Philippines - Fisheries Credit Project

FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 105a-PH PHILIPPINES APPRAISAL OF A FISHERIES CREDIT PROJECT April 23, 1973 !ia Projects Department This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization.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. CURRENCY EQUIVALENTS 1/ US$ 1.00 = 6.78 Philippine Fesos (V) ? 1.00 = US$0.147 P 1 million = US$147,493 WEIGHT AND MEASURES (METRIC SYSTEM) 1 sq meter (m2) - 10.8 sq feet 1 sq kilometer (km2)= 0.386 sq miles 1 hectare (ha) 2.47 acres 1 millimeter (um) = 0.0394 inches 1 centimeter (cm) = 0.394 inches 1 meter (m) = 3.28 feet 1 kilometer (km) 0.62 miles 1 liter = 0.264 US gallons 1 kilogram (kg) = 2.205 pounds 1 metric ton (ton) - 2,205 pounds FISCAL YEAR July 1 through June 30 ACRONYMS AND ABBREVIATIONS DBP - Development Bank of the Philippines FG - Fisheries Group of DBP BOF - Bureau of Fisheries BOI - Board of Investments UP - University of the Philippines 1/ Floating as of February 1970. PHILIPPINES APPRAISAL OF A FISHERIES CREDIT PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ......................................... i-iii I. INTRODUCTION .......................................... 1 II. THE FISHERIES SECTOR .................................. 2 III. THE PROJECT ......................................... 7 A. General Description ... ........................ 7 B. Detailed Features .................. .......... 8 C. Project Implementation Schedule .................. 11 D. Cost Estimates ................................... 11 E. Financing ........................................ 13 F. Procurement ...................................... 14 G. Disbursements ................................... o.16 IV. ORGANIZATION AND MANAGEMENT -........................ 17 A. Development Bank of the Philippines .............. 17 B. Project Organization ............................. 17 C. Lending Policies and Procedures .................. 19 D. On-lending Terms ................................. 20 E. Accounts and Audit ............................... 20 F. Project Evaluation ............................... 21 G. Future Project Preparation ....................... 21 V. PRODUCTION, MARKETS AND OPERATING RESULTS ............. 21 A. Production ....................................... 21 B. Markets .......................................... 21 C. Operating Results ................................ 22 VI. ECONOMIC BENEFITS AND JUSTIFICATION ................... 24 VII. RECOMMENDATIONS ....................................... 25 This report is based on findings of an appraisal mission, composed of Messrs. P. Pohland, F. Kada, A. Seth and K. Sallner (Bank) and L. Svoboda and T. Yamamoto (Consultants) all of whom contributed to this report. -2- ANNEXES 1. Marine Fisheries Table 1: Number of Commercial Fishing Vessels (1965-1970) Table 2: Production of Commercial Fishing Vessels 2. Inland Fisheries Table 1: Fish Pond Areas, Production (1970) and Potential Area Figure WB-7309: Typical Fish Pond Layout 3. Description of the Major Project Components Table: Expected Regional Distribution of Fish Pond Rehabilitation and Development Figure WB-7310: Design Example for 130-GT Steel Trawl Fishing Vessel Figure WB-7308: Design Example for 70-GT Wooden Trawl Fishing Vessel 4. Terms of Reference for Technical Assistance to DBP 5. Terms of Reference for an Aquaculture Extension Expert 6. Terms of Reference for a Proposed Fish Marketing and Distribution Study 7. Terms of Reference for a Proposed Smallholder Fish Pond Project Study 8. Estimated Project Implementation Schedule 9. Detailed Unit Cost Estimates 10. Estimated Quarterly Schedule of Disbursements 11. The Development Bank of the Philippines Table 1: Board of Governors Table 2: Approvals of Loans, Investments and Guarantees to June 30, 1972 Table 3: Data on Outstanding Loans Investments and Guarantees to June 30, 1972 Table 4: Sectoral Distribution of Agricultural Loans Approved to June 30, 1972 Table 5: Data on Guarantee Operations as of September 30, 1972 Table 6: Resources as of September 30, 1972 Table 7: Income Statement for Years ending June 30, 1972 Table 8: Cost and Returns on Average Annual Loan Portfolio and Investments (FY 1967-1972) - 3 - Table 9: Balance Sheets (FY 1967-1972) Table 10: DBP Advances on Guarantees as of September 30, 1972 Table 11: Past Due Amortization on Loans to Fisheries Industries as of June 30, 1972 Chart WB-7311: DBP - Organizational Chart 12. Project Organization and Management: DBP's Fisheries Group Appendix 1: Outline of Project Appraisal Requirements Appendix 2: Processing of Fisheries Loan Applications (WB-7386) Chart WB-7313: DBP - Agricultural Projects Department Chart WB-7314: Present Organization of Fisheries Group Chart WB-7312: Proposed Organization of Fisheries Group 13. DBP - Project Financial Statements Table 1: Estimated Project Income Statement Table 2: Estimated Project Cash Flow 14. Marketing and Prices 15. Projected Financial Results Table 1: Summarized Financial Rates of Return Table 2: Summarized Risk Analysis for Major Project Components Tables 3-4: Projected Income Statement and Cash Flow: 130-GT Trawler Tables 5-6: Projected Income Statement and Cash Flow: 70-GT Trawler Tables 7-8: Projected Income Statement and Cash Flow: Fish Carrier Table 9: Projected Income Statement: 130-GT Trawler plus Carrier Table 10: Projected Income Statement: Improvement of Existing Trawler Tables 11-12: Projected Income Statement and Cash Flow: 30-Ton Ice Plant Tables 13-14: Projected Income Statement and Cash Flow: Marine Slipway Tables 15-16: Projected Income Statement and Cash Flow: New Fish Pond Construction Tables 17-18: Projected Income Statement and Cash Flow: Rehabilitation of Fish Ponds Tables 19-20: Projected Income Statement and Cash Flow: Development of Fish Ponds Tables 21-22: Projected Income Statement and Cash Flow: Fresh Water Fish Ponds 16. Economic Rate of Return Calculations Table 1: Economic Rate of Return Calculations Table 2: Economic Rates of Return: Sensitivity Tests MAP  PHILIPPINES FISHERIES CREDIT PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a credit project for development of the narine and inland fisheries sector in the Republic of the Philippines, for which a Bank loan of US$11.6 million equivalent is proposed. The project was prepared by the Government with assistance from the FAO/IBRD Coopera- tive Program. Total cost, over 4-year investment period, is estimated at US$18.5 million, of which US$8.35 million, or 45%, represent foreign ex- change requirements. The Bank loan would cover 50% of total cost for the inland fisheries component and foreign exchange requirements of the other items. The Bank's participation would thus be 63% of total project costs. The continuing need to rehabilitate fish ponds after the catastrophic floods in 1972 strengthens the general case for local cost financing in the Philippines. ii. Although fisheries contributes only 4% to GNP, it is an important economic activity in the Philippines. The archipelago with over 7,000 islands provides excellent access to fishing grounds and a natural framework for productive marine fisheries and the coastline with its many estuarine areas is ideal for brackish water fish farming. Fisheries employ directly about 700,000 persons (about 5.5% of total labor force) mainly in the traditional sector. Further, fish is a staple in the Filipino diet and provides about half of animal protein intake - more than milk, eggs and meat combined. Fish imports for human consumption, mainly canned mackerel from Japan, stand now at a value of US$18.4 million per annum and demand for marine products is growing rapidly. Government aims at self-sufficiency in fish production and the proposed project would help meet that objective. iii. The proposed project would be executed by the Development Bank of the Philippines (DBP) and provide credit to individuals and companies for (a) the construction of fishing vessels, ice plants and simple slipways for vessel repair and maintenance; (b) purchase of fish-carriers and vessel equipment to improve fishing operations; and (c) rehabilitation and improve- ment of flood-damaged fish ponds and development of other fish ponds. It would also finance the employment of a marine specialist and a naval architect to design, and assist with procurement and construction, of the fishing vessels, and an aquaculture extension expert to help train the inland fisheries extension services and DBP's-st f. Financing would also be provided for cohaultantW-i~assist with preparation of a future fish marketing and a smallholder fish pond project. iv. Government, as borrower, would on-lend about US$11 million of the Bank loan to DBP to be used for relending to beneficiaries. The loan would be at the Bank's interest rate of 7-1/4% and for 17 years, including 6 years' grace. DBP would supplement the Bank's funds with about US$4.2 million and - 11 - subborrowers would provide about US$2.6 million from their own resources to meet total project investment costs. The balance of the Bank loan of about US$0.6 million, supplemented by US$130,000 from Government's resources, would remain with the Government to assist financing the training program and future project preparation. On average, beneficiaries would contribute 14% of investment requirements; Government and DBP, 23%; and the Bank, 63%. The interest rate for subloans would be 12% per annum on medium- and long-term loans of 5 to 13 years including 1 to 3 years of grace. v. Procurement for project vessels would be separated into (i) hull procurement and (ii) procurement of equipment, such as engines, fishing gear, electronic and other equipment. Since the beneficiaries must have fisheries experience, they will usually own several vessels and therefore operation, maintenance and standardization requirements become dominant considerations. These requirements common to credit projects cannot be achieved under bidding procedures for fully equipped vessels. DBP's naval architect would therefore establish performance and design criteria for the fishing vessel hull and equipment items for each of the two categories of project vessels. However, the make of the specific equipment items would be subjected to the individual's choice. It would be ordered from suppliers previously qualified through international advertisement. The equipment thus procured would be installed on hulls procured from pre-qualified local shipyards following competitive bidding. To the extent practicable, bulking of sub-loan components would be arranged by DBP. In this way, requirements of individual operators will be accommodated without foregoing the economies through large-scale orders from suppliers and shipyards for procurement of the project vessels. Second-hand fish carriers would be procured from outside the Philippines through advertising vessel specifications in potential suppliers' countries and allowing subborrowers to choose from lists containing surveyed and suitable carriers. Turnkey contracts for construction of ice-making facilities and slipways would be awarded after international competitive bidding. Sub- borrowers would procure equipment for vessel improvement through normal trade channels because of the need to match and complement existing equipment. Formal bidding procedures for fish pond rehabilitation and development would not be appropriate because subloans are small and numerous, individual needs vary, sites are scattered and the simple construction work would be mainly performed by manual labor often provided by the operators themselves. Fish pond operators would therefore make arrangements, approved by DBP, with labor or contractors in their area to carry out such work. vi. Government considers the Fisheries Project a most important effort in its general plan to increase fish production for domestic con- sumption. Implementation of the project would directly increase the major source of animal protein in the Philippines by about 48,000 tons per annum representing about 5% of present fish production. Furthermore, the project would benefit about 1,100 subborrowers and their dependents, provide about 2,400 permanent positions for unskilled and semiskilled fishermen and labor and employ about 4,000 unskilled labor per annum during the 4-year development period. Better knowledge of marine resources through intensified research, - iii - demonstration effects from improved operations, training of extension staff, sound lending practices and future project preparation would have a significant effect on further development of this important sector. vii. Financial rates of return to beneficiaries would be attractive and the overall economic rate of return is estimated at 34% with a rate of 22% for the marine fisheries and 43% for the inland fisheries component. The rate of return calculations for the marine fisheries component include a corresponding part of the investment and operating costs for the new fisheries harbor (Navotas) to be constructed outside of this project. Without these supplementing investments the rate of return would be 28% for this component. The very attractive rate for fish farming results from costs already sunk prior to rehabilitation and improvements of fish ponds under the project. If all ponds were to be newly constructed the rate of return would be 23% for this component. viii. The project would be suitable for a Bank loan of US$11.6 million, for a term of 17 years including a grace period of 6 years. Government would be the borrower and would assume the foreign exchange risk.  PHILIPPINES FISHERIES CREDIT PROJECT I. INTRODUCTION 1.01 The proposed project would be the eighth for agricultural develop- ment in the Philippines 1/, but the first exclusively for the fisheries sub- sector. It would form part of the Government's fisheries development program and, over a 4-year investment period, assist marine and inland fisheries. It would provide fishing vessels, fish carriers, vessel improvements and supporting facilities, rehabilitate flood-damaged fish ponds and develop other fish ponds. In addition, a fish marketing and smallholder fish pond study would assist future development of the fisheries sector. Government would be the borrower and the Development Bank of the Philippines (DBP) the executing agency. Intensified marine research, training of extension staff and future project preparation would be the responsibility of Government. 1.02 Generally, the Bank's experience with other agricultural projects has been satisfactory. About US$100,000 remains to be disbursed under Loan 393-PH (Agricultural Education), and Loan 432-PH (First Rural Credit) has been fully disbursed. After an initial slow start, mainly caused through economic adjustments following the 1970 Peso devaluation, Loan 607-PH (Second Rural Credit) is moving ahead. Implementation under Loan 637-PH (Upper Pampanga River) has been very satisfactory. Progress under Loan 720-PH (Rice Processing) has so far not been satisfactory; subloan demand for integrated rice processing facilities has been less than expected because of increased cost of imported equipment and rice shortages caused by floods and crop diseases. This has basically changed the economics of the industry since appraisal, when it was considered that rice self-sufficiency in reach during 1969/70 would continue and domestic and export markets would demand improved quality. The project's scope has now been expanded to include rehabilitation of existing rice processing facilities and consideration is being given to financing processing facilities for other grains as well. This is expected to improve project performance. Loan 823-PH (Livestock) and Credit 349-PH (Second Education) are just getting underway. 1.03 The project now being appraised was prepared with the assistance of the FAO/IBRD Cooperative Program which visited the Philippines in January/ February 1972. The appraisal mission assisted the Government in reformulating 1! 393-PH, 1964, US$6 million for expansion of the University of the Philippines (UP); 432-PH, 1965, US$5 million for first rural credit project; 607-PH, 1969, US$T2.5 million for second rural credit: 637-PH, 970, US$34 million for an irrigation project (Pampanga River); 720-PH, 1971, US$14.3 million for rice processing and storage; 823-PH, 1971, US$7.5 million for livestock development; 349-PN, 1972, US$12.7 million for technical education including agriculture (IDA Credit). - 2 - the request to change the emphasis from large-scale to smaller, though viable, operators who find it particularly difficult to obtain finance. 1.04 This report is based on findings of an appraisal mission, composed of Messrs. P. Pohland, F. Kada, A. Seth (Bank) and L. Svoboda and T. Yamamoto (Consultants), which visited the Philippines in November 1972. Mr. K. Sallner (Loan Officer) assisted the mission during appraisal. II. THE FISHERIES SECTOR 1 Contribution to the Economy 2.01 In the Philippines three main components are recognized within the sector: the marine fisheries, divided into commercial (marine fisheries) and municipal (traditional fisheries), and the inland fisheries (fish pond operations). Total fisheries production has been estimated at about 1.0 million (1970) tons per annum of which commercial fisheries supply about 37%, municipal 53%, and fish ponds 10%. Government estimates that fisheries accounted for about 4% of GNP in recent years (in constant 1967 prices) and roughly about 13% of the agricultural sector. Employment has been estimated at about 700,000 persons (about 5.5% of total employment) most of whom are subsistence fishermen. Fish and other marine products are a staple in the Filipino diet and annual per capita consumption of 28.3 kg is high compared to other countries. It is estimated that marine products provide about half of the animal protein consumed in the Philippines. Exports consist of shrimp and tuna (valued at US$5.4 million in 1971), while imports (valued at US$20.2 million in 1971) are mainly canned mackerel from Japan (favored in the interior where fresh fish is not available) and fishmeal from Peru. Commercial Marine Fisheries 2.02 The commercial fishing fleet comprises an estimated 2,200 vessels ranging from about 3 CT to over 100 GT. By law, their activities are restricted to waters deeper than 12.6 m (7 fathoms). This fleet is operated by some 1,500 fishing vessel owners. The fleet is mainly based in the Greater Manila area (Navotas) and around the Visayan Sea, and is diversified as to vessel size and type of gear. However, the number of larger and more spe- cialized vessels (over 70 GT) has increased in recent years and is presently estimated at 524, of which 217 are trawlers (1970). The proposed project would provide these vessels which are in high demand by operators (para 3.04). 2.03 Commercial fisheries production has been estimated at about 380,000 tons in 1971. Trawl and purse-seine operations account for about 1/ Background on the agricultural sector is provided in the "Agricultural Sector Review", Report No. 39-PH; September 6, 1972 while the economic background is provided in "Current Economic Position and Prospects of the Philippines", Report No. EAP-30a; May 10, 1972. An IBRD Economic mission is currently preparing the new economic report. -3- 70% of total catch. Four of the some 68 species which are commercially caught account for about two-thirds of total production: round scad (40%) slipmouth, sardines (18%) and chub mackerel (6%). Principal fishing grounds are the Sulu Sea with 58% of total production, the Visayan Sea (24%) and Maaila Bay (5%). Project vessels would fish generally in the same areas but in deeper fishing grounds with their improved equipment. See Annex 1 for further details. 2.04 FAQ estimated the potential annual catch from territorial waters at about 1.65 million tons or almost double the estimated present catch. According to these estimates, the commercial catch represents about 40% of the potential. These crude judgments suggest that there is sufficient development potential for the commercial fleet for the proposed project but the lack of resource data is seriously hampering a rational long-term fishery development policy and the proposed use of existing research vessels (para 2.14) would improve knowledge of marine resources and provide a basis for future expansion. See Annex 1 for details. Municipal Fisheries 2.05 Production from municipal fisheries, largely for subsistence, account for about 540,000 tons per annum in fisheries statistics. This fishery uses traditional craft (Bancas), operating near the shore. Bancas are generally non-mechanized and employ traditional fishing methods. It is estimated that about 80% of resources accessible to them is being exploited. Efforts are now being undertaken to organize these subsistence fishermen into cooperative societies and to use credit facilities of the rural banking system (para 2.17). Inland Fisheries 2.06 Inland fisheries production from fish ponds has been estimated at about 100,000 tons per annum; primarily milkfish (Bangus) for domestic consumption. Annual yields of 570 kg/ha compare with 300 in Indonesia and 1,700 in Taiwan. However, research results show that, with improved pond design, appropriate fertilization, pest control and intensive management of fish populations, yields could reach 2,000 kg/ha or more per annum, but for project purposes annual yields of 1,200 kg/ha, after a 5-year development period, have been assumed. In general, fish pond operators enclose larger areas (about 25 ha and above) with main dykes but, in the beginning, operate only modules of about 10 ha and develop the remaining area subsequently. One 10-ha module can be operated by family labor but hired labor is required for larger areas. 2.07 In 1971, registered fish pond area covered some 170,000 ha (includ- ing 6,000 ha fish water ponds). In 1972 severe floodings damaged about 13,000 ha in the Central Luzon area, most of which has been repaired, but about 4,500 ha remain under make-shift arrangements operating at much reduced yields. About half of the total fish pond area is leased from Gov- ernment under long-term arrangements (up to 25 years, renewable for another 25 years) and the remainder is privately owned. Potentially, the fish pond area could be expanded about threefold, judging from the swampland classified as suitable for fish pond development. However, lack of infrastructure (roads and distribution facilities) and distance from major markets reduces this potential. 2.08 Fresh water pond culture is not yet common in the Philippines and the technical base and management are not as well developed as for brackish water ponds. However a research program, covering catfish cultiva- tion, is expected to introduce modern cultivation techniques. Shrimp cul- tivation is presently under active consideration by several research stations, but commercial application is not expected in the near future. See Annex 2 for details on inland fisheries. Shore Facilities 2.09 Fishing ports are not in operation as yet in the Philippines. Even at Navotas (Greater Manila), which receives 70% of the landings, fish is presently discharged by amphibious trucks from fishing vessels anchored off-shore. However, a project to develop Navotas into a fishing port is estimated to become operational in 1975 and would greatly facilitate fish marketing for the major consumption area. An FAO/IBRD Cooperative Program Mission visited the Philippines in 1972 to investigate the potential for additional fishing port facilities. While the estimated fish landings may not justify investments in further fishing port facilities at present, there is an outstanding need for improvement and construction of marketing and distribution facilities. Existing ice-making facilities, transport equipment, cold storage facilities, auction halls and the like, are inadequate and any large-scale increase in fish production would require expansion and provision of new facilities (Annex 1). 2.10 Presently, there are about 33 shipyards in the Philippines, mainly concentrated around Manila. Five to eight of these are capable of steel vessel construction (up to sizes of 1,000 GT), while the remainder specialize in repair and maintenance and in wooden vessel construction. Repair and main- tenance facilities for the fishing fleet based around Manila appear adequate; there is, however, a serious lack of slipways and simple repair and main- tenance facilities in the southern part of the Philippines to the extent that even the existing fleet cannot be properly served there. Marketing 2.11 The fish production is almost entirely consumed domestically in fresh condition. Because storage capacity is limited, fresh fish is con- sumed daily and any surplus over daily requirements is sold immediately at considerable discount for drying and smoking and subsequent retailing in inland areas. Attempts to establish canneries have not been successful be- cause raw-material prices have not allowed competition with imported canned mackerel from Japan. 2.12 In Navotas, a form of auction prevails under which bids are "whispered" to a few large fish brokers, so that actual transaction prices - 5 - are difficult to obtain. Fish brokers operate on commission selling fish to wholesalers either on behalf of fishing operators or middlemen, who, in turn, have bought the fish in some other landing center and transported it to Manila. Further details on markets are presented in paras 5.02 through 5.04. Extension, Education and Research 2.13 Inland fisheries research and extension services are provided primarily by the Bureau of Fisheries (BOF). The College of Fisheries, University of the Philippines (UP), also conducts research. Although BOF has a large staff and its facilities are reasonably well developed, the quality and effectiveness of its service need improvement, especially in the inland fisheries sector. Discussions between BOF and UP are currently being held to set up a training program for BOF's extension services with UP providing the facilities. This program together with the proposed provi- sion of an aquaculture extension expert (paragraph 3.12) would be particularly timely since it is proposed to use BOF's extension staff to guide and counsel potential subborrowers in the inland fisheries sector (para 4.05). 2.14 The establishment of a marine Fisheries Training Center with UNDP assistance is presently under discussion. This center would provide on-the- job training for captains and fishermen in modern equipment and fishing gear. Further training is being provided by UP and numerous fisheries schools. BOF itself operates four training vessels which are used to demonstrate improved fishing techniques, and to undertake experimental fishing surveys and explorations. The recent addition of two more research vessels would provide the means to conduct test fishing programs to determine the marine resource base more accurately. Agreement has been reached during negotiations that BOF would discuss and carry out a test fishing program mutually satis- factory to the Bank and the Government. 2.15 Available statistics are not too useful for fisheries policy formulation. There are uncertainties with regard to resources, production and consumption. However, the 1971 Census will provide revised data for the inland fisheries sector and abolition of the "fish-caught-fee" might lead to much more accurate catch reporting and the proposed test fishing programs would improve overall knowledge of the marine resources. Further, Government assisted by the Ford Foundation is presently conducting consumption pattern and marketing studies for fish and fish products, which would result in more information regarding these aspects. Fisheries Credit 2.16 The most important institutional sources for medium- and long-term credit are the Rural Banking System (privately-owned and supervised by the Central Bank), the Development Bank of the Philippines and commercial banks. Non-institutional credit includes traders, equipment suppliers and oil companies; however, due to a tight credit situation the importance of non- institutional credit has declined and credit funds for fisheries development are very scarce. - 6 - 2.17 The rural banks have played a major role in short-term fisheries financing, especially for inland fisheries, but a minor role in financing medium- and long-term fisheries development, although financing (about US$1.3 million) had .been provided under Bank Loan 607-PH for the very small operators. Disbursements have been slow so far but are improving through promotional efforts and provision of technical assistance for project ap- praisal. Commercial banks have also been an important source of short-term financing, mainly for marine fisheries. However, DBP has been the major source of medium- and long-term financing for fisheries development. Up to June 30, 1972 loans to fisheries amounted to 1 137.4 million (US$20.3 mil- lion (para 4.02). Fisheries Administration 2.18 In November 1972, Government issued a Fisheries Presidential Decree (No. 43) to provide policy guidance and to coordinate and delineate the various activities of the participating agencies of the industry. An important feature is the creation of the Fishery Industry Development Council to formulate development policies for the industry. Overall responsibility for policy coordination is vested in the Department of Agriculture and Natural Resources, while BOF, as a Directorate under the Department, has the primary responsibility for policy implementation. As a result, BOF's functions include coordination of training, research and extension as well as administration and regulation. The only major function outside BOF relates to extension of credit, although the decree envisages the establishment of a development fund to provide finance for special programs not yet defined in detail. 2.19 For administrative purposes, ten fisheries regions have been established in 1972, although most statistics still refer to the former eight regions. Each region has a Regional Office which supervises fisheries demonstration and research stations in that region. In 1972 BOY's staff totalled over 1,600. Of these, about 450 were employed on inland fisheries extension and 265 on the improvement of the marine fisheries sector. Development Policies 2.20 Government places high emphasis on increasing fish production above the estimated present production of 1.0 million tons per year. Although the base for fishery statistics is poor (para 2.15), crude estimates of marine resources and research results of inland fisheries, together with a growing demand for fresh fish (para 5.01), suggest a substantial expansion potential. However, requirements for rapid and sustained growth of the fishery sector would be: (a) improved knowledge of the resource base to formulate a rational fishery policy, including sound investment criteria, (b) additional investments in supporting infrastructure, and (c) improved extension services, especially for inland fisheries. The proposed project has been designed to help meet these requirements. - 7 - III. THE PROJECT A. General Description 3.01 'The objective of the proposed project is to assist Governmcnt. strategy (a) to increase fish production for domestic consumption, (b) to remove constraints hampering long-term development of this sector, and (c) prepare projects suitable for external iinancing. The project would, theru fore, concentrate on further development of viable small- and medium-sized commercial operations and on rehabilitation and improvement of recently flood-damaged fish ponds. The marine fisheries component would increase commercial fisheries production by about 34,000 tons per annum at full development, while the inland fisheries component would restore about 3,000 tons of production lost through typhoon daiage and increase milkfish produc- tion by about 11,000 tons per annum. The project would also improve the knowledge of marine resources through the use of existing research vesse3s., strengthen extension services through a training program and introduce iprovc lending practices. Finally, the studies on fish marketing and distribuLion and smallholder fish ponds would prepare investment programs for future expansion of the fisheries sector. 3.02 Specifically, over a 4-year investment period, the project woul (a) provide credit to individuals and companies in the marine fisheries sector for: (i) construction of 15 steel and 45 wooden fully equipped fishing vessels; (ii) procurement of 10 second-hand fish carriers to increase fishing efficiency; (iii) construction of three ice-making facilities and two simple slipways to support fishing operations; and (iv) procurement of vessel and fisheries equipment to improve existing fishing operations; (b) provide credit to individuals in the inland fisheries sector for: (i) rehabilitation of 4,500 ha of flood-damaged fish ponds to restore production to previous levels; (ii) improvement of 7,400 ha of existing fish ponds through introduction of improved pond layouts and cultivation techniques; and (iii) construction of 100 ha of fresh water ponds; - 8 - (c) provide technical assistance and training including: (i) a marine specialist and a naval architect to assist DBPts Fisheries Group in design and procurement of fishing vessels; fish carriers and equipment; and (ii) an aquaculture extension expert to assist the Bureau of Fisheries in upgrading its extension service for milkfish cultivation ano in further training DBP's technical appraisal staff. In addition, the project would include: (d) a fish marketing and distributon study (by consultants) to prepare specific recommendations for investment in this field; and (e) a study (by consultants) to prepare specific recommenda- tions for investments in a smaliholder fish pond project. 3.03 'lie responsibility for credit operations would be vested in DBP, through the Fisheries Group (FG) wiLhin its Agricultural Projects Department. rG would be suitably organized and W4 an; 'thened (para 4.03) to implement the project. Its staff would be supported and assisted by BOF's extension staff, particularly in preparing technical appraisals in the inland fisheries sector. Technical appraisals for marine oDerations would be assisted by the marine specialist attached to FG. The Government, with the assistance of consultants, would be responsible for preparing the fish marketing and the smallholder fish pond projects. B. Detailed Features 3.04 Fishing Vessels. The proposed project would provide credit to finance 60 fishing vessels, of which 15 would be of the 130-GT class, and 45 of the 70-GT class. The 130-GT vessels would have a steel hull with an overall length of about 28 m, be powered by a diesel engine of about 750 hp, and carry a crew of 17. The 70-GT vessels would have a wooden hull with an overall length of about 24 m, be powered by diesel engine of about 336 hp, and . ya crew of 15. Both types would be equipped with trawl fishing gear, shc-wave radios, fish finders, and mechanical net hauling gear. DBP's naval architect would provide the final design and specifications in cooperation with representatives of potential subborrowers. Average investment, including incremental working capital, would be f 1.2 million (US$180,000) for the larger vessel and ? 