Philippines - Regional Cities Development Project

Document of The World Bank FOR OFFICIAL USE ONLY rIlE COPY Report No. 4094-PH STAFF APPRAISAL REPORT PHILLIPINES REGIONAL CITIES DEVELOPMENT PROJECT March 10, 1983 East Asia and Pacific Projects Department Urban and Water Supply Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Peso (P) US$1 = P 9.0 Pesos 1 = US$0.1111 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 square meter (sq m) = 10.76 square feet (sq ft) 1 kilometer (km) = 0.62 mile (mi) 1 hectare (ha) = 10,000 square meters (sq m) or 2.47 acres (ac) ABBREVIATIONS AND ACRONYMS CEO - City Engineers Office COA - Commission on Audit CPM - City Project Manager CPO - City Project Office DPS - Department of Public Services EPZA - Export Processing Zone Authority MED - Municipal Enterprise Department MHS - Ministry of Human Settlements MIE - Mini Industrial Estate MLG - Ministry of Local Government MOB - Ministry of Budget MOF - Ministry of Finance MOTC - Ministry of Transportation and Communications MOTI - Ministry of Trade and Industry MPWH - Ministry of Public Works and Highways NEDA - National Economic and Development Authority NHA - National Housing Authority O&M - Operation and Maintenance PBAC - Prequalification, Bid and Award Committee RCDP - Regional Cities Development Project RCDPO - Regional Cities Development Project Office SIR - Slum Improvement and Resettlement UEL - Urban Engineering Loan UNDP - United Nations Development Program FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY PHILIPPINES REGIONAL CITIES DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. BACKGROUND ........... ............. A. Urbanization Trends . . . . . . . . . . . . . . . . . . 1 B. Priorities in the Urban Sector . . . . . . . . . . . . . 1-5 C. Bank Lending Experience and Sector Strategy. . . . . . . 5-7 D. The Project Cities . . . . . . . . . . . . . . . . . . . 7-8 II. THE PROJECT .... . . . . . . . . . . . . . . . . . . . . 9 A. Project Objectives . . . . . . . . . . . . . . . . . . . 9 B. Main Features . . . . . . . . . . . . . . . . . . . . . 9-10 C. Project Description .... . . . . . . . . . . . . . . 10-16 III. PROJECT COSTS AND FINANCING . . . . . . . . . . . . . . . . 1/ A. Project Costs ..................... 17-19 B. Financing Plan and Flow of Funds . . . . . . . . . . . . 19-21 IV. KEY EXECUTING AGENCIES . . . . . . . . . . . . . . . . . . . 22 A. City Governments .22-24 B. Ministry of Public Works and Highways . . . . . . . . . 24-25 C. National Housing Authority . . . . . . . . . . . . . . . 25-27 V. PROJECT ORGANIZATION, MANAGEMENT, AND IMPLEMENTATION . . . . 27 A. Project Organization and Management . . . . . . . . . . 27-28 B. Implementation Arrangements . . . . . . . . . . . . . . 28-30 C. Implementation Schedule ........ ... .. .. . 30 D. Procurement and Disbursement . . . . . . . . . . . 30-32 E. Operations and Maintenance . . . . . . . . . . . . 32-33 F. Land Acquisition ................... . 33 G. Accounts, Audits, Progress Reporting and Monitoring. . . 33-34 VI. FINANCIAL ASPECTS ....... . ........... 34 A. Cost Recovery and Service Pricing. . . . . . . . . . . . 34-37 B. Municipal Finances ................ . . 37-39 C. Project Impact on Municipal Budgets . . . . . . . . . 39-40 D. Administering and Monitoring Municipal Finances . . . . 40 This report is based on findings of preappraisal and appraisal missions which visited the Philippines in November 1981, and March-April 1982 respectively. The missions consisted of Messrs. Richard Podolske, Elmo Fernando, Stuart Whitehead, Karl Willen, Carl Goderez (consultant); and Mrs. Shirin Velji. Nonna Ponferrada assisted in the preparation of this report. 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.  - ii - Page No. VII. PROJECT JUSTIFICATION ....... ........... . 41 A. Economic Evaluation . . . . . . . . . . . . . . . . . . 41-42 B. Urban Poverty Impact ......... .... ... . . 42-43 C. Environmental Impact ......... .... .... . 43 D. Risks . . . . . . . . . . . . . . . . . . . . . . . . . 43-44 VIII. RECOMMENDATIONS AND AGREEMENTS TO BE REACHED . . . . . . . . 44-46 ANNEXES 1. The Project Cities 2. Detailed Cost Estimates by City and Component 3. Urban Streets and Traffic Management Project Summary 4. Drainage Project Summary 5. Public Enterprises Project Summary 6. Equipment Lists for Sanitation, Solid Wastes Management, Drainage and Road Maintenance 7. Shelter Project Summary 8. Technical Assistance and Training 9. National Housing Authority Finances 10. Municipal Financial Analysis: Table 1. Summary of Municipal Revenues and Expenditures Table 2. Bacolod (Revenue Projections, Municipal Enterprise Cash Flows, Shelter Cash Flows) Table 3. Cagayan de Oro (Revenue Projectiori, Municipal Enterprise Cash Flows, Shelter Cash Flows) Table 4. Davao (Revenue Projections, Municipal Enterprise Cash Flows, Shelter Cash Flows) Table 5. Iloilo (Revenue Projections, Municipal Enterprise Cash Flows, Shelter Cash Flows) 11. Summary of Economic Benefits 12. List of Documents in Project File SUPPORTING TABLES Table 1: Agency Responsibilities for Project Implementation Table 2: Agency Responsibilities for City Financed Components Table 3: Estimated Schedule of Disbursements  - iii - CHARTS Chart 24079: Flow of Funds Chart Z4U81: Typical City Organization Chart 20838: NHA Organization Chart 24078: Project Organization Chart 24080: Project Implementation Schedule MAPS 16595 Location of Project Cities   I. BACKGROUND A. Urbanization Trends 1.01 Urban Population. The Philippines urban population in 1980 was estimated at about 15.3 million people, approximately 31% of the total national population of 49.4 million. Metropolitan Manila dominates the Philippines urban scene with approximately 6.4 million persons (1980), or 42% of the total urban population and 13% of the national population. There are six additional urban areas with populations ranging from 200,000 to 1,000,000 and a further 20 urban centers with over 100,000 persons./l 1.02 Between 1960 and 1980 the urban population more than doubled increasing at an average annual rate of above 3.6% as compared to 2.7% for the total national population. Within the next 20 years the population of the Philippines will have grown to approximately 80 million people. At least half of this added population may have to be absorbed in urban areas even under optimistic projections of rural employment growth. 