Philippines - Municipal Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15100 PROJECT COMPLETION REPORT PHILIPPINES MUNICIPAL DEVELOPMENT PROJECT (LOAN 2435-PH) NOVEMBER 3, 1995 Infrastructure Operations Division Country Department I East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Philippine Pesos (P) l ~~~~~~~~Pesos pJer US$1 1985 1 1986 11987 1988 1989 1990 1991 1992 1993 l 167 l 8.6 20 l 2.6 '1 l 21.7 l24.3 l27.5 l 25.5 l27 FISCAL YE.AR Januarv 1 - December 31 MEASURES AND EQUIVALENTS 1 meter (m) = 3.28 feet (ft) I kilometer (kmi) = 0.62 miles (M.1i) 1 hectare (ha) = 10,000 square meters (sq.m.) or 2.47 acres (ac) I linear meter (Im) = 1 meter (m) ABBREVIATIONS AND ACRONYMS BLGF = Bureau of Local Government Finance COA = Co.mmission on Audit CPO = Central Project Office DBM = Department of Budget and Management DILG = Department of Interior and Local Government DOF = Department of Finance DPWH = Department of Public Works and Highways [RA = Internal Revenue Allotment L&A = Local Govermnent Academy LGU - Local Government Unit MIDF = Municipal Development Fund MDP = Municipal Development Project MLG = Ministry of Local Government (now DELG) Ml? = Municipal Training Program NEDA = National Economic and Development Authority PEAC = Pre-aualification Evaluation and Awards Committee PRENMIUNIEfD = Program for Essential Municipal Infrastructure, Utilities, Maintenance and Engineering Development RCDP = Regional Cities Development Project RPTA = Real Property Tax Administration RPU = Real Property Tax Unit  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A Office of Director-General operations Evaluation November 3, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on the Philippines Municipal Development Project (Loan 2435-PH) Attached is the Project Completion Report (PCR) on the Philippines: Municipal Development Project (Loan 2435-PH, approved in FY84) prepared by the East Asia and Pacific Regional Office, with Part n prepared by the Borrower. The Project was the first in a series of Bank-funded municipal development projects in the Philippines. Its objectives centered on providing financing to local governments for infrastructure, improving municipal services, and increasing local technical and administrative capacity. The Project was designed to preclude mrany of the problems experienced in earlier urban projects in the Philippines: the roles, functions and responsibilities of each of the implementing agencies were distinct and well-defined, with minimal overlap. At appraisal, only 15 cities and municipalities were included in the Project, but by loan closing 42 urban centers had received support from the project. The tax mapping component of the Project met with mixed success. Total assessed values of real property increased by 37 percent, but most local governments were not successful in realizing increased revenue. The Project's most significant contribution to participating cities and municipalities was the provision of revenue-weating markets, slaughterhouses, and bus terminals. Economic and political volatility was impossible to anticipate and hindered implementation. Overall, the project achieved its infrastructure financing and institutional objectives. It succeeded in establishing a financial mechanism to provide local governments with direct access to long-term, affordable financing through a Municipal Development Fund. It also established a special unit to assist in the identification, preparation, and implementation of priority infrastructure projects. The Municipal Development Project shows clearly that a demand-driven, competitive selection process is more efficient and effective than the top-down, pre-selected beneficiary approach used under previous Bank-assisted urban sector projects. It also dernonstrated that projects are more successful when local governments assume responsibility for project identification, preparation, and implementation, and that sub-project investment packages should address the most basic needs first. The PCR provides a concise and adequate account of project experience and achievements. The project outcome is rated as satisfactory, its sustainability as likely, and its institutional development as substantial. No audit is planned. Robert Picciotto by Francisco J. Aguirre-Sacasa Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be discLosed without World Bank authorization.   PROJECT COMPLETION REPORT PHILIEPPINES MUNICIPAL DEVELOPMENT PROJECT (LOAN 2435-PH) TABLE OF CONTENTS Paze No. Preface ..............i Evaluation Summary ............. ii PART I: PROJECT REVIEW FROM TEHE BANK'S PERSPECTIVE 1. Project Identity I 2. Background ..... ...I 3. Project Objectives and Description 2 4. Project Design and Organization 4 5. Project Implementation 5 6. Project Results ....8 7. Project Sustainability . . . .11 8. Bank Perforance ....12 9. Borrower Perforrance . . . .13 10. Project Relationship . . . .14 11. Consultancy Services . . . .15 12. Project Documentation and Data 15 PART I: PROJECT REVIEW FORM BORROWER'S PERSPECTIVE ............. 16 PART I: STATISTICAL INFORMATION 1. Related Bank Loans and Credits . . .19 2. Project Timetable . . .20 3. Disbursements . . .20 4a. Summary of Project Costs 21 4b. Summary of Project Financing .. 22 5a. Direct Benefits 23 5b. Summary of Economic and Financial Impact. 26 6. Status of Covenants . . .27 7a. Use of Bank Resources: Staff Inputs . . .28 7b. Use of Bank Resources: Missions 28  I  i PROJECT COMPLETION REPORT PHILIPPINES MUNICIPAL DEVELOPMENT PROJECT (LOAN 2435-PH) PREFACE This Project Completion Report (PCR) summarizes the implementation of the Municipal Development Project (MDP), also known as PREMIUMED (Program for Essential Municipal Infrastructure, Utilities, Maintenance and Engineering Development). Loan 2435-PH in the amount of US$40.0 million was approved on June 5, 1984 and the loan agreement was signed on August 10, 1984. However, the loan'did not become effective until February 21, 1985, three months after the original effectiveness date due to delays in obtaining the legal opinion from the Department of Justice. The Loan Closing Date, originally June 30, 1991, was extended twice, each time by one year. The final closing date was June 30, 1993. A cancellation of US$4.19 million occurred at the time of final loan account closing. The last disbursement was made on November 12, 1993. The PCR preparation mission took place in April, 1994. The PCR was jointly prepared by the Infrastructure Operations Division of Country Department I of the East Asia and Pacific Region (EAIIN) and the Borrower. It is based, inter alia, on the Staff Appraisal Report (SAR), the Loan Agreement, supervision reports, the Borrower's own records, correspondence between the Bank and the Borrower, and internal Bank memoranda.   i. PROJECT COMPLETION REPORT PHILIPPINES MUNICIPAL DEVELOPMENT PROJECT (LOAN 2435-PH) EVALUATION SUMMARY Obiectives 1. The Municipal Development Project (MDP) was the first of the Bank-funded series of Municipal Development Projects in the Philippines. Subsequent projects were MDP II (Ln. 3146-PH) and MDP 1Il (Ln. 3455-PH), approved in 1989 and 1992, respectively. The objectives of MDP were to assist local governments outside Metro Manila to provide infrastructure and improve municipal services by: a) establishing a mechanism to provide local governments with direct access to long-term development finance on reasonable terms (the Municipal Development Fund or MDF); b) establishing a permanent national-level technical intermediary (building on the existing Central Project Office, organized in 1981 under MPWH, the former DPWH) to (i) assist local govemrnments in identifying infiastructure investment priorities; (ii) evaluate project proposals for financing; (iii) monitor and control the program; and (iv) act as a principal liaison with the Bank and other extemal funding agencies in promoting urban service improvements throughout the urban hierarchy; c) strengthening local technical and financial capacity for project implementation and service management through implementation of a broad based Municipal Training Program (the MTP) and through organizational and fiscal reforms; and d) improving local government fiscal performance, through the Real Property Tax Administration program (RPTA). 2. MDP distinguished itself from previous Bank-assisted projects in the urban sector in the Philippines by means of a competitive, bottom-up process of self-selection of cities and municipalities: qualified LGUs had to initiate and prepare investment proposals and agree to take the necessary fiscal, administrative and managerial improvements in order to receive financing through the Project. Other innovations that distinguished MDP included its commitment to reach a greater number of urban centers, in all parts of the country, than were reached before, and its relatively simple design.  