0.4 million (US$59,000) for the smaller one. Vessels of comparable size and similar equipment are operated and they are in great demand by operators. General descriptions, outline drawings and specifications appear in Annex 3. Agreement has been reached during negotiations that the Bank would approve the final design and specifications of the vessel types prior to construction. -9- 3.05 Fish Carriers. Present fish carriers are simple second-hand vessels, mostly former fishing vessels from abroad, with no refrigeration or sophisticated equipment which is quite adequate for their operations. The project would provide credit to finance 10 second-hand fish carriers at a cost of about half of that if constructed specifically for this purpose. The carriers would be not more than 8 years old, have sufficient insulated fish holds (not less than 75 tons) and a carrying capacity to support and improve fishing operations. Most operators in Manila are fairly distant from principal fishing grounds and either use their own or hire carriers to supply their vessels at the fishing grounds and transport fish to the markets. One carrier usually serves two to three vessels depending on the fishing season. 3.06 Ice-Making Facilities. The proposed project would provide credit to finance three ice-plants expected to be located around the Visayan Sea. Each facility would cost on average r 1.4 million (US$206,000) and have a capacity of 30-tons block ice per day. The cost estimates assume that facilities would generate their own electricity, be equipped with ice-crushers, and serve about 20 fishing vessels each. Combined capacity of two plants would be adequate to provide sufficient ice for the proposed fleet expansion in the Visayan Sea. One plant would provide ice to the existing fleet. Larger fishing operators or local companies would operate these facilities. Local consultants engaged by the sub-borrower will prepare the detailed design, layout and engineering of these facilities (para 3.07). 3.07 Slipways. Although studies are in progress to establish simple repair and maintenance facilities on the Visayan Sea, there are no special- ized facilities at present to serve the fishing fleet based there. Vessels in need of repair are beached at high tide and repairs carried out at low tide. The proposed project would provide credit for two facilities estimated to cost t 0.35 million (US$50,000) each, consisting of marine railways on which fishing vessels would be pulled up for servicing. They would be operated by local companies and be capable of servicing vessels up to 150 GT. In the Philippines a number of qualified local engineering consultants, familiar with these comparatively simple constructions, are available. During negotiations, agreement has been reached that DBP would cause sub-borrowers to hire competent consultants, on terms and conditions acceptable to the Bank, to prepare design, layout, detailed engineering under turnkey arrange- ments for ice plant and slipway construction. 3.08 Vessel Improvements. The use of modern fishing techniques and equipment is increasing but lack of finance is hampering rapid progress. The proposed credit for improvements would provide finance to replace obsolete machinery, such as net drums, winches, power blocks, generators, transmissions and to add complementary equipment such as short-wave radios, echo-sounders, and fish finders. BOF estimates that about 100 vessels would require such improvements for more efficient operations. Average costs are estimated at about 1 50,000 (US$7,500) and DBP's marine specialist would be consulted on the suitability of the proposed equipment in each individual case. - 10 - 3.09 Rehabilitation of Flood-damaged Fish Ponds. The 1972 typhoon damaged about 13,000 ha of fish ponds mainly in the Central Luzon area. Although Government financial assistance was provided for the most urgent repairs, it is estimated that about 4,500 ha still remain under make-shift arrangements with a much reduced production level (Annex 3). The proposed project would therefore assist by providing credit for rehabilitating these ponds to restore production to former levels and increase production through improved layouts and cultivation techniques. Average investment is estimated at ? 2,000 (US$300) per hectare. 3.10 Development of Fish Ponds. The proposed project would provide finance to improve about 7,400 ha of established fish ponds and to construct 100 ha new fresh water ponds. This first phase has been based on credit demand, the availability of banking services, provision of extension staff to guide operations, and construction labor available in areas with easy access to major consumption centers (Annex 3). Demand for fresh water ponds is limited but new cultivation techniques might increase demand later (para 2.08). Their inclusion would therefore provide DBP with valuable experience for a future expanded program. Average investments would be f 5,000 (US$740) per hectare Eor development and 1 7,000 (US$1,030) per hectare for construction of fresh water ponds. 3.11 Technical Assistance. A marine specialist and a naval architect would be engaged by DBP and assigned to the Fisheries Group of DBP. The naval architect would assist in determining the final detailed specifications of the two standard fishing vessels and pre-qualify suppliers and shipyards. The marine specialist would prepare tender documents for local competitive bidding for the vessel hulls, and coordinate procurement and installation of equipment to be installed at prequalified shipyards. Periodically, the marine specialist would visit the shipyards to ensure that construction conformed to contract standards. Furthermore, he would design a suitable basis for international competition to procure the 10 second-hand carriers. He would also evaluate the proposed vessel and gear improvements. A general work plan for these experts appears in Annex 4. The employment of the marine specialist and the naval architect, with qualifications and experience and on terms and conditions acceptable to the Bank, is a condition of effectiveness. 3.12 Training. An aquaculture extension expert would be engaged by the Bureau of Fisheries (BOF) to assist in training its key extension personnel and DBP's appraisal staff in the inland fisheries sector. About 100 trainees would receive training over a period of 2-1/2 years in the University of the Philippines (College of Fisheries, Inland Fisheries Project) in Los Banos and Iloilo City. The research staff working in these facilities would also be available to assist in lecturing on specialized subjects. Overseas training would be provided to five or six most promising trainees to deepen their knowledge and provide a nucleus of instructors after the expert's assignment expires. A general outline of the expert's qualifications, work plan and training objectives appears in Annex 5. Agreement has been reached during negotiations that a training program, acceptable to the Bank, for BOF's key extension and DBP's staff in the inland fisheries sector would be carried out; and that an aquaculture extension - 11 - expert, with qualifications and experience and on terms and conditions acceptable to the Bank, would be employed. 3.13 Future Project Preparation. A qualified consulting firm would be engaged by Government to make specific recommendations towards an invest- ment program for a fish marketing and distribution system, including high priority proposals for the major consumption areas. An outline of the proposed study, which is expected to last about 18 months, is in Annex 6. Agreement has been reached during negotiations that Government would hire within six months after the signing of the loan a qualified consulting firm, on terms and conditions acceptable to the Bank, to perform the study. 3.14 A feasibility study of a smallholder fish pond (brackish water) project would be financed under the project. The one-year study would include detailed recommendations on the implementation of such a project. An outline of such a study is in Annex 7. During negotiations agreement has been reached that Government would hire within six months of the signing of the loan, a suitable consulting firm, on terms and conditions acceptable to the Bank, to perform the study. C. Project Implementation Schedule 3.15 The project would be implemented over a four-year period as shown in Annex 8. The development period for individual investments ranges from one to five years. Full development would be reached eight years after project commencement. D. Cost Estimates 3.16 Total project cost is estimated at V 125.4 million (US$18.5 million), of which 45%, or Y 56.6 million (US$8.4 million) would be foreign exchange. Detailed unit cost estimates are presented in Annex 9 and summarized below. - 12 - () million) (US$ thousands) Foreign Local Foreign Total Local Foreign Total Exchang A. Marine Fisheries Component 1. 130-GT steel trawlers (15) 3.6 14.4 18.0 530 2,130 2,660 80 2. 70-GT wooden trawlers (45) 5.0 13.0 18.0 740 1,920 2,660 72 3. 120-GT second-hand fish carriers (10) - 3.4 3.4 - 500 500 100 4. Vessel improvements 0.3 5.2 5.5 40 770 810 95 5. Ice plants (3) 0.8 3.4 4.2 120 500 620 80 6. Slipways (2) 0.3 0.4 0.7 50 50 100 50 Subtotal 10.0 39.8 49.8 1,480 5,870 7,350 80 B. Inland Fisheries Component 1. Rehabilitation of typhoon- damaged ponds (4,500 ha) 8.4 0.6 9.0 1,240 90 1,330 7 2. Pond development (7,400 ha)33.7 3.8 37.5 4,970 560 5,530 10 3. Fresh water ponds (100 ha) 0.6 0.1 0.7 90 10 100 10 Subtotal 42.7 4.5 47.2 6,300 660 6,960 9 C. Technical Assistance and Training 1. Marine Specialist and Naval architect 0.1 0.6 0.7 10 90 100 90 2. Local consultants 0.4 - 0.4 60 - 60 - 3. Aquaculture extension expert 0.1 0.8 0.9 20 120 140 86 4. Fellowships & Misc. 0.3 0.4 0.7 50 50 100 50 Subtotal 0.9 1.8 2.7 140 260 400 65 D. Future Project Preparation 1. Fish marketing project 0.2 1.5 1.7 30 220 250 88 2. Smallholder fish pond project 0.1 0.9 1.0 20 130 150 87 Subtotal 0.3 2.4 2.7 50 350 400 88 E. Incremental Working Capital 1. Marine fisheries 1.8 - 1.8 260 - 260 - 2. Inland fisheries 3.8 - 3.8 560 - 560 - Subtotal 5.6 - 5.6 820 - 820 - F. Price Contingencies (5% p.a.) 9.3 8.1 17.4 1,360 1 210 2,570 47 TOTAL 68.8 56.6 125.4 10,150 8,35) 18,500 45 3.17 Cost estimates are based on 1972 manufacturer's or builder's prices including freight, insurance and installation costs. Import duties or other levies are not included since fisheries is a "preferred industry" and re- gistration with the Board of Investments (para 4.06) exempts potential sub- borrowers from import duties. A 16% contingency has been added to meet an expected 5% annual inflation on both local and foreign cost items over the 4-year disbursement period. This rate is based on estimated domestic infla- tion and inflation in the expected supplier's countries. Funds to finance the technical assistance and training component have been included, although - 13 - Government and DBP are actively seeking bilateral assistance. Any savings on these items would be used for further fisheries development. E. Financing 3.18 The financing plan for the project is shown below: (U Million) (US$ thousands) Sub- Govern- Sub- Govern- borrowers DBP ment IBRD Total borrowers DBP ment IBRD Total' Marine Fisheries Component 11.7 - - 46.6 58.3 1,720 - - 6,880 8,600 Inland Fisheries Component 5.5 21.8 - 27.3 54.6 810 3,210 - 4,030 8,050 Incremental Working Capital 0.7 5.8 - - 6.5 100 860 - - 960 Technical Assistance and Training (a) Technical Assistance DBP - 0.5 - 0.7 1.2 - 70 - 110 180 (b) Extension and Training - - 0.5 1.3 1.8 - - 70 200 270 Future Project Preparation - - 0.4 2.6 3.0 - - 60 380 440 17.9 28.1 0.9 78.5 125.4 2,630 4,140 130 11.600 18,500 Percent of Total 14% 22% 1% 63% 100% 3.19 On average, sub-borrowers would contribute about 14% of invest- ment requirements, including incremental working capital. However, individual contributions in the marine fisheries sector would be not less than 20%, and for inland fisheries they would range from 5 to 15%, with the small and medium-sized operations contributing less (para 4.10). Most of the invest- ment in marine fisheries would be made to sub-borrowers owning less than five vessels, while small and medium-sized fish pond operations (less than 50 ha) would require the bulk of investments in inland fisheries. 'Incremental working capital is essential to bridge the time between start of operations and sales. It is usually provided from commercial banks. However, at present such funds are very difficult to obtain. Financing arrangements, - 14 - therefore, stipulate that incremental working capital would be provided partly from sub-borrowers and partly from DBP if not available from other sources (para 4.07). Agreement to this effect has been reached during nego- tiations. 3.20 The proposed Bank loan would contribute US$11.6 million, or 63% of total project costs. It would cover 50% of total cost of inland fisheries component and the foreign exchange cost of all other items. Sub-borrowers would contribute about US$2.63 million, DBP about US$4.14 million and Government about US$0.13 million to cover the total project costs of US$18.5 million. 3.21 The Bank loan would be to Government for 17 years including six years of grace at the standard interest rate. This term is based on a dis- bursement period of four years and sub-loan repayment terms of up to 12 years including grace periods up to 4 years. Under a subsidiary loan agreement, Government would assume the foreign exchange risk and on-lend about US$11.0 million to DBP on the same terms for investments in the fisheries sector and technical assistance. The balance of the Bank loan of about US$0.6 million would remain with Government to assist in financing the training of extension staff and future project preparation. Should funds for these purposes become available from bilateral sources, the corresponding part of the US$0.6 million under this item would also be on-lent to DBP for project purposes. The execution of the subsidiary loan agreement in a form satisfactory to the Bank, is a condition of loan effectiveness. F. Procurement 3.22 Procurement for project vessels would be separated into (i) hull procurement and (ii) procurement of equipment such as main engines, fishing gear, electronic and other equipment because: (a) individual operators are likely to have a small fleet and therefore aim at standardization of their equipment to reduce the need for large and costly inventories of spare parts and to avoid delays due to slow communications; and (b) individual operators are in the best position to determine the make of the equipment most suited to their needs based on their existing equipment and trained personnel. These considerations common to credit-type projects preclude bidding procedures for fully equipped vessels. DBP's naval architect would therefore establish design criteria for standardized hulls for the two categories of project vessels and these would be procured from prequalified shipyards following local competitive bidding procedures (para 3.23). Transportation difficulties and the need to match the equipment to be installed would prohibit hull procurement from abroad. DBP's marine specialist would also establish technical performance criteria and standards for the various equipment items. Beneficiaries would order equipment, with the make of - 15 - their choice, through DBP from suppliers previously pre-qualified through international advertisement (para 3.24). These equipment items would then be installed at local shipyards. To the extent, practicable, bulking of sub-loan applications would be arranged by DBP. By following these procedures requirements of individual operators will be accommodated without foregoing the economies of large-scale orders made possible by the project. 3.23 Local shipyards with low labor costs, and freight cost advantages over foreign suppliers, would be the cheapest source for hulls. Quotations obtained from foreign shipyards indicate savings of about 20 to 40% and in extreme cases 80%, for steel vessels constructed locally. Wood is still cheap in the Philippines and savings are even higher for wooden trawlers. 3.24 Equipment for the vessels, such as main engines, winches, fishing gear and electronic equipment is not manufactured in the Philippines, but suppliers from several countries, mainly USA, Japan, Germany, UK and Norway are already established there. Through international advertisement, other suppliers would be encouraged to establish themselves and provide adequate service facilities and spare parts inventories, and the market would be open to suppliers meeting project standards and specifications. The adver- tisement would indicate the approximate type of equipment and total quantity required and potential suppliers would quote prices on various quantities of each type of equipment. DBP, assisted by the marine specialist, would then order the make of equipment and quantity needed depending on subloan appli- cations and individual operator's choice and have it installed on the hulls. 3.25 Procurement of second-hand fish carriers would be confined to imported vessels and would contain the basic elements of international competition. DBP's marine specialist would devise details of an appropriate system for procurement. He would call for offers on behalf of individual sub-borrowers from major fishing nations based on general specifications particularly with regard to age, fish-holding capacity and suitability for the proposed operations. After review by DBP and potential sub-borrowers, suitable vessels would be certified at their mooring place by marine surveyors for seaworthiness etc. A final choice would then be made after comparing costs, delivery time and availability of spare parts. 3.26 Procurement of equipment for vessel improvements would be through normal trade channels after DBP's marine specialist had reviewed the technical suitability of that chosen by an individual operator. International com- petitive bidding procedures would not be appropriate because individual requirements would vary, and these items would either replace obsolete machinery or supplement existing equipment. Most of the proposed items (para 3.08) are not produced in the Philippines. However, many manufacturers are represented there and offer a wide variety of type and make of suitable equipment. 3.27 Formal bidding procedures for fish pond construction, rehabilitation, and improvements would not be appropriate because as in other credit projects applications would be small and numerous with varying needs at scattered sites. Investments, to be carried out in several provinces, would range - 16 - from f 1,000 (US$147) for simple main dyke repairs to Y 50,000 (US$7,375) for a 10-ha fish pond development. The bulk of the investments would range from f 3,000 (US$442) to f 50,000 (US$7,375). Construction techniques are simple and would be performed by manual labor which, in most cases, would be partly provided by the operators themselves. Fish pond operators would therefore make appropriate arrangements, which would be approved by DBP or its branch office, with local labor or contractors in their respective area. 3.28 Procurement of ice-making facilities and slipways would be under turnkey arrangements because several types of equipment are involved, all of which are not made by a single manufacturer, and it would be essential that one contractor take overall responsibility to synchronize installation of equipment and civil works. The applications would be suitably bulked and contract would be awarded following international competitive bidding in accordance with Bank Guidelines. Local consultants (para 3.07) would prepare design, layout, detailed engineering for ice-plant and slipway construction. DBP would review sub-loan applications and prepare the tender documents with the assistance of local consultants. They would also visit construction sites periodically to ensure that construction conformed to contract standards. During negotiations, agreement has been reached that the procurement procedures satisfactory to the Bank as outlined in paras 3.22 through 3.28 would be followed. G. Disbursements 3.29 The Bank would reimburse the estimated foreign exchange component for all items, except inland fisheries where 50% of total costs would be pro- vided. Against appropriate documentation, the Bank would reimburse the Borrower for: (a) 100% of sub-loan disbursements (excluding working capital) for marine fisheries representing 80% of total project component costs; (b) 56% of sub-loan disbursements (excluding working capital) for inland fisheries, representing 50% of total component costs; and (c) 100% of foreign expenditure or 90% of total expenditure for consultant's services and fellowships abroad. Any savings would be used to finance further fisheries development. A quarterly schedule of estimated disbursements is given in Annex 10. - 17 - IV. ORGANIZATION AND HANAGEMENT A. Development Bank of the Philippines 4.01 DBP is known to the Bank, and administration of the previous loans (Rice Processirig, 720-PH and Livestock, 823-PIT) is satisfactory to data. DBP's overali financial position is still difficult but has been steadily improving under the new management (Annex 11). Despite present shortcomings, DBP would be in the best position to administer the credit program (Annex 12) after havin , introduced the organizational and proccdural changes in its Fisheries Group. In addition, since November 1972 an advisor, seconded by the Bank, is preparing an Operational Manual for DBP which will provide working procedures for the operations, filling an urgent need for review, integration and codification of instructions. The organizational and procedural proposals for the Fisheries Group have been fully discussed with the DBP's management and its advisor and would be introduced (paras 4.03 through 4.07). Details on DBP organization and financial position are provided in Annex 11. 4.02 Fisheries Loan Portfolio. DBP is presently reviewing its portfolio to determine accurately its loans in arrears. Preliminary figures indicate that loans delinquent compared to total loans outstanding is about 27% for industry and 21% for agriculture. Within the agriculture sector, DBP has 1,912 active loans to fisheries with a total outstanding of P 36 million out of a total fisheries lending of 5,840 loars valued P 137.4 million (US$20.3 million) up to FY 1972. Total fisheries loans represent about 13% of DEP's loans to agriculture. They show a relatively high rate of defaults of 44% by amount. However, looking into the aging of these defaults, fisheries loans with delinquencies of less than 2 years comprise 14% and less than 4 years 23% of the total. Loans with delinquencies over 5 years constitute about 59% of total loans outstanding (Annex 11, Table 11). In summary, recent loans show a much more satisfactory performance and with the changes proposed under the project (paras 4.03 through 4.10), the situation is expected to further improve. It is felt that DBP's collateral-oriented approach (para 4.09) together with inadequate financial and technical appraisal and virtually no supervision has often in the past led to financing projects which were either incomplete or under-capitalized from the start. This explains in part the defaults under the previous fisheries credit programs. Nevertheless, there is a need to evaluate the causes of failure to guide future operations, and to establish the non-collectable bad debts in the fisheries loan portfolio to be written off. Agreement has therefore been reached during negotiations that a comprehensive and individual assessment of the fisheries loans in default, satisfactory to the Bank, would be completed by DBP's staff within one year after loan signing. B. Project Organization 4.03 The Fisheries Group (FG) within DBP's Agricultural Projects Department would be responsible for the proposed credit operations. Its - 18 - present organizational structure and its present staff, would, however, be inadequate to perform this task. Technical evaluations in the inland fisheries sector are reasonably well undertaken, but marine fisheries operations would need assistance. Supervision needs to be strengthened and separated from lending operations because of the present number of projects which need immediate attention. Therefore, the FG would be headed by a senior assistant manager and comprise two divisions, project appraisal, and project supervision. Each division would be headed by a senior officer. The project appraisal division would comprise two senior fisheries technicians (inland and marine fisheries) and an experienced financial analyst, who would form the nucleus of the appraisal staff working as a team. The project supervision division would be staffed with at least one marine fisheries specialist and one inland fisheries specialist. It. i a -on,ition of effectiveness that an assistant manager, with qualifications and experience acceptable to the Bank, and the two division chiefs had been employed. Annex 12 shows FG's organizational pattern and staffing requirements. 4.04 DBP's headquarters and its branch and agency offices would receive loan applications. They would then be screened by FG's technic al and financial staff aided by supporting departments, if required, to establish the creditworthiness of the applicant. In processing applications, one staff member of the team (para 4.03) would carry responsibility for coordination of work, preparation of the report and recommendations to the Board. The assignment of responsibilities for a project to one senior staff member would ensure speedy work progress and eliminate frequent delays in present loan operations. Further details are presented in Annex 12. During nego- tiations, agreement has been reached that working procedures as outlined above would be introduced and that the Bank would comment on the final proposed procedures for the Fisheries Group prior to implementation. 4.05 Improved cooperation with other Government agencies, in particular BOF, would be required. Staff shortages in DBP would not allow adequate counseling of prospective applicants, assisting with technical appraisals and providing technical supervision in the inland fisheries sector. BOF's extension staff should be used for this purpose as much as possible. With its staff trained through the proposed training program (para 3.12) improved operational results .are expected. Agreement has been reached during nego- tiations, that a memorandum of agreement between DBP and BOF, regarding man- power assistance by BOF and extension services, would be executed. 4.06 Most of the marine fisheries operators are corporations, associa- tions and partnerships. In order to qualify for incentives such as duty-free imports for capital investments, under the "preferred" industry requirements, these entities must register with the Board of Investments (BOI). The registration is sometimes a rather lengthy process but experience in the rice processing project (720-PH) has shown that this could be considerably curtailed through cooperation between DBP and BO. Agreement has there- fore been reached during negotiations that DBP would assist potential sub- borrowers to register, and would execute a memorandum of agreement with BOI to facilitate and to speed registration procedures. - 19 - 4.07 Efforts would also be required by DBP to give the fisheries lending program broad publicity and to familiarize potential borrowers with its major aspects and the credit facilities offered. Cooperation with other financial institutions would be sought in the promotion of the program (espec.ally to avoid overlapping with financing available under Loan 607-PH) and their financial assistance to the program. Possibilities for such cooperation seem to exist with the rural banks and the private development banks, in particular in financing working capital for the inland fisheries sector, and with the commercial banks for the marine fisheries sector (para 3.19). C. Lending Policies and Procedures 4.08 DBP would make sub-loans on the basis of investment proposals evaluated by FG appraisal staff--and in case of the marine fisheries sector reconmended by the marine specialist as to technical, financial and economic feasibility. Sub-loans for ice-plants and slipways would be prepared for sub-borrowers by local consultants (para 3.07). Evaluation of sub-loans would emphasize management capability and experience of each applicant. An outline of appraisal requirements appears in Annex 12. Loan disbursements would, whenever practical, be made directly to suppliers, manufacturers and contractors. Sub-loans or combinations of sub-loans to individual sub-borrowe in excess of US$100,000 in the inland fisheries sector, and US$250,000 in the marine fisheries sector, would be approved by the Bank prior to commitment. 4.09 DBP presently requires that its loans for fisheries projects be secured at least up to 50% with titled real estate property or property which is in the process of being titled. This provision has greatly re- stricted credit demand in the marine fisheries sector, since most potential sub-borrowers do not possess sufficient real estate to satisfy these colla- teral requirements. This aspect is even more serious in the inland fisheries sector, where titled real estate is normally not available, particularly for the smaller operator, since he leases his ponds under long-term arrangements from the Government. To expand the credit program in the fisheries sector, DBP would therefore have to re-orient its collateral requirements towards a more project-oriented lending policy based on thorough technical, financial and economic evaluation of investment projects and detailed supervision during the repayment period. With this approach, loans for vessels, equipment and facilities would be adequately secured by the value of the investment itself, provided suitable arrangements were made for "all-risk" insurance during the repayment period. In the case of inland fisheries, the assignment of the lease-hold rights together with the value of the permanent improvements should be sufficient to secure the loans. During negotiations, agreement has been reached that DBP would follow the lending procedures as outlined above (paras 4.08 and 4.09) and would use standard sub-loan agreements for fishing vessels and fish ponds, satisfactory to the Bank. - 20 - D. On-lending Terms 4.10 Terms of sub-loans would be flexible and be based on the financial evaluation of the investments to be financed. However, interest and repay- ment terms would generally be in accordance with the following schedule: Sub- Repay- borrower's Sub- Grace ment Equity Loan Interest Period Period -------%--------%--------- -----years---- Marine Fisheries minimum maximum 130-GT Trawler 20 80 12 2-3 8-10 70-GT Trawler 20 80 12 2-3 6-8 Fish Carrier 20 80 12 1-2 6-8 Vessel Improvements 20 80 12 1-2 4-6 Ice-Plants 20 80 12 2-3 8-10 Slipways 20 80 12 2-3 8-10 Inland Fisheries /1 Fish Pond Rehabilitation: 5-15-- 85-95 12 2-3 5-7 Fish Pond Development 5-15 85-95 12 3-4 7-19 New Fish Pond Construction 5-15 85-95 12 3-4 10-12 /1 Operations up to 25 ha: 5%; from 26-50 ha: 10%; over 50 ha: 15%. The interest rate of 12% is DBP's current rate for medium- and long-term lending in all sectors. The blended cost of capital to DBP would be about 7.5% per annum on the basis of a Bank loan of 7.25% and an average cost of about 8% for DBP's own funds. This would give DBP a gross spread of 4.5% per annum, considered to be adequate for administrative expenses and overheads and leaving a sufficient margin for slippage and bad debts. The financial implications of the proposed project for DBP are shown in Annex 13. During negotiations, agreement has been reached that the foregoing on-lending terms would be introduced. E. Accounts and Audit 4.11 DBP's business and financial operations are under audit and in- spection by an internal controller division. By charter, DBP is also subject to an independent audit and examination of the Government Auditor General, who maintains a staff of about 60 certified public accountants at DBP. Separate project accounts would be established, maintained and audited annually by the Government Auditor General and such audit would be acceptable to the Bank for the purposes of this project. Furthermore, DBP would establish a cost - 21 - accounting system for the Fisheries Group to determine accurately its overheads and administrative costs for this group. Audited project accounts and DBP's financial statements would be submitted to the bank within six months after the close of its fiscal year. Agreement regarding accounts, cost accounting system and audit has been reached during negotiations. F. Project Evaluation 4.12 The Fisheries Group would be responsible for evaluating the benefits realized under the project. It would monitor an adequate number of representative sub-loans to make periodic evaluation of economic im- pact of the credit program. These reporLs would be made available to the Bank within six months after the close of each fiscal year. Agreemkent to this effect has been reached durin, negotiations. G. Future Project Preparation A.13 During negotiations agreement has been reached that Government would uosignate the Department of Aricu3ture and N;:tural Resources to gulde an1 supervise the implementation of the fish marketing and distribution and smallholder fish pond project studies (paras 3.13 and 3.14). V. PRODUCTION, MARKETS AAD OPERATING RESULTS A. Production 5.01 The proposed fishing vessels would produce about 34,000 tons of fish annually at full development, representing about 9% of present total commercial marine production. The fish pond rehabilitation component would restore about 3,000 tons of lost milkfish production due to typhoon damage and increase production by about 2,000 tons through improved ponds and cultivation techniques. The fish pond development program would increase milkfish supply by about 9,000 tons at full development. The latter increase would represent about 9% of Government's estimates of total present produc-- tion. B. Markets 5.02 A continuation of present trends in population and income growth would result in about a 5% annual demand increase for marine products. These increases, averaging some 56,000 tons a year in 1970-75 and 68,000 tons in - 22 - 1975-80, are substantially above increases in output in recent years (Annex 1). In addition, most of the recent increase has come from municipal (traditional) fisheries, where only a small proportion enters commercial trade and for which annual production is estimated at 540,000 tons. Cheap marine fish is usually consumed daily by lower income groups, while comparatively high prices for milk fish make it a speciality. Retail prices for fish increased more rapidly th-an ay other component of the retail price index of foodstuffs in Manila, sugygesting faster growth of demand as against supply. Fresh fish has also i:uited substitution possibilities, because canned fish is bought for its shlf-life and frozen fish has very low consumer acceptance. Present trends, therefore, indicate an increasing fresh fish deficit over the coming years. Alost the entire production would therefore be consumed domestically (Annex 5.03 The southern Luzon region, which includes the Greater Manila area, accounts for about 70% of total fish trade. Existing landing and marketing facilities are overloaded but the completion of the Navotas fishing harbor in 1975 with adequate landing and marketing facilities would easily accommodate expected increases. 