Philippines - First Rural Infrastructure Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7936 PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES RURAL INFRASTRUCTURE PROJECT (CREDIT 790-PH) JUNE 30, 1989 Operations Evaluation Department This document has a restricted distribution and may be used by recipients onlN in the performance of their official duties. Its contents may not otherwise be disclosed without "orld Bank authorization. CURRENCY EQUIVALENTS Currency unit - Philippines Peso (P) &1 =US$0.135 US$1 - P 7.40 WEIGHTS AND MEASURES 1 ha - 2.47 acres 1 km - 0.62 miles 1 sq km - 0.386 sq mile 1 m - 3.28 ft 1 sq m = 10.76 sq ft 1 cu m = 35.31 cu ft 1 M cu m = 810.7 ac ft 1 M = 0.039 in 1 kg - 2.2 lb 1 cavan - 50 kg 20 cavans = 1 m ton ABBREVIATIONS ADB - Asian Development Bank AID - Agency for International Development BAE . Bureau of Agricultural Extension BBR - Bureau of Barangay Roads BH; - Barangay Health Station BPI - Bureau of Plant Industry BPW - Bureau of Public Works CCC - Cabinent Coordinating Committee on Rural Development CP - Cooperative Program CPO - Central Project Organization DAR - Department of Agrarian Reforms DLGCD - Department of Local Government and Community Development DOH - Department of Health DPH - Department of Public Highways DPWTC - Department of Public Works, Transportation and Communication FA0 - Food and Agriculture Organization FSDC - Farm Systems Development Corporation ISA - Irrigation Service Association MLWL - Mean Low Water Level NEDA - National Economic and Development Authority NFAC - National Food and Agricultural Council NGA - National Grain Authority NIA - National Irrigation Administration O&M - Operation and Maintenance PDAP - Provincial Development Assistance Program PDD - Project Development Department PMS - Project Management Staff PPA - Philippines Port Authority PPDS - Project Planning and Development Service PRIP: I - Philippines Rural Infrastructure Project: I RB - Rural Banks RHU - Rural Health Unit UPRP - Upper Pampanga River Project WHO - World Health organization GLOSSARY Barangay - Village GOVERNMENT OF THE PHILIPPINES kISUAL YEAR January 1 - December 31 KOXIALM ONLY TH WORLD BANK Washngton, DC 20413 U.S.A. Oce of owcoraeral Opeasons lvahute June 30, 1989 HMIORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Philippines Rural Infrastructure Project (Credit 790-PH) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Philippines - Rural Infrastructure Project (Credit 790-PH)" prepared by the Operations Evaluation Department. Attachment 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. PROJECT PERFORMANCE AIDIT REPORT PHILIPPINES RURAL INFRASTRUCTURE PROJECT (CREDIT 790-PH) Table of Contents Preface ........... . ............................................... i Basic Data Sheet ..................-..........ii Evaluation Summary .................................................. iv PROJECT PERFORMANCE AUDIT REPORT I. PROJECT BACKGROUND ............................. 1 A. Introduction ........................................ 1 B. Project Objectives ................................ 1 C. Project Formulation and Design .................... 2 D. Project Costs and Financing . ........... ... 4 E. Implementation Arrangements ......................... 4 II. PROJECT IMPLEMENTATION AND OUTCOME ...................... 5 III. FINDINGS AND ISSUES ..................................... 7 A. Introduction ................................. 7 3. Project Concept, Design and State of Preparation .... 8 C. Maintenance and Sustainability ............... 11 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 Wcrld Bank authorization. PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES RURAL INFRASTRUCTURE PROJECT (CREDIT 790-PH) PREFACE 1. This is a Project Performance Audit Report (PPAR) on the Rural Infrastructure Project-I, involving an IDA credit in the amount of US$28.0 million to the government of the Philippines, with the objective of raising the socio-economic conditions of rural populations in six less advanced provinces. The credit was approved on April 21, 1978, and became effective on July 20, 1978. The credit was closed after two extensions totalling 2 1/2 years on June 30, 1986, and the undisbursed balance of US$6.5 million was cancelled. 2. The PPAR is based on the Project Completion Report (PCR) prepared by the Department of Public Works and Highways of the Government and an Overview of the PCR prepared by the Asia Region of the Bank, the Staff Appraisal and the President's Reports, the credit documents, other records on Bank files, and on discussions with Bank staff. An OED mission visited Philippines in October 1988 and had discussions with relevant government staff; and visited project sites in four of the six provinces covered by the project. The kind cooperation and valuable assistance of government agencies and staff in the preparation of this report is gratefully acknowledged. 3. The PCR and Overview provide a thorough account and assessment of the project experience, and discuss the performance of the Bank and the project executing agencies. The PPAR elaborates on particular aspects such as the project concept and design, the state of preparation of the project and the sustainability of investments. 4. Following standard OED procedures, copies of the draft PPAR were sent to the Government for comments on May 31, 1989. No comme:ts were received. PROECT PMPMMMCE MWIT WMT NaL DA-CM~E PMECT I (CMIT 7~0-PNe fAlC DATA SfET KEY PMCT DATA Appraisel Ac1.al er Agtuel se 1 of Expectation Currel Ee1m Appelealu Eslimate Projee C..% (UM all l 1*) 69.0 48. 61.9 CrdIt Amout (Um al iI en) /a 28.0 21.6 77.0 Dat. Baed Apprval 04/11/78 Date Effeel e 97/M/7 Date Phyel64i CGMpee COMpieled 12/81/02 0/0/06 10.0 Cleeing Data 12// 080/88 16.0 Economie Rate of Roerf (f) /b 17 17 l10 Financial Rate of Return (9) na. n. a. CUMLATIVE DISIP<MNTS fF9 FYf FYK Fylp F** FYS4 FYff FYf Apprealal Etlimte (US alillon) 0.2 5.8 14.0 21.0 20.0 29.6 28.0 28.0 Actuai (UStmliIion) - 0.8 2.5 7.2 10.2 14.8 17.9 21.6 Actuel as % of Etlemte - 14.6 17.9 84.3 89.2 51.1 Date of Final Dieburment 07/11/S8 Principel Repald to 12/1/17 (US8 *iiIi.o) 0.001 STAFF IPUTS (s*aff meeka) Fy7g Fy78 Fy77 Fy79 Fy79 lygg FySil FI8 Fy« Fy94 FYSS FYN FY*7 FYR TOTAL Preöppralsal 11.0 .0 22.6 8.5 42.1 Apprala; 87.1 a 8.9 91.7 Negtlctione 7.2 7.2 Supervleoo 1.6 16.7 26.4 9.2 9.8 6.8 11.0 6.7 5.9 0.6 8.1 99.1 Other 0.1 0.2 2.2 0.2 2.7 Subotel 11.7 .0 59.9 78.8 19.9 26.4 9.2 9.6 8.3 11.0 0.7 6.9 0.9 3.1 242.7 - i1l - MIsoIN DATA Det. Nø. *f 6tff/Daye 1ee18111aeln Perf*rimne Type ef f.