Philippines - Water Resources Development Project

Document of The World Bank Report No. 15297-PH STAFF APPRAISAL REPORT PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT October 10, 1996 Agriculture and Environment Operations Division Country Department I East Asia and Pacific Regional Office  CURRENCY EOUIVALENT (As of September 1996) Currencv Unit = Philippines Peso (P) P 1.00 = US$0.038 US$1.00 = P 26.0 WEIGHTS AND MEASURES I hectare (ha) = 2.47 acres I kilometer (km) = 0.62 miles I square kilometer (kin2) = 0.3886 square miles 1 meter (m) = 10.76 square feet I cubic meter (m3) = 35.31 cubic feet I million cubic meters (mcm) = 810.7 acre feet I millimeter (mm) = 0.039 inches I kilogram (km) = 2.2 pounds I cavan = 50 kilogram 20 cavans = I metric ton ABBREVIATIONS AND ACRONYMS DA = Department of Agriculture DENR = Department of Environment and Natural Re:sources DILG = Department of Interior and Local Governmcrnt DOH = Department of Health DPWH = Department of Public Works and Highways FIO = Farmer Irrigators' Organizer IA = Irrigators' Association IDD = Institutional Development Department IOSP = Irrigation Operations Support Project ISF = Irrigation Service Fee ISIP = Irrigation Service Improvement Plan LGU = Local Government Unit M&E = Monitoring and Evaluation MIS = Management Information System NEDA = National Economic and Development Authc rity NIA = National Irrigation Administration NIS = National Irrigation System NPC = National Power Corporation NWIN = National Water Information Network NWRB = National Water Resources Board O&M = Operation and Maintenance RIO = Regional Irrigation Office SMD = Systems Management Department FISCAL YEAR January I - December 31  PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT Loan and Project Summary Borrower: Republic of the Philippines Implementing Agencies: DENR, NWRB, NIA and DOH Beneficiaries: DENR, NWRB, NIA and DOH Poverty Category: Program of Targeted Interventions Amount: US$58.0 million Terms: 20 years, including a five-year grace period, at standard LIBOR-based interest rate for US dollar single currency loans Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 d.ays after signing, less any waiver Onlending Terms: Budgetary grants by the Borrower to the implementing agencies Financing Plan: See Para. 3.2 and Annex 11, Table 1 Net Present Value: US$54.7 million (calculated on 56% of project costs, for which benefits can be firmly estimated at this stage) at a discount rate of 10%. Economic rate of return is about 27%. Map: IBRD 27814 Project Identification No.: 4613  I  PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT Table of Contents Page No. LOAN & PROJECT SUMMARY.... 1. WATER RESOURCES SECTOR........................................................... 2. PROJECT OBJECTIVES AND DESCRIPTION ......................................................... 7 Project Formulation and Design .......................................................................... 7 County Assistance Strategy .........................................................................8 Rationale for Bank Involvement ..........................................................................8 Project Objectives and Components ..........................................................................8 Detailed Project Features ..........................................................................9 Improved Water Resources Management ..........................................................................9 Improved WatershedManagement .......................................................................... 10 Systems Improvement and Repair .......................................................................... 11 Institutional Strengthening of NL9 and Ls ........... .............................................................. 13 Environmental Improvement ......................................................................... 16 3. PROJECT COSTS AND FINANCING ......................................................... 17 Project Costs ......................................................................... 17 Project Financing ......................................................................... 17 Procurement ......................................................................... 18 Disbursement ......................................................................... 21 Accounts and Audit ...... ;22 4. PROJECT IMPLEMENTATION ......................................................... 23 Status of Project Preparation ......................................................................... 23 Organization and Management ......................................................................... 23 Implementation Schedule ......................................................................... 27 Monitoring and Evaluation (M&E) and Reporting Requirements ................................................................ 27 5. AGRICULTURAL PRODUCTION, PRICES, AND MARKET PROSPECTS ............. 28 Agricultural Production .......................................................................... 28 Prices and Markets ......................................................................... 30 This report is based on the findings of pre-appraisal and appraisal missions in November/December 1995 and February/March 1996, respectively, by a Task Team consisting of Messrs. Syed Husain (Task Manager), Robert Crooks (Watershed Management Specialist), Ronald Ng (Operations Technology Development Specialist), Jagdish Srivastava (Consultant Irrigation Engineer) and Vineet Raswant (Consultant Finance and Institutions Specialist), and Mines. Mei Xie (Water Resource Management Specialist) and Shobha Shetty (Economist). Messrs. Herve Plusquellec and Ashok Subramanian (AGRPW) were the peer reviewers. Document clearance was provided by Messrs. Javad Khalilzadeh- Shirazi (Director, EAI) and Jeffrey Gutman (Chief, EA1AE). Assistance in preparing the documents was given by Mmes. Brenda Phillips and Saraswathi Sundaram.  6. PROJECT JUSTIFICATION AND RISKS .......................................... 31 Project Benefits ...................................................... 31 Financial Analysis ....................................................... 32 Economic Analysis ...................................................... 34 Environmental Impact ...................................................... 35 Risks ....................................................... 36 7. AGREEMENTS REACHED AND RECOMMENDATION .......................................... 37 LIST OF ANNEXES Annex 1 Water Resources Management Component Annex 2 The Irrigation Sub-Sector Annex 3 Draft TOR for the Formulation of a Watershed Management Strategy and Program Annex 4 Criteria for Selection of Systems for Improvement Annex 5 Irrigation Systems Improvement Plan (Proforma) Annex 6 Detailed Activities Under System Improvement Annex 7 NIA's Accounting System and Financial Performance Annex 8 IA Development Program Annex 9 Draft TOR for NIA's Environment Unit Annex 10 Project Cost Tables Annex 11 Financing Plan, Loan Allocation and Disbursements Annex 12 Annual Project Funding by Government and World Bank Annex 13 Project Monitoring and Evaluation Annex 14 Supervision Plan--Bank Supervision Mission Schedule Annex 15 Water Availability for NIS and Possible Increase in Irrigation Annex 16 Rice and Fertilizer Price Structure Annex 17 Crop and Farm Budgets Annex 18 Rent and Cost Recovery Indices Annex 19 Economic Analysis Annex 20 Selected Documents and Data in the Project File TABLES IN TEXT Table 3.1 Project Cost Summary Table 3.2 Procurement Table 5.1 Crop Area, Yields, Paddy Production and Cropping Intensities FIGURES Figure 1 Organization Chart for Project Implementation Figure 2 Project Implementation Schedule MAP IBRD 27814  PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT 1. WATER RESOURCES SECTOR 1.1 The water resources sector includes sub-sectoral activities in irrigation, drainage, food control, municipal and industrial water supply, hydropower, salinity control, fishery, protection of aquatic life, and navigation (details are at Annex 1). Irrigation is the biggest water user in the Philippines, accounting for over 80% of the total water demand in the country; industries and domestic uses account for 10% and 5%, respectively. Although water use for hydropower generation is non-consumptive, the pattern of water releases has to meet the power demands. About 10% of river flows are considered to be a minimum in the Philippines to maintain ins-cream aquatic life, navigation, salinity control, and fishing. There are over 20 agencies and 10 government departments dealing with water resources activities in the country. The legal framework for the water resources sector management is provided by the Water Code of 1976. The responsibility for administering and enforcing the Water Code lies with the National "Water Resources Board (NWRB), which is vested by the Code with broad powers for coordinating, controlling, supervising, and regulating the development, utilization and protection of water resources in the country. The next most important institution in the water resources sector is the Department of Environment and Natural Resources (DENR), which is responsible for watershed management, monitoring of water quality, and ground water data collection. The major water services providers and users are the National Irrigation Administration (NIA) for irrigaticon and drainage; the Local Water Utilities Administration (LWUA), Water Districts, and Manila Water Supply and Sewerage System (MWSS) for municipal and industrial water supply; and the Department of Public Works and Highways (DPWH) for flood control, small water impounding projects, and rural water supply. The NWRB, although a regulatory body, is attached to the DPWH, which is itself a major water services provider. 1.2 Water Resource Management Issues. The Philippines is facing an increasing water resources management challenge, recently termed a 'crisis" in a number of official documen;s and public statements by the Government, culminating in the 1995 'Water Crisis Act" (Republic Act No. 8041), and the draft 'Irrigation Crisis Act" being considered by the Congress. The problem is not the shortage of water per se: the current demand for water is less than one-third of the renewable water available nationally. The problem arises from supply-demand mismatches caused by inadequate water infrastructure to regulate flood flows and store water in the rainy season, when water is abundant, for consumption in the dry season. The problem is compounded by weaknesses in the management of the system and inefficiency in the use of water. The major problems in the water resources sector are as follows: (a) the problems of the irrigation sub- sector (further discussion is in paras. 1.8 - 1.11), which is the predominant water user, include deficient water management due to technical and institutional deficiencies, flooding in t.he wet season, and inadequate water availability in the dry season; as a result, the irrigated cropping  - 2 - intensity in national irrigation systems is only 140% (even in reservoir systems, it is considerably less than 200%); (b) for the water supply sub-sector, the main problems are: insufficient capacity of the system to satisfy demand (about 76% of the country's population has access to public water supply systems; for Metro Manila, the current supply is 2,500 million liters/day, corripared to the demand of 3,400 I/day); competition from other sub-sectors that require increasing quantities of water; declining water supplies due to the degradation of watersheds; and an outdated and inefficient delivery infrastructure, which causes water losses as large as 60%/o and low pressure in the water pipes. The infrastructure for sewerage lags far behind that of water supply: only 7% of Metro Manila's population and less than 2% of other areas is served by sewerage facilities; (c) despite relatively heavy investment in the past on flood control, number of flash floods and flood peaks have increased, leading to intermittent losses of human lif-e and property; (d) an alarming deterioration in water quality in streams and aquifers has occurred, particularly near urban centers, due to untreated waste discharge. According to DENR, about 10% of all the rivers in the country, and all waterways and some aquifers in Metro Manila are severely polluted. This has resulted inter alia in increased morbidity and a higher incidence of water-borne diseases, and higher costs of water purification; (e) the illegal and/or uncontrolled tapping of water has resulted in ground water depletion and saline intrusion in some areas, e.g. Metro Manila, Cebu, and Bulacan. Although permits from NWRB are required for ground water abstractions, in almost 65% of cases, abstractions take place without permits; only 6% of the wells of permit holders have been monitored for compliance with the permits; and withdrawals are estimated to be 20-60% over the permitted levels; and (f) conflicts in water demand are already significant during critical periods of the dry season in Region III, where the Angat reservoir provides for the industrial and municipal water requirements of Metro Manila and irrigation of about 31,500 ha. Since water allocation to Metro Manila has been increasingly larger than the originally agreed share, irrigation in the Angat-Maasim system has always fallen snort of the service area of 31,500 ha. Other things being equal, such conflicts in water demand are projected to occur in several other Regions in the next century. 1.3 Some of the above problems have to be resolved through larger public investment for developing new water infrastructure, improved efficiency of delivery and water use, higher cost recovery, economic pricing of water, greater participation by beneficiaries in the planning and implementation of projects, and increased participation by the private sector in service delivery. The Government has taken several initiatives in this regard, including measures to start the process of privatization of Water Districts and MWSS. However, a major constraint in the water resources sector is institutional: absence of an overall planning framework to guide water resources development, protection and efficient use; fragmented water management responsibilities; weak law enforcement; and deficient water resources data. While the Water Code is generally considered adequate, the major problem lies in its implementation and monitoring. The NWRB has limited funds and staff and is unable to effectively enforce the provisions of the Water Code or to carry out its other mandates for planning and coordination. The last assessment of water and land resources in the Philippines was conducted almost 20 years ago. There is no national water resources plan or updated basin plans to integrate water and land use activities, water quantity and quality management, and conjunctive use of surface and ground water. There are also no disaster (drought and flood) management plans. Agencies in each sub-sector have largely independent strategies and programs for resource development and operations. As a result, negative externalities from excessive water withdrawals and waste water discharges have  - 3 - extended across sub-sectors and between upstream and downstream areas of river basins The Government recognizes the institutional problem. A significant recent initiative on its part was the December 1994 National Water Summit, opened by the President of the Philippines. The Summit discussed various water issues and agreed on the need for.further integration and coordination of all water-related efforts towards a more focused approach to water resources managemetit and for strengthening and phased upgrading of the NWRB to become an effective national water resources management agency. The 1995 'Water Crisis Act" created a Joint Executive- Legislative Water Crisis Commission for implementation of the Act and for recommending an action plan to the President and Congress. The final report of the Commission, including the action plan, is expected to be submitted to the President before the end of 1996. 1.4 To assist the Government in formulating an action plan, a study of the NWRB and the overall water resource management framework was undertaken during the preparation of the proposed project. The study recommended a technical action plan and an institutional and policy action plan. Most of the recommendations of the technical action plan (which included policy and strategy formulation, data programs, resource assessment and planning, operations and real-time management, and research and strategic studies) have been incorporated in the project, and the rest would be implemented under other externally-funded projects or by the NWRB itself The main recommendations of the institutional and policy action plan relate to creation of Regional offices of the NWRB, strengthening of the NWRB's law enforcement capacity, changes in the NWRB's Board composition and its powers, operationalization of a Special Account in the General Fund to the credit of NWRB, revision of water rates and charges, withdrawal of exemption of government agencies from payment of fees and charges levied under the Water Code, modification of the Implementing Rules and Regulations of the Water Code, attachment of the NWRB to the Office of the President for the time being, improvement of incentives for the NWRB staff through exemption from the Salary Standardization Law, a substantial increase in the level of fines for offenses against the Water Code, and renaming of the NVRB the Philippines Water Resources Authority. The above recommendations are being reviewed by the Government and a dialogue on those would be continued under the project. 1.5 Watershed Management. The Philippines has a total land area of about 30 million hectares, of which about 70% is officially considered watershed area. These watersheds comprise some 419 river basins, and the mandate to manage them lies with the DENR, with co-management by the local government units (LGUs). Some of the watersheds, because of their economic importance, have been designated as 'Watershed reservations" through Presidential Proclamations. To date, 119 watersheds covering about 1.36 million ha have been proclaimed. The proclaimed watershed reservations were intended to be managed as protected areas, but are typically heavily encroached and subjected to slash and burn and other forms of cultivation. As a consequence, about 90% of the proclaimed watershed reservations are categorized as 'hydrologically critical" implying degradation with risk to downstream infrastructure. 1.6 Of the country's total estimated population of about 68.6 million, roughly I1' to 20 percent live in the upland areas, with a significant number of people cultivating or occupying portions of watersheds. Due to a rapidly increasing population and the growing demand for land, farmers have moved to higher and steeper slopes in their search for new agricultural lands. Watersheds have been cleared and planted with little or no attention to soil and water  - 4 - conservation technologies. Deforestation, coupled with inappropriate land use practices, has led to loss of biodiversity and disrupted the hydrological condition of major watersheds, which has aggravated and hastened soil erosion, siltation of rivers and reservoirs, incidence and severity of flooding, and decrease in dry season water supply. These, in turn, have caused considerable reduction in the productivity of the forest, agricultural lands and fisheries, with a consequent high incidence of poverty in rural areas, particularly uplands, and decreased returns from major investments in water infrastructure. Studies prepared for the Philippine Master Plan for Forestry Development estimated that soil erosion alone cost the country over half a billion dollars a year, primarily through loss of productive land, damage to irrigation systems and coastal fisheries, and reduced generation of hydro-electric power. 1.7 The Government has launched several programs and projects for the rehabilitation of degraded watersheds and/or protection of those still in good condition. However, these have so far been inadequate to address the alarming rate of watershed degradation due to lack of a clear overall strategy, limited financial resources, fragmented implementation responsibility, shortage of properly trained manpower, and increasing socio-economic pressure resulting from the rapid increase of population in the uplands/forest lands where the vital watersheds are located. Further, while there has been some progress in the country toward a broader concept of watershed management that puts some priority on the interests of the local population, a great deal of discussion and a clear, overall strategy is still needed to bring a wide range of stakeholders to a higher level of understanding of, inter alia, the scope for multiple use of watersheds. Given the extent of watershed degradation in the country and the serious consequences for vital economic infrastructure as degradation continues, it is essential that a long-term strategy and investment program be formulated and implemented, accompanied by policy and legal changes and institutional strengthening of the DENR and other involved agencies. 1.8 Irrigation Subsector Management. There are several constraints on the irrigation sub- sector performance (para. 1.9). Since irrigation is the biggest user of water in the country, an improvement in irrigation efficiency would significantly reduce the pressure on water resources, and thus help overall water resource management in the country, permitting additional supplies to the water supply sub-sector; in turn, an improvement in water resource and watershed management would benefit the irrigation sub-sector by minimizing illegal upstream diversions, reduction in siltation of reservoirs and canals and the consequent reduction in O&M costs, more reliable and predictable allocation of water within a river basin management framework, and improved planning and design of irrigation systems due to availability of better data. Irrigation development has been an important instrument of the Government for promoting agricultural growth and food security, and alleviating rural poverty over the past two decades. Irrigation systems now serve an area of about 1.5 million ha, about 48% of the irrigable area (although development of the entire area may not necessarily be economically viable). About 95% of the irrigated area is devoted to paddy and about 70% of the paddy production in the country is from irrigated lands. For dry season cropping, irrigation is essential in all climatic zones in the country. There are three main types of irrigation systems in the Philippines: (a) national irrigation systems (LaS): there are 168 NIS, serving about 650,000 ha. NIA, a government-owned corporation responsible for irrigation development, constructs (with Government grants), and operates and maintains (from its own budget) the national systems. Farmers in NIS pay an Irrigation Service Fee (ISF); (b) communal irrigation systems (CIS): there are about 6,200 CIS, serving about  - 5 - 730,000 ha. These are small systems, owned and operated by Irrigators' Associations (lAs). Since the promulgation of the Local Government Code in January 1992, the overall responsibility for CIS (except ongoing foreign-funded CIS) has been transferred from NIA to the local governments; and (c) pump-lift irrigation systems (PIS): these serve about 200,000 ha, covering from 20 to 100 ha per system, and are privately owned and mostly privately operated. Detalds on the irrigation sub-sector are at Annex 2. 1.9 The major reasons for the unsatisfactory performance of irrigation systems in the Philippines include: deficient water management due to institutional weaknesses of NIA and the IAs; insufficient water control structures to ensure equitable and timely water deliveries to all sections of the irrigation systems; neglect of flood protection and drainage in the design of NIS; inadequate funding of operation and maintenance; and increased siltation of irrigation systems caused by watershed degradation and severe erosion during typhoons. 1.10 Problems of NIA and Irrigators' Associations. The institutional problems of NIA and the IAs are a major reason for the low overall water use efficiency in irrigation. Although NIA is an autonomous corporate entity, it does not finance investment projects from its own resources or loans. All investment programs are financed by the Government. However, NIA is responsible for O&M of the NIS. The O&M is covered by NIA's operating budget, which is financed principally from ISF collections, management fees charged to the Government for the design and construction supervision of irrigation projects, and rentals of construction equipment. Any change in ISF rates has to be approved by the Government, and management fees depend on the level of the investment program, which has declined in recent years due to the Government's financial constraints. Because of inadequate maintenance resulting from a shortage of funds, irrigation infrastructure and the quality of irrigation services provided to farmers on NIS have deteriorated. This, in turn, has adversely affected NIA's fee collection performance. ISF collection was only 62% of current billings in 1995, and met only 66% of the total O&M expenditures. NIA realizes its serious financial situation and is implementing several measures to improve the situation. These include: streamlining of its organization and staffing; an accelerated program to turn over NIS or parts of NIS to the lAs, which would reduce NIA's operating costs; efforts to increase the equipment rental income; and steps to increase ISF collection, which, under the Second Irrigation Operations Support Project (IOSP II, Loan 3607-PH, approved in FY93), is targeted to be at least 70% of the current billings by the end of the project in 1998, meeting about 95% of the total O&M expenditures of NIS. 1.11 As regards the institutional development program for the lAs, NIA has been a pioneer among developing countries. The program for the involvement of lAs in planning, construction, and management of irrigation schemes started about 25 years ago on communal schemes and was later adopted on national schemes. All communal schemes, accounting for about 50% of the total irrigated area in the country, involve full participation of the IAs, from initial planning to eventual management and ownership. However, the management turnover program on NIS has lost its momentum, although the number of lAs formed, registered and granted contracts (for maintenance of sections of NIS and ISF collection ) is impressive. It appears that at least 50% of the IAs formed so far in NIS are facing difficulties in fulfilling their contractual obligations to NIA. The IA development program needs revitalization to enable the IAs to assume greater responsibilities and to help achieve the ultimate policy objective of NIA to completely turn over  - 6 - the smaller NIS as well as lateral canal systems of bigger NIS to the LAs. NMA would then restrict itself to delivering water services to the lAs at the lateral gates in larger NIS which cannot be turned over in their entirety in the foreseeable future due to the complexity of operations and maintenance of these systems. 1.12 Government Strategy for the Water Resources Sector. Broad national water policies are embodied in the Philippines Water Code. However, there is a lack of a coherent and comprehensive strategy for the development and protection of water resources at the national and sectoral levels. Sub-sectoral strategies relating to water supply and sanitation, flood control, irrigation, etc. have been developed and adopted in the Medium-Term Philippine Development Plan. Although these sub-sectoral strategies have provided guidance in determining development programs, the Government recognizes the absence of a cross sectoral strategy. The Government is now keen to initiate an integrated approach to water resources management (para. 1.3). A Cabinet-level Water Management Cluster was established in 1994, and serves as the advisory committee to the President and the Cabinet on matters related to the water resources sector. It provides for the first time a focal point at the highest policy-making level for discussions on water sector issues. The Bank has so far supported the Government's sub-sectoral initiatives in the water sector through technical assistance, policy dialogue and lending. To improve irrigation management, the latest is the IOSP II (Loan 3607-PH, approved in FY93). The project's main emphasis, apart from systems improvement and repair, is on achieving an improved and sustainable level of operation and maintenance of NIS. To assist NIA in improving irrigation service delivery, and to expand the irrigated area further, additional investment projects for systems improvement and new construction are required. While a few new large-scale irrigation and multipurpose projects may be justified, the priority would be improvement and repair of existing NIS (which continue to be NIA's responsibility), and construction and rehabilitation of communal and small-scale irrigations schemes (devolved to local government units), which would require smaller investments but yield faster returns. 1.13 Lessons Learned from Previous Bank Operations. Overall water resources management would be a new Bank activity in the country. Based on experiences elsewhere, institutional coordination and strong leadership by the regulatory agency (or agencies) are likely to be critical. Considerable attention to this component and continued dialogue with the Government on policy and institutional issues would be needed during implementation. Bank experience with watershed management in the Philippines is also meager at this stage. The most important lesson emerging from one ongoing and three completed Bank-supported projects is the need for stakeholder participation in the planning and implementation of watershed management to ensure sustainability, and the need for sustainable technologies and livelihood programs for the people occupying the watersheds. Another major lesson is the need for appropriate institutional arrangements for watershed management, given the current weakness of the DENR and inadequate coordination between the DENR and local governments. These lessons are expected to be adequately taken into account by the study proposed under the project. As regards irrigation projects in the Philippines, Bank experience spans almost three decades. The most recent Bank- financed irrigation projects, which have been completed or are under implementation, are IOSP I (Loan 2948-PH, approved in FY88), IOSP II (Loan 3607-PH, approved in FY93), and Second Communal Irrigation Development Project (CIDP II, Loan 3261-PH, approved in FY91). The IOSP I was completed satisfactorily, with the economic rate of return at completion estimated at  - 7 - 21%. The implementation of CIDP II and IOSP II was initially delayed, principally due to inadequate counterpart funding, but is now satisfactory. The major lessons, which have been learned from those projects and incorporated in the design of this project, are: cost-effective structural interventions (repairs of damages, restoration of capacities, measures to reduce water losses, improved control and regulating structures, etc.) contributing to the improvement of water management in NIS should be adopted along with institutional strengthening within the framework of an Irrigation System Improvement Plan; beneficiaries are more likely to pay ISF if they actually benefit from O&M and other NIS improvement work; and development of lAs and training them for the transfer of O&M responsibilities reduced NIA's costs and, in several instances, O&M and ISF collection by lAs improved in systems where IAs were responsible compared to systems where they were not. 2. PROJECT OBJECTIVES AND DESCRIPTION Project Formulation and Design 2.1 The need for a follow-on project to IOSP II (Loan 3607-PH) to continue the program approach to irrigation systems improvement and repair was discussed during the negotiat:ons of IOSP II in April 1993. However, given the increasingly apparent weaknesses in the overall water resources management in the Philippines and the comprehensive approach advocated in the Bank's water sector policy paper, it was agreed that the follow-on project would have a much broader framework. Accordingly, a Bank mission identified the project in October/Noiember 1993. A Japanese grant was obtained for project preparation and a consultants' team started work on the background papers in February 1994. The papers were completed in December 1994 and, based on the papers, NIA completed a feasibility report for the project in December 1995. For the preparation of the water resources management component of the project, NWRB and NI A were assisted by another team of consultants (para. 1.4). The project was pre-appraised by a Bank mnission in November/December 1995 and appraised in February/March 1996. Negotiatiolis were held on September 16-18, 1996. 2.2 The main design alternatives considered for the project were a straight forward follow-on to IOSP II or a broader-based project. The latter alternative was chosen to responc to the Government's desire to initiate a comprehensive approach to water resources and watershed management (para. 1.3). The irrigation subsector, which is the predominant water user in the country, was retained in the project to help realize the synergies discussed in para. l.8. The project as designed would, for the first time in a foreign-assisted project, bring together three principal agencies in the water resources sector: NWRB, DENR, and NIA, and other agencies involved in data collection. This collaboration would be essential in pursuing a river basin approach in the future. For the irrigation sub-sector component, the main design alternatives considered were improvements in existing NIS or construction of new NIS. The former alternative was chosen, given the substantial scope that exists for increasing the irrigated area at a relatively low cost through improvement works, including provision of drainage for waterlogged areas. For choosing the NIS to be included in the project, several technical, econcmic and institutional criteria were used (para 2.9).  -8 - Country Assistance Strategy 2.3 The project is consistent with the country assistance strategy (CAS), which was discussed by the Board on April 4, 1996. The ultimate objective of the Bank Group's assistance to the Philippines, as defined in the CAS document, is to promote sustainable development and help achieve a more rapid reduction in poverty. Within this overall framework, four specific objectives have been identified: (a) supporting the Governrment's efforts to convert the current economic recovery into a period of sustained growth, which is vital for poverty reduction; (b) strengthening the country's infrastructure to enable such growth; (c) assisting in the design and implementation of more effective and efficient mechanisms for poverty alleviation while upgrading the quality of social services available to the poor; and (d) supporting sustainable management of natural resources and protecting the environment. To pursue the second objective (infrastructural strengthening), Bank support for improved water resources management has been given a high priority. For the third objective (poverty alleviation), increasing the productivity and incomes of poor lowland farmers through improved irrigation services has been identified as an important area for Bank intervention Finally, for the fourth objective, expanding natural resource management (including watershed management) programs, strengthening the technical capability of the NWRB, and improving the efficiency of existing irrigation schemes, have been identified as priority areas for Bank support. Rationale for Bank Involvement 2.4 The Bank has been actively involved since 1992 in a policy dialogue relating to water sector reforms in the Philippines. A Water Supply Sector Reform Study, financed by a Japanese grant and executed by the Bank, was carried out in 1993. The study made a few recommendations for the NWRB, mainly from the water supply sector viewpoint. Two Japanese grants were executed by the Bank for the preparation of the water resources management component of this project (para. 1.4). Bank involvement in this project would be invaluable, based on the following considerations: (a) the Government is keen to initiate a comprehensive approach to water resources planning and management and has requested Bank assistance for this purpose; (b) the project would facilitate continued Bank policy dialogue with the Government on water sector reforms; (c) the project would lay the ground work for a river basin approach to water resources development and management in the Philippines, which would integrate land use policies and agricultural practices with water management, and thus help implement the Bank's water sector policy; (d) the project would help formulate a long-term strategy and investment and institutional strengthening program for watershed management, which could have a far-reaching impact on poverty alleviation in the uplands and on environmentally sustainable development, and which could be supported by the Bank and other donors through program lending; and (e) the project's irrigation investment component has important poverty alleviation, environmental improvement, and institutional strengthening objectives, including revitalization of NIA's pioneering approach to participatory irrigation development, which has drawn considerable international attention. Project Objectives and Components 2.5 The project would assist the Government in developing an appropriate policy and institutional framework to improve water resources planning, development and management in  - 9 - the country; initiating an integrated and comprehensive approach to watershed management to sustain water sources; improving efficiency of existing irrigation systems, and thereby increasing agricultural production (mainly rice), and alleviating rural poverty; improving irrigation services in the long term by accelerating management turnover of irrigation systems to water users and by increasing NIA's institutional effectiveness; and improving the environment in irrigated areas, mainly by controlling schistosomiasis, a water-borne disease. 2.6 The five-year project, to be implemented from January 1997, would include the following components: (a) improved water resources planning and management: preparation of a national water resources plan; improvement of national data collection networks; establishment of a national water information network; and strengthening of NWRB (US$ 4.5 million or 5% of total project cost); (b) improved watershed management: formulation of a national watershed management strategy and investment and institutional strengthening program; investments for the improved management of a few high priority watersheds; and training/study tour for DENR and NIA staff relating to watershed management programs in other countries (US$15.0 million or 17% of total project cost); (c) improvement and repair of NIS: improvement of 14 systems, repairs to eight major structures in other NIS and strengthening of Masiway dam, and construction of sediment exclusion structures in another five NIS (US$ 61.2 million or 72% of total project cost); (d) institutional strengthening of NIA and IAs: provision of staff training, consultancies, and computers for strengthening of NIA; and strengthening of LAs through provision of training, consultancies, and incremental operating costs to facilitate progressive management turnover of systems to them (US$3.0 million or 4% of total project cost); and (e) environmental improvement: control of schistosomiasis in 3 NIS; erosion control works in 31 NIS; sediment monitoring in 3 NIS; and establishment of an Environment Unit within NIA and provision of training and consultancy to the Unit (US$1.4 million or 2% of total project cost). Detailed Project Features Improved Water Resources Management 2.7 The project would finance: (i) the formulation of a national water resources plan to provide a coherent framework for the orderly development and management of the country's water and related land resources. The plan would provide NWRB a basis for the coordination and integration of policies, strategies, river basin plans and programs of all stakeholders, and the technical information on which to base recommendations to the Government regarding the consistency and priority of programs and projects as they affect the water resources. The  - 10- preparation of the plan is seen as an iterative process: the aim would be to develop a flexible planning system capable of continuous evolution rather than to present a rigid blue print; (ii) the design of and some essential equipment for the establishment and improvement of national data collection networks for stream flow, ground water and water quality; (iii) the design of and equipment for the establishment of a national water information network (NWIN), a personal computer-based system to link the data bases of the NWRB with those of other important agencies for improved data dissemination and easy access; and (iv) the strengthening of NWRB's technical capability through appropriate staffing, training, consultancy, equipment and organizational changes. Further details on the component are in para. 4.2 and Annex 1, and the draft TOR for the three studies in i-iii above are at Annex 1. The three studies are expected to be completed by the end of 1999. While the project provides for the technical basis to help improve water resources management, and to a certain extent, the institutional basis, by strengthening NWRB and establishing its Regional offices, many institutional and policy measures, and, in the longer-term, legal and regulatory measures, which would maximize project impact, would need to be implemented after further studies and discussion among all stakeholders. Some of these measures are recommended in the action plan formulated as part of project preparation (para. 1.4) and more would emerge from the national water resources plan to be prepared under the project and the ongoing separate study on economic regulation of water utilities being undertaken jointly by the Bank, Asian Development Bank, and the United States Agency for International Development. Assurances were obtained at negotiations that the Government would hold annual consultations with the Bank on the progress in establishing a comprehensive institutional and policy framework for water resources management in the country in accordance with the action plan formulated as part of project preparation. Improved Watershed Management 2.8 This component would initiate a national program of a comprehensive, integrated, community-based watershed management by formulating a long-term strategy and program of investments and institutional strengthening (after a detailed inventory of all the watersheds considered critical, which would provide information on the degree of degradation, cause and location, the significance of each critical watershed for existing and future basin infrastructure and economic development, and current and planned watershed management projects and programs in the country), and preparing detailed management plans for the watersheds identified as high priority. It is expected that the integrated national watershed improvement program formulated under the project would be suitable for support by the multilateral and bilateral development agencies in the short to long term. Phases I and II (with separate tasks defined under each Phase) of the study, which would produce a national watershed management strategy, and a long term investment and institutional strengthening program for watershed management, would be undertaken together and are estimated to require a six to nine month period. The Phase III would involve the preparation of management plans for selected critical watersheds after completion of Phases I and II. Draft TOR for the study are at Annex 3. The study is expected to be completed by the end of 1998. A small allocation has been made under the component for investments in improving management of a few high priority watersheds, which would be undertaken following the completion of the study and management plans. Before disbursement of the Bank loan for investments in the selected critical watersheds, the DENR would provide a list of such watersheds  - 11 - to the Bank for its concurrence. The component also includes a small provision for DENR and NIA staff for training/study tour relating to watershed management programs in other countries. Systems Improvement and Repair 2.9 Systems Improvement. The project would provide for the improvement of 14 national irrigation systems serving about 110,000 ha. The provision would be for works and some heavy equipment (two amphibious draglines and one motor grader). The 14 systems were selected by NIA in consultation with the water users on the basis of agreed technical, economic and institutional criteria (Annex 4). Water users of these systems have signed Memoranda of Understanding pledging their cooperation and labor contribution. Before disbursement of the Bank loan for system improvements, NIA would prepare, in consultation with project beneficiaries, and forward to the Bank, an Irrigation System Improvement Plan satisfactory to the Bank (a general outline is at Annex 5), for each of the selected systems, justifying proposed improvements. 