Philippines - Fifth Power Project

CIRCULATING COPY RESTRICTED TO BE RETURNED TO REPORTS DESK Report No. P-1040 IF:ILE Am IDInfY This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT A'ND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE NATIONAL POWER CORPORATION AND A PROPOSED CREDIT TO THE REPUBLIC OF THE PHILIPPINES March 8, 1972  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECONMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE NATIONAL POWER CORPORATION AND A PROPOSED CREDIT TO THE RERJPLIC OF THE PRILIPPINES 1. I submit the following report and recommendation on a proposed loan to the National Power Corporation (NPC) with the guarantee of the Republic of the Philippines for the equivalent of US $22 million and a proposed development credit to the Republic of the Philippines for the equivalent of US $10 million to help finance a fifth power project for the expansion of generation and transmission facilities in Luzon. The loan would have a term of 20 years, including four years of grace, with interest at 7-1/4 percent per annum. The development credit would be on standard terms and would be relent to NPC on the same terms as the Bank loan. PART I - BANK GROWUP OPERATIONS 2. The Fhilippines has received 15 loans amounting to $238.8 million, net of cancellations. Almost half of the Bank's lending, about $110.0 million, has been for priority infrastructure projects in power, transporta- tion, water supply and education. The remainder has been divided equally between the productive sectors: about $65.o million in agriculture for irrigation, agricultural credit and rice processing and about $65.0 million in industry for three loans through the Private Development Corporation of the Philippines (PDCP). 3. Of total Bank lending of $238.8 million, the undisbursed balance on January 31, 1972 was $69.9 million, almost all of which was accounted for by the five loans made during the last three fiscal years. Disbursements for four of the five loans have been progressing satisfactorily; disbursements under the loan for the Second Raral Credit Project are significantly behind schedule. Sub-loan demand under this project was adversely affected by the change in the value of the peso in February 1970 which resulted in a sharp increase in the cost of imported equipment. The Bank agreed in October 1971 to a number of proposals of the Central Bank for increasing disbursements; e.g. a reduction in farmers' and rural banks' contributions and a more diversified range of crops and items to be financed under the project. These changes and recent increases in the price of rice, which have helped to restore farmerst investment incentives, have led to a substantial increase in the rate of disbursements under the Bank loan during recent months. Bank Strategy 4. I expect to recommend before the end of this fiscal year a loan of $20 million for a fourth development finance companies project for PDCP and a $7.5 million loan for a first livestock project. A second education project,  -2- to assist the Government in its efforts to improve the quality of secondary and higher education, should be ready for negotiation soon and is expected to be presented to the Executive Directors either late in this fiscal year or early in the next. The Bank Group's future lending program will continue to concentrate on financing public infrastructure which has been neglected in the past because of the scarcity of public resources, but which is essential to the future development of the economy; highway and ports projects are currently being prepared for possible future Bank financing. Bank assistance to agricul- ture is also expected to increase as it is the largest sector in the economy and the Government is mounting a major effort not only to stimulate food grain production to eliminat,e shortages which have necessitated substantial rice imports during the last year but also to encourage some diversification with emphasis on livestock and feed grain production. The Bank will continue to provide assistance for general agriculture, including rice, through loans for irrigation and for agricultural credit through the rural banking system and, for rice processing through the Development Bank of the Philippines (DBP). The Bank also expects to assist the Government's efforts to diversify agricul- tural production and increase.the protein content of the diet of the Fhilippine population through loans for livestock and fisheries. 