Philippines - Second Irrigation Operations Support Project (IOSP II)

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11603-PU STAF APPRAISAL REPORT PHILIPPINES SECOND IRRMIGTION OPERATIONS SUPPORT PROJvECT (IOSP II) APRIL 22, 1993 ,5.,,t!l,~~- ;' ; .I *X.i;)Z Agriculture and Natural Resources Operations Division Country Department I East Asia and Pacific Regional Office T Tids docement has a resticted distribuon and may be used by reents only in the perfomance oft their officiil duioes. Its contedt may no otberwise be disclosed witbout World Dank authoi  GM&=NC BQpIVALENT (As of December 1992) Currency Unit - Philippines Peso (W) e 1.00 - US$ 0.039 US$1.00 - 0 25.5 WEIGHTS AND MEASURES 1 hectare (ha) - 2.47 acres 1 kilometer (km) - 0.62 miles 1 square kilometer (km2) - 0.3886 square miles 1 meter (m) - 10.76 square feet 1 cubic meter (mi) - 35.31 cubic feet 1 million cubic meters (mcm) - 810.7 acre-feet 1 millimeter (mm) - 0.039 inches 1 kilogram (kg) - 2.2 pounds 1 cavan - 50 kilogram 20 cavans - 1 metric ton ABBREllllIg _ AND ACRONYMS cIS - Communal Irrigation System DA - Department of Agriculture DENR - Department of Environment and Natural Resources DPWH - Department of Public Works and Highways DSD - Design and Specification Department FIG - Farmer Irrigator Group FIO - Farmer Irrigators' Organizer IA - Irrigators' Association IDD - Institutional Development Department IMIS - Irrigation Management Information System IOSP - Irrigation Operations Support Project ISF - Irrigation Service Fee M&E - Monitoring and Evaluation NIA - National Irrigation Administration NIS - National Irrigation System O&N - Operation and Maintenance PM - Project Manager RID - Regional Irrigation Director RIO - Regional Irrigation Office SMD - Systems Management Department FISGAL YEA January 1 - December 31  FOR OFmFCIAL USE ONLY PHILIPPINES SECOND IRRIGATION OPERATIONS SUPPORT PROJECT (LOSP II) Table of Contents Page No. LOAN AND PROJECT SUNMARY . . . . . . . . . . . . . . . . . . . . . . . . v I. AGRICULTURE IN THE EQ . . . . . . . . . . . . . . . . . . . . 1 Role of Agriculture . . . . . . . . . . . . . . . . . . . . . . 1 Rural Poverty . . . . . . . . . . . . . . . . . . . . . . . . . 2 Development ObJectives and Strategy . . . . . . . . . . . . . . 2 II. THE IRRIGATION SUBECTOR . . . . . . . . . . . . . . . . . . . . . 3 The National Irrigation Administration . . . . . . . . . . . . . . 4 Irrigators' Associations (As) . . . . . . . . . . . . . . . . . . 4 Support Services for Irrigated Agriculture . . . . . . . 5 Operational Performance of Irrigation Systems . . . . . . . . . . . 5 Irrigation Financing . . . . . . . . . . . . . . . . . . . . . . . 6 Irrigation Service Fees (ISF) and Collections . . . . . . . . . 7 Government Irrigation Subsector Strategy . . . . . . . . . . . . . 7 The Bank's Role in Irrigation Development . . . . . . . . . . . . . 8 Experience Under IOSP I .............. .. . .... 8 Lessons Learned .......... ... .. . . ..... 10 III. PROJECT OBJECTIVE AND DESCRIPTION . . . . . . . . . . . . . . . . 11 Project Objective and Components . . . . . . . . . . . . . . . . 11 Detailed Project Features . . . . . . . . . . . . . . . . . . . 11 Systems Improvement . . . . . . . . . . . . . . . . . . . 11 Systems Improvement ..... .. .... . ...... 11 Urgent Repairs . . . . . . . . . . . . . . . . . . . . . 12 Erosion Control Works ..C...o.r.............. 12 Silt Excluders and Improved Water Control Structures . . . . . . . . . . . . . . . 12 Improved Operation and Maintenance . . . . . . . . .;. . . . . 13 Institutional Development ....... . .. .. . .... 14 IA Development ......... ... . ........ 14 Improvements in ISF Collection Process . . . . . . . . . 14 This report is based on the findings of a Bank appraisal mission to the Philippines in December 1992, comprising Messrs./pmes. C. Gunasekara (Civil Engineer) and S. Husain (Economist), EAlAN, and I. Naor (Irrigation Engineer), R. Dy (Economist), E. Boerema (Agriculturist) and N. Raby (Sociologist), Consultants. Peer reviewers were Ms. L. Bennett (WID Specialist) and Messrs: J. Cunningham (Irrigation Engineer), and Y. Choi (Agriculturalist). Mr. C. Madavo (Director, EAl) and Ms. Pamela Cox (Chief, EAlAN) have also endorsed the project. This document has a rested distdbuton and may be used by rcipints only in te perfonnumce of thdr official duties, Its contents may not othrwie be discosed without Wold Bank authodzadoon.  ( ii ) NIA Staff Training .................. . 15 Irrigation Management Information System . . . . . . . . 16 Technical Assistance . . . . . . . . . . . . . . . . . . 16 Provision of Equipment and Materials . . . . . . . . . . 16 Agricultural Support Services . . . . . . . . . . . . . . . . 17 IV. PROJECT COSTS AND FNM N4CING . . . . . . . . . . . . . . . . . . . 17 Project Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Project Financing . . . . . . . . . . . . . . . . . . . . . . . 18 Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Accounts and Audit . . . . . . . . . . . . . . . . . . . . . . . 22 V. PROJECTIMKEM AT ON...... . . . . . . . . . . . . . . 22 Status of Project Preparation.. . . . . . . . . . . . 22 Organizatiot and Management ..22 Implementation Schedule... 24 Monitoring and Evaluation and Reporting Requirements . . . . . . 25 VI. AGRICULTURAL PRODUCTION. PRICES. AND MARKET PROSPECTS . . . . . . 26 Agricultural Production . .............. 26 Prices and Markets.. 27 VII. PROJECT JUSTIFICAT ION AND RISKS............... 27 Project Benefits . . . . . . . . . . .27 Financial Analysis.. . . . . . . . . . . . . . . . 28 Economic Analysis .....29 Environmental Impact . . . . . . . . . . . . . . . . . . . . 30 Risks 1.....31 VIII. AGREMENTS REACHED AND RECOMMEATION . . . . . . . . . . . . . . 32 LIST OF ANNEXES Annex 1: NIA's Operating Staff and Envisaged Reduction in Personnel Annex 2: Institutional Development Annex 3: NIA'S Investment Budget (1992 and 1993) Annex 4: A Brief Review of IOSP I (Ln. 2948-PH) Performance Annex 5: Criteria for Selection of Systems for Improvement Annex 6: System Improvement, Operation and Maintenance Report (Pro-forma)  ( 114 ) Annex 7: Project Cost Tables Annex 8: Terms of Refereace for Consultancies Annex 9: Agricultural Support Services and Production Annex 10: Financing Plan, Loan Allocation and Disbursements Annex 11: Supervision Plan--Bank Supervision Mission Schedule Annex 12: Rice and Fertilizer Price Structures Annex 13: Crop and Farm Budgets Annex 14: Rent antd Cost Recovery Indices Annex 15: NIA's Projected Financial Data Annex 16: Eceitomic Analysis annex 17: Selected Documents and Data in the Project File TABLES IN TE1U Table 2.1: ISF Rates Table 2.2: IOSP I Performance Indicators: 1987-1991 Table 4.1: Project Cost Summary Table 4.2: Pi curement Table 6.1: Crop Area, Yields, Production and Cropping Intensities FIGURES Figure 1 - NIA Organization Chart Figure 2 - Organization Chart for Project Implementation Figure 3 - Project Implementation Schedule Hal: IBRD No. 24576  ( v ) PHILIPI~ZNU SRCOND fRRIGATION OPERATIONS SUPPORT PROJECT (IOSP II) 3Qan and Proiect Summary Borro : , Republic of the Philippines Loan Amount : 'US$ 51.3 million TeX"s : Repayable in 20 years, including 5 years of grace, at the standard variable interest rate. ro1act: The project aims to achieve sustainable improvement in Qbkejti the operational efficiency of the national irrigation systems (NIS) and thereby help increase agricultural production (mainly rice), expand small farmer incomes and rural employment opportunities, and contribute to rural poverty alleviation. Project The five and a half year project (mid-1993 to end-1998) DescriptIon would finance the second phase of the program launched under the First Irrigation Operations Support Project (IOSP I, Ln. 2948-PH, approved on June 2, 1988) and benefit an area of about 640,000 ha covered by the NIS through: (a) improvement of 18 NIS, urgent structural repairs in another 14 NIS, construction of three sediment excluders and improved water control structures on a pilot basis, and erosion prevention measures in critical areas; (b) continued support of the improved system-level operation and maintenance (O&M) services achieved under IOSP I, including the following measures to ensure the sustainability of these services: maintenance of adequate O0M expenditure, improved collection of irrigation serce fees (ISF), to cover 95X of projected O&M exT - ses by 1999, and increased participation of I.r.gators' Associations (lAs) in O&N; (c) institutional development through: (i) strengthening of existing IAs, esxrblisbment of new IAs, and enhanced f,.nancial and maiagement training; and (ii) strengthening of NIA through improvements in the ISF collection ;rocess; staff training in 0OK, appropriate engineering design techniques, farmer training techniques, etc.; technical assistance for various studies, IA development work and staff training; and provision of high priority 06W equipment and materials; and (d) improved agricultural  ( vi ) support services in the NIS areas including research and extension, farmer training in integrated pest management, and promotion of IA-based seed production. A distinctlve feature of the project is its emphasis on beneficiaries' participation (through the UAs) in identification of specific deficiencies and required improvements of the NIS, and increasing responsibility for 06M of the relevant portions of the systems serving them. The project would Increase rice production, reduclng and Risks imports by about 100,000 tons p.s. thereby saving foreign exchange; increase employment opportunities and incomes for about 460,000 low-income farm families; strengthen NIA through improved institutional and finawcial capabilities to deliver irrigation services; bhnefit local communities through greater participation in 061 activities, thereby reducing dependence on public funds and improving the quality and reliability of irrigation services; and benefit the environment through the promotion of sustainable farming practices. The proposed project does not face any major risk as it involves improving existing irrigation systems and sustaining their maintenance. The main potential risk would be tho delays in implementation due to inadequate budget allocations and delayed fund releases by the Government and inefficient procurement. To minimize these risks, agreements were reached at negotiations on funding, programs of work and procurement documents.  (Vi ) Estimated Cost: LFreign Total --------------US$ Millionn------------ Systems Improvement (a) Systems Imp. 15.2 5.0 20.2 (b), Urgent Repairs 4.1 2.2 6.3 (c) Erosion Control Works 0.8 0.1 0.9 (d) Silt Excluders and Improved Water Control Structures 1.1 0.6 1.7 Incremental 06K 20.0 2.2 22.2 Institutional Development (a) IA Developuent Program 1.5 0.1 1.6 (b) Technical Assistance 0.5 0.5 1.0 (c) Parcellary Mapping for ISF Collection 0.2 0.1 0.3 (d) NIA Staff Training 0.7 0.2 0.9 (e) Equipment and Materials 1.0 3.1 4.1 Agricultural Sntpport Services 0.7 0.1 0.8 Total Base Cost 14.2 m Physical Contingencies 2.4 1.0 3.4 Price Contingencies 4.9 1.3 6.2 Total Project Cost IA 16.5 69. Financir5g Plan: IBRD 4k 34.8 16.5 51.3 NIA 13.5 - 13.5 Government 4.8 _ 4.8 Total 5lL1 169 Estimated Disbursements: Asnk FY 122k 1996 1227 1898 1229 - --------- US$ Million--------------- Annual 6.0 9.0 11.0 12.0 9.0 4.3 Cumulative 6.0 15.0 26.0 38.0 47.0 51.3 Rate of Return: 17X NoR: IBRD No. 24576 Ia Including taxes and duties of about US$1.2 million. Lk Including upto US$3.0 million of retroactive financing.  - 1 - SZQCNP IRRIGATIQN OPERATIONS SUPPORT PROJECT (10SF 11) I. AGRICULTURE IN THE ECONOMY Role of Agriculture 1.1 Agriculture continues to play a significant role in the erc-omy, both in terms of its direct contribution to production and employment and as a basis for activities in the manufacturing and the services sector. Although agriculture' a share in national output has continuously dropped over the past two decades, agriculture still accounted for 21X of GDP in 1991, and agriculture- based industry accounted for another 13X of GDP. Agriculture employed 451 of the workforce in the same year. At least one third of the services sector is also linked to agriculture. Agriculture's slower decline in importance compared to other southeast Asian countries, is a reflection of both agriculture's comparatively strong performance and the industrial sector's failure to become the main engine of growth and the principal source of labor absorption over the past two decades. 1.2 During the second half of the 1980s, the agricultural sector grew at an average annue rate of 31, contributing about 161 to domestic growth between 1985-90. Althotg.,A respectable, this sectoral growth rate during the period of economic recovery was below both growth in the rest of the economy and the sector's strong growth rate of over 51 p.a. during the 1970s. Several factors account for this slowdown, including an overall downward trend in itternational commodity prices affecting the Philippines' traditional export crops, a series of natural calamities, continued macro-economic and sector-specific problems which led to serious underinvestment in the sector, and the fact that the fruits of the green revolution had been largely exploited by the early 1980s. Among macro-economic and sector-specific problems were an overvalued exchange rate, high interest rates, continuous deterioration of intersectoral terms of trade, weak infrastructure and an inefficient transport system, and inadequate agricultural support services. The last two factora still pose significant constraints on agricultural growth. 1.3 Crop production continues to be the most important subsector, accounting for 55 to 601 of sectoral value added during the 1980s. While the country's main staples, rice and corn, remain the most important crops in terms of value added and in hectarage, the traditional export crops - - coconut, sugar, and to a lesser extent, bananas -- have continued to lose their importance. In 1991, rice contributed about 251 of the crop value added (161 of agricultural value added). About 70X of the paddy was harvested from irrigated lands. 1.4 Rice Supply and Demind. Rice demand is projected to grow to about 7.5 - 8.0 million tons by the year 2000 or about 301 over the 1992 level of 6.3 million tons. Rice supply projections, based on assumptions briefly discussed below, suggest that the Philippines will not be able to meet the rapidly increasing demand for rice with domestic production alone over the next decade and will have to resort to increasing imports (0.75 - 1.25 million tons) to cover  * 2 - the balance.Y/ During the past two decades, growth in rice production has mainly come from yield increases, as planted area (3.3 m ha) has largely remained the same since thr late 1960s. Three factors have accounted for these increases: the widespread acoption of high yielding varieties (HYws), increased use of fertilizers and the relatively rapid expansion of irrigated area. The share of irriga.zed area in total harvested area rose from 33X in the mid-60s to 602 by 1991. As most paddy farmers have already adopted the HYVs and, on average, are already using as much chemical nutrient as is economically optimal under the prevailing level of agricultural support, irrigation and drainage services which are generally inadequate, most future growth in palay (paddy) production will have to come either from expansion of irrigated area or from new technological breakthroughs in the area of HYVs. Since the latter is uncertain, at least in the medium term, and the former is limited principally by the Government's financial capacity (para 2.15), rice production is not projected to exceed demand by the year 2000. Rural Poverty 1.5 Persistent widespread rural poverty is the most disappointing aspect of past economic performance in the country. Over two-thirds of all poor households live in rural areas, where both the incidence and the severity of poverty remain high. The incomes of more than half of all rural households fall below the 1992 rural poverty line of 06,000 (US$230) per capita. The number of poor rural households has increased from 2.3 million in the early 1960s to over 3.5 million by late 198fls; real wages have fallen; and landlessness has grown steadily. Several factors were responsible for this pher.omenon: a continuing high population growth rate (currently 2.3X p.a.), an increasing scarcity of land, inadequate growth of the agriculture sector itself, and a failure of the economy as a whole to provide sufficient employment opportunities outside agriculture. Some 851 of total farmholdings (2.35 million) are less than 5 ha. The average size of rice farms is only 2.7 ha; in national irrigation systems (NIS) about 1.4 ha. About 731 of farms in the NIS are 1 ha or less in size. Although the extent of poverty among rice farmers is lower than that among other farmers, rice farmers account for the largest number of rural poor families due to their preponderance among all farmers. Development Objectives and Strateggy 1.6 The Government is aware of the critical role that agrizulture must play in economic recovery and in spearheading the attack on rural poverty, and it has implemented a series of institutional reforms to strengthen sector management, policy reforms aimed primarily at reducing government intervention in pricing and marketing and eliminating discrimination against agriculture, measures to improve utilization of existing productive capacity, a Comprehensive Agrarian Reform Program to achieve a better distribution of cultivable lands, and higher allocation of public resources to agricultural development. The government objectives for the agricultural sector are stated in the Agricultural Development Plan (1990) as follows: (i) to increase the productivity and real incomes of small farming and fishing families; (Ui) to help ensure the productivity of the agricultural resource base over the longer term; (iii) to Y The World Bank, Philingines: Irrigated Agriculture Sector Review, Report No. 9848-PH, April 15, 1992.  