read and write) as per- teonic dependency ratio - Ratio of population under 15 and 65 and over to centage of total adult population aged 15 years and over, the labor force in age group of 15-64 years. Family planning - seceptors (cumulative, thou) - Cumulative number of acceptors Housing of birth-control devices under auspices of national family planning progran Persons per roon (urban) - Average number of persons per room in occupied since inception. conventional dwellings in urban areas; dwellings exclude non-permanent family planning - users (% of oarried women) - Percentages of married women of structures and unoccupied parts. child-bearing age (15-44 years) who use birth-control devices to all married Occupied dwellings without pled water (1) - Occupied conventional dwellings women in same age group. in urban and rural areas without inside or outside piped water facilities as percentage of all occupied dwellings. E.paloe Access to electricity ('7 of all dwellings) - Conventional dwellings with Total labor force (thousand) - Economically active persons, including armed electricity in living quarters as percent of total dwellings in urban and forces and -uemployad but excluding housewives, students, etc.; definitions rural areas. in various countries are not comparable. Rural dwellings connected to electricity (1) - Camputed as above for rural Labor force it agriculture (%) - Agricultural labor force (in farming, forestry, dwellings only. hunting and fishing) as percentage of total labor force. Unemployed (% of labor force) - Unemployed are usually defined as persons who Cosumption are able and willing to take a job, out of a job on a given day, remained out Radio receivers (per thou pop) - All types of receivers for radio broadcasts of a job, and seeking work for A specified minimum period not exceeding one to general public per thousand of population; excludes unlicensed receivers week; may not be comparable between countries due to different definitions in countries and in years when registration of radio sets was in effect; of unemployed and source of data, e.g., anployment office statistics, sasple data for recent years may not be camparable since most countries abolished survey., compulsory unemployment insurance. licensing. Passenger care (pear thou pop) - Passenger rare comprise motor cars seating Income distribution - percentage of private incane (both in cash and kind) less than eight persons; excludes ambulances, hearses and military received by richest 5%, richest 20%, poorest 207, and poorest 40% of house- vehicles. holds. Electricity (kwlb/yr per cap) - Annual consumption of industrial, commercial, public and private electricity in kilowatt boure per capita, generally Distribution of land ownership - Percentages of land owned by wealthiest 10% based on production data, without allowance for losses in grids but allow- and poorest I0% of land ownere. ing for imports and exports of electricity. Newsprint (kg/yr per cap) - Per capita annual consumption in kilograms Health and Nutrition estimated frn domestic production plus net imports of newsprint. Population per ohvsiciae - Population divided by number of practicing physicians qualified from a sedical school at university level. ANNEX I Page 3 of 4 pages ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1976 ANNUAL RATE OF GROWTH (% constant prices) US$ million % 1966-71 1971-76 1976 GNP at Market Prices 17,631 100.0 5.1 6.6 6.4 Gross Domestic Investment 5,519 31.3 5.9 12.5 6.3 A Gross National Saving 4,413 25.0 2.4 10.8 6.6 Current Account Balance -1,106 -6.3 Exports of Goods, NFS 3,115 17.7 -0.5 5.6 18.0 Imports of Goods, NFS 4,270 24.2 4.1 6.5 1.5 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1976 Value Added Labor Force V. A. per worker US$ million % Million % _- US$ % Agriculture 5,156 29.0 8.1 50.0 637 58.0 Industry 6,029 33.9 2.3 14.2 2,621 238.7 Services 6,607 37.1 5.0 30.9 1,321 120.3 Unemployed . . 0.8 4.9 . . Total/Average 17,792 100.0 16.2 100.0 1,098 100.0 GOVERNMENT FINANCE General Government Central Government (P billion) % of GDP (P billion) % of GDP 1976 1976 1971 1976 1976 1971 Current Receipts 20.9 15.8 11.3 18.3 13.8 9.2 Current Expenditure 18.2 13.7 10.1 16.1 12.2 7.6 Current Surplus 2.7 2.0 1.2 2.2 1.7 1.6 Capital Expenditures 4.9 3.8 1.6 4.5 3.4 1.3 MONEY, CREDIT AND PRICES 1972 1973 1974 1975 1976 August 1977 (P million outstanding end period) Money Supply 6,500 7,300 9,000 10,300 12,100 12,800 Bank Credit to Public Sector 3,900 2,400 2,000 5,800 8,900 9,200 Bank Credit to Private Sector 12,600 16,200 24,200 28,500 23,600 34,900 (Percentage or Index Numbers) Money as % of GDP 11.5 10.1 9.0 8.9 9.2 General Price Index (1972 = 100) 100.0 117.6 154.4 166.8 180.1 Annual percentage changes in: General Price Index 6.7 17.6 31.3 8.0 8.0 Bank Credit to Public Sector -2.1 -38.5 -16.7 190.0 53.4 Bank