111 Implementation Experience 3. Implementation proceeded slower than anticipated, due in part to political transition at the central Government level and the 'People's Revolution" in 1986. Implementation picked up after local Governrment elections in 1988. The Project was completed, after two extensions, in June 1993. The final cost amounted to $74.6 million, $42.6 million of which was local cost and $32 million foreign exchange cost. Total loan funds utilized amounted to $35.8 million of the $40 million approved. Results 4. Overall, the first Municipal Development Project achieved its infrastructure and institutional objectives. It succeeded in establishing a financial mechanism to provide local Governments with direct access to long-term, affordable financing in the form of the MDF. In the CPO, it established a technical intermediary to assist local Governments in the identification, preparation and implementation of priority infrastructure projects. The Municipal Training Program, supervised by the newly-created Local Government Academy (LGA) within the Department of the Interior and Local Government (D[LG), achieved its objective of strengthening local government capacity, particularly in finance and project management, but also in other areas such as contract management, detailed engineering, construction supervision, infrastructure maintenance and equipment management, and community mobilization. Eighty-one training courses were held, covering 11 technical and managerial modules and benefiting over 3,800 local government staff. The tax mapping component of the Project has had mixed success. Total assessed values of real property tax units increased by 35%, but local governments on the whole have not been successful at hamessing the expanded tax basis of their real property, for several reasons, including: the difficulty of administering the real property tax; the reluctance of local officials to enforce tax collection measures without being able to show significant improvements in the provision of municipal services; and the decrease in the relative importance of the RPTA as a local revenue source. 5. At appraisal, only 15 cities and municipalities were identified and included in the Project, but by loan closing 42 centers had availed themselves of loans to finance the expansion and upgrading of their infrastructure projects. But while MDP was conceived of as a comprehensive project that would cover a wide range of local infrastructure and area improvement needs, in the end, the Project's most significant contribution to participating cities and municipalities was in the form of revenue-generating sub-projects, specifically markets, slaughterhouses and bus terminals. Sustainabilitv 6. Sustainability of the sub-projects is likely. Preliminary economic rates of return from selected project centers (Table Sb) suggest that net benefits from market, bus terminal and slaughterhouse sub-projects on the whole are higher than thresholds established at appraisal. Financial rates of return in most cases have been lower than estimated at appraisal, but have also been positive. A constraint to sub-project sustainability could be the generally weak performance to date of local govemments in infrastructure maintenance, but maintenance is being addressed in MDP III under a separate project component. Another constraint is the reluctance so far of many  iv local governments to improve real property tax collection efficiencies. BLGF/DOF staff have agreed to start monitoring the RPTA' s progress in terms of actual revenue yields materialized. 7. The sustainability of the Project's main mechanisms and institutions, the MDF, CPO and LGA, is also likely. There has been a heavy demand for MDF's resources, resulting in larger than expected accumulated second-generation funds. MDF has experienced relative success as a long-term financial mechanism. DOF and DBM are currently taking concerted action to apply the IRA intercept mechanism to recover delinquent loans (para. 5.8). The CPO has continuously upgraded the slills of its staff in order to be better equipped to analyze LGUs' needs for sub-projects, particularly in the context of their broader development. Continued strong demand on the part of LGUs for training by the LGA under MTP has ensured the LGA's ongoing role in MDP mI. Training is being redesigned to link it more directly to borrowers' needs and sub-project implementation. A Bank-supported (Institutional Development Fund) study is currently underway that will examine the long-term institutional arrangements for local government loan financing, particularly from private sources. Findines and Lessons Learned 8. Among the most important lessons of experience for the Municipal Development Projects are the following: a) A demand-driven, competitive selection process is more efficient and effective than the top- down, pre-selected beneficiary approach used under previous Bank-assisted urban sector projects. b) Local governments should assume responsibility for project identification, preparation and implementation, as this increases their commitment to a sub-project. But national agencies should maintain a close, supportive role during sub-project preparation and execution. The obligations and responsibilities of each participating agency should be well-defined in advance, and have minimal overlap. c) Sub-project investment packages should be limited to what can be prepared, evaluated and completed over a three year period, which is the term of local governnent officials. They should address the most basic needs first, and should be on a scale compatible with the technical capacity and financial resources of the implementing local governments. d) In order to increase the impact of the Municipal Development Projects on municipalities and contribute to local capacity building, local government applicants should be made to show the CPO a development plan, specifying how the suggested sub-projects contribute to it, as a prerequisite for (further) borrowing. e) Project centers with completed sub-projects should be required to set aside an agreed amount of funds for maintenance, in a Maintenance Trust Fund. f) Local government capacity and commitment must be demonstrated through adherence to obligations, timely and prompt execution of project activities, and imposition of required institutional and fiscal reforms as a prerequisite for subsequent, larger packages from the NDF.   I PROJECT COMPLETION REPORT PHILIPPINES MUNICIPAL DEVELOPMENT PROJECT (Loan 2435-PH) PART I: PROJECT REVIEW FROM TEE BANK'S PERSPECTIVE 1. Proiect Identitv Project name Municipal Development Project Loan No. : 2435-PH RVP Unit East Asia and Pacific Region Country Philippines Sector Urban 2. Background 2.1 The Philippines is one of the most rapidly urbanizing countries in East Asia From 1960 to 1990 the urban population increased from 17.9 million, or about 37.3% of the total population, to 29.5 million, almost half of the total population. Metro Manila, expected to grow to over 13 million people by 2000, dominates the urban sector. But the medium-sized regional cities are also growing rapidly --some with annual growth rates of over I10/-o and are home to an increasing proportion of the urban population. These urban centers function as market, service and transportation centers to their hinterlands and are often provincial capitals with govemment and educational facilities. 2.2 The Bank has assisted the Govemment of the Philippines in developing policies and programs in the urban sector since 1976. Bank investments have been directed mainly at improving municipal services and infrastructure, and encouraging the development of central and local-level institutions, management and resource base. The first three urban development projects, the Manila Urban Development Project (1282-PH), the Second Urban Development Project (1647-PH), and the Third Urban Development Project (1821-PH), were comprehensive, multi-sector and multi-agency projects which proved to be difficult to manage. The Regional Cities Development Project (2257-PH) applied the comprehensive, multi-agency approach to the regional cities and was the first Bank project to on-lend funds to local governments in the Philippines. The design of the RCDP was found to have similar disadvantages as those of the previous three projects. It was top-down, with pre-selection of project cities done by the national Government, which led the cities to consider the funds as an entitlement. The design also proved too complex and rigid and the project too large relative to the local governments' administrative and financial capabilities. As a result of all these factors, RCDP used up a tremendous amount of Bank resources, particularly in the development stage (PCR, RCDP, June 30, 1994).  2 2.3 The Municipal Development Project (NDP), also known as PREhIIUMED (Program for Essential Municipal Infrastructure, Utilities, Maintenance and Engineering Development), became the first of a series of three municipal development projects to adopt a different approach as a result of lessons learned from the previous urban projects. Subsequent projects were MDP II (Ln. 3146-PH) and MDP III (Ln. 3455-PH), approved in 1989 and 1992, respectively. This new approach entailed involvement on a more limited scale, in a narrower range of sectors, with a shorter time horizon, and with a much larger number of local government units (LGUs)'. MNDP had many of the same objectives as RCDP but, instead of that project's top-down stnucture, it introduced a bottom-up design whereby local governments would have to apply and compete for funds and technical advice. 