attain self-sufficiency in rice and corn for food security; and (iv) to help attain a favorable balance of trade for the country. Irrigated agriculture will play an important role in meeting each of these objectives. II. TH xJRTGATIQN SUBSECTOR 2.1 Irrigation development has been an important factor underlying agricultural growth in the Philippines over the past two decades. Irrigation systems now serve an area of about 1.5 million ha, about 48X of the area considered suitable for irrigation. About 951 of the irrigated area Is devoted to paddy production. In most lowland areas, average rainfal.l is generally adequate for a rice crop in the wet season, with the exception of southern Mindanao. However, rainfall is often not evenly distributed and dry spells frequently necessitate supplementary water supplies in most areas. Provision of irrigation in the wet season thus reduces the risk of crop failure and helps increase yields. For dry season cropping, irrigation is essential in all climatic zones in the country. 2.2 There are three main irrigation systems in the Philippines: (a) National Irrigation Systems (NIS). At present there are 165 NIS, serving about 620,000 ha (excluding about 25,000 ha of developed NIS area affected by volcanic mud flows from Mt. Pinatubo during 1991). The National Irrigation Administration (NIA), a government-owned corporation resporsible for irrigation development, builds, operates and maintains NIS. Three NIS are multi-purpose, reservoir-backed systems: Magat, Upper Pampanga and Angat-Msasim, serving about 230,000 ha. The remaining 162 NIS (serving, on the average, about 2,500 ha each) are run-of-the-river diversion systems (Map No. 24576). New NIS are expected to bring about an additional 20,000 ha under irrigation by 1998. Farmers in NIS pay an irrigation service fee (ISF). (b) Communal Irrigation Systems (CIS). The CIS are small, mostly run-of- the-river type, gravity systems, owned and operated by Irrigators' Associations (IAs). There are about 6,200 CIS, averaging 115 ha, and serving about 730,000 ha. Unlike the NIS, they are often built by water users without NIA assistance. When NIA is involved, its role is limited to financial and technical assistance ln the planning and construction of physical works and development and training of the lAs which own the systems and are responsible for their maintenance after construction is completed. Farmers in the CIS are not charged irrigation fees, but they amortize the chargeable costs of the irrigation investment. (c) Punm-Lift Irrigation Systems (PIS2. The PIS serve about 200,000 ha. Pump units that cover a service area from 20 to 100 ha are operated and maintained by NIA at the initial stage and are then turned over to the cooperatives. Smaller pump units of less than 20 ha each are privately owned. The high cost of power has reduced the overall financial attractiveness of the PIS for crops such as rice and has constrained their further expansion. In some areas, farmers' groups have asked NhA to convert their PIS to run-of-the-river communal systems.  - 4 The National Irrigation Administration 2.3 The National Irrigation Administration (NIA), established in 1964, is a Government-owned and controlled corporation responsible for planning, constructing, operating, and maintaining all the NIS. NIA is empowered to investigate and to study all national water resources for irrigation purposes; plan, construct, temporarily administer and periodically repair the CIS and PIS; and to collect irrigation fees from the NIS and recover chargeable construction costs from the (IS and PIS. NIA has also the authority to undertake related projects (e.g. flood control, drainage, land reclamation, hydro-power development, domestic water supply, road construction, and reforestation and other activities to maintain ecological balance) in coordination with other agencies. 2.4 As a semi-autonomous body under the Department of Agriculture (DA), NIA has considerable operational freedom. NIA is a mature agency with its operation carried out through a network of national, regional, provincial and system-level offices throughout the country. It is adequately staffed and, with the excepr:ion of some items, has sufficient construction and maintenance equipment. At the regional level, NIA has 11 offices, each headed by a Regional Irrigation Director, who reports to the NIA Administrator. There are some 100 irrigation system offices, each responsible for one NIS or a cluster of NIS and headed by an Irrigation Superintendent. Another 67 provincial irrigation offices, each headed by a Provincial Irrigation Engineer, are responsible for CIS. At present, NIA has about 20,000 employees--approximately one-fifth are women. Eleven thousand of these employees are involved in development projects with which their employment is co-terminus. The remaining 9,000 are funded from the operating budget (para. 2.12); of these, about 5,700 are at the system level, and 1,100 each at the provincial, regional and central offices. Some reduction in personnel is envisaged in the next few years (para. 3.11 and Annex 1). Irrigators' Associations 2.5 Over the years, NIA has developed a successful strategy of beneficiary participation by establirhing and maintaining irrigators' associations (IAs). In this respect, NIA is well ahead of many irrigation authorities elsewhere, which are still attempting to identify effective techniques for organizing farmers into water users' groups. It was NIA's experience that hardware inputs alone did not materially improve the performance of irrigation systems in a sustainable manner. Appropriate and equitable operation was often impossible as structural components required to control the operation of the system were not only unappreciated by water users, but, because of users' unawareness of their function, often damaged shortly after having been installed. NIA was generally unable to satiafactorily maintain systems as O&M funds were always short and deterioration reduced the flow of water that could be conveyed. In many irrigation systems, downstream reaches were not served during water-scarce seasons as head-reach users refused to reduce diversions and NIA was unable to impose an equitable sharing of the scarce resource. 2.6 To address this situation, NIA, in 1976, launched an experimental program with the Ford Foundation to test a strategy involving water users in all facets of irrigation development in some conmmunal systems. Naming it a 'participatory approach', it called for an active involvement of water users organized in IAs in relevant decisions and activities starting at formulation and  design of a system and continuing throughout its operation. Encouraging results prompted NIA to extend the concept throughout the entire CIS network, and nearly all CIS (larger than 100 ha) are now operated and maintained through lAs. 2.7 Since 1981 NIA has been applying the participatory approach to the NIS also. With the objective of achieving an equitable, timely and appropriate water supply to all water users in a given system, NIA has been advising and assisting water users to establish lAs and has provided training and guidance after IAs have been established. Furthermore, NIA has provided TAs with financial incentives such as contracted maintenance work and contracts for collection of ISF. More recently, NIA has embarked on a more advanced participatory phase under which IAs will assume complete operational and mainterance responsibilities of components of systems directly serving them (such as secondary or lateral systems or parts thereof) while NIA will redeploy its staff to operate and maintain more complex parts of systems such as main canals and large hydraulic structures. This approach, which will be supported under the project, is expected to improve the performance of the systems and also reduce NIA's O&M costs by an estimated 10-15X. 2.8 To date NIA has carried out IA organization activities over about 517,000 ha within the NIS (801 of the service area), comprising some 1,700 IAs, with a membership of about 400,000 farm families. Each IA covers on the average an area of 270 ha and members' land holdings are served by one lateral or common water source. A typical IA is registered with the Securities and Exchange Commission (SEC) and has an elected board of directors and a roster of officers. Of the 1,700 lAs in different stages of formation, over 1,400 are already registered with the SEC and about 1,250 (covering about 380,000 ha) have entered into contractual agreements with NIA for some O&M activities, ISF collection, or both (further details on the IA development program are at Annex 2). SuS=ort Services for Irrigated Agriculture 2.9 Through 1991, the Department of Agriculture (DA) provided extension services to lowland paddy farmers in most areas. However, under the Local Government Code of 1992, extension services of DA have been transferred to the Provincial and Municipal governments. Services are also provided by input supply traders, colleges and universities, credit institutions and non-governmental organizations (NGOs). In recent years, allocation to extension has declined as a share of total expenditures for agriculture, and most of the expenditure has been directed towards salaries and allowances, with little fundXng available for extension staff mobility and for the inputs and facilities required for farm trials and demonstrations. As a result, most irrigation schemes do not usually receive adequate attention from the extension services, and ver- few verification trials and demonstration plots can be seen. NIA itself employs and trains Water Management Technicians to assist farmers in using and maintaining irrigation systems efficiently. However, in most areas there is little formal contact between NIA staff and DA's agricultural extension personnel, although in some instances good informal contacts have led to improved scheme performance. Ooerational Performance of Irrigation Systems 2.10 Although there has been a modest improvement in recent years, the performance of many of the irrigation systems in the Philippines falls below  expectations. Despite widespread double cropping, in 1991 total irrigated area in the NIS reached only 891,400 ha, an irrigated cropping intensity of 140X (up from 134X in 1987). In terms of irrigated cropping intensities recorded to date, NIS reservoir systems had the highest at over 165; and the NIS diversion systems, and communal and pump systems, about 1301. Due to the over-assessment at the design stage of individual irrigation system service areas, it is difficult to say at present whether the above irrigated cropping intensity figures are accurate. A recent review of six NIS, using detailed field re- surveys and hydrological re-assessments, revealed that actual service areas were about 201 less than originally estimated. NIA is now verifying and updating existing irrigation system service areas throughout the country. 2.11 Factors which have adversely affected the irrigation system performance include: the highly variable and generally low dry season water supplies; less than adequate system management; and inadequate agricultural support services. Also, flood control and drainage were not given appropriate emphasis during design of some of the older NIS. For the most part, however, poor operational performance reflects inadequate funding and institutional weaknesses on the part of NIA and the MAs. The most common problems are deteriorating canals and structures, silted and defective diversion works, inadequate drainage and on-farm facilities, and poorly maintained service roads. In an effort to address the above problems, the First Irrigation Operations Support Project (IOSP I, Ln. 2948-PH), was launched in 1988. IOSP I has resulted in significant improvements in the performance of the NIS (paras. 2.18 - 2.22). Irrigation Financing 2.12 NIA does not finance investment projects from its own resources or loans. These are financed by the Government using foreign loans/grants and counterpart local funds. NIA's investment budget was 03.8 billion in 1992 and 93.3 billion in 1993, including about 92.4 billion under the General Appropriations Act (Annex 3). NIA, however, has to finance its operating budget. This is financed principally from ISF collections, a 51 management fee charged to the Government for the design and construction supervision of irrigation projects, and rentals of construction equipment. In 1991, NTA's total operating and non-operating revenues amounted to about 9695 million. Of this, ISF collection accounted for 491, management fees for 141, equipment rental for 131, and others for 241, including amortization from the CIS and interest on investment funds held on deposit. These revenues were sufficient to meet NIA's total operating expenses in 1991 of 9680 million (including irrigation 0&K), but after allowing for depreciation of 946 million, the net income was negative (by 931 million or 51). NIA's net income after depreciation has been negative for several years. This is a reflection of a fast increase (2441) over 1982-91 in operating expenses and a slower increase (114X) in revenues over the same period. While ISF collection has increased 6001 from 057 million to 9342 million and equipment rental from 925 million to 989 million during this period, management fees have declined from 9104 million to 099 million and interest on investment fund deposits from 965 million to 928 million as a result of a falling irrigation investment program. If the investment remains at the 1992 level in the next few years, as it might, given the financial constraints of the Government, NIA's net income even before depreciation will be negative in 1993-96 (para. 7.5). NIA realizes its difficult financial situation and has already begBa an internal review to implement streamlining of its organization and staffing and reduce operating expenses.  - 7 - 2.13 Irrigation Service Fees (ISF) a-nd Collections. NIA has been authorized to charge ISF on irrigated lands within NIS at levels sufficient to finance O&M and to recover the initial investment cost (without intere. t) within a period of up to 25 years, provided that such charges are considered by the Government, which approves ISF rates, to be within the capacity of the beneficiaries to pay. Since 1975, irrigation fees have been denominated in paddy, and farmers may pay either in kind or in cash based on the Government paddy support price (currently P 6/kg for clean, dry paddy with 14X moisture content). About 50X of farmers presently pay in cash. The denomination in paddy has provided a degree of indexation against inflation, but NIA has to meet the costs of collecting, storing, selling and other related activities which could amount to about 101-15X of gross collections. The current ISF rates vary according to type of system, and by wet and dry season, as shown in Table 2.1. Tablg 2.: ISF RATES Wet Season (WS) Dry Season (DS) ........ Cavans of Paddy/ha-------- Type of System (1 Cavan - 50 kg) Diversion Systems 2.0 3.0 Reservoir-backed Systems 2.5 3.5 Pump-lift Systems 6.0 - 8.0 6.0 - 10.0 The above rates, which typically absorb 10-15 of the incremental production from irrigation, are estimated to be within the payment capacity of most water users. 2.14 Most farmers in irrigated areas are at or below the rural poverty threshold and thus an increase in ISF rates would bear heavily on them. About 731 of these farmers cultivate 1 ha or less, which at full development would only provide incomes ranging from P10,600 to P21,190. Even if an additional one-third of the household income was derived from off-farm work, these farmers would still fall below the 1992 estimated poverty level for rural areas of P36,000 p.a. for a family of six. Also, the average rent recovery for project beneficiaries amounts to 341 with cost recovery at 321, both figures running quite high for this type of project (paras. 7.2-7.4). However, there remains substantial scope for improvement in ISF collection efficiency which should first be utilized. ISF collection performance has improved significantly from 481 of current billings in 1987 to 60X in 1991. In 1991, these revenues covered about 761 of the 06M expenditures incurred at the system level (excluding overheads) or about 671 of overall OM expenditures (including 151 to cover administrative overheads). The actual ISF collection figures for 1992 are not yet available. The improving trend in ISF collection performance stems, to a great extent, from the special efforts made by NIA under OSP I (paras. 