2.10 The indicative program of works for the improvement of the 14 selected NIS has been prepared in detail by NIA after consultations with the lAs, who have agreed to contribute to the implementation costs on the basis of separate cost estimates for the works pertaining to each IA. A program approach has been adopted for the implementation of the improvement works whereby detailed preparation has been undertaken for six NIS on which works would commence during the first project year, and further detailed preparation would be undertaken for the remaining eight NIS on which works would commence in the second year. The systems on which works would commence in the first year are: San Pablo-Cabagan, Tumauini, District II of Magat River Integrated Irrigation System, Balanac, Baco-Bucayao, and Andanan. The availability of water for the anticipated incremental irrigated areas in the wet and dry seasons at these six NIS, as well as six of the other eight NIS on which works would commence in the second year, has been confirmed by water balance studies. Proposed system improvement works on the 14 NIS would include construction of silt excluders, new regulating and control structures for water level control and equitable distribution of water based on an Irrigation System Improvement Plan, resectioning of the canals through desilting and strengthening of the banks, repair of damaged structures (checks, siphons, etc.), installation of missing gates on regulators and offiakes for the laterals, complete remodeling of turnout control depending on acceptability by the water users, and installation of measurement and other facilities for effective system operation to ensure good water management. The activities to be undertaken as part of systems improvement are detailed at Annex 6. A few systems would also include drainage improvement, check structures on the drains for re-use of return flow, and augmentation of water from adjacent streams through link canals. These works may require limited acquisition of land and other property. The extent of the required acquisition is not known for many of the selected NIS at present, since detailed preparation of their improvement proposals is yet to be completed. A Policy Framework for the Resettlement of Project-Affected Families was, therefore, prepared by the Government before negotiations, and agreed with the Bank. The Policy Framework establishes the principles and procedures for compensation, and monitoring arrangements. Provision of 10 person-months of consultancy for assistance to NIA in the preparation of resettlement action plans, if needed, and for external monitoring of resettlement activities, has been made under the project. Before disbursement of the Bank loan for works on any NIS selected for improvement, which requires  - 12 - acquisition of land and other property, NIA would undertake such acquisition, compensation therefor, and resettlement, in accordance with the principles and procedures laid down in the Policy Framework, and, where a resettlement action plan is required under the Policy Framework, prepare such a plan acceptable to the Bank, and complete the implementation of the plan in a manner satisfactory to the Bank. 2.11 As regards dam safety, the irrigation schemes, to be improved under the project, depend on two storage dams (Magat and Angat) and several diversion structures (also called '"ams" in the nomenclature used by NIA) for the water deliveries to the irrigation network. Moreover, strengthening of Masiway, which is one of the five dams in the Pantabangan (storage dam) complex, is also included in the project. The Dam Safety Unit of NIA is responsible for monitoring the safety of the Magat dam and the dams in the Pantabangan complex, and for preparing six-monthly reports based on site inspections, and analysis of instrumentation data observed by field staff. Independent dam safety monitoring was also undertaken for these dams by the consultants who carried out implementation designs, at intervals of about two to five years after completion, for a period of ten to fifteen years. The contracts having expired, independent monitoring is currently not being carried out. Monitoring reports of Magat dam indicate that there are no safety issues. The Pantabangan complex was hit by a major earthquake in 1990. The dams had acceptable settlements (without any significant slip failure) in the entire dam length, except Masiway where the settlements were high. The structural stability of these dams was examined under the Bank-supported Earthquake Reconstruction Project (Loan 3263-PH), which indicated that only Masiway dam required strengthening against possible damage in a future major earthquake. Additional investigations and tests are in progress for finalizing the strengthening measures. These remedial works would be financed under the major repairs sub-component of the project (para. 2.12). The National Power Corporation (NPC) monitors the safety of the Angat dam. The monitoring reports, prepared annually, indicate that there are no safety issues. The safety of the diversion structures for NIS is monitored by the O&M staff of NIA as a part of their maintenance responsibilities. No separate annual monitoring reports are prepared. All of these structures are in good shape except Bustos diversion structure, which also has the function of balancing the peak power releases from the Angat dam, and which had extensive damage to gates in a typhoon flood. NIA has received external grant funding for the remedial measures for Bustos. Assurances were obtained at negotiations that the Government would ensure that all dams and reservoirs supplying water to the irrigation systems under the project would be maintained and inspected periodically in accordance with sound engineering practice, under arrangements satisfactory to the Bank. 2.12 Major Repairs. Eight NIS (other than the 14 selected for improvements) have been identified for repairs to major structures or to rectify the problem created by the shifting and retrogression of the parent rivers and consequent lowering of the water level. This problem is faced in Lower Chico and Sibalom-San Jose NIS, which do not have a diversion structure on the river. At the other six NIS, repairs have to be carried out to the damages to the diversion structures. At Aklan-Panakuyan, repairs are to be carried out to a major siphon as well. At Lower Chico, the project would also finance improvement of the system in the abandoned tail reaches. In addition to major repairs in the eight NIS, the project would finance strengthening of Masiway dam (para 2.11). In the first year, repairs would commence at five NIS (Lower Chico, Apayao- Abulog, Sta. Cruz-Mabacan, Alcan-Panakuyan, and Tago). Strengthening of Masiway dam would  - 13 - also commence in the last quarter of the first year. Deferment of major repairs entails a high risk because a much larger damage could occur without any warning, and require much costlier repairs, and result in service interruptions and crop losses. 2.13 The collection of site data and designs of remedial measures for the first year works have been completed. The drawings for implementation would be completed by the end of 1996. Detailed designs and drawings for the repairs to the structures at the remaining three NIS would be completed later since work at two NIS would start in the second year and at one in the third year. The design of the strengthening measures for Masiway dam would be finalized for implementation before the end of 1997. 2.14 Silt Excluders. The project would provide for the construction of silt excluders (including ejectors and/or settling basins) at five NIS, other than the 14 selected for improvement (the improvement of 14 selected systems would include three silt excluders). The silt excluders would solve the problem of the loss of system capacity during the irrigation season which affects the delivery of the required water for irrigation, and would also reduce silt removal costs, which are at present a substantial part of NMA's annual budget for O&M of irrigation systems. The sediment samples at different locations have been collected and their analysis completed. Work is proposed to commence in the first year on the silt excluder at Malasila NIS (and at Dipolo and M'Lang MIS, included in the systems improvement sub-component). The drawings for the layout and profiles of silt excluders at these NIS have been completed, and detailed working drawings for implementation would be finalized by the end of 1996. Institutional Strengthening of NIA and L4s 2.15 Strengthening of NIA. The activities proposed for this sub-component are detailed below: (a) For the computerized management information system (MIS), the project would provide for hardware and software acquisition, application systems and data base development, installation, training, and consultancy. The major benefits of MIS development would be computerized ISF billing, better equipment inventory and management, improved accounting system and faster auditing, and improved performance monitoring of NIS. Details of NIA's current and proposed MIS are in Project Files (Feasibility Report by NIA, Vol. 2). (b) The sub-component to streamline NIA's accounting system would provide funds for training of internal auditing staff and for consultants to: (i) reconcile all of NIA's previous accounts (both at the Head Office and in the field) and recommend follow-up action on those accounts that can either be no longer reconciled or for which supporting documents have been lost; (ii) prepare a revised accounting manual; and (iii) train NIA staff in correctly recording the accounting entries in accordance with the revised procedures. Details of the sub-component and NMA's accounting system and financial performance are at Annex 7. (c) While some heavy equipment would be provided under the project (para. 2.9), the main institutional emphasis would be on the formulation of an equipment management policy, which, inter alia, would focus on disposal of unusable  - 14 - equipment, increased utilization of workable equipment through Regional pooling and redeployment, increased renting out, and privatization of workshops, where feasible and desirable. Much of NIA's heavy equipment (32%) is unserviceable and needs to be disposed of However, disposal has been extremely slow due to cumbersome procedures. Equipment utilization, particularly for heavy equipment, is very low due to lack of work to do, high ratio of unserviceable equipment, and difficulties in renting out equipment. There is also a shortage of good mechanics and operators at NIA. Assurances were obtained at negotiations that NIA would formulate an equipment management policy, and, by the end of 1997, furnish it to the Bank for comments. (d) Training of NIA staff would continue to be a high priority under the project. While a significant provision for NIA staff training was made under the IOSP II (Loan 3607-PH) and funds are still available for some training, additional provision under the project would be made for: (i) local refresher training courses for the design staff at the HQ and the Regional offices; (ii) local training of staff and operators involved in equipment management; (iii) local training of accounting staff (see (b) above); (iv) local training in computerized MIS (see (a) above); (v) overseas training in sediment monitoring (para. 2.22); (vi) overseas study tour to observe irrigation management methods and programs for turnover of irrigation management to water users; and (vii) overseas study tour to observe watershed management programs (para. 2.8). 2.16 Strengthening of lAs. The provision for IA development under the project includes IA training, training of Institutional Development Officers (IDOs) and Farmer Irrigator Organizers (FIOs), consultancy for monitoring and evaluation of the IA development program and for development of IA federations, and incremental operating costs. The incremental operating costs are mainly for about 1,000 FIOs, who would be recruited for one year each from among the fanner beneficiaries to help improve the performance of non-functional lAs (about 40% of the lAs were reported to be non-functional in a recent survey by the Institutional Development Department (IDD) of NIA). Honoraria for the Water Resources Facilities Technicians (WRFTs), who, under the project, would be selected and trained to perform the job of IDOs, have also been included in the incremental operating costs. Assurances were obtained at negotiations that, in accordance with the institutional development program (IDP), NIA would, by the end of 1997, identify IDOs in Regional offices and transfer them to the field; identify and train WRFTs to work as IDOs; and provide revised job descriptions to all staff involved in the IDP (WRFTs, IDOs and Senior IDOs) before they undertake their new duties. 2.17 The project's IA development and management turnover program sets targets over a 15- year period for turnover of operation and maintenance of laterals and sub-laterals in larger systems and complete turn over of smaller systems to the lAs (details are at Annex 8). The smaller systems (service area for each about 3,000 ha or less) to be improved under the project (six systems) and under the ongoing IOSP 11 (13 systems) cover about 25,400 ha in total. All of these systems are targeted to be completely turned over after improvement to the lAs by the end of the respective project periods. However, in order to overcome resistance of staff, who may be afraid of losing their job as a result of complete turnover, MIA would have to formulate a policy to  - 15 - protect the involved staff. Assurances were obtained at negotiations that NIA would formulate the policy, and, by June 30, 1997, furnish it to the Bank for comments. In addition to complete turnover of smaller systems, the improved laterals and sublaterals of the larger systems included under the project and IOSP II would be handed over to the IAs for water distribution and maintenance, the responsibility of NIA being only to supply the required amount of water at the head of the lateral. To implement this policy of wholesaling of water services, NIA would bill the IAs for water directly, rather than individual farmers. A revised Memorandum of Agreement (MOA) is now being drafted by NIA for direct billing. Assurances were obtained at negotiations that, by June 30, 1997, NIA would enter into a revised MOA with the IAs providing for direct billing of ISF for systems to be improved and turned over to the lAs under the project and IOSP II. The longer-term objective of NIA is to move from direct billing to volumetric pricing at the head of the lateral. Assurances were obtained at negotiations that NIA would pilot test volumetric pricing on at least one lateral of a NIS by the end of 1999, in accordance with terms of reference developed in consultation with the Bank. 2.18 The improvement proposals for the NIS included under the project have been discussed by NIA with the lAs concemed and their concurrence (in the form of a Memorandum of Understanding) obtained. After implementation of the improvement program, the management of the laterals and sublaterals would be turned over to the IAs under a Memorandum of Agreement. As under the IOSP II, the IAs would share the cost of improvement works. To help achieve the above objectives, greater participation of the lAs in system management would be encouraged by NIA. One way to achieve it would be to set up system management committees (SMCs), composed of the NIA system-level staff and IA Presidents, and in case no IAs exist, representatives elected by the farmers. The representation of other Govemment agencies, such as the Department of Agriculture (DA), Provincial and/or Municipal Agricultural Service, Land Bank of the Philippines, Philippine Crop Insurance Corporation, etc. would be invited whenever needed. The SMC would discuss and decide on, inter alia, overall planning of O&M activities; identification and implementation of physical improvement works, including the planning of farmer contributions; inspection, approval, and turnover/acceptance of completed improvement works; and monitoring and evaluation of individual lAs, IA federations, and overall system performance. The SMCs would thus provide a valuable overall system management perspective to individual lAs and facilitate their progress towards a federation and eventual take over of complete systems. Assurances were obtained at negotiations that NIA would establish SMCs, with composition and terms of reference satisfactory to the Bank, in all systems which are being improved under the IOSP II by June 30, 1997, and, if the results are deemed positive in consultation with the Bank, in all systems to be improved under this project by the end of 1998. 2.19 The project would continue the emphasis of IOSP II on training programs and activities targeted at increased participation of women in the IAs, particularly in leadership positions. It should be noted that the status of women in the Philippines is considerably higher than in many other developing countries, as revealed by a Bank WID assessment (1989). Under the Philippine Civil Code, married women are joint owners of conjugal property, and a married couple is a joint decision-making unit. Nevertheless, efforts would be continued under the WRDP to expand the role of women in the IAs in areas such as O&M at the turnout level and ISF collection.  - 16 - Environmental Improvement 2.20 Schistosomiasis Control. This sub-component includes support to the Department of Health (DOH) in three NIS (Andanan, Dipolo, and M'Lang/Malasila). The prevalence rate in the first two systems is fairly high (average 6% and 8%, respectively), and the project target is to reduce this rate by 50% by the end of the project. The rate in M'Lang/Malasila is fairly low (1%), and the project target is to prevent the rate from increasing. The project costs make provision for honoraria for DOH staff for five years, as well as for equipment, drugs, toilets, consultancy and information campaign. 2.21 Erosion Control Works. The project would fund erosion prevention in 31 NIS, particularly targeted to cover the critical areas in the immediate vicinity of the systems. The prevention 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, Glyricidea, and on acid soils Flamingia congesta), and other low-cost methods where appropriate. 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 and IOSP II. Vetiver grass occurs naturally in several areas of the country. Erosion control would be adopted in seven out of 14 NIS selected for improvement (the other seven NIS are already included for erosion control measures in the program funded under IOSP II). In addition, erosion control at 24 other NIS would be included. Based on IOSP II and CIDP II experience, the contracts with IAs for planting vetiver hedgerows would be awarded for a three-year period, the first year for actual planting and the following two years for necessary care for development. Nurseries are not planned as enough plants are expected to be available from nearby areas. Difficulties are likely to be experienced in planting and maintaining the hedgerows outside the irrigation system area (although in close proximity), since farmers within the system may have little interest in the work and farmers outside the system may not be organized. There is, therefore, a need for NIA to have a dialogue with the lAs to confirm that the hedgerows outside the system area (reported to be the case in 10 NIS) would be planted and properly cared for. The possibility of involving NGOs in planting and maintaining of hedgerows outside the system area would also be considered by NIA. 2.22 Sediment Monitoring. For sediment monitoring in three NIS (Dipolo, M'Lang and Jalaur Proper), the project would provide equipment, consultancy (two person-months), overseas training (two staff), and incremental operating costs, including some contractual staff. The monitoring would involve establishing the pattern of sediment load and its variation with different flood stages, as well as the entry of the sediment into the canal intake and its movement downstream. The information collected over a five-year period, although site-specific, would be useful in the operation of the canal system (opening and closing of sluice and intake gates), in the design of sediment control measures, if necessary, and as a base for assessment of the impact of any watershed programs which may be implemented in the catchment. 2.23 Establishment of an Environment Unit. The project would provide for training and consultancy support for an Environment Unit or Division to be created within NIA to coordinate and implement, as necessary, all environmental assessment, management and monitoring work to be done by NIA. The environment work in NIA is at present dispersed among various units, and it  - 17- is necessary to consolidate the work in a single Unit or Division, which could be strengthened to play a more effective role in addressing the environmental issues in irrigated areas. Provision for a Land Resources and Watershed Management Division already exists under the proposed streamlining of NIA, and this Division could very well perform the environmental functions mentioned above. Draft terms of reference for the new Unit or Division are at Annex 9. Assurances were obtained at negotiations that NIA would establish the Unit or Division bv June 30, 1997, with functions and responsibilities defined in consultation with the Bank. 3. PROJECT COSTS AND FINANCING Project Costs 3.1 Total project costs, including physical contingencies and expected price increases, are estimated at about US$85.2 million, with a foreign exchange component of US$23.4 million (27%). The cost estimate is based on 1995 prices and includes taxes and duties of about US$1.4 million. Price contingencies were calculated on the basis of a projected foreign inflation rate of 2.3 % p.a. and domestic inflation rate of 8.5% for 1996, 7% for 1997, and 6% thereafter. Constant purchasing power parity exchange rates were used to account for the difference in the projected foreign and local inflation rates. Project cost estimates are summarized in Table 3.1 and detailed in Annex 10. Table 3.1: Project Cost Summary Local Foreign Total Local Foreign Total Foreign ----Million Pesos- --Million USS % Improved Water Resource Plawnmg and Management 57.4 54.1 111.5 2.2 2.1 4.3 49 ImzrovedWatershedManagement 283.5 64.1 347.6 10.9 2.5 13.4 18 Svstems Imnrovement and Repair 992.0 390.4 1,382.4 38.2 15.0 53.2 28 Institutional Development (a)NIAlnatitutional Strengtheing 27.2 18.4 45.6 1.1 0.7 1.8 39 (b) IA Development 26.7 0.0 26.7 1.0 0.0 1.0 0 Enviromental lmorovement 21.8 11.6 33.4 0.9 0.4 1.3 35 Total Base Cost 1.40&5 538.7 1947.2 54.2 20.7 74.9 28 Physical Contingencies 116.4 43.0 159.4 4.5 1.7 6.2 27 PriceContingencies 236.3 75.3 311.6 3.1 1.0 4.1 24 Total Project Cost 1,761.2 657.0 2418.2 61.8 23.4 85.2 27 Project Financing 3.2 The proposed Bank loan of US$58.0 million would finance about 70% of total project costs, excluding taxes. This would cover 88% of the foreign exchange component and 62% of local costs net of taxes and duties. The remaining 12% (US$2.7 million) of foreign exchange component is for expatriate consultants and overseas training of staff, for which Government is exploring concessional resources from international donors, although counterpart funding has been committed for the time being. Parallel cofinancing (grant) of US$1.2 million equivalent has already been confirmed by the Danish International Development Agency (DANIDA) for the watershed management study. Negotiations with other international donors are in progress for  - 18 - cofinancing of other consultant studies and overseas training. The financing plan is shown at Annex 11, Table 1. The magnitude of local cost financing by the Bank is justified by the current budgetary constraints which the Government faces and the expected positive impact of the project on rural poverty (details on poverty are in paras. 6.2 and 6.3). Budget releases for the project comprising proceeds of the Bank loan and Government counterpart funds would be channeled to NWRB for the water resources management component, to the DENR for the watershed management component, and through the DA to NIA in respect of irrigation development and schistosomiasis control (the latter to be passed on to DOH under a Memorandum of Agreement). Procurement 3.3 Procurement under the project would follow Bank guidelines ('Guidelines for Procurement under IBRD Loans and IDA Credits" of January 1995, revised January and August 1996). Procurement of goods and works under the project would be the responsibility of NIA, except for goods and works for watershed management, which would be handled by DENR, and toilet construction for schistosomiasis control, which would be the responsibility of DOH. These agencies have been involved in several Bank-supported projects, and have adequate experience in procurement under Bank guidelines. Internal committees have been established in NIA to evaluate bids and award contracts for goods, works and consultancies. These committees have functioned reasonably well and no major issues have arisen in the recent past with respect to the recommendations of the committees to the Bank for award of contracts. Similar arrangements exist within DENR and DOH. Procurement of consultants (in case of untied procurement) would be undertaken by DENR, NWRB, NIA, and DOH separately. NWRB would be assisted, if needed, by NIA, which is the lead agency for the project, in the selection of consultants. Bank staff have reviewed national procurement procedures for goods and works, and confirm that they are acceptable to the Bank. Foreign bidders are eligible to participate in national competitive bidding (NCB). The project expenditure items, their estimated costs, and proposed methods of procurement are summarized in Table 3.2 and discussed below: (a) Goods. Construction equipment, vehicles, water data collection equipment, computers and other office equipment, estimated at US$2.4 million, would be procured through international competitive bidding (ICB). A 15% margin of price preference may be applied under ICB, in respect of goods manufactured in the Philippines, when comparing domestic bids with foreign bids. There are likely to be six ICB contracts. Some computers and other items of office equipment, some vehicles, and most of the agricultural inputs and small equipment for watershed management, which may be required in small batches at different times and locations, may be purchased through NCB, in contracts costing less than US$200,000 equivalent, up to an aggregate amount not to exceed US$1.8 million. Laboratory and other equipment for sediment monitoring, and some agricultural inputs and equipment for watershed management, may be procured through national shopping, with at least three quotations, in contracts costing less than US$50,000 equivalent per contract, up to an aggregate amount not to exceed US$0.6 million. Drugs and materials for schistosomiasis control, not exceeding US$0.2 million in total, may be procured through direct contracting.  - 19 - Table 3.2: Summaiy of Proposed Procurement Arrangements a/ (USS million equivalent) Procurement Method Total Expenditure Category ICB NCB Other N.B.F. Cost I. Works 1.1 Irrigation Systems Improvement 10.0 29.6 20.0 b/ - 59.6 and Repair (10.0) (21.2) (14.2) (45.4) 1.2 Erosion Control - - 0.4 c/ -- 0.4 (0.3) (0.3) 1.3 Toilet Facilities for - -- 0.1 d/ -- 0.1 Schistosomiasis Control (0.1) (0.1) 1.4 Watershed Management - - 9.2 c/ - 9.2 (6.6) (6.6) 2. Goods 2.1 Construction Equipment 0.6 - - - 0.6 (including spares) (0.6) (0.6) 2.2 ComputersandLab,Officeand 1.5 0.2_/ 0.1 f - 1.8 Water Data Collection Equipment (1.5) (0.1) (0.1) (1.7) 2.3 Vehicles 0.3 0.1 - - 0.4 (0.3) (0.1) (0.4) 2.4 Drugs and Materials for - - 0.2 gt - 0.2 Schistosomiasis Control (0.2) (0.2) 2.5 Inputs and Equipment for Watershed Management - 1.5 0.5 Vh 2.0 (1.2) (0.4) (1.6) 3. Consultancies 3.1 Studies - _ 4.1 4.1 3.2 Technical Assistance/Training - -- -- 0.5 0.5 4. Miscellaneous 4.1 Overseas Training - - - 0.2 0.2 4.2 Local Training - - - 0.6 0.6 4.3 Incremental Operating Costs i/ - - 4.5 - 4.5 (1.1) (1. 1) 4.4 Land Acquisition - - - 1.0 1.0 Total 12.4 31.4 35.0 6.4 85.2 (12.4) (22.6) (23.0) -) N.B.F.: Not Bank Financed. at Includes physical and price contingencies. Figures in parentheses are amounts to be financed by the Bank. b/ USS18.0 million through NIA force account and USS2.0 million through piece-work by farmers' groups (Irrigators' Associations). cl Through piece-work by farmers' groups. Al Through force account by DOH. e/ For some computers and office equipment, required in small batches at different times. f Through national shopping for laboratory and other equipment for sediment monitoring. g/ Through direct contracting. h/ Through national shopping. i/ Includes incremental staffing costs and honoraria, administrative support cost, cost of coracting NGOs for organsing communities for watershed management, equipment O&M coat for sediment monitoring prining. and travel cost of project daff including counterpart stff for various project studies.  - 20 - (b) Works. Works for strengthening of Masiway dam and major structural repairs at Tago irrigation system, totalling US$10.0 million, would be procured through two separate ICB contracts. The other irrigation system improvement and repair works, erosion control works, construction of toilet facilities for schistosomiasis control, and community-based watershed management works, would be small, widely scattered over the country, and, in several instances, located in remote areas. Foreign contractors (and in some areas, local contractors) are not likely to be interested in these works, as has been the experience in previous projects of this nature. 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, would be procured under NCB. Contracts let under NCB would not exceed US$2.5 million each, and would aggregate to about US$29.6 million, or about 43% of the total value of works. The remaining 43% of these works would need to be carried out in areas where contractors are not readily available; 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. These works would either be carried out by force account by NIA under individual tasks which would not exceed US$600,000 each, up to an aggregate amount of US$18.0 million, or through force account by DOH under individual tasks which would not exceed US$25,000 each, up to an aggregate amount not to exceed US$100,000, or through piece-work by IAs and groups of farmers, in tasks not exceeding US$200,000 each, up to an aggregate amount of US$11.6 million. Works carried out by the farmers through piece-work would assist in achieving the objectives of the project to promote community-based watershed management, and to develop IAs which can assume responsibility for maintenance of irrigation laterals and turnouts within their areas. Both DENR and NIA have the 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 would be used for disbursements on a basis similar to that of monthly progress payments to contractors. The number of NCB contracts is estimated at 50, and that for farmers' groups at 300. (c) Consultant Services. Consultant contracts, estimated at US$4.6 million, would be financed either through Government counterpart funds or concessional resources from international donors, with whom negotiations are in progress (commitment from DANIDA for US$1.2 million equivalent has already been received). About US$4.1 million would be for studies, including formulation of a national water resources plan, improvement of water resources data collection, establishment of a national water information network, research studies for NWRB and improvement of its management information system (MIS), and formulation of a watershed management strategy and program. The balance of US$0.5 million would be for technical assistance for the improvement of NIA's accounting system, enviromnental work, and MIS; IA development; schistosomiasis control; and sediment monitoring. Local firms and individuals have significant technical competence, and are likely to be involved in most consultancy contracts, sometimes in collaboration with foreign consultants.  - 21 - (d) Miscellaneous. The rest of project costs are on items which are not suitable for competitive bidding. These would be procured in accordance with Government procedures, which are acceptable to the Bank. The items include: overseas and local training (US$0.8 million); incremental operating costs (US$4.5 million), which include costs of new staff (for the proposed NWRB Regional Offices, IA development (para. 2.16), and sediment monitoring), honoraria for WRFTs (para. 2.16) and DOH schistosomiasis control staff, cost of contracting NGOs and honoraria for DENR staff for watershed management, honoraria for counterpart staff for various project studies, costs of administrative support, equipment O&M cost for sediment monitoring, printing, and travel cost of project staff, including counterpart staff for various project studies; and land acquisition for new drainage and link canal works (US$1.0 million). The costs of training and land acquisition would be financed through the Government counterpart funds. 3.4 Procurement Review. Prior to tendering and award, the Bank would review all bidding packages for goods valued at US$1.0 million equivalent or more, and bidding packages for works valued at US$5.0 million equivalent or more. These thresholds are set in view of the experience of NIA and DENR with procurement under Bank-financed projects (para. 3.3). Notwithstanding the above thresholds, the first three bidding packages each for goods and works, regardless of value, would be subject to the Bank's prior review. Other contracts for goods and works would be reviewed by the Bank on a random sample basis (one out of five contracts for goods and one out of ten contracts for works), subsequent to their award. The post-reviews would be carried out by the Bank's Resident Mission in the Philippines. For procurement of goods and works through ICB, the Bank's Standard Bidding Documents would be used; and for procurement of goods and works through NCB, bidding documents submitted by NIA and DENR with the first bidding package for goods and works would be reviewed by the Bank and, if found acceptable, the same bidding documents would be used for all subsequent NCB procurement. Disbursement 3.5 The Bank loan disbursement for works would be at 100% of foreign expenditures and 72% of local expenditures (excluding costs of land acquisition). Disbursements would be at 100% against foreign exchange expenditures for imported equipment, vehicles, inputs and materials, 100% of the ex-factory cost of such items manufactured locally, and 80% of expenditures for items procured locally. Disbursement for incremental operating costs would be at 25% of total expenditures. The proposed allocation of the loan proceeds is given in Annex 11, Table 1. 3.6 To facilitate timely project implementation and disbursements, two Special Accounts would be established: one in the name of DENR for eligible expenditures on the watershed management component, with an authorized allocation of US$0.5 million; and the other in the name of NIA for all other eligible expenditures, with an authorized allocation of US$3.0 million. The accounts would be established in a commercial bank specifically authorized for this purpose by the Bangko Sentral ng Pilipinas on terms and conditions satisfactory to the Bank. The Accounts would cover the Bank's share of eligible project expenditures for all disbursement categories (para. 3.5) in both local and foreign currencies. Applications for replenishment of the Accounts, supported by appropriate documentation, would be submitted regularly (preferably  - 22 - monthly, but not less than quarterly) or when the amounts withdrawn equal 50% of the initial deposit. 3.7 Reimbursement and disbursement applications for expenditures would be forwarded to the Bank by DENR and NIA. Disbursements for NCB civil works contracts would be through reimbursements on the basis of payments to contractors and certification of completion. Disbursements would be made on the basis of Statements of Expenditure (SOEs) for actual expenditures against: (a) contracts of less than US$5.0 million equivalent for works; (b) contracts of less than US$1.0 million for goods and materials; (c) works under force account and community participation; (d) incremental operating costs; and (e) engineering and administration. 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. NIA and DENR have the institutional capability to maintain required supporting documentation and assurances were obtained at negotiations that this documentation would be made available for review by visiting Bank missions. 3.8 The Bank loan closing date would be December 31, 2002, a year 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 11, 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 Bank loan would be disbursed in 6 years from project commencement for the following reasons: (a) the loan, in contrast to many others on which the disbursement profile is based, would mostly finance works in operating irrigation schemes, where the institutional and technical capacity for implementation already exists and financial and procurement procedures are well-established; (b) the works involved in the project are relatively simple and do not entail any complicated design, and requirements for land acquisition are relatively small; (c) works in the different NIS would be implemented simultaneously; and (d) project preparation is sufficiently advanced (para. 4.1) to permit an early start on implementation. The above arguments would be invalidated if the Government counterpart funds are delayed and insufficient, as in the past. However, the situation has already improved and is expected to improve further (see para. 6.14). The estimated annual project funding by the Government and the Bank is at Annex 12. Accounts and Audit 3.9 DENR, NWRB, DOH and NIA are Government agencies and, by law, their 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 these agencies, ensuring that proper accounting and auditing procedures are followed. After audit, the project's annual financial statements, together with the auditor's report and opinion on the financial statements and the Special Accounts, and the auditor's separate opinion on statements of expenditure, would be sent to the Bank within six months of the close of each fiscal year. Assurances were obtained at negotiations concerning the above accounting and auditing arrangements.  - 23 - 4. PROJECT IMPLEMENTATION Status of Project Preparation 4.1 The preparation of the water resources management component, which involves consultancies, training and equipment procurement, has been substantially completed. For the watershed management component, recruitment of consultants for the study is expected to be undertaken by DANIDA soon, and the preparation of the investment sub-component would begin immediately after the completion of the study. For the component relating to irrigation systems improvement and repair, preparatory field work needed to facilitate a smooth start up of the project has been completed in 14 NIS to be improved and the scope of work has been agreed with the IAs (paras. 2.9-2.10). Data collection and design work have also been completed in respect of eight of the nine systems identified for major repairs and five systems for silt excluders. At appraisal, the Bank reviewed the detailed program of work and funding proposal for the first year, supported by relevant engineering data, cost estimates, and implementation arrangements, and found them satisfactory. However, acquisition of land and other property, and compensation therefor, wherever required, would need to be completed for the first year works before they commence. Assurances were obtained at negotiations that work programs; engineering data; plan for the acquisition of land and other property and compensation therefor, wherever required; cost estimates; implementation arrangements; and funding proposals in respect of each subsequent year would be submitted for Bank review by June 30 of each preceding year. Preparation of the institutional strengthening and environmental improvement components has been completed and the components are ready for implementation. Organization and Management 4.2 The overall organization for project implementation is shown in Figure 1. A Project Steering Committee, composed of the National Economic and Development Authority (NEDA), DA, DENR, NWRB, NIA, and DOH has been formed to deal with any policy issues which may arise regarding the project and to ensure coordination among the implementing agencies. The Committee would be chaired by the Administrator, NIA. NIA would provide the secretariat for the Committee. The Project Coordinator in charge of implementing the NIA components (see para. 4.5) would act as the Secretary to the Steering Committee. Individual agencies would form their own project units to implement the respective project components. For the water resources management component, the NWRB would be responsible for overall coordination, assisted by the other sector agencies involved in the project. The NWRB would establish a Project Management Unit (PMU) in the Office of the Executive Director with staff deputized from different divisions. Under the guidance of the Executive Director, and working closely with other NWRB divisions, the PMU would: (i) oversee the project on behalf of NWRB, and coordinate with NIA and other agencies involved in the project; (ii) be responsible for the recruitment of consultants (in case of untied procurement) for the water resources management component and their supervision; (iii) prepare regular monitoring reports as required; (iv) submit disbursement claims to the Bank through NIA, and (v) prepare the completion report evaluating the outcome of the water resources management component. The detailed implementation arrangements for the  - 24 - technical tasks and institutional strengthening of NWRB included in the component would be as follows: (a) for the technical tasks, the primary responsibility would be with the Policy and Programs Division of NWRB, which would maintain close coordination with the PMU. The Division would establish three separate task forces: (i) for the data monitoring activity, an inter-agency task force would be formed, comprising NWRB and agencies participating in the data design program, i.e., Bureau of Research and Standards (BRS), Environmental Management Bureau (EMB), and Mines and Geosciences Bureau (MGB). This set up would later be converted into a National Water Resources Data Coordinating Center (NWDCC) to take the lead in coordinating all activities related to water resources data in the country; (ii) for NWIN, the inter-agency task force would include NWRB and other participating agencies (BRS, EMB, MGB, Philippines Atmospheric, Geophysical and Astronomical Administration (PAGASA), NIA, LWUA and NEDA); the task force would provide the counterpart staff and facilities for the NWIN consultants; and (iii) for the National Water Resources Plan (NWRP), the involved agencies would nominate project coordinators and technical staff to form an inter-agency task force, which would provide the counterpart staff and facilities for the NWRP consultants. For the NWRP, the Government would also establish a high-level Water Resources Plan Steering Commnittee, which would consist of the heads of the relevant agencies -- NEDA, DPWH, DENR, Department of Interior and Local Government (DILG), DA, NWRB, MWSS, LWUA, NIA and NPC. Both the NWDCC and NWIN offices within NWRB would be permanent although in due course they may be merged. The NWRP office may be merged with the Policy and Programs Division once the consultants have completed their assignment. The three task forces would be responsible for finalizing the TOR for the three studies. A Memorandum of Agreement would be signed between NWRB and each participating agency after the effectiveness of the loan agreement between the Government and the Bank. Assurances were obtained at nezotiations that, by June 30, 1997, the Government, through the NWRB, would assign to the BRS, MGB and EMB the formal responsibility for maintaining national networks for streamflow, ground water and water quality data collection, respectively, and that NWRB would establish the NWDCC with functions and responsibilities defined in consultation with the Bank; and (b) for institutional strengthening, NWRB would establish a Committee to oversee the implementation of the general reorganization, in particular the creation of Regional offices once these have received Government approval. Subject to the decisions and guidance of this Committee, the Administration and Finance Division of NWRB would take primary responsibility for implementing institutional strengthening. In particular, it would coordinate with NIA for the procurement of equipment and vehicles included under the project for water resources management component, and would provide counterpart staff and facilities for the MIS consultancy. The agencies receiving equipment through this Division would be responsible for operating and maintaining them. With regard to training, the  - 25 - PMU would identify appropriate training institutions, select candidates and coordinate the programs. 