3. Proiect Obiectives and Description 3.1 Project objectives: MDP sought to help local governments outside Metro Manila provide and upgrade their infrastructure and improve municipal services by: a) establishing a mechanism to provide local governments with direct access to long-term development finance on reasonable terms (the MDF); b) establishing a permanent national-level technical intermediary (the CPO, originally organized in 1981 under MPWH, the former DPWH) to (i) assist local governments in identifying infrastructure investment priorities; (ii) evaluate project proposals for financing; (iii) monitor and control the program; and (iv) act as a principal liaison with the Bank and other external funding agencies in promoting urban service improvements throughout the urban hierarchy; c) strengthening local technical and financial capacity for project implementation and service management through implementation of a broad based municipal training program (the MTP) and through organizational and fiscal reforms; and d) improving local government fiscal performance, through the Real Property Tax Administration program (RPTA). 3.2 Project description: the Project consisted of the following components: a) Urban Infrastructure: provision of secondary and tertiary drainage systems and rehabilitation of pnrmary drainage systems together with shoreline protection; provision of sanitation facilities in dense residential areas; improvement of solid waste disposal sites; area improvements to squatter and slum communities; construction and rehabilitation of road systems including implementation of traffic engineering measures; provision of bus David Pasteur, Lending for Municipal Development in the Philippines: the Institutional Impact of World Bank Projects 1976-1990, Institute of Local Government Studies, University of Birmingham (UK), p. 106.  3 terminals; improvements in water distribution systems; and rehabilitation and construction of markets and slaughterhouses. b) Infrastructure and Equipment Maintenance: upgrading and procurement of equipment for maintenance depots; and procurement of equipment for solid waste management, septic tank emptying and infrastructure maintenance. c) Tax Mapping: preparation and procurement of equipment for updating cadasters; appraising properties; and improving records management and increasing actual collections, under the Real Property Tax Administration program (RPTA). d) Training: conducting training programs in the following areas: (i) municipal finance and revenue administration; (ii) municipal enterprise management; (iii) planning and budgeting, project development and contract management; (iv) municipal engineering maintenance, under the Municipal Training Programn (M!P), and e) Technical Assistance: consultant advisory services to assist project implernentation and training, and studies directed principally at structural reforms to promote improvements in local governments' budgeting and fiscal administration. This amounted to 516 man-months of assistance (i) to the CPO through DPWH and DOF for project development; (ii) to DOF and DBM for the review of a local government grants system and local budgeting procedures; and (iii) to MLG for the study of training needs, resources and the development of a national training program. 3.3 The total Project cost, including contingencies, taxes and duties, was estimated at about US$68.7 million at appraisal. The Bank loan of $40.0 million was planned to finance the total foreign exchange requirements ($32.2 million) including the front-end fee ($0.1 million) and about 21% of local costs ($7.7 million). Part of the total loan proceeds ($11.8 million) was estimated to be retained by central Government for financing tax mapping, training and consultant assistance and capitalized front-end fee. The remaining Bank loan was expected to be passed on to MDF to finance projects implemented by local governments. 3.4 The Staff Appraisal Report (SAR) identified the following as the project risks: a) the ability of the central Government to maintain its counterpart share of the Project in a period of national economic and financial constraint; b) the failure of the local governments to carry out the necessary financial reforms so that they would not be able to generate counterpart funds during implementation or maintain payrnents to the MDF after completion; and c) the ability of the CPO to manage the Project considering the substantial increase in management complexity during project implementation as more cities are brought into the project stream.  4 4. Proiect Desien and Organization 4.1 The Project was to have been implemented over a six year period, from July 1984 to June 1990. DPWH was the lead agency for the Project, and Chair of a Project Steering Committee consisting of Undersecretaries/Assistant Secretaries of the main implementing agencies, DPWH, DOF, DILG, DBM and NEDA. The Steering Committee's tasks included providing policy guidance to the CPO Director, reviewing the selection of cities, and appraising sub-projects. The CPO, which was organized as a Project Office under DPWH (then MPWH) in 1981, was transformed into a technical intermediary providing technical assistance, evaluating project proposals for financing, monitoring project implementation and acting as liaison with the Bank. The MDF was set up under the DOF, as the principal mechanism for channeling long-term loan finance for urban services to local governments, and is supervised by the DOF's Bureau of Local Government Finance (BLGF). It was not meant to be involved in technical approval or supervision, and acts on authorization from the CPO. Coordination between the CPO and DOF/MDF is secured through the Steering Conmnittee, and through close working relationships2. DOF manages and supervises the tax mapping project, and D[LG houses the Local Government Academy (LGA), established in 1987 to implement the Municipal Training Program (MTP). 4.2 MDP was designed to create a demand-driven, competitive environment for funds and enable fund allocations to be adjusted and maximized on the basis of performance, capacity and commitment of local governments. Qualified local governments had to apply for assistance and needed to demonstrate their capability to prepare investment proposals and implement the necessary fiscal, administrative and managerial improvements in order to receive financing. At the local leveL sub-projects were proposed to the CPO by the Mayors and Sangguniang Panglungsod/Bayan (Local Legislative Councils), which also established local Advisory Committees composed of key councdi members prior to project implementation. Local Project Officers were designated by mayors who, together with staff from existing local government departments, developed investment proposals and managed the implementation of projects in the approved packages. As such, the concemed local governments themselves -were responsible for the implementation of the sub- projects: LGUs were not meant to be merely 'beneficiaries", but executing agencies. In order to assist local governments in assuming more responsibility for planning, financing and implementation of local services, one of the objectives of the Project was to upgrade technical skills at the local level. 4.3 The organizational structure of the Project was formalized through Presidential Decree (PD) 1914, dated March 1984. The MDF was expected to become the channel for all local government borrowing from official (bilateral and multilateral financial institution) sources. However, the question of monitoring all foreign assistance to local governments arose during the drafting of PD 1914. As a result, the MDF was used as a channel for all official funding -grants as well as loans- to local governments, thus making it more a disbursement mechanism than a fund. 4.4 MDP was designed to preclude many of the problems expenrenced in the earlier urban projects in the Philippines, such as: complexity of institutional arrangements, multiplicity of institutions, ambiguity in institutional roles and responsibdities and circuitous decision-making processes. The roles, functions and responsibilities of each of the implementing agencies were distinct and well-defined, with 2 Pasteur, p. 57.  5 rninimal overlap. The fact that they had overlapping memberships in their respective policy-maling bodies facilitated coordination of planning and implementation. No new departments or project offices were established at the local level, unlike in earlier Bank-funded projects when new units were created and superimposed over existing organizations. 4.5 The Project was implemented during a time of unusual political turbulence and economic recession, when the central Government, from which local governments derived nearly half of their revenues, was faced with serious budgetary problems. Despite the instability and macroeconomic difficulties in the Philippines at the time, the Project provided some local govermnents with access to much needed funds and in so doing arrested the rapid deterioration of infrastructure and municipal services that was occurring due to insufficient funds for operations and maintenance. 