(g r)2. P ~ in field = e U ggg .TPr~ L Id"i.tifiet1e1 11/70 4 !8 A,Ee,ta(S) - - - Prperatløn 1/76 S 1li A,E,EA(S) - - Apprelsel 1 6/177 7 13U A(2),Ee(2),E(8) - - - Appreiel 2 11/77 S 19 tK,E(4) - - - sbkt.aI .jk 476 Supervlsln 1 67/7S 2 12 en(2) 1 2 - Supervielø 2 8/79 8 w1 EF(A) 1 1 - Supervielot * 16/79 2 U2 En(2) 1 m Supervlefon t8()* 18/1» 1 14 En 1 1 - Supervlalo 4 #6/SI 4 24 A,E(*) 2 2 M Supervielon 4(a)* 16/U0 1 S En - - - Supervilen 811 2 14 Et(2) 2 1 M Supervielen *) l I6/S1 1 8 En - - - Supervigion 6 1/62 1 7 En 2 1 Mv Supervision 7 "8/8 2 28 En,Ee 2 S WTF Sypervilo, 6 lo/*& 2 8 En(2) 2 1 UTFP Suporvision 9 83/S4 1 7 En 2 1 MTP Supervieion 16 11/54 1 16 En 2 1 MFO Supervielon 11 6/83 i 1 En 2 - - Subtotal2I|2" Total 4 .6 * Not full algtin--SPN of one coponent only. OTHER PROJECT DATA borroWer Repubile of the PhlliIrpne Executing Aency Depertment of Public Works and Mighaye (DP') National Irrigation Adminlotratlon (NIA); and Departent of Hamith (DOM) Floca Year January 1 - December 31 Cofinanciere Mone Name of Curroncy (abbrevlation) Peso (P) Currency Exchange Rate Appraiøal Year Aerage 1978 US#1.66 a 7.37 Iptervening Yearø Average 192 Us81.6 a 8.37 Completion Year Average 19~6 USS1.80 = 21.19 Follow-on Project: None lå The undløbursød credit balance of US96,461,8.683 es cancelled effective July 11, 198. b The weighted ERR on the basis of relative costa of the Irrigatlon, rode and poste components of the project. Benefite from thø health and water supply componente werø not quantlfied at appraisal and completion. c A m agriculiurlst; Ec & economiat; En m engineer. 1 = problem-free or minor problem; 2 a moderate probleme; and 8 & major problemi. Lo I ahproving; 2 = st*tionary; S m deterlorating. F a financial; M a managerial; T a technical; P * polltical; and 0 : other. PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES RURAL INFRASTRUCTURE PROJECT (CREDIT 790-PH) EVALUATION SUMMARY Introduction 1. This was the first Bank-assisted multi-sectural rural infrastruc- ture project in the Philippines. Project components were mainly barangay (village) roads, small-scale communal irrigation systems, small ports, barangay health stations and rural water supplies. While eanh of these activities was already being financed by government under ongoing programs and was also being financed by the Bank as components of previous Bank loans, the project was the first effort by the Bank group aimed at assist- ing the implementation agencies with a relatively large program of rural infrastructure development. 2. Total project costs were estimated to be US$59.0 million, of which base costs were US$43.2 million and contingencies were US$15.8 million. Two components, barangay roads and communal irrigation systems, comprised 77% of base costs, with the roads component being the single largest com- ponent at 62% of base costs. The IDA credit of US$28.0 million financed the foreign exchange cost of the project or 48% of total project costs. There were no cofinanciers. The IDA zredit was approved on April 11, 1978 and closed on June 20, 1986 after two extensions. US$6.9 million (25%) of the credit was cancelled. Project Oblectives 3. The project supported the government efforts to raise the socio- economic conditions of rural populations in six less advanced provinces, namely Abra, Kalinga-Apayao, Aklan, Antique, Capiz, Bohol. "Bank group assistance would be focussed mainly on strengthening the technical and administrative capability of the implementing agencies, providing addi- tional funds to enable the expansion of the programs, and introducing improved methods for selecting, evaluating and monitoring the development impact of these programs" (SAR, para. !.01). Implementation Experience 4. The project was implemented by existing agencies, with coordi- nation by a Central Project Office (CPO) in the DPW. under the direction of a Project Director. The project took almost twic as long to implement as expected (8 years instead of 4 112), with supervision by the Zank stretch- ing over more than ten years. Main reasons given in the PCR are severe weather conditions, government's lengthy administrative procedures, peace and order problems, shortages of materials, coordination problems, funding -v - delays and contractor difficulties. The dominant barangay roads component suffered especially long delays. Project management staff noted in addi- tion that the project schedule allowed inadequate time for preparation of subcomponents, especially for the roads and ports components. The PCR refers to the Bank's expectations of what could be achieved as being over- optimistic compared with a more realistic appreciation of implementation capability and bureaucratic procedures in the Philippines. Results 5. Construction targets and achievements by component are shown in tabular form in the PPAR. When weighted by the SAR base-cost estimates, the overall achievement of physical targets was 82%. This compares with about 90% quoted in the PCR Overview. The main shortfall was that only 73% by length of an amended rural roads program was co,apleted after long de- lays. The recalculated rates of return for the main investment components (roads, irrigation and ports) compare favorably in most cases with the SAR estimates as detailed in the Overview, but audit comments on sustainability aspects qualify these estimates. Sustainability 6. Andit inspections indicate that maintenance deficiencies are affecting sustainability of the investments, most critically with respect to the major component of the project, the rural roads. Rural road maintenance in the Philippines has recently been the subject of a case study by OED staff in the context of a special study of rural roads maintenance. The case study is available as a Bank internal document (Report No. 7728, World Bank Support for Rural Roads Maintenance - Philippines Case Study, April 20, 1989). The findings of this audit support the case study. In the case of the project, despite the assurances on road maintenance (as reflected in the legal covenants), there has been little maintenance of any of the rural roaes financed under the project. It remains a concern that in the project context the Bank did not follow through on this important aspect. 