1.03 Urban Poverty. The absolute urban poverty threshold for the Philippines in 1982 is estimated at $295 (P2,660) per person per year based on food and non-food needs. Approximately 32% of families in urban areas and about 80% of families in typical slum areas of major cities have per capita incomes below that level. Both unemployment and underemployment are serious problems and real incomes of the urban poverty group appear to have stagnated or declined in recent years. B. Priorities in the Urban Sector 1.04 Key Government Agencies and Investment Priorities. The key agencies with responsibilities for planning and spending for infrastructure in urban areas are the National Economic and Development Authority (NEDA) and the Ministries of Public Works and Highways (MPWH), Human Settlements (MHS), Local Government (MLG), and Trade and Industry (MOTI). While the Government does not have a formal national urban development policy, there is general consensus on key priorities that are described in paras. 1.05-1.12 below. /1 Many of these cities include extensive rural areas which are not truly urban; all figures are preliminary 1980 census findings.  -2- 1.05 Regional Development - In the past, intermediate and smaller cities and their needs for infrastructure and industry have been neglected as a focus of national policy. This has led to a striking disparity in the provision of economic and social infrastructure in different urban areas. For example, almost three-quarters of national industrial output is presently located in Luzon (mostly within or near Metro Manila). While recognizing that the greater Metro Manila area will continue to remain dominant, the Government has become increasingly aware of the need for a spatially oriented development policy and program that fully addresses the economic potential of other regions. The concern is that more investments (and population) are being attracted to Manila than is necessary, causing continued undesirable variances in economic opportunity, and contributing to the delayed development of outlying regions. The Government also acknowledges that within these regions there are comparatively few urban areas that have the potential to become major economic centers which have sufficient attractiveness to be reasonable alternatives to Manila. Thus an investment strategy that emphasizes the development of major regional cities becomes an important government priority. 1.06 With a view to redressing the present population and economic imbalance, the Government is placing greater emphasis on regional investment planning and on strengthening the regional institutional focus of concerned ministries and agencies. Since 1972 all central government ministries have been required to maintain regional offices in all of 13 designated regions; these offices have been given considerable authority in proposing, preparing and implemerntng significant projects and programs. NEDA k.as, since the mid 1970s, been working on regional investment plans for each of the Nation's regions. Partially as a result of these efforts, government attention has been placed on achieving a more equitable distribution of central government resources among regions. However, difficulties in implementing a Government budgetary system based on agreed priorities, and inadequate responses by local governments in planning and implementing approved programs, make the goal of balanced regional development an elusive objective. 1.07 Industrial Development - The Government places a high priority on increasing employment and industrialization to (a) increase the nation-s overall economic output; (b) reduce the highly skewed income profile; (c) absorb surplus farm labor; and (d) improve its balance of payments position. Broadly, the objective is to develop an efficient and competitive industrial structure based on the country-s comparative advantage with respect to labor costs and availability of raw materials. 1.08 The Ministry of Trade and Industry (MOTI), through its Board of Investments (BOI), has developed tax incentives to encourage business enterprises and labor intensive industries to locate outside Metro Manila. However, these incentives have had a tendency to be capital intensive and have had little, if any, spatial impact. A number of organizations provide technical assistance and loans to small and medium scale industries. While these organizations provide a good foundation for assistance9 they are still  - 3 - too fragmented and weak to be fully effective. The Bank is assisting the overall development of a number of these organizations through small and medium scale industry loans (SMI) and in overall industrial investments and policy reforms through structural adjustment lending (SAL)./l 1.09 One key aspect of the Government-s industrial promotion program is the provision of export processing zones and industrial estates of various sizes along with improved access to credit and technical assistance. Among several agencies active in this area, the Export Processing Zone Authority (EPZA), created in 1972 as a government corporation, is the most important. It has so far developed three export processing zones, and is constructing an additional estate, in different locations in the Philippines. 1.10 To provide for employment generation, and to strengthen EPZA's administrative capabilities, an EPZA operated export processing zone/regular industrial estate was originally included in each of the four cities under the proposed RCDP project. Based on feasibility studies financed under a UNDP grant,/2 Bank appraisal proved this component justifiable, subject to EPZA undertaking certain administrative and organizational reforms, and improving on its financial performance and planning. However, the Government subsequently withdrew the EPZA component from the project. The Government decided that without the establishment of a comprehensive long-term development plan for the sector it would be premature to build additional estates of larger size. The Government decided to merge existing agencies under one consolidated, nationwide umbrella organization, and to develop consistent policies in areas such as marketing, pricing, operation and maintenance of industrial estates. 1.11 In view of these considerations, it has been agreed that the balance of the UNDP grant, supplemented by funding under the RCDP project as neces- sary, will provide necessary technical assistance to the Government, to prepare a realistic nationwide investment program for export processing zones/ industrial estates. This will also include an institutional review, focussing on agency responsibilities in planning, design, construction, marketing, operation and maintenance of such estates. It is expected that this prepara- tory work will result in a separate export processing zone/industrial estates project that would be suitable for external financing. /1 For further background, see Staff Appraisal Report No. 3838-PH "Third Small and Medium Industries Development Project" and President's Report No. P2872-PH entitled "Structural Adjustment Loan to the Republic of the Philippines." /2 Technical assistance to the "Nationwide Industrial Estates Program," financed under a UNDP grant for which the Bank is executing agency.  - 4- 1.12 Municipal Infrastructure and Services - Most of the country's cities and municipalities have not kept pace with expanding demands for provision of basic infrastructure, partly because of financial and managerial constraints at the local level, and partly due to other national priorities. Government has recognized the need for substantial improvements in the provision of urban infrastructure (most notably water supply systems and urban streets) and urban services (such as solid wastes management and municipal markets). These facilities and services are needed (a) to remove bottlenecks to economic development,especially in the larger secondary cities located outside Metro Manila where the "take-off" potential is greatest; and (b) to improve living conditions, particularly for the urban poor, in all Philippine cities. 1.13 The most significant Government efforts towards alleviating these deficiencies are concentrated in the Ministry of Public Works and Highways (MPWH) and its attached corporations which have had continuing programs of direct investments in urban areas. In 1979, the MPWH has established a program to assist cities in planning and developing their facilities and services using principally local staff and financial resources./l The Local Water Utilities Administration (LWUA), created in 1973, has moved rapidly into a large scale program of providing financing and technical assistance to local water districts; similarly, the Manila based Metropolitan Water Works and Sewerage System (MWSS) has embarked on an ambitious program to expand water source development and distribution in the National Capital area. 1.14 Shelter - Virtually all Philippine cities have large squatter and slum settlements which typically constitute between 20% to 35% of their total population. These densely populated areas typically lack safe water supply, drainage, human waste disposal, and public access. Available studies indicate disease rates and infant mortality from 3 to 8 times worse than for non-slum areas of these cities and a level of disease and malnutrition higher than their low income counterparts in rural areas. While the Government's shelter programs have increased over the last few years, they still are not at a large enough scale to prevent growth of slum populations. 1.15 Since the creation of the National Housing Authority/2 (NHA) in 1975, a major re-orientation of Government shelter policy has been underway, moving from squatter removal and relocation and towards (a) improvement of /1 The program is entitled "PREMIUMED" (Program for Essential Municipal Infrastructure, Utilities, Maintenance, and Engineering Development). /2 This agency was established to consolidate Government housing efforts, previously dispersed among six agencies.  -5- existing slums and (b) servicing urban land for low income settlement. Several local governments are organized and staffed to prepare shelter projects in conjunction with the NHA. The slum improvement program is now established in five regional cities and in Metro Manila. New sites and services projects are also under construction in Manila and in seven regional cities. Provision of commercial/industrial plots is a regular feature of sites and services projects sponsored by NHA. In addition to these programs of basic services the Ministry of Human Settlements (MHS) /1 has introduced a housing program called "Bagong Lipunan Improvements and Sites and Services" (BLISS). The principal concept is the development of mixed income communities with emphasis on employment and a degree of self-sufficiency. The Government established the National Home Mortgage Finance Corporation (NHMFC) in 1978 to provide a secondary market for home mortgages, thus further strengthening the government role in the sector. 1.16 Urban Management - Philippine cities and municipalities suffer from a shortage of qualified professional/managerial staff (due in large part to low salary scales) and insufficient levels of locally generated revenues to make satisfactory inroads in meeting the municipal infrastructure and service deficiencies. Central governmental agencies, which have largely filled the void, cannot be expected to continue carrying their current share of the responsibility as the urban areas become larger thus requiring more sophisticated solutions by local officials. Substantial improvements by the cities in physical and financial planning, tax generation, infrastructure development, and operation and maintenance of urban services are needed. Ministries of Local Government (MLG) and Finance (MOF), among others, are assisting local governments in developing the general administrative and financial mechanisms. These agencies, along with the MPWH with its technical expertise, are improving local governmental training programs and are strengthening their own regional staffs to assist local governments. C. Bank Lending Experience and Sector Strategy 1.17 The Bank has to-date made three loans in support of urban develop- ment. The First Urban Loan to the Philippines (1272-TW and 1282-PH), which became effective in December 1976, concentrated on upgrading the environment of 160,000 persons living in Tondo, the country's largest slum area, located in Manila. The project also included a traffic management and road construc- tion component. The second loan (1647-PH), which became effective in April 1979, financed a large sites and services project at Dagat-Dagatan in Manila, /1 This ministry was established in July 1978 with responsibilities for municipal planning, especially land-use planning, environmental management, technical assistance and regulations.  - 6 - and sites and services and slum upgrading in three regional cities: Davao, Cebu, and Cagayan de Oro. The third loan (1821-PH) became effective in September 1980 and addressed the provision of basic needs and productivity growth of the low income families in Metro Manila. This third project expanded upon the slum upgrading and sites and services programs in Manila begun under the first two projects and added the concept of low cost secondary and tertiary infrastucture (roads, drainage, utilities) within slum zones without penetrating onto private property. This component called MMINUTE /1 is designed to improve living and sanitary conditions for a larger number of people more quickly and at lower cost than could be achieved through slum upgrading and sites and services. A complementary program called PROGRESS /2, financed by a Bank-supported Sewerage and Sanitation project (Loan 1814-PH), seeks to upgrade the sanitation of these slum areas by provision of facilities such as toilets and combined sewers. 1.18 After initial delays, all three urban projects are well underway and are providing a sound basis upon which to expand the Government's urban program./3 Favorable features of the shelter portion of the first three projects to date include: (a) positive beneficiary response to the pro- grams; demand far exceeds supply, and (b) the willingness of families to invest large sums in their homes (especially after tenure is assured). The traffic management and road construction component under Urban I is making a substantial impact on traffic speeds, safety, and throughput on effected streets. The provision of secondary and tertiary infrastructure to provide basic urban services to the urban poor in Metro Manila under Urban III is off to a good start. Costs are holding to planned levels and the MPWH is planning to substantially expand the program. Results from the livelihood programs aimed at small scale enterprises in the three urban projects are still inconclusive. While there is clearly a demand for these programs, disbursements have been slow. A key part of the problem is substantial governmental institutional fragmentation in providing technical assistance and financing and overly bureaucratic administrative procedures on the part of the financing agencies. The principal difficulties with the urban projects to date have been (a) slow startup times (principally due to land acquisition problems), (b) less than satisfactory contractor performance and /1 Metro Manila Infrastructure, Utilities and Engineering Program. /2 Program for Removing Sewage from Streets. /3 Urban I, with the exception of separate sewer outfall and major road packages to be completed in 1983 and 1984 respectively, will be completed in 1983; Urban II will be completed in 1984; Urban III completion is estimated in 1985. As of August 1, 1982 Urban I, II, III were completed approximately 85%, 60% and 30% respectively.  construction supervision by implementing agencies on some components, resulting in cost overruns and delayed completion, and (c) lagging collection from shelter beneficiaries due in part to uncompleted works and in part to absence of appropriate mechanisms of enforcement. These difficulties are being addressed through measures aimed at strengthening the management and staffing of NHA (see paras. 4.11-4.12) and the involved cities. 1.19 Future Bank lending in the sector will continue to build on the approach developed under the first three loans to provide basic urban services and shelter at affordable costs. However, greater emphasis will be placed on improving urban management, institution building and increased resource mobilization. The development of central level intermediaries to channel funds and technical assistance to local governments for planning, management and finance will be pursued as longer-term objectives. In accord with government strategy for decentralization, an increased proportion of lending will be devoted to assist cities and regions outside Metro Manila. D. The Project Cities 1.20 Basis for Selection. The Government has selected four of the nation's largest cities - Bacolod, Cagayan de Oro, Davao, and Iloilo - for the purposes of its first major urban intervention outside Metro Manila (see Map 16595). These cities have urban populations ranging from about 180,000 to 420,000 persons. The principal criterion for selecting these cities was their considerable economic "take-off" potential as key regional centers./l They also have an extensive slum dwelling population requiring the provision of basic services. The cities are either regional capitals (Cagayan de Oro, Davao and Iloilo) or the major urban centers (Bacolod) for the island on which they are located. With the exception of Iloilo, their populations are growing at a pace faster than the national urban average. (Iloilo, however, has considerable growth potential because of several major projects being imple- mented in that city). The cities economies are not well developed especially considering their relatively rich agricultural hinterlands. The principal project strategy, therefore, will be to accelerate the economic development of these cities by removing infrastructure bottlenecks (See Annex 1 for further description of the project cities). /1 Outside Metro Manila, only Cebu and Zamboanga are larger than any of the proposed project cities. The infrastructure deficiencies of Cebu will be addressed in part by the Central Visayas Regional Project (CVRP) currently under preparation.  - 8 - 1.21 Current Infrastructure and Service Deficiencies in Project Cities. The proposed project cities are experiencing deficiencies in infrastructure, services, management, and finances similar to those of most Philippine cities. Areas needing particular attention are described briefly below. 1.22 City Streets and Maintenance - The quality of city streets varies dramatically among and within cities. Davao, in particular, needs major investments in its road network both to rehabilitate roads which have seriously deteriorated, and to expand capacity for anticipated major increases in traffic volumes; Cagayan de Oro needs traffic capacity improve- ments in the city center. All four cities need some road expansion to accommodate new urban growth; and substantial improvements to the road maintenance program are needed in all cities. 1.23 Drainage and Sanitation - Two cities, Davac and Cagayan de Oro, have extensive drainage problems that require particular attention to reduce health problems, to enhance land development potentials, and to reduce road deterioration. All four cities require substantial improvements in solid wastes management and sanitation programs. Over half of all solid wastes generated are not collected, and there are no regular septic tank emptying services in any of the cities. These deficiencies, in aggregate, add up to a serious health hazard problem. 