5. Proiect Implementation 5.1 Critical Variances in Project Implementation: The loan was approved by the Board on June 5, 1984 and signed on August 10, 1984. However, it did not become effective until February 21, 1985, three months later than the original target date, due to the delay in obtaining the legal opinion from the Department of Justice. The Project was originally scheduled to be completed in June 1990 and closed in June 1991. The final loan closing date was June 30, 1993, after two extensions. 5.2 Start-up was slowed by political transition at the central Government level and the 'People's Revolution"in 1986. Tendering began only in the third quarter due to delays in the issuance of Certification of Availability of Funds, and because budget funds for the national components in 1985 were not released until the end of the second quarter. Since the budget included funds for detaded engineering as well, tendering and the start of construction were delayed until the fourth quarter. 5.3 Implementation was also much slower than anticipated at appraisal, for several reasons. First, the recession in the Philippines brought about serious budgetary constraints at both the national and local government levels. Local budgets in 1986 were smaller than expected because of the Government's decision to postpone the regular increase in property assessments until 1988 and because of lower than expected central Government budget transfers. Second, the change of govermnent folowing the presidential elections in 1986 resulted in the replacement of senior officials of national agencies with new officials who were not familiar with the Project. The change in government also resulted in the replacement of mayors with Officers-in-Charge, some of whom criticaly reviewed investment programs initiated by previous mayors, a process which took considerable time. Moreover, the uncertainty of tenure of the Officers-in-Charge and the postponement of local elections made it difficult for local government administrators to commit to the Project. 5.4 Implementation of MDP picked up only after the local elections in 1988. Thus, by June 1991, the original loan closing date, actual disbursement was stiDl only $18.5 million or 511.6% of the full loan amount of $40 million projected at appraisal (Table 3). However, all loan finds allocated for sub-loans to local governments had been on-lent. By December 1992, the second loan closing date, actual disbursement was $31 million or 86.6% of the loan. AD but 8 contracts being implemented by local governments were completed at the end of 1992. A second extension was requested by the  6 Government --and approved-- to June 1993 to accommodate the completion of the remaining 8 contracts and additional tax mapping projects in 14 centers. 5.5 Tax Mapping (RPTA): The tax mapping component also got off to a slow start, with only one center starting the prograrn in 1987 and an additional center implementing tax mapping in 1988. The delay was due primarily to the replacement of mayors during the change of govermnent in 1986 and the hiatus that followed during the period when local governments were administered by Officers-in-Charge. However, by mid- 1990 implementation was underway in all project centers and, by June 1992, 69 project centers had completed the program and 14 additional centers had begun implementation during the same year. It was decided that the RPTA program would follow a regional- based approach, whereby it would be applied eventually to all municipalities by region, irrespective of whether MDP had investment projects there or not. 5.6 MDF: Initially, problems with MDF accounting procedures slowed down implementation. The financial management, accounting and auditing systems of the MDF during its *first years of operation were inadequate and proved a constraint to both monitoring and project implementation. Corrective adjustments were subsequently made to streamline the operation of the MDF, including the provision of an adequate number of qualified staff to handle the increased magnitude of work as project implementation in the 42 centers reached its peak. One problem was with MDF's billing and collection system. As of August 1993 overdue debt amortization amounted to P41 million, and arrears as a percentage of total billings increased from about 8% in 1992 to 15% in 1993. One of the reasons cited for this was the poor comnunication between MDF and local debtor governments. Local officials complained that blling statements from MDF were not being received. As a result, local governments needed to pass supplernental budgets to correct differences in debt service requirements before actual payments were made. Administration of the MDF is being corrected in the successor project, MDP IIL with the restructuring of the DOF's Special Project Management Service, which handles administration of sub-loan releases, billing and collections and the RPTA program. 5.7 Another problem has been the continued delay in the submission of project audits to the Bank. LGUs are required to submit Commission on Audit (COA) reports to the MDF via the CPO by February of each year, covering sub-loan disbursements of the preceding year. The MDF then evaluates and consolidates the COA reports and submits them to the Bank. Of the 42 LGUs which participated in MDP, all but one has now submitted an audit report to the MDF. However, the LGUs were very often behind schedule in completing their reports. This has not improved much with the successor projects: MDP II COA reports for 1993 were only submitted to the Bank in May 1995. 5.8 The deterioration of collections was exacerbated by the temporary suspension of the Intemal Revenue Allotment (IRA) intercept. Local governments had consented to the automatic deduction of seriously overdue amounts from their quarterly IRA allocations (a transfer from the central Government to the LGUs) by the MDF. When the responsibility for releasing IRA allocation was transferred from DOF to DBM, however, questions regarding the legality of the use of the IRA intercept were raised within DBM in the context of the implementation of the Local Government Code starting in 1991. The use of the IRA intercept mechanism was suspended temporarily. However, since then it was established that the Implementing Rules and Regulations of the Local Government Code allow the use of the IRA intercept, provided that it is approved by the mayors and local councils of the  7 concerned debtor local government. DBM has resumed the use of the IRA intercept to cover delinquent payments on MDF loans. 5.9 Training (MTP : The training component was delayed and did not start in earnest until 1990. Before that, only one training course had been conducted in 1988 and 4 in 1989. Beginning in 1990, eleven basic modules and two special courses were held under the auspices of the MTP for local government staff from the project centers, namely: an orientation conference on the implementation and management of the MDP; project development and preparation; municipal finance and revenue administration; detailed engineering; construction supervision; contract management; public market management; slaughterhouse management; bus terminal management; infrastructure maintenance and equipment management; and community mobilization. The two special courses were a total quality management/team building workshop and project completion preparation. 5.10 The delay in the implementation of the MTP was due to the following factors: (i) The new administration of DILG which took over following the change of government in 1986 was initially opposed to the Project and MITP was temporarily shelved. It was only during the second half of 1987 that MTP was reactivated and placed under the supervision of the newly-created LGA_ (ii) Although the LGA was created in 1987, it took almost a year to appoint staff and set up administrative systems and procedures, and almost two more years to bid out, evaluate, award and start contracts. (iii) The LGA was under the direct supervision of the Secretary of the DILG, and most technical and management decisions had to be referred to the Secretary or his designated officer. All administrative and financial matters were also handled centrally at the DILG head office. This resulted in circuitous administrative procedures which unduly delayed releases of funds, approval of contracts and payment of contracts as well as decisions on technical matters such as training design and schedules. 