Philippines - Second Rural Roads Improvement Project

Document of The World Bank FOR OMCIAL USE ONLY Report No. P-4322-PR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVETLO TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$82.0 MILLION TO THE REPUBLIC OF THE PEILIPPINES FOR A SECOND RURAL ROADS IMPROVEMENT PROJECT May 15, 1986 I This document bas a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be discloed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Pesos (P) P 18.70 = US$1.00 P 1.00 = US$0.05 (As of December 1985) FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS EMK = Equivalent Maintenance Kilometer LIN = Labor Intensive Methods MAR = Ministry of Agrarian Reform MOTC = Ministry of Transport and Communications MOB = Ministry of Budget MLG = Ministry of Local Government MPWH = Ministry of Public Works and Highways NEDA = National Economic and Development Authority NTPP = National Transportation Planning Project RRIP = Rural Roads Improvement Project RRPO = Rural Roads Program Office  FOR OFFICILL USE ONLY PHILIPPINES SECOND RURAL ROADS IMPROVEMENT PROJECT Loan and Project SummZry Borrower: Republic of the Philippines Amount: US$82 million equivalent Terms: Repayable in 20 years, including 5 years of grace, at the standard variable rate. Project Description: The objectives of the project are to continue the Bank's efforts, begun under the first Rural Roads Improvement Project to: (a) alleviate poverty in rural areas by providing farmers with access to markets through the recon- struction, restoration and improved maintenance of high priority rural roads; (b) provide the infrastructure required to support land settlement efforts; (c) facilitate provision of health care and other services to the rural population; and Cd) further strengthen institution building efforts in MLG, the provincial governments and MPWH. The project would specifically emphasize continued strengthening of maintenance activities, and labor-intensive civil works. The project includes: (a) rehabilitation, upgrading and improvement of about 1,340 km of national, provincial and barangay roads in 14 provinces and three settlement areas; (b) construction and improvement of mechanical workshops and quality control laboratories; (c) procurement of road main- tenance and construction equipment, workshop, laboratory and other equipment; (d) technical assistance to MLG, the provincial road authorities and MPWH to implement the proposed project, introduce labor intensive road construc- tion and maintenance methods, and prepare feasibility studies for future rural roads improvement projects; and (e) on-the-job, local and overseas training for staff of MLG, the project provinces and MPWH. The project roads will serve areas that are predominantly agricultural, and by providing farmers with opportunities to market their products, stimulate food production and employ- ment. The population served by the project roads generally have per capita incomes below the absolute poverty level for the Philippines. The main project risks are possible cost- overruns on the civil works component, particularly in the settlement areas, and that the improvement works carried out may not be adequately maintained after completion. The This document has a restricted distribution and may be used by recipients only in the performance oftheir offcialduties. Its contents may not otherwise be discoed without World Bank authorization  - ii - former has been minimized through basing the estimated costs on updated feasibility studies and experience in implement- ing similar projects, and the latter through measures for improving maintenance initiated by the Government. Estimated Costs: /a Local Foreign Total ($ million) A. Implementing agency -- MLG Improvement of provincial roads in 14 provinces (750 km) 18.5 20.0 38.5 Construction and improvement of workshops and laboratories 0.3 0.4 0.7 Road maintenance, workshop, laboratory and other equipment - 8.6 8.6 Consultant services, technical assistance and training 4.3 2.7 7.0 B. Implementing agency - MPWH Improvement of national, provincial and barangay roads in the three settlement areas (590 km) 9.6 10.4 20.0 Road maintenance and construction equipment - 1.3 1.3 Consultant services, technical assistance and training 1.4 1.5 2.9 C. Land acquisition /b 6.9 - 6.9 Project base cost 41.0 44.9 85.9 Physical contingencies 3.6 4.0 7.6 Price contingencies 13.9 14.8 28.7 Total project cost 58.5 63.7 122.2 (of which taxes and duties) (12.8) (12.8) Financing Plan: IBRD 18.4 63.6 82.0 Government 40.2 - 40.2 Total 58.6 63.6 122.2 /a As of December 1985. 7T For all project roads.  - iii - Estimated Disbursements: Bank FY 1987 1988 1989 1990 1991 1992 --------------($ million)------ --- Annual 3.5 13.4 19.9 25.2 15.8 4.2 Cumulative 3.5 16.9 36.8 62.0 77.8 82.0 Rate of Return: 20X Staff Appraisal Report: No. 5971-PH, dated May 15, 1986. map: No. IBRD-19287  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR A SECOND RURAL ROADS IMPROVEMENT PROJECT 1. I submit the following report and recomendation on a proposed loan to the Republic of the Philippines for the equivalent of $82.0 million to help finance the Second Rural Roads Improvement project. The loan would be repaid over 20 years, including 5 years of grace, at the standard variable interest rate. PART I - THE ECONOMY1' Performance in the 1970s 2. During the 1970s, the growth rate of the Philippine economy averaged 6.2Z compared to only 5.1% in the 1960s. The agricultural sector grew at about 4.9% p.a. and manufacturing industry at 7.2%. Manufacturing, however, did not play a leading role in the country's economic development. Its share in total GDP increased only slightly from 23% to 25% and its share in total employment actually fell from 12Z to 11%. Although manufactured exports grew rapidly, the greater part of the sector remained oriented to the domestic market and was affected by severe inefficiencies. 3. Although economic performance was relatively good in the 1970s, structural weaknesses held it below its full potential. CDP growth was achieved at a high investment cost - the incremental capital/output ratio (ICOR) was about 35% higher than those of comparable Asian countries. Although inherently capital-intensive infrastructure investments explain part of the high ICOR, inefficiency of industrial investment was the most important cause. Inappropriate trade, industrial, financial, and exchange rate policies designed to foster import substitution provided high protection for domestic manufacturers, and led to investments in which the Philippines did not have a clear comparative advantage. External borrowing and imports expanded rapidly while traditional exports and domestic resource mobilization lagged. This resulted in a chronic shortage of foreign exchange and increasing external debt. 4. Despite satisfactory aggregate growth during the 1970s, the inci- dence of poverty remained around 40%, income distribution continued to be skewed, and regional disparities remained pronounced. The incidence of poverty reached 60-70% in the least developed regions. Large numbers of 1/ This section is substantially the same as that contained in the President's Report for the Metropolitan Manila Water Distribution Project which was distributed to the Executive Directors on March 20, 1986.  -2- people, especially in the rLral areas, still suffer from malnutrition and lack safe water, basic education and health facilities. An increasingly unfavor- able man/land ratio, the resulting expansion of cultivation into marginal lands, limited employment opportunities in the industrial sector, and the sharp deterioration in the external terms of trade put downward pressure on real incomes. The Government instituted several programs to improve directly living conditions of the poor, but most of these were implemented on any significant scale only during the last few years. 