Philippines - Tarlac Irrigation Systems Improvement Project

FILE COPy DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1538-PH REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC,OF.THE PHILIPPINES FOR THE TARLAC IRRIGATION SYSTEMS IMPROVEMENT PROJECT 'December 4, 1974 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 It may not be published, quoted or cited without Bank Group authorization.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 thee accuracy or completeness of the report.  Currency Unit = Peso (P) US$1 = 6.720 P 1 = US$.149 P 1,000 = US$149 P 1,000,000 US$149,000 Fiscal Year = July 1 to June 30  REPORT AND RECOMIENDATION OF TIIE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO TtiE REPUBLIC OF THE PHILIPPINES FOR THE TARLAC IRRIGATION SYSTEMS IMPROVEIENT PROJECT 1. I submit the following report and recommendation on a proposed loan for an equivalent of US$17 million to the Republic of the Philippines to help finance an irrigation development and rehabilitation project in Luzon. The loan would have a term of 25 years including seven years of grace with interest at 8% per annum. PART I - THE ECONOMY 2. The most recent Economic Report - "Current Economic Position and Prospects of the Philippines" (No. 568-PH of November 7, 1974) was circulated to the Executive Directors on November 11, 1974. Annex I contains country data. Recent Developments 3. In the past two years there has been a sharp increase in the level of economic activity in the Philippines. The growth in real GNP, which had been about 5-6% a year for more than a decade, doubled to 10% in 1973. The strong recovery in 1973 was led by the international commodity boom and resultant increased export incomes in the Philippines, by a strong recovery in agricultural and industrial production for the domestic market, and by an expansion in public and private investment. The increased domestic out- put, and a 28% improvement in the external terms of trade, resulted in a 14% increase in gross national income in real terms in 1973 compared with about 1% in 1972. Underemployment and unemployment remain quite high, how- ever, and in common with most other countries, the rate of inflation in- creased appreciably in the past 18 months. The Government has pressed ahead with a number of important and potentially far-reaching economic and social reforms in such areas as agrarian reform, taxation, customs administration and tariffs, banking and government organization. 4. The agricultural sector, which had suffered from adverse weather conditions during the previous three years, grew by 7% in 1973. Rice pro- duction in crop year 1973-74 increased by 23% over the level of the previous year when floods reduced production. This increase was mainly due to favorable weather conditions, increased use of fertilizers, more supervised credit and increased investments in supporting rural services as part of a general drive for rice self-sufficiency. The impact of the August 1974 floods on rice production in the present crop year appears to be moderate, chiefly because of the short duration of the typhoons and the quick drainage and protection provided by the rehabilitation work undertaken after the 1972 disaster. The Government has moved ahead with its programs of agrarian reform for the nation's one million rice and corn farm tenants. By mid-1974, 176,000 land transfer certificates had been issued, mainly to tenants on the larger holdings.  - 2 - 5. The boom in export incomes and increased activity in agriculture has provided the base for renewed expansion of the industrial sector which grew by about 11% in 1973. Nontraditional industrial exports, which have been increasing since 1970, are estimated to have doubled in 1973 to about $200 million. The growth of industrial production for export has also been stimulated by the Government's industrial export drive which includes a range of export incentives. However, industrial exports have been affected by the recent slowdown in the economies of key trading partners, and earnings are expected to level off this year. 6. The growth in production was also assisted by increased public developTment outlays in 1973 made possible by a significant improvement in the financial position of the Government. The ratio of public investmenc to GNP is currently about 3% compared wich 1.8% in FY72. The Government has implemented a series of long needed tax reforms and improvements in tax ad- ministration, such as customs and tariff reform, tax amnesties, reforms in corporate and local taxation, continuation of the export tax, and increased taxation on luxury items and on gasoline. These reforms, aided by the increased economic activity, the boom in export incomes, and domestic inflation, resulted in a 36% increase in tax revenues in FY73, and an estimated 47% in FY74. As a result, the ratio of national and local Government tax revenues to GNP has increased from an average of 9% in recent years to an estimated 12.4% in FY74. 7. High prices for the Philippines chief exports, including coconut products, sugar, copper and wood products, were largely responsible for an increase in merchandise receipts of almost 70% in 1973. The merchandise trade account recorded a surplus of about $270 million, as compared with a $150 mil- lion deficit in the previous year. International reserves rose by about $600 million during the year and stood at $876 million, equivalent to about five months of imports, at the end of December 1973. However, since mid-1974, a large trade deficit has appeared, largely because the growth in export prices has moderated while import prices have continued to rise rapidly. In addition to the higher petroleum prices, the unit value of non-oil imports is estimated to have increased by about 50% this year. 8. In the latter part of 1973, inflation emerged as a major problem in the Philippines. Since mid-1973 consumer prices have been rising at an annual rate of more than 40%. This has been caused by the large increase in liquidity since the export boom began in 1973, and by a number of factors, including the higher rate of world inflation, domestic food shortages and the increased cost of petroleum. Monetary and fiscal policies have aimed at absorbing the excessive liquidity expansion, and in recent months the rate of inflation has been moderating. The authorities expect that, by the end of the year, inflation will be down to an annual rate of about 20%. The rapid inflation has exacerbated the decline in real wages which fell by a total of about 25%o between 1969 and 1973. The urban wage earners have been most affected. In the past year, agricultural and entrepreneurial incomes have improved very substantially. THoney wages will have to be raised in the near future if further deterioration in the living standards of wage earners is to be avoided.  -3- The Energy Crisis 9. Imported petroleum provides some 97% of the Philippines' total energy requirements. In 1973 the equivalent of 71 million barrels of petro- leum crude and other petroleum products were imported at a cost of about $230 million c.i.f. When the energy crisis developed late last year, it looked as though economic activity in the Philippines would be severely disrupted. There were temporary dislocations but the Government moved quickly with conservation measures to reduce non-essential consumption. By March these problems had been overcome and the Philippines is now obtaining sufficient petroleum for its needs. In 1974 imports of petroleum and products are likely to be about 71 million barrels at a cost of about $780 million c.i.f. 10. In response to the energy crisis the Government has decided to accelerate the development of local energy sources, especially hydropower and geothermal energy. These will be supplemented with nuclear energy in the 1980's. The transport sector, which now accounts for 40% of total energy consumption, is likely to continue to be the major consumer of energy. The growth in demand for energy will therefore be influenced by the pattern of expansion in this sector. In any event, total demand for energy is expected to grow at about 10% a year, and even with more rapid development of natural power sources, petroleum would still account for more than 90% of total energy needs by 1980. The Philippines does not have any commercial oil fields, but the Government has recently taken steps to encourage more explo- ration. Growth Prospects 11. The abrupt deterioration in the external terms of trade since the middle of 1974, and the recession in the economies of key trading partners, together with uncertainty about how quickly they will recover, now threatens some of the Philippines' recent economic gains. The Government is, however, committed to maintaining the growth momentum built in the past 18 months to provide for a continued increase in incomes and employment. The hiigh priority accorded to expanding employment opportunities - in the short-term as well as the long-term - stems from the fact that unemployment and underemployment are still high and the labor force continues to grow at 3% a year. 12. Priority is being given to expanding food production for the domestic market, to expanding export production and to accelerating develop- ment of local energy resources. The difficulties experienced during the last 18 months in importing sufficient quantities of food at reasonable prices, especially cereals, have increased the Government's resolve to achieve food self-sufficiency as soon as possible. The Government rightly recognizes that the increased cost of petroleum and other imports cannot be financed indefinitely by borrowing abroad and it is actively encouraging both local and foreign investors to expand the productive capacity of export industries and to undertake major new import-replacing investments. Because it will  - 4 - take time for these investments to have an impact on the balance of payments, the Governm,enc is seeking increased support froni the international financial conmunity to help carry out its development program and to ease the adjustment to higlher petroleum and other import prices. Because of the substantial inprovement in the external debt burden and international reserve position in the last 18 months, the Philippines now has the capacity to borrow externally larger anmounts of capital in support of its develop- ment program. 13. Maintaining a GliP growth rate of about 7 percent a year in real terms during the next few years will depend heavily on the buoyancy of the domestic market. The prospects are for colitinued expansion in agriculture withi a 4-5 percent increase in production in the year ahead. With a few exceptions, industries are operating at relatively high levels of capacity utilization. Increased investments will be needed in a wide range of con- sumer and intermediate goods industries. A number of big projects are pro- posed in mining, wood processing, fertilizer, steel and shipbuilding which are likely to puslh up the private investment rate from recent levels of about 16,. of CNP to perhaps 22 percent by the latter part of the decade. The public infrastructure program that was approved last year, which called for outlays of about P 12 billion at current prices in 1974-77, has become outclated because of the subsequent rapid inflation and by changes in invest- ment priorities as a result of the energy crisis. A new program has not been finalized, but the Governmient is putting more emphasis on developing nuclear and indigenous power resources and on irrigation, feeder roads and other projects to support increased food and export production. The Government has made considerable progress in recent years in building up its capacity to prepare and execute projects. However, there will be a need for continued efforts to strengthen this aspect of administration. The ratio of public investment to GiiP is projected to rise frorm the present level of 3% to about 4% by 1977. Balance of Payments 14. Merchandise export receipts are projected to increase by a total of about 30% in the next two years, with only a small increase in the unit value of exports. import payments are projected to increase bv a total of almost 40% in the same period, including, a 30% increase in prices. A cumulative decline in thie e:xternal terms of trade of about 23 percent during the next two years would probably wipe out the gains made in the recent export price boom. However, the outcome for the balance of payments is quite sensitive co assumptions about external prices. Without the projected deterioration in the terms of trade, for example, the projected trade deficit of $1.2 billion in 1976 would be reduced by about $1 billion. 15. The total foreign exchange requirements for meeting the current account deficit and amortizing loans during 1975 anid 1976 would be about S2.3 billion. About $700 million would be provided by direct investment and short-term trade finance and about $700 million would come from suppliers' credits and ccmmercial commodity financing. Disbursements of project finance  to public sector, from the present pipeline, would amount to about $300 million. The balance of the remaining capital inflow of about $200 million in 1975 and $400 million in 1976 could be financed by the Central Bank through short and medium-term borrowing while maintaining, or even increasing the level of international reserves. Net reserves, however, would be negligible by 1976. This would leave the Philippines with little room for maneuver if the terms of trade continued to decline after 1976. 16. The recent important gains in reducing the external debt burden and in improving the external reserve position should not be lost now by excessive recourse to short and medium-term borrowing abroad by the banking system. Some assistance may be forthcoming from the IMF. In addition, foreign donors should consider extending quick-disbursing commodity loans with long maturities, which would make an important contribution to main- taining growth and a manageable balance of payments position in 1975. There is considerable scope for additional medium and long-term loans from foreign donors to finance the much larger capital goods imports projected for 1976. The Consultative Group is scheduled to meet again on December 9 and 10, 1974 to discuss the need for rising levels of commitments for development projects and commodity loans to support the Philippines development program. If the projected inflows on the capital account are forthcoming, and if the presently identified shortfalls in foreign exchange availabilities are met with an appropriate combination of medium and long-term loan capital as suggested, management of the external debt and debt servicing should not present serious problems. External medium and long-term debt outstanding would rise from $2 billion this year to about $3 billion by 1976. The ratio of debt service payments to exports would fall from 15 percent this year to about 13 percent in 1976. With this moderate debt burden, the Philippines will be able to contract substantially larger amounts of external debt which would lead to an increase in the debt service ratio to about 16-17 percent by the latter part of the decade. The Philippines thus remains creditworthy for substantial Bank lending. At present, the Bank/IDA share in total debt outstanding is about 9 percent and its share in debt service is about 5 percent. Even with a substantially higher level of Bank lending, these shares will probably increase only moderately in the years ahead. 