5, The inaugural meeting of the Philippine Consultatiye Group in April 1971 endorsed the need for quick disbursing aid on favorable terms and both Japan ard-the United States have responded by announcing major increases in their level of assistance.to the Philippines, Given the poverty of the Philippines, the magnitude of the, debt problem,. the overall improvement in- the'management of the country's economy and the fact that the Bank, as the Chairman of the Consultative Group, has rec,ommended that the members provide concessional aid to.the- Philippines',; it. is,appropriate that the Bank Group now provide some,'IDA.funds.for the Philippines,. The $10 million IDA credit to help finance.the Fifthi Power proj,ect is.the first IDA credit for the country. For the next year or two it. is propased to; devote; $20' million a-, year of IDA funds. to finance, projects. in- the. Philip.pines. The- economic developments, underlying, this- proposal. are considered in more, detail in- Part: II of this report. 6. IFC has. made- total, commitments- of $47..,2- million. of which $10.0 million has been sold',, repaid or cancelled., Investments have been made in. several. areas-: development.banking, power,. telecommunicationss,, ceramic tiles, paper, petroleum and nickel, mining, and. refining,. The- Central Bank placed restrictions in 1970 on' the repatriat-ioniof equity investments- by foreigners in.non-export, oriented- proj,ects-. IFC is- continuing to discus,s this matter with the Government,. bu-t in the meantime-will concentrate ma'inly on e-xport oriented' industries.. A, statement. of'Bank loans andQ IFC' inve's-tments is given in Annex I.. PART' I- THE, ECONOMY 7. A report entitled "Philippine.s: Prospects- and- Pr.oblems of the Economy" (EAP-21,, dated March 3,1, 19,71.) was cir-culated to' the Executive Directors' on,Apr,il 5,, 19-7,. An' ec,onomic mission. visited- the- Philippines i-n-  -3- October-November 1971 and is preparing a report which will be completed after the updating in the field in March. The report will then be distributed to the Executive Directors and the participants of the Consultative Group for the Philippines as a basis for discussion at the Group's second meeting to be held in Tokyo in late June. Basic data on the country are given in Annex II. 8. The Ehilippines is endowed with favorable potential for economic growth. The country's principal economic assets are good natural resources, a literate labor force and a dynamic and well-developed private sector. The political system has remained democratic, and despite intermittent and widely publicized outbreaks of violence, relatively stable. A nationwide two-party system has existed since independence and an equal number of Presidential elections have been won by the Liberal and Nacionalista Parties. Public administration still remains uneven in quality, but the influx into the top levels of public service of a highly able class of administrators has contrib- uted to an impressive improvement in the implementation of public sector programs during the last several years. 9. The Philippine economy has grown at an average rate of growth of about 6 percent during the past decade. The ratio of gross fixed capital formation to GNP rose from an average of about 13 percent during 1960-62 to about 20 percent during 1968-70 and the marginal saving rate was around 20 percent. However, notwithstanding the impressive growth in total investment, there was, as noted in para 4, a relative neglect of infrastructure and agricultural investments reflecting mainly the continued low level of public investment. Almost 90 percent of total investment is in the private sector and raising the share of public investment to about 15 percent of total investment is an important objective of the Four-Year Development Plan (FY1972-75). 10. A serious weakness of the economy during the last decade was the failure to make headway in strengthening the balance of payments. While exports expanded by less than 5 percent per annum during 1960-69, imports rose by around 8 percent annually during this period; the current account deficits rose to well over 4 percent of GNP during 1968 and 1969. A large part of the external borrowing to finance these deficits took the form of suppliers' credits and short- and medium-term loans to the Central Bank. The Philippine economy thus was confronted with a serious foreign exchange crisis at the end of 1969 which was aggravated by a large fiscal deficit. The stabilization program which was adopted in February 1970 consisted of a number of measures aimed at reducing excessive liquidity in the economy and limiting the growth of short-term external debt. The program also provided for adoption of a floating rate of exchange for the peso and liberalization of most import restrictions. During the last two years, the stabilization program has been implemented with determination by the Govern- ment and has contributed significantly to restoring balance in the fiscal, monetary and foreign exchange situation. Partly as a result of the stimulus provided by the de facto devaluation of over 40 percent, export earnings increased by 22 percent in 1970 and showed a further increase of 4 percent in 1971 despite a sharp drop in the prices of copper and coconut products.'  -4- The current account balance of payments deficits during 1970 and 1971 have been relatively small. 11. During the last two years, the Government has also made a concerted effort to improve debt management and instituted control over medium- and short-term borrowing. But the heavy burden of external debt remains a crucial problem for the economy. Of the total medium- and long-term debt of $1.7 billion at the end of 1971, not in itself a large sum for an econorm of this size, about two-thirds is payable within the next four years. Debt service accounted for 28 percent of foreign exchange earnings in 1971 and this ratio is not likely to decline significantly before 1974. 12. In the fiscal field, the large revenue deficit during FY69-70 was replaced by a surplus of P506 million (US $79 million) during FY70-71. Tax revenues increased by 36 percent during FY 71 in part due to the imposition of an export tax and are likely to increase another 10 percent during the current fiscal year. The ratio of Government revenues, including those of the social security system and local governments, to GNP is about 13 percent, lower than in many developing nations. The Government recognizes the need for further improvement in mobilizing public resources and intends to submit new tax measures to Congress during its current session this spring. 13. In general, the stringent financial measures adopted under the stabiliza- tion program no longer seem to be seriously restricting the level of economic activity. The opportunities opened for industrial growth by the peso exchange rate adjustment are becoming evident and both public and private investments have begun to pick up. GNP in constant prices is estimated to have grown by 6 percent in 1971 which compares with 4.5 percent in 1970. The exchange rate adjustment, however, has led to very considerable price pressures during the last two years which were intensified during 1971 by rice shortages resulting from typhoon damage, tungro disease and some shift of land to sugar. Price increases are expected to level off during the coming months as the econory has now largely adjusted to the exchange rate reform and the Government has imported substantial quantities of rice to meet existing shortages. 14. Per capita income in the Philippines is about $165 and incomes are unevenly distributed. Income disparities have probably widened during the last two years because a large part of the benefit of higher export earnings has gone to a relatively small group of exporters of sugar, minerals and logs. The Government has recently become increasingly aware of this problem and land reform legislation has been enacted which limits the level of land rents and reduces the maximum size of land holdings. Other social sector programs now receiving increased attention which may contribute to improved living standards of large segments of the population are rural electrification, family planning and housing. 15. Though the management of the foreign exchange and debt position will continue to require skill and tight discipline in the next few years, the prospects for sustaining an annual growth of 6 percent remain good. Merchandise exports are expected, according to the recent Bank mission estimates, to rise  by 8.2 percent per annum during 1971-75. The current account deficit would, however, still average about $145 million a year during 1972-75n Allowing for amortization payments, gross external borrowing requirements would average $470 million annually during this period. A substantial part of this deficit would have to be financed through longer term capital on favorable terms, if the debt structure is to be improved and imports are not to be unduly restricted. While the external debt and payments problems facing the Philippines are considerable they can be handled given good management and a willingness on the part of foreign lenders to continue their support. PART III - THE FROJECT Power Sector 16. The Fhilippines is not rich in energy resources. Hydroelectric resources are limited to only a few economic sites. Coal, oil and gas are not found in significant quantities. Electricity supply is largely based on the use of imported fuel, and it is likely to remain so at least for the next decade, although nuclear power is being considered. 17. Only about one-fifth or some 7.5 million of the population is supplied with electricity. Of these, about 4 million are in the Manila area, 2 million in other urban centers and 1.5 million in rural areas. The vast majority, or about 15 out of every 16 families, in the rural areas have no access to electricity. 