4.3 For the watershed management component, the DENR would have the primary responsibility, which would be performed by a small technical group headed by the Director, Forest Management Bureau. The technical group would include representatives from EMB and MGB, who would be involved in the water resources management component (para 4.2), and DENR staff involved in watershed management and Policy and Planning. The DENR would take the initiative in establishing a Watershed Management Steering Committee to oversee the consultants' study. The Committee would be composed of DENR (chair), DA, Department of Agrarian Reform, NEDA, DILG, NIA, NPC, Philippine National Oil Company (PNOC), at least one LGU, and one representative from a federation of NGOs. The DENR would also assign its own staff to the consultants' team as counterparts and arrange to get counterpart staff from NIA, NPC, PNOC and LGUs. The arrangements for training/study tour would also be made by the DENR, in consultation with NIA. For investments in improving management of a few high priority watersheds, following the completion of the consultants' study, the implementation arrangements would be worked out by the Watershed Management Steering Committee in the light of institutional and other recommendations made by the consultants. 4.4 For the schistosomiasis control sub-component, the DOH would have the primary implementation responsibility, with close cooperation of the Municipal Health Offices and NIA irrigation system offices in Andanan, M'Lang/Malasila and Dipolo. The Director, Schistosomiasis Control Service, DOH, would provide overall coordination and supervision, and prepare progress reports on the basis of information supplied by its Regional Schistosomiasis Control Offices, which would implement the sub-component. The equipment, drugs, materials and funds would be passed on to DOH by NIA under a Memorandum of Agreement (MOA). The execution of such a MOA, satisfactory to the Bank, would be required before disbursement of the Bank loan for the schistosomiasis control sub-co'mponent. 4.5 For all other project activities, NIA would have the implementation responsibility. 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. A Project Coordinator (PC) would be designated to handle project activities under the Manager of the Systems Management Department (SMD) of NIA. The PC would be primarily responsible for project implementation through NIA's Regional Irrigation Offices (RIOs), for project monitoring, and for preparation of progress reports for NIA senior management and the Bank. The PC would have support at the headquarter 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 (EMD), for equipment specifications 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 sub-component; and the Controllership Department (CD), for financial matters. A team of about 15 technical staff from concerned departments, together with necessary support staff, would be assigned full-time to the  - 26 - PC and be located within SMD. The Environrnent Unit or Division to be established under the project (para. 2.23) would assist in the implementation of the erosion control, schistosomiasis control, and sediment monitoring sub-components. A Technical Advisory Committee, chaired by the Assistant Administrator for Project Development and Implementation, and with the Assistant Administrators for Systems Operation and Equipment Management, and Finance and Administration, as members, would convene at least quarterly, to review implementation and provide guidance on policy matters and resolution of problems affecting the irrigation component of the project. The PC would act as Secretary to the Technical Advisory Committee. 4.6 Supported by the Treasury and Controllership Department, the PC would arrange for release of funds to the Regions, maintain records of financing transactions and exercise overall control of project funds. The PC 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. 4.7 At the field level, project work would be implemented by the system-level offices and RIOs, supervised by Regional Irrigation Managers. All surveys, plans, work programs, designs, cost estimates, and contract documents for minor works would be prepared by the respective system-level offices and RIOs. The IDD at the headquarter would provide planning and implementation assistance to the RIOs to implement the IA development work through individual Institutional Development Officers (IDOs) at the irrigation system level (organizational details for IA development are at Annex 8). 4.8 The quality of all civil works would be routinely monitored at the field level by Quality Control Teams, which are to be established at the Regional level under the ongoing IOSP II, as well as by a centrally-located Quality Control Team (comprising SMD, DSD, EMD, and IDD) at NIA headquarters, which has already been established, and which would coordinate the work of the field teams and also periodically monitor work in the field in conjunction with the field units. The Teams would provide their reports to the PC. The findings of these Teams, and actions taken in respect of any problems identified would be included in the semi-annual project progress reports (para. 4.13). 4.9 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 15%), would be proceeded with only after being fully re-evaluated by the PC and reviewed by PDD and other relevant NIA headquarter departments, and after 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, MA 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 prior approval from NIA's senior management.  - 27 - Implementation Schedule 4.10 Project implementation would be over five years (1997-2001). For project studies to commence in the first year, consultants are expected to be recruited by mid-1997. The Government has agreed to identify appropriate counterpart staff for various project studies by the end of 1996 and assign those staff full-time to the studies. Bid invitations for construction, vehicles, and office equipment would be issued soon after loan effectiveness, so that the award of 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, preparation of tender and contract documents and force account work programs, and plans for acquisition of land and other property, where required. All activities related to formation of lAs, training and other institutional support are expected to commence during the project's first year and continue for the duration of the project. The project implementation schedule is shown in Figure 2. Monitoring and Evaluation (M&E) and Reporting Requirements 4.11 The project has multiple objectives and some of its development impacts would not be easily measurable. It is, therefore, necessary to have some proxy indicators, which would provide a reasonable basis to assume that the project achieved its intended development impact. Given multiple components and the difficulties of impact measurement for some components, development impact weights have been assigned to the five components, and further, key performance indicators have been chosen and assigned weights. A detailed discussion of the indicators and weights is at Annex 13. The key indicators to be used to measure project development impact would be: (a) formulation of a national water resources development and management plan (a proxy indicator for improved water resources management); (b) formulation of a strategy and program of investments and institutional strengthening for watershed management (a proxy indicator for improved watershed management); (c) increase in irrigated area in the 14 selected irrigation systems (a proxy indicator for increased production, income and employment of small farmers and landless agricultural workers, leading to rural poverty alleviation); (d) full recovery of O&M expenses of the 14 selected NIS from ISF collections and NIA's equipment rental income by the end of the project; (e) number of improved NIS and laterals and sub-laterals turned over to IAs (a proxy indicator for more efficient, equitable and sustainable irrigation services), compared to the implementation plan; and (f) reduction in schistosomiasis prevalence in 2 NIS and maintenance of the current prevalence in another NIS. The increase in irrigated area, which would help achieve the project's production and poverty alleviation objectives, would be measured directly during project implementation, and indirectly cross-checked through two main sub-indicators: (a) number and length of drainage canals excavated and improved, compared to the original project target; and (b) number and length of irrigation canals and laterals improved, compared to the target. The above main indicators, along with some other indicators of lesser weight, and baseline figures for some indicators, along with their expected values at mid-term review (end of 1999), at preparation of implementation completion report (year 2002), and at full impact (year 2004) are shown in Appendix 1 of Annex 13.  - 28 - 4.12 Irrigation Management Information System (IMIS). The main information relating to the irrigation subsector indicators above would be generated by IMIS, which NIA introduced in 1987 to speedily provide Irrigation System Superintendents and NIA management with system performance information required for monitoring and managing the NIS. Data collected and evaluated under IMIS include: (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--on system operation, maintenance and emergency repairs; and (e) production--type of crop, areas and yields and details of production problems encountered. With assistance provided under IOSP I, IMIS was partially introduced in 30 NIS in Regions I to V and X to XII, covering about 170,000 ha. However, the original IMIS involved only NIA personnel at the system level and had no participation of the IAs in the process of data collection. For the IAs, NIA piloted the introduction of an Irrigator Association Management Information System (IAMIS), on the lines of IMIS, to be carried out by IAs to generate performance inforznation relevant for areas they cover. IMIS has now been modified and refined by NIA, and a manual of procedures has been prepared. Since the modified IMIS also involves the lAs, IAMIS is no longer relevant. Training in modified IMIS has been provided to NIA staff in over 20 NIS so far, and training of lAs has commenced. The modified IMIS is expected to replace the current monitoring system in the 18 NIS included for improvement under IOSP II, by end-1996, and in the 14 NIS included under WRDP, in 1997. Technical assistance has been provided under IOSP II to review, inter alia, IMIS, and recommend simplification and refinements, if necessary. The TA is expected to start before the end of 1996. 4.13 The implementation progress of each of the project components (project inputs and processes, and, where possible, project outputs) would be monitored regularly and semi-annual project progress reports (for June 30 and December 31 of each year, commencing in 1997) would be submitted to the Bank within two months after the end of each semester. NIA would be responsible for consolidating its own progress report with those of DENR, DOH and NWRB, and submitting it to the Bank. Assurances were obtained at negotiations relating to the above. The Bank's Supervision Plan is shown at Annex 14. 5. AGRICULTURAL PRODUCTION, PRICES, AND MARKET PROSPECTS Agricultural Production 5.1 Present Cropping Pattern. In the NIS, palay (paddy) is the predominant crop, and farmers generally grow two crops if water is available. Only about 2% of the irrigated area is planted to other crops, primarily due to marketing constraints. 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 the project, some of the irrigated fields could revert to rainfed farming with adverse effects on production and farm income.  - 29 - 5.2 Future Cropping Patterns and Intensity. With the project, paddy would continue to be the predominant crop and the cropping intensity is expected to increase to about 171% by project completion from 133% at present in the 14 systems selected for improvement (Table 5.1). Specifically, wet season cropping intensity would increase to 87% from 68% and dry season intensity to 84% from 65%. The basis for calculation of incremental irrigated areas is detailed at Annex 15 and Annex 19. A significant part of the incremental irrigated area would be generated through improvement of the drainage system, as shown below: Wet Season Dry Season Approximate Proportion of Incremental Area from: (a) Improvement of Drainage System 40% 35% (b) Improvement of Irrigation System 35% 40% (c) Improvement and Construction of New Check Structureson 20% 15% Drains (d) Diversion of Water from Adjacent Streams 5% 10% Without the project, the present irrigated cropping intensity is assumed to continue, although this is a conservative assumption, since irrigated cropping intensity is likely to decline due to continued system deterioration. 5.3 Yields and Production. Data for the 14 systems selected for improvement indicate that the present average palay yields are 2.72 t/ha for rainfed farms, 4.23 t/ha in irrigated wet season, and 4.55 t/ha in irrigated dry season. These irrigated yields are lower than the yield potential with good irrigation and drainage services, improved farm management, adequate agricultural support services and optimal input use. 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, except for areas to be converted from rainfed to irrigated, for which the differential in yields between irrigated and rainfed was used for the analysis. With the above assumption, the incremental rice production due to the project would be about 100,000 tons p.a. (65% conversion from paddy) at full development in the year 2003. 5.4 Rice Supply and Demand. Rice demand in the country is projected to grow to about 8.8- 9.0 million tons by the year 2003 or about 25% over the 1995 level of 7.2 million tons. Rice supply projections, based on assumptions briefly discussed below, suggest that the Philippines would not be able to meet the rapidly increasing demand for rice with domestic production alone over the next decade and would have to resort to increasing imports (0.75 - 1.25 million tons) to  - 30 - cover the balance. 1 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 the late 1960s. Three factors have accounted for these increases: the widespread adoption of high yielding varieties (HYVs), increased use of fertilizers, and the relatively rapid expansion of irrigated area. The share of irrigated area in total harvested area rose from 33% in the mid-60s to 60% by 1995. 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 (inadequate) level of irrigation and drainage services, most future growth in palay (paddy) production would 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 to a significant extent by the Government's financial capacity, rice production is not projected to exceed demand by the year 2003, the full development year for the project. Table 5.1: Crop Area, Yields, Paddy Production And Cropping Intensities (C.I.) Present/Future Without Proiect Future With Project Crop Crop Area Yield Production Area Yield Production ('000 ha) (tfha) ('000 ton) ('000 ha) (t1ha) ('000 ton) Crop Area (ha) aI Wet Season (WS) Irri. 73.85 4.23 312.39 95.70 4.23 404.81 Dry Season (DS) Irri. 71.33 4.55 324.55 92.00 4.55 418.60 Rainfed (WS) 11.79 2.72 32.07 Total 156.97 -- 669.01 187.7 -- 823.41 Service Area (ha) 109,470 109,470 WS-Irr. C.I. (%/6) 68 87 DS-Irr. C.I. (%/6) 65 84 Annual Irr. C.I.(%) 133 171 1' For 14 systems to be improved. However, incremental area estimates for two second-year systems (Jalaur and AMRIS) are tentative. Prices and Markets 5.5 The average farmgate prices for paddy in the Philippines in 1995 ranged from P 6.0 to 7.0 per kg (US$230 - 270 per ton), which were higher than the world market prices adjusted for quality, transportation and processing costs, and reasonable marketing margins (Annex 16). This was due to quantitative restrictions on rice imports into the country despite an increasing demand. Incremental production of rice under the project is small relative to incremental rice demand (para. 5.6). Consequently, the project would not have an impact on domestic or intemational prices. I The World Bank, Philippines: Irrigated Agriculture Sector Review Report No. 9848-PH, April 15, 1992.  - 31 - 5.6 The market for rice in the Philippines is estimated to grow at about 2.6% p.a. during the next ten years. This is based on the latest estimates of population growth of 2.3% p.a., income per capita growth of 3% p.a., and an income elasticity of 0.1. Based on an estimated rice demand in 1995 of about 7.2 million tons, the total demand in the year 2003 would be about 8.8-9.0 million tons and imports 0.75 - 1.25 million tons (para.5.4). The project incremental output of 100,000 tons would be only about 6% of the incremental domestic rice demand and about 1% of the total domestic rice demand in the year 2003 and would, therefore, be easily absorbed by the market. 6. PROJECT JUSTIFICATION AND RISKS Project Benefits 6.1 The project would help improve water resources planning, development and management in the country through policy and institutional reforms, and formulation of water management and watershed protection and rehabilitation plans and programs; contribute to the government goals of poverty alleviation, balanced regional development, and food security; improve watershed management; provide for environmental improvement in irrigated areas; strengthen NIA's capacity to deliver efficient irrigation services; and increase participation of beneficiaries in watershed management and in the planning, implementation and O&M of irrigation services, thus facilitating sustainable natural resource management. The annual incremental irrigated rice production of 100,000 tons due to the project would result in foreign exchange savings of about US$30.0 million in current prices by the year 2003. The project would also have several non- quantified benefits including: (i) additional income generation through on-farm and off-farm activities; (ii) better and timely farm operations due to improved drainage, leading to increased yields; (iii) improved public health from control of schistosomiasis; and (iv) environmental benefits from the reduction of siltation and promotion of sustainable farming practices. 6.2 Impact on Rural Poverty. 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 1995 official rural poverty line of P 8,000 (US$310) per capita. The number of poor rural households has increased from 2.3 million in the early 1960s to over 3.5 million by 1995; real wages have fallen; and landlessness has grown steadily. Several factors were responsible for this phenomenon: a continuing high population growth rate (currently 2.3% 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 85% of total farmholdings (2.35 million) are less than 5 ha. The average size of rice farms is only 2.7 ha. A survey done by NIA shows that most of the farmers on national irrigation systems are smallholders. Although the extent of poverty of rice farmers (particularly irrigated rice farmers) is lower than that of some other farmers, rice farmers account for the largest number of rural poor families due to their preponderance among all farmers. 6.3 The project would contribute to alleviation of rural poverty (estimated at 53% in 1995) by directly increasing the productivity and incomes of about 20,000 families or 120,000 persons on  - 32 - about 21,900 ha incremental area in the wet season and about 20,600 ha in the dry season to be irrigated under the project. Indirectly, an additional 25,000 small farmers would benefit from sub- components for repairs to major irrigation structures and schistosomiasis control. A significant number of farmers would also benefit from investments in watersheds; the precise number would be known in the second project year after the watersheds to be improved under the project are selected. Although the irrigation component of the project would provide significant income increases for the beneficiaries, the farm budget analysis (para. 6.4 and Annex 17) shows that on the average, the incremental income from the irrigated areas under the project would be sufficient to pull only rice owner-operators having more than 2 ha out of poverty; those having 2 ha or less and lessees and share-tenants would have farm incomes below the poverty level and would have to continue to depend on off-farm incomes to get out of poverty. The project would also alleviate rural poverty by generating employment opportunities during implementation and thereafter through on-farm and related off-farm activities. The incremental on-farm direct employment as a result of the incremental irrigated area under the project is estimated at about 2.5 million person-days p.a. (equivalent to about 10,000 jobs @ 250 person-days p.a.) at full development. In addition, substantial new rural employment would be created through project civil works, and watershed management and erosion control activities. A gender analysis shows that there are no significant constraints on the project benefits accruing to women, considering the high degree of gender equity in the country and the joint decision-making at the household level (para. 2.19). Financial Analysis 6.4 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 17, 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 project development would be Peso 20,900 for owner- operators, Peso 10,600 for lessees, and Peso 10,450 for share tenants. 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 total yearly incomes below the 1995 official poverty line for rural areas of P 48,216 p.a. for a family of six, or about US$310 per capita. However, the project would significantly raise farm incomes of all farmers--owner-operators, lessees, or tenants--as the minimum increase due to the project would be 30% over the current farm income, and the maximum could be over 100% for those beneficiaries whose lands are currently water logged in the wet season and would be drained under the project, making an irrigated wet season rice crop possible. 6.5 Beneficiaries' Capacity 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 P 150/ha p.a. for irrigated and P100/ha for rainfed land), and indirect taxes on farm inputs amounting to about P 160 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 28% for a 3-ha owner-operator to a high of 72% for a 1-ha share-tenant. The average rent recovery is 33%. Rent recovery is expected to increase further since, after the passage of the Local Government Code in 1992, the municipal and city councils have been contemplating an increase in land taxes. Based on  - 33 - the present value (at a discount rate of 10%) of incremental investment and annual O&M costs of the irrigation component, and incremental irrigation-related charges, the cost recovery is about 47%. Details are at Annex 18, Tables 1-3. The analysis shows that there is little scope for fuirther cost recovery as most of the farmers earn incomes way below the critical consumption level of about P14,625 per capita at full development. Both rent and cost recovery under the project would be high in comparison to the level usually achieved in projects of this nature in other developing countries. 6.6 NIA's Financial Situation. As NIA does not have to repay the investment costs of its projects (para. 1.10), the issue of NIA's financial viability is mainly that of its capacity to meet the O&M expenses of the national irrigation systems. The O&M costs of NIS, including 15% overheads, were about Peso 525 million in 1995 (about 60% of NIA's total recurrent expenditures, excluding depreciation, of Peso 873 million). Since ISF collections at presenit are inadequate to meet the total O&M expenses (para. 1.10), NIA's other incomes such as management fees, equipment rentals, etc., are used to cover a part of O&M expenses. Detailed projections at Annex 7 include these other incomes which are linked to the investment budget. The total investment budget for NIA was about P2.6 billion in 1994 and P3.6 billion in 1995. The projected investment budget in Annex 7, Tables 6-10, assumes a low case of P3.0 billion p.a. and a high case of P4.0 billion p.a., along with low and high cases of ISF collection efficiency (I-or all existing NIS) of 70% and 75%, respectively. The assumption is also made that NIA would be able to secure the funding to implement its streamlining program and reduce staff from 6,942 in 1995 to 5,514 by 1998 (the staff strength would gradually increase again to 5,564 by the year 2004). With these assumptions, projections of revenue and expenditures have been made at AmnLex 7, Tables 6-10. The revenue and expenditure projections show that in the conservative scenario of P3.0 billion p.a. investment level and 70% ISF collection efficiency, NIA's net revenue before non-cash charges would be positive only in year 2001. In the more plausible scenario of P4.0 billion investment level and 70% ISF collection efficiency, the net revenue before non-cash charges would turn positive in 1997, be slightly negative in 1998, and be positive again from 1999 onwards (Annex 7, Table 9). An increase in irrigation investment is likely, given the Govermnent's emphasis on infrastructural improvements and the funding level envisaged for irrigation under the Medium-Term Public Investment Plan (1993-98). This would help NIA to a certain extent through increases in management fees. But the main solution would be an increase in ISF collections. Under the project, NIA would make all efforts to achieve a target of 75%o ISF collection efficiency in the 14 NIS selected for improvement. These NIS would then serve as valuable demonstration models for other NIS in cost recovery and user management. 6.7 Projection of O&M cashflow (Annex 7, Table 12) was undertaken on the basis of a very conservative 67% ISF collection efficiency (the IOSP II financing of incremental O&M is based on this figure). The projection also takes into account NIA's other income and savings through turnover of ditch tender sections to the lAs. With a 67% ISF collection efficiency, NIA would be able to meet all the O&M expenses of national irrigation systems through ISF and other incc:nme in 1997. However, ISF collection alone would meet the total O&M expenses only in 1998. 6.8 Impact 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. Although the project would  - 34 - result in a net increase in the government's budgetary burden for five years, this is unavoidable since NIA cannot recover all of its investment costs for reasons explained in para. 6.5, and recovery of investments in watershed management would also be extremely difficult due to the general absolute poverty of farmers cultivating portions of watersheds. However, the project would help reduce the overall budgetary burden of the Govemment, which is currently financing even part of the O&M costs of the NIS. By accelerating the process of complete tumover of the smaller systems and O&M of the laterals and sub-laterals of larger systems to the Irrigators' Associations, the project would reduce NIA's O&M costs and relieve the Government from the burden of meeting part of these costs. Average annual project cost for the components to be implemented by NIA would be only about 10% of NIA's total annual investment budget in 1995 and 1996. The increase in NWRB's budget of PIO million p.a. as a result of the project (principally due to incremental staffing in three proposed Regional offices) would be negligible as a proportion of the overall Govemment budget (although significant compared to NWRB's current budget of about P 20 million p.a.) and should be easily affordable. The average annual investment of about Peso 100 million in improved watershed management by DENR under the project would be only 4% of its annual budget in 1995 and 1996 (excluding personnel services). Economic Analysis 6.9 The design altematives considered for the project are discussed in detail in para. 2.2 and Annex 4. The economic rate of return (ERR) for the project is estimated at about 27% and the net present value (NPV) at a discount rate of 10% at US$54.7 million. The economic analysis is based on the costs and benefits of improvements on 12 of the 14 systems selected for improvement (for which reasonably firm estimates are available), and costs and benefits of repairs to irrigation structures in eight systems. The full IA development costs were also included in the calculations. The total costs of the above account for about 56% of project base costs and physical contingencies. All costs and benefits were in constant 1995 prices. All benefits and costs were adjusted to reflect the prevailing relative economic scarcities of factors of production in the Philippines according to the following assumptions: (a) for the economic cost of unskilled labor, a specific conversion factor of 0.6 was applied to the market wage rate; (b) imported components were valued at their border price, using the official exchange rate of US$1= P 26.0; and prices of non-traded goods and services were adjusted to border prices using a standard conversion factor of 0.83; (c) O&M costs were converted to economic costs using a specific conversion factor of 0.78; and (d) present and projected farmgate prices for traded goods, namely rice and fertilizers, were derived from the Bank's October/November 1995 commodity price forecasts; for rice, Thai 5% broken rice was used as the reference, adjusted for quality, freight, insurance, port handling, local transport, and processing costs and trading margins (Annex 16). These projections indicate that world prices of Thai 5% broken rice would fall from US$320 per ton in 1995 to US$277 in 2000 and further to US$274 in 2005 (in constant 1995 terms). 6.10 Individual component ERRs were also calculated. The ERRs of 12 NIS selected for system improvement average about 26%, ranging from 13% to 67%. With respect to the additional eight NIS, whose major structures require repairs, analysis indicates an average ERR of 29%, ranging from 16% to 58%. For economic analysis, the benefit assumed for the system improvement component was the increase in the irrigated cropping intensity (Table 5.1). For major repairs, the benefits would either be the savings in future repairs, or savings in O&M, or  - 35 - prevention of loss of irrigated areas and/or expansion of irrigated area or a combination of these. The key assumption is that without the project repairs would be delayed by five years. A shorter delay would substantially increase the ERRs. 6.11 Sensitivity tests on the project NPV and ERR were carried out against various risks (para 6.14). The factors mentioned in para. 6.14 could result in increased costs and/or decreases and delays in benefits. Attractive economic returns would accrue even with substantial negative changes in these variables. The main impact of insufficient and/or delayed counterpart funding would be delays in both costs and benefits, and could possibly lead to both increased costs and decreased benefits. A capital cost increase of 20% would reduce the ERR to 23%. A 20% decline in incremental benefits would reduce the ERR to 21%; a three-year delay in benefits would result in an ERR of 14%; and a combination of a capital cost increase of 10% and a one-year delay in incremental benefits would lower the ERR to 17%. The main institutional risk is that of non- cooperation of IAs (para 6.14). The non-cooperation could reduce the irrigated area in the dry season, which depends largely on improved water use efficiency (unlike the wet season where irrigated area would increase largely due to drainage improvements). However, even with a 500/o lower incremental irrigated area in the dry season, the ERR is still about 20%. Switching values were also computed and show the project to be economically viable. Details of the assumptions behind the economic analysis and the results of the base case and sensitivity analysis are at Annex 19. Environmental Impact 6.12 The project has been assigned category B since the project's physical works would mainly include improvement of existing NIS, and no major new earth movement, water regulation or storage, or deforestation, and, therefore, no major environmental risks are involved. On the contrary, the project would have important environmental benefits arising from the following: (a) the project would help formulate a national water resources management plan and a watershed management strategy and investment program, strengthen the regulatory role of national agencies, and develop NIA's capacity for environmental monitoring of irrigated areas; (b) the project would help control schistosomiasis in and around three irrigation systems; (c) the project would include investments in improved watershed management, and provision for vegetative erosion prevention measures for micro-catchments in the vicinity of irrigation systems; and (d) by raising incomes and creating employment in the rural lowlands, the project would contribute to stemming the increasing out-migration of poor farmers from these rural areas to uplands and coastal areas, where such migration has caused serious environmental problems -- forest and other resource depletion and erosion in the uplands, and degradation of nearshore fisheries -- thereby providing indirect but important environmental benefits. Extension advice by the Department of Agriculture for fertilizer and agro-chemical application in the irrigated areas is based on the guidelines of the Fertilizer and Pesticide Authority, which are acceptable to the Bank, and only relatively small incremental amounts of agro-chemicals would be used as a result of the project (although not financed by the project). For some irrigation systems included for improvement under the project, drainage (with schistosomiasis control as a major indirect benefit) and link canal works would be involved, necessitating acquisition of land and/or other property. However, since the farmers involved would also be beneficiaries under the project, and the required acquisition of land and/or other property and the amount of compensation are small, no problems are foreseen. Moreover,  - 36 - the program of works for the improvement of the 14 NIS under the project was prepared by NIA only after fully consulting the farmers and lAs, who are aware of the need for land acquisition for project works, and have already signed a Memorandum of Understanding (MOU) with NMA for participation in the implementation of improvement works, including contribution to costs (a total of 251 lAs participated in the process of consultation and signing of MOUs, representing about 44,000 members out of about 55,000 farmer beneficiaries in the 14 NIS). In any case, arrangements for compensation acceptable to the Bank would be implemented prior to commencement of new drainage and link canal works (para. 2.10). 6.13 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 Bank-supported projects. 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. Risks 6.14 The magnitude of risks varies for different project components: (a) For the water resources and watershed management components, the risks are negligible since the components mainly include studies and procurement of equipment, and the amounts involved are well within the Government's financing capability. Concessional cofinancing (in addition to the grant already confirmed by DANIDA) may also be available for the studies under these components. (b) Risks are also negligible for the environmental improvement component, which has a small financing requirement, and whose main sub-component, schistosomiasis control, would be implemented by an experienced agency, the DOH. (c) For the systems improvement and repair component, the technical risks (design and construction quality) are relatively minor, and would be further reduced during implementation through intensive supervision. However, there are significant financial and institutional risks relating to the system improvement sub-component. Based on the past experience with the Bank-supported projects in the Philippines, the main financial risk is inadequate and delayed fund releases by the Government, which could delay implementation. To resolve this long-standing problem, the Bank recently completed a Public Expenditure Review, which has resulted in agreements with the Government on adequate and timely funding of priority public investments. Moreover, the Government's Medium-Term Public Investment Plan (MTPIP) for 1993-98 envisages near doubling of budgetary allocations to NIA over the remaining years of the plan compared to the 1994 level. The 1995 and 1996 allocations, which are already much higher than the 1994 allocation, demonstrate the Government's commitment to the MTPIP. If this trend continues, counterpart funding should cease to be a major problem. The institutional risk is the most significant for the systems improvement sub-component, since the increase in irrigated area targeted under the sub-component cannot be fully realized without the cooperation and discipline of the IA members. Lack of full cooperation of the IA members could also undermine NIA's efforts to improve the ISF collection and meet an increasingly larger part of O&M expenses of NIS, thus improving its own financial viability (paras. 6.6-6.7). The participatory process adopted for the formulation of the systems improvement sub-component and to be adopted for its implementation (paras. 2.9-2.10), the agreement with the lAs already obtained for management turnover of systems after improvement, and the support to be provided to the IAs  - 37 - under the institutional strengthening component, are all expected to minimize the risk of non- cooperation of the lAs, but intensive supervision of this part of the project would still be necessary during implementation. A further institutional risk is the likely resistance of NIA staff to tumover of irrigation systems to the lAs for fear of losing their job. To minimize this risk, it would be necessary for NIA to formulate a policy to protect the involved staff (para 2.17). 7. AGREEMENTS REACHED AND RECOMMENDATION 7.1 During negotiations, the following assurances were obtained: (a) Government would hold annual consultations with the Bank on the progress in establishing a comprehensive institutional and policy framework for water resources management in the country in accordance with the action plan formulated as part of project preparation (para. 2.7); (b) Government would ensure that all dams and reservoirs supplying water to the irrigation systems under the project would be maintained and inspected periodically in accordance with sound engineering practice, under arrangements satisfactory to the Bank (para. 2.11); (c) NIA would formulate an equipment management policy, and, by the end of 1997, furnish it to the Bank for comments (para. 2.15(c)); (d) NIA would implement an institutional development program (IDP) for the IAs, and, in this regard, would: (i) by the end of 1997, identify IDOs in Regional offices and transfer them to the field; identify and train WRFTs to work as IDOs; and provide revised job descriptions to all staff involved in the IDP (WRFTs, IDOs and Senior IDOs) before they undertake their new duties; (ii) by June 30, 1997, formulate a policy to protect the staff involved in systems to be completely tumed over to the lAs, and fumish it to the Bank for comments; (iii) by June 30, 1997, enter into a revised MOA with the lAs providing for direct billing for ISF payment in systems improved and tumed over to the lAs under the project and IOSP II; (iv) pilot test volumetric pricing on at least one lateral of a NIS, in consultation with the Bank, by the end of 1999; and (v) establish system management committees, with composition and terms of reference satisfactory to the Bank, in all systems which are being improved under the IOSP II by June 30, 1997, and, if the results are deemed positive in consultation with the Bank, in all systems to be improved under this project by the end of 1998 (paras. 2.16-2.18); (e) NIA would establish an Environment Unit or Division by June 30, 1997, with functions and responsibilities defined in consultation with the Bank (para. 2.23); (f) NIA would submit to the Bank for review detailed program of works, engineering data, cost estimates, plan for the acquisition of land and other property and compensation therefor, implementation arrangements, and expected funding in  - 38 - respect of project activities for each year by June 30 of the preceding year (para. 4. 1); and (g) Government, through the NWRB, would assign to the BRS, MGB and EMB the formal responsibility for maintaining national networks for streamflow, ground water and water quality data collection, respectively, and NWRB would establish a National Water Resources Data Coordination Center, with functions and responsibilities defined in consultation with the Bank, by June 30, 1997 (para. 4.2(a)). 7.2 The following would be the conditions of disbursement of the Bank loan for specific sub- components: (a) for investments in the selected critical watersheds, DENR would provide a list of such watersheds to the Bank for its concurrence (para. 2.8); (b) for works on any NIS selected for improvement, NIA would prepare, in consultation with project beneficiaries, and forward to the Bank, an Irrigation System Improvement Plan for each system, justifying proposed system improvements (para. 2.9); (c) for works on any NIS selected for improvement, which require acquisition of land and other property, NIA would undertake such acquisition, compensation therefor, and resettlement, in accordance with the Policy Framework for Resettlement, and, where a resettlement action plan is required under the Policy Framework, prepare such a plan acceptable to the Bank, and complete the implementation of the plan in a manner satisfactory to the Bank (para. 2. 10); and (d) for the schistosomiasis control sub-component, a MOA between NIA and DOH, satisfactory to the Bank, would be executed (para. 4.4). 7.3 Subject to the above assurances, the proposed project would be suitable for a Bank loan of US$58.0 million to the Republic of the Philippines at the standard LIBOR-based interest rate for US dollar single currency loans, with a term of 20 years, including a grace period of five years.  - 39 - Annex I Page I of 14 PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT Water Resources Manaeement Component Background and Government Response to Water Issues 1. The country is facing an increasing water resources management challenge, recently termed a "crisis" in a number of official documents and public statements by the Government-- including the 1995 "Water Crisis Act"; NEDA resolutions on water supply and sanitation, and the draft "Irrigation Crisis Act". On the surface, the main concerns are recurrent water supply shortages and increasing conflicts in water allocation among users; severe water pollution near urban centers; and a noticeable degradation of watersheds, which have damaged the health of populations (especially the poor) and aquatic life. However, at the core of the problem is the absence of an adequate framework to guide water resources development, protection and efficient use; weak institutional capacities for regulating and coordinating activities across subsectors; and inadequate investments in water infrastructure that have lagged behind levels needed to keep up with increasing demand. 2. The government is conscious of the urgent need to address the water issue. A significant recent response was the 1994 "National Water Summit", opened by the President and attended by top level officials from all subsectors. The Summit concluded an urgent need for a sector approach to an integration and coordination of all water related efforts towards a more focused approach to water resources management. As a result of the summit, the former Cluster G was reconstituted into a Water Management Cluster, which serves as the advisory committee to the President and the Cabinet on matters related to the water resources sector. The Cluster provides a focal point at high policy making level for discussion of water policy issues. The 1995 "Water Crisis Act" created a Joint Executive-Legislative Water Crisis Commission for implementation of the Act and for recommending actions to be taken by the President. The above illustrates the urgency given to the water issues by the public and the government. 3. The above urgency provides a window of opportunity for adopting reforms in the water sector. The Water Summit and a recent Water Supply Sector Review by the World Bank reached a consensus on the need for strengthening of institutional mechanisms for closer coordination among water related agencies. NEDA passed a resolution to carry out a phased upgrading of the key coordinating and regulatory body-- the National Water Resources Board (NWRB)--to become an effective national water resources management agency. A technical assistance (TA) program, supported by a Japanese grant, was executed by the Bank in July-December 1995 to assess water related legal and regulatory systems and the functions of NWRB. The TA formulated an action plan to address water management issues at national, regional and basin  - 40- Annex 1 Page 2 of 14 levels, and to strengthen the NWRB capacity to carry out its policy implementation and coordination functions (details in para. 24). 