3.15 and 3.18). Government Irrigation Subsector Strategy 2.15 An Accelerated Irrigation Development Program has recently been legislated. The program envisages the development of about 1.5 million ha of new  irrigation facilities over the next 10 years. An assessment of surface water resources conducted by the National Water Resources Board, which took into account multiple water uses and power requirements to the year 2000, indicates ample water availability in all except three regions (3,6 and 7; see IBRD Map No.24576). However, given the financial constraints, and taking its past pace of accomplishment into consideration, NIA believes that a 350,000 ha target over the next 10 years is more realistic. While not ruling out a few new large-scale irrigation and multipurpose projects, the Government's priority is on rehabilitation, communal and small-scale irrigation schemes, and improved OM, which will require smaller investments but yield faster returns. Inadequate O&M allocations and unsatisfactory maintenance contributed to system deterioration and disappointing system performance in the past, resulting in non-achievement of full potential economic returns. Realizing this, the Government, through IOSP I, has attempted to improve the efficiency of the irrigation infrastructure in pursuit of its overall sectoral objectives (para. 2.18). The Bank's Role in Irrigation Development 2.16 To date the Bank has lent US$807.70 million to the Philippines for 14 irrigation projects, one land settlement and three rural development projects with irrigation components, and one watershed management project. Thirteen of these projects have been completed. The two most recent loans were for IOSP I (Ln. 2948-PH, approved in 1988) and the Second Communal Irrigation Development Project (Ln. 3261-PH, approved in 1990). Excluding IOSP I (paras. 2.18 - 2.21), the Bank-supported projects have so far covered about 490,000 ha (including about 200,000 ha of new development and rehabilitation/upgrading of the rest), benefitted some 290,000 families, and helped to produce more than 2 million tons of paddy, or about 221 of total rice production and 301 of irrigated rice production in the country. 2.17 Implementation of completed and ongoing Bank-financed irrigation projects in the Philippines has generally been satisfactory, although some operations have experienced delays because of local funding constraints, design changes, contractor problems, or peace and order difficulties. The shortage of local funds was most severe during the crisis years of 1983-86 while contractor problems were more evident in remote areas. Project Completion Reports and Project Performance Audit Reports prepared for nine completed projects indicate implementation delays mainly on account of lengthy procurement procedures, poor performance of contractors, frequent typhoons, shortages of materials and inadequate local funding. In some cases, water availability was less than anticipated due in part to inadequate hydrological assessment aggravated by past watershed deforestation, delivery inefficiency due to inadequate 06M, and smaller than expected command areas. However, the reports state that, despite these problems, and lower than expected ERRs, the projects have contributed to increases in rice production and incomes in the project areas, and NIA's performance in fostering active beneficiary participation in irrigation development is frequently commended. Experience under IOSP I 2.18 IOSP I financed the first phase of NIA's nine-year irrigation O&M improvement program and was the first Bank-financed project in the Philippines primarily to address O&N of irrigation systems. The main objectives of NIA's 06M improvement program were: (i) reduction of performance deterioration on  - 9 - national irrigation systems; (ii) improvement of water delivery and water use efficiency to permit increased cropping intensity; and (iii) achievement of full cost recovery of increased O&M expenditures through ISF payments by beneficiaries. The main objectives of IOSP I were to: (a) strengthen the institutional capability of NIA and cooperating private irrigators' associations (IAs) to improve and maintain the efficiency of existing NIS infrastructure; and (b) improve the operating performance of the 127 existing NIS through minor repair works and through increases in the annual funding for and levels of O&N services. lOSP I components included: minor restoration works, equipment procurement and reconditioning, technical assistance and training of NIA staff in improved O&M services, improved levels of O&H, and further development of IAs and their expanded participation in O0M of all NIS. The expected benefits of these investments were higher cropping intensity and ISF collection as well as improved financial viability of each system. The project covered the entire NIS service area of about 600,000 ha and was expected to benefit some 430,000 rural families. The originally approved Bank loan amount was US$45.0 million; this was later reduced to US$23.5 million when concessional financing from USAID and OECF became available, which had been expected but not confirmed before project approval. 2.19 Pro4ect execution began in mid-1988 and was completed at the end of 1992. The shortage of counterpart funding, the carryover effect of the 1987 drought in 1988, two major droughts in 1989-90 and 1991-92, the Mount Pinatubo eruption in 1991, and the sharp drop in paddy prices in 1991, adversely affected the project. However, despite these problems, the project had a positive impact (Table 2.2). Average irrigated cropping intensity in the NIS rose from 1341 in 1987 to 140X in 1991; the benefitted area (see Table 2.2, V below) from 1271 to 1301; and the ISF collection rate from 481 to 601. Progress on various project components has been reasonably satisfactory (Annex 4). The economic rate of return (ERR) of the project is re-estimated at completion at about 211.  - 10, Table 2.2: IOSP I PERFORMANCE INDICATORS: 1987-1991 (162 NIS) 1987* 1988 1989 1990 1991 1. Average Cropping Intensity (X) 134 127 138 139 140 2. Benefitted Area Intensity (X) A/ 127 111 120 130 130 3. ISP Collection Rate (X) 48 52 58 58 60 * Pre-project. A/ Benefitted area is the crop area where paddy yields are 2 tons per ha per crop and above. Farmers getting yields below this level are exempt from payment of ISF. 2.20 Annual system-level 06& expenditure under the IOSP increased by about 50% in real terms from 1987 to 1992. The 1987 expenditure (P326/ha, excluding administrative overheads) covered mainly salaries, and funds were insufficient to carry out major maintenance and repair. Systems deteriorated, progressively constraining water deliveries to users even where there was enough water at the point of diversion. Under IOSP I, most incremental expenditures were dedicated to costly desilting of canals and to minor structural and road repairs. Although annual O&M expenditure levels can not correct damage created by deferred maintenance, such as damage to systems headworks, wear and tear, or damage inflicted by frequent natural calamities, it appears that these levels of expenditure, if maintained in real terms, are adequate to sustain the operational capacity of existing systems. 2.21 Lessons Learned. The main lessons from IOSP T, which have been taken into account in the formulation of IOSP II, are the following: (a) the adoption under IOSP I of normative allocations per ha for restoration and rehabilitation resulted in some works of lesser priority being carried out. This would have been avoided if a selective strategy of cost-effective rehabilitation and improvement of specific components with greater participation of water users had been adopted; (b) increased ISF collection under IOSP I indicates that improved services induce water users to pay ISF dues more readily; (c) system components operated by the IAs appear to be generally in better shape than those operated by NIA without beneficiary participation, highlighting the need to increase IA participation in system O&M; (d) providing training and support to the IAs is crucial in achieving a more intensive level of participatory management with water users; (e) training in water management was very helpful and should be continued; and (f) the system for monitoring improvements in water deliveries was deficient and needs close attention (Annex 4).  - 11 - III. PROJECT OBJECTIVE AND DESCRIPTION Project Objective and Comgonents 3.1 The project aims to improve and sustain the operational efficiency of the NIS, thereby helping increase agricultural production (mainly rice), expanding small farmer incomes and rural employment opportunities, and contributing to rural poverty alleviation. 3.2 The project would finance the second phase of the program launched under IOSP I on the national irrigation systems, through: (a) improvement of 18 systems, urgent structural repairs in another 14 systems, construction of three sediment exclusion structures and a few improved water control structures on a pilot basis, and erosion prevention measures in critical areas (US$29.1 million or 48X of base costs); (b) continued support of the improved system-level operation and maintenance (O&M) achieved under the IOSP I and of measures to ensure their sustainability (US$22.2 million or 38X of base costs); (c) institutional development through: (i) strengthening of existing IAs, establishment of new lAs, and enhanced financial and management training of the IAs to facilitate progressive turnover of system O&N to them; and (ii) strengthening of NIA through support to improve ISF collection; staff training in O&M, appropriate engineering design techniques, administrative and financial aspects of systems management, and farmer training techniques; technical assistance for studies, IA development work and staff training; and provision of high priority O&M equipment and materials (US$7.9 million or 13 1 of base costs); and (d) strengthened agricultural support services, including research and extension, farmer training in integrated pest management, and promotion of IA-based seed production (US$0.8 miltion or 11 of base costs). 3.3 The project would be implemented over a five and a half year period (mid-1993 to end-1998). It would be nationwide in scope and cover all 165 of the existing NIS serving about 620,000 ha. An additional NIS area of about 20,000 ha, expected to be completed during the project period, will also be served. Detailed Project Features &Atems Improvement 3.4 Systems imRrovement. The project would provide for the improvement of 18 systems serving about 96,000 ha, selected by NIA in consultation with the water users on the basis of agreed technical, institutional and economic criteria (Annex 5). Water users of these systems have signed a Nemoranda of Understanding pledging their cooperation and contribution. Assurances were obtained during nesggigLo2na that NIA will apply the selection criteria mentioned above to all the NIS to be improved under the project and that before implementation of these  - 12 - system improvements, NIA will prepare, and forward to the Bank, an operational plan and a corresponding report (outline is at Annex 6) for each of the selected systems in consultation with project beneficiaries. 3.5 Improvements of five systems would be implemented during the first project year (Annex 7, Table 1). The remaining 13 systems will be implemented following final revieva of the hydrologic database to assess adequacy of water supply (para. 3.21a) and detailed cost:benefit calculatiors. Proposed improvement works include desilting, reshaping of canals, repair of lining, repair of damaged canal structures (checks, siphons, etc.) and installation of steel gates at checks and turnouts. In view of past experience where many installed gates had been damaged or removed, NIA would initially install turnout gates on one sublateral of each system to be improved and delay the installation of gates in other sublaterals for at least one year, until the effectiveness of the gates are assessed. Government aims to take up the improvement of the remaining NIS as relevant, in appropriate phases, under a longer term investment program which is being prepared and intends to seek Bank assistance for its implementation. 3.6 Urgent legairs. The project would provide for urgent repairs of 22 river diversion structures in 14 systems (Annex 7, Tables 2a nnd b) that had been damaged mainly by floods. Foundation material scoured by high-velocity flood flows in the vicinity of diversion structures has weakened the structures and made them vulnerable to much greater damage. Deferment of repairs entails a high risk because a much larger damage could occur without any warning, even during a normal flood, and require much costlier repairs, result in service interruptions and involve even crop losses. 3.7 Detailed engineering design and drawings have been prepared for 10 structures. These were reviewed at appraisal and found satisfactory except for some minor details which NIA is incorporating into the final designs and drawings. Work is continuing on the completion of detailed designs and drawings for the remaining 12 structures. 3.8 Erosion Control Works. The project would fund erosion prevention in about 30X of the system catcbments, particularly in critical areas in the immediate vicinity of the systems. These measures would provide protection against rainfall runoff erosion of vulnerable slopes, gullies and embankments, mainly through the use of vegetative methods such as the planting of vetiver grass and leguminous shrubs (e.g., Leucaena, Glyicidea, and on acid soils Flamingia congesta), and other low-cost methods where appropriate (Annex 7, Table 3). NIA has done some watershed protection work along these lines in Pantabangan catchment and is implementing similar work at present under the Second Communal Irrigation Development Project. Vetiver grass occurs naturally in several localities from Northern Luzon, through the Visayas and Nindanao, to Sulu in the extreme south. To ensure farmer access to vetiver stock, small nurseries will be established at system level as necessary. Broader watershed protection measures would be supported under the Department of Environment and Natural Resources overall national program. NIA's Watershed Management Division would liaise with DENR for this purpose. 3.9 Silt Excluders and Improved Water Control Structures. The project would provide for the construction of three pilot silt excluders at suitable locations at or near heads of three canals that are heavily silted and pilot  - 13 - installation of a number of improved checks in a main/lateral system to be selected and improved turnouts in a, contiguous reach of the lateral (Annex 7, Table 4). The improved water control structures will be located in one of the larger NIS, in an area not affected by any upstream system deficiencies and will cover a service area of 500 ha to 1,000 ha. The former would help in testing the cost-effectiveness of desilting devices and thus reducing silt removal costs, which are at present substantial as NIA spends nearly 752 of its annual budget for incremental 0&M (or about 060 million in 1992) on silt removal in irrigation systems. The latter would improve water deliveries to turnouts. The pilot structures would be selected by consultants to be engaged under the project (para. 3.21b) in close collaboration with NIA's regional O&M staff and with IAs. The operational effectiveness of these installations will be closely monitored. Towards the end of the project, the technical and economic viability of these installations will oe assessed (para. 5.9a). l proved tion and Maintenance 3.10 The project would continue support of the improved system-level O&0 services achieved under IOSP I (para 2.20) and seek to ensure their sustainability through the following measures: the annual total O&M expenditure of 0822/ha (including recurrent O&M and overheads of #674/ha and the average annual incremental O& expenditure of about P148/ha achieved in the last three years of IOSP I) would be maintained in 1992 real terms on all the NIS through provision of the required incremental funding during IOSP II; NIA would generate savings through increasing participation of lAs in system O&M; and NIA would target ISF collection to increase from 60X of current billings achieved under the IOSP I to a target 70X by the end of the project. VIA would make every endeavor to reach beyond this target, with a view to achieving a collection efficiency of 752 (para. 3.18). In particular, NIA would do its best to achieve this higher target of 752 in the 18 systems selected for improvement. These could then serve as valuable demonstration models in cost recovery and user management. Though a 25X improvement (from 482 to 602) was achieved under the IOSP I, a further major improvement in ISF collection will be more difficult, given the large number of very poor beneficiaries (paras. 