18. The power sector is dominated by two utilities - NPC and the Manila Electric Company (Meralco), which together account for about 90% of total generation. Meralco, serving the Manila metropolitan area, is privately owned and has a total installed capacity of 1,200 MW, mainly thermal. NPC is government-owned and has a total installed capacity of about 655 MW, mainly hydro. It sells bulk power to industrial users and local utilities, including Meralco. In addition, there are about 460 small private or municipal utilities that distribute power received from NPC ard Meralco or produced by their own generating facilities. The Government has in recent years given high priority to rural electrification. The National Electrifica- tion Administration (NEA), established in 1969, is responsible for organizing and expanding distribution in rural areas, with priority given to providing assistance in creating and financing rural electric cooperatives. 19. NPC and Meralco interchange substantial amounts of power, but there is little coordination in the planning and development of hydro and thermal power schemes for the expansion of the Luzon grid. Coordination is also needed for the planning and integration of small utilities and the electric cooperatives now being sponsored by NEA to expand distribution into new areas. To meet these needs, a Power Development Council was established in 1970 to conduct research and advise the President of the Philippines on future power development and the coordination of the activi- ties of the numerous agencies participating in this sector. However, the Council has not yet been given adequate powers, funding or staff to enable it to provide the required coordination. The Government is aware of this deficiency and is considering legislation to strengthen the council. During the negotiations the Government agreed to submit to the Bank for comment  -6- before the end of 1972 a proposal for improving the coordination of the planning and implementation of power development. 20. Discussions during the last meeting of the Consultative Group for the Philippines among the Government and several foreign donors focused on power development and the coordination of future foreign assistance efforts in the sector. It was agreed that the Bank would finance generation and transmission projects in Luzon, the Asian Development Bank projects for similar purposes in Mindanao and USAID rural electrification projects. For the expansion of the Mindanao grid, ADB made a loan of $23.4 million last November and is considering making a loan of $19 million this spring. USAID is considering a low interest loan of about $20 million for expansion of the activities of new electric cooperatives. National Power Corporation 21. NPC was created in 1936 and was subsequently converted to a stock corporation whose shares are wholly government owned. The authorized capital stock of P300 million (us $46 million ) is fully issued. The Bank has made four loans to NPC totalling $67.3 million, net of cancellations. The first three projects (Binga, Angat and Maria Cristina) were for hydro power develop- ment and were completed after considerable delays because of poor performance by NPC and its contractors. The fourth project, for the construction of a 75-MW thermal plant on Bataan peninsula, has progressed satisfactorily and is to be placed in operation in early 1972. 22. NPC has had chronic financial trouble due to difficulty in securing tariff rate increases and has been unable to earn the 8 percent rate of return on investment by FY 1969 required under the Bankis fourth power loan (Loan No. 491 PH). The rate of return was only 4.8 percent in FY69 and fell to 1.5 percent in FY70. A 42 percent tariff increase was put into effect in May 1971, but this is expected to result in a rate of return of only 2.6 percent in FY71 rising to 4.6 percent in FY72 and 5.6 percent in FY73. To deal with this rate difficulty, legislation amending NPC's charter was enacted in September 1971 which inter alia improved rate making procedures by exempting NPC's rate increases from lower court injunctions which had in the past been the major cause of delay. The legislation also exempts NPC from all taxes, including the income and franchise taxes, reflecting the Government's determination to help NPC overcome its financial difficulties. 23. In January 1972 under the improved rate making procedures of the NPC Act, NPC filed a new rate schedule which will take full effect by July 1972. The schedule represents an increase of about 8 percent over NPC's existing average tariff in Luzon and would raise NPC's rate of return to slightly over 6 percent. NPC has agreed to implement a further rate increase to become effective early in 1973 so that NPC would achieve the overall 8 percent return required in FY74. 