Credit to Private Sector 21.7 28.6 49.4 17.8 17.9 /a All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. not applicable. ANNEX I Page 4 of 4 pages TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1974-76) 1974 1975 1976 US$ million % (US$ million) Coconut Products 539 21.4 Exports of Goods, NFS 3,431 3,076 3,330 Sugar Products 613 24.3 Imports of Goods, NFS 3,784 4,116 4,383 Forest Products 298 11.8 Resource Gap (deficit = -) -353 -1,040 -1,053 Mineral Products 437 17.3 Fruits & Other Agric. Products 178 7.1 Interest Payments (net) 26 -53 -185 Other Manufactures 456 18.1 Other Factor Payments (net) -154 -149 -138 Total 2,521 100.0 Net Transfers 276 318 269 Balance on Current Account -205 -924 -1,107 EXTERNAL DEBT, DECEMBER 31, 1976 /c US$ million Direct Foreign Investment 28 125 144 Net MLT Borrowing Public Debt, including Guaranteed 2,216 Disbursements 456 677 1,407 Nonguaranteed Private Debt 1,812 Amortization 312 318 368 Total Outstanding and Disbursed 4,028 Subtotal 144 359 1,039 Other Capital (net) /a 143 -80 -236 DEBT SERVICE RATIO FOR 1976 /d Increase in Reserves (+) 110 -521 -160 Public Debt, including Guaranteed 7.2 Gross Reserves Nonguaranteed Private Debt 10.5 (end year) /b 1,978 2,079 2,205 Total Outstanding and Disbursed 17.7 Petroleum Imports 573 710 801 IBRD/IDA LENDING, February 28, 1978 (US$ million) RATE OF EXCHANGE IBRD IDA Annual Averages End Period Outstanding and Disbursed 457.7 29.0 1975 1976 Jan-Aug 1977 Aug 1977 Undisbursed 697.4 3.2 Outstanding, incl. Undisbursed 1,155.1 32.2 US$1.00 = P 7.275 7.447 7.418 7.403 P 1.00 = US$ 0.138 0.134 0.135 0.135 /a Includes SDRs, short-term private loans, Central Bank liabilities, use of IMF credit, and errors and omissions. /b Gross reserves of the Central Bank. /c Excludes short-term debt and IMF standby credit and is on a disbursement basis. /d Ratio of Debt-Service to Exports of Goods and Nonfactor Services. ANNEX II Page 1 of 12 pages THE STATUS OF BANK GROUP OPERATIONS IN THE PHILIPPINES A. STATEMENT OF BANK LOANS AND IDA CREDITS As of February 28, 1978 Loan or Credit Amounts ($ million) Number Year Borrower Purpose Bank IDA Undisbursed Fifteen loans and two credits fully disbursed 218.5 19.5 637-PH 1969 Republic of the Philippines Irrigation 34.0 0.3 720-PH 1971 Rice Processing " and Storage 14.3 4.4 809-PH 1972 National Power Corporation Power 22.0 4.3 349-PH 1973 Republic of the Philippines Education II 12.7 3.2 891-PH 1973 " Fisheries 11.6 1.1 939-PH 1973 " Ports 6.1 3.2 950-PH 1973 " Second Highways 68.0 14.2 984-PH 1974 Aurora-Penaranda Irrigation 9.5 5.9 998-PH 1974 " DFC-DBP I 50.0 7.4 1034-PH 1974 National Power Corporation Power 61.0 27.0 1035-PH 1974 Republic of the Philippines Population 25.0 18.7 1048-PH 1974 " Shipping 20.0 15.1 1052-PH 1974 Philippine National Bank DFC 30.0 19.6 1089-PH 1975 Republic of the Tarlac Philippines Irrigation 17.0 11.4 1102-PH 1975 Rural Development 25.0 22.5 1120-PH 1975 Small and Medium Industries 30.0 8.0 1154-PH 1976 Magat Irrigation 42.0 32.8 1190-PH 1976 " DFC-DBP II 75.0 56.3 1224-T-PH 1976 " Education III 25.0 20.3 1225-PH 1976 Livestock II 20.5 12.4 1227-PH 1976 Chico Irrigation 50.0 47.7 1272-I-PH 1976 " Manila Urban 10.0 9.0 1282-PH 1976 Manila Urban 22.0 19.7 1269-PH 1976 Second Grain Processing 11.5 11.5 1270-PH 1976 " Second Fisheries 12.0 10.2 1353-PH 1977 " Third Highways 95.0 94.5 1367-PH 1977 " Jalaur Irrigation 15.0 15.0 1374-PH 1977 " Fourth Education 25.0 24.5 1399-PH 1977 Central Bank of Fourth Rural the Philippines Credit 36.5 34.9 1414-PH 1977 Republic of the National Irriga- Philippines tion Systems Improvement 50.0 49.8 1415-PH 1977 Provincial Cities Water Supply 23.0 22.7 1421-PH 1977 Second Rural Development- Land Settlement 15.0 15.0 1460-PH 1977 National Power Corporation Seventh Power 58.0 58.0 1506-PH * 1978 Republic of the Smallholder Tree Philippines Farming 8.0 8.0 1514-PH * 1978 Philippine National Bank DFC (PDCP) 30.0 30.0 * Total /a 1,265. 32.2 738.6 of which has been repaid (Bank and third parties) 110.4 - Total now outstanding 1155.1 32.2 Amount sold 22.0 of which has been repaid (third parties) 13.1 8.9 - Total now held by Bank and IDA (prior to exchange rate adjustments) 1,146.2 32.2 Total undisbursed 697.4 3.2 738.6 Ia A loan of $65 million for the Second National Irrigation Systems Improvement Project was approved by the Executive Directors on February 28, 1978 and signed on March 15, 1978. In addition, a loan of $2 million for an Educational Radio Technical Assistance Project was approved by the Executive Directors on March 21, 1978. * Not yet effective. ANNEX II Page 2 of 12 pages B. STATEMENT OF IFC INVESTMENTS As of February 28, 1978 Fiscal Amounts ($ million) Year Company Loan Equity Total 1963 & 1973 Private Development Corporation of the Philippines 15.0 4.4 19.4 1967 Manila Electric Company 8.0 - 8.0 1967 Meralco Securities