5. Population growth in the Philippines was reduced from about 3Z in the 1960s to about 2.5% in the early 1980s; the labor force continues to grow at over 3% per year, reflecting the rapid growth of past decades. Thus, rapid population and labor force growth continue to strain available land resources, aggravate the already serious unemployment and poverty problems, and burden the public budget with a high growth in demand for basic public services. The Philippines has a family planning program which expanded rapidly during the 1970s; however, participation in the program needs to expand further in order to have a significant impact on population growth. 6. Growth of productive employment, particularly in the industrial sector, has lagged behind the rapid expansion of the labor force, and con- siderable underemployment exists. During the 1970s, the agriculture and ser- vice sectors had to absorb an excessively high proportion of new entrants to the labor force. Manufacturing employment stagnated in the first half of the decade, and picked up only slightly thereafter as labor-intensive export pro- duction grew. Overseas employment, especially in the Middle East, increased rapidly, providing a temporary income opportunity. Structural Problems and Adjustment 7. The structural weaknesses of the Philippine economy have become more apparent in recent years as unfavorable world economic conditions have exacer- bated the balance of payments and resource mobilization problems. In the late 1970s, the country's terms of trade deteriorated sharply due to oil price increases, accelerated international inflation and depressed prices for major export commodities. The continued heavy reliance on export earnings from a few primary products (coconuts, sugar, copper and timber) kept the Philippines extremely vulnerable to international commodity price fluctuations, while con- tinued high dependence on imported oil further aggravated the balance of payments problem. 8. Excessive protection and an artificially low cost of capital led to low efficiency of investment and stagnant employment in industries producing for the domestic market. The industrial sector remained a net burden on the balance of payments; although manufactured exports grew rapidly, their net foreign exchange earnings were limited due to a high import content. Export promotion measures induced rapid growth in nontraditional manufactured exports, e.g., garments, electronics and handicrafts, from $50 million in 1970 to $3 billion in 1984. However, export expansion was concentrated on a few items, and backward linkages were limited by high cost and low quality of domestic inputs. As part of an adjustment program supported by SAL lending, the Government has initiated major policy reforms designed to move towards an  - 3 - industrial structure utilizing more effectively the country's comparative advantage with respect to labor cost and raw material availability and which is internationally competitive. The program includes major tariff reform, liberalization of import controls, realignment of industrial incentives and improved export incentives. The program is proceeding well considering the international recession and domestic crisis which have hampered the implemen- tation of some policy reforms. 9. Financial Sector. Although well developed, the financial sector has not performed adequately in raising private sector savings and providing investment financing. Among the main reasons have been the level and struc- ture of interest rates which were not geared to mobilize sufficient savings and encourage longer maturities; their low level contributed to relatively inefficient and capital-intensive investment. Further, the Central Bank's rediscounting scheme frequently encouraged over-investment in some sectors while others were relatively neglected. In 1981, the Government introduced far-reaching financial policy changes. The banking system was given greater flexibility, interest rates were deregulated, and the Central Bank was given a stronger position in its roLe as "lender-of-last-resort," all of which pro- duced positive real interest rates and a significant increase in domestic sav- ings. Adverse international and domestic conditions have resulted in a deter- ioration in the financial positions of both private banks and Government- financial institutions (GFI). While the Government has examined various proposals to restructure GFIs, an overall program of reform has not yet been put in place. The Government also needs to address the issues affecting private intermediaries and the evolution of the financial system as a whole. 10. Agricultural and Rural Development. While the performance of the agricultural sector was satisfactory during the 1970s, policy and institu- tional problems constrained sectoral growth. Although there were considerable gains in food production and towards self-sufficiency, particularly in rice, the sector could have made a stronger contribution to the balance of payments and overall economic growth under a more favorable policy environment. Trade, pricing and exchange rate policies discriminated against agriculture and had a negative impact on rural incomes. The institutional framework for agricul- tural policy formulation and implementation suffered from a lack of coordina- tion. During the last two years, the Government has made a concerted effort to address these problems in the sector through a program of policy and insti- tutional reform. Additional steps will need to be taken in order to enhance agriculture's potential contribution to economic recovery. 11. Energy. Since the 1973-74 oil price increase, the Philippines has made a considerable effort to reduce its dependence on imported oil. Through a combination of pricing, taxation and conservation measures, the Government exerted downward pressure on commercial energy consumption. Steps to increase and diversify domestic energy supply, i.e., the development of hydroelectric, geothermal, nuclear and coal based power sources, have contributed to reducing import dependence. Limited domestic petroleum production also began in 1979, although exploration has now slowed down because of lower oil prices. As a result of the Government's energy program, domestic energy production consti- tuted 45Z of total energy supply in 1985 compared with only 21Z in 1979. The volume of oil imports fell from a high of 71 million barrels in 1979 to an  -4- estimated 47 million barrels in 1985. The Government has included in its adjustment program policy measures for the energy sector which aim at increasing the share of domestic sources to nearly 55% of commercial energy supply by 1987. Performance During the 1980s 12. Despite the adverse external situation in the early eighties, the Government increased its investment program to make up for deficiencies in domestic infrastructure, expand industry and reduce the dependence on imported petroleum. The public sector investment program rose from less than 6% of GNP in 1979 to 9% by 1982. A portion of the investment program consisted of large scale projects having long gestation periods and often limited or delayed economic benefits. Private sector projects continued to rely on loans and guarantees by public financial institutions, which then had to turn to the Government for budgetary support when these projects encountered difficulties because of adverse domestic or external circumstances. At the same time, public sector resource mobilization declined, p-oducing a large and growing government budgetary deficit. This deficit was covered in large part by foreign borrowings; in 1982, foreign borrowing financed over 70% of both the Government's deficit and the deficit of the public corporations. 