24. NPC's management was hampered in the past by administrative restric- tions and lack of adequate authority and management information. Management consultants, employed under previous Bank loans, have recommended a reorganiza- tion of management structure, the introduction of new internal procedures and the improvement in NPC's accounting system. The recommendation regarding  -7- managerial reorganization was incorporated in the new NPC Act and NPC has now implemented most of the other recommendations. NPC has agreed that a follow-up review by consultants of the operations of the new accounting system, reporting procedures and staffing arrangements would be desirable and provision has been made in the proposed loan for this purpose. NPC's overall adminis- trative capability has been inproving steadily during the last several years and with the recently implemented improvements should be able to carry out the proposed Bank project effectively with the help of consultants, and to operate the system upon completion of the project. The Project 25. The project forms part of the Government's four-year infrastructure program (FY72-75), of which public investment in power is the second largest (after transportation), accounting for about $200 million or 18 percent of the total. The project consists of the construction of a thermal unit of 150 MW, three 75-MW transformers and ancillary equipment on the Bataan peninsula; 24 substations and 1,400 km of transmission lines in Luzon; and consultant services for the final design and supervision of construction, the prepara- tion of a long-term plan for the expansion of the Luzon grid, feasibility studies for further hydroelectric projects in Luzon and technical assistance to NPC. 26. NPC's load in Luzon has been growing steadily by 21 percent annually for the past six years. The load growth during 1972-77 is projected at 14.5 percent annually on the basis of realistic estimates. As NPC's generating capacity is mainly hydroelectric, it needs thermal units to firm up its capacity as well as for expansion. The 75-MW unit at Bataan financed under the last Bank loan is NPC's first sizable thermal unit. The second thermal unit, to be financed by the proposed loan and credit, is the most economical way to. meet the expected load increase. There is no hydro-alternative of suitable size. The proposed size of 150 MW is appropriate in relation to the combined capacity of the NPC/Meralco system. This unit will increase NPC's installed generating capacity in Luzon by about 30 percent and will enable NPC to meet demand until 1977. Expansion in Luzon beyond 1977 will need further thermal plants for base load and hydro plants for peaking. 27. In line with the priority given by the Government to rural electri- fication, NPC's expansion program includes considerable transmission extension to supply power to regions which do not presently have access to electricity. The proposed project will increase NPC's transmission in Luzon by about 60 percent in length and cover 80 towns and 20 large users, in addition to the 250 towns and 27 large users that NPC is now serving. 28. The total cost of the project is estimated at $46 million, as follows:  -8- $ million equivalent Local Foreign Total Generation 4.7 18.9 23.6 Transmission 11.1 10.3 21.4 Consultants' services .2 .8 1.0 16.0 30.0 46.o Interest during construction 2.0 32.0 The proposed Bank/IDA lending of $32 million would cover the entire foreign exchange cost of the project and interest on the Bank loan during construction. The latter is included because of NPC's difficult financial situation and the time involved before the new facilities will start to earn revenues. The foreign exchange costs of generation and transmission include about $100,000 for retroactive financing of expenditures for engineering services from January 1, 1972 for the preparation of the final design and tender documents of the project. These costs also include, in addition to normal price contingencies, an allowance to cover cost increases resulting from the recent readjustment of exchange rates. Local costs are to be met from generation of internal funds and local borrowing. The Government has undertaken to provide additional funds should this prove to be necessary. 29. Construction of the project including transmission subprojects would be done by contractors. Contracts for civil works and for equipment would be awarded after international competitive bidding. It is likely that the civil works contracts would be won by local contractors while equipment contracts would go to foreign suppliers since none of the equipment is manufactured locally. The IDA credit would be disbursed first. Foreign exchange savings, if arty, would result in cancellation to be applied first against the Bank loan. 30. Construction is expected to take about three years and to be completed by mid-1975. It is proposed that the loan should have a term of 20 years, including a grace period of four years which would correspond to the period of disbursement. The proposed credit would be made to the Government on standard terms, and relent to NPC on the same terms as the Bank loan. 31. The internal