17. The Philippines development program will continue to require resources in excess of the foreign capital which will become available for financing the import component of development projects. Some financing of local currency expenditures will be justified, especially for projects of economic and social importance which need only limited amounts of foreign exchange. PART II - BANK GROUP OPERATIONS IN THE PHILIPPINES 18. The Philippines has received 27 Bank loans and three IDA credits totalling $602 million, net of cancellations. About 51% of the Bank/IDA lending, about $306 million, has been for infrastructure projects in power,  - 6 - transportation, water supply and for education whilst $25 million has been for population. The remainder has been divided about equally between agri- culture and industry. About $126 million of this has been for irrigation, livestock, rice processing and rural credit and about $145 million for industry in four loans for the Private Development Corporation of the Philip- pines and one loan for the Development Bank of the Philippines. There has been a marked improvement in the way Bank financed projects in the Philip- pines have been executed in the last two or three years compared with experience in the 1960's when shortages of peso counterpart funds combined with poor administration caused serious problems. All these projects are now going reasonably well. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of September 30, 1974 and notes on the execution of on-going projects. 19. The size of the Bank/IDA lending program increased substantially in FY74 reflecting the ambitious development program of the Government and its improved capacity to prepare and implement projects. Commitments in FY74 amounted to $165.1 million, compared to an average of about $30 million a year in the previous five years. It is proposed that future Bank lending continue to concentrate on public infrastructure and agriculture. We also pilan to continue financing industry and to provide more assistance for projects in the social sectors. 20. There are two additional projects which should be ready for consi- deration by the Executive Directors later in FY75 - Rural Infrastructure Development and Small Industry. Four projects, Population, Sixth Power and Inter-Island Shipping and a fourth Private Development Corporation of the Philippines project have already been approved. The Rural Infrastructure Development project would help finance a range of rural investments designed to promote the integrated development of the island of Mindoro. The small industry loan would provide funds for relending to small firms and possibly technical assistance to help strengthen the institutions serving these firms. 21. IFC lhas made commitments in the Philippines totalling $69.2 mil- lion for investments in eleven companies in the fields of development bank- ing, power, teleconmunications, ceramic tiles, paper, petroleum products, nickel mining and refining, chemicals and synthetic fibers. Of these invest- ments, as of September 30, 1974, $18.2 million have been sold, $0.4 million cancelled and $2.1 million repaid, leaving a net portfolio of $48.5 million. On the same date $13.0 million was undisbursed. Preliminary proposals have been received for an aluminum smelter and other projects in the pulp and paper, dinnerware, metal alloys and shipbuilding fields.  - 7 - PART III - THE AGRICULTURAL SECTOR 22. Agriculture is the predominant sector in the Philippine economy generating approximately one-third of the gross national product, accounting for one-half of total employment and about three quarters of export earnings. Over 70% of the total land under cultivation is taken up by cereals, of which rice and corn are the most important. The remaining land is primarily taken up by the major export crops: sugar, coconuts, abaca, pineapples and tobacco. 23. During the first half of the last decade, agricultural production increased by only 2.4% a year. However, with a breakthrough in rice pro- duction following the increased use of high-yielding varieties, fertilizers and irrigation in the sixties, the rates of growth for rice and corn were at about 5% and 8%, respectively, by the latter part of the decade. As men- tioned in para 4, the sector suffered from adverse weather conditions includ- ing severe typhoons during 1971 and 1972. These disasters slowed progress towards self-sufficiency in food crops and annual imports of about 300,000 tons of rice were needed in 1972 and 1973. However, due to favorable weather conditions, increased use of fertilizers, more supervised credit and in- creased investments in supporting rural services, a harvest of 3.7 million tons of milled rice equivalent is estimated for the crop year 1973-74. 24. The performance of the rural-agricultural sector will be crucial in determining whether the Philippines can increase incomes both rapidly and equitably. At present, the domestic market for industrial products is limited by relatively low rural incomes. Problems of poverty and income maldistribution are particularly acute in the rural areas. Of the 15 million people in the bottom 40% of the income scale, 12 million live in rural areas. The Government is aware of these problems and is moving in the right direction by stressing self-sufficiency in cereals, laying the base for future diver- sification, undertaking agrarian reforms, and increasing institutional sup- port to agriculture. 25. Achieving self-sufficiency in cereals, particularly rice and corn, is a major Government objective. For rice, moving towards self sufficiency will depend largely on increasing yields through expansion and rehabilitation of the area under irrigation, increased use of fertilizers and agro-chemicals and provision of adequate credit and other supporting services. High yield- ing varieties, which were largely responsible for the increase in production since the late 1960's, require a much higher degree of water control than is possible under rainfed conditions or with the typical unimproved irrigation systems in the Philippines. At present, only about 900,000 ha or less than 30% of all land under rice cultivation is irrigated. The Philippines cannot reach self-sufficiency in rice without substantial investment in irrigation 1/ A detailed Report entitled "Agricultural Sector Survey - Philippines" (No. 39a-PH of May 2, 1973) was circulated to the Executive Directors on May 21, 1973 (R73-111).  - 8 - expansion and improvement. Investment in irrigation is therefore of high priority and a program of irrigation rehabilitation and new construction in rice lands involving 50,000 ha a year for the remainder of the decade would be needed to meet domestic rice demand. 