4. At the Government's request, the World Bank also assembled a "quick response" team in September 1995 to assist the government in formulation of a time-bound strategy to implement the Water Crisis Act. Representatives from the main government agencies dealing with water, together with the team, came up with a ten-point action plan, among which is the strengthening of overall water resources management and regulation at national and regional levels, and adoption of a river basin development approach. The thrust of the action plan and the recommendations from the TA have been fed into preparation of the WRDP project component for water resources management (details in para. 27 onwards). Pressing Water Quantity and Quality Issues 5 . Political demarcations, as well as hydrological, physical and climatic homogeneity, permit a classification of the country into 12 regions. There are 6 river basins in the country with catchment areas that are greater than 5,000 km2-Cagayan, Mindanao, Agusan, Pampanga, Agno and Abra. As the tropical climate dominates, the average annual rainfall is plentiful, amounting to 2,360 mm. This generates about 322 bcm of dependable flows' The safe groundwater yield is estimated to be 52 bcm. Thus, total water availability is about 374 bcm. To put this figure in perspective, the current demand for water is between 100-110 bcm, less than one-third of the renewable water available nationally. However, due to extreme unevenness in the distribution of water during the year, most of the water flows to the sea during the wet season. The driest month often receives only 1-2% of annual runoff. The El Nifto phenomenon adds another dimension to droughts. Flooding in the rainy season and water stresses during the dry season have constrained socio-economic activities (para. 10). 6. Despite abundant rainfall and the expansion of water infrastructure over several decades, the country has reached a stage where the scarcity of water resources of adequate quality has emerged as a pressing issue. In the dry season, the water supply can no longer meet demand from all subsectors. However, the problem is not the lack of water per se (para.5). It results from supply-demand mismatches caused by inadequate water infrastructure to regulate flood flows and store water in the rainy season when water is abundant for consumption in the dry season. The problem is compounded by weaknesses in the management of the system and inefficiencies in the use of water (para. 21). 7. Water shortages are exacerbated by an alarming deterioration of water quality in streams and aquifers, especially near urban centers. There have been increasing public complaints about fish killings, stench, streams with little aquatic life, and a high incidence of polluted water-related health problems among the local population. In searching for better quality of water and more stable supplies, urban users have been driven to massively pump groundwater. Groundwater According to the World Resources Institute, 1994-95.  - 41 - Annex 1 Page 3 of 14 depletion and saline intrusion have occurred, e.g. in Metro Manila, Cebu, and Bulacan2. Even groundwater quality has deteriorated so badly in some areas that households have to invest heavily in water filtering devices for drinking purposes. The degradation of watersheds has changed hydrological and topographical conditions, which have caused higher flood peaks, reduced the storage capacity of the water infrastructure, and dried-up wells and streams. 8. While the current focus is on the crisis caused by water shortages, floods in the rainy season are still a major cause of natural damage to economic activities and human life. Flood control needs continued and enhanced government support. The Water Resources Sector and Its Subsectors 9. The significance of the water sector in the economy can be gauged partly by public expenditures. During 1987-90, the total public investment in major water subsectors accounted for 22% of total public infrastructure spending. The term "water resources sector" includes subsectoral activities in flood control, drainage, irrigation, urban and rural water supply, hydropower, fishery, protection of aquatic life, and navigation. It also includes intersectoral activities such as coordination, water allocation and planning, river basin management, and operations of multipurpose schemes, as well as the collection of the related hydrological, environmental and socio-economic data. There are over 20 agencies and ten government departments dealing with water resources activities. Each agency is responsible for a specific activity in a subsector. 10. Flood Control Subsector. Because of the monsoon climate and frequent tropical cyclones, which occur 20 times a year on average and produce destructive seasonal floods, the country has invested heavily in flood control over the years. But flooding is still a major natural cause of socio-economic losses. Flood prone areas in the Philippines are estimated at over one million ha-- 40% in Central Luzon, the rest in the flood plains of Cotabato, Cagayan and Agusan. Flood protection deserves high priority. About 10% of the flood prone area is heavily populated. Flooding in the low-lying lands of Metro Manila and the Laguna Lake region threatens some 8-10 million people. The chief objective in this subsector is to provide adequate flood protection and drainage facilities to the flood prone areas. More than 1000 km of earth dikes have been built. However, the degree of protection has not yet been assessed accurately. The degradation of watersheds has affected the effectiveness of the water infrastructure, and accounts for an increased number of flash floods and higher flood peaks. Urbanization and population growth have also reduced the wetland storage areas that can be used for flood water detention. 11. Irrigation and Drainage. Irrigation is the biggest water user, accounting for 85% of water demand in the Philippines. The country's irrigable land potential is 3.3 million ha (although irrigation of the entire area may not be economically viable). About 1.5 m ha (50%) is now irrigated, of which about 43% is covered by the national irrigation systems, 47% by communal systems, and 10% by pump lift systems. Paddy production yields average 4 ton/ha on irrigated 2For instance, the shallow aquifer near Makati area of Metro Manila used to be 6 m deep in the 1960s. It is now over 300 400 m deep, due to pumping and insufficient recharge.  - 42 - Annex I Page 4 of 14 land. NIA's plan to expand the irrigation command area is severely constrained by the availability of funds. Due to likely reduction in prime agricultural land by the expansion of urban areas, inability to develop the water infrastructure in a timely manner due to limited fund, and decreasing water availability due to the degradation of watersheds and droughts, more efficient water use will be required in this subsector. This could be achieved through the rehabilitation of the existing irrigation system and by decentralizing management responsibilities to beneficiaries and local communities. NIA is the lead agency for developing and maintaining the national irrigation system. Community irrigation systems (CIS) receive NIA assistance during the design, funding and construction phases, after which the systems are turned over to individual communities for operation and maintenance with well established cost recovery policies. A major recent policy change has been the Local Government Code, which transfers development of CIS to the local government units (LGUs). However, LGUs need much improved capacities to implement the new policy. 12. Municipal. Industrial and Rural Water Supply. Industries and domestic uses account for 10% and 5% of the total water demand, respectively. As of 1992, about 76% of the population of 65 million had access to public water supply systems; 62% of Metro Manila's population of 13 million had access to supplies from the MWSS; 67% of the urban population of 20 million outside Metro Manila got access through LWUA; and 84% of the rural population of 32 million got access through DPWH. The remaining population relies on rain collection, dug wells, and ponds for domestic use. Crisis-level shortages of water supply have become a major concern of the government and general public. The main factors are declining water supplies due to a degradation of watersheds; competition from other sectors that require increasing quantities of water; the insufficient capacity of the system to satisfy demand3; and outdated and inefficient delivery infrastructure, which causes water losses as large as 60%, and low pressure in the water pipes. The government's target is to achieve 100% coverage by 2000 (which is estimated to cost US$2-3 billion). The infrastructure for waste water disposal infrastructure lags far behind the provision of water supply. Only 7% of population in Metro Manila is covered by sewerage facilities, and less than 2% in other areas. Urgent actions are needed to address this problem. In the short and medium term, there is need for major rehabilitation of the network. Future strategies would require searching for new sources of water supply, improving the efficiency of delivery, higher cost recovery, better regulatory control, and increased participation by the private sector. 13. Hydropower. Although water use for hydropower generation is a non-consumptive instream use of the resource, there is need for regular water releases that are determined by the operating parameters related to meeting power demands. The installed hydropower generation capacity in the country totals 2260 MW, about 60% in Luzon alone. Nearly 85% (or 12,000 MW) of the total hydropower potential, mostly in Luzon and Mindanao, is still undeveloped. Hydropower now constitutes 20% of Philippines' energy production. This share is expected to drop to 10%, as coal is developed further as a source of energy. NPC is currently responsible for the development and operation of hydropower schemes, although plans to reorganize existing 3The current supply for Metro Manila is 2,500 million I/day, while the demand reaches 3,400 million l/d.  - 43 - Annex 1 Page 5 of 14 organizational structures and establish new agencies are underway. A major institutional/financial reform in this sector is the close involvement of the private sector in meeting energy demand, for example through mechanisms such as BOT. 14. Aquatic Environment. As a matter of policy in the Philippines, about 10% of river flows is considered to be a minimum to maintain instream aquatic life, navigation and fishing. This appears to be a reasonable percentage. However, the aquatic life in the Philippines is threatened by pollution, habitat changes, increased turbidity, reduction or disruption of water flow, overfishing, fish poisons, and the introduction of exotic organisms. Water pollution has reached alarming proportions due to untreated waste discharge. According to DENR, about 10% of all the rivers in the country are severely polluted. In Metro Manila all the waterways and some aquifers have been polluted. Fish kills have increased in the Laguna Lake due to industrial wastewater pollution. The price of untreated discharges of wastewater into the rivers and the uncontrolled tapping of groundwater sources has been paid by increased morbidity and higher incidences of water-bome diseases, higher costs of water purification, and the depletion of aquifers. Although environmental compliance certificates are now required prior to the granting of a water permit, the monitoring and enforcement of water quality protection remains ineffective. Overall Water Resources Management -- The National Water Resources Board (NWRB) 15. Lezal Framework. Water policies are embodied in the Water Code of 1976-the basic water law of the Philippines. The Code is based on the concept of integrated multipurpose water management. Together with a set of implementation rules and regulations (IRR), the law provides a basic framework for water management, defines the rights and obligations of water users and the protection and regulation of such rights, and identifies administrative agencies for enforcing the Code. While the water law is generally considered adequate, the major constraint is a weakness in its implementation and monitoring (para.2 1). 16. National Water Resources Board. The responsibility for cross-sectoral coordination and regulation of water resources development and management stays with NWRB. The Board was created in 1974 (but acquired its current name in 1986) to enforce and administer the water law. The members of the NWRB consist of the heads of 10 govermment departments most concemed with water allocation-DPWH, DA, DENR, NEDA, NIA, MWSS, DOT, DOH, LWUA and NPC, with the Secretary of DPWH as the chair. The Board meets twice a month to resolve issues related to water development and actual or potential water use conflicts, and is supported by a pool of full-time technical staff' headed by an Executive Director. 17. Vested by the Code with broad regulatory and executing power, NWRB serves as an agent of the State for coordinating, controlling, supervising, and regulating the utilization, exploitation, and protection of water resources. The key NWRB mandates are to: formulate general water policies and guidelines; coordinate water resources development activities; issue water permits; develop comprehensive basin plans; advise NEDA on the approval of water 4NW"B has presently a total number of 129 staff positions, of which 113 are filled, leaving 16 positions vacant.  - 44- Annex 1 Page 6 of 14 development plans and programs; undertake basin surveys and assess water resources availability; and exercise jurisdiction over disputes related to water allocation and utilization. However, limited by funds and staff, NWRB has been unable to effectively enforce the provisions of the Water Code and to carry out its mandates. Major Institutional Constraints in the Water Resources Sector 18. Fragmented Water Management Responsibilities. The concept of integrated management of water resources--cross-subsectors, quality and quantity, groundwater and surface water--is yet to be implemented in the Philippines. Agencies in each subsector have largely independent strategies for resource development and operations. Although there is little overlap among the subsector activities, negative extemalities from excessive water withdrawals and discharges have extended across subsectors, and between the upstream and downstream areas of river basins (Angat is a well-known example). Unfortunately, mechanisms to deal with them are too fragmented. Technical inadequacies at NWRB and general institutional weaknesses in the water sector prevent NWRB from fulfilling either its coordination or regulatory functions (para. 21). 19. Absence of an Overall Planning Framework to Guide Investment Activities. All subsectoral plans are submitted directly to NEDA and DBM for inclusion in the national MTPIP. There are no cross-sectoral water resources plans to integrate effectively the various water and land use activities, water quality and quantity management, and conjunctive use of surface and groundwater. Despite clear stipulations in the Water Code, these plans seldom go through prior NWRB approval. NWRB does not have the guiding strategies, national master plans, updated basin plans, and adequate staff resources needed to assess such investment plans and grant approvals. 20. The formulation of a water resources plan for sustainable water resources management is needed urgently. The last assessment of water and land resources in the Philippines was conducted almost 20 years ago, and included basin wide framework plans and 12 regional studies5. These plans continue to be used for identifying investment opportunities, despite substantial changes in the environment over the past two decades. Land use activities have affected flow patterns and the quality of waters in rivers and in coastal zones. Watershed degradation has modified hydrological conditions. Some data are no longer valid. The earlier plans seldom considered water quality, which has emerged as an important problem in recent years. Except for LLDA, there is no river basin authority in the country. Neither are there disaster (drought, floods) management plans. During emergencies, actions are mostly taken on an ad hoc basis, accompanied by the announcement of new policies or speedy passage of laws, which often result in inconsistencies in policies. 21. Weak Law Enforcement Law enforcement is weak, reflected in the illegal tapping of urban and irrigation water by parties who do not hold permits, the exploitation of groundwater 5 By the NWRB . The last land use planning (1978-2000) was carried out in 1978 by the Ministry of Human Settlements, which was later abolished.  - 45 - - 45 - Annex 1 Page 7 of 14 resources beyond levels permitted, inefficient use of the limited resources available, and degradation of watersheds. NWRB and EMB under DENR are the two main resources regulatory agencies for water quantity and quality. Permits from NWRB are required for groundwater abstractions. Nevertheless, in almost 65% of cases, abstractions take place without permits, and only 6% of the wells of permit holders have been monitored to check for compliance with the permits. Some withdrawals are estimated to be 20-60% over the permitted levels. As NWRB does not have its own field offices, it has to delegate regional and field monitoring to other agencies. This arrangement has proven to be ineffective and long delays are common. 22. Deficient Water Resources Data Collection. The main problems in data collection in the Philippines are inadequate network coverage, outdated monitoring equipment, scattered data collection responsibilities, lack of continuous data records, and lack of an integrated water resources database. About 10-15 government departments collect some kind of water related data, most of which are designed to serve specific projects. Collection is terminated once the objectives of the projects are served. Data on water quality are collected by a number of agencies on an ad hoc base. The only agencies committed to long term monitoring are the PAGASA for climatic data, and BRS for stream flow data. However, the network density is low especially for stream flow monitoring. Reportedly, monitoring equipment has deteriorated badly or is outdated, and needs to be rehabilitated. At the national level, a groundwater monitoring network does not exist, nor is the responsibility for this explicitly established. Standards for establishing and maintaining monitoring networks vary among the agencies. Access to data is difficult. 23. NWRB is mandated as the national agency for data coordination, and to maintain a minimum level of basic water data for fulfilling its coordinating and regulatory functions. However, NWRB has little power or capacity to implement this mandate. Data are submitted to NWRB on a goodwill basis by the other agencies which, however, have little incentive to do so. NWRB cannot conduct reliable water resources planning or make informed decisions on water allocation and investments due to inadequate information on supply, demand, and land use. NWRB needs to improve the overall quality of data collection and management in order to assess the viability of development programs, to appropriate water through an effective permit system, and to ensure water protection. A solution to the above problems is to improve data management and dissemination through setting up an electronic network, which will link databases and automatically screen data and feed into a central station at NWRB. It is evident that, as in some other countries in the Region, substantial efficiencies can be achieved through the introduction of such electronic data management capabilities. Consultants' Report on Institutional Strengthening of NWRB 24. The main elements recommended in the draft final report of the consultants (para. 3) for strengthening water resources management in general, and the NWRB in particular, are: a. Increasing accountability by clarifying functional responsibilities, notably through the clear delegation of technical support and regulatory functions to NWRB staff, while vesting policy-making and adjudication functions in a reformed Governing Board;  - 46 - Annex I Page8 of 14 b. Development of NWRB's staff functions and technical capacity in the areas of policy formulation, data, planning and management, so as to strengthen its ability to support recommendations to the Governing Board--and GOP generally--on water resources issues; c. Creation of regional offices (initially for Luzon, the Visayas and Mindanao, respectively) to assume direct responsibility for the regulation of water use, thus reducing--and ultimately ending --dependence on deputized agents (in the longer-term, the regional structure will be further expanded and regional offices will assume other functions e.g. in relation to planning, data etc.); d. Strengthening of NWRB's enforcement powers in carrying out its regulatory mandate; e. Improving incentives to NWRB staff through exemption from the Salary Standardization Law and assistance to NWRB staff in the event that they are charged with offenses in the performance of their functions (subject, of course, to their being found innocent); and f Strengthening financial sustainability through the creation of a Special Account in the General Fund to the credit of NWRB, ending the exemption of Government agencies from payment of water fees and charges, and increasing the levels of charges and fines. 25. Decisions on some of these proposals can be effected through administrative means (e.g. an Executive Order of the President, NEDA and NWRB Board Resolutions, amendments to the IRRs of the 1976 Water Code, clearance by NEDA, DBM, MOF or another obligated agency, approval of externally-financed projects etc.) but others will require legislation.6 The final report recommends that this should comprise amendment to PD 424 (1974)--the act that created the forerunner to the NWRB-- rather than the 1976 Water Code. In the longer-term, amendment to the Code may become advisable. However, the consultants recommend that this be done only after full review of the Code and all related legislation, and after further studies of several issues of importance, including: (i) the potential role of river basin authorities (RBAs) in the management of water resources; (ii) NWRB's future role in economic regulation, taking account of the possible privatization of water districts; and (iii) the potential of economic incentive (for water use and discharge) and market mechanisms in water resources management. 26. The Government is currently reviewing its water resources policies within the context of the 1995 Water Crisis Act. The Joint Executive-Legislative Water Crisis Commission--set up by the Act--is expected to submit its report to the President and Congress before the end of 1996, following which definitive decisions are expected. 6 Full drafts of the recomnmended administrative and legislative measures are provided.  - 47 - Annex 1 Page 9 of 14 Objective of the Water Resources Management Component 27. The objective of the improved water resources management component of WRDP is to support and complernent the legal, regulatory and administrative reforms to be adopted by GOP for the furtherance of its water resources policies. Details of the Sub-Components 28. The WRDP would finance two main sub-components (i) a water resources management component, comprising technical assistance for water resources data collection and processing, and water resources planning; and (ii) an institutional strengthening component, comprising direct support to NWRB in the form of incremental staff, training, equipment and consultancy services. Besides NWRB, three other agencies would participate directly in water resources data collection activities: the Bureau of Research & Standards (BRS), the Mines & Geo-sciences Bureau (MGB) and the Environmental Management Bureau (EMB). BRS, GMB and EMB are expected to be confirmed by the Government as having formal responsibility for maintaining the national permanent networks for streamflow, groundwater and water quality data collection, respectively. Other agencies would also be expected to cooperate as required in other aspects of the water resources management component. Water Resources Management Sub-Component 29. The water resource management sub-component would comprise three main activities: a. Improvement of national data collection networks for streamflow. groundwater and water quality. Consultants would be recruited to work with NWRB and the three participating agencies (BRS, MGB and EMB) to improve planning, design and operations of the three primary data collection networks. Integrating existing monitoring networks and related facilities-including those of other government agencies--and national network establishment (in the case of ground water and water quality monitoring as such networks do not exist) and improvement (in the case of streamflow), would identify permanent benchmark stations for which observations would be made regularly and continuously, and at affordable cost. The consultants will recommend rationalization of existing streamflow networks; specify new locations (for three networks) where additional stations should be set up to improve accuracy of key monitoring points or in anticipation of future development in the areas; and identify unnecessary stations which should be discontinued. The project would support preparation of an action plan for a phased implementation of the recommended plans, and initial rehabilitation or setting up of priority stations in selected locations. The consultants' recommendations for network rehabilitation and setting up of monitoring stations would be implemented under subsequent projects. This activity would take 12 months. Draft TOR and estimated costs for this activity are at Appendix 1. It is anticipated that additional foreign assistance would be sought to finance implementation of the national  - 48 - Annex 1 Page 10 of 14 networks once the detailed programs have been prepared and cost estimates are available. b. Design and Establishment of a National Water Information Network (NWN). Consultants would be recruited to work with NWRB and the seven participating agencies (BRS, MGB, EMB, LWUA, NIA, NEDA and PAGASA) to: (i) design and develop a central database at NWRB which would receive, access and integrate data from major data collection agencies; (ii) design and develop databases of major data collection agencies; (iii) recommend a phased implementation program for establishing the NWIN as a PC-based system to link the data bases of collection agencies and provide easy access to user agencies; and (iv) install and supervise the initial operations of the NWIN. The NWRB will host a central data base to which the various agencies will be linked. Draft TOR and estimated costs for designing the NWIN are at Appendix 2. This activity would take 12 months for completion. C. Formulation of a National Water Resources Plan (NWRP). The NWRP would provide a framework for the orderly development and management of the nation's water and related land resources so as to promote economic development and social equity, and ensure environmental quality and sustainability in the long-term. It has the specific objective of equipping NWRB with the necessary capability on which to base recommendations to the Government and NEDA in regard to the consistency and priority of programs and projects as they affect the water resources. The preparation of the NWRP is seen as an iterative process designed to fashion a long-term planning framework compatible with national goals and objectives and with sound environmental management principles. At each stage of the study, alternatives would be presented and analyzed for discussion purposes, with all the important evaluation and decision factors displayed so as to allow an objective evaluation of the preferred course of action compared to other feasible alternatives. The aim will be to develop a flexible planning system capable of continuous evolution rather than to present a rigid blue print. It is provisionally estimated that the expatriate and local specialists combined would provide a total of 176 person-months, and that the study would be completed in a two-year period at an estimated cost of abut US$2 M. Draft terms of reference and cost estimates for the study are at Appendix 3. 30. Institutional Strengthening Sub-Component. This sub-component would comprise support through incremental staff training, equipment, strategic studies, and local consultancy services. a. Incremental Staff and Operating Costs. Table 1 presents estimates of present and future staff numbers and recurrent costs. NWRB's current staff complement is 113 out of an approved total of 129. This is expected to increase to 198 as a result of the implementation of the expansion proposals (a net increase of 85 staff). The increase is due to the creation of three regional offices, along with the counterpart staff required for carrying out the above three water resources management activities. In the case of  - 49 - Annex 1 Page 11 of 14 the latter, these are regarded as permanent additions to the staff complement, responsible for sustaining the programs once they are established. Modest strengthening of the Water Utilities Division is provided for, together with the filling of all positions in the Finance and Administration Division. Redeployment of staff of the Water Permit and the Monitoring and Enforcement Divisions will allow a reduction in the levels of staff at the head office. Operating costs will rise as a result of the expansion program. There will, however, be savings from a reduction in the use of deputized agents. It is difficult to be certain how this will work out in practice and an arbitrary 25% reduction is provided for, assuming that, while the regional offices will take over substantial activities, there will also be a significant increase in the total work load. Further savings will be obtained once additional regional offices are established. Table 1. NWRB Staffing and Recurrent Costs (in 1000 Peso) Incre- Staff Numers Cost Estimates in 1995 Prices ment Present Future Present Future Incremental Office ofthe Executive Directr +4 9 13 1,116 of which Legal Seices Unit - 4 - Policy & Pgramns Dept: +9 25 34 2.988 ofwhich NWDCC - 5 - NWN 11 NWRP - 4 - Water Rights Division -7 14 7 1,651 Water Utilities Dvision +6 11 17 1,366 Monitoring & Enforce. Division -15 23 8 2,469 AdminL & Financial DMvision +4 31 35 2,692 Regional Offices +84 84 - Total Staff +85 113 198 122 17.082 4 Opeaing Expenses n.a. n.a 4,218 5,618 1,400 Total Recunent Cost na. na 16.00 22.700 6.0 b. Training. Training will play a critical role in support of NWRB's strengthened role in water resources management. Appropriate agencies for the training of NWRB and related Government staff would be identified. These may include the National Hydraulic Research Center (NHRC) and other academic, private and Government entities. Together with the selected agencies, training programs would be developed in the following areas: (i) general courses to update NWRB engineering staff in water resources data, planning, development and management; (ii) specialized courses for new recruits to regional offices; (iii) specialized courses for hydrology technicians; and (iv) specialized courses to be arranged as required for NWRB lawyers, economists and other professional staff. In addition to local training, provision is made for an overseas study tour to expose NWRB staff (along with staff from other participating agencies and NEDA Infrastructure staff) to experiences in other countries in respect of: (i) management aspects, including river basin management, and (ii) technical aspects, including water resources assessment methodologies and data programs. Table 2 summarizes the costs of the proposed training programs. The overseas study tour cost of US$81,500 in  - 50 - Annex I Page 12 of 14 Table 2 includes the cost of organizing the tour (about US$10,000) in addition to the costs to be incurred by the participants. Table 2. Proposed Training Programs and Estimated Costs Trainine Course No. & Length of Course No. of Cost pe Overal Cm Pafiicits ptan__ NWRB Engineering Two 2-week modules 20 per module P2,500 $4,000 and Planning Staff Regional Staff Four four-week 20 per module P5,000 $16,000 modules Hydrology Technicians One one-week module 50 per module P2,000 S4,000 Specialized Courses 5 individual oourses n.a P25,000 $4,000 Overseas Study Tour one tour of 21 days 4 NWRB, 2 US$7,150 US$81,500 NEDA, 4 other agencies C. Consulting Services. Local consultancy services are proposed to develop an internal management information system for NWRB, reflecting its expanded role and considering that regional offices may be established. Some strategic studies would be carried out under the project in: subjects of critical long-term significance to water resources management in the Philippines; NWRB's future role in economic regulation, and economic incentives and market mechanisms; identification of priority river basin planning; and role of river basin authorities. A notional estimate of US$70,000 has been provided for this activity. d. Equipment. In addition to the equipment provided under the water management sub- component, the project would augment the equipment available with the NWRB. There are 12 vehicles with the Central Office which all date from the period 1975-79. Most are past their useful life. It is proposed to provide two sedans and one utility vehicle in partial replacement. In addition, it is proposed that each regional office would be provided with one pick-up. Four 486 machines were procured under the UNDP Groundwater Data Bank project. There are also others in various divisions, of which some are old models, purchased in 1985. It is proposed to procure one additional computer for the head office, together with one laser printer and one photocopier. Each regional office would also be provided with a 486/586 computer, a printer and one photocopier. About 60% of the costs of the equipment procured from project funds would be in respect of the regional offices, with the balance for the central office. Table 3 summarizes the equipment proposed, along with costs of training and consultancy.  - 51 - Annex I Page 13 of 14 Table 3. Cost of Institutional Strengthening of NWRB (Duration 5 years) Items No. Unit Cost Total S (USS) Overseas tour l0 pt 7,150/pt 81,500 Local seminars/training 28,000 Research/studies 70,000 Central office 73,500 computers 1 3,000 3,000 laser printers 1 1,500 1,500 photocopies 1 4,000 4,000 sedan cars 2 20,000 40,000 4-w-drive 1 25,000 25,000 Field Offices (3) 3 35,000 105,000 computers 6 3,000 18,000 photocopies 3 4,000 12,000 pick-ups 3 25,000 75,000 Subtotal 358,000 Recurrent costs I 3-y 240,000 720,000 Note: The rate for overseas study tour for 21 days is US$7,150 = USS(3,000 + 21*150 +1,000)/person for travel, internal transport and accommodations; number of persons is 10 (2 from NEDA, 4 from NWRB, and 4 from other agencies); and USS10,000/tour for organizational arrangements with the agencies to be visited is included. Organization and Management 31. The National Water Resources Board (NWRB) will be responsible for overall component coordination, assisted by the other sector agencies involved in the project. The NWRB would establish a Project Management Unit (PMU) in the Office of the Executive Director with staff deputized from each division. The PMU will: (i) oversee the project on behalf of NWRB; (ii) coordinate with NIA and other agencies involved in the WRDP; (iii) prepare regular monitoring reports as required; (iv) submit disbursement claims to the World Bank through NIA; and (v) prepare the completion report evaluating the outcome of the water resources management component. 32. Water Resources Management Sub-Component. In close coordination with the PMU, the Policy and Programs Division of NWRB will take primary responsibility for implementing the water resources management sub-component. Three task forces will be set up: (i) Task force 1 for the data monitoring activity: an inter-agency task force would be formed, comprising agencies in the data design program (BRS, EMB and MGB). This set up would be converted later into a National Water Resources  - 52 - Annex 1 Page 14 of 14 Data Coordinating Center (NWDCC) to take the lead in coordinating all activities related to water resources data in the country. (ii) Task force 2 for NWIN to provide the counterpart staff and facilities for the NWIN consultants: an inter-agency task force would be formed, comprising participating agencies (BRS, EMB, MGB, PAGASA, NIA, NEDA, and LWUA). (iii) Task force 3 for NWRP to implement and coordinate this activity, and provide the counterpart staff and facilities for consultants: involved agencies would nominate project coordinators and technical staff to form an inter- agency task force, which will work closely, through secondment arrangements, with the technical working group in NWRB. The Government would also establish a high level Inter-agency Steering Committee (SC) for the NWRP. The SC would consist of the heads of relevant agencies---DPWH, NEDA, NIA, MWSS, LWUA, DILG, NPC, DENR and NWRB. The SC would be responsible for policy issues and decisions on program implementation. 33. Both the NWDCC and NWIN offices within NWRB will be permanent, although in due course they may be merged. The NWRP office may be merged with the Policy and Programs Division once the consultants have completed their assignment. The three task forces will be responsible for finalizing the TORs for the three activities. Depending on the nature of donor assistance obtained (tied or untied grants and/or loans), the PMU will also represent NWRB in the process of recruiting consultants and their supervision. A Memorandum of Agreement (MOA) will be signed between NWRB and each participating agency after the project is officially approved by the Government and the Bank. 34. Institutional Strengthening Sub-Component. NWRB would establish an Internal Committee to oversee the implementation of the general reorganization of NWRB, in particular the creation of regional offices once these have received Government approval. Subject to the decisions and guidance of this Committee, the Administration and Finance Division of NWRB will take primary responsibility for implementing the institutional strengthening sub-component, and for necessary logistical support. It will coordinate with NIA for the procurement of equipment included under the project for the water resources management component, and will provide counterpart staff and facilities fbr the MIS consultancy. With regard to training, PMU would iden*iIy appropriate training institutions, select staff candidates and coordinate the programs.  - 53 - Annex 1 App1endix I Page 1 of 4 PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT IMPROVEMENT OF NATIONAL NETWORKS FOR STREAMFLOW, GROUNDWATER AND WATER QUALITY MONITORING DRAFT TERMS OF REFERENCE A. Background 1. While there are many agencies collecting data on streamflow, groundwater and water quality in the Philippines, much of these collections are project oriented data. The observations in the data stations are generally terminated once the objectives of the projects are completed. There is no deliberate program to carry out long-term observations. The only agency committed to long-term observations is the Bureau of Research Standards (BRS) which is in charge of streamflow data. For various reasons, however, BRS has terminated observations in some stations with long periods of record. 2. The other major agencies collecting streamflow data are the National Power Corporation (NPC) and the National Irrigation Administration (NIA). The BRS network includes some 630 stations of which only 274 are currently maintained. The NPC network includes some 377 stations of which about 125 are currently maintained. The NIA network includes some 162 stations of which about 43 are currently maintained. 3. There is no national groundwater data network to speak of in the sense that there are very few observation wells being maintained nationwide. While there are many agencies with groundwater data, the information available in the files of these agencies are spatial and static information on the wells drilled such as location, lithology, well casings, and the results of pumping tests during the development of these wells. Time series data on piezometric levels and pumping rates from observation wells and production wells are not being collected regularly. 4. The Department of Environment and Natural Resources (DENR), through its regional offices and attached agencies, collects water quality data on rivers and lakes. The primary objective of the data collection is for classifying and monitoring these surface waters for the different types of beneficial use. Some agencies periodically collect water quality data on groundwater. In general, however, there are very few permanent stations for the regular collection of ambient water quality for both surface water and groundwater. B. Objectives 5. The objectives of the consultancy assignment are to recommend improvements in the three national primary monitoring networks for streamnflow, groundwater and water quality, and to specify action plans for establishment/rehabilitation of the three networks, equipment, and recommend institutional capacity building programs of the relevant agencies in charge of the networks to undertake their tasks in operating and maintaining the networks.  - 54 - Annex I Appendix 1 Page 2 of 4 6. The data networks will consist of permanent benchmark stations for which observations should be made regularly and continuously. The specific objectives of data collection are to be able to define the hydrological and hydrogeological characteristics of the country as well as the changes in the water quality of the surface water and groundwater resources. C. Scope of Work 7. The consultants are expected to undertake the following tasks: a. Review and assess the adequacy of the existing monitoring networks operated by BRS, MGB and EMB, as well as those operated by major water user agencies--NIA, NPC, LWUA, DA, etc. (including network distribution, types, equipment, means of data collection, reporting and validating, capability and adequacy of field personnel, and inter-agency coordination). b. Carry out rationalization analysis of the networks, through identification of new locations where additional stations should be set up to improve accuracy of key monitoring points or in anticipation of future development in the areas, and through identification of unnecessary stations which should be discontinued. C. Recommend stations which should be included as part of the permanent national benchmark observation networks. d. Design plans of the network distribution, including types, format, specifications of equipment and instruments, and observing frequencies. e. Identify pilot or priority schemes and carry out initial rehabilitation or setting up (and testing) in selected locations under this program. f. Prepare an action plan for a phased implementation of the recommended plans (including corresponding cost estimates, and likely funding sources), for approval and procurement by the respective agencies in charge of the networks. g. Train government staff in network planning, field office procedures, and operation and maintenance; and recommend institutional capacity building programs of the relevant agencies in charge of the networks to undertake their tasks in operating and maintaining the networks. D. Outputs and Schedule 8. It is expected that the overall study period will be 12 months. The consultants will submit the following products: a. An Inception Report within one month after the start of the project. b. Quarterly Progress Reports within one week after the end of each quarter. c. Draft Final Report within I I months after the start of the project. d. Final Report at the end of the project.  - 55 - Annex I Appendix 1 Page 3 of 4 9. The consultants will submit the following items to the respective agencies in charge of the networks, together with the Final Report and the design of the networks: a. All equipment procured under the project. b. Licensed copies of all proprietary computer software used together with manuals. c. Copies of all computer software developed in magnetic form together with source listing and full documentation. d. Copies of all data used in magnetic form and hard copy. e. Complete description of all methodologies used together with the assumptions made. E. Participation of Government Agencies 10. A technical working group has been set up in NWRB for implementation and coordination of this program. Other relevant agencies--BRS, EMB and MGB--would nominate project coordinators and technical staff to form an inter-agency task force, which will work closely with the technical working group in NWRB. A Memorandum of Agreements (MOA) will be signed between NWRB and each participating agency after the project is officially approved by the Government and the World Bank. F. Staffing i1. It is estimated that the expatriate and local specialists combined would provide a total of 22 person-months. NWRB and relevant subsector agencies will provide counterpart professional staff in the various disciplines for a total of 36 person-months. 12. Detailed cost breakdown and indicative input from staff and consultants are shown in Table 1.  - 56 - Annex I Appendix I Page 4 of 4 Table 1 Improvement of Hydrological Monitoring Networks Cost for design of three primary networks Duration = 12 months Items (mm) Cost Foreign Local Government (US$) consultant consultant contribution* hydrologist 2 6 12 hydrogeologist 1 6 12 water quality spec. 1 6 12 Sub-total in mm 4 18 36 in US$ 80,000 90,000 Summary Cost Consultancy - foreign 80,000 - local 90,000 Field trips/car rental 40,000 Equipment 288,000 Supplies & miscl. 