2.14 and 7.2-7.4). In view of the above, a target of 702, which amounts to about half of the achievement under IOSP I, is considered realistic. Incremental O&M activities supported under the project would involve canal maintenance (desilting and repair of embankment), maintenance of service roads, maintenance of control gates and structures, and incremental personnel costs (Annex 7, Table 5). 3.11 While maintaining system-level O&M expenditures in real terms, the project would support measures to progressively reduce the gap between OM expenditures and NIA's revenues from ISF collections. The gap would be reduced by turning over ditch tender sections of systems to the IAs and thus increasing their participation in system 06M, and broadening the base for ISF billing and improving ISF collection (see further para. 3.15). In order to ensure the highest beneficiary participation, realistic system operation plans would be formulated and implemented by NIA in consultation with the lAs. About 1,082 ditch tenders would be progressively phased out over 1993-98 as the lAs assume responsibility for the ditch tender sections (Annex 1). This will result in a saving for NIA of about P175 million over 1993-98 in current terms. About 500 of the ditch tenders are daily paid casual workers and can be phased out quickly. However, the other 600 are monthly paid workers. They would need to be offered attractive incentives if they are to voluntarily leave NIA's service. The funds  - 14 - required for this purpose would total about 930 million during the project period, which NIA would meet out of its own funds. Assaxur gs-were obtai during negotiations that NIA would make adequate provision in its operating budget for retirement/severance benefits (as appropriate) for DTs whose employment would cease during the following twelve months and ensure that such benefits are made available to eligible DTs. Institutional Development 3.12 The project will continue the institutional development efforts initiated under IOSP I for strengthening of IAs and NIA through improvements in the ISF collection process, staff training, technical assistance, and provision of high priority O& equipment and materials. 3.13 IA Develo2nent. The project would provide continued support to NIA's ongoing IA development program which is designed to facilitate the progressive turnover of a substantial portion of NIS infrastructure to the IAs for 06K, to improve collection of ISF and to encourage membership expansion. Specifically, in the 18 systems (96,000 ha) identified for physical improvements (para. 3.4), existing IAs covering 74,500 ha will be provided with additional training to prepare them to assume full 06M responsibility of the portions of the system serving them. New IAs would be organized on the remaining 21,500 ha in these 18 systems, and provided with the same intensive training. The project will also provide for the organization of IAs to cover 27,000 ha, out of a remaining NIS area of about 103,000 ha where lAs have not yet been organized (Annex 7, Table 6). IAs already organized over 442,500 ha outside the systems to be improved would be sustained through financing of Institutional Development Officers (IDOs) under the 0&K component (para. 3.10).- 3.14 The goal of the IA development program is to identify, mobilize and motivate the membership of the IA at the turnout service area (TSA), particularly with reference to O&M and generally for self management of a financially viable IA. In particular, training programs and activities will target increased participation of women in the IAs, especially in training, ISF collection, credit, marketing and new income generating activities to be incorporated within the IAs in the eighteen systems which will benefit from intensive training. The project includes technical assistance to NIA for these programs (paras. 3.19, 3.21(d) and Annex 2). This effort will be expanded to the remaining NIS under future phases (para. 3.5). 3.15 Improvements in the ISF Collection Process. The project would support and reinforce all the measures initiated under IOSP I to improve ISF collection. Under IOSP I, NIA has been able to get lAs to participate in ISF collection, provided rebates to farmers for prompt ISF payments in cash, and provided incentives to NIA staff for good collection performance. As a result, ISF collection has gradually increased during this period (para. 2.19). While supporting the above measures, the project would also provide continued support to efforts to improve the ISF billing process by completing the ongoing detailed parcel mapping exercise to cover about 54,000 ha of NIS lacking such maps., preparing accurate data on service areas and individual irrigated holdings, and preparing and updating irrigation fee registers for all NIS (Annex 7, Table 7). These documents would facilitate effective monitoring and verification of seasonal ISF billings, and would enhance NIA's ability to detect and remedy discrepancies. They would also enable NIA to prepare ISF bills well ahead of the  - 15 - close of the crop season, based on field progress reports of land preparation, planting and status of the crop. Further improvement of the billing process would be accomplished through computerization, using microcomputers provided under IOSP I. 3.16 With respect to staff incentives, NIA's current Viability Incentive Grants (VIGs) system provides bonuses to regional and system-level staff, totalling 10 of ISF collections above viability, i.e., amounts sufficient to recover very narrowly defined O&M costs. NIA has reviewed the current VIG system and issued draft guidelines for a revised system on April 30, 1992, but the revised version has not been implemented due to its complexity. NIA is presently reviewing the issue. Assurances were obtained at negottatJons that NIA would furnish to the Bank, for review and comments, the proposed criteria for its incentive scheme, taking into account the objective of improved Q&M of the NIS, and shall take into account the Bank's comments thereon. 3.17 With respect to ISF collection efficiency, data show wide variations in the efficiency with respect to systems, responsibility centers and regions. There are a number of systems where collection performance is very good and others where it is poor. NIA at present does not have an action plan to deal with problems in systems where collection is poor. Assurances were obtained at negQtiAtIons that by the end of 1993, NIA would furnish the Bank a report on all NIS where the ISF collection efficiency was less than 601 in 1992, detailing problems encountered in ISF collection and steps that will be taken to overcome them. 3.18 As a result of the above project interventions, ISF collections are expected to increase to at least 701 of current billings by the end of the project (para. 3.10). Consequently, at least 951 of the total irrigation 06M expenditures of P795 million (including overheads) in current terms in 1999 would be met through ISF collections (compared to 671 in 1991). With a less conservative assumption of 751 collection efficiency, ISF would fully cover 06M expenditures in the year 1999 (paras. 7.5 - 7.6). Although an increase in ISF rates does not appear feasible at this stage (para. 2.14), a review of and dialogue on ISF rates and efforts to reduce NIA overhead costs would be continued during the project period to further improve project sustainability. 3.19 NIA Staff Training. The project would support and further strengthen the training program commenced under IOSP I for NIA staff in techniques of improved OM and IA development and would expand it to increase regional capabilities in design and construction supervision of works within their responsibility (Annex 7, Table 8). The program would comprise several short courses in various aspects of O&M, financial management and computerized billing, administration, system performance monitoring and data compilation, communication, IA development, and engineering design. NIA's Institutional Development (IDD), Design and Specification (DSD), ano Systems Management (SMD) Departments are adequately staffed and experienced to conduct this work. In addition, technical assistance would be provided to strengthen the IA development capability of key NLIA staff, assist in updating and improving IA training courses already developed, formulate additional courses which may be required and provide enhanced training in O&M to NIA's regional and systems management staff in the 18 systems to be improved under the project (paras. 3.4, and 3.21d). This component would also provide for training of engineers, designers and related staff in appropriate techniques to deal with problems of unstable waterways,  - 16 - boulder and stone bed loads, hesvy bed siltation, mine tailings, etc.. which are frequently encountered in the Philippines. The training would be carried out through study tours to neighboring countries where such problems have been dealt with, on the job training in specific locations, and through specific training programs within the Philippines conducted by individuals with experience in this field. 3.20 Irrigation Management Information System (IMTS). During 1987, NIA introduced an improved data generating system (IMIS) designed to speedily provide Irrigation System Superintendents and NIA Management with system performance information required for monitoring and managing the NIS. Details of information collected and evaluated under IMIS includes: (a) operations--water availability and requirement, adequacy of releases, and status of land and crop development; (b) maintenance--maintenance and repair activities planned and carried out, and condition of facilities; (c) ISF--area planted and area exempted from ISF with justification, current ISF collectibles, collections and status of back accounts; (d) expenditures--system operation, maintenance and emergency repairs; and (e) production--crop types, areas and yields and details of problems encountered. With assistance provided under IOSP I, IMIS has now been partially introduced in Regions 1 to 5 and 10 to 12, in 30 NIS covering about 170,000 ha. NIA is currently refining this system and expects to complete this work by the end of June 1993. NIA has also piloted the introduction of an Irrigator Association Management Information System (IAMIS), on the lines of INIS, to be carried out by IAs to generate performance information relevant for areas they cover. IAMIS will also be modified to reflect the refinements to IMIS and introduced where appropriate. The project provides P4 million to enable NIA to initiate preparatory training activities needed to install the modified version of IMIS (Annex 7, Table 8). Assurances were obtained at e&9tiations that NIA would furnish the modified INIS by the end of October 1993 to the Bank for review, together with details of NIA's existing monitoring system and specific improvements which IMIS will yield in comparison to the existing monitoring system. 3.21 Technical Assistance. This component will provide consultancies for the following (details are at Annex 7, Table 9): (a) re-assessment of the hydrological potential in NIS selected for improvement under the project (para. 3.5; 3 foreign and 12 local consultant-months); (b) studies of selected NIS to formulate design guidelines for silt exclusion and improved water control structures, including the design of a few such pilot structures to be constructed under the project (para. 3.9; 3 foreign and 6 local consultant-months in respect of each study); (c) review of NIsA' prevailing mechanical equipment and mechanical workshop management and equipment O0ff practices and the formulation of recommendations to improve equipment care and utilization, as well as assistance to NIA management to introduce such recommendations (6 foreign and 24 local consultant-months); and (d) training for NIA's systems management staff, in systems to be improved under the project, to enhance their systems operation and maintenance capability (8 foreign and 24 local consultant-months) and 15 local consultant-months to provide assistance to NIA in respect of its IA developmeit work (para. 3.19). Based on experience gained from the pilot improved water control structures, a detailed plan will also be prepared for installing such structures on a complete system, including all related physical and institutional improvements required. Detailed terms of reference for the consultancies are at Annex 8.  - 17 - 3.22 Provision of Egulpment and Materials. The project would provide for limited, high priority O&M equipment and materials which will complement equipment acquired under the IOSP I, including tractors/dozers, graders, dump txucks, vibratory rollers, vehicles for light hauls, commumication systems to facilitate improved systems operations, urgently needed office equipment and materials, etc (Annex 7, Table 10). Agricultural Support Services 3.23 Since the responsibility for agricultural extension is being assumed by provincial authorities and the financing of their programs for extension activities in general and in irrigated areas in particular is uncertain at this time, the project would make a small provision for farmer training and requisite technology in NIS selected for improvements. The program will include pilot operations in 3 systems that will be improved in the first project year and the results of these pilot operations will be reviewed before program implementation in the other systems. These operations will include: (a) research-managed verification trials; (b) extension-managed demonstration plots; (c) IA-based seed multiplication; (d) farmer training in improved technologies and information concerning available government support programs for agriculture; and (e) key- farmer training in integrated pest management (IPM) technologies (Annex 7, Table 11 and Annex 9). The Bank is discussing with Government a second agricultural support services project, which is expected to provide services to both irrigated and non-irrigated areas. IV. PROJECT COSTS AND FINANCING Proiect Cgst 4.1 Total project costs, including physical contingencies and expected price increases, are estimated at about US$69.6 million, with a foreign exchange component of US$16.5 million (24X). The cost estimate is based on 1992 prices and includes taxes and duties of about US$1.2 million. Price continjencies assume a foreign inflation rate of 3.75X in 1993, 1.86X in 1994, 2.67X in 1995 and 3.51 thereafter, and a domestic inflation rate of 7X throughout. Project cost estimates are summarized in Table 4.1 and detailed in Annex 7, Tables 1 to 12.  - 18 - Tbte 4.1: PROJECT COST SUN1RY Locat Foreign Total Local Foreign Total foreign ------llttion Pesos ........ --------- -- itnL ...li l.n. SS-X Systems lmoeovement and Recaur (a) Systems IMp. 385.7 128.5 514.2 15.2 5.0 20.2 25 (b) Urgent RepaIrs 103.9 56.0 159.9 4.1 2.2 6.3 35 (c) Erosion Control Works 21.7 2.4 24.1 0.8 0.1 0.9 10 (d) Silt Excluders and Improved Water Control Structures 27.8 15.0 42.8 1.1 0.6 1.? 35 Incremental O&N 508.4 56.5 564.9 20.0 2.2 22.2 10 Institutional Develooment (a) IA Development 39.3 2.1 41.4 1.5 0.1 1.6 5 (b) Technical Assistance 11.1 13.5 24.6 0.5 0.5 1.0 SS (c) Parcellary Nappfng for ISF Collection 6.0 1.1 7.1 0.2 0.1 0.3 15 (d) VIA Staff Training 19.0 4.7 23.7 0.r 0.2 0.9 20 Ce) Equipment and Materials 26.4 79.2 105.6 1.0 3.1 4.1 75 Aaricultural Sucoort ServiceS 18.8 2.1 20.9 0.7 0.1 0.8 10 Total Base Cost 1.168.1 361.1 1.529.2 _L Au Au0 Physical Contingencies 60.9 25.4 86.3 2.4 1.0 3.4 29 Price Contingencies 313.2 152.6 465.8 4.9 1.3 6.2 21 Totat Project Cost 1.542-2 539.1 2.081.j I Ll A i Project Financing 4.2 The proposed Bank loan of US$51.3 million would finance 751 of total project costs, excluding taxes. This would cover 1001 of the foreign exchange component and 661 of local costs. This magnitude of local cost financing is justified by the current budgetary constraints which the Government faces and the expected positive impact of the project on rural poverty. The balance of US$18.3 million of project costs would be financed by the Government (about US$4.8 million or 71 of the project cost) and by NIA (US$13.5 million or about 191 of project cost). In addition to US$13.5 million for incremental O&M, NIX will provide about US$94 million equivalent from its ISF earnings and other revenues for recurrent O&M expenditures (Annex 10, Table 1). Bank/Government funding of the incremental O&M component is based on a conservative assumption of a 67X ISF collection efficiency being achieved by 1998 rather than 701 (para. 3.10) and funding under the loan will be on a declining basis (para. 4.5). Assurances e obtained during negotiations that by June 30 of each year, NIA will furnish the Bank for review and concurrence O&M cashflow for the national irrigation systems, showing actuals for the preceding five years and projections for at least the following five years. Further, to ensure the benefits of the project, assmr&=Ss were obtained at negotiations that Government/NIA will maintain the annual level of O&M services, provided to NISs in each fiscal year at no less than the 1992 level of the same (para. 3.10). Budget releases for the project comprising proceeds of the Bank loan and Government counterpart funds would be channelled through the Department of Agriculture (DA) to NIA in respect of irrigation development and to DA in respect of agricultural development. Government intends to explore grant cofinancing to support IA development, technical assistance and  - 19 - NIA staff training. If such financing is secured, the Bank loan amount would be adjusted accordingly. 