Philippines - Urban Engineering Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3150-PH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR AN URBAN ENGINEERING PROJECT November 11, 1981 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Peso (P (100 centavos) P 1.00 = US$0.128 US$1.00 = P7.8 GLOSSARY AND ABBREVIATIONS CIF - Capital Improvement Folio CVUP - Central Visayas Urban Project EPZA - Export Processing Zone Authority MHS - Ministry of Human Settlements MPWH - Ministry of Public Works and Highways MTC - Ministry of Transportation and Communications NEDA - National Economic and Development Authority NHA - National Housing Authority NHMFC - National Home Mortgage Finance Corporation ODA - Official Development Assistance RCDP - Regional Cities Development Project FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY PHILIPPINES URBAN ENGINEERING PROJECT Loan and Project Summary Borrower: Republic of the Philippines Amount: $8.0 million equivalent Terms: Repayable in 20 years, including 5 years of grace, with interest at 11.6% per annum. The loan could be refinanced under any subsequent loan or credit the Bank Group may provide to implement a proposed Regional Cities Development Project. Project The proposed engineering project would assist the Government Description: in completing preparation for a proposed Regional Cities Development Project (RCDP) and a Central Visayas Urban Project (CVUP). It would finance: (a) For RCDP: Detailed engineering for urban investments; special studies; and technical assistance for project management and planning. (b) For CVUP: Feasibility studies for urban investments; detailed engineering for selected urban investments; special studies; surveying and other equipment; and technical assistance for project management and planning. (c) Training programs for central government transport specialists and municipal government staff. The proposed engineering project would provide for about 30% of all detailed engineering required for the RCDP and about 25% for the CVUP, which would be sufficient to establish final design criteria and assist in firming up cost esti- mates for all the principal components of the RCDP and CVUP. The risk associated with the proposed project is minimal as the terms of reference and the short-list of consultants for most of the studies are now in an advanced stage of pre- paration; no major implementation delay is therefore anti- cipated. However, assured access to identified parcels of land would be a necessary prerequisite for detail- . ed engineering activities. Mutually acceptable programs of action for land acquisition have been prepared by the Government and their progress will be closely monitored. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Cost /1 Local Foreign Total -------US$ million------- Regional Cities Development Project (RCDP) - Detailed engineering studies 1.1 1.5 2.6 - Special studies - 0.1 0.1 - Technical assistance 0.2 0.1 0.3 - Staff services, and maintenance and operating expenses 1.5 - 1.5 Total base cost RCDP 2.8 1.7 4.5 - Contingencies (price only) 0.3 0.2 0.5 Total cost RCDP 3.1 1.9 5.0 Central Visayas Urban Project (CVUP) - Feasibility studies 0.8 1.1 1.9 - Detailed engineering studies 0.8 0.8 1.6 - Special studies - 0.1 0.1 - Equipment - 0.1 0.1 - Technical assistance 0.1 0.1 0.2 - Staff services, a.- maintenance and operating expenses 1.6 - 1.6 Total base cost CVUP 3.3 2.2 5.5 - Contingencies (price only) 0.5 0.3 0.8 Total cost CVUWP 3.8 2.5 6.3 Training - 0.2 0.2 Total project cost 6.9 4.6 11.5 Financing Plan: Bank loan 3.4 4.6 8.0 Government 3.5 - 3.5 Total 6.9 4.6 11.5 Estimated Disbursements: Bark FY: 1982 1983 1984 1985 ---------- (US$ million) -------- Annual 1.0 5.0 1.7 0.3 Cumulative 1.0 6.0 7.7 8.0 Economic Rate of Return: Not applicable. Staff Appraisal Report: No separate report. /1 Excluding identifiable duties and taxes from which the project is exempt.  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR AN URBAN ENGINEERING PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of the Philippines for the equivalent of $8.0 million to help finance an urban engineering project. The loan would have a term of 20 years, including 5 years of grace, with interest at 11.6% per annum. The loan could be refinanced under any subsequent loan or credit the Bank Group may provide to implement a proposed Regional Cities Development Project. PART I - THE ECONOMY /1 2. An economic report, entitled "The Philippines: Domestic and Exter- nal Resources for Development" (No. 2674-PH), was distributed to the Executive Directors under SecM79-822, dated November 16, 1979. A special report, "Aspects of Poverty in the Philippines: A Review and Assessment" (No. 2984-PH), was distributed to the Executive Directors on December 1, 1980 under SecM80-919. An economic mission visited the Philippines in September 1981 and is now preparing its report. Country data are given in Annex 1. Performance in the 1970s 3. During the 1970s, economic performance improved considerably, raising the trend GNP growth rate to 6% at the end of the decade. The ratio of fixed investment to GNP rose from 16% to 24% during this period. Half of the increase in investment was in the public sector; the ratio of public investment to GNP rose from 1.5% to 5.5% during the decade, reflecting substantially expanded revenues and improved implementation capacity. Export growth was accelerated, particularly in nontraditional manufactures, while growth in imports of oil and consumer goods was restrained. Overall, expan- sion in agricultural production was quite rapid, and foodgrain deficits were eliminated in the second half of the decade. Population growth was also slowed in the 1970s. However, the economy still has a number of structural problems. Most importantly, the efficiency of investment has been low, particularly in manufacturing industry producing for the domestic market; industrial employment has not expanded rapidly enough; and poverty is still widespread. 4. The economy-s structural problems are reflected in its balance of payments. Improvements achieved in the early 1970s were more than offset by a sharp deterioration of the Philippines' terms of trade since 1975, stemming from the oil price increases, accelerated international inflation, /1 This section is substantially the same as that contained in the President's Report for the Agricultural Support Services Project (R81-187) which was approved by the Executive Directors on July 14, 1981.  and depressed prices for major export commodities. Consequently, the Philippines has had to rely heavily on foreign borrowings to finance the imports needed to maintain growth and investment levels. To hold the external deficit at a sustainable level in the coming years, additional structural adjustments in the balance of payments will have to be achieved through reduced dependence on imported oil, increased efficiency of investment, and improved performance of the industrial sector. Development Strategy 5. The Government's Development Plan for 1978-82 has as objectives the rapid expansion of productive employment; improvements in economic, social and regional equity; and provision for the basic needs of the population. The agricultural strategy emphasizes food production, crop diversification, and stronger linkages with processing industries. The industrial strategy calls for promotion of export industries, development of small- and medium-scale industries, regional dispersion of industrial growth, increased efficiency of investment, and selected large-scale projects. The Plan includes social development targets in education, housing, health, and family planning. In addition, the Plan outlines development strategies for each of the country's 13 regions. A recently completed Food and Nutrition Plan, which complements the Development Plan, aims at eliminating malnutrition by 1990 through increased food production and nutrition programs. 