Corporation - 4.0 4.0 1970 Philippine Long Distance Telephone Company 4.5 - 4.5 1970 & 1972 Mariwasa Manufacturing, Inc. 0.8 0.4 1.2 1970 Paper Industries Corporation of the Philippines - 2.2 2.2 1971 & 1977 Philippine Petroleum Corporation 6.2 2.1 8.3 1972 Marinduque Mining and Industrial Corporation 15.0 - 15.0 1973 Victorias Chemical Corporation 1.9 0.3 2.2 1974 Filipinas Synthetic Fiber Corporation 1.5 - 1.5 1974 Maria Christina Chemical Industries, Inc. 1.5 0.5 2.0 1974 Republic Flour Mills Corporation 1.2 - 1.2 1975 Philippine Polyamide Industrial Corporation 7.0 - 7.0 1976 Philagro Edible Oils, Inc. 2.6 0.2 2.8 1977 Acoje Mining Company, Inc. 2.3 1.2 3.5 1977 Sarmiento Industries, Inc. 3.5 - 3.5 Total gross commitments 71.0 15.3 86.3 Less sold, acquired by others, repaid or cancelled 24.5 12.0 36.5 Total commitments now held by IFC 46.5 3.3 49.8 Undisbursed 5.0 - 5.0 ANNEX II Page 3 of 12 pages C. PROJECTS IN EXECUTION /1 Agricultural Sector Loan No. 720 Rice Processing and Storage; $14.3 Million Loan of February 4, 1971; Date of Effectiveness: May 10, 1971; Closing Date: June 30, 1979 This project provides long-term credit through the Development Bank of the Philippines to finance a program for the development and modern- ization of the rice and corn processing industry. Originally the project was restricted to rice and to the private sector, and the emphasis was on the construction of new integrated large capacity rice mills. Due in part to poor harvests and in part to large cost increases for rice mills, the demand for subloans for new integrated rice mills turned out to be small and, as explained in the President's Memorandum, dated June 8, 1972 (R72-40), the Loan Agreement was amended to shift the project emphasis to rehabilita- tion of existing rice milling facilities. The Loan Agreement was further amended in April 1974 to: (a) expand the scope of the project to include corn in addition to rice, (b) enable local governments and the National Grains Authority to borrow funds under the project, and (c) streamline procurement procedures (President's Memorandum SecM74-244 of April 15, 1974). As a result of these amendments, the project is now generally progressing satis- factorily, although mounting arrears are a source of concern and DBP is now stepping up its supervision and collection efforts to deal with this. Bank loans for subloans have been fully committed; however, because of the long construction period of the large subprojects, full disbursement will be delayed until mid-1978 and the Closing Date has been postponed to June 30, 1979. Credit No. 472 Aurora-Penaranda Irrigation; $9.5 Million Credit and Loan No. 984 $9.5 Million Loan of May 14, 1974; Date of Effectiveness: August 22, 1974; Closing Date: June 30, 1979 The project diverts water from the Aurora basin into the Pantabangan reservoir to provide year-round irrigation for 30,000 ha of rice land in Central Luzon. Although the need for foundation and abutment area grouting on the two diversion dams was more extensive than originally expected, progress on the transbasin diversion was excellent. Diversion of 75% of Aurora water, /1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evalua- tion of strengths and weaknesses in project execution. ANNEX II Page 4 of 12 pages on closure of the first dam in July 1975, was an early benefit for the Central Luzon rice growing area. The second dam was closed on April 1, 1976, about one year ahead of schedule. In the service area, lack of competition and high bids delayed awarding of contracts, but five small local construction firms are now at work. Urgent work is being done by government forces. Project costs have increased about 54% over appraisal estimates, largely as a result of rapid inflation. Although there are added benefits from early diversion resulting in additional water for irrigation sooner than planned, and nearly 5,000 ha have been added to the project, the rate of return is expected to fall from 17% at appraisal to around 14%. The Credit has been fully disbursed and disbursement on the Loan has begun. Loan No. 891 Fisheries; $11.6 Million Loan of May 21, 1973; Date of Effectiveness: December 5, 1973; Closing Date: June 30, 1979 This project is designed to provide long-term credit to the private sector through the Development Bank of the Philippines for marine and inland fisheries development. The demand for subloans has been adequate, and the organization to implement them has been properly established. The project is progressing satisfactorily, and all funds were fully committed by July 1976 and are likely to be disbursed by the Closing Date. A moderate arrears problem has developed, which DBP is tackling by increasing its supervision and collection efforts. Loan No. 1080 Tarlac Irrigation; $17.0 Million Loan of January 27, 1975; Date of Effectiveness: April 27, 