5.04 Wholesale price data are difficult to obtain (para 2.12) but available information suggests that average ex-vessel prices ar-e P 1,400 (USS207) per ton in the Greater Manila area and V 1,100 (US$162) in other major landing centers. Ex-pond prices for milkfish are about V 3,000 (US$442) per ton. These prices have been used for project evaluation. Further details on markets and prices are presented in Annex 14. C. Operating Results Sub-borrowers 5.05 A summary of the financial benefits, derived from representative investment models, is given in the following table, while the details are presented in Annex 15. - 23 - Marine Fisheries Component Investment 130-GT 70-GT Fish Vessel Ice- Slip- Model Trawler Trawler Carrier Improvement Plants ways Investment Cost (P 000) 1,240 422 359 50 1,411 348 /1 /2 Operating Income- 371 172 147 2W-- 368 112 Debt Service 237 98 78 18 274 67 Net Income After Debt Service 134 74 69 10 94 45 Rate of Return (%) 21 25 51 82 21 22 Inland Fisheries Component Investment Fish Pond Fish Pond Fish Pond Fresh Water Model New Construction Rehabilitation Development Ponds Investment Costs (f 000) /1 85 35 55 185 Operating Income- 26 26 26 57 Debt Service 18 9 14 40 Net Income After Debt Service 8 17 12 17 Rate of Return (%) 20 46 27 21 /1 Sales minus operating expenses at full development. /2 Incremental. 5.06 Net income and financial return would be sufficiently high to make the proposed investments atractive. In calculating these returns current prices for both inputs (including imputed value of family labor) and outputs were assumed to continue at their present levels. The time to reach full development ranges from one year for carriers and vessel improvements to five years for fish pond development. In general, fishery is a risky activity because control over catch is imperfect and yields are affected by pests and diseases. Therefore, the models for fishing vessels and fish ponds, which would determine the success of the project, have been tested against foreseeable risks. The analysis (Annex 15) indicates that there is a 4%, 10% and 11% probability that financial rates of return would drop below 15% for the 70-GT trawler, the 130-GT trawler and new fish pond construction, respectively. The probabilities that financial rates drop below 10% are negligible. 5.07 The value of total production would be about US$13.2 million per annum at full development. Incremental income tax returns would be on average US$1.3 million annually, based on current levels of income taxes. It is expected that some of the net income generated by the project would be retained by sub-borrowers to increase consumption of basic items like clothing, housing, food and education. The remainder is expected to be - 24 - invested in expanding these relatively small operations through self-financed growth. VI. ECONOMIC BENEFITS AND JUSTIFICATION 6.01 Under the project total estimated landings of the proposed new vessels would be about 34,000 tons per annum valued at US$6.0 million. Proposed suppporting facilities, such as fish carriers, ice plants and slipways would have sufficient capacity to support these expanded fishing operations and provide additional services to the existing fleet valued at US$0.2 million. The inland fisheries development program would restore about 3,000 tons of lost production by rehabilitating flood-damaged fish ponds not properly repaired, and would increase milkfish production by about 11,000 tons per annum at full development including 360 tons of shrimp for exports from fish ponds. The total estimated value of fish pond production is about US$7.2 million. 6.02 The economy should realize a rate of return of 34% from total project investments with a rate of 22% for marine and 43% for inland fisheries. The calculations for the marine fisheries component include a corresponding part of investment and operating costs for the new fisheries harbor at Navotas which is financed from other resources. Without these supplementing investments the rate of return would be 28% for this component. The very attractive rate of return for fish farming results from costs already incurred prior to rehabilitation and development of ponds. If all ponds were to be newly constructed the rate of return would be 23% for these investments. 6.03 To test the project components against changes in investment costs and production results, a sensitivity analysis has been carried out. By in- creasing the cost of project investments by 15% without increasing the value of the benefits, the overall rate would drop to 30%, and to 19% and 37% for marine and inland fisheries, respectively. By decreasing the value of the benefits by 15% without changing the costs of the project investments, the overall rate would drop to 24%, and to 11% and 31% for investments in marine and inland fisheries, respectively. See Annex 16 for details. 6.04 At full development, the marine fisheries component would generate about 870 new permanent jobs on fishing vessels and 70 in ice-making and repair facilities. The fish pond rehabilitation and development program would provide about 1,400 permanent positions either for family members or hired labor presently greatly underemployed or unemployed. Further, during the construction period, shipbuilding activities and civil works for ice plants and slipways would provide employment opportunities estimated to total 840 man-years. Due to labor intensive construction methods, the reha- bilitation and development of fish ponds would require about 4,000 man-years of unskilled labor per year during the development period. 6.05 The project's incremeatal production would improve the diet of mostly lower income groups through increased availability of animal protein - 25 - and the results of the proposed test fishing program would determine further exploitable marine resources. The training program for the extension service would assist the small and medium-sized fish pond operators to carry out their investment programs. The economy would also benefit in the long-run through the fish marketing and smallholder fish pond studies to be carried out under this project guiding future fisheries development. 6.06 Finally, through strengthened management and organization, the project would provide valuable experience to DBP in fisheries credit operations. It would help introduce credit discipline in an important part of the Philippine fisheries sector and prepare it for future expanded credit on a financially sound basis. VII. RECOMMENDATIONS 7.01 During negotiations, the Government agreed to the following principal points: (a) it would discuss with the Bank and carry out a test fishing program on terms and conditions satisfactory to the Bank (para 2.14); (b) it would carry out a training program, acceptable to the Bank, for the extension staff of the Bureau of Fisheries (BOF) and DBP's appraisal staff in the inland fisheries sector (para 3.12); and (c) it would employ an aquaculture extension expert with qualifications and experience and on terms and conditions acceptable to the Bank, to carry out such training program (para 3.12). 7.02 In addition,DBP has agreed to the following principal points: (a) it would procure fishing vessels, carriers, vessel equipment, ice-plants, slipways and fish pond rehabilitation and develop- ment satisfactory to the Bank as outlined in paras 3.22 through 3.28; (b) it would complete within one year after loan signing through its staff, satisfactory to the Bank, a comprehensive and individual assessment of the fisheries' loans in default (para 4.02); (c) it would follow lending policies and procedures as outlined in paragraphs 4.08 and 4.09 and would use standard sub-loan agreements for fishing vessel and fish pond operations, satisfactory to the Bank, for investments; and - 26 - (d) it would introduce on-lending termns to sub-borrowers as outlined in para 4.10. 7.03 Conditions of effectiveness of the proposed loan are that: (a) DBP has employed a marine specialist and a naval architect with qualifications and experience and on terms and conditions acceptable to the Bank (para 3.11); (b) a Subsidiary Loan Agreement, satisfactory to the Bank, has been executed between DBP and the Government (para 3.21); and (c) DBP has employed an assistant manager to head FG with qualifi- cations and experience acceptable to the Bank and two division chiefs (para 4.03). 7.04 The project is suitable for a Bank loan of US$11.6 million for a period of 17 years including six years of grace. The borrower would be the Government of the Republic of the Philippines. April 19, 1973 ANNEX 1 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Marine Fisheries 1. Commercial Marine Fisheries involves the operations of vessels over 3 tons (GT) operating mostly in the waters between the islands. By law their activities are restricted to waters deeper than 12.6 m (7 fathoms). These operations have shown considerable progress in the past decade through the use of improved equipment and methods of fishing and now provide about 37% of the 1.0 million tons total production. Other marine fisheries, operating near the shore with small traditional vessels, involve mainly subsistence fisheries (municipal fisheries) and their production is estimated at 53% of the total. Fishing Methods, Fish Species and Fishing Grounds 2. In the last 10 years, there has been a substantial reduction in the number of small vessels (less than 10 tons) and an increase in the number of vessels 70 tons or more (Table 1). Most of the fish is now caught by this latter group. Catch by Size of Vessel 1971 Size of Vessel Share of Reported Catch (Tonnage) % 3-10 11.0 10-30 14.3 30-70 17.5 70 and over 57.2 Total 100.0 Source: Fisheries Statistics of the Philippines, 1971. 3. Most fish are caught by trawl, bagnet and purse seine, methods common to all sizes of vessels. The beach seine, gillnet and round hull are restricted to the smaller vessels, as is most fishing by hook and line. ANNEX 1 Page 2 Catch by Fishing Method Fishing Method Share of Reported Catch Trawl 38.3 Bagnet 22.5 Purse seine 30.8 Hook and Line 2.0 Beach seine 1.0 Round Haul seine 0.6 Other 4.8 Total 100.0 Source: Fisheries Statistics of the Philippines, 1971. 4. The Bureau of Fisheries (BOF) publishes production data for some 68 types of fish, but four species represented about two-thirds of the total catch by commercial vessels in 1970. Round scad accounted for almost 40%, slipmouth and sardines represented 9% each and chub mackerel accounted for 5-1/2% of the total catch. 5. The Sulu Sea (along Palawan Waters), which is the major source of round scad, provided 58% of the total fish catch in 1970 and production rose from 136,000 tons in 1965 to 222,000 tons in 1970. Catch in the Visayan Sea increased from 70,000 tons to 90,000 tons, and in 1970 represented 24% of the total. Production of Manila Bay was essentially the same in 1970 as in 1965, and in recent years accounted for about 5% of the total catch. Together, these three fishing grounds produced 87% of the total catch. See Table 2 for species and fishing grounds. 6. Most of the other fishing grounds produced less in 1970 than in 1965, with the most pronounced reductions in the relatively small area of Guimaris Strait between Panay and Negros, and in most of the waters around Luzon (particularly Sibuyan Seas, Tayabas Bay, Ragay Gulf, Lingayen Gulf, Laman Bay and San Miguel Bay). On the other hand, the fish catch increased off Southern Mindanao (Davao Gulf and Sibuguey Bay). The Resource Base 7. The territorial sea of the Philippines, according to Republic Act 3046 and based on the so called "archipelago principle", encompasses some 1.6 million km2 within an area 540 nautical miles wide (118*E to 127*E) and 1,640 nautical miles long (21*25'N to 4*45'N). Only a few commercial fisher- men operate outside these limits -- mainly in the South China Sea -- and their catch makes only a small contribution to the total. The Philippine Islands are marked by an extremely narrow continental shelf and a precipitous continental slope, so that most of the sea area is deep water (over 180 m). Far more suitable for fishing are the shallower waters which cover an area of ANNEX 1 Page 3 only about 185,000 km2 (of which about 100,000 km2 are shallow areas in internal waters). The largest shallow water areas are the Sulu Sea (68,800 km2), the South China Sea (36,100 km2), part of the Pacific (34,800 km2), and the Visayan Sea (12,000 km2). The marine fishery is mainly concentrated in these areas (Map). 8. The FAO/UNDP/SF Deep Sea Fisheries Development Program which became operational in 1965 and is now completed, aimed at carrying out experimental fishing and training of fishermen on its two research vessels. The Program estimates the potential annual catch within Philippines Territorial Waters at about 1.65 million tons, almost double the actual catch in 1970. The potential consists of 700,000 tons of demersal fish (bottom-associated species) and 950,000 tons of pelagic fish (surface-associated species). 1/ 9. According to the FA0 project estimates, the subsistence (municipal) catch in 1970 represented 80% of the potential in the waters dominated by this category, and the commercial catch about 40% of the potential as pre- sented below: Potential and Actual Catch in Philippines Waters ('000 m tons) Item Municipal Commercial Total Fish Potential /1 Demersal 350 350 700 Pelagic: Inshore 300 350 650 Pelagic: Offshore - 300 300 650 -1,000 _1,2650 Fish Catch 1970 /2 Demersal 306 172 478 Pelagic 205 210 415 511 382 893 /1 Data from Z. Russeck (FAO). /2 Kvaran estimates that perhaps 60% of the municipal catch and about 45% of the commercial catch consist of demersal species. The latter figure is based on the catch of vessels fitted with gear appropriate for bottom fishing: the otter trawl and hook and line. 1/ E. R. Kvaran, Marine fisheries Potential in the Philippines and South East Asia. ANNEX 1 Page 4 10. Data presently available suggest that there is a development poten- tial for further expansion of the commercial fleet. The FAO/UNDP Program states that most productive fishing areas to exploit are the southern part of the Sulu Sea, the northern side of the Celebes Sea, the South China Sea off Luzon, and the Pacific off Bicol and Samar. However, it should be stressed that little actual test fishing programs have been carried out in Philippines waters and these estimates of potential resources are judgements based on information for similar areas. The proposal to use the two research vessels released from the FAO/UNDP/SF Program for a resource base study of the Philippine waters would permit more accurate estimates to assist in formula- ting future fleet expansion proposals. Shore Facilities 11. Fish production is almost entirely consumed within the Philippines, and the major part of the commercial production is landed in the Greater Manila area. BOF estimates that about 70% of the total commercial catch (about 270,000 tons) is landed in Navotas. Other important landing centers are Iloilo City and Cadiz City. In addition, there are some 100. landing sites - usually without specialized facilities and handling only small amounts for local consumption. 12. There are no fishing ports presently operating in the Philippines. Even at Navotas, which handles the bulk of the landings, fish is discharged by amphibious trucks from fishing vessels anchored off-shore. However, a project to develop Navotas into a fishing port, involving dredging an approach channel, and constructing wharves and a fish market building, is presently being implemented with financial assistance from the Asian Development Bank. This project is behind schedule but expected to become operational in 1975, which would greatly facilite fish marketing for this major consumption area. An FAO/IBRD Cooperative Program mission visited the Philippines in 1972 to investigate the potential for additional fishing port facilities. While estimated fish landings may not justify further investments in specialized fishing port facilities at this stage, there is an outstanding need for improvement and construction of marketing and distribution facilities. Throughout the islands BOF owns a small number of small ice-plants with limited capacity but some are not operating. Private entrepreneurs provide the bulk of the ice but the existence of local monopolies (through a govern- ment licensing system) has led to high-priced and inferior products. How- ever licensing requirements have recently been abolished by the Fisheries Decree and increased competition will probably improve the situation. Existing ice-making facilities, insulated transport, cold storage facilities, auction halls and the like, are inadequate and any substantial increase in fish production would require expansion and provision of such facilities. 13. Presently, there are about 33 shipyards in the Philippines, mainly concentrated around Manila. Five to eight of these are capable of steel vessel construction, while the remainder specialize in repair and maintenance and wooden vessel construction. Repair and maintenance facilities for the fishing fleet based around Manila appear adequate; there is, however, a serious lack of slipways and simple repair and maintenance facilities in ANNEX 1 Page 5 the southern part of the Philippines, to the extent that even the existing fleet cannot be properly served there. Administration 14. In November 1972, Government issued a Fisheries Presidential Decree (No. 43) to provide policy guidance and coordinate and delineate the various activities of the participating agencies of the industry. An important feature is the creation of the Fishery Industry Development Council to formulate development policies for the industry. The chairman is the Secretary of Agriculture and Natural Resources and other members include the Director of Bureau of Fisheries (BOF), Secretary of Defense, Chairmen of Government's lending institutions and representatives of the private sector. Overall responsibility for policy coordination is vested in the Department of Agriculture and Natural Resources, while BOF as a Directorate under the Department has the primary responsibility for policy implemen- tation. As a result, BOF's functions include coordination of training, research and extension as well as administration and regulation. The only major function outside BOF relates to extension of credit, although the decree envisages the establishment of a development fund to provide finance for special programs not yet defined in detail. 15. For administrative purposes, ten fisheries regions have been established in 1972, although most statistics still refer to the former eight regions. Each region has a Regional Office which supervises fisheries demonstration and research stations in that region. Each Regional Office has administrative, extension and fisheries law enforcement staff. In 1972, BOF's staff totalled over 1,600, including about 550 classified as "fisheries'technical", 100 as "non-fisheries technical" and the remainder as "non-technical". Of these, about 450 were employed on inland fisheries extension and 265 on the improvement of the marine fisheries sector. Extension, Education and Research 16. In the marine fisheries sector the training is provided almost exclusively by BOF through its four training vessels, demonstrating improved techniques and undertaking experimental surveys and exploration. Up to 1972, the FAO/UNDP Deep Sea Fisheries Development Program, now terminated, pro- vided about 800 fishermen with some basic technical training through its two research vessels. At present the establishment of an UNDP Deep Sea Fisheries Development Program to provide intensive training of short duration is under consideration. The training effort is expected to be aimed at captains, master fishermen and fishermen with at least five years' experience in order to introduce the application of modern equipment and gear. 17. The College of Fisheries at the University of Philippines offers degree and diploma courses in fisheries which also include some general education and a four-month on-the-job training course. At the secondary level, vocational education is provided through about 40 Fishery Schools offering courses in fish culture, fish capture and fish preservation. While enrollment in these courses has shown a faster growth than vocational ANNEX 1 Page 6 training in general, the quality of education is generally poor due to lack of equipment and materials. A recent IDA Credit 349-PH, the second one for education, would benefit the agricultural sector, including fisheries, through laboratory and workshop equipment, technical assistance, introductiot of a revised curriculum and, also, professional development of agricultural personnel at two colleges. The proposed project vessels would require about 60 qualified captains, 60 masterfishermen and about 810 unskilled fishermen. Special training would not be required because such fishing operations as proposed are already practiced in the Philippines. With regard to captaiins and masterfishermen, present training facilities and persons presently under training on fishing vessels are expected to provide sufficient personnel. Unskilled fishermen would be readily available, mostly from among the sub- sistence fishermen who prefer steady employment. Fisheries Statistics 18. Such fisheries statistics as have been collected in the past by BOF's staff have not been very useful for fisheries policy formulation. Statistics for municipal fisheries are based on an inadequate sample survey; for inland fisheries, on the registered fish pond area, irrespective of the areas actually under production; and for marine fisheries, on the reports of the vessel owners. Up to 1972 a fee was levied on the fish caught which tended to lead to under-reporting. Consequently, there are uncertainties with regard to resources, production and consumption. However, a number of projects have been started recently to improve the data base. In the inland fisheries sector, the 1971 Census will provide revised data, while abolition of the "fish-caught-fee" might lead to much more accurate reporting of the marine fisheries sector and proposed intensified research would improve knowledge of marine resources. Furthermore, Government assisted by the Ford Foundation, is presently conducting consumption pattern and marketing studies for fish and fish products, which should result in more information regarding these aspects. PHILIP.P)IES FIS1ERIES CREDIT PROJECT Number of Comwercial Fishing Vessels by Tonnage, 1965-1970 Tonnage (Gross) 1965 1966 1967 1968 1969 1970 3 to less than 10 941 955 832 711 677 666 10 to less than 15 322 352 384 355 341 356 15 to less than 20 108 149 150 121 128 122 20 to less than 30 143 161 200 191 212 202 30 to less than 50 187 184 211 230 202 224 50 to less than 70 124 124 129 125 146 146 70 to less than 100 240 235 287 312 334 332 100 tons and over 121 133 156 162 182 192 Unspecified 207 251 12 18 51 44 Total 2,393 2,54h 2,361 2,225 2,273 2 284 Source: BOF 1HILIPPINES FISHERIES CREDIT PROJECT Production of Comnercial Fishing Vessels by ypes of Fish and Fishing Grounda, 1965 and 1970 Sulu Sea Visayan Sea Manila Bay Other Total 965 1 970 196 1970 15: 19 1965 1970 1965 l9o Type of Fish -- (Palawan- - - - - - - - - - - - - - - - - - - - Tons - - - - - - - - - - - - - - - - - - - - - - - - - - Round Scad 77,064 126,655 9,206 14,94o 3,619 1,620 10,050 7,498 99,939 150,713 Sardines 24,768 22,313 1,609 3,751 821 1,359 5,410 5,46o 32,608 32,883 Slipmouth 2,806 6,802 15,074 16,924 3,507 3,645 9,779 5,883 31,166 33,254 Chub Mackerel 1,519 10,605 878 4,325 768 3,121 2,334 2,959 5,499 21,010 Nemipterid 2,971 7,570 5,083 4,669 2,428 2,750 2,259 2,165 12,741 17,154 Big-eyed Scad 39 4,409 6,465 7,921 8 217 4,052 1,826 10,564 14,373 Lizard fish 1,446 2,094 7,971 7,778 2,114 1,061 4,720 1,345 16,251 12,278 Bonito 1,056 3,733 306 1,171 267 56 1,401 2,287 3,030 7,247 Anchovy 270 905 615 582 785 1,062 10,931 6,692 12,601 9,241 Shrimp 812 2,513 3,529 3,646 1,326 1,354 4,824 2,865 10,491 10,378 Croaker 755 1,685 755 6,590 814 458 8,877 1,340 11,201 10,073 Other 22,207 32,386 18,657 172696 3,226 3,518 9,893 9,673 53,983 63,273 Totals 1MZ1 2212670 70118 2 12Jl 20.21 74.530 ±222 o 38,7 Source: Bureau of Fisheries ANNEX 2 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Inland Fisheries Species 1. There are two principal types of fish culture practiced in the Philippines: brackish water and fresh water culture. Brackish water cul- ture, which is by far the more important, has a history of over 300 years. The species cultivated is milkfish (Bangus), which is found in the warm coastal waters of the Indian and Pacific Ocean. Fully grown they weigh up to 20 kg, but commercially cultivated species are marketed at about 250-350 gram. Some tilapia, mullet, shrimp and crab also enter the pond with the inflow of water. 2. Milkfish spawn in the seas and the fry drift with the current to the coastal areas. Spawning of this fish under controlled conditions has not been successful. Fry are caught by professional collectors with special nets, mainly hand-operated, during certain seasons and at certain localities. Fry collected are sold either directly to pond operators, or to nurseries which grow them to fingerling size and then sell them to operators. 3. Cultivation and consumption of milkfish flourishes only in the Philippines, Taiwan and Indonesia since other countries have difficulties obtaining fry in sufficient quantities. International trading is very small due to limited acceptance of milkfish in other countries. Fishpond Construction and Layout 4. Generally, brackish water ponds are constructed in an estuarine mangrove swamp area by bunding of its perimeter, removal of existing trees, levelling of the bottom, construction of water supply and drainage canals and gates for water control. Construction methods mainly involve manual labor often provided by the operator himself. The ponds are filled with water during high tide, and by manipulating the water gates, water can be retained or drained. During the typhoon season, ponds, especially in Central Luzon, are subject to strong wave action and flooding which causes damage to the perimeter dyke and allows the fish to escape. The perimeter dykes should have a height of approximately 1.0 to 1.5 m above the highest tidal levels and be strong enough to resist wave action. Removal of trees and bottom levelling is laborious and is usually done in stages. Generally, a larger area, about 25 ha, is enclosed but development is carried out in 10 ha self-contained modules. Ponds not fully developed usually have tree stumps, which may occupy 25% of pond space, thereby considerably reducing the productivity of the pond. ANNEX 2 Page 2 5. In most cases, the operating pond area is divided by secondary dykes into a nursery pond, one, or several, transition ponds and rearing ponds. A typical pond layout is shown in Figure WB-7309. It comprises a nursery pond, covering about 2% of the total pond area, a transition pond with 10% of total pond area; the remainder would be used for rearing ponds. Fish Pond Operations 6. For reasons of economy the growth of fish is attained by depending as much as possible on natural fish food organisms produced in the pond and as little as possible on supplemental feeds. Milkfish appears to be a bottom algae feeder and, to a lesser extent, a plankton feeder. Therefore, the principal food is bottom algae (lab-lab) and promoting and maintaining this algae growth is essential. This has to be done by providing adequate plant nutrients to the pond (organic and inorganic fertilizer), proper management of the water conditions in the pond (depth, salinity, temperature, transparency, etc.), control of algae pests (snails, worms) and prevention of overgrazing either through fish population control or supplemental feeding. 7. The organic fertilizer most commonly used in the Philippines is chicken manure, but in Taiwan rice bran, peanut cake, soybean cake, sesame cake, copra legumes and pig manure are also used. In addition, various nitrogen, phosphorus, and potassium-based inorganic fertilizers are applied. However, standard procedures are difficult to formulate because they vary with water and soil conditions. For instance inorganic fertilizer was widely used in Taiwan, but it was discontinued because of ineffectiveness. On the other hand, the use of insecticides was introduced in 1959 and found to be very effective. More recently, rice bran has been successfully used as direct supplementary feed in Taiwan. 8. Two methods of stocking are practiced: stocking with single size fingerlings, which is more common, and stocking with mixed size groups. In the first case, the fry are reared in the nursery pond and the fingerlings grow in transition ponds. The fingerlings, all of uniform size, are then transferred to the rearing pond where they grow to marketable size and a complete harvesting is done. When well managed, 2-3 harvests per year can be expected. The second method, introduced more recently, involves the stocking of fingerlings of usually three different sizes in one rearing pond. After a lapse of about 1-2 months the first marketable size group is harvested (with specific mesh size nets) and a new group of fingerlings is introduced. Through selective harvesting and repeated stocking 4-6 harvests can be gathered in a year. 9. Freshwater culture is not yet common in the Philippines, and the technical base and management are not as well advanced as for brackish water ponds. Potentially, over time, the Chinese carp and catfish in fresh water could produce yields as great as those of milkfish in the brackish water ponds. A constraint is the limited demand for freshwater fish in Central Luzon. Nevertheless, about one-fourth of the total undeveloped fish pond area is suitable for freshwater ponds, and large areas could be developed in Cotabato and Agusan del Sur on Mindanao and in Pampanga. ANNEX 2 Page 3 10. Shrimp (prawn) cultivation is of great interest to fish pond operators, especially in the Southern Philippines where local demand for milkfish is not high and the distance from major markets is considerable. However, the technical base for shrimp culture is not yet developed and not expected to emerge in the near future. For instance, in Japan, 10 years have elapsed since shrimp (penaeus japonica) cultivation was developed and while hatching of eggs from naturally fertilized shrimps has been successful, experience with shrimp cultivation from the fry stage to com- mercial size has not been successful because of high production costs and mortality. Total production of cultivated shrimp in Japan in 1971 was about 300 tons per annum - compared with an annual consumption of about 130,000 tons. Fishpond Areas 11. BOF estimates that in 1970, fishponds covered some 168,000 ha, almost all of brackish water (perhaps 6,000 ha are fresh water ponds) and produced about 100,000 tons of milkfish for domestic consumption. About half the area is leased from Government under long-term arrangements (up to 25 years, renew- able for another 25 years) and the remainder is privately owned. The leased area has increased by some 9,000 ha since 1968, whereas the privately owned area has remained more or less unchanged. Table 1 shows the distribution of the present fishpond area and productivity by region and the swamplands still available for development. Potentially, the fishpond area could be expanded about threefold. At present, some 60% of the area and over 70% of the output are concentrated in Regions III and V where yields rank high. 1/ More than half of the swamplands available for development are in Regions VI and VIII, where present yields are among the lowest. 2/ The latter region has most of the potential area for fresh water fish ponds. There is also con- siderable room for further expansion in Region III (Palawan, Quezon and Pampanga Provinces). In looking toward large-scale development of swamplands, it should be noted that much of the potential fishpond swamplands are located in remote areas with very poor access to potential markets. Fishponds Yields 12. There is, however, a large production potential by increasing yields of fishponds. Although milkfish yields in the Philippines approach 600 kg/ha, compared with 300 kg/ha in Indonesia, they are far below the 1,700 kg/ha yields obtained in Taiwan. Such high yields in Taiwan are obtained by the use of fertilizers (and manure), pesticides, supplemental feed, and scientific stocking and harvesting. Soil, water and climatic conditions of Philippine ponds are extremely favorable to growth of milkfish and its natural food organisms. Recently, some leading operators, with technical assistance from various research projects, have been experimenting with alternative cultiva- tion techniques. Preliminary results are encouraging and this approach might 1/ Area and production are largely in Bulacan, Quezon and Pampanga Provinces in Region III and in Iloilo, Cadiz and Negros Occidental. 