13. The impact of adverse external conditions and expanding public debt was a growing balance of payments deficit and increasingly difficult debt service burden. The current account deficit rose from $1.9 billion in 1980, to $3.2 billion in 1982. The total debt service ratio, including interest on short-term debt, increased from 21% in 1980 to 38% in 1982. During 1983, foreign banks began reducing their exposure in the Philippines. The Govern- ment was increasingly forced to resort to short-term borrowings to finance the balance of payments gap, which further exacerbated the debt service problem. While the terms of trade improved in 1983, a severe drought reduced agricul- tural exports, and overall export earnings fell. The situation was further exacerbated by political disruptions, a flight of capital out of the country, and a cessation of short-term lines of credit from the commercial banks. In October 1983, the Government announced a 90-day moratorium on debt repayments, a further devaluation of the peso, and new controls over the allocation of foreign exchange for imports. 14. In December 1984, the IMF Board approved an eighteen month stand-by agreement in the amount of SDR 615 million, and agreement was reached with the members of the Paris Club for the rescheduling of approximately $0.8 billion in official debt payments. An agreement was also worked out with the private banks on May 20, 1985 for the provision of about $6 billion of debt relief for the 2-year period ending December 31, 1986, along with $925 million in new money and the establishment of a $3 billion trade facility. 15. As part of the stabilization program, the Govern,ment has adopted a number of important measures and improved its management of the economic and financial crisis. Since 1984, the peso has been allowed to float and exchange controls adopted during the 1983 crisis have been eliminated. Important structural reforms have been initiated in the sugar and coconut subsectors designed to improve accountability and marketing efficiency. Price controls  on many basic commodities, including rice, have been dropped. New tax mea- sures have been introduced despite a shrinking of the tax base. The Govern- ment has carried out a comprehensive review of its investment program for the period 1986-89, reduced the program to an essential minimum and undertaken the first periodic review in mid-1985. As a result, public investment has been reduced from 7.2% of GNP in 1983, to 4.4X in 1984 and an estimated 3.6% in 1985. The Government has also been working closely with the Bank on a program to rationalize the operations of government-owned or controlled corporations. The Bank has also cooperated with the IMF on incorporating certain structural measures into the standby agreement, particularly in the areas of trade liberalization, public investment and the coconut/sugar subsectors. Since February 1986, a new Government has assumed power. However, preliminary discussions between Bank staff and government representatives indicate that these reforms will be continued and/or expanded. 16. Overall, there has been good progress in meeting the objectives of the stabilization program. The current account deficit in the balance of pay- ments and the budget deficit were reduced in 1984 in line with the program, and the rate of inflation has sharply diminished. The inflation rate during 1985 was about 6% (December-to-December basis), compared to 50% during 1984. The current account deficit dropped from 3.9% of GNP in 1984 to less than .1% of GNP in 1985. The Government, from time to time, has been unable to meet certain of the performance criteria under the stand-by program. Nevertheless, because the broad thrust of the stabilization effort has been maintained, understandings have been reached between the Government and the IMF on revised criteria enabling the drawing of the second tranche in July and the third and fourth tranches in December 1985. The IHF has not held the third program review required for further drawings under the existing program. IMF staff initiated discussions with the new administration in April, and these discussions are continuing. 17. In view of the financial and economic problems of the economy, the Bank has stepped up its aid coordination activities. The last Consultative Group (CG) meeting was held in January 1985 in Paris. At the meeting, the members of the group decided to establish a subcommittee to monitor progress in the implementation of the economic stabilization and structural adjustment programs and the flow of aid. Meetings of the subcommittee were held in Tokyo in July 1985, and May 1986. Medium-Term Prospects 18. While the stabilization program has been broadly successful, it has come with a high cost in terms of reduced output and growth. CDP increased in real terms by only 1Z in 1983, declined by 4.6% in 1984, and is estimated to have declined a further 4Z in 1985. As a result of a fairly rapid populatio,. growth (2.5Z), per capita output has declined by over 15% during 1985, and the unemployment rate in Manila is reported to be over 20%. 19. In the long term, the solution to the economic crisis lies with a resumption of growth in output and exports. The challenge faced by the Government in the coming year will be to restore growth without a resumption of inflation while maintaining a viable balance of payments. Essential  elements in the recovery program will be measures to accelerate exports, increase public and private savings, and use investment resources more efficiently than in the past. Attention will have to be directed at industrial restructuring, reform of the financial system, and institutional improvements in agriculture. A combination of government actions, a restor- ation of private sector confidence and increased external assistance should permit a resumption of growth closer to historical experience or at an average annual rate of about 4-52. Over the longer term, therefore, the country remains creditworthy for new Bank borrowing on conventional terms, despite current short-term difficulties. Because the country faces an exceptionally tight resource position, local cost financing for selected projects will continue to be justified. PART II - WORLD BANK OPERATIONS 20. As of March 31, 1986, the Philippines had received 98 Bank loans (of which 2 were on Third Window terms) amounting to $3,966.29 million and 6 IDA credits amounting to $122.2 million. IFC investments totalled $160.2 mil- lion. The share of the Bank Group in total MLT debt disbursed and outstanding is currently about 15% and its share in total debt service is about 27%. These ratios are expected to be about 17% and 12%, respectively, by 1990. Annex II contains a summary of IDA credits, Bank loans, and IFC investments as of March 31, 1986. 21. Bank Group lending to the Philippines expanded from an average of about $90 million and 4 loans per year in FY71-75 to an average of about $460 million and 7 loans in FY79-83. However, the lending program decreased dramatically in FY84 (5 loans for $183.2 million) and FY85 (3 loans for $254 million) because of the limited scope for traditional project lending under prevailing economic circumstances. The Bank has financed projects in virtually alL sectors of the economy, with particular emphasis on agriculture which has accounted for almost one third of total Bank/IDA Lending. Lending for industry, transportation, power, and social sectors followed in declining order. With regard to the future, the lending program is being revised to make it more responsive and relevant to the country's current needs. During the next two years, the operations would focus on essential macroeconomic and sectoral policy reforms, rehabilitation and maintenance of existing infra- structure, and high priority activities that would minimize the need for budgetary support. 22. In agriculture, lending initially focused on expanding the irriga- tion system, credit programs, and other services to support rice production. The experience with irrigation has been positive with the establishment of a strong institution and expansion in irrigated areas, although cost recovery is still a problem. Efforts have also been made to diversify agricultural production through loans for tree-crops, livestock, fisheries, and integrated rural development projects. In FY85, the Bank provided assistance under the Agricultural Sector/Inputs project to support programs of policy and institu- tional reforms, and the Agricultural Credit project to provide credit to agri- cultural producers and to help establish a framework for a financially sound rural credit system.  