The Philippines - Regional Cities Development Project

Document of The World Bank FOR OFICUIL USE ONLY Report No. 14330 PROJECT COMPLETION REPORT THE PHILIPPINES REGIONAL CITIES DEVELOPMENT PROJECT (LOAN 2257-PH) APRIL 13, 1995 Infrastructure Operations Division Country Department I East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS Currency Unit = Philippine Pesos (P) US$1.00 = P9 (1980) n = P 16 (1984) i" P 27 (1993) FISCAL YEAR January 1 - December 31 MEASURES AND EOUIVALENTS 1 meter (m) = 3.28 feet (ft) i kilometer (kim) = 0.62 miles (mi) 1 hectare (ha) = 10,000 square meters (sq m) or 2.47 acres (ac) ABBREVIATIONS AND ACRONYMS AADT = Average Annual Daily Traffic CEO = City Engineers Office CPO = City Project Office DBM = Department of Budget and Management DILG = Department of Interior and Local Governments DOF = Department of Finance DPWH = Department of Public Works and Highways DTI = Department of Trade and Industry LWUA = Local Water Utilities Administration MHS = Ministry of Human Settlements MDP I = Municipal Development Project (Ln. 2435-PH) (PREMIUMED) MDP II = Second Municipal Development Project (Ln. 3146-PH) (MMINUTE) NEDA = National Economic and Development Authority NHA = National Housing Authority NPV = Net Present Value O&M = Operation and Maintenance PSC = Project Steering Committee RCDP = Regional Cities Development Project RCDPO = Regional Cities Development Project Office SAR = Staff Appraisal Report  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation April 13, 1995 MEMORANDUM TO THE EXECUTIVE DIRECIORS AND THE PRESIDENT SUBJECT: Project Completion Report on the Philippines Regional Cities Development Proiect (Loan 2257-PH) Attached is the Project Completion Report on the Philippines - Regional Cities Development Project (Loan 2257-PH) prepared by the Infrastructure Operations Division, East Asia and Pacific Regional Office. The Borrower prepared Part n1. The Regional Cities Development Project (RCDP) was the Bank's first major urban project in the Philippines outside Metro Manila. It cost a great deal to develop: $11.87 million financed by other loans (not including the 6 staffyears under RCDP's account), about 17 percent of the final project cost. The loan was designed to foster economic decentralization and regional growth in four project cities through the reduction of infrastructure bottlenecks, and the strengthening of municipal capacity to finance, construct, operate and maintain urban infrastructure. Additional goals centered on strengthening the Department of Public Works and Highways (DPWH) and the National Housing Authority's (NHA). Economic and political volatility during the implementation period was impossible to anticipate and hindered implementation. Additionally, project design did not adequately reflect the diversity of local institutions and the evolving investment priorities. Project activities ultimately did little to strengthen administrative capacity, and the municipalities proved unwilling to raise fees to the level required for full cost recovery. With one exception, the cities have not raised tariffs sufficiently to make investments in municipal enterprises self-liquidating. The road and drainage subcomponents will reduce bottlenecks, the shelter components will provide needed urban amenities in many neighborhoods, and the markets and municipal enterprises will increase the availability and quality of food and consumer products while increasing municipal income. The project generated useful lessons regarding cooperation between central and local government. These have been incorporated into follow-on urban projects. The PCR provides a concise and adequate account of project experience and achievements. The project outcome is rated as satisfactory. However, its sustainability is rated as unlikely, given the negligible progress achieved in cost recovery. The institutional development is rated as modest. An audit is planned which will analyze the environmental impacts of project interventions. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents my not otherwise be discLosed without WorLd Dank authorization.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT PHILIPPINES REGIONAL CMES DEVELOPMENT PROJECT (LOAN 2257-PH) Table of Contents Preface .......................................... .i Evaluation Summary .ii PART I. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE Project Identity. 1 Background .1 Project Objectives and Description. 2 Project Design and Organization. 3 Project Implementation. 7 Project Results .10 Project Sustainability .13 Bank Performance .13 Borrower Performance .13 Consulting Services .14 PART II. PROJECT REVIEW FORM BORROWER'S PERSPECTIVE Synopsis .16 PART III. STATISTICAL INFORMATION: TABLES Table 1: Related Bank Loans ........ .............. 22 Table 2: Project Timetable .......... .............. 23 Table 3: Loan Disbursements ........ .............. 24 Table 4: Project Implementation A. RCDP Overall Physical S-Curve ..... ....... 25 B. RCDP Overall Financial S-Curve .... ....... 26 Table 5: Project Costs ............................ 27 Table Sb: Project Financing .......... .............. 28 Table 6a: Direct Results . ......................... 29 Table 6b: Direct Benefits ........... .............. 30 Table 6c: Direct Benefits ............ ............. 31 Table 6d: Technical Assistance & Training ..... ......... 32 Table 7: Bank Staff Inputs (Staffweeks) ...... .......... 33 Table 8: Use of Bank Resources (Missions) ..... ........ 34 Annex 1: Financial Analysis of Selected Sub-projects ..... ......... 37 This document has a restricted distribution and may be used by recipients only in the perfornance of their I official duties. Its contents may not otherwise be disclosed without World Bank authorization.   PROJECT COMPLETION REPORT THE PHILIPPINES REGIONAL CITIES DEVELOPMENT PROJECT (LOAN 2257-PH) Preface This Project Completion Report (PCR) summarizes the implementation of the Regional Cities Development Project (RCDP), for which Loan 2257-PH in the amount of US$67 million was approved on March 31, 1983. There were four cancellations during the implementation of the Project: US$20 million was canceled on November 4, 1986; US$4.92 million was canceled on October 23, 1989; US$2.64 million was canceled on July 29, 1991; and a cancellation of US$3.52 million occurred at the time of the final loan account closing. A total of US$35.92 million was disbursed under the loan, with the last disbursement made on August 14, 1992. The Loan Closing Date, originally December 31, 1989, was extended three times. The first two extensions were for one year each and the third extension was for three months; the final Closing Date was March 31, 1992. The PCR was jointly prepared by the Infrastructure Operations Division of Country Department I of the East Asia and Pacific Region (EA 1IN) and the Borrower, and is based, inter alia, on the Staff Appraisal Report (SAR), the Loan Agreement, supervision reports, the Borrower's own records, correspondence between the Bank and the Borrower, and internal Bank memoranda. The Borrower produced two Project Completion Reports; one for the Shelter Component and one for the overall project. Part II is a synopsis of their findings.   - ii - PROJECT COMPLETION REPORT THE PHILIPPINES REGIONAL CITIES DEVELOPMENT PROJECT (LOAN 2257-PH) Evaluation Summary Objectives The objectives of the Regional Cities Development Project (RCDP) were as follows: (a) Stimulate economic decentralization and regional growth in the four project cities through reduction of infrastructure bottlenecks; (b) Assist the cities in strengthening municipal institutions, particularly in finance, implementation, and in operation and maintenance of urban facilities; (c) Strengthen further Department of Public Works' and Highways (DPWH) and National Housing Authority's (NHA) administrative abilities in providing municipal infrastructure and shelter respectively; and (d) Improve basic social services including shelter, public health, safety, and urban mobility with particular emphasis on the needs of the urban poor. Implementation Experience The project was state-of-the-art for its time -- complex with multiple objectives, components, implementing agencies and arrangements. It was also the Bank's first major urban project in the Philippines outside Metro Manila. Further, significant economic and political events took place during the implementation period which were impossible to anticipate. These factors necessarily led to a mixed implementation experience, providing lessons which have been incorporated into follow-on urban projects. Results Overall, the Project achieved its objectives of: (i) relieving infrastructure bottlenecks and contributing to the growth of the project cities; (ii) assisting the cities to strengthen municipal institutions, particularly in project planning preparation and implementation; (iii) strengthening DPWH's administrative capacity to provide municipal infrastructure; and (iv) improving the basic social services including shelter (in reduced scope), public health, safety, and urban mobility with particular emphasis on the needs of the urban poor. The cooperation between NHA and local government units, the arrangements of which were changed during implementation, has provided useful lessons, although cannot be characterized as having strengthened administrative capacity.  - iii - Sustainability/Remaining Issues The project's sustainability, apart from the road and drainage subcomponents, is unlikely. The cities have not, with one exception, raised tariffs to make investments in municipal enterprises self- liquidating. It is unclear that there is sufficient maintenance of the investments. Further, the financial and economic results of the shelter component do not suggest replicability. The CPO staff, organized in independent units in each local government, gained useful expertise and experience during project preparation and implementation which has enhanced the cities' institutional capacities, especially in Davao and Bacolod, where CPO staff were absorbed into the mainstream city administration. With the passage of the Local Government Code in 1991, local governments are taking more responsibility and are receiving greater resources. Ex-CPO staff have proven useful, for example, in conducting competitive bidding which, previously, had not usually been carried out at the local level, except in Bank projects. The mainstream city governments in Cagayan de Oro and Iloilo did not absorb their respective CPOs, and as a result, did not gain as much from transfer of technology and technical capacity build-up. These cities could have benefitted more if the project was implemented in closer conjunction with the mainstream city government units. Findings and Lessons Learned A tremendous amount of Bank resources were applied to the development of RCDP: $0.5 million under Loan 1647-PH; $4.6 million under Loan 1821-PH; and $6.77 million under Loan 2067-PH.1 This $11.87 million preparation cost financed by other loans, not including the 312 staffweeks (6 staffyears) under RCDP's account, amounted to just under 17 percent of the final project cost - a very high ratio notwithstanding that RCDP was expected to be a larger project at the outset. These high development costs are related to the top-down nature of the project, with the national government and its consultants taking the lead in project identification and preparation. This design approach had other disadvantages. Pre-selection of the four regional cities by the national government led the cities to consider the funds an entitlement. With no alternative outlet for the funds, it became difficult to implement pricing policy changes, such as market tariff increases, especially in the face of local councils' political opposition. The top-down approach was discarded in follow-on Bank loans which provided that any qualified city can borrow, thus creating competition for funds, which results in greater leverage for fiscal reform. The political lessons of RCDP have also been learned, and follow-on loans have incorporated mechanisms to create political consensus for sub-projects and their related fiscal reforms. The project also proved too complex and large relative to the administrative and financial capability of the four selected local governments. During appraisal, this was identified as a risk that could be offset with technical and managerial assistance from national agencies such as NEDA, DPWH and NHA. This assumption, however, overestimated the capacity of the national agencies to create an immediate impact on institutional and financial capacity of the local govermments and may have been too optimistic even under normal political and economic conditions. As it turned out, changes in city administrations during implementation resulted in delays caused by the need to make minor modifications 1. PCR - Philip2ines: Urban Engineering Proiect (Ln. 2067-PH), Report number 7009, November 16, 1987.  - iv - to the project scope to allow new administrations to take "ownership" of projects started under previous regimes. Finally, the project design did not fully take into consideration the fluidity of politics at the local level and the rapid changes that could take place within cities. Investment priorities change with time. While adjustments were made during project implementation, the project design proved to be somewhat rigid. In retrospect, the project could have benefitted from an approach placing more emphasis on developing the investment planning capabilities within the project cities, developing multi-year capital plans and budgets, and providing more flexibility in identifying and funding investments in the outer years.   PROJECT COMPLEI1ON REPORT THE PHILPPINES REGIONAL CITIES DEVELOPMENT PROJECT (LOAN 2257-PH) PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE PXiect Identity Project Name: Regional Cities Development Project Loan No.: 2257-PH RVP Unit: EAIIN Country: Philippines Sector: Urban BkackQund 1. The urban population in the Philippines more than doubled between 1960 and 1980, increasing at an average annual rate of 3.6% as compared to 2.7% for the total national population. Approximately one-third of the families in the urban areas were estimated to have incomes below the absolute poverty level. In most of the urban areas, supply has not kept pace with the expansion in demand for water supply, roads and other urban infrastructure and for solid waste management, public markets and other municipal infrastructure. A shortage of qualified professional/managerial staff and insufficient levels of locally generated revenues constrained the cities and municipalities from improving delivery infrastructure and services. National government agencies, such as the Local Water Utilities Administration and the National Housing Authority, were established in the 1970's to provide some of the essential services. 2. The Government considered that the intermediate and smaller urban areas and their needs for infrastructure and industry were being neglected in national policy, leading to disparities in economic opportunity and contributing to delayed development of outlying areas. The Government placed greater emphasis on regional development and a more equitable distribution of central government resources nationwide. 3. The Bank had been assisting the Govermnent meet the challenges of urbanization since the 1970's through a series of projects which evolved from an initial emphasis on shelter to include a wide range of municipal/urban services. The First Urban Project (1272-TW and 1282-PH, 1976) financed the upgrading of the country's largest slum, the Tondo in Manila, and traffic management and road investments in Manila. The Second Urban Project (1657-PH, 1978) supported sites and service development in Metro Manila and three regional cities. The Third Urban Project (1821-PH, 1980) addressed the provision of shelter, sanitation and other basic needs and productivity growth of the low income families in Metro Manila. The Fourth Urban Project, the Regional Cities Development Project, expanded the approach to include a wide range of urban infrastructure and municipal management in addition to shelter.  - 2 - Project Objectives and Description 4. The objectives of the Regional Cities Development Project were as follows: (a) Stimulate economic decentralization and regional growth in the four project cities through reduction of infrastructure bottlenecks; (b) Assist the cities in strengthening municipal institutions, particularly in finance, implementation, and in operation and maintenance of urban facilities; (c) Strengthen further Department of Public Works' and Highways (DPWH) and National Housing Authority's (NHA) administrative abilities in providing municipal infrastructure and shelter respectively; and (d) Improve basic social services including shelter, public health, safety, and urban mobility with particular emphasis on the needs of the urban poor. 5. The project was comprised of the following components in four project cities, Bacolod, Cagayan de Oro, Davao and Iloilo 2: (a) Urban Transportation. Provision of: (i) approximately 9 km of new streets, 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, and the upgrading of existing depots, vehicles, plants, equipment and tools in other project cities. (b) Sanitation and DrainaLe. Provision of: (i) solid wastes management measures, including new dumpsites, vehicles and equipment; (ii) improved sanitation measures, including equipment and civil works (Iloilo and Bacolod); and (iii) drainage works, comprising around 36 km of open or closed storm drains, including laterals, and related maintenance equipment. (c) Municipal Enterprises. Provision of: (i) six new markets and 10 rehabilitated markets; (ii) two new slaughterhouses; and (iii) two new bus terminals. (d) Shelt. Provision of: (i) sites and services at nine sites in the four cities with an estimated total of 9,580 residential plots, benefitting 78,000 persons including grant of tenure and infrastructure, sanitary, health education and community facilities; (ii) around 660 serviced commercial/industrial plots generating employment for an estimated 6,500 people; (iii) slum upgrading - roughly 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. 2. These cities had populations ranging from 180,000 to 420,000 and were selected for considerable 'take-off' potential as key regional centers.  - 3 - (e) Livelihood Zone Pilot Project. Provision of a mini-industrial estate in Davao, totalling about 5 has. of developed land with serviced industrial plots, standard factory buildings and necessary off-site infrastructure, to generate employment for an estimated 1,200 people. (f) Technical Assistance. TA would be provided to: (i) DPWH, the National Economic Development Authority (NEDA), NHA and the project cities for assistance in project implementation; (ii) the Department of Finance (DOF), the Department of the Interior and Local Government (DILG), and the cities for institutional strengthening and training; and (iii) DPWH, the Department of Trade and Industry (DTI) and NEDA for future project preparation and related studies. 6. The total project cost was estimated at US$114.1 million at appraisal. A Bank loan of US$67.0 million was approved in March, 1983. The project was to have been implemented over a five year period from January 1984, to December 1988. 7. The main implementing agencies were: (a) the project cities for the urban municipal enterprises; (b) DPWH (and the cities under DPWH guidance) for urban transport, sanitation and drainage; and (c) NHA for shelter. A Project Steering Committee (PSC), consisting of the agencies involved in the project with NEDA as the chairman, was established as the overall policy making body. Overall project management responsibilities were vested in a Regional Cities Development Project Office (RCDPO), with the director provided by NEDA and the deputy director provided by DPWH. City Project Offices (CPOs) were established in each city to handle project administration at the local level. 