Philippines - Fifth Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4535-PH STAFF APPRAISAL REPORT PHILIPPINES FIFTH HIGHWAY PROJECT May 1, 1984 Transportation Division 2 Projects Department East Asia & Pacific Regional Office 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 = Pesos (P) US$1.00 = P 14.00 P 1.00 = US$0.07 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AA - Advise of Allotment ADT - Average Daily Traffic AASHTO - American Association of State Highway Officials ADB - Asian Development Bank BAT - Bureau of Air Transport of MOTC BLT - Bureau of Land Transport of MOTC BOM - Bureau of Maintenance of MPWH BP - Batasang Pambansa CDC - Cash Disbursement Ceiling; CIAP - Construction Industry Authority of the Philippines CO - City Office of MPWH COA - Commission on Audit DBCC - Development Budget Coordinating Committee DO - District Office of MPWH EMK - Equivalent Maintenance Kilometer ERR - Economic Rate of Return GRT - Gross Registered Tonnage MARINA - Maritime Industry Authority MDS - Manpower Development Service of MPWH MLG - Ministry of Local Government MOB - Ministry of Budget MOTC - Ministry of Transport and Communications MPH - Ministry of Public Highways MPW - Ministry of Public Works MPWH - Ministry of Public Works and Highways NEDA - National Economic and Development Authority NTPP - National Transportation Planning Project PCA - Philippine Contractors Association PMO - Projects Management Office of MPWH PNR - Philippine National Railways PPA - Philippine Ports Authority PTS - Philippine Transport Survey RO - Regional Office of MPWH SOE - Statements of Expenditure TOR - Terms of Reference USAID - United States Agency for International Development vpd - vehicles per day  FOR OFFICIAL USE ONLY PHILIPPINES: FIFTH HIGHWAY PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. TRANiSPORT SECTOR . . . . . . . . . . . . . . . . . . . . . . 1 A. The Transport System ... . . . . . . .. . 1 B. Policy, Planning and Coordination . . . . . . . . . . . 3 C. Sector Issues . . . . . . . . . . . . . . . . . . . . . 4 D. Bank Involvement in the Transport Sector . . . . . . . 5 II. HIGIIWAYS . . . . . . . . . . . . . . . . . . . . . . . . . . 8 A. The Network . . . . . . . . . . . . . . . . . . . 8 B. Traffic . . . . . . . . . . . . . . . . . . . . . 10 C. Road Transport Industry . . . . . . . . . . . . . . . . 11 D. Road User Charges and Highway Expenditures. . . . . . . 12 E. Administration, Staff and Training . . . . . . . . . . 13 F. Planning . . . . . . . . . . . . . . . . . . . . . . . 15 G. Design . . . . . . . . . . . . . . . . . . . . . . . . 16 H. Construction . . . . . . . . . . . . . . . . . . . . . 16 I. Maintenance . . . . . . . . . . .18 J. Financing, Budgeting and Accounting. 23 III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . C . . . 24 A. Background . . . . . . . . . . . . . . . . . . . . . . 24 B. Objectives . . . . . . . . . . . . . . . . . . . . . . 24 C. Main Features .... . . . . . ...... . . . . . . 25 D. Detailed Description . . . . . . . . . . . . . . . . . 25 E. Status of Preparation . .32 F. Cost Estimates . . . . . . . . . . . . . . . . . . 33 G. Financing . . . . . . . . . . . . . . . . . . . . . 35 H. Implementation . . . . . . . . . . . . . . . . . . . . 36 I. Procurement . . . . . . . . . . . . . . . . . . . . 37 J. Disbursements . . . . . . . . . . . . . . . . . . . 40 K. Environmental Aspects .... . . ...... . . . . . 40 L. Role of Women . . . . . . . . . . . . . . . . . I . . . 40 The report is based on the findings of an appraisal mission consisting of Messrs. G. Trnka (engineer), M.S. Parthasarathi (economist), P. Jensen (engineer) and W. Hoehenwarter (financial analyst) which visited the Philippines in February/March 1983. This document has a restricted distribution and may be used by recipients only in the performance of I their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - l~i - Page No. IV. ECONOMIC EVALUATION ..... . . . . . . . . . . . . . . .. . . 41 A. General ...... . . .. . .. . . .. . . .. . .. . . 41 B. Reconstruction Program for Bridges . . . . . . . . . . . . 41 C. Improvement of National Highway Ba.guio-Mt. Data . . . . . . 42 D. Restoration Program ..... . . . . . . . . . . .. . . . 43 E. Economic Return on Whole Project . . . . . . . . . . . . . 43 F. Risks .......................... . 43 G. Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . 44 V. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . . . . . . . . 45 TABLE IN THE TEXT 2.1 Expenditures on National Highways . . . . . . . . . . . . . . . 20 3.1 Summary of Project Costs . . . . . . . . . . . . . . . . . . . 34 3.2 Procurement Summary . . . . . . . . . . . . . . . . . . . . . . 38 ANNEXES 1. Action Program for Project Implementation . . . . . . . . . . . 46 2. Ministry of Public Works and Highways: Organizational Set-Up. . 50 3. Government Budget Process . . . . . . .. . . . . . . . . . . . . 51 4. Project-related Documents and Data Available in the Project File 53 SUPPORTING TABLES 1. Government Investments in Transport Sector Infrastructure . . 55 2. Public Road Network .56 3. Vehicle Fleet by Type .57 4. Road User Revenues and Expenditures, 1970-81 . . . . . . . . 