7. Fiel inspections also Indicated that there were maintenance globlems with both the communal irrigation systems and the barangay health stations. In the case of irrigation it was generally reported that farmers were not wUlling to ma'ntain the facilities. There were also maintenance problems with the health station water supplies. Findings 8. The construction objectives of the project were substantially completed although program composition changed and the work took about double the time anticipated at appraisal. Other institutional aspects of the project, which were given prominence in the SAR objectives, were not pursued so vigorously. 9. The project documents and Bank files are unrevealing with respect to the rationale for adopcing a new multi-sectoral approach to financing rural infrastructure in the Philippines. The projezt concept proposed a major departure from previous practice by, in parallel with existing financing of rural infrastructure, combining together some, but not all, of - vi - the major rural infrastructure neede in a separate multi-sectoral opfrs- Lion. A series of such Bank funding of "time slices" of ongoing government programs was intended. The need to integrate implementation of such in- vestments might have provided justification, but therj is no such strong need except for the case of access roads for irrigation development. Com- ments in the Philippines during the audit mission suggest that government staff had some difficulty unders*.anding the justification and need for the type of approach adopted by th4 Bank for this project. The audit has con- cluded that the only apparent justification for the proj_ct concept was that it facilitated an additional Bank-funded operation. In the process, however, the audit believes that the longec-term developmental objectives of the Bank-country relationship in the particular sectore financed were put at unacceptable risk. Of particular concern is the poor attention given to developmental objectives as opposed to co .struction objectives, as apparent from the project documents and files. 10. In some xespects the project design was an uns-tisfactory com- promise, in that it adopted a sector program approach to identifying in- vestments (with only early typical examples being prepared in any detail) but admitted that institutional capacities for implementing such a program were so weak that heavy supervision by the Bank would be required. On the other hand, however, if the operation was seen as a conventional project, then in the audit's view it was inadequately prepared for implementation at the time of approval. Put another way, the appraisal and Board approval were premature in the project cycle. Numerous 3elays during implementa- tion, for a variety of reasons, as detailed at length in the PCR, confirm this point. 11. The PCR and Overview state that the bank's expectations were unrealistic with respect to the project content and implementation schedule. 12. Designing the project in the way chosen, with limited detailed preparation before appraisal and provision for later Bank review of de- tailed proposals for subprojects, allowed the operation to proceed ahead of what might have been a more prudent schedule and in effect placed the bur- den on Bank supc vision ?esources to help implement tne project. Giv.?n Bank resource constraints, however, it is questionable whether trading-off project preparedness (in the interests of early funding approval), against later Bank inputs during supervision, is an acceptable operational strategy under the then or current arrangements which provide no guarantee that exceptional Bank inputs will be available when needed. PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES RURAL INFRASTRUCTURE PROJECr (CREDIT 790-PH) I. PROJECT BACKGROUND A. Introduction 1 This was the first Bank-assisted multi-sectoral rural Infrastruc- ture project in the Philippines. Project components were mainly barangay (village) roads, small-scale communal irrigation systems, small ports, barangay health stations and rural water supplies. While each of these activities was already being financed by government under ongoing programs and was also being financed by the Bank as components of previous Bank loans, the project was the first effort by the Bank group aimed at assist- ing the implementation agencies with a relatively large program of rural infrastructure development. 2. At the time of appraisal some 31 million people or 70% of the population of the Philippines lived in rural areas where social services were poor, economic activities limited, agricultural productivity low and unemployment high. Agriculture was the predominant sector in the economy, accounting for about 30% of gross domestic product and over half total employment. About 65% of the rural population were smallholders. Food grain production (60% rice and 40% corn) for domestic consumption, and coconuts and sugar as the main export crops, were the main crops. The SAR noted that except for some of the more developed low land areas in central Luzon, rural infrastructure was generally inadequate. In particular, of the extensive network of barangay or feeder roads (some 50,000 km), only 20% was in good condition while at least half was tn extremely bad condi- tion and impassable during the wet season. Development had been concen- trated in areas suited for large-scale projects, particularly lowland areas where arable land, irrigation water, and markets were readily available. Government priorities then changed to give more attention to economically isolated and depressed rural areas. B. Project Objectives 3. The project supported the government efforts to raise the socio- economic conditions of rural populations in six provinces, namely Abra, Kalinga-Apayao, Aklan, Antique, Capiz, Bohol. These provinces were se- lected on the basis of their low level per capita income and need for rural infrastructure. The project was intended to be "supportive of the govern- -2- ment's development strategy for rural sector and meets the objectives of improving real incomes in the less developed provinces, assisting the na- tional progLam for food grain self-sufficiency, and developing the capacity of government agencies to carry out effective rural infrastructure pro- grams" (President's Report, para. 38). 