2/ Particularly Northern Samar in Region VI and Agusan del Sur and Davao del Norte in Region VIII. ANNEX 2 Page 4 be of great value to the overall development of milkfish culture in the Philippines since leading operators, encouraged by research and technical assistance, might help to spread appropriate cultivation methods applicable to their specific region. A program of fertilization and pest control is expected to raise yields in Philippine brackish water fishponds to 1,200 kg/ha per annum which is the target for the project fishponds to be achieved over a 5-year development period. With supplemental feeding and intensive manage- ment of fish populations, annual yields could possibly exceed 2,000 kg/ha. 1/ However, the economics and technology for supplemental feeding for the Philip- pine conditions are still uncertain. Extension, Education and Research 13. Research and extension services for aquaculture are provided by the Department of Agriculture and Natural Resources through the Bureau of Fisheries and, to some extent, by the National and Agricultural Council. The College of Fisheries of the University of Philippines conducts research through the Inland Fisheries Project (IFP). IFP's research and training centers, one in Central Luzon and one in Panay Island, are under construction now and when fully operational by the end of 1973, they would greatly assist in increasing fishpond productivity by developing modern fishpond management methods and teaching them to research trainees, extension workers and fish farmers. While the BOF has a large number of personnel who are organized into many field offices, the quality and effectiveness of the extension service are inadequate and need to be improved. BOF and IFP are presently discussing establishment of a training program aimed at upgrading BOF exten- sion service. This program and the proposed extension expert would be of importance to the project. In addition, the demonstration fish farms of the BOF and the private operators' cooperation with the IFP in demonstration and experimentation could provide effective means for dissemination of the research benefits. 1/ Yun-An Tang. Improvement of Milkfish Culture in the Philippines, Indo- Pacific Fisheries Council Current Affairs Bulletin No. 49, August 1967. PHILIPPINES FISHERIES CREDIT PROJECT Fish Ponds Areas, Production 1970 and Potential Area Swamplands available for development Fresh Region Area Production Yield Water Mangroves Total 1,000 ha '000 tons kg7ha 1,000 ha 1,000 ha 1,000 ha I 12.4 8.7 706 2.5 6.3 8.8 II 0.5 0.1 200 2.9 13.4 16.3 III 56.9 41.9 737 23.5 58.8 82.3 Iv 10.8 3.8 348 - 38.3 38.3 V 42.8 27.9 652 - 33.8 33.8 VI 14.4 4.3 297 9.7 141.6 151.3 VII 18.3 5.9 322 1.0 45.4 46.b VIII 12.1 3.9 322 86.6 32.3 118.9 Total 168.2 96.5 574 126.2 369.9 496.1 Source: Fisheries Statistics of the Philippines 1970.  PHILIPPINES FISHERIES CREDIT PROJECT Typical Fishpond Layout & Construction 10 ha UNIT LAYOUT DYKE CONSTRUCTION 250 m. MAIN DYKE 2 m jPOND O BOTTOM 1.6 0 00 < O _ z 'U 1 m. z i LL 0 SECONDARY DYKE Cr 2.5 M. 0.8 m. o C; NURSERY DYKE ____--2 m. RIVER/STREAM Scale: 1 m 1/2 inch Scale 100 m = 31/32 inch Legend MAIN GATE C0 SECONDARY GATE TERTIARY GATE World Bank - 7309  ANNEX 3 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Description of Major Project Components A. Description of the Proposed Project Vessels 1. During the past decade, the trawling fleet expanded by about 15-20 vessels per annum, mostly in the 70 gross-ton class. However, fishing operators find it increasingly difficult to finance fleet expansion. Funds from operations are mainly used for replacement of obsolete vessels but financial resources for additional vessels are difficult to obtain. 2. In general, prior to fleet expansion the following factors would have to be considered: (a) marine resources; (b) qualified personnel; (c) markets; (d) distribution facilities; and (e) fleet supporting facilities. Based on estimated credit demand and the above-mentioned factors, it is proposed to finance about 15 trawlers per annum over a 4-year investment period. The incremental production of about 34,000 tons per annum from the projcct vessels is well below the overall resource limit. As far as specific fishing grounds are concerned, the proposed vessels would be equipped to trawl in deeper grounds not yet exploited. The development of Navotas into a fishing harbor and the proposed provision of ice-plants would assist in distributing the increment. Repair and maintence facilities are adequate around Manila and the proposed provision of simple slipways would allow servicing the proposed fleet expansion. 3. The commercial fishing fleet is mainly based around Manila (Navotas) and the Visayan Sea. Operators from Navotas prefer larger steel vessels because of long distances to the fishing grounds and adequate repair and maintenance facilities at their base. However, operators around the Visayan Sea prefer smaller wooden vessels because of short distances to fishing grounds, lower investment costs (cheap wood), and inadequate faci- lities and skilled personnel to maintain steel vessels. The naval architect, to be attached to DBP, would therefore -- in cooperation with potential subborowers -- provide the final technical specifications for fishing ves- sels: (a) a 130-GT vessel, having a steel hul1 with an overall length of 27.5 m and powered by a 750-hp diesel engine; and (b) a 70-GT vessel, having a wooden hull with an overall length of 24.3 m and powered by a 335-hp diesel engine. Both vessels would be equipped with short-wave radios, fish finders and mechanical hauling gear. Vessels of comparable size and equipment are fishing in the Philippines and are in great demand by operators. The attached Charts No. WB-7310 and No. IB-7308 show preliminary outline and drawings for the two standard vessels. ANNEX 3 Page 2 Description of the Inland Fisheries Component The inland fisheries component has the main objective of rapidly increasing milkfish production for local consumption. Durine this first stage, rehabilitation (of typhoon-damaged ponds) and development of existing ponds would be emphasized, although new construction would not be excluded. 5. The 1972 typhoon damaged about 13,000 ha of fish ponds in Central Luzon. Government estimates that about 35% would either remain damaged or only partly repaired. Rehabilitation of about 4,500 ha would restore about 3,000 tons per annum of lost milkfish production and provide about 2,000 tons of incremental production through better pond layouts and improved cultiva- tion techniques. 6. Expansion of milkfish production through improvements of existing ponds would require adequate extension and banking service and ready access to major consumption areas because of the limited distribution facilities available. Therefore, demand for fish pond credit is expected to be con- centrated in Central Luzon and Panay Islands. It is estimated that a total of about 39,500 ha would require improvement and development. However, taking into account credit demands, manual construction methods and the modular approach (i.e. a 50-ha development would be generally divided into modules of 10 ha each), it is estimated that about 7,500 ha could be developed and improved over a 4-year investment period (including 100 ha fresh water ponds). The incremental production would be about 9,000 tons per annum at full development. 7. Annex 9 gives a description of work to be performed and unit costs for rehabilitation, development and new construction, while Table 1 of this annex summarizes the estimated regional distribution of the fishponds under this project. ANNEX 3 PHILIPPINES FISHERIES CREDIT PROJECT Expected Regional Distribution of Fish Pond Rehabilitation and Development Potential Area Project Area Region Total Area for Development for Development (ha) (%) (ha) (ha) A. Typhoon- Damaged Ponds 13,000 35 4,500 4,500 Subtotal 13,000 - 4,500 4,500 B. Develop- ment in: Pangasinan 9,600 40 3,800 1,000 Quezon 15,000 80 12,000 1,000 Pampanga 9,200 50 4,600 1,700 Subtotal 33,800 60 20,400 3,700 Iloilo 17,000 60 10,200 2,000 Capiz 11,200 80 8,900 1,700 Subtotal 28,200 68 19,100 3,700 C. Fresh Water Ponds - - - 100 TOTAL 75 000 59 44,000 12 000  仔，,  PHiLIPPINES FISERIES CREDIT PROJECT Example of Acceptab Deig for 70<GT Wooden Trwl F~ihing Vst P~NCWAL W CATON LEWGY#4 (OVERALL) 3 M BitEADTM4 BA M DEPW 2.4 M GR TON*AGE w TOM MAes UN00E -B NP. F~ 4R0 CAPACITY w ma FUEL OML TK CMACfTY 14 Ms COG 6aNNNT 15 PEUOO - E~en Room ScM.V m-m'' World Bank-7308  ANNEX 4 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Terms of Reference for Technical Assistance to DBP General Scope of Work 1. DBP requires technical assistance to design fishing vessels, pro- cure vessels and equipment, and supervise vessel construction. 2. DBP would contract two qualified individuals to assist DBP's Fisheries Group with the following duties and responsibilities: (a) Marine Specialist (1) He would review all marine fisheries Sub-loans (except ice-plants and slipways) as to technical feasibility, investment costs, operating costs and expected fish catch. He would report directly to the assistant manager heading the Fisheries Group. (2) He would assist DBP with procurement which would include, inter alia: (i) to prepare tender documents for local competitive bidding for the vessel hulls; (ii) to coordinate installation of equipment; (iii) to supervise vessel construction and installation; and (iv) to devise procurement procedures for second-hand fish carriers. (b) Naval Architect (1) He would assist the marine specialist to determine, in consultation with prospective sub-borrowers, the most appropriate vessel characteristics, detailed features and final design for fishing trawlers of approximately 70-GT and 130-GT; (2) He would assist the marine specialist with procurement which would include, inter alia: (i) pre-qualification of shipyards for vessel hull construction (steel and wooden); and ANNEX 4 Page 2 (ii) pre-qualification of equipment suppliers, establishing a short-list through inter- national advertisement. Time Estimates 3. The above mentioned services of the marine specialist would b- required for approximately two years and for the naval architect one year. ANNEX 5 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Terms of Reference for an Aquaculture Extension Expert Need for a Training Program 1. Fish ponds now produce about 10%, or 100,000 tons, of total fish production in the Philippines. Fish pond production per hectare averages only 570 kg/ha per annum, against a potential of 1,200 kg/ha and more. These differences arise because no standard management practices -- even in local areas -- are applied. Each operator seems to have his own practices, es- pecially in fertilizer applications which is the most important aspect of milkfish cultivation. An operator knowing what fertilizer to use and when to apply it can hardly fail in his operations. Fertilizers are the most expensive input and fish pond operators are now being advised by extension staff to use both organic and inorganic urea (nitrate) fertilizer with no evidence that these are as efficient as less costly inorganic fertilizers. With proper techniques the production could be greatly improved; however, to realize this potential an intensive extension program would be required. General Scope of Work 2. The Bureau of Fisheries (BOF) requires technical assistance for its extension service in the inland fisheries sector: (a) to update knowledge of recent developments in aquaculture; (b) to demonstrate cultivation methods to fish pond operators; and (c) to assist fish pond operators with technical aspects of subloan applications. 3. BOF would hire a qualified individual to perform the following duties and responsibilities during his 2-1/2 year assignment: (a) Training program development. The aquaculture extension expert would work directly under the Deputy Director of BOF and with the senior exten- sion staff. In cooperation with the University of the Philippines (Fisheries College) and its Inland Fisheries Project, he would develop an appropriate training program (including the cost) for BOF's senior extension staff and DBP's ANNEX 5 Page 2 appraisal staff to keep them current on new development in aquaculture. (b) Local instructors. He would select five or six promising staff and train them to become the nucleus of Filipino personnel to take over and expand the training operation after his departure. This staff may also benefit from overseas training (fellowships) before the experts completes his assignment (2-1/2 years). (c) Literaturepreparation. He would be responsible for the preparation of semi-technical literature for extension personnel and non-technical literature designed specifically for the fish pond operators. (d) Demonstration project preparation. He would help plan, execute and evaluate demonstration projects in the private sector to demonstrate new techniques as they are developed through research in the Philippines. 4. Training activities would include: (a) Lectures and laboratory demonstrations: (i) refresher courses on principles of aquaculture; (ii) pond environment--chemical analysis and control; (iii) fertilizers and fertilization; (iv) optimal pond layouts; (b) Application of technical knowledge: (i) each participant would conduct his own trials in cooperation with the private sector; (ii) the participants would be responsible for recording their trials; Cc) Evaluation of demonstration trials: (i) results of trials would be compiled, analyzed and discussed by the trainees and the instruction staff and made available to the private sector. ANNEX 5 Page 3 5. Participants would include about 80 senior extension staff from BOF and 20 appraisal staff from DBP. Courses would be held in research facilities of the Fisheries College. Training Courses would run for approxi- mately four months. March 5, 1973  ANNEX 6 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Terms of Reference for a Proposed Fish Marketing and Distribution Study Introduction 1. Fresh fish is a staple and the largest source of animal protein in the Filipino diet and demand is rapidly growing with increasing population. Government therefore plans to increase production by some 5%, or 50,000 to 70,000 tons a year, during the plan period from 1972 to 1975. These estimated production increases are higher than those achieved in the past and the major obstacle to increased fresh fish production seems to be the inadequate mar- keting and distribution system. In addition, high marketing costs due to in- efficient transport and handling and excessive middlemen tend to lead to un- attractive prices for both the producers and the consumers. The situation is further aggravated by unstable supplies and prices because of a poor com- munications system and the lack of cold storage. Excess supplies of fresh fish result in drastic discounts for the producers, because the fish is then bought for processing, such as salting, drying or smoking, resulting in low value products. 2. In view of Government's plans to increase fish production, the strong consumer's preference for fresh fish and the present inadequate marketing facilities and system, a study, to make specific recomendation with regards to an investment program for marketing and distribution facili- ties, is proposed. Ojbectives 3. The principal objectives of this study would be: (a) To review the existing fish marketing and distribution system. Particular attention would be given to its inefficiencies and the bottlenecks to the marketing of increased production; (b) To reach realistic estimates of national and regional production and consumption by major species, as well as landings at various locations over the next 10 years; (c) To recommend an integrated physical system necessary for the efficient distribution of the total production, to complement or replace the existing network; and (d) To formulate a phased investment program suitable for external financing. ANNEX 6 Page 2 Scope Review of the Marketing System 4. An examination of the existing system and its physical components of landing, handling, servicing, distributing, etc., would be made mainly with regard to capacity to handle additional production. 5. A fishing port for Navotas, financed by the Asian Development Bank (ADB), is due for completion by 1975. A study of its existing opera- tion and the proposed port operations would be used to identify inefficien- cies, avoidable costs, lost fishing time, and wasted resources in the present marketing system. The FAO/IBRD Cooperative Program mission of 1972 recom- mended a further analysis of Zamboanga and General Santos for possible devel- opment as fishing ports. Other landing centers would be included in this review. 6. All modes (river, road, rail, air) of the physical transportation and trans-shipment system would have to be analyzed with regard to handling costs and capacity. The cost component has many aspects: the quantity shipped, the distance moved and the preservation cost, including any loss in value due to loss in quality. Similarly, capacity has two aspects -- the quantity that can be moved, and the markets that can be reached in the time that the product is still in good condition. 7. Short-term over-supplies occur frequently with prices reacting rather sensitively. The supply situation needs to be studied for its rela- tion to the physical system, such as ice supply, freezing and storage, and transport as well as for its price effect on the producer and the consumer. 8. An outstanding issue within the marketing system is the number and role of the middlemen and the effect of the selling method on the price, availability and production of fish. Price margins and price control by middlemen would be analyzed. Advantages due to a centralized marketing organization for fish and similar products would be evaluated. In this con- text, the present market information system needs to be reviewed. Production and Consumption Projections 9. Based on the Government's programs and the expansion of fish operations in the private sector, estimates of the national and regional production and consumption would be essential. Important landing sites and the volume and type of their operation would need to be projected over the next 10 years. The consumption estimates would have to take into consideration factors, such as population, urbanization and income growth and others, as appropriate. The national nutritional targets could serve as a guide. Flowing from these considerations would be the estimates of regional surplus or deficits, inter-regional movements, possible transport modes and investment requirements. ANNEX 6 Page 3 An Integrated Physical System 10. Based on regional production and consumption patterns, an integ- rated physical system would be defined. Included in the recommendations would be the type, size and optimum locations of the physical facilities like landing sites, handling equipment, ice and storage facilities, trans- portation modes, fish markets, etc. Capital and operating cost estimates, identifying the foreign exchange components, would also be included. Organizational and Institutional Arrangements 11. Organization of the various marketing functions of the proposed system would be considered and included in guidelines for the Government. Institutional changes, such as centralized marketing system or cooperative marketing, would be analyzed. Particular attention would be given to staff ing and training requirements. Government policy guidelines regarding a market information system, price policy, production incentives and others would also be evaluated. Benefits of the Project 12. A quantitative analysis of the benefits from the integrated distribution and marketing system would be carried out. Benefits such as achievement of nutritional targets and improvement of geographical distri- bution as well as the consumers' and producers' benefits due to lower marketing costs should be stated. Preliminary Outline of the Proposed Study 13. The following areas would be dealt with: I. Existing Distribution and Marketing System: A. Fishing ports and landing sites: 1. location, volumes, fish species; 2. handling facilities and handling time; 3. preservation, spoilage and loss; 4. fish markets. B. Transport and Trans-shipment: 1. modes, volume, limitations; 2. market access; 3. preservation, spoilage and loss. ANNEX 6 Page 4 C. Supply and Prices: 1. short-term supply and demand; 2. price reactions and consequences; 3. relation to storage, ice supply, etc. D. Middlemen: 1. number, role, contribution to marketing cost; 2. market competition; 3. market information to seller/buyer; 4. auction system. II. Production Estimates: A. Government plans and targets: 1. actual past results; 2. programs and incentive policies; 3. potential catch and fish pond production; 4. research and extension service; 5. cooperative movement. B. Production estimates by region and species. III. Consumption Estimates: A. Population and urbanization growth; B. Income and price elasticities; C. Regional demand estimates by type; D. Nutritional targets and requirements. IV. Recommended Marketing System: A. Fishing ports and landing sites: 1. location and facilities recommended; 2. capital cost and foreign exchange; ANNEX 6 Page 5 3. operating cost; 4. benefits. B. Transport System: 1. amount of shipments; 2. mode of shipment recommended; 3. preservation method recommended; 4. cost-capital and per unit shipped. C. Storage and Freezing, Ice Plants: 1. types, locations and sizes; 2. capital cost and operating cost; 3. benefits. D. Summary of the proposed Marketing System. E. Institutional and Organizational Aspects: 1. middlemen and market competition; 2. market information system required; 3. organization of the transport facilities; 4. organization of the storage and freezing facilities; 5. organization of the ice plants; 6. access to credit and other services; 7. Government policy guidelines; 8. implementation of any institutional and organizational changes. V. Benefits from Project. VI. Implementation: A. Executing Agency and Organization; B. Phasing of Development. ANNEX 6 Page 6 14. Analysis of the foregoing factors shall, as much as possible, be based on available data. Where no data exists, the consultants will pre- pare estimates, using conventional methods under comparable conditions. 15. It is estimated that about 55 man-months would be required to complete the study outlined above. The study would be completed over an 18-month period. 16. Preparation of the study would require the following expertise: (a) Senior Agriculture Economist/Economist, trained and experienced in analysis and design of pricing policies, marketing organization and marketing and distribution systems; (b) Agricultural Economist, trained and experienced in analysis and projections of fish production and demand and in economic evaluation of improved marketing and and distribution systems; (c) Distribution Systems Analyst, trained and experienced in distribution systems, for the purpose of optimally deter- mining the size and location of various facilities; (d) Civil Engineer (one or more), with experience in design of cold storage, auction halls, wharves and the like; and (e) Transportation Economist/Engineer, experienced in evaluating distribution of fish by water, land and rail. 17. The entire group of experts would not be employed full time throughout the course of the study, but only engaged for the time required for their special tasks. However, it is envisaged that the senior agri- culture economist would serve as the director of the study for the full period. ANNEX 7 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Terms of Reference for a Proposed Smallholder Fish Pond Project Study Introduction 1. To accelerate the development of fish ponds, the Government has declared a policy to identify public lands to be divided into family size fish ponds and leased to landless individuals (Fisheries Decree). However, location, organization and integration with the sector have not been consid- ered. Thus, the fish pond estate concept needs to be studied in relation to the distribution and marketing study and the fisheries credit project. The proposed study would formulate a project, consistent with the existing sector and its development, suitable for external lending. Objectives 2. The principal objectives of this study would be: (a) To review the available studies and data regarding the existing and future production, distribution and con- sumption patterns as well as the potential areas for fish pond development including production, production costs, markets and market access; (b) To recommend the location, size and construction method for the estate(s), keeping in view the relevant factors of milkfish production and demand, adequate income levels to participants, supporting services and the employment potential of manual construction; (c) To recommend the organization for the activities of the fish pond estates, including technical support and train- ing for local staff, transport and marketing, operation and maintenance, and project costs and benefits; (d) To recommend the terms and conditions for the selection of beneficiaries and subloans; and (e) To prepare a program for implementation including policy guidelines for the executing agency. ANNEX 7 Page 2 Scope 3. The study would attend, inter alia, to the following issues: (a) Estates: Size and Location 4. The study would make recommendations regarding the size and loca- tion for a single estate or a complex of smaller estates with due regard to marketing of their production. Technical factors, such as soil, water and weather conditions; marketing factors, such as demand and price levels; roads and refrigerated transport; and production factors, such as technical service and cost of inputs, would all be analyzed for the various potential fish pond areas to ensure optimum location. Other studies, already completed or ongoing, would be consulted in order to achieve an understanding of the existing sector and how it would change as a result of government programs and policies. Especially, changes in consumption patterns with an improved distribution network would be taken into consideration. (b) Individual Smallholder Units 5. Within an estate, the area is to be subdivided into fish ponds of a size that could provide an average family with an adequate income, taking into account alternative employment, such as small-scale agriculture. This income should cover the requirement of food, shelter, clothing, schooling for the children and provide a surplus sufficient to tide over uncertain- ties of production. These requirements should be set, taking into account existing living conditions in small-scale agriculture. Based on the above definition the study should arrive at a target income figure for Philippine conditions. For a smallholder fish pond, the labor input would mostly be in the form of family labor, but considering other operational costs and financial obligations under its proposed terms and organization, the study would recommend an appropriate pond size. If technical, marketing and other conditions are found to differ significantly among the locations, pond sizes may differ according to these variables and more than one may be recommended. (c) Estates: Organization 6. Operating cost would depend significantly on the form of organization of the various activities of the estates. Sharing of marketing and transpor- tation functions would result in savings and improve market access at the same time. Pooling of labor for harvesting would eliminate the normal short-term labor shortage at this time. Bulk purchasing through a cooperative operation would lead to reduced costs for operating inputs. Equipment and resource sharing in other areas may be possible. 7. The cooperative concept above is considered desirable from the viewpoint of operational costs; however, restraints and the Philippine ex- perience with cooperatives would be taken into account prior to recommending the organizational framework of the estate. The objective is to ensure effi- cient management of activities without suppressing the initiative and re- sponsibility of the individual fish pond operators under the project and al- ternatives would be explored. ANNEX 7 Page 3 8. Depending on the size of the estates, the technical support func- tion could be performed through Government extension officers, a resident expert or an experimental station on the estate. 9. The issue of organization is considered to be the single most im- portant issue for the success of the project. The study would deal with this in great detail and separately analyze each of the estate activity to de- monstrate that it will be performed efficiently under the proposed arrange- ments. It would also assess manpower needs and training requirements at various management levels. 10. The study should also identify other needs of the estates not directly related to fish pond operations. Items such as housing, schooling, roads and utilities should be considered in recommending the location of estates. (d) Construction Methods of Fish Ponds 11. Besides recommending the optional pond layout which minimizes the total excavation and dyke building, the study should compare mechanical against manual construction methods. Capital costs, operating costs, speed and quality of construction and employment potential, as well as availability of trained manpower would be taken into account. In addition, related fac- tors, as to organization of the construction, pooling of, and compensation for, the labor of beneficiaries and ownership and payment for the shared resources, especially if costly mechanized equipment is involved, would also be evaluated for the two modes of construction. The study would, after com- parison, recommend a mode of construction for the estates, giving schedules and cost estimates. Phasing of construction might be desirable for effective use of mechanized equipment; however, it would delay the increase in fish production. The trade-offs here would be considered. Similarly, trade-offs between the employment potential of manual mode of construction and the speed and cost benefits from mechanized mode would be suitably covered in the study. (e) Terms and Conditions 12. Conditions for selection of a potential beneficiary and the proposed terms of leasing and financing would be dealt with in the study. The study would specify what constitutes adequate operational knowhow. If a prior training course would be required, recommendations for implementation would be made. Especially for a phased development program, the study would also recommend means of ranking beneficiaries in order of priority for the allot- ment of fish pond areas. 13. The number of potential beneficiaries would be estimated for each proposed project. The study would also estimate the loan amount required for the establishment and operation of the smallholder fish ponds, taking into account the proposals regarding estate organization, cost sharing and con- struction methods. Terms and conditions of subloans would be recommended. ANNEX 7 Page 4 14. Government policy and operations in this sector would be important to implement these estates and the study would recommend guidelines for the Government as they relate to the goals of such a project. Issues relating to leasing procedures and delays, technical service or others would be high- lighted, if considered crucial. (f) Project Financing 15. Subloans would be made to smallholder under this project, and proper loan supervision would be made. A suitable lending institution and its poli- cies and operation with respect to this project would be recommended. (g) Benefits from the Project 16. Benefits from the project would be estimated. Increased produc- tion, nutritional benefits and social benefits would be quantified. The economic implications of increasing production through smallholder fish pond estates as compared to large commercial operations would be examined, with particular emphasis on income and employment effects. Preliminary Outline 17. The following subject areas would be dealt with in the study: I. Review of Production and Consumption: A. Production and Consumption Centers: 1. Regional production and consumption for species involved; 2. Estimated growth. B. Distribution System. C. Potential Fishpond Areas: 1. Fertility, soil, water, weather; 2. Extension service; 3. Market access. D. Government Programs and Policies: 1. Production prices; 2. Incentives to the sector; 3. Cooperative programs, past experience. ANNEX 7 Page 5 II. Fish Pond Technology and Incomes: A. Construction Methods: 1. Capital and operating costs; 2. Speed and quality of construction. B. Operation of ponds: 1. Variables affecting operating costs; 2. Productivity; 3. Feasibility of cooperative management; 4. Technical services. C. Income levels; 1. Average family incomes; 2. Family needs and target incomes. III. Recommendations Regarding Specific Estates: A. The Estate: 1. Location and size; 2. Infrastructure; 3. Markets: distance, size and growth; 4. Production, prices. B. Organization and management: 1. Estate administration; 2. Purchasing inputs; 3. Marketing and transport; 4. Harvesting and maintenance; 5. Technical support. ANNEX 7 Page 6 C. Cost estimates: 1. Capital costs; 2. Operating costs. IV. Recommendations Regarding Smallholder Ponds: A. Recommended size and income levels. B. Capital cost and loan amounts. C. Operating cost and financial obligations. V. Terms and Conditions of Individual Subloans: A. Selection of beneficiaries. B. Training requirements. C. Conditions of loans and leases. VI. Benefits from the Project: A. Individual beneficiaries. B. Overall estate. 18. It is estimated that approximately 30 man-months would be required to complete the study outlined above. The study would be completed within 12 months. 