6. The Development Plan elaborates the policy directions pursued by the Government in recent years and is broadly in line with the Bank's assessment of the country s development priorities. In view of changes in the international economy, the Government has recently revised the Plan, reducing the target of GNP growth for 1981-82 from 8% to 6%. Macro Issues for the 1980s 7. As noted above, the Philippines faces several fundamental long- standing development problems which will need increased attention during the 1980s. The four most important of these are reduction of population growth, poverty alleviation, employment generation, and increased efficiency of investment. 8. Population Growth. The Philippines has achieved an impressive reduction in population growth from 3% in 1970 to about 2.4% in 1980./1 Nevertheless, rapid population growth is still straining available land resources, aggravating already serious employment and poverty problems, and burdening the public budget with a high growth in demand for basic public services. Further reduction of population growth is, therefore, vital for the country's development. The Philippines has an active family planning program which has expanded rapidly during the 1970s. However, participation in the family planning program is still low by East Asian standards, and the /1 This figure is based on a more recent survey than the Annex I data.  - 3 - number of new acceptors has reached a plateau as the program has faced the increasingly difficult problem of extending into rural areas. 9. Poverty Alleviation. Despite satisfactory economic growth during the 1970s, the incidence of poverty remains high at 40-45%. Income distri- bution continues to be very skewed, and there is a small elite which is conspicuously wealthy. Regional disparities remain pronounced, with the incidence of poverty reaching 60-70% in the least developed regions. Large numbers of people, especially in the rural areas, which account for about 80% of the poor, still suffer from malnutrition and lack safe water, basic education and health facilities. An increasingly unfavorable man/land ratio, the resulting expansion of cultivation into marginal lands, limited employment opportunities in the industrial sector, and the sharp deterioration in the external terms of trade have put downward pressure on real incomes. Although the Government instituted several programs during the 1970s that should directly improve the lives of the poor, most of these were implemented on a large scale only toward the end of the decade and will require several years to achieve a marked impact. Key steps needed to alleviate poverty will be the development of rainfed agriculture, more balanced regional development, rapid expansion of manufacturing employment, continued improvement in basic public services, and further reduction of population growth. 10. Employment Generation. Growth of productive employment, partic- ularly in the industrial sector, has lagged behind the rapid expansion of the labor force, and considerable underemployment exists. During the 1970s, the agriculture and service sectors had to absorb an excessively high proportion of new entrants to the labor force. Manufacturing employment stagnated in the first half of the decade, and picked up only slightly thereafter as labor-intensive export production grew. Overseas employment, especially in the Middle East, increased rapidly, providing a temporary income opportunity. As the absorption capacity of the agricultural sector is limited, employment generation in manufacturing will have to increase considerably in the 1980s. 11. Efficiency of Investment. While private and public investment rose sharply during the last decade and have reached reasonable levels, the accompanying expansion of the economy's real output has been relatively low. In addition, the low rate of industrial job creation indicates that, on average, investment has not been labor-intensive enough. The low efficiency and labor-intensity of investment have been caused by the distortive effects of past trade, industrial, and financial policies on the allocation of capital. In view of tight resource constraints to be faced in the 1980s, the efficiency and labor-intensity of investment will be critical determinants of future growth in output and employment. Sectoral Issues 12. The Philippines' macro-economic performance reflects achievements and problems at the sectoral level. The more important of these are summarized below for the agricultural, industrial, and energy sectors.  - 4 - 13. Agriculture and Rural Development. Although there has been con- siderable variation among subsectors, the trend growth rate of the agriculture, fishery, and forestry sector was about 5% during the 1970s, which is quite high by international standards. The Philippines, once a chronic importer of rice, began to export modest quantities in 1977, and rice self-sufficiency appears assured for the 1980s. Production of fish and nontraditional export crops, such as bananas and coffee, has also expanded rapidly. However, the development of rainfed agriculture, which is of critical importance for raising the incomes of the rural poor, has lagged behind. Technologies to increase yields of corn and feedgrains are still under development, as are multiple cropping systems. Productivity in the important coconut export sector is low because of a large number of overage trees, although a major coconut replanting program is scheduled for the early 1980s. Furthermore, population pressure on the arable land is steadily increasing, and soil erosion in hilly areas that have been logged over or settled is a serious problem. 14. The Government has provided substantial support for rural develop- ment. Agricultural production has benefitted from the introduction of high- yielding varieties, improved credit, extension, and irrigation programs. Rural infrastructure programs in water supply, electrification and health services have also been expanded significantly. An agrarian reform of rice and corn land, instituted in 1972, is well advanced. 15. While these programs have achieved considerable improvements, the gains have been uneven among regions, crops, and farming systems. Difficult issues remain to be addressed if the living conditions of the rural poor are to be improved. Solutions to the interrelated problems of low incomes and poor soils in marginal settlements will require the development of tree cropping and mixed farming technologies, resolution of land tenure questions, and substantial upgrading of the administrative capability of the agencies concerned. Steps are also needed to reduce the incidence of poverty among subsistence fishermen, coconut farmers, and sugar cane workers. 16. Industry. Although industrial and trade policies were improved in the early 1970s, manufacturing industry grew only at about the same rate as GDP, and its growth pattern remained unsatisfactory during the decade. Excessive protection and artificially low cost of capital have led to low efficiency of investment and stagnation of manufacturing employment in industries producing for the domestic market. The introduction of export promotion measures in the early 1970s did lead to extremely rapid growth in exports of nontraditional manufactures, which rose from about $50 million in 1970 to $2.1 billion in 1980. Nontraditional manufactures now account for one-third of the country's total exports. However, the export expansion has been concentrated on a few items, and backward linkages with the rest of the economy have been limited due to the high cost and low quality of domestic inputs. Consequently, nontraditional manufacturing export industries have developed as an outward-looking enclave in an otherwise heavily protected economy.  - 5 - 17. The objectives of the Government's industrial pdlicy are to accelerate growth of output and employment, sustain the high growth of manu- factured exports, reduce import dependence of domestic industry, improve the efficiency of investment, and promote industrial development outside the Manila area. Since industries producing for the domestic market still account for more than 80% of manufacturing investment, output, and employ- ment, restructuring of home industries as well as continued export expansion are needed to achieve these objectives. In 1979, the Government initiated a series of fundamental policy reforms designed to improve the performance of the industrial sector. The first phase of the reform program, which is currently being implemented, focuses on strengthening of export incentives and reduction of protection through tariff reform and liberalization of import licensing. The Government is preparing a second phase of reforms that will address shortcomings in the investment incentives and promotion system as well as restructuring of industries which have to adjust to a more competitive environment. 18. Energy. Another sector critical for the success of the Philippines' structural adjustment effort is the energy sector. Since the 1973-74 oil price increase, the Philippines has made a considerable effort to reduce its dependency on imported oil. Demand restraint - largely through pricing and taxing measures - held the growth rate of energy consumption one percentage point below that of GDP. Steps to increase and diversify domestic energy supply have included the development of hydroelectric, geothermal, coal, and nuclear energy. Limited domestic petroleum production also began in 1979. However, due to the long gestation period of energy projects, domestic energy production still constituted only 18% of total commercial energy consumption in 1980. In response to the "second oil crisis", the Government is accelerating its program for domestic energy production but further taxing and pricing initiatives will also be needed to restrain demand. Domestic Resource Mobilization and Allocation 19. Domestic Savings and the Financial Sector. During the 1970s, gross domestic savings expanded considerably, reaching 24% of GNP and financing about 80% of total investment. However, the savings ratio needs to rise by another 2-3% of GNP in order to maintain investment levels while simultan- eously limiting the current account deficit and the country's reliance on foreign savings. In addition, interest rates and other financial incentives affecting the labor-intensity and efficiency of investment, the flexibility and competitiveness of the financial system, and the maturity of lending all needed to be increased. Hence, in 1980-81 the Government introduced a comprehensive set of financial reforms. Interest rates are being substan- tially decontrolled and revised monetary, fiscal, and rediscount policies are being introduced. Legislation to encourage multipurpose banking has also been adopted to reduce the present excessive specialization and fragmentation of the financial system and to increase competition. 20. Public Finance. During the 1970s, the Government has raised the overall level of public expenditures by 5% of GNP and has increased the shares  - 6 - going to economic services and investment. Toward the end of the decade, total government expenditures reached an estimated 17% of GNP, with public investment equalling about 5.5% of GNP. The expansion of public expenditures has made possible improvements in basic infrastructure, particularly in transportation, power and irrigation, as well as expanded programs in urban development, health and family planning. At present, the size of the public investment program is appropriate, and its composition is, with a few exceptions, broadly consistent with the country-s development priorities. 21. In the last few years, however, public investment has been cons- trained by the availability of resources, outdated contracting regulations and rigid budget execution procedures which were introduced in anticipation of a tight revenue situation. Problems were particularly acute during the period of high inflation in 1979 and 1980, and they caused the Government actually to underspend its capital budget. As resource constraints are likely to remain tight during the next decade, further strengthening of investment programming and budgeting procedures will be needed to concentrate resources on the highest priority projects. 22. The rapid expansion of public expenditures has been made possible by a program of systematic tax reform. The proportion of revenue coming from domestic taxes has been raised through increases in indirect taxes and improved collection, thus reducing dependence on cyclically volatile taxes on international trade. The tax ratio was raised by two percentage points to 13.6% of GNP during the decade but has remained about constant in the last few years. Continuation of a strong revenue effort, both by the Government and government corporations, will be necessary to finance further expansion in infrastructure and social services. Further tax reforms are needed to raise the elasticity of the revenue system, to improve its equity by increasing the proportion of revenue coming from direct taxes, and to eliminate remaining distortions in economic incentives. Balance of Payments Adjustment and External Capital Requirements 23. The 1979-80 oil price increase has considerably tightened the long- term balance of payments constraints for the Philippines. The share of oil in total merchandise imports increased from under 12% in the early 1970s to over 25% in 1980. The current account deficit widened to $2.1 billion in 1980, equivalent to 5.8% of GNP. If growth and investment rates are to be maintained, accelerated structural adjustments in the economy and the balance of payments have become essential to hold the external deficit at a sustainable level. Considerable reforms have already been introduced with respect to trade, industrial, and financial policies (see paras. 17 and 19), and improvements are under consideration in energy policy. Additional policy measures will be needed in these areas as well as resource mobilization and investment programming. Implementation of necessary adjustment measures should make it possible to sustain economic growth at 6.0-6.5%, mainly through improved performance of the industrial sector. However, policy measures will require a number of years to effect the needed structural improvement in the  - 7 - balance of payments. The current account deficit, therefore, is expected to widen further in nominal terms while declining in relative terms to about 4% of GNP in the mid-1980s. 24. The Philippines raised its external borrowing sharply to finance the balance of payments deficits incurred after the 1973-74 oil price increase. During the second half of the 1970s, net disbursements from medium- and long- term loans doubled to an estimated $1.1 billion in 1980. Despite substantial borrowing, the debt service ratio stood at only 17% in 1980, largely because of the rapid expansion in export earnings. Substantial additional foreign capital will be needed during the period of adjustment to the 1979-80 oil price increase, and net disbursements from medium- and long-term loans will have to double again in the next five years. If the Philippines can sustain the strong export performance of the recent past, the debt service ratio would still remain in the range of 18%-20% in the mid-1980s. 25. Official sources are expected to provide about 40% of the Philippines' gross external capital in the early 1980s. The last Consultative Group Meeting, held in January 1981, agreed that it would be reasonable for the Philippines to seek official development assistance (ODA) of about $1.2 billion during 1981, a slight increase over the ODA commitments it received in 1980. 