4. According to the Staff Appraisal Report (SAR, para. 1.01), "Bank group assistance would be fccussed mainly on strengthening the technical and administrative capability of the implementing agencies, providing additional funds to enable the expansion of the programs, and introducing improved methods for selecting, evaluatirg and monitoring the development impact of these programs". The underlying equity objective was to improve poorer areas. C. Project Formulation and Design 5. The project was identified during discussions with government officials in November 1975 and prepared by the National Economic and Development Authority (NEDA), assisted by the World Bank/FAO Cooperative Program (FAO/CP) and Bank staff. A Bank preparation mission visited the Philippines and reviewed project proposals in June 1976. 6. During the various stages of processing in the Bank, the project documents attracted wide attention given that the project concept embraced five sectors which were normally the operational responsibility of four different Bank operational divisions. The many comments on file ranged from the muted to the highly concerned and illustiate the difficulty the Bank had in processing such multi-sectoral operatioas. CommenLa were provided both by sector specialists from the Bank's central review staff and by the sector divisions in the then East Asia and Pacific region. Several of the comments related to conflicts, potential or actual, with ongoing or proposed operations being managed by the other sectoral divi- sions. For example, it was suggested that the treatment of port and health aspects in the project was not compatible with the more detailed and longer-term operations of those two sector-specific divisions. Four com- ments proved especially prophetic, these were on the large-scale scope of the project vis-a-vis the capability of the agencies, whether preparation was adequate, that provision for the maintenance of the facilities was weak, and that the proposals for strengthening the implementation capacity of the government agencies involved were not clear or commensurate with the prominence given to this project objective (see para. 3 above). With res- pect to the rural roads component, it was noted that with base costs at 62% of total base cost, this component could be justified as a free standing roads project (handled by a transport division as opposed to the irrigation division which managed the project). During processing several other sub- projects were dropped (including grain drying, flood control and schisto- somiasis control) and the list of provinces to be covered was amended in response to the income level and infrastructure needs criteria. 7. In processing the project upwards through the Bank hierarchy, the responsible division noted on file that, given the relative inexperience of the many government executing agencies, the project would require higher supervision input than normal. -3- 8. The project components were as follows: (a) Communal Irrigation Development Construction of about 53 new irrigation systems serving some 8,500 ha and rehabilitation of two existing systems serving 900 ha. (b) Barangay Roads (i) Construction and upgrading of about 1,260 km of barangay roads, and construction of access roads for the proposed communal irrigation systems and barangay health stations; and (ii) Technical assistance for detailed engineering, design, supervision of construction and maintenance of the project roads. (c) Ports Rehabilitation and improvement of three ports. (d) Barangay Health Stations (i) Construction of 60 health stations; and (ii) Procurement of equipment and supplies. (e) Rural Water Supply (i) Procurement of drilling equipment and materials for the construction of about 300 wells; and (ii) Training and strengthening of the existing staff of the Bureau of Public Works (BPW). (f) Preparation of a f'::;ure rural infrastructure project in ten provinces to be selected by the government. The project design did not contain a specific component for monitoring and evaluating the development impact of the various programs and institutional development aspects were relatively weak. Completion times for the various components ranged down from 4 years for the roads and rural water supplies, to 3 1/2 for the irrigation, 3 for the ports, 2 1/2 for the barangay health stations and 2 years for the project preparation component. 9. At the time of appraisal the Bank was concerned that construction projects were being processed before design work was sufficiently advanced to reduce uncertainties and allow firm cost estimates. Consequently in October 1978, just before this project was approved, the Bank issued a new instruction (OMS 2.28) specifying arrangements to overcome these problems. These new arrangements were to be introduced gradually. For the project, at the time of appraisal, the status of engineering was as follows. For the communal irrigation system component, the SAR stated (para. 3.04) that -4 preliminary project planning studies, designs and estimates were carred out by NIA and that since only limited data were available, 10 represen- tative systems accoucing for about 25% of the total area were studied in detail. Planning and design of the 10 selected systems was carried out in sufficient degree to permit the detailed design of these systems with li- mited additional work. For the dominant barangay roads component prelimi- nary project planning studies had been completed according to specifica- tions agreed with Bank staff. However, at the time of appraisal, no ex- ante evaluation of the economic justification for the proposed roads had been completed. The SAR therefore made provision for such final ex-ante evaluation to be carried out by DPH before detailed design. These eva- luation reports were to be submitted to the Bank prior to implementation. For the three ports the SAR (para. 3.18) stated that the works included in the project for each port were based on actual needs determined by field inspection and discussion with the field operating staff of each port. The cost estimates of the barangay health stations were based on ty;ical de- signs for such buildings in the Philippines. The status of preparation of the rural water supply component was not expressly described in the SAR. Existing designs standards were to be revised, however, and submitted to IDA for review. The state of preparation of the project did not meet the requirements of the new staff guideline (but it was not recuired to) and, as it happened, it was delays in designing and evaluating the "ominant road component which was the main cause of delayed implementation. D. Prolect Costs and Financing 10. Total project costs were estimated to be US$59.0 million, of