19. Preparation of the study would require the following expertise: (a) Senior Agricultural Economist/Economist, familiar with implementation of estates dealing with a large number of smallholders, particularly organization and management aspects; (b) Aguaculture Specialist, familiar with construction of fish ponds, cultivation techniques and economics of fish pond operations; (c) Fisheries Economist, familiar with analysis and projection of supply and demand and in economic evaluation of benefits realized through implementation of an estate; and (d) Civil Engineer, Geological Surveyor and/or Transportation Engineer, to determine cost estimates for infrastructure and project components required. ANNEX 7 Page 7 20. The entire group of experts would not be employed full time throughout the study, but only engaged for the time required to fulfill the specific tasks relating to their specialty. However, it is envisaged that the senior agricultural economist would be engaged full time to be responsible for the study. March 5, 1973  ANNEX 8 PHILIPPINES FISHERIES CREDIT PROJECT Estimated Project Implementation Schedule Ydar 1 2 3 4 Tota: A. Marine Fisheries Component (No.) 1. 130-GT Trawlers - 1/ 3 5 7 15 2. 70-GT Trawlers - 10 15 20 45 3. Fish Carriers - 5 5 - 10 4. Vessel Improvements - 20 40 50 110 5. Ice Plants - - 2 1 3 6. Slipways - - 2 - 2 B. Inland Fisheries Component (ha) 1. Rehabilitation 1,500 1,500 1,500 - ,5oo 2. Development 500 1,500 2,000 3,00 7,400 3. Freshwater Ponds - - - 100 100 C. Technical Assistance and Training (U of total time 1. Naval Architect 50 50 - - 100 2. Local Consultants - 100 - - 100 3. Extension Expert - 40 40 20 100 4. Fellowships - 17 40 43 100 D. Future Project Preparation (T of total time) 1. Fish Marketing Project - 60' 0 - 100 2. Smallholder Fish Pond Project - 70 30, - 100 1/ Year 1 (1973/74) is primarily devoted to sub-loan appraisal, design and procurement procedures.  PHILIPPINES ATNEX 9 FISHERIES CREDIT PROJECT Detailed Unit Cost Estimates 1. The following tables present the estimated unit costs for proposed capiAl' investments. A. 130-GT Steel Trawler Item Local Foreign Total ------- P------------- 1. Hull (Steel) - 200,000 200,000 2. Engine (750-hp) 1 - 410,000 410,000 .r. Electronic Equipment /2 - 40,000 40,000 4. Hydraulic Winch - 100,000 100,00 5. Materials 10,000 170,000 i80,10 T. Labor 120,000 - 120,000 7. Overheads 110,000 40,000 1_,000 Total 240,000 960,000 1,200,000 B. 70-GT Wooden Trawler Item Local Foreign Total ------- P------------- 1. Hull (Wood) 76,000 10,000 60,000 2. Engine (335-hp) / - 227,000 227,000 3. Electronic Equipment - 17,000 17,000' 4. Mechanical Winch - 10,000 10,000 5. Labor and Mateials 30,000 20,000 50,00 6. Overleads 12,000 6,000 18,00 Total 112,000 290,000 402,000 C. Fish Carriers The unit price of P 340,000 is an average price for a 120-GT vessel based on quotations from Japanese suppliers. D. Vessel Improvements Item Local Foreign Totl ------- P ------------- 1. Power Block 2,300 45,5oo 48,ooo 2. Fish Finder 700 13,300 14,000 3. Winch 500 9,500 10,000 4. Electronic Equipment 1,000 17,000 18)000 5. Radio 500 9,500 10,000 NOTE: Not all items would be required; for purposes of calculation an average of P 50,000 per vessel has been assumed. Local costs represent transport and installation; on average 5$* Including gearbox, shaft and propeller. Incuding fish-finder and radio. Encluding auxiliary enwine tn rriirsmTri n i, PHILIPPI&ES ANNEX 9 Page 2 FISHERIES CREDIT PROJECT E. 30-Ton/Day Ice Plant Item Local Foreign Total 1. Land and Buildings 200,000 44,000 244,000 2. Refrigeration Machinery 50,000 700,000 750,000 3. Artesian Well, Pumps 3,000 2,000 5,000 4. Cooling Tower, Water Tank 3,000 10,000 13,000 5. Generator Set 30,000 330,000 360,000 6. Miscellaneous 4_000 14,000 18,000 Total 290,000 1,100,000 1,390,000 F. Marine Slipway Item Local Foreign Total ----------P ------------- 1. Buildings (Office and Workshop) 32,000 8,000 40,000 2. Retaining Well, Excavation 36,000 9,000 45,000 3. Foundations for Machinery 3,000 1,000 4,000 4. Supporting Structures (Beams) 11,000 3,000 14,000 5. Rails 2,000 2,000 4,000 6. Moving Equipment (for Vessels) 21,ooo 5,000 26,000 7. Crane 5,000 10,000 15,000 8. Winch 1,000 9,000 10,000 9. Engine 1,000 9,000 10,000 10. Generating Set (incl. wiring) 15,000 85,000 100,000 11. Service Boat 35,000 10,000 45,000 12. Labor and Miscellaneous 10,000 10,000 20,000 Total 172,000 161,000 333,000 G. Typical Rehabilitation of Typhooon Damaged Ponds (10-ha Module) Cost Per Hectare Assuming: Moderately Minimally Type of Work Repaired Repaired ----------------------------P----------- 1. Main Dyke Reconstruction/Reinforcement 400 1,000 2. Secondary Dyke Construction 200 500 3. Uprooting of Tree Stumps 200 300 4. Excavation 200 400 5. Levelling 100 100 6. Water Gates (Reconstruction) 300 600 7. Doors 100 100 Total Capital Requirement per Hectare 1,500 3,000 PHILIPPINES ANNEX 9 Page 3 FISHERIES CREDIT PROJECT H. Typical New Construction of Fish Ponds (10-ha Module) Cost Per Hectare Assuming: Low Vegetation High Vegetation Type of Work on Even Ground on Uneven Ground -------------------------P ---------------- 1. Main Dyke Construction 2,150 2,900 2. Secondary Dyke Construction 400 650 3. Uprooting 1,500 3,700 4. Excavation 300 800 5. Levelling 150 250 6. Gates 800 1,000 7. Doors 100 100 8. Others (accessories and equipment) 600 600 Total Capital Requirement per Ha 6,000 10,000 Average Capital Requirement per Ha 8,000 I. Typical Improvement of Fish Ponds (10-ha Module) Cost Per Hectare Assuming: Moderately Minimally Type of Work Developed Developed --------------P -------------- 1. Main Dyke Reinforcement 850 1,450 2. Secondary Dyke Construction 400 600 3. Uprooting 650 1,200 4. Excavation 300 800 5. Levelling 200 250 6. Gates 900 1,000 7. Gate Doors 100 100 8. Others 600 600 Total Capital Requirements per Ha 4,ooo 6,ooo Average Capital Requirement per Ha 5,000 J. Typical New Fresh Water Pond Construction (25-ha Module) Type of Work Cost Per Hectare 1. Main Dyke Construction 5,000 2. Secondary Dyke Construction 1,000 3. Gates 500 4. Doors 50 5. Accessories and Equipment 45o Total Capital Requirements per Hectare 7,000 NOTE: The foreign exchange component ranges from 7% for rehabilitation to 100 for new construction.  ANNEX 10 PHILIPPINES FISHERIES CREDIT PROJECT Estimated Quarterly Schedule of Disbursements IBRD Fiscal Year Cumulative Disbursement and Quarter at End of Quarter ------ US$1000 ------ FY 1974 1st- 2nda/ 3rd 12 hth 131 1975 ldt 250 2nd 369 3rd 488 hth 760 1976 1st 1,531 2nd 2,302 3rd 3,045 hth 4,079 1977 1st 5,090 2nd 6,08 3rd 7,006 hth 8,170 1978 =Ts 9,334 2nd, 10,467 3rd- 11,600 /stimated Date of Effectiveness /Estimated Closing Date  ANNEX 11 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT The Development Bank of the Philippines 1/ Introduction 1. DBP was established by statute in 1958 as a successor to the post- war Rehabilitation Finance Corporation which in turn was an offshoot of the Agricultural and Industrial Bank created in 1939. The nature and character of the Bank has developed over a span of more than 30 years to become by far the most important development finance institution of the Philippines. 2. DBP has been vested with powers to engage in a wide range of activities of which the principal ones are the following: a) Loans, guarantees and equity investments in private enterprises in agriculture, industry and public utilities. b) Loans to provincial and municipal authorities for self- liquidating or income producing projects; c) Financing of purchasing, production and marketing activities of cooperatives; d) Investments in the capital stock of private development banks. DBP may re-discount loans of the Philippine National Bank (PNB) and of private development banks; it may underwrite, and do business in secu- rities and lend for acquisition of shares of corporations by employees of such corporations. Moreover, the Bank, under Government direction, from time to time, has engaged in special lending programs for financing voca- tional education and training, hospitals, schools and hotels, reconstruction of housing and commercial buildings of calamity victims, and it has engaged in other Government controlled undertakings, such as establishment and man- agement of the Greater Manila Terminal Food Market, participation in the National Housing Corporation manufacturing low cost housing units, etc. 3. Subject to Presidential approval, DBP may issue its own bonds and other debt instruments which are fully guaranteed by Government. It 1/ An exploratory Bank mission (DFC-Asia) visited DBP in May 1972 to enlarge the Bank's knowledge of DBP. This annex is partly based on the findings of the mission. ANNEX 11 Page 2 may guarantee acceptance credits, loans and other obligations, local and foreign, but the aggregate of DBP's direct obligations may not exceed 10 times its capital and surplus. Management 4. The DBP has a Board consisting of the Chairman and four full-time, and four part-time Governors (2 positions vacant at present) appointed for a period of 7 years by the President of the Republic with the consent of Parliament. But, any change in the administration will normally cause the entire Board to resign, to enable the incoming President to make any new appointments he may desire. Presently the Chairman of the Board is the Chief Executive Officer and he is assisted by three full-time Governors carrying supervisory authority over groups of departments assigned to them. All executive authority is vested in the Chairman and the three supervising Governors. Delegation of authority to the Staff below the level of super- vising Governors so far has been negligible. 5. Table 1 gives the composition of the Board of Governors. The present Chairman of the Board, Mr. Leonides S. Virata, was appointed in February 1970. Formerly a high official of the Central Bank, in the recent past he has occupied prominent positions in private business. Energetic, resourceful and capable, Mr. Virata since acceding to office, has endeavored to reorganize the institution and to improve the standards of its operations. Organization 6. DBP has a large Head Office in Makati, approximately 10 miles south of Manila, and a countrywide network of 26 branches and 29 agencies. As of June 1972, the Bank had a total personnel complement of approximately 2,400 of which about half was assigned to the Head Office and half to the branches and agencies. About 70% of the total work force are college graduates with academic background and work experience in various professional fields such as business management, accountancy, engineering, architecture and law. There are 175 agriculturalists assigned to the Head Office and branches. About 40% of the staff occupy managerial or professional positions. 7. An Organization Chart of DBP is given in Chart No WB-7311. Opera- tional duties are allocated by function between several operational depart- ments dealing with agriculture, industry, private development and rural banks, real estate and local Governments. Supporting services are provided by a large number of departments, including Accounting and Control, Treasury, Administration, Credit Department, Collections and Acquired Assets Department and the Economic Research Unit. The Legal and Auditing Departments are in a special position since their managers and staff are appointed by, and respon- sible to, the Department of Justice and the Auditor General of the Philippines respectively. A large central unit titled Office of the Chairman, headed by a Consultant to the Chairman, plays an important role in the decision making process and in the coordination of DBP's overall operations. 8. Operational procedures in general follow a standard pattern, al- though there are considerable variations in the methods of project appraisals. ANNEX 11 Page 3 Most operations departments have so far been guided in their investment deci- sions primarily by security considerations and availability of collateral. In the financial appraisal, they have extensively relied on the assistance of the Credit Department which is in charge of the credit investigations. The Industrial and the Investment Banking Departments are exceptions basing their recommendations for proposed loans and investments on a complete and comprehensive appraisal of the project. Under the bank's new project-oriented loan policy, greater emphasis is being placed on comprehensive project studies with adequate coverage of the economic and financial aspects of the projects. After loan approval each operations Department monitors disburse- ments, while collections are handled by the Collection Department. There has so far been little supervision, if any, of the projects financed by DBP loans. 9. In general, DBP at present, has a complex organizational need stream- lining structure and its operating procedures. There is much overlapping and duplication in supervisory positions and lack of adequate delegation of operational responsibilities to senior staff. The DBP staff appears reason- ably competent and, with adequate training it can develop good standards of operating efficiency as proven by its Industry and Investment Departments. The IBRD advisor, seconded to DBP, is preparing an Operating Manual which will set out work-flow and procedures for operations, filling an urgent need for review, integration and codification of existing numerous, and in part obsolete, instructions. Financial Terms and Conditions 10. The terms and conditions of DBP's loans, guarantees and investments are set by the Board within the authority of the Charter, or they are de- termined by Government direction in case of special financing programs. DBP's interest rates, until August 27, 1970, were 9% on loans up to f 100,000 and 10% on loans above this amount. They have since been increased to 12% ir- respective of the size of the loans, except when lower rates are stipulated by law. Preferential interest rates have been allowed under DBP's special lending programs, such as the programs for rice, piggeries and fowl produc- tion, which carry staggered interest rates of 9% and 12% over fixed time periods, or the DBP Jubilee Loan Program which provided for 9% interest on all small loans up to Y 5,000 during 1972, the bank's 25th anniversary. The bank charges an additional 2% penalty interest per month on past-due amortization. As security for the loans, DBP will accept collateral in the form of real estate, machinery, livestock and leasehold rights on Gov- ernment lands. Usually the bank will require 50% of the loan to be secured by real estate mortgage and the balance by other collateral such as machinery, livestock, etc. Up to 70% of the appraised value of the titled real estate property and 50% of the untitled property are allowed as collateral for the loans. In exceptional case of small loans (foreshore and river fishermen) the guarantee of two solvent guarantors is accepted in place of real estate. 11. Agriculture. The terms and conditions of agricultural loans vary, depending upon the type of project and nature of the investment, but fall into two basic categories, straight loans and loans granted under special financing programs. There are many special lending programs including 6 ANNEX 11 Page 4 for the fisheries industries. Generally, repayment terms range from 9 months to two years for working capital including the purchase of seeds, fertilizer etc. to a maximum of 15 years for long term capital investments in coconut and rubber plantations. Periods of grace for payment of principal and interest range from 1-3 years and may be extended up to 7-9 years in the exceptional case of loans for coconut and rubber plantations. 12. Industry. Maturities of industrial loans range from one to five years for working capital loans, and five to ten years for financing of capital investments. Due to repayment difficulties, many loan accounts have been "reconstructed" i.e. converted from short-term into medium-and long-term or have been given extended maturities. Repayment terms on foreign credits guaranteed by DBP are usually short-term, generally about one year. Any payment made by DBP on a defaulted loan guaranteed by DBP becomes an "advance on guarantee" which theoretically is repayable on demand. In 1971, the Central Bank established minimum repayment periods, ranging from 5 to 15 years, for all foreign credits. DBP's standard interest rate of 12% p.a. is generally applicable to all industrial lending, except for loans up to Y 5,000 which, during the bank's anniversary year 1972, have been allowed a rate of 9%. Interest rates on DBP's preferred shares, fixed by law, range from 1% for the first five years to 2% during the following five years and 3% thereafter. The going market rate for preferred shares of private companies is 12%. On guarantees, DBP charges 1% one time commission on face value of the guarantee, plus 1% p.a. on the unutilized amount and 1-1/2% p.a. on the outstanding amount. Advances on guarantees carry 12% p.a. in- terest. The Bank also charges a processing fee on all applications for in- dustrial loans and guarantees ranging from V 15 to f 5,000. Operational Progress 13. DBP provides a great variety of financial services, including loans, equity investments and guarantees, covering most sectors of the economy, with industry and agriculture topping the list. Aggregate finan- cial assistance, including Reconstruction Finance Corporation (RFC) operations, since its inception in 1947, to June 30, 1972, amounted to V 12.2 billion (see Table 2). Of this over 82% was for industry, 8% for agriculture, 5% for real estate, and the balance for other sectors including private development banks and Government projects. DBP's operational build-up is relatively recent, dating back to 1966, shortly after DBP began implementing its program of guarantees of suppliers' credits; about 70% of the Y 12.2 billion total investments mentioned above have been approved in the past five years. Guarantees, although undertaken only since 1965, now repre- sent r 7.1 billion or 58% of total DBP approvals, loans and equity invest- ments accounting for f 4.5 billion (37%) and f 0.6 billion (5%) respectively. 14. The annual volume of operations has fluctuated widely. Due in part to lack of resources and partly to the prudence of the new management, approvals of industrial guarantees in FY 1970/71 dropped to $61 million and loans to f 9 million from a peak of $267 million and Y 341 million respectively in the preceding year. Loans to agriculture showed a less drastic decline from f 71 million in 1969/70 to f 24 million in 1970/71. ANNEX 11 Page 5 In 1971/72 there has been a moderate recovery in DBP financing activities, with approvals of guarantees and loans to industry totalling $196 million and V 61 million respectively and loans to agriculture V 55 million. As of June 30, 1972 DBP's portfolio of outstanding loans, guarantees and invest- ments totalled Y 5.7 billion in regard to 105,550 clients (See Table 3). Agricultural Financing 15. As a Government Bank, DBP has directed its lending to support government policy of national programs to increase production of food crops and animal proteins. Its lending policies are influenced by economic guide- lines set by the Central Bank, the National Economic Council, the National Food and Agricultural Commission and the Fiscal Committee of Government. In 1972, DBP launched a Countrywide Development Program to implement the Government's plan to disperse economic activities to the countryside, to meet food production targets and to provide for the establishment of small and medium scale activities. Traditionally, DBP's annual lending has been 20-25% for agriculture, 65-70% for industry and the balance for real estate, local government and miscellaneous loan programs. This pattern of 25 years operations was drastically changed as a result of DBP's guarantees of foreign loans for industries (para 15). The distribution was then 82% for industry, 8% for agriculture and 10% for other sectors. The sectoral dis- tribution of DBP loans to agriculture is given in Table 4, of which 13% has been for fisheries (salt production, fish ponds and marine fisheries). Up to June 30, 1972, DBP approved loans totalling f 1,070 million to 174,901 borrowers. Annual lending which had ranged between 10,000-15,000 farm loans dropped to an average of less than 9,000 in 1969/70 and 1971/72 after reach- ing a low of 5,000 in 1970/71. Average loans for food crops have been under Y 5,000; commercial crops about f 7,500 and livestock, about Y 15,000. 16. Fisheries. Loans to the fisheries industries to June 30, 1972, amounted to # 137.4 million representing 12.8% of DBP's total loans to agri- culture. This includes 5,343 loans for the inland fisheries sector and 497 loans for deep-sea fishing. Financing of the inland fisheries sector was either in the form of straight loans (Y 21.0 million) or it was covered under special credit programs including the Special Fishpond Financing Plan and the Large Scale Fishpond Financing Program, the former taking by far the largest share in total credits extended to the inland fisheries sector (1 42.5 million). These programs provide for the financing of projects for the expansion or improvement of existing fishponds or the establishment of new ones ranging in size from 1 ha (small scale) to 50 ha and above (large- scale). Terms of the loans generally are for 10 years including 2 to 3 years grace periods, at 12% p.a. interest. DBP requires that these loans are secured by titled or untitled real estate property of a loan value of not less than 50% of the loan. Assignment of leasehold rights is accepted only as supplementary security on projects located on leased land. The requirement of real estate collateral as security for the loans has had adverse effects on the progress of these credit operations, as most of the potential borrowers operate ponds on land leased from the Government and lack the necessary real estate required as security. There are other special financing programs for the inland fisheries sector providing, inter-alia, credits for fingerling-pond ANNEX 11 Page 6 operations, fishpond fertilization, shrimp production and for small foreshore and river fishing. The combined total of credits extended under these pro- grams amounted to Y 4.7 million. DBP's loans to the marine fisheries sector oaver the acquisition of various types of fishing vessels, of ship machinery and equipment, and fishing paraphernalia used largely in deep sea fishing. The loans are normally for a term of 5 years at a rate of interest of 12%. To secure the loans, DBP requires collateral of real estate for half of the value of the loan, the other half to be covered by chattel mortgage of the vessel or the equipment to be acquired. These security requirements, similar bo those in DBP fishpond-financing, have been an impediment to an expansion of credits in this sector. In addition, the lack of proper insurance made it difficult for the financial institution to assert its rights in the case of default. 17. In the past 3 fiscal years, DBP credits to the fisheries sector have been at low levels, declining from an average of Y 11 million in the 3 year period of FY's 1965/66 to 1967/68 to f 3.9 million in FY 1971/72 after reaching a low of f 0.9 million in FY 1970/71. This was due in part to the lack of funds and also to DBP's strict security requirements based on real estate collateral. Industrial Financing 18. Financing of industry in the form of loans, guarantees and equity investments has so far been the major part of DBP's financial operations. The bank's financial assistance practically covered all industrial activity including mining and utilities. In spite of the proliferation of small accounts, the bulk of DBP's portfolio is heavily weighed with a small number of large loans. Up to June 30, 1972, DBP had approved f 10,261 million for industry in regard to over 18,000 financial transactions as follows: Number Total (Peso Million) Loans 17,760 2,544 Equity investments n.a. 610 Guarantees Pesos v37 113 Foreign currencies 268 11076* Total 18,065 10,261 * Converted into Pesos at exchange rate V 6.50 = US$1.0. 19. Loans. Food processing and trade have been the biggest beneficia- ries of DBP financing, with the rice and corn sub-sectors receiving the largest share, followed by sugar and other food products industries. In ANNEX 11 Page 7 the manufacturing field, textiles, metal working, cement and electrical industries took the major share. Loans for public utilities and services, in particular for land transportation and shipping are also important. DBP's credits to industry, until 1966, were mainly in the form of straight loans in local currency. A considerable part of the proceeds of these loans was converted by the borrowers into foreign currencies for financing imports. In 1966, after it has begun its program of guarantees of foreign credits, DBP stopped granting loans for imports. Due to financial difficulties re- sulting from the guarantee operations, DBP in 1970 practically suspended its lendings. Loan approvals dropped from Y 341 million in PY 1969/70 to r 9 million and they have continued at a low level of f 61 million in FY 1971/72. 20. Equity Investments. Up to June 30, 1972, DBP had made equity in- vestments in the aggregate amount of f 610 million. Investments in private industry totalled 1 354 million including f 149 million common shares and 1 205 million preferred shares. The latter shares were acquired by DBP in the course of a program of "rehabilitation of distressed industries" started in 1965. The Program was initiated at a time when, as a result of a general relexation of economic controls, many industries financed by DBP were in fi- nancial difficulties because of competitive imports. It involved large scale conversion by DBP of some of its important industrial accounts into preferred shares convertible into common shares of these subscriptions. It also re- quired a massive extension and rescheduling of repayment terms of problem accounts. DBP, on the other hand, floated f 500 million of "Progress Bonds" convertible into preferred shares of the industries held by DBP. Progress bonds, however, have been placed mainly with various Government agencies and institutional investors. DBP has also made investments in preferred shares of four government corporations totalling 1 227 million and in 31 private development banks totalling f 29 million. 21. Guarantees. In 1965, DBP launched a program of guarantees of foreign loans and credits as a means to enable its clients to secure suppliera' credits for the importation of equipment and raw materials. Guarantees rapidly became the main instrument of DBPs financing of industrial projects aggregating as of September 30, 1972, on an approval basis, $1,089 million. About 88% of the guarantees made by DBP were "regular" guarantees granted to cover foreign suppliers' credits and 12% representing guarantees given by DBP as administrating agency of two foreign government credits, i.e. the US Commodity Credit Corporation (CCC) and the Canadian Wheat Board (CWB), for the importation of raw cotton and tobacco and of wheat flour respectively. Under all these foreign guarantees the borrowers bear the foreign exchange risk. DBP has also made guarantees of Peso borrowings of its clients from local commercial banks totalling 1 114 million, of which r 39 million was outstanding as of September 30, 1972 (see Table 5). 22. The large volume of guarantees made by DBP in 1966/69 coupled with the difficult economic position of the Philippines in 1970 has had a profound adverse effect on DBP's financial position and operations. The introduction of the floating exchange rate in February 1970 created a general liquidity crisis for Philippine industry producing primarily for ANNEX 11 Page 8 the domestic market and depending heavily on imported inputs. As a result of the de-facto devaluation of the Peso the industries which had foreign exchange liabilities, faced an increase in their liabilities of over 60%. Moreover, many foreign creditors invoked "economic disorders" in the Philippines early in 1970 as a reason to demand immediate repayment of cash loans guaranteed by DBP. These difficulties created massive defaults on the part of the DBP clients forcing DBP to make good on its guarantees by repaying foreign creditors and converting DBP guarantee accounts into "advances on guaranteed loans". At the time of the Peso devaluation in February 1970, DBP's outstanding foreign liabilities amounted to $610 million of which $547 million was represented by debts guaranteed by DBP. During the 15 months ended June 30, 1971, DBP made repayments in foreign exchange totalling $236 million of which $205 million was for guaranteed debt. 23. To make these payments DBP had to make use of almost all its loan collections and emergency funds obtained from the Government and the Central Bank, virtually stopping all new lending to industry in FY 1970/71. Important remedial steps have been taken since resulting in a considerable improvement in the situation. The Central Bank has issued guidelines and strict regulations regarding foreign borrowings and suppliers' credits. The Board of Investment has been set up to approve private sector industrial projects on the basis of pre-determined priorities. DBP in the light of past experience and under the new management, has considerably tightened up its approval procedure and has reduced its overall exposure in foreign credit guarantees. Other Financing 24. Real Estate Loans. Loans in this category, covering construction of low cost housing and commercial buildings, in earlier years received high priority in DBP operations, but recently appear to have been losing importance. As of June 30, 1972, total real estate loans outstanding numbered 13,021 for an amount of 1 148 million, representing about 2-1/2% of the total of DBP's loans, investments and guarantees outstanding. This included loans for about 8,000 low cost housing projects, 45 hotels and 30 schools. 25. Government Loans. These loans are made to provincial and municipal governments, with the approval of the Finance Secretary, for the financing of income producing projects such as markets, slaughter houses, waterworks, power plants, telephone systems and transportation projects. As of June 30, 1972, DBP had outstanding V 54.5 million in respect of 241 such projects. The loans are usually guaranteed by local governments, and DBP has a claim on these government's share of the federal income. 26. Private Development Banks (PDB). The promotion and establishment of private development banks in cities and provinces is a major function of DBP under its Charter, with the principal objective of bringing financing facilities to small enterprises in remote locations. DBP's assistance is given through subscription of shares, and through rediscount privileges. ANNEX 11 Page 9 As a principal shareholder (DBP usually holds 50% of the share capital), DBP is represented on the Board of the PDB's and assists in the selection of their managers and sometimes provides training facilities for their staff. Since the introduction of the program in 1960, DBP has helped to establish 35 private development banks of which 31 are operative. As of December 31, 1971, DBP has invested in the PDB system 1 24 million as preferred shares and f 27 million in re-discount notes. Total resources of the PDB's aggregated about f 182 million, with a combined loan portfolio of V 145 million. Agricultural lending accounted for about 60% and loans to small industries about 30%. The banks charge interest rates of 12%, and loan terms are from 3 to 10 years, depending on the nature of the enterprise and kind of 4nvestment. Agricultural loans average between 0 5,000 to Y 6,000. Total lending of the system in 1971 amounted to Y 49 million, representing an average of Y 1.5 million for each institution. This would indicate that the PDB's have so far played a minor role in the rural credit structure. 27. Greater Manila Terminal Food Market. In 1967, DBP was given the responsibility to promote, develop and operate a combined producer-transit- wholesale market. Located about 20 miles south of Manila, the project is intended to become a vast distribution center for agricultural produce, ini- tially serving 1 million farmers from principal supplier provinces in Luzon, Visayas and Mindanao. It is believed that the project cost, originally es- timated as Y 150 million, will reach 1 500 million before completion. Con- struction progress appears largely to depend on availability of adequate finance, the sources of which have as yet to be clearly established. 28. Miscellaneous Operations. The DBP, under Government direction from time to time, has carried out a number of other special operations. Jointly with other Government finance institutions, the bank has helped to establish and finance the National Housing and Finance Corporation, the Trade Corpora- tion, The National Export Trade Corporation etc. It has invested in Rural Banks on behalf of the Government out of allocations of income of the Central Bank. DBP also has been assigned by the Government to act as the Adminis- trator of the two IBRD loans for the Grain Processing and the Livestock proj- ects (720-PH and 823-PH). Capitalization (Table 6) 29. DBP's Peso resources as of September 30, 1972, consisted of the following: ANNEX 11 Page 10 Peso Million Capital (authorized f 2 billion), reserves and provisions 525 Export tax receipts 282 Bonds and notes 1,453 Time and savings deposits 340 Borrowings from Government 424 Trust funds 196 Total Peso funds 30. Capital and Sources. The paid in capital was f 398 million well below the authorised amount V 2,000 million. DBP's Charter provides for only two automatic sources for pay-in of DBP's capital i.e. (i) transfers to capital account of 20% of DBP's annual income, and (ii) transfer of 50% of War Reparation collections. The two sources have generated very small amounts in the past and they may not be expected to increase significantly in the future. To achieve a sound financial structure, additional sources of capitalization would have to be sought, including the possibility of conversion of funds already made available to DBP by the Government or the Central Bank in the form of loans, advances, bonds or deposits. 31. Export Tax Receipts. Under the Export Tax Law of 1970, 24% of proceeds of the export tax are transferred to DBP for granting loans to export industries and for agricultural projects. Transfers to DBP of this tax to date, total f 282 million. The export tax is levied for a period of four years and is expected to generate for DBP an estimated 1 400-500 million. As no repayment obligation seems to exist for DBP, these funds may be considered as quasi-equity. 