26. As noted above, progress has been made in domestic resource mobilization. However, because the deterioration in the terms of trade has increased the Philippines- external financing requirements, and many projects planned for ODA have low foreign exchange costs, the necessary resource transfer can be achieved only through some financing of local costs of projects and non-project lending. PART II - WORLD BANK OPERATIONS /1 27. As of September 30, 1981 the Philippines had received 77 Bank loans (of which two were on Third Window terms) amounting to $2,960.7 million and six IDA credits amounting to $122.2 million. IFC investments totalled $143.8 million. The share of the Bank Group in total debt disbursed and outstanding is currently about 11%, and its share in total debt service is about 8%. These ratios are expected to be about 18% and 12%, respectively, by 1985. Annex II contains a summary of IDA credits, Bank loans, and IFC investments as of September 30, 1981 as well as notes on the execution of ongoing projects. /1 This section is substantially the same as that contained in the President's Report for the Agricultural Support Services Project (R81-187) which was approved by the Executive Directors on July 14, 1981.  - 8 - 28. The volume of annual World Bank lending to the Philippines has increased substantially from an average of about $90 million in FY71-75 to an average of $420 million in FY77-81. Although the Bank has financed projects in virtually all sectors of the economy, particular emphasis has been given to agriculture, which has accounted for more than one-third of total Bank/IDA lending. Another fifth of Bank lending has been for the transportation sec- tor. Lending for power, industry, and social sectors followed in declining order of size. The sectoral allocation of Bank lending remained fairly stable throughout the 1970s. Pronounced changes took place only within infrastruc- ture as lending for transportation and power declined in the second half of the 1970s, while lending for water supply and urban development was initiated during this period. 29. Within sectors, however, considerable changes have taken place in Bank lending. In agriculture, lending initially focused on expanding the irrigation system, credit programs, and other services to support rice production. More recently, efforts have been made to diversify agricultural production through loans for treecrops, livestock, and fisheries, and to assist low-income areas through integrated rural development projects. In the industrial and financial sectors, the Bank initially concentrated on streng- thening individual development finance institutions and on providing for the credit needs of small and medium industries. In the last two years, however, industrial and financial lending has been broadened to support the implementation of needed policy reforms. A structural adjustment loan was made in September 1980 in support of trade and industrial reforms. Improvements in financial sector policies were the basis for the May 1981 Industrial Finance Loan, which also introduced a new institutional concept to broaden the reach of Bank lending by channelling loans through an "apex" unit in the Central Bank. 30. While overall implementation of Bank-financed projects in the Philippines has been satisfactory, disbursements have been slower than antici- pated, and implementation problems increased in the late 1970s. These diffi- culties, in part, reflect administrative problems caused by high inflation and tight budget constraints (para. 21). They also result from the changes in the scope of the Bank's lending operations: a substantial increase in the number of projects, new areas of lending, an emphasis on institution-building, and efforts to reach specific target groups and deprived regions have all made implementation a more demanding task than in the past. A project implementation review was held in May 1980, and steps have subsequently been taken to correct some of the administrative problems. Another implementation review is planned for early 1982. 31. The Bank's future lending program has been designed to assist in achieving the major objectives of the Government's Development Plan (para. 5). Particular emphasis is being given to supporting poverty alleviation efforts and to bringing about needed structural adjustments in the economy. Economic and sector work is being closely integrated with lending operations. Future project, sector, and structural adjustment loans will be designed to address  - 9 - the wide variety of technical, institutional, and policy issues facing the Philippines. Additional structural adjustment loans are planned to support further reforms in trade, industry, and other key policy areas. In sectoral terms, agriculture and rural development will continue to account for the largest share of lending, with emphasis on food production and programs to increase the incomes of the rural poor. Substantial assistance will be given to industry through subsector loans aimed at restructuring or developing specific subsectors; through increased financial and technical assistance to small and medium industries, particularly outside the Metro-Manila area; and through continued industrial finance projects utilizing the recently introduced "apex" concept. Increased effort is also planned over the next several years to develop domestic energy resources and to strengthen the institutions responsible for developing and managing energy supplies. The Bank-s support for projects in education, health, family planning, and urban development will aim at improving basic services and supporting employment creation, particularly in less advanced areas of the country. 32. This is the second loan to the Philippines to be presented to the Executive Directors this fiscal year. Loans for national fisheries develop- ment, textile sector restructuring and communal irrigation have been appraised and are scheduled for Board presentation later in the fiscal year. PART III - THE URBAN SECTOR Urban Structure and Growth 33. The Philippines' urban population in 1980 was estimated at 17.5 mil- lion, or approximately 36% of the country's total population of 48 million. Some 12% of the country-s population, or 33% of its urban population, live in Metropolitan Manila itself. There are only seven urban areas, including Metro Manila, which have populations greater than 200,000 and a further 20 centers with population from 100,000 to 200,000./l 34. The urban population is presently (1975-1980) growing at about 3.3%. Within the next twenty years the total population of the Philippines will have grown to approximately 80 million people, and up to two-thirds of the added population may have to be absorbed in urban areas even under optimistic projections of rural employment. Based on present trends Metro Manila would have a population of 16 million by the year 2000. /1 Many of these cities include extensive rural areas which are not truly urban; all figures are preliminary 1980 census figures.  - 10 - Urban Poverty and Employment 35. The urban poverty threshold for the Philippines in 1980 is estimated at P 175 ($22) per capita/month based on minimum food and nonfood needs. Although available data are not precise, they indicate that 32% of families in urban areas and at least 80% of families in typical slum areas of major cities have per capita incomes below that level. High levels of underemployment are indicated by the high proportion of part-time work by heads of households. Because of continuing pressure of labor supply, the wages of unskilled labor have also remained relatively low and are estimated to have fallen in real terms since 1970. A number of national programs exist to promote employment- generating enterprises with focus on small-scale industry to absorb the growing labor force. However, the lack of an integrated system for assisting small business, weak coordination and duplication of functions have prevented the programs from becoming fully effective. Urban Public Services and Shelter 36. Most of the country-s cities and municipalities have not kept pace with expanding demands for provision of basic infrastructure, partly because of financial constraints at the local level and partly due to other national priorities. As a result, municipal infrastructure is generally inadequate to service the basic needs of large segments of the urban population. Almost 25% of all urban households in the Philippines, and over 30% in Metro Manila, live in squatter and slum settlements without secure tenure and lacking safe water supply, drainage, human waste disposal and clean access. Available studies indicate disease rates and infant mortality from 3 to 8 times worse than for nonslum areas of the city and a level of disease and malnutrition higher than their low-income counterparts in rural areas. 37. Metro Manila has traditionally absorbed a disproportionately high share of national investment resources and has provided employment oppor- tunities which have accentuated its increasing dominance. Almost three- quarters of national industrial output is presently located in Luzon (mostly within or near to Metro Manila). Intermediate and smaller cities and their needs for infrastructure and industry have, in the past, been neglected as a focus of national policy, and there are striking disparities in the provision of economic and social infrastructures in different urban areas. 38. With a view to redressing the present imbalance, the Government is placing greater emphasis on regional inputs to the national investment planning process. Principal regional cities play a key role in regional development which, however, is restrained by a lack of adequate infrastructure for industrialization, such as serviced land for industries, roads, water supply, power, as well as complementary municipal services.  - 11 - Urban Institutions 39. A number of important new institutions have recently been estab- lished and are beginning to have a significant effect on the development of national urbanization policies. In July 1975, the National Housing Authority (NHA) was established to consolidate government housing efforts, previously dispersed among six separate bodies. The Ministry of Human Settlements (MHS) was established in July 1978, with responsibilities for national human settle- ments planning, especially land use planning and environmental management, technical assistance and regulation. The Ministry of Public Works (MPW)/1 has established a process for investment planning and for identification of service deficiencies which is already being implemented in Metro Manila and in major regional cities within the framework of regional development planning now being introduced by the National Economic and Development Authority (NEDA). In 1978, the Government established the National Home Mortgage Finance Corporation (NHMFC) to provide a secondary market for home mortgages. In 1979, the Ministry of Transportation and Communications (MTC) was estab- lished to coordinate national and urban transport policy. Urban Issues 40. Among the numerous urban issues facing policy-makers in the Philippines four are of paramount importance on which the Bank's urban lending strategy is increasingly being focussed. These issues are employment generation and increasing productivity, provision of basic shelter, analyzing urban investment,.and regionalization and decentralization. 41. Employment and Productivity. The Government's efforts to increase employment and productivity will help (a) to improve the skewed income distribution by stimulating expansion and higher productivity among small business; and (b) to expand the production of labor-intensive manufactured exports. The relatively high level of education and low comparative wages of the Philippine labor force will assist in both of these government objectives, which will become increasingly important as urbanization absorbs the rural work force. A twin strategy is needed which would encourage the expansion of larger employment-generating enterprises on the one hand and stimulate links with small businesses in the regional cities and within Metro Manila to encourage higher productivity in small businesses on the other. 42. Provision of Basic Services. Secondary and tertiary infrastructure, especially in low income areas, has been badly neglected in the past and the need to expand these services and improve their distribution to the poor, in conjunction with regularization of tenure, is particularly important. The Government's recent initiatives in slum upgrading and expansion of low-cost sites and services provides the legislative basis and the national support necessary to begin dealing with these problems. Projects which demonstrate this approach were assisted through the Bank's first three urban loans. /1 Since July 1981, the Ministry of Public Works and Highways (MPWH).  - 12 - 43. Urban Investment Planning and Resource Generation. Public invest- ments in the past have been geared toward primary infrastructure and large-scale industry. There has been no system to regularly review priorities and monitor the impact of investment programs. The Capital Investment Folio review conducted by MPWH for Metro Manila and financed through the Bank-s first urban project (Loans 1272-T/1282-PH) is the first effort to make a comprehensive analysis of investments in a major Philippine city and is proving a useful tool for generating discussion and providing a basis for decision-making among agencies. In general, local governments- financial and administrative resources require strengthening in order to minimize reliance on the central government and to improve planning capabi- lities. 44. Regional Development and Urbanization Strategy. In the past, the intermediate and small cities and their needs for infrastructure and industry have been neglected as a focus of policy. There is also a need to develop smaller urban centers to support rural development. These measures are important in order to (a) improve the distribution of incomes across regions, (b) improve the level of services, incomes and living environment in rural areas and small towns and thus minimize migration, and (c) direct surplus migration to intermediate and smaller urban centers. More recently, NEDA and MHS have directed their attention toward regional planning and adminis- tration; a UNDP-financed regional development study has been prepared for one region (Region VII - Central Visayas). These efforts are expected to lead to more effective planning on a regional basis. However, strong support at the national level for budgeting and investment programming by regional bodies and local governments remains a high priority need. Bank Lending in the Urban and Water Supply Sector to Date 45. Bank lending in the urban and water supply sector since 1976/1 has been in three basic groupings as follows: (a) three projects with loans totalling $136 million to provide basic needs and employment opportunities for the urban poor through slum upgrading, sites and services, and tertiary infrastructure in Metro Manila. (In addition, a modest slum improvement program was instituted in Cebu, Cagayan de Oro, and Davao in the second of these projects.); (b) a water supply and sanitation project and a sanitary sewerage project for Manila totalling $151 million; and (c) two provincial cities water supply projects covering over 50 cities (and 1,000 rural communities) with two loans and one credit totalling $61 million. While all these projects are still ongoing, the Government and the Bank have benefitted from the experience in the implementation of the earlier projects in each group. The main implementation difficulties, which are largely being overcome, are institutional and organizational, including budgetary allocation problems. /1 Only one loan for water supply in Manila (Loan 386-PH) was made prior to this date, in July 1964.  - 13 - Bank Strategy for Future Urban and Water Supply Lending 46. The Bank's urban and water supply lending strategy is to focus increasingly on cities and regions outside Metro Manila to develop them as viable economic alternatives to the capital city. Future lending within Metro Manila will focus on basic services and on increasing the efficiency of urban management. 47. This urban strategy entails focusing first on major cities over 200,000 persons (which offer the greatest potential for economic take-off) and then gradually addressing the needs of a number of smaller cities which require investments for both economic development and poverty alleviation purposes. Investments will be aimed principally at infrastructure and services which will directly enhance job creation (regular and mini industrial estates, small business loans), increase municipal efficiency (markets, roads, water supply) and improve the condition of urban poor (shelter, sanitation and drainage). A major effort will be made to increase the administrative and financial management capabilities of the nation's secondary cities. Urban linkages with rural regional development will be explicitly addressed as will the relationship of urban projects with other supporting sectors among which the following are important: industrial development finance including small and medium industries, electric power, telecommunications, ports and inter-city highways. PART IV - THE URBAN ENGINEERING PROJECT Background 48. In 1976/77, a UNDP-financed regional planning assistance project, for which the Bank was the executing agency, formulated macro-investment plans for each of the nation's thirteen regions. This was followed by a Bank review of possibilities to assist the Government in developing integrated development plans in selected regions. Given the status of regional economic development planning, the Government and the Bank concluded that such huge efforts would be premature. In the meantime, the Government continued to promote decen- tralization objectives in general and regionalization objectives in particular. 49. In order to maintain the momentum of developing the regional infra- structure plans, the Ministry of Public Works undertook, in 1977, Bank- financed studies to identify a possible secondary city project that would provide needed infrastructure in critical urban centers. These studies focused on five of the nation's larger cities with populations of over 200,000 other than Metro Manila: Metro Cebu (nearly 1,000,000 persons), Davao (611,000), Bacolod (267,000), Iloilo (244,000) and Cagayan de Oro (228,000). All but Bacolod /1 are the capitals of their respective regions. /1 Bacolod and Iloilo are in the same region but are the principal cities in their respective islands.  - 14 - 50. To support development of regional cities, the Government adopted a two-pronged strategy, encompassing two different approaches; a project centering on four regional cities (para. 51) and another on Metro Cebu (para. 54) and two provincial capital cities which fall within its economic orbit. The regional cities project was developed first in the absence of a strong regional plan in any of the nation's regions. Subsequently, the Government requested the Bank to consider a regional focus in Central Visayas (including Metro Cebu) where the regional planning effort has been largely concentrated. Such a dual strategy is flexible enough to set the pace for future urban development. The Regional Cities Development Project (RCDP) 51. This multi-sectoral project would, in the four selected cities (Davao, Bacolod, Iloilo and Cagayan de Oro): (a) support investments in basic infrastructure to remove bottlenecks to economic development and employment potential; (b) improve urban management in areas of planning, budgeting and finance, maintenance of public investments, and delivery of municipal ser- vices; and (c) provide basic sanitation and shelter, particularly to low-income groups. The thrust of investments would be on industrial estates, transport (roads, traffic management, road maintenance), shelter (sites and services, slum upgrading) and municipal facilities (solid waste management, sanitation, markets, fire protection, slaughterhouses). 52. The total estimated cost of the RCDP is about $120-150 million equivalent. The project, which is scheduled for appraisal in April 1982, would be implemented in the four-year period 1983-1986. Implementation responsibility would be shared by the cities and central government agencies. 53. Preparation of the RCDP so far, under the overall direction and guidance of NEDA (para. 66), includes project identification, feasibility studies, preliminary engineering, aerial photography and mapping, municipal financial management studies, and other specialized studies. The cost for these activities has been jointly financed by the Government and the Bank. The Bank has financed related consultants- services - foreign and local - totalling about $5.1 million equivalent, under Loan 1647-PH ($0.5 million) and Loan 1821-PH ($4.6 million)./l However, necessary detailed engineering activities remain unfunded. /1 Second and Third Urban Development Projects of January 26, 1979 and and June 2, 1980, respectively. In addition, preinvestment studies and detailed engineering for industrial estates and export processing zones under RCDP are being financed under a UNDP grant for which the Bank is the executing agency.  - 15 - The Central Visayas Urban Project (CVUP) 54. The Central Visayas (Region VII) is a predominantly underdeveloped rural region with limited agricultural prospects and over 3.5 million people spread over four islands and provinces. Metro Cebu, the regional capital, has a strong economic influence on the three Visayas regions, and acts as a major transportation and communications center between the Visayas and Manila. However, high rates of rural-urban migration cause considerable strain on the infrastructure and urban services of the metropolitan area. 55. Metropolitan Cebu is the nation's second largest urban area, with a population of nearly 1,000,000 persons. The metropolitan area consists of the city of Cebu (population 489,000), Mandaue (population 111,000), Lapu-Lapu (population 99,000), and seven growing municipalities (Talisay, Liloan, Consolacion, Cordoba, Mingalanilla, Naga, and Compostela) with a combined population of approximately 246,000 persons. 56. The CVUP would include Metro Cebu as well as the capitals of two provinces, the cities of Tagbilaran and Dumaguete. As presently designed, it would (a) strengthen the key municipal governments' development planning, finance and project implementation capabilities; (b) accommodate urban population growth accentuated by rural-urban migration; (c) provide urban employment by spurring industrial growth; and (d) promote linkages with the rural economy. The last objective is being addressed through a separate but complementary agro-forestry project, which is being proposed for Bank financing and is being prepared using Project Preparation Facility funds. 