8. The Staff Appraisal Report (SAR) identified the project risks as: (a) the managerial capacity of the city governments to implement a large and complex project; (b) the inability of the project cities to increase general revenues promptly and to implement satisfactory cost recovery measures on project generated revenue generating components; and (c) possible delays due to land acquisition problems. The involvement of the national government agencies, DPWH and NHA and the establishment of the CPOs were expected to lessen the risk of managerial capacity at the city level. Monitoring by the DOF of city fiscal performance was expected to address the second risk. Land purchase negotiations were started early to minimize delays from land acquisition. Project Design and Organization 9. The project was conceptualized to address the need to develop effective counter-magnets or alternatives to Metro Manila where there was a disproportionate concentration of economic activity vis-a- vis the rest of the country, resulting in rapid population growth, congestion and serious pressures on public services and infrastructure. The conceptualization and subsequent development and implementation of the project proved appropriate and timely to meet the demands for regional growth and economic decentralization in the late 1970's and early 1980's. 10. The Bank had already been involved in urban development projects in the Philippines starting with Urban I - a slum upgrading project in Metro Manila; Urban II - also a shelter project in Metro Manila and pilot projects in some regional cities and Urban III - a shelter and basic infrastructure package likewise in Metro Manila. Except for limited investments in shelter in some regional cities, the Bank's previous urban development projects in the Philippines were heavily concentrated in Metro Manila and were basically focused on shelter. The RCDP or Urban IV project thus became the first multi-sectoral  urban development project of the Bank which coincidentally was also its first major urban project outside of Metro Manila. 11. To achieve its objectives, the project adopted a comprehensive integrated urban development approach which covered a range of sectoral projects addressing varied urban needs. The project consisted of four basic components: (a) municipal infrastructure -national and local roads and bridges, motorpools, traffic management, street lighting, main and lateral drainage, sanitation, solid waste management, shore protection and community facilities; (b) municipal enterprises - markets, slaughterhouses and bus terminals; (c) Shelter. - sites and services and slum upgrading; and (d) technical assistance - training. 12. The government selected the project sites primarily because of their economic potentials, availability of skilled and trainable labor force, presence of potential employment generating projects and urban population size. The DPWH initially took the lead in project formulation, identifying and preparing individual investments with support from consultants funded through other Bank projects and in coordination with the respective city governments. 13. The lead agency for the project was NEDA, which headed a Project Steering Committee, the policy-making body for the project composed of ranking officials from the Ministry of Human Settlements (MHS), DILG, DPWH, DTI, DBM, DOF and NHA. An RCDP office was created to handle overall project management, headed by a Project Director assigned from NEDA and an Assistant Director from DPWH. An RCDP Technical Committee composed of senior technical staff from the participating agencies assisted the RCDPO in coordinating the technical aspects of project implementation. 14. At the city level, City Project Offices headed by a City Project Managers, were created and were responsible for day-to-day administrative matters including project programming and budgeting, land acquisition and monitoring the progress of the project. Inter-agency Project Action Committees headed by the Mayor were created and served as the coordinating body at the local level. The shelter component in the project cities was initially implemented under a joint venture arrangement between the NHA and the project sites. Officers were organized in each of the project cities (in the case of Davao, Cagayan de Oro and Bacolod from existing shelter project staff) and integrated with the CPOs. Each head of a shelter office/unit was city-hired. NHA provided counterpart senior technical staff which assisted the local teams in planning, design, land acquisition, construction, supervision estate and financial management. This however was modified in 1987 when NHA assumed full responsibility over the shelter component. NHA absorbed all the locally hired staff. Supervision of municipal infrastructure projects were handled by the City Project Engineering Office essentially comprised of City Engineer's Office staff supported by DPWH staff. These CPEOs were coordinated by the RCDP Project Management Office in Manila headed by a Director For Engineering supported by DPWH. 15. Both national and local components of municipal infrastructure were implemented by the DPWH, the loan proceeds (45% of civil works cost) and the Peso counterpart funding (55% of civil works cost) were released to DPWH as budgetary appropriations. DPWH shouldered the entire cost of national infrastructure components including the loan portion and were not recoverable from the project cities. DPWH also front-ended the full cost of the local infrastructure components but recovered from the project cities through the Municipal Development Fund. The loan portion (45% of civil works cost) was relent to the project cities initially at an annual interest rate of 13.5% then scaled down to 1 1 % per annum (in line with the reduction in the Bank's variable lending rate) while the counterpart funding portion (55% of civil works cost) was made available to the project cities as interest free loans. For equipment provided under the project, the loan proceeds were relent by the national government to the project cities  at the same interest rates charged, for municipal infrastructure to finance 100% of the cost of equipment procured through CIF or ex-factory and 65% for equipment acquired through local procurement. The 35% counterpart funding requirement for local procurement was financed through local government funds. 16. The loan proceeds representing 70% of civil works costs for municipal enterprise components were relent by the national government to the project cities at the same interest rates mentioned in paragraph 15. Counterpart funding of 30% were financed through local government funds. 17. Initially, shelter projects were implemented under a joint venture arrangement between the project cities and NHA on a 60-40 sharing basis. The loan was made available by the national government to NHA which in turn relent it to the project cities. NHA provided the counterpart funding requirements from its corporate equity. However in 1987, NHA assumed full responsibility for the financing and implementation of the shelter component including the loan. Eventually, 70% of the total cost for shelter was financed from the loan proceeds and the remaining 30% was funded through budgetary appropriations as NHA's corporate equity. 18. The costs for technical assistance and training were totally financed from the loan proceeds which were released to the agencies as budgetary appropriations. 19. While the project in general was timely and appropriate there were key aspects of the project that affected its efficiency during implementation. In retrospect, the project proved too complex and too large relative to the administrative and financial capability of local governments. During appraisal, this was identified as a potential risk that could be offset with technical and managerial assistance from national agencies such as NEDA, DPWH and NHA. This assumption, however, overestimated, on the one hand, the capacity of the national agencies to create an immediate impact on institutional and financial capacity of local governments and, on the other hand, the ability of local governments to improve their respective capacities much beyond their past level of experience and expertise within such a short period of time. Lastly, the project failed to fully recognize the impact of politics on the project which turned out to be a major cause of delay and in the case of Iloilo City led to its eventual withdrawal from the project. 20. The assumptions during preparation may have been too optimistic even under normal political and economic conditions. Land acquisition, for one, took much longer than was originally estimated. The tedious processes involved were not completely identified and potential problems not fully anticipated vis-a-vis the time frame for implementation. The land acquisition problems substantially affected the time schedules of their activities resulting in considerable slippage in detailed engineering work, bidding and awards of contracts and actual construction. As schedules slipped, other factors came into play such as increase in costs. In many cases, the problem in land acquisition resulted in site replacement and/or design alterations further delaying the project timetable. 21. The project was identified, packaged and prepared primarily by national agencies and their respective consultants in a top-down approach to project development. The project was ambitious in that it attempted to address, in a very short period of time, a wide range of infrastructure and service deficiencies reflecting many years of under-investment. The project took 312 staffweeks (6 staffyears) to prepare, and the cost of supervision over the nine-year implementation period came to over 171 staffweeks.  - 6 - 22. Local government ownership of the project was a key concern. City Project Offices were created in each city and the cities were included as members of the Project Steering Committee. However, the project experienced several changes in city administration between the start of project preparation and implementation. Some new mayors found it difficult to immediately embrace projects which were being carried out by the previous regime which they actively opposed. The mayors were not necessarily opposed to the investment per se and agreed to continue with the project after some minor changes were made to the project scope so that they could claim ownership. The merits of the investments were never challenged. The decision of the Iloilo City Council to drop the project reflected their dispute with the mayor rather than their opposition to the project. 23. The institutional arrangement for project implementation proved to be too complex involving numerous agencies at various government levels - national, regional and local. Land acquisition alone involved four agencies other than the main implementing agencies - Housing and Land Use Regulatory Board (HLURB), the Department of Agrarian Reform (DAR), the Bureau of Lands and the Land Registration Authority. Moreover, the agency chosen to lead a primarily infrastructure implementation project was NEDA, a planning agency with limited infrastructure implementation experience and political clout at the local level. 24. The CPO staff, organized in independent units in each local government, gained useful expertise and experience during project preparation and implementation which has enhanced the cities' institutional capacities, especially in Davao and Bacolod, where CPO staff were absorbed into the mainstream city administration. With the passage of the Local Government Code in 1991, local governments are being asked to take more responsibility and are receiving more resources. Ex-CPO staff have proven useful, for example, in conducting competitive bidding which usually had not been carried out at the local level, except in Bank projects. The mainstream city governments in Cagayan de Oro and Iloilo did not reabsorb their respective CPOs, and as a result, did not gain as much from transfer of technology and technical capacity build-up. These cities could have benefitted more if the project was implemented in closer conjunction with the main city government units. NHA 25. The initial joint venture arrangement between NHA and the local governments proved to be tenuous. The project failed to acknowledge the disparity in organizational and political cultures between NHA and local governments. NHA already had difficulty in dealing with local governments in Urban II and Urban III shelter projects and these experiences could have been enough reason to doubt the propriety and viability of the NHA/local government joint venture arrangements. Furthermore, NHA was a highly centralized institution, where power and authority rested solely with top management. Under the joint venture arrangement, NHA had to adjust to the new orientation, culture, and pace of local governments particularly in sharing decision-making responsibilities -- a role to which NHA was not accustomed. 26. The centralized institutional arrangement impeded the flow of activities of a primarily decentralized project. Decision making was not properly delegated to an extent that decisions on minor design changes even had to be referred to Manila for approval. 27. Lastly, succeeding projects should only include sites which have already been acquired by the proponents. Access to utility services for these sites should also be resolved prior to appraisal to avoid  - 7 - drawn-out negotiations with utility companies during project implementation which unnecessarily delay project completion. Project Implementation 28. The loan was signed in June 1983, became effective in February 1984 and after three extensions, closed in March 1992, over two years after the original closing date of December 31, 1989. The loan did not become effective immediately due to the delay in the issuance by the Department of Justice of the Legal Opinion on the Subsidiary Loan Agreement between the GOP and the four RCDP cities. This delay stemmed from a provision of the government's Foreign Borrower's Act which required that an intermediary bank acceptable to government be used as a conduit for transmitting the proceeds of foreign borrowing to local government units. To resolve this problem, it was decided to utilize the Municipal Development Fund which was established under The Municipal Development Project (Ln. 2435-PH) in the Department of Finance to manage loan funds and channel loan proceeds to local governments and other government agencies. It eventually became the mechanism for loan repayment of local governments. 29. The project was implemented during an extraordinary period of political turbulence and economic recession in the Philippines which could not have been foreseen at appraisal. The assassination of the leading opposition figure in August 1983 triggered a chain of political and economic events which precipitated a deep recession in 1984 and 1985 and culminated in the EDSA People's Revolution in 1986 which brought an end to the twenty-year Marcos government. 30. The succeeding years were marked by constant flux and adjustments in the political sphere and in the government bureaucracy. Government projects slowed down as the new administration reviewed existing programs in the light of its new priorities and the prevailing economic and fiscal conditions. Elected local government officials were replaced by national government appointed Officers-in-Charge (OICs), many of whom were averse to continuing projects like RCDP initiated by their predecessors and/or insisted in putting their own mark on the project. New city official agreed to continue with the project after some adjustments in project components but implementation was delayed. Local elections were held in 1988 which resulted in further turn over of mayors in two of the project cities. Each change in the local governments had a disruptive effect on the RCDP since project staff were changed or had to establish their credibility with each new administration. Cagayan de Oro faced the least disruption as a protege of the previous mayor was appointed as OIC in 1986, won election in 1988 and re-election in 1992. 31. The Philippine economy was gripped by a recession in 1984 and 1985 when GOP dropped to - 7% per annum, inflation rose to 53.3% in 1984 and 17.6% in 1985, and the Philippine Peso devalued to P16 to US$1 in 1984 eventually plummeting down to P27 to US$1 in 1991. The exchange rate during appraisal was P9 to US$1. 32. The increase in domestic inflation resulted in an increase in project costs and aggravated the problems of counterpart funding for the national government and the project cities. 33. The devaluation of the Philippine Peso against the US Dollar also had a significant effect on the Project. Bank procedures at the time of appraisal in 1982 did not require adjustments to be made for possible currency fluctuations, so total project costs in US Dollars and the loan amount were determined assuming that the US Dollar would equal P9 compared to the actual rate after the Peso's eventual fall to  - 8 - P27 to the Dollar. Since civil works have mainly indirect foreign exchange requirements, the devaluation resulted in more Pesos being available from the loan for local capital expenditures. 34. The RCDPO, DPWH, NHA and the four project cities conducted a major review of the Project in 1986 in the light of the prevailing political and economic conditions, acknowledging that it would be difficult to complete the Project as appraised by the end of 1988. Project components were reviewed in relation to the following factors: (i) cost of project components; (ii) availability of counterpart funds; (iii) economic/financial viability of project components; (iv) affordability; (v) debt service capacity of the cities; (vi) interdependence of project components (one component might be significantly less viable without the others, or might be less urgent with another component implemented), and; (vii) need for the project component (in light of improvements undertaken since appraisal). 35. The projects were then categorized into first and second priority projects. First priority projects were those which could be completed by 1988 and second priority projects were those which would only be implemented if funds could be secured and contracts had been committed for all first priority projects. 36. The review was completed in June 1986 resulting in the restructuring of the Project and the cancellation of US$20 million from the original loan amount of US$67 million. There were subsequent requests for adjustments in project components as priorities at the project cities changed. The RCDPO and the Bank reviewed each request on a case-by-case basis accommodating those which were consistent with project objectives and were fully justified. 37. In July 1988, when it was apparent that the first priority projects could not be completed by end of 1988, extension of the closing date from December 31, 1989 to December 31, 1990 was discussed and subsequently approved by the Bank. During this period, the second priority projects and additional components proposed by the city and agencies concerned were again reviewed. 