4.3 To ensure continuity of the improved 0&K, eligible incremental O0M expenditures of up to US$3.0 million, incurred after January 1, 1993, would be financed retroactively. Procurement 4.4 Procurement (Table 4.2) would follow Bank guidelines. Prior to tendering and award, the Bank would review all bidding packages for goods over US$200,000 equivalent, covering about 701 of the total value of goods. All bidding packages for civil works estimated to cost over US$300,000 equivalent would be subject to the Bank's prior review of procurement documentation, covering about 201 of the total value of works contracts. Other contracts for goods and works wo4ld be reviewed by the Bank on a sample basis, subsequent to their award. All consultant selection arrangements and contracts would be subject to the Bank's prior review. Bank staff have reviewed local procurement procedures and confirm that they are acceptable to the Bank. Assurances will be obtained at negotiations that the following specific procurement procedures and limits would be followed for the various project activities: (a) Goods. Construction, workshop, agricultural and office equipment and vehicles, estimated at US$3.6 million, would be procured through international competitive bidding (ICB). A 151 margin of price preference may be applied under ICB, in respect of goods manufactured in the Philippines, when comparing domestic bids with foreign bids. Items of workshop, agricultural or office equipment, estimated at US$1.0 million, which may be required in small batches at different times and locations, may be purchased through local competitive bidding (LCB). None of the individual LCB contracts would exceed US$100,000, and the total of goods procured under LOB would not exceed US$1.0 million. (b) Works. (i) Irrigation system imnroveMents ed renair works are small, widely scattered over the country and in several instances located in remote areas facing peace and order problems. Foreign contractors (and in some areas, local contractors) are not likely to be interested, as was the experience in the previous project. The works that can be defined physically for purposes of contracting out, and lie in areas in which local contractors are likely to be interested, will be procured under LCB. Contracts let under LCB would not exceed $2.5 million each, and would aggregate to about $14.4 million, or approximately 401 of the improvement and repair works. The remaining 601 of these works will need to be carried out in areas which are inaccessible to contractors because of civil unrest; are too small or dispersed to be economically defined for contracting out; or are most economically carried out through off-season work by the farmers themselves; they would be carried out by force account under individual tasks which would not exceed $600,000 each, to an aggregate amount of $21.6 million. (ii) Incremental GOeration and faintenance Mgrks, for similar reasons as those stated above, would be carried out: by LCB, in contracts not exceeding $2.5 million each, to an aggregate of $6.2 million; through force account, in tasks not sceeding $600,000 each, to an aggregate of $12.3 million; and through  - 20 - piece-work to IAs and groups of farmers, in tasks not exceeding $200,000 each, to an aggregate of $6.2 million. Work carried out by the farmers through piece-work would assist in achieving the objectives of the project of developing IAs which can assume responsibility for maintenance of laterals and turnouts within their areas. NIA has experience and the capability to organize and manage the piece-work and force account operations, for which proper cost accounting would be maintained, including the logging of physical progress, in suitable reports which will be used for disbursements on a basis similar to that of monthly progress payments to contractors. (c) Consultant Services and Technical Assistance. Consultant contracts, estimated at US$1.1 million, would be awarded in accordance with Bank Guidelines for the Use of Consultants. IA development, traLning and mapping including related travel, allowances, training materials, etc., estimated at US$3.2 million would be accomplished by NIA, in continuation of similar work begun under IOSP I. Tabt8 4.2: PROCURENENTO/ (UMS miltion) Expenditure Category IC$ LCB Other Total Cost Juprovement and repair works - 14.4 21.6g 36.0 (13.4) (20.1) (33.5) Incremntal OSN works - 6.2 18.5S 24.7 (2.4) (7.0) (9.4) Equipmnt and Vehcltes 3.6 1.0 4.6 (3.2) (0.9) (4.1) IA development, training, CO- 4.3 4.3 mpping, and technical (4.3) (4.3) assistance Total 3.6 21.6 44.4 69.6 0342} (16,7) C31.4) (51.30 r Includes physical and prce contingencies. figures in parentheses are amounts to be ffnanced by the Bank. W Through force aecount. USS12.3 dillion through fore account, US$6.2 million through piece-work by farmers$ groups. IA development, traininf andmopping -- USS3.2 millton will be accoqpltshed by IA, and technieal assistane -- US#1.1 milttln through consultant contracts.  - 21 - 4.5 Disbursements would be made at the rate of 100l against foreign exchange expenditures for imported equipment and vehicles, 1001 of the ex-factory cost of such items manufactured locally and 801 of expenditures for items procured locally. Disbursement for civil works, in respect of system improvements and repairs, and agricultural works would be on the basis of 931 of total expenditures. Disbursements for the O&l component would be made against 801 of incremental 06K expenditures after January 1, 1993 (cost estimated at US$6.8 million during 1993 and 1994), 501 after January 1, 1995 (cost estimated at US$4.0 million during 1995) and 201 after January 1, 1996 (cost estimated at US$13.9 million during 1996 to 1998). Disbursement for IA development, technical support, training and other institutional support to NIA would be 100l of total costs. The proposed allocation of the loan proceeds is given in Annex 10, Table 1. 4.6 Reimbursement applications for expenditures on irrigation development prepared by NIA and agricultural development prepared by DA would be consolidated by NIA and forwarded to the Bank for reimbursement. Disbursements for LCB civil works contracts would be through reimbursements to NIA on the basis of payments to contractors and certification of completion. Statement of Expenditure (SOs) would be used for disbursement against expenditures on civil works contracts of less than US$300,000, civil works under force account, 06K, institutional development, technical support, training, agricultural work, and engineering and administration. In addition, SOEs would be used for expenditures on minor equipment and materials costing up to US$100,000 equivalent. All disbursement applications for force account and piece-work through SOEs would be based on proper cost accounting, and would refer to physical progress of the relevant works. The threshold for disbursements would be US$50,000 equivalent for reimbursement against local expenditures, and US$10,000 equivalent for direct payments to foreign suppliers. NIA has the institutional capability to maintain required supporting documentation and this documentation would be made available for review by visiting Bank missions. 4.7 Disbursements are expected to be concluded by the.closing date, June 30, 1999, six months after project completion, to allow adequate lag time for releasing contractors' retentions and processing withdrawal applications. An estimated schedule of disbursements is given in Annex 10, Table 2, which also includes a comparison with the Philippines' standard disbursement profile for the agricultural sector. Although the country's agricultural sector disbursement profile indicates about a 9-year period for full disbursements, it is expected that the proposed loan would be disbursed in 6 years from project commencement for the following reasons: (a) the proposed project, in contrast to those on which the disbursement profiles have been based, would finance a time-slice of ongoing activities in the irrigation subsector; (b) the project would cover a number of operating irrigation schemes, the work involved is simple and does not entail any complicated design or require any land acquisition or right-of-way proceedings, and would be executed by NIA regional offices and special project offices, which are already in operation; (c) work in the different NIS would be implemented simultaneously; and (d) the status of preparation for initial work is sufficiently advanced (para. 5.1) to permit an early start on project implementation. The above arguments are supported by the experience under the IOSP I (Loan 2948-PH), where the loan has been almost fully disbursed in about four and a half years.  - 22 - Accounts and Audit 4.8 NIA is a Government agency and, by law, its accounts are audited annually by the Government's Commission on Audit (COA). Separate project accounts indicating the various sources of funds received and expended (by project component) would be maintained by NIA and DA, ensuring that proper accounting and auditing procedures are followed. The project accounts would be collated by the Assistant Administrator for System Operations and Equipment Management, who would bear overall responsibility for the project (para. 5.2). After audit, the project's annual financial statements, together with the auditor's report and opinion on the financial statements, and the auditor's separate opinion on statements of expenditure and certification of expenditure on force account works, would be sent to the Bank within nine months of the close of each fiscal year. V. PROJECT IMLEKENTATION Status of Proiect Pretaration 5.1 Preparatory field work needed to facilitate a smooth start up of the project has been completed in 18 NIS to be improved and the scope of work has been agreed with the lAs (para. 3.4). Similar work has also been completed in respect of the 14 systems identified for urgent repair. Before negotiations, NIA made available to the Bank a detailed program of work and funding proposal for the first year, supported by relevant engineering data, cost estimates, consultant work plans, draft contract bid documents for equipment procurement, and draft terms of reference for all consultancies. These were found to be satisfactory. Assurances were also obtained at negotiations that similar work programs and funding proposals in respect of each subsequent year would be submitted for Bank review by June 30 of each preceding year. OrgauLzation and Manage2mn 5.2 NIA will implement the irrigation development program of the project. NIA has extensive experience in the planning, design and construction of irrigation projects, and has pioneered the participatory approach to irrigation development in the Philippines. The Director of the Systems Management Department (SMD) would function as Project Coordinator (PC) and would handle project activities through a full-time Assistant Project Coordinator (APC). The Assistant Administrator, Systems Operation and Equipment Management (SOEM), would have overall responsibility. At the field level, NIA's 12 Regional Irrigation Offices (RIOs) would be responsible for project planning and the preparation of designs and cost estimates. The APC would finalize and consolidate this work with support from: the Project Development Department (PDD), for overall preparation of work programs in accordance with the approved project proposal; the Design and Specification Department (DSD), for engineering design; the Equipment Management Department (END), for equipment specifications, supply and supervision of equipment operation and maintenance; the Procurement and Physical Resource Department, for procurement; the Institutional Development Department (IDD), for issues relating to the IAs and NIA's Irrigation Management Information System (IMIS); the Training and Development Division of the Personnel and Records Management Department, for the training component; and the Controllership Department (CD), for financial matcers. For this purpose a team of 17 staff comprising ten from SMD, two each from CD, DSD and IDD, and one from END,  - 23 - together with necessary support staff, will be assigned full-time to the APC and be located within SMD. The APC would regularly monitor and evaluate project implementation and the performance and O&M of each NIS using information supplied by the Regional Irrigation Directors (RIDs) and initiate any follow-up action required. A Steering Committee comprising the Assistant Administrator SOEM (Chairman), and Directors of SMD, CD, IDD, DSD and EMD will convene at least quarterly, to review implementation and provide guidance on policy matters and the resolution of problems affecting the project. The Regional Offices would also supervise the execution of civil works and development of IAs, as well as conduct training of NIA personnel and farmers. Overall project management and planning will be strengthened by adopting the use of appropriate project management software. Adequate staff is available for these activities. The organizational structure of SMD and its relationship with the other departments involved in project implementation are shown in Figures 1 and 2. 5.3 The APC would handle day-to-day implementation of the project through NIA's network of RIOs, and coordinate project-related functions of other NIA departments and other agencies, exercise overall control of project funds, and be responsible for the preparation and submission of semi-annual progress reports covering all project activities to NIA Management, the Department of Agriculture (DA), and the Bank (see further paras. 5.9 - 5.10). The Farmer Assistance Unit, within NIA's Institutional Development Department, will provide support for coordinating activities with DA. NIA' s Watershed Management Division will assist in the implementation of erosion prevention measures in erosion prone areas in the immediate vicinity of the systems. Supported by the Treasury and Controllership Department, the APC would arrange for release of funds to the regions, maintain records of financing transactions and exercise overall control of project funds. The APC would also conduct inspections of project works to ensure compliance with quality standards, examine progress of work in all regions to ensure that civil works and institutional development are carried out on schedule and that the work done is of the required quality. 5.4 At the field level, project work would be implemented by NIA's regional O&M teams, supervised by regional managers. All surveys, plans and contract documents for minor rehabilitation work would be prepared by the respective regions. The IDD would be in overall charge of IA development. The IDD coordinates IA development programs and provides planning and implementation assistance to the RIOs which implement the IA development work through individual Institutional Development Officers (IDOs) at the irrigation system level. The IA organizing group, located at the irrigation system level, consists of the IDO, Watermaster (WM), and farmer nominees of farmer irrigator groups (FIGs), designated as Farmer Irrigators' Organizers (FIOs). 5he WM acts as the field organizer/supervisor of the FIOs. The IDO provides the necessary technical supervision and periodic input to the IM and FIOs. Initial introductory work includes regular interactions and dialogues with farmers aimed at encouraging active farmer participation in O&M activities, improving farmer awareness and sense of responsibility, thus paving the way for the organization of FIGs, followed by the consolidation of appropriate groups of FIGs into IAs. The organization and training of IAs is carried out in four steps extending over a period of about one year. 5.5 The quality of all civil and O&M work would be routinely monitored at field level by Quality Control Teams established in each Regional Office, as well as by a centrally-located Quality Control Team (comprising SMD, DSD, EMD, and IDD) at NIA headquarters, which will coordinate the work of the field teams and  - 24 - also periodically monitor work in the field in conjunction with the field units. This control unit will report to thte Project Coordinator. The findings of these teams, actions taken in respect of any problems identified and the status of such problems will be included in the semi-annual project progress reports (paras. 5.3 and 5.10). Assurances in this respect were obtained at negotiations. 