1975; Closing Date: December 31, 1980 The project is assisting the Government to improve 21,000 ha of land under three existing national irrigation systems and expand irrigation on 13,000 ha of additional land in Central Luzon. Progress on the groundwater, water management training and NISIS components of the project has been good. All major civil works contracts are now awarded and remaining work is all under way. Also, most equipment contracts are awarded. Progress under the project is satisfactory. Loan No. 1102 Rural Development; $25.0 Million Loan of April 16, 1975; Date of Effectiveness: July 28, 1975; Closing Date: June 30, 1981 The project is assisting the Government to carry out a rural devel- opment project on the island of Mindoro. This includes constructing and improving 150 km of national highways and 280 km of provincial roads, rehabil- itating and upgrading Calapan Port, improving and extending two national irrigation systems to serve 12,000 ha of rice land, and 3,000 ha under communal irrigation systems, providing an agricultural program involving seed ANNEX II Page 5 of 12 pages testing laboratories and rat control, providing protection programs in four watersheds, schistosomiasis control, and assistance to Mangyan tribes. Pro- gress is satisfactory on irrigation and after substantial initial delays, is improving steadily for the road component. These two components are being implemented by agencies having experience with Bank-funded projects, and construction has begun on Calapan Port. With the exception of the Mangyan Assistance Program, however, there was little early progress under the other programs because of inadequate budgeting by the various agencies for the new programs. More adequate budgets have now been approved and all work is expected to proceed rapidly. Loan No. 1154 Magat Multipurpose Project; $42.0 Million Loan of August 7, 1975; Date of Effectiveness: November 4, 1975; Closing Date: June 30, 1982 The project is assisting the Government to improve and expand irrigation on 35,000 ha of land in the Cagayan Valley of Northern Luzon. Consultant's work on the engineering and economic evaluation studies is almost completed. The water management training is under way and satis- factory progress is being made on civil works. Loan No. 1225 Second Livestock; $20.5 Million Loan of April 8, 1976; Date of Effectiveness: September 13, 1976; Closing Date: June 30, 1982 The project is designed to increase domestic production of livestock products. As of June 30, 1977, disbursements were $5.0 million, which is about 70% above appraisal estimates. However, arrears under the First Livestock Project are quite high and DBP is now taking steps to improve subloan appraisal and supervision as well as project monitoring. Loan No. 1227 Chico River Irrigation Project; $50.0 Million Loan of April 8, 1976; Date of Effectiveness: July 19, 1976; Closing Date: June 30, 1981 The project is assisting the Government to improve and expand irrigation on 19,700 ha in the Cagayan Valley. Consultants for the Erosion Control Study and for input-output monitoring have been engaged. A start has been made on civil works for rehabilitation of the Chico West and Tuga- Gobgob areas. Bids have been received for the three road links included in the project and contracts have been awarded for two of them. Government evaluation of the third is still under way. After substantial initial delay, the road component of the project is now progressing more satisfactorily. ANNEX II Page 6 of 12 pages Loan No. 1269 Second Grain Processing Project; $11.5 Million Loan of July 2, 1976; Date of Effectiveness: November 12, 1976; Closing Date: June 30, 1981 The project provides long-term credit through the Development Bank of the Philippines to assist in modernizing and expanding the Philippine grain processing industry. Initial progress under the project is satisfactory. Subloan commitments are expected to begin shortly, now that Loan No. 720 is fully committed. Loan No. 1270 Second Fisheries Project; $12.0 Million Loan of July 2, 1976; Date of Effectiveness: November 12, 1976; Closing Date: June 30, 1981 The project provides long-term credit through the Development Bank of the Philippines to assist in increasing fish production for domestic con- sumption. Initial progress under the project is satisfactory. Loan No. 1367 Jalaur Irrigation Project; $15.0 Million Loan of February 14, 1977; Date of Effectiveness: May 12, 1977; Closing Date: December 31, 1982 This Loan is assisting the Government in rehabilitating about 22,000 ha of existing irrigation schemes and constructing new irrigation and drainage facilities for about 2,900 ha of rice land on the island of Panay. Construction work on the existing main and secondary canals improvement has now begun. Loan No. 1399 Fourth Rural Credit Project; $36.5 Million Loan of April 11, 