38. Some of the changes made in the Project package were: (a) During appraisal, only Bacolod, Iloilo and Davao planned to institute geometric improvements on city streets as part of their respective traffic management components. In 1987, a revised study on traffic management was undertaken to include Cagayan de Oro. This study identified 29 intersections for traffic signalization and 43 intersections for geometric improvements. Later on, 13 more intersections were added for traffic signalization in Bacolod and Cagayan de Oro due to the increase in traffic volumes in the cities. (b) At appraisal only 4.3 km of street lighting in Cagayan de Oro were included in the project. However, this was increased to 7.12 km during project implementation. (c) Community facilities were included in the project during project implementation in support of the sites and services and slum upgrading components. (d) At appraisal, there were sixteen (16) markets included in the project. At closing, only fourteen (14) markets were constructed or rehabilitated. During the 1986 restructuring, the Puerto Market in Cagayan de Oro was dropped and replaced with the rehabilitation of the Agora Market. In Iloilo City, the Bank approved the rehabilitation of the Juro Big Market in place of the Mandurriao New Market. However, implementation was canceled  - 9 - when the City Council stopped the City Government from further acquiring foreign loans. In Davao, the proposed Piapi and Talomo Markets were deleted from the package and replaced with the Bankerohan Market. (e) At appraisal, six areas were identified for development into sites and services projects. Villamonte, New Market and Banago in Bacolod; Mandurriao in Iloilo City; Kauswagan in Cagayan de Oro City and Agdao in Davao. Villamonte and New Market were dropped during the 1986 restructuring and subsequently Banago was also canceled due to land acquisition problems. Pahanocoy was developed to replace the three Bacolod sites. In Davao, three new sites, Toril, Mamay-Buhangin and Ma-a were added to the Agdao site. In total, seven areas were developed as sites and services projects with an aggregate area of 104.94 ha subdivided into 6,487 plots with 38,922 beneficiaries compared to appraisal projections of 149.6 ha, consisting of 9,851 plots with a target of 78,000 beneficiaries. There were nine slum upgrading projects completed with an aggregate area of 55.86 ha consisting of 4,616 plots with 27, 696 beneficiaries. The original targets for slum upgrading projects were eight project sites covering 73.20 ha which was expected to generate 6,882 plots for 55,056 beneficiaries. (f) The mini-industrial estate project in Davao City was dropped and converted into a site and service project by the NHA due to the difficulty of disposing commercial and industrial plots developed under the Urban II loan package in Davao and Cagayan de Oro. 39. Due to the foreign exchange fluctuations which occurred from appraisal, the NHA requested the Bank to reduce its loan component from US$21.38 million at appraisal to US$10.50 million and then to US$5.579 million. The amount of US$4.921 million was finally dropped from NHA's loan allocation in 1989. 40. Another US$2.643 million was dropped from the Technical Assistance allocation in 1991. This was due to the NEDA policy, adopted after the change in government in 1986, of not utilizing loan funds for project preparation and training. Furthermore, a second phase of RCDP was not deemed necessary at that time in view of the existence of similar projects such as the Municipal Development Project (MDP or, as known locally, PREMIUMED), Loan 2435-PH, and the MDP II (known as MMINUTE), Loan 3146-PH. 41. In July 1989, the RCDPO initiated a review of the loan balance to determine the total loan requirements of RCDP until the loan closing date. The exercise revealed an estimated US$8.1 million in excess loan funds even with the inclusion of all second priority and additional projects. Considering the excess loan funds, the four cities and the implementing agencies concerned requested that additional projects be included in the RCDP package. In view of this, the second extension of the loan closing date from December 31, 1990 to December 31, 1991 was requested and approved by the Bank. A final request for a three month extension of the closing date from December 31, 1991 to March 31, 1992 was granted to allow the use of loan funds to fund projects which extended beyond 1991. 42. The final cost of the project was P1,633.6 billion (US$70.87 million) compared to P1,031 billion (US$ 114.6 million) at appraisal, an increase of 58% in Peso terms but a decrease of 38% in US Dollar terms. The increase in Peso costs is due to a combination of actual inflation being higher than that projected at appraisal, adjustments to the project scope and a longer implementation period. The decrease  - 10- in project costs in US Dollar terms is due to the devaluation of the Peso which dropped from P9 to the Dollar used during appraisal to P27 by 1992. 43. The final Bank loan amount came to US$39.436 million with US$27.564 million having been canceled from the original loan of US$67.0 million. 44. The change in the project components resulted in an increase in the share of total project cost of urban transport, drainage and sanitation, municipal enterprises and community facilities from appraisal estimates. Urban transport increased from 22% at appraisal to 33%, while the share of drainage and sanitation rose from 13% to 16%. The share of shelter in total project cost dropped from 28% at appraisal to 119i at closing date. Technical assistance and training share decreased from 11.7% at appraisal to 10.2%. Projct Results 45. Overall, the Project achieved its objectives in relieving infrastructure bottlenecks and contributing to the growth of the project cities, and improving basic services, especially for the urban poor. (a) Urban transport projects consisting of 54.249 km of roads, 11.42 km of street lighting, geometric improvements in 43 intersections and signalization in 42 intersections relieved congestion in the central business districts, improved flows on heavily travelled routes, provided access and opened new development areas, reduced travel time and vehicle operating costs and improved safety along major thoroughfares. (b) Drainage projects comprising 39.089 km reduced damages to property and public infrastructure as well as opening up hitherto flood prone areas for commercial development. (c) Shelter projects generated 11,103 serviced plots for 66,618 beneficiaries in seven sites and services projects and nine slum upgrading projects in the four project cities. The shelters were generally affordable to families with income in the 10th to the 30th percentile range. (d) The fourteen market projects provided 61,680 sq.m. divided into 7,070 additional or rehabilitated stalls which increased the revenue base of the city governments, generated more economic activities and incomes in and around the markets and improved access of consumers to food products and other basic commodities. (e) Equipment procured under the project improved the solid waste collection and maintenance capability of the four cities. (f) The bus terminal in Davao city reduced traffic congestion in the city center and provided a more convenient transfer facility for public transport communities. 46. Population growth from 1980 to 1990 in three of the four project cities were higher than both the national and provincial growth rates. Bacolod City grew at 2.43% per annum compared to 2.34% for Negros Occidental. Cagayan de Oro had the highest growth rate among the four cities at 4.16% annually as against 3.01% of Misamis Oriental. Davao City had a 3.19% growth per annum compared  - 11 - to Davao del Sur's 2.76%. Iloilo had the lowest growth rate among the four cities at 1.76% annually even lower than that of Iloilo province of 2.04%. Bacolod, Cagayan de Oro and Davao had higher population growth rates than the national rate of 2.42%. 47. In 1980, Bacolod and Iloilo were already 100% urban while in Cagayan de Oro and Davao only 75% and 67% of total population respectively were urban. In 1990, 93% of the population of Cagayan de Oro was already urban while Davao's urban population grew to 73% of total population. 48. Based on the ERR's and FIRR's projected during appraisal, the effectiveness of individual investments appear to be mixed. (a) Markets. Cagayan de Oro was able to implement the new market tariffs, and in 1991, earned P1.2 million surplus net of debt service, operation and maintenance costs. The other three project cities, however, were unable to improve the market fees proposed to make the markets financially viable. Davao collected only P6 million in market fees in 1991, 35% of the projected revenues of P17 million and about 46% of the projected break-even point of P13 million. Actual collection in Bacolod was only P1.816 million in 1991, short of the P4.532 million needed to break even. Iloilo's market fee collection in 1991 reached only P6.139 million, compared to the P11.252 million needed to break- even. (b) Slaughterhouses. Davao City completed its slaughterhouses in 1991. However, the revenues generated from its operation that year were not sufficient to cover operating costs and debt service since the fees approved by the City Council were much lower than recommended by the project. (c) he bus terrninal in Davao is finally earning a profit after two years of being subsidized by the City Government. The bus terminal operation realized net surpluses of P1.976 million in 1990 and P1.834 million in 1991 from revenues of P3.510 million and P3.710 million respectively. These were sufficient to cover operating and maintenance costs and debt service. (d) Urban transport projects were the most effective among RCDP project components. An evaluation of two road components in Davao showed lRRs above 200 percent. Traffic volumes along J.P. Laurel St. increased from 13,582 vehicles in 1988 to 25,473 vehicles in 1992. Traffic volume exceeded the study forecast of 3 percent annually by more than 500 percent by recording an annual growth rate of 15.2 percent. The IRR was completed at 248.6 percent for this road. The other project component, Generoso Bridge, registered as an annual traffic growth rate of 4.2 percent compared to 3 percent projected during its preparation. From 