15,000 Total 513,000 Note: (a) US$20,000/mm for international consultants (including fees, international and internal travel and subsistence, (US$3,000/person/trip estimated per international trip). (b) US$5,000 for local consultants (including fees, internal travel, and subsistence). (c) * means government contributions, excluded from the total cost. (d) Supplies & miscl. include office space, office supplies, printing and copying, and secretary support. (e) Field trips and car rental include airfairs and allowance for staff and consultants to travel to station sites. (f) Equipment includes -- for each of the 12 regions: * Current meters, automatic flow recorders --- US$8,000/region * Triple tube sampler and pumps for groundwater and water quality---US$ 8,000 /region * Water quality instrument for pH, conductivity, oxygen, temperature for groundwater --- USS4,000/region * Potable water quality analyzers --- US$4,000/region Month 1 2 3 4 5 6 7 8 9 10 l1 12 Review Design # # # ## # Procurement # # # Testing and operation # # # # Training  - 57 - Annex I Appendix 2 Page 1 of 8 PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT DEVELOPMENT OF NATIONAL WATER INFORMATION NETWORK DRAFT TERMS OF REFERENCE A. Background 1. The collection of water data in the Philippines has always been the responsibility of many agencies in the same manner that there are many agencies concerned with water resources development and management. In some agencies, data collection is one of their primary responsibilities. Other agencies are basically development or regulatory agencies whose data collection activity is only a secondary responsibility. The data collected by each of these agencies is usually limited to only the particular element of the water database that is needed by the agency to carry out its mandate. 2. Access to the database of the various agencies is inconvenient. Very few agencies publish their data collection regularly. Most of the data has remained as unpublished reports in the files of the various agencies. The conventional way to make the data readily accessible is to have a central repository containing printed copies of all information from the various agencies. 3. With existing technology, it is much more efficient to have a National Water Information Network (NWIN) which will be a computer-based network system that electronically links the databases of the collection agencies and providing easy access to user agencies. This is envisaged to be done via modems in the medium term under the Water Resources Development Project (WRDP). In the longer term, a multi-node Wide Area Network (WAN) would be considered, depending on the experience under the WRDP and the recommendations of the consultants being engaged for the current assignment. In the system envisaged under the WRDP for the medium term, the National Water Resources Board (NWRB) will act as the central database to which the various agencies will be linked. Provision has been made under the WRDP for the necessary computer equipment for the NWRB, six major data generating agencies (Philippines Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), Bureau of Research and Standards (BRS), Environmental Management Bureau (EMB) under the Department of Environment and Natural Resources (DENR), Mines and Geosciences Bureau (GMB) under the DENR, Local Water Utilities Administration (LWUA), and National Irrigation Administration), and one major user agency (National Economic and Development Authority (NEDA), Infrastructure Staff). The agencies will be responsible for maintaining their respective databases which will be in their custody. The printing of data will be done only when needed. 4. There are a number of preliminary activities and systems which have been undertaken and which may be considered in the design of the NWIN. The NWRB initiated the development  - 58 - Annex I Appendix 2 Page 2 of 8 of the Philippines Automated Water Information System (PAWIS), a main frame computer- based system for the storage, retrieval, and analysis of water data. With the advent and growing popularity of personal computers, together with the fact that the NWRB did not own a main frame computer, PAWIS became obsolete and it was not considered cost-effective to continue development of the system. PAWIS as a concept may still be revived using more modem and appropriate technology. Several years of streamflow records have been loaded in main-frame hard disks and may still be retrieved. 5. The pilot GIS-based groundwater data system, currently installed at NWRB as the central node, has been designed to electronically link the groundwater database of various agencies. In the first stage, LWUA and National Irrigation Administration (NIA) were to be linked to NWRB, but this has not happened reportedly due to technical problems with the modem (imported from the United States) which could not be fixed. The project was funded by UNDP. When the project was completed in 1994, some 8,000 well records from seven pilot areas had been entered in the LWUA database. The NWRB staff are currently entering the well records from NWRB files and have completed processing about 9,000 records by the end of 1995. 6. The HYDATA software package for the archiving, processing, and analysis of streamflow data is currently installed at NIA. The database is loaded with daily river flow data for about 130 gauging stations. The software was installed as part of a World Bank-supported project (the Second Communal Irrigation Development Project) for the project component relating to assessment of hydrological potential and yield in micro-catchment areas. 7. The libraries of the University of the Philippines, Ateneo University, and De La Salle University are already electronically linked and all are connected to the Internet. The NWRB library may also be linked with these universities. B. Objectives 8. The objectives of the consultancy assignment are to: (i) design the NWIN as a personal computer-based system that would electronically link the databases of the collection agencies as well as providing easy access to user agencies; and (ii) recommend a phased implementation program for establishing the NWIN. C. NWIN Concept and Specifications 9. The databases that will ultimately be linked to NWIN will include, but not be limited to, hydrologic, hydrogeologic, meteorologic, physiographic including related infrastructure, socio- economic, environmental, and library databases. 10. The NWRB will host a central database where much of the data of NWIN will be stored. For efficiency and data security, important and frequently used data generated by other involved agencies will be stored in this central database. Besides large data storage capacity, the  - 59 - Annex I Appendix 2 Page 3 of 8 central database will also be provided with powerful computing capability so that it can serve the number-crunching requirements of other users. The central database would also have multiple data communication ports and dedicated telephone lines to enable several member agencies to connect simultaneously. 11. Agencies with large databases will host one major database each. It is envisaged that, in the long term, eight agencies (listed in Table 1) will have such major databases, each having its own multi-user computing and database capability and linked either by telephone line or WAN to the central database. For the first phase, provision has only been made under the WRDP for seven agencies--BRS, MGB, EMB, PAGASA, NIA, LWUA, and NEDA to be linked by telephone line to the NWRB. Nine other user agencies (Table I) will operate their databases according to their requirements and, in the long term, communicate with the network using telephone lines or WAN (provision has been made under the WRDP for NEDA to be linked by telephone line to the NWRB). In the long term, additional databases and database users may also be linked to the network, including the Regional offices of the major participating agencies listed in Table 3. 12. The NWIN structure would allow for autonomy of operation at each agency. The major databases would be able to process their raw collected data using their own data handling and analysis software, and make available to the network clean and immediately usable information and statistics. Supervisor programs will handle the user queries. Bulk data transfers would be done by large capacity portable storage media, i.e. removable hard disks, magneto-optical disks, or streaming tapes, to avoid tying up the network traffic. Database integrity and data security would be a hallmark of design of the supervisor software. 13. Although the NWIN will have a central database, it will not exercise operational network control in a manner that a central server does. Major databases and the central database would communicate as peers. The only major change to agency data handling would be to ensure that the data structures of files to be integrated into the NWIN will contain geographic location and co-ordinate attributes so that all can be incorporated into a GIS framework in the long term. Policy-wise, the NWRB will oversee the NWIN and provide periodic updates and directives throughout its development and operation. 14. Commercially available software for handling the network, data and query handling, GIS, hydrologic, hydrogeologic, and other databases will be used where appropriate. D. ScopeofWork 15. The Consultants are expected to undertake, among other things, the following tasks: a. Design and develop the central data base for the NWRB and data bases for the major data generating agencies (para. 3 above) relating to surface water and water quality, which would be linked under NWIN (the data base for ground water,  - 60 - Aimex I Appendix 2 Page 4 of 8 which has already been developed under the UNDP Project (para. 5 above), will be reviewed with a view to incorporating it under the NWIN). The design of data bases will take into account the possibility of establishment of a GIS-based WAN in the long term. Detailed recommendations would be made regarding the rules and regulations to govern the operation of NWIN, and the frequency of updating of files required from the major data generating agencies. b. Assess the information technology (IT) equipment currently available with the potential participating agencies with a view to utilising such equipment in establishing the NWIN; and based on the above assessment, prepare the specifications of the required additional IT hardware and software, for which provision has been made under the WRDP, for approval and procurement by NWRB. c. Prepare a phased implementation program reflecting the requirements of the program and the funds available. d. Supervise the installation of the computer equipment, including the modems, at NWRB and other participating agencies. e. Develop the user manuals and training modules, and train the staff of NWRB and other participating agencies in the use of the data system. f. Supervise the initial operations of the data system. g. Assess the desirability of establishing a WAN in the long term for all the agencies listed in Table 1 and, possibly, their Regional offices; in this connection, the consultants will: (i) quantify, to the extent possible, the current and likely data traffic on the network; (ii) review the reasons for the lack of linkage of ground water data bases under the UNDP Project (para. 5 above), and what, if any, problems are created for NWRB and other agencies as a result of this lack of linkage (indicating which are the current and/or potential users of the data); h. Based on the result of item g. (above), design the pilot phase implementation of the WAN system to be linked to the seven agencies; prepare specifications of the needed hardware and software; procure equipmnet; and carry out installation, evaluate operating and testing of the system. i. Prepare guidelines and manuals for system operation and maintenace; cany out training of key agency staff.  - 61 - Annex 1 Appendix 2 Page 5 of 8 E. Reporting 16. The consultants will submit the following reports: a. An Inception Report within one month after the start of the project. b. Quarterly Progress Report within one week after the end of the first quarter. c. Draft Final Report within 5 months after the start of the project. d. Final Report at the end of the project. 17. The consultants will submit the following items to NWRB together with the Final Report: a. All equipment procured under the project. b. Licensed copies of all proprietary computer software used together with manuals. c. Copies of all computer softwares developed in magnetic form together with source listing and full documentation. d. Users manual and training modules for the data system. F. Staffing 18. It is estimated that the expatriate and local specialists combined would provide a total of 45 person-months. NWRB and relevant subsector agencies will provide counterpart professional staff in the various disciplines for a total of 36 person-months. 19. Detailed cost breakdown and indicative input from staff and consultants are shown in Table 1 and Table 2. Table 1. National Water Information Network (NWIN) Consultancy Services and Government Staff Contributions (mm) Duration = 12 months Items (mm) Foreign Trips Local Gov. staff Consultant Consultant * Information system specialist in I0 1 12 12 hydrology and planning (leader) Data communication spec. 4 1 3 5 System analyst/programmer 2 1 6 3 GIS specialists 2 1 2 6 Water resources planner 0 0 2 6 Water quality specialists. 0 0 2 4 Sub-total in mm 18 4 27 36 in US$ 360,000 135,000  - 62 - Appendix 2 Page 6 of 8 Table 2. Establishment of NWIN --Summary Cost Items Cost Unit Cost (USS$) Consultants 495,000 foreign 360,000 local 135,000 Local travel /car rental 15,000 Equipment 221,980 principal node (1)-hard 66,400 principal node (1)-soft 23,000 contributor nodes (7)-hard/soft 132,580 18,940/p Supplies & miscl. 15,000 Total 746,980 (a) US$20,000/mm for international consultants (including fees, international and internal travel, and subsistence); (US$3,000/person/trip estimated per international trip). (a) US$5,000 for local consultants (including fees, internal travel, and subsistence). (c) * means government contributions, excluded from the total cost. (d) Supplies & miscl. include office space, office supplies, printing and copying, and secretary support. Month 1 2 3 4 5 6 7 8 9 10 11 12 Database system review # # Network design # # # # # Procurement of equipment # # # # # # Testing and operation ## # # # Training/operating manuals # # # #  - 63 - Annex 1 Appendix 2 Page 7 of 8 Indicative Costs for the Principal Node at NWRB Hardware for communications/database USs I Intel Pentium 120 Mz CPU, 144 MB RAM, 256 KB Cache 32,000 4 GB Hard Disk Drive, with 17" color monitor, CD Rom speaker with Synchronous Adapter for PC I SMP CPU 80586, 120 Mz, 64 MB RAM (main workstation) 4,000 (including 17" color monitor, CD ROM, speaker, modem, DOS window software) 3 Uninterripted power supply 1,700 WAN server package (networking software, card, and cables) 10,300 Tape back-up drive (IGB) 2,000 Removable disk drive (250 MB) 2,000 High speed Laser mono-printer 3,000 Semi-expendables 4,000 1 Photocopier 5,000 Furniture (2 sets) 2,000 Telephone lines 400 sub-total 66Q400 Software for communications/database GIS supervisor 10,000 Hydrological information analysis 5,000 Hydrological simulation analysis 5,000 SQL (sequential quiring language) database software 3,000 sub-total 23.000 Total for NWRB 89.400 Indicative Costs for Contributor Nodes at 7 agencies (BRS, EMB. MGB. PAGASA, NIA. LWUA, NEDA) Hardware for communications 2 SMP CPU 80586, 120 Mz, 64 MB RAM 8,000 (including 17" color monitor, CD ROM, speaker, modem, DOS window software) Uninterripted power supply 540 Tape back-up drive (1 GB) 2,000 Removable disk drive (250 MB) 2,000 High speed Laser mono-printer 3,000 Semi-expendables 2,000 Furniture (I sets) 700 Data/fax modem and software 500 Telephone lines 200 sub-total for each agency 18,940 Total for 7 agencies 132,580 Grand total for NWIN equipment 221.980  - 64 - Annex 1 Appendix 2 Page 8 of 8 Table 3: List Of Agencies To Participate In Nwin CENTRAL DATABASE National Water Resources Board NWRB MAJOR DATABASES 1. Philippine Atmospheric, Geophysical, and Astronomical Services PAGASA Administration 2. Bureau of Research and Standards BRS 3. Environmental Management Bureau EMB 4. Mines and Geosciences Bureau MGB 5. Local Water Utilities Administration LWUA 6. Metropolitan Waterworks and Sewerage System MWSS 7. National Irrigation Administration NIA 8. National Power Corporation NPC MAJOR USER AGENCIES 1. National Economic and Development Authority NEDA 2. Project Management Office-Rural Water Supply PMO-RWS 3. PMO-Small Water Impounding Management PMO-SWIM 4. PMO-Major Flood Control PMO-MFC 5. Bureau of Soils and Water Management BSWM 6. Bureau of Research and Laboratories BSL 7. National Mapping and Resource Information Administration NAMRIA 8. Philippine Institute of Volcanology and Seismology PHILVOLC 9. Department of Interior and Local Government DILG  - 65 - Annex I1 Appendix 3 Page 1 of 10 PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT FORMULATION OF NATIONAL WATER RESOURCES PLAN DRAF r TERMS OF REFERENCE A. Background 1. General. The country comprises of about 7,000 islands, located in the tropical belt, south-east of the Asian mainland. Of a total area of some 300,000 sq. km,, about 65% is accounted for by the two largest islands--Luzon and Mindanao--and 25% by a further nine islands. For planning purposes, the country has been classified in 12 water resources regions, which are defined by both hydrological boundaries but considering also physiographic features and climate homogeneity. There are some 419 river basins, with drainage areas ranging from 40 to 25,000 sq. km. Some 41 are classified as major river basins. These 12 water resources regions also broadly correspond to existing political regions. 2. The country has a population of about 68 million (1995), and population growth remains high at about 2.2% per year. After ten years of minimal growth (real per capita income in 1993 was lower than in 1977), the country's economy began to expand in 1993. Private sector confidence has strengthened and the economic policy reforms adopted should help sustain growth in the medium and longer terms. However, this will depend crucially on continuing measures to keep public finances sound, to stimulate capital formation, to maintain competitiveness by liberalizing the economy, and to secure the necessary financial support from abroad. 3. Rapid population growth and renewed economic growth has placed increasing pressures on the country's natural resources, including its water resources. Despite its relative abundance, water shortages have occurred repetitively during the dry season. There are also regions where it may be impossible to meet anticipated demands even with full development. Moreover, environmental deterioration has directly affected the availability of water in some areas and the quality of life. Costs of flood damage are increasing with catchinent degradation and flood plain development. 4. Water Resources Management Framework. The water management framework in the Philippines was largely created in the 1970s. It comprises the following main elements: * A basic law (the 1976 Water Code) which consolidated previous legislation; clarified ownership of water and rights to its use; and established broad priorities in allocation; * A planning foundation comprising the 1976 Water Resources Assessment, together with some 40-plus basin and regional framework plans prepared between 1976-83;  - 66 - Annex 1 Appendix 3 Page 2 of 10 * A licensing system which provides an instrument for management and control consistent with the planning foundation; and * A water management agency --the National Water Resources Board (NWRB) that administers the water code and provides a mechanism for co-ordinating activities of the many agencies involved in water. 5. This framework responded to the problems of the 1970s. But pressures on the resource have increased greatly and weaknesses have emerged both in the framework and--more particularly --its implementation. Weaknesses are especially evident during droughts and cholera outbreaks. More generally they are reflected in growing water conflicts; deteriorating water quality; inadequate provision of water services; and inconsistent activities amongst agencies involved in the sector. 6. The National Water Summit. GOP is aware of the need to address these issues. To this end, it has undertaken a number of important sub-sector studies and policy initiatives. These culminated in the December 1994 National Water Summit, convened by the President and attended by members of the Cabinet and Congress; ranking officials in the water sector; stakeholder representatives; and the media. Following the Summit, the President issued Memorandum Order No. 244, directing the NWRB "to strictly enforce the provisions of the Water Code" and recognising "an urgent need to properly manage the utilisation of the nation's water resources... (including)... the need for the further integration and co-ordination of all water-related efforts towards a more focused approach to water resources management". The 1995 Water Crisis Act further emphasized the importance of water. Among its provisions, it requires the Joint Executive-Legislative Water Crisis Commission--set up by the Act--to submit recommendations to the President and Congress to address these issues, including measures to strengthen the NWRB. Besides institutional and regulatory measures, it is expected that improvements to the basic data system and planning base will be supported. B. Major Institutional Constraints in the Water Resources Sector 7. Fragmented Water Management Responsibilities. The concept of integrated management of water resources--cross-subsectors, quality and quantity, groundwater and surface water--is yet to be implemented in the Philippines. Agencies in each subsector have largely independent strategies for resource development and operations. Although there is little overlap among the subsector activities, negative externalities from excessive water withdrawals and discharges have extended across subsectors, and between the upstream and downstream areas of river basins (Angat is a well-known example). Unfortunately, mechanisms to deal with them are too fragmented. Technical inadequacies at NWRB and general institutional weaknesses in the water sector prevent NWRB from fulfilling either its coordination or regulatory functions.  - 67 - Annex 1 Appendix 3 Page 3 of 10 8. Absence of an Overall Planning Framework to Guide Investment Activities. All subsectoral plans are submitted directly to NEDA and DBM for inclusion in the national MTPIP. There are no cross-sectoral water resources plans to integrate effectively the various water and land use activities, water quality and quantity management, and conjunctive use of surface and groundwater. 9. One of the provisions of the Water Code states that: "no program or project involving the appropriation, utilization, exploitation, development, control, or protection of water resources may be undertaken without prior approval by NWRB". NWRB is thus mandated to co-ordinate and integrate the plans and programs of all water resources agencies such as water supply, irrigation, drainage, hydropower, flood control, and environment protection. Despite clear stipulations in the Water Code, these plans seldom go through prior NWRB approval. NWRB has neither the guiding strategies, national master plans, updated basin plans, nor adequate staff resources needed to assess such investment plans and grant approvals. 10. Some Initial Framework Plans. Some early work was initiated in framework plans for twelve regions and forty one major river basins. Although these framework plans included an inventory of existing resources and facilities and an indication of needs up to 2000, strategies for development were not included. In 1994, NWRB prepared an updated "National Framework Plan on Water Resources Management". This included twelve "Regional Framework Studies" which, though less detailed than the earlier framework plans, in some respects provided updated data and analysis. Several basin planning studies have been undertaken by other agencies, for instance for the Laguna de Bay Lake basin. 11. By providing an overview, framework plans provide agencies with a better appreciation of issues and problems outside their own sector, besides suggesting opportunities for joint projects. However, they fall short of the planning needed to rationalize the development and management of water resources in an integrated and sustainable manner. To help rectify this deficiency, GOP intends to engage the services of Consultants for the formulation of a National Water Resources Plan (NWRP). 12. The formulation of the water resources plan for sustainable water resources management is needed urgently. The last assessment of water and land resources in the Philippines was conducted almost 20 years ago. These plans continue to be used for identifying investment opportunities, despite substantial changes in the environment over the past two decades. Land use activities have affected flow patterns and the quality of waters in rivers and in coastal zones. Watershed degradation has modified hydrological conditions. Some data are no longer valid. The earlier plans seldom considered water quality, which has emerged as an important problem in recent years. Neither are there disaster (drought, floods) management plans. During emergencies, actions are mostly taken on an ad hoc basis, accompanied by the announcement of new policies or speedy passage of laws, which often result in inconsistencies in policies.  - 68 - Annex I Appendix 3 Page 4 of 10 C. Objectives 13. The general objective of the NWRP is to provide a framework for sustainable development and management of the nation's water and land resources to promote economic development and social equity, and to ensure environmental quality in the long-term. The specific objective is to provide an essential tool to enable NWRB to carry out its mandate effectively, to provide it a basis for the coordination and integration of the policies, strategies, plans and investment projects of all the stakeholders. The water plan will provide NWRB the technical information needed for recommending to NEDA development investment options to be included in the MTPIP. 14. The preparation of the NWRP should be seen as an iterative process designed to fashion a long-term planning framework compatible with national goals and objectives and with sound environmental management principles. At each stage of the study, alternatives should be presented and analysed for discussion purposes, with all the important evaluation and decision factors displayed so as to allow an objective evaluation of the preferred course of action compared to other feasible alternatives. The aim will be to develop a flexible planning system capable of continuous evolution rather than to present a rigid blue print. It is anticipated that the NWRP will be subsequently updated on a regular basis, possibly every five years. D. ScopeolWork 15. Overall. The plan should be based on a reassessment of water resources availability in all 12 regions, an assessment of future needs in water demand, and the potential and timing for developing additional water supply, especially in critical river basins (such as Angat). The plan will reflect the country's socio-economic and environmental goals, and review realistic development targets in relation to water availability and protection, employ new techniques of planning and resource assessment, identify investment opportunities for infrastructure to be put in place in anticipation of foreseeable increases in demand over the medium-long term. It will integrate land use and subsectoral strategies, and the use of surface water and groundwater. The plan will identify critical river basins and the need for development or updating of river basin plans. The plan will also study institutional arrangements for river basin management and recommend basins where management and development of water resources can be best delegated to a basin level authority. 16. The NWRP is expected to include three phases. Phase 1, the existing situation will be fully documented and assessed; and a planning approach and study schedule will be prepared. Phase 2, national goals and objectives will be evaluated as a basis for reaching agreement on the overall policy and institutional framework; an analytical capability for a systematic evaluation of the resource will be developed and utilized to prepare water resources balances by region and major basin to the years 2010 and 2020; broad water resources management options will be discussed and evaluated; and basins to receive priority for detailed study will be recommended.  - 69 - Annex 1 Appendix 3 Page 5 of 10 Phase 3 will comprise the formulation of the National Water Management Plan and its component parts. Phase 1. Assessment of the Present Situation and Submission of Detailed Study Proposals (a) Review existing studies relevant to water and land use and planning, e.g. Framework Plans prepared by NWRB, sub-sectoral master plans by different agencies, national medium-term economic plans by NEDA; (b) Assess adequacy of data and validability of data sources, and specify additional information which needs to be collected during this program; (c) Describe the strengths and weaknesses in the existing data, analytical systems, and identify major gaps, inconsistencies and shortcomings; (d) Identify appropriate analytical and planning methods to be used in this program, including physical water resources system simulation and analysis of different aspects of the physical system, and evaluation and optimization of development proposals; (e) Prepare an inception report describing in detail the planning methodologies to be used in the NWRP, together with a detailed work program. (f) Prepare specifications of the Information Technology (IT) equipment, software, and other equipment needed for the NWRP for approval and procurement. Phase 2. Water Balance Studies and Identification of Water Resources Management Options (a) Document and assess national and regional social and economic goals and objectives relevant to the formulation of water resource management options and to the NWRP; (b) Identify future development trends, and evaluate their impact on water resources demand, development and conservation, in order to achieving the national and regional objectives; (c) Taking into account existing (NEDA's or other agencies') indicative demographic and economic projections for the economy in the medium (2010) and long (2020) terms, assess alternative perspectives of overall development prospects and issues, on a national and regional basis; (d) Review infrastructure development in water resources, determining factors relevance to selection and design of future water projects;  - 70 - Annex 1 Appendix 3 Page 6 of 10 (e) Prepare an assessment of water availability by region and major basins, using physically based deterministic models for conjunctive uses of surface and ground waters; (f) Prepare an assessment of demands by region and major basins for the years 2000, 2010 and 2020, reflecting present and possible future facilities in water supply, irrigation, hydropower, flood control, environmental management etc. and prepare water balances; (g) Assess major water resource management issues, including those associated with: droughts, floods and inundation in urban, rural and coastal areas; water supply (surface & subsurface) and demand and the future water balance; in-stream uses (fisheries, hydropower etc.) and the constraints they impose on water management; water quality, pollution (point and non-point) and sanitation services; and salinity intrusion and protection of the natural environment; (h) Identify medium and long-term water resource management options, including preventive measures (flood control, drainage etc.); supply augmentation (inter- regional water transfers, surface/ sub-surface development etc.); management of water quality (sanitation, pollution control, salinity control etc.); and protection of the natural environment (ecological systems, habitats, etc.); together with measures to support implementation, real-time management and O&M of development programs and projects; (i) Evaluate alternative policy measures that complement supply augmentation and water control in support of balanced and sustainable development of water and associated land resources, including but not necessarily being limited to regulatory, financial, cost recovery and other demand management approaches; (j) Evaluate possible impacts of alternative strategies on national development prospects, and on the environment and resources setting, the aim being to display important evaluation criteria to support recommended courses of action compared to other feasible alternatives; (k) Identify criteria and methods for option ranking; (1) Identify priority basins for further studies, and prepare Terms of Reference for undertaking priority basin planning; and (m) Prepare a report summarizing the conclusions of the options studies and providing a draft outline of NWRP.  - 71 - Annex 1 Appendix 3 Page 7 of 10 Phase 3. Formulation of the National Water Resources Plan (a) Assess water and land resources, and their medium and long-term potential and constraints, evaluating the risks associated with typhoon events, annual and seasonal variability in rainfall and river flows, long-term trends in the flows in the border rivers, salinity intrusion, pollution, and other factors of major significance; (b) Propose medium term and long term criteria for the preservation, allocation and utilization of the water and associated land resources which would serve the long- term requirements of Philippines society and economy, and specify the level of risks that can reasonably be, or which will have to be, incurred by different populations and users; (c) Develop an analytical approach, such as through the use of policy analysis and planning models, for the evaluation of projects within a multi-sectoral context, linking analyses of the physical system with development and management options, together with arrangements for ensuring consistency amongst different activities; (d) Formulate a long-term water development plan which responds to national goals and objectives, and is appropriately phased. The proposed plan should provide for regional balance, subject to the requirements of overall economic and social development and to protecting the natural environment. It should be specified in relative detail over the medium term, and in outline terms over the longer term. Risks should be assessed together with measures for ameliorating them; (e) Consistent with the long-term water resources development plan, prepare a long- term investment portfolio phased according to GOP's normal planning cycle. Such a portfolio should, inIr " include the location, outline designs and alignments of major works, orders-of-magnitude costs (by domestic and foreign components), annual O&M requirements and economic justification for major projects and for the entire plan; (f) Identify priority, near-term water management programs and projects for implementation for the first five years, and propose feasibility, design and construction schedules; (g) Make recommendations to strengthen institutional capacity in support of the proposed NWRP, including the proposals for any further reviews necessary of the legislative, regulatory and organizational framework in support of water resources development;  - 72 - Annex 1 Appendix 3 Page 8 of 10 (h) Recommend measures designed to strengthen the implementation, real-time management and subsequent O&M of completed systems, reflecting constraints and performance problems associated with water resources management interventions in the Philippines; (i) Recommend complementary regulatory, financial, cost recovery and related demand management policies designed to ensure the balanced and sustainable development of water and associated land resources; (j) Propose a monitoring and evaluation system to facilitate the feed-back of performance results into the decision making and planning system; and (k) Train NWRB staff in the use of all computer programs and/or models used in the NWRP. E. Outputs and Schedule 17. It is expected that the overall study period will be two years (24 months). While the three phases of the planning provide a natural division of the study period, they will be overlapping and iterative. Subject to these considerations, the consultants will: - .Within 3 months from signing the contract, submit an Inception Report presenting the main conclusions of the review of existing reports, data and analytical techniques, and setting out a detailed work program for the entire study period; * Within 10 months, prepare a draft "Options" report for iterative review and discussion with GOP; and * Within 16 months, draft master plan and consultations with various agencies on selection of options and the draft plan. * Within 22 months, submit a final NWRP. 18. The computer programs used and/or developed must be (i) portable; (ii) interactive, user friendly; (iii) able to have input/output options for all media i.e. keyboard, diskettes, monitor; and (iv) able to provide visualization graphics. The consultants will submit the following items to NWRB together with their Final Plan: a. All equipment procured under the project; b. Licensed copies of all proprietary computer software used together with manuals;  - 73 - AnnexI Appendix 3 Page 9 of 10 C. Copies of all software developed under the project in magnetic form, together with source listing and full documentation; d Copies of all data used in magnetic form and hard copy; and e. Complete descriptions of all methodologies used together with the assumptions made. F. Participation of Government Agencies 19. The Government would establish a high level Inter-agency Steering Committee (SC) for the NWRP. The SC would consist of the heads of relevant agencies -- DPWH, NEDA, NIA, MWSS, LWUA, DILG, NPC, DENR and NWRB. The SC would be responsible for policy issues and decision of program implementation. 20. A technical working group has been set up in NWRB for implementation and coordination of this program. Other relevant agencies would nominate project coordinators and technical staff to form an inter-agency task force, which will work closely, through secondment arrangements, with the technical working group in NWRB. A Memorandum of Agreement (MOA) will be signed between NWRB and each participating agency after the project is officially approved by the Government and the World Bank. G. Staffing 21. It is estimated that the expatriate and local specialists combined would provide a total of 176 person-months. NVWRB and relevant subsector agencies will provide counterpart professional staff in the various disciplines for a total of 244 person-months. 22. Detailed cost breakdown and indicative input from staff and consultants are shown in Table I and Table 2.  - 74 - Annex 1 Appendix 3 Page 10 of 10 Table 1 Formulation of National Water Resources Plan Consultancy Services and Government Staff Input (man-month) Duration =24 months Gov. Area of Expertise Expatriate Trips Local Staff* Water resources planners (Leaders) 18 3 24 24 Hydrologists 10 1 10 36 Hydrogeologists - - 8 12 Water supply engineers. - - 10 18 Irrigation engineers - - 10 10 Hydropower engineers - - 8 5 Flood control engineers - - 10 5 Water resources engineers 10 2 - 20 Economists 5 1 6 12 Environmentalists - - 6 10 System analysts in hydrology 9 2 16 40 Computer programmers - - 16 42 Land use planner - - - 10 Subtotal in mm 52 9 124 244 in US$ 1,040,000 620,000 Table 2 Formulation of National Water Resources Plan Summary Cost Items Cost (US$1,000) Consultants International 1,040,000 Local 620,000 Field survey trips 32,000 Data collection/aerial photos 50,000 Equipment Vehicles (2) 40,000 Software/hmardware 100,000 Supplies and miscl. 70,000 Total 1,952,000 * US$20,000/mm for international consultants (including fees, international and internal travel, and subsistence); (US$3,000 per international trip). * US$5,000 for local consultants (including fees, internal travel, and subsistence). * * means government contributions, excluded from the total cost. * Supplies & miscl. include office space, office supplies, printing and copying, and secretary support.  - 75 - Annex 2 Page I of 6 PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT The IrriLation Sub-Sector 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 48% of the area considered suitable for irrigation. About 95% of the irrigated area is devoted to paddy production. In most lowland areas, average rainfall 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. There are three main irrigation systems in the Philippines: a) National Irrigation Systems (NIS'. At present there are 168 NIS, serving about 650,000 ha (of which about 25,000 ha of developed NIS area has been affected by volcanic mud flows from Mt. Pinatubo since 1991). The National Irrigation Administration (NIA), a government-owned corporation responsible for irrigation development, builds, operates and maintains NIS. Three NIS are multi-purpose, reservoir-backed systems: Magat, Upper Pampanga and Angat-Maasim, serving about 230,000 ha. The remaining 165 NIS (serving, on the average, about 2,500 ha each) are run-of-the-river diversion systems. New NIS are expected to bring about an additional 55,000 ha under irrigation by 1998. Farmers in NMS 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 in the planning and construction of physical works and development and training of the IAs 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) Pump-Lift Irrigation Systems (PISU. 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 firther expansion. In some areas, farmers' groups have asked NIA to convert their PIS to run-of-the-river communal systems.  - 76 - - 76 - ~~~~~~Annex 2 Page 2 of 6 The National Irrigation Administration 3. The National Irrigation Administration (NIA), established in 1964, is a Government 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 irrgation fees from the NIS and recover chargeable construction costs from the CIS and PIS. NIA has also the authority to undertake related projects (e.g. flood control, drainage, land reclanation, hydro- power development, domestic water supply, road construction, and reforestation and other activities to maintain ecological balance) in coordination with other agencies. 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, and system-level offices throughout the country. It is adequately staffed and, with the exception 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, and responsible for CIS, are gradually being merged with the Regional offices. At present, NIA has about 16,000 employees--approximately one-fifth are women. About 9,000 of these employees are involved in development projects with which their employment is co-terminus. The remaining 7,000 are funded from the operating budget; of these, about 6,500 are in the field and about 500 at the headquarters. Some reduction in personnel is envisaged in the next few years under NIA's streamlining plan. Irrigators' Associations 5. Over the years, NIA has developed a successful strategy of beneficiary participation by establishing 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 satisfactorily 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. 6. To address this situation, NMA, 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 communal systems. Naming it a 'participatory approach', it called for an active involvement of water users 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  - 77 - Annex 2 Page 3 of 6 throughout the entire CIS network, and nearly all CIS (larger than 100 ha) are now operated and maintained through IAs. 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 lAs have been established. Furthermore, NIA has provided IAs 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 [As will assume complete operational and maintenance 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- 15%. 8. As of December 1994, NIA had carried out IA organization activities over about 552,000 ha within the NIS (85% of the service area), comprising 1,829 lAs, with a membership of about 444,000 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 1,829 lAs in different stages of formation as of December 1994, 1,778 were registered with the SEC and 1,520 (covering about 433,000 ha) had 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 8). Support Services for Irrigated Agriculture 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 were 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 funding 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 very 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 the agricultural services personnel of the DA and the Provincial and Municipal governments, although in some instances good informal contacts have led to improved scheme performance. Agricultural support services are being strengthened now under the DA's Grains Production Enhancement Program, which started in 1993.  - 78 - Annex 2 Page 4 of6 Operational Performance of Irrigation Systems 10. Although there has been a modest improvement in recent years, the performance of many of the irrigation systems in the Philippines has been below expectations. Despite widespread double cropping, in 1994 the irrigated cropping intensity in NIS was only 140%. In terms of irrigated cropping intensities recorded to date, NIS reservoir systems had the highest at over 172%; and the NIS diversion systems, and communal and pump systems, about 130%. 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. NIA is now verifying and updating existing irrigation system service areas throughout the country through parcellary mapping. 