32. Bonds and Notes. Outstanding DBP bonds totalled V 1,185 million, consisting of 1 724 million "Ordinary Bonds" carrying interest rates varying from 0 - 9%, and 1 461 million "Progress Bonds", all guaranteed by Government. The major part of the ordinary bonds is held by the Central Bank and the balance by various Government agencies which under the DBP Charter are re- quired to invest 25% of their investable funds into DBP bonds. Progress bonds have maturities of 8 to 10 years and are convertible into preferred shares subscribed by DBP in industrial companies. The interest rate of these bonds has been raised in 1971 from 7% to 9%. Of the V 500 million Progress Bonds originally issued, f 461 million was outstanding, of which about 65% was held by government institutions, 25% by institutional investors and about 10% by private individuals. 33. Peso Borrowings and Deosits. Borrowings are stated as f 424 mil- lion of which 405 million represent loans from Government made in 1970/71. This includes a long term Government loan of f 93 million payable in 1990, and a short term loan from the Central Bank of f 312 million, which falls due in 1973. Of the deposits totalling V 340 million, all but 1 19 million comes from the Government with apparently no clear repayment arrangements made. Most of these loans and deposits from the Government and the Central ANNEX 11 Page 11 Bank were made in 1970/71 to help DBP in an emergency situation. DBP's long-term notes, maturing in 1972 to 1980, are at varying interest up to 7%. The outstanding notes in the amount of f 268 million are held by various Government institutions, notably the Social Security System (SSS). 34. Trust Funds. DBP, under special legislation, has the responsi- bility of administering 16 trust funds of various Government agencies and institutions. These funds are invested in loans, securities and other in- vestments as authorized by their respective charters and all earnings there- from accrue to the funds, after deduction of a nominal DBP administration fee. As of September 30, 1972, the combined outstanding balance of these funds amounted to f 196 million. By far the largest of the funds were the Postal Savings Bank Fund and the Rural Bank Trust Fund, sharing about Y 79 million and 1 74 million of the combined total balance. The Rural Bank Trust Fund was established in 1952 for the purpose of subscribing to the capital stock of rural banks from Government contributions. It has been receiving yearly appropriations from net profits of the Central Bank with DBP serving as a channel. Foreign Borrowings 35. DBP's total foreign borrowings have grown from a level of $74 mil- lion in June 30, 1967, to US$93.1 million of March 1972. The small increase was due to the availability, starting in 1970, of commodity credits from the Canadian Wheat Board, (CWB) and the US Commodity Corporation (CCC). Other foreign borrowings are being amortized without additional drawings, so that the balances have been declining. DBP, since its inception, has availed itself of only two credit lines guaranteed by the Government. The first were credit agreements with 14 US banks drawn in 1963, in an authorised amount of $114 million, which, but for a balance of $4 million, has been fully repaid. The second was a credit line from the Kreditanstalt fuer Wiederaufbau, drawn in 1967-1968 in the amount of DM 40 million, of which DM 35.3 million is outstanding. All other foreign borrowings of DBP have been for lendings to specific firms or for the financing of equipment imports used in specific projects. Such lines of credit include the two IBRD agri- cultural loans and the CWB and CCC commodity credits. In November 1972, DBP contracted a loan from a syndicate of foreign banks in the amount of $50 mil- lion. While no details were available to the mission on this new foreign credit, it is understood that the loan is for 5 years at an interest rate of 7% p.a. Earnings Record 36. Summary Income Statements for fiscal years 1966/67 to 1971/72 and the 3 month period ended September 30, 1972, are given in Table 7. DBP's net income has been fairly stable at about f 28 million p.a. until FY 1970/71 when it declined to a level of V 19 million at which it has continued in 1971/72 (annual rate). This decline was caused mainly by an increase in the bank's financial charges due to higher interest paid, and partly by higher administrative overheads. Net income before tax, measured as percent of average loans and investments outstanding, declined to 1.7% ANNEX 11 Page 12 in FY 1969/70 and 0.7% in FY 1970/71 from an average 2.3% in the preceding three fiscal years (1966/67 to 1968/69). If contingent assets underlying guarantees are included in the portfolio, the ratio would be about 0.3 for the past two years compared to average 2.1% for the preceding 3 year period. Administrative charges while increasing in absolute amounts, have actually declined in relative terms in the past three years to an average 2.2% of average total investments compared to 2.7% in the preceding three year pe- riod. This is due to the magnitude of DBP operations and in part to a general economy drive recently started by the bank's management (see Table 8). Financial Position 37. Comparative balance sheets for June 30, 1967 to 1972 and September 30, 1972 are shown in Table 9. On September 30, 1972, DBP's total assets amounted to V 4.1 billion and total liabilities f 3.6 billion representing an increase over the position in June 30, 1967 of 2.4 times and 2.8 times. However, contingent liabilities reached a total of Y 2.5 billion, an increase of 12.5 times, due to the massive expansion of DBP's foreign debt guarantee operations in the past 3-1/2 years. Outstanding guarantees on February 29, 1972 totalled Y 2,534 million 1/ (all but f 39 million of which was foreign guarantees) representing 63% of DBP's total assets. This huge volume of guarantee commitments represents a serious potential financial risk, considering the poor repayment record of DBP's guaranteed clients in the past (see paragraph 40). 38. Net worth stood at Y 525 million representing an increase over the 5 year period of only V 100 million derived mainly from allocations to contingency reserve and from accumulation of yearly surpluses. The ratio of net worth to total liabilities over the past 5 years has shown a con- tinuous deterioration. If contingent liabilities are included, the ratio on September 30, was 11.3 : 1, exceeding the ceiling set by the bank's Charter of 10 : 1. However, the ratio would decrease to about 7.0 : 1, if the Export Tax receipts (f 282 million), already given to DBP, are included. But even this lower ratio appears rather high, considering the relatively poor quality of DBP's loan portfolio and the inadequate level of reserves (see paragraphs 39-42). Quality of Portfolio 39. Loans. There are no complete data available, at present, on DBP loans in arrears. However, calculations based on statistics of the bank's Electronic Data Processing Center, which serves about half of DBP's indus- trial loans, and one third of its agricultural loans (by amounts) indicate a high proportion of defaults in particular on industrial and agricultural loans. A review of the position as of March 31, 1972 revealed that of the industrial loans served by the Center, 89% were affected by defaults, and 1/ Foreign accounts converted into Pesos at V 6.50 - US$1.0. ANNEX 11 Page 13 that the principal in default represented 27% of the total of loans outstand- ing in this sector. The corresponding figures for agriculture were 72% and 21% respectively. Within the agricultural sector, loans to the fisheries industries have shown a relatively high rate of defaults, apparently, in large part related to lendings extended to these industries in DBP's earlier years of operations (para 44 and Table 11). The DBP's Treasurers and Control Department has under preparation a comprehensive statistical statement on DBP's defaulted loans containing an analysis of the loans in arrears accord- ing to type, size, maturities, and aging of the loans. Pending completion of this statement, the above mentioned figures can be taken only as indica- tive of the problem. Acquired Assets and Litigation Accounts as of March 31, 1972, amounted to Y 211 million including f 145 million, representing loans foreclosed whose collateral has been taken over by DBP, and 1 66 million, representing loans foreclosed in regard to which legal action was underway. By comparison, DBP's reserves and surplus amounted to f 121 million. 40. Guarantees. Of the total f 1,376 million guarantee instalments falling due in the post-floating rate period, March 1, 1970, to March 31, 1972, only f 132 million was paid by DBP clients as due, while f 1,126 mil- lion (90%), had to be advanced by DBP in payments on behalf of defaulting clients or converted into long-term loans. Up to September 30, 1972, these advances totalled f 1,512 million, of which f 421 million had been repaid, and V 245 million was converted into long term loans, leaving a balance of r 846 million "due and repayable" on demand (see Table 10). 41. Defaults. The high proportion of loans in default to some extent may be attributed to past lax collections. Since 1970, DBP's management has considerably stepped up its collection efforts and it has introduced a black listing system, whereby DBP defaulted borrowers are denied foreign exchange and credit facilities by the Central Bank until their accounts with DBP have been straightened out. As a result, collections of principal and interest have increased from f 279 million in FY 1969/70 to f 495 million in FY 1970/71 and f 412 million in the first nine months of FY 1971/72. The major part of defaulted loans appear generally to be well secured by collateral, although the final recovery of this debt will nevertheless depend on the ultimate success or failure of the enterprises financed. 42. From DBP's records it is not possible, at present, to establish the extent of possible losses inherent in its portfolio. The statistical analysis now under preparation, should provide some clarification of the magnitude of the problem. It could be the first step in a thorough examina- tion and evaluation of DBP's entire portfolio of loans guarantees and equity investments, which needs to be undertaken to provide the basis for a realistic assessment of the amount of bad debts in the portfolio, and a considered judg- ment of the necessary provisions required to cover it. Appropriate compre- hensive action in this matter is clearly indicated, and should be given the earliest consideration by DBP's management. 43. Defaults Fisheries Loans. For example, on June 30, 1972, the total of loans past due in amortization amounted for this sector to V 15.8 million, representing 44% of total loans outstanding compared to an estimated ANNEX 11 Page 14 21% for loans to Agriculture as a whole and 27% for industry. Loans to foreshore fisheries showed the highest proportion of defaults (60%) followed by marine fisheries (48%) and fishponds (38%), the largest number of accounts in arrears being in the category of small loans (f 1,000 to V 2,000) and medium sized loans (r 10,000 to r 50,000). However, looking into the aging of these defaults, loans with delinquencies of less than two years contribute 14% and less than four years 23%. Loans with delinquencies of over five years comprise about 59% of total loan amounts outstanding (Table 11). 44. No comprehensive data are available at present on bad debt-liquida- tion, although from the following fragmentary figures it appears that gener- ally slow progress has been made in requisite legal action: Loans Past Due in Fisheries Sector % of Total Number / '000 Past Due Total Delinquencies 1,484 15,858 100 of which: - five years and over 1,109 12,178 77 - loans in litigation 220 3,038 20 Similarly, there is no complete record on assets acquired in bad-debt-liquida- tion, and on the rate of financial recoveries. Figures for recent years, how- ever, would seem to indicate that net loss from sales of acquired assets so far has been moderate being in part off-set by profits realized in such sales. 45. Fisheries Guarantee Fund. Government and DBP are presently discussing to use the Fisheries Guarantee Fund for covering potential bad debts for loans in the fisheries sector. If the fund were to be used in this further clarification would be required. In particular: (1) estimated total resources of the Government's Guarantee Fund, (2) the size of provi- sions for bad debt required in DBP's fisheries operations, (3) the percentage of coverage of losses from write-offs of defaulted loans in these operations, and (4) the methods of transfer to DBP of Fund contributions in covering these losses. (a) The Fisheries Industry Development Decree provides that all revenues accruing to the Government from dues, levies and other payments to Government by the marine fisheries industries shall be assigned to the Fisheries Guarantee Fund. The estimated total of annual accruals from this source has as yet to be established, as well as the availability of additional allocations from an agricul- tural fund administered by the Ministry of Agriculture, which has been tentatively discussed as a possible sup- plementary source of support to the fisheries industries. ANNEX 11 Page 15 (b) A thorough examination and evaluation of the DBP's fisheries loan portfolio should be made, to establish a realistic estimate of the amount of bad loans in the portfolio. A review would also be needed of the bank's policy in the liquidation of defaulted loans in the fisheries sector and the amount of losses recorded in the process. This could form the basis for determining the size of provisions required for covering DBP's potential losses from future write-offs of bad loans, taking into account the expected improvement in the borrower's performance under new loans, granted on the basis of improved lending and follow-up procedures. (c) In the light of this analysis, an agreement would have to be reached between DBP and government on the extent and the size of the Funds contributions in covering losses from the liquidation of defaulted loans. (d) Appropriate arrangements would have to be made concerning the methods of transfer of Fund allocations to DBP in covering losses from potential write-offs on defaulted fisheries loans. This could be done by refund to DBP of the agreed proportion of the Fund's share in these losses on an annual basis. Alternatively, consideration could be given to DBP setting up a Special Reserve for Bad Debts of the Fisheries Industries which would be provided by initial contributions of the Government's Guarantee Fund and the DBP respectively in agreed proportions, based on a realistic estimate of potential losses on the fisheries credit operations over a foreseeable time period. Supple- mentary allocations to the Reserve Fund could be made, as and when indicated by the level of its balance. Audit 46. DBP has an independent audit system, the manager and staff of the department being appointed by, and responsible to, the Auditor General of the Republic. Equipped with a large staff located in the head office and the branches of DBP, the Department engages in fairly detailed auditing procedure, involving day-to-day checks of accounts and records and some pre-audit in the operation. For the purposes of this project present internal audit procedures and quality would be adequate.  ANNEX 11 Table 1 PHILIPPINES FISHERIES CREDIT PROJECT DBP Board of Governors (as of September 30, 1972) Name Functions and Background Leonides S. Virata Chairman of the Board of Governors. Director of Economic Research of the newly established (1949) Central Bank; Acting Deputy Governor and member of Monetary Board until 1952. Financial Vice-President and Vice-Chairman of the Philippine American Life Insurance Company. President, 1965-66, of the Philippine Chamber of Industries. Supervises the Securities Marketing Department, Administrative Department, Accounting Department, Secretarial Department, Credit Department, and the Treasury Department. Jose V. De Ocampo Full-time Governor, supervising the Industrial Department and the Investment Banking Department. EDI fellow 1961-62. Practicing attorney 1952-55. With DBP since 1964. Formerly manager of DBP's Investment Banking and Research Department. Recio M. Garcia Full-time Governor, supervising the Collection and Acquired Assets Department, the Development and Rural Banks Department and the Real Estate and Government Loans Department. Former Chairman and President Quezon City Development Bank; Vice- Chairman: Homeowner's Finance Corp., and Citizens Development Inc. Jose R. Tengeo Full-time Governor, supervising the Agricultural Projects Department, and the Branches and Agencies Department. Former Assistant Vice-President of Philippine Bank of Comerce. Jose S. Estevez Part-time Governor. Has previous experience in Government. Leon 0. Ty Part-time Governor. Member of the Philippine Bar Association. Alejandro Melchor Part-time Governor. Concurrently Executive Secretary to the President of the Philippines. PHILIPPINES FISHERIES CREDIT PROJECT Approvals of Loans, Investments and Guarantees to June 30, 1972 (P million) Up to June 30, 1969 FY 1969-70 FY 1970-71 FY 1971-72 T o t a 1 A. Loans No. Amount No. Amount No. Amount No. Amount No. Amount Industrial 16,775 2,233 1o 99 246 61 17,760 ,47 Agricultural 151,578 863 5,954 71 5,032 24 8,840 55 174,404 1,013 Real estate 39,695 593 1,667 23 1,399 9 1,768 22 44,529 647 Government projects 643 141 14 7 4 2 5 8 666 158 Private Developnent Banks (Adv. & Time Deposits) 377 78 34 8 31 6 56 12 498 104 Total20,6= Toal20.08 1,09 p40 ,55 P50 10,915 P15 ~ 37 -P7 B. Equity Investments Preferred shares - Private companies 201 4 - 205 Government companies 150 27 50 227 Private Development Banks 28 1 - 29 Conmon shares (private companies) - - - 149 149 Total 379 32 - 199 E6- C. Domestic Currency Guarantees 52 38 23 37 113 D. Foreign Exchange Guarantees (US$ million) Regular guarantees 426 267 61 10 196 228 950 CCC & CWB Credits - 22 46 40 58 4o 126 Total 4+26 -7 107 50 57 26 ,7(US ---- MI. liiott P6,994 million equivalenti/ Grand Total 238 162 28 1) exchange rate 1 US$ - P6.50 Source: DBP November 1972 ANNEX 11 Table 3 PHILIPPINES FISHERIES CREDIT PROJECT Data on Outstanding Loans, Investment & Guarantees As of June 30, 1972 (Million Pesos) No. of Outstanding Accounts Balance Direct Loans: Agricultural 73,323 377.04 Industrial 6,659 1,289.60 Real Estate 13,021 148.12 Government 241 54.45 Contract Mortgage Receivable 1,853 26.18 95,097 1,895.39 Advances on Guarantees Agricultural 2 5.81 Industrial 106 875.97 Real Estate 6 37.23 114 919.01 Acquired Assets Agricultural 4,942 17.56 Industrial 467 121.92 Real Estate 478 6.70 5,887 146.18 Litigation Accounts Agricultural 1,958 13.16 Industrial 1,905 46.86 Real Estate 380 5.60 4,243 65.62 Investment in Preferred Stock 24 136.24 Guarantees Outstanding (Contingent Account) Agricultural 1 .80 Industrial 182 2,536.00 Real Estate 2 8.09 185 2,544.89 GRAND TOTAL 105,550 5,707.33 FISMEIES CREDIT PR0TEC Sectoral Distrbution of Agricltual Lo-n Approvd to June 30. 1.972 (2 'O00 J-n. 2, 1947 to Agrculturl Jn 9119 -. y.19 - 70 F. Y.Y1970t- 71 1 -72 C I u I iv. Produc.s An,teo Amont N A tunt. AotoAmount F000 CROPS b1ay 67,306 859,327 3,313 14,294 2,007 8,291 3,125 12,234 75,751 -94,14, Pa11 Secial Finnaing 40 14,946 166 3,138 39 543 88 2,138 773 1., ia1v rop 1oan 132 382 5 4 - - - - 137 38é CorO 1 «ther Staples 10,300 24,916 441 1,832 382 1,132 508 2,807 11,631 30,687, ohard 2,773 11,392 25 85 63 131 48 1n9 2,909 11,727 nions 100 659 5 11 3 12 6 22 114 704 Watermelon 5 66 1 3 1 2 2 5 9 76 Vegetable (3) 163 531 91 313 31 329 39 204 324 1.177 .egetable (F) 4 119 - - - - 4 620 739 Other Field 3ropo 38 132 1 2 1 3 2 7 42 l4 Banana (2) 100 217 14 27 14 21 18 50 146 315 Ba-ono (F) 117 1,044 3 63 5 132 3 18 128 1,257 Banana (F) Gint Caendlab 33 710 - - - - - - 33 710 Cao () 220 1,206 - - 1 2 1 4 222 1,P12 2Ca-0 (f) 767 5,244 - - - - - - 767 5,244 ~offee (s) 1,422 5,444 33 104 28 62 38 100 1,521 5,710 Coff.. (F) 640 5,048 - - - - 0 26 642 5,074 Citru- (sI 505 5,869 7 16 6 28 19 83 537 5,996 'mtrus (F) 701 5.824 - 1 5 6 121 708 5,950 - 0 343, 3 . _4 105 1 2OWE2 2 2 2522 10 493 43.7 3,909 18.8 9 96,42 392,019 ~2MERCIAL CROPS sug. 2,776 9B,295 455 9,668 184 1,437 213 3,763 3,633 113,163 Ca-he- 1 101 - - - - - - 1 101 Cassava 36 264 - - - - - - 36 264 Nipa 39 119 - - - - 1 5 40 124 cotton 5 2,221 - - - - - - 5 2,221 Kenf, R-,i, Maguey & other fiber, 100 3,072 - - - - 1 52 101 3,114 Soy ben 1 70 - - - - - - 1 70 Tobacco 2,537 5,903 1t2 318 82 183 167 429 2,948 f, Other Field Cr8o 9 40 - - 1 8 1 4 10- Ab-oa (S) 3,823 12,650 34 73 16 53 28 82 3,90i L-,' 4 Aba (f) 1,195 13,032 - - - - Coonot (s) 31,882 122,996 2,704 9,949 1,367 4,565 2,640 9,524 38,593 1' Q034 Conot (F) 3,163 7,401 - - - - - - 3,1i13 7,401 Coonut (Large Sale) 826 31,143 264 6,802 126 2,229 145 3,919 1,361 44,093 Rubber (s) 130 2,063 12 165 12 40 24 106 173 2,374 Rubber F) 342 15,006 14 407 9 171 22 840 387 16,420 Floricultore - - - - - - 1 2 Tre F Ing - Spea1.1 Fining 34 298 34 298 464 314.376 . 27382 J 1.797 8,686 36.2 3.282 19.0-4 38 55.588 369461 34.5 POULTRY, PIGGERT LmVE- STOCK INMCIDING DAIRY Poultry 4,986 28,343 151 1,068 70 434 130 943 5,337 30,788 oultry (Lrg. Scal.) 114 21,6e6 49 3,249 12 750 24 2,351 199 27,976 Piggery 7,679 30,382 788 3,00 468 2,008 1,228 5,585 10,163 40,995 Piggery (Lrg, scal,) 132 18,771 61 7,435 13 505 57 5,128 243 31,839 Dalry Fans 3 575 - - - - - - 3 575 Ca.balla Milk Pro- iasing 1 3 - - - - - - 1 3 Livetoek (s) 405 10,576 13 162 8 41 20 419 446 11,198 Livestock (F) 651 15,444 4 88 3 52 3 63 661 15,647 Beef Cattle (Large Scal.) fl 7,305 3 3,160 1 74 1 320 16 10,859 Cattle Fedlöt - - 2 - - - - 2 752 .J62 133.025 L4.6 L.07. 8.214 24.9 3l 6 L86.1 1.463 14.809 26.3 17.071 170,632 1.0 SALT & FISHPOND Sa1t 170 5,424 5 376 1 11 3 103 179 5,914 Bangas Fingerling 9 113 - - 1 16 1 16 11 145 Fish FosheO 983 1,793 39 76 17 34 67 139 1,106 2,042 ?Ishpond F-rtillzer 174 1,365 4 50 1 5 1 48 181 1,468 Fishpood (s) 2,260 38,520 74 2,267 51 517 106 1,181 2,491 42,485 F1ihpcnd (F) 1,337 20,802 7 87 3 33 3 137 1,350 21,059 FIahpond (Lag. Soalt) 12 4,204 4 1,456 3 343 4 640 23 6,643 s~s 1 2 1 - 1 3 - - 2 5 -g 72.223 :, 43 5. 78 _6 0. 186 2264 40 5.343 79,761 72 T o t a 1 1 1gg 86,700 _ 70.520 5.032 24,005 8,840 46522 174,404 1,01.880 Deep-.a FI.hing/L 465 50.530 : 18 5.422 7 1 ~ - IL 1.673 -.0 4 57,625 1.4 GRAND TOTAL 152,043 913,230 100 8,972 75 942 100 5,032 24,005 100 6,854 56,328 100 174,901 1,069,505 100 .... .... - ... .-.m - -- ...= - .= .... ., ... -... . fl Souroe: DBP No-ember 1972. ANNEX 11 Table 5 PHILIPPINES FISHERIES CREDIT PROJECT Data on Guarantee Operations as of September 30, 1972 Foreign Exc"e Domestic Currency A. Sectoral Distribution of Approvals Quaranteesb-' Guarantees % ($ million) (P million) Food manufacturing 201.2 18.5 36.2 31.8 Textiles 166.1 15.2 .5 .4 Paper and paper products 134.6 12.4 2.0 1.8 Cement 132.4 12.1 3.6 3.2 Iron, Steel & metal products 126.3 11.6 1.7 1.5 Mining 101.0 9.3 Public utilities 118.3 10.8 18.1 15.9 of which shipping (19.0) (9.6) Other sectors 109.5 10.1 51.7 45.4 Total 1,089. 100.0 113.8 100.0 Foreign Exchange Domestic Currency Guarantees Guarantees No. of Amount No. of Amount B. Classified by maturities Accounts ($ million) Accounts (P million) Long-term 168 750.4 12 28.6 Short-term 25 85.2 Regular 59 202.2 CCC & CWB 48 136.8 Total 275 1,089.4 37 113.8 C. Guarantees Outstanding as of February 29, 1972 Foreign Exchange Regular guarantees: $ 356.0 million or P 2.314 million equivalent CCC & CWB credits : $ 27.8 million or P 181 million equivalent Total $ 383.8 P 2.495 Domestic Currency Guarantees: 39 million Grand Total 2.534 million I/Includes regular guarantees and guarantees under CCC and CWB Credits. Source: DBP November 21, 1972 ANNEX 11 Table 6 PHILIPPINES FISHERIES CREDIT PROJECT Resources as of September 30, 1972 Source Amount Remarks (i million) Pquity Paid-in capital 398 As against authorized capital of P2 billion. Reserves and provisions 127 Including reserves for doubtful accounts of 11.0 million. 525 Export tax receipts 282 No obligation for DBP to repay. Trust Funds 196 Various funds entrusted by Central Bank and Government Agencies to DBP for administration. Bonds and Notes Ordinary bonds 724 Principal holders are Central Progress bonds 461 Bank, GSIS, SSS, PNB and private Notes payable 268 institutional investors. Matu- rities are variable. Time and Savings Deposits Government 321 Private 19 340 Borrowing Government 21 Repayable in 1990. Central Bank 355 Short-term borrowing, repayable 1973. Others 48 424 Total 3,220 Source: DBP November 21, 1972 PHILIPPINES FISHERIES CREDIT PROJECT Incone Statements for Years Ended June 30, 1967 - 1972 and 3 months ended September 30, 19721/ (P million) Sept. 30, 1967 1968 1969 1970 1971 1972 1972 Earnings Interest on Loans 82.8 94.3 115.7 121.3 160.9 184.4 46.2 Guarantee Fees 2.8 9.9 11.9 30.7 36.3 45.8 10.8 Dividends on Stocks 4.5 8.7 14.9 18.9 19.6 13.1 2.3 Other earnings 13.3 26.9 26.1 30.6 15.1 24.6 11.6 Total 103.T 139.8 1= 201.5 2U1.2 70.9 Expenses Administrative expenses 32.2 41.1 47.9 52.1 62.2 63.1 17.7 Interest Expense 44.3 64.9 84.o 113.0 149.4 186.2 48.4 Provision for Contingencies 1.2 1.2 1.2 1.2 1.2 1.2 .3 Total 77.7 107.2 133.1 1. 250. 5 7. Net Income before Taxes 25.7 32.6 35.5 35.2 19.1 17.4 4.5 Less: Provision for Income Tax 8.2 10.2 13.7 13.2 7.6 6.2 1.2 Net Income - Bank Proper 17.5 22.4 21.8 22.0 11.5 11.2 3.3 Net Income - Trust Funds 6.1 b.4 7.1 6.4 7.1 7.8 1.6 283. =29 2-. 19.0 _7__9 Disposition of Net Income Bank Proper: Transferred to C/S pursuant to R. A. 35.M 3.7 4.3 4.4 4.4 2.3 2.2 To Surplus 13.8 18.1 17.4 17.6 9.2 9.0 17.5 22.2 22.0 11.5 11.2 Trust Funds: To Surplus 6.1 6.4 7.1 6.4 7.1 7.8 Total _2__28_2. 27 1. 19.0 ( -Include income from acquired assets, conmitment fees and other fees received. Source: DBP November 21, 1972 ANNEX 11 Table 8 PHILIPPILES FISHERIES CREDIT PROJECT Costs and Returns on Average Annual Loan Portfolio and Investments Fiscal Year 1967-1972 (P Billion) J UNE 3 0 1965 1969 1970 1971 Average Loan Portq lio and Investments-! 1.189 1.452 1.785 2.158 2.702 3.309 Gross Income 0.lo 0.139 0.169 0.202 0.232 0.268 Percentage of Loans and Investments 8.7 9.6 9.5 9.4 8.6 8.1 Exenses Interest 0.044 0.065 0.084 0.113 0.149 0.186 Percentage of Loans and Investments 3.7 !.5 4.7 5.2 5.5 5.6 Administration and Other penses 0.032 0.041 0.048 0.052 0.062 0.063 Percentage of Loans and Investments 2.7 2.8 2.7 2.h 2.3 1.9 Total Epenses 0.076 0.106 0.132 0.165 0.211 0.249 Percentage of Loans and Investments 6.h 7.3 7.4 7.6 7.8 7.5 Net IncomeY. 0.028 0.033 0.037 0.037 0.020 0.019 Percentage of Loans and Investments 2.4 2.3 2.1 1.7 0.7 0.6 !/Inv. in Sec. (less MRR - 26.474) Agricultural Industrial Real Estate P DB Misc. Inv. Before provision for taxes and reserves Source: DBP November 1972 PHILIPPINES FISHERIES CREDIT PROJECT Balance Sheets, June 1967-1972 and September 30, 1972 (P million) Sept. 30, 1967 1968 1969 1970 1971 1972 1972 Assets Cash and due from banks 174 238 226 156 113 87 65 Investments in securities 107 170 253 248 301 441 456 Loans: Agricultural 278 330 374 408 41o 423 599 Industrial 767 963 1,111 1,438 1,994 2,350 2,235 Real Estate and miscellaneous 101 118 152 201 250 254 260 Stocks and advances - Private Development Banks 46 47 49 48 50 54 54 Bank premises 27 38 47 51 S4 56 51 Other assets 30 41 59 96 105 192 202 Trust Funds 163 164 170 176 180 187 196 Total Assets 2.109 2, 7 2 22 3.157 _7 Liabilities Long-term liabilities 811 819 948 1,057 1,371 1,664 1,689 of which foreign loans (287) (284) (211) (205) (330) (607) (633) Progress bond1 payable 147 249 327 496 475 467 461 Savings and time deposits 74 204 227 112 348 337 34o Other liabilities and special funds 73 221 301 491 580 868 907 of which export tax receipts - - - (25) (166) (267) (282) Trust funds 163 164 170 176 180 187 196 Total liabilities M1 57 1 973 2 332 5 3 523 32593 Net Worth: Paid-in capital 359 367 375 384 390 397 398 Surplus (Profit & Loss) 61 79 86 97 103 113 113 Reserves for contingencies 5 6 7 9 10 11 11 Total Net worth 4_5 452 6 4 503 521 525 Total liahilities and net worth 1,693 2,109 2T W1 3212 3 F77 Conti:ngent Liabilities (guarantee") -271 337 -91 1,305 ,409 ,545 2,5 So)rce: DBP November 22, 1972 ANNEX 11 Table 10 PHILIPPINES FISHERIES CREDIT PROJECT DBP Advances on Guarantees as of September 30, 1972 US$ (milli40) Pesos (million) Equivalent-f Gross Advances Prior to June 30, 1968 35.6 9.1 FY 1968-69 42.7 10.9 30.8 FY 1969-70 275.0 25.8 FY 1970-71 667.6 102.7 FY 1971-72 424.0 65.2 3 mos. to Sept. 30, 1972 66.7 10.3 Total 11511.6 254.8 Less Cash repayments b20.6 Converted to long-term loans 245.2 Net advances due and demandable 1/ At various exchange rates Source: MBP Treasurer & Control Department November 1972 ANNEX I1 Table 11 PHILIPPINES FISHERIES CREDIT PROJECT Past due Amortisation on Loans to the Fisheries Industries as of June 30, 1972 A) SECTORAL ANALYSIS Loan in Arrears of which in litigation Total Outstanding Past due (b) (c) ube 00 Number 000P of Number OOOP % of Active Accounts 1,912 36,343 100 1,484 15,858 44 220 3,03a 19 Forshore fisheries 5k 783 2 n.a. 520 66 95 147 28 Deep sea fisheries 246 17,127 47 n.a. 8,178 48 23 1,478 18 Fish ponds 1,122 18,432 51 n.a. 7,160 38 102 1,L12 20 B) ANALYSIS BY SIZE OF LOANS Total Loans Outstanding Loans past due (b) Number O0OP NumaFr 00o % of P 500 and below 8 2 6 .4 2 100 500.01 to 1000 61 37 47 3 28 76 1,000.01 to 2,000 585 773 501 34 530 68 2,000.01 to 3,000 46 101 30 2 47 47 3,000.01 to 5,000 215 738 127 8 314 43 5,000.01 to 10,000 183 1,037 11 10 650 63 10,000.01 to 25,000 h48 6,190 363 2L 4,232 68 25,000.01 to 50,000 149 3,457 99 7 1,19 41 50,000.01 to 100,000 118 5,544 85 6 2,627 47 100,000.01 to 250,000 63 6,381 57 L 3,224 51 250,000.01 to 500,000 24 4,780 20 1 1,830 38 500,000.01 to 1 million 9 4,377 7 .5 955 22 over I million 3 2,926 1 .1 - - 1,912 2L23 11484 00-0 15,88 44 C) AGING OF LOANS PAST DUE Number OOOP OOP % Up-to-date 428 7,378 20.30 - - Loans with Delinquencies of less than 1 year 157 5,908 16.26 361 2.27 1 year 167 6,081 16.73 1,870 11.79 2 years 10 13 .04 9 .06 3 years 33 1,877 5.16 1,425 8.99 4 years 8 15 .ok 15 .10 over 5 years 5 years 285 6,237 17.16 2,891 18.23 Matured 806 7,617 20.96 8,765 55.27 Insufficient data 18 1,216 3.35 522 j2 1, 12 36,342 200.00 25,858 100.00 Source: DBP/I3RD Mission November 1972  PHILIPPINES FISHERIES CREDIT PROJECT Development Bank of the Philippines Organizational Chart BOARD OF GOVERNORS General Department Accounting of Justice Office I Office of Special Officpecial ecial Office of Special Training/ c c ossis op Assistance on Assistance on Assistance on Manpower Research Assisance on i Prct General Affairs, Miscellaneous Development and Special Studies Big Loans ns Matters Counselling Unit Supervising Supervising Supervising Part-Time Part-Time Part-Time Governor GGovernor Governor vGovernor Inesmet olecio Dveop Real Sc te Aeing r ts Brangees nedutrial neyementEstate & Mktin s tr iste ta Credit Treasury Legal Dept.~ Proect &e Agencie Det. Det. Aset. Dept Det. Bnks Loans November 1972 Source: DBP & IBRD Mission World Bank-7311  ANNEX 12 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Project Organisation and Management DBP's Fisheries Group General 1. The Appraisal Mission has explored the possibility of alternative channels for the proposed Bank loan for the Fisheries Credit Project. These investigations have generally confirmed that DBP would be the institution best suited to serve as a channel for the loan, particularly since DBP: (a) is the principal development finance agency of Government funds for the development of the country's agriculture and industry; (b) acts as the Government's agent in international operations, including relending of Government borrowings from foreign Governments and international institutions; (c) is the principal source of medium- and long-term finance for agriculture and industry; (d) has professional staff to set up a suitable organization for the administration of the project; (e) maintains a wide network of branches enabling the distri- bution of its credits on a broad geographical basis; and (f) has gained considerable experience in fisheries credit operations from earlier large scale lendings, covering most of the medium- and long-term credit requirements of the inland fisheries sector, and a large part of those of the marine fisheries sector. Organization of the Fisheries Group 2. The DBP Agricultural Project Department would be responsible for the Fisheries Credit Project, with the Fisheries Division in charge of the operation. The Agricultural Projects Department has recently been reorganized along functional lines and now comprises 4 functional Groups (with different subdivisions) including the Fisheries Group, the office of the Manager and a Management Services Group. APD has a staff of over 220, mostly agriculturalists and agricultural economists, with academic degrees, ANNEX 12 Page 2 and agricultural technicians trained in various fields of agricultural activity. An Executive Officer, with Long time service and administrative experience in the DBP, carries over-all responsibilities and some executive functions delegated to him by the Supervising Governor, in the operation of the Department. The Manager, in charge of the Department, is assisted by several Assistant Managers responsible for the respective functional Groups. (See Organizational Chart, No. WB-7313. A draft Manual of Procedures has been prepared for the Department, but most of the proposed changes have yet to be implemented and details will have to be worked out in regard to comprehensive procedures for project appraisal and loan supervision. 3. The Fisheries Group, consisting of two Sections serving the inland fisheries and marine fisheries sectors respectively is headed by an Assistant Manager who reports to the Manager of APD. The Assistant Manager is assisted by a Division Chief supervising the two Sections, each of which is headed by a Head Project Supervisor. Each Section has a complement of Loan Analysts and Loan Processors responsible for preparation of the project appraisal and loan recommendations, and Project Supervisors in charge of supervision of loan releases and follow up on projects. (See Organization Chart No. WB-7314.) 