1.24 Municipal Enterprises - Important public service facilities including markets, slaughterhouses, and bus terminals are in a state of disrepair or disorganization in all four project cities. Markets, in particular, are unsanitary, overcrowded, and in poor physical condition due to poor maintenance. Slaughterhouses either have been condemned by public authorities or are operating under very unsanitary conditions. Inter-city bus terminals are typically scattered throughout the central areas of the cities, deterring inter-city and intracity bus connections and contributing to traffic congestion. 1.25 Shelter - Between 18-33% of all urban households in the project cities live in squatter and slum settlements without secure tenure and lack safe water supply, drainage, human waste disposal and clean access. While the initial slum upgrading programs in Cagayan de Oro and Davao, and the sites and services project in Davao are all progressing under the Urban II project (Loan 1647-PH), this shelter program has only been a useful start. The program needs to be maintained in Cagayan de Oro, enlarged in Davao, and initiated in Bacolod and Iloilo on as large a scale as local financial and managerial resources will permit. 1.26 City Administration - The project cities are not adequately staffed or managed to cope with the above described deficiencies. Major strengthening is needed in overall city administration, public works administration, financial planning and tax administration. In general, project city staffs are undermanned and underpaid at the professional and managerial levels and overstaffed with temporary and casual labor at lower levels. (See also para. 4.03).  - 9 - II. THE PROJECT A. Project Objectives 2.01 The objectives of the Regional Cities Development Project (RCDP) are: (a) to stimulate economic decentralization and regional growth in the four project cities through reduction of infrastructure bottlenecks; (b) to assist the cities in strengthening municipal institutions, particularly in finance and in implementation, operation and maintenance of urban facilities; (c) to strengthen further MPWH and NHA administrative abilities in providing municipal infrastructure and shelter respectively; and (d) to improve basic social services including shelter, public health and safety, and urban mobility with particular emphasis on the needs of the urban poor. B. Main Features 2.02 The project comprises the following activities in the four cities: /1 (a) Urban transport ($28.6 million): provision of (i) about 9 km of new streets, about 32 km of upgraded or rehabilitated existing streets, and limited traffic engineering measures and (ii) improved road maintenance capability, including a new maintenance depot in Davao, upgrading of existing depots in other project cities, and vehicles, plant, equipment and tools; (b) Sanitation and drainage ($16.8 million): provision of (i) solid wastes management measures, including new dump sites, and vehicles and equipment; (ii) improved sanitation measures, including equipment and civil works (Iloilo and Bacolod); and (iii) drainage works, comprising about 26 km of open or closed storm drains including laterals, and related maintenance equipment; /1 Cost includes design and supervision, land, and physical and price contingencies.  - 10 - (c) Municipal enterprises ($11.2 million): provision of (i) six new markets and 10 rehabilitated markets; (ii) two new slaughter houses (Cagayan de Oro and Davao); and (iii) two new bus terminals (Cagayan de Oro and Davao); (d) Shelter ($38.4 million): provision of (i) sites and services at nine sites in the four cities with a total of about 9,580 residen- tial plots and benefiting about 78,300 persons including grant of tenure, and infrastructure, sanitary, health, education and community facilities; (ii) about 660 serviced commercial/industrial plots generating employment for about 6,500 people; and (iii) slum upgrading, about 6,900 plots serving over 55,000 people, in ten different slum areas in the four cities including grant of tenure, improved infrastructure and sanitary facilities; and (iv) loans for building materials for residential structures; (e) Livelihood zone pilot project ($2.9 million): Provision of one mini-industrial estate in Davao, totalling about 5 ha of developed land, with serviced industrial plots, standard factory buildings and neecessary off-site infrastructure, to generate employment for about 1,200 people; and (f) Technical assistance and training ($16.2 million): (i) to MPWH, NEDA, NHA, and the project cities for assistance in project implementation; (ii) to MOF, MLG, and the cities for institu- tional strengthening and training; and (iii) to MPWH, MOTC, MOTI and NEDA for future project preparation and related studies. C. Project Description Urban Transport 2.03 City Streets. (a) Bacolod - Three road segments totaling 5 km including two bridges will form part of a bypass around the eastern part of the city. These improvements are expected to (i) improve access to an existing commercial port, (ii) provide improved access to two new sites and services areas, (iii) provide a bypass for heavy truck traffic, and (iv) open up new areas for urban development. (b) Cagayan de Oro - Road improvements in this city consist mainly of widening and rehabilitating 5 km of major arterial roads and improving of sidewalks to facilitate vehicular traffic flow in and around the city center and to ease traffic congestion, particularly around two major markets. An additional 4 km of major roadways will receive street lighting. (c) Davao - Major improvements are planned for 17 km of Davao's principal arterial street system, including rehabilitation, widening, and the provision of sidewalks. An additional 1 km of new road will also be constructed. The improvements are intended to facilitate traffic movement to and around the central area of the city. A bridge over the Davao River with about 7 km of improved approach roads will facilitate the only direct link to  - 11 - the Paquibato district of Davao. (d) Iloilo - Two new road segments totalling about 3 km will be constructed to open up prime development areas, to provide improved port access, and to connect a new sites and services area (Mandurriao) with the road network./l In addition, minor traffic management schemes, will be undertaken in all the four cities. (See Annex 3 for specific information on the road improvement and construction program in the four cities.) 