financial rate of return of the project, after taking into account the stream of costs and benefits to NPC for a 30 year period, is estimated at 15 percent. Sensitivity analyses indicate that the project would continue to earn an adequate rate of return when reasonable allowances are made for possible increases in project costs or delays in construction. The project will allow NPC to supply the required load until FY 1978, and will provide new power connections to a number of areas. These new connec- tions will result in a savings to consumers of 25-35 percent over the cost of energy currently provided by local diesel plants. Moreover, a reliable  -9- supply for 24 hours a day instead of the usual 6-8 hours a day supply in these areas would encourage the use of electricity for marn purposes such as drinking water distribution, pumped irrigation and power for workshops, cottage indus- tries and other small businesses. These benefits have not been quantified. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 32. The draft Loan Agreement between the Bank and NPC, the draft Guarantee Agreement between the Republic of the Philippines and the Bank, the draft Development Credit Agreement between the Republic of the Philip- pines and the Association, the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank, the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association, the text of a resolution approving the proposed loan and the text of a resolution approving the proposed development credit are being distributed to the Executive Directors separately. 33. The draft loan and credit documents contain normal provisions for power projects. Provisions are made for cross-default between this loan and the previous loans and between this loan and the credit. 34. In addition, the Republic of the Fhilippines and NPC would enter into a Subsidiary Loan Agreement, satisfactory to the Bank, for relending the proceeds of the credit to NPC on the same terms as those of the Bank loan. The execution of this Agreement is a condition of effectiveness of the proposed loan and credit. 35. I am satisfied that the proposed loan and development credit would comply with the Articles of Agreement of the Bank and the Association. PART V - RECOMMENDATION 36. I recommend that the Executive Directors approve the proposed loan and credit. Robert S. McNamara President By: J. Burke Knapp Attachments.  ANNEX I Page 1 of 2 STATEMENT OF BANK LOANS AND IDA CREDITS TO THE PHILIPPINES AS AT JANUARY 31, 1972 Loan Amount (US $ millionE Number Year Borrower Purpose Bank Undisbursed Seven Loans fully disbursed 102.1 - 393-PH 1964 Republic of the Education 6.o 0.4 Philippines (College of Agriculture) 467-PH 1965 Philippine DFC's 24.9 0.1 National Bank 491-PH 1967 National Power Power (Bataan) 12.0 1.4 Corporation 607-PH 1969 Central Bank of Agriculture Credit 12.5 10.7 the Philippines 630-PH 1969 Philippine DFC's 25.0 12.4 National Bank 637-FH 1969 Republic of the Irrigation 34.o 23.5 Philippines 720-PH 1971 Republic of the Rice Processing 14.3 14.2 Philippines and Storage 731-PH 1971 Republic of the First Highway 8.o 7.2 Philippines Total (Less cancellations) 238.8 of which has been repaid 35.6 Total now outstanding 203.2 Amount Sold 12.2 of which has been repaid 11.6 o.6 Total Now Held by Bank 2-07. Total Undisbursed 69.9  ANNEX I Page 2 of 2 STATEMENT OF IFC INVESTMENTS IN THE RHILIPPINES AT JANUARY 31, 1972 Fiscal Amount (US$ million), Year Conpany Loan Equity Total 1963 Private Development Corp. of the Philippines 4.4 4.4 1967 Manila Electric Co. 8..o - 8.0 1967 Meralco Securities Corp. - 4.0 4.0 1970 Philippine Long Distance Telephone Co. 4.5 - 4.5 1970 Mariwasa Manufacturing-Inc. .8 .3 1.1 1970 Paper Industries Corp.. of the Philippines 2.2 2.2 1971 Philippine Petroleum Corp. 6.2: 1.8 8.0 1972 Marinduque Mining and Industrial Corp. 15.0o 15.0 Total 34.5 12.7 47,2 Less sold, acquired: by others, repaid or cancelled. 3.3 6.7 10.0 Now held 31.2 6.o 37.2  ANNEX II Page 1 of 2 PHILIPPINES BASIC DATA Area 297,000 square kilometers Population Total (adjusted May 1970 Census) 36.8 million Rate of Growth (1960-70) 3.1% Density (per sq. km.) 124 Gross National Product Total 1970 (current market prices) P39,956 million Real Growth rate (1970) 4. 5% Per capita GNP (1970) US$165 1/ Gross Domestic Expenditure (current prices; in percent of GDP) 1968 1969 1970 Consumption 7 727 U57 Private 76.5 72.7 72.6 Public 8.9 9.9 8.0 Gross Domestic Capital Formation 22.1 20.6 21.2 Gross Domestic Saving 15.6 15.3 17.4 Resource Gap I/ 6.5 5.3 3.8 Statistical Lfscrepancy -1.0 1.9 1.9 Central Government Operations (in million pesos) FY 1969 FY1970 FY19713/ Revenue from domestic sources T,= 3,091 9 ,2 / Current expenditures 3,o56 3,328 3,714 Capital expenditures 5/ 661 975 803 Money and Credit 1968 1969 1970 (annual rate of change in percent) Money Supply 5 19 6 Time and Savings Deposits 7 10 20 Total Bank Credit Outstanding 7 25 6 Price Indices (percent increase) 1968 1969 1970 Consumer price index for the Philippines 0T7 17 15.3 General wholesale price index for Manila 2.9 0.7 19.5 Balance of Payments (US$ million) 1969 1970 / 97 6/ Merchandise exports 7977 l547 Merchandise imports 1,132 1,090 548 Net services - 133 - 141 -40 Net transfer payments (public and private) 155 119 68 Current account deficit/surplus - 234 -29 28 Net errors and omissions - 125 - 227 -38 1/ 1969: US$207, prior to de facto devaluation in February 1970. v Including Balance of Payments correction. 