which base costs were US$43.2 million and contin6encies were US$15.8 million. Two components, barangay roads and communal irrigation systems, comprised 77% of base costs, with the roads component being the single largest com- ponent at 62% of base costs. The IDA credit of US$28.0 million financed the foreign exchange cost of the project or 48% of total project costs. There were no cofinanciers. E. Implementation Arrangements 11. The project was to be implemented by existing agencies, namely the National Irrigation Administration (NIA), the Department of Public Highways (DPH), the Department of Public Works, Transportation and Communications (DPWTC), and the Department of Public Health (DPH). Other agencies in- volved included the Farm Systems Developsient Corporation (FSD), the Philippines Ports Authority (PPA) and the Department of Local government and Community Development (DLGCD). Policy matters relating to project activities were the responsibility of the existing Cabinet Coordinating Committee for rural development (CCC), within NEDA. A Central Project Office (CPO) in the DPW, under the direction of a Project Director, had responsibility for the coordination of day-to-day activities. The Project Director was assisted by a steering committee comprising senior staff mem- bers from the relevant implementing agencies and a representative of the Budget Commission. The CPO had a small administrative, accounting and monitoring staff. -5- II. PROJECT IMPLEMENTATION AND OUTCOME 12. The project took almost twice as long to implement as expected (8 years instead of 4 1.'2), with supervision, including PCR work, by the Bank stretching over ten years. The PCR Overview states as follows in this respects "Project implementation took about four years longer than pre- dicted at appraisal. The main factors responsible for the delay -nclude severe weather conditions, government's lengthy administrative procedures, peace and order problems, funding delays and contractor diffiil1ties. The barangay roads component suffered especially long delays, the iirst due to the re-negotiation of consultant quotations for detailed engineering because of the Bank's view that these quotations were too high. Also shortages of materials caused delays in the roads and ports components. Coordination between the different implementing agencies was not as smooth as expected, and the diversity and geographic dispersion of the individual works made overall management difficult."1/ Project management staff noted in addition zhat the project schedule allowed inadequate time for preparation of subcom-ponents, especially for the roads and ports components. Consequently there were many change orders which led to further delays. 13. The PCR and Overview in addition refer to the Bank's expectations of what could be achieved as being over-optimistic compared with a more realistic appreciation of implementation capability and bureaucratic pro- cedures in the Philippines. With respect to the Bank's procedures, the audit raises the issue below of whether the prolect was adequately prepared at the time of approval, or in other words whether project processing was premature. 14. About US$21.5 million of che credit of US$28.0 million was used (i.e. about 77%) and the balance of about US$6.5 million was cancelled. The total project cost of US$48.3 million was 18% lower than the appraisal estimate of US$59.0 million, mainly due to devaluation of the Peso and changes in project content. In local currency the estimated project cost was about Pesos 618 million, which was some 42% above the appraisal esti- mate of about Pesos 437 million. In US$ terms the roads and rural water supply components cost almost the same as the SAR base cost estimate, whereas there was a notable saving on the cost of the irrigation component. No funds were drawn against the project preparation component since this was not implemented. 15. Construction targets and achievements by component are shown in the following table. 1/ A reviewer from the Bank's regional office notes furthermore: "The implementation period, particularly the later part, was adversely affected by the major political and economic crisis in the Philippines which ended in the 1985 revolution. During this time various peace and order problems affected most work, particularly the road and irrigation works in different parts of the country. Also project funding delays and financial difficulties encountered by contractors impeded all work in general. In the face of these difficulties project performance and impact have really been quite good." -6- Construction Targets and Achievements Roads (Km) SAR Actual Achievement % Original Subprojects 1,390 639 46 New Roads 1,150 508 44 Upgrading 240 131 55 Substitute Subprojects - 373 a/ NA Total 1,012 73 Communal Irrization Systems (a) New Schemes Number c.53 22 42 Service Area (Ha) 8,500 5,274 62 (b) Rehabilitation Number 2 21 1,020 Service Area (Ha) 900 4,315 479 Total Original Schemes (fo.) 55 28 b/ 51 Substitute Schemes (No.) NA 15 NA Total 55 4$ 78 Service Area (Ha) 9,400 9,584 102 (c) Cropping Intensity Irrigable Area (Ha) 15,400 16,705 108 Cropping Intensity (%) 164 174 106 Ports Number (expansion & rehab.) 3 2 c/ 66 Barangay Health Status Number 60 60 d/ 100 Rural Water Supply Number of producing wells 300 418 139 e/ Number of abandoned wells - 59 - Total number drilled 477 159 (a) Breakdown into new roads and upgrading of existing roads is not available. (b) Scheme Nos. in PCR do not tally. (c) However, main works of one (a breakwater) were partly destroyed by typhoons at time of audit. d/ Some sites changed. e/ Lower unit costs. When weighted by the SAR base-cost estimates, the overall achievement of physical targets, based on the component achievements listed above, is 82%. This compares with about 90% estimated in the PCR Overview, after excluding the project preparation component (which was dropped) and rounding. -7- 16. Detailed and forthright comments are given in the Overview and PCR on the implementation of each component and io not need to be repeated here. Brief notes will suffice, however, to point up some of the changes made during project implementation as documented by the above table. In the case of roads it became apparent during detailed preparation that about half the length of the original selected subprojects were not viable investments and consequently substitute subprojects were financed. 