5.6 As a safeguard against unwarranted overspending in the course of implementation of works, any work where a substantial adverse change is observed at the design finalization or construction stage, such as an increase in estimated cost or decrease in benefits or a combination of these factors (of more than 15X), would be proceeded with only after being fully re-evaluated by Project Management and reviewed by PDD and other relevant NIA headquarter departments and obtaining NIA senior management's approval. The Bank would be kept informed of such cases and of the results of the re-evaluation. Work not conforming to the above procedure would be ineligible for financing under the project. In order to facilitate this arrangement, NIA has introduced control measures at the work program submission and budget release stages to ensure that initially approved expenditure levels are not exceeded in the course of implementation without the Assistant Project Coordinator having obtained prior approval from NIA's senior management. Assurances were obtained at negotiations that NIA would continue to implement these measures throughout the project period. 5.7 The Department of Agriculture (DA) would be responsible for implementation of the agricultural support services component. The Agricultural Coordinating Section in NIA's Institutional Development Department (IDD) would coordinate with DA and its regional offices. The review of activities in the 3 pilot schemes (Para. 3.23) would be conducted following the completion of 1994 wet-season harvests. Implementation in other schemes would only proceed after a satisfactory review or after suitable modifications have been agreed to by the Bank. DA, through its Bureau of Agricultural Research (BAR), would be directly responsible for the planning, implementation and processing of results of the verification trial program. The certified seed distribution program to lAs would be through DA's Bureau of Plant Industry (BPI) and IPM Farmer Field Schools would be coordinated by BPI's Crop Protection Division. The execution of these activities requires direct provincial and municipal extension assistance. NIA's regional offices will seek the requisite local government cooperation and assistance. Semi-annual (crop) progress reports would be prepared by NIA's regional offices and collated by its IDD Agricultural Coordination Section for submission to the Bank. Iplementation Schedule 5.8 Project implementation would be over five and a half years. Bid invitations for construction, workshop and agricultural equipment, vehicles, and office equipment would be issued soon after loan effectiveness, so that the award of supply contracts can be made during the first project year. In order to facilitate the timely commencement of construction activities, all preparatory work would be completed within the year preceding construction. Preparatory work would include IA development, field investigation, preliminary design, consultation with the beneficiaries, finalization of designs and cost estimates, and preparation of tender and contract documents and force account work programs. Relatively simple works, such as initial desilting of irrigation canals and drains and minor improvements and repairs, which do not require elaborate engineering preparation, are expected to start within the first year. Major repairs and improvements of headworks and other larger structures requiring  - 25 - heavier engineering inputs in detailed design and procurement are not expe-.ted to start before the second project year. All activities related to formation of IAs, training and other institutional support are expected to commence during the project' s first year and continue for the duration of the project. The expanded O&M program would start during the project's first year, and desilting would be phased in gradually to supplement initial activities. An estimated schedule for project implementation is given in Figure 3. Monitoring and Evaluation (M&E) and Reporting Requirements 5.9 The headquarters staff of SMD will conduct the M&E of the project, with assistance from NIA's regional and systems offices. NIA generates a substantial amount of information relevant to overall system operation, and financial and institutional performance of NIS. However, in order to effectively monitor the impact of the project, the following additional systems performance and institutional development indicators are required in respect of areas which will benefit within systems to be improved under the project: (a) Systems Performance: (i) Water required and water delivered at the head of each lateral, sublateral or turn-out-point to an IA; (ii) wet and dry season planned, irrigated and benefitted areas; (iii) ISF collection performance; (iv) similar information in respect of areas expected to benefit from the pilot improved water-control structures; and (v) performance of the pilot silt prevention/elimination structures to be assessed by monitoring the volume and cost of desilting in the relevant canal sections. (b) Institutional Development: (i) Number of farmers in each IA area, membership and stage of IA development; (ii) the impait of IA training at the turn-out service area (TSA). This would be assessed with a 51 sample of IAs selected from areas benefitted by systems improvements as well as from other areas. The IAs selected will be chosen from a stratified sample of IA areas under 200 ha, 200 - 500 ha, and over 500 ha and will be representative of head and tail end irrigation areas. These Ihs will be monitored through the following indicators: number of TSAs; number of farmers; IA membership; timeliness of land preparation; and types and quality of O&M undertaken; and (iii) the impact of interventions targeted at gender-based participation in IAs (para. 3.14). This will be monitored through the following indicators: number of women IA members and officials; number of women in other IA related activities; snd number of women trained and results of the training. Any negative factors which may tend to inhibit women from holding official positions, sharing in decision making or having equal access to project benefits as their male counterparts, will be identified. Baseline data in respect of the above will be established prior to the commencement of project activities in these areas. The number of women involved in the program at NIA's level will also be monitored. 5.10 The implementation progress of each of the project components will be monitored regularly and semi-annual project progress reports will be submitted to the Bank by September 30 and March 31 in each year. The progress reports will include, inter Iali, data on ISF collections, project impact on women and findings of the Quality Control Teams (para. 5.5). Assurances in this respect were obtained at negotiations. The Bank's Supervision Plan is shown at Annex 11.  - 26 - Vl. AGRICULTURAL PRODUCTION. PRICES. AND MARKET PROSPECTS Agricultural Production 6.1 Present Cropping Patterns and Intensity. In the NIS, palay (paddy) is the predominant crop, and farmers generally grow two crops if water is available. In palay production, women have very well-defined roles, generally participating in transplanting, weeding and harvesting. Plowing and harrowing, agro-chemical application, and on-farm maintenance are tasks primarily attended to by men. Only about 2X of the irrigated area is planted to other crops, primarily due to marketing constraints. About 721 is irrigated in the wet season and 68X in the dry season. Insufficient water delivery, particularly in the dry season, remains a problem in many systems. The wet season crop in some locations suffers from inadequate drainage and, as a result, yields and quality are depressed. Without IOSP II, some of the irrigated fields could revert to rainfed farming with adverse effects on production and farm income. 6.2 Future Cropping Patterns and Intensity. With the project, the cropping intensity is expected to increase to about 1501 by project completion from 140X at present. Specifically, wet season cropping intensity would increase to 781 from 721 and dry season intensity to 721 from 681. Without the project, the present irrigated cropping intensity is assumed to continue, though this is a conservative assumption.'f Details are provided in Table 6.1. 6.3 Yields and Production. Monitoring data indicate that the present average palay yields in NIS are 2.8 t/ha for rainfed and 4.0 t/ha in both irrigated wet and dry seasons. These irrigated yields are lower than the yield potential with good irrigation and drainage services, man&gement, adequate agricultural support services and optimal input use. Average fertilizer inputs countrywide are only 4.5 bags (50 kg) per ha (Annex 13, Table 1) compared to the recommended usage of 6 bags per ha per season with adequate irrigation, drainage and agricultural support services. Crop yields could gradually increase due to normal trends in agricultural development with improved seeds, more efficient use of inputs, and improved crop practices. While yield increases are likely to be higher with improved irrigation under the project, no such increases have been assumed and the project incremental benefits have been estimated conservatively on the basis of increased cropping intensities only. Of course, the conversion of rainfed into irrigated areas would mean higher yields for those specific areas. With this assumption, the incremental rice production due to the project would be about 100,000 tons p.a. (65% conversion) at full development in the year 2000. / In the absence of the project, there could be a decline in irrigated areas in both seasons from the very first year due to further system deterioration. Relatively large declines (over 31 p.a. in the wet season and 1 to 41 p.a. in the dry season) have been reported by several recent studies of irrigation systems in need of improvement and better O&M. However, this possible decline without the project has not been taken into account in the calculation of project benefits and the economic rate of return.  - 27 - ti.4a6.I: CROP AREA YIELDS, PRODUCTION AMD CROPPING INTENSITIES PresentiFuture UiRGE Future With Crop Proeic- Crop Produe- Area Yield tion Ares Yield tion ('OOOha) (t/ha) ('COOton) ('OOOha) (tha) (OOOton) Crop AreM (ha) WS Irri. 446.40 4.0 1,785.60 483.60 4.0 1.934.40 OS Irri 421.60 4.0 1.686.40 446.40 4.0 1,785.60 173.60 2.8 486.08 136.40 2.8 381.92 Total 1,041.60 3,958.08 1,066.40 - 4,101.92 ProJect'4rea (ha) Jo 620.000 620,000 WS C.l. (X) 100 100 OS C.I. (2) 68 72 Auta C.I. (X) 168 17n IS-Irr C.l. (2) n 78 DS-IRn C.I. (X) 68 n Afual Irr C.I. 140 150 If Same NIS have water togged areas during wet esson. Other NtS coutd have some rainfed crops in both seasons. W Excludes additionat MIS coming onstream from 1993 aards. Prices and Markets 6.4 The average farmgate price for paddy in the Philippines in 1991/92 Was about P4.5 per kg (US$170 per ton) in line with world market pribes adjusted for reasonable marketing margins. Incremental production of rice under the project is small relative to incremental rice demand (para. 6.5). Consequently, the project will not have ai impact on domestic or international prices. 6.5 The market for rice in the Philippines is estimated to grow at about 2.6X p.a. during the next ten years (para. 1.4). This is based on the latest estimates of population growth of 2.3X p.a., income per capita growth of 3X p.a., and an income elasticity of 0.1. Based on rice demand in 1992 of about 6.3 million tons, the total demand in the year 2000 would be about 7.7 million tons and imports 0.75 - 1.25 million tons. The project incremental output would be only about 7X of the incremental rice demand in the year 2000 and would, therefore, be easily absorbed by the market. VII. PROJECT JUSTIFICATION AND RISKS Proleet Benefits 7.1 The proposed project would contribute to the government goals of poverty alleviation, balanced regional development, and food security. The main benefit would be improved operation and maintenance of the NIS which would in turn increase palay production, farm incomes and employment. The annual incremental rice production due to the project of about 100,000 tons will result in foreign exchange savings of about US$23.0 million in 1992 prices and about US$30.0 million in current prices in the year 2000.  - 28 - 7.2 The project would contribute to alleviation of rural poverty (estimated at over 601 in 1992) by directly benefitting about 460,000 families or 2.8 million persons in the NIS. A survey of 18 national irrigation systems in 1992 shows that most are smallholders: about 73X cultivate farms of less than 1 ha; 21X between 1 to 3 ha; 4X between 3 to 5 ha; and only 21 above 5 ha. About 23X of the smallholders are owner-operators, 451 lessees, and 321 share-tenants (though tenancy was abolished by law in 1963). Of the owner-operators, some 81 are amortizing ovners under the Government's land reform program. The project would also generare employment opportunities during implementation and thereafter through on-farm and related off-farm activities. The incremental direct employment as a result of the project has been estimated at about 2 million person-days. The project would also assist NIA financially through increased ISF collection and provide for sustainability of the irrigation O&N program through increased participation of the lAs in the program. Sustainable farming practices supported under the project would have environmental benefits, which are not quantified or included in the analysis. Financial Analysis 7.3 Farmers' Incomes. To determine the impact of the project on the individual farmer, detailed financial analysis of crop and farm budgets and typical farm models was undertaken. Seasonal crop budgets were prepared for palay only, the dominant crop in the project area. Annex 13, Tables 1-3 present a summary of farm budget analyses for 9 indicative farm models based on farm size of 1 ha, 2 ha and 3 ha and type of tenure (owner-operator, lessee and share tenant). For 1-ha farms, the future income at full development would be P21,190 for owner-operators, P13,780 for lessees, and 010,600 for share tenants. For the whole project, both incremental production and related incremental income averages would be 41, amounting to about P560 for 1-ha farmers, P950 for 2-ha farmers, and P1,500 for 3-ha farmers. The above analysis is based on the calculation that an individual farmer will receive from systems improvement and improved O&M an average increment of 280 kg of palay in the irrigated wet season, and a total of 400 kg from both seasons, assuming no change in irrigated yields with and without the project. From the results of the farm models and assuming that two-thirds of the household income is derived from farm activities and the rest from off-farm work, it appears that all farmers holding 1 ha would still receive yearly incomes below the 1992 estimated poverty line for rural areas of about P36,000 p.a. for a family of six, or about US$235 per capita. 7.4 Beneficiaries' CaDacitv to Pay. An analysis of rent and cost recovery for the project was undertaken, taking into account payment of ISF by the beneficiaries, land taxes (average P150/ha p.a. for irrigated and P100/ha for rainfed land), and indirect taxes on farm inputs amounting to about P160 per ton of paddy. Rent recovery indices were constructed for different farm sizes and land tenure. The rent recovery for project beneficiaries ranges from a low of 241 for a 1-ha owner-operator to a high of 55X for a 2-ha share-tenant. The average rent recovery is 341. Rent recovery is expected to increase further since, after the passage of the Local Government Code in 1992, the municipal and city councils are contemplating an increase in land taxes. Taking the present value of incremental charges, project costs. and annual O0N costs, discounted at 101, the cost recovery is 321. Details are at Annex 14, Tables 1-3. The figures show that there is little scope for further cost recovery as most of the farmers earn incomes way below the critical consumption level of about P14,400 per capita at full development. Both rent and cost recovery under the project would be Figh  - 29 - in comparison to the level usually achieved in projects of this nature in other developing countries. 7.5 NIA's Financial Situation. As NIA does not have to repay the investment costs of its projects (para. 2.12), the issue of NIA's financial viability is simply that of its capacity to meet the O&M expenses of the national irrigation systems. However, since ISF collections at present are inadequate to meet the total O&M expenses (recurrent and incremental), NIA's other incomes such as management fees, equipment rentals, etc., which are linked to the investment budget (para. 2.12), are used to cover a part of OEM expenses. Detailed projections at Annex 15 include these other incomes. The total investment budget for NIA was about F4 billion in 1991 and 03.8 billion in 1992 (Annex 1). However, actual cash releases have been about 40X of the budget. The projected investment budget in Annex 15, Table 1, therefore, assumes a conservative level of about P1.5 billion p.a. With this assumption, projections of income, sources and applications of funds, balance sheet and 06& cashflow have been made at Annex 15, Tables 2-7. The income projections (Table 2) show that unless significant increases in ISF collections and management fees occur, NIA's net income over 1993-96 would be negative even before depreciation. An increase in irrigation investment is possible, given the Government's emphasis on infrastructural improvements (para. 2.15). This would help NIA to a certain extent through increases in management fees. But the main solution would be an increase in ISF collections. 