1977; Date of Effectiveness: June 2, 1977; Closing Date: December 31, 1980 The project provides medium and long-term credit through partici- pating banks to finance farmers and local entrepreneurs for farm mechanization, livestock, fisheries, and cottage and agro-industries. The project became effective on June 2, 1977. Initial implementation was delayed because of the time required for preparation, but commitments are expected to increase in the coming months. The major problem is to minimize disqualification from participation due to high arrearages and to encourage eligible rural banks to participate. Loan No. 1414 National Irrigation Systems Improvement Project; $50 Million Loan of May 13, 1977; Date of Effectiveness: August 9, 1977; Closing Date: December 31, 1981 This project consists of rehabilitation of irrigation facilities serving 28,000 ha and extension of irrigation facilities to 22,000 ha ANNEX II Page 7 of 12 pages of farmland in Northern Luzon and Leyte, and a schistosomiasis control program in Leyte. The Loan became effective on August 9, 1977. Loan No. 1421 Second Rural Development (Land Settlement) Project; $15.0 Million Loan of June 10, 1977; Date of Effectiveness: October 27, 1977; Closing Date: December 31, 1982 The loan became effective on October 27, 1977, and substantial progress has been made with regard to the innovative institution-building nature of the project's administrative framework. At the field level, there is evidence that the project has encouraged initiatives in locale-specific, least-cost and appropriate-technology planning work. Progress with the programmed schedule is, however, temporarily behind schedule due to funding problems in 1977 and some procedural cash flow problems early in 1978. Adequate local funds have been appropriated in 1978, however, and procedural budgetary problems are currently being resolved. Loan No. 1506 Smallholder Tree Farming and Forestry Project; $8.0 Million Loan of January 23, 1978; Date of Effectiveness: Not Yet Effective; Closing Date: December 31, 1982 This Loan was approved by the Executive Directors on December 22, 1977 and signed on January 23, 1978. It is not yet effective. Loan No. 1526 Second National Irrigation Systems Improvement Project: $65 Mil- lion Loan of March 15, 1978; Date of Effectiveness: June 20, 1978; Closing Date: December 31, 1984 The project will assist the Government to improve and develop irriga- tion systems for a total of 80,900 ha, control schistosomiasis and strengthen the National Irrigation Administration regional offices. The Loan Agreement was signed on March 15, 1978. It is not yet effective. Transportation Sector Loan No. 939 Second Ports Project; $6.1 Million Loan of October 24, 1973; Date of Effectiveness: December 19, 1973; Closing Date: July 15, 1979 Progress on civil works construction for both General Santos and Cagayan de Oro has been slow, due mainly to frequent breakdowns of the contractor's dredger in General Santos, and the slow mobilization of con- tractor's plant in Cagayan de Oro. These problems have been resolved and progress on civil works construction at both plants is improving. By June 1977, work was 36% completed in General Santos, and 6% in Cagayan de Oro. The present estimated total project cost is 75% higher than the appraisal ANNEX II Page 8 of 12 pages estimate due to worldwide price increases. However, foreign exchange costs are lower than appraisal estimates as the contractors are locally based. Total traffic at the project ports is in line with appraisal forecasts and a reasonable financial rate of return is being earned. By June 1977 the Philippine Port Authority had taken over 7 of the 18 national ports. Loan No. 950 Second Highway; $68.0 Million Loan of December 12, 1973; Date of Effectiveness: February 27, 1974; Closing Date: June 30, 1979 Overall progress on construction has been generally satisfactory, with about 90% of the project works completed. However, progress on one of the national roads is not satisfactory and this is expected to delay project completion by about 12 months compared to the appraisal estimate. UNDP- financed road feasibility studies were completed in June 1975, and detailed engineering for the Third Highway Project (Loan 1353-PH) was completed in August 1976. Detailed engineering for the proposed Fourth Highway Project was substantially completed in October 1977. The total cost of the project has risen substantially (about 40% above appraisal estimate) because of inflation following the oil price increase in late 1973. About $12 million still remains undisbursed and hence the Closing Date has been extended to June 30, 1979. Loan No. 1048 Inter-island Shipping; $20 Million Loan of October 29, 1974; Date of Effectiveness: January 15, 1975; Closing Date: June 30, 1979 The Government is relending the proceeds of the Loan to the