26. Nearly half of expected Bank lending to the agricultural sector in the next five years is likely to be for irrigation, which remains the key to raising land productivity, to achieving and sustaining self-sufficiency in food grains and to improving the incomes of small farmers. The proposed project would be the third in a series of Bank-assisted projects aimed at irrigation development and rehabilitation in Central Luzon, the largest rice producing region in the Philippines. Of these, the Upper Pampanga River Irrigation Project is the prototype and provides an example of the pattern of rehabilitation, new construction and operation essential for large scale rice production in the Philippines. Bank lending for irrigation in future would be designed to support this approach to upgrading and improving national irrigation systems. The National Irrigation Systems Improvement Study to be financed by this loan would help identify and prepare future irrigation projects. 27. After many years of slow progress, the Government is giving high priority to agrarian reform. The present program concentrates on rice and corn tenant farmers, who number about one million, and includes the transfer of titles from landlords to tenants, an expanded program of rural credit, and increased investments in supporting rural services. In the first year of the new program the Government has concentrated its efforts on the large tenanted estates. By mid-1974, 176,000 certificates of title had been issued, mainly to tenants on the larger holdings. The Government now hopes to issue certificates to all tenants on farms above 24 ha by the end of the year. This may be difficult to accomplish since increased resistance is being encountered among medium scale farm owners. There is a strong prima facie case for pressing ahead with the program in the 7-24 ha farm size range in view of the substantial land and income redistribution effects that would result. Implementation below this level will be extremely difficult and benefits less obvious, in view of the numerous owners and tenants and small parcels of land held. PART IV - THE PROJECT 28. The project is the third irrigation development and rehabilitation project to be financed by the Bank. The project was prepared by the National Irrigation Administration (NIA). A Bank mission appraised the project in April/May 1974 and negotiations were held in October 1974. The leader of the Government negotiating team was Ambassador Eduardo Z. Romualdez. The Appraisal Report (No. 521a-PH) on the proposed project is being circulated separately to the Executive Directors. Annex III provides a loan and pro- ject summary.  - 9- Description of the Project 29. The project would upgrade to standards adopted in the Upper Pam- Panga River Project, the existing Tarlac River Irrigation System, the San Miguel-O'Donnell River Irrigation System and the Camiling River Irrigation System and would extend these systems to include an additional 13,000 ha of currently rainfed rice land. There would be a small increase in dry season irrigation from about 5,000 ha at present to 6,000 ha at full project development. The rest of the area would be under wet season irrigation. The project would include: (a) Rehabilitation of three existing irrigation and drainage systems now serving a total area of about 21,000 ha; (b) Extension of these systems to serve an additional area of about 13,000 ha; and (c) Upgrading about 55 km of existing roads and con- struction of some 370 km of new roads. The project would also provide for a groundwater irrigation pilot scheme, a water management training program and a National Irrigation System Improve- ment Study (NISIS). The NISIS would inventory existing NIA systems, covering some 400,000 ha ranging in size from 130 ha to 83,000 ha, and select a total of about 150,000 ha with the highest priority for improvement. In this selection, institution-building and the general poverty of the region would be taken into account in addition to the normal economic factors. Con- sultants would be engaged to assist the NIA with the groundwater pilot pro- ject, the water management training program and the preparation of feasibility reports for NISIS. Agrarian Reform in the Project Area 30. The project is located in the heavily tenanted region of Central Luzon where there has been notable progress in agrarian reform. As of December 1973, the land in the project area was owned by some 11,500 people. The land ownership pattern in the project area reveals a considerable degree of skewness with 95% of the landowners owning less than 7 ha each. These holdings account for 40% of the area. On the other hand, 2% of the land- owners with 24 ha and above owned 13,000 ha or 38% of the land. Under the current phase of agrarian reform this land is being transferred to some 6,000 tenant cultivators. There are now 3,700 owner-operators on 8,000 ha. When this phase is complete, 62% of the project area will be cultivated by about 9,700 owner operators, or 55% of the farmers. Until the Government reaches a decision on what to do with small landlords (see para 27 above), it is not possible to determine what the eventual structure of tenure would be. The most likely outcome would be a further increase in owner operators and a better controlled and more equitable form of lease-holding, as sharecropping has now been declared illegal. Annual per capita incomes of farm families in the  - 10 - project area now average around $95 and would rise to about $135 at full project development. Project Execution 31. The project would be implemented by the National Irrigation Adminis- tration (NIA) over a five-year period. NIA was established in 1964 to be responsible for the development, operation and maintenance of all national irrigation systems in the Philippines. NIA is a well-managed institution which is successfully executing the Upper Pampanga River Project (UPRP) and the Aurora-Penaranda Irrigation Project (financed by Loan 637-PH and Loan 984-PH/Credit 472-PH, respectively) through a special project office under the direction of a Project Manager. The UPRP section of NIA would be respon- sible for implementing the Tarlac Irrigation Systems Improvement Project. A new Division in UPRP has already been created to carry out the construction of the three Tarlac systems. The Project Development Division (PDD) of UPRP would evaluate the groundwater pilot project and would be responsible for the N4ational Irrigation Systems Improvement Study. NIA would strengthen this Division to enable it to cope with the increased task, and would engage consultants to provide guidance, special technical services and training to the staff engaged in both the groundwater pilot project and National Irriga- tion Systems Improvement Study. NIA recognizes that, due to the increased scope of PDD's activities, its position as part of the UPRP is becoming anomalous. As part of the ongoing reorganization of NIA the PDD's organizational location is being reviewed and alternative arrangements are being made which would better integrate the planning and management of foreign assisted projects for which NIA is the executing agency. The reorganization is expected to be completed by the end of 1975. Cost Recovery 32. As in the Aurora-Penaranda project, the National Irrigation Adminis- tration would gradually increase the water rates in the project area over a period of