3/ Preliminary 1~/ If revenue effort including local governments and social security system are taken into account public revenue amounts to P5,835 million, or 13 percent of GNP 5/ Including foreign - financed outlays; excluding capital transfers. '/ January-June.  ANNEX II Page 2 of 2 Major Exports (Percent of total Exports) 1969 1970 1971 / Coconut products 19 20 20 Sugar products 18 18 22 Forest products 30 28 23 Mineral products 19 21 18 Others 14 13 17 100 100 100 Foreign Exchange Reserves (US$ million) June 1970 Dec. 1970 June 1971 Net reserves -65 -39 External Public and Private Debt Outstanding Dec. 1970 Sept. 1971 2/ US $ million 1-5 years' maturity 550 493 Over 5 years' maturity 1,206 1,216 Medium and Long Term Debt 1,756 1,708 Debt Service on debt outstanding CY 1970 CY 1971 2/ at end of period Amortization (Medium and Long Term) 264 311 Interest 95 103 Total 3797 T Debt service ratio 24% 28% Bank Operations (January 31, 1972) Bank loans outstanding US$ 134 Million Undisbursed amount US$ 70 Million IMF Position Quota US$ 155 Million Drawings outstanding (Dec. 31, 1971) US$ 123 Million Par Value - up to Feb. 21, 1970 P 3.90 per US$. Floating since Feb. 21, 1970 Social Indicators Income Distribution 1965 Lowest Quintile (% Nat.Inc.)=T % Highest Quintile " 55.4% Literacy Rate (% adult pop.) 72% School Enrolment per age group 1965 1970 Primary (7-12 year olds) 3/ 110% l9 Secondary (13-16 year olds) 40% 62% 1959-1961 1966-1968 Unemployment - (% Labor Force) 1969 1970 1971 Family Planning (1000 acceptors) -21-0 400 1/ January - June 2/ Preliminary. 3/ Excess of 100% indicates presence of over age students. March 2, 1972  ANNEX III Page 1 of 3 PHILIPPINES - FIFTH POWER PROJECT Loan/Credit and Project Summary Bank Loan Borrower: National Power Corporation (NPd) Guarantor: Republic of the Philippines Amount: US $22 million equivalent. Terms: Payable in 20 years including a four-year period of grace at 7-1/4% interest per annum. IDA Credit Borrower: Republic of the Philippines Beneficiary: National Power Corporation Amount: US $10 million equivalent. Terms: Standard terms. The proceeds of the credit would be relent by the Philippines to NPC on the same terms as those of the Bank loan. Project: Construction of a thermal unit of 150 MW and three 75-MW transformers and ancillary equipment on the Bataan peninsula; and 24 substations and 1,400 km of power transmission lines in Luzon.  ANNEX III Page 2 of 3 (US$ million) Cost of Project: Local Foreign Total Generation Civil works 1.7 0.3 2.0 Plant and equipment 2.0 15.4 17.4 Switchyard and transformer 0.1 1.0 1.1 Engineering 0.5 0.7 1.2 Contingencies 0.4 1.5 1.9 Sub-total 72 877 Transmission Transmission lines and substation equipment 9.1 9.3 18.4 Engineering 0.5 0.2 0.7 Contingencies 1.5 0.8 2.3 Sub-total 11.1 10.3 21.4 Consultants' services 0.2 0.8 1.0 Total cost of Project 16.0 30.0 46.0 Financing: Bank loan (including $2 million for interest during construction) 22.0 IDA credit 10.0 32.0 NPC (own funds and peso borrowing) 16.0 48.0 Procurement: On the basis of international competitive bidding. Estimated Disbursement: (us$ million) Bank IDA 1973 3.5 10.0 1974 12 6 - 1975 5.9 - 22.0 10.0  ANNEX III Page 3 of 3 Consultants: For technical assistance to NPC for the final design and supervision of project construction; preparation of feasibility studies of hydroelectric schemes in Luzon and along term plan for the Luzon grid expansion; review of NPC's accounting system and procedures and the current value of fixed assets; and improvement of NPC's technical operations. Rate of Return: Internal financial rate of return estimated at 15%. Appraisal Report: Report No. PU-79a, dated February 15, 1972, prepared by the Pablic Utilities Projects Department.  120 13 2i4' S SEA RVQgon ~~~~~~~~~~~~~~~~* Existing power plant \ ~~~~~* Existing 230KV substation -17- A Existing MERALCO power plant 1.- 1 A~~~n Proposed MERALCO power plant on g ~ ~~~ Proposed IBRD project power plant 2470UoKAWA 0 Proposed IBRD project substations 50 / ~~~~~~~~~~~~~~~~~~~~230 KV Transmission Lines BAUAN5 AMBUKLO /-Proposed MERALCO system 75 MW~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i px g eeCKE831~BNGA -Proposed IBRD project St~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~SL LA