17. The performance of the ports component is somewhat overstated in both the PCR and Overview. Based on the audit's field visits it appears that improvements at Culasi Port were completed largely as planned, whereas the main investment at San Jose da Buena Vista port, a breakwater, waa two- thirds destroyed by a typhoon (it had been damaged earlier by a typhoon) and the Dumaguit Port subproject was regarded as an abandoned investment on technical grounds (in any case the port was inactive except for some pas- senger traffic). In both these last two cases faulty design appeared to be the problem. In the first case the breakwater cannot withstand the condi- tions experienced in that part of the Philippines and in the second case the concrete piles delivered to the site were too short to reach stable strata, which were deeper than expected. 18. The construction performance of the barangay health stations and rural water supply components met and exceeded targets respectively, al- though the audit comments below on operation and sustainability issues. 19. Changes and project scope and content introduced during imple- mentation were probably highly beneficial in the sense that they were based, as intended at appraisal, on detailed preparation studies which indicated that for some irrigation systems and rural roads the expected impact on the target population and rates of return were lower than could justify the investment. New subprojects were consequently selected and evaluated. The relatively high recalculated rates of return for the main investment components (roads, irrigation and ports) compare favorably in most cases with the SAR estimates as detailed in the Overview, but audit comments on sustainability aspect3 qualify these estimates. III. FINDINGS AND ISSUES A. Introduction 20. The construction objectives of the project were substantially completed although program composition changed and the work took about double the time anticipated at appraisal, largely because of greatly delayed implementation of the dominant component, rural roads. Other institutional aspects of the project, which were given prominence in the SAR objectives, were not pursued so vigorously. The two small components, barangay health station and rural. water supply, were implemented largely as planned and close to schedule. For the small ports component, selected improvement works at two of the threa ports remain damaged or incomplete. In the case of the dominant rural roads and communal irrigation schemes, major parts of the investments identified at appraisal were not implemented as they did not meet feasibility standards. Substitute rural roads and -8- irrigation systems were financed instead, although the audit was not able to establish from the documentation what proportion of the substitute roads projects were new as opposed to improvement or rehabilitation of existing roads (in the appraisal design new roads were dominant). Thus the overall construction achievement of 82%, when weighted by appraisal base costs, could overstate physical achievements if a significant proportion of the substitute road investments were not new facilities. 21. Aspects of project concept and design, status of preparation and current sustainability issues, are the subject of further audit comments below. B. Project Concept, Design and State of Preparation 22. The project documents and Bank files are unrevealing with respect to the rationale for adopting a new multi-sectoral approach to financing rural infrastructure in the Philippines. Whereas previously activities financed by the project had been included in sector-specific projects, which were ongoing at the time or proposed for early implementation, the project concept proposed a major departure from this practice by, in pa- rallel with existing financing of rural infrastructure, combining toge- ther some, but not all, of the major rural infrastructure needs in a sepa- rate multi-sectoral operation. A series of such Bank funding of "time slices" of ongoing government programs was intended. Project papers do not provide any justification or explanation for adopting this new approach. In particular the project brief is blank under the section headed "Project Origin" and the only clue to the parentage of the concept is that it arose in a discussion between a Bank manager and a senior o1ficial of NEDA. The original package of investments proposed was even wider than that finally selected, but even so no special logic can be seen for packaging rural roads, irrigation schemes, health stations, village water supply and ports together in a single Bank-funded project. (In the files, NEDA seems more concerned than the Bank to drop components which overlapped with other Bank operations.) The need to integrate implementation of such investments might have provided justification, but there is no such strong need except for the case of access roads for irrigation development. Bank documents are ambivalent on this point. Thus, appraisal documentation refers to the project as being integrated, although somewhat unconvincingly, but the staff presentation at the Bank's Board noted that "since the project com- ponents were not interdependei.t, there would be no need for an elaborate coordinating mechanism between the various agencies." (Summaries of Discussions, May 3, 1978.) 23. The project was handled throughout by a division responsible for irrigation and area development projects. During processing there were muted to concerned memoranda (on file) from parallel divisions which had operational responsibilities for other Bank-assisted projects financing roads, ports, health stations and rural water supplies. A major concern raised by these memoranda, especially in connection with roads, ports and health stat'-ns (and one which is shared by the audit) is that the irri- gation division's activities were at risk of cutting across and compro- mising the ionger-term objectives of these sector-specific divisions. (There is little evidence on file as to how regional managers reacted to 9 this issue.) It was noted particularly in connection with ports and health stations that the irrigation division was dealing with construction agen- cies rather than the specialist agencies of the Philippine government which had longer-term responsibility for policy and maintenance aspects of such investments. The advisability of two different operation units in the Bank working with the same Philippine agencies was raised as a potential source of confusion. It