five years from completion of construction to a level sufficient to cover operation and maintenance costs and to recover (without interest) the total investment cost over not more than the 50 year life of the project taking into account the farmers' incentives and capacity to pay. The Govern- ment has agreed that a reasonable increase over five years would raise fees to a level equivalent to the price of about 4.4 cavans (220 kilograms) of paddy per ha per irrigated dry season crop and about 3.4 cavans (176 kilograms) of paddy per ha per irrigated wet season crop (Section 4.03 (ii) of the Loan Agreement). Project Cost and Financing 33. The project is estimated to cost a total of US$34 million equivalent of which US$12.7 million would be in foreign exchange. The Bank would finance half the total project cost, that is the foreign exchange cost plus US$4.3 million of local currency requirements. The Government would finance the  - 11 - balance of $17 million. To ensure the continuous and timely flow of funds, the Government has agreed to set up a special fund for the project and to replenish it at monthly intervals to a level equivalent to the estimated total amount of payments for goods and services required for the project during the next three months less the estimated amount of payments to be made by the Bank to suppliers, contractors and consultants (Section 3.07 of the Loan Agreement). The fund would ensure rapid payment of civil works contractors which would help attract small contractors. Procurement 34. Equipment and vehicles for force account construction, operation, maintenance, the groundwater pilot project, water management training and the National Irrigation Systems Improvement Study, costing about US$3.5 million would be procured after international competitive bidding in accord- ance with Bank Group Guidelines. A preference limited to 15% of the c.i.f. price of imported goods or the customs duty whichever is the lower would be extended to local manufacturers in the evaluation of bids. Procurement of off-the shelf items costing less than US$10,000 each would be exempted from international competitive bidding and would be purchased through normal government procedures which are satisfactory. The total for all such items would not exceed US$250,000. 35. Works on the project service area (US$162.2 million) would be scattered over a large area and include a large proportion of rehabilitation works. These would have to be planned and executed on short notice to avoid the growing season and bad weather, and would have to be phased with irriga- tion releases. When similar works were advertised under the UPRP the NIA failed to attract even local contractors. It is unrealistic, however, for NIA to expect to undertake all of its planned construction program in UPRP, the Aurora-Penaranda Project and the proposed project by force account. As in the Aurora-Penaranda Project, NIA has agreed to investigate ways of expanding the execution of civil works by contract, so that the amount of work done by force account would not exceed 20% of the total cost of the work. The balance would be tendered after advertising according to contracting procedures satisfactory to the Bank (Schedule 4 paragraph 2(i) to the Loan Agreement). Disbursements 36. Disbursements would be made at the rate of 100% for the cif cost of directly imported equipment, 100% for the ex-factory cost of locally manu- factured equipment and 65% for imported equipment procured locally. For services of foreign consultants and for overseas training, disbursements would cover the actual foreign exchange cost, while for services of local consultants disbursements would be at 60% of total costs. Disbursements for civil works would be at the rate of 43% of certified monthly progress payments or expendi- tures. For civil works contractors' mobilization and equipment, disbursements would be at 100% of foreign exchange cost.  - 12 - Economic Justification 37. The project would contribute to the Philippine Government's objective of attaining self-sufficiency in rice. In so doing, it would not only strengthen the balance of payments but also help raise the incomes of the rural population. The project would increase yields on about 34,000 ha now dependent upon run-of-the-river irrigation and rainfed cultivation by providing better water control, improved drainage and the necessary agricultural supporting services. At full development, paddy yields from the wet and dry season crops are expected to increase from 2.3 and 2.5 ton/ha to 3.8 and 4.1 ton/ha respectively. Some 18,000 farm families, averaging six members for a total of 108,000 people, live in the project area. The average farm unit is 1.9 ha with about 60% of the farms, covering 64% of the area, falling between 1 and 3 ha. Taking the 2.0 ha farm as the average for the project area, present net farm incomes of between US$505 and US$610,depending on whether the land is rainfed or irrigated, would rise at full project develop- ment to US$820. The increase in incomes would not do much to narrow the income gap between the project area and other parts of the country. It would, however, prevent the gap from widening and would set the stage for future improvements in the relative incomes of farmers in the project area if and when dry season irrigation water is available to serve the whole project area. Upon completion of the project, the area cropped would increase from about 38,000 ha per year at present, of which 13,000 ha are rainfed during the wet season, to 40,000 ha of irrigated land. Total paddy production from the project area would be about 155,000 tons at full development, compared with 94,000 tons at present and an estimated 104,000 tons in future without the project. The economic rate of return on the project would be about 15%. PART V - LEGAL INSTRUMENT AND AUTHORITY 38. The draft Loan Agreement between the Republic of the Philippines and the Bank, the Report and Recommendation of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank and the text of the Resolution approving the proposed loan are being distributed separately to the Executive Directors. The draft Agreement conforms to the normal pattern for loans for irrigation projects. 39. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 13 - PART VI - RECOMMENDATION 40. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments December 4, 1974   ARI I Fij7 Of 3 pages 1/ EcoNoMIc INDICAtORS- GRCSS NATIONAL PRODUCT IN 1971 ANNUAL RATE OF GROWTH (%. constant prices) Pesos Mln. 1960-65 1965-70 1971 1972 1973 .;P at Market Prices 71,766 100.0 5.5 5-7 6.5 4.3 10.0 Gross Domestic investment 15,942 19. 4 12.6 1.6 5.9 -3.5 9.4 Gross National Saving 17,015 23.7 15.0 3.6 13.2 -8.2 49.1 Current Account Balance -5,071 2.4 Exports of Goods, NFS 16,856 23.5 11.0 4.5 5.0 1.5 18.7 lmports of Goods NPS 13,000 18.1 7.3 7.2 5.4 2.7 13.1 OL'TP1TT ,ABOR FORCE AN2 PRODUCTIVITY IN 1975 E Value added Labor Force _ V. A. Per Worker US$ Mln. S Mln. j US $ Agricullt ure 1,494 32.2 7.0 52.9 213 61.0 Tndustzy 1,228 26.4 2.0 15.2 614 175.9 Services 1,922 41.4 4.0 31.6 481 137.8 hnas,I L'Cated - 0.3 0.2 14,644 100.0 13.3 100.0 349 100.0 GOVERNMNT FINANCE General Government - Central Government Mln.) o Of GDP (Pesos Mln.) % of GDP 197 197 196 -7 1973 1971 1972 1973 'urrent Receipts .. .. .. 6,989 8.9 8.3 9.8 Current Expenditure .5 8.0 7.6 8. 4 Current Surplus .. .. .. 