1988 to 1992, traffic volumes increased from 31,200 vehicles to 39,920 vehicles, generating an IRR of 282.6 percent. Land values increased along newly constructed roads. Along three new road projects alone, the Matina connector road in Davao, the Osmena Extension in Cagayan de Oro and the Granada-Marcia Road in Bacolod, real property values increased by 760 percent, 400 percent and 1,500 percent, respectively. (e) Shelter projects' projected economic rates of return were estimated at appraisal to be: 25% in Bacolod; 29% in Cagayan de Oro; 36% in Davao; and 30% in Iloilo with an  - 12 - overall estimated return of 30% for the shelter component. However, the net present values (NPVs) calculated (using a direct rate of 14%) after the closing date yielded negative values for all cities indicating that the projected average ERR of 30% (at a discount rate of 14%) was not realized by the project. Moreover, the present value for benefits fell short of the present value for costs in all the cities. The benefits in terms of receipts from disposition of completed lots which were supposed to flow into the project were not realized as scheduled. The negative NPVs could be attributed to the following factors: (a) actual costs incurred per project were much higher than the estimated costs; (b) the project took much longer to complete than originally planned; (c) the disposition of completed lots took more time than the estimated schedule particularly for slum upgrading projects. Based on the Cagayan de Oro shelter project which was implemented according to the original time frame and with the least changes, the IRR computed was 7 percent which was much lower than the 29 percent projected during appraisal. Following are the net present values derived for each of the project cities: CITY NPV BENEFITS NPV COSTS DIFFERENCE OF COSTS AND BENEFITS Bacolod 1.25 21.01 (19.77) Iloio 10.45 30.60 (20.16) Cagayan de Oro 6.04 6.93 (0.88) Davao 13.46 15.48 (3.03) 49. Through their experience in the planning and implementation of the project, the cities have gained considerable improvements in their institutional capacities particularly in terms of project planning, preparation and management. Those staff of the City Project Offices (CPO) subsequently absorbed back into the mainstream city government units brought with them considerable experience and expertise which the cities are benefitting from in the preparation of projects such as the Third Municipal Development Project (MDP III, Loan 3455-PH). 50. The impact on operation and maintenance, however, may not yet be fully realized as of closing date. At the outset of this project, the capacity of local governments was considered a project risk. The doubts eventually proved valid as the managerial and technical capability of city staff was strained to the limits considering that the magnitude and complexity of the respective city components were far greater than any of their previous undertakings. Adjustments to the new responsibility took time but by the loan's closing date, the cities in general achieved considerable improvements in project planning preparation and management. 51. Local politics had an impact on the efficient and timely implementation of the project. Conflicts between contending political interests particularly between the local executives and the local legislative councils and the changes in local leadership caused considerable delays and even led to the withdrawal of Iloilo from the project.  - 13 - Project Sustainability 52. The project has contributed substantially to the economic growth of the cities through major improvements in infrastructure and facilities. The resultant growth increased the fiscal base which greatly enhanced city revenues which in turn could be translated into higher capital investments and maintenance budgets. 53. The enactment of the Local Government Code in 1991 increased the relative share of national tax transfers (Internal Revenue Allotments) to cities and further improved the capacity of the cities to replicate the project and address remaining infrastructure bottlenecks. Their financial capacity for sustaining maintenance of completed projects is likewise improved. 54. However, the cities in general have not provided as much as expected and agreed upon in terms of maintenance budgets. Based on available information, only Davao City seems to have met the targets for maintenance budgets for municipal enterprises in 1993. 55. Only Cagayan de Oro has imposed the fee structure needed to make the markets viable. The three other cities have not passed the required ordinances increasing their respective market fees to the levels recommended by the project. Thus Davao, Bacolod and Iloilo continue to subsidize the operation and maintenance of their respective markets. 56. The fees approved for the slaughterhouse in Davao were much lower than those recommended by the project while the Cagayan de Oro abattoir has been leased to a private operator and is earning enough to cover amortization and additional revenues for the city. The bus terminal in Davao City is now earning sufficiently to cover debt service, operations and maintenance and still realize a surplus of nearly P2 million in 1990 and 1991. Bank Performance 57. The preparation of the project was very expensive, relying heavily on expatriate consultants. While the expense was acceptable and normal for this kind of state-of-the-art project, in retrospect, more "technology transfer' and a greater appreciation of likely problems to be faced might have been realized had more local input been sought. 58. The Bank's performance during implementation was generally satisfactory. Project management was flexible in response to problems encountered during implementation and innovative in improving implementation relationships, such as including the RCDP in the Municipal Development Fund created to channel funds to local governments. The Bank took firm but flexible positions with regard to sub-component prioritization, allowing a focus to be maintained throughout the implementation period which benefitted the project. Borrower Performance 59. Borrower performance was generally satisfactory considering the adverse political and economic conditions during implementation, the project's new multi-sectoral approach and its wide scope, and that it was the first project of its kind handled by the concerned local governments.  - 14 - 60. The borrower recognized the significance of the project's development objectives and pursued the project diligently in spite of the extremely difficult conditions. 61. In retrospect, however, the borrower could have prepared the project in several phases starting with a simpler, smaller investment package gradually increasing over the succeeding phases. This could have allowed institutional and financial capacities at the national and local levels to greatly adjust to the demands of the project and build up to the level required by a complex and large multi- sectoral project. Institutional arrangements could have been tested, modified and improved accordingly without major repercussions on project implementation and timetable. Specific processes such as those relating to land acquisition could have been identified and problems anticipated problems more accurately. 62. The phased project could have started with national infrastructure at the city level. This could have given the cities sufficient exposure and experience eventually building up their capacities over the duration of the first phase. Needs assessment for local infrastructure could have handled by the cities during this phase to reflect their own perspective and ensure a demand-driven project package in the succeeding phases. 63. The shelter component should have been treated as a separate project fully implemented by NHA. This could have simplified project preparation, implementation, financing and ownership. This could have averted the conflict between NHA and local governments which were already evident in their previous shelter projects. 64. The DPWH should have been the lead agency for the project such as in subsequent Bank- financed urban operations including MDP II (Loan 3146-PH) and MDP III (Loan 3455-PH). Consultancy Services 65. Substantial consultancy inputs were provided for project identification, preparation and implementation. In general, the performance of the consultants was satisfactory. 66. However, there were problems due to survey oversights resulting in major revisions in detailed engineering designs. Some detailed engineering plans were done without the benefit of topographic surveys and sub-soil investigations thus necessitating major redesign work causing unnecessary delays in project implementation. Design flaws have resulted in numerous variation orders which ultimately affected project costs. 67. The site selection methodology used may have overlooked important factors such as accessibility to utilities for shelter projects, ease of securing or acquiring land and right-of-way and potential use of adjoining areas. Two sanitary landfills, one each in Bacolod and Davao, were not operated due to their proximity to residential areas. 68. The consultants could have been too optimistic in packaging a project of such magnitude and scope without a realistic appreciation of what was "do-able" considering the institutional and financial capacities of both national agencies and local governments. 69. There were several contractors who performed unsatisfactorily resulting in contract termination. In Bacolod one contract was terminated and three were still on-going as of closure due  - 15 - to poor performance of contracts. Three contracts each in Cagayan de Oro and Davao were similarly rescinded because of the unsatisfactory performance of some contractors. 70. Some equipment suppliers were unable to deliver on schedule due to problems with manufacturers such as non-agreement with regard to commission fees, change in local distributorship and delayed opening of Letters of Credit.  - 16 - PROJECT COMPLEMION REPORT THE PHILIPPINES REGIONAL CITIES DEVELOPMENT PROJECT (LOAN 2257-PH) PART 11. PROJECT REVIEW FORM BORROWER'S PERSPECTIVE A. NATIONAL ECONOMIC AND DEVELOPMENT AGENCY: LESSONS/PROSPECTS3 IMPLEMENTATION 71. While RCDP's land acquisition process - negotiation, expropriation and presidential proclamation - was proven to have mixed success, an equitable and simplified method is still needed by which the government can acquire land for public use. Negotiation may have been the simplest method but the government was subjected to the capricious whims of landowners in the negotiation process. Expropriation entailed a long and tedious process while presidential proclamation was applicable only to govermnent-owned land. 72. The amendment of MOA for infrastructure (through MOU) cut several layers in bureaucratic process, at least for the municipal enterprise component, but not enough for the project to be implemented and completed on schedule. Further streamlining of the government's bureaucratic procedures is necessary for the government to implement projects within the time frame and budget thereby maximizing the benefits. 73. A number of projects were rescinded and/or terminated due to the contractors' poor performance. The lengthy delays and additional costs put the economic and financial viability of several projects in question. This may have been caused by various factors, but certainly, erring contractors could be minimized or prevented from participating in future biddings if the PBAC in each RCDP implementing agencies is strengthened and all applicable laws are strictly enforced. 74. The implementing agencies should capitalize on their improved technical capabilities for the thorough and careful preparation of detailed engineering designs and minimize if not avoid issuance of excessive variation orders. 75. Each project city had different priorities in equipment requirement. The problems arising from these differences may be minimized in future projects if the cities are given the prerogative to handle the procurement of their respective equipment. The Cities, however, should improve and enhance their technical capabilities in different procurement procedures, particularly those involving importation and foreign loans. '. Excerpted from NEDA's Project Completion Report, 31 March 1992.  - 17 - 76. The true benefits of RCDP would be realized if the cities continue to identify, prepare and implement similar project components in the future using the considerable experience gained by their key technical staff who were heavily involved in the Project. FINANCIAL 77. Separate books of accounts for MEU should be established. Apart from complying with the loan covenant, it is to the Cities' advantage to know whether their MEs are self-financing or incurring deficits, and thus undertake remedial measures if necessary. Along with this effort is the need for a fegular review of pricing policies to see to it that all MEs, including similar future projects, are operating on self-financing basis. 78. Each implementing agency should establish a proper monitoring procedure for their respective budgetary allocation to ensure availability of funds for payment to contractors. This would at least minimize if not avoid unnecessary delays due to the contractors' refusal or reluctance to proceed with the contract until billings are paid. 79. For relatively small contracts (for the national component), decentralization of payment for progress billings needs to be considered. This will encourage contractors to complete the project on schedule as they are assured of prompt payment of their progress billings. 80. Considering the problems encountered by RCDP from the imposition of monthly agency ceilings, it is recommended that foreign-assisted projects nearing completion (at least six [6] months before loan closing date) be exempted from said ceiling or be given priority inasmuch as the basis for said releases is the availability of funds coming from the lending institution. Had there been no restrictions in fund releases, the project could have availed of more loan funds which in turn could have been channeled to DPWH components. The budgetary deficit of DPWH could have been reduced if not overcome. INSTITUTIONAL 81. The full and continuous support of local officials was essential in the successful implementation of RCDP. However, the project management had to exert more efforts in maintaining the working relations among local government officials who were unable to reconcile their political differences. Attempts of individuals/officials from the city and national government to claim recognition in the implementation of RCDP projects further aggravated the strained relationships. The lack of cooperative effort among the city government's political units deprived the development projects of much-needed funds. In effect, the ultimate loser was the city. 82. The passage of the 1991 Local Government Code (LGC) gave the local governments the opportunity for direct local planning. In retrospect, the cities' efforts to sustain the implementation of their respective action programs were hampered by budget constraints. Under the new scenario, the cities are now in a much better position to pull together the required resources to attend to the implementation of their action programs. 83. As envisioned, the action programs were primarily intended to extend the economic life of infrastructure facilities and equipment derived through RCDP. Implementation of the action programs and other loan covenants would ensure the cities of maximizing the economic benefits.  - 18 - 84. The devolution of several functions from the national to the local government brought about by the 1991 LGC may require intensive trainings on the part of the LGU's. The trainings availed of by RCDP cities for the last 10 years gave them an edge over the other Philippine cities as far as the following aspects are concerned: (a) planning and implementation of development projects; (b) city finance administration; and (c) operations and maintenance of existing facilities and services. 85. The RCDP cities should therefore capitalize the advantages they got, and continue to identify, prepare and implement similar project components in the future in order to sustain the momentum gained from RCDP towards achieving their objectives - economic development and growth. B. NATIONAL HOUSING AUTHORITY -- CONCLUSIONS/RECOMMENDATIONS4 86. The shelter component under the Regional Cities Development Project or Urban IV was an attempt of NHA to undertake a housing program of such magnitude outside the Metro Manila area. It was likewise an attempt of relating with the local government units under a different scheme of institutional and financial arrangement. The experience was enriching both in terms of its internal system and procedures and by way of the opportunity to define the appropriate relationship with the local government units pertinent to housing. 87. The operations of NHA have always been concentrated in the Metropolitan Manila area and in the resettlement sites in the neighboring provinces. NHA had some attempts in the past to operate outside the Metro Manila area but the magnitude of these projects was minuscule compared to Urban IV. This involved very specific undertaking as the development of resettlement projects in Paoay or in Tolosa, the Pambansang Bagong Nayon (PBN) Project in Cebu, Legazpi, Bacolod, Marawi and Tawi-Tawi, the Landed Estates Project in San Manuel, Tarlac and Maimpis, Pampanga and prior to Urban IV, the Slum Upgrading and Resettlement Project (SIR) or Urban 1I Project in Cebu, Cagayan de Oro and Davao. These prior experiences were either undertaken solely by NHA (as in the case of the PBN and SIR). Both PBN and SIR were lending operations with technical assistance provided to the local government units concerned.' For these projects, NHA has created Project Teams on an ad-hoc basis. 88. Under Urban IV, the scope and magnitude have included both two major programs as the sites and services and slum upgrading involving a target of over 15,000 units and 19 project sites simultaneously in four (4) major urban centers of the country, two of which in Western Visayas and the two others in Mindanao area. 89. In the past, relationship with the local government units has been limited to lending operations with technical assistance in the form of consultancy engagement on a need basis operated from the central office or a creation of a composite team assigned as counterpart staff and based in the project city. 4. Excerpted from the National Housing Authority's Project Completion Report, July 1993. 5 Under the SIR/Urban II, NHA took over the implementation of the Cagayan de Oro Project from the City government after a break-down of the negotiations with the newly-installed administration to pursue the project under the original arrangement with the previous city administration.  - 19 - 90. Urban IV was undertaken under a joint venture scheme on a 60-40 arrangement where the local government unit's investment represent 60 percent and NHA's equity infusion of 40 percent. Local government's investment was funded with borrowings from the NHA and NHA's investment carried a cost of nine (9%) percent. Under the joint venture arrangement, the local government unit has to create a team to undertake the project with counterpart staff from the NHA with each agency defining the type of expertise and number of their contribution in terms of personnel. Funding for NHA, under this project consisted of borrowings from the Philippine Government out of the World bank loan relent to NHA which in turn was relent to the project cities and capital infusion from national govermment counterpart funding in the project released to NHA as equity. 91. The NHA has always been under highly centralized management and the implementation of this project has put to test this type of management where power and authority emanate from the top. In effect, the administration of this project was an example of the effects of centralized authority in an undertaking where devolution and decentralization were called for, given the nature of the institutional and financial arrangement. It has likewise put to test certain policies and operating systems of NHA in a local environment outside the Metro Manila area. 92. There were significant gains from this particular project - one pertains to relationship with the local government; second, the structural and institutional character of a regional operations; and third, the areas of improvement in policies and operational systems. 93. The need to define the working relationship between local and central government pertinent to the housing program, becomes significant in the light of the passage into law of the Urban Development and Housing Act of 1992 (Republic Act 7279) and the implementation of the Local Government Code. For sometime,m the NHA has been trying to define the appropriate relationship with the local government units. A number of schemes have been tried and tested. Based on this pool of experiences, NHA can now be in a position to define its role in the implementation of a housing program at the local level and its relationship with the local government unit. Despite the reversal to direct implementation by NHA under this particular experience, the joint venture scheme under Urban IV was an eye-opener. It has unearthed its potentials as well as its pitfalls. Under the two aforecited laws, the local government units have been clothed with major authority along the lines of devolution and decentralization. The implications of these laws pinpoint to the need for NHA to relate with the local government units, as facilitator and catalyst in housing provision. 94. Cognizant of the significant contribution of the other actors in the process of housing provision and delivery, the NHA has adopted the role of a facilitator. It has realized the limitations of direct production, if it wants to be true to its national character and address the magnitude of the housing situation of the country. Along this role as a facilitator in the process of housing provision and delivery, NHA can pursue the relationship with the local government units under a joint venture scheme. NHA has to recognize the need to build up the capability of the local government units through a hands-on type of technology transfer. Exigency must be subservient to the long term gains of being able to build up that capability at the local level. 95. On the organizational aspect, the local government units have demonstrated under Urban IV, its capability to set up and create its housing teams or offices. Given the experiences of the local personnel involved in the implementation of this project, there is a pool of local expertise in housing established, particularly in the project cities involved and a potential to tap and establish the same in other areas. The areas of improvement point to the selection process and the highly politicized  - 20 - recruitment procedure. The other aspect points to the need to enhance technical capability. The political realities at the local level indicate the need of creating a local housing board that ensures continuity of the program and policies with minimal political pressure and influences or intervention. 96. The financial capability of the local government has yet to be established. It seems that local government units have the tendency of being strapped with financial obligations. A scheme has to be established such that the financial viability of the housing program is clearly demonstrated. All available resources such as land have to be put to use. Given an additional capital infusion to finance development either directly or in joint venture with the private sector, the issue of ensuring cost recovery has to be addressed. Along this line, it is important for the local government units to establish a program that is replicable, and to adopt a policy that a housing program or the social housing program for that matter, has to recover its investment in order to further or multiply its benefits. The prospects of the secondary mortgage market and the social housing tax under the local government code and UDHA are factors which assure the financial viability of a local housing program. 97. The housing problem of the country has a national character. While confronted with the magnitude of the housing problem in Metro Manila or the National Capital Region, the demand for housing in the other regional urban centers is increasing. The NHA as a national housing agency cannot simply concentrate its efforts in the National Capital Region. There has to be an even distribution of the government housing program delivery throughout the country. In this respect, the NHA has to address the issue of the structural and institutional character of regional operations. 98. The experience under Urban IV of the effects of a highly centralized management suggests a mover towards decentralization and devolution of authority to the local level. At this state, organizational changes should be in the priority agenda. The Regional Projects Department which was created to attend to projects outside the NCR, has outgrown its need. That Department, given the scope of operations and geographic consideration has to be replaced with units tasked to undertake the housing program in each region or by regional distribution. Already the NHA, as an interim measure, has created the Area Management Offices, which allowed Management, direct supervision in the different regions of the country. Under the proposed organizational set up of NHA, regional offices are being envisioned. The changes required, however, goes beyond structural changes. The basic idea is to cloth these regional offices with authority corresponding to their level of responsibility. The levels of authority now vested upon the Area Management Offices, could serve as the laboratory for defining what authority could be devolved to the local units. While, the delegation of authority is contingent upon the capability of the key officers assigned at the local level, such capability or even trust has to be developed, and its development rest upon certain authorities devolved to them from time to time. The central management of NHA has to start somewhere and a program of decentralization and devolution has to be formulated and implemented. 99. The areas of improvement in policies and operational systems indicated, based on the experience under Urban IV, are particularity in almost all areas of operation from site selection to project turn over. Priorities, however, have to be established and priorities pinpoint to the need to address the issue of project supervision. 100. Management should be concerned with the level of expertise on project supervision Much of the problems could have been averted, if there exist proper and adequate supervisory skills in the key officers assigned for regional operations. Sufficient training on supervisory skills has to be instituted,  - 21 - initially before such personnel are field and on a regular basis, their experiences can be consolidated. In the need to push the projects, and with the limited number of highly qualified and available personnel, key personnel are assigned without the benefit of tooling them with the proper tools of supervision. As such they are subjected to the difficult task of figuring out for themselves what to do under trying circumstances. 101. On the other aspects of operations, certain changes have already been adopted by NHA such as the benefit of a pre-feasibility study or a feasibility study in line with site selection. Projects are evaluated and selected on the basis of their feasibility with a corresponding projection on the selling prices matched against the affordability of the target market. For land acquisition, negotiations have been resorted to with the aid of real estate valuation from qualified agencies, as to their current fair market value. Land development is not pursued without first securing the titles to the land and ensuring the requirements such as land conversion clearance, permits and licenses. Allowances due to weather conditions have been incorporated in the duration of the contract and variation orders and time extensions are subjected to evaluation by a collegiate body created for this purpose. Detailed engineering designs are done with the benefit of topographic surveys and the like. Negotiations with the utility companies are finalized before the inception of land development. As selling prices are predetermined, this serves as cost control and at the same time ensures the disposition of the units once physically completed. Trainings are being conducted to equip the sales force with the necessary skills in sales and mortgage documentation while turnover of facilities are done immediate upon completion with the local government unit or the agency concerned represented in the project acceptance. 102. The necessary changes in the system have been put in place. To avoid unlimited discretion, these systems were formulated and issued in the form of documented policy statements and circular to guide the operation units concerned. 103. This documentation of the experiences under Urban IV serves as a way of consolidation experiences in the pursuit of doing future undertaking, the better way.  22 PROJECT COMPLETION REPORT THE PIILIPPINES REGIONAL C1ES DEVELOPMENT PROJECT (LOAN 2257-PH) PART I I I SUMMARY OF STATISTICAL DATA TABLE 1. RELATED BANK LOANS AND CREDITS LOAN/CREDIT NAME | PURPOSE I APPROVED I STATUS | COMMENTS Manila Urban | Upgrade Tondo Foreshore and I 5/27176 | Complete | PCR issued: PPAR | Development Project | Phase I of Dagat-Dagatan 4 No. 7092 dated 1/88. 0 (1282-PHj | serviced site project.