5.11 In January 1993, the Bank requested that LGA eliminate the adniinistrative bottlenecks which hampered training as a prerequisite for the continued implementation of MTP by LGA_ By mid- 1993, DILG had approved measures to eliminate administrative constraints and bottlenecks. A separate Pre-qualification Evaluation and Awards Committee (PEAC) was created in LGA, and the LGA was also given the status of a regional office to facilitate administrative processing. The MTP Operations Manual was officially adopted by DILG. 5.12 / General: Modifications in the methodology for beneficiary and project selection and packaging expanded coverage and improved the speed of implementation. Under the initial set-up, the CPO was deeply involved in project identification and project preparation. However, by transferring the responsibility for such activities to local governments themselves, the CPO was able to concentrate on a greater number of urban centers. Thus, the CPO was able to focus on the evaluation and appraisal of investment proposals, processing of sub-project and sub-loan agreements, and monitoring of project implementation. 5.13 Another modification which benefited the Project related to the system of budgeting and fund releases. Initially the MDF budget was earmarked by city and project component, so that funds could not be reallocated by CPO for any other centers. This slowed down the pace of project implementation and tied down funds unnecessarily, particularly in cases where local governments were unable to continue with the project, or else only on smaller scales than previously agreed. After modification, funds were committed in lump sum amounts, thus enabling the CPO to reallocate funds according to the progress of programs in each center.  8 5.14 Project Cost: Actual total cost of the Project arnounted to US$74.6 rillion, US$42.6 million of which was local cost and US$32 of which was the foreign exchange cost. The final cost increased in peso terms due to a combination of actual inflation being higher than that projected at appraisal, adjustments to project components, and a longer implementation period which resulted in higher unit prices. The decrease in project cost in US dollar terms is due to the depreciation of the peso, which dropped from P14 to the US dollar at appraisal to P27 to the US dollar by 1993. 5.15 Of the US$40 million original loan for MDP, only US$35.81 million was utilized. The date of final disbursement was November 12, 1993. The undisbursed loan balance of US$4. 19 million was requested for cancellation by the Borrower. As regards budget releases, an unutilized allotment amounting to P142.3 million was reallocated to sub-projects of MDP m, based on a resolution subsequently passed by the Policy Governing Board of the MDF. 6. Proiect Results 6.1 Physical impact: In many cases, MDP financed the single largest investments ever undertaken by the municipalities. It broadened the number of urban project sites of the Bank to 42 urban centers scattered in practically all regions of the country. In so doing, it created a further demand for financial and technical assistance among as many as 200 other urbanizing centers in the country, leading to the development of MDP m. However, xwhile there has been a willingness to borrow, local govemments have adopted a conservative approach to loans, requesting financing primarily for municipal market construction and rehabilitation and other revenue-generating projects, such as slaughterhouses and bus terminals, at the cost of other investments. Markets provide clear revenue streams to offset debt service requirements, and for elected officials they are also popular and politically sound investments in the Philippines due to their frequent usage and important social function in local communities3. Consequently, MDP did not end up financing as comprehensive an investment program as originally planned. Many of the Project's wider objectives, including area improvements, water supply, roads and drainage systems, were too large and comprehensive for local governments to undertake, and ended up instead as national projects and grants. 6.2 MDP achieved its objectives of assisting local governments expand and upgrade urban infrastructure. At appraisal, only 15 centers were identified and included in the Project. By loan closing date, 42 urban centers had availed themselves of loans to finance the expansion and upgrading of infrastructure and benefited from project grants from the national Government. One of the reasons for the increase in local government borrowers was the willingness of mayors to borrow for revenue- generating projects such as markets and public facilities. a) Over 22 km of local roads and 66 kmn of natiorial roads were constructed, thereby improving mobility and traffic flows within the project centers and increasing property values. 3 Pasteur, p. 112.  9 b) Over 32 km of local and 67 km of national drainage systems helped to minimize flooding and soil erosion and reduce damaze to property and public infrastructure, and resulted in the reduction of the incidence of water-bome diseases due to decreased exposure to stagnant storm water. c) The 41 market sub-projects resulted in permanent stalls for more transient vendors, safer and more properly-arranged facilities, reduction in congestion and traffic problems within the market vicinity, more efficient distribution of goods and services, and overall heightened business activity in the markets. Thirty-five of the market sub-projects involved new construction and the remaining 6 involved rehabilitation of existing markets (see Table 5a). Of the 36 municipalities with market sub-projects, 6 did not raise any fees, and one market is still not operational. d) Five slaughterhouses were constructed and one rehabilitated, thereby helping to minimize illegal and unhygienic backyard slaughtering and reducing health risks due to unhygienic handling and processing of meat. e) The construction of three bus terminals reduced traffic congestion on city roads, provided convenient transfer facilities, improved commuter mobility and improved the revenue base of local governments. f) Two solid waste sub-projects expanded the area covered by improved garbage collection and disposal systems, thereby reducing health risks to local residents. g) One water supply sub-project rehabilitated and improved water distribution to a satisfactory degree. h) Over 47 km of shore protection was constructed to reduce damage to properties and infrastructure by preventing soil erosion along the shoreGine. 6.3 With regard to enforcing maintenance the Project was less successful, however. The Sub-project Agreement provided for the establishment of a Maintenance Trust Fund, which required local governments to set aside agreed amounts for maintenance of municipal markets and infrastructure. Despite this provision, LGUs failed to establish the Maintenance Trust Funds either during or after project implementation. To accord the pervasive problem of poor maintenance more priority, a separate maintenance component was included in MDP m. This maintenance program is being carried out in selected LGUs on a pilot basis, and entails financial support in the form of central Government grants through DPWH to help local governments assume annual maintenance costs, as well as technical assistance and guidance by CPO to create a maintenance ethic and develop the necessary skills. 6.4 Institutional impact: MDP substantially achieved its objective of establshing an institutional framework at the national level to assist local governments with the financing, preparation and implementation of their investments, and with the coordination of assistance to LGUs. As the heavy demand for MDF resources demonstrates, overall the MDF has had success as a mechanism to provide local governments with direct access to long-term, affordable development finance, even though it was originally set up as a revolving fund and ended up functioning primarily as a mechanism  l0 for disbursing funds (para. 4.3). The Project also succeeded in creating a technical intermediary, in the form of the CPO, to assist local governments with the identification, preparation, implementation and monitoring of priority infrastructure projects. Through the MTP, the Project was largely able to achieve its third objective of strengthening local govemment capabilities in financial and project management. The fourth objective, improving local government fiscal performance, has proved more elusive, however. While MDF funds represent a significant source of capital financing for the participating project centers, the local governnents have not been successful at mobilizing additional local resources, especially real property taxes, as expected at appraisal. 6.5 MDP's institutions have helped LGUs to invest more wisely, through such mechanisms as project appraisal, capital planning, engineering standards, environmental impact assessments, and increased involvement of local residents in project selection. With regard to beneficiary participation, the Project required that project cities and municipalities pass council resolutions approving increases in market rental charges only after public hearings and consultations with vendors' associations and before construction. In a few cases, market designs were modified in light of objections from potential beneficiaries. 