11. Factors which have adversely affected the irrigation system performance include: the highly variable and generally low dry season water supplies; deficient water management due to institutional weaknesses of NIA and the IAs; insufficient water control structures to ensure timely and equitable water supplies to all sections of the NIS; inadequate O&M funding; and inadequate agricultural support services. Also, flood control and drainage were not given appropriate emphasis during design of some of the older NIS. These problems are reflected in 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, followed by the IOSP II (Ln. 3607-PH) in 1993. Irrigation Financing 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 P 2.6 billion in 1994 and P 3.6 billion in 1995, including about P 2.2 billion and P 3.2 billion, respectively, under the General Appropriations Act. NIA, however, has to finance its operating budget. This is financed principally from ISF collections, a 5% management fee charged to the Government for the design and construction supervision of irrigation projects, and rentals of construction equipment. In 1994, NIA's total operating and non-operating revenues amounted to about P 750 million. Of this, ISF collection accounted for about 50%, management fees for 9%, equipment rental for 15%, and others for 26%, including amortization from the CIS and interest on investment funds held on deposit. These revenues were insufficient even to meet NIA's total operating expenses in 1994 of F 798 million (including irrigation O&M); after allowing for depreciation of P 289 million, the net income was negative by P 336 million. NIA's net income after depreciation has been negative for several years. This is a reflection of a fast increase in operating expenses and a slower increase in revenues over the last few years. While ISF collection has increased from P 57 million in 1982 to P 373 million in 1994, and equipment rental from P 25 million to P 113 million during the same period, management fees have declined from P 104 million to P 66 million as a result of a falling irrigation investment program. If the investment remains at the 1995 level in the next few years, as it might, given the financial constraints of the Government, NIA's net income before depreciation will be negative through 1996, even if the ISF collection efficiency improves to 75% (see Annex 7 for further  - 79 - Annex 2 Page 5 of 6 details). NIA realizes its difficult financial situation and has already begun to implement streamlining of its organization and staffing and reduce operating expenses. 13. Irrigation Service Fees (ISF) and 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 interest) 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 14% moisture content). About 50% of farmers presently pay in cash. The denornination 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 10%-15% of gross collections. The current ISF rates vary according to type of system, and by wet and dry season, as shown in Table 1. These rates, which typically absorb 10-15% of the incremental production from irrigation, are estimated to be within the payment capacity of most water users. Table 1: ISF RATES Wet Season (WS) Dry Season (DS) --------Cavans of Paddy/ha-------- Type of System (I 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 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 73% of these farmers cultivate I ha or less, which at full development of the project would provide incomes ranging from only P 10,450 to P 20,900 (see para. 6.4 of SAR and Annex 17 for details). Even if an additional one-third of the household income was derived from off-farm work, these farmers would still fall below the 1995 estimated poverty level for rural areas of P 48,200 p.a. for a family of six. Also, the average rent recovery for project beneficiaries amounts to 33% and cost recovery at 47%, both figures being relatively high for this type of project, compared to other developing countries. However, there remains substantial scope for improvement in ISF collection efficiency which should first be utilized. ISF collection performance has improved significantly over the years but was still only 62% of current billings in 1995 and covered about 66% of the total O&M expenditures on NIS. Government Irrigation Subsector Strategy 15. An Accelerated Irrigation Development Program was legislated in 1992. 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. However, given the financial  - 80 - Annex 2 Page 6 of 6 constraints, and taking its past pace of construction into account, 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 O&M, 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 and II, has attempted to improve the efficiency of the irrigation infrastructure in pursuit of its overall sectoral objectives. The Bank's Role in Irrigation Development 16. To date the Bank has lent US$859.0 million to the Philippines for 15 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 II (Ln. 3607-PH, approved in 1993) and the Second Communal Irrigation Development Project (Ln. 3261-PH, approved in 1990). 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 22% of total rice production and 30% of irrigated rice production in the country. 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 has been the most severe constraint. Project Completion Reports and Project Performance Audit Reports prepared for completed projects indicate implementation delays mainly on account of inadequate and delayed counterpart funding, lengthy procurement procedures, poor performance of contractors, frequent typhoons, and shortages of materials. 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 O&M, 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.  - 81 - ANNEX 3 Page I of 13 PH1LIPPINES WATER RESOURCES DEVELOPMENT PROJECT Terms of Reference for the Formulation of A Watershed Manaeement Strategv and Proeram A. Background 1. The Philippines has a total land area of about 30 million hectares, of which about 70% is officially considered watershed area. The mandate to manage it lies with the Department of Environment and Natural Resources (DENR), with co-management by the local government units (LGUs). The watersheds comprise some 419 river basins (with drainage areas ranging from 40 to 25,000 sq. km.), which supply the major water requirements of several irrigation systems, hydro-electric dams and domestic as well as industrial water systems. Eighteen are considered major river basins. Among the most important are the Agno and the Cagayan River Basins in Northern Luzon, Pampanga River Basin in Central Luzon, Ilog-Hilabangan in the Visayas, and the Cotabato and the Agusan River Basins in the Mindanao Region. These river basins cover approximately 7 million hectares. To date, 119 watersheds with an aggregate area of 1.36 million ha have been designated as "Watershed Reservations" through Presidential Proclamations. The proclaimed watershed reservations were intended to be managed as protected areas, but typically heavily encroached and subjected to slash and burn and other forms of cultivation. As a consequence, about 90% of the proclaimed watershed reservations are categorized as "hydrologically critical", implying degraded physical conditions and riskl to downstream infrastructure. Most of the concerned area is publicly-owned (slopes greater than 18%). 2. Of the country's total estimated population of about 68 million, about 15-20% live in the upland areas, with a significant number of people cultivating or occupying portions of forest lands. Due to a rapidly increasing population and the growing demand for land, farmers have moved to higher and steeper slopes in their search for new agricultural lands. Forested lands, including watersheds, have been cleared and planted to cash crops with little or no attention to soil and water conservation technologies. The rapid transformation of the original vegetation of the Philippine forests, coupled with inappropriate land use practices, has led to loss of biodiversity and disrupted the hydrological condition of major watersheds, which has resulted in accelerated soil erosion, siltation of rivers and reservoirs, increased incidence and severity of flooding, and decreasing supply of potable water. These, in turn, have caused considerable reduction in the productivity of the forest, agricultural lands and fisheries, with a consequent high incidence of poverty in rural areas, particularly uplands, and decreased returns from major investments in hydro-electric power and irrigation systems.  - 82 - ANNEX 3 Page 2 of 13 3. To address these problems, the government has adopted policies for the protection, conservation and development of watersheds which stipulate that: (a) all upland watersheds shall be under the ownership and jurisdiction of the Philippine Government; (b) the watersheds shall be managed under the concept of multi-use and sustained yield; (c) the watersheds shall be managed to achieve and maintain environmental quality; and (d) the natural resources in the Philippines, including watershed resources, shall be managed with the participation of local communities. 4. The Government has also launched several programs and projects for the rehabilitation of degraded watersheds and/or protection of those still in good condition. Among these are the National Forestation Program (with support from the ADB and OECF), the Environment and Natural Resources Sector Adjustment Project (supported by the World Bank), and several integrated area development projects in the uplands supported by various multilateral and bilateral agencies. Furthermore, soil conservation and watershed management is one of the major component programs of the Philippine Master Plan for Forestry Development (MPFD). The MPFD recommended a DENR policy shift of logging from the virgin forests to the residual forests, and the imposition of logging ban in critical areas, namely: (a) areas with slope of 50% or more; (b) areas above 1,000 meter elevation; (c) areas proclaimed for ecological and environmental protection; and (d) areas proclaimed for watershed reservations. 5. However, these policies and programs/projects have not effectively addressed the alarming rate of watershed degradation due to lack of a clear overall strategy, limited financial resources, fragmented implementation responsibility, lack of properly trained manpower, and increasing socio-economic pressure resulting from the rapid increase of population in the uplands/forest lands where the vital watersheds are located. Further, while there has been some progress in the country toward a broader concept that puts some priority on the interests of the local population, watershed management is still thought of mainly in terms of protection. A great deal of discussion and a clear, overall strategy is needed to bring a wide range of stakeholders to a higher level of understanding of, inter alia, the scope for multiple use of the watersheds, the downstream consequences of accommodating the development needs of upland residents, and the role of forestry vis- a-vis other land uses in affecting downstream water availability. B. Obiectives and Scone of the Study Objectives of the Study 6. The overall objective of the study is to formulate a national watershed management strategy and a long-term program of investments for the sustainable management of watersheds, particularly those considered critical, and recommend appropriate policies, and legislative and institutional measures, to implement the strategy and investment program. The principal goal of a watershed management program for the Philippines is the creation of an environmentally sound, sustainable, productive and equitable resource utilization system. This approach explicitly recognizes watershed management as a multi-  - 83 - ANNEX 3 Page 3 of 13 dimensional problem that has physical, social, economic and institutional components. Since population growth and poverty are the driving forces behind resource overuse and degradation, people must be an integral part of any solution. The specific objective of the study would, therefore, be to recommend a package that will help: (a) establish a sound policy and legislative basis for watershed management in the country; (b) institutionalize an effective and responsive administrative machinery and procedures for watershed management and protection; (c) minimize and control accelerated soil erosion and improve water yield and quality; (d) promote compatible land uses and enhance productivity; (e) enhance economic opportunities for and environmental consciousness of watershed communities; and (f) establish a National Watershed Information System in the DENR. Scope of Work 7. The study will be divided in three phases, which, in turn, will consist of several tasks. As detailed below, workshops/seminars and consultations with the relevant stakeholders will be carried out during and after completion of some of the tasks and phases. Phase 1: Strategy Formulation Task 1: Prioritization of Watersheds to be Managed. Given limited national manpower and financial resources (public and private), it is necessary to identify critical watersheds for targeting of resources. To accomplish this: The study will first examine the current "Proclaimed Watershed Reservation" concept, and then determnine whether "critical" watersheds should be defined as those which are linked to existing or proposed downstream infrastructure facilities, such as hydro- electric plants, irrigation systems, and domestic water systems, or a broader definition, that describes the present biophysical condition of the area which also includes other considerations such as floods, fisheries and reefs, severity of poverty in specific upland areas, etc., should be adopted. The chosen definition will determine whether critical watersheds for management would be selected from among the 119 proclaimed watershed reservations, or from 18 major river basins, or all 419 river basins. * Based on the criteria determined above, prioritization of watersheds will be undertaken. Both for the formulation of the criteria and the prioritization, extensive review of the available nation-wide watershed data from remote sensing and other sources will be undertaken, coupled with field verification visits to some watersheds, which are considered to be critical but for which little data are available. The preliminary list of critical watersheds may have to be modified later after more data are available during the course of the study. * The criteria for selection and the list of critical watersheds will be discussed with various stakeholders in a workshop/seminar.  - 84 - ANNEX 3 Page 4 of 13 * From the list of critical watersheds identified above, 10 watersheds will be selected and included in the preparation of management plans in Phase III of the study. Task 2: Review of Policy and Legal Framework. This work will involve a review of the existing environment within which watershed management programs and projects are being undertaken: * Since watersheds are integrated physical, social and economic systems, planning must take these various dimensions into account, and should be holistic and interdisciplinary. The study will, therefore, specify the elements that should constitute an integrated and comprehensive approach to watershed management. * In the light of the above, the study will critically review the existing policies on watershed management (including forest products harvesting arrangements, and., if considered significant, pricing and taxation of forestry products), the land tenure instruments being used, the policy of proclaiming watersheds as watershed reservations (whether to continue it), and various existing and proposed legislation, particularly the Integrated Protected Areas law and the Forestry Code, which have implications for watershed management, and recommend policy changes/reforms. Task 3: Review of Watershed Programs and Projects. Various locally-funded and extemally-supported programs and projects in watersheds using reforestation alone or in combination with other vegetative and structural methods have been undertaken in the country in the past and some are ongoing. Voluminous records on watershed-related activities are also available with the Forest Management Bureau (formerly Bureau of Forest Development), Ecosystems Research and Development Bureau (formerly Forest Research Institute), and the University of the Philippines College of Forestry. These records will be reviewed along with the major programs and projects, which will include but will not be restricted to: the ongoing National Reforestation Program (supported by ADB and OECF), the Environment and Natural Resources Sector Adjustment Project (supported by the World Bank), the Integrated Social Forestry Program (devolved to the local governments since 1992), the DENR's locally-funded watershed management program, the locally-funded Small Water Impounding Management (SWIM) projects of the Department of Public Works and Highways (DPWH), Low-Income Upland Communities Project (supported by ADB), Cebu Upland Project (supported by FRG), Central Cordillera Agricultural Program (supported by EEC), and Highland Agricultural Development Project (supported by ADB and IFAD); and the completed Central Visayas Regional Project and Watershed Management and Erosion Control Project (both supported by the World Bank). The major watershed management programs and projects included in the Medium-Term Public Investment Program for the next five years will also be reviewed. All significant programs and projects (completed, ongoing and planned) in the priority watershed areas (Task 1) will be reviewed. During the review of completed and ongoing programs and projects, the following issues will be specifically addressed in order to draw appropriate lessons for the future:  - 85 - ANNEX 3 Page 5 of 13 * What were the achievements of the completed projects and have they been sustained? If not, why? * Was there any attempt to monitor and evaluate the socio-economic and bio-physical impact of the completed projects? * What watershed management methods have been or are being used? Were or are they appropriate? Will they have a sustained impact? * Is it more appropriate to place all watershed-related projects under the management of one office? * Were or are technical packages and adequate extension services available to achieve the program/project objectives? What are the research gaps? * What is the experience with cost per ha and per beneficiary? Given the cost level, are there any replicable models? Under this Task, the following will also be undertaken: D Review of current procedures in the preparation of watershed management plans, and recommendation for changes, if required. - Review of current designs, specifications and cost estimates of various watershed rehabilitation measures, including structural measures, and recommendation for changes, if required. Task 4: Institutional Issues. The study will critically review the institutional responsibilities and capabilities of different government agencies involved in various aspects of water and soil management. Although the DENR has overall jurisdiction over the forests of the Philippines and is responsible for their protection, management, regeneration and development, as well as for the conservation of the watersheds, other government agencies including the National Power Corporation (NPC), Philippine National Oil Company (PNOC), and National Irrigation Administration (NIA) are involved in the management of watersheds which support hydropower, geothermal, irrigation, flood control and other water-based projects. The responsibility for the management, protection, rehabilitation and development of these watersheds was transferred from the DENR to the above agencies through Executive Orders/Letter of Instruction. The LGUs are also involved in some watershed management activities, particularly through the Integrated Social Forestry program, which was one of the devolved responsibilities under the Local Government Code of 1991. The following aspects will be special areas of emphasis of the study under Task 4:  - 86 - ANNEX 3 Page 6 of 13 * The institutional capability of the DENR, including its staffing at the central and field level, and its internal incentives, to undertake the planning, implementation, supervision, and monitoring and evaluation of the long-term watershed management program identified under Task 1 will be analyzed. Since it is unlikely that the DENR alone will be able in the near future to undertake the entire national watershed management program, the feasibility and desirability of delegating some responsibility to other government agencies, particularly LGUs, will be examined. Moreover, since part or most of the watershed management work could be done through NGOs, the DENR's capacity to recruit, supervise and evaluate NGOs will also be analyzed. Based on the above analysis, the future role of DENR in watershed management will be specified (the detailed institutional strengthening proposals will be made in Phase II). * The precise jurisdiction of the NPC (which manages 4 watersheds), PNOC (3 geothermal reservations), and NIA (2 watersheds) within the respective watershed areas will be determined; the quality of management by these agencies in the respective watersheds will be assessed; and, based on an analysis of their current and planned institutional capacity, recommendations will be made for a reduction, expansion or maintenance of their role in watershed management. v The institutional capability of LGUs, particularly in the watershed areas identified as critical under Task 1, will be assessed. In this connection, the status of the Integrated Social Forestry program, and its potential role, will be reviewed. Moreover, the current and potential role of the Local Water Districts in the management of watersheds supporting water districts will be reviewed. Based on the above analysis, the future role of the LGUs and Local Water Districts in watershed management will be clearly delineated. * The institutional capability of NGOs in mobilizing local communities and implementing watershed management programs will be assessed, and the mechanism necessary to enable NGOs to better provide the support to the national government agencies and LGUs will be analyzed. * The current policy-making processes for watershed management will be reviewed. In this regard, the current role of the National Water Resources Board, if any, will be assessed, and future role, if any, will be recommended. The role and effectiveness of Watershed Management Councils, which have been or are to be established for every watershed forest reserve, will be also be assessed. Recommendations will be made for establishing an appropriate institutional mechanism for overall national policy-making for watershed management and for coordination of activities undertaken by different government agencies, private entities, and local communities in watershed areas. * The data bases relating to watersheds in DENR and other government agencies will be reviewed and the need for a National Watershed Information System assessed.  - 87 - ANNEX 3 Page 7 of 13 * The current information and education campaigns for watershed management will be assessed and the need for an expanded effort determined. Task 5: Watershed Management Strategy. The findings and conclusions of the four Tasks detailed above will be integrated and a national strategy for watershed management will be developed. The strategy will, inter alia, specify the policy and legislative framework required; respective roles of different government agencies, NGOs and local communities and the institutional coordination mechanism; and the types of interventions which have the best potential for sustainability. The proposed strategy will be discussed with various stakeholders, and their views taken into account before undertaking Phase II of the study. Phase H: Watershed Management Program. In the light of the strategy proposed under Phase I of the study, a long-term program of investments and institutional strengthening will be developed under Phase II as follows: Task 1: Long-Term Investment Program. An estimate will be made of the time frame within which all watersheds currently considered critical or likely to become critical in the near future (Task 1 of Phase I) could be adequately managed by various users and agencies, and the investment requirements of the management program. In this connection, the estimates made for watershed management in the Philippines Master Plan for Forestry Development will be reviewed, and updated, if necessary. All ongoing and planned watershed-related projects and programs in the Medium-Term Public Investment Program will be reviewed and recommendations made as to their priority and costs. An indication will also be made whether and how much work should be done by the DENR in the future on watershed characterization studies, and what methods should be used to assess the extent of and potential for degradation of watersheds and its on-site and off-site impact. Along this line, the watershed characterization procedure currently used in the DENR will be reviewed and changes recommended, if necessary. A manual/guideline will be developed and applied in Phase III. Task 2: Institutional Strengthening Program. The long-term program will have particular emphasis on the following: * Based on an in-depth institutional study of the DENR, proposals will be made regarding the organizational location of watershed management responsibilities (after a review of the current functions of the Watershed Management Section in the Forest Management Bureau), staffing at the central and field levels, human resource development to upgrade the technical and managerial capabilities of staff involved in watershed management and conservation, and logistical support. Measures will also be proposed for strengthening DENR's capacity to recruit, supervise and evaluate NGOs. * Similar institutional strengthening proposals will be made for a sample of LGUs in the critical watershed areas. The study will also specify what, if any, strengthening is  - 88- ANNEX3 Page 8 of 13 needed by NPC, PNOC, NIA and the Local Water Districts for watershed management. * Recommendations will be made for strengthening extension and research for effective watershed management and conservation, with emphasis on upland farming systems, agroforestry/reforestation techniques, vegetation-water yield relationships, soil stabilization measures, erosion rates under various land uses, planning with a view to optimum land use allocation for watersheds, and socio-economic and institutional/policy issues. * To help establish an effective monitoring and evaluation of both biophysical and socio- economic aspects of watershed management programs, a National Watershed Information System (NWIS) will be established. In the course of establishment of the NWIS, the follwing will be detailed: the type of data/information to be collected, stored and analyzed; methods of collecting data, including use of geographical information system and any practical models for quantifying soil erosion; design of a national data network, programming of data acquisition, and specification of national standards to ensure data quality; and a mechanism for collection not only of watershed data but also reports and publications related to watersheds. The data collected and evaluated under Task 1 of Phase I will be utilized in the initial establishment of the NWIS. * A plan for conducting a country-wide information and education campaign on watershed management and conservation will be formulated. * Estimated costs for the institutional strengthening program outlined above will be presented. Phase IH: Watershed Management Plans. Within the framework of the long- term investment and institutional strengthening program developed under Tasks 1 and 2 of Phase II, detailed management plans for a number of critical watersheds will be prepared as the first phase of the program, to be packaged as one or a number of projects to be implemented by the DENR, LGUs or other agencies and possibly supported by multilateral or bilateral development institutions. The objectives of the project(s) will be to develop and implement an integrated plan for the sustainable management of critical watersheds, including participatory planning and implementation of sustainable forest management by all resource users; devolution of responsibility for resource management to local communities; provision of incentives to local communities in the form of secure land tenure, improved upland farming systems, and expanded livelihood opportunities in order to reduce pressures on watershed resources; and human resource development. This Task will be undertaken in two stages: (a) site scoping and assessment; and (b) detailed watershed improvement and management plan. These two stages are detailed below. (a) Site Scoping and Assessment. This work will mainly include:  - 89- ANNEX3 Page 9 of 13 * collection of baseline data and information on the physical as well as socio-economic characteristics of the watershed: the physical data will include: location; topography (slope, elevation and other features); climatic/hydrological data (rainfall, infiltration, surface runoff, temperature, humidity, streamflow/discharge, drainage system, etc.); soil physical and chemical properties, and areas subjected to various degrees of erosion; geologic features in relation to soil and water; vegetation/forest cover; faunal species, if any; land uses (e.g. pasture, upland agriculture, human settlement, forestry, etc.); and water uses (irrigation, hydro-power, domestic use, etc.) with an indication of water quality and quantity. The baseline physical data will be presented along with appropriate graphs, tables and maps showing location, topography and slope, geology, soil and soil erosion, hydrological features, vegetation, land use, location of water structures, etc. The socio-economic data will include: socio-demographic characteristics (total population and density, ethnic communities, age structure and dependency ratio, household/family size, role of women, migratory patterns of population, cultural and behavioral/motivational patterns, accessibility of the area and the mode/types of transportation presently available, educational and medical services available, community and social organizations present, and demographic projections for the next 20 years); present level of income of the watershed residents; employment patterns and unemployment or underemployment; and extent of awareness among the watershed residents of the impacts of environmental and watershed degradation; * a detailed discussion of all activities contributing to soil and water conservation problems in the watershed (including over-cutting of trees and over- extraction/collection of other forest products, slash-and-burn agriculture and other farming practices, over-grazing, application of organic and chemical fertilizers, mining and other industries, road and other construction activities, etc.) and how these activities adversely affect the downstream areas and the living conditions of the people within the watershed; and identification (maps to be provided) of critical areas, on a micro-watershed basis, which need immediate rehabilitation and improvement; * detailed studies of land tenure and customary rights of access to wood and non-wood forest resources; * description and critical review of completed and ongoing development programs and projects, if any, in the watershed area, and analysis of lessons learned; and description of planned projects, if any, in the area; and * review and analysis of data and information collected, and preparation of a land use plan, which will propose areas for protection/conservation, areas for production, and areas for water resources conservation, and will provide the rationale for the proposal. This plan will be fully discussed with the local communities and other stakeholders before finalization.  - 9o - ANNEX 3 Page 10 of 13 (b) Preparation of Detailed Management Plans. The detailed plans will clearly indicate what differences in approach will be required for areas proposed for protection/conservation as opposed to areas for production. * For areas to be protected/conserved, appropriate measures for site protection, including demarcation of physical buffers (if appropriate) will be recommended, and joint protection activities involving the protection agency and the affected buffer zone villages on the outskirts of the conservation forest will be devised. The investment and management plan for the protected areas will take into account the research, biodiversity protection, and eco-tourism needs that have to be accomodated, and will develop the framework and procedures to handle the population living within the protected areas. * An indigenous people's development plan, where relevant, will be prepared which will recommend an appropriate strategy for addressing indigenous people's concerns. * For both protection and production areas, land use plans will be developed for the steeper slopes based on relevant technologies which can stabilize the vulnerable areas and are consistent with the characteristics of the local communities. * The management plan will include details of the techniques for re-establishment of forest/vegetative cover, including species selection, site preparation, planting operation, cultural treatments, and maintenance; and proposals for soil and water conservation, including vegetative measures, and engineering/structural measures such as checkdams, water impounding and retarding structures, water channel improvement and stabilization, etc. * A plan to recharge groundwater and other water sources will be developed through survey and mapping of recharge sites/basins, survey of water-bearing rocks/strata (aquifers), recommendation on techniques to improve soil infiltration capacity for augmenting groundwater resources, and recommendation on techniques to assess the impact of land treatments and land use management schemes on the hydrologic and ecological condition of the watershed. * Market surveys will be undertaken and improved upland farming systems and sustainable income generating/livelihood options will be identified. In this regard, existing technologies such as the Sloping Agricultural Land Technology (SALT) will be critically reviewed for replicability, and improved crop, livestock, and agroforestry extension packages, including recommended techniques for contour cultivation, terracing, improved rotation, cover crops, etc. will be developed. Required inputs will be estimated and possibilities of their financing analyzed, including the feasibility of setting up community revolving funds.  - 91 - ANNEX 3 Page 11 of 13 * Infrastructure support proposals will be developed for access road improvement, small scale irrigation, small shallow ponds construction, household water supply, and health and education services. * Proposals will be made for more effective delivery of agricultural extension services and research needs, if any, will be identified. * A human resource development program will be designed to upgrade the technical and managerial capabilities of people involved in the management and conservation of the watershed, and the program will, inter alia, include specific actions to benefit ethnic minorities and women; ways to strengthen community organizations will be identified; and detailed proposals will be made for an information, education and communication (IEC) campaign to increase public awareness of the importance of watershed protection and rehabilitation and ways to reduce environmental degradation. * The management plan will include the detailed estimates of costs and benefits; financial and economic analysis; implementation arrangements, including the organizational and management structure for coordination, and the role of local communities, NGOs, and various government agencies; monitoring and evaluation arrangements; and an analysis of the social desirability/acceptability and environmental impact of the proposed plan. C. Study Team Composition. Duration and Time Input Reauired 8. The study will be undertaken by a team of expatriate and national consultant;, assisted by seconded staff from the DENR and other government agencies. The consultancy team will report to a Watershed Management Steering Committee composed of the DENR (chair), Department of Agriculture, Department of Agrarian Reform, National Economic and Development Authority, Department of Interior and Local Government, NIA, NPC, PNOC, at least one LGU, and one representative from a federation of NGOs, on all matters pertaining to the study. The consultants will fully consult local communities and NGOs involved in the watershed area within a structured participatory framework. The consultants' proposal will include a detailed strategy for the implementation of consultations. The consultants' team is expected to include natural resource management specialists, natural resource economists, ecologists, sociologists/anthropologists, community development and livelihood development specialists, hydrologists, rural development and rural infrastructure specialists, environmental specialists, women-in-development specialists, agronomists, agro-foresty specialists, marketing specialists, land use planners, forest management specialists, and management informationlgeographic information specialists. The consultants may also include representative NGOs on their team to profit from their experience and to ensure their active cooperation during the preparation and implementation of the watershed management plans. The estimated duration and person-months required for the study are detailed in Table 1. Phase III of the study will be the most time-consuming and expensive. It is tentatively assumed that 10 management plans will be prepared under Phase III. However, the number will be adjusted in the light of conclusions of the draft final report  - 92 - ANNEX 3 Page 12 of 13 on Task 1 of Phase I. The consultancy contract for Phase III will, therefore, be separate from that for Phases I and II, and will be awarded (to the same or different consultants) only after the completion of Task 1 of Phase I. Table 1: Consultancy Tasks, Duration and Consultant--Months Consultancy Tasks Duration Expatriate National Counterpart (months) Consultants Consultants Staff (months) (months) (months) Phase I Task 1: Prioritization of Watersheds to be 3 2 6 6 Managed Task 2: Review of Policy and Legal Framework 3 2 5 5 Task 3: Review of Programs and Projects 3 2 6 10 Task 4: Institutional Issues _ _ _ _ _ _ _ _ _ _ _ _ ~~~~3 2 6 4 Task 5: Watershed Management 2 2 2 2 Strategy Phase II Task 1: Long-Term Investment Program 2 3 4 4 Task 2: Institutional Strengthening 4 8 6 4 Program _ Phase III: Watershed |Management Plans 24 15 60 150 (assuming 10 management plans) D. Submission of ReDorts Inception Report 9. Within six weeks after the start of the study, the consultants' team will submit required number of copies of a short inception report containing the preliminary findings, an analytical review of the available data, a list of legislation to be examined, a list of completed and ongoing watershed-related programs and projects to be reviewed, detailed work plan and methodology, mechanism and schedule of consultations with various stakeholders, manning schedule, and timing of submission of progress, draft final and final reports.  - 93 - ANNEX 3 Page 13 of 13 Progress Reports 10. Progress reports will be submitted in required number of copies only for the Phase III (detailed watershed management plans), since this phase will be carried out over a two- year period. For Phases I and II, which will comprise tasks of relatively short duration (Table 1), progress reports will not be required. Draft Final Reports 11. Draft final reports will be submitted in required number of copies for individual tasks in Phases I and II (unless proposed by the consultants to be combined for individual phases and agreed at the Inception Report stage) and for individual management plans in Phase III, one month before the respective completion dates. Final Reports 12. The final reports for individual tasks (or combined for phases, if agreed) and for individual management plans will take into account the comments made on the draft final reports and will be submitted in required number of copies by the respective completion dates.  - 94 - Annex 4 Page 1 of 2 PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT Criteria for Selection of Systems for Improvement Background 1. For systems improvement and repair, the project continues the program approach adopted under the IOSP II (Loan 3607-PH), which is under implementation. The strategy of the project as well as IOSP II is to improve systems in which: (a) water resources are adequate to justify improvements; (b) the need for improvements (or repairs) is technically and economically justified; (c) water users want these improvements and are willing to contribute; and (d) there is a reasonable chance that the improved, or repaired, system will be sustained because of the involvement of water users from the start, their commitment to maintain the system, and expressed readiness' to assume O&M responsibilities of "their" subsystem.2 2. Accordingly, all NIS were screened and ranked based on technical, institutional and economic criteria as follows: Technical Criteria: (a) Adequacy of water resources at 80% exceedance to irrigate a larger area than that presently irrigated. Clearly, if irrigated areas, particularly during dry seasons, already use all available water resources effectively,3 or if the entire service area was already irrigated, there would have been little justification for improving the system. (b) Completeness of hydrologic data: the analysis indicted above required continuous and reliable hydrologic data of at least 8 years. Consequently, systems with shorter hydrologic data were dropped during initial screening. Institutional Criteria: (c) Beneficiaries would have to be organized for the effective operation of the IAs. This criterion reflects the experience in NIS showing a close relationship between IA management, degree of cooperation amongst IA members, experience in O&M, financial status of an IA and the functioning of the irrigation system. 'In the form of a signed Memorandum of Understanding (MOU) with NIA in which the Irrigators' Association formally agrees to assume full operational and maintenance responsibility. 2 The subsystem could be either a lateral or a sublateral canal, that conveys water to the area in which the IA is functioning. 3 That is, the overall water-use efficiency during critical periods was in the order of 45% or more, which is considered normal for open, unlined, irrigation systems.  - 95- Annex 4 Page 2 of 2 (d) Beneficiary lAs would have to commit themselves to contribute to repairs/improvements and to properly maintain them after completion.4 (e) Beneficiary IAs would have to commit themselves to assume full O&M responsibility of the subsystem directly serving them following completion of repairs/improvements. Such a commitment is consistent with the strategy of the project to turn over the responsibility of operating and maintaining components of the systems to capable and willing IAs. Economic Criteria: (f) The economic selection criterion was that each system selected for improvement would have an economic rate of return of not less than 10%. The Selection Process 3. When preparation of IOSP II started, all 165 NIS existing at that time were initially screened based on supply and demand of water, considering available water resources (rainfall and river flow) and existing cropping patterns. Systems in which water resources were already completely utilized or those with unavailable or deficient records were dropped and 61 systems remained on the long list. This list was screened and ranked in accordance with the following point system: Adequacy of water supply .............................. 25% Effectiveness of IA .............................. 10% Commitment of IAs (and members) for O&M ......................... 40% Economic viability .............................. 25% 4. Of the 61 systems on the long list, NIA selected 35 systems and undertook their detailed preparation. At appraisal of IOSP II, 18 of these systems were taken up for improvement. For the rest, there were doubts about water availability, and, therefore, a hydrological re-assessment was considered necessary. This was undertaken by a team of consultants in 1994 as part of preparation of this project. The favorable results of the study led to the inclusion of 14 systems for improvement under this project. 4 There have been too many instances in the past where improvements were not appreciated, not protected by water users, and not maintained. The active involvement of water users in the identification, construction and maintenance of improvements will hopefully change this experience.  - 96 - Annex 5 Page 1 of 10 PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT Proforma for an Irrigation Systems Improvement Plan for National Irrigation Systems (NIS) Identification Data Name of NIS: . ......., Service Area: ........ ha. Region: ........, River Basin: ......... , Type: . Summary 1. The summary will give concise information on the salient points brought out in the main report concerning: (a) characteristics of water source for the NIS and the features of the system; (b) justification for improvement of NIS under the project, considering: (i) the current status of the system for conveyance of water and its equitable distribution, and (ii) the actual experience of areas irrigated and efficiency of water use including identification of any special problems which inhibit irrigating the full service area, or contribute to the low water use efficiency; (c) system operation currently practiced and proposed for water management, planning of deliveries, issue of operation plans to the field staff, and actual regulation of supplies; (d) current maintenance arrangements, and maintenance plans after improvement; special problems (such as excessive silting, damage from flooding, etc.); responsibility sharing between NIA and the UAs; and sufficiency of funds; (e) present and proposed system for monitoring the effectiveness of the system operation, by recording the supplies available at the source, water diverted to the system, issues of water to each of the system offtakes and the crop areas irrigated, and analysis thereof for efficiency of water use after each irrigation season; and the system for monitoring of the quality of maintenance; and (f) main improvements proposed, both for the works and for the institutional strengthening of NIA and the UAs; investment costs for the improvement of works; implementation period anticipated; additional areas to be brought under irrigation; and estimated economic rate of return. ' Tis prforma will be used to prepare an Irrigation Systems Improvement Plan to supplement the Program of Work normally prepared by NIA for the system improvement of each NIS.  - 97 - -~ 97 -Annex 5 Page 2 of 10 Main Report 2. The main report will be prepared in sections, giving a clear picture of the current status of the NIS, its weaknesses, improvement needs, and actions proposed to rectify the situation. These sections are broadly indicated below, along with suggestions for the information to be presented in each. Section 1. Characteristics of the Water Source and System Features 3. The section will be divided into the following sub-section: (a) water source; (b) irrigation and drainage system works; (c) agricultural practices; and (d) institutional arrangements. 4. Water Source. The information for the water source has to basically confirm the availability of sufficient water for the irrigation system, and the seriousness (if it be the case) of the sediment problem, necessitating action under the project, by presenting: (a) for run-of-the-river systems: - catchment area of the source stream, at the location of the intake of the NIS; - number of rain and stream gauges in the catchment and period of record; - average annual rainfall in the catchment; - 10-day 80% availability stream flow at the intake; - maximum flood anticipated at the intake; - duration for high sediment load at the system intake during the flood season; and - water requirements to be met from the stream slow, downstream of the NMS intake, if a basin plan for water resources utilization exists, and whether NWRB has made any allocation to NIS; (b) for storage based systems: - features of the storage dam, and status of dam safety based on available reports (concerns, if any, to be highlighted); - experience of inflow into the reservoir as compared to the design inflow; lowest, average, and maximum inflow received after storage commenced; - restrictions, if any, on the issues of water from the storage, for hydropower generation, fisheries, or environmental requirements, and flow to be passed downstream of the NIS for other requirements; and  - 98 - Annex 5 Page 3 of 10 - distance of the NIS intake from the dam (if the dam does not feed the NIS directly), uncontrolled catchment area in between, and all the information required in para (a) above, for the uncontrolled catchment, if significant; (c) for systems based on both storage and run-of-the-river: - information on the ratio in which the system supplies are received from the two sources in the wet and dry seasons; and - information required under (a) and (b) above; (d) for rainfall in the service area: number of rainfall stations within the service area, and the frequency of their recording: and - 80% reliability 10-day rainfall, for the various sections of the service area (if large), otherwise for the entire area; (e) for runoff from drains: information as for (a) above, in case any major stream is draining the service area; and (f) for quality water: information on quality water at the system intake and in the drains for re-use for irrigation. 5. Irrigation and Drainage System Works. The sub-section should provide the following information: - Irrigation network (to be given as line diagram showing all the locations of drainage crossings, turnouts, and check structures on main canal, laterals, and sublaterals) with design discharge and service area of each; the drains passing through the service area, and any diversions from the drains for irrigation; and systems monitoring and control stations for water management; and - Main features of the diversion structure, pump station, or intake on the river. 6. Agricultural Practices. The sub-section should bring out the status of agricultural development in the current service area, as well as in the area where irrigation is to be restored, by providing the following information: topography and types of soils; and extent and location of flooding (if occurring) due to excess rainfall (within the service area), insufficient drainage, or high water levels during floods passing down the adjacent rivers or major drains causing overflow of the banks; land holding patterns, land tenure, and status of land parceling to match the irrigation network;  - 99 - Annex 5 Page 4 of 10 - main crops grown, cropping calendar and the agricultural practices followed; areas actually irrigated during at least last five years and yields of crops on irrigated area; - agricultural support programs, availability of inputs, credit and marketing facilities; - agricultural extension and other training programs on-going at the NIS; and - the past trend in the change (if any) of cropping patterns and cropping calendars; plans for future development, including the possibility of growing non-paddy crops on lands not suitable/marginally suitable for paddy cultivation; and constraints to increase in production, or issues needing attention. 7. Institutional Arrangements. The institutional arrangements, including sharing of responsibility, should be described for both NIA and the lAs, and, in particular, the following information should be provided: setup of NIA staff for the NIS (regular staff and temporary staff for specific jobs); number of beneficiaries, number of TSAs and IAs (how linked to the laterals or main canals), membership percentages, types of contracts with NIA, future outlook for irrigation and other activities, and responsibilities for O&M; and ISF collection efficiency for the past few years and the present. Section 2. System Status for Conveyance and Operation Control 8. The present status of the system should be detailed to convey an idea of the degree of success being obtained in meeting the irrigation requirements with efficient water use, including the identification of the system weaknesses, which should justify the priority for improvement measures. The following information should be provided: 9. Irrigated Areas Shortfall. The extent of shortfall, the location of the areas remaining unirrigated year after year, and causes therefor should be explained as follows: - a tabular statement for at least one wet and one dry season irrigation for each lateral, and direct turnouts on the main canal, giving the actual crop areas and the volume of water supplied; - analysis of the unirrigated area indicating: (i) what portion thereof can be brought under irrigation by just improving the system for capacity and controls (ii) what portion would need improvement of existing drainage channels (if flooding, due to rainfall excess, inhibits cropping in the wet season) and restoration of the unused irrigation channels; and (iii) what area is wrongly included (being mostly flooded by the adjacent streams in the flood season, or for other reasons) in the service area and should be deleted. Also indicate if there are areas (outside, but adjacent,  - 100 - Annex 5 Page 5 of 10 to the service area) which can be irrigated, by short extension of the system, if water be available; and - the incremental irrigated areas expected with system improvement (on the basis of above analysis) should be shown separately for areas resulting from: (i) improved efficiency of water use; (ii) drainage of the flood-prone area; (iii) improvement/repair of the irrigation system; and (iv) irrigation from return flow. 10. Works Deficiency. The description would bring out the damages to the system requiring repairs, separately from the needs for improvement of system performance, by giving the following information: situation of freeboard in the banks and silting of the canals; tabular statement for the condition of the regulating, measurement, and control structures for performing their functions, and the need for additional structures, specially for controlling water levels in the parent channels (examine where improved types, requiring lesser operation of the gates, could be fitted in without requiring major changes); description of the tumout controls for delivery of water to field channels (water courses), desirability of changes therein, and acceptance of the farmers of such changes to assure their cooperation in enforcing the regulation orders for the issue of supplies from the tumouts; situation of the existing carrying capacity of the drains for the service area, specially in areas where rainfall excess causes flooding and also where drains are used to convey irrigation supplies, and arrangements for monitoring the discharges of the drains, existing reuse of drainage flows for irrigation, and possibility of extending such use; condition of service roads along the canals, surface or other improvement needed to assure good access to all the sections of the system for operation and maintenance, also examining the need, in special cases, of connecting the service roads to other roads for easier movement of farm produce; and condition of the communication facilities for transmission of information for operation control and recorded data for the irrigation deliveries. Section 3. System Operation: Current Practice and Improved Operations Plan 11. The section should narrate the existing methodology for the preparation of system's operation plan for each irrigation season, its implementation, and problems encountered, and detail the operation plan to be adopted after system improvement, providing at least the following:  - 101 - Annex 5 Page 6 of 10 12. Operation Plans. Provide short descriptions of (a) current water delivery practices (continuous or rotational supply, rotation interval, and points of rotation) upto the point of NIA control, in normal and dry years, and during rains in the service area; (b) current water distribution practices in the TSA or in the area managed by an IA; and (c) main operation problems/issues faced by NIA, and amongst the water use efficiency. These descriptions are to be supported by answers to the following questions and clarifications: - do regulation orders exist for closing the system at the intake for specific flood levels in the source stream? Are the gates of the diversion structure on the stream and the gates at the intake of the system operational to permit the implementation of these orders? If not, will these be rectified under the project or under some other funding? at what interval are the rating curves/tables checked for applicability, in cases where the delivery of water is controlled by the gauges of water level? duration for which operation plans are prepared, how are the plans transmitted to the operators controlling the deliveries, system of checks exercised on actual deliveries by the operators to various laterals and receipt of water by the farmers, and involvement of water users in the operation policy decisions, as well as in actual operation; what water use efficiencies are used in the Operation Plan, and how these compare with the actual achieved? Were these efficiencies revised on the basis of actual experience? If so, give changes made. What efficiency is considered achievable after the proposed system improvement? Could the systems be improved to achieve the efficiencies of 45% in wet and 50% in the dry season? work out the discharge requirement under the improved situation (larger irrgated area, but higher achievable efficiencies), 80% probability rainfall in the service area, and compare the requirement at the system intake with the anticipated supplies at 80% exceedance. If the supplies are not available at the source, work out what areas could be irrigated from the available supplies, and indicate how unirrigated area will be rotated yearly for equity; organizational setup and actual operation responsibilities of NIA and the lAs, problems encountered, sufficiency of the structures for controlling the issue of water according to the operation plan, and of the measurement devices, as well as the cooperation of the farmers in observing the agreed cropping timetable. Since water management to achieve improved efficiency would necessarily involve reduction of supplies to some of the sections which have become used to abundant supplies, it may be explained how the cooperation of these farmers will be assured; action taken to maximize the use of rainfall; whether all gates on the offlakes and cross regulators (check structures) on the canals can be closed to store the water  - 102 - Annex 5 Page 7 of 10 in the canals, to cut down on transmission time when canals are run again and to avoid the waste of water; improvements needed for achieving higher water use efficiency, such as: (a) better preparation of operation plans; and (b) additional control structures for control of water level in the canals for implementation of the operation plans, including examination of the possibility of constructing improved regulating structures requiring minimum operation of gates; and approximate assessment of operational cost alone (out of total O&M cost), possibility of its reduction, or need for increase to achieve higher water use efficiency. Section 4. System Maintenance 13. The section should provide information for the maintenance facilities available, the organizational setup and responsibilities, and the availability of funds, as well as prepare a maintenance program for the improved system, the main points being: - nature of maintenance requirements: are there any special items to attend (typhoon damages, etc.) or items of work needing more than normal attention? Is there an overall maintenance plan outlining the work load (set of jobs) and the frequency at which each job is to be performed? What are the annual obligatory desilting requirements to assure the system conveyance capacities, requirements for repair to the repeated damage to canal banks from the uncontrolled overland flow during rains or due to other causes? identify which maintenance requirement has suffered continuously due to the shortage of funds, and its effect on system performance: examine if the revision of maintenance procedures could reduce funding requirements, and propose other measures for assuring the full maintenance; maintenance equipment available at the system, and the number of machine-hours used annually (separately for maintenance and for any work outside the system), availability of permanent operating personnel, percentage of maintenance work (value) carried out by machines, arrangements for running and major repairs, and timely availability of spare parts; examine the desirability of maintaining the equipment at the NIS, compared to other cost effective alternatives; types of maintenance work carried out on contract with IA or contractors, and approximate percentage of such works (value) on the total maintenance costs; organizational setup for maintenance including responsibilities of NIA and IA; funds received for maintenance in a particular year from all sources of funding; process adopted for the preparation of the maintenance plan for the year, and  - 103 - Annex 5 Page 8 of 10 actual %ages of funds utilized for salaries of the personnel, and for actual maintenance of works; changes in the organizational setup and sharing of the maintenance responsibilities, to improve the maintenance and reduce requirement of funds by transferring responsibilities to the IAs, possibilities of contracting out more work to contractors or IAs; and procedures for obtaining assurances from the users that the improved system will not be damaged, and proper maintenance will be carried out for the works designated as IA's responsibility; including readiness to contribute to repairs and maintenance. Section 5. Monitoring of System Operation and Maintenance 14. The section would deal mainly with the system in place for current monitoring and if changes are proposed after system improvement. Monitoring is to assure that the different canals of the system are run at the discharges specified under the Operation Plan for the season, and to check on the efficiency of the system maintenance. The following points would need attention: 15. Monitoring of System Operation. This will describe briefly how the deliveries to the various canals are checked, how records of the deliveries are maintained and how the data collected is analyzed for the efficiency of water use. The main points to be covered are: - what information, pertaining to irrigation water use and outflow in the drains, is recorded by the field staff daily? Does anyone check the recorded information? If so at what interval? Where are these records compiled and analyzed? - what reports are submitted? Are the proformae for these reports satisfactory to provide the required management information? - how users participate or cooperate in the monitoring process? Proposals for an increased role of users in monitoring; and - proposals for future effective monitoring, which will cover all the above aspects. 16. Agricultural Monitoring. The agricultural monitoring, reported to be carried out by the DA, should be briefly described for the methodology used and the information collected, specially how the yields are determined to establish the benefited area which forms the basis of the ISF bills. Section 6. System and Institutional Improvements Sought and Measures Proposed 17. The report will bring out what additional area (compared to the actual irrigation of previous years) will be irrigated in each season by laterals, as a result of the improvement measures, providing the following infornation:  - 104 - Annex 5 Page 9 of 10 18. Improvement Measures for Works. These measures (finalized with the participation of the lAs in the planning and decision making process) have to necessarily include the repairs of the damages to the structures and the additional needs for improving the system performance, comprising: - desilting of the canals, and restoring the canal banks to full section, to have the system conveyance capacity filly restored; - provision of new sediment control structures to reduce the entry of sediment into the canal intake, or eject it from the canal should the problem be serious enough, and it be economically justified; - reduction of seepage losses by lining of the canals (tabulate identified reaches for high water losses); - protecting specific reaches of the canal section from damage due to floods; repairs of all the regulating (check structures across canals) and control (laterals and turnout discharge) structures, including replacement of broken gates and hoists, and replacement of existing check structures by long-crest (duck bill) regulators; provision of new long-crest (duck bill) regulating structures; resectioning of the drainage canals, and improvement of check structures thereon, and introducing additional such structures and link canals therefrom, also installing measuring devices; and improvement of service roads along the canals. 19. Implementation Schedule. The implementation of the system improvement will be planned by sections of the system; each section comprising the entire network of the sublaterals, laterals, and the portion of main canal conveying water to the section. Once works are started in any section, these should continue to be executed till completion of all works to avoid going to the section again. The POW will give a chart showing when the works in each identified section of NIS will commence and period for completion. Based on this schedule, the quantities of work to be executed in each working season will be estimated. The manner of execution of these quantities (whether by NIA force account, contracts with IAs, or contracts with the contractors) will be indicated. 20. Equipment Neededfor System Improvement. The POW will provide a statement of total equipment and equipment maintenance and repair facilities available at NIS (Information needed in Section 4 should be given here and para 6.03 referred to in Section 4). Based on the implementation schedule and work planned by NIA force account, the total equipment required for both annual maintenance and system improvement will be worked out, and the need for repair of equipment under A-2 category will be determined. Wherever the requirements are greater than  - 105 - Annex 5 Page 10 of 10 the equipment in A-I and A-2 (after repairs) available at NIS, NIA will explore the possibility of transferring more equipment to NIS from the Regional or Central Pool. 21. Institutional Strengthening. The proposals for improvement will consider the shortcomings of the existing arrangements, specially for an increased role of the water users, and the turnover of the O&M of the systems as a whole or portions thereof, and will include necessary training proposals. 22. Quantities of Work and Cost Estimates. The quantities of the main items of work, cost estimates, implementation schedules and yearly breakdown of the investment, will be given in a summary form. Any requirements of the users contributing to the construction cost will be indicated, including the procedure to be adopted to obtain their concurrence. 23. Benefits from Investments and Rate of Return. The benefits, through incremental production, will be presented by comparing the pre and post project situation. The incremental area (para 2.01) contributed by: (a) improvement of system for higher water use efficiency, (b) improved drainage, or (c) additional check structures will be considered separately for the pre and post project situation. The economic rate of return will be calculated.  - 106 - ANNEX 6 Page 1 of 2 PHILIPPINES WATER RESOURCES DEVELOPMENT PROJECT Detailed Activities Under Svstem Improvement 1. The system improvement will have the objective of generating additional irrigation within the service area of each NIS selected for improvement under the project, by increasing the efficiency of the use of available water and assuring its equitable distribution, as well as reducing the flooding of the low-lying lands by improvement of drainage. The higher efficiency of water use and its equitable distribution will be achieved by: (i) improving the irrigation network; and (ii) introduction of good water management. 2. Improvement of the Irrization Network. This will include the following activities: (a) rehabilitating the control gates of the undersluices and canal head regulators at the diversion structure on the river and carrying out other improvements to assure the diversion of the available river supplies to the canal as needed; (b) improving the existing and constructing new check structures on the drains in the service area to divert the flow in the drains, received from their own catchments or from the return flow from the upper irrigated areas, to irrigate the lower lands in the service area; (c) improving the irrigation network (resectioning for the discharge requirement based on the cropping calendar, desilting, strengthening banks, and repairing damaged structures) to assure the carrying capacity with minimum transmission losses (may require lining of canal reaches where seepage losses are established to be high) to deliver the full quantity of water to each section of the service area, and provide sufficient regulation and control structures to implement good water management (for this purpose, the gates on the heads of the laterals and at the tumouts will be made fully operational, and water level in the canals maintained by introducing new long-crested regulating structures to the extent possible and assuring the operation of the existing check structure gates); and (d) providing sediment exclusion/ejection structures, wherever sediment problem is acute, to assure the availability of the full canal capacity during an irrigation season. 3. Introduction of Good Water Manafement. This will involve improving the water distribution on the irrigation network and assuring the cooperation of the IAs in the distribution of water beyond the tumouts or on the laterals which may be taken over by them for O&M. The activities will include:  - 107 - ANNEX 6 Page 2 of 2 (a) reviewing with the lAs the cropping calendar for possible changes (substitution of crops, specially during the dry season; delaying or bringing forward the land preparation or sowing period, etc.) to obtain a better match of the rainfall, river supplies available for irrigation, and the water demand of the irrigated crops; (b) arranging IA's cooperation so that the farmers rigidly follow the agreed revised cropping calendar to avoid the dislocation of the plan of operation of the network; (c) improving (instituting if it does not exist) a system of collecting information and its transmission (facilities for transmission to be provided if not available) to the operational control center from each section of the service area, relating to the status of cultivation and rainfall, at regular intervals to facilitate system operation; (d) introducing a system of operational controls and monitoring for assuring water distribution on the network according to demand; (e) organizing LAs to distribute water equitably to all the farmers on a tumout or a lateral (if IA controlled) either through rotational irrigation (if the farmers prefer a bigger stream to irrigate their farmns) or a continuous supply. The IA will ensure that no over irrigation is carried out and that: (i) the control gates are opened and closed at the specified time, and (ii) farmers maintain field channels to convey water from the tumout to the farms and do not resort to field-to-field irrigation; (f) agreeing with the IA, in situations of water shortage (this occurs in most NIS in the dry season), the pattern of irrigated cropping which would result in good water use and ensure equity; (g) establishing a system of recording the deliveries at the heads of the system network, lateral canals, tumouts, and the reuse check structure; monitoring that such record is maintained; and analyzing water use by sections, for each crop season, to identify where the water use was excessive or short of requirements, and to plan remedial measures in the next season; (h) improving service roads along the canals for effective O&M; and (i) assuring proper funding for the O&M by NIA or transferring the channels to IAs and insisting on agreed maintenance.  - 108 - ANNEX 7 Page 1 of 27 PHILIPPINES Water Resources Development Proiect (WRDP) NIA's Accountin! System and Financial Performance L. ORGANIZATIONAL ASPECTS Central Office 1. At the Central Office (CO) the direct responsibility for administering the operations of the Accounting and Finance Sectors rests with an Assistant Administrator, who is assisted by Managers that are, in turn, responsible for overseeing the day-to-day operations of their respective Departments, namely Treasury, Controllers and the Management Services 2. The Management Services Department (MSD) is responsible for conducting studies related to utilization of manpower resources and undertakes management audits of the various responsibility centers to ensure compliance with established internal control procedures. Field Offices 3. The accounting system is decentralized, with the Regional Offices (ROs) preparing the trial balances based on the information provided by the Provincial Irrigation Offices (PIOs) and the National Irrigation Systems Offices (NISOs). The Proposed Reorganization 4. In compliance with recent directives from the Government to reduce staff strength, NIA is expected to streamline its organizational structure. Although the reorganization plan has yet to be approved, the tentative proposal is to reduce the total number of sectors from four to three, and the total number of monthly paid staff (as of Oct '95) on the budget from 6,942 to 5,014 by end of 1997. There would also be a corresponding reduction of the daily staff to 500 '. Under the reorganization plan, the Finance and Accounts, and the Administration Sectors would be merged, all under the direct control of one Assistant Administrator who will be responsible for overseeing the day-to-day operations of two separate Departments: Administration and Finance. The actual number of daily staff is uncertain The field offices have reported a total of 2,274 as of October 1995 but the actual payments made translate into the equivalent of 620 staff on the payml. The only possible explnation is that not aU daily staff are hired every day, and some required to take leave. These figures need to be reconciled. The Human Resources Division will, in future, require all field offices to report the number of daily staff on the payroll and the amounts paid to them.  - 109 - ANNEX 7 Page 2 of 27 IL THE ACCOUNTING SYSTEM Accounts 5. The accounting system was decentralized in the late 1980s. The CO handles only the Head Office transactions, leaving the recording of all other transactions to the regional and the field level offices. The regional and project offices maintain their own books and the month-end trial balances are prepared at the RO. All trial balances and the required schedules are submitted to the CO monthly for consolidation. 6. Computerization. NIA is currently using DEC-VAX machine, which is now totally shut down, and microcomputers. Data entry and the processing of the computerized systems for the DEC-VAX machine is done at the CO's computer center. Even when the system was operational there were difficulties in accessing the computer as only four of the twelve terminals connected to the DEC-VAX system were functioning. 7. Each RO is provided with one microcomputer but these machines are mostly used for billing or spreadsheet/word processing applications. Data entry at the ROs is done manually, and although some reports are prepared using spreadsheets, not all staff are fully conversant with the use of the software installed. 8. All systems maintained in the DEC-VAX system are customized and developed in-house. The existing systems related to accounting include the general ledger and the payroll, but not the subsidiary ledgers which are posted manually. Accounting Policies 9. NIA follows the following accounting policies: (a) Fixed assets are recorded at cost and repairs that prolong the life of the assets are capitalized. (b) Depreciation is computed on a straight line basis, based on the book value of a group of assets rather than the value of the individual assets. (c) Allowance for bad debts is maintained at 2% of the receivables outstanding at the end of the year. (d) Trade income is recognized on a cash basis and receivables are recorded once the service is rendered, but the income is recognized only when the cash is collected. (e) Loan amortization and equity payments are recognized as income rather than reduction of an asset. Similarly, NIA recognizes the entire proceeds from the sale  - 110 - ANNEX 7 Page 3 of 27 of an asset as income rather than the difference between the book value and the sale price. m. FINANCIAL CONDITION Present Situation 10. A number of recurring problems, arising both from operational and policy considerations, make it difficult to fully comprehend NIA's financial condition. Operationally, a clear picture regarding NIA's finances does not emerge, in part because of lack of uniformity in recording entries or failure to specify procedures in making them. For example, the lack of clearly stated procedures in transferring records from the work-in-process accounts to the appropriate accounts contributes to overstatement of the work-in-progress accounts with resultant understatement of the amount charged to depreciation. Thus, a significant proportion of the assets reported in the 1994 accounts (36%) remain classified as being "in-progress", whereas the actual picture may be different. This basic problem is further exacerbated by a number of other factors, which inter alia include the following. (a) Lack of supporting documents to reconcile accounts some of which were transferred from NIA's predecessor agencies. These accounts have been carried forward without appropriate adjustments. (b) Lack of reconciliation between physical and book inventory. (c) Unreconciled cash accounts, in part because of changes in accounting procedures when the accounts were decentralized to the field offices and the supporting documents were either not provided or were misplaced. 11. From a policy point of view a number of accounting practices followed by NIA are questionable. For example, the CIS amortization payments are recorded as income without corresponding adjustment to the loans outstanding accounts -- a practice which overstates both the assets recorded in the balance sheets and the income since the amortization payments are the repayment of a loan rather than income. Similarly, the entire proceeds from the sale of an asset sold are recognized as income instead of the difference between the sale price and the book value. Other important factors which raise doubts about the validity of the accounts in reflecting NIA's true financial condition and performance are: (a) the practice of calculating depreciation on gross book value of all items rather than on individual items; and (b) inadequate provision for bad debts. With respect to the latter, the cumulative provision made by December 31, 1993 stood at only P80 million; in contrast, as of the same date, NIA's accounts reflected total receivables on the Irrigation Service Fees (ISF) account alone at P2.8 billion (on an unadjusted basis), of which some P2.3 billion was more than one year past due.  - 111 - ANNEX 7 Page 4 of 27 12. Because of all the accounting problems outlined above, any conventional analysis of NIA's balance sheet would be distorted. Two aspects of the accounting practices followed illustrate this point: (a) as of December 31, 1993 the current assets reflect an accounts receivable of P4.0 billion, implying that NIA has considerable liquid resources. In reality, including overdues on the amortization accounts over P3.0 billion are more than one year past due (on an adjusted basis) and, therefore, not strictly current; (b) while it appears that NIA has significant reserves in cash (P2.2 billion, or 33% of current assets), the reality is otherwise as over 90% of these funds reflect budgetary allocations received for development and rehabilitation of irrigation schemes rather than resources available to NIA. As these funds were received at the close of the fiscal year (FY), they remained unexpended. NIA continues to face liquidity problems as collections from ISF and amortization are inadequate to meet its operating expenditures. 13. In broad terms, however, NIA's audited balance sheet as of Dec 31, 1994 (Table 1) reflects total assets of P33.6 billion, of which P6.8 billion (or 20% of total assets were prima facie in current assets, and P26.8 billion (80%) in fixed assets comprising work in progress, land and buildings and irrigation schemes that have been recognized as being completed and are shown in the accounts as being in Held in Trust. 14. On the liability side, the picture as of December 31, 1994 was as follows. In the items classified as current liabilities, the accounts indicate Trust liabilities of P3.0 billion (irrigation schemes developed for which funds are received from the Government and held by NIA in Trust), deferred credits to income (P3.9 billion, or 11.6%, mostly in unrealized receivables), long term development loans (P7.2 billion, or 21.4% of total assets), with the balance P19.6 billion in equity (58%), some 5.9 billion of which reflects smallholder schemes developed and held in Trust that have now been converted to NIA's equity. It is difficult to fully evaluate NIA's debt to equity structure, given the movements in Trust liability accounts, some of which are classified as equity and the others, prior to completion, as trust liabilities. Moreover, NIA reflects some P7.2 billion in long-term liabilities, which it questions, and which it cannot repay. Financial Performance 15. NIA's detailed P&L accounts, for FY 1990 through 1994, are given in Table 2 and the summarized accounts for the last three years, analyzed by the essential categories, are given in Table 3. 16. NIA has four major sources of revenues; ISF collections, loan repayments, equipment rental and management fees. ISF is by far the most important, accounting for about 50% of revenues. In 1994 management fees provided for about 9% of revenues and equipment rental about 15%. Loan repayments (principal payments on CIS and pump irrigation schemes) accounted for only 7% of revenues.  PHILIPPINES Water Resources Development Project National Irrigation Administration Table 1. Comparative Balance Sheet as of Decmeber 31, 1990-1994 (In Million Pesos I A U D I T E D 1990 1991 1992 1993 1994 ASSETS CURRENT ASSETS: Cash 12.414 271.337 1,103.720 882.418 2.290.461 Short-Term Investments 26.880 26.474 25.918 25.918 0.000 Receivables 3,437.590 4,333.726 4,886.510 4,005.898 4,238.186 Inventories INet of Inventory Variance) 152.240 230.568 249.241 248.384 262.771 Total Current Assets 3,629.124 4,862.105 6.265.389 5,162.618 6,791.418 LONG-TERM INVESTMENTS: 12.010 11.361 11.327 11.366 11.366 FIXED ASSETS: Land and Land Improvements 6,344.276 7,768.586 7,786.145 7,812.513 7,797.008 Buildings and Structures 223.018 227.004 230.580 240.055 241.420 I Furniture, Fixtures and Equipment 664.150 665.849 638.834 636.437 654.780,_, In-Process/Transit 13,880.872 12,800.000 12.496.516 12,442.232 12,348.491 Held in Trust 687.725 2,397.734 4.026.209 5,566.948 7,395.755 Total Fixed Assets 21,800.041 23,859.173 25,178.284 26,698.185 28,437.454 Less: Accumulated Depreciation 886.114 925.561 958.961 995.700 1.546.582 Net Book Value 20.913.927 22,933.612 24,219.323 25,702.485 26,890.872 OTHER ASSETS Miscellaneous Assets and Deferred Charges 152.313 175.269 191.374 196.207 (148.854) Contingent Assets 13.424 13.743 13.852 15.189 41.634 Total Other Assets 165.737 189.012 205.226 211.396 (107.220) TOTAL ASSETS 24720.798 27996.09 30701.265 31087.865 33586.436 lb Lid (DA tn 0 Page 1  PHILIPPINES Water Resources Development Project National Irrigation Administration Table 1 (Cont'd.): Comparative Balance Sheet as of December 31, 1990-1994 (In Million Pesos ) A U D I T E D 1990 1 1991 1 1992 1 1993 1 1994 LIABILITIES AND CAPITAL CURRENT LIABILITIES: Accounts Payable 12.526 13.784 19.516 (215.888i (248.204) Depository Liabilities 16.972 20.275 23.459 26.637 27.823 Trust Liabilities 1,993.252 2,935.666 3,904.819 2,728.603 3,062.802 Total Current Liabilities 2,022.750 2.969.725 3,947.794 2,539.252 2,842.421 LONG TERM LIABILITIES: Loans Payable 6,631.341 6,631.341 6,631.341 6,631.586 7,200.151 Contracts Payable 0.000 0.000 0.000 0.000 Total Long-term Liabilities 6,631.341 6,631.341 6,631.341 8,631.686 7,200.151 DEFERRED CREDITS 2,521.615 2,837.276 3,135.109 3,508.248 3,880.248 CONTINGENT LIABILITIES 6.614 4.744 4.744 4.744 4.744 TOTAL LIABILITIES 11,182.320 12,443.086 13,718.988 12,683.830 13,927.564 CAPITAL STOCK Authorized- P1OB Paid-in Capital 5,559.192 5,559.192 5,659.104 5.559.192 5,659.192 Miscellaneous 5,957.099 5,979.243 5,957.217 5,955.377 5,956.860 RETAINED EARNINGS 1,324.918 1,503.408 1,429.081 1,309.998 733.841 DONATED SURPLUS 0.310 2.305 0.050 2.164 2.164 INVESTED SURPLUS 688.558 2,500.146 4,028.349 6,567.483 7,396.452 CONTINGENT SURPLUS 8.402 8.366 8.477 9.819 10.361 TOTAL SURPLUS AND CAPITAL 13,538.479 15,552.660 16,982.278 18,404.033 19,658.870 TOTAL LIABILITIES, SURPLUS AND CAPITAL 24,720.799 27,995.746 30,701.266 31,087.863 33,586.434 Page 2 C P 0 "-4  PHILIPPINES Water Resources Development Project National Irrigation Administration Table 2: Comparative Income Statement Fiscal Year Ending December 31, 1990 - 1994 I In Million Pesos) A U D I T E D ACCOUNTS 1990 | 1991 | 1992 | 1993 | 1994 REVENUES Operating and Service Income 349.623 434.233 401.962 419.744 490.189 Irrigation Fees 278.719 342.306 328.022 336.095 373.414 Equipment Rental 68.454 89.642 72.038 82.216 112.983 Pump Amortization 2.450 2.285 1.902 1.433 3.812 Non-operating Income 286.644 260.993 243.586 270.930 260.259 Interest 49.509 28.649 16.632 26.639 54.137 6% Management Fee 102.748 99.194 65.052 125.847 66.059 CIP Amortization 103.972 53.690 44.176 50.804 51.481 Others' 30.415 79 460 117.726 67.640 88.582 TOTAL REVENUES 636.267 695.226 645.548 690.674 750.448 LESS: EXPENDITURES Personal Services 508.122 498.430 581.599 535.640 599.722 Maintenance & Other Operating Expenses 155.266 181.918 175.165 161.451 189.499 Travelling Expenses 5.292 5.414 4.468 4.049 3.920 Communication Expenses 1.845 1.389 1.280 1.629 1.833 Rent 0.137 Repair & Maintenance of Government Facilities 0.270 Transportation Services 0.276 Advertising and Publication 0.200 Fidelity Bond and Insurance Premiums 2.760 Supplies and Materials 14.690 14.262 20.447 28.498 34.336 Water, Illumination & Power Service 16.448 29.358 17.002 22.458 25.510 Social Security Benefits 9.671 9.570 17.167 11.744 16.177 Auditing Services 10.355 15.205 1.319 1.692 2.160 Maintenance of Motor Vehiclies/Equipment 4.271 4.572 4.543 2.431 1.602 Loss on Sale of Palay 0.213 19.446 34.544 12.727 9.468 Taxes and Licenses 22.234 3.719 2.238 4.788 9.921 Loss on Sale of Fixed Assets 0.000 0.041 0.000 1.792 6.856 Loss on Sale of Current Assets 0.000 0.000 0.000 6.802 0.448 Confidential and Intelligence Expenses 0.000 0.000 0.000 0.703 0.017 Spare Parts 8.124 13.663 6.876 1.585 Gasoline and Oil 7.664 9.667 7.364 2.406 , Representation and Transportation Expenses 3.588 4.408 4.694 10.601 pl 2.265 Discretionary Expenses 0.031 0.025 0.014 0.000 a J 0.157 insurance and Registration of BuildingNehicles 1.824 2.870 6.288 4.088 < 3.242 Page 1 _ 0  PHILIPPINES Water Resources Development Project National Irrigation Administration Table 2 (cont'd.): Comparative Income Statement Fiscal Year Ending December 31, 1990 - 1994 (In Million Pesos ) ACCOUNTS A U D I T E D 1990 1991 | 1992 | 1993 1994 | Other Services 24.761 CollectionNiability Bonus 17.409 22.209 23.658 7.113 7.876 Collection Expenses 2.439 5.674 8.360 8.160 5.238 Irrigators Share - IF 1.880 6.043 3.397 7.646 6.106 10% Discount on ISF 16.280 5.744 5.335 9.714 16.651 Interest on Net Lending 0.000 0.000 0.000 0.000 Others -- 11.008 8.639 6.171 10.925 8.312 TOTAL EXPENDITURES 663.388 680.348 756.764 697.091 789.221 NET INCOME/(LOSS) BEFORE NON-CASH EXPENSES (27.121) 14.878 (111.216) (6.417) (38.773) LESS: NON-CASH EXPENSES 39.690 46.212 46.148 30.360 297.113 Bad Debts 0.000 0.000 0.000 0.174 8.377 Depredation 39.690 46.212 46.148 30.186 288.736 1 NET INCOME/(LOSS) (66.811) (31.334) (156.364) (36.777) (335.886) Breakdown of other non-operating income: Electric, water, illumination, telephone bills 7.196 37.524 38.168 44.092 Bid Documents and Cart. Fees 0.778 2.111 0.674 2.653 0.905 Space and Recreational Facilities Rental 6.053 1.761 5.353 1.926 4.514 Sale of Goods. Materials 2.792 9.378 13.981 1.061 0.633 Scrap of Fixed Assets 2.738 16.841 37.537 8.141 1.531 Gain on sale of Fixed Assets 0.000 0.000 13.950 0.378 0.164 Subsidy for Interest on Net Lending 0.000 0.000 0.000 0.000 Subsidies 54.035 Miscellaneous 10.857 11.855 8.062 9.389 26.800 Total 30.414 79.460 117.725 67.640 88.582 1993 discretionary expenses was pert of Other Expenses Page 2 001 `0 I-ti  - 116 - ANNEX 7 Page 9 of 27 Table 3: Anasis of NIA's P&L Statement (P million! 1992 1993 Amt 1994 Amt % % Amt % Income ISF 338.0 50.8 336.0 48.7 373.4 49.8 Eq.rent 72.0 11.1 82.2 11.9 113.0 15.0 Amort. 46.1 7.1 52.3 7.6 55.3 7.4 Mgt fee 65.0 10.1 125.9 18.2 66.1 8.8 Others 134.4 20.9 94.3 13.6 142.6 19.0 Total 645.5 100.0 690.7 100.0 750.4 100.0 Expens Person. 581.6 90.1 535.6 77.5 599.7 79.9 Admin. 123.6 19.1 123.3 17.8 160.8 21.4 Colec. 51.6 8.0 38.2 5.5 28.7 3.8 Bad dbt 0.0 0.0 0.1 0.0 8.4 1.1 Depr. 45.1 7.0 30.4 4.4 288.7 38.4 Tot exp 801.9 124.2 727.6 105.3 1086.3 144.7 Profit (156.4) (24.2) (36.9) (5.3) (335.9) (44.7) 17. It is evident from the above Table that NIA has been operating at a loss for the last three years. This loss would have been even higher, if NIA had followed generally accepted accounting principles and reported its income on the interest alone instead of taking all amortization payments as income, or not recorded the entire proceeds from the sale of an asset as income instead of the difference between the proceeds from the sale and the book value. 