58 5. Motor Vehicle Fuel Consumption, 1970-81 .59 6. Design Standards for National Highways . . . . . . . . . . . . . 60 7. Expenditures on Highway Maintenance by Road System, 1972-81 . 61 8. Ministry of Public Works and Highways: Medium-term Financial Plan, 1984-89 .... . . . . . . . . . . . . . . . . . . . . . . . 62 9. Reconstruction Program for Bridges on National Highways: 1985 Program . . . . . . . . . . . . . . . . . . . . . . . . . 63 10. Restoration Program on National Highways: Summary Table . . . . 64 11. Restoration Program on National Highways: 1985 Program . . . . 65 12. Consulting and Technical Assistance Services . . . . . . . . . . 66 13. Proposed List of Future National Highway Projects . . . . . . . 67 14. Summary of Project Costs . . . . . . . . . . . . . . . . . . . . 68 15. Schedule of Estimated Disbursements . . . . . . . . . . . . . . 69 16. Basic Vehicle Operating Costs ... . . . . . . . . . . . . . . 70 17. Restoration Program of National Highways: Vehicle Operating Costs 71 18 Cost and Benefit Streams for Improvement of National Highway Baguio-Mt. Data .... . . . . . . . . . . . . . . . . . . . 72 19. Economic Return Sensitivity Analysis . . . . . . . . . . . . . . 73  - iii - Page No. CHARTS 1. Ministry of Public Works and Highways - Organization Chart 74 2. Ministry of Public Works and Highways, Regional Office - Organization Chart . . . . . . . . . . . . . . . . . . . . . 75 3. Implementation Schedule ...... . ............. 76 MAPS 1. IBRD 17013 - Previous Highway Project Components . . . . . . . . 77 2. IBRD 17014R - Project Components . . . . . . . . . . . . . . . . 78   I. TRANSPORT SECTOR A. The Transport System General 1.01 The Philippine economy has been growing at 6.0% a year between 1970 and 1980, thereby generating a strong and growing demand for transport services, which grew during the same period at 9% a year. To meet this demand, the Government undertook investments totalling around P 20 billion (US$1.4 billion), principally in highways, but also in other transport modes. As a result, the public road network grew from 65,000 km in 1970 to 155,000 km in 1982. With the majority of the national highways either already improved or under improvement, the Government has now turned its attention to improving highway maintenance and to upgrading rural roads, while limiting highway investments to strengthening weak bridges and highway sections in the generalLy satisfactory network (para. 3.05). 1.02 Due to its geography, the Philippines depends to a great extent on interisland shipping and ferry services to link the main island of Luzon with the other islands. Nevertheless, road transport handles 80% of the country's passenger movements and 60% of freight movements compared with water transport (8% of passenger and 40% of freight traffic). The railways and air transport handle the remaining of 12% of passenger traffic and a small volume of freight (less than 1%). Basically, therefore, the Philippine transport system is a predominantly bimodal system, with road and water transport generally complementing, rather than competing with, each other. 1.03 During the 1980s, the transport sector is expected to continue to grow but at a somewhat reduced pace of around 6-7% p.a., in line with the slowdown of the economy's growth caused by worldwide recession and structural problems of the Philippine economy. Highways 1.04 Highways and highway transport are discussed in detail in Chapter II. Ports and Domestic Shipping 1.05 There are 18 major and 73 minor national ports, some 400 smaller municipal ports, and 230 private piers and wharves in the Philippines. Together these handle yearly about 75 million tons of cargo, about half in domestic trade and half in foreign traffic, and some 16 million passengers,  - 2 - almost all domestic. The public ports handle about 45% of the total cargo and all passengers; about 75% of the cargo is domestic traffic. Of the public ports, Manila is by far the most important, with over 10 million tons of cargo in 1979. Private port traffic comprises mainly bulk cargo (oil, iron ore, sugar, etc.), 60% of it in foreign trade. 1.06 The interisland shipping fleet which handles the domestic traffic consists of some 3,200 vessels, with over 60% under 100 GRT each. Only some 250 are liner ships with an average GRT of 1,000. A majority of the small ships are owned and operated by some 200 small companies. 