7.6 Projections of O& cashflow (Annex 15, Tables 5, 6 and 7) were undertaken on the basis of 671, 70X and 751 ISF collection efficiency. Project financing of incremental O&M is based on the most conservative 671 ISF collection efficiency. The projections take into account NIA's other income and savings through turnover of ditch tender sections to the IAs. With a minimum 671 collection efficiency, NIA would be able to meet all the ON expenses of national irrigation systems through ISF and other income in year 1999 and with the 701 collection efficiency targeted under the project, this would be achieved in 1998. If, however, a 751 collection efficiency is achieved, the self-financing would occur in 1996 and in year 1999, ISF collection alone would exceed total O&M expenses (p795 million in current terms). The project would, therefore, place the greatest emphasis on increases in ISF collections. 7.7 Imnact on the Budget. As the shortage of Government counterpart funds has been a major issue in project implementation in the Philippines in recent years, the design and scope of the project were adjusted to minimize the burden on the Government. Project average annual cost would be only about 151 of NIA's recent budgets under the General Appropriations Act (Annex 3) and 10 of its total investment budget. Economic Analysis 7.8 The economic rate of return (ERR) for the project is estimated at about 171 (Annex 16). This ERR takes into account the costs and benefits of the five systems where improvements will be initiated in the first year, costs and benefits of all systems where urgent repairs would be undertaken, and other costs allocated as follows: 1001 of IA development, technical assistance and agricultural support services; 501 of staff training; and 251 of erosion control, silt excluders and equipment. The allocation of other costs was based on the consideration that the project ERR currently excludes 13 systems which would be  - 30 - initiated in the second year of the project and also excludes the improved 0K component. The latter was excluded to avoid double counting, that is, since the annual O&M expenditures would be maintained in 1992 real terms at the average level aehieved under IOSP I, the ERR for this component is the same as for OSP I (211). All costs and benefits were at constant 1992 prices. All benefits and costs were adjusted to reflect the prevailing relative economic scarcities/abundance of factors of production in the Philippines according to the following assumptions: (a) the opportunity cost of unskilled labor was estimated at 601 of the prevailing market rate; (b) project inputs that consist largely of imported components such as equipment and spare parts were valued at their border price, adjusted for local transport and other costs. Prices of non-traded goods and services were adjusted to border prices using the corresponding conversion factor; and (c) present and projected farmgate prices for traded goods, namely rice and fertilizers, were derived from the Bank's latest commodity price forecasts (Annex 12), adjusted for quality, freight, insurance, port handling, local transport, and processing costs and trading margins. These projections indicate that world prices of Thai 51 broken rice will decrease from US$294 per ton in 1992 to US$272 in 1995 and further to US$263 in 2000 (in constant 1992 prices). 1.9 Individual component ERRs were also calculated. The ERRs of the 5 NIS selected for system improvement in the first year of the project average about 191, ranging from 131 to 281. The five NIS account for about 801 of the total area and 50X of the cost of the systems to be improved under the project. The balance of the 13 NIS to be improved starting year 2 of the project will be required to have a mlnlmum ERR of 101 as agreed with NIA. With respect to the additional 14 NIS, whose major structures require urgent repairs, analysls of the 20 structures indicates an average weighted ERR of 281, ranging from 121 to 501. For the improved O&M component, the reestimated ERR for IOSP I is 211 (para.7.8). For economic analysis, the benefit assumed for the system improvement component was the increase in the irrigated cropping intenslty. For urgent repairs, the major benefits would be the savings in future repairs. Some systems would also benefit from savings in O&N, prevention of loss of irrigated areas and/or expansion in irrigated area. The key assumption is that without the project repairs would be delayed by three years. A shorter delay would substantially increase the ERRs. 7.10 Sensitivity tests were carried out to determine how the project ERR would respond to increased costs and/or decreases and delays in beneflts. Attractive economic returns would accrue even with substantial negative changes in these variables (Annex 16, Table 2 and Project File Working Paper No. 1). A capital cost increase of 201 would reduce the ERR to 141. A 201 decline in incremental benefits or a two-year delay in benefits, or a combination of a capital cost increase of 101 and a one-year delay in incremental benefits would also lower the ERR to 141. Thus even with conservative assumptions of project benefits, the project is economically viable. Evirmetal Imoact 7.11 The project involves existing NIS spread across the country. No major earth movement, water regulation or storage, deforestation or drainage will be involved. The project includes provision for dealing with project-related erosion-prone micro- catchments using vegetative erosion prevention measures, such as Vetiver grass contouring. Any anticipated adverse environmental impact  - 31 - would be dealt with in the course of normal subproject design and construction. The project would reduce the use of pesticides appreciably by supporting the widespread use of integrated pest management system, which has already been Introduced in the irrigated areas. In addition, extension advice for fertilizer and agro-chemical application would be based on the guidelines of the Fertilizer and Pesticide Authority and only relatively small incremental amounts of agro-chemicals would be used under the project. The use of herbicides would be reduced through improved water control and the potential for any adverse effects from the use of these farm chemicals would be further diluted by the very widespread and dispersed nature of individual irrigation systems. The project would not finance any chemicals for weeds or pest control. With respect to the project's impact on biodiversity, no endangered wildlife species such as the Philippine eagle and Palawan mouse deer will be affected, since the project areas are existing, lowland irrigations systems. By raising incomes and creating employment in the rural lowlands, the project would contribute significantly to stemming the increasing out-migration of poor farmers from these rural areas to uplands and coastal areas, where such migration has caused the most serious environmental problems - forest and other resource depletion and erosion in the uplands, and degradation of near shore fisheries - thereby providing indirect but important environmental benefits. 7.12 Under other Bank-supported projects, watershed management and erosion control are being undertaken to help ameliorate siltation problems in irrigated areas. With respect to water-borne diseases prevalent in some locations in the Philippines, successful programs to reduce the incidence of schistosomiasis and malaria through drainage, chemical controls, health education and curative medicine have been financed by previous and ongoing Bank-supported projects. Through its focus on O&M in irrigated areas, the project would improve drainage, reduce water logging, and promote the development of some otherwise unused portions of land, thereby contributing further to reducing such diseases. With DENR cooperation, specific watershed management and erosion control/prevention measures would be recommended and undertaken. 7.13 NIA's Environmental Cell is closely linked with the DENR. Any unforeseen environmental issues would be identified and proposed solutions described in the progress reports to be submitted by NIA (para. 5.10). It should be mentioned that the Government of the Philippines has adopted the goal of sustainable development under the Medium-Term Development Plan (1993-98) and, consistent with this goal, the Philippine Council for Sustainable Development was recently established. 7.14 The project does not face any major risk as it involves improving existing irrigation systems and sustaining their maintenance. The main potential risk would be the delays in implementation due to inadequate and delayed fund releases by the Government and inefficient procurement. To minimize these risks, agreements were reached at negotiations on funding, programs of work and procurement documents.  - 32 - VIII. AGREO S EED AND RCOMENDATION 8.1 During negotiations, the following assurances were obtained from Government and NIA: (a) NIA will apply agreed selection criteria for all NIS to be improved under the project, and will prepare a detailed Improvement Plan and Operation Plan, on which the proposed improvements will be based, including a maintenance plan, for each of the systems in consultation with and in full agreement with beneficiaries, and will submit a detailed Work Program based on the foregoing, together with detailed System Operation Plans in respect of systems to be improved during each year, with related detailed engineering, cost estimates, and sources of funds, for Bank review by June 30 of each preceding year and implement such works taking into account the Bank's comments (paras. 3.4 and 5.1); (b) NIA will make adequate provision in its operating budget for retirement/severance benefits for DTs and ensure that such benefits are made available to eligible DTs (para. 3.11); (c) NIA will furnish the Bank, for review and comments, the proposed criteria for its incentive scheme and shall take into account the Bank's comments thereon (para. 3.16); (d) By the end of 1993, NIA will furnish the fank a report on all NIS where the ISP collection efficiency was less than 60X in 1992 (para. 3.17); (e) NIA's proposal for a modified ISIS will be submitted by end October 1993 for Bank review and comment, and NIA will incorporate the Bank's comments in the final version (para. 3.20); (f) By June 30 of each year, NIA will furnish the Bank for review 06& cashflow for the NIS, showing actuals for the preceding five years and projections for at least the following five yoars (para. 4.2); (g) GOP/NIA will maintain the annual level of O& services provided to NISs in each fiscal year at no less than the 1992 level of the same (paras. 3.10 and 4.2); (h) NIA will establish Quality Control Teams in each Regional Office and a centrally-located team to ensure the quality of all construction and O&M work (para. 5.5); (i) NIA will implement measures to ensure that initially approved expenditure levels are not exceeded by regional offices in the course of implementation of system improvement without prior approval of NIA's senior management (para. 5.6); and (j) NIA will submit to the Bank bi-annual progress reports on project implementation by September 30 and March 31 in each year and these  - 33 - reports will Include, nteor alla, data on ISF collectlon, project impact on women and findings of the Quality Control Teams (para. 5. 10). 8.2 Subject to the above assurances, the proposed project would be suitable for a Bank loan of US$51.3 million to the Republic of the Ph4lippines at the standard variable rate, with a term of 20 years, including a grace period of 5 years.  - 34 - ANNEXES  SECOND IRRIGATION OPRATIONS SUPPORr PROJECT aOSPM NIA's Onefart *W af SwImed Red*Wm in am (No) 1992 1993 1994 1995 1996 1997 198 1999 2000 2001 2002 CENTRAL OPPCB MonD4y 974 974 974 974 974 974 974 974 974 974 974 DaIy 83 83 83 83 83 83 83 83 83 83 83 SubtoWl 1.057 1.057 1,057 1,057 1,05? 1,057 1,057 1.057 1,057 1.057 1.0 RBGIONAL IRRIGATION OMFICES Mony 1,036 1.036 1,036 1.036 1,036 1,036 1,036 1,036 1.036 1,036 1.036 DAi 6S 65 65 6S 65 65 65 65 65 6S 65 S9bom 1.101 1.101 1.101 1.101 1.101 101 1,101 1,101 1.101 1.101 1,101 PROVINCIAL IRRIGATION OFFICES Monah 1.024 1.024 1,024 1.024 1,024 1,024 1,024 1,024 1,024 1,024 1.024 U Daly 68 68 68 68 68 68 68 68 68 68 68 SubloW 1.092 1,092 1,092 1.092 1,092 1,092 1,092 1,092 1,092 1.092 1.092 NATIONAL IRRIGATION SYSTEM Mon" 4.356 4,356 4.356 4,193 4.123 4.053 3.981 3,989 4,002 4.011 4,014 Daif 1.304 1,070 895 732 662 592 520 523 527 530 531 Subtwl 5.60D 5,426 5.251 4,925 4,785 4,644 4502 4,512 4529 4.541 4.545 REDUCTION IN PERSONNEL Ceutwa Office 0 0 0 0 0 0 0 0 0 0 0 RJoon Offices 0 0 0 0 0 0 0 0 0 0 0 Provluca kin Olfioes 0 0 0 0 0 0 0 0 0 0 0 Ndolnigalon SY5Ms 0 27 184 337 178 178 178 41 73 53 20 Sub91 0 27 184 337 178 178 178 41 73 S3 20 TOTAL PEtSONNEL Mon"hy 7,390 7,390 7,390 7,227 7,157 7,087 7,01S 7,023 7.036 7.045 7.048 Daily 1,520 1,286 1.111 948 878 808 736 739 743 746 747 Toand 8.910 8,676 8,501 8,175 8,035 7,894 7,752 7,762 7.779 7,791 7.7 It  - 36 - 36 - ~~~~~Annex 2 Page 1 of 9 PHIIPPIES SECOND IRRITATION OPERATIONS SUPPORT PROJECT INSTITUTIONAL DEVELOPMENT INTRODUCTION 1. The Institutional Development Program (IDP) for the National Irrigation Systems (NIS) urder the National Irrigation Administration (NIA) is based on the principle of participatory management. The formation, training, and sustaining of functional associations comprising the beneficiaries, known as Irrigator Associations (IAs), is the cornerstone of this approach. Pioneered in the communal irrigation systems (CIS), this approach was introduced into the NIS on a pilot basis in 1968 and became a component of the IDP in 1970. It was expected that the participation of beneficiaries in the decision-making processes of water use and system operation would lead to improved performance of irrigation systems, resulting in increased irrigated area, agricultural production, and farmer income. It was also expected that the consequent beneficiary satisfaction with irrigation services provided by NIA, would encourage an increase in beneficiary contribution to the maintenance of the irrigation system. NIA MANAGEMENT STRUCTURE 2. At the NIA central office, the formation and training of lAs come under the Institutional Development Department (IDD). The IDD works in conjunction with the Systems Management Department (SMD) and the Training Departments (TD) of NIA. This structure is replicated at the Regional and Irrigation System levels. 3. Benefitting from its experiences in the CIS, IA formation in the NIS depends upon the catalyst role of the Institutional Development Officer (IDO). An IDO is typically a college graduate recruited and trained by NIA. At present, there are 120 IDOs covering the NIS, and 40X of this number are women. Dependlng upon staff availability and local requirements of regions and systems, an IDO may have responsibility for a number of lAs. 4. A more intensive level of mobilization on the basis of one institutional worker per IA is provided by the Farmer Irrigator Organizer (FIO), an irrigator resident in the community who is recruited and trained by NIA to organize an IA. 5. In terms of staffing, FIOs and IDOs are critical to IA formation and sustenance. A FIO is hired for a fixed term of twelve months with a stipend of P500 per month. Beyond this point it is up to the IA to retain the FIO on its payroll in an advisory capacity. IDOs are either contractual or casual. Contractual IDOs are hired for IA formation and backstopping per Region. Casual IDOs are hired as foreign funding becomes available.  - 37 - - 37 - ~~Annex 2 Page 2 of 9 IA DiVE WPNKNT 6. Organization. The goal is to form one IA per branch canal at the level of the division under a Water Resources Facilities Technician (WRFT). The first task of the IDO is to identify potential IA leaders to form the Board of Directors. This includes the president, vice president, secretary, treasurer, and auditor. These functionaries head the standlng committees for service provision, planning, evaluation, membership and education, and finance and credit respectively. 7. While IA formation is a bench mark in IA development, formation in itself is not the foundation of IA organization. This foundation is provided by the farmer organization at the turnout service area (TSA). Once parcellary maps are completed and individual irrigators are identified with their landholdings, they are brought together by the FIO in adhoc TSA committees. A typical TSA may have 40 irrigators, each owning one ha of land, and seven to eight such TSA will upon formalization through the election of Chair, Vice Chair, and Secretary, form the IA. The office bearers of the TSA are also part of the standing committees of the IA. It was anticipated that information from this IA organization would filter down to the membership. 8. The target is to form an IA within twelve months. The leadership of this newly formed IA is given Irrigator Association Leadership Installation Conference training. 