4. The organizational set up and lending procedures of the Group raise a number of aspects bearing on the requirements of an efficient ope- ration: (a) The project appraisals presently carried out solely by technical staff, based on the contributions of the Credit and Rural Estate Departments, lack completeness and usually comprise only a limited financial analysis; (b) Investment decisions are largely based on the availability of collateral of the borrowers, in disregard of the financing requirements of the project, often resulting in under- capitalization of projects and their subsequent financial failure; (c) There is a preponderance of senior supervisory staff, often in duplicating functions and lacking adequate delegation of responsibilities, resulting in slow operational progress and frequent delays in loan approvals; (d) There is need for a greater diversification of professional staff and for some staff reinforcements particularly in the financial field; (e) A review of senior staff assignments is needed and some replacements in supervisory positions should be considered based on managerial capacities and professional skills; and ANNEX 12 Page 3 (f) There is no clear separation of operational functions from those of loan follow-up, both activities in each section being supervised by common project head supervisors. 5. The Mission has discussed these shortcomings with management and made proposals for organizational improvements. The management has agreed in principle to these proposals, the final details of which will have to be worked out: (a) The Fisheries Group would be divided into two separate units (divisions); i.e. (i) a Project Appraisal Division responsible for the appraisal of projects and processing of loan applications, and (ii) a Project Supervision Division responsible for the loan supervision and project follow-up. Each division would be headed by a senior officer responsible to the Assistant Manager. The Assistant Manager, or a capable officer of equal seniority, would have full responsibility for the entire Fisheries Credit operation both on the lending and the loan follow-up side. (See Organi- zational Chart No. WB-7312.) (b) The Project Appraisal Division would have a key staff of two experienced senior fisheries experts (specialists in marine fisheries and in-land fisheries operation respectively) and one senior financial analyst experienced in financial planning under a senior Chief Supervisor. This group would be responsible for processing loan applications for fisheries projects received by the Head Office and for review and endorsement of loan proposals submitted by the branch offices. In addition, as required by the operation, there would be a complement of fisheries graduates and technicians, specialized in inland and marine fisheries, and a small number of financial analysts who would form working teams in the appraisal of projects. Each team would consist of one technician and one financial analyst, the senior member carrying responsibility for coordination of work and the preparation of the report and recommendations to the Board. The teams would receive supporting services from the Credit, Real Estate and Economic Research Departments in regard to credit appraisals of borrowers, valuation of the collateral offered, and resources-and market reviews, as needed. The assignment of responsibilities for the project to one senior officer would ensure efficient and speedy work progress and eliminate frequent delays in the loan operation. Preparation of legal documents, maintenance of loan accounts and disburse- ments and collections of the loans would, as at present, be the responsibility of the Legal, Accounts, Treasurers, and Loan Collections Departments. (See Chart No. WB-7386 for a prcposed work-flow.) ANNEX 12 Page 4 (c) The Project Supervision Division would carry responsibilities for project follow-up after approval of the subloan, in cooperation with the Management Services Division of the APD in charge of subloan administration. The Division would have a small technical and administrative staff working under a senior Chief Supervisor, which would report through the Division Chief to the Assistant Manager. This Division would be assigned the responsibility for supervision of the projects financed by the Head Office and would supervise the loan follow-up of the branch offices. In the review of the physical and financial progress of the projects, the supervisor personnel would avail themselves, wherever needed, of the professional assistance of the operational staff. Appropriate records would be set up in the Supervision Section of the Fisheries Division and in the branch offices on the status of the projects financed under the fisheries credit project, based on field visits to the projects and periodical progress reports furnished by the borrowers. 6. In line with the general re-orientation of DBP's lending policies, loan approvals under the Fisheries Credit Project would be based on a com- prehensive appraisal of the technical feasibility, economic viability and financial soundness of the projects (See Appendix 1). The bank's security requirements would remain an important, though not overruling consideration, in the final investment decision. Supervision of the loans would be newly organized to provide for a continuous follow-up on the projects during their construction and operations during the repayment period. Projects encounter- ing construction difficulties or financial or operational problems would be placed under special surveillance and prompt and comprehensive measures would be taken for extended technical advice and assistance, or additional financial support if needed. The Loan Supervision Section would maintain appropriate overall records on the status of all projects financed under the Fisheries Credit Project. Moreover, DBP would monitor a number of selected projects under the subloans for periodical evaluations of the economic impact of the Fisheries Credit Program. It would submit regular reports to the IBRD on the status of the projects financed from the subloans and on the overall progress of the Credit Program. The Mission maintained close contact with the IBRD Adviser, seconded to DBP concerning its organi- zational proposals, and he will follow up on these proposals. Staffing Requirements 7. At present the Fisheries Group has only a skeleton staff of seven, including the Assistant Manager, the Division Chief, two Head Project Super- visors, two Loan Analysts and one Loan Processor. With the exception of the Division Chief, who has commercial background, and the Loan Processor who is an administrative officer, all members of the Division are fisheries graduates or technicians. In addition, there are 22 fisheries technicians ANNEX 12 Page 5 posted at various branch office engaged in fisheries credit operations 1/. To carry out the fisheries credit project, staff reinforcements at profes- sional levels would be needed, including one marine fisheries specialist and one senior financial analyst with investment banking background. Also, the consultant services of a marine specialist and a naval architect would be required. Some strengthening of the senior staff on executive and super- visory levels is indicated, most of which could be effected by drawing on some of the senior experienced personnel available in the DBP. A capable senior bank officer would be appointed as Assistant Manager. Training of junior staff would be provided by the DBP's Industrial Department and arrange- ments would be made for participation of the technical staff in a special fisheries training course to be organized by the Bureau of Fisheries in cooperation with the University of the Philippines. Technical Cooperation with other Agencies 8. In the implementation of the Credit program, the DBP would be able to avail itself of the guidance, cooperation and assistance of other Govern- ment agencies in related fields. 9. The Fishery Industry Development Council (FIDC) is the supreme body responsible for the implementation of the broad government policies in regard to the development of the fisheries sector. The seven-member Board, chaired by the Secretary of Agriculture and Natural Resources with the Director of the Bureau of Fisheries as Vice Chairman and Executive Officer includes the Secretary of Defense, the Governor of the Central Bank, the Governor of the DBP, the President of the Philippine National Bank (PNB) and the Chairman of the Board of Investments (BOI) as its members. The Council's principal task is to provide policy guidance and create an investment climate for the development of the industry and delineate and coordinate the various activities of the participating agencies of the industry. 10. The Bureau of Fisheries (BOF) is the research, advisory and executive arm of the FIDC with prime and direct responsibility for the execution of the fisheries development. The BOF performs important regula- tory functions over the industry, including the granting of fishpond leases, the licensing and registration of fishing vessels, the issuance of permits for the importation of marine products, and it undertakes applied fishery research, maintains fishery statistics and organizes and coordinates fisheries training programs. A broad understanding has already been reached with the Bureau of Fisheries on its extended cooperation with DBP including common staff training as well as technical advice and assistance to the sub-borrowers, in particular in the inland fisheries sector. Training would be provided by the University of the Philippines in connection with 1/ Five BOF fisheries technicians have recently been seconded to DBP to assist in the processing of loan applications from fish pond operators affected by heavy flood damage. ANNEX 12 Page 6 the USAID-financed Inland Fisheries Project. Contacts would be established with Customs Authority and the Coast Guard for their close cooperation and assistance in the follow-up on marine projects of delinquent borrowers. Financial Cooperation with other Institutions 11. A special effort would be required to give the fisheries lending program broad publicity and to familiarize potential borrowers with its major aspects and the credit facilities offered. Cooperation with other financial institutions would be sought in the promotion of the Program, and their financial assistance to the Program. In particular, there appears to be room for joint financial ventures in support of some of the larger categories of projects, with DBP assuming the medium-and-long-term financing of the capital investments, and the local institution the short-term loans for working capital. This combined approach should prove mutually beneficial in enabling the economical use of financial resources and providing the basis for a rational use of scarce resources of specialized skills and business experience, with DBP providing the specialized technical knowledge in the project appraisals, and the local banks the local business experience in the credit assessment of the borrowers. Possibilities for such cooperation seem to exist with the Rural banks and the Development banks, in particular in financing the inland fisheries sector, and with the commercial banks in the marine fisheries sector. ANNEX 12 Appendix 1 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Outline of Project Appraisal Requirements 1. In the fisheries credit operations, DBP's methods of project appraisal in regard to all major aspects of the technical feasibility, eco- nomic viability and financial soundness of the projects would be reviewed. In particular, they would include: (a) detailed description of the project and a critica; appraisal of its principal technical features, the pro- posed construction methods and the estimated construction period; the capabilities and competence of the management (owner), the adequacy of the work force, the administrative arrangements and ancillary, or complementary facilities required by the project including infrastructure, utilities and public services; (b) project cost estimates comprising (i) estimated capital eipenditure in appropriate breakdown in reference to para (a) above, and (ii) the working capital requirements, i.e., the estimated amount of permanent working capital for new projects, or the required incremental amount of working capital for expansion projects; (c) estimates of available funds for financing the project, specified by borrowings and owners contribution in the form of cash and equity; (d) estimates of production costs, working capital require- ments, inventory requirements, sales prices, sales volume, market outlets and competitive position; (e) estimates of income for the project and cash flow pro- jections, giving estimated sources and application of funds over the projected period including the project as well as all other business activities forming an integral part of the operation. Where appropriate, pro- forma summary balance sheets should be prepared showing the financial position on completion of the project and in a year of normal operations; ANNEX 12 Appendix 1 Page 2 (f) credit reports comprising an assessment of the borrowers existing assets and liabilities and his networth, and an appriasal of the assets offered as collateral for the loan. 2. A review of present methods and techniques of project appraisal of the Fisheries Division in particular in the financial field, would be required. It should be made with the help of a senior financial analyst/ investment banker with some experience in agricultural credit. New guide- lines should be issued for project appraisals together with revised forms of summary balance sheets and cash-flow and earnings projections as re- quired for the study. I/ These together with a credit appraisal of the borrower, would provide the basis for an analysis in depth of the project and of the financial conditions of the borrower. Somewhat simpler forms and procedures would apply to the smaller projects. In each case, ade- quate consideration should be given to comments on the figures and the underlying basic assumptions of the financial forecasts in regard to the operational and earnings prospects of the project and the past record and financial performance of the borrower. Financial ratios may be used, wherever indicated, to demonstrate special points or problems of particular importance. These observations would form the basis of the conclusions and recommendations in the final report on the suitability of the project for DBP financing. 1/ The sample forms of the Summary Appraisal and Development Report for the Livestock project might in part be used as a model in the drafting of these documents. PHILIPPINES FISHERIES CREDIT PROJECT Processing of Fisheries Loan Application AGRICULTURAL PROJECTS DEPT WORK FLOW Fisheres Div.sion RECEIPT OF APPLICATION Loan AnpOIim nPr,n,fSr sr.n oRe Application. L..n Adini-....r. alhocon no P,noct OfDive. Supervision and coorchnivon ot w-k. APPRAISAL OF PROJECT Loan Aintatr Premar Oscirnil PROJECT APPRAISAL Offcer SupgREPORT coodylntio on ork, LoanFNAL EPORT AND LOAN Pj OfceRECOMMENDATIONS I Fisheries ivPsioniallionuvIotto.SRrvice Diviion hie g Tchncal ssitanc Riew o Apprisaleo rt ReView and c ontcurrtnoFl L I AnalyVAt FONA REOROADAOA Asct,w M ger Review a Concurre nce and/ or Indorsernent. Gono Indor.esemen Charn-IBa ConSidernaton/Approval. LOAN OPERATION LEGAL DEPARTMENT Lega Documentation AGRICULTURAL PROJECTS DEPT. P'iiect Records Fh i Management Lon Releties ISerces DOn,Protot Super-s,ton ACCOUNTS DEPARTMENT Lan Aaount I TREASURER'S DEPARTMENT Liim Uiburernt I COLLECTION & ACUIRED Loan Collections ASSETS DEPARTMENT Source IBRD and DBP Novenber 1972 World San, /J86  PHILIPPINES FISHERIES CREDIT PROJECT Development Bank of the Philippines Organizational Chart of Agricultural Projects Department IMANAGERI Administrative Assistant Branches Assistant & Agencie7s MANAGEMENT SERVICES ASST. MANAGER ASST. MANAGER ASST. MANAGER ASST. MANAGER ASST. MANAGER Tech. Assts. Tech. Assts. Tc.As. M Tech. Assts. Tech. Assts. DIVISION DIVISION DVSODIDIVISION DIVISIO ISONDVIN DIVISION DIVISIO CEFCEFCIFCHIEF CHIEF CHIEF CHIEF CHIEF CHIEF Grain Fruit and Veg Commercial Beef Inland Marine Debt Services Statistics ngProduction Production ro Poultry Piggery Cattle Fisheries Fhereries Loan Releases Admin. Services mber 1972 World Bank - 7313 ,e: DBP and IBRD mission  FISHERIES CREDIT PROJECT DBP Agricultural Projects Department Present Organization Chart of Fisheries Group* ASSISTANT MANAGER] Sr. Technical Asst. Technical Asst. Jr. Technical Asst. DIIINCHIEF Inland Marin Hea,d Project Head Project Supervisor Supervisor Sr. Loan S.PoetSr. LoanSrPojc Analyst SAnalyst Supervisor Loan PoetLoan Project Analyst SuevsrAnalyst Supervisor Loan Loan Processor Processor Identical organizational structure applies also to the other operations divisions of the Agricultural Projects Department. World Bank - 7314 November 10, 1972 Source: DBP  PHILIPPINES FISHERIES CREDIT PROJECT Proposed Organizational Chart Fisheries Group DEPARTMENT MANAGER ADMINISTRATOR SENIOR TECHNICALPSENAORSLECHNICAL ASSISTANT (FINANCE) ASST. IAQUACULTUE PROJECT TECHNICAL SPECIALIST J ACCOUNTANT IF AQUACULTURES CHIEF' CHIEF PROJECT AP PRAfSAL LOAN SUPERVISION DIVISION DIVISION NAVAL ARCHITECT SENIOR LOAN ANALYST SENIOR FINANCIAL SENIOR LOAN ANALYST SR. PROJ. SUPERVISOR SR. PROJ. SUPERVISOR (MARINE FISHERIES) ANALYST (INLAND FISHERIES) (MARINE FISHERIES) (INLAND FISHERIES) LOAN ANALYST LOAN ANALYST PROJECT SUPERVISOR PROJECT SUPERVISOR FMARINE FISHERIES) (INLAND FISHERIES) (MARINE FISHERIES) (INLAND FISHERIES) (MRN FISHERIES)IES LOAN ANALYST FINANCIAL ANALYST LOAN ANALYST PROJECT SUPERVISOR PROJECT SUPERVISOR (MARINE FISHERIES) (INLAND FISHERIES) (MARINE FISHERIES) (INLAND FISHERIES) LOAN PROCESSOR LOAN PROCESSOR (MARINE FISHERIES) (INLAND FISHERIES) LOAN PROCESSOR LOAN PROCESSOR (MARINE FISHERIES) (INLAND FISHERIES) World Bank - 7672  ANNEX 13 PHILIPPINES FISHERIES CREDIT PROJECT DBP: Project Financial Statements 1. The estimated income statement and the cash flow for project operations under the proposed financing pattern are presented in Tables 1 and 2. The disbursement period is four years and the Bank's standard commitment fees and interest rates are applied. A cost of 8% per annum for the DBP counterpart funds has also been assumed. The repayment period for the Bank loan and DBP's.counterpart funds is 17 years, including a six year grace. Subloans, at an interest rate of 12%, have repayment terms from 5-12 years, including a grace period of one to five years. In accordance with DBP practices, interest during the grace periods has been capitalized. Cash flow projections in Table 2 are conservative because they are based on fully extended terms for repayments of subloans. 2. DBP's net income from project operations after debt service and administrative expenses, is estimated at 1 42.3 million over the project life. In addition, the project accounts surplus is invested at 8% per annum (the deficit being costed at 8% per annum), and the total net income is then projected at r 88.3 million. Bad-debts and costs associated with delinquent loans would have to be met from this income. The margin is con- sidered to be adequate for bad-debts and slippage in repayments.  ANNEX 13 Table 1 PHILIPPINES FISHERIES CREDIT PROJECT Development Bank of the Philippines: Estimated Project Income Statement (Peso, millions_) Revenues Marine Sector (Sub-loans P 41.3) 48.6 Inland Sector (Sub-loans ?418.3) _68,7 Total Revenues 117.3 Interest and Administrative Expenses Commitment Fbea D ) - 1.1 Interest 4IBBD6nda) 6.9 Interest (DBP Funds) 12 21.9 Administrative kpensee 4.0 Technical Assistance 1.1 Total Expenses 75.0 Net Income from Project 42.3 Net Income from Re-investment of Annual Project Account Surpluses (7eficits) 4 6.0 Total Net Income from Project Operations 8.3 /1 Consolidated over 19 years of project operations. 7Counterpart funds are assumed to cost 8% p.a. Surpluses in Project Account is invested at 8% p.a.; deficits are coated at 8% p.a. PEIIFFDES FISRESIE8 CEDIT PROECT Projected Project cah Fl. e3r 2 4 5 6 7 8 9 10 2 3 ~14 15 6 17 18 19 Totai cEa OF 800 IBRD Ffnd. 3,050 13,790 21,860 23,340 64,040 28 Funds 2,750 6,185 7,285 10,380 - 26,600 .u-borr.o's F-nd. 300 2,745 4,725 5,20 -13,00 Subtotal 6,100 22,720 33,870 41.010 - 103.700 1oetions on Subloan.@ .) Main. Setor - - - 575 2,980 6,740 10.437 10,437 10.437 10.207 9,747 8,827 7.582 6.232 3,732 1,897 - - - 89.830 b) Inland Setor - - ._5 2,650 5,725 8,525 13.587 13.587 13.587 12,612 11.637 10,662 9.962 7,862 5.062 162 162 162 116,919 Subtotal - - , 2465 18.,962 24.024 24.024 2379 22 359 20,464 18,244 16.194 11.594 6,959 162 162 162 206,749 , SIRC&S OF FNDS 6,1_0 22,720 331870 42,560 5,630 12,465 18,962 24,024 24,024 23,794 22,359 20,464 18,244 16,194 11,594 6,959 162 162 162 310,449 [CATION OF FUND~ 'rojat Tavast.ant.: .) Marina Sector - 10,720 19,870 21.010 - 51. 00 ,) Inland Saetor 5,750 11.250 14,000 20,000 - 51,0 rachnill1 Ao.l.tanc. 350 750 - - - 1.100 ~ n-trtive Expn.s 420 730 865 940 120 120 120 120 120 100 90 78 67 45 25 5mBO 5 5 5 380 9.btötal ~34 ~,135 41,950 120 120 120 120 120 100 90 78 67 45 25 5 5 5 5 107,680 )kbt Sarvice k) 15RD Co~1tent Fe 463 380 231 48 - - - 1,122 >) IBD; AMortiz*tio 6 luteTest 111 721 2,014 3,725 4,640 4,640 8,(45 8,645 8,645 8,645 8,645 8,645 8,645 8,645 8,645 8,645 8,645 - - 110,946 IYF ~E,1attatien 6 Intere.t i10 467 1,0% 1 69 21 2 128 3 720 _j 720 3 720 3.720 3.720 3,720 3,720 3,720 3,720 3,720 3.720 484 A aTO NF 6 IteS 7,204 25.018 37,986 47,414 6,j8 6,888 12:85 12,4FS 1:4 12 >461 T2 1, 22,443 12Z3 1241 12,390 12,370 12,370 5 268,198 lominal Cash Flo,. SAnnual (1,104) (2,298) <4,116) (4,854) (1,258) 5.577 6,477 11,539 11,539 11,329 9.904 8,021 5,812 3.704 (796) (5,411) (12,208) 137 157 ) Cunfil.tiv. (1,104) <3,402) (7,518) (12,372) (13,630) <8,053) (1,576) 9,963 21,502 32,831 4?,735 50,756 56,568 60,352 59,556 54,145 41,937 42,094 42,251 urpIus invested at 8%- 5 Annal (1,14B) (2,481) (4,571) (5,704) (2,420) 4.495 5,791 11,527 12,438 13,215 12,790 11,656 10,509 9,238 5,214 832 (6,170) 6,195 6,690 . Cu9 1-tve <1.148) (3,629) (8,200) (13,894) (16,324) (11,829) (6,038) 5,499 17,917 31,132 43,923 55,779 66,786 75,525 80,739 81,571 75,400 81,595 88,285 ton and int.re.t, at 6%,for DBP counterpart funds, is chargod to the project acc~onr. uratcto, investo,ent. ad collectimos are a~umed to occur continuously during the yaa-, atcounot lo charged at 8% when~vr it is tn deficit. ANNEX 14 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Marketing and Prices Role in the Economy 1. During the past decade, fish output of the Philippines more than doubled to about 1.0 million tons and per capita consumption increased almost 50%. In contrast, output of meat (beef, pork and poultry) lagged slightly behind the growth of population. It is estimated that fish and other marine products provide about half of the animal protein consumed in the Philippines -- as much as meat, eggs, milk and milk products com- bined. 2. Despite rapid increases in fish production, domestic demand has outpaced supply and retail prices have risen faster than other food commodities (Table 1). In 1971 exports were valued at 1 36.7 million (about US$5.4 million) and imports at f 137.0 million (about US$20.2 million). Exports consist mostly of shrimp to Japan and the U.S. (a growing item but still in quite small volume) and tuna to the U.S. Canned mackerel from Japan, favored in the interior where fresh fish is unavailable, constitutes the bulk of the imports. Similarly, low priced imports of fishmeal from Peru supply most of the Philippines market for this animal feed product (Table 2). Demand Projections 3. Demand for fish and fish products is expected to continue to rise very substantially in the decade ahead. Projections based on best assump- tions as to population, urbanization, and the effect of rising income on consumption of fish and fish products are summarized below: ANNEX 14 Page 2 Demand Projections for Fish A. Annual Rate of Growth (percent) Per Capita /I Total Period Population Consumption Consumption 1970-1975 3.0 1.9 4.9 1975-1980 2.7 2.0 4.7 /1 Assumes increases in per capita real income of 3.4% in 1970-1975 and 3.7% in 1975-1980. Income elasticity of fish is estimated at 0.55 based on calculations of Z. Russeck, FAO/UNDP Fisheries Development Program in the Philippines. B. Projections of Domestic Demand Year Total Demand Per Capita Demand ('000 tons) (kg) 1970 1,040 28.3 1975 1,320 30.9 1980 1,660 34.0 4. Estimated increases in requirements, averaging some 56,000 tons every year in 1970-75 and 68,000 tons in 1975-80, are substantially above increases in production in recent years. Substitution possibilities for fresh fish are limited becaused canned fish is bought where fresh fish is not available and frozen fish has a low consumer's acceptance. Present trends therefore indicate an increasing fresh fish deficit over the coming years. Domestic demand would therefore easily absorb the estimated in- cremental production from the project (48,000 tons at full development) based on population growth alone. Marketing 5. Most of the fish is sold in the fresh condition because of strong consumer preference. Where fish is iced for transport, the ice is removed prior to sale to give it a fresh appearance. Because of limited storage and distribution capacity and low acceptance of frozen, chilled or iced fish, fresh fish markets are easily saturated despite existing unsatisfied demand in the vicinity. The excess fish is sold for processing (drying and smoking) at a considerable discount. 6. Wholesale markets in the Manila area are the Navotas, Malabon and Divisoria fish markets. Most fishing vessels discharge fish in Navotas. Sorting takes place on board and sales are by tray or tubs. The auctioning ANNEX 14 Page 3 takes place at all three markets by a method of secret oral bidding, the buyers whispering their bids to the broker who decides whom to sell the fish to. There are only very few large brokers who control the marketing. The brokers charge a 3-6% commission depending on the services performed like loading and unloading, provision of containers, supply of ice, especially to fishpond operations, and advances for working capital. The Divisoria market handles most of the arrivals by trucks, jeeps and rail or intra-island vessels. There is no market hall and the sales take place in the streets and sidewalks. The Malabon market handles almost all the milkfish arriving in the Manila area. 7. Wholesale markets in the provinces exist only in some of the big- ger cities with access to the sea and these are small compared to Navotas. However, in most places sale is by an open auction system. 8. Retailing in the Manila area takes place through 30-40 central markets with special fish sections, and also through door-to-door vendors. Retail of processed fish takes place in the grocery sections. There is a substantial demand for processed fish in the inland areas and it is estimated that about 25% of the total catch is diverted to salting, drying, smoking and making of fish paste and fish sauce. Low value fish like anchovies and round scad are the raw materials for this processing. No canning is done, but freezing of tuna and shrimp for exports is increasing. Prices 9. Wholesale prices fluctuate daily during the main fishing season when the dealers have purchased their immediate fresh fish requirements and the remaining fish is sold for processing. Retail prices however, are less sensitive to short term supply fluctuations. Tables 3 and 4 show the trends the wholesale and retail prices over the period of 1965 to 1971. 10. Present trends in production and demand would indicate that domes- tic fish prices would continue to increase in real terms. However, for the purposes of financial calculations, present ex-vessel and ex-pond prices of ? 1,400 (US$207) and 3,000 (US$442) for marine fish and milkfish, res- pectively, have been assumed to continue.  PHILIPPINES FISHERIES CREDIT PROJECT Retail Price Index of FoodstuffsI/ In Manila, 1960-1971 (1955.100) Eggs & Fats & Miscell- Year All Items Cereals Fish Meat Vegetables Fruits Milk Oils aneous 1960 116.0 109.6 113.5 108.3 156.3 129.6 113.1 113.5 115.2 1961 118.9 118.2 121.0 113.3 119.7 145.4 116.9 110.5 120.2 1962 127.9 113.5 141.8 126.8 127.5 153.4 155.4 117.4 122.9 1963 140.4 127.5 153.5 145.8 126.0 168.5 176.6 124.2 129.7 1964 158.4 152.4 157.6 163.1 172.1 181.2 183.4 129.4 144.7 1965 161.3 149.3 174.7 167.4 164.0 191.6 185.5 146.1 142.9 1966 176.4 173.8 183.0 182.1 184.3 191.7 188.6 149.5 156.4 1967 190.6 190.3 204.6 187.3 225.3 203.4 187.2 150.7 160.9 1968 187.0 172.9 199.3 194.5 192.2 274.2 190.9 176.7 169.6 1969 190.2 175.6 212.5 195.7 180.4 243.0 190.2 172.7 185.6 1970 222.1 190.3 253.0 223.0 238.8 264.4 236.2 243.4 217.2 1971 275.1 243.2 332.3 286.4 291.7 345.1 268.1 267.1 236.8 !Food component of the consumer price index. L Source: Bureau of Commerce, Public Markets, Private Firms cited in Statistical Bulletin, Department of Economic Research, December 1970. ANNEX 14 Table 2 PHILIPPINES FISHERIES CREDIT PROJECT Trade in Fish and Fish Products 1969-72 1969 1970 1971 19721/ - - - - - - metric tons - - - - - Exports Fresh, Frozen: Fish 904 949 2,659 2,009 Shrimp 228 561 1,399 752 Other Crustaceans & Mollusks - 12 21 22 Processed Products: Dried, Smoked, Salted 16 220 384 126 Canned Milk Fish 2 17 85 2 Canned, Other Products 114 47 180 57 Sauce & Paste 95 88 119 h Miscellaneous 15 8 16 7 Total Exports 1,374 1,902 4,863 3,019 Imports Fish (fresh, frozen) 95 6 2 - Crustaceans & Mollusks (all) 96 1 - 505 Fish (canned) 73,126 68,052 44,604 34,081 Fish (dried, smoked, salted, etc.) 595 361 542 2 Fishmeal. 12,423 9,614 n/a n/a Total Imports- 86,335 78,034 45,16 34.,588 1/ 972 figures are for 6 months only, January-June 1972. 7 ishmeal figures from BOF. ITotal Import figures for 1971 and 1972 do not include Fishmeal. Source: Central Bank of the Philippines ANNEX14 1 Table 3 PHILIPPIN2S FISHERIES CREDIT PROJECT Average Wholesale Price for Fish in Navotas 1969-72 (Peso/kg) Species 1969 1970 1971 19721 Anchovies 0.56 0.67 0.98 1.07 Caesio 1.71 1.88 2.60 2.92 Cavalla 2.14 2.15 2.69 3.26 Grouper 2.35 2.51 3.09 3.65 Mackerel 1.63 1.59 2.38 2.59 Nemipterid 1.h2 1.64 1.98 2.24 Round Scad 1.00 0.96 1.46 1.65 Sardine 0.91 0.93 1.21 1.43 Shrimp Big 5.93 6.30 7.76 11.68 Slipmouth 1.27 1.23 1.29 1.28 Spanish Mackerel 2.26 2.49 3.60 L,.29 Squid 2.16 2.09 2.35 2.80 Milkfish 1.70 2.22 2.78 3.16 Source: Bureau of Census and Statistics. 1/ For January-September 1972. ANNEX 14 PHILIPPINES Table 4 FISHERIES CREDIT PROJECT Average Itial Price for Fish in Manila 1969-72 (Peso/kg) Species 1969 1970 1971 1972 - Anchovies 1.36 1.74 2.13 N/A Caesio 1.83 2.08 2.88 3.37 Grouper 2.65 3.20 4.69 5.68 Mackerel 1.83 2.17 2.97 N/A Nempterid 1.80 2.21 3.11 N/A Round Scad 1.20 1.42 N/A 2.36 Shrimp Big 6.28 6.69 7.98 N/A Slipmouth 1.67 1.89 3.04 N/A Milkfish 2.75 2.87 4.o5 4.79 Source: Bureau of Census and Statistics. 1/ For January-September 1972. ANNEX 15 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Projected Financial Results General 1. Table 1 summarizes the projected financial results for beneficiaries. Rates of return after taxes range from 20% for fish pond construction to 82% for improvements to existing fishing vessels. The high rates of return for vessel improvements and fish pond rehabilitation are for the incremental in- vestment only and do not reflect the "sunk" costs already incurred. New trawlers (70-GT) and new fish pond construction have rates of return of 25% and 20%, respectively. 2. Production results are based on existing operations for marine and inland fisheries. For marine fisheries the development period has been assumed at one year because Philippine fishermen are familiar with these vessels, while a 4-year development for the small- and medium-sized fish pond operators has been estimated. 3. Operating costs are based on existing records and include fuel, lubricants, ice, maintenance, wages, insurance, overheads and others as appropriate for investments in marine fisheries. Operating costs for investments in inland fisheries vary; they have been based on existing records, field discussions and research results and averaged for calculation purposes. Labor has been fully costed using the minimum wage rate determined by law which is sometimes higher than the prevailing wage rates. 4. Based on available records, the average ex-vessel price has been assumed at about Y 1,400 (US$206) per ton in the Greater Manila area and Y 1,100 (US$162) per ton in landing centers around the Visayan Sea. Ex- pond prices for milkfish are fairly uniform because of the geographic con- centration of production and have been estimated at 1 3,000 (US$442) per ton. 5. The projected cash flows have been used to determine subloan terms and they indicate that sub-borrowers would be able to repay their loans, equivalent to 80 percent of total project costs (including incremental work- ing capital) for marine fisheries and 90 percent on the average for inland fisheries, without undue difficulties under the proposed terms. As presented in paragraph 4.10 of the main text, repayment and grace periods show a range. For purposes of financial calculations the shorter terms have been used, although DBP would have the option of allowing longer terms if required in individual situations. DBP's income statements and cash flow (Annex 13) are based on fully extended terms to demonstrate the potential financial impact on DBP's project account. ANNEX 15 Page 2 Risk Analysis 6. In general, fisheries is rather risky because control over catch is limited and fish pond yields are affected by pests and diseases. There- fore, an analysis has been carried out to test the financial returns of fishing vessels and fish ponds (which would determine the success of the project) against foreseeable risks with regard to investment costs and net benefits. 7. The analysis gives an indication of the probability at which the return for an individual investment would drop below a chosen cut-off rate. This method calculates the standard benefit/cost ratio (BCR) discounting at the cut-off rate. Then BCR's of all possible cost/benefit variations are calculated. The cumulative probabilities of cost/benefit combinations which yield BCR's of less than unity represent the chance that the rate of return falls below the cut-off rate. 8. A cut-off rate of 15% and 10% has been used and Table 2 gives a sample calculation for a 70-GT trawler. The critical inputs are the proba- bility distribution assigned to investment costs and net benefits. Both distributions are based on empirical data and technical judgments. The rather narrow probability distribution for investment costs reflects the greater confidence in the estimates, while net benefits (catch or yields) have a much greater chance to be off the best estimates. 9. To summarize the results, there is a 4%, 10% and 11% probability that the rates of return for the 70-GT trawler, 130-GT trawler and fish ponds, respectively, would fall below 15%. The probability that rates of return would fall below 10% is negligible for all three investments under the above assumptions. Marine Fisheries 10. 