18. Other aspects of the NIA's operation, that become evident from the analysis of NIA's income statement are as follows: (a) Salaries and wages and related expenses account for a significant proportion of NIA's expenses, accounting for over 80%/o of total revenues in 1993 and an even higher proportion (90%) in FY 1992. A number of reasons, some within NIA's  - 117 - ANNEX 7 Page 10 of 27 direct control and others beyond it, have accounted for this. Firstly, following recent increases granted by the Civil Service Commission, salaries have risen at a rapid pace while NIA's collections have not kept pace. In fact, the amount of ISF collected has remained between P330 and P370 million annually, while amortization payments have remained equally stagnant, around P50 million. Secondly, the Government has transferred the responsibility for development and maintenance of the communal schemes to the financially strapped local governments, which cannot assume this responsibility. In the interim, although the development of CIS has been reduced, NIA is carrying these staff on its payroll, stretching its meager financial resources. Finally, NIA is over staffed. (b) Administrative expenses have varied between 18 and 21% in the last three years, but the amount allocated to meet these expenses is inadequate. In fact, NIA follows the procedure of assessing the viability of each office through a simple criteria: that the ISF and amortization collections should meet the operating expenses of each office. As is to be expected, each office gives priority to paying the staff before releasing funds for other activities and only the surplus funds are made available to meet operation and maintenance expenses. Following the recent increases in salaries, the number of viable offices has been decreasing. In 1989, 154 responsibility centers were viable. By 1993, the same figure had been reduced to 116 (Table 4). Offices that are not viable have to rely on financial assistance from the CO or other ROs and salary payments are at times delayed in some offices. (c) While collection expenses, as reported (only covering staff incentives, losses on palay, and incentives paid to Irrigators' Associations), amount to some 5.5% to 8.0% of total revenues and over 10% of the ISF and amortization collected, the actual staff time and effort spent in collection is much higher. Preliminary analysis in one NIS in Region IV indicated that almost all the staff including the Irrigation Superintendent, his assistant, the Water Master, the Ditchtenders, the Clerks, the Security Guards, the Drivers and the daily paid staff spent between 10 and 40% of their time collecting funds from the farmers. If the collection expenses are adjusted by the salaries of the staff in proportion to the time spent on collection, the ratio of staff salaries to the total amount coliected by this particular office in enforcing collection is almost 100% (see Table 5). While the particular NMS may well be an exception, and while it would be unfair to reach a general conclusion based on the experience of one office alone, it is evident that NIA's collection expenses, in relation to the amount collected, are high. Because of the viability criteria applied by NIA in assessing the performance of each office, ISF collections are of paramount importance to the staff, whose salaries may well be delayed if they have to rely on the CO or another region to transfer their surplus funds. The general tendency in  PHILIPPINES Water Resources Development Project National Irrigation Administration Table 4: Number of Viable Field Offices YEAR Viable as a Region National Irrigation Systems Provincial Irrigation Offices .1989 10 84 60 1990 9 70 59 1991 8 82 58 1992 3 72 52 1993 7 63 46 CD- 0 -J1  - 119 - ANNEX 7 Page 12 of 27 most offices, therefore, is to increase the amount of staff time allocated to the collection effort, reinforcing the general observation that the collection expenses are high. Table 5: Analysis of salary expenditures spent on ISF Collection (P million) Designation Annual Salary Collection Proporfional l___________ (P) Time (%) Amount (P) hr. Sup 109,106 30 32,732 Asst Irr. Sup 78,835 40 31,534 Cashier 72,140 20 14,428 Water Master 69,389 40 27,755 Storekeeper 64,890 20 12,978 Guard 63,808 10 6,381 Driver 61,862 10 6,186 Billing Clerk 60,133 Clerk 59,053 20 11,810 Gate Keeper 59,053 30 17,716 Gate Keeper 60,493 30 18,148 Ditchtender 56,488 30 16,946 Ditchtender 57,568 30 17,270 Temporary Staff Ditchtenders (5) 53,592 X 5 30 80,388 Total . . 294,272 (d) In FY 1994 NIA registered a loss of P335.9 million in comparison to a loss of P 36.8 million in the previous year. The sharp increase in loss is primarily due to higher depreciation charges recognized in FY 1994. In fact, the comparative figures for net income before non-cash charges were P(38.8 million) and P(6.4 million) respectively. In booking the higher depreciation charges for FY 1994, NIA has begun to follow the Memorandum Circular 36 issued in 1984, under which NIA is required to charge a depreciation rate of 2% of fixed assets, 3% on  - 120 - ANNEX 7 Page 13 of 27 buildings and structures and 10% on furniture and equipment. In compliance, NIA has charged depreciation on all capital costs including construction of dams, while the ISF charges are costed to cover operation and maintenance costs alone. Clearly, NIA will never be able to show a positive net income after depreciation if these accounting polices are followed. NIA needs to pursue this issue with the appropriate authority. IV. ISSUES 19. The following issues arise with respect to NIA's accounting and financial operations. (a) Improper Record Keeping. The subsidiary ledgers are either not reconciled or do not have adequate information. In a few offices, it was observed that some offices do not maintain the subsidiary ledgers for accounts receivable at all, making it difficult to reconcile the accounts. The same observation applies with respect to: (i) the fixed assets, the register for which is not maintained by all offices, rendering the job of accounts reconciliation difficult; and (ii) cash reconciliations -- the latter problem arose when the accounts were decentralized and the accounts were transferred either without supporting documents or these have since been lost or misplaced. (b) Lack of Supporting Documentation. NIA inherited a number of accounts from its predecessor agencies without supporting documentation and these accounts can no longer be reconciled. (c) Oualified Opinion from Auditors. Needless to say, the failure to provide supporting documentation or reconcile the accounts has drawn comments from the external auditors, the Commission of Audit (COA), which has repeatedly given a qualified opinion on the accounts between 1985 and 1992. The common theme in the comments given by the auditors covers: delayed inventory count, lack of updated reconciliation, unreconciled accounts and incomplete information on cash, fixed assets or accounts receivable. (d) Frequent Breakdown in the Computer System. The DEC-VAX machine used by NIA is old and the maintenance contract with the supplier has not been renewed due to cost constraints. Breakdowns are common. Moreover, access to the computer is limited because, of the twelve terminals and five printers connected, only four terminals and two printers are working. Further, no back up power system has been installed for the computer system in case of power failures and the accounts are generally in arrears, at present six months. These basic problems are  - 121 - ANNEX 7 Page 14 of 27 further exacerbated by the non-availability of a systems manual, which poses problems for new users. With respect to the accounting, only the CO General Ledger and payroll systems were computerized in the early 1980s and the systems do not maintain the subsidiary ledgers which are recorded manually. The limited use linked to frequent breakdowns of the system results in a substantial amount of staff time being allocated to posting the ledgers manually. (e) Inadequate Controls. Frequent breakdowns in the computer systems result in delayed reporting and little or no timely action can be taken to control the operations. While the viability criteria applied (see para. 18(b)) and the general lack of cash in the offices serve to limit the amount of expenditures incurred by any office, such controls can lead to distortions in operations as the funds are being diverted to pay salaries rather than operation and maintenance of NIA's facilities and schemes. The budgetary mechanism, as currently practiced, is ineffective in controlling costs. The Corporate Operating Budget (COB) is prepared to reflect annual expenditures, without any monthly or quarterly breakdowns. It is not, therefore, possible to conduct a variance analysis or demand explanations in the event of cost overruns. In any case, such detail at this point would be superfluous as the accounts are not available on time to take advantage of the analysis that the detailed budget might permit. (f) Lack of Internal Audit. NIA's operations are decentralized with over 195 responsibility centers. ROs have considerable autonomy in managing their budgets, revenues and even temporary staff recruitment. Under these circumstances, an effective Intemal Audit Division (IAD) would have been essential to ensure compliance with established procedures. At present intemal audit is carried by the Management Audit Division in MSD, with a total of eight staff assigned to auditing and can cover no more than 30 responsibility centers in any one year. The emphasis is more on Management rather than internal audit. (g) Accounting Policies. The present polices followed overstate the assets and the income and a somewhat confused picture emerges with respect to NIA's financial condition and performance. Specifically, the following aspects are of concem: (i) The entire loan amortization repayment is treated as income rather than just the interest. NIA thus overstates its income and the balance sheet. This practice should be discouraged, because NIA could, one day, be in a  - 122 - ANNEX 7 Page 15 of 27 difficult position of showing assets on its books that no longer exist as they have been repaid. (ii) NIA also follows the practice of including the entire proceeds from sales of an asset rather than the difference between the sale and the book value, which overstates the income on the one hand and the value of the assets on the balance sheet on the other, as the book value of the sold assets is not written down. (iii) The provision for bad debts remains grossly inadequate. As can be seen from the income statement, no provision for bad debts was made between 1990 and 1992. The cumulative amount provided by December 1993 stood at a meager P 80 million. In contrast, the ISF receivable more than one year past due stood at P2.3 billion. The corresponding figure for the amortization stood at P 206 million. (iv) The depreciation is calculated on the gross book value of a group of assets rather than the book value of the individual items purchased -- a practice which does not reflect the true book value of NIA's assets. (v) The practice of reflecting all ISF and amortization due regardless of their age (the years for which the account is past due) overstates NIA's liquidity. At the same time, NIA treats the Trust account payable as a current account, which incorrectly overstates its current liabilities (those that are due for repayment in less than one year). Similarly, all receivables are reflected in the current account, regardless of their age. 20. With respect to the financial performance, the following issues arise and need to be addressed to improve NIAs profitability: (a) Improving Income. NIA has four important sources of revenues: ISF collections, loan repayment on CIS schemes, equipment rental and management fees on schemes developed. Revenues from management fees are dependent on funds availability for development of schemes and revenues from these sources are not, strictly speaking, directly under NIA's control. NIA's major focus seems to be in improving ISF collections and loan repayments as ISF payments are the single greatest source of funds. It has over P 3.0 billion in past due accounts and the collections on current account were only 44% (59% if collection on overdues is included) in 1994. NIA's management is aware of the need to improve them and has now begun to take action against serious defaulters, reportedly with good results. These efforts need to be pursued more vigorously.  - 123 - ANNEX 7 Page 16 of 27 However, NIA has made little attempt to improve its revenues from equipment rental. This should be explored. NIA also has a considerable amount of real estate and it should capitalize on its properties to increase its income from these assets as well. (b) High Personnel Costs. The management is aware that NIA is over staffed and has drawn up a streamlining plan, that will reduce the number of sectors from four to three and the number of staff on its monthly and daily payroll by from the present level of 6,942 to 5,514 by 1998. However, NIA does not have the funds required (some P356 million) to facilitate the reduction of the 1,428 staff through voluntary retirement. NIA has sought the Government's assistance on this issue, and only P51 million of the P 100 million requested in 1994 was granted. As of November 1995, NIA had utilized P43 million of this amount, reducing the number of staff by 203. So far another 500 staff have expressed an interest in seeking early retirement voluntarily and it is expected that more would follow if the funding was available. (c) High collection expenses. As noted in para. 18(c), NIA's collection expenses are high. The practice of individually billing the land owning farmers -- the billing for water charges is sent to the owner and not the tenant -- is perhaps adding to the costs of collection. As of September 1994, NIA had a total of 551,631 billing clients of which 548,901 are on NIS schemes and 2,730 on the CIS. The latter amortize their loan payments jointly, while NIS farmers are billed individually. The logistics of retailing water (billing and collecting small amounts from over 551,000 farmers individually) for cash and in kind payments (in palay) undoubtedly increase the collection expenses enormously. NIA should move towards wholesaling water to lAs -- a policy that has often been considered, but not introduced -- to reduce its collection expenses. This may be an effective long-term measure to reduce the collection expenses. (d) Failure of IAs to adhere to terms of their contracts, which has added to NIA's expenses. Since 1980 NIA has encouraged the development IAs with a view to improving water distribution and soliciting the participation of the farmers in maintaining the schemes and enforcing ISF collections. To this end, NIA has contracted lAs to either maintain the canals and/or collect ISF payments. A number of IAs are not complying with the terms of the contracts and NIA is in the unenviable position of having to pay farmers, on the one hand and wind up doing the work itself, on the other.  - 124 - ANNEX 7 Page 17 of 27 V. THE PROPOSED SUB-COMPONENT 21. The above mentioned issues have been raised both by earlier studies as well as the external auditors, unfortunately with limited results. In consequence, the backlog of the work to be done in rectifying the present situation only continues to build-up. NIA's management needs to urgently address the problems encountered in recording and maintaining its accounts to truly reflect its financial condition, and, even more importantly, subsequently manage the accounting and financial system to improve its financial and operational performance. 22. The objective of the proposed sub-component would be to streamline the accounting system and provide the requisite training to the staff to operate the revised system. 23. The project sub-component (cost details are at Annex 10) would provide funds for consultants to prepare a revised accounting manual and train NIA staff in correctly recording the accounting entries in accordance with a revised procedures. As the consultants would only train the Regional staff in the use of the manual, project funds would be used to finance the training of the other staff to ensure that in future the accounts are coded uniformly and in accordance with the revised procedures. 24. Consultants would also be recruited by NIA to reconcile all the previous accounts (both at the head office and in the field) and recommend follow-up action on those accounts that can either be no longer reconciled or for which supporting documents have been either lost or replaced. A time period of two years has been allowed to complete the job. 25. As already noted, it is essential that NIA now develop an Intemal Audit Division to reinforce its internal control procedures. It has been agreed that Personnel will identify some 27 additional staff that will be aligned to this Division to bring its staff strength to 35. The focus of the proposed Division, which should report directly to the Administer, should shift from management audit to internal audit. 26. As most of these staff have not been involved in auditing before, they will require some intensive training. Project costs include funds for the staff to be initially trained at an Audit Institute in Philippines and subsequently for refresher courses annually as needed. VI. ACTIONS TO BE TAKEN BY NIA 27. The following actions would be necessary to improve NMA's accounts and finance: (a) Under Philippines law, the write-off procedures are complex. In cases of unreconciled balances above P100,000, the accounts have to be submitted to the  - 125 - ANNEX 7 Page 18 of 27 Congress for approval -- a time consuming process. In the meantime, NIA proposes to post the unadjusted balances in suspense accounts, in effect reflecting its true financial condition in other asset and liability categories, even before the adjustments are formally approved. NIA should set up a suspense account as the write-off of the assets is identified. (b) The Internal Auditing Department (IAD) should report directly to the Administrator. NIA should identify the staff and place the staff, after suitable training, with the IAD. IAD would change its focus to function as internal auditors, monitoring and ensuring compliance with policies and procedures established by the management. (c) Once the balance sheets have been cleaned up, NIA should alter its accounting policies to align them with generally accepted accounting principles. VII. FINANCIAL PROJECTIONS 28. The financial projections for NIA's operations are given in Tables 6 to 11. Table 6 summarizes the results on the revenue and expenditure statement, both with and without non-cash charges, under the various scenarios, namely low scenario (ISF collection efficiency of 70% and a low level of NIA!s annual investment budget of P3.0 billion) and a high scenario (ISF collection efficiency of 75% and an investment level of P4.0 billion per year). Other critical assumptions in making the projections are as follows: (a) the salaries will increase by P1000/month/employee in 1995 and 1996, and at the rate of 4% p.a. thereafter; (b) NIA will be able to secure the funding to reduce its staff strength from 6,942 to 5,514 by 1998 (the staff will increase gradually to 5,564 thereafter); (c) the inflation rate will be 8% in 1995, 7% in 1996 and 6% p.a. thereafter; (d) the price of palay will increase at a rate of 75% of the inflation rate; (e) the IA development program will be implemented in accordance with the plans outlined in Annex 8, and the number of hectares turned over to the IAs, for full operation and maintenance, will increase gradually from 12,400 to 39,918; (f) because of the benefits accruing from the IOSP II and the proposed WRDP, the cropping intensity will increase by 1% per season up to 1997 and by 2% thereafter in the wet season alone; and  - 126 - ANNEX 7 Page 19 of 27 (g) for reasons outlined in (f) above, the increase in benefitted area will be 0.05% in 1995 and 1996, 0.97% in 1997 and 0.05% p.a. thereafter. 29. Based on the above assumptions, NIA's net revenue before non-cash charges under the very low scenario will improve from a deficit of P76 million in 1995 to a surplus of P245 million in 2004. In the high scenario, the corresponding figures for the same years will be a deficit of P70 million and a surplus of P360 million. Detailed cash flows giving the annual picture indicate that in the extreme low case, NIA's net revenue before non-cash charges will turn positive in 2001 (Table 7). In the high scenario, the same result will be achieved as early as 1997 (Table 10). The results for the other scenarios (low collection efficiency/high investment and high investment/low collection efficiency) are given in Tables 8 and 9. 30. NIA's balance sheets were also projected under the same low and high scenario. These are not shown here but are available with NIA. 31. Projection of NIA's cashflow for the O&M of national irrigation systems (Table 12) was undertaken on the basis of a very conservative 67% ISF collection efficiency. The projection shows that NIA would be able to meet all the O&M expenses through ISF and other income in 1997. However, ISF collection alone (at 67% collection efficiency) would meet the total O&M expenses only in 1998.  - 127 - PHILIPPINES ANNEX) 7 Water Resources Development Project Page 20 of 27 Projection Table 6. PROJECTED NET REVENUES Investment Collection . Y E A R Level Efficiency .----------------- ------------------- -- 1995 1999 2002 2004 Net Revenue Without Non-Cash Charges Low Low 1/ : -76.09 -36.99 73.57 244.85 High 2/ . -69.87 2.46 121.38 298.67 High Low 3/ . -76.09 9.19 171.36 305.53 High 4/ . -69.87 48.82 220.26 360.72 Net Revenue After Non-Cash Charges Low Low 1/ -204.78 -211.26 -138.63 -76.69 High 2/ -198.49 -203.03 -153.61 -35.77 High Low 3/ -204.78 -211.26 -138.63 -76.69 High 4/ -198.49 -170.40 -86.98 -17.56 1/ See Table 2 2/ See Table 3 3/ See Table 4 4/ See Table 5  - 128- PHILIPPINES Water Resource Deveopment Project ANNUlX Tale7 PO:CE wtEVyU2ADEXEDUES Page 21 of 27 lin Mlllldn Peeoa) 1915 1996 1997 1998 1999 2000 2001 2002 2003 2004 I. OPERATING REVENUES Total Irrigation Service Fee Collected 417.92 471.02 524.53 585.71 642.71 893.54 749.89 808.98 874.85 928.43 Pumnp Amortizaton 3.78 3.70 3.64 3.59 3.53 3.48 3.43 3.38 3.33 3.28 Equipment Rental 101.17 108.53 104.87 111.77 118.64 129.60 135.88 145.72 142.80 210.99 TOTAL OPERATING REVENUES 522.84 583.25 833.04 701.07 782.88 B28.82 889.00 958.08 1020.78 1142.70 NON-OPERATING REVENUES Interest Earned 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Management Pee 149.64 151.03 140.82 140.20 166.49 180.39 197.36 232.06 226.88 343.20 Comomunal Amonotzation 36.08 39.61 42.88 46.31 49.16 52.17 55.36 59.16 52.74 86.53 IA Equity Generetion 3.13 9.83 7.53 12.75 0.00 0.00 0.00 10.18 0.00 0.00 NIS Amortization 3.04 3.44 6.05 7.89 11.84 13.79 16.58 17.33 18.11 18.92 Others 35.07 35.59 36.13 38.13 35.58 35.05 34.52 34.01 33.50 32.99 Grants * 1.17 103.00 153.58 99.31 0.00 0.00 0.00 0.00 0.00 0.00 TOTAL NON-OPERATING REVENUES 305.11 373.50 416.79 372.59 293.07 311.40 333.94 382.72 371.01 491.64 TOTAL REVENUES 830.95 955.75 1049.83 1073.86 1055.95 1138.22 1222.84 1340.80 1391.79 1634.34 II. OPERATING EXPENSES ,11 Salaries 403.48 452.83 437.25 420.47 437.59 456.02 475.31 495.04 516.08 537.34 Wages 28.77 34.77 37.77 39.28 40.85 42.48 44.18 45.95 47.79 49.70 Other Personal Coets 240.38 246.82 232.40 221.52 225.95 230.84 235.98 241.13 245.71 252.25 TOTAL PERSONAL COSTS 672.83 734.42 707.43 681.27 704.39 729.34 755.45 782.12 810.58 839.29 Travelling Expenses 5.00 5.95 5.93 5.24 6.54 6.82 7.12 7.45 7.79 8.15 Supplies and Msterilas 43.80 52.09 52.43 51.94 54.64 57.32 59.77 62.36 55.23 68.21 Water. Illumnination and Power 8.57 10.44 10.93 10.88 11.37 12.38 13.44 14.60 16.89 17.27 Gas, Oil end Vehicles Maintenance 2.64 3.21 3.35 3.35 3.50 3.80 4.13 4.49 4.89 5.31 Power fcr Pumps 19.53 20.59 21.27 23.66 26.27 31.17 34.06 41.42 4.4.98 54.81 Auditing Services 10.00 11.39 11.19 10.51 10.40 10.77 11.15 11.54 11.95 12.38 Colsection Expenses 13.05 15S.05 17,12 19.49 19.52 19.23 18.98 18.63 14.55 12.56 irrigators' Share 8.57 9.58 10.54 12.87 15.74 17.39 22.25 25.88 30.28 33.55 Contractual Services 22.00 22.16 23.09 24.03 26.14 27.41 27.41 29.05 30.88 32.33 Collection/Viablity Bonus 8.03 8.27 8,61 9.04 9.58 12.45 10.58 9.00 7.65 6.50 Relies of Equipment 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Retirement/Separation Benefits nc38.00 123.05 183.42 99.31 15.00 15.00 15.00 15.00 15.00 115.00 Taeen and Licenses 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 Reapir/Rehab of NIS 0.00 0.00 0.00 117.04 123.71 134.39 145.92 157.88 173.00 t88.24 Other Expenses 24.40 34.91 39.68 34.01 27.34 39.21 41.24 43.81 45.58 48B.64 10% Discount on ISF 12.54 14.13 15.74 17.57 19.38 20.81 22.50 24.27 26.25 27.85 Losses in Selling Palsy 3.13 3.53 3.93 4.39 4.82 5.20 5.62 6.07 6.58 6.96 TOTAL MAINTENANCE AND OTHER OPERATING EXPENSES 234.41 349.35 402.29 458.82 388.55 428.05 453.87 485.11 514.98 550.20 TOTAL OPERATING EXPENSES 907.04 1083.77 1109.72 1140.09 1092.94 1157.39 1209.32 1267.23 1326.55 1359.49 NE'T REVENUE .78.09 -128.02 -59.89 -66.43 -36.99 -19.17 13.52 73.57 88.23 244.85 Bed Debts 39.31 42.08 44.81 47.58 50.24 53.16 56.36 59.84 63.63 67.65 Depreciation 89.38 105.59 122.37 139.06 158.47 175.56 196.12 217.85 239.18 270.68 NET REVENUE AFTER NON-CASH CHARGES .2014.79 -275.67 .227.07 -253.05 .243.70 -248.19 -238.96 .204.15 -236.58 -93.48 NIS ServiCe Area - Thousand Ha 838.94 644.37 652.04 685.85 572.25 591.75 712.96 726.91 750.08 781.18 CtS Service Area - Thousand HA 897.72 906.51 910.85 921.20 921.20 921.20 921.20 924.20 924.20 924.20 Total Service Area - Thousand He 1538.86 1550.88 1582.69 1597.04 1593.44 116`12.94 1634.16 1661.11 1874.27 1685.35 lb of Country lirgabla Land 49.18% 49.61% 49.99% 50.77% 50.97% 51 .60% 52.28% 52.82% 53.58% 53.91% Irriggated Land NtS - Thousand He 899.24 919.13 940.25 976.93 1003.95 1042.46 1086.75 1122.01 1156.83 1172.10 Irrigated Land CIS - Thousend He 1345.95 1381.12 1408.81 1448.63 1455.84 1484.85 1474.07 1480.24 1499.48 1906.72 Total irrigated Land- Thousand He 2245.21 2300.25 2348.85 2423.38 2459.59 2507.31 2560.85 2612.24 2856.31 2880.82 %b Cropping intensity (NIS) 140.74% 142.64% 144.20% 145.72% 149.34% 150.70% 152.43% 154.35% 154.23% 153.99% % Cropping intensity INIS+CISI 129.79% 131.74% 133.59% 135.85% 137.58% 138.88% 140.35% 141.64% 142.51% 143.03% Irrigation Service Fees - Million Kg of Palsy 109.70 112.11 115.30 119.40 122.34 127.27 132.95 137.45 142.37 144.38 Price of Plaly - Peases per kg 8.41 6.79 7.15 7.47 7.80 8.15 8.52 8.90 9.31 9.72 Service Ares Turned over to IAa 12.40 12.40 19.48 22.90 31.12 34.70 39.92 39.92 39.92 39.92 (Thousand Hal *Grant for Retirement & SeparatIon Benefits, Including payment of terminal leave for optional retirement only. Does not include paymnent of TermInal Leave ..Includes payment of TermnInal Leave **** Assumes no increase in local taxes  - 129- PHILUPMIES Water Reeseircee Develoment ProjectANE Projections Table S. P9OJECTED REVENUE AND EXPENDITURES Page 22 of 27 Low Investmenvt Level. High Collection Efficiency (in Million Pesos) *(in Million Pesos] 1995 1995 1997 1998 1999 2000 2001 2002 2003 2004 I. OPERATING REVENUES Total irrigation Service Faee Collected 424.81 486.80 548.05 819.20 686.58 740.26 799.81 862.22 931.84 988.03 Pump Amortization 3.75 3.70 3.64 3.59 3.53 3.48 3.43 3.38 3.33 3.28 Equipment Rents) 101.17 108.53 104.87 111.77 118.64 129.80 135.65 145.72 142.60 210.99 TOTAL OPERATING REVENUES 529.73 598.03 656.56 734.56 806.75 873.54 938.92 1011.32 11)77.77 1202.30 NON-OPERATING REVENUES Interest Earned 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Management Fee 149.64 151.03 140.82 140.20 166.49 180.39 197.38 232.06 :226.66 343.20 Communal Amortization 36.06 39.61 42.88 46.31 49.16 52.17 55.36 59.16 62.74 66.53 IA Equity Generation 3.13 9.83 7.83 12.75 0.00 0.00 0.00 10.16 0.00 0.00 NIS Amortization 3.04 3.44 6.05 7.89 11.84 13.79 16.58 17.33 18.11 18.92 Others 35.07 35.89 38.13 38.13 35.58 35.05 34.52 3.4.01 33.50 32.99 Grants *51.17 108.00 153.58 99.31 0.00 0.00 0.00 0.00 0.00 0.00 TOTAL NON-OPERATING REVENUES 308.11 377.50 416.79 372.59 293.07 311.40 333.64 382.72 .171.01 491.64 TOTAL REVENUES 837.84 975.53 1073.35 1107.15 1099.82 1184.94 1272.76 1394.04 1-148.78 1693.94 II. OPERATING EXPENSES Salaries 403.48 452.83 437.26 420.47 437.59 456.02 475.31 495.04 816.08 537.34 Wages 28.77 34.77 37.77 39.28 40.85 42.48 44.18 45.95 47.79 49.70 Other Personal Coats 240.38 246.82 232.40 221.52 225.95 230.84 235.96 241.13 2146.71 252.25 TOTAL PERSONAL COSTS 672.63 734.42 707.43 681.27 704.39 729.34 755.45 782.12 8310.58 839.29 Travelling Expenses 5.00 5.95 5.98 5.93 6.24 6.54 6.82 7.12 7.45 7.79 Supplies and Materials 43.80 52.09 52.43 51.94 54.64 57.32 59.77 62.36 65.23 68.21 Water, illumination and Power 8.57 10.44 10.93 10.88 11.37 12.36 13.44 14.60 15.69 17.27 Gas, Oil and Vehicles Maintenance 2.64 3.21 3.36 3.35 3.50 3.80 4.13 4.49 4.89 5.13 Power for Pumps 19.62 20.59 21.27 23.66 26.27 31.17 34.06 41.42 44.98 54.61 Auditing Services 10.00 11.39 11.19 10.51 10.40 10.77 11.15 11.54 11.96 12.38 Collection Expenses 13.26 15.53 17.89 20.60 20.85 20.53 20.25 17.71 15.53 13.36 Irrigators' Share 8.71 9.88 11.01 13.40 16.82 18.57 23.73 28.65 32.25 35.70 Contractual Services 22.00 22.16 23.09 24.03 28.14 27.41 27.41 29.05 30.68 32.33 Collact.on/Visbility Bonus 8.03 8.27 8.61 9.04 9.56 12.45 10.58 9.00 7.65 8.50 Rehab of Equipment 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Retirement/Separation Benefits ..38.00 123.05 163.42 99.31 15.00 15.00 15.00 15.00 15.00 15.00 Taxes and Licenses ...10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 Repair/Rahab of NIS 0.00 0.00 0.00 117.04 123.71 134.39 145.92 157.88 '73.00 186.24 Other Expenses 24.52 35.03 39.87 34.28 27.70 39.70 41.79 44.38 40.16 49.23 10% Discount on 1SF 12.74 14.57 16.44 18.58 20.60 22.21 23.99 25.87 27.96 29.64 Losses In Selling Palsy 3.19 3.64 4.11 4.64 5.15 5.55 6.00 6.47 6.99 7.41 TOTAL MAINTENANCE AND OTHER OPERATING EXPENSES 235.08 350.80 404.60 462.19 392.97 432.77 459.04 490.54 !.20.62 555.98 TOTAL OPERATING EXPENSES 907.71 1085.22 1112.03 1143.46 1097.36 1162.11 1214.49 1272.66 1331.20 1395.27 NET REVENUE -79.87 -10969.00 -38.68 -36.31 2.46 22.83 58.27 121.38 117.58 298.67 Bed Debts 39.24 41.85 44.36 48.78 49.02 51.47 54.17 57.11 60.34 63.76 Depreciation 89.38 105.59 122.37 139.06 156.47 175.86 196.12 217.88 239.18 270.68 NET REVENUE AFTER NON-CASH CHARGES -198.49 -257.13 -205.41 -222.15 -203.03 -204.50 -192.02 -153.61 -181.94 -35.77 NIS Service Ares - Thousand Ha 638.94 644.37 652.04 685.85 672.28 691.75 712.96 726.9i 750.08 761.16 CIS Service Area - Thousand HA 897.72 906.51 910.65 921.20 921.20 921.20 921.20 924.20 924.20 924.20 Total Service Area - Thousand Ha 1536.66 1550.88 1562.69 1587.04 1593.44 1612.94 1634.16 1651.11 1674.27 1885.35 % of Country Irrigable Land 49.16% 49.61% 49.99% 50.77% 50.97% 51 .60% 52.28% 52.82% 53.56% 53.91% Irrigated Land MIS - Thousand Ha 899.24 919.13 940.25 976.93 1003.95 1042.46 1086.78 1122.01 1 156.83 1172.10 irrigated Lend CIS - Thousand Ha 1345.98 1381.12 1408.61 1446.43 1455.64 1464.85 1474.07 1490.24 1499.48 1508.72 Total irrigated Land- Thousand Ha 2245.21 2300.25 2348.86 2423.36 2459.59 2507.31 2560.85 2512.24 2656.31 2680.82 % Cropping intensity (NIS) 140.74% 142.64% 144.20% 146.72% 149.34% 150.70% 152.43% 154.35% 154.23% 153.99% % Cropping Intensity INIS+CISI 129.79% 131.74% 133.59% 135.85% 137.58% 138.88% 140.35% 141 .84% 142.51% 14-3.03% Irrigation Service Fees - Million Kg of Palsy 109.70 112.11 115.30 119.40 122.34 127.27 132.95 137.45 142.37 144.38 Price of Plaly - Pesos per kg 6.41 6.79 7.15 7.47 7.80 8.15 8.52 8.90 9.31 9.72 Service Area Turned over to lAs 12.40 12.40 19.46 22.90 31.12 34.70 39.92 39.92 39.92 39.92 (Thousand Hal *Grant for Retirement & Separation B3enefits, including payment of terminal leave for optional retirement only. *Does not include psyment of Terminal Leave Includes payment of Terminal Leave Assumes no Increase In local taxes  PHILIPPINES - 130 - Water Resources Dlopment Project ANNEhl7 Projections Page 23 of 27 Table 9. PROJECTED REVENUE AND EXPENDITURES High Investment Level, Low Collection Efficiency (in Million Pesos) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1. OPERATING REVENUES Total Irrigation Service Fees Collected 417.92 471.02 525.29 587.04 644.94 698.28 756.58 823.79 880.32 946.99 Pump Amortization 3.75 3.70 3.64 3.59 3.53 3.48 3.43 3.38 3.33 3.28 Equipment Rental 101.17 128.06 138.47 128.99 137.15 161.03 188.40 184.72 203.15 227.22 TOTAL OPERATING REVENUES 522.84 602.78 667.40 719.62 785.62 862.79 948.41 1011.89 1086.80 1177.49 NON-OPERATING REVENUES Interest Earned 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Manegement Fee 149.64 180.65 184.21 159.02 192.53 222.82 304.20 300.35 331.95 374.41 Communal Amortization 36.06 39.61 42.88 46.31 49.16 52.58 55.79 59.18 63.12 67.34 IA Equity Generation 3.13 9.83 7.53 12.75 0.00 8.04 0.00 0.00 9.10 11.42 NIS Amortizetion 3.04 3.44 6.05 7.89 11.84 13.79 16.58 17.33 18.11 18.92 Others 35.07 35.59 36.13 36.13 35.58 35.05 34.52 34.01 33.50 32.99 Grants * 51.17 103.00 153.58 99.31 0.00 0.00 0.00 0.00 0.00 0.00 TOTAL NON-OPERATING REVENUES 308.11 402.12 460.38 391.41 319.11 362.28 441.09 440.87 485.78 535.08 TOTAL REVENUES 830.95 1004.90 1127.78 1111.03 1104.73 1225.07 1389.50 1452.76 1572.58 1712.57 II. OPERATING EXPENSES Salaries 403.48 452.83 437.32 420.57 437.73 456.30 475.69 495.85 516.57 538.48 Wages 28.77 34.77 37.77 39.28 40.85 42.4B 44.18 45.95 47.79 49.70 Other Personal Costs 240.38 246.82 232.43 221.56 226.02 230.96 236.12 241.47 246.91 252.71 TOTAL PERSONAL COSTS 672.63 734.42 707.52 681.41 704.60 729.74 755.99 783.27 811.27 840.89 Travelling Expenses 5.00 5.95 5.99 5.93 6.24 6.55 6.84 7.15 7.48 7.84 Supplies and Materials 43.80 52.09 52.44 51.96 54.68 57.40 59.90 62.62 65.50 68.66 Water, Illumination and Power 8.57 10.44 10.93 10.88 11.37 12.36 13.44 14.62 15.90 17.30 Gas, Oil end Vehicles Maintenance 2.64 3.21 3.36 3.35 3.50 3.80 4.14 4.50 4.89 5.32 Power for Pumps 19.62 20.59 21.28 23.67 27.66 34.16 41.14 48.28 54.44 62.37 Auditing Services 10.00 11.39 11.19 10.51 10.41 10.78 11.16 11.56 11.97 12.41 Collection Expenses 13.05 15.05 17.15 19.53 19.59 19.36 19.15 16.92 14.67 12.81 irrigators' Share 8.57 9.58 10.53 12.66 15.73 17.37 22.22 26.80 30.11 33.33 Contractual Services 22.00 22.16 23.09 24.03 26.14 27.41 27.41 29.05 30.68 32.33 CollectionNViebility Bonus 8.03 8.27 8.61 9.04 9.58 12.45 10.58 9.00 7.65 6.50 Rehab of Equipment 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Retirement/Separation Benefits * 38.00 123.05 153.42 99.31 15.00 15.00 15.00 15.00 15.00 15.00 Taxes and Licenses .... 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 Repair/Rehab of NIS 0.00 0.00 0.00 117.40 124.29 135.57 147.54 161.45 175.17 191.46 Other Expenses 24.46 34.91 39.69 34.02 27.56 39.85 42.71 45.29 47.52 50.31 10% Discount on ISF 12.54 14.13 15.76 17.61 19.35 20.95 22.70 24.71 26.41 28.41 Losses in Selling Palsy 3.13 3.53 3.94 4.40 4.84 5.24 5.67 6.18 6.60 7.10 TOTAL MAINTENANCE AND OTHER OPERATING EXPENSES 234.41 349.35 402.38 459.30 390.94 433.25 464.60 498.13 528.99 566.15 TOTAL OPERATING EXPENSES 907.04 1083.77 1109.90 1140.71 1095.54 1162.99 1220.59 1281.40 340.26 1407.04 NET REVENUE -76.09 -78.87 17.88 -29.68 9.19 62.08 168.91 171.36 232.32 305.53 Bad Debts 39.31 42.06 44.82 47.58 50.27 53.22 56.46 60.04 63.86 68.00 Depreciation 89.38 109.76 130.44 149.70 170.18 194.23 222.37 249.95 280.29 314.22 NET REVENUE AFTER NON-CASH CHARGES -204.78 -230.69 -157.38 -226.96 -211.26 -185.37 -109.92 -138.63 -111.83 -76.69 . ___. __._.__......... ... _.__........ _... .... .. . . . ..... .... . ..... .. ___...... ... ..... . ...... . ... . ... .. ...... ... . __... _. _.. ._. _. ............. ................ ... - -- -. -- ---- -_._ NIS Service Area - Thousand Ha 638.94 644.37 653.34 667.85 675.25 697.54 720.41 742.46 759.01 781.38 CIS Service Area - Thousand HA 897.72 906.51 915.09 921.20 921.20 924.20 924.20 924.20 926.60 929.30 Total Service Area -Thousand Ha 1536.66 1550.88 1568.48 1589.04 1596.44 1621.74 1644.61 1666.65 1685.60 1710.68 % of Country Irrigable Land 49.16% 49.61% 50.17% 50.83% 51.07% 51.88% 52.61% 53.32% 53.92% 54.72% Irrigated Land NIS -Thousand Ha 899.24 919.13 941.98 979.65 1008.12 1050.04 1096.25 1141.84 1163.92 1195.95 Irrigated Land CIS - Thousand Ha 1345.98 1381.12 1414.20 1446.43 1455.64 1471.75 1481.00 1490.24 1505.07 1520.66 Total Irrigated Land- Thousand Ha 2245.21 2300.25 2356.18 2426.08 2463.76 2521.79 2577.24 2632.08 2668.99 2716.60 % Cropping Intensity (NISI 140.74% 142.64% 144.18% 146.69% 149.30% 150.53% 152.17% 153.79% 153.35% 153.06% % Cropping Intensity INIS+CISI 129.79% 131.74% 133.57% 135.85% 137.58% 138.83% 140.27% 141.71% 142.16% 142.70% Irrigation Service Fees - Million Kg of Paley 109.70 112.11 115.49 119.70 122.80 128.22 134.22 140.17 143.23 147.44 Price of Palay - Pesos per kg 6.41 6.79 7.15 7.47 7.80 8.15 8.52 8.90 9.31 9.72 Service Area Turned over to lAs 12.40 12.40 19.46 22.90 31.12 34.70 39.92 39.92 39.92 39.92 (Thousand Hal * Grant for Retirement & Separation Benefits, including payment of terminal leave for optional retirement only. Does not include payment of Terminal Leave * Includes payment of Terminal Leave Assumes no increase In local taxes  PHLPV~ - 131 - Wn Pls"bes t hJ etu ANNFX 7 TtW 10. FIIN WA ANDDm Page 24 of 27 High h w _ Levell MOh CdNwton Efft_iy (in M-lion Pesosi 19W6 19 tSS7 1908 1999 2000 2001 2002 2003 2004 1. OPERATING REVENUES Total Irrigation Sevice Fe Collcd 424.81 485.80 548.86 620.61 688.99 745.38 807.03 878.21 937.68 100S.04 Pump Amortization 3.75 3.70 3.64 3.59 3.53 3.48 3.43 3.38 3.33 3.28 Equipment Rernl 101.17 128.06 138.47 128.99 137.15 161.03 189.40 184.72 203.15 227.22 TOTAL OPERATING REVENUES 521.73 617.56 690.97 753.19 829.67 909.89 998.86 1086.31 1144.16 1238.54 NON-OPERATING REVENUES Interest Eamed 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Management Fee 148.64 180.65 1 4.21 159.02 192.53 222.82 304.20 300.35 331.95 374.41 Communal Amortization 36.06 39.61 42.88 46.31 49.16 52.58 85.79 59.18 63.12 67.34 IA Equity Generation 3.13 3.63 7.53 12.78 0.00 8.04 0.00 0.00 9.10 11.42 NIS Amortization 3.04 3.44 6.06 7.69 11.84 13.79 16.58 17.33 18.11 18.92 Others 35.07 35.59 36.13 36.13 35.58 35.05 34.52 34.01 33.50 32.99 Grants * 51.17 103.00 183.58 99.31 0.00 0.00 0.00 0.00 0.00 0.00 TOTAL NON-OPERATING REVENUES 308.11 402.12 480.36 391.41 319.11 362.28 441.09 440.87 485.78 535.08 TOTAL REVENUES 837.84 1019.66 1151.35 1144.80 1148.78 1272.17 1439.95 1507.18 1629.94 1773.62 II. OPERATING EXPENSES Salaries 403.48 482.83 437.32 420.57 437.73 456.30 475.69 495.85 516.57 538.48 Wages 28.77 34.77 37.77 39.28 40.85 42.48 44.18 45.95 47.79 49.70 Other Personal Costs*- 240.38 24U.62 232.43 221.56 226.02 230.96 236.12 241.47 246.91 252.71 TOTAL PERSONAL COSTS 672.63 734.42 707.52 681.41 704.60 729.74 755.99 783.27 811.27 840.89 Travelling Expenses 5.00 5.95 5.99 5.93 6.24 6.55 6.84 7.15 7.48 7.84 Supplies and Materials 43.80 52.09 52.44 51.96 54.68 57.40 59.90 62.62 65.50 68.66 Water. Illumination and Power 8.57 10.44 10.98 10.88 11.37 12.36 13.44 14.62 15.90 17.30 Gas, Oil and Vehicles Maintenance 2.64 3.21 3.36 3.35 3.50 3.80 4.14 4.50 4.89 5.32 Power for Pumps 13.62 20.59 21.28 23.67 27.66 34.16 41.14 48.28 54.44 62.37 Auditing Services 10.00 11.39 11.19 10.51 10.41 10.78 11.16 11.56 11.97 12.41 Collection Expenses 13.26 18.53 17.92 20.65 20.93 20.67 20.43 18.04 15.63 13.64 Irrigators- Share 6.71 9.8S 11.00 13.39 16.80 18.54 23.70 28.57 32.07 35.48 Contractual Services 22.00 22.16 23.09 24.03 26.14 27.41 27.41 29.05 30.68 32.33 CollectionNViability Bonus 6.03 8.27 8.61 9.04 9.58 12.45 10.58 9.00 7.65 6.50 Rehab of Equipment 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 RetirementrSeparation Benefits 38.00 123.05 163.42 99.31 15.00 15.00 15.00 15.00 15.00 15.00 Taxes and Licenses .... 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 Repair/Rehab of NIS 0.00 0.00 0.00 117.40 124.29 135.57 147.54 161.45 175.17 191.46 Other Expenses 24.52 35.03 39.87 34.29 27.92 40.34 43.27 45.87 48.11 50.90 10% Discount on ISF 12.74 14.57 16.47 18.62 20.67 22.36 24.21 26.35 28.13 30.24 Losses in Selling Palsy 3.19 3.64 4.12 4.65 5.17 5.59 6.05 6.59 7.03 7.56 TOTAL MAINTENANCE AND OTHER OPERATING EXPENSES 236.08 350.80 404.74 482.68 396.36 437.98 489.81 503.65 534.65 572.01 TOTAL OPERATING EXPENSES 907.71 1085.22 1112.26 1144.09 1099.96 1167.72 1225.80 1286.92 1345.92 1412.90 NET REVENUE 49.87 -65.54 39.09 0.51 48.82 104.45 214.15 220.26 284.02 360.72 Bad Debts 39.24 41.865 44.37 4S.79 49.04 51.52 54.26 57.29 60.54 64.06 Depreciation 89.38 109.76 1S0.44 149.70 170.18 194.23 222.37 249.95 280.29 314.22 NET REVENUE AFTER NON-CASH CHARGES -198.49 -217.15 .135.72 -195.98 -170.40 -141.30 -62.48 -86.98 56.81 .17.56 NIS Service Ares - Thousand Ha 6368.4 644.37 663.34 667.85 675.25 697.54 720.41 742.46 759.01 781.38 CIS Service Are - Thousand HA 897.72 906.51 915.09 921.20 921.20 924.20 924.20 924.20 926.60 929.30 Total Service Ares - Thousand He 1536.66 1550.68 1546.48 1589.04 1596.44 1621.74 1644.61 1666.65 1685.60 1710.68 % of Country lrrigeble Land 49.16% 49.61% 50.17% 50.83% 51.07% 51.88% 52.61% 53.32% E*3.92% 54.72% Irrigated Land NIS. Thousand Ha 699.24 918.13 941.08 979.a5 1008.12 1050.04 1096.25 1141.84 1 63.92 1195.95 Irrigated Land CIS - Thousand He 1345.98 131.12 1414.201 1448.43 1455.64 1471.75 1481.00 1490.24 1505.07 1520.66 Total Irrigated Land- Thousand Ha 2246.21 2300.25 2356.18 2426.08 2483.76 2521.79 2577.24 2632.08 2668.99 2716.80 % Cropping Intensity (NIS) 140.74% 142.64% 144.18% 148.69% 149.30% 150.53% 162.17% 153.79% 153.35% 153.06% % Cropping Intensity (NIS+CIS) 129.79% 131.74% 133.57% 135.85% 137.78% 138.83% 140.27% 141.71% 142.16% 142.70% Irrigation Service Fees - Million Kg of Palay 109.70 112.11 115.49 119.70 122.80 128.22 134.22 140.17 '43.23 147.44 Price of Palsy - Pesos per kg 6.41 6.79 7.15 7.47 7.80 8.15 8.52 8.90 9.31 9.72 Service Area Turned over to lAs 12.40 12.40 19.4U 22.90 31.12 34.70 39.92 39.92 39.92 39.92 (Thousand HO) . ... . _ _ _ _ ___ __ ........................ __ __ _ .____.. _ . _ ...... _ . __ ......... ..............._.,.. . . ... ....... .. ..... Grant for Retirement & Separation hneflt, ircklding payment of termina leave for optioal retirement only. Does not Include payment of Termnhal Legve Includes payment of Termhal Leam * Assumes no Increase In local taxs  PHILIPPINES Water Resources Development Project Projection Table I1. Projected Manpower Employed : ~~~~~~~~~~~Y E A R :- - - - - - - - - - - - - - - - - . - - - - - - . - - - - . . - - - --YE A R. 1995 : 1996 : 1997 : 1998 1999 : 2000 : 2001 : 2002 : 2003 2004 Monthly :: 6442 6068 5423 : 5014 : 5018 : 5028 : 5039 : 5046 5058 : 5064 Daily :: 500: 500: 500: 500: 500: 500: 500: 500: 500: 500 Total : 6942 6568 : 5923 5514 : 5518 5528 5539 : 5546 : 5558 : 5564 / I Ln A 0 '.  111lI IISW IG ppIS i I ELPlT11C TIBLI 12. OPSUl116G UP515SI IID IlC0U of ALL I11 Ss (IMAL FRM 199S TO 1995; MWcEMB RON 1996 TO 2002) !IIS's lltTIClliI! S 1995 1 ! I91T 1 9BI 1919 !1990 !" 19f 1992 !1993 !1994 1995 !1996 !1931 1958 1999 !2000 !2001 ! ! .Operating Spste e 567160 5 95901 !6C0049! 617963 !6169"' 62061 637318 645719 ! 646519 !646519 !650556 !655566 !655566 !665566 672816 !685896 6 95336! !b. Totol Service Ire for 105P-II !5Ml160 !595901 ! 4091 ! 17963 !6169t7 620964 63T131o8 617649 !61B3 ! 5908l6 5 90846! 621126 !632126 !637126 !611676 !651156 !667196! !a. Ilet Seams (hla 4 30069 ! 3S7SI !136330 4441257 4 62191 ! 185SI ! 19074 4413310 ! 12393 454S210 ! 12775 48IB122 5 00628 !5226B9 5415l28 565670 !587132! ! .1 Perceetage of Service Area (111 T5.U3 ! N.12 1 72.66 ! l.B9 ! 16-71 ! l.07 72.03 !68.65 !68.43 7 5.16 ! 76.16 T! 7716 ! 9.16 !82.00 8 R.00 8 6.00 !88.00! !b. Dry SelsO Ih11! 3503933 3N20 370106 !312675 !3M190 !382702 4 3236 3B1117 !384313 !396001 !39065] ! 57011 ! 60659 ! 16321 ! 70613 ! 80162 4 87053 ! .1 Perctetage of Servite Irea (Sl 61.78 63.U 61.63 55S.45 62.92 !61.63 ! 7.84 !59.53 5 9.11 70.84 71.84 72.84 72.84 73.00 ! 73.00 73.00 !73.00! !c. Total (Ihl 7 80162 !111011 ! eD636! 786932 ! I03B1 8 61256 ! 91439 8 27757 ! 26706! 850211! 843126 !911139! 961288 988010! 10121411 1045832! 1074186! ! . clIrripatioo leteosity (l!137.61 ! 13.61 !131.29 !121.34 137.83 !138.10 !139.87 !1IU.18 !133.69 !143.N9! 142.75 ! I0.00 !152.00 ! IS.00 !157.00 15I9.00 !161.00! !a. Ilel Seue (hla! 393178 ! 19075 ! 13137 !366531 377900 ! u272e !4111648 ! 016U ! 394936 4 0U007 ! U$112 ! 39450 4 59410 4 88035 !505625 ! 28166 !548206! ! .1 Percestage of Irrigated Area !92.82 !96.17 ! 91.81 ! 2.11 8 1.76 !92.51 ! 90.32 !91.28 89.27 ! 9.77 ! 90.27 !90.77 !91.77 !93.37 !93.37 !93.31 93.37! !b. Dry 5euoi Ihla) 331959 !361371 347610 !321264 363399 36366 1 ! 1392o 340199 !356119 !3N8677 340251 ! 0713h 4 38710 ! 59691 4 64919 ! llU$2 ! I1160! ! '.1 Percestage of Jrrigitle kres 91.71 97.31 93.94 93.75 ! 93.61 ! 95.03 ! 95.71 !88.65 ! 92.71 ! 93.241! 93.71 91.21 95.21 9 8.19 !98.79 ! 98.79 !98.79! C . Iotal (la) ! 131137 !7871S2 !761501 !6U7698 711299 ! M l6 81 28576 7451S12 !751355 !78661 745993 ! '70152 8 98180 !947726 !970$U4! 1002518 !1029365! ! c.1 Percetitie of Irrigated Area IS) !93.6O ! U.73 !91.13 8 7.39 ! 81.17 !93.63 ! 92.95 9 g.06 ! 90.89 !92.53 88B.IS5 92.16 ! 93.44 95.92 !95.89 !95.86 !95.83!w !a. Correet ISi Billieg W0,e000) !306.84 315.25 ! 35.U! 31B.56 !368.99 484B.21 !5SM.40 !555.36 !652.18 !658.12 !66B.68 8 ol.OB 932.71 !1,017.64 !1,135.21 !1,238.70 !1,327.09! ! 1. Total ISF Collectioo IP'00,0O01 ! 143.21 179.90 173.97 !181.79 !213.U3 !27B.72 !3U2.31 !340.12 !337.33 !316.26 !327.77 !516.16 !624.60 !701.92 7 60.59 !829.93 !889.15! !c. Total ISF Collectioe as Perecotape ! ! ! ! ! ! ! ! ! ! of Correot ISF lilliog 11} 16.70 ! 2.11 ! 7.55 !52.15 ! 57.95 57.56 !60.22 !61.24 51.70 ! 52.59 ! 9.02 !64.40 ! 7.00 ! 67.00 !67.00 !67.00 !67.00! !d. Losses ie ISF Collettioe ! .1 Sales olfl tis haeollettioe IP000,000l! 0.00 ! 3.o3 8-4.2 ! 0.61 ! 1.11 0.21 ! 19.45 29.11 19.)1 ! .87 ! 10.31 18I.U ! 21.92 ! 23.62 ! 23.09 ! 21.08 ! 16.81! d .2 lebates on paroept papest IP'000,000)! 0.61! 6.U ! 6.85 6.72 11I.59! 16.2B 5.71! 8.50 8 .43 8 .66 ! .19! 13.65 15.62! 17.55 19.01! 20.75 22.23! ! .3 Tolal losses IP'OOO O00) ! 0.61 ! 10.71 ! 15.27 ! 7.33 ! 13.03 ! 16.19 ! 25.19 ! 37.61 27.55 ! 17.53 ! 18.51 ! 32.19 !37.54 4 1.17 4 2.10 ! 1.83 !39.04 !e. let ISF Colleclioe IP'000 O00) !112.67 !169.19 15IS.70 !171.16 !200.80 !262.23 !317.12 !302.1B8 309.78 328.73 !309.26 !513.6