9. Registration. A newly organized IA will, with the assistance of the IDO, prepare the paper work for registration with the Securities and Exchange Commission. The targeted time for this is two weeks. 10. ontacting. An organized and registered IA may enter into contract with NIA under the following terms: (a) Prior to IOSP I. Contracted IAs were identified as Stage I, Stage II, and Stage III. lAs in the first stage were given contracts for canal maintenance with remuneration of P 610 per 3.5 km of earth or 7 km or lined canal (one ditch tender section) per clearing, once a month, as well as an incentive of 2.5X to 101 for assisting in Irrigation Service Fee (ISF) collection.-Two years of satisfactorily working at this stage entitled an IA to move into the second stage, where it was also given a contract for ISF collection, with the incentive share calculated after figuring 0&K cost at breakeven point. Beyond this point, if 100l of collectible fees was obtained, the IA would receive 30X. This incentive scheme was revised in 1987 to a structured incentive of up to 15X of the total collectible. The third type of contract entailed the complete turnover of the system to the IA, as in a communal system. (b) Under IOSP I. Contracts were identified as Type I, II, I and II, and III. Under the first type, all O0M work was given to the IA, thereby completely replacing the ditch tender, at the rate of P 1100 per 3.5 km of canal. The second type of contract was given to lAs for the collection of ISF and assisting in routine operation of irrigation system, with incentives for ISF collection ranging from a minimum of 21 to a maximum of 101. This incentive system was further revised In  - 38 - Page 3 of 9 1990 to a maximum possible incentive of 15X. Under the third category, IA* were given two separate contracts for O&M and ISF. A fourth type of contract is similar to the Stage III. 11. TraLUnDg. A contracted IA is given at least one round of the following types of training over the next two or three years: (a) Basic Leadership Development Course; (b) Systems Management Training, which includes water distribution, implementation of cropping calendar, system maintenance, ISP collection, and conflict management; (c) Financial Management Training, which covers book keeping and money n&snagement. A secondround of training is given at the request of the IA, which bears 50% of the cost. 12. Shared Management of Operations. To facilitate the operation and control of the main and secondary system, a NIA/IA shared management strategy was introduced by NIA, through its memorandum circular 32 S 1991. It calls for joint planning of OM conferences by NIA staff in the regional and system offices and the IAs, with the support of other government and nongovernment offices for example, the Land Bank of the Philippines (LBP) and the Department of Agriculture. Tasks to be undertaken by this conference included the planning, amplementation, and evaluation of the cropping calendar; delivery and distribution of water; and the acquisition of services from1 other agencies supporting agricultural production in the irrigated area. 13. Irrigator Assistance. IDD mediates and facilitates linkages between the lAs and the following agencies in order to procure loans, obtain agricultural input, market produce, and operate as cooperatives: Department of Agriculture, National Food Authority, Cooperative Development Authority, and Technology and Livelihood Resource Center. 14. The IDD also assists the lAs to monitor their activities through the Irrigator Association Management Information System (IAMIS). IAs are trained to record informatic a on farming activities, water delivery and distribution, harvesting, and ISF collections and to use this information to plan cultivation agenda. This activity will be funded under IOSP II, as part of the activity under the Irrigation Management Information System (IMIS). 15. Progress of IA DevelomUent. The status of IA formation and development as of July 30, 1992 is given in Table 1. A total of 1,742 LAs with a membership of 409,900 farm families are organized over 516,600 ha within the NIS (80X of the service area). An average IA covers 270 ha, and the average land holding per farmer is 1.3 ha. Of the total number of IAs organized, 1,253 covering 387,000 ha and 261,000 farmer families, are contracted for 06M and/or ISF collection. The target of IAs to be contracted under IOSP I was increased from 390 io 693 consequent to increased USAID grant funding. Taking into account the number of IAs contracted prior to IOSP I (570), the number contracted under IOSP I is 683, or 99Z of target.  - 39 - Annex 2 Page 4 of 9 16. Institutiona Design of IOSP II. The design and preparation of IOSP II commenced in August, 1991. The Project Preparation Team (PPT) of NIA, comprising NIA staff and local consultants. prepared the Feasibility Study. Bank missions reviewed, monitored, and provided backstopping activities throughout this period. 17. The IDP Strategy. IOSP II aims to build upon the current level of IA development and further strengthen IA capacity for O0M at the secondary system. It will cover a total of 565,500 ha of the NIS (excluding the 41,217 ha covered under ADB funding) at three levels of intensity. (a) An area of 442,500 ha presently under lAs will be sustained through the financing of positions of IDOs (para. 23) to support the ongoing program of IDD. This will include regular meetings between IDO and IA to provide guidance and followup, and dialoging through attendance at the monthly meeting of the Board of Directors of IAs, and O&M conferences held three times during the two cultivation seasons. It will also entail registration and contracting of lAs presently organized. (b) An additional 27,000 ha of the service area will be targeted for organizing new 1As. Unlike the existing process of organization, which does not include training until the signing of contract, the leaders of IAs organized under IOSP II will be given training in leadership, canal operation and maintenance, and financial management (para. 11). It is anticipated that such training will mitigate the break down of organized IAs, which in the past has resulted in the need for frequent reorganization. lAs organized thus will be contracted within the currently scheduled time frame of twelve months. It is anticipated that all contracts within these two phases of the program will be a combination of Type I and II (para. 10). (c) Finally, a total area of 96,000 ha (21,900 ha to be newly organized plus 74,500 ha currently organized), covering the 18 systems selected for physical improvement, will be incorporated in an intensive program of IA organizing and strengthening to enable the turnover of O&M functions to the IA. 18. The NIA/IA dialogue is the central focus of this project design. This dialogue was implemented in two phases--the joint identification of physical improvements to be undertaken in a given irrigation system, and IA agreement to share in the cost of such work and assume O&1 responsibility, on a contractual basis, for the improved portions of the system. This process was completed by regional teams of NIA and IA representatives by April of 1992 and comprised the following: (a) clarification of goals and planning of strategy by the irrigation superintendent and his staff; (b) the preparation of technical requirements for system operation; (c) joint ldentification and listing of items for physical Improvement; (d) initial preparation of program of work;  - 40 - Page 5 of 9 (e) discussion and signing of memorandum of understanding; and (f) submission of program of work. IA contribution to the cost of physical improvements was Jointly agreed to be at least 25 of labor, excluding paid work undertaken by the IA through local minor contracts at the secondary system (from head of lateral to turnout). The main system will remain the responsibility of NIA, while the responsibility for the tertiary system will remain with the IA, with NIA providing technical assistance, heavy equipment, and materiais needed to undertake the agreed program of work. 19. IA MembershiDOverall. In emphasizing broadbased participation of IA members within the selected 18 systems, monitoring and evaluation will focus on IA performance with reference to the capacity of its members for participation in O&M. The number of UAs repeatedly reorganized (a total of 218 IAs organized between 1989-91) raises the issue of IA sustainability, which is dependent upon the capacity of IA menbership. Moreover, as larger TAs are formed in the interest of economy and as a number of smaller IAs are federated for purposes of obtaining agricultural inputs, marketing, and efficient water management, there is an inherent danger that the voice of the individual member will no longer be heard. Hence, deliberate strategies to involve the maambership becomes critical. Above all, as the IA leadership becomes increasirgly involved in business-oriented activities, reliance on the membership for he performance of routine O&N will become increasingly vital. For this rease , the focus of IA strengthening and training under IOSP II in the 18 selected systems will be on the IA membership at the TSA. 20. IA MemberghlerBase . Within this overall focus on menbership, empbasis will be placed both in programming of activities and training, towards genderfriendly strategies of identifying, targeting, and enhancing the role of women in lAbased activities. Based on available information the number of women irrigators in positions of IA leadership currently is only 3 to 41. At the level of individual IAs, women members are counted on the basis of femaleheaded households. This is explained in terms of the definition of IA membership according to the IA bylaws. It is stated here that the tiller who is also the head of the household is the official IA membr, and in a household that is a conjugal unit, the man is both the tiller and the head of household. He is thereby identified formally as an IA member. However, this must be viewed in the larger context of everyday activities of men and women in the IA. In contrast to the formal membership in the IA as delimited to the tiller of the soil, the more widely prevalent practice is membership by proxy. In addition to participating in transplanting, weeding, and harvesting activities, a married woman will use her proxy membership to actively participate as an ISF collector within an IA. The IA leadership transmits O&t information through women as they are more readily available. Women are represented in greater proportion in the IA organization as secretaries and treasurers. Women also participate more actively and often represent the family in IA training sessions. The household of a married couple in the Philippines is a joint decision making unit (under the Philippine Civil Code they are joint owners of conjugal property). The use of proxy membership is a reflection of tbis joint decision making within the family: It is the household that is given membership in the IA. Therefore, to assess the role of women in the TA, one must include not only the membership of women represented by female headed households but also the extent and nature of proxy membership. There is greater scope for genderbased participation in some areas  - 41 - Annex 2 Page 6 of 9 of work within the IA-for example, ISF collection. Because of her more steady presence, a woman is clearly a candidate for 06M work within the turnout. Outside the realm of these conventional activities of the IA, there are other areas where the participation of women-for example, in incomegenerating projects-will clearly enhance the welfare of the family unit and the IA. Under IOSP II, all possible avenues for including women more thoroughly in the participatory process of decision making within the IA will be explored. 21. Monitoring and Evaluation of IDP. To monitor the impact of training programs introduced for IA members, data on canal clearing and maintenance, water management, and ISF payment will be gathered from a 5X sample of lAs from the 18 systems where physical improvements are undertaken, and this sample will be compared to a similar one taken from the remaining NIS under IOSP II. IAs selected will be chosen from a stratified sample of MAs covering less than 200 ha, less than 500, and over 500 (with membership synchronized as closely as possible to size) and representing head and tail end of systems. The following baseline information will be completed before the start of project: number of TSA groups in an IA; number of members; number of beneficiaries; number of meetings organized (wet and dry season 199293); and types of O&M undertaken at this time. To monitor and evaluate the impact of interventions targeted at genderbased participation in lAs under IOSP II, baseline information on the number of women members and office holders with type of office will be gathered from the 18 systems. The following training interventions targeted towards women will be formulated by NIA, before the start of the project in the 18 systems: FIO/IA Training; ISF Collection; Income Generating Projects; Credit; and Marketing. Training programs targeted towards enhancing and sustaining the participation of women within and outside the IA as described above will be formulated within the scope of membership training, once the baseline information is collected and needs assessment is completed.1' 22. IA Tralning. The target of the training programs and activities will be to identify, mobilize, and motivate the membership of the IA at the TSA with reference to O&M and generally for self management of a financially viable IA. For this purpose, the following types of training programs are included under IOSP II: (a) The Training of Farmer Trainers Program, which will train individual farmers so that they can in turn train other IA members. (b) Value Clarification Training Program is intended for farmers within a Turnout Service Area and aims at enabling IA members to develop a clear appreciation of the value of tasks they are called upon to undertake. For this purpose, such an area is segmented into subgroups based first on water source and then on task distribution. This V There is adequate local capacity for addressing ge'ider concerns in irrigated agriculture and implementing training programs with reference to this. The Department of Agriculture Women in Development (DA-WID) group, Bureau of Agricultural Research, the Philippine Council for Agriculture, Forestry and Natu- ral Resources (PCARRD), and the Technology Livelihood Resource Center (TLRC) are, to name a few, institutions that NIA can call upon in this context. Funding for institutional development provided under Technical Assistance (TA) may be used for this purpose.  - 42 - Au=e 2 Page 7 of 9 training will cover protection of structures, water distribution, ISF collection, conflict resolution, and adherence to rotation schedules. (c) Other types of training for members include Basic Leadership and Financial Manage_ent System Training. In addition, Capacity Building for Agricultural Support Services Training, presently completed in two communal systems with support from the Ford Foundation, vill be introduced for IA leaders in the 18 systems. Training programs to enhance gender participation targeted toward IA members will be formulated after the completion of a needs assessment. The program and implementation schedule for IA organization, registration, contracting, and training is given in Table 2. These training programs have been pilot tested by MIA, and initial impact evaluation of the pilot study in the areas of water management, maintenance, IA performance with reference to ISF collection and participation of members in O&M, and impact on farm production, is encouraging. NU STAFFING AIND STFF TRAININ 23. The IDO will continue as the linchpin of the IDP. The current number of 120 IDOs will be progressively increased to 180 as organization, training, and OW6 activities accelerate during the fiveyear period of the project. Of this total, IDOs will be deployed at the following ratio in the three types of activities earmarked under the program: ___ _IDO_ |I (Nos.) Area per IDO (ha) Organizing 43 633 Sustaining 83 5300 Strengthening 54 1800 COST ESTIMATES 24. IA development costs are based on the latest unit costs incurred by NIA for similar work. The total base cost of this component is estimated at Pesos 41.3 million. Details are presented in the project cost tables.  - 43 -Atx2 Page 8 of 9 Td4le _1: STATUS OF IA DKVEWPXENT June 1992 No. of lAs '000 Farmers Area ('000 ha) Target CY 1998 2,150 460.0 640.0 Organized 1,742 409.9 516.6 Registered 1,442 253.5 412.9 Contracted 1,253 260.7 387.2 Stage I 43 9.2 8.6 Stage II 109 31.1 38.0 stage III 43 10.4 12.7 Type I 336 66.0 102.5 Type 2 350 62.7 139.8 Types 162 372 81.3 85.6 Total 1,253 260.7 387.2 .~~~~~~~~~~~~~  - 44 - A Page 9 of 9 Tables IA OELOPENT TAIIEtS Description No. of IAsha .- of M9 1904 IMf 1996 1997 TM9 oruanizfn. Reisterini Ed Contractins: To be organized 471 4.500W - 29 *8 * To be rgistered 347/152,000 b/ 60 209 1 s To be contracted 536/177900