was noted also that all of the concerned agencies were already overstretched by their current operations, both with the Bank and many other external donors, and that in the circumstances they were more likely to give priority to their own self-standing sector-specific projects with their various donors, than to a relatively minor component of the Rural Infrastructure Project. The files indicate quite clearly that this indeed occurred, both during preparation, where progress was slow and largely driven by missions from the Bank and FAO/CP, and during imple- mentation. In the audit's view, all of these organizational issues were not new at the time, and indeed there was an existing fund of knowledge suggesting that project implementation would be delayed, such that the packaging of these five rural infrastructure components into a multi- sectoral project was not justified. Comments in the Philippines during the audit mission also suggest that government staff had some difficulty understanding the justification and need for the type of approach adopted by the Bank for this project. The implementation experience, in the circumstances, may have largely contributed to the decision not to prepare a a. cond such rural infrastructure project. 24. The audit has concluded that the only apparent justification for the project concept was that it facilitated an additional Bank-funded operation.2/ In the process, however, the audit believes that the longer- term developmental objectives of the Bank-country dialogues in the particular sectors financed were put at unacceptable risk for the sake of this one multi-sectoral operation. Of particular concern is the poor attention given to developmental objectives under the project as opposed to construction objectives, as is apparent from the project documents and files (see below). 25. In some respects the project design was an unsatisfactory com- promise, in that it adopted a sector program approach to identifying in- vestments (with only early typical examples being prepared in any detail) but admitted that institutional capacities for implementing such a program were so weak that heavy supervision by the Bank would be required (para. 37). Thus the major usual requirement for such sector program activities, that in-country institutions had proven capability to identify, prepare and implement such unidentified investments, was not satisfied at the time this project was approved. The appraisal report had stated, as quoted in para. 1 of this memorandum, that the institutional objectives of the project would address these deficiencies, but the project components, and the legal documents, provided little of substance to suggest that this objective could be met (which was a criticism raised during processing of the appraisal report). On the other hand, however, if the operation was seen as a conventional project, then in the audit's view it was inade- 2/ The Bank's regional office does not agree with this conclusion and points to the many integrated rural development projects that the Bank was assisting at the time as precedents. - 10 - quately prepared for implementation at the time of approval. Put another way, the appraisal and Board approval were premature in the project cycle. Numerous delays during implementation, for a variety of reasons, as de- tailed at length in the PCR, confirm this point. 26. The PCR and Overview state that the Bank's (pre-appraisal) expectations were unrealistic with respect to the project content and implementation schedule. The audit notes furthermore that given that lack of government comitment was the first issue raised at the issues/decision meeting process, following field appraisal, there seemed every reason to adopt a cautious approach. During preparation, the lack of progress by government agencies (on preparation activities) had clearly flagged the possible low priority attached to the project, but the preparation process was kept moving by several FAO/CP and Bank staff missions. Unrealistic expectations are apparent on file from the start of preparation onwards. For example, for 12 irrigation subprojects spread over six provinces, the Bank asked in a letter that the Farm Systems Development Corporation obtain farmers' consent, prepare rights-of-way, organize Irrigation Associations and loan agreements, and appoint four field officers before the arrival of the appraisal mission in only seven wee time. (In the event, diffi- culties over farmer agreements, rights-of-way and the poor performance of FSDC were problems during implementation later, and FSDC was eventually disbanded as ineffective.) At the same time as FSDC was put under this pressure by the Bank, NIA was also asked to prepare detailed designs of the 12 schemes in time for appraisal in seven weeks. In the audit's view such rush requests border on the irresponsible. They could be accommodated only at the expense of disruption of other work (which may be as high priority as the Bank's interests) and such tight deadlines probably can be met only in spirit by corner-cutting at the expense of thorough preparation. It is at times such as these that the Bank's reputation as a development insti- tution, as opposed to merely a source of funds, runs the risk of deservedly falling into disrepute. 27. Designing the project in the way chosen, with limited detailed preparation before appraisal and provision for later Bank review of detailed proposals for subprojects, allowed the operation Lo proceed ahead of what might have been a more prudent schedule and in effect placed the burden on Bank supervision resources to help implement the project. This was expected during processing.3/ In the eve%t implementation stretched out and average supervision over the principAl eight years of implemen- tation (1979-1986) was just below the normal average of the time (11.7 staff weeks a year cf. 13 s.w.). A special supezvision effort was made in the first two years at 18.7 s.w. and 26.4 s.w., but thereafter supervision averaged only 8.1 s.w. a year. (A notable feature of supervision staffing was that 22 out of 24 staff visits to the project were by engineers, indi- cating emphasis on implementation of construction rather than longer-term aspects such as impact and institutional development which would have required other skills.) Had the project been implemented in the expected four years, and used the same ove . amount of supervision, the average 3/ The Bank's regional office places