1 .9 .7 Capital Expenditures - *- *- 1,444 0.5 1-6 2. External Assistance (net) .. .. .. 249 / .. 0.7 .4 MONEY, CREDIT and PRICES 1965 1969 1970 1971 1972 (Million pesos outstanding end period) Mc,ney and Quasi Money 5,136 8,959 10,140 11,720 15,243 16,857 H4.ank credit to Public Sector .1/ 980 3,565 3,479 3,907 4,778 6,541 i3ank credit to Private Sector 8,223 13,139 15,396 18,010 22,892 25,377 (Percentages or Index Numbers) Nioney and Quasi Money as % of GDP 21.1 27.0 25.0 23.2 23.5 23.5 General Price Index (1965=100) 100.0 111.4 137.7 159.3 175.3 218.4 Annual percentage changes in: *.eneral Price Index 2.2 1.3 23.6 15.7 10.0 24.6 Bank credit to Public Sector .. 27.9 -2.4 12.3 22.3 36.9 Bank credit to Private Sector .. 9.0 17.2 17.0 27.0 10.9 1J No projections are provided in this annex since existing projections are being revised.. J Constant L9b7 prices. 5/ Total labor force; unemployed are aLlocated to sector of their norm&l occupation. "Unsllocated" consists mainly of unemployed workers seeking their first job. " Based on `actuaL" figures from the "Cash Budget". Data prior to 1971 not available. / Counterpart funds from externaL commodity aid. / Economic mission estimates. J Covers credits from all important financial institutions. ..not available not applicable  ANNE I Pop I ef 9 WeP fiWUT re,8 M4I11PPIraferES ZE 6ac,Fl?A.WIIA?4A2aaS81a)V /1, 240/h 210 /b R.0/b 290~ rgbe 1960 t.0c4*eOdl .~~~ ~ ~~~~~ ~ ~~~~ ~~5/ 4) 3/C 132/ 25 Crude dot2. raw. tp.vheceen) ..12 7-; 177 157 a lofeot me'"Ialty ret. (P., thC.saod lIne births) 80 0-9 120-150 hif. qOh*OOy at hbtilth e~)'1 5, 59 51 65 000S0 rew'ncctlw, .et.L~~~~~~~~~~~~~~~~~i .. Ii~~~~ 3.2 2.9 2.5 z.c.fo ~o4I 3.2"oI 3.1 /f 2.5 If . I fpO.!.ett,.o ati.^ raet - -rb.. ,, 17 57 7 6 7! IS O1VI-3 43 Nn-n..y tetto,1. 1X /1 1.1 /0,1. .. l~~~~ ~~~~~~~~~~~~~~~~.O / 1.4./ 1.9.b- p-ln.ltion as -.-r.t of tt.1e W.. 6. 3? Ih 25 LI 391 1L !,..ly ol'thnig. M. of ..-ePtor, c1tn (tOe. 1136, 49 282 Oo- of ca,. it of orried se.n) .910 4. ~cn frwo lao~e~1 ,1 13.200 /b 16,90D I- 1k,OD 10.20 [;41iota inceo recei-d by high-St 59 29 /oo 2~ /b~. 17 z2a. 1 /a. 6 P.ro.cL ~~f rational lowe. roo.inoJ by higheeb 20 o~~~* ,'o. o '. ./c 6Ik/. 6i Nrca,.t of ,,tt.o.l too reevdby 1ioh..t 20% r.~61 % oUted by los1.t 10% of OUe. .... . 2 - 9,100 In 7,970 2,220 2.210 Ptl.iaper noigparoo . 5,3'.o 77 6,oSOo 1,880 1,760 Pbocl.tio, Par hopt8hdlV2/ 50 T':,ab 850 4980 1,92 ftr oopit e lorie epply as % of r.qi..lnteLs So /, 9 96 1,10 Ac 1.0 o, No' cepit: potein w.pply, tot.1 (gross per d.yTL6 .2 7 53 7;51 73; 7 Of which, ao,3.e en polem 197 22 ;17 ~ 227 19~ D.et.h raet 1-I. y...o /7 37 __15 p,'i..eer~echool norlmm..t ratio 91AI 112 80/ 1i1 Ia 1014 Ad3oat.d eeoOOl.ry ecbcol *c,cllee,fl Ot10 26 ..1 13 ~ 28 411 Tear. of schwclin pr1d.d, fi,et a,,d wond~ lerl IC 10 12 13 12 -octioa Iml.,t. f Jrecs. ..hool enrollmenet 1.10 /,. 12 /,.ae 14 1 d~~~,at literacy rote I .. ~~~~~~~~~~~~~~~~~72 7;T 70 MR 55 /.e 8 'MMw vo. of praurn, per room (cOb..)22 h. Percr.t ot oopied unlts ithlout piped wattr, lt2 A-. 1Oe5 ,11 (a. % of total po9culatlo.) 17 /k 3 17 4162 .1_1.1 I&!Pe~.1e2tioh con,ted to aleotcicity bIQ 13 4.30 OQW012.i-re p-3I0 popu.1stio,. 22 3.9 / 78 89 126 ...ca cc par IWO popol.tico1 5 4. 2 Ki1-tric pae cuvw.tion (bch Y-c) 101 229 120 24.5 326 tteoopri.t oonesvptioc P.o. kg par year 1.3 /8k 1.9 /ak 1.0 2.0 3.. N.to' - Figod. refer eIther to lb. 1.t.st periode or to .0oocnt of Wn-irommrtal Ma.latcle, Vod welpte. Alt the Io a.Yea-. %att period. refer io. princlipl, to di.tilbu.ti-l by' age aW am Of setAwAl POP,.a8ie the y.are11956-60 or 1966-701 the latest Yearso Io pr-lo- /. p_i StAd (rqiemns for eli eauieri es M tab- dpi. t 1960 nd 1970. liehd by' MM ooeoeei Rwaresee Berside, Proovi tee a lie 4L Te Par Capita GNP? ..tilests ie at aekot peLc.e for al.oveanc of 60 grease of tota poteic per day, and 20 grm of y-.o ctb- then 193, elcolated by' the wua. *coreroc aninel. ext pu.ise peotebe, o f whic 10 ge-m seheel be mnimi t-.... a the 1972 Wold Bec* Atlas. protein. Theme eteodeoda,a em e bt 1... then tAne of 75 a. Averag t,ber of dsughtee per soman of reprod,ft4t, grese of tota protein and 23 preave of enias Protein aseen *g0. 4aerage for the weld, pyoposed lw MA in tho thisd abrld Feed 4 Popolatio gorth ae o for the decede schag in or. 1960 nod IM7. Somwe studies have eAgpeeted that irude deeth rate. Of eLildoee di. Ratio of uhder 15 end 65 aod oer age teaneats t. ae I the-o4p I. my be aped se c first spgai.a&ticn Iedes, of ttee. tn labor f.or bracket of ages 15 thcouoa 63.. Icoutorttn. 4 PAO refere"ce etendard repreent P?8o'eilogicel r- Z Prcnttq eWovlld Of eo'U a"n Ppuplationt of metcl age Iicir_eto for MML,a a-tIi.ty and health, taking4 an dati8e tor eaob cocote /a Contid by, eop lYin to the 1970 figure the growth rate of CWPIo&plt& 1.0 real tere. from 1960 to 19/0; Lo 1971; 7F 196S..,o UN cei-tea; /d 196?; /a 1966-149; If 196o-71; 3g15.0 hFrtedfoto f0-a,seW ,Sb.,11.P. 156; 0~we 157003D populatio.. 41 POPo1ATIOn of the loce,litill within the ,,io- Cialty1its r Adiniat,.tis, cenitr. of'P - -r.ioe -x 'tiotrictsA; I y6a, centers with 5.000 or wMr people; Ptib of P.P.letion -mder 15 and 65 &l o.-r to total Iao forc; a 1 lbrfre;' 91 boon oily; ~~ 1966; /r Pemaohal disposable Mow, as a fanctboc of oboe.- of houeeho.to 7kPreni Ingoer ..rt -ool..cly; /t. Nanber on thg register, Mot all Wo.king in the ocitry; Lu 1962; I14,969; /w 1960-62; L. - %0J; a To-tetlce; / IMcldes ovea. St,.ten. oioeoainon; a ld.glee hoepltele; -a tao vctlonl edoction ref to L.PbliC aeltool* ahedt 1,olW technic,a ad.atio,, at the p. P ot-es -'Io-y -co 73 15yar dx over; /. C year. c,d Ovr; Wa 1972; /M Definiti-on f literacy ucon,oe; la tl r0. -c aal a Oedo ron-lt. re_pl, e,r-ey; III r.. percentage of total dheelllnge; lea leporte no.1;; ~~~ ~~ge and m~Leaib of bouselljea a Water p4eUQcsDges 1 967. a to, h..to oeen .oleoted -n the baeto of its niel_a popolati. n, luoal.iom AM incomelevel aol like the Philippinso, it is oP:otad to gro rapidly in the owing year.. z October 7, 17  ANNEX I Page 3 of 3 pages TRADE PAYMENTS AND CAPITAL FIOWS BALANCE OF PAYMENTS MERChANDISE EXPORTS (AVERAGE 1 71-7 US Mln. 1971 1972 1973 (Million us$) coconut Products 284.7 21.5 Sugar Products 244.3 18.4 K'xports of Goods, NFS 1,397 1,432 2,443 Forest Products 314.3 23.7 Tmports of Goods, NFS 1,422 1,484 2 008 Mineral Products 254.0 19.2 Resuuirce Gap (deficit = -) -25 I Fruits and other 87.7 6.6 agricultural products fnterest PaymentS (net) -76 -92 -53 Other manufactures 140.7 lO,6 Workers' Remittances Total 1,3T5.7 100.0 Other Factor Payments (net) -24 -3') -60 Net transfers 154 188 SS6 EXTERNAL DEBT, DECEMBIER 31, 1973 Balance o'n Current Account +9 +11 7 US$ M1n Direct Foreign Investment -4 -''2 77 Net M1T Borrowing Public Debt incl. guaranteed 829.9 Disbursements 338 590 577 Non-Guaranteed Private Debt 041.0 Amorti:ation 02 250 335 Total outstanding and Subto'tal 6 1 420 disbursed 1,870.9 'ap;ial Crants d-her d'apital \net),4 134 15 -43 Other items n.e.i. 2 -144 -106 -38 DEBT SERVICE RATIO FOR 1973 Increase in Reserves (+) +-3 Tr +5w Gross Reserves (end year 4 524 735 1,416 Public Debt, incl. guaranteed 7.9 Net Reserves (end year) Y4 -20 80 753 Non-guaranteed Private Debt 10.4 Int. Reserves (end year) / 244 282 876 Total outstanding and disbursed 18.3 Fuel and Related Materials IBRD/EIDA LENDING, (September 30, 192h (MEillion US lB3R1 IDA Imports of Goods, NFS 1,422 1,514 2,008 sf which: Pe'roleums 141 147 184 Outstanding and Disbursed 159.9 5.0 RAT8 CS E --'CRA2GE Undisbursed 299.3 27.2 Outstanding incl. 1 1965-69 1970-71 Undisbursed 459.2 32.2 I00 = Ps. 3.92 6.4- P i. 1.00 =tUS $ 0.26 0.16 Since April 1972 'i.' 1.oe Ps. 6.79 1.00 US $ 0.15 !i Includes SDR's, short-term private loans, Central Bank liabilities and use of IMF credit. 