Development Bank of the Philippines (DBP) for onlending to beneficiaries for the acquisition of new and used ships and for major repairs and con- versions. Commitments were initially slow because of lack of demand from the private sector due to the lengthy period required for the processing of loans, restrictive collateral requirements by DBP, and unfavorable lending terms offered by DBP in comparison with those extended by other lending institutions in the Philippines. However, these problems are now being resolved and subloan commitments have begun to move again. Loan No. 1353 Third Highway Project; $95.0 Million Loan of January 12, 1977; Date of Effectiveness: March 30, 1977; Closing Date: June 30, 1981 The project is assisting the Government in improving the national and rural road systems and their maintenance. Most construction contracts have been awarded. The major problem is delayed implementation of the road restoration/maintenance component of the project. However, priority attention has been given to this problem and, as a result, these components are expected to accelerate during the coming year. ANNEX II Page 9 of 12 pages Education Sector Credit No. 349 Second Education; $12.7 Million Credit of January 5, 1973; Date of Effectiveness: April 11, 1973; Closing Date: December 31, 1978 The Credit provides $12.7 million to finance improvements to existing middle and higher level agricultural education institutions, curric- ulum development, and new technical and vocational institutions in rural areas. Physical progress is now good under the project and disbursements have reached 75% of planned levels. All of the 32 project institutions have been completed and three fourths of the technical assistance program has been completed. Cost overruns of 13% are expected in dollar terms because of inflation and earlier lack of cost control over civil works; the amount of equipment purchased has been reduced to compensate for cost overruns. Loan No. 1224 Third Education Project; $25 Million Loan of April 8, 1976; Date of Effectiveness: July 29, 1976; Closing Date: June 30, 1981 The project covers the first phase (1976-80) of the Government's eight-year textbook program and provides for the development, production and distribution of 27 million textbooks. It also provides for curriculum development, teacher training and technical assistance. Progress under the project is satisfactory. Disbursements are more than twice the planned level. Loan No. 1374 Fourth Education Project; $25.0 Million Loan of March 25, 1977; Date of Effectiveness: June 9, 1977; Closing Date: December 31, 1981 This project is assisting the Government in developing agricultural education and training. It includes assistance for: specialized facilities for forestry, animal science, and veterinary medicine; a regional agricultural college in the Visayas; and training for extension workers and farmer leaders. Implementation of all aspects of the project is on schedule. Urban Sector Loan No. 1272T Manila Urban Development Project; $10.0 Million and Loan No. 1282 $22.0 Million Loans of June 9, 1976; Date of Effectiveness: December 9, 1976; Closing Date: September 30, 1981 The loan is financing: (a) improvements in basic sanitary services for families living in the Tondo Foreshore and Dagat Dagatan areas, and (b) improve- ments in transportation and traffic in the Greater Manila Area. Construction on 1,500 of 2,000 serviced lots at Dagat Dagatan is nearing completion. The ANNEX II Page 10 of 12 pages high school and health clinic in Tondo have been constructed and the subdivision _: lo_ in the londc priority area is also ne ing completion. A paper on the status of this project was submitted to the Executive Directors in December. Loan No. 1415 Provincial Cities Water Supply Project; $23 Million Loan of May 13, 1977; Date of Effectiveness: September 9, 1977; Closing Date: March 31, 1982 This loan is financing: (a) water supply improvement and expansion in six provincial cities; (b) feasibility studies for water supply improve- ment in ten additional cities; and (c) feasibility studies for Manila sewerage. The Loan was made effective on September 9, 1977. Progress is generally satisfactory according to the review of the preliminary engineering studies and detailed design of the water supply construction. The water supply feasibility studies for ten cities and the Manila sewerage design study are expected to begin in January 1978. Power Sector Loan No. 809 Fifth Power; $22.0 Million Loan and $10.0 Million Credit Credit No. 296 of April 3, 1972; Date of Effectiveness: July 1. 