6.6 The training provided under the MTP (within LGA) in MDP, especially the contract management and other technical modules, has proven to be very useful to local governments. Some modules could have been made more relevant to specific MDP project requirements, such as the module on project preparation. Training was undertaken primarily in the areas of project development and preparation, detailed engineering design, construction supervision, contract management, infrastructure maintenance and equipment management, financial management and municipal enterprise management. It also included an orientation conference for the implementation and management of MDP. Prior to the Project, technical and managerial expertise in local governments had been grossly inadequate to cope with the growing challenges in the areas of infriastructure, basic services and urban management. The MTP was able to conduct 81 training courses covering 11 modules and benefiting 3,897 local government staff not only from the 42 participating centers in MDP but also from centers covered by the two succeeding municipal development projects, MDP II and MDP III. 6.7 The main weakness of the MTP were the administrative bottlenecks that hampered the implementation of certain modules, for example the delays in obtaining administrative approval for release of funds, which required some modules to be rescheduled. Another weakness was the lack of adequate coordination between CPO and MTP in programming training. 6.8 By loan closing date, the RPTA program covered 85 local governments, and had increased the total number of identified real property tax units (RPUs) by 3 5%, from 1.6 million to 2.16 million units. Total assessed values increased from P32.4 billion in 1988 to P44.3 billion in 1992, representing an increase of 37%. Much of this growth was a result of discovering RPUs converted from rural to urban land uses, which increased the number of properties and value of a given piece of land. However, local governments have on the whole not been successful in harnessing the expanded tax basis of their real property. This is due in part to inefficiency in processing a large number of property records, most of which still has to be done manually. The real property tax proved to be complicated to administer, as it required local governments to assess, bill and track payments of a large number of tax payers. But another reason has been the reluctance on the part of local officials to enforce tax collection measures without being able to show significant improvements in the provision of municipal services. Furthernore, since the implementation of the Local Government Code in 1991,  11 the relative importance of the RPTA as a local revenue source has decreased. This is because the overall assessment level of the RPTA has been substantially downgraded in the Local Government Code, and because the expansion of the IRA has been proven to have substantial substitution effects on local revenue mobiization efforts. Finally, the RPTA's regional-based approach, the aim of which was eventually to carry out the program in every elizible municipality in the country, has proven to be a mistake. The RPTA program should have concentrated instead on those municipalities with a growing economy, population and property values, and should not have covered rural municipalities. 7. Proiect Sustainability 7.1 Sustainabilitv of sub-projects: Sustainability of the sub-projects is likely. Preliminary economic rates of return from selected project centers (Table Sb) suggest that net benefits from market, bus terminal and slaughterhouse sub-projects in most cases are higher than thresholds established at appraisal. Even though financial rates of return on the whole have been lower, these are also positive. The performance of local governments in infrastructure maintenance has been poor to date and could pose a constraint to future sustainability, but maintenance is being addressed under MDP III through a separate program involving grants and technical assistance to improve maintenance planning and implementation (para. 6.3). Another constraint is the inability or reluctance of many local governments to improve real property tax collection efficiencies (para. 6.8), which limits their financial capacity to expand and improve existing infrastructure. The progress of the RPTA has not been fully monitored by the BLGF of the DOF in terms of higher collection efficiencies and actual revenue yield, but in the context of the MDP's successor projects the BLGF has agreed to start monitoring the RPTA's progress in terms of actual revenue yield materialized. 7.2 Sustainabilitv of MDP institutions: The MDF and CPO are likely to be sustainable, provided that they are streamlined on an ongoing basis and better integrated. High demand for MDF funds resulted in a much larger than expected number of LGUs receiving loans, with a consequent great increase in MDF's accumulated repayments of interest and principal (the so-called 'second generation funds'). The MDF has also experienced relative success as a long-term financial mechanism: as of March 1995, its loan delinquency rate stood at 10% of total collectibles. Out of 42 participating LGUs, 16 were delinquent. DOF and DBM are currently taking concerted action to apply the IRA intercept mechanism to recover delinquent loans (para. 5.8). MDP m has started supporting the modification of MDF's administrative procedures and the hiring of additional qualified staff as well as shifting the MDF's lending terms and conditions more toward prevailing market rates in the Philippines, in an effort to streamline the mechanism. A Bank-supported (Institutional Development Fund) study is currently underway that will examine the long-term institutional arrangements for local government loan financing, particularly from private sources. The study will propose a strategy for the next stage in the evolution of a municipal credit system in the Philippines. 7.3 The CPO has continuously upgraded the skills of its staff in order to better equip itself to analyze LGUs' needs for sub-projects, particularly in the context of their broader development. Under MDP III, the CPO and BLGF/DOF staff in charge of the MDF have begun to work more closely together, with BLGF staff involving themselves more with CPO's appraisal activities and with staff of both BLGF/DOF and CPO cooperating to determine loanable amounts for sub-projects and to monitor the financial performance of borrowers.  12 7.4 Continued strong demand on the part of LGUs for training by the LGA under MTP has ensured the LGA's ongoing role in MDP m. Training is being redesigned to link it more directly to borrowers' needs and sub-project implementation. 8. Bank Performance 8.1 The Bank's performance during project preparation and appraisal was satisfactory. The concept and design of MDP were appropriate and innovative, based as they were on the lessons and experiences of earlier and ongoing Bank urban projects in the Philippines. The Bank was able to design a more focused, achievable project which simplified the institutional arrangements for project implementation and improved the approach and methodology for beneficiary and project selection. 8.2 The Bank performed very satisfactorily in supervising the Project, even though supervision was complicated by the Project's three, distinct components --RPTA, MTP and the sub- projects- which made supervising MDP almost like supervising three different projects. Some noteworthy interventions as a result of Bank supervision were the following: (i) When the number of active urban centers participating in the Project decreased due to problems in the early phases of implementation, the Bank recommended that the Project be opened up to other centers, thus paving the way for the participation of 42 centers compared to 15 at appraisal. (ii) The Bank worked with DPWH to ensure a phased build-up of technical staff for the CPO, complemented by technical and advisory support from consultants. It helped to ensure continuity and stability in the CPO during several changes in administration by providing support and acquiring assurances of tenure for the management and staff of the Project from new administrators. (iii) The Bank provided guidance in correcting certain administrative procedures which unduly delayed project implementation, for instance in the area of budgeting and fund releases (para. 5.13). (iv) The Bank helped to bring about procedural improvements in the administrative system at DILG, which enabled the LGA to catch up with its commitments to conduct the training courses required by the Project. (v) The Bank's supervision and guidance also helped the MDF to develop the systems and procedures with which to manage the loan funds more efficiently and effectively. (vi) Finally, the comparatively small Bank team, continuity at task manager level (there was only one task manager from project identification to completion), and the team's commitment to respecting project goals helped to focus and increase Bank effectiveness. 8.3 The most important lessons of experience for the Bank are: a) A demand-driven, competitive project environment using a program approach to project financing is a more efficient and effective methodology for project implementation than the top-down, pre-selected beneficiary and project specific approach. b) Beneficiary local governments perform better and show greater commitment to a project when they are primarily responsible for project preparation, management and implementation. Moreover, capacity build-up is maximized when local staff undertake project preparation, management and implementation by themselves and within the framework of existing local government organizations.  