2 Errors and omissions. 3/ Includes net commercial bank holdings plus foreign exchange holdings of Central Bank and morfetary gold. This entry is equivalent to the change in international reserves. / Includes Central Bank and commercial bank reserves. 5/' Gross reserves of Central Bank plus net reserves of commercial banks. Excludes short-term debt and IMF standby credit and is on a disbursement basis. / Ratio of Debt Service to Exports of Goods and Non-Factor Services. not available not applicable  ANNEX II Page 1 PHILIPPINES A. Statement of Bank Loans and IDA Credits to the Philippines as of September 30, 1974 Loan or (US$ millions) Credit Amount less Cancellations Number Year Borrower Purpose Bank IDA Undisbursed 12 loans fullv disbursed 181.0 637-PH 1969 Republic of the Irrigation 34.0 10.0 Philippines 720-PH 1971 - - Rice Processing 14.3 13.7 and Storage 731-Pl 1971 - - First Highway 8.0 3.1 809-PH 1972 National Power Power 22.0 21.4 Corporation 296-PIH 1972 Republic of the Power - 10.0 5.0 Philippines 823-PH1 1972 - - Livestock 7.5 6.2 349-PH 1973 - - Second Education 12.7 12.7 891-PII 1973 - Fisheries 11.6 10.8 939-PHi 1973 - - Ports 6.1 6.0 950-Pli 1973 - - Second Highway 68.0 60.6 472-PH 1974 - - Aurora - Penaranda Irrigation 9.5 9.5 984-P11 1974 - - - 9.5 9.5 998-PH 1974 - - DFC - DBPI 50.0 50.0 1010-PH/ 1974 - - Third Rural Credit 22.0 22.0 1034-PfH 1974 National Power Power 61.0 61.0 1/ Corporation 1035-PH- 1974 Republic of the Population Philippines 25.0 _ 25.0 520.0 32.2 326.5 of which has been repaid (Bank and 3rd Parties) 60.8 - Total now outstanding 459.2 32.2 Amount sold 13.2 of which has been repaid (3rd parties) 12.1 1.1 - Total now held by Bank and IDA (prior to exchange rate adjustments) 458.1 32.2 Total undisbursed 299.3 27.2 326.5 1/ Not yet effective. Note: a) Loan No. 1048-PH to the Government of the Philippines for an Inter- Island Shipping Project was approved and signed subsequent to the above date of Statement A. It is not yet effective. b) A loan of $30 million to Philippine National Bank for an industrial credit was approved and signed subsequent to the above date of Statement A. It is not yet effective.  ANNEX II Page 2 B. Statement of IFC Investments in the Philippines as of September 30, 1974 (Amount US$ million) Fiscal Year Company Loan Equity Total 1963 & 1973 Private Development Corporation of the Philippines 15.0 4.4 19.4 1967 Manila Electric Company 8.0 - 8.0 1967 Meralco Securities Corporation - 4.0 4.0 1970 Philippine Long Distance Telephone Company 4.5 - 4.5 1970 & 1972 Mariwasa Manufacturing Inc. 0.8 0.4 1.2 1970 Paper Industries Corporation of the Philippines - 2.2 2.2 1971 Philippine Petroleum Corporation 6.2 1.8 8.0 1972 Marinduque Mining and Industrial Corporation 15.0 - 15.0 1973 Victorias Chemical Corporation 1.9 0.3 2.2 1974 Filipinos Synthetic Fiber Corporation 1.5 - 1.5 1974 Maria Christina Chemicals 1.5 .5 2.0 1974 Republic Flour Mills Corporation 1.2 - 1.2 Total 55.6 13.6 69.2 Less sold, acquired by others, repaid or cancelled 13.6 7.1 20.7 Now held 42.0 6.5 48.5 Undisbursed 11.7 1.3 13.0  ANNEX II Page 3 C. Projects in Execution - Ln. No. 637-PH Irrigation; US$34.0 million Loan of August 18, 1969; Closing Date: June 30, 1976 This is the first major irrigation project in the Philippines and will supply water year-round to nearly all its 84,000 ha command area. The project's on-farm development scheme is setting a pattern for future irrigation development in the country. Despite some delays caused by the 1972 floods, the dam was commissioned on September 7, 1974 ahead of schedule. All work is expected to be completed in 1975 and the loan entirely disbursed by June 30, 1976, the Closing Date. Project costs have increased 40% over appraisal estimates, largely as a result of rapid inflation, the effects of successive devaluations of the peso, and design changes in the dam (which accounted for nearly half the increase in costs). However, as a result of the close coordination established between irrigation and agricultural supporting services, the project is expected to reach full development in 7 years after completion of construction, instead of 13 years which was the appraisal estimate. Also, nearly 7,000 ha have been added to the project, mostly by including lands which were formerly under a private irrigation system. Finally, there has been a considerable increase in the projected world inarket price of rice. As a result, the rate of return is now more favorable than at appraisal. Ln. No. 720-PH Rice Processing and Storage; US$14.3 million Loan of February 4, 1971; Closing Date: June 30, 1977 This project provides long-term credit through the Development Bank of the Philippines to finance a program for the development and mod- ernization of the rice and corn processing industry. Originally the project was restricted to rice and to the private sector, and the emphasis was on the construction of new integrated rice mills with large capacities. Due in part to poor harvests and in part to large cost increases for rice mills, the demand for sub-loans for new integrated rice mills turned out to be small, and, on the basis of the President's Mtemorandum dated June 8, 1972 (R72-40) the loan agreement was amended to shift the project emphasis to rehabilita- tion of existing rice milling facilities. In spite of this the project made little progress. The loan agreement was amended again in April, 1974 basically to (i) expand the scope of the project to include corn in addition to rice, (ii) enable local governments and the National Grains Authority to borrow funds under the project, and (iii) streamline procurement procedures (Pres- ident's memorandum Sec. M74-244 of April 15, 1974). As a result of these amendments, the project is now progressing satisfactorily and the loan is expected to be fully disbursed by the Closing Date, June 30, 1977. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  ANNEX II Page 4 Ln. No. 731-PH Highway; US$8.0 million Loan of April 14, 1971; Closing Date: May 15, 1975 The project for the construction and improvement of the Cotabato- Digos road (160 km) in Mindanao is now behind schedule, because of civil disturbances in the Cotabato area, exceptional rains and rapidly escalating prices. Completion is now expected in the last quarter of 1975 compared to June 1974 expected during appraisal. However, all principal problems have been identified and work on resolving them is progressing satisfactorily. The project also includes two components financed by UNDP: technical assistance to the Bureau of Public Highways (BPH) for operational improvements and feasibility studies for future highway projects. Work on the technical assistance component is progressing well and the feasibility studies have been completed. Ln. No. 809-PH and Fifth Power; US$22.0 million and US$10.0 million Loan Cr. No. 296-PH and Credit of April 3, 1972; Closing Date: June 30, 1978 The project is helping the National Power Corporation (NPC) to finance the construction of a second thermal unit of 150-MW at Bataan and transmission facilities in Luzon. The