Philippines - First and Second Fisheries Credit Projects

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. 4 2 2 2 PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) December 13, 1982 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ABBREVIATIONS BFAR - Bureau of Fisheries and Aquatic Resources DBP - Development Bank of the Philippines ERR - Economic Rate of Return FAO - Food and Agriculture Organization FRR - Financial Rate of Return CT - Gross Ton MNR - Ministry of Natural Resources OPCR - Overview of Project Completion Report (for Fisheries II only) PCR - Project Completion Report UNDP - United Nations Development Program UP - University of the Philippines CURRENCY EXCHANGE RATES Name of Currency (Abbreviation) Philippine Pesos (P) Fisheries I Year: Appraisal Rate Average Exchange Rate US$ = 6.7 Intervening Year Average US$ = 7.0 Completion Year US$ = 7.5 Fisheries II Year: Appraisal Rate Average Exchange Rate US$ = 7.4 Intervening Year Average 7.4 Completion Year 7.9 Fisal Year of Borrower Calendar Year  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) TABLE OF CONTENTS Page No. Preface ........................................................... i Basic Data Sheets .................................................. ii Highlights ......................................................... iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. SUMMARY .1 II. MAIN ISSUES. 7 A. Provision of Technical Guidance to Inland and Marine Borrowers . . .7 B. Conduct of Exploratory Fishing Surveys . . 8 C. Fishing Vessel Performance . . 9 D. DBP On-Lending Policy. . . 10 E. Government Planning Procedures . . .11 F. Bank Supervision Arrangements . . .12 Table 1 - Fish Production by Sector - 1975-80 .......... .. .......... 13 Table 2 - Commercial Production by Fish Landings and by Pelagic and Demersal Species ...... ............................. 14 Table 3 - Milkfish Production by Pond Hectarage, Production and Value ....... ................. ...................... 15 Table 4 - Commercial Fishing Fleet by Gear and Tonnage Class ....... 16 Table 5 - Employment in the Fishing Industry .... ................... 18 Borrower Comments .................................................. 19 PROJECT COMPLETION REPORT, FISHERIES CREDIT PROJECT (LOAN 891-PH) I. Project Background and Sector Setting .23 II. Project Formulation .24 III. Project Implementation .26 IV. Specific Project Elements .40 V. Project Financial and Economic Impact .41 VI. Bank Performance .50 Annexes 1-6 .55 I This document has a restricted distribution and may be used by recipients only in the performance of | their official duties Its contents may not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS (Cont'd) Page No. OVERVIEW ON PROJECT COMPLETION REPORT,1/ SECOND FISHERIES CREDIT PROJECT (LOAN 1270-PH) Project Achievements .......................................... 93 Project Implementation ....................... 95 Financial Impact on DBP ....................................... 96 Financial and Economic Impact ................................. 97 Subloan Policies and Procedures ............................... 97 Effectiveness of Bank Supervisions ............................ 97 Conclusions ................................................... 98 1/ The PCR, which is too voluminous to be reproduced as part of this report, is available in OED.  PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS ________ __ (LOANS 891-PH AND 1270-PH) PREFACE This is a performance audit for the First and Second Fisheries Credit projects, for which a loan was approved in May 1973 for US$11.6 million and a further loan in May 1976 for US$12 million. Final disbursement for the first project was made on August 23, 1979, the loan was closed on August 23, 1979 while that for the second project on February 27, 1981 closed on June 30, 1981. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department and two Project Completion Reports dated July 22, 1980 and July 1982. The first PCR was prepared by the East Asia and Pacific Regional Office on the basis of a country visit in January and February 1980. The PCR for the second project was prepared by the Development Bank of the Philippines (DBP). The audit memorandum is based on a review of the Appraisal Reports (105A-PH and 1101B-PH) dated April 23, 1973 and May 7, 1976 respectively, the President's Reports (P-1213-PH and P-1850-PH) dated May 2, 1973 and May 13, 1976, and the PCRs. Internal Bank memoranda on project issues as contained in relevant Bank files have also been consulted and Bank staff associated with the projects have been interviewed. An OED mission visited the Philippines in November 1981. In addi- tion to discussions with staff of the Ministry of Natural Resources, Bureau of Fisheries and Aquatic Resources and the Development Bank of the Philippines, visits were made to Iloilo and Bacolod. The information obtained during the mission was used to test the validity and conclusions of the PCRs. The draft report was sent to the Borrower for comment on April 24, 1982. Borrower comments are attached to the audit memorandum. The audit finds that the PCRs cover the projects' salient features adequately and the Project Performance Audit Memorandum generally agrees with their conclusions. In addition to summarizing the objectives of the two projects and highlighting their satisfactory outcome, for which considerable credit must be given to DBP and Bank staff concerned with project implementa- tion and supervision, there are some features which give rise to concern. These include the provision of technical guidance and supervision to sub- borrowers; the future viability of certain shore facilities and the organiza- tion and funding of the exploration fishing survey. The valuable assistance provided by the Government of the Philip- pines and by the staff of the Development Bank of the Philippines is grate- fully acknowledged.   - ii - PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) BASIC DATA SHEET FISHERIES CREDIT PROJECT (LOAN 891-PH) KLY PROJECT DATA Appraisal Actual or Actual as 2 Estimate Estimated Actual of Estimate Project Costs (USS million) 18.5 18.5 - Loan Amount (USS million) 11.6 11.6 - Board Approval Date - 05/15/73 _ Loan Agreement Date - 05/21/73 - Effectiveness Date 09/25/73 (1) inland 06/20/73 - (2) marine 12/06/73 - Date Physical Component Completed 06/30/77 06/30/79 149 Proportion then completed ()- 76 Closing Date 06/30/79 08/23/79 103 Economic Rates of Return (x): (a) Marine Sector and Supporting Services 22 Over 20 - (b) Inland Sector 43 26-53 - (c) Total Project 34 About 34 - (d) Inland Sector with New Fishpond Construction 23 Over 20 _ (e) Project with New Fishpond Construction 23 43 187 Financial Rates of Return (): Inland Component (a) New Pond Development 29 _ (b) Pond Improvement 36 - (c) Pond Rehabilitation 59 _ Marine Component 25 25 - Institutional Performance Satisfactory - Estimated Employment Marine Component (a) Permanent (Positions) 940/s 639/b 67 (b) Temporary (Cotal Manyears) 840 41 C/c 49 Inland Component (a) Permanent (Positions and Manyears Annually) 140U 1000 71 (b) During Implementation 4000 3000/c 75 CUMULATIVE DISBURSEMENTS FY74 FY75 FY76 FY77 FY78 FY79 Appraisal (USS million) 0.1 0.8 4.1 8.2 11.6 11.6 Actual (USS million) 0.4 2.0 3.6 8.8 10.9 11.6 Actual as x of Appraisal 400 250 88 107 94 100 Date of Final Disbursement 08/23/79 MISSION DATA Date No. of Staffweeks Specializations of Performance Types of Mission (Month/Year) Persons in Field Mission Members/d ~ 5j e Trend'/f Problems/& Identification (FAO/CP) ) Preparation (FAO/CP) 01-02/72 Appraisal 10-11/72 5 4.5 Supervision 1 08/73 1 1.0 a 2 1 T Supervision II 03/74 1 2.0 b 1 1 - Supervision III 11-12/74 2 2.0 a,b I I - Supervision IV 08-09/75 3 1.U a,b I I - Supervision V 02-03/76 2 0.5 a,b 1 2 - Supervision VI 10/76 1 1.5 b 1 2 - Supervision VII 04-05/77 2 2.0 b 1 2 - Supervision VIII 10-11/77 3 1.0 c,d 1 2 - Supervision IX 02-03/78 2 0.5 b,c 2 2 t,M,T Supervision X 10-11/78 2 0.5 c,d 2 2 F,M,T Supervision XI 08-09/79 2 0.2 c,d 2 2 F,M,T Completion 01-02/80 2 2.0 OTHER PROJECT DATA Borrower Republic of the Philippines Executing Agency Development Bank of the Philippines Follow-on Project Second Fisheries Project Loan 1270-PH Amount (USS million) 12.0 Loan Agreement Date 07/02/76 /a Appraisal estimate based upon three ice plants and two alipways. /b As of January 1980. at only one financed slipway. Mission estimate based on interview. c DBP estimate. /d a agricultural economist, b - fisheries expert, c - financial analyst, d - agricultural credit specialist /e 1 - problem-free or minor problems, 2 - moderate problems 7 I - improving, 2 - stationary / T - technical, F = financial, M - Management   - iii - PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) BASIC DATA SHEET SECOND FISHERIES PROJECT (LOAN 1270-PH) KEY PROJECT DATA Appraisal Actual or Actual as X Estimate Estimated Actual of Estimate Project Costs (USS million) 23.5 26.0 111 Loan Amount (US$ million) 12.0 12.0 - Board Approval Date - 05/26/76 - Loan Signature Date - 07/02/76 - Effectiveness Date 10/04/76 11/12/76 - Date of Physical Completed 06/30/80 n.a. - Closing Date 06/30/81 06/30/81 - Economic Rates of Return New Fishpond 20 20-44 /a 98-216 Rehabilitated Fishpond 39 72-93 /a 108-238 Purse Seiner (90 GT) 27 25 /b 92 Purse Seiner (45 GT) 27 41 7_ 149 Fish Carrier 43 n.a. - Ice Plant 22 27 123 Financial Rates of Return New Fishpond 20 9-13 /a 44-65 Rehabilitated Fishpond 39 21-29 /a 54_75 Purse Seiner (90 GT) 19 15 79 Purse Seiner (45 GT) 19 21 110 Fish Carrier 24 n.a. - Ice Plant 19 22 116 Institutional Performance - Sattsfactory - Employment Impact 1,000 2,281 228 CUMULATIVE DISBURSEMENTS FY77 FY78 FY79 FY80 FY81 Appraisal (US$ million) 0.5 3.7 8.0 12.0 - Actual (US$ million) 0. 2.1 4.5 9.8 12.0 Actual as % of Appraisal 0 57.0 56.0 70.0 100.0 Date of Final Disbursement 02/27/81 MISSION DATA /c Date No. of Staffweeks Specializations of Performance Types of Mission (Month/Year) Persons in Field Mission MembersLd Rati4je Trend/f Problems/a Preparation (DBP) Appraisal 08-09/75 3 12.0 a, b, e - - Supervision 1 09-10/76 1 2.0 b - - Supervision IL 04-05/77 2 6.0 b, c 1 2 Supervision ItI 10-11/77 3 6.0 c, d, e 1 2 Supervision IV 02-03/78 3 6.0 b, c, e 2 2 Supervision V 10-11/78 2 6.0 c, d 2 2 T, F, M Supervision VI 03/79 2 6.0 c, d 2 2 Supervision VII 03/81 1 4.0 d 2 2 T, M4 Completion (DBP) 06/82 /a Depending on location. /b Trawler of same tonnage. /c Supervision of Loan 1270-PH overlaps with Loan 891-PH and preparation of Loan 1894-PH. /d a = specialization not known; b - fisheries expert; c= financial analyst; d= agriculture credit specialist; e - economist. /e I - problem free or minor problems; 2= moderate problems. /f I = improving; 2 = stationary. Th T = technical; F = financial; M = management.   - iv - PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) HIGHLIGHTS These projects aimed at developing inland and marine fisheries in support of the government's goal of self-sufficiency in fish production. Both projects also contained institution-building objectives in respect of the Development Bank of the Philippines, which was responsible for implementation. Fisheries I was the first Bank loan to finance inland fish pond development; it was expected that the introduction of fresh water fish cultivation in areas with only limited alternative opportunities for employment would contribute measurably to increased incomes. As the Bank's first major loan to the Philippines for fisheries development, the project also provided funds for surveys to assess the resource base for future fishery development programs. Fisheries II was essentially a continuation of the strategy developed for the first project. At appraisal the first project was estimated to cost US$18.5 million of which IBRD would provide US$11.6 million. The second totalled US$23.5 million with the Bank financing US$12 million. Implementation of both projects has been sharply affected by the 1973/74 oil crisis. The marine component of both projects, but principally the first, experienced rapid cost increases for construction of new vessels and in respect of operating costs. As a result only about half the 60 vessels expected to be financed under the project were built, furthermore, most were purse seiners rather than the trawlers anticipated at appraisal. This trend towards smaller and less costly marine vessels continued under the second project. Rising construction and operating costs also affected inland fresh water fish pond development, more particularly under the second project. Financial returns are no longer attractive for new fish ponds, although returns for rehabilitated ponds continue at a level which is satisfactory, even though lower than expected at appraisal. Employment resulting from the project has, however, exceeded original expectations primarily because of increased labor intensity; incomes have also increased for between 65-72% of fish pond operators. Both projects had positive institution-building effects although there is room for improvement. Sub-borrowers in both the marine and inland sectors requested additional technical support, particularly during implemen- tation. This lack of supervision, which has become an increasingly important omission as costs have risen thereby requiring greater efficiency of re- sources, is the principal reason for the high proportion of loan arrears. In 1980, the year for which the most recent data is available, collections for sub-loans extended under the project amounted to only 28% of total collect- ibles. This is having a significant effect on DBP's financial position.  These two projects offer the following lessons: the need for more critical examination of national trained manpower resources during preparation and appraisal to insure that adequate provision is made for technical assistance and training of key local personnel (PPAM, paras. 23-26). the need to deploy more technical expertise during supervision of fisheries projects than has been the case (PPAM, paras. 22, 41 and 42). the need to enforce regular project reporting and sample surveys early on in the project to ensure proper and timely evaluation at the project completion stage (PPAM, para. 18, and PCR, para. 4.03). Points of special interest are: inter-departmental coordination in planning fishing industry requirements could be considerably strengthened (PPAM, paras. 37- 41). studies and the test fishing program initiated as a result of the first project have been disappointing (PPAM, paras. 27-29). bank supervision missions can be ineffective if required to super- vise too wide a range of projects within a short period of time (PPAM, para. 42).  - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) I. SUMMARY 1. The First Project was appraised in November 1972; the Second Project in September 1975, very shortly after the launching of the first trawler completed under Fisheries I. Both projects were designed to increase fish production by expanding the fish farming and offshore commercial fishing subsectors and were executed by the Development Bank of the Philippines (DBP) in collaboration with the Government's Bureau of Fisheries and Aquatic Resources (BFAR). 2. An FAO/CP mission identified and prepared the First Project during a visit to the Philippines in January-February 1972. Originally, it provided for: (a) the construction and/or rehabilitation of 12,000 ha of fishponds mainly for milkfish (Chanos chanos) production; (b) the construction of 60 fishing vessels of between 70 gross tons and 130 G.T. each; (c) the acquisition of 10 imported second-hand fish carrier vessels; (d) the modernization of up to 100 existing fishing vessels; (e) the construction of 3 ice plants and 2 slipways; (f) the cost of two studies by consultants, one focussing on the national fish marketing and distribution system and the other on a smallholder fish pond project; (g) further technical assistance by a marine specialist and a naval architect to undertake vessel design and construction specification and generally to assist DBP marine sector lending, and a fish farming extension expert to train BFAR extension workers and DBP inland fisheries appraisal staff. The recruitment of these three experts was stipulated as a condition of loan effectiveness; (h) the project also included agreement that BFAR would undertake at its own expense an exploratory fishing survey, using its existing research vessel fleet in Southern Philippines waters, in an effort to locate new fishing grounds and additional fish stocks for the growing commercial fishing fleet.  3. The Second Fisheries Project, which was essentially a continuation of the First, was prepared by DBP and provided for: (a) the construction and/or rehabilitation of an additional 9,000 ha of fishponds; (b) the construction of 17 fishing vessels of 45-90 G.T. each; (c) the modification of four local vessels to become carriers; and (d) the construction of three ice plants and one slipway. 4. Following approval of the original loan in May 1973, DBP experienced some delay in recruiting the two marine specialists. In consequence, although the fish pond component was declared effective in June 1973, the marine fisheries component did not become effective until December 1973 following a bilateral aid agreement with the United Kingdom to provide the necessary expertise. The Second Project became effective in November 1976, on schedule, some four months after the Agreement was signed. 5. The 1973/74 oil crisis and resultant steep cost escalation had a fundamental effect on the First Project's marine component and to a lesser extent also on that of the Second Project. The cost of a 70 G.T. vessel, which at appraisal in 1972 was estimated at US$60,000, had increased to US$200,000 by 1976. Part of this increase was, however, caused by the re- design of traditional hulls to more acceptable stability standards, by increasing beam to length ratios and by insistence on stricter construction specifications and timber quality standards. The sharply increased cost of steel directly attributable to oil-price rises, meant that new steel vessels were no longer economical under local conditions and the 15 projected vessels of this type had to be eliminated. In consequence, only 35 of the projected 60 vessels under Fisheries I were financed) all in the 70-95 G.T. class and built of wood, despite the fact that wood also doubled in price during the course of the project. Furthermore, as time went on, it became increasingly difficult to obtain lumber of suitable size and quality. 6. The effect of rising oil prices on vessel operating costs also increased in severity during the project period. Diesel fuel more than quadrupled in cost between 1975 and 1980, and by 1979 accounted for about 55% of trawler operating costs. Fishing gear, mostly made nowadays from petroleum-based synthetic fibers, also showed similar price rises, whereas catch values only increased by about 50% over the same period. Purse seiners were found to be more fuel efficient than trawlers - fuel accounting for only about 40% of operating costs - so that 12 of the 35 vessels built under Fisheries I were equipped as purse seiners, whereas at appraisal, it was envisaged that all of the vessels would be trawlers, except for the 130 G.T. class steel vessels which were eliminated from the project. In addition, the 1975 Presidential Decree which amongst other measures, excluded trawlers from the coastal zones was a necessary step, but one which caused a marked decline in trawler catch rates.  7. The trend continued into Fisheries II, with 29 purse seinersl/ built of the total of 47 craft.2/ A further consequence was a progressive departure from appraisal guidelines in the matter of vessel size and power in favor of smaller and less costly vessels. This was particularly marked in Fisheries II when in place of the projected fourteen 90 G.T. and three 45 G.T. vessels, 16 vessels were built ranging in size from 12 to 50 G.T., and 27 larger vessels (80 G.T. and up),3/ most of which were purse seiners designed to work the more distant Palawan fishing grounds. Rising costs also tended to limit fishing by most vessels, other than the larger purse seiners, to nearby already heavily-fished waters and to a reduced number of fishing days - 215 days/year for trawlers and 218 days for most purse seiners, in both cases only about 80% of DBP projections. The trend towards smaller vessels has also continued into the third Fisheries and Livestock project. 8. Only one of the three ice plants projected in Fisheries I was financed, apparently because clients could obtain better terms under the Small and Medium Industry Development project (Loan 1120-PH), but conversely, all three loans for the ice plants projected in Fisheries II were made.4/ Two slipways were projected in Fisheries I and one in Fisheries II, but only one was built. The two projects contained provision for 14 fish carriers, but partly because of the requirement for international competitive bidding, none were taken up, although BFAR statistics do show an increase in the carrier fleet from 241 in 1977 to 302 in 1980. Few applications for vessel moderniza- tion were approved because the main interest of the industry was in re- engining generally obsolete vessels rather than up-grading serviceable vessels with additional modern equipment.5/ 9. The inland fish ponds component was also affected by inflation. The total area financed from Fisheries I at 12,728 ha exceeded appraisal estimates by 7%, with average yields also slightly better than appraisal estimates. The area developed during Fisheries II is 13,459 ha which compares very favorably with the appraisal targets of 9,100 ha of new and rehabilitated ponds. The average cost of pond development per ha was P6,000 during Fish- eries I against the appraisal estimate of P5,000 per ha. The latest figures for Fisheries II indicate a development cost of P35,000-40,000 per ha for the fishponds and P19,900-22,800 for partially developed ponds. 1/ See OPCR, para. 4 and Borrower comments; combines vessels classified as purse seiners (18) and vessels classified as other (11). 2/ Includes 4 conversions and rehabilitations. 3/ Total 43 vessels (net of conversions and rehabilitations). 4/ But only one is in operation (see OPCR, para. 4 and Borrower comments). 5/ Under Fisheries II, two 90 G.T. trawlers were converted to purse seiners while two trawlers were re-engined.  - 4 - 10. Fish pond operating costs are also increasing at a rate which is giving rise to some concern. The ex-farm price of fish has been stable for the last two years at p5.50 to P6.50 per kg, but input costs have increased, in the case of fertilizer by 19%, organic manure by 20%, and milkfish fry by 30% in the same period. Recent increases in interest rates charged by DBP on loans are also worrying many borrowers, to the extent that the cumulative effect of rising costs may cause some fish farmers to start economizing on inputs, even though this will cause a decline in yield from their ponds. 11. The provision of marine specialists envisaged at appraisal, but supplied under bilateral aid arrangements, had an important institution- building effect for the project in general and for DBP in particular. Their services produced significant improvements in the quality of vessel construc- tion in several Philippine boat yards, and by a combination of on-the-job and overseas training of key DBP specialist staff, promoted a higher degree of staff capability, deepening DBP's involvement in and understanding of the fisheries sector. 12. The training program for BFAR fish farming extension personnel and DBP inland fisheries appraisal staff, under BFAR direction and utilizing the services of an expatriate aquaculture extension expert, proved highly success- ful. The program has produced a number of highly qualified staff and teach- ing aides whose services are clearly well appreciated by the fish farming industry. However, the numbers of trained extension workers in relation to the geographic areas they have to cover is still far from adequate. 13. The project's test fishing program, carried out by BFAR to explore the potential of new fishing grounds in the southern part of the Philippines was less successful, mainly because of operational difficulties experienced with the three rather elderly BFAR research vessels. In consequence, rela- tively little information was obtained of value to the commerical fishing fleet. 14. The Smallholder Fish Pond Study developed a "fish pond estate" concept which, although of interest to Government in terms of providing smallholder involvement on a large scale, has not found practical application so far, mainly because of its substantial minimum size and the need for extensive prior engineering studies and costs. The Fish Marketing and Distri- bution Study resulted in the collation of a large volume of information but did not result, rather disappointingly, in the identification of any specific projects for future external financing. 15. Development of cooperative arrangements between DBP and BFAR proceeded very slowly and only became operationally significant towards the end of Fisheries I after an agreement was concluded in 1978 to collaborate in the provision of technical support to fish pond borrowers. As regards marine fisheries, technical support has been extended only by DBP's own marine staff and consultants, and mainly in respect of vessel design and construction. DBP has not sought, and BFAR has not extended on its own any assistance in this field, although there is clearly an unfulfilled need. Many  - 5 - marine proponents have stressed the need for technical assistance after the completion of vessel construction, during the start up period of vessel operations when new operators are gaining familiarity with their new vessels and equipment. This particularly applies to such matters as the correct design and use of fishing gear, the use and maintenance of electronic and acoustic fishing aids, care and handling of the catch and crew training, etc. There is evidence to suggest that DBP/BFAR's inability to provide such assis- tance, as part of the general supervisory function, is a contributory factor to the very rapid increase in the number of sub-loans which have fallen into arrears. The lack of appropriately qualified staff in these fields should have been identified in time for remedial provision to have been included in Fisheries II. 16. DBP performance in general appears to have been very good. With the establishment of a Fisheries Group within its Agricultural Projects Department, DBP was able to deploy an effective and well qualified team to the tasks of appraising and supervising loan applications and their imple- mentation. During both projects, and especially during the latter stages of Fisheries II, extra emphasis was placed on sub-loan recoveries, despite which, the growth in arrears must occasion considerable concern. Foreclosure action has already had to be taken on some fishing vessel sub-loans, and more cases are under consideration. 17. Procurement procedures were modified during implementation in efforts, not always successfully, to make them more responsive to changing circumstances. Fisheries I disbursements were ahead of schedule during 1974 and 1975, but slowed down during 1976 when DBP was involved in the promotion of large, socially oriented governmental lending programs and other major activities. There was a period during 1977/78 when Fisheries II lending to the marine sector slowed down whilst an attempt was made to introduce a system of local competitive bidding, but accelerated again after the idea was dropped, having unfortunately proved counter-productive. In the end, Fisheries I was fully disbursed only two months later than the original Closing Date, and Fisheries II was completed three months ahead of schedule,l/ performances which reflect considerable credit on the DBP staff concerned. 18. In general, DBP complied with all loan covenants except that sample sub-borrower monitoring studies were only being initiated on an ad hoc basis during the final year of Fisheries I. To date, this still remains to be organized as a regular and continuous activity. 19. It is not possible to measure the overall impact of either project with any degree of accuracy because of insufficient data and often conflicting statistics. However, it is clear that the fish ponds financed under Fisheries I achieved higher levels of productivity than estimated at appraisal, and 1/ But as DBP points out the Loan was only fully disbursed three months after the original Closing Date (see Borrower comments).  - 6 - that Fisheries II fish ponds appear to have performed at least as well as projected. In contrast, the Fisheries I marine sector seems to have achieved little better than half of the incremental production estimated at appraisal. The sector is, however, well-known for its reluctance to disclose full quanti- ties of fish caught or details of earnings and the statistics are, there- fore, in doubt. As regards Fisheries II vessels, the smaller trawlers (19-40 G.T.) and the larger purse seiners are proving most productive, whereas trawlers and seiners in the 50-95 G.T. classes are having difficulty in breaking even.1/ Comparison with appraisal estimates for Fisheries II is difficult because the majority of vessels were built in sizes either smaller or larger than appraisal guidelines. 20. In mid-1980, the completion mission for Fisheries I assessed the financial rates of return on an average 25 ha fish farm as ranging between 29% and 59%, depending on the state of development, with economic rates of return varying from 26% to 53%. The FRR on a 75 G.T. trawler was assessed at about 22% and the ERR at about 28%. At that stage, the returns were in line with or better than the rates estimated at appraisal. As regards Fisheries II, and pending completion of a sub-borrower survey which DBP was only on the point of starting at the end of 1981, no figures are available on which to base rates of return calculations. It is believed, however, that fish farm returns should show only a marginal reduction, if any, on appraisal estimates, but in the marine sector it seems inevitable that the 50-95 G.T. vessel classes will fail to achieve appraisal target rates. Their failure may be sufficiently offset, however, by better returns from the smaller trawlers and largest purse seiners to give overall FRR and ERR figures close to appraisal estimates. 21. The non-quantifiable benefits of the projects have been signifi- cant. Fisheries I, in particular, represented an important institution- building undertaking as far as DBP was concerned and, to a lesser extent, also BFAR. Both projects provided incremental employment opportunities, expanded the knowledge of new technologies and improved the dissemination of such information by means of enlarged extension operations. The projects promoted vessels with better sea-keeping qualities, and the vessel construc- tion programs not only created additional employment in small boat building yards but spread the improved designs and higher standards of vessel con- struction to various parts of the country. 22. Supervision of the two projects by Bank staff was generally adequate in terms of numbers and frequency of visits. During the early stages of Fisheries I, supervision mission members undertook several field visits to inspect work in progress, but few, if any, of the later supervision reports include any mention of visits to centers outside Manila. While the Bank was certainly responsive to changed circumstances resulting from the 1973/74 fuel oil crisis, performance might have been significantly improved by more fish- eries technological input during the later stages of#supervision, more field 1/ DBP points out (see Borrower comments) that in its survey, undertaken in preparation of the PCR for Fisheries II, there are strong indications that all classes of fishing vessels, except purse seiners with inadequate facilities, are currently operating profitably because of higher prices for fish.  -7- inspection visits and, notwithstanding the need for economies in supervision costs, by less frequent recourse to the practice of assigning multi-project responsibilities to single missions. II. MAIN ISSUES A. Provision of Technical Guidance to Inland and Marine Borrowers 23. Largely as a result of Fisheries I, supplemented by bilateral technical assistance and overseas training, DBP created a range of technical competence within its Fisheries Group.l/ Such skills were suitable both for the task of appraising loan applications from both marine and inland sectors, and for supervising the construction stages of such subloans.2/ Neverthe- less, many of the marine sub-borrowers interviewed by the project comple- tion and project audit missions stressed the need for technical assistance after the completion of vessel construction, during the start up period of vessel operations when new operators are gaining familiarity with their new vessels and equipment. 24. This requirement might have been foreseen at the start of Fisheries I, but at the very least, should have been included in the terms of reference for Fisheries II. DBP Fisheries Group staffing does not include expertise in such matters as the design and use of fishing gear, the use and maintenance of electronic and acoustic fishing aids, care and handling of the catch and crew training etc., and the BFAR establishment also contains very few people possessing these skills. Thus, the needs remain largely unsatisfied and vessel owners are denied the sort of guidance on improvements to fishing efficiency which could significantly increase vessel earnings and thus reduce the growth of loans in arrears. 25. The provision of a fish farming extension expert enabled BFAR to improve the quality of its inland extension service for fish farmers in general. Following the 1978 Agreement between BFAR and DBP, there was a belated but marked improvement in the provision of technical assistance to DBP's fish pond borrowers. This particularly in respect of drawing up tech- nical plans for fish pond development, supervising pond construction and conducting regular visits to provide operational guidance. However, as noted in the Fisheries I PCR,3/ it was not possible to implement the Agreement evenly throughout all the regions, and even where it was applied, the numbers of trained extension workers were barely adequate to meet the needs of fish farm borrowers, considering their numbers and wide geographical distribution. 1/ The region considers that DBP's role is to provide finance and that it should draw on technical services from elsewhere as necessary. 2/ PCR Fisheries I, para. 3.53. 3/ PCR Fisheries I, para. 3.51.  A further concern, as expressed by one BFAR provincial head, was that the assignment of two of his staff to concentrate on DBP sub-borrower needs was not accompanied by any increase in his establishment, and therefore served only to dilute the extension service he could offer to all the other fish farmers in his province. 26. There is a clear need for project preparation and appraisal to give more thorough consideration to the numbers and calibre of trained staff avail- able to organizations responsible for providing essential back-up services to these lending programs. In this case, more definite targets, as regards numbers of BFAR and DBP personnel to be trained, should have been set for the Fisheries I training program, and Fisheries II should also have contained provision for training additional staff. B. Conduct of Exploratory Fishing Surveys 27. As noted in the Completion Report!/, the second of the two compo- nents to be carried out by BFAR was a test fishing program to be conducted by three BFAR research vessels using purse seines, trawls and long lines to explore the potential of new fishing grounds in the southern part of the Philippines. The results were disappointing. BFAR experienced considerable difficulty in keeping the three rather elderly vessels in working order in areas far distant from their home base. The report makes no mention of crew difficulties, although it seems probable that this may have been an additional factor. It is not uncommon to find that research vessel crews, who are paid fixed wages, lack the incentive or motivation of commercial fishermen to work long hard hours for weeks on end, under conditions of considerable discomfort. 28. An alternative approach worth considering in such circumstances, is to charter commercial fishing vessels with their crews to carry out the exploratory work, and to assign a fishery officer to sail on the vessel to record the results and ensure that the vessel does fulfill the charter condi- tions. A significant advantage of this approach is that any worthwhile dis- coveries are immediately fully known to at least the one commercial vessel and it does not take long for others to follow in its wake when they see one of their number landing a good catch. This resolves the problem of disseminating information about new fishing grounds to the fishing fleet, which is often suspicious and reluctant to take up advice proferred by research ships. 29. Given that nearby fishing areas in Manila Bay and the Visayan Sea were known to be heavily fished even before the start of Fisheries I, insuffi- cient importance seems to have been accorded during preparation and appraisal to the need to locate new grounds and so disperse overall fishing effort over a much wider area. It is thus unfortunate that the nature and scope of the exploratory fishing survey was not defined in greater detail and that it was not included for financial support. It is still not too late, and it is 1/ PCR Fisheries I, para. 3.17.  - 9 - recommended that provision be included in later projects for a revival of this activity, including trials with other less fuel-costly methods such as mechanized line jigging and set-net fishing.l/ C. Fishing Vessel Performance 30. One project objective in funding the construction of new fishing vessels, was that they would be acquired, either singly or jointly by cap- tains, master fishermen and other crewmembers. Thus, at one stage, DBP waived the standing requirement regarding real estate security and made loans only on the security of the boat itself.2/ This objective went largely unfulfilled because very few fishing captains possessed sufficient cash, let alone real estate, to qualify for the size of loan needed for the vessels built during Fisheries I. Indications are that some captains would have been able to qualify for the smaller and less costly Fisheries II vessels, but by then the requirement for collateral in the form of real estate had been reintroduced. 31. Analysis of the sub-loans indicates three main categories of borrowers: (a) companies - some of which had prior connections with fishing either on the marketing side, or as agents for marine engines, etc.; (b) owners of existing fishing vessels who wished either to replace obsolete trawlers, or to expand their fleet; (c) individual businessmen, sugar plantation owners or professional people, having little or no prior connection with the fishing industry, but who took advantage of relatively cheap loans to diversify their investments and business interests. The borrowers had to rely on the technical skills of captains and crews whom they employed to operate the vessels. Although the finding is not conclusive, the first two categories of borrowers have experienced less trouble in keeping up with loan repayments, whereas the majority of loans in arrears fall in the third category.3/ This is not too surprising because the successful management of a fishing enterprise demands broad knowledge of fishing, of vessel operation and maintenance, and most particularly, detailed knowledge of the intricacies of the fish trade. 1/ DBP agrees: "we now fully realize the benefits that could have been derived....had the projects provided for financial support in the under- taking of a comprehensive marine resource assessment" (see Borrower comments). 2/ PCR Fisheries I, para. 3.35. 3/ DBP also points out that the bulk of the problem accounts in terms of arrears are with borrowers who have obtained liberal collateral and equity terms (see Borrower comments).  - 10 - 32. Captains and crews are paid basic wages with a bonus on vessel earnings which is intended to provide a suitable incentive. Overall, however, their earnings are not particularly high, (P1,200 to P2,000 per month, inclusive of basic wage and bonus was quoted as average pay for captains) with purse seine captains commanding rather higher payments than trawlermen. Several people spoken to asserted that crews often sold part of the catch illegally to supplement their own wages to the detriment of the owner's income._/ Thus, although owners were dependent on the expertise of captains and crews, they tended to put only a low value on that knowledge relative to their own investment in the vessel, instead of recognizing their mutual dependence. 33. The original aim of captain participation in vessel ownership could be combined with the best long-term interests of the investor if the owner assigns a share of the vessel to the captain in a form of partnership, not- withstanding the captain's lack of finance. A partnership agreement which enables the captain to increase progressively his share from vessel earnings would provide the sort of incentive needed to ensure maximum effort and care of the vessel and equipment while minimizing the risk of misappropriation of the catch. Such arrangements are common in several parts of the world to the mutual benefit of both parties, and would be well worth encouraging in the Philippines as another means of reducing the growth of loans in arrears. D. DBP On-Lending Policy 34. Two issues dominated discussions with borrowers in both the inland and marine sectors. Firstly, the question of interest rates, which have recently increased, and secondly, the requirement for collateral in the form of real estate. Interest rates clearly have to reflect DBP's administrative costs and the cost of borrowing. So long as DPB's rates are less than the cost of borrowing from commercial banks, borrowers have few grounds for complaint. As regards collateral, applicants for fish farming sub-loans should have little difficulty in providing the necessary security, whereas prospective marine sector borrowers may have more problems. 35. Experience to date, especially with the category of fishing vessel borrower who lacks prior experience of fishing, provides every justification for continuing to demand security. The present level of 25% self-financing does not seem unreasonable, if only as a means to deter those who would be most likely to fall into arrears as difficulties and demands for expert management increase. On the other hand, there does seem to be a fair case to argue on behalf of proponents who do possess appropriate experience, but who lack the necessary unencumbered real estate. This applies particularly to those who already have an earlier loan which is being kept up to date by means of good management, but who see an opportunity to expand. Such borrowers could be offered loans on slightly easier terms as regards collateral. 1/ This is also inferred in the footnote to PCR Fisheries I, para. 5.08.  - 11 - 36. The pattern to date has been all or nothing, at one time all bor- rowers had to provide a certain level of security to qualify, the requirement was then relaxed for all loans but later reintroduced. It is suggested that, within the basic guidelines, there should be flexibility to fit the collateral requirement to the circumstances of the particular application, based on an assessment of the risk involved in each individual case.l/ E. Government Planning Procedures 37. The audit found evidence which indicates that inter-departmental coordination in planning fishing industry requirements could be improved. This is particularly important in respect of planning decisions which, at present, jeopardize the future viability of enterprises already established with loans from Fisheries I and Fisheries II. 38. The only slipway funded under the first two projects is located in Iloilo. It was inspected during the audit and found to be in working order. A vessel was on the slip at the time undergoing repair and maintenance. The slipway owner asserted that the facility was not yet being used anywhere near capacity, despite efforts to promote his services for fishing vessels. The majority of vessel owners apparently still prefer to careen their vessels on suitable beaches during spring tide periods because it is less costly, even though the practice tends to encourage marine borer infestation of hull planking and other possible ill effects. However, despite the fact that the existing slipway still has surplus capacity, a start has been made on the construction of a new fishing port complex at Iloilo under a bilateral aid program, which includes among other facilities, another marine workshop and slipway for fishing vessel repairs. 39. One of the three ice plants funded under Fisheries II is also located at Iloilo and is capable of producing 90 tons of ice daily. Current demand is for about 40 tons daily and the factory is thus substantially underutilized. It was, however, pointed out that the new fishing port com- plex includes additional ice making facilities, which would also appear unnecessary in the circumstances.2/ 40. Conversely, at Bacolod a number of project vessel owners complained of a shortage of ice, in that the only bulk ice factory, with a daily output of 25 tons, was incapable of supplying all their needs and also charged very high prices. The lack of ice means that vessels often have to wait several days after landing a catch before they can be supplied with sufficient ice to resume fishing.3/ 1/ DBP argues that making this recommendation operational is easier said than done (see Borrower comments). 2/ New Government guidelines have been prepared which would prevent such a situation from occurring in the future (see Borrower comments). 3/ DBP-s survey confirmed these complaints (see Borrower comments).  - 12 - 41. These anomalies were not identified by project supervision missions and brought to the attention of Government for action. However, this pre- supposes that each mission would be allocated sufficient time for field visits outside Manila. As stated above (para. 22) supervision missions had spent insufficient time in the field. F. Bank Supervision Arrangements 42. Staff continuity on the supervision missions judging from the files has been quite adequate, but concern is expressed about the practice of requiring one mission to supervise a whole range of on-going projects. During Fisheries I, supervision mission No. 7, which in addition to doubling as Fisheries II supervision mission No. 3, was also required to oversee another seven Bank-supported DBP projects, all within a period of four weeks, and was thus unable to give more than cursory study to any of them. The need to contain supervision costs is acknowledged. It does not, however, make eco- nomic or any other kind of sense to cut costs to the extent that a mission can only devote two or three days to look at the previous six months record of a complex and costly project, identify incipient problems and devise remedial action plans, and then have to repeat the process with another totally differ- ent kind of project. The members, or on at least one occasion, the sole member of a mission, no matter how well briefed, cannot possibly be suffi- ciently familiar with the intricacies of several different projects as to perform the supervisory role effectively, particularly with such a limited time scale. It seems essential that the time scale and manpower allocated to each supervisory mission, to be effective, must err on the side of generosity. Furthermore, the selection of staff members to perform this function must be based on their knowledge and understanding of the history of the particular project and definitely not because the staff member concerned just happened to be in the area for other reasons.l/ 1/ DBP appreciates "the concern raised in the audit over the effectiveness of supervision missions required to oversee more than one project during a single mission" (see Borrower comments).  TABLE I PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) FISH PRODUCTION BY SECTOR - 1975-1980 Unit: Quantity: 000 Metric Tons Value: Million Pesos Total Commercial Fishponds Municipal Marine Fisheries Inland Fisheries Year Quantity Value Quantity Value Quantity Value Quantity Value Quantity Value 1975 1,337 5,919 499 2,549 106 809 732 2,561 - - 1976 1,393 7,298 508 2,698 113 846 619 3,316 153 438 1977 1,509 8,809 518 3,543 116 891 713 3,826 162 549 1978 1,580 9,477 506 3,465 118 949 776 4,655 180 408 1979 1,581 10,536 501 3,512 134 1,202 737 5,280 209 542 1980 1,672 11,644 489 3,785 136 1,386 762 5,479 285 994 Source of all these statistics is BFAR.  - 14 - TABLE 2 PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) COMMERCIAL PRODUCTION BY FISH LANDINGS AND BY PELAGIC AND DEMERSAL SPECIES 1975-1980 Year Total Demersal Pelagic 1975 498,616 186,590 312,026 1976 508,297 172,703 335,594 1977 518,165 151,705 366,460 1978 305,839 143,451 362,388 1979 500,747 149,430 351,317 1980 488,478 132,387 356,091  - 15 - TABLE 3 PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) MILKFISH PRODUCTION BY POND HECTARAGE, PRODUCTION AND VALUE 1975-1980 Total Area Production Value Year (ha.) (M.T.) (000 P) 1975 176,032 106,461 809,103 1976 176,230 112,761 845,704 1977 176,230 115,756 891,321 1978 176,230 118,682 949,456 1979 176,230 133,598 1,202,382 1980 176,230 135,951 1,386,700  TABLE 4 Page 1 PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) COMMERCIAL FISHING FLEET BY GEAR AND TONNAGE CLASS 1975-1980 1975 1976 1977 Purse Fish Purse Fish Purse Fish Trawler Seine Carrier Trawler Seine Carrier Trawler Seine Carrier Total 763 313 278 786 342 268 684 280 241 3 - 5 57 53 4 55 53 5 49 23 2 5 - 10 172 44 20 235 52 15 225 41 9 10 - 20 107 25 46 98 28 41 93 27 28 20 - 50 225 31 40 193 39 40 151 41 35 50 - 100 161 115 79 169 115 83 131 95 78 100 - 200 41 39 52 35 49 51 31 44 59 200 - 500 - 6 37 1 6 33 4 7 30 500 - - - - - - - 2 -  TABLE 4 Page 2 PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) COMMERCIAL FISHING FLEET BY GEAR AND TONNAGE CLASS 1975-1980 1978 1979 1980 Purse Fish Purse Fish Purse Fish Trawler Seine Carrier Trawler Seine Carrier Trawler Seine Carrier Total 769 327 269/.a 877 408 260 716 351 302 3.1 - 4.9 59 30 50 36 9 45 11 3 5 - 9.9 183 55 251 54 24 217 36 23 10 - 14.9 98 33 124 55 24 144 41 30 15 - 19.9 22 19 15 24 20 17 26 17 20 - 24.9 51 20 51 26 16 25 26 18 25 - 49.9 147 27 143 55 43 80 51 41 50 - 99.9 169 94 175 97 52 125 85 59 100 - 149.9 29 35 61 39 27 48 57 45 150 - 199.9 3 6 2 6 10 1 10 15 200 - 249.9 2 1 3 6 14 1 2 20 250 - 299.9 - - 1 3 12 1 1 12 300 - 349.9 - 1 - 2 2 - 2 9 350 - 399.9 1 1 1 2 5 2 - 8 400 - 449.9 1 2 - - 1 - - 2 450 - over 1 3 - 3 1 - 3 - Not reported 3 1 - - - - - - /a No breakdown by tonnage class.  - 18 - TABLE 5 PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) EMPLOYMENT IN FISHING INDUSTRY 1975-1980 Year FisheriesA/ Fisheries/b 1975 44,866 176,032 1976 43,109 176,230 1977 41,160 176,230 1978 41,156 176,230 1979 42,145 176,230 1980 53,843 176,239 /a Based on the number of licensed fishermen. /b Based on the average of one man employed to every hectare.  - 19 - PROJECT PERFORMANCE AUDIT REPORT REPUBLIC OF THE PHILIPPINES FIRST AND SECOND FISHERIES PROJECTS (LOANS 891-PH AND 1270-PH) BORROWER COMMENTS Comments on the First Draft of the Project Performnance Audit Report on the Philippines First and Second Fisheries Projects (Loan: 891-PH of 1973 & 1270-PH of 1970). Generally, the observations, issues raised, and findings of the project performance audit reflected a valid and reasonable assessment of the results of project operation as of the time of audit. It will be noted, however, that at the time the audit was conducted in November 1981, DBP was only to start a survey of sub-projects financed under Fisheries II which provided the more significant data on project performance as detailed in the PCR of the Second Fisheries Credit Project. This PCR, therefore, reflects DBP's and the GOP's official findings and evaluationof project achievements, from where the following items appear to be inconsistent or not in agreement with the performance audit report: 1. Para. 7 - Fisheries II financed 20 purse seiners out of total of 43 units of fishing vessels. Sixteen (16) vessels were built ranging in sizes between 12-50 GT while twenty-seven (27) units were of the larger types (80 GT # up). More details are given in Chapter V of the Fisheries II PCR. The audit report mentioned 29 purse-seiners which may have included six (6) units of Bagnets and two (2) trawlers converted to purse seiners under this classification. 2. Para. 8 - Fisheries II approved loans for the construction of three (3) ice plants. However only two (2) were actually constructed of which one (in Iloilo City) is now in operation while the other (in Pagadian City) has yet to be completed. As mentioned in item no. 1 above, two (2) units of 90 GT trawlers were con- verted into purse seiners. In addition, two (2) trawlers were re-engined. 3. Para. 9 - The average cost of inland fisipond development of 18,500 per ha. for Fisheries II indicated in the audit report is much too low com- pared to PCR survey results of P35,000 - i,41,000 per ha. for new fishponds and U19,900 - P22,800 for partially developed ponds. 4. Para. 17 - Fisheries II was fully disbursed tnree (3) months or one quarter later than the original Closing Date and not one quarter ahead of schedule as reported in the audit report. 5. Para. 19 - While it is of ,eneral belief that statistics on the marine sector cannot be relied upon, Fisheries II survey finding gave strong indications that in this sector, all classes of fishing vessels except purse- seiners with inadequate facilities, are currently operating profitably because of highler prices of fish nowadays.  - 20 - 6. Paras. 27 & 29 - W4e now fully realize the benefits that could have been derived, principally the ability to aave fornulated a lon,,-term policy of marine fishery development lad tne projects provided for finan- cial support in the undertakin., of a comnprehensive marine resource assess- ment. 7. Para. 30 - The observation is an analysis of a possible reason for poor loan repayalents by categorizing borrowers on tne basis of trade experience which is in no way conclusive by itself as tne audit report also su-tests. One should also relate arrearages to borrower's shared risk in the project as represented by his equity exposure and collatera- lized assets. Althougn debatable, our experiences aave snown that sub- projects with liberal collateral and equity requirements make up the bulk of our problem accounts. 3. Paras. 35 & 3t - Tne argument is well taken but operationalizing a lendin- program providin, flexibility to fit various circumstances is easier said than done. Within the constraints i-posed by internal control, tniis would be ver3 difficult. 9. Para. 39 - Under the proposed "Guidelines for the Establishment of Ice & Cold Storage Plants to Service the FisAing Industry" oeinl finalized oy the Fishery Industry Develop,ment Council, autnorities would not allow establishment of new ice plants within any fishing port complex if it can be serviced by existinc, plants in the area. 10. Para. 40 - The new ice factory, reported closed within a day or so of its commencing operations, was not financed out of a DBP loan, It was lathered tnat this plant was constructed by two (2) chinese businessmen whose operation was opposed by a DBP - financed ice plant with a 285 tons capacity per day sufficient to supply the normal demand of the area except during tne pea' fishin, season. Our own survey confirmed nowever the pre- sence of complaints ,nentioned in the audit report. Lastly, we appreciate the cancern raised in the audit report (Paras. 42 & 43) over the effectiveness of supervision missions required to oversee more tnan one project during a single mission. -oOo- Development Bank of the Philippines A