1972; Closing Date: June 30, 1978 The project is helping the National Power Corporation (NPC) to finance the construction of a second thermal unit of 150 MW at Bataan and transmission facilities in Luzon. Although there has been some minor delay due to the late delivery of transformers, the project is proceeding satis- factorily. The erection of transmission lines has also been completed. The loan is expected to be fully disbursed before the Closing Date, which has been postponed from June 30, 1976 to June 30, 1978. A tariff increase was approved in October 1976, but this was insufficient to enable NPC to achieve the expected rate of return of 8% on its net fixed assets in operation. Further tariff increases are currently under consideration. Loan No. 1034 Sixth Power; $61.0 Million Loan of July 31, 1974: Date of Effectiveness: November 15, 1974; Closing Date: December 31, 1978 The project is helping the National Power Corporation (NPC) to finance a 100 MW hydro plant at Pantabangan and transmission lines for the further expansion of the Luzon grid and feasibility studies by consultants for a future power project. The generating plant has been commissioned. However, the transmission component of the project is behind schedule because necessary design work has been delayed due to NPC's heavy construction program. For this reason the Closing Date may have to be extended. Costs have increased by 21%, largely due to inflation. ANNEX II Page 11 of 12 pages Loan No. 1460 Seventh Power Project; $58.0 Million Loan of August 9, 1977; Date of Effectiveness: January 6, 1978; Closing Date: June 30, 1982 The project will assist the Government in expanding the transmission system in Luzon, establishing the first stage of a communications system and control center, and training NPC staff. The loan became effective on January 6, 1978. Industrial Sector Loan No. 998 Industrial Investment and Smallholder Tree-Farming; $50.0 Million Loan of June 12, 1974; Date of Effectiveness: September 9, 1974; Closing Date: December 31, 1981 The proceeds of the Loan were relent to the Development Bank of the Philippines (DBP). The industrial portion of the Loan ($48 million) has been used by DBP to finance direct imports for medium and relatively large industrial projects. DBP is using the balance ($2 million) to finance about 1,300 smallholders in a pilot tree-farming project in Mindanao. Subloans are expected to be fully committed by mid-1978. Loan No. 1052 Private Development Corporation of the Philippines; $30 Million Loan of November 12, 1974; Date of Effectiveness: February 7, 1975; Closing Date: June 30, 1979 The project assists in the financing of economically desirable and financially viable industrial subprojects. As of November 2, 1977, commitments for subloans totaling $19.1 million had been made. While subloan commitments have been somewhat slower than originally expected due to the generally slow pace of business activity, the implementation of the project is satisfactory. Loan No. 1120 Small and Medium Industries Development; $30.0 Million Loan of June 5, 1975; Date of Effectiveness: August 20, 1975; Closing Date: August 31, 1979 The DBP portion of the funds has been fully disbursed. After a slow start, commitment and disbursement of funds under the Industrial Guarantee Loan Fund are now proceeding well. However, the Rural Industrial Cooperative Program ($2.3 million) which is being implemented by the National Electrifica- tion Administration is, because of its experimental nature, facing management and staffing problems. Disbursements on this component have therefore been slow. Overall progress of the project is, however, satisfactory. ANNEX II Page 12 of 12 pages Loan No. 1190 Industrial Investment; $75.0 Million Loan of January 28, 1975; Date of Effectiveness: April 6, 1976; Closing Date: March 31, 1980 The proceeds of the Loan are relent by the Development Bank of the Philippines for subloans to finance direct imports for medium and relatively large industrial projects. Commitments of funds, which were initially much slower than expected due to a slowdown of investment in the industrial sector as a whole, have recently improved. The Executive Directors approved a proposal to reallocate $25 million of the funds for small and medium industries on February 25, 1977, and an amendment to the Loan Agreement to this effect was signed on March 16, 1977. As of November 2, 1977, commitments for subloans amounting to $17.5 million had been made. In addition, $5.4 million had been disbursed against the allocation for small and medium-scale industries. Loan No. 1514 Private Development Corporation of the Philippines; $30 Million Loan of February 9, 1978; Date of Effectiveness: Not Yet Effective; Closing Date: March 31, 1982 This Loan was signed on February 9, 1978 and is not yet effective. Population Loan No. 1035 Population; $25.0 Million Loan of July 31, 1974; Date of Effectiveness: November 13, 1974; Closing Date: December 31, 1979 The project is assisting the Government in expanding rural health infrastructure, and in providing staff training facilities and technical assistance for the development of a management information system and for training. Under the direction of the Project Management Staff in the Depart- ment of Health, overall project implementation is progressing well. Training activities are ahead of schedule in all 12 regions. The civil works component is behind schedule but is expected to be completed ahead of the appraisal report timetable due to simplification of construction design. Progress under the project is satisfactory. ANNEX III Page 1 of 3 pages PHILIPPINES RURAL INFRASTRUCTURE PROJECT Supplemental Project Data Sheet Section 1: Timetable of Key Events (a) Time taken to prepare project: 24 months. (b) The project was prepared by the Government with the assistance of the FAQ/World Bank Cooperative Program. (c) First presentation to the Association: March 1975. First Association mission to consider the project: January 1977. (d) Departure of Appraisal Mission: April 1977. Departure of Follow-Up Mission: October 1977. (e) Completion of negotiations: March 1978. (f) Planned Date of Effectiveness: September 1978. Section II: Special Association Implementation Actions (a) The Association and the Philippines Government have agreed on an implementation timetable to ensure effective project implementation. (b) An Association mission would visit Manila during the coming months to review progress in project implementation and agree on reporting requirements, including continuous monitoring of the agricultural development associated with selected roads and communal irrigation systems in the project provinces. (c) In particular, during the coming months, Association staff will need to review: (i) evaluation report of selected irrigation systems with impound- ing reservoirs and with total cost exceeding P 3.0 million; (ii) evaluation report of selected barangay road stretches with total cost exceeding P 4.0 million; (iii) tender documents for procurement of vehicles, equipment and materials by various agencies; and ANNEX III Page 2 of 3 pages (iv) terms of reference by DPH for the Road Engineer and an engineer to assist in the preparation of a plan for labor-based methods of construction as well as consultants for the barangay road component. Section III: Special Conditions The Borrower agreed during negotiations that: (a) The National Irrigation Association and the Department of Public Highways would submit full evaluation reports for review by the Association prior to implementation for irrigation systems costing more than P 3.0 million and road stretches costing more than P 4.0 million (paras. 46 and 48); (b) it would cause Farm Systems Development Corporation (FSDC), the Department of Public Highways and the Bureau of Public Works to recruit and train additional staff required for project implemen- tation on a timetable agreed with the Association (paras. 56, 58 and 63); (c) it would include the communal irrigation component of the project within the scope of the plan of action for provision of agricultural supporting services to Bank Group-assisted projects being prepared under the second National Irrigation Systems Improvement Project (Loan 1526-PH) (para. 56); (d) it would cause its Department of Public Highways to employ consultants, as and when required, to assist in implementation of the project (paras. 57-59); (e) it would, within five years of completion of construction of project roads, gradually raise the level of annual maintenance funds for all barangay roads within the six project provinces to an equivalent of P 6,000 per km, and it would cause DPH to ensure that equipment supplied under the project would remain under the operational control of district engineers and be used exclusively for maintenance of barangay roads in the project districts (para. 60); (f) it would cause its Philippine Ports Authority to prepare a plan of action by June 30, 1979 outlining the procedures and fees to be levied for the use of project port facilities and it would proceed with the implementation of such a plan of action by December 31, 1979 (para. 61); (g) the Government would ensure that the beneficiaries of the communal irrigation systems under the project would continue to contribute to the cost of investment of the works and facilities at existing levels of repayment satisfactory to the Association, and that NIA would consult annually with the Association on the adequacy of such levels (para. 64); ANNEX III Page 3 of 3 pages (h) it would cause its Department of Public Highways to prepare a plan of action for labor-based construction methods by June 30, 1979. After review of the plan by the Association, DPH would proceed with its implementation by December 31, 1979 (para. 59); and (i) the aggregate amount of civil works to be done by force account by the implementing agencies would not exceed 40% of the total cost of the works (para. 53). I BR D 1 3274 큐