1.07 In the past decade, the main investments in port infrastructure have been in the country's major ports - Manila, Davao, Cotabato, Iligan, Cagayan de Oro, General Santos, Cebu, Zamboanga and Iloilo. Improvement works at many of these ports are still under implementation. Future investments are expected to shift substantially to the smaller ports which serve almost exclusively domestic traffic. Railways 1.08 There are two railway systems in the Philippines: the Philippine National Railways (PNR) operating on the main island of Luzon and the Panay Railways on Panay Island. The Government-owned PNR has 807 km of route in operation and carried in 1980 some 365,000 tons of freight and 1.28 million passengers. A project for the rehabilitation of the Main Line South, with the Asian Development Bank (ADB) financing, is nearing completion. However, PNR incurs substantial deficits in its operations which have so far been met by Government contributions, and the Panay Railways receive favored treatment in carrying sugar mill traffic, and even so barely manages to cover operating expenses. The railways' role in internal transport is thus marginal, and there is no prospect of its becoming a major factor in the near future. The Government has recently initiated construction of a 10 km elevated light railway transit system in Metro Manila but this system is likely to require operating subsidies for at least some years to come. Air Transport 1.09 International and domestic air transport are centered primarily on Manila, the country's capital, with Cebu as a secondary focal point. Altogether, there are 83 national airports under the jurisdiction of the Bureau of Air Transport (BAT) of the Ministry of Transport and Communica- tions (MOTC), of which two are international airports and two alternative international airports. There are also 120 privately operated airports, mostly for private services. A modern international passenger terminal for Manila airport was completed in 1982 with ADB financing. Scheduled domestic air services are provided by the Government-owned Philippine Airlines.  Government Outlays on Transport Infrastructure 1.10 During the 1977-81 period, the transport sector absorbed about P 16.7 billion (US$1.2 billion) in national government expenditures. Of this sum, roads absorbed 82%, the remainder going to air transport (6%), railways (4%), and water transport (8%). For the period 1983-87, the Government has tentatively allocated P 40 billion (US$2.9 billion) for the transport sector covering ongoing and new projects (but excluding urban transport). This represents a doubling in annual investments in real terms over the annual investments in the sector during 1975-81. The highway share is, however, expected to decline to 71% (Table 1), since future emphasis in highway outlays will be increasingly on maintenance and not so much on new investments (para. 2.38). The main increase in future investments outlays will be in the port subsector whose share will increase to 16% of the total transport investments. Relative to infrastructure outlays by the Government, the share of transport (excluding urban mass transit system) will be about 25% in the future, about the same share as in the past. B. Policy, Planning and Coordination 1.11 Established in 1975 as a separate Ministry, MOTC is responsible for transport policy, regulation and administration. It is also responsible for operational coordination among the different modes. MOTC carries out these tasks mainly through its Planning Service, the Bureau of Land Transport (BLT), the Maritime Industry Authority (MARINA), and BAT. The Philippine Ports Authority (PPA), the Philippine National Lines, and the Philippine National Railways are all under its jurisdiction. The quasi- judicial Board of Transport, which is the main regulatory agency for public transport (routes, fares and tariffs), comes administratively under MOTC. MOTC has, so far, relied on foreign consultants to execute many of its functions. There are currently five foreign advisers in MOTC, namely a transport planning adviser, a transport policy adviser, a railway adviser, an air transport adviser, and a transport economist. Their services are financed under the Third Highway Project (Loan 1353-PH) and the Regional Cities Development Project (Loan 2257-PH). The services of all but the air adviser would be extended under the proposed project (para. 3.21). 1.12 Planning for the transport sector is, however, the joint responsi- bility of MOTC (for all modes other than highways), the Ministry of Public Works and Highways (MPWH) (for highways), and the National Economic and Development Authority (NEDA), with NEDA having an intersectoral coordinating role. MOTC undertakes overall sectoral planning through the National Transportation Planning Project (NTPP) which prepared a five-year (1983-87) investment plan for transport as part of the national planning exercise. A ministerial committee - the NEDA Committee on Transport Planning, with representatives from NEDA, MOTC, MPWH and the Ministry of Tourism - has the final responsibility on all planning matters for the sector. 1.13 Responsibility for detailed planning in modes other than highways rests with various semi-autonomous agencies under MOTC - PNR for railways, PPA for major and secondary ports, MARINA for shipping, and BAT for air  -4- transport. MOTC's Planning Service reviews investment proposals put up by the various agencies and advises MOTC on policy matters. Responsibility for highway planning rests with the Planning Service of MPWH (para. 2.25). 