Philippines - Rural Development Project

Report No. 633a-PH 7* ; " '';' FILE C P Appraisal of FE PY The Rural Development Project Philippines RETURN TO R E P 0 RlREPORTS D3 SS . March 14, 1975 WITHIN East Asia and Pacific Projects Department ONE WEEK Irrigation and Area Development Division Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only hy the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept respomibility for the accuracy or (ompleteness of the report.  CURRENCY EQUIVALENTS US$1.00 = Pesos (r) 6.90 1 1.00 = US$0.145 WEIGHTS AND MEASURES - METRIC SYSTEM 1 hectare (ha) = 2.47 acres 1 kilometer (km) 2 = 0.62 miles 1 square kilometer (km ) = 0.3886 square miles 1 meter (m) 2 39.37 inches 1 square meter (m ) = 10.76 square feet 1 cubic meter (m3) 3 35.31 cubic feet 1 million cubic meters (Mm3) 810.7 acre feet 1 millimeter (mm) = 0.039 inches 1 kilogram (kg) = 2.2 pounds 1 cavan (paddy) = 50 kg 20 cavans = 1 metric ton INITIALS AND ACRONYMS ACA = Agricultural Credit Administration ADCC = Agricultural Development Coordinating Council BAE = Bureau of Agricultural Extension BPI = Bureau of Plant Industry CCC = Cabinet Coordinating Committee for Rural Development DA = Department of Agriculture DAR = Department of Agrarian Reform DBP = Development Bank of the Philippines DH Department of Public Health DLGCD = Department of Local Government and Community Development DNR Department of Natural Resources DPH = Department of Public Highways DPW = Department of Public Works NEDA = National Economic and Development Authority NIA = National Irrigation Administration NSCC = National Schistosomiasis Control Commission PANAMIN = Presidential Assistant on National Minorities PDAP = Provincial Development Assistance Program PNB = Philippine National Bank RB = Rural Banks UPRP = Upper Pampanga River Irrigation Project GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES FISCAL YEAR July 1 to June 30  PHILIPPINES APPRAISAL OF THE RURAL DEVELOPMENT PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS .............................. i-ii I. INTRODUCTION .......................................... 1 II. BACKGROUND ................................ 1 General .......................................... 1 Agriculture and Rural Development .... ............ 1 Project Formulation .............................. 2 III. THE PROJECT AREA ...................... 3 General .......................................... Climate ........................ 3 Topography, Drainage and Soils ............. 3 Population ................................ 4 The Mangyans ...................... 4 Land Tenure and Farm Size ..... ........... 4 Agricultural Production ..... ............ 5 Existing Water Control Facilities ............. 6 Transportation ..................... 7 Public Health ............................... 8 Institutions ................................ 8 IV. THE PROJECT ........................................... 9 Water Control ..................... 9 Roads and Calapan Port ..... ...................... 10 Agricultural Program ..... ........................ 11 Schistosomiasis Control ..... ..................... 11 Mangyan Assistance ............. .. ................ 12 Implementation ................. .................. 13 Cost Estimates ................. .................. 13 Financing ................... ..................... 14 Procurement .................. .................... 14 Disbursements ................. ................... 15 Accounts and Audit ............. .. ................ 16 Supervision .................. .................... 16 Environms.ntal Effects ........... .. ............... 16 This report is based on the findings of an appraisal mission composed of Messrs. F. Lowenstein, K.V.S.K. Nathan (Bank), R. Shukle and S.C. Chang (Consultants). Mr. A. L. Gram (Consultant) evaluated the schistosomiasis control part of the Project. Messrs. R.L.P. Harris and E.G. Giglioli were mainly responsible for preparing the report.  -2- Page No. V. ORGANIZATION AND MANAGEMENT ........................... 17 Central Project Organization ...... ................ 17 Provincial Organization .......................... 17 Agency Responsibilities .......................... 18 Supporting Agricultural Services .... ............. 19 Monitoring Benefits .............................. 20 Consulting Services and Technical Assistance 21 Water Charges .................................... 21 VI. PRODUCTION, MARKET PROSPECTS, PRICES AND FARM INCOMES ....................................... 22 Production ...................................... 23 Market Prospects ................................ 23 Prices .......................................... 24 Farm Incomes .................................... 24 VII. BENEFITS AND JUSTIFICATION ........................... 26 VIII. AGREEMENTS REACHED AND RECOMMENDATION .... ............ 27 ANNEXES 1. Climatic Data 2. Land Tenure and Reform 3. Water Control 4. Roads and Calapan Port 5. Agricultural Program and Supporting Services 6. Schistosomiasis Control 7. Mangyan Assistance 8. Cost Estimates 9. Equipment List 10. Schedule of Expenditure and Disbursements 11. Production and Farm Budgets 12. Economic Analysis CHARTS Implementation Schedule No. 9373 (R) Project Organization No. 9374 (R) MAPS Water Control and Crop Distribution No. 11160 Transportation System No. 11159  PHILIPPINES APPRAISAL OF THE RURAL DEVELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. The Government of the Philippines has requested Bank Group assist- ance to carry out the Rural Development Project on the island of Mindoro, about 45 km south of Luzon. The project consists of the improvement and extension of national and communal irrigation systems; a watershed protection program; construction and Improvement of national highways, provincial roads, bridges and port facilities; certified rice seed and rat control programs; schistosomiasis control measures; and assistance for minority tribes known as the Mangyans. ii. Government strategy is te give priority for development to relatively backward regicns with good agricultural potential. The proposed project would be the first Bank-assisted project of this type in the Philip- pines. The objectives are to help correct regional economic and social imbalances, to assist natioctal programs for food grain self-sufficiency and to build up government services for planning and implementing projects in rural areas. In line with these objectives, the project would remove a major obstacle to the development of Mindoro by improving the island's rural transportation system. It would provide irrijgation to achieve maximum production where potential exists, and would include an island-wide agricul- tural program to benefit all paddy farmers. It would also help solve two particular health and social problems - schistosomiasis and the status of the Mangyans. iii. Total project cost is estimated at 1 345.0 million (US$50.0 million) of which US$21.6 million, or approximately 43%, would be in foreign exchange. The Bank would finanee the foreign exchange component as well as US$3.4 million of local currency requirements. Civil works for the national highways and provincial roads (US$13.0 million) and equipment and vehicles (US$4.0 million) would be awarded after international competitive bidding. Civil works for the national irrigation systems (US$5.2 million) and Calapan port (US$0.2 million) would be carried out by contract, but because of their nature would not be suitable for international competitive bidding. Consultants would be employed to assist with hydro-meteorological studies to provide data for planning development of the island's water resources, and to carry out studies and, if warranted, detailed engineering of a national highway in Occidental Mindoro, the less developed of the island's two provinces. Contingencies amount to US$19.0 million, of which US$14.7 million are for anticipated price increases. iv. Implementation is scheduled to take five years. It would require coordination between a number of Government departments and agencies. A Project Director under the Cabinet Coordinating Committee for Rural Develop- ment would be responsible for coordination and implementation at the  - ii - national level. He would be chairman of a Steering Committee composed of senior officers from the participating departments and agencies and the Governors of the two Mindoro provinces. The Governors would be responsible for implementation at the provincial level through their Provincial Develop- ment Councils. v. At full development in 1985, annual paddy production from the island as a result of the project is expected to reach 340,000 tons compared with current production of 235,000 tons. The increased production would provide enough rice to feed over half a million people a year. vi. The project would benefit directly some 30,000 poor paddy farmers, representing about 200,000 people or 40% of the island's population. It would create the equivalent of some 13,000 seasonal agricultural jobs. Annual per capita incomes on average size farms would rise from about US$70-140 at present, or 30%-60% of per capita GNP, to US$90-265 at full agricultural development in 1985. Even the highest of these incomes would still be below the projected national average. Indirectly, the project would benefit an even larger number of people through improvements to the national highways, provincial roads and Calapan port, and programs to protect four of the island's major watersheds, control schistosomiasis and assist the Mangyans. vii. The economic rate of return on the national highway improvements is expected to be about 18%. For the irrigation systems, agricultural program and provincial roads taken together, the rates of return range between 15% and 25%. Sensitivity analysis indicates that under a number of adverse assumptions, the rates of return would not fall below 10%. No attempt was made to quantify the benefits from the other project components, but they would all be justified as improving the incomes and living con- ditions of Mindoro's rural population. viii. The proposed project is suitable for a Bank loan of US$25.0 million for a period of 25 years, including a seven year grace period. The borrower would be the Republic of the Philippines.  PHILIPPINES APPRAISAL OF THE RURAL DEVELOPMENT PROJECT I. INTRODUICTION 1.01 The Government of the Philippines has requested Bank Group assistance in financing a Rural Development Project on the island of Mindoro. The project would provide irrigation and improved agricultural supporting programs; construction of roads and port improvements; schistoso- miasis control measures; and assistance for primitive tribes that live in the island's interior. 1.02 The project was prepared by the Government of the Philippines with assistance from the FAO/IBRD Cooperative Program. This report is based on the findings of an appraisal mission which visited the Philippines in June 1974, composed of Messrs. F. Lowenstein, K.V.S.K. Nathan (Bank), R. Shukle and S. C. Chang (Consultants). Mr. A. L. Gram (Consultant) visited the Philippines in September 1974 to evaluate proposals for the schistosomiasis control portion of the project. Messrs. R.L.P. Harris and E.G. Giglioli were mainly responsible for the preparation of this report. II. BACKGROUND General 2.01 The Philippines covers some 297,000 km scattered over more than 7,000 islands between the Pacific Ocean and the China Sea. The 45 largest islands account for 98% of the area. The population is around 39 million (1972), growing at a rate of 3% annually. Real GNP grew at 5% to 6% a year during the last decade and was US$220 per capita in 1972 1/. GNP grew by 10% in 1973 and an estimated 7% in 1974 due to booming export earnings, strong recovery in agricultural and industrial production for the domestic market and an improved investment climate. Major economic problems are inflation, unequal income distribution and unemployment, particularly in rural areas. Agriculture and Rural Development 2.02 Agriculture accounts for about one-third of net domestic product, one-half of total employment and 70% of commodity export earnings. Most farms are small with low productivity, yields and income. Since the late 1960's, agricultural output has grown at an average annual rate of 4 to 5%, stimulated by the spread of improved rice varieties. In 1972, typhoons 1/ World Bank Atlas, 1974.  - 2 - disrupted food production and led to shortages. The food supply position has since improved with the good harvest of 1973/74, and production appears to be back on its long term trend. Improvements in agricultural labor pro- ductivity have helped to narrow the gap between incomes in agriculture and other sectors, although agricultural incomes are still much lower. Farmers using improved technology, such as the new rice varieties, have shared in the higher incomes, but those continuing in traditional ways have been largely unaffected. Agricultural sector performance will be crucial in determining whether the drive toward a more rapid and more equitable income expansion succeeds. The major sector goals are self-sufficiency in food grains, expansion of exports, intensification of agrarian reform and conservation of natural resources. 2.03 To date the national government departments and agencies have dominated the rural development effort in the Philippines. National plans, however, have frequently failed to reflect provincial and local needs. Since 1972 Government policy has shifted towards increased local participation in development planning and implementation. Provincial Development Councils have been formed in each province, made up of local representatives of all national and provincial government agencies. The capability of these Councils to plan and implement projects, however, is still weak. Regional Development Councils have also been set up under control of the National Economic and Development Authority (NEDA). To better integrate rural development efforts, a Cabinet Coordinating Committee for Rural Development (CCC) 1/ was formed under NEDA in July 1973. Project Formulation 2.04 Government strategy is to give priority for development to relatively backward regions with good agricultural potential. The objectives are to help correct regional economic and social imbalances, to assist national programs for food grain self-sufficiency and to build up Goverment services for planning and implementing projects in rural areas. The pro- posed rural development project, the first Bank-assisted project of its kind in the Philippines, was chosen to meet these objectives. With its favorable climate and relative freedom from typhoons, Mindoro is an alter- native granary to Central Luzon to supply food deficit areas. Heavy im- migration from Luzon and natural population growth have led to a situation where potential economic activity has outstripped the capacity of the rudimentary rural infrastructure. The project would remove a major obstacle to the island's development by improving the rural transportation system. It would provide irrigation to achieve maximum production where potential exists, and would include an island-wide agricultural program to benefit all paddy farmers, whose per capita incomes are typically 30%-60% of national per capita GNP. It would also help solve two of the island's particular health and social problems - schistosomiasis and the status of minority tribes - and thereby improve rural living conditions. 1/ The Committee consists of the Secretaries of the Department of Agricul- ture (Chairman), Natural Resources, Public Works, Public Highways, Finance, Local Government and Community Development, and Agrarian Reform.  III. THE PROJECT AREA General 3.01 The island of Mindoro is separated from Luzon by a sea crossing of about 45 km. It is divided administratively into two provinces - Oriental Mindoro and Occidental Mindoro. A high mountain range runs north and south through the center of the island, between the two provinces. The mountains are fringed by foothills and coastal plains where most of the population lives. The coastal plains, never more than 20 km wide, are widest in the northeast, between Calapan and Roxas in Oriental Mindoro and around San Jose in Occidental Mindoro (Map 11160). 3.02 There are a number of small towns around the periphery of the island, with populations of between 5,000 and 10,000. The larger towns, such as Calapan in Oriental and San Jose in Occidental Mindoro, provide banking, storage and processing facilities as well as supplies of inputs to surrounding agricultural areas. Roads and bridges are generally in- adequate, poorly maintained and present serious problems for the movement of goods and services. Climate 3.03 Mindoro's climate is tropical and humid, with annual rainfall averaging about 2,000 mm in both provinces. Occidental Mindoro has a pronounced dry season of about six months. Although rainfall is better distributed in Oriental Mindoro, there are three to four months when rain is scarce. The rainfall pattern also shows significant variation from year to year (Annex 1). Typhoons often pass near the island, but damage is seldom serious. Topography, Drainage and Soils 3.04 The central spine of Mindoro is rugged and moutainous with elevation up to 1,000 m. The foothills are mainly marine deposits of varying age while the coastal plains are mainly of recent alluvial origin. Rocky hills on the east of the island near Lake Naujan are inactive volcanic cones. Around the periphery of the island are small deltaic flood plains separated by hilly spurs extending toward the sea. These plains are dis- sected by a network of natural creeks collecting local runoff, river over- flows and drainage from national and communal irrigation systems. Drainage courses in the irrigation areas are often winding and narrow with insuf- ficient outlets. Coastal fish ponds impede disposal of surplus water in some areas. Major drainage channels are needed in the low-lying plains to avoid ponding of water and resultant crop damage.  - 4 - 3.05 The island covers about one million ha of which the central 55% is classified by the Bureau of Soils as undifferentiated rough mountain land. About 270,000 ha or slightly more than half the agricultural land around the edges of the island is currently used for rice, upland crops and coconut. The soils are dark brown, compact, fine textured silty clays and clay loams with neutral to slightly acidic reactions, and slow internal drainage. The remaining area is marginal land, steep and subject to erosion, with potential only for pasture under careful management. Population 3.06 About 500,000 people live on Mindoro, with 30% in Occidental and 70% in Oriental. Some 70% of the labor force is employed in agriculture, fisheries and forestry. The remainder work in small scale manufacturing, mining and agro-inidustries, or as 'craftsmen, trade and service workers in the towns. Seasonal under-employment is high, especially in areas where only one rice crop is grown. Nevertheless, there has been heavy immigration from Luzon, especially during the last 15 years. From 1960 to 1970, average annual population growth was 3.6% in Oriental Mindoro and 5.4% in Occidental. About 45% of the island's population is under 15 years of age. The literacy rate is high, with 85% of the population over age seven able to read and write. The Mangyans 3.07 The original inhabitants of the island, numbering about 80,000 and known collectively as the Mangyans, have been forced back into the mountains by land pressure on the coastal plains. Although many have permanent contact with the lowlanders, some remain true hill tribe people, shunning outside contact and living in great poverty. The Mangyans traditionally practice shifting cultivation. Because their area has been progressively restricted, the cycle of cultivating each piece of land has been shortened to the point where yields are too low to support subsistence, droughts have more serious effects, and erosion and watershed destruction are real hazards. Land Tenure and Farm Size 3.08 The Government is committed to agrarian reform and is moving ahead rapidly with its program to transfer land ownership to the nation's one million rice and corn farm tenants. By the end of November 1974, land transfer certificates had been issued to about 189,000 out of 323,000 tenants on holdings of 24 ha and above. The Government recently decreed that the program would be implemented on all tenanted rice and corn holdings down to 7 ha. This may be difficult due to increased resistance from medium-size owners, but the Government is committed to pressing ahead with the program in view of the substantial land and income redistribution effects that would  - 5 - result. Implementation below 7 ha would be extremely difficult and benefits less obvious (Annex 2). 3.09 The 100,000 ha of rice and 23,000 ha of corn lands in Mtindoro are cultivated by 19,000 owner-operators and 24,000 tenant farmers. As of September 1974 there were major differences in the tenure pattern and average size of farm between the two provinces; Occidental Mindoro had a higher tenancy rate (80% compared with 20% in Oriental), generally larger farm size (average farm size 4.6 ha compared with 2.2 ha in Oriental) and a smaller difference in farm size between owner-operators and tenants. There were some 9,500 owners of tenanted rice and corn land in the two provinces, again with a substantial difference in the pattern of ownership between the provinces, with Occidental Mindoro showing a higher degree of skewness. 3.10 The Department of Agrarian Reform (DAR) has concentrated its activities in Mindoro on the Occidental side, particularly the large estates. DAR has already resettled two estates near San Jose and is completing pre- paratory work on several estates near Sablayan. The issue of land transfer certificates to all rice and corn tenants in both provinces on holdings of 7 ha and above would mean the transfer of 32,500 ha or 73% of the tenanted area to 6,100 tenant farmers in Occidental Mindoro and 5,800 ha or 40% of the tenanted area to 5,700 tenants in Oriental. Because of lower population density in Occidental Mindoro, tenants would receive larger holdings. The small tenant holdings in Oriental are more typical of the Philippines as a whole. Although there is still a long way to go, the successful com- pletion of this stage of the agrarian reform would result in some 103,000 ha or 84% of the island's rice and corn lands being cultivated by 31,000 owner-operators, or 72% of the farmers. This would leave about 12,000 far- mers on holdings less than 7 ha under some form of leasehold. There is not likely to be any change in the size of farm operating units in Oriental Mindoro, though in Occidental it is likely that farms will become smaller as population increases. Agricultural Production 3.11 Paddy is by far the most important crop in Mindoro. Paddy areas are concentrated in the lowlands and coastal plains of both provinces. Diversified cropping, mainly corn and legumes, is practiced in the drier, non-irrigated areas. Tobacco is an alternative dry season crop in the San Jose area of Occidental Mindoro. Coconuts are grown in the foothills and in the coastal lowlands of Oriental Mindoro where soils are too sandy for paddy. Other tree crops include bananas, citrus and other fruits, grown mostly in the foothills. The cultivated area more than doubled from 1960 to 1973 with about 80% of the increase due to paddy. Little free land remains, although some occupied lands could be more fully used, particularly in the Sablayan area of Occidental Mindoro and in the recently settled foothills (Map 11160).  3.12 Paddy is grown on about 90,000 ha in the wet season, about evenly distributed between the two provinces, and 50,000 ha in the dry season, almost all in Oriental. Upland rice covers some 10,000 ha. Yields with irrigation are currently around 2.2 ton/ha in the wet season and 2.4 ton/ha in the dry season. Average yields under rainfed conditions are around 1.8 ton/ha in the wet season and 1.3 ton/ha in the dry season. Where high yielding varieties, fertilizers and other inputs are available under the Government's "Masagana 99" supervised credit program, reported yields are 3.5 ton/ha irrigated and 2.6 ton/ha rainfed. A major bottleneck to expanding this program is a shortage of certified seed. Rat damage is also a problem. Total paddy production from the island at present is about 235,000 tons. 3.13 Most farmers rely almost entirely on animal power for land prepara- tion, but a few are starting to use a combination of animal drawn and mechanical equipment for more timely land preparation to achieve double cropping. These farmers increasingly hire four-wheel tractors for first plowing, using the water buffalo for harrowing, leveling and general transportation. 3.14 Corn is often grown as an intercrop, either with mungbeans or vegetables or as a cash crop between coconuts or fruit trees. Cultivation standards are poor; little or no fertilizer is used and weed control is inadequate. Disease and rats cause serious losses and yields are consequently low at about 1.0 ton/ha. Out of some 47,000 ha under coconut, only about 18,000 ha are nut-bearing. The reason for non-bearing trees is not clear and should be thoroughly studied before planning future development. Average yield for bearing trees is 36 nuts per tree giving about 1.0 ton/ha of copra. The trees are chiefly unselected tall varieties. Rat damage is a major problem. Existing Water Control Facilities 3.15 Numerous rivers arise in the central mountain range. In relation to the volumes of water discharged, several major rivers have short courses, small watersheds and tend to be torrential with unstable courses. Nevertheless, many are diverted for run-of-the-river gravity irrigation, often supplemented in the dry season by pumping from the rivers and from wells in the alluvium bordering the rivers. In addition there are nearly 1,000 free-flow artesian wells in northeastern Oriental Mindoro. 3.16 Irrigation covers about 40,000 ha in the rainy season and 30,000 ha in the dry season, mostly in Oriental Mindoro. There are only two national irrigation systems on the island built, operated and maintained by the National Irrigation Administration (NIA). Both are in Oriental Mindoro. The Baco-Bucayao system (8,000 ha) was brought into operation only in 1973, but was immediately damaged by river flooding. The Pula system (2,000 ha) is older and suffers from poor drainage (Map 11160). Most irrigation on  Mindoro comes from small communal gravity systems built and operated by groups of farmers or by individuals on the smaller, more stable streams. These systems have simple diversion structures, frequently of brushwood, and normally irrigate from 100 to 300 ha each. 3.17 There are about 1,000 privately owned small gasoline or diesel- powered pumps irrigating an estimated 10,000 ha from streams and wells. The annual groundwater recharge in Oriental Mindoro seems adequate to support larger extraction by small pumps, and the number of loans extended by the Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB) for the purchase of pumps is increasing rapidly. In the San Jose area of Occidental Mindoro, there is serious risk of over-pumping. There seems to be better potential in the less developed Sablayan area. A care- ful appraisal of the aquifer characteristics and of the annual recharge is needed because of the rapid increase in pumping over the last three years. 3.18 No significant replanting of forests has taken place and insuffi- cient control has been exercised over logging and forest clearing. Watersheds are not surveyed or marked, and are not protected or managed. Better pro- tection and in some cases reforestation of major watersheds is important for irrigation and flood control. Transportation 3.19 The two provinces are not connected by road, and their transport- ation systems are developed to different degrees. In Oriental Mindoro there has been fairly active road building with a main national highway running along to coast from Puerto Galera to Calapan and then to Bulalacao (Map 11159). Because of the national highway, coastal shipping hardly exists and almost all produce is moved by road. Highway traffic from Calapan to Roxas City averaged between 900 and 250 vehicles per day in 1973, and peak volumes were much higher. But due to poor design and heavy traffic conditions, the high- way is deteriorating rapidly. There are few good provincial and farm-to- provincial roads, and many wooden bridges are dilapidated and unusable. The road situation in Occidental Mindoro is much worse and presents tremendous development problems. The main route in the province from San Jose to Mamburao crosses several large, torrential rivers with unstable courses. For this reason only a rudimentary track exists and the Sablayan area can only be reached by sea for most of the year. Numerous small piers have been built along the Occidental coast and most farm produce is moved by sea in small boats at high cost. 3.20 The island's two main ports are the national port of Calapan in Oriental Mindoro and the municipal port of San Jose in Occidental. About 2,500 vessels called at Calapan in 1973, carrying a total of 800,000 pas- sengers and 72,000 tons of cargo. This represents about 60% of all pas- senger and cargo movements between Mindoro and the rest of the Philippines.  - 8 - There is a regular ferry service for passengers and goods from Calapan to Batangas, from which Manila can be reached by road in about two hours. From San Jose there are regular sailings to Manila with a connection to Palawan Island--a market for rice and a source of seasonal labor. Air transport is not yet fully developed; the only commercial airport is in Occidental Mindoro at San Jose. Public Health 3.21 The main health problems are malaria and schistosomiasis. In parts of Occidential Mindoro, malaria incidence rates of three per thousand still occur, and about 8,000 cases of schistosomiasis have been diagnosed in the Lake Naujan area of Oriental Mindoro. Control programs are inadequately staffed and funded. Institutions 3.22 Agencies of the national government provide most development services in Mindoro, while provincial Governors and their staffs provide coordination. Provincial Development Councils chaired by the Governors with representatives from all agencies meet monthly, but successful integration of government pro- grams remains a problem. 3.23 NIA planned, built and operates the two national irrigation systems. It also helps with construction of communal gravity systems, supplies small pumps and assists in their installation. NIA's capacity in Mindoro is limited; the staff is almost fully occupied in running the national systems and has little time or funds for the communal schemes. The national roads and bridges were constructed and are maintained by the Department of Public' Highways (DPH). Calapan port is the responsibility of the Department of Public Works (DPW). Other infrastructure works are constructed and main- tained by the provincial and municipal governements. Agricultural services are provided by various Bureaus 1/ of the Departments of Agriculture (DA) and Natural Resources (DNR). PNB, with branch offices in Calapan, San Jose and Mamburao, and 18 privately owned Rural Banks have rapidly expanded the supply of institutional production credit during the past two years under the Masagana 99 program. Medium to long-term credit is provided mostly by DBP, which has branches in Calapan and San Jose. Health services are provided by the Department of Health (DH) through provincial hospitals in Calapan, Mamburao and San Jose, and through a network of rural health centers. All 1/ These include the Bureau of Animal Industry, Bureau of Soils, Bureau of Plant Industry and Bureau of Agricultural Extension of DA and the Bureau of Forest Development of DNR.  - 9 - schistosomiasis control work is carried out under the direction of the National Schistosomiasis Control Commission (NSCC). 1/ One of the Philippines' six regional schistosomiasis control teams is stationed in Oriental Mindoro. Little medical or other assistance reaches the Mangyan population except by special programs under the Presidential Assistant on National Minorities (PANAMIN) and through religious missions. 3.24 Local government activities in Mindoro include the formation of farmer associations, advice to barrio and municipal councils, and training in local government administration. Oriental Mindoro is further advanced than Occidental because of its earlier and more extensive development, greater revenue base and easier access to Manila. Oriental Mindoro partic- ipates in the U.S. - assisted Provincial Development Assistance Program (PDAP) and has set up a three-man development staff attached to the Governor's office. Under the PDAP, the province has set up a motor equipment pool with surplus U.S. military equipment, and has a training program for mechanics and engineers. Other PDAP activities include provincial infrastructure planning and training of tax officers in assessment and collection. To date, Occi- dental Mindoro has not been included in PDAP. IV. THE PROJECT 4.01 The proposed project would increase farm incomes and improve living standards in rural Mindor6 by providing improved water control; construction of roads, bridges and improved port facilities; certified rice seed and rat control programs; schistosomiasis control measures; and assistance for the Mangyans. The project would provide consultant services to assist in carrying out hydro-meteorological studies and to carry out feasibility studies and, if warranted, detailed engineering of a national highway in Occidental Mindoro. Project components are described in detail in Annexes 3-7 and are summarized below. Water Control (US$9.2 million) 4.02 The water control program (Annex 3) would include: (a) improvement of the Pula and Baco-Bucayao national irrigation systems now serving about 10,000 ha and extension of these systems to serve an additional 2,000 ha; 1/ NSC is chaired by the Secretary of Health and includes the Secretaries of Education and Culture, Agriculture, Natural Resources, Local Govern- ment and Community Development, the Director General of NEDA, The Com- missioner of the Budget, the Administrator of NIA and the President of the Philippines Medical Association.  - 10 - (b) improvement and extension of about 2,000 ha of communal gravity irrigation systems in Oriental Mindoro and about 1,000 ha of communal pump irrigation systems in Occidental Mindoro; (c) establishment of a network of river gauging and meteorological stations to improve the hydrological data base in the two provinces; (d) introduction of watershed protection programs in four river watersheds, three in Oriental and one in Occidental Mindoro; and (e) procurement of vehicles and equipment for the construction, operation and maintenance of national and communal irrigation systems. 4.03 The 3,000 ha of communal irrigation systems to be constructed or improved under the project would be largely pilot in nature. They would allow NIA to work out standards, policies and procedures for planning, design- ing, building, operating, maintaining and recovering the cost of small, scattered communal projects. The standards, policies and procedures adopted for Mindoro would have far-reaching implications for the country's 300,000 ha of communal gravity and 150,000 ha of small pump irrigation systems. Assurances were obtained that before constructing and improving the communal irrigation systems included in the project, NIA would prepare a comprehensive plan for their design, construction, operation, maintenance and cost recovery, and submit the plan to the Bank for review within two years of loan signing. Agreement on the plan between the Government and the Bank would be a condition of disbursement for the communal irrigation systems. Roads and Calapan Port (US$17.6 million) 4.04 The roads and port program (Annex 4) would include: (a) construction and improvement of about 150 km of national highways in Oriental Mindoro; (b) construction and improvement of about 114 km of provincial roads in Oriental Mindoro and 166 km in Occident4l Mindoro; (c) procurement of equipment for the construction, improvement and maintenance of provincial roads in Occidental Mindoro; (d) engagement of a highway expert to assist DPH in detailed engineering and supervision of contruction;  - 11 - (e) consultant services for feasibility studies and, if warranted, detailed engineering of the Paluan-San Jose national highway in Occidental Mindoro and possible road links between the provinces; (f) rehabilitation and upgrading of the existing pier and deck at Calapan port; (g) reclamation and surfacing of 4,000 m of land to provide cargo storage space; and (h) construction of a 600 m passenger building and concrete landing stair. 4.05 At the time of appraisal, only preliminary engineering work had been done on the Calapan-Roxas City national highway (140 km). This was sufficient to make an economic evaluation of the proposed improvements and to prepare cost estimates for the whole road except the section between Calapan and Victoria (34 km), which would be affected by improved drainage in the area of the Baco-Bucayao irrigation system. Assurances were obtained that before proceeding with the Calapan-Victoria road works, DPH would update the feasibility study for this section, and that construction and improvement of the section would be included in the project only if the Government and the Bank agree that the works are justified in the light of the study. Agricultural Program (US$2.3 million) 4.06 The agricultural program (Annex 5) would include: (a) construction and equipment of a seed testing laboratory at Calapan and San Jose; (b) a qualified seed technician to work at each testing station; (c) additional pest control officers to work in each province; and (d) procurement of equipment, vehicles, supplies, rodenticides and poison baiting huts to carry out a rat control program on about 90,000 ha of paddy land. Schistosomiasis Control (US$1.5 million) 4.07 Schistosomiasis is fairly localized at present (para 3.21) and should therefore be subject to successful control. The lessons learned in controlling schistosomiasis in Mindoro would be transferable to other parts of the Philippines (Annex 6). The project would include:  - 12 - (a) a health education program through the use of posters and a mobile audio-visual unit; (b) provision of about 10,000 water-seal toilets; (c) construction of communal domestic water supplies; (d) drainage and clearing of 460 ha of swamp land containing snail colonies and mollusciciding after completion of land modification work; and (e) a diagnosis campaign to identify people who have the disease and treatment for all active cases. 4.08 Although the proposed integrated approach to schistosomiasis control is sound, details still need to be worked out. Inducements must be provided for people to request, construct and use the water-seal toilets. A brief epidemiological survey must be carried out to determine the probable benefit from having clean water available. If it is determined that safe water supplies would reduce transmission, then a study would be needed to determine the best type of water supplies, the number required, location and cost. Locations, designs and costs of foot bridges must be firmed up. The best mix of equipment and manual labor, the choice between lined or unlined drainage channels and the appropriate level of maintenance mollusciciding for the snail control component all have to be determined. Finally, the diagnosis and treatment campaign has to be properly phased with the snail control measures. 4.09 Assurances were obtained that NSCC would revise its proposal for the schistosomiasis control part of the project. The revised proposal would cover the points in para 4.08, which are discussed in greater detail in Annex 6, and would include detailed requirements and cost estimates for personnel, facilities and equipment. All agencies participating in this part of the project should play an active role in formulating their own activities. NSCC would then submit the revised proposal through the Project Director (para 5.01) to the Bank for approval. Agreement on the proposal between the Government and the Bank would be a condition of disbursement for the schistosomiasis control part of the project. Mangyan Assistance (US$0.4 million) 4.10 The project would provide medical services, legal assistance, initial supplies of agricultural inputs, small tools and equipment to Mangyan communities (Annex 7). It would include: (a) establishment of a mobile medical team in each province to work with the Mangyans; (b) establishment of field teams in each of four selected Mangyan communities to provide legal assistance, agricultural inputs and technical advice; and  - 13 - (c) construction of low-grade access roads to the four communities. Implementation 4.11 Construction of the national irrigation systems would begin after the 1976 rainy season and would be completed in the first half of 1979. Construction of the communal systems would not start until late 1977 to allow adequate lead time for data collection, planning and development of staff experience. All work on the irrigation systems would be completed by June 1980. The hydro-meteorological studies and watershed protection program would begin in 1976 and continue through June 1980. The road works would be constructed over four years beginning November 1975 while the port improvements would be made over three years beginning November 1975 (Chart 9373). The agricultural, schistosomiasis control and Mangyan assistance programs would be carried out over 4-1/2 years beginning January 1976. Cost Estimates 4.12 Total project costs are estimated at US$50.0 million, of which US$10.6 million or 43% is foreign exchange. Cost estimates for the water control component of the project are based on quantity estimates from standard NIA designs and unit prices prevailing in the Philippines in September 1974. Unit prices for equipment, materials and supplies are based on recent quotations received by NIA. A physical contingency factor of 257 was applied to the cost of the water control component because of the need for additional engineering and NIA's relative inexperience in working on Mindoro. The cost estimates for the roads and Calapan port improvements are based on the latest prices of essential materials and recent bids under the Second Highway Project (Loan 950-PH). A physical contingency factor of 10% has been added for the roads and 20% for the port improvements. Most of the national highway and all of the provincial road improvements generally follow the existing grades and alignments. For the Calapan- Victoria section of the national highway (para 4.05) and other scattered small sections, the cost estimates were based on the worst possible conditions. Therefore the low contingency factor for the roads is adequate. The cost estimates for the agricultural program are based on similar ongoing projects in the Philippines. For the schistosomiasis control program, costs are based on information provided by NSCC. Cost estimates for Mangyan assistance are based on PANAMIN estimates. All units costs were updated to January 1975 levels for the base cost estimate. Costs due to expected price increases assume annual inflation rates of 16% in 1975 falling to 10% in 1980 for civil works and 12% in 1975 falling to 7% in 1980 for equipment and other services. Expected price increases amount to about 29% of total project costs.  - 14 - 4.13 Details of the project costs are presented in Annex 8 and are summarized below: Foreign Local Foreign Total Local Foreign Total Exchange ----Pesos Million---- ----US$ Million------ ---%---- Water Control 42.8 20.7 63.5 6.2 3.0 9.2 33 Roads and Ports 57.9 63.5 121.4 8.4 9.2 17.6 52 Agricultural Program 10.4 5.5 15.9 1.5 0.8 2.3 35 Schistosomiasis Control 6.9 3.5 10.4 1.0 0.5 1.5 33 Mangyan Assistance 2.1 0.7 2.8 0.3 0.1 0.4 25 Base Cost Estimate 120.1 93.9 214.0 17.4 13.6 31.0 44 Physical Contingencies 17.9 11.7 29.6 2.6 1.7 4.3 40 Expected Price Increase 58.0 43.4 101.4 8.4 6.3 14.7 43 Total Project Cost 196.0 149.0 345.0 28.4 21.6 50.0 43 Financing 4.14 The proposed Bank loan of US$25 million would finance the full foreign exchange costs and about 12% of the local costs of the project. It would cover 50% of total project costs. The Government would provide the remaining P 172 million (US$25 million) out of annual budget appropriations. Each implementing agency would maintain a separate account for the project and would submit all budget requests to the Project Director (para 5.01) for approval. The Project Director would forward approved requests to the Commissioner of the Budget, who would disburse all project funds directly to the implementing agencies in accordance with normal Government procedures, which are satisfactory to ensure the continuous and timely flow of project funds. Procurement 4.15 Each agency would be responsible for its own procurement under the project, but would submit all documents to the Project Director for inform- ation. The Project Director would be responsible for maintaining records of all equipment and services procured under the project. Equipment, vehicles and supplies costing about US$4.0 million would be procured after international competitive bidding in accordanice with Bank Group Guidelines. A preference limited to 15% of the cif price of imported goods or the custom duty, whichever is lower, would be extended to local manufacturers in the evaluation of bids. Procurement of off-the-shelf items each costing less than US$10,000 would be purchased through normal Government procurement procedures, which are satisfactory to the Bank. The total for all such items would not exceed US$250,000. A detailed list of equipment require- ments is given in Annex 9.  - 15 - 4.16 Civil works for the national irrigation systems (US$5.2 million) would be scattered over a wide area and include a large proportion of rehabil- itation works. These would have to be planned and executed on short notice to avoid the growing season and bad weather and would have to be phased with irrigation releases, and would therefore not be suitable for inter- national competitive bidding. When similar works were advertized under the tUpper Pampanga River Irrigation Project (UPRP) (Loan 637-PH) in Central Luzon, NIA failed to attract even local contractors. In order to stimulate the local contracting industry in Mindoro, however, an assurance was obtained that NIA would investigate ways of expanding the execution of civil works by contract, so that the amount of work done by force account on the national systems would not exceed 40% of the total cost of the work. The balance would be carried out by contracts awarded on the basis of competitive bidding advertised locally and in accordance with local procedures, which are satisfactory to the Bank. The communal irrigation systems (US$0.9 million) which are smaller and more scattered than the national systems, would be constructed either by force account or by self-help work by farmers under NIA supervision. 4.17 Contracts for the civil works on the national highways (US$8.6 million) together with the provincial roads in Oriental Mindoro and the San Jose district of Occidental Mindoro (US$4.4 million) would be awarded following international competitive bidding in accordance with the Bank's Guidelines for procurement. To attract both foreign and local bidders, contracts _would be placed on the basis of individual sections or combinations of sections for the works. The roads in Mamburao and Sablayan districts of Occidental Mindoro, which are isolated from major population centers, would be constructed by force account. The improvements to Calapan port (US$0.2 million) would be carried out by contract. Because of the small size of the works involved, contracts would be awarded on the basis of competitive bid- ding advertised locally and in accordance with local procedures, which are satisfactory to the Bank. Civil works for other components of the project (US$2.3 million) would be small and scattered and would not be suitable for, competitive bidding. They would be carried out by force account using - mostly manual labor. Disbursements 4.18 Disbursements would be made at the rate of 100% against the cif cost of directly imported equipment, 100% against the ex-factory cost of locally manufactured equipment and 65% for imported equipment procured locally. For services of experts and consultants, disbursements would cover 100% of the-foreign exchange cost or 60% of total cost. For civil works contractors' mobilization and imported equipment, disbursements would be at 100% of foreign exchange cost. Other disbursements for civil works would be at the rate of 50% of certified monthly progress payments or expenditures. It is expected that disbursements would be completed by June 30, 1981, approximately one year after the end of all construction. An estimated schedule of expenditures on the project, a semi-annual disbursement schedule and the proposed allocation of the proceeds of the loan are given in Annex 10.  - 16 - Accounts and Audit 4.19 All agencies involved in project implementation with the exception of PANAMIN are Government bodies subject to normal government control and auditing procedures. PANAMIN is directly responsible to the President of the Philippines. Its operating arm is a joint Government-private association for national minorities, the PANAMIN Foundation, Inc. Financial control of the Foundation is by independent auditors. Assurances were obtained that: (a) all agencies involved in project implementation would maintain separate accounts for the project; (b) all project accounts would be collected by the Project Director (para 5.01); (c) the Government's Commisbion on Audit or other auditors satisfactory to the Bank would be employed to audit these accounts annually; and (d) the Project Director would send the audited project accounts, together with the auditor's comments, to the Bank within four months of the close of each financial year. Supervision 4.20 Due to the complexity of the proposed project, the number of Government departments and agencies involved and the need for additional preparation for some components, the Bank's staff requirements for periodic progress reviews would be higher than those normally incurred. To ensure satisfactory implementation, particularly during the early phases of the project, it is anticipated that on the order of 20 man-weeks per year for IBRD FY 1976 through FY 1978 would be needed for supervision missions and report writing, with normal requirements thereafter. Environmental Effects 4.21 The proposed project would help control endemic schistosomiasis in the Lake Naujan region of Oriental Mindoro. The project would not directly affect other health problems on the island including malaria, tuber- culosis, protein deficiencies and enteric diseases. Rat control would yield indirect health benefits. Although the use of zinc phosphide as an acute rat poison would increase (para 5.13), better control of its application would actually reduce the risk of accidental posioning. The anti-coagulant poisons (para 5.13) would not pose a human hazard. Improved agricultural extension would help minimize the risk of harmful environmental effects from agrochemicals.  - 17 - V. ORGANIZATION AND MANAGEMENT Central Project Organization 5.01 Implementation of the project would require coordination between a number of national line departments and agencies. These are the National Irrigation Administration (NIA), the Departments of Public Highways (DPH), Public Health (DH), Local Government and Community Development (DLGCD), Natural Resources (DNR), Agriculture (DA) and Public Works (DPW) and the Presidential Assistant on National Minorities (PANAMIN). Responsibility for coordinating the activities of these organizations and for implementing the project at the national level would rest with a Project Director. He would report directly to the Cabinet Coordinating Committee for Rural Development (CCC) within the National Economic and Development Authority (NEDA). He would have a small technical and management staff including a monitoring unit to assess the agro-economic aspects of the project (Chart 9374). The Government has agreed to employ a qualified and experienced person as Project Director with powers and responsibilities satisfactory to the Bank. 5.02 The Project Director would be responsible for approving detailed annual budgets and work programs for project activities prepared by the participating departments and agencies. To perform this function, he would be cliairman of a Steering Committee composed of senior officers from each of the departments and agencies involved in the project and the two pro- vincial Governors. The Committee members would be empowered to speak for their respective organizations as far as the project is concerned. Assurances were obtained that the Government would establish the Steer- ing Committee within three months of loan signing, and that each department and agency would prepare an annual budget and work program for its part of the project and submit them to the Steering Committee for approval at least three months in advance of each fiscal year. The Project Director would forward a copy of the annual budgets and work programs to the Bank for information as an aid to project supervision. Provincial Organization 5.03 The senior officer of each line department and agency in the province would be the project officer for his organization. Each project officer would be a member of the Provincial Development Council chaired by the Governor in each province. The Council would also include a representa- tive of PNB and the Rural Banks. It would be the counterpart of the nation- al Steering Committee and would meet as needed to coordinate project implementation. The Provincial Development Council would resolve problems of inter-agency coordination at the local level. Intra-agency coordination would be handled through normal organizational chains of command, through regional offices to the national headquarters. To resolve major conflicts which remain after using these avenues, the Governors would have direct access to the Project Director.  - 18 - Agency Responsibilities 5.04 NIA would be responsible for the national and communal irrigation systems and the hydro-meterological studies while the Bureau of Forest Development, working closely with NIA, would be responsible for the watershed protection program. An assurance was obtained that NIA would carry out its part of the project through its newly-created Special Projects Organization, which is responsible for all externally assisted projects for which NIA is the executing agency. NIA would strengthen its provincial staff to execute the project, and would provide engineering, design and planning support from its central staff in Manila. The Pula and Baco-Bucayao national irrigation systems would be organized as one irrigation zone under a Superintendent. There would be five water management divisions, one for Pula (2,000 ha) and four for Baco-Bucayao (2,500 ha each). A Supervisor would be responsible for each division, which would be divided into 500 ha blocks, each controlled by a graduate Water Management Technologist. Each Technologist would control five ditch tenders, who would each supervise two 50 ha irrigation units. 5.05 DPH would be responsible for national highway improvement and maintenance. It would prepare detailed designs and final engineering speci- fications and tender documents, award contracts and supervise construction. Because of a shortage of qualified provincial engineering staff, DPH would also be responsible for the design and construction of provincial roads under the project. However, the provincial Governments would continue to be responsible for their maintenance. At present, Oriental Mindoro has a motor equipment pool, equipment and a training program for mechanics and engineers, set up under the PDAP (para 3.24) to improve its capability to maintain provincial roads. Occidental Mindoro would receive similar assistance in conjunction with the proposed project, and would inherit the equipment and workshop tools procured under the project for force account construction of provincial roads. It is expected that provincial capabilities to maintain roads would improve to satisfactory levels. An assurance was obtained that the provincial Governments would provide adequate staff, facilities and funds to maintain and repair the provincial roads for which they are responsible. The Ports and Harbors Division of DPW would be responsible for the improvements to and maintenance of Calapan Port. 5.06 DH would have primary responsibility for the schistosomiasis control program, and would operate through its regional schistosomiasis control team at Victoria, Oriental Mindoro. Close coordination w,ith other agencies would be necessary for successful implementation. These include the Department of Education for the health education campaign, DPW for water supply con- struction and land modifcation work and DLGCD for construction of small foot bridges. 5.07 PANAMIN would be responsible for Mangyan activities. It would establish a mobile medical team in each province to work with the Mangyans and would encourage and arrange visits of voluntary medical assistance to work with the regular teams. It would also assign a field officer to live in each of four selected communities to coordinate legal and agricultural  - 19 - assistance. The field officers would maintain close contact with other Government services, especially DLGCD, and with religious groups working with the Mangyans. Supporting Agricultural Services 5.08 Agricultural Development Coordinating Councils (ADCC) have been set up in the UPRP areas to coordinate the work of the various agencies pro- viding agricultural services to the farmers (Annex 5). The Councils are still new but appear to be working well and similar coordinating arrangements would be made for Mindoro. An assurance was obtained that the Government would set up an ADCC in each Mindoro province. The two ADCC's would have some members in common since both provinces are in the Southern Tagalog administrative region. 5.09 The Bureau of Agricultural Extension (BAE), Bureau of Plant Indus- try (BPI) and DAR all provide extension services on Mindoro. Under the Masagana 99 program a total of 50 graduate agricultural technicians was working in Oriental Mindoro and 40 in Occidental Mindoro in June 1974. This represents a ratio of one extension worker to about 600 rice and corn farmers in Oriental Mindoro and one to 300 in Occidental Mindoro. To deal with the requirements of the land reform program and improved cultural practices, the extension staff would be increased so that by 1980 there would be one technician to about 300 rice farmers in both provinces. Assur- ances were obtained that the necessary agricultural extension personnel would be provided. In addition, 24 Water Management Technologists (para 5.04) would supplement the extension staff in the national irrigation system areas of Oriental Mindoro. 5.10 As part of the agrarian reform, the Government is promoting the formation of pre-cooperative farmers' organizations based on the barrio. The organizations, usually numbering 20-25 farmers, serve as channels for the inflow of technical services, credit and inputs and as assembly points for produce intended for market. Extension agents would visit each organization on an average of once every two weeks. Each organization would appoint a "tprogressive farmer" to assist the technicians and maintain contact with the farmers between visits. 5.11 Current fertilizer consumption on the island amounts to about 16,000 tons per year, of which two-thirds is ammonium phosphate. At full development the island would consume some 25,000 tolns of fertilizer (Annex 5). The two Mindoro provinces have been declared priority areas for food crop production and there should be no difficulty in getting sufficient supplies to the island. Existing supply channels could handle the increased demand without difficulty. Poor transportation facilities have hindered the distribution of inputs up to now, uu. tL,I' protlcm would be alleviated by the proposed road and port improvements under the project. 5.12 The certified rice seed requirement at full development would total about 750 tons per year. The project would assist the production of certified  20 - seed in each province to supply this amount, plus a surplus of about 400 tons in Occidental Mindoro for shipment to Luzon. BPI would supervise production by small cooperating growers on about 200 ha near Naujan in Oriental Mindoro, and by the National Industrial Development Corporation rice estate near San Jose in Occidental Mindoro. The project would strengthen technical supervi- sion, set up seed testing laboratories in each province and supply certified seed to farmers under supervised credit (Annex 5). 5.13 Rats cause widespread damage to paddy, upland crops and coconuts on Mindoro at present. BPI has been carrying out massive baiting at harvest time using zinc phosphide as the acute poison on about 10,000 ha of paddy in Oriental Mindoro and 5,000 ha in Occidental Mindoro. Sustained baiting with chronic anti-coagulant poisons has been carried out with German technical assistance on pilot areas covering some 3,000 ha. The pilot areas have demon- strated dramatic decreases in tiller damage and increases in yield. The pro- ject would cover the whole paddy area of about 90,000 ha within five years. It would provide a pest control technician in each municipality, chronic and acute rat poisons and baiting huts. The pest control technician would store and control the poisons. The extension agents would distribute the poisons to the farmers' organizations on their bi-weekly visits. Progressive farmers in conjunction with the barrio captains would mix and distribute poison baits. The farmers would supply the baits, mainly rice brokens. Because this would be the first time chronic rat poisons are used on a mas- sive scale in the Philippines, baiting huts and poisons would be provided free of charge initially to encourage universal participation. Once the farmers see the benefits which can result from such a cooperative effort, however, they should be willing to pay for the rodenticides, and the prog- ram should be become self-supporting. An assurance was obtained that within two years of loan signing, the Government would submit to the Bank a proposal for recovering the cost of rodenticides from farmers. 5.14 Under the agrarian reform and Masagana programs the Government has strengthened the credit institutions and facilitated credit to small farmers, previously dependent on the landlords for their requirements. A system of "tsupervised credit" is used which includes the provision of technical services to the borrower to ensure that recommended practices, such as variety, fertilizer and agrochemical inputs, are adopted. Under the system no colla- teral is required. At full project development, the institutional credit requirement to cover all of the improved irrigated areas and 35% of the unimproved irrigated and rainfed areas is estimated at about P 30.0 million (US$4.3 million) in Oriental Mindoro and P 19.8 million (US$2.9 million) in Occidental Mindoro. The existing credit institutions, primarily PNB and the Rural Banks, would be able to meet the requirement. Monitoring Benefits 5.15 A monitoring unit would be set up in the office of the Project Director. It would be responsible for monitoring such aspects of the project's progress as: deployment of extension and water management personnel, pace of land reform, cropping patterns, use of inputs and credit, incidence of pests and diseases, crop yie!Js and farm incomes.  - 21 - Consulting Services and Technical Assistance 5.16 Provision has been made for consultants to assist NIA in carrying out hydro-meteorological studies to improve the data base for planning future development of Mindoro's water resources, and to carry out feasibility studies and, if warranted, detailed engineering of a national highway in Occidental Mindoro from Paluan to San Jose with possible road links to Oriental Mindoro. An assurance was obtained that within six months of loan signing DPH would engage consultants acceptable to the Bank on terms and conditions satisfactory to the Bank to carry out the studies and detailed engineering. 5.17 One highway expert would be provided to assist Region IV of DPH in the detailed engineering and supervision of construction of the national highway and provincial roads included in the project. Assurances were obtained that DPH would employ within six months of loan signing a highway expert acceptable to the Bank on terms and conditions satisfactory to the Bank. Water Charges 5.18 Republic Act No. 3601 establishing NIA gave it the authority to "collect from the users of each irrigation system constructed by it such fees as may be necessary to finance the continuous operation of the system and reimburse within a period of not less than twenty-five years the cost of con- struction thereof." NIA's record of irrigation fee collection has shown a steady improvement over the last five years. The total collection has risen from P 4.8 million in FY69 to P 7.9 million in FY73. Over the same period . the collection rate as a percentage of fees charged has increased from 53% to 65%. The better recovery is attributed to improved and more timely billing, the use of more collectors, rehabilitation of some of the irrigation systems, withholding of water from delinquents and incentive collection bonuses. 5.19 Irrigation fees on the national irrigation schemes are now levied at the rate of P 25/ha for wet season rice and P 35/ha for dry season rice. The NIA Board approved an increase in fees equivalent to two cavans of paddy per ha in the wet season and three cavans in the dry season, to be applied uniformly to all national irrigation systems. At the existing Government support price for paddy of P 50/cavan (P 1.0/kg) the new fees would be equal to P 100/ha and P 150/ha, respectively. The O&M costs of the improved national irrigation systems are estimated to be P 100/ha/annum (US$14.5). The rates proposed by NIA would cover O&M costs, but would contribute little toward capital cost recovery. 5.20 As an exception to the uniform rate policy, the Government has agreed to raise water rates on the UPRP,' Aurora-Penaranda (Loan/Credit 984/ 472-PH) and Tarlac (Loan 1080-PH) project areas at full development to the equivalent of 3.5 cavans of paddy/ha'in the wet season and 4.4 cavans/ha in the. dry season. Since the Pula and Baco-Bucayao national irrigation systems would be improved, operated and maintained to the same standards, water  - 22 - charges for these systems would be the same. This would be equivalent to P 395 per year at the current support price with 200% cropping intensity, to be reached gradually over a period of five years from completion of construction. Such a rate would be within the farmers' repayment capacities and yet permit NIA to recover a substantial amount of the investment in the project. At a discount rate of 10% the present value of such a charge over the 50-year life of the project would be P 34 million. The present value of the project cost 1/ plus O&M costs at 10% is P 53 million, indicating a recovery ratio of about 64%. 5.21 NIA would include proposals for water charges on the improved communal irrigation systems as part of its comprehensive plan for such systems to be submitted to the Bank (para 4.03). To ensure sound operation and maintenance practices and an equitable contribution by the beneficiaries toward recovery of the capital cost of the national systems, assurances were obtained that: (a) NIA would make adequate annual budgetary provisions to supply the funds necessary for operation and maintenance of the Pula and Baco-Bucayao national irrigation systems; (b) irrigation fees would be levied to provide NIA with sufficient funds to maintain and operate the Pula and Baco-Bucayao national irrigation systems and to allow for the recovery of investment costs within not more than 50 years, taking into account farmers' incentives and capacity to pay. A gradual increase in irrigation fees over a period of five years from completion of construction to a level equivalent to about 3.5 cavans of paddy per ha in the wet season and 4.4 cavans in the dry season would meet the requirement; and (c) NIA would take all necessary actions to ensure full and prompt collection of the irrigation fees on the national irrigation systems. VI. PRODUCTION, MARKET PROSPECTS, PRICES AND FARM INCOMES 6.01 Paddy is by far the most important crop on Mindoro. Most agri- cultural activities under the project would therefore be directed towards increasing paddy production and the incomes of poor paddy farmers. Produc- tion and farm incomes have been calculated for paddy only, although there 1/ Cost of investments for the Pula and Baco-Bucayao national irrigation systems including force account equipment and excluding costs due to expected price increases of P 56.5 million. Both costs and revenues are evaluated at constant 1975 prices.  - 23 - would also be improvements in upland rice, corn and coconut producing areas due to the improved transportation facilities, agricultural supporting services and rat control provided by the project. Production 6.02 Better water control, improved agricultural extension services, better transportation and expanded supervised credit would encourage increased planting of high yielding rice varieties, heavier fertilizer applications and greater use of crop protection chemicals, particularly rodenticides. The use of machinery for land preparation and threshing would increase to meet more exacting cropping calendars. It is expected that at full agri- cultural development, assumed to be reached five years after the various project improvements, about half of all threshing would be mechanized and farmers would use a combination of machinery and animal-drawn imple- ments for land preparation. At full development, paddy yields on the two national irrigation systems (12,000 ha) would average 3.7 and 4.1 ton/ha for the wet and dry season crops, respectively. Cropping intensity would increase from 180% to 200%. On the improved communal irrigation systems (3,000 ha), yields for the wet and dry season crops would average 3.3 and 3.5 ton/ha respectively, while the cropping intensity would increase from 167% to 200%. 6.03 The unimproved communal irrigation systems and rainfed areas (75,000 ha) would receive improved inputs, extension and rat control. About 35% of the areas would be covered by supervised credit. Average cropping intensity would remain at 150%, with almost all dry season cropping in Oriental Mindoro. Yields at full development are assumed to be 2.6 and 2.8 ton/ha for wet and dry season crops, respectively, in irrigated areas, and 1.6 and 1.9 ton/ha for the two seasons in rainfed areas. These yields are assumed to be reached five years after the introduction of the proposed improvements. 6.04 Yield assumptions with the project are based on current yields on Mindoro in areas covered by the Masagana 99 program (para 3.11). Future yields without the project assume a 1% average annual increase from 1975 to 1985. Total paddy production from the island would be about 340,000 tons at full development, compared with 235,000 tons at present and an estimated 255,000 tons in future without the project. Details of present and future yields and production are given in Annex 11. Market Prospects 6.05 One of the main goals of Government policy is to attain self- sufficiency in basic foods, especially rice and corn. Annual rice imports have ranged around 300-350,000 tons in recent years. Mindoro has been declared among some 40 priority provinces for food grain production. More than half the island's annual paddy production is now exported to Luzon and Manila. It is expected that this pattern will continue and that the incremental paddy production from the project would go to feed rice deficit  - 24 - areas as well as the increasing population on the island. With annual per capita rice consumption of 100 kg, the incremental annual production from Mindoro would feed more than half a million people. Prices 6.06 The Bank forecasts the world market price of average quality Thai rice to fall from US$435/ton fob Bangkok in 1975 to around US$210/ton (at constant 1975 prices) in 1985. Although the implied deterioration in the terms of trade for agriculture has been taken into account in the economic analysis, it is expected that the financial impact as reflected in the farm budget analysis would be different. The paddy farm gate price equivalent to a 1975 world market price for rice of US$435/ton is P 2,000 (US$290)/ton. Because of Government policy to keep the price of food to consumers low, however, the actual farm gate price of paddy is held at the official support price of P 1,000/ton by selling imported rice below cost. At the same time, the Government subsidizes fertilizers used to grow food crops for domestic consumption. The November 1974 farm gate price of urea for food crops, for example, was P 2,300/ton, while the world market equivalent farm gate price was P 2,800/ton. Thus the Government compensates farmers to some extent for the low domestic price of rice. At full development it is assumed that economic and financial prices for inputs and outputs will coincide at the Bank's lower forecast world market prices (at 1975 constant prices). For example, the farm gate price of paddy is forecast to be about P 1,000/ton and of urea, P 1,400/ton (Annex 12). Farm Incomes 6.07 Farm models have been prepared for three different levels of agricultural improvements in Oriental Mindoro and two levels in Occidental Mindoro. The estimated present incomes and those projected at full develop- ment are presented in Annex 11 and summarized below:  -25- Farm Farm Farm Income /a Area Type Size Present Future (ha) ------(US$)--- Oriental Mindoro Improved national Rainfed 2.0 420 - irrigation systems Irrigated 2.0 860 1,440 Improved communal Rainfed 2.0 420 - irrigation systems Irrigated 2.0 670 1,160 Unimproved communal Rainfed 2.0 420 540 systems & rainfed areas Irrigated 2.0 670 930 Occidental Mindoro Improved communal Rainfed 5.0 430 - irrigation systems Irrigated 3.0 800 1,580 Unimproved communal Rainfed 5.0 430 650 systems & rainfed areas Irrigated 3.0 800 1,130 /a Rounded to nearest US$10. 6.08 Taking the typical 2.0 ha farm for Oriental Mindoro, present incomes vary between US$420 on rainfed farms and US$860 on farms in the national irrigation systems, or about 30-60% of the current per capita GNP of around US$240. The greatest relative gains with the project would be made by farmers currently in rainfed areas whose farms would be incorporated into the expanded national irrigation systems. Their family incomes would rise from US$420 to US$1,440 per year. The greatest number of farmers are found in the rainfed areas which would not receive improved water control. Their family incomes would rise from US$420 to US$540. Farmers served by the communal irrigation systems would fall between these extremes. 6.09 Typical farms in Occidental Mindoro cover 3.0 ha in areas irrigated by communal systems and 5.0 ha in rainfed areas. Although the average farm size is larger than in Oriental Mindoro, there is little difference in present incomes between the two provinces. This is because rainfall in Occidental is less evenly distributed over the year, leading to lower cropping intensities; because irrigation and infrastructure facilities are less developed; and because farmers must spend more cash for hired labor on their larger holdings, particularly the 5.0 ha rainfed farms due to seasonal peaks in labor demand. Therefore the current net farm income of a farmer on 5.0 ha of rainfed land in Occidental Mindoro is practically the same as that of a farmer on 2.0 ha of rainfed land in Oriental Mindoro.  - 26 - With the project at full development, incomes would rise to US$650 on 5.0 ha rainfed farms, US$1,130 on 3.0 ha irrigated farms without improved water control, and US$1,580 on 3.0 ha farms in the 1,000 ha of improved communal irrigation systems. Even this last category represents a per capita income of only US$265 per year, or 80% of projected per capita GNP in 1985 of around US$325. VII. BENEFITS AND JUSTIFICATION 7.01 The irrigation and agricultural production aspects of the project would benefit directly some 30,000 paddy farmers representing a total of about 200,000 people or 40% of the island's population. The project would increase yields and production through better water control and drainage on 15,000 ha and agricultural inputs, supporting services and rat control to serve the entire paddy producing area of 90,000 ha. it would also create the equivalent of some 13,000 seasonal agricultural jobs by 1985. In addition, the project would benefit an even larger number of people through improvements to the national highways, provincial roads and Calapan Port, and the schistosomiasis control and Mangyan assistance programs. The com- munal irrigation systems, watershed protection, rat control and schistoso- miasis control programs would be pioneering efforts to provide experience for future programs elsewhere in the Philippines, as well as benefiting rural Mindoro. 7.02 The Calapan-Roxas City national highway is the main spinal road serving Oriental Mindoro. Present traffic volumes of between 900 and 250 vehicles per day on various sections are predicted to increase at rates of 5-8% per year to between 3,400 and 1,000 vehicles per day in 1994. The project would reduce the present high road transportation costs in Oriental Mindoro by upgrading the existing road. It is expected that competition in the private transport industry would distribute the benefits widely to farmers in Mindoro through increased farm gate prices for agricultural outputs and reduced prices for imports. Assuming a 20 year evaluation period, the economic rate of return would be 18-% with passenger time cost savings and 14% without time savings. 7.03 In evaluating the agricultural production aspects of the project, the costs of the provincial roads and agricultural program were included in project costs, prorated by the areas served. Assuming a 50 year evalua- tion period for the national irrigation system and a 30 year period for the communal irrigation systems and rainfed areas, farm gate prices for rice and fertilizers based on the Bank's commodity price forecasts for 1985 and a market wage rate for farm labor of P 6/man-day, the economic rates of return would be about 24% for the national irrigation systems, 25% for the improved communal irrigation systems and 15% for the unimproved communal irrigation systems and rainfed areas.  - 27 - 7.04 The rates of return show little sensitivity to the estimates of project costs or the assumptions made concerning the level and timing of agricultural benefits in the improved irrigated areas. They show most sensitivity to the level and timing of benefits on the 75,000 ha which would not receive improved irrigation, emphasizing the importance of an effective agricultural extension service and the timely availability of adequate farm inputs. In none of the cases tested, however, would the rate of return fall below 10%. On the other hand, if the farm gate price of rice turns out to be 25% higher than forecast, the rates of return would range from 18% to 30% for the various irrigation and agricultural improvements. 7.05 At full agricultural development, rice import savings due to the project would amount to US$13.7 million per year at the forecast world market price cif Manila (in terms of constant 1975 prices) of US$255/ton. After deducting the incremental cost of imported fertilizers and chemicals, the net foreign exchange savings would amount to about US$11.2 million per year. VIII. AGREEMENTS REACHED AND RECOMMENDATION 8.01 During negotiations, agreement with the Government was reached on the following principal points: (a) before constructing and improving the communal irriga- tion systems, NIA would prepare a comprehensive plan for their design, construction, operation, maintenance and cost recovery, and submit the plan to the Bank for approval within two years of loan signing (para 4.03); (b) NSCC would revise its proposal for the schistosomiasis control part of the project and submit the revised proposal through the Project Director to the Bank for approval (para 4.09); (c) it would employ a qualified and experienced person as Project Director with powers and responsibilitie satisfactory to the Bank (para 5.01); (d) it would establish within three months of loan signing and thereafter maintain in existence a Steering Committee with the Project Director as chairman and the two Provincial Governors and senior officers from each of the implementing agencies as members (para 5.02); (e) within two years of loan signing, it would submit to the Bank a proposal for recovering the cost of rodenticides from farmers (para 5.13); and  - 23 - (f) NIA would make adequate annual budgetary provisions for operation and maintenance of the national irrigation systems improved under the project; would take all necessary action to ensure full and prompt collection of irrigation fees on the national irrigation systems; and would gradually increase the level of fees on the Pula and Baco-Bucayao national irrigation systems over a period of five years from completion of construction to a level equivalent to about 3.5 cavans of paddy/ha in the wet season and 4.4 cavans/ha in the dry season (para 5.21). 8.02 Conditions of disbursement for the communal irrigation systems and schistosomiasis control program would be that the Government and the Bank had agreed on specific plans to carry out those parts of the project (paras 4.03 and 4.09). 8.03 The proposed project would be suitable for a Bank loan of US$25.0 million, with a 25 year maturity and a grace period of seven years. The borrower would be the Republic of the Philippines.  PHILIPPINES IIRAL DEVTELOW4ENT PROJECT Climatic Data Jan Feb Mar Apr May Jun Jul A Se Oct Nov Dec Total Calapan, Oriental Mindoro Weather Bureau Rainfall (mm) Maximum 462 192 246 222 468 350 522 475 487 623 975 591 2,590 (1950-1972) Average 112 61 60 90 182 189 207 209 170 270 247 201 1,994 Minimum 24 16 3 13 22 60 22 26 32 106 43 53 1,045 Average No.of Rainy Days 18 12 l0o 10 13 17 16 18 16 18 19 21 (1951-1970) Mean Temperature (0C) (1951-1970) 25.4 25.8 26.8 28.1 28.4 28.0 27.4 27.4 27.4 27.0 26.0 25.8 27.0 -Relative Humidity (%) (1951-1970) 82 79 77 76 77 81 83 84 84 83 83 84 81 San Jose, Occidental Mindoro Salt Industry (1967-1973) Rainfall (mm) Maximum 23 30 38 13 538 810 826 930 465 488 211 124 3,259 Average 6 8 8 2 170 381 560 559 296 210 123 41 2,364 Minimum - - - - 30 155 345 51 84 13 36 - 2,070 Private Estate (1967-1973) Average Rainfall (mm) 35 10 17 9 112 352 627 560 286 230 112 50 2,398 Average No. of Rainy Days 1 1 1 2 9 15 19 18 16 11 6 3 Number of Typhoons in Southern Luzon, Visayas and Mindoro (1946-1972) 3 1 1 2 5 4 6 1 1 12 15 11 62  ANNEX 2 Page 1 PHILIPPINES RURAL DEVELOPMENT PROJECT Land Tenure and Reform Background 1. The Government has long been committed to a program of land reform centering around the problems of widespread sharecropping, and following the declaration of martial law in 1972, has pursued a vigorous program of agra- rian reform aimed at the rapid transfer of land ownership to tenant farmers on rice and corn lands. Presidential Decree No. 27, the basic legislation of the new program, provides for the immediate transfer to the tenant, whether sharecropper or leaseholder, of the land he tills up to 3 ha in an irrigated area and 5 ha in a rainfed area. The landlord may retain up to 7 ha if he tills the land himself. Since there are some 2 million rice and corn farmers on about 4 million ha, of which less than 1 million ha are irrigated, there is little prospect of achieving the 5 ha rainfed and 3 ha irrigated family farms nationwide. Furthermore, some 80% of the landlords have holdings of less than the 7 ha retention limit. 2. By the end of November 1974, the Department of Agrarian Reform (DAR) had issued Certificates of Land Transfer to about 189,000 out of 323,000 tenants on holdings of 24 ha and above. On November 16, 1974, President Marcos issued decrees to carry out the reform in the 7 to 24 ha farm size range. This may be difficult due to growing resistance from medium size land owners as the size of holding affected by the reform is reduced and the number of owners, increased. Nevertheless, when imple- mentation down to the 7 ha level is completed, about 684,000 (63%) of the tenants, 37,800 (17%) of the owners and over 1 million ha (76% of the tenanted rice and corn land) will have been covered. Implementation below the 7 ha level would be difficult and the benefits less obvious. Pending the issue of Certificates of Land Transfer to all tenants on holdings over 7 ha, evictions are forbidden and sharecropping has been declared illegal and is being replaced by leasehold tenure. Situation on Mindoro 3. The rice area in the two Mindoro provinces amounts to 100,000 ha and the corn area to 23,000 ha. The distribution between provinces is as follows: Area subject to Land Reform (ha) Province Rice Corn Total Oriental 55,000 12,000 67,000 Occidental 45,000 11,000 56,000 Totol 100,000 23,000 123,000  ANNEX 2 Page 2 4. A DAR survey in September 1974 showed that there were 19,000 owner- operators and 24,000 tenant farmers on the 123,000 ha of corn and rice lands in the island. There were considerable variations in tenure pattern and size of farm between the two provinces as can be seen from the following table: Oriental Mindoro Occidental Mindoro Avg. Avg. Farmers Area Size Farmers Area Size Tenure No. % Ha % Ha No. % Ha % Ha Owner-Operator 16,741 54 53,107 79 3.2 2,566 21 11,312 20 4.4 Tenant 14,261 46 13,893 21 1.0 9,654 79 44,688 80 4.6 Total 31,002 100 67,000 100 2.2 12,220 100 56,000 100 4.6 5. In Oriental Mindoro some 14,000 ha of rice and corn lands, the property of 3,800 land owners, were worked by about 14,000 tenant farmers. Owners of holdings of 7 ha and over represented only 12% of the landlords but occupied 42% of the land and employed 40% of the tenant farmers. The land ownership pattern by size of holding in tenanted rice and corn lands in Oriental Mindoro in September 1974 before implementation of the agrarian reform down to 7 ha, was as follows: Size of Holding Owners Area Owned Tenants (ha) No. Z ha % No. Z Less than 7 3,365 88 8,108 58 8,548 60 7-24 440 11 4,164 30 4,631 32 More than 24 26 1 1,621 12 1,082 8 Total 3,831 100 13,893 100 14,261 100 6. In Occidental Mindoro some 45,000 ha of rice and corn lands were owned by about 5,700 proprietors and worked by 9,600 tenants. Owners of holdings of 7 ha or more amounted to 30% of the proprietors, but occupied 73% of the land and employed 63% of the tenant farmers. The land owner- ship pattern by size of holding in tenanted rice 'and corn lands in Occidental Mindoro in September 1974 was as follows: Size of Holdings Owners Area Owned Tenants (ha) No. % ha % No. * Less than 7 4,022 70 12,194 27 3,534 37 7-24 1,650 29 15,469 35 2,753 29 More than 24 80 1 17,025 38 3,367 34 Total 5,752 100 44,688 100 9,654 100  A14NEX 2 Page 3 7. As in the rest of the country, the DAR in Mindoro plans to issue land transfer certificates to all rice and corn tenants on holdings of 7 ha and over. In Oriental Mindoro this would mean the transfer of about 5,800 ha, equivalent to 40% of the tenanted area, to some 5,700 tenant cultivators. In Occidental Mindoro 32,500 ha, equivalent to 73% of the tenanted area, would be transferred to 6,100 tenant farmers. The attainment of this stage of agrarian reform in Mindoro would result in some 103,000 ha, or 84% of the island's rice and corn lands, being cultivated by 31,000 owner-operators, equivalent to 72% of the farmers. However some 20,000 ha farmed by about 12,000 farmers would remain under some form of leasehold. There is not likely to be any change in the size of farm operating units in Oriental Mindoro, though in Occidental it is likely that farms will become smaller as population increases.  ANNEX 3 Page 1 PHILIPPINES RURAL DEVELOPMENT PROJECT Water Control Irrigation 1. National Irrigation Systems. The Pula and Baco-Bucayao river irrigation systems, now serving about 10,000 ha, were built by the National Irrigation Administration (NIA) in 1960 and 1971, respectively. The Pula System serves some 2,000 ha of rice land at a cropping intensity of 196%. The main canal and many of the laterals of the 8,000 ha Baco-Bucayao system were severely damaged by floods in 1973 during the first year of operation. The damage to the conveyance structures has greatly reduced the capability of the system. Both systems would be improved by repairing canals and structures, constructing additional sub-laterals, farm ditches, turnouts, drains and associated works. New irrigation works would be constructed to serve extension areas of about 2,000 ha, of which 300 ha would be added to Pula and 1,700 ha to Baco-Bucayao. 2. The improved systems would include additional canal structures such as checks, control structures and turnouts to more effectively regulate water deliveries and to provide water more efficiently to each field as required. Constant head orifice turnouts to sub-laterals would be provided for water deliveries to rotational areas of about 50 ha. Turnouts would be provided for each 10 ha unit from which farm ditches, constructed as part of the project, would convey water directly to most farms. A few holdings would still receive water through their neighbors' fields. Flood protection works would be con- structed on the Baco-Bucayao system to prevent a recurrence of the 1973 damage. Some 100 km of service roads would be rehabilitated or constructed in the two systems. Working stations for Water Management Technologists would be provided for each 500 ha of irrigated land. 3. Communal Irrigation Systems, Oriental Mindoro. Under the project NIA would reconstruct and extend a number of communal irrigation systems covering about 2,000 ha. The Mayabig, Tiguisan and Calamundingan systems currently servicing about 500 ha of rice land would be improved and ex- panded to serve some 1,400 ha. In addition to these three identified sys- tems the project would develop a further 600 ha for a total of 2,000 ha. 4. The existing communal systems divert water from the rivers by temporary weirs which are frequently damaged or destroyed by floods. Structures are rudimentary and canal alignment is often incorrect with the result that only small areas are adequately commanded. Under the project  ANNEX 3 Page 2 NIA would design and build permanent diversion works and improve and extend the areas served. The project would allow NIA to work out a methodology for planning and building small scattered communal projects, as well as evolving acceptable standards of irrigation facilities, operation and maintenance procedures and a cost recovery policy for such systems. 5. Communal Irrigation Systems, Occidental Mindoro. Some 1,000 ha of communal systems would be improved or developed in Occidental Mindoro by NIA. About 500 ha suitable for pump irrigation have been identified along the Mamburao river. Under the project NIA would prepare plans and estimates for communal projects up to a total of 1,000 ha. The plans would be subject to review by the Bank. 6. Water Supply, Demand and Quality. The two national systems get their water from the Bucayao and Pula rivers. Stream flow records on both rivers are available for a 12 year period. Water requirements for the project were based on two rice crops per year. Taking into account the higher farm irrigation efficiencies expected after project development, anticipated conveyance and percolation losses and effective rainfall, annual diversion requirements are estimated to total 2.7 m, of which 1.5 m would be for the first crop and 1.2 m for the second. 7. A comparison of the river discharge records with the average monthly irrigation requirements shows that the estimated flow of both rivers would supply full irrigation requirements for 2,300 ha at Pula and up to 10,000 ha at Baco-Bucayao. Cropping intensities would be 200% for both systems. Hydrological records for the communal systems are scanty. Water quality information is limited, but irrigation has been practiced in both provinces for up to 10 years without evidence of harmful effects. 8. Implementation. NIA would carry out its part of the project through its newly created Special Projects Organization, and would strengthen the existing provincial staff to deal with execution of the project. Design and planning functions would be provided by NIA's central staff in Manila. Improvement and extension of the national systems would be put out to con- tract and force account work would be limited to not more than 40% of the total cost of the work. Construction of the communal systems would be either by force account or by self-help work by farmers under NIA super- vision. Construction of the national systems would begin after the 1976 rainy season and would be completed in the first half of 1979. Construction of the communal systems would not start until late 1q77 to allow adequate lead time for data collection, planning and development of staff experience. All work would be completed by June 1980 (Chart 9373). Hydro-Meteorological Studies 9. The project would provide for the establishment of 22 stream gauging stations on Mindoro island, together with five recording rainfall stations and six evaporation stations. Provision would be made for part-time consultant assistance for a total of 12 man-months in siting and rating the gauges. The  ANNEX 3 Page 3 information obtained from establishing a hydro-meteorological network would provide a sound basis on which to plan future development of the island's water resources. Watershed Protection 10. The watersheds of the Baco, Pula and Magasawang-Tubig rivers in Oriental Mindoro and the Mamburao river in Occidental Mindoro would be surveyed by the Bureau of Forest Development and declared protected watersheds under the Forestry Reform Code of 1974. The Baco and Pula watersheds provide water to the two national irrigation systems. The Magasawang-Tubig watershed pro- vides water to the two national systems and to a number of communal systems between Calapan and Victoria. The Mamburao watershed is the source of water for the proposed communal pumping schemes. 11. Each watershed would be managed by a watershed protection officer who would supervise a team of forest rangers. Nurseries would be established in the Baco, Pula and Mamburao watersheds and 50 ha reforestation trials would be undertaken in each watershed. The trials would provide information on growth rates and establishment costs for future watershed development. Costs 12. The proposed water control measures are estimated to cost a total of US$15.9 million, including physical contingencies and costs due to expected price increases, of which US$4.8 million would be foreign exchange. The cost of rehabilitation and new construction is about US$680/ha for the national gravity irrigation systems, US$400/ha for the communal gravity systems and US$700/ha for the communal pump systems, including the cost of force account equipment, engineering supervision and physical contingencies. Details of the estimate are given in Annex 8 and a list of equipment to be purchased is shown in Annex 9.  ANNEX 4 Page 1 PHILIPPINES RURAL DEVELOPMENT PROJECT Roads and Calapan Port A. Roads Background 1. The two Mindoro provinces are not connected by road and the net- works that exist are far from satisfactory. Trails connecting the two provinces can be negotiated only by jeep during the dry season. Oriental Mindoro has a national highway running north and south along the coast which is passable most of the year except during the worst parts of the rainy season. The province also has a fair distribution of provincial and barrio (village) roads, but they are constructed to low standard, are barely maintained and have temporary bridges in varying stages of disrepair. The road network in Occidental Mindoro is worse. Seven large rivers dissect the province, and although they can be forded during the dry season, little traffic moves between the northern, central and southern parts of the prov- ince because of the unstable condition of the connecting roads. National Highways 2. The national thighways included in the proposed project are the Calapan-Baco road (about 10 km) running southwest from Calapan to Baco and the Calapan-Roxas City road (about 140 km) running south from Calapan to the coastal town of Roxas City, both in Oriental Mindoro (Map 11159). 3. Preparation. The Department of Public Highways (DPH) is responsi- ble for the design, construction and maintenance of all national highways. The project was prepared by Region IV of DPH with assistance from FAO/IBRD Cooperative Program (CP) missions in September 1973 and March 1974. Prep- aration consisted of economic and technical feasibility studies including sufficient preliminary engineering to produce satisfactory cost estimates except for a section of the Calapan-Roxas City national highway between Calapan and Victoria. Because of the difficult engineering problems on this section, further work is required before reliable estimates can be made. However, an amount which is not expected to be exceeded has been included in the cost estimates to take into account the worst possible conditions. Detailed engineering and preparation of contract documents would also be undertaken by Region IV of DPH. 4. The road section between Calapan and Victoria (34 km) would be affected by improved drainage in the area of the Baco-Bucayao irrigation  ANNEX 4 Page 2 system. Detailed engineering and reconstruction of this section would be carried out in conjunction with the water control works in the vicinity. Before proceeding with the road works, DPH would update the feasibility study for this section and submit its findings to the Bank for approval. 5. The proposed design standards are shown in Table 1. They follow the standards adopted by DPH after two UNDP-financed studies: Transport Survey (1968-70) by consultants, Metra/Sauti (France/Italy) and Road Feasibility Studies (1971-72) by consultants, Norconsult (Norway). The national highways would be built to Class 2 standards with a 6.10 m pave- ment width (2 lanes) and double bituminous surface dressing. 6. Execution. Region IV of DPH would be responsible for the execu- tion of the works through its roads sub-project office in Oriental Mindoro. The The construction and improvement works of the national highways would be carried out by contracts and would be supervised by DPH staff. Provincial Roads 7. The provincial roads scheduled for construction and improvement are listed in Table 2. They were selected on the basis of estimated daily traffic after the improvements have been made. About 114 km in Oriental and 166 km in Occidental Mindoro are scheduled for construction and im- provement. 8. The provincial Government is normally responsible for the design, construction and maintenance of provincial roads. Each province has a Pro- vincial Engineer and staff who prepared the proposed road program with tech-* nical assistance from Region IV of DPH. The FAO/IBRD CP missions helped to identify the roads and xetermine priorities. The cost estimates were based on reconnaissance surveys only but are adequate because the roads would be of low standard without major changes of alignment. The roads would all have single lanes 3.5 m wide with 1 m shoulders and a crushed gravel sur- face. 9. The provincial roads in Oriental Mindoro and the San Jose district of Occidental Mindoro would be executed by contract. The roads in Mamburao and Sablayan districts of Occidental Mindoro would be constructed and im- proved by force account because of their isolation. 10. There are currently only two engineers on the Provincial Engineer's staff in Oriental Mindoro and three in Occidental Mindoro. To carry out a road program of this size would require at least 15 engineers plus support- ing staff in each of the two provinces. It would be hard for the provincial Governments to recruit this many qualified engineers. Therefore, DPH would carry out the detailed engineering and supervise construction of the pro- vincial roads. After construction, the roads would be turned over to the Provincial Engineers for maintenance.  ANNEX 4 Page 3 Procurement of Equipment 11. The provincial equipment pool in Occidental Mindoro consists of 29 pieces with a useful remaining life of no more than four years. In order to carry out the construction and improvement of about 77 km of provincial roads by force account, additional items of equipment would be needed (Annex 9). A small sum has been included for the purchase of workshop tools and equip- ment for first line maintenance. After completion of project works, the equipment and workshop facilities would be handed over to the Provincial Engineer for maintenance of provincial roads. Technical Assistance 12. One highway expert would be provided to assist Region IV of DPH in the detailed engineering and supervision of construction of the national highways and provincial roads. A total of 42 man-months has been allowed for at the rate of US$3,600 per man-month. Consulting Services 13. Provision has been made for consultants to carry out feasibility studies and, if warranted, detailed engineering of a national highway in Occidental Mindoro from Paluan in the north to San Jose in the south, with possible link roads to Oriental Mindoro. The construction would reduce the need for small port facilities. The studies would require about 120 man-months over a period of about 18 months at an average cost of about US$5,000 per man-month. Cost and Implementation 14. The total cost of the road program including physical contingen- cies and costs due to expected price increases is estimated to be US$27.0 million of which US$14.6 million would be foreign exchange. This works out to about US$70,000/km for the national highways and US$28,000/km for the provincial roads. The total cost of equipment to be procured under the project is estimated at US$800,000. Details of the cost estimate are given in Annex 8 and a list of equipment is shown in Annex 9. The road works would be constructed over four years beginning November 1975 (Chart 9373). Road Maintenance 15. Maintenance of the national highways is the responsibility of Region IV of DPH which has its headquarters in Quezon City. The field work is carried out by the District Engineer in each of the two provinces. Road maintenance organization and equipment services were recently studied by Kampsax/Berger (Denmark, U.S.), consultants, under the First Highway Project (Loan 731-PH) and changes are expected to be implemented with the help of the same consultants under the Second Highway Project (Loan 950-PH). The consultants will submit recommendations for a five-year road maintenance  ANNEX 4 Page 4 program, including equipment requirements, to be financed under the proposed Third Highway Project. At present, however, the equipment pools are limited and in poor condition and the workshops need urgent reorganization. 16. The provincial roads are maintained by the Provincial Engineers. Each province has its own equipment pool and workshop. Oriental Mindoro has recently received some surplus military equipment under the U.S.-assisted Provincial Development Assistance Program (PDAP). PDAP is also involved in reorganizing the workshop and training mechanics. Occidental Mindoro does not at present participate in PDAP but the Government plans to include it in the Program in conjunction with the proposed project. In addition, it will receive the equipment procured under the project after force account works are completed. Provincial capabilities to maintain roads are expected to improve to satisfactory levels. B. Calapan Port Background 17. Sea transport plays a large role in Mindoro and the Philippines. As the road system improves, however, there will be a tendency for major cargo movements to be concentrated at fewer ports. Undoubtedly, many coastal communities will continue to conduct local trade through small ports but the proportion of main commodities dealt with in this manner is likely to fall appreciably. 18. The only national port in Mindoro is at Calapan (Map 11159); all other public ports are municipal facilities. Calapan is used principally by passenger/cargo ferries from Batangas in southern Luzon but there is also some traffic between Calapan and Manila. About 2500 vessels called at Calapan in FY73, carrying a total of about 800,000 passengers and 72,000 tons of cargo (Table 3). This represents about 60% of all passenger and cargo movements between Mindoro and the rest of the Philippines. In 1973 Mindoro produced an estimated surplus of 120,000 tons of agricultural products, and by 1979 the surplus is likely to reach about 240,000 tons (Table 4). At present about 75% of the surplus is transported by road to Calapan from where it is exported to Batangas and Manila. This pattern is expected to continue. Existing Port Facilities 19. The existing facilities consist of an 80 m long causeway 9 m wide leading to a reinforced concrete pier 105 m long forming a T-head, with 3 berths on the outside and one berth each on the inside and return. The mean level of low water (MLLW) varies from 2.5 m at one end of the pier to 5 m at the other. The causeway and one end of the pier are of pre-World War II construction. The pier deck has deteriorated badly but the piles are in good condition. Concrete sleeves have been added to some pile heads  ANNEX 4 Page 5 to support a new deck of flat slab construction above the old deck slab. Under the project it is proposed to sleeve all the remaining pile heads so that the new deck could carry the original design live load of 300 lb/ft2. Passenger handling facilities do not exist and embarkation and disembarka- tion are hazardous. Apart from one small public shed there are no port storage facilities. Preparation and Execution 20. The project would include the rehabilitation and upgrading of the existing pier and deck, new fendering, reclamation of 4,000 m