13 c) Investment packages should be lirmited to what can be prepared, evaluated and completed over a three year period, which is the tern of local government officials. Additional funds can be provided once initial packages have been completed. This ensures that funds earrnarked for a particular center are fully used, and it also provides incentives to local governments to speed up implementation. It also prevents funds from remaining idle and being de-obligated in case succeeding administrations are not supportive of the Project. d) Local goverm-nents tend to adopt a conservative approach to loans, requesting financing primarily for revenue-generating sub-projects (such as municipal markets, bus terminals and slaughterhouses) at the cost of other investments. e) Project centers with completed sub-projects should be required to set aside an agreed amount of funds for maintenance, in a Maintenance Trust Fund, to avoid the serious deterioration of markets and infrastructure that affected LGUs in the past. A separate maintenance program is currently being encouraged in MDP m. f) A tax-mapping exercise is only useful in municipalities where the economy, population and property values are growing, not in most rural municipalities where the marginal returns of such a programn are too small. g) Training modules should be more responsive to project requirements. Moreover, the employment of contract trainers enables a far greater number of training courses to be conducted than if training is implemented solely by regular training staff It also avoids the need to set up a large training bureaucracy. h) Most LGUs lack a comprehensive local development plan or a sound idea of the impact of the sub-projects on the overall development of their municipalities. The absence of local 'inasterplans" is a serious concem even in the ongoing MDP III. In order to increase the impact of the Municipal Development Projects on municipalities and contribute to local capacity building, local government applicants should be made to show the CPO a development plan as a prerequisite for (further) borrowing, and specify how the proposed investments would relate to the plan. 9. Borrower Performance 9.1 The performance of the Borrower was, in generaL satisfactory. Despite serious political, economic and budgetary problems facing the country during most of the period of project implementation, the Borrower was able to provide the necessary financial, managerial and technical resources required to pursue the Project to its conclusion and achieve stated objeccives. 9.2 The main strength of the Borrower was the quality of its staff. The directors of the CPO and MDF were instrumental in steering MDP through the difficult and critical start-up period, which coincided with the height of the political turbulence and economic recession of the 1 980s. The directors were experienced administrators who had appropriate expertise and a clear understanding of the local administrative and political culture as a result of their involvement in earlier urban  14 development projects. The Borrower, though initially constrained by budgetary limitations and Governrnent rules governing hiring of new staff, was also able to recruit qualified technical and project management staff and contract foreign and local consultants specializing in fields where Government staff were weak. 9.3 The weakest area of the Borrower was its delays in submitting audit reports and collecting arrears from debtor local governments. 9.4 The main lessons of expenrence for the Borrower are: a) While it is better for local govemments to assume responsibility for project identification, preparation and implementation, national agencies should provide beneficiary local governments with well-defined technical assistance and maintain a close, supportive role during project preparation and execution. b) Procedural issues should be promptly addressed and resolved to ensure timely execution of project activities. These issues could be identified and discussed in regular reviews involving all concemed agencies c) The obligations and responsibilities of each participating agency should be well-defined in advance, and have minial overlap. d) Investment packages should address the most basic needs first, and should be on a scale compatible with the technical capacity and financial resources of the beneficiary local governments which are to implement them. Investment packages must consist of projects which are "doable" given the limitations and capacity of beneficiary local governments. Local government capacity and commitment must be demonstrated through adherence to obligations, timely and prompt execution of project activities, and imposition of required institutional and fiscal reforns as a prerequisite for subsequent, larger packages from the MNDF. 10. Proiect Relationshin 10.1 The Bank-Borrower relationship was very good, despite occasional disagreements over project approach and methodology, management style, perceptions of priorities, and procedural adjustments. The good working relationship was possible because the main actors in the Project, both on the Bank and Borrower side, worked well together on the previous Bank-funded urban projects over the last decade. Continuity in the assignment of mission leadership on the Bank side also helped to maintain an effective relationship. Thus, mutual respect and acceptance had developed over time which helped to foster a cooperative and supportive relationship between the Bank and the Borrower on MDP.  15 11. Consultancv Services 11.1 Consultants played an important role in the Project. When the MDP was conceptualized and designed, the CPO had no technical staff. A project such as MDP required the CPO to be staffed by senior professionals who could oversee investment programs in the local governments. But Government pay scales and regulations made it difficult for the CPO to hire the necessary staff As a result, consultants were hired using technical assistance funds from the Third Urban Development project and RCDP loans to assist the Government in preparing the Project. The CPO was staffed by consultants who filled positions usually reserved or occupied by Government personnel. Even the Project Director was a consultant hired by the Borrower to perform project management functions on its behalf. 11.2 Consultant performance was satisfactory. During project implementation, the consultants provided technical expertse to local governments in project identification and investment packaging, evaluation of investment proposals and supervision of project preparation and implementation. At the local level consultants were hired to prepare detailed engineering designs of approved projects. Consultants hired during the implementation phase provided the necessary experise to achieve tight construction supervision of local projects and ensured the quality of construction and timely completion of projects. Consultants in training design, training delivery and training evaluation were important contributors to the development and implementation of the MTP. Contract trainers performed sufficiently well and were able to complete a number of training courses over a short period of time. The employrnent of contract trainers enabled a far greater number of t-aining courses to be conducted that otherwise would not have been conducted if training were implemented solely by the MIP/LGA 12. Proiect Documentation and Data 12.1 The Loan Agreement was quite adequate and appropriate for achieving project objectives in the key institutional and financial areas. The SAR provided a useful framework for both the Bank and DPWH, DOF and DILG for review of project implementation. Project documents, particularly supervision mission aide-memoires, were adequate and provide a concise, complete and chronological record of the Project. Only MTP (LGA/DILG) provided draft project completion reports for the Project.  16 PART n1: PROJECT REVTEW FROM BORROWER'S PERSPECTIVE A. Adequacv and Accuracv of Factual Infornation Contained in Part m 1. The statistical informnation contained in Part m of the PCR was thoroughly discussed with the implementing agencies. The DPWH-CPO, as the lead implementing agency, provided detailed information which became the basis for Tables 3-6. B. Adeuuacv and Accuracy of Anallsis Contained in Part I 2. Project Design and Organization: The PCR states that MDP created a demand-driven, competitive environment for funds. Hence, with similar projects in the future, LGUs in the 19 economically depressed provinces covered by the Presidential Council for Countryside Development should be given priority in the selection of -project centers. These provinces have insufficient employment opportunities, resulting in their depopulation. Without financial help and guidance, these depressed areas will have limited success in catching up with the rest of the country. 