2.04 Road Maintenance. The project will provide for the following investment activities in the four cities: (a) Construction of one new main- tenance depot in Davao, and upgrading of existing depots in Iloilo, Bacolod and Cagayan de Oro; (b) procurement and installation of additional workshop equipment; and (c) procurement of additional road maintenance vehicles and equipment, including spare parts, and tools and equipment for maintenance teams. Vehicles and equipment for solid wastes management (para. 2.05), sanitation (para. 2.07), and drainage (para. 2.08) will also be serviced and repaired in the above depots. In addition, the project will provide for various measures to improve maintenance performance by the four cities (para. 5.20). (See Annex 6 for details of plant, equipment and vehicles under the project.) Sanitation and Drainage 2.05 Solid Wastes Management. This component will assist the Department of Public Services (DPS) in each project city to improve efficiency and collection rates, which now range between 35 and 50%. During the project period operations and maintenance will be rationalized and additional vehicles and equipment will be procured to increase collection rates to about 60 to 80% of total solid wastes generation. Collection service will reach into slums and other low income areas, which are presently underserviced or unserviced. Handcarts will be used in such areas with limited access for larger vehicles. This will be organized by barangay captains and encourage community participation. The garbage will be transferred to containers served by special container trucks. Containers will also serve markets, while regular dump trucks will serve accessible households and industrial areas. All collected garbage will be disposed of at new dump sites operating with sanitary landfill methods. 2.06 Sanitation. No comprehensive waterborne sewerage systems exist in the cities - or in any other Philippine city outside Metro Manila. Many households, private establishments and public facilities use water sealed flush toilets connected with septic tanks; but existing tank emptying /1 In addition, Iloilo city will acquire a right-of-way with a minimum 20 m width for a 7 km extension of the port access road (see Map 16596).  - 12 - services are inadequate resulting in overflows and potential health hazards. Existing stormwater systems also receive sewage resulting in blockages causing flooding and creating health and environmental problems. 2.07 The DPS in Iloilo and Bacolod will initiate pilot prugrams through the provision of sewer jetting and vacuum vehicles, suitable for regular emptying of septic tanks, and for maintenance of drainage systems and sewer networks in new sites and services areas. In Bacolod, severe health risks are caused by an old and dilapidated sewerage and drainage system, at the Provincial Hospital. A new system including a simple incinerator for pathogenic wastes will be installed. Finally, a compost latrine pilot project will be carried out in some slum areas in Bacolod, to test different designs and to determine the viability of compost latrine operations. 2.08 Drainage. In Cagayan de Oro and Davao, maste.tlans have been prepared to establish priorities for justifiable drainage works, covering catchment areas in existing urban areas as well as future developments. In Cagayan de Oro, a 3-phase program will be implemented. It comprises about 7,045 m of open and closed storm drains, and about 8,000 m of laterals focussing on swampy areas in Poblacion, Carmen and Nazareth. In Davao, drainage works will focus on four catchment areas (Roxas Avenue, Quirino Avenue, Dacudao Avenue, and part of Agdao Creek) inside the Poblacion, and one outside (Lanang). Within these areas a 3-phase program will be implemented, comprising about 5,125 m of open and closed storm drains and about 4,820 m of laterals. In Iloilo, the drainage works consist of cleaning, repairing and extending five major outfalls totalling about 820 m, at the interface of a new fish port that is being constructed on reclaimed land. Embankment protection works for the new sites and services project at Mandurriao and repair of the seawall at the Bo. Obrero slum upgrading project are also included. In Bacolod, drainage works totalling about 1,250 m aim at protection of existing outfalls which have been cut off by a reclamation project, and include repairs, improvements and riprap protection to-the reclamation drainage. In all the four cities, equipment for maintenance of drainage works will also be provided. (See Annex 4 for further detail.) Municipal Enterprises 2.09 Market rehabilitation in the four cities will include structural upgrading, improved water supply, sanitation, pavements, etc., in ten existing markets totalling about 11.7 ha. The project also provides for six new markets in the four cities. These new markets ranging in size from 2.2 ha to 1 ha, are of simple but attractive design. They are sized to meet demand over the project period, with flexible structures that will allow easy expansion and conversion from one type of commodity to another, as demand changes. (See Annex 5 for further detail.) 2.10 Slaughterhouses. Cagayan de Oro and Davao have given high priority for inclusion of new slaughtering facilities under the project. Designs will be based on guidelines issued by the statutory regulatory authority - the  - 13 - National Meat Inspection Commission (NMIC) - and designed to City retail requirements. These slaughterhouses will be equipped to handle an estimated initial throughput of 250 hogs and 35 large animals per day for Cagayan de Oro and 400 hogs and 50 large animals per day for Davao and will be managed by the new Municipal Enterprises Departments (MEDs) (para. 5.06). Slaughtering will be carried out by skilled butchers contracted by animal dealers utilizing the facility. 