project is behind schedule because procurement has taken longer than expected. The Closing Date has been postponed from June 30, 1976 to June 30, 1978 to allow time for delayed procurement and because retention monies will not be paid to the major equip- ment supplier until at least one year after the plant is commissioned. NPC's financial situation has been improved by the imposition in July 1973 of a surcharge to cover increased fuel costs. A further tariff increase was approved, effective July 1, 1974 and this should enable NPC to achieve its covenanted rate of return in FY75. Ln. No. 823-PH Livestock; US$7.5 million Loan of May 25, 1972; Closing Date: December 31, 1978 The project is assisting Government in carrying out its livestock development program through credit supervised by the Development Bank of the Philippines. The project is progressing satisfactorily. Cr. No. 349-PH Second Education; US$12.7 million; Credit of January 5, 1973; Closing Date: December 31, 1976 The project will assist Government to improve such areas as educa- tion, planning, management and curriculum development, science teacher train- ing, and training of technicians, skilled craftsmen and farmers. Although no disbursements have been made, the project is progressing on schedule.  ANNEX II Page 5 Ln. N'o. 891-PH Fisheries; US$11.6 million Loan of May 21, 1973; Closing Date: June 30 1979 This project is designed to provide long term credit to the private sector through the Development Bank of the Philippines for marine and inland fisheries development. The loan became effective on December 5, 1973. The demand for loans appears adequate and the organization to implement them has been properly established. The project is progressing satisfactorily. Ln. No. 939-PH Second Ports; US$6.1 million Loan of October 24, 1973; Closing Date: December 31, 1977 This project provides for the rehabilitation and expansion of the ports of General Santos and Cagayan de Oro in the island of Mindanao. Detailed designs for both ports are now complete and contract documents have been issued. The project is progressing satisfactorily. Ln. No. 950-PH Second Highway; US$68.0 million Loan of December 12, 1973; Closing Date: December 31, 1977 The project is helping the Government to implement its program of construction, improvement and rehabilitation of highways and feeder roads. Work has begun on twelve of the fourteen contracts. In line with world-wide inflation, costs have increased sharply and the estimated completion cost has risen by 60%, reflecting the increased cost of fuel and basic construction materials. Several proposals to assist offsetting some of the additional cost are under consideration. The UNDP financed Road Feasibility Studies (Phase II), for which the Bank is Executing Agency, are progressing satis- factorily and a possible Third Highway project has already been identified. Execution of other minor project items is proceeding generally on schedule. Cr. No. 472-PH Irrigation; US$9.5 million; Credit of May 14, 1974; Closing Date: June 30, 1979 Ln. No. 984-PH Irrigation; US$9.5 million; Loan of May 14, 1974; Closing Date: June 30, 1979 The project will assist the Government to rehabilitate and open up 25,300 hectares of land in Central Luzon to year round irrigation for rice growing. It also provides for a study of irrigation development in Central Luzon, The loan became effective on August 22, 1974. It is progessing satis- factorily.  ANNEX II Page 6 Ln. No. 998-PH Industrial Investment and Smallholder Tree-farmers; US$50.0 million; Loan of June 12, 1974; Closing Date: December 31, 1981 The proceeds of the loan will be relent to the Development Bank of the Plhilippines (DBP). The industrial portion of the loan (US$48 million) will be used by DBP to make sub-loans to finance direct imports for medium and relatively large industrial projects. DBP will use the balance (US$2 million) to finance about 1,300 smallholders in a pilot tree-farming project. The loan became effective on September 9, 1974. Since then commitments for sub-loans totalling $10 million have been made. Ir.. No. 1010-PH Third Rural Credit; US$22.0 million; Loan of June 17, 1974; Closing Date: December 31, 1977 The Central Bank will relend the proceeds of the Loan (except for a small amount for an evaluation study) to participating banks. These will relend the funds to farmers and rural entrepreneurs to finance investment in farm mechanisation, on-farm transportation, farm support facilities and equipment, coastal and inland fisheries, small-scale livestock development and cottage-scale agro-industry. The project also provides for a review by local experts of the first, second and third rural credit projects. The loan became effective on August 27, 1974. It is progressing satisfactorily. Ln. No. 1034-PH1 Sixth Power; US$61.0 million; Loan of July 31, 1974; Closing Date: December 31, 1978 The project is helping the National Power Corporation (NPC) to finance a 100MW hydro plant at Pantabangan and transmission lines for the further expansion of the Luzon grid and feasibility studies by consultants for a future power project. The loan became effective on November 15, 1974. It is progressing satisfactorily. Ln. No. 1035-PH Population; US$25.0 million; Loan of July 31, 1974; Closing Date: December 31, 1979 The project is assisting the Government in expanding rural health infrastructure, staff training facil4.ies, and research and communications capacity. This will help the Philippines achieve their long-term goal of fertility reduction. The loan became effective on November 13, 1974. It is progressing satisfactorily. Ln. No. 1048-PH Inter-Island Shipping; US$20 million; Loan of October 29, 1974; Closing Date: June 30, 1979 The Governmient will relend the proceeds of the loan to the Develop- ment Bank of the Philippines for onlending to beneficiaries for the acquisi- tion of new and used ships and for major repairs and conversions. The loan has not yet become effective.  .' \:'.. IITi Page 1 PHILIPPINES TARLAC IRRIGATION SYSTEMS IDTROVEMENT PROJECT Loan and Project Summary Borrower: The Republic of the Philippines. Amount: US$17 million equivalent. Terms: The loan would be for a term of 25 years, including a grace period of 7 years, at an interest rate of 8% per annum. Project Description: The project includes: (a) Rehabilitation of three existing irrigation and drainage systems now serving a total of 21,000 ha. (b) Extension of thiese systems to serve an add- itional area of about 13,000 ha. (c) Upgrading of about 55 km of existing project roads and construction of 370 km of additional roads. (d) Procurement of vehicles and equipment. (e) A groundwater irrigation pilot project, a National Irrigation Systems Inprovement Study and a water management training program.  ANNEX III Page 2 Estimated Cost: US$34 million equivalent of which US$12.7 million is expected to be in foreign exchange and US$21.3 million in local currency. Foreign Local Foreign Total Exchange -----US$ million----- % Irrigation Systems 11.3 4.9 16.2 30 Operation & Main- tenance Equipment 0.1 1.5 1.6 94 Groundwater Pilot Project 0.2 0.8 1.0 80 Water Management Training 0.3 0.4 0.7 57 NISIS 1.2 0.9 2.1 43 Base Cost Estimate 13.1 8.5 21.6 39 Physical Contingencies 2.3 1.2 3.5 34 Expected Price Increases 5.9 3.0 8.9 34 Total Project Cost 21.3 12.7 34.0 Estimated Disbursements: Annual Accumulated Disbursements Disbursements