1.14 Intermodal coordination has improved considerably, particularly because railways are of little significance in domestic transport and roads and interisland shipping by and large complement each other. However, transport operations could be made more efficient and less expensive by the provision of freight consolidation and forwarding facilities as well as common passenger terminals in the country's main cities and towns. Such freight consolidation facilities could also improve the transfer of cargo from trucks to ships and vice versa, an area in which the larger interisland shipping companies have begun to provide the service in some major ports. The proposed project would include technical assistance to MOTC to carry out a comprehensive review of the transport industry and to make proposals for establishing freight and passenger terminals in the main cities and towns (para. 3.21). C. Sector Issues 1.15 In addition to a number of minor issues in specific modes, there are several important issues that require Government's attention. The first and most important concerns the need to improve highway maintenance, which continues to be unsatisfactory (para. 2.36). A second sector-wide problem is that of attracting and retaining staff of sufficient caliber and experience in MOTC and MPWH, especially in their planning services, due to the relatively low government salary scales. The problem appears to be particularly acute in MOTC, which has so far relied on foreign consultant teams (para. 1.11). The third concerns government regulations relating to route licensing and tariff setting, particularly in road transport and interisland shipping, which contribute to less than optimal efficiency in their operations. The fourth relates to the distinction between trucks licensed for hire (TH) and trucks licensed for owner use (T), with some 80% of the trucks licensed as T trucks but with matiy in practice operating for hire; T trucks pay lower registration and license fees and do not pay the turnover and franchise taxes, thereby depriving the Government of legitimate revenues and distorting the market for trucking services. A fifth issue concerns the future of the PNR. 1.16 The Government is aware of these problems. As regards the first, MPWH now gives high priority to highway maintenance and has successfully completed pilot maintenance programs with the help of technical assistance provided under the Fourth Highway Project (para. 2.36). The proposed project would provide technical assistance to further improve MPWH's maintenance capabilities (para. 3.20). The second problem of the  unattractive government salary structure is the most intractable. To deal with salary issue on a government-wide basis would have overwhelming fiscal implications. The technical agencies may, therefore have to continue to use consultants (local and expatriate) over the next few years. Concerning the third issue, the Government has requested, and the proposed project would provide technical assistance to MOTC to review the road transport industry, examine the road transport deregulation issue, and develop a plan for the deregulation of interisland shipping (para. 3.21). On the fourth issue, MOTC has indicated that it has tightened up procedures for the issue and renewal of licenses for T trucks to ensure that they are issued only in cases where the need is clearly established; the Government intends to monitor periodically this step and take further measures as necessary. As regards PNR, the Government has for the present decided against closure of the railway and to retain it for other than economic reasons. At the same time, it has taken steps to strengthen the management to enable it to operate efficiently and minimize the need for annual government subsidies for operating losses. This, however, is not a serious issue as PNR's role in internal transport is marginal and the subsidy amount involved is relatively small (about P 25 million) (US$1.8 million) year. The technical assistance to MOTC under this project would also provide guidance to PNR in order to improve railway operations, facilities and maintenance (para. 3.21). 1.17 The technical assistance provided under this project (paras. 3.20 and 3.22) should specifically enable both MOTC and MPWH to phase out foreign technical assistance services in transport and highway management after 1986. However, due to the low government salary structure, MOTC and MPWH would have to continue employing local consultants. For the Ministry of Local Government (MLG), expatriate assistance in rural roads project implementation would be needed at least until the completion of the proposed Second Rural Roads Project (para. 1.21). D. Bank Involvement in the Transport Sector 1.18 The Bank Group has assisted the transport sector through four highway projects, one rural roads project, three ports projects and one shipping project. The Bank has been involved in the road subsector since the First Highway Project (Loan 731-PH, US$8.0 million) in 1971. Three larger Highway Projects (Loans 950-PH, 1353-PH, and 1661-PH) and one Rural Roads Improvement Project (Loan 1860-PH) followed. Two of the highway projects have been satisfactorily completed. The Project Performance Audit Report (No. 2449, of April 4, 1979) for the First Highway Project found that problems during implementation were largely caused by civil disturbances in the project area. Still the project's re-estimated economic return was satisfactory. The Project Performance Audit Report (No. 4757, of October 25, 1983) for the Second Highway Project (Loan 950-PH, US$68.0 million in 1973) noted that significant difficulties and delays on one road construction  - 6 - contract coincided with variations from the Bank's procurement procedures, and that responsibility for maintaining the minor roads financed under the project should have been clearly indicated. The report estimates that the economic return of the project will be satisfactory despite some loss in benefits caused by imposition of tolls and ban on truck traffic on one of the project roads. 