23. In the industrial and financial sectors, lending has supported policy reforms under the Government's structural adjustment program. Struc- tural adjustment lending in 1980 and 1983 ($502.3 million, total), supported a series of reforms of the tariff structure, the system of industrial incen- tives, energy pricing and export promotion. The reforms suffered a setback in the current economic crisis but the Government remains committed to progress in these areas, which we expect will be resumed and expanded. A trade libera- lization and tariff reform study is currently underway. An Industrial Finance Loan supported improvements in financial sector policies including liberal- izing interest rates, reducing bank specialization and increasing the avail- ability of longer term funds. It also introduced a new institutional concept to broaden the reach of Bank lending by channelling loans through an "apex" unit in the Central Bank. In addition, the Bank has supported a textile sector restructuring project and continued to provide financial support and technical assistance to small and medium industries. Future assistance will be geared towards broad policy reform and regulation of the financial inter- mediaries. The Bank is currently reviewing the recommendations to restructure the GFIs (para. 9). For the export sector, the principal emphasis will be on complementing the broader trade and industrial policy reforms by strengthening the institutions concerned with export promotion and reducing the bottlenecks to the expansion of the small and medium export sector. 24. In the transport sector, the Bank has supported five highway pro- jects, one rural roads project, three ports projects and one shipping pro- ject. The Bank's role has been to assist the Government in the implementation of its program in the sector, with special emphasis on institutional issues and strengthening maintenance capabilities. Future objectives would be to continue to provide assistance to the sector institutions with which the Bank deals, assist thew to formulate sector priorities and investment programs, and implement appropriate sector policies. 25. As a result of the country's economic and financial problems, and particularly the tight budgetarv constraints of the Government, implementation of Bank-financed projects in the Fhilippines deteriorated in t0e last three years. The disbursement factor 1 (amount disbursed during thi iscal year as compared to the total undisbursed at the beginning of the same fiscal year) for FY85 was 14.4%, down from the FY84 level of 19.6%; the latter was largely a result of the immediate impact of the Special Agion Program (see below). The comparable FY8' ratios for Egypt and Morocco - were 22Z and 13%. The East Asia Regional average and the Bankwide average were both about 22% in FY85. To deal with the implementation problems, the Government and the Bank have instituted a process of joint Country Implementation Reviews. Six reviews have been held since May 1980. The Bank and the Government have also agreed, under the Special Action Program (SAP), on corrective actions to 1/ All calculations of the disbursement factor exclude disbursements under Structural Adjustment Loans. 2/ Egypt and Morocco are useful as comparators as they have similar per capita income levels and Bank group lending programs.  - 8 - address project implementation problems affecting the Bank's loan portfolio in the Philippines. Under the SAP, selected projects have benefitted from increased cost sharing and disbursement ratios, the establishment of special accounts and in two cases, supplementary financing. These actions facilitated project implementation and resulted in improvements in disbursement perfor- mance during FY84. 26. This will be the second loan to the Philippines to be presented to the Executive Directors in FY86. In addition, loans for the Central Visayas regional development project (urban), an export sector technical assistance project, the public corporate sector rationalization project, a sugar rehabilitation project, an irrigation operations support project, and a geothermal development project are now in various stages of preparation. PART III - THE TRANSPORT SECTOR The Transport System 27. The Philippines economy grew at 6% a year during the 1970s thereby generating a strong and growing demand for transport services. To meet this demand, the Government undertook investments totalling about P 20 billion (US$1.4 billion) principally in highways. With the majority of the national highways improved, the Government has now turned its attention to improving maintenance, while limiting investments to strengthening bridges and high priority highway sections. During the 1980s, the transport sector is expected to continue to grow but at a somewhat reduced pace in line with the slower growth rate of the economy. 28. The Philippines transport system is a predominantly bimodal system, with road and water transport generally complementing, rather than competing with each other. Road transport handles 80% of the country's passenger move- ments and 60% of freight movements, but the Philippines also depends to a great extent on interisland shipping services. The railways and air transport handle only relatively small volumes of passenger and freight traffic. 29. The Ministry of Transport and Communications (MOTC) is responsible for transport policy, regulation and administration. Planning for the trans- port sector is, however, the responsibility of MOTC (for all modes other than highways and rural roads), the Ministry of Public Works and Highways (MPWH) for highways and barangay roads, and the Ministry of Local Government (MLG) for provincial, city and municipal roads. The Naticnal Econoxoic and Develop- ment Authority (NEDA) has a coordinating role. MOTC undertakes overall sectoral planning through the National Transportation Planning Project (NTPP) (para. 36).  -9- Sector Issues 30. The five major issues facing the transport sector remain those identified in the Transport Sector Report of September 1983 (Report No. 3916-PH). The most urgent problem in virtually all modes is inadequate maintenance. The second is institutional weaknesses, particularly in MOTC, MPWH and MLC, where a major problem is attracting staff of adequate caliber and experience. A third issue concerns government regulations relating to route licensing and tariff setting, particularly in interisland shipping and road transport. The fourth issue relates to the distinction between trucks licensed for hire (TH) and trucks licensed for owner use (T) at lower fees. This is inadequately enforced and many T trucks operate for hire thus depriving the Government of substantial revenues. The final issue concerns the future of the Philippines National Railway (PNR). 