130-GT Steel Trawler. Tables 3 and 4 show projected fishing operations. The proposed vessel would have a useful life of 15 years. It would carry a crew of 17, skipper included, and fish with trawl gear. Effec- tive fishing time would be 320 days per annum, made possible through carrier operations which would supply the vessels at the fishing grounds and trans- port the catch. Catch rates have been conservatively estimated at 2.55 tons per effective fishing day from the second year of operations onward. 11. 70-GT Wooden Trawler. Tables 5 and 6 show projected fishing operations. The proposed vessel would also have a useful life of 15 years (with increased maintenance from year 8 onwards). It would carry a crew of 15, skipper included, and fish with trawl gear. Effective fishing time would be 270 days per annum dropping to 250 because of increased docking time from year 8 on. Catch rates have been assumed at 1.5 tons per fishing day. 12. Fish Carrier. Tables 7 and 8 show projected carrier's operations if operated independently from fishing operations. Generally, entrepreneurs operating their fishing vessels out of Navotas (Manila) use either their ANNEX 15 Page 3 own carriers or hire carriers for a fee from other enterpreneurs. One carrier usually serves two fishing vessels and Table 9 shows the financial results of a combined operation under single ownership. 13. Vessel Improvements. Vessel improvements would include investments in more efficient gear, fish finding and communications equipment. Indi- vidual investments would vary with needs but it has been assumed that with an average investment of f 50,000 the catch of individual vessels could be increased by 10% because of reduced gear handling time and improved resource location. An average useful life of 10 years has been assumed for the vessel itself. Table 10 shows the incremental financial results. 14. 30-Ton Ice Plant. Tables 11 and 12 show financial results of projected ice plant operations. Each plant would have a daily capacity of 30 tons of ice. It would have a useful life of about 15 years and sales revenues and operating costs are based on existing operations. Generally, ice plants are operated independently from fishing operations and each plant can serve about 20 fishing vessels (70-GT class). Surplus capacity would be used for existing fishing operations. 15. Marine Slipway. Tables 13 and 14 show projected financial results of a marine slipway. Each slipway would have the capacity to serve the 45 project vessels estimated to be based in the Visayan Sea twice a year and the surplus capacity would be used to serve the existing fishing fleet based there. Revenues and operating costs have been based on similar opera- tions in the Philippines. Inland Fisheries 16. New Fish Pond Construction. Tables 15 and 16 show the projected financial results of a 10-ha newly constructed fish pond module. As explained in Annex 3, fish pond operators rarely develop their total area at one time. They generally enclose a larger area with a main dyke, uproot some trees, level the ground and only fully develop modules of approximately 10 ha. However, the new construction model has been included to demonstrate the viability of newly constructed fish ponds, while in all other models sunk costs, mainly for uprooting of trees and bottom levelling, have been excluded. The life of a fish pond has been assumed at 15 years before major investments in dykes and gates would be required. 17. Rehabilitation of Fish Ponds. Tables 17 and 18 show the projected financial results of a severely flood-damaged fish pond, and Annex 10 pre- sents type and unit costs of work to be performed. Present level of produc- tion has been estimated at zero because of damage to dykes and water control system. 18. Development of Fish Ponds. Tables 19 and 20 show projected finan- cial results of a 10-ha fish pond. Yields would increase from 500 kg/ha to 1,200 kg/ha per annum over a 4-year development period. Revenues and operating costs have been based on existing operations with labor fully costed at the ANNEX 15 Page 4 4nimum wage rate of 1 8.0 per man-day rather than on the prevailing rates which vary from Y 4.0 to ' 6.0 per man-day. 19. Freshwater Ponds. Tables 21 and 22 show projected financial results of a 25-ha freshwater pond. The species cultivated is carp with ag average ex-pond price of f 3.0 per kg. Yields would increase from 500 tp 1,000 kg per hectare per annum over a 3-year development period. PHILIPPINES ANNEX 15 Table 1 FISHERIES CREDIT PROJECT Financial Rates of Return A. Marine Fisheries Investment Costs Life Rate of Return (Peso) YRs)W 1. 130 Ton Steel Trawler 1,24.0,000 15 21 2. 70 Ton Wooden Trawler 422,000 15 25 3. Second-Hand Fish Carrier 359,000 10 51 4. Trawler-Carrier Fleet 3,839,000 li 25 5. Improvements to Trawlers 50,000 10 82 6. 30 Ton Ice Plant 1,411,ooo 15 21 7. Marine Slipway 348,000 15 22 B. Inland Fisheries Investment Costs Life Rate of Return (Peso Per Ha) (YRs) ) 1. New Construction 8,500 15 20 2. Developoment 5,500 15 27 3. Rehabilitation 3,00 15 46 4. Freshwater Ponds 7,500 15 21 ANNEX 15 Table 2 PHILIPPINES FISHERIES CREDIT PROJECT Risk Analysis for a 70-GT Trawl Fishing Vessel A) Probability Distributions (i) Total Investment Costs (% of projectians) 70 80 90 100 110 120 130 (ii) Probabilities 0.05 0.1 0.2 0.3 0.2 0.1 0.05 (iii) Total Net Benefits (% of pzojections) 70 80 90 100 110 120 130 (iv) Probabilities 0.1 0.1 0.2 0.2 0.2 0.1 0.1 B) Standard Benefit/Cost Ratio (at 15%) 70-GT Trawler (i) Present Value of Investment Costs ('000 Peso) 420 (ii) Present Valde of Net Benefits 650 (iii) BCR (standard) 1.548 C) BCR for all Combinations Combination of Joint Investment Benefits Probability BCR (%) (7) () 1. 130 70 0.005 * 2. 130 80 0.005 * 3. 130 90 0.010 1 4. 130 100 0.010 1 5. 130 110 1/ 0.010 1 6. 120 70 0.010 * 7. 120 80 0.010 1 8. 120 90 0.020 1 9. 120 100 1/ 0.020 1 10. 110 70 0.020 * 11. 110 80 0.020 1 12. 110 90 1/ 0.040 1 13. 100 70 1/ 0.030 1 Probability (Rate of Return 4 15%): 0.040 4% 2/ * BCR less than unity. 1 BCR greater than or equal to unity 1/ All other combinations result in BCR's greater than unity. 2/ Derived at by adding joint probabilities of combinations Nos. 1, 2, 6, and 10. PHILIPPINES FISHERIES CREDIT PRO JECT Projected Income Statemant: 10 Ton Steel Trawler (Peso, Thousands) Year 1 2 6 8 9 10 11-16 NET REVENUES FROM FISH SALES - 806.4 1,142.4 1,142.4 1,142.4 1,1W2.4 1,142.4 1,142.4 1,142.4 1,142.4 1,142.4 OPERATING CCSTS: Fuel & Lubricants - 322.6 322.6) Ice - 15.6 22.0) Wagee - 54.1 54.1) Repairs & Maintenance - 60.0 60.0) constant Insurance - 72.0 72.0) Fishing Gear - 40.0 40.0) Transshipment - 92.2 130.6) Overheads - 65.6 70.1) TOTAL OPERATING COSTS - 722.1 722.1 722.1 722.1 722.1 722.1 722.1 722.1 722.1 722.1 OPERATING INCOME -84.3 371.0 371.0 371.0 371.0 371.0 371.0 3371.0 371.0 Depreciation - 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 Interest - - 141.3 129.8 117.0 102.6 86.4 68.3 48.1 25.4 - GROSS INCOME - TJ7 149.7 161.2 174.0 188.4 204.6 222.7 242.9 265.6 291.0 Taxes - 1.1 37.4 40.3 . 7.1 51.2 5607 66.4 2 NET INCOME - 3.2 112.3 120.9 130.5 141.3 153.4 167.0 182.2 199.2 218.2 Financial Rate of Return: 21% FISHERIES CBEDIT PR0TECT Projected Cash Flow: 130 Ton Steel Trawler (Peso, Thousands) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 TOTAL SOURCES OF FUS_ 1. Funds Generated - 83.2 333.6 330.7 327.5 323.9 319.8 315.3 310.3 304.6 298.2 298.2 298.2 298.2 298.2 198.2 4,438.1 2. Project Loan 992.0 - - 992.0 3. Eouity 248.0 - - 248.0 TOTAL SOURCES OF FUNDS 1,240.0 83.2 333.6 330.7 327.5 323.9 319.8 315.3 310.3 304.6 298.2 298.2 298.2 298.2 298.2 298.2 5.1- APPLICATION OF FUNDS 1. Project Investments 1,200.0 - 1,200.0 2. Incremental Working Capital 40.0 - - (40.0) 3. Debt Service Amortiastion - - 95.8 107.3 120.1 134.5 150.7 168.8 189.0 211.7 - 1,177.9 Interest - - 14113 29.8 1. 10 86.4 68.3 48.1 25.4 716.j Total Debt Service - - 237.1 237.1 237.1 237.1 237.1 237.1 237.1 237.1 1,896.8 TOTAL APPLICATION OF FUNDS 1,240.0 237.1 237.1 237.1 237.1 237.1 237.1 237.1 237.1 - (40.0) 3,096.8 NET INFLOW (OUTFI-M (a) Annual - 83.2 96.5 93.6 90.4 86.8 82.7 78.2 73.2 67.5 298.2 298.2 298.2 298.2 298.2 338.2 (b) Cumulative - 83.2 179.7 273.3 363.7 450.5 533.2 611.4 684.6 752.1 1,050.3 1,348.5 1,646.7 1,944.9 2,243.1 2,581.3 2,581.3 DEBT SERVICE RATIO - - 1.41 1.39 1.38 1.37 1.35 1.33 1.31 1.28 - PHILIPPINES FISRERIES CREDIT PROJECT Projected Income Statement: 70 Ton Wooden Trawler (Peso, Thousands) Yaar 1 2 3 4 5 6 7 8 9-16 NET REVENUES FROM FISH SALES - 311.9 401.0 445.5 445.5 445.5 445.5 445.5 412.5 OPERATING COSTS: Fuel & Lubricants - 121.6 112.6 Ice - 18.4) 17.0 Wages - 36.7) 34.0 Repair & Maintenance - 20.1) Constant 40.2 Insurance - 32.2) 36.2 Fishing Gear - 20.0) 20.0 Overheads - 24.9) 26.0 TOTAL OPERATING COSTS - 273.9 273.9 273.9 273.9 273.9 273.9 273.9 286.0 OPERATING INCOME - 38.0 127.1 171.6 171.6 171.6 171.6 171.6 126.5 Depreciation - 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 Interest - - 48.1 42.2 35.5 28.1 19.8 10.4 - GROSS INCOME - 11.2 52.2 102.6 109.3 116.7 125.0 134.4 99.7 Ukes - 2.8 13.1 25.7 27.3 29.2 31.3 33.6 24.9 NET INCOME - 8.4 39.1 76.9 82.0 87.5 93.7 100.8 74.8 Financial Rate of Return: 2% FISBER CRDIT PEDJgT Projected Cash Flo: 70 T. Wooden Trawler (Peuo, Tbousands) -1 2 3 4 5 6 7 8 9 10 -i _2 13 _4 15 _16 Total SOeRCES OP FUMIDS 1. ?u" Genmerated - 35.2 114.0 145.9 144.3 142.4 140.3 138.0 101.6 101.6 101.6 101.6 101.6 101.6 101.6 101.6 1.672.9 2. Project loac 337.6 337.6 3. Equity 84.4 84.4 TOT4L SORCES OF FMMS 422.0 35.2 114.0 145.9 144.3 142.4 140.3 138.0 101.6 101.6 101.6 101.6 101.6 101.6 101.6 101.6 2,094.9 1. Project lvetmnte 402.0 402.0 2. Incremental Working Capital 20.0 (20.0) 3. Debt Service Amorttmation - - 49.4 55.3 62.0 69.4 77.7 87.1 - 400.5 Interest - - 48.1 42.2 35.5 28.1 _198 10.4 - Total Debt Service - - 97.5 97.5 97.5 97.5 97.5 97.5 - 584.6 TOT4L 4PPIC4TION <Î FUNDS 422.0 - 97.5 97.5 97.5 i7¯5 .75 97.5 - (20.0) 997.0 NET NFwM (OUTFILO) (a) Annual - 35.2 i6.5 48.4 46.8 44.9 42.8 40.5 101.6 101.6 101.6 101.6 101.6 101.6 101.6 - 1M1.6 (b) Cumulative - 35.2 51.7 100.1 146.9 191.8 234.6 275.1 376.7 478.3 579.9 681.5 783.1 884.7 986.3 1,107.9 1,107.9 IV. DMBT SERVICE RATIO - - 1.17 1.50 1.48 1.46 1.45 1.44 1.42 - - - - - - PHILIPPINES FISHERIES CREDIT PROJECT Projected Income Statement: Fish Carrier (Peso, Thousands) Year 1 2 3 4 5 6 7 8-10 NET REVENUES 259.2 259.2 259.2 259.2 259.2 259.2 259.2 259.2 OPERATING COSTS: Fuel & Lubricants 32.7) Wages 27.2) Repair & Maintenance 27.1) Constant Insurance 20.3) Overheads 5.4) TOTAL OPERATING COSTS 112.7 112.7 112.7 112.7 112.7 112.7 112.7 112.7 OPERATING INCOME 146.5 146.5 146.5 146.5 146.5 146.5 146.5 146.5 Depreciation 33.9 33.9 33.9 33.9 33.9 33.9 33.9 33.9 Interest - 38.6 33.8 28.5 22.5 15.9 8.4 - GROSS INCOME 112.6 74.0 78.8 84.1 90.1 96.7 104.2 112.6 Taxes 28.2 18.5 19.7 21.0 22.5 24.2 26.0 28.2 NET INCOME 84.4 55.5 59.1 63.1 67.6 72.5 78.2 84.4 Financial Rate of Peturn: 51% PHILIPPINES FISHERIES CREDIT PROJECT Prolected Cash Flow: Fish Carriers (Peso, Thousands) Year 1 2 3 4 5 6 7 8 9 10 Total SOURCES OF FUNDS 1. Funds Generated 118.3 128.0 126.8 125.5 124.0 122.3 120.5 118.3 118.3 118.3 1,220.3 2. Project Loan 287.2 - 287.2 3. Equity 71.8 - 71.8 TOTAL SOURCES OF FUNDS 477.3 128.0 126.8 125.5 124.0 122.3 120.5 118.3 118.3 118.3 1,579.3 APPLICATION OF FUNDS 1. Project Investments 339.0 - 339.0 2. Incremental Working Capital 20.0 (20.0) 3. Debt Service Amortisation - 39.6 44.4 49.7 55.7 62.3 69.8 321.5 Interest 38.6 33.8 28.5 22.5 15.9 8.4 - 147.7 Total Debt Service 78.2 78.2 78.2 78.2 78.2 78.2 - 469.2 TOTAL APPLICATION OF FUNDS 359.0 78.2 78.2 78.2 78.2 78.2 78.2 - (20.0) 808.2 NET INFLOW (OUTFLOW) (a) Annual 118.3 49.8 48.6 47.3 45.8 44.1 42.3 118.3 118.3 138.3 (b) Cumulative 118.3 168.1 216.7 264.0 309.8 353.9 396.2 514.5 632.8 771.1 771.1 DEBT SERVICE RATIO - 1.6 1.6 1.6 1.6 1.6 1.5 PHILIPPIM FISUERIES CREDIT PROJECT Projected Incom Statement: Coobined Operations 2 - 130 Tan Steel Trawlers and 1 Fish Carrier (Paso, Thousands) Yar 1 2 3 4 5 6 7 8 9 10 11 12 .13 14 15 16 NET REVENUES FROM FISH SALE 1,612.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 2,284.8 OPERATING COSTS: 2 TRAWLERS Fuel & Lubricants 645.1 Ice 31.1 Wages 108.2 Repair & Maintenance 120.0 ) Constant Insurance 144.0 Fishing Gear 80.0 ) Overheads 112.8 ) TRA3IXRS OPERATING COSTS - 1,241.2 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 1,255.4 OPERATING COSTS: CARRIER Fuel & Lubricants 32.7) Wages 27.2 ) Repair & Maintenance 27.1) Constant Insurance 20.3) Overheads 5.4) CARRIER OPERATING COSTS - 112.7 112.7 112.7 112.7 112.7 112.7 112.7 112.7 112.7 112.7 112.7 112.7 112.7 112.7 112.7 TOTAL OPERATING COSTS - 1,353.9 1,368.1 1.368.1 1,368.1 1,368.1 1,368.1 1,368.1 1,368.1 1,368.1 1,368.1 1,368.1 1,368.1 1,368.1 1,368.1 OPERATING INCOEB - --3- 9- 7 167 9T" nU7 - " 7 91 6.7 7 9167 7 7 71--Vn-7 91b77 Depreciation: Trawlers 160.0 160.0 160.0 160.0 160.0 160.0 160.0 160.0 160.0 160.0 160.0 160.0 160.0 160.0 160.0 Depreciation: Carrier 33.9 33.9 33.9 33.9 33.9 33.9 33.9 33.9 33.9 33.9 33.9 33.9 33.9 33.9 33.9 Interest: Trawlers - 282.6 259.6 234.0 205.2 172.8 136.6 96.2 50.8 - - - - - - Interest: Carrier _ - 38.6 33.8 28.5 22.5 15.9 8.4 - 38.6 33.8 28.5 22.5 GROSS INCOME 65.0 401.6 429.4 460.3 495.1 534.1 577.8 626.6 672.0 722.8 722.8 684.2 689.0 6-9-4.3 700.3 Taxes 16.3 100.4 107.4 115.1 123.8 133.5 144.5 156.7 168.0 180.7 180.7 171.1 172.3 173.6 175.1 NET INCOE - 48.7 301.2 322.0 345.2 371.3 400.6 433.3 469.9 504.0 542.1 542.1 513.1 516.7 520.7 525.2 Financial Rate of Return: 25% ANNEll5 Table 1o PHILIPPINES FISHERIES CREDIT PROJECT Incremental Stat anent& oljrovement of EdAting Trawler (Peso.. Thousands) a) Operating Income Present Operation Operation after iprovement TCH 312 tone 343 tons COME 343.2 377.3 ERATING CSTS: Fuel & Lubricants 56.5 62.0 Wages 44.2 41.5 Ice 30.8 33.9 Fishing gear 6.3 7.0 Repair & maintenance 19.6 19.6 Insurance 20.0 20.0 Mise. 7.5 7.5 Overhead TAL OPERATING COSTS . ERATING INCOME 154.8 182.3 DREMENTAL OPERATING INCOME 27.5 b) Incremental Not Income and Debt Service Year 1 2 3 4 5 6-10 GREMENTAL GPERATING INCOME 27.5 27.5 27.5 27.5 27.5 27.5 Incremental Depreciation 5.0 5.0 5.0 5.0 5.0 5.0 Incremental Interest - 5. _ 2 2.0 - "REMENfAL GROSS PROFIT 22.5 15.8 17.2 18.8 20.5 22.5 Incremental Taxes .5.6 4.0 43 4 5.1 5.6 2REMENTAL NET DOHE 16.9 11.8 12.9 14.1 15.4 16.9 Incremental Funds Generated 21.9 23.5 23.2 22.8 22.4 21.9 Incremental Debt Service - 18.4 18.4 18.4 18.4 - ,REMENTAL NET INFLOW (OUTFLOW) :a) Annual 21.9 5.1 4.8 4.4 4.0 21.9 :b) Cumulative 21.9 27.0 31.8 36.2 40.2 149.7 3T SERVICE RATIO - 1.28 1.26 1.24 1.22 - Financial Rate of Return: 82% PHILIPPINES FISHERIES CREDIT PROJECT Projected Income Statement: 30 Ton Ice Plant (Peso, Thousands) Year 1 2 3 4 5 6 7 8 9 10 11-16 NET REVEUES FROM ICE SALES - 527.6 527.6 527.6 527.6 527.6 527.6 527.6 527.6 527.6 527.6 OPERATING COSTS: Fuel & Lubricants - 91.2) Ammonia & Salt - 1.8) Wages - 29.3) Repair & Maintenance - 6.0) Constant Insurance - 27.4) Overheads - 3.6) TOTAL OPERATING COSTS 159 159.3 M7. 159. 3 1-57:7 159.3 159 .3 159.3 OPERATING INCOME - 3 36773 369 3673 3 . 3 3693 36 3683 363 Depreciation - 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 92.7 Interest - - 16 .1 149.8 13.0 118.3 99.7 78.9 5.5 29.3 - GROSS INCOME - 5 T 112.5 11 .6 157.3 175.90. Mi T*A8 - 68.9 28.1 31.5 35.2 39.3 4.0 49.2 55.0 61.6 68.9 NET INCOME - 07 37 1 .7 131.9 17.5. 167 06.7 Financial Rate of eturn: 21% L>1 PHILIPPIES FISHMIES CREDIT PROJECT Prolected Cash FLow: 30-Ton Ice Plant (Peso, Thousand@) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 .1, Total OF FUNDS dø Gensrated - 299.4 340.2 336.8 333.1 329.0 324.3 319.1 313.3 306.7 299.4 299.4 299.4 299.4 299.4 299.4 4,698.3 jaet Lozn 1,128.8 - 1,128.8 ity 282.2 - 282,2 &L 8URCES Op FUND6 1,411.0 199.4 340.2 336.8 333.1 329.0 324.3 319.1 313.3 306.7 299.4 299.4 299.4 299.4 299.4 299.4 6,109.3 TION OF VMND jact Inavetmmnts 1,391.0 - 1,391.0 raetal Vorking Capital 20.0 - (20.0) t Sørvice mortiation - - 110.5 123.8 138.6 155.3 173.9 194.7 218.1 244.3 - 1,359.2 ntere*t - - 163.1 149.8 135.0 118.3 99.7 78.9 55.5 29.3 - 829.6 otal Debt Service - 273.6 273.6 273.6 273.6 273.6 273.6 273.6 273.6 - 2,188.8 AL APLICATION OP FUNDS 1,411.0 - 273.6 273.6 736 273.6 273.6 273.63 .6 .6 2.6 6 - (20.0) 3,579.8 IX0 (MUTFIMO .a) A~nnal - 299.4 66.6 63.2 59.5 55.4 50.7 45.5 39.7 33.1 299.4 299.4 299.4 299.4 299.4 319.4 b) umulative - - 366.0 429.2 488.7 544.1 594.8 640.3 680.0 713.1 1,012.5 1,311.9 1,611.3 1.910,7 2,210.1 2,529.5 2,529.5 RVIE RATIO - - 1.24 1.23 1.20 1.19 1.19 1.17 1.15 1.12 - - PHILIPPINES FISERIRS CREDIT PROJECT Pro-ected Income Statemient: Marine Slipway (Peso, Thousanda) Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 NET REVENUES - 133.4 222.3 222.3 222.3 222.3 222.3 222.3 222.3 222.3 222.3 222.3 222.3 222.3 222.3 222.3 OPERATING COSTS: Puel & Lubricants - 12.0) Wages - 67.8) Repair & Maintenance - 12.0) Constant Insurance - 6.7) Overheads - 11.8 TOTAL OPERATING COSTS - 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 OPEAMTING INCOME - 23.1 112.0 112.0 112.0 112.0 112.0 12.0 112.0 127 12.0 112.0 112.0 Depreciation - 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 Interest - - 39.7 36.4 32.8 28.8 24.3 19.2 13.5 7.1 - - - - - - GROSS INCOME - 1.1 50.3 53.6 57.2 61.2 65.7 70.8 76.5 82.9 90.0 90.0 90.0 90.0 90.0 90.0 Taxes - 0.3 12.6 13.4 14.3 15.3 16.4 17.7 19.1 20.7 22.5 22.5 22.5 22.5 22.5 22.5 NET INCOME - 0.8 37.7 40.2 42.9 45.9 49.3 53.1 57.4 62.2 67.5 67.5 67.5 67.5 67.5 67.5 Financial Rate of Return: 22% FISHERIES CREDIT PROJECT Projected Cash Floy: Marine Slipway (Peso, Thousands) Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Total SURCES OF FUNDS 1. Fund Generated - 22.8 99.4 98.6 97.7 96.7 95.6 94.3 92.9 91.3 89.5 89.5 89.5 89.5 89.5 89.5 1,326.3 2. Project Loans 278.4 278.4 3. Rouity 69.6 - - - - - - -- -- -- ---- -- -- --- 69.6 TOTAL SOURCES OF FUNDS 348.0 22.8 99.4 98.6 97.7 96.7 95.6 94.3 92.9 91.3 89.5 89.5 89.5 89.5 89.5 89.5 1,674.3 APPLICATION OF FUNDS 1. Project Investments 333.0 333.0 2. Incremental Working Capital 15.0 (15.0) 3. Debt Service Amortiastiou - - 26.8 30.1 33.7 37.7 42.2 47.3 53.0 59.4 - 330.2 Interest - - 39.7 36.4 32.8 28.8 24.3 2 13.5 7.1 - 201.8 Total Debt Service _ - 6 6 6 66 6 66.5 66.5 66.5 - 532.0 TOTAL APPLICATION OF FUNDS 349.0 - 66.5 66.5 66.5 66.5 66.5 66.5 66.5 66.5 - (15.0) 865.0 NET INFLOW (OUTM) (a) Annual - 22.8 32.9 32.1 31.2 30.2 29.1 27.8 26.4 24.8 89.5 89.5 89.5 89.5 89.5 104.5 (b) Cumulative - 22.8 55.7 87.8 119.0 149.2 178.3 206.1 232.5 257.3 346.8 436.3 525.8 615.3 704.8 809.3 09,3 BMBT SERVICE RATIO - - 1.49 1.48 1.47 1.45 1.44 1.42 1.40 1.37 - PHILIPPINES FISHERIES CREDIT PROJECT Proiected Income Statement: New Fish Pond Construction (10 ha) (Paso, Thousands) Wear 1 2 3 4 5 6 7 8 9 10 11 12 13 14-16 SALES OF FISH & SHRIMP - 19.0 28.0 34.0 40.0) Commission - ...A _)Q) 31 1.2 NET REVENUES - 184 27.2 33.0 38.8 38.8 38.8 38.8 38.8 38.8 38.8 38.8 38.8 38.8 OPERATING COSTS Fish Fry - 0.8 1.0 1.0 1.2) Fertilizer - 3.5 3.5 3.5 3.5) Seasonal Labor - 1.2 1.5 1.5 1.5) Caretaker's Salary - 3.0 3.0 3.0 3.0) Constant Transport - 1.3 1.5 1.5 1.5) Maintenance & Replace- ment - 2.2 2.2 2.2 2.3) TOTAL OPERATING COSTS - 12.0 12.7 12.7 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 OPERATING INCOHE - 6.4 14.5 20.3 25.8 25.8 25.8 25.8 25.8 25.8 25.8 25.8 25.8 25.8 Dspreciation - 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 Interest - - - 12.2 11.5 10.7 9.9 8.9 7.8 6.6 5.2 3.7 1.9 - GROSS INCOME - 1.1 9.2 2.8 9.0 9.8 10.6 11.6 12.7 13.9 15.3 16.8 18.6 20.5 Taxes - 0.3 2.3 0.7 2.3 2.5 2.8 2.9 3,2 3.5 3.8 4.2 _44 5.1 NET INCOME - 0.8 6.9 2.1 6.7 7.3 7.8 8.7 9.5 10.4 11.5 12.6 14.2 15.4 Financial Rate of Beturn: 20% PHILIPlS FISWERIU CREDIT l-OJECT Projected Cash Fløw: New Construction of Fiah Ponda (10 ha) (Peso, Thousands) 2 3 4 5 6 7 8 9 10 11 12 13 14-15 16 Total SOURCES op FUNDS 1. Fund Generated - 6.1 12.2 19.6 23.5 23.3-. 23.0 22.9 22.6 22.3 22.0 21.6 21.4 20.7 20.7 302.6 2. Project Ian 76.5 76.5 3. quity 8.5 i3- is i- i TOTAL SRCES OF FNDS 85.0 .1 2.2 9.6 .5 233 2Š0 22.9 22.6 !.3 2.0 21.6 21.4 20.7 20.7 387.6 ATL1;CATIm O TUNDS 1. Project Investmts 80.0 - 80.0 2. Incrmental Working Capital 5.0 - (5.0) 3. Dbt Service Interest - - - 12.2 11.5 10.7 9.9 8.9 7.8 6.6 5.2 3.7 1.9 - - 78.4 Art atio 5.8 6.5 7.3 8.1 9.1 10.2 11.4 12.8 14.3 16.1 - - 101.6 Total Dbt Service - - - 18.0 18.0 18.0 18.0 180 180 18.0 18.0 18.0 18-0 _- - 1.. TOTAL APPLICTION O FUNDS 85.0 - - 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 - (5.0) 260.0 NET il~- LæTFIo~ (a) Anual - 6.1 12.2 1.6 5.5 5.3 5.0 4.9 4.6 4.3 4.0 3.6 3.4 20.7 25.7 (b) Cumlative - 6.1 18.3 19.9 25.4 30.7 35.7 40.6 45.2 49.5 53.5 57.1 60.5 101.9 127.6 127.6 DEBT SERVICE RATIO - - - 1.09 1.31 1.29 1.28 1.27 1.26 1.24 1.22 1.20 1.19 - - PHILIPPINES FISHERIES CREDIT PROJECT Projected Income Statement: Rghabilitation of Damaged Fish Ponds (10 ha) (Peso, Thousands) year 1 2 1 4 5 6 7 8-16 SALES OF FISH AND SHRIMP - 19.0 28.0 34.0 40.0 ) constant Commission - 0.6 0.8 1.0 1.2 ) NET REVENUES - 18.4 27.2 33.0 38.8 38.8 38.8 38.8 OPERATING COSTS: Fisn Fry - 0.8 1.0 1.0 1.2) Fertilizer - 3.5 3.5 3.5 3.5) Seasonal Labor - 1.2 1.5 1.5 1.5) Constant Caretaker's Salary - 3.0 3.0 3.0 3.0) Transport - 1.3 1.5 1.5 1.5) Maintenance and Replacement - 2.2 2.2 2.2 2.1) TOTAL OPERATING COSTS - 12.0 12.7 12.7 13.0 13.0 130 13.0 OPERATING INCOME - 6.h Th.5 20.3 25.8 25.8 25.8 25.8 Depreciation (incremental) - 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Interest (incremental) - - 38 -. 2.6 1.8 1.0 - GROSS INCOME - 4.4 8.7 15.1 21.2 22.0 22.8 23.8 Taxes - 1.1 2.2 3- - - . - NET INCOME - 3.3 6.5 11.3 15.9 16.6 17.1 17.9 Financial Rate of Return: 46% PHILIPPINES FISHERIES CREDIT PROJECT Projected Cash Flow: Rehabilitation of Damaged Fish Ponds (10 ha) (Peso, Thousands) Year 1 2 3 5 6 7 8-16 Total SOURCES OF FUNDS 1. Funds Generated - 5.3 12.3 16.5 20.5 20.4 20.1 19.9 274.2 2. Project Loan 27.0 - 27.0 3. Equity .0 --- - -- -3.0 TOTAL SOURCES OF FUNDS 30.0 5.3 12.3 16.5 20.5 20.4 20.1 19.9 304.2 APPLICATION OF FUNDS 1. Project Investments 30.0 - 30.0 2. Incremental Working Capital - - 3. Debt Service Interest - - 3.8 3.2 2.6 1.8 1.0 - 12.4 Amortization - - . . 6. .1 7.9 2. Total Debt Service - _g . .o - TOTAL APPLICATION OF FUNDS 30.0 - 8.9 8.9 8.9 8.9 8.9 - 74.5 NET INFLOW (OUTFLOW) (a) Annual - 5.3 3.4 7.6 11.6 11.5 11.2 19.9 (b) Cumulative - 5.3 8.7 16.3 27.9 39.4 50.6 229.7 229.7 DEBT SERVICE RATIO - - 1.38 1.85 2.3 2.3 2.3 - PHILIPPINES FISHERIES CREDIT PROJECT Projected Income Statement: Development of Fish Ponds (10 ha) (Peso, Thousands) Year 1 2 3 4 5 6 7 8 9 10 11-16 SALES OF FISH & SHRIMP - 19.0 28.0 314.0 40.0) Commission - 0.6 0.8 1.0 1.2) NET REVENUS ill 27.2 33.0 3=. 373 OPERATING COSTS Fish Fry - 0.8 1.0 1.0 1.2) Fertilizer - 3.5 3.5 3.5 3.5) Seasonal Labor - 1.2 1.5 1.5 1.5) Caretaker's Salary - 3.0 3.0 3.0 3.0) Constant Transport - 1.3 1.5 1.5 1.5) Maintenance & Replacement - 2.2 2.2 2.2 2.3) TOTAL OPERATING COSTS - 12.0 12.7 12.7 13.0 13.0 13.0 13.0 13.0 13.0 13.0 OPERATING INCOME 20.3 5 Depreciation - 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 Interest - - - 7.9 7.1 6.2 5.3 4.2 2.9 _1. - GROSS INCOME - 3.1 11.2 9.1 i-.i 163 17.2 1= 3 19 21.0 2 2T Taxe - 0.8 2.8 2.2 3.9 4.1 4.3 4.6 4.9 5.2 5.6 NET INCOME - 2.3 8.4 6.9 11.5 12.2 12.9 13.7 14.7 15.8 16.9 Financial Rate of letur: 27% CD I- PHILIPPINES FISHERIES- CREDIT- PROJECT Projected Cash Flow: Development of Fish Pords (l ba) (Peso, Thousands) Year 1 2 3 4 5 6 7 8 9 10 11-15 16 Total SOURCES OF FUNDS 1. Funds Generated - 5.6 11.7 18.1 21.9 21.7 21.5 21.2 20.9 20.6 20.2 20.2 284.4 2. Project Loan' 49.5 - 49.5 3. Equity _ - ---- - -- 5.5 TOTAL SOURCES OF FUNDS 55.0 5.6 11.7 18.1 21.9 21.7 21.5 21.2 20.9 20.6 20.2 20.2 339.4 APPLICATION OF FUNDS 1. Project Investments 50.0 - 50.0 2. Icremental Working Capital 5.0 - (540) 3. Debt Service Interest - - - 7.9 7.1 6.2 5.3 4.2 2.9 1.5 - - 35.1 Amortization - - - 6.5 7.3 8.2 9.1. 10.2 11.5 12.9 - 65.7 Total Debt Service - - 14.4 14.4 14.4 14.4 14.4 14.4 14.4 100.8 TOTAL APPLICATION OF FUNDS 55.0 - - 14.4 14.4 14.4 14.4 14.4 14.4 14.4 - (5.0) 150.8 NET INFLOW (OUTFLW) (a) Annual - 5.6 11.7 3.7 7.5 7.3 7.1 6.8 6.5 6.2 20.2 25.2 - (b) Cualative - 5.6 17.3 21.0 28.5 35.8 42.9 49.7 56.2 62.4 163.4 188.6 188.6 DEBT SERVICE RATIO - - - 1.26 1.52 1.51 1.49 1.47 1.45 1.43 - - - PHILIPPINES FISHERIES CREDIT PROJECT ProjectI Income Statement: Freshwater Fish Pond (Peso, Thousands) Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14-16 SALES OF FISH - 37.5 60.0 75.0) Constant Comnnission - 1.1 1.8 2.2) NET REVENUES - 36.4 58.2 72.8 72.8 72.8 72.8 72.8 72.8 72.8 72.8 72.8 72.8 72.8 OPERATING COSTS: Fish Fry - 1.25 2.0 2.5) Fertilizer - 1.0 1.5 2.0) Supplementary Feed - 1.0 1.5 2.0) Seasonal Labor - 1.5 1.5 1.5) Constant Caretaker's Salary - 3.0 3.0 3.0) Transport - 1.5 2.0 2.0) Maintenance & Replacement - 3.0 3.0 3.0) TOTAL OPERATING COSTS 12.25 14.5 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0 16.0 OPERATING INCOME - 24.2 43.7 56.8 56.8 56.8 56.8 56.8 56.8 56.8 56.8 56.8 56.8 56.8 Depreciation - 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7 Interest - - - 26.9 25.4 23.4 21.8 19.6 17.2 14.5 11.5 8.1 4.1 - GROSS INCOME 12.5 32.0 18.2 19.7 21.7 23.3 25.5 27.9 30.6 33.6 37.0 41.0 45.1 TAx"s - 3.1 8.0 4.5 4.9 5.4 5.9 6.4 7.0 7.7 8.4 9.2 10.2 11.3 NET INCOME - 8.4 24.0 13.7 14.8 16.3 17.4 19.1 20.9 22.9 25.2 27.8 30.8 33.8 Financial Rate of Return: 21% PRILI"PINES FISMERIES CREDIT PROJECT Projected Cash Flov: Frehuater Fish Pon (Peso, Thousands) Year 1 2 3 4 5 6 7 8 9 10 il 12 13 14-15 16 Totul CES OF FUNDS Funds Generated - 21.1 ^5.7 52.3 51.9 51.4 5. 5.4 49.8 49.1 4G.4 47.6 46.6 45.5 45.5 691.7 Project Loen 168.75 - 168.7 Equity 1835.7 - _ _ 18.8 TOTAL SOURCES OF FUNDS 187.5 21.1 35.7 52.3 51.9 51.4 Y, 9 50.4 49. 49.1 48.4 47.6 46.6 45.5 45.5 879.2 ICATIOI OF FUNDS Project Investments 175.0 - 175.0 Incremetal Working CnVptt 12.5 - (12.5) Debt Service Interekt - - 26.9 25,4 23.7 21,b 15.6 17.2 14.5 11.5 L 1 4.1 - 172.6 Amortization 12.' 14.3 1.0 17.9 20.1 22.5 25,2 28.2 31.6 35.6 - 224.4 Totcl Debt Serice - 39.7 35.7 39.? 5 39.7 39,7 3c.7 39.7 397 39.7 397.0 TOTAL APMLICATION 07 FUIS 187.5 - - 39.7 39.7 39.7 39.7 39.7 39.7 39.7 39.7 39.7 39.7 - (12.5) 572.0 INFLa (UTFI1 (a) Annual - 21.1 35.7 12.6 12.2 11.7 11.2 10.7 10.1 9.4 C.7 7.9 6.9 45.5 58.0 (b) Cunlative - 21.1 56.8 69.4 81.6 93.3 104.5 115.2 125.3 134.7 143.4 151.3 158.2 249.2 307.2 307.2 SERVICE RATIO - - - 1.32 1.31 1.29 1.28 1.27 1.25 1.24 1.22 1.20 1.18 - - - ANNEX 16 Page 1 PHILIPPINES FISHERIES CREDIT PROJECT Economic Rate of Return Calculations 1. Primary project benefits to the Philippine economy would consist of (i) increased fish production for domestic consumption, (ii) some shrimp production for exports, and (iii) services for existing fishing fleet opera- tions resulting in increased fishing time because of speedier repairs and timely provision of ice. 2. Key assumptions and adjustments made were that: (a) the price of investment items and operating cost items would remain, in real terms, at current price levels; (b) the prices of all outputs, in real terms, would remain at current price levels; (c) domestic ex-vessel and ex-pond prices reflect the economic value for fresh fish because (i) the species caught or produced are not internationally traded, (ii) they cannot be substituted with either frozen fish because of low consumer's acceptance and limited distribution facilities, or canned fish which is only bought in interior regions where fresh fish is not available; however, international prices (f.o.b. Manila) have been used to evaluate shrimp production for exports; (d) the prevailing official exchange rate is equal to the shadow rate of exchange because the peso is relatively free to float in foreign exchange markets since February 1970; (e) the labor component is costed at the financial wage rates; (f) cost of DBP's administrative and technical services were charged to the project; (g) cost of training services provided to BOF's and DBP's staff were charged to the project; (h) costs of future project preparation were not charged to the project. ANNEX 16 Page 2 3. Based on these assumptions, the overall economic rate of return would be about 34% with a rate of 22% for the marine and 43% for the inland fisheries component. The calculations for the marine fisheries component include a corresponding part of the investment and operating costs for the new fisheries harbor (Navotas) to be financed outside this project. With- out these supplementary investments the rate of return would be 28% for this component. The comparatively high rate of return for the inland fisheries components is a result of sunk costs already incurred prior to rehabilitation and development of these fish ponds. If all ponds were to be newly constructed, the rate of return would drop to 23% for the inland fisheries component. Details are presented in Table 1. 4. A sensitivity analysis has been carried out with respect to in- vestment costs, operating costs and gross benefits. The project has only been tested against increased costs and reduced benefits. The results are presented in Table 2. To summarize, the rates range from 24 to 31% for the overall project, from 11 to 20% for the marine fisheries component and from 31 to 40% for the inland fisheries component. The lower ranges appear only under the assumption that gross benefit would be reduced by 15% with standard investment and operating costs. PHIL1.-.PP1NES FISHERIES CREDIT PROJECT Economic Rate of Return Calculations Vea1 _2 4 5 6 8 9 07 _L 189 20-21 22 23 Output of Projett Copnent 1. Marne Sector, Inermantal Production (tona): A. 130 G.T. Statl Tralern - - 1,725 5,320 10,545 12.235 12,235 12,235 12,235 12,235 12,735 12,235 12.235 12,235 12,235 12,235 12,235 9,788 5,710 - - - B. 70 0.T. Wooden Tralers - - 2,800 7,850 15,125 17,425 18,225 18,225 18,225 17,925 17,475 16,875 16,875 16,875 16,875 16,875 16,875 15,725 7,500 - - - C. Isprovewnts to Tra«lers - - 620 1,860 3,410 3,410 3,410 3,410 3,410 3,410 3,410 3,410 2,790 1,550 - - - - - - - - 2. Inland Stetor, Inremental Production (ton): A. Rhabilltation of Fishponda - 550 1,550 2,850 3,900 4,500 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4.800 4,800 3,200 1,600 -< - - - B. Development of Fishpond. - 250 1,150 2,700 5,450 7,200 8,300 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 8,400 6,600 4,200 - - - C. Freshvater Pod. - - - - 50 Bo 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - D. Shrl.p fro. Fishponds 60 150 255 360 360 360 360 360 360 360 360 360 360 360 360 300 210 105 - - - Total Iucreetal Production (ten.) - 860 7,995 20,635 38,840 45,210 4740 4813 48~TW 4T~8 7 I1T OE7W, 4, 4-920- 4¶170 43,370 41,110 32,023 17,615 - - 3, Se-ce for Exinting Marin Operacion: A. te. (cons) - (4,050) 7,775 8,775 8,775 8,775 8,775 8,775 9,075 9,525 9,525 9,525 9,525 9,525 9,525 9,525 13,875 1,500 - - - B. Repair Capacity (nmber of boato) - - 130 90 90 90 90 90 80 65 45 45 45 45 45 45 110 140 - - - C. F1sh Carrler. Inumbar) 3 6 2 2 2 2 2 2 2 2 2 2 2 2 2 4 6 10 10 5 Economic Ratet of Rttrn (Peeo, Thousande) 1, Invstentst. A. Marint Sector 2/ 350 9,670 14,500 19,580 - - - - - - - - - - - - (350) (500) (690) - B. SPporting Service - - 1,800 5,370 1,430 13,000 - - - - - - 1,700- 1,700 - - - - '70) (30) - (100) (100) - c. 1nlnd Secor 5,750 11.730 14.640 20.480 · - - - - - - - - - (250) (750) (1,000) (1.800) - Total Prolect Inveta,nt- 6,100 23,200 34,510 41,490 ~1700 - - - - - 1,700 1,700 - - (250) <1.100) (1,570) <2,520) - (100) (100) D. Inland Sector, New Con.truction- 17,000 25,980 30,390 30,980 - - - - - - - - - - - (250) ( 750) (1,000) (1,800) - - - 2. Grtse Revenus: A. Herina aetn 4/ - 6,175 18,135 35,170 40,050 40,930 40,930 h0,930 40,600 40,105 39,440 38,760 37,395 35,690 35,690 35,640 28,140 16,245 - - - B. Services for Etinrg Marine Operation- 810 2,735 1,340 1,340 1,340 1,340 1.340 1,335 1,335 1,275 1,275 1,275 1,275 1,275 1,335 2,350 2,465 3,400 3,400 1,760 C Inland Sector - 3700 11.100 21750 35.4 42.540 46,800 48.900 48.900 48.900 48,900 48,900 48.900 48,900 48.900 48,900 40.800 28,650 12.750 - - - Total Gros~ Revenues - 3,700 18,085 42,620 71,0910 83,930 89,070 91,170 91,170 90,835 90,340 89,615 88,935 87,570 85,865 85,865 77,775 59,140 31,460 3,400 3,400 1,700 3. Operating Costa: . A. Mari-n Seotor - 100 4,815 10,260 22,810 22.810 22,810 22,810 22,810 22,745 22,640 22,495 22,485 22,365 22,125 21,825 21,825 17,230 9,955 - - - 0. Supportlg Service, - 565 1,670 1,830 0,830 2,830 2,830 2,830 7,830 2,830 2,830 2,830 2,830 2,830 2,830 2,830 2,830 2,290 2,130 2,130 1,565 . Inland Seor 420 2,880 6,575 10,840 14,765 15 005 15,220 15,325 15,325 15 310 15 I5285 15,280 15,260 15,240 15,220 12,705 8,955 4 555 - - - Total Operating Coeto 420 7,500 11,955 22,770 39,405 4 45,960 T0¯95 40,965 ~47~7 40,610 40,595 5 71,195 39,875 37,360 29,015 1 2130 130 1,565 4. Net Benefits: A. Marine Sector 6 Supporting Services (350) (11,570) (18,265) (12,070) (1,1 30' 15,750 16,630 16,630 16,630 16,360 15,970 13,690 13,020 13,475 17,010 1 2,310 12,670 11,000 7.185 1,270 1,370 235 B. Inland Setor (4.170) (191) Q.I (9,570) 20_635 27,535 31,580 33,575 33.575 33,590 33,600 33.615 33.680 33664 33,660 33,930 28.845 20.695 9.995 - - Total Project Net Benefit (6,520)(2,80) (28,3805 <21,640) 1,505 43,85 421 50,205 50,205 49,950 49,57 471305 44,640 47,15 55,670 46,240 41,515 31,695 17,10 1,270 1,370 235 5. Ecnotc Rateg of Return: A. Marne Setor & Supporting Sevices 22% B. Inlnd seotor 43% C. Total Prnject 334 (inland Sector evth nt Fishpond Constructior- 23%) (Project with Oaw Fispond Constroetion 23%) 1/ Including training, technical assistance and working capital, 2T etMent and ope- ating csts for the proposed fishing port at Navotas, -4o-.a-d to L,- p-. - n poporrior to th e ue to be made of the port facilittis 5 th- p-o(t - ihhlng ~~st, 3/ Based on e-Innment required fo. projoct aa if newlv truced i/ n volued at market prine; oths at nolue of additional fish ourput du- Lo -nreand f-sh-ng ti- j_i ldin ad-1d ois-ativn ots of DBP. PHILIPPIES FISHERIES CREDIT PROJECT Economic Rates of Return: Sensitivity Tests Standard Economic Rate of Return Assuming that: Project Components Investment Costs Operating Costs Gross Benefits Rates of Return +10% +15% +10% +15% -10% -159 1. Total Project 34.1 31.2 29.9 30.8 29.1 27.4 23.9 2. Marine Sector and Support- ing Services 21.9 19.5 18.5 17.3 14.9 14.7 10.7 3. Inland Sector 43.1 39.9 37.2 40.6 38.1 37.1 30.8 r P 0 万；