57. The above objectives would be achieved through investments in transport (roads, traffic management, maintenance, bus terminals); urban services (drainage and sanitation, solid waste management, markets); shelter and livelihood (sites and services, slum upgrading, mini industrial estates); and industry (industrial development studies, industrial estates). In addition, consultants services and technical assistance would be provided to strengthen local governments- urban service delivery, improve existing revenue-generating programs and provide related training activities. 58. The total cost of CVUP has yet to be determined, but preliminary estimates indicate a base cost - in June 1981 prices - of about $120 million equivalent. The project, which is scheduled for appraisal in August 1983, would be implemented in the four-year period 1984-1987. Implementation responsibility would be shared by local governments and central government agencies. 59. Project preparation is in an early stage. Activities undertaken so far include project identification, aerial photography and mapping, and special studies. These activities have been jointly financed by the  - 16 - Government and the Bank (about $0.83 million, under Loan 1647-PH./1) With the presently constrained government financing and budgetary allocations, no other funds are readily available to complete CVUP project preparation. The Proposed Engineering Project 60. The proposed Urban Engineering Project is in response to a Govern- ment request for Bank assistance in completing preparation of the RCDP and CVUP. Funding available for this purpose under Loans 1647-PH and 1821-PH is fully committed; other alternatives for financing the engineering works were considered, but prospective funds were inadequate and would have unduly delayed the completion of the work. Negotiations were held in Washington, D.C. from October 19 through 23, 1981. The Philippine negotiating team was led by The Honorable Eduardo Z. Romualdez, Philippine Ambassador to the United States. Supplementary data are provided in Annex III. There is no separate appraisal report for this project. Project Objectives and Description 61. The objectives of the proposed Urban Engineering Project would be to assist the Government, through NEDA as the Executing Agency, in financing (a) detailed engineering and related activities for the RCDP during the period January 1982 through March 1983, and (b) feasibility studies, detailed engineering and related activities for the CVUP in the period January 1982 through May 1984. The project would sustain the existing good momentum in project preparation, and would - in the time periods indicated - generate sufficient detailed engineering to firm up cost estimates and expedite start-up of project implementation under the RCDP and CVUP. In addition, the proposed project would support the Government's efforts in upgrading the quality of transport specialists in the fields of planning and economic analysis and would also assist in strengthening the planning and implementa- tion capabilities of local governments. 62. The proposed project would comprise: 1. RCDP (a) detailed engineering, including preparation of tender documents for urban investment components in Iloilo, Bacolod, Cagayan de Oro, and Davao to be agreed between the Government and the Bank following review of ongoing feasibility studies; (b) special studies, such as municipal financial management, that may be required to support feasibility studies; and (c) provision of the following technical assistance: /1 In addition, preinvestment studies and detailed engineering for indus- trial estates and export processing zones under CVUP are being financed under a UNDP grant for which the Bank is the executing agency.  - 17 - (i) about 75 man-months of project management assistance in support of RCDP project preparation activities; and (ii) one specialist (6 man-months) to assist the RCDP Project Director in general management, planning, and consultancy contracting. 2. CVUP (a) feasibility studies for such urban investment components in Metropolitan Cebu, Tagbilaran, and Dumaguete as may be agreed between the Government and the Bank; (b) detailed engineering, including preparation of tender documents for such urban investment components in Metropolitan Cebu, Tagbilaran, and Dumaguete as may be agreed between the Govern- ment and the Bank following review of the above feasibility studies; (c) special studies, such as municipal financial management, that may be required to support feasibility studies; (d) provision of surveying and other equipment for the immediate needs of the project office; and (e) provision of the following technical assistance: (i) about 60 man-months of project management assistance in support of CVUP project preparation activities; and (ii) one specialist (9 man-months) to assist the CVUP Project Director in general management, planning, and consultancy contracting. 3. Training (a) a training program to upgrade the quality of government urban transport specialists mainly in the fields of planning and economic analysis; and (b) a training program to strengthen the project planning and imple- mentation capabilities of municipal governments, with emphasis on management, finance, engineering, the operation and mainte- nance of municipal facilities and infrastructure and the general administration of public works, together with technical assistance in the design and establishment of such a training program.  - 18 - 63. The proposed project is expected to provide part of the detailed engineering for all components of the RCDP and CVUP, up to a total of at least 30% of all detailed engineering required for the former, and 25% for the latter. This would be sufficient to establish final design criteria and firm up cost estimates to appraise all the principal components of the RCDP and CVUP. The experience gained from the preparation of the detailed engineering by foreign consultants under this project is expected to be of valuable assistance to the local consultants and local staff who are expected to be responsible for preparing the balance of the detailed engineering to be financed under the main projects. Project Costs and Financing 64. The total cost of the proposed project is estimated at $11.5 mil- lion, of which $8 million is for consultant services (foreign and local), technical assistance, training and equipment. The balance of $3.5 million equivalent is for government direct costs, including staff services, and maintenance and operating costs for the Project Offices (para. 66). The estimated foreign exchange cost is $4.6 million (40% of total cost). The cost of overseas training of transport specialists and the total cost of the training program for local government staff would be about $0.15 million. The proposed engineering loan of $8.0 million equivalent would finance about 70% of total project costs. Estimates are based on June 1981 prices and price contingencies are based on a projected 8% inflation rate for foreign exchange costs and 10% for local costs. The proceeds of the loan would be channelled through NEDA (para. 66) to the various entities involved in the project./l The proposed loan could be refinanced under any subsequent loan or credit the Bank Group may provide for the implementation of a proposed RCDP. 65. Detailed engineering, related studies and technical assistance for the RCDP are estimated to require 560 consultant man-months. Feasibility studies, detailed engineering, related studies and technical assistance for the CVUP are estimated to require 800 consultant man-months. The guiding principle for consultants services is optimum use of Filipino staff and consultants. It is recognized, however, that expatriate consultants (about 40% of total consultant man-months) will be required to supplement local skills and provide on-the-job training in certain disciplines during the start-up of feasibility studies and detailed engineering. It is expected that, as detailed engineering proceeds beyond the scope of the proposed project, expatriate consultants will be largely replaced by local consultants, and eventually by local professional staff. Contracts with expatriate consultants would emphasize on-the-job training as one of their major /1 CVUP: Metro Cebu, including three cities and seven municipalities; the cities of Dumaguete and Tabilaran; the National Housing Authority (NHA); RCDP: The cities of Iloilo, Bacolod, Cagayan de Oro, Davao; and NHA.  - 19 - responsibilities. The cost per man-month /1 for consultants' services and experts is estimated at about $3,600 equivalent for local consultants and about $11,000 for foreign consultants. Project Execution 66. The proposed project would be implemented between January 1982 and December 1984. NEDA would have overall responsibility for project execution, through the RCDP Steering Committee for the RCDP components, by virtue of Executive Order No. 605 dated July 25, 1980, and through the Director General of NEDA, by virtue of Executive Order No. 694 dated May 21, 1981 for the CVUP components. These Executive Orders also established Project Offices for the RCDP and CVUP, each headed by a Project Director. The Project Offices are generally empowered to conduct feasibility studies and detailed engineering, recommend projects that are feasible for external financing, and recommend appropriate mechanisms for project implementation. The Project Offices are also empowered to call upon any ministry and government corporation that may be required to assist in project preparation. Coordination of project preparation activities would be by Memoranda of Agreement between NEDA, the line agency (government corporation) and the city/municipality concerned, to assure satisfactory input of local professional staff and other necessary resources. These Memoranda of Agreement were reviewed during negotiations and found to be satisfactory. 67. Feasibility studies and detailed engineering would be carried out by experienced and qualified local and foreign consulting firms, under joint venture arrangements as appropriate. Other technical assistance would be provided by individual experts specifically recruited for the purpose. Consultants would be employed in accordance with the Bank's "Guidelines for the Use of Consultants" (Section 3.02(a) of the draft Loan Agreement). The consultants' and individual experts' reports on studies, designs and tender documents would be submitted in draft by the Project Offices for review by NFDA and the Bank prior to their finalization (Section 3.02(c) of the draft Loan Agreement). It is expected that most of the contracts for detailed engineering (RCDP) and feasibility studies (CVUP) would be signed by February 1982. A project implementation program, acceptable to the Bank, has been agreed upon, which envisages appraisal of the RCDP in April, 1982, and of the CVUP in August, 1983. Upon completion of the engineering services, the Government would consult with the Bank on the recommendations and conclusions relating to the proposed project (Section 3.02(d) of the draft Loan Agreement). /1 Including salaries, fees, travel and subsistence.  - 20 - Procurement and Disbursements 68. The total cost of contracts for surveying and other equipment is estimated at about $100,000 equivalent. These contracts would be awarded in accordance with the Government's current procurement procedures which are satisfactory to the Bank. 69. Disbursements would be on the basis of: (a) 100% of expenditures on consultants services and training for municipal government staff; and (b) 100% of foreign expenditures on contracts for equipment and training of urban transport specialists. All withdrawal claims would be fully documented. Accounts, Auditing and Reporting 70. NEDA would maintain records adequate to identify project-related transactions with the entities involved in the proposed project reflecting the cost of goods and services financed out of the proceeds of the loan for each entity (Section 3.04 of the draft Loan Agreement). 71. The RCDP and CVUP Project Offices would prepare quarterly reports on the progress of the proposed project, and submit these reports through NEDA to the Bank within one month of the expiration of each quarter. Project Justification and Risks 72. The proposed urban engineering project would represent a first important step in the Government's efforts to resolve some of the institu- tional issues associated with decentralization and to provide for urban economic growth through multi-sectoral projects outside the Metro Manila area. The project would also assist local governments in programming and planning for improvements in urban service delivery and related urban fiscal policy. 73. The risks associated with the proposed engineering project are mini- mal as the terms of reference and short-list of consultants for most of the studies are now in an advanced stage of preparation; no major implementation delay is therefore anticipated. However, assured access to identified par- cels of land is a necessary prerequisite for meaningful detailed engineering activities. Also, the cost of land acquisition determines the economic feasibility of urban components such as shelter, industrial development, and markets. Land acquisition procedures are complicated, and cities and muni- cipalities may have considerable problems in raising the initial capital for land acquisition, and the interest on that capital. To minimize possible project delays due to land acquisition problems, the Government and the Bank have agreed that progress on land acquisition be closely monitored by NEDA, with a view to proper planning of engineering activities in step with actual access to land by the various agencies involved. The Government will implement a mutually acceptable plan of action for securing right of access to land for which detailed engineering would be undertaken under the project (Section 3.03 of the draft Loan Agreement).  - 21 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 74. The draft Loan Agreement between the Republic of the Philippines and the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separately. Special conditions of the project are listed in Section III of Annex III. 75. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 76. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments Washington, D.C. November 11, 1981  - 22 - ANE I Page 1 of 5 pages TABLE 3A PHILIPPINES - SOCIAL INDICATORS DATA SHEET PHILIPPINES REFERENCE GROUPS (WEIGNTED AVE5AGES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)- TOTAL 300.0 MOST RECENT MIDDLE INCOME MIDDLE INCOME AGRICULTURAL 90.8 1960 /b 1970 /b ESTIMATE /b ASIA 6 PACIFIC LATIN AMERICA & CARIBBEAN UhP PER CAPITA (US$) 150.0 240.0 600.0 1136.1 1616.2 ENERGY CONSUMPTION PER CAPITA (KILOGhAMS OF COAL EQUIVALENT) 159.1 292.9 355.9 1150.6 1324.1 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 27372.0 36852.0 46748.0 URBAN POPULATION (PERCENT OF TOTAL) 30.3 32.9 35.8 40.8 64.2 POPULATION PROJECTIONS POPULATION IN YEAR 20U0 (MILLIONS) 75.2 STATIONARY POPULATION (MILLIONS) 125.0 YEAR STATIONARY POPULATION IS REACHED 2075 POPULATION DENSITY PER SQ. K1M. 91.2 122.3 155.8 373.1 34.3 PER SQ. KM. AGRICULTURAL LAND 360.0 472.0 502.6 2382.8 94.5 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.6 45.5 44.3 39.8 40.7 15-b4 YRS. 52.4 51.6 52.6 56.7 55.3 65 YRS. AND ABOVE 3.0 2.9 3.1 3.5 4.0 POPULATION GROWTH RATE (PERCENT) TOTAL 2.7 3.0 2.6 2.3 2.4 URBAN 3.8 3.8 3.6 3.8 3.7 CRUDE BIRTH RATE (PER THOUSAND) 45.7 39.2 34.4 29.7 31.4 CRUDE DEATH RATE (PER THOUSAND) 15.6 10.8 8.2 7.5 8.4 GROSS YEPRODUCTION RATE 3.3 2.8 2.3 1.9 2.3 FAMILY PLANNING ACCEPTURS, ANNUAL (THOUSANDS) .. 191.7 650.0 USERS (PERCENT OF MARIED WOMEN) .. 2.0 37.0 44.1 .00D AND NUTRITiON INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 102.0 101.0 114.0 123.7 108.3 PER CAPITA SUPPLY OF CALORIES (PERCENT OF KEQUIR