31. The Government has recognized all of these problems, and is already dealing with most of them. Government now gives the highest priority to the maintenance of all transport infrastructure. The problem of attracting =xperienced government staff is, however, more intractable because of low government salaries, and the technical agencies may have to continue using consultants (local and expatriate) for some years to come to fill critical gaps in expertise. On the third issue, MOTC has started to review the regulatory framework for road transport and interisland shipping with the help of technical assistance under the Fifth Highway Project (Loan 2418-PH). The recounendations are expected in late 1986. On the fourth, MOTC has tightened up procedures for the issue and renewal of licenses for T trucks. As regards PNR, the Government has decided against closure of the railway, but has taken steps to strengthen the management in order to improve operations. Bank Involvement in the Transport Sector 32. Experience with Past Lending. The Bank Group has assisted the transport sector through five highway projects, one rural roads proiect, three port projects and one shipping project. The total lending for highways and rural roads projects has been US$435 million. Two of the highway projects have been satisfactorily completed. The Project Performance Audit Report (No. 2449, of April 4, 1979) for the First Highway Project found that problems during implementation were largely caused by civil disturbances in the project area. The project's re-estimated economic return, however, was satisfac- tory. The Project Performance Audit Report (No. 4757, October 25, 1983) for the Second Highway Project noted that significant difficulties and delays on one road construction contract coincided with variations from the Bank's pro- curement procedures (the lack of prequalification of contractors). This was corrected in subsequent projects. The report estimates that the projec;'s economic return will be satisfactory despite some loss in benefits caused by imposition of tolls and a ban on truck traffic on one of the project roads. The ban was to facilitate additional construction work and increase traffic safety. The Government's Toll Regulatory Board subsequently instructed that the ban be lifted. 33. Implementation of the Third, Fourth and Fifth Highway Projects was seriously delayed because of slow procurement, poor performance of contract-  - 10 - ors, inadequate budgetary planning and lately financial austerity measures. To improve project implementation, MPWH agreed with the Bank on action pro- grams in 1981 and 1982, and subsequently adhered to these programs. As a result, project implementation improved significantly. The Third Highway Project was completed in June 1985 and the Fourth Highway Project is expected to be completed by December 1986. The first Rural Roads Improvement Project (RRIP) is expected to be completed by June 1987, which is about two years behind schedule. The delay was caused by difficulties in obtaining inflation adjustments for civil works carried out by contractors, who consequently slowed down or stopped working. The problem has now been resolved and there are no other particular problems with RRIP which should lead to changes in the design of future rural roads projects. 34. The Bank has also supported the Government's effort to improve the ports (Loans 290-PH, 939-PH and 1855-PH) and shipping subsectors (Loans 1048- PH) with loans totalling US$101.6 million. Two port projects have been completed and the Third Ports Project is ongoing. The Bank's first shipping project assisted the Government in modernizing the interisland fleet of vessels. The project was completed in 1981 with a two-year delay. 35. Bank Role and Lending Strategy. A principal objective of the Bank with regard to transport sector lending in the Philippines has been to assist the Government in improving the infrastructure of the country. The Bank has also assisted in strengthening the institutions dealing with the sector, especially with the establishment of an appropriate framework for planning and policy development. As a result, an important component in several recent loans has been technical assistance for national transport planning. Continued assistance in attaining these objectives will be needed in the context of the country's constrained economic conditions. The Bank also expects to continue to assist the Government in formulating sector priorities and investment programs in the context of reviewing the Public Investment Program. Highways Subsector 36. The Philippines has an extensive road network of some 157,139 km (1984), of which 25,100 km are national, 28,800 km provincial, 15,900 city and municipal, and 85,200 barangay roads. The network is, in general, quite ade- quate in location and extent, but suffers from many deficiencies. Only about 14% of the total network is paved. The condition of many roads is poor because of lack of maintenance and damage from overloaded vehicles. Missing or weak bridges diminish the usefulness of existing roads, and in some remote areas access roads are scarce. The Bank-financed NTPP study, completed in 1982, concluded that the deteriorating condition of the national highway net- work is a critical issue, and that inadequate maintenance is the main reason. Road classification is also often arbitrary as it is not always based on function; the Fifth Highway Project includes an overall road classification study, which is expected to lead to correction of this problem. 37. In 1984, there were some 980,000 motor vehicles in the Philip- pines. Overall during the past 14 years the fleet grew by 5.2% per year. Heav-y overloading of trucks is quite common and a major cause of concern. The  - 11 - Government has carried out a Pavement and Axle Load Study (October 1985) with Bank financing under the Fourth Highway Project. The Government is reviewing the recommendations of the study to prepare the necessary regulatory changes and enforcement procedures. 38. Highway expenditures in the Philippines have increased from P 573 million in 1970 to P 7.3 billion in 1983. During this period, new construc- tion averaged 65% of total expenditures, maintenance 25% and administrative costs 10%. Road revenues are obtained from specific road user charges includ- ing fuel and oil taxes, motor vehicle fees, licenses, tolls and common carrier taxes on gross receipts. Currently, road user charges cover expenditures for road maintenance, administration and 30% of road construction. However, some problems remain with the system of road user charges, for example, taxes are lower on diesel fuel than on petrol (P 1.67 vs P 3.13 per liter) and license fees charged for three-axle trucks are too low. The Government has been eliminating the tax differential gradually (as part of the Second SAL operation (Loan 2266-PH)) and, as indicated above, is reviewing the recommen- dations of the Pavement and Axle Load study to take corrective measures. Administration and Institutional Aspects 39. Responsibility for the public road network in the Philippines is divided, with some overlap between the national government and local govern- ment agencies. In the National Government, MPWH is responsible for national highways. At the local government level, provincial governments and cities, municipalities and barangay councils, under the overall supervision of the MLG, are respectively responsible for the provincial, city, municipal and barangay roads in their area. In addition, other government agencies are involved in planning, programming, design and construction of roads related to projects for which they are responsible. This is particularly the case for the Ministry of Agrarian Reform (MAR) which has constructed about 2,500 km of national, provincial and barangay roads under six agricultural and rural development projects. 40. There is a shortage of experienced middle-level technical staff. Bank support has been provided in the past for advanced technical training overseas for MPWH/MLG staff. This program has been quite successful, and the present project would continue this assistance. Planning, Design and Construction 41. Planning for national highways, including those in Metro Manila, is initiated in MPWH, and the design and supervision of their construction are also carried out by MPWH, either directly or through consultants. MLG has an overall responsibility for planning, design, construction and maintenance of provincial, city and municipal roads. MLG's field organization consists of 76 provincial governments each headed by a Provincial Governor, 55 city coun- cils and 1,440 municipal councils each headed by a mayor. Each provincial, city and municipal government has an engineering office responsible for all types of planning, design, construction and maintenance. In 1980, MLG established a Rural Road Program Office (RRPO). Over the last four years, RRPO was strengthened, expanded, and local staff were trained to enable RRPO  - 12 - to handle all provincial road projects, and three separate divisions were established to handle projects financed by IBRD, ADB and the Government. In addition, with help from the technical assistance staff provided under the RRIP, manuals and guidelines for road design, construction supervision, road maintenance, and equipment management and specifications were developed and are now being used in six pilot provinces. However, with expansion of the rural roads program, RRPO will need to be further strengthened, through recruitment and training of additional staff. MLG has drawn up a reorganization plan for this purpose. 42. Most design work is carried out by consultants and only for small projects is design work done by provincial offices. During negotiations, it was agreed that design standards would be continuously reviewed and economized as much as possible, taking into account the use of low-cost materials. Most of the construction work for national and provincial roads is carried out by contract. Some minor projects, particularly for barangay roads, are executed by force account, in many cases utilizing labor-intensive methods of construction and employing village labor. Local contractors are quite competitive with foreign contractors and have succeeded in getting most of the contracts under ICB. Maintenance 43. The greatest weakness in the Philippine highway sector has been inadequate maintenance (para. 36). The reasons are many, ranging from inadequate organizational setup to shortages of funds and equipment. Years of neglected road maintenance have thus resulted in the deterioration of a large part of the network to a point where it cannot be maintained by normal methods; restoration works are needed to put the roads in a maintainable condition. 44. The Bank has provided assistance to strengthen the maintenance in previous road projects with some success. Routine maintenance operations on national highways are now being carried out to a reasonable extent, and periodic maintenance is also being improved in most regions. In 1982, MPWH began implementing highway maintenance programs in four pilot regions which established physical targets and resource requirements. MPWH is now intro- ducing this system in all 14 regions. Similarly, MLG, with assistance under RRIP, has improved maintenance operations in 6 pilot provinces and will expand this effort to 14 more provinces under the project. 45. In 1971, MPWH developed a system for the allocation of maintenance funds for national highways based on the concept of an equivalent maintenance kilometer (EMK). Maintenance funds for provincial roads are provided partly from the local government budget and partly through grants from the national government and channelled to local governments through MPWH. The EMK allocations have been increased several times. However, the last increase was in 1983 when the allocations of P 11,342 per km/year for national roads, P 8,506 for provincial roads and P 4,500 for barangay roads were established. The Government, realizing that these allocations were inadequate, revised the EMK formula in 1984 and, subsequently, increased the allocations by 38% as of January 1, 1986. However, this increase does not  - 13 - fully reflect inflation since 1983. Agreement was reached during negotiations on an adequate base level and appropriate inflation adjustments for the EMK formula. PART IV - THE PROJECT Project Origin 46. The proposed project was initiated under the ongoing RRIP in 1980. Under this project, the consultants undertook feasibility studies for the improvement of rural roads in 22 priority provinces. The studies were completed in 1982 and updated in 1985. Based on these studies, the Asian Development Bank (ADB) agreed to finance construction and improvement of rural roads in 9 provinces, and the Government requested the Bank to finance the construction and improvement of rural roads in the remaining 13 provinces. The Government also requested the inclusion of an additional province during negotiations. In addition, the Ministry of Agrarian Reform (MAR) had under- taken feasibility studies for the road component of a proposed second land settlement project. The studies were completed in 1981 and updated in 1985, but as the remaining components of the project were delayed in preparation, the project was dropped. However, since the rural roads component enjoys the highest priority in the Government's regional planning, the Bank agreed with the Government to include it under this project. Objective and Rationale 47. The proposed project would continue the Bank's efforts begun under the first RRIP to: (a) alleviate poverty in rural areas by providing farmers easy access to markets, thereby stimulating food production and employment opportunities, (b) provide the infrastructure required to support land settle- ment areas; (c) facilitate provision of health care and other services to the rural population; and (d) further strengthen institution-building efforts in MLG and provincial governments started under the previous project. 48. The project continues to provide the basis for the long-term development of an effective locally based program for rural roads. The Bank's specific contribution would include the expansion of development activities to additional provinces, continued strengthening of maintenance capabilities and the emphasis on labor-intensive civil works. The project was prepared by MLG and MPWH assisted by consultants and staff from the International Labor Organization (ILO). Appraisal of the project was completed in August 1985. Negotiations were held in Washington from April 30 to May 2, 1986. The Government delegation was led by Mr. Antonio Locsin, Deputy Minister of Economic Planning. The Staff Appraisal report (No. 5971-PH) dated May 15, 1986, is being circulated separately. Supplementary Project Data are contained in Annex III.  - 14 - Project Description 49. The project would consist of two separate components: (a) rehabilitation, upgrading and improvement of about 750 km of high priority provincial roads, including bridges in the following 14 provinces: Abra, Agusan del Norte, Agusan del Sur, Bohol, Cagayan, Catanduanes, Davao del Sur, ILocos Norte, Marinduque, Misamis Oriental, Southern Leyte, Surigao del Sur, Surigao del Norte, and Samar. This project component would be implemented by MLG and the provincial governments; and (b) improvement of about 590 km of rural roads (national, provincial and barangay) including bridges in the following three settlement areas: Kabankalan, Sultan Kudarat-South Cotabato and Wao- Banisilan. This project component would be implemented by MPWH. 50. Provincial Roads (MLG). This project component covering 14 provinces would consist of: (a) rehabilitation, upgrading and spot improvement of about 750 km of high priority provincial roads; (b) provision of road maintenance equipment, construction of mechanical workshops and quality control laboratories, and procurement of workshop, laboratories, and office equipment and tools; (c) consultant services for detailed engineering and road construction supervision of the above roads; (d) technical assistance to MLG and the provincial road authorities to improve their capability to implement the project, to prepare feasibility studies for additional 10 provinces and to train local staff; and (e) overseas training and special courses and seminars for senior staff selected from MLG and the 14 project provinces. 51. Rural Roads (MPWH). This project component covering the three settlement areas would consist of: (a) improvement of about 80 km of national roads, 225 km of provincial roads and about 280 km of barangay roads; (b) provision of road maintenance equipment to enable MPWH and provincial governments to maintain the above roads; (c) consultant services for detailed engineering and road constructon supervision of the above roads; (d) technical assistance to MPWH to assist in implementing road construction by labor-intensive methods and to provide on-the-job  - 15 - training for local supervisory staff and overseas study tours for senior staff. Rehabilitation and Improvement of Project Roads 52. The project roads are impassable for part of the year wi,h extremely rough and narrow surface. Inadequate drainagc, missing bridges, poor original design and construction, and little or no maintenance have caused rapid dete- rioration of surfaces. These ioads would be improved by rehabilitation, up- grading or spot improvement, largely following existing alignments. Bridges would be constructed, replaced or strengthened and embankments would be raised to reduce damages during floods. Some of the more heavily travelled sections of the provincial roads would have bituminous treated surfaces, while in the settlement areas, the national and provincial roads will be upgraded to the gravel engineered standards and barangay roads to all weather gravel stan- dards, with 4 m carriage way. The barangay roads would be constructed or improved by labor-intensive methods (LIM), using barangay labor. LIM are also expected to be introduced in carrying out maintenance operations. In addi- tion, small locaL contractors will be engaged, on a pilot basis, for construc- tion of about 30 km of these roads using LIM. These techniques will be used in the construction of other rural roads, where feasible. The Bank is expected to provide additional assistance during project supervision in determining means, methods and practices of increasing the labor/capital ratio wherever appropripte in road construction and maintenance. 53. Agreement was reached during negotiations on the list of roads and bridges to be included in the first years work program. The Government also agreed to: (a) submit to the Bank for comments by July 1 of each year a list of the provincial roads and bridges to be included in the next year's work program! and (b) include in the program only roads with an ERR of 12% or higher. Road Maintenance and Other Equipment 54. At present the project provinces do not have the essential road maintenance equipment and workshop facilities to service and repair equipment, and in some provinces quality control laboratories are nonexistent. In addi- tion, both MLG and the provincial offices do not have adequate office equip- ment, technical tools, and training equipment. To rectify these problems the project includes the provision of road maintenance equipment, workshop equip- ment and tools, materials testing, surveying, office and other equipment and assistance for the construction and improvement of workshops and quality control laboratories. Technical Assistance 55. MLG has the major responsibility for providing guidance for and monitoring of development activities by the local authorities. The increased emphasis placed on decentralization by the Government puts MLG in a key position to implement this objective in provincial road improvement and main- tenance. Over the past four years, MLG has been strengthened through recruit- ment and training of local staff, but with the exception of the managerial  - 16 - staff, the majority of professionals are young and inexperienced, particularly at the pro7incial level. Therefore, in order to ensure that the project is implemented uniformly in all provinces, and in accordance with MLG's manuals (para. 41), technicaL advisory staff to be provided under this project will assist MLG in coordinating implementation of the project. Technical advisory services will also be provided by ILO to MPWH to assist in implementing the land settlement roads component, particularly for construction and maintenance of barangay roads using LIM. 56. Detailed engineering and construction supervision for project provincial roads, mechanical workshops and testing laboratories will be carried out by Provincial Engineers' Offices, assisted by consultants. MLC will provide overall supervision and guidance. Similarly, MPWH, with the assistance of consultants, will undertake detailed engineering and construc- tion supervision for provincial and barangay roads in the settlement areas. 57. In addition, MLG, with technical assistance staff, will undertake feasibility studies for the remaining roads in the 1988-1990 road program in the 14 project provinces as well as for rural roads in 10 additional pro- vinces. Furthermore, rural roads planning and programming will be developed and tested with emphasis on institutional improvement begun under the ongoing project. The project includes 120 man-months of expatriate and 222 man-months of local technical assistance. The qualifications, experience and terms of reference of the technical assistance experts would be acceptable to the Bank. Training 58. As part of the efforts to further strengthen MLG and the provincial governments, the project will extend to the new project provinces the training program started under the ongoing RRIP. The project thus includes advanced technical training and overseas study tours for selected permanent staff from MLG and the 14 provinces. In addition on-the-job training in design, contract management, construction supervision, road maintenance and equipment manage- ment and monitoring, and labor-based techniques will be carried out by tech- nical advisors to be provided under the project. With regard to labor-based techniques, the project provides for overseas study tours for senior project staff. Project Cost and Financing 59. The total project cost, including land acquisition, is estimated at US$122.2 million; excluding taxes and duties, the cost is US$109.4 million. The foreign exchange cost is estimated at US$63.6 million or 52% of the total project cost. The cost estimates are based on updated feasibility studies and on recent bids for goods and similar works in the country. Physical contin- gencies of about 9X are included in the project cost, and overall physical and price contingencies combined represent about 30Z of the total cost. Price contingencies were calculated on the basis of international inflation which was estimated at 7% for 1986 and 1987, 7.5% for 1988, 7.7% for 1989, 7.6% for 1990, and 4.5% thereafter.  - 17 - 60. The proposed loan of US$82 million would finance 75Z of the net project cost, including the foreign exchange cost and US$18.4 million of local costs. Local cost financing is justified in view of the project's focus on poverty alleviation and the Government's constrained financial position despite their best efforts at resource mobilization (paras. 15 and 19). The national and provincial governments would finance the balance of the project costs totaling US$40.2 million equivalent. The costs of provincial roads, workshops and laboratories would continue to be shared between the national and provincial governments in accordance with the different fiscal capabilities of each participating province; a system that is already working satisfactorily under the ongoing project. The land settlement roads will be financed by the National Government through annual budgetary allocations to MPWH. Project Implementation 61. The project would be implemented over a five-year period, including preparatory work in 1986 financed under RRIP. Contractors would be responsible for maintaining their respective works for a 12-month period after completion, after which provincial governments would assume this responsibility for provincial roads and MPWH for barangay roads. An action program for project implementation and a project implementation schedule were prepared and agreed during appraisal. In summary, the action program calls for engineering for the first-year roads to be completed by October 1986. Since most of the civil works are in the nature of rehabilitation and spot improvement of existing roads, relatively short lead times are required. This would enable bidding for the first year roads to be completed by the end of 1986. Construction works would start early 1987. The economic evaluation of project roads for future years would be completed by the end of 1987. Procurement of maintenance equipment and feasibility studies for possible future rural roads projects would be completed by the end of 1990. Civil works would be completed by mid-1991. Institutional strengthening and training would start in 1986 and will continue throughout the project implementation period. During negotiations the Covernment agreed to: (a) arrange for timely acquisition of land for each road section and workshop or laboratory site; and (b) adhere to the agreed action program and implementation schedule. Procurement 62. Civil works contracts for the construction of national and provin- cial roads in the three settlement areas, amounting to about US$20.1 million, would be awarded to prequalified contractors on the basis of international competitive bidding (ICB) in accordance with the Bank guidelines. Civil works contracts for the construction of provincial roads, mechanical workshops and quality control laboratories in the project provinces, totalling US$55.9 million, would be awarded to prequalified contractors on the basis of local competitive bidding under procedures satisfactory to the Bank. In this case, ICB would not be appropriate as the relatively small contracts involved (US$0.2-2 million) would be scattered in 14 separate provinces and phased over a period of four years. However, foreign firms would be eligible to participate. Construction of barangay roads in the three settlement areas,  - 18 - totalling US$8.4 million, would be carried out by force account and local contractors using labor based techniques. These techniques would be used for the construction of other rural roads, where feasible. All procurement documents for works over US$0.3 million equivalent will be subject to the Bank's prior review. 63. Road maintenance and construction equipment, workshop equipment, machinery, tools and other equipment estimated at about US$13.8 million would be procured on the basis of ICB in accordance with the Bank's guidelines for procurement. A preference, limited to 15X of the c.i.f. price of imported goods, or the customs duty, whichever is lower, would be extended to the local manufacturers in the evaluation of bids. All procurement documents for equipment would be subject to the Bank's prior review. Procurement of hand tools for construction and maintenance of barangay roads and off-the-shelf items, each costing Less than $12,000 equivalent would be done by shopping, in accordance with the Bank's guidelines; the total amount of such purchases would not exceed US$400,000. Consultants services for detailed engineering, construction supervision, studies, and technical assistance would be obtained in accordance with the Bank's Guidelines for the Use of Consultants. The procurement summary is shown in the Table below.  -19 - PROCUREMENT SUMMARY (US$ million) Procurement method Total Project elements ICB LCD Other cost Civil works Rehabilitation and improvement 20.1 54.9 75.0 of national and provincial roads (12.8) (35.1) (47.9) Improvement of barangay roads 8.4 8.4 (5.4) (5.4) Construction and mprovement 1.0 1.0 of workshops and laboratories (0.6) (0.6) Equipment and Machinery Road maintenance and construction 12.4 12.4 equipment and spare parts (12.4) (12.4) Workshop equipment machinery, 1.4 0.5 1.9 laboratory, office and other (1.4) (0.5) (1.9) equipment Services Consulting services, technical 13.8 13.8 assistance and training (13.8) (13.8) Land Acquisition 9.7 9.7 '-3 (-) Total 33.9 55.9 32.4 122.2 (26.6) (35.7) (19.7) (82.0) Notes: 1. Amounts shown for each project component include physical and price contingencies. 2. Figures in parentheses are the respective amounts financed by the Bank Loan including a prorated share of unallocated funds. Disbursements 64. The loan would be disbursed on the following basis: (a) 64% of the total expenditures for civil works; (b) 100Z of the c.i.f. cost of all equip- ment, procured directly from abroad, or 65% if procured locally and 100% of the ex-factory cost of equipment manufactured locally; and (c) 100% of total expenditures on technical assistance and training. Disbursements for expenditures on the construction and improvement of provincial roads and bridges, will be made only after the size and scheduling of the following years work program has been reviewed and agreed between the Bank and the  - 20 - Government. Disbursements for civil works contracts under $100,000 and works ezecuted by force account will be made on the basis of withdrawal applications supported by statements of expenditure certified by MPWH. 65. The disbursement period for the project is about one year shorter than the actual disbursement profile of the ongoing BRIP. This is justified for three reasons. First, engineering for the first year project reads will be completed by October 1986, thus enabling construction to start early in 1987. Second, most of the project activities will be concentrated in the first three years. Third, the implementing capabilities of MLC have improved as a result of actions initiated under previous projects. To expedite loan disbursements, a Special Account of $5 million will be established for pay- ments of eligible expenditures. Audits 66. MLG's and MPWH's accounting procedures are broadly satisfactory and are subject to a continuous external audit by the Government's Commision on Audit (COA). A certified copy of the audit report for the project and the special account will be furnished to the Bank within six months after the end of each fiscal year. Benefits and Risks 67. The major benefits of the project would result from the provision of more economical transportation. The project roads, whether provincial or land settlement roads, would serve areas which are predominantly agricuLtural, thus providing the local population with opportunities to market their products, to improve the quality and quantity of their yields through prompt, low-cost delivery of agricultural inputs, and thereby to intensify land use. Agricul- tural extension workers, through better access, would be able to assist more local farmers. Other benefits include lower transport costs for passengers and freight. The population served by project roads generally have per capita incomes below the absolute poverty threshold for the Philippines. 68. By upgrading and improving the capacity and resources of provincial governments and organizations in the 14 project provinces, the project would also assist in achieving the Government's objective of decentralizing responsibilities for the planning, construction and maintenance of the rural roads network. Funds have been included in the project to further expand these activities to more provinces throughout the country. 69. The economic rates of return (ERR) carried out for 57 roads in the project provinces range from 12% to 37%, and for the land settlement roads the ERR ranges between 25Z and 27%. The weighted ERR for all project roads is 20%. The benefits of the maintenance components have not been quantified but experience in this type of investment elsewhere suggests high returns, giving this type of investment the highest priority in road development programs. A sensitivity test assuming a 20% increase in investment costs and a simulta- neous reduction of benefits by 20% resulted in an overall ERR of 15Z.  - 21 - 70. The principal project risks are that the cost of civil works, particularly in settlement areas, would be higher than estimated and that improvement works carried out under the project may not be adequately maintained after completion. The former has been minimized through basing the estimated costs on updated feasibility studies and experience in implementing similar projects, and the latter through measures for improving maintenance initiated by the Government. The risk will be further reduced through strengthening of MPWH's and MLG's maintenance capabilities by providing road maintenance equipment and technical assistance under the project. PART V - RECOMMENDATION 71. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. A.W. Clausen President Attachment May 15, 1986 Washington, D.C.  -22- ANNEX I T A LS R AI Page 1 of 6 PHZLtPLnRs - SCIAL MO! CATOET DAT *ASI .OST (sOST atuCrT grt%*Tv lb 19W4?b cutuSi IU Fla Wtonu lUcas 1960L?. isma ztsttwTzLb ASI* A PACIrIc LAT. SWAtCh