2.11 Bus Terminals. Central bus terminals will be constructed in Davao and Cagayan de Oro where all intercity operators will originate and terminate their runs. Provisions will be made for transfer to jeepney services which will be the prime form of intra-city distribution of bus passengers. Shelter 2.12 Sites and Services. This component responds to existing and projected demand in the four project cities for developed land for settlement by low and moderate income families. Ongoing Bank supported SIR programs /1 in Cagayan de Oro (770 plots) and Davao (2,200 plots) will be continued and new programs will be introduced in Iloilo and Bacolod. A total of about 9,580 residential plots will be provided in the four cities. Beneficiaries will be selected on the basis of established criteria with highest priority given to those displaced by other project components, and those who move from slum areas where improvements would be technically and/or financially infeasible. Up to eight different plot sizes, ranging from 50 to 150 square meters have been proposed, to correspond to the effective demand of the target population. Each plot will be provided with a sanitary core with either water born sewerage or a pit privy, as well as water connection, electricity, and footpath or road access. Building materials loans will be made available through the SIR offices, to assist residents of sites and services and slum upgrading (see para. 2.13) components to build or upgrade their homes. The sites will be serviced by a regular solid wastes collection service (para. 2.05 ). Cross subsidy, both by internal price differentials and by sale of small commercial/industrial plots will help to make the sites and services affordable for all households between 15% to 70% on the household income scale (see para. 6.03). Community facilities (schools, health clinics and barangay halls) in cases where they are inadequate or nonexistent in adjacent areas will be provided on a site specific basis. Finally, a total of about 660 plots will be provided on about 22 ha for small scale industrial/commercial activities. NHA and the project cities will provide assistance in directing entrepreneurs to appropriate technical and financial assistance channels./2 Salient features of the sites and services component are summarized in Table II-1 below; further details are provided in Annex 7. /1 "Slum Improvement and Resettlement Program," under Loan 1677-PH. /2 See Staff Appraisal report (3838-PH) for a description of the Third Small and Medium Industries Project that will assist in developing these channels.  - 14 - Table II-1: RCDP SITES AND SERVICES Iloilo Bacolod Cagayan de Oro Davao Total Total number of residential plots 1,857 2,869 855 4,000 9,581 Total number of beneficiaries 14,900 23,000 6,900 33,500 78,300 Total number of commer- cial/industrial plots 150 183 100 226 659 2.13 Slum Upgrading. The aggregate slum population in the four cities (242,000) is about 22% of the total urban population (1.1 million). Priority areas for upgrading have been identified, affecting about 6,900 plots or about 55,000 people. Levels of upgrading vary, depending on site specific condi- tions. Common features are grant of tenure to present occupiers, improvements to basic infrastructure, and house improvement loans. Layouts consider existing densities and community preferences; where space is available, infill plots will be created. Costs of on-site improvement will be recovered from the beneficiaries. It is expected that slum upgrading will be affordable for about 85% to 90% of households through utilization of (a) lot-size and lot-location price differentials, (b) cross subsidies from profits and sale of small business plots, and (c) low cost technologies. Those with lower incomes will have to rent shelter facilities as being done now. Further detail is given in Annex 8. Livelihood Zone Pilot Project 2.14 As mentioned in paras. 1.07-1.11, pending the outcome of a nationwide long-term development planning exercise, and a related institu- tutional and organizational review, the Government has deferred the decision to provide regular industrial estates in the four cities under the project. However, the Government has requested and the Bank has agreed that subject to a mutually acceptable feasibility study, a city operated mini industrial estate (MIE) on a pilot basis will be provided in Davao. This development, to be locally called a "livelihood zone", will be located on 5 ha adjacent to the Agdao sites and services scheme under the project. About 70 enterprises, employing between 5 and 25 workers, would be provided with serviced industrial lots and a number of standardized workshop buildings. Pre-marketing activities amongst the city's small-scale industry associations indicate that a high potential demand exists for the proposed MIE facility. Based on these studies, it is expected that the MIE would reach 70% occupancy by the end of first year operations, and 100% by the end of the second year, generating employment for about 1,200 people. This component, providing also assistance  - 15 - in marketing, product design, workshop layout and training, will test the city's ability to run a MIE as a viable operation. At negotiations, agreement was reached that disbursement against this component will be conditional upon a feasibility study which is acceptable to the Bank. Technical Assistance and Training 2.15 The Technical assistance and training package included in the pro- ject is described briefly below. More extensive descriptions are included in Annex 8 including study objectives, activities, staffing, the timing of terms of reference and key program outputs. Costs indicated in paras 2.16- 2.18 below include contingencies, and funding provided by the Urban Engineering Loan 2067-PH. This US$8 million loan, which became effective in May 1982, assists the Government through NEDA in preparation of the proposed project and a Central Visayas Regional Project./l About $3.8 million from the Urban Engineering Loan are being used for this project to finance detailed engineering ($1.5 million), advisory services for project implementation ($2.2 million), and institutional strengthening and training ($0.1 million)./2 2.16 Advisory Services for Project Implementation ($5.4 million). Technical assistance by expatriate consultants in the period May/June 1982 - June/July 1983 is financed under the Urban Engineering Loan ($2.26 million). The Government recognizes the need for further assistance by expatriate consultants to supplement local skills and provide on-the-job training in certain disciplines. This foreign input will eventually be phased out over the project implementation period, and will be replaced by local consultants and local professional staff. The project will therefore provide further expatriate advisory services to assist: (a) NEDA and MPWH in project implementation and monitoring commencing June 1983 (116 additional man-months by foreign consultants); and (b) NRA in engineering, implementation and monitoring of shelter components commencing August 1983 (104 additional man-months by foreign consultants). /1 Formerly referred to as the Central Visayas Urban Project. NEDA was assisted in project preparation by COWIConsult, (Denmark), Gilmore, Hankey, Kirke Partnership (UK), and Renardet S.A. - Sauti/ Louis Berger International (Italy/USA). /2 See report P-3150-PH for a description of the Urban Engineering Loan (UEL); services provided to the project under the UEL are expected to be completed by October 1983.  - 16 - 2.17 Institutional Strengthening and Training ($2.7 million). Technical assistance, training and related equipment will be provided as follows: (a) to the MOF to assist in the implementation and monitoring of local government revenue reforms (about 12 man-months by foreign consultants), and to introduce improved records management systems including improved computational equipment and development of software (about 20 man-months of foreign and 10 man-months of local consultant assistance); (b) to MLG, to support a municipal training program focussing on planning, management and maintenance of municipal services. The program will consist of technical assistance, course preparation and training and attendant equipment and facili- ties (about 20 man-months by foreign consultants and about 42 man-months by local consultants). 2.18 Future Project Preparation and Related Studies (US$8.1 million). Assistance will be provided for forward planning, feasibility studies, and detailed engineering as follows: (a) to MPWH to assist in detailed engineering of a proposed Secondary Cities Project (about 48 man-months by foreign consultants and about 265 man-months by local consultants); (b) to MOTC and MPWH, to assist in preparation of a Metro Manila Urban Transport Investment Study (about 97 man-months by foreign consultants and about 235 man-months by local consultants); (c) to MOTC, for advisory services in support of national transpor- tation planning (about 81 man-months by foreign consultants); and (d) to NEDA, for studies to identify and prepare future projects including (i) a national industrial estates investment strategy study (about 35 man-months by foreign consultants and about 20 man-months by local consultants), (ii) an urban/regional study, (about 44 man-months by foreign consultants and about 26 man-months by local consultants), and (iii) technical assis- tance for future project preparation (about 50 man-months by foreign consultants and about 160 man-months by local consultants).  - 17 - III. PROJECT COSTS AND FINANCING A. Project Costs 3.01 Total project cost, including (a) physical and price contingencies and land acquisition, and (b) P 34 million for detailed engineering and technical assistance financed from the Urban Engineering Loan, but excluding taxes and duties which are not borne by the agencies, is estimated at P 1,027 million ($114.1 million). In addition, a front-end fee on the Bank loan of $0.5 million brings total financing required to P 1,031 million ($114.6 million). Land acquisition costs are estimated at P 72 million ($8.0 million). Summary cost estimates are set out in Table III-1, and detailed cost estimates by city and component are given in Annex 2. 3.02 Cost estimates are based on (a) preliminary engineering designs for all civil works; (b) latest quotations by domestic and international suppliers of goods who have recently submitted bids for similar kinds of plant, vehicles and equipment; and (c) the prices of technical assistance contracts executed in 1982. Detailed engineering designs for all components are being prepared by consultants financed under the Urban Engineering Loan. Designs for components to be implemented during the first 12 to 18 months were substantially completed by March 1983; tender documents will be completed by May/June 1983. 3.03 Costs for consultant services have been estimated as follows:/l (a) for advisory services in support of project implementation (see para. 2.16), 220 man-months of foreign consultancy services at a total cost of $2.7 million; (b) for advisory services in support of institutional strengthening and training (see para. 2.17) at a total cost of $0.82 million comprised of about 52 man-months of foreign consultants and about 52 man-months of local consultants; and (c) for advisory services in support of future project preparation and related studies (para. 2.18) at a total cost of $6.8 million comprised of about 355 man-months of foreign consultants and about 706 man-months of local consultants. The total estimated costs above are based on average man-months costs of about $12,400 for foreign consultants and about $3,400 for local consultants. These costs include the cost of fees, local allowances, and international travel as appropriate, but exclude price contingencies, vehicles, local transportation, and equipment. /1 Exclusive of consultant services financed under the Urban Engineering Loan and of contingencies.  -18- TABLE III-I: SUMMARY OF PROJET COST 1/ -------P MILLION --------- -------S MILLION --------- FOREIGN CATEGORY FOREIGN LOCAL TOTAL 2/ FOREIGN LOCAL TOTAL AS I OF TOTAL URBAN TRANSPORT 72.19 85.47 157,66 8,02 9.50 17.52 CITY STREETS 48.46 72.68 121.14 5,38 8.08 13.46 40 ROAD MAINTENANCE 23.74 12.78 36.52 2.64 1.42 4.06 65 DRAINAGE I SANITATION 50.54 43.71 94.25 5.62 4,86 10,47 DRAINAGE 24,12 29,48 53.60 2.68 3.28 5.96 45 SANITATION 4,15 2.24 6.39 0.46 0.25 0.71 65 SOLID WASTES MANAGEMENT 22.27 11.99 34.26 2.47 1.33 3.81 65 MUNICIPAL ENTERPRISES 25.30 62.72 88.02 2.81 6.97 9.78 MARKETS 12.26 36.77 49,02 1.36 4.09 5.45 25 SLAUGHTERHOUSES 3.00 8.99 11.99 0.33 1.00 1.33 25 BUS TERMINALS 2.64 7.91 10.55 0.29 0.88 1.17 25 LIVELIHOOD ZONE 7.41 9.05 16.46 0.82 1.01 1.83 45 SHELTER 50.15 143.31 193.46 5.57 15.92 21.50 SITES I SERVICES 35.05 105.14 140.18 3,89 11.68 15.58 25 UPGRADING 15.10 38.18 53.28 1.68 4,24 5.?2 28 LAND 0.00 72.08 72.08 0.00 8.01 8.01 0 TECHNICAL ASSISTANCE 1 75.63 50.42 126.05 8.40 5.60 14.01 60 TRAINING BASE COST e APR 1983 PRICES 273.81 457.71 731.52 30.42 50.86 81,28 37 CONTINGENCIES- FHYSICAL 3/ 24.48 40.74 65.22 2.72 4.53 7.25 38 PRICE 4/ 85.93 143.87 229.80 9.56 15.98 25.53 37 TOTAL PROJECT COST 384.22 642.32 1026.54 42.70 71.36 114.06 37 FRONT END FEE ON BANK LOAN 4.49 0.00 4.49 0.50 0.00 0.50 100 TOTAL FINANCING REQUIRED 388.71 642.32 1031.03 43.20 71.36 114.56 4/ 38 1/ DUE TO COMPUTER ROUNDING TO TWO DECIMALS IN TOTALS, LAST DIGIT DIFFERS SLIGHTLY FROM SUM OF COLUMNS. 2/ INCLUDES P34.04 MILLION FOR DETAILED ENGINEERING I TECHNICAL ASSISTANCE FINANCED FROM THE URBAN ENGINEERING LOAN (2067 PH) 3/ PHYSICAL CONTINGENCIES ARE 15Z OF BASE COST EXCEPT FOR SLUH UPGRADING & MARKET REHABILITATION ON WHICH 20X HAS BEEN ADDED. 4/PRICE CONTINGENCIES ARE ABOUT 29% OF THE BASE COSTS PLUS PHYSICAL CONTENGENCIES.  - 19 - 3.04 All costs are expressed in April 1983 price,-^ Pnys:ical contf n- gencies have been estimated at 15% for all civil works i pth prel.iminary engineering except for slum upgrading and market rehabl