1.19 The ongoing Third Highway Project (Loan 1353-PH, approved in 1976), provides US$95 million for construction and improvement of some 500 km of national roads and 230 km of minor roads (Map 1), the first phase of a road maintenance program (construction of workshops, procurement of equipment and restoration of deteriorated road sections), and consulting services, technical assistance to MPWH and MIOTC, and training. The project is two and a half years behind the appraisal schedule because of slow procurement, poor performance of many contractors and inadequate budgetary planning. It was substantially completed (about 95%) in April 1984. The loan is expected to be fully disbursed by August 1984. 1.20 The ongoing Fourth Highway Project (Loan 1661-PH, approved in 1979), provides US$100 million for construction and improvement of about 365 km of national and 77 km of feeder roads (Map 1), the second phase of the road maintenance program, and consulting services, technical assistance and overseas training. Initially, the implenientation proceeded slowly because of stricter prequalification procedures for contractors, delays in the first phase of the road maintenance program, and late start of technical assistance services. To improve project implementation, MPWH agreed with the Bank in May 1981 on a 12-month action program and on a similar second program in June 1982, and has adhered to these programs. As a result, project implementation has improved substantially over the last two years, and is now satisfactory. In view of its arrangement with local "in-house" consultants (para. 2.19), MPWH has significantly reduced the expatriate technical assistance services under the project, and has been using foreign experts only for highway maintenance. The project was about 65% completed in April 1984; it is expected to be completed by March 1985. 1.21 The ongoing Rural Roads Improvement Project (Loan 1860-PH, approved in 1980), provides US$62 million for improvement of about 700 km of rural roads in 6 provinces, identification study of rural roads for improvement in 22 more provinces, and technical assistance for project implementation and for preparation of a five-year national transport sector investment plan. The rural roads identificati:on study and the technical assistance services in planning have been completed. After an initial one year delay caused mainly by delays in obtaining budgetary provision for local costs, and consequent delays in hiring staff for the new Rural Roads Unit in MLG, construction is now well under waLy. The project was 55%  completed in April 1984 and is expected to be completed in March 1986. 15 months later than the appraisal schedule. ADB is providing assistance for rural roads in nine provinces under a highway project approved in 1983, and the Bank lending program for 1986 tentatively includes a Second Rural Roads Project for the other 13 provinces which were covered under the study. 1.22 In the port and shipping subsectors the Bank assisted the Government since 1961, when the First Ports Project (Loan 290-PH) provided US$8.5 million to finance dredgers. Unfortunately, the dredgers were not operated or maintained satisfactorily; consequently US$1.1 million of the loan was cancelled. In 1973, the Bank provided US$6.1 million for the Second Ports Project (Loan 939-PH) for improvement of two major ports, Cagayan de Oro and General Santos. Slow procurement caused a three-year delay in project completion; and the project also experienced a cost overrun of about 60%. The Project Completion Report (April 29, 1981) noted that the original cost estimates and implementation schedules were too optimistic. The Project Performance Audit Report is under preparation. The ongoing Third Ports Project (Loan 1855-PH, approved in 1980) provides US$67.0 mil- lion for further improvement and rehabilitation and four major ports, Cagayan de Oro, Zamboanga, Iloilo and Cebu, consulting services, and technical assistance services. Progress in project implementation was initially slow but all construction work is now underway. In April 1984, the project was about 50% complete and 12 months behind the appraisal schedule. 1.23 The Bank's First Shipping Project (Loan 1048-PH, approved in 1974) provided US$20 million to assist the Government in modernizing the inter- island fleet of vessels, and technical assistance for-maritime planning. The project was completed in 1981, two years behind the appraisal schedule. Most ships were procured locally and the project thus substantially strengthened the domestic ship-building industry. The draft Project Performance Audit Report (December 2, 1982) concluded that the Bank should have convinced the Government to provide more favorable onlending terms to ship operators. 