3. Project Implementation: The PCR states (para. 4.5) that 'the Project provided some local governments with access to much-needed funds and in so doing arrested the rapid deterioration of infrastructure and municipal services...." Such rapid deterioration was because insufficient funds had been provided for operations and maintenance. Most of the markets proposed for financing under the Project were in very poor condition and considered health hazards due to inadequate maintenance in the past. The Sub-project Agreement provided for the establishment of a Maintenance Trust Fund and required local governments to set aside an agreed amount for maintenance. Despite this provision, LGUs failed to establish maintenance trust funds-either during or after project implementation. Centers with completed projects should be required to set aside a minimum amount of funds in the Trust Fund for all completed projects. A separate maintenance component has been included in MDP III. 4. The slow pace of implementation of local sub-projects (paras. 5.2-5.3) was also caused by a budget ceiling imposed by the central Govermnent. Budget proposals were usually reduced to conform with the budget ceiling. Because of this, CPO could only accommodate a imirted number of projects per year for implementation. Regarding the replacement of Mayors with Officers-in-Charge in 1986, some newly installed Officers-in-Charge fully supported projects endorsed by former Mayors, especially in cases where these same Mayors were insisting that the projects continue. 5. MTP: Participants from qualifying centers were invited to attend the training modules. With the changes in local administration, some local staff who were previously trained were replaced with new recruits, who were also invited to attend the training courses. The design of the training component should take into account participants' different needs. 6. Project Sustainabilitv: The Borrower agrees with the PCR's conclusion that a constraint to project sustainability is the LGUs' performance in infrastructure maintenance. Experience  17 has shown that there is a critical need to ensure that the completed facilities continue to perform their intended functions, and that the LGUs need to be reminded by the CPO (and through monitoring by the BLGF/DOF) that adequate funds for operation and maintenance need to be set aside for this purpose. 7. General: The transfer of responsibility for project identification and preparation from the CPO to local governments was in line with MDP's objective of strengthening local technical capacity in project development. CPO developed guidelines for project identification and preparation, and training courses were conducted to reinforce those guidelines. The guidelines facilitated CPO's appraisal functions but were developed primarily to ensure that projects were selected for their development impact rather than for their political benefit. C. Evaluation of Bank Performance and Lessons Learned 8. The Borrower notes that the Bank did its best in supervising the Project. The Bank conducted field visits to check implementation, and when several project centers encountered problems with their contractors during the last year of implementation, the Bank arranged a visit to the centers to help resolve the conflict. 9. Significant lessons for the Bank are: a) The prograrn approach to project financing, and the bottom-up design, are more appropriate models for development assistance to local governments than the top-down approach, since LGUs are the direct beneficiaries and implementers of the assistance. b) A demand-driven, competitive project errvironment serves as an effective stimulus for local governments to prove their capability to prepare investment proposals and implement the necessary fiscal, administrative and managerial improvements in order to merit financing. c) Training modules should be made more responsive to project requirements, which could include present and future local governance. d) A shorter time frame for project implementation results in a more rational prioritization of projects, and in projects that are more beneficial to the locality. It also guarantees project execution on schedule and within the terms of local political leaders. e) Proposed investments should be able to relate to the overall development vision of municipalities and their Local Development Plans. D. Proiect Relationship between the Bank and the Borrower 10. The Bank-Borrower relationship was very effective. On the Bank side there was a consistency in rnission leadership from appraisal to completion. While there were differences over  18 some policies, both parties saw to it that the resolution of conflicts was satisfactory to both sides and to the benefit of the Project. More evidently, the cooperation between Bank and Borrower has been sustained under MDP II and MDP m, in spite of changes in management on both sides.  19 PART m: STATISTICAL INFORMATION Table 1: RELATED BANK LOANS AND CREDITS --LANCREQ1T N.:.:AME. PURPOSE.A- PPROVED .STATUS.. - COM i Manila Urban Upgrade Tondo Foreshore & Phase I May 27,1976 Complete PCR issued; PPAR no. Development Project of Dagat-Dagatan serviced site 7092 dated Jan.,1988 (1282-PH) project Second Urban Extend service sites and upgrading to Dec.21,1978 Complete PCR issued; PPAR no. Development Project regional cities. 7092 dated Jan.,1988. (Ln. 1647-PH) Third Urban Expand slum upgrading in Metro Mar.5,1980 Complete PCR no. 7897 issued Development Project Manila. July 14, 1986. (Ln. 1821-PH) Urban Engineering Assist in preparation of the Regional Dec.8,1981 Complete PCR no. 7009 issued Project (Ln.2067-PH) Cities Development and Second November 16,1987. Central Visayas Regional Projects. Regional Cities Stimulate economic decentralization Mar.31,1983 Complete PCR no. 14330 issued Development Project by improving basic social Apr. 13, 1995. PPAR (Ln. 2257-PH) infrastructure, and strengthening under preparation municipal institutions to manage urban facilities. Second Municipal Continue development of the Dec.14,1989 Active Closing date is Development Project municipal development program December 31,1996. (Ln.3146-PH) begun under MDP. Housing Sector Project Improve institutional and policy Jun.24,1988 Partially Closing date was June (Ln 29T4-PH) framework to promote efficiency and Cancelled 30,1994. redirect new housing to lower income groups. Third Municipal Continue municipal development Mar.31,1992 Active Closing Date is June 30, Development Project program begun under MDP and MDP 1999. (Ln. 3455-PH) 11  20 Table 2: PROJECT TIMETABLE Stage of Project Cycle Date Planned Revised Date Actual Date Preparation N/A N/A Feb. 1983 Appraisal Mission N/A N/A Aug. 18,1983 Loan Negotiations N/A N/A Apr. 1984 Board Approval N/A N/A Jun. 5, 1984 Loan Signature N/A N/A Aug. 10, 1984 Loan Effectiveness Dec. 1984 N/A Feb. 21, 1985 Loan Closing Jun. 30, 1991 Dec. 30, 1992 Jun. 30, 1993 Table 3: DISBURSEMENTS (USS Million) 194 1985 1986 1987 1968 1989 1990 1991 1992 1993 1994 TOTAL Appraisal Estimate 3.00 3.60 6.40 6.80 9.20 7.00 4.00 N/A N/A N/A N/A 40.00 Actual 0.00 3.08 1.38 1.78 0.50 2.21 2.38 12.66 7.00 4.92 -0.1 35.81 Cumulative Total 0.00 3.08 4.48 6.24 6.74 8.95 11.33 23.99 30.99 35.91 35.81 35.81 Date of Final Disbursement: November 12, 1993  Table 4a: SUMMARY OF PROJECT COSTS ADpraisal Estimate Actual Pesos USS Pesos US$ (Million) (Million) (Million) (Million) Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Forex as % of Total Urban Infrastructure Urban Services 165.6 119.9 285.5 11.8 8.6 20.4 447.9 324.3 772.2 19.4 14.0 33.4 42 Markets and Public Facilities 59.9 30.8 90.7 4.3 2.2 6.5 370.5 190.8 561.3 16.3 8.4 24.7 34 Traffic and Transport 42.8 28.6 71.4 3.1 2.0 5.1 4.1 26.7 66.8 1.7 1.2 2.9 40 Land Acquisition 7.4 7.4 0.5 0.0 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0 Maintenance 19.6 45.8 65.4 1.4 3.3 4.7 7.6 17.7 25.3 0.3 0.8 1.1 70 Tax Mapping 19.6 29.4 49.0 1.4 2.1 3.5 53.7 80.5 134.2 2.4 3.7 6.1 60 H Training 19.0 28.6 47.6 1.4 2.0 3.4 23.4 35.1 58.5 0.9 1.4 2.3 60 Technical Assistance 22.2 33.2 55.4 1.6 2.4 4.0 37.4 56.0 93.4 1.6 2.5 4.1 60 BASE COST 356.1 316.3 672.4 25.4 22.6 48.0 Physical contingencies a/ 13.4 12.0 25.6 1.0 0.9 1.8 Price contingencies a/ 140.1 124.2 264.3 10.0 8.9 18.9 TOTAL PROJECT COST b/ 509.6 452.3 961.9 36.5 32.2 68.7 980.6 731.1 1711.7 42.6 32.0 74.1 Front-end fee on Bank - 1.4 1.4 - 0.1 0.1 - 1.4 1.4 - 0.1 0.1 Loan TOTAL FINANCING 509.6 453.7 963.3 36.5 32.3 68.8 980.6 732.5 1713.1 42.6 32.1 74.2 a/ Physical contingencies were calculated to be about 4% and price contingencies about 38% of total base costs plus physical contingencies bl Total project costs include taxes and duties amounting to US$2 million  Table 4b: Summary of Proiect Financina (US$ Million) Component Total Cost Bank Loan Counterpart Funding Central Local Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal National 22.8 28.5 0 0 22.8 28.5 0 0 Local 33.4 33.6 28.2 26.2 0 0 5.2 7.4 Tax Mapping 4.1 6.1 3.6 3.5 0.2 1.2 0.3 1.3 Training 3.6 2.3 3.3 1.9 0.1 0.3 0.2 0 Technical Assistance 4.8 4.1 4.8 4.1 0 0 0 0 Front-end Fee 0.1 0.1 0.1 0.1 0 0 0 0 Total 68.8 74.6 40 35.9 23.1 30 5.7 8.7  Table Sa: DIRECT BENEFITS ;.