particular emphasis on the desirable design flexibility aspect of the irrigation and rural roads component preparation arrangements, but notes that the ports component was not prepared adequately. - 11 - would have been heavy at 23 s.w. per year as expected at appraisal. Given Bank resource constraints, however, it is questionable whether trading-off project preparedness (in the interests of early funding approval), against later Bank inputs during supervision, is an acceptable operational strategy under the then or current arrangements which provide no guarantee that exceptional Bank inputs will be available when needed. C. Maintenance and Sustainability 28. The project design concentrated mainly on implementation aspects and made only passing references, largely through legal covenants, to maintenance of the facilities after construction. At the time of appraisal maintenance problems were well known to the Bank, and indeed were raised as issues by parallel divisions during processing. The level of maintenance of much physical infrastructure throughout the country has usually been ar.d is likely to continue to be inadequate. The 1980s have been very difficr.lt years, in this respect, in the Philippines. Audit inspections indicate that maintenance deficiencies are affecting sustainability af the invest- ments most critically with respect to the major component of the project, the rural roads. Rural road maintenance in the Philippines has recently been the subject of a case study by OED staff in the context of a special study of rural roads maintenance. The case study is available as a Bank internal document (Report No. 7728, World Bank Support for Rural Roads Maintenance--Philippines Case Study, April 20, 1989). The findings of this audit support the case study. In the case of the project, despite the assurances on road maintenance (as reflected in the legal covenants), there has been little maintenance of any of the rural roads financed under the project. Only very limited maintenance of any kind was seen during the audit field inspection of 16 of the project's roads. Indeed field aotes indicate that substantial sections of roads completed even less than five years previously already required what government engineers described as rehabilitation or reconstruction. Although no special pleading is in order for the maintenance of the particular roads financed undor the project, since the issue should be addressed at the national level for all roads, it remains a concern that in the project context the Bank did not follow through on this important aspect.4/ 29. Apart from obvious resource constraints with respect to road maintenance, the audit is conzerned about other aspects of this issue. Thus from field inquiries it was unclear, even if resources had been 4/ A reviewer notes that: "Supervision missions did identify and draw attention to the inadequacy of maintenance, especially with respect to roads. It is not clear what else we might have done in reality, to obtain a significantly different situation in respect of the level of maintenance of the items under this small project, when the problem is so broad-based. Maintenance of completed project works, during project implementation, was significantly better than generally prevalent. However, it is not surprising that maintenance has suffered especially after the close of the project, and additionally due to the sweeping changes that took place at all levels throughout the country following the 1985 revolution." - 12 - available, whether the project roads would have been maintainee, since different reasons were given by government staff for lack of uaintensnce. Although the issue is complex and there may be many reasons for lzk of maintenance, those discussed in the field were as follows: 1. That because the emphasis during project implementation had been on construction progress, given serious initial delays, most of the roads had been constructed before lagal rights-of-way had been established. Consequently, since the process of transferring responsibility for roads from the construction agency, through the local administr tion, to the Bureau of Maintenance includes that the right-of-way is established, many of the project roads could not be transferred. 2. In some cases the local procedural steps to transfer roads had not been talen, for unstated reasons. 3. Where roads had been properly transferred (and it was unclear to what extent this had occurred) the allocated maintenance allowances were either not being budgeted for project roads or such funds as were being budgeted were being diverted to other uses. These problems have a national perspective, but there should be special concern on the Bank's part that supervision of this project ended before project roads had been transferred to a maintenance basis and apparently without adequate steps having been taken by the Bank to pursue this issue. 30. Field inspections also indicated that there were maintenance problems with both the communal irrigation systems and the barangay health stations. In the case of irrigation it was reported that in some schemes farmers were not willing to maintain the facilities. In consequence, in these cases, further capital investment was being made on canal lining in lieu of main- tenance by the farmers. In other cases, NIA has a good country-wide program for developing and assisting Irrigator Associations with their maintenance programs. Eight barangay health stations were visited in tha field. Although some minor maintenance was necessary in a few cases, they were generally not old enough to have deteriorated significantly. However, in all cases there were main- tenance problems with the health station water supply. Four of the eight health stations visited did not have a water supply since the pump had broken down or the water was not potable. In the other four stations although water was still available from the pump the distribution system to the center was out of order. (At all centers it appeared that the facilities were under- utilized since the midwife had conflicting duties taking her away from the center several days a week. This was a source of complaint from villagers and had been identified during preparation as a potential problem, based on the experience of similar centers financed under an earlier Bank-assisted popu- lation project. The PCR notes also that inadequate finance was available for equipment and supplies for these centers.)