1.24 A principal objective of the Bank with transport sector lending in the Philippines has been to strengthen the institutions dealing with the sector and to help in the establishment of an appropriate framework for planning and policy development and formulation. As a result, a major component in recent lending has been technical assistance in national transport planning, a task completed in July 1982. Assistance thereafter will be for policy formulation and implementation, with gradual phasing out of foreign experts.  -8- II. HIGHWAYS A. The Networkl 2.01 The Philippines has an extensive road network of some 154,800 km (1982), of which 24,000 km are national, 30,000 km provincial, 15,600 city and municipal, and 85,200 barangay /1 roads (Table 2). National roads include about 120 km of toll expressways /2 with grade separated intersec- tions north and south of Manila, and some 2,000 km of the Pan-Philippine Highway extending from northern Luzon to southern Mindanao. The average road density of 0.5 km/sq km of land area and' of 3.2 km/1,000 inhabitants compares favorably with the corresponding figures in Indonesia (0.1 km/sq km and 1.3 km/1,000 inhabitants) and Thailand (0.2 km/sq km and 1.9 km/1,000 inhabitants). 2.02 The network is, in general, quite adequate in location and extent, but suffers from many deficiencies. Only some 20,500 km, or about 13% of the total network, is paved, 8,600 km with cement concrete and 11,900 km with asphalt. Of the remaining 134,300 km, 82,000 km have gravel and 52,300 km have earth surfaces. The condition of many roads is poor because of initial deficiencies in design and construction, lack of maintenance and damage from overloaded vehicles. Missing or weak bridges diminish the usefulness of many existing roads (para. 2.03); and in remote areas, access roads are scarce. In general, national roads carry significant volumes of traffic, provide connections between main population centers and link provinces. Provincial roads usually carry medium or low traffic volumes, and constitute the basic network within the provinces. City and municipal roads are urban roads, while barangay roads function mostly as penetration, feeder or farm-to-market roads. However, the road classification is often arbitrary as it is not always based on function. In remote areas national roads may serve as penetration roads providing the only access to villages. In many parts of the country, provincial and barangay roads are indistinguishable, both being characterized by low volumes of traffic and serving limited areas, mainly connecting communities with administrative and market centers. Under the Rural Roads Improvement Project the consultants for the Rural Roads Feasibility Study have reviewed the classification of /1 Barangay is the smallest political subdivision in the country. Nation- wide, there are about 35,000 barangays; each barangay has a population of at least 1,000 and has its elected Barangay Captain and Council. /2 About 51 km of two-lane toll road has been completed under the Second Highway Project and is being expanded to a four-lane toll expressway.  - 9 - all categories of roads in 22 provinces (about 30% of the country). Under the Fourth Highway Project, the consultants for the Bridge Feasibility Study have reviewed some parts of the national road network. The proposed project would include an overall road classification study which would pull together the results of the above studies and would also review the remainder of the road network (para. 3.16). 2.03 Major road improvement activities began in 1969 following completion of the Philippine Transport Survey (PTS)./l The survey recommended improve- ment of about 6,000 km of national roads, reorganization of the highway administration, and improvements in road maintenance procedures. Most of the priority roads identified in the PTS have been, or are being, improved with local resources, supplemented by assistance from Japan, USAID, ADB and the Bank. The proposed project includes a further 83 km for a major highway improvement (para. 3.08). Despite these road improvement activities only some 10,400 km or about 43% of national highways are paved. Improvement works on national highways usually include widening and strengthening of existing substandard bridges and, where necesary, replacement of bridges on the verge of collapse and beyond repair or with excessive maintenance cost. However, the pace of general road improvement work is not adequate to keep up with the need for repairing or replacing deteriorating bridges. MPWH, therefore, embarked in 1982 on a special steel bridge reconstruction program which provides for replacement of some 284 bridges over the three-year period, 1983-85. The cost of steel structures is financed through a special MPWH allocation from the Government's 1981 "jumbo" loan;/2 and the civil works costs are being met from MPWH budget allocations. In continuation of the steel bridge reconstruction program, MPWH has formulated a second eight-year program (1985-92) which includes reconstruction of bridges on 60-70 high priority national highway links identified through the National Transportation Planning Project (NTPP) (para. 2.04). The proposed project would provide for financing of the first phase of this program (para. 3.06). 2.04 In 1982, the NTPP study stated that the deteriorating condition of the national highway network was a critical issue facing the transport sector, and that inadequate maintenance was the main factor for this state of affairs. The study also stated that inadequate maintenance funding might be a factor, although it was not the only problem to be addressed. NTPP's main recommendations were that MPWH should: (a) emphasize that maintenance of /1 A two-year study conducted under UNDP financing with the Bank as Executing Agency. /2 US$200 million borrowed by the Central Bank of the Philippines from a consortium of international banks.  - 10 - existing facilities has priority over any expansion or improvement projects: (b) carry out a detailed survey of the conditions of the national highway network and identify roads that can be adequately maintained, that are to be restored, and that need to be reconstructed, then raise the road restoration program to a level that will bring the network to a maintainable condition within a reasonable time span; and (c) upgrade its maintenance organization, provide for adequate maintenance funding (including a permanent catastrophe fund) and institute a monitoring and cost accounting system. The proposed project would assist MPWH in implementing the above strategy for national highway maintenance by providing technical assistance and by financing continuation of the restoration program of national highways begun under the Third Highway Project (paras. 3.10 and 3.20). B. Traffic 2.05 In 1980, there were some 942,000 motor vehicles in the Philippines, of which 471,000 were cars; 81,000 jeepneys;/1 18,000 buses; 293,000 trucks; and the rest motorcycles (Table 3). Between 1970 and 1980, the fleet grew by 6.8% per year, but there has been very little change in its composition, with cars and trucks constituting 50% and 30% of the fleet, respectively. Over 40% of the vehicle fleet is in Central Luzon and Metro Manila which account for 22% of the country's population and 6% of the land area. Approximately 65% of the trucks are two-axle trucks, about 25% three-axle trucks and the balance truck-semitrailers. Almost 90% of the trucks are diesel-powered. Trucks in use in inter-city movements in the Philippines range from the two-axle straight truck to the five-axle truck semi-trailer. 2.06 Overloading of trucks is common and this causes excessive damage to roads. Loadometer surveys carried out withi the use of weighing equipment provided under the Third Highway Project indicate that typically 65% of all loaded vehicles are overloaded, with the average overload for overloaded vehicles being 4 tons, in terms of both gross vehicle weight and axle load. The overloading of larger trucks is greater with axle overload reaching 10 tons for the three-axle straight truck. 2.07 Traffic volumes vary widely with over 30,000 vehicles per day (vpd) on the Manila North Expressway in Luzon to less than ten vehicles daily on some rural roads. With the Bank's assistance, a nationwide traffic counting program was initiated in 1975 with a total of 1,377 stations. At /1 Jeepney is a modified jeep being used in the Philippines for public transport.  - 11 - present there are 1,497 counting stations in operation, of which 126 are automatic. The average mix of traffic on national roads is as follows: cars/vans - 55%; jeepneys - 30%; buses - 5%; and trucks - 10%. 2.08 At present, the maximum legal load for a single axle is 8,000 kg and for a tandem axle 14,500 kg; in addition, the maximum legal gross weight of a two- or three-axle truck is 13,600 kg and of a semi-trailer 24,500 kg. These limits are low and if strictly inforced, would raise trucking costs higher than they need be. To review the efficiency of the road transport system, the Government is carrying out a study of its existing regulations on vehicle weights and dimensions. The study is financed under the Fourth Highway Project and is scheduled for completion by December 1984. Based on its findings, the Government plans to revise the regulations on vehicle weights and dimensions and take steps to enforce them on the roads. 2.09 Traffic accidents and fatalities constitute a growing and recognized socioeconomic problem in the Philippines. However, accidents are neither accurately nor completely recorded, nor have comprehensive, coordinated and effective measures been taken to prevent them. Speeding is quite common, driver behavior is often not in conformity with the traffic laws, and driver education is unsatisfactory. At the Government's request, the proposed project would include a traffic safety study (para. 3.17). C. Road Transport Industry 2.10 A majority of the trucks (estimated as up to 80%) are "T" trucks licensed for noncommercial use (or for use only in the business of the licensee). Nevertheless, despite their restricted license which implies lower registration and licensing fees and exemption from turnover and franchise taxes, most of the "T" trucks unfairly compete with trucks licensed for hire ("TH" trucks) in the freight market. This results in loss of revenue to Government from turnover taxes alone of around P 50 million (US$3.6 million) per year. 2.11 Overall, over 90% of the operators own three trucks or less, and only about 1% of the operators own more than 10 trucks. The former own 80% of the vehicles and the latter 10%. Over 30% of the vehicles are owned by individuals who own only one vehicle. Moreover, the distinctions in truck licensing (para. 1.15) and the practice of heavy overloading (para. 2.06) are matters for concern. MOTC is tightening truck licensing to eliminate the abuse of T licenses and to increase the number of trucks licensed for hire. A solution to deal with the problem of enforcement of vehicle and traffic regulations is expected to emerge from the vehicle dimensions and weights study (para. 2.08) as well as from the traffic safety study to be financed under the proposed project (para. 3.17).  - 12 - 2.12 The intercity passenger transport industry consists of a small group of large, mostly family-owned firms with fleets of 150-450 vehicles offering efficient long-distance services, and of a large number of small operators. This latter group represents about 7% of the fleet of buses offering a wide range of complementary short-distance services. In addition, there are a vast number of jeepney operators offering a mix of short-distance urban and short interurban services, mostly owner-operated. 2.13 Both truck and bus operations suffer from lack of common terminal facilities in the main towns and cities which would improve the efficiency of their operations and contribute to greater convenience for users. Trucks would benefit from freight consolidation and transfer facilities which would improve truck load factors, reduce costs and promote through movements, especially for interisland movements where intermodal transfer is involved. Bus passengers will benefit from common termLnals that would facilitate transfers. To review and help improve the efficiency of road transport operations (para. 1.14), the proposed projecl: would include technical assi- stance to MOTC which would review the transport industry and would develop a plan for establishing freight and passenger terminals throughout the country (para. 3.21). D. Road User Charges and Highway Expenditures 2.14 Highway expenditures in the Philippines have increased from P 573 million in 1970 to P 4.5 billion in 1981 (Table 4). During this period, maintenance expenditures increased elevenfold to P 1.2 billion in 1981 and new construction outlays sevenfold to almost P 3.0 billion. Meanwhile, highway administration expenditures grew from P 55 million to P309 million. Thus, although there was a substantial increase in new construction, the increase in maintenance expenditures was much larger in percentage terms. Despite this, highway maintenance is still inadequate principally because of poor planning, diversion of resources, and insufficient monitoring of maintenance activities (para. 2.36). During the same period revenues from road user charges (fuel taxes and motor vehicle fees) rose from under P 300 million to over P 5.1 billion (Table 4). Currently, road user charges generate more revenues than all highway outlays - maintenance, administration and new construction - which is a satisfactory situation. 2.15 There are, however, a few relatively minor problems with respect to the system of road user charges. The first is the large number of trucks with T licenses for own use (and paying the lower fees and taxes that go with it) but operating mainly for hire. The Government has initiated steps to deal with this (para. 1.15). The second is the lower taxes on diesel fuel compared with petrol (P 0.59 vs P 1.80 per liter) (Table 5). The Government has already agreed to eliminate this differential gradually (as  - 13 - part of the SAL operation, Loan 2266-PH). The third is the inadequate license fees charged for three-axle trucks. This would be reviewed as part of the vehicle dimension and weights study financed under the Fourth Highway Project (para. 2.08). E. Administration, Staff and Training 2.16 Responsibility for the public road network in the Philippines is divided, with some overlap, between the national government and local government agencies. In the national government, MPWH, the recognized technical highway authority, is responsible for the national highways system, and for providing technical assistance to other government agencies. At local government level, provincial governments, cities and municipalities, under the overall supervision of MLG, are respectively responsible for the provincial, city and municipal roads in their areas. MPWH was, until recently, also responsible for barangay roads, but this responsibility is being gradually transferred to MLG and barangay councils, which in the near future will assume full responsibility for these roads. Over the last two years, