Philippines - Watershed Management and Erosion Control Project

Document of The World Bank FOR OFFICIAL USE ONLY fILE C0Py Report No. 2920-PH STAFF APPRAISAL REPORT PHILIPPINES WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT June 10, 1980 Projects Department East Asia and Pacific Regional Office [ This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Philippine Pesos (P ) P1 = US$0.135 US$1 = P 7.4 WEIGHTS AND MEASURES 1 ha = 2.47 acres 1 km 0.62 miles 1 sq km = 0.386 sq mile Im = 3.28 ft 1 sqm = 10.76 sq ft 1 cum = 35.31 cu ft 1 M cum = 810.7 ac ft 1 mm = 0.039 in 1 kg = 2.2 lb 1 cavan = 50 kg 20 cavans = 1 m ton ABBREVIATIONS BAECON - Bureau of Agricultural Economics BFD - Bureau of Forest Development BOI - Board of Investment COA - Commission on Audit DBP - Development Bank of the Philippines LOI - Letter of Instruction LPG - Liquified propane gas MNR - Ministry of Natural Resources NCSO - National Census and Statistics Office NEA - National Electrification Administration NEDA - National Economic Development Authority NIA - National Irrigation Administration PICDD - Public Information and Community Development Division PICOP - Paper Industries Corporation of the Philippines GOVERNMENT OF THE PHILIPPINES FISCAL YEAR January 1 - December 31  PHILIPPINES FOR OFFICIAL USE ONLY WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT Table of Contents Page No. 1* BACKGROUND . . . . . . . . . . . . . . . . . . . a . . . . . 1 GeneralshedManaemen ..... o - ........ .... a......... 1 Watershed Management v . . . . . . . . . . . . . . . . 1 Project Formulation . . . . . . . . . . . . . . . . . . . . . 3 2. THE PROJECT AREA . . . . . . . . . . . . . . . . . . . . . . . . 4 Pantabangan Watershed 4........ *****. **** 4 General . * . . o * . . . . . . . . * . * o o 9 4 Climate 4 . . . . . . . . . . . * . . o * * 4 Topography, Drainage and Soils . . . . . . . . . . . . . . . 6 Erosion . . * . . . . . o . . . . * . . . * * * . * * o . * 6 Land Use . . . . * .o. * * . . . o . .* * * * . o . * . * o 6 Population . . . . * . *. . . . . . . . . * . . o o . . . 8 Existing Reforestation Activities . . . . . . . . . . . . . 8 Mapat Watershed 8 . o . . . . . . . . . . . . . . . . . . . . 8 General 8 9 9 9 9 . . . . . . . a 9 9 . . . . . . 9 8 Climate . . . . . . . 9. . . . . . . . . . 9 . . . . . . . 9 Topography, Drainage and Soils . . . . . . . . . . . . . . . 11 Erosion . . o . . . . . o . . . . . . . . . . . . . 11 Land Use . . . . o . . . . , . . . a . 9 . . . . . . . . . 11 Population * . . . o . . . . . . . . . . . . . . . . . . . 12 Existing Reforestation Activities . . o . . . . . . . 12 Hagat Pilot Reforestation Area . . . . . . . . . . . . . . . 13 BFD Pilot Protection Area . . . . . . . . . . . . . . . . . . 13 3. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Project Description .............. . .. .. . . 13 Reforestation . . . . . . . . . . . . . . . . . * . 14 Forest Road Construction and Fire Protection . . . . . . . . . 17 Administrative and Support Facilities . . . . . . . . . . . . 17 Magat Feasibility Study and Pilot Programs . . . . . . . . . 17 Forest Protection Pilot Component. . . . . . . . . . . . . . a 18 Cost Estimates . . . . . . . . . . . . ... . . . . . . . . . .. 19 Financing . . . . . . . . . . . . a * . . * *. . . . * . .a 24 Procurement . o . . . . .............. . . . . . . ...... .. . 24 Disbursements . . . . . . . . . ... . . . ** *. . . . . . . 24 Accounts and Audits . . .. . . . . . . . . . . 25 Environmental Effects ... .................... 25 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 disckoed without World Bank authorization.  -2- Page No. 4. ORGANIZATION AND MANAGEMENT ... . . . . .... . . . . . . . 25 Consulting Services and Technical Assistance . . . . . . . . . 29 5. PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Present and Future Without Project . . . . . . . . . . . . . . 29 Future with Project . . . . . . . . . . . . . . . . . . . . . 29 Yields and Production . . . . . . . . . . . . . . . . . . . . 30 6. MARKET PROSPECTS AND PRICES . . . . . . . . . . . . . . . . . . 34 7. BENEFITS, JUSTIFICATION AND RISKS . . . . . . . . . . . . . . . 46 Production . . . . . . .................. . .. . . . . 46 Employment and Incomes . . . . . . . . . . . . . . . . . . . . 47 Financial Rate of Return . . . . . . . . . . . . . . . . . . . 48 Economic Rate of Return . . . . . . . . . . . . . . . . 50 Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . . . 54 ANNEXES 1. Plantation Schedules, Seedling Requirements, Schedule of Forest Road Construction, Forest Road Specifications, Summary of Equipment and Vehicles, Expected Price Increases, Schedule of Expenditures, Proposed Allocation of Proceeds, Estimated Schedule of Disbursements 2. Production Estimates, Labor Demand and Supply, Financial and Economic Prices, Financial Costs and Revenues, Economic Costs and Benefits 3. Accounting Procedures for Force Account Work and Minor Contracts 4. Schedule of Early Events 5. Related Documents and Data Available in Project File LIST OF TABLES IN MAIN TEXT Table No. 2.1 General Statistics - Pantabangan 2.2 Summary of Climatological Data - Pantabangan 2.3 Land Use - Pantabangan 2.4 Summary of Climatological Data - Magat 2.5 Land Use - Magat  -3- 3.1 Cost Estimates 7.1 Per Capita Incomes - Pantabangan 7.2 Financial Rate of Return and Sensitivity Analysis - Pantabangan 7.3 Financial Rate of Return and Sensitivity Analysis - Magat 7.4 Economic Costs and Benefits 7.5 Economic Rate of Return and Sensitivity Analysis - Pantabangan 7.6 Economic Rate of Return and Sensitivity Analysis - Magat LIST OF FIGURES 3.1 Implementation Schedule - Pantabangan 3.2 Implementation Schedule - Magat 4.1 Watershed Management Project Organization 5.1 Annual Agroforestry and Charcoal Production - Pantabangan 5.2 Annual Timber Crop Production - Pantabangan 7.1 Annual Labor Employment - Pantabangan LIST OF MAPS IBRD 14583 Pantabangan Watershed IBRD 14584 Magat Watershed IBRD 14631 Magat Watershed Subproject   PHILIPPINES WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT 1. BACKGROUND General 1.01 The Government of the Philippines has requested Bank assistance in financing a project which would reforest about 24,600 ha in the Pantabangan watershed and about 7,500 ha in the Magat watershed on the island of Luzon. The project would include provision for the preparation of a feasibility study to deal with the problems of the large and complex Magat watershed, implementation of range management and smallholder agro-forestry pilot programs in that watershed, and initiation of an integrated forest protection pilot program in two areas in Luzon. The project would be the first major Government program to address the problems of the watersheds of the two largest multipurpose dams in the country. 1.02 A feasibility study for the project was prepared under the pro- visions of Loan 1227-PH by the National Irrigation Administration (NIA) with assistance from Engineering Consultants Inc. of Denver, Colorado, and Mandala Agricultural Development Corporation of Manila. This report is based on the findings of an appraisal mission composed of Messrs. E.G. Giglioli and V.V. Talvadkar (Bank) and J. Chitty, A. Figueres and R. Strang (Consultants) which visited the Philippines in June 1979. The Forest Protection Pilot Component of the project was prepared by the Bureau of Forest Development (BFD) of the Ministry of Natural Resources (MNR) and appraised by Mr. C. Keil (Bank) in September 1979. Ma. Hill and Miss H. Towsey assisted in preparation of the report. Watershed Management 1.03 Of the 12.0 million ha of forest land in the Philippines, almost 5.0 million ha have already been denuded. Uncontrolled logging is accompanied by the activities of shifting cultivators who frequently move into logged-over areas, cut existing vegetation, and plant subsistence crops for one to three seasons before moving on. Such areas are quickly covered with cogon grass (Imperata cylindrica) which represses regeneration of tree growth and adds to fire hazards. Each year some 200,000 ha of forests are logged over, reforestation by the BFD compensates for only 5% of the forest cut. Furthermore, much of the BFD reforestation effort has concentrated on restoring growth cover with little attention being given to planting of species for ultimate commercial use. Also follow-up maintenance of reforested areas is lacking which frequently results in destruction by weeds, animals or fire. 1.04 As population grows, the pressure on forest resources in the Philippines will increase. Already imports of pulp, mainly long fiber, are almost 100,000 tons annually. Bank projections indicate that by 1985 the  -2- Philippines' annual demand for paper and paperboard would double from the current level of 400,000 tons to 700,000-800,000 tons. Demands for fuelwood are growing rapidly due to the rise in oil prices as well as continuous population pressure. Although much of the fuelwood comes from noncommercial forests, continuous fuelvood cutting is depleting resources and contributing to serious siltation and erosion problems. 1.05 The Government is aware of the problems of forest destruction and in 1975 Presidential Decree 705 was issued which provides for acceleration of land surveys and classification, protection and rehabilitation of forest lands, rationalization of the wood processing industry and strengthening of forestry research. The Government has recently established a Presidential Council for Ecosystem Management, which includes representatives from the main Government agencies concerned, to provide policy leadership for a more active forestry development program and to stimulate popular awareness of the need to preserve forestry resources. The success of the Government's program will depend on efforts to improve regulation of logging in existing forests, the implementation of well-planned reforestation efforts, and commercial tree farming and woodlot development. The ability of the Government to implement these programs will in turn depend on substantial strengthening of the Bureau of Forest Development and of other Government agencies concerned with forest development and rehabilitation. 1.06 A total of approximately 1.4 million ha of the denuded land is located in watersheds or catchments which are sources of water to important irrigation, power and water supply dams. The potential threat to the economic life of these facilities as a result of erosion and sedimentation has caused considerable concern to the Government. The people living in these watersheds have moved there due to population pressure and scarcity of employment in the lowlands. They are extremely poor and survive on shifting hillside agriculture and occasional labor income from Government public works. Continuous degradation of the watersheds is reducing the productive capacity of the land and its ability to provide a means of livelihood to the people. Protection of land resources in the watersheds and increasing the incomes of the disadvantaged resident population is an important Government objective. 1.07 The very severe damage to denuded watersheds caused by typhoon Didang in 1976 focused public attention on the urgent need for watershed protection. Tree planting campaigns were initiated throughout the country and in 1977 a Presidential Decree was issued requiring every citizen to plant 12 trees annually. The MNR, through the BFD, is mainly responsible for implementation of these ambitious programs. Recognizing the magnitude of the problem and the burden placed on the limited resources of BFD, the Government took another important step in 1978 declaring a number of watersheds serving multipurpose dams to be critical, banning all logging, and entrusting the immediate management of the catchments to a number of designated lead agencies. Excellent legislation exists today to manage and control logging and grazing and to undertake reforestation. However, this legislation has rarely been enforced. Reforestation of watersheds is  presently being done by a number of Government agencies through a series of small projects. Most of these efforts have concentrated on the short-term objective of restoring ground cover, without any attention to the need to develop a long-term, self-supporting system of land use for the watershed. The existing tree planting campaigns, by offering employment only for planting are, in fact, providing the local population with an incentive to destroy the seedlings in order to get more employment. Any successful watershed management program would have to give the local population a stake in the survival of the trees. Project Formulation 1.08 An erosion control study of the Pantabangan and Magat watersheds was included in Loan 1227-PH for the Chico River Irrigation Project in March 1976. The study was carried out by NIA with the help of consultants. The objective of the study was to prepare a watershed management and erosion control project for both watersheds. This study provided the basis for formulation of the project. The proposed project envisages three main lines of approach to the problems of denudation and degradation of the watersheds in the Philippines. In the compact, relatively small and well-defined Pantabangan watershed, the project would utilize the existing capabilities of the NIA to establish an economically viable and technically sound system for preserving and enhancing the productive capacity of the catchment, in association with the local inhabitants, firstly, as paid laborers and ultimately as shareholders in a joint agro-forestry venture. In the much larger, more variegated and more complex Magat watershed the project would provide for a multidisciplinary feasibility study of the catchment under the aegis of the National Economic Development Authority (NEDA) to produce an area development plan for the watershed. Concurrent with the study would be pilot range management and smallholder agro-forestry programs, together with a NIA-operated agroforestry plantation immediately around the proposed Magat reservoir. The third line of approach would be provided by the BFD implemented forest protection pilot component in which forestry occupancy management, forest guarding, forest fire control and watershed rehabilitation would be dealt with as an integrated whole in two trial areas in Northern and Central Luzon. 1.09 This would be the first Bank-assisted watershed management project in the Philippines and the third Bank-assisted project involving tree farming and forestry. The first one was the Pilot Tree Farm Project (Loan 998-PH) which provided supervised credit for tree farming to smallholders through the Development Bank of the Philippines (DBP) for the cultivation of a fast growing pine species (Albizzia falcataria) for pulpwood. Based on the success of the pilot project, the Smallholder Tree Farming and Forestry Project (Loan 1506-PH) was initiated in 1978. Besides providing supervised credit for tree farming to smallholders in Mindanao, the Visayas and Northern Luzon, it pro- vided for the commercial reforestation of some areas by BFD in Abra province. While the pilot project was successfully completed in 1979, the latter project has lagged behind schedule. The main reason for this has been the slow rate of smallholder enrollment due to problems of obtaning land certificates for collateral and farmer reluctance through lack of experience. However, DBP remains committed to the project and is working on ways to overcome the problems and to stimulate progress. The BFD plantation component has been  -4- delayed through lack of Government funds, though the delay is expected to be made up to a large extent during 1980. 2. THE PROJECT AREA Pantabangan Watershed 2.01 General. The watershed is situated in the provinces of Nueva Ecija, Nueva Vizcaya and Quezon on the island of Luzon, (Map No. 14583) and has an area of about 82,900 ha, excluding the 8,000 ha of the Pantabangan reservoir. The Pantabangan dam, built with Bank assistance (Loan 637-PH), is in the southwest corner of the watershed, and is connected to the cities of San Jose and Cabanatuan by all-weather gravel roads, with an onward connection to lManila by the concrete surfaced Philippine-Japan Friendship Highway. The terrain of the watershed is varied, consisting of flat areas and rolling to rugged and steep mountainous landscape, dissected by narrow flat-bottomed valleys. Population density in the watershed is substantially below the national average and the per capita income is 12.5% of the national per capita income. Summary statistical data are shown in Table 2.1. Table 2.1: GENERAL STATISTICS PANTABANGAN Pantabangan Philippines watershed Total area (sq km) 300,000 829 Total population (1975) 42,070,700 25,370 Population density per sq km 140 31 per cultivated sq km 495 276 Total area cultivated (ha) 8,494,000 9,543 Average income (US$/capita) (1979) 600 75 2.02 Climate. The climate in the watershed, consists of a dry season from December through April and a wet season from May through November. The average annual precipitation varies from less than 2,000 mm in the lower elevations to over 3,000 mm in the mountains east of the reservoir, with an average of about 2,800 mm. The heaviest precipitation occurs in the months of May through August, the heart of the southwest monsoon season, and accounts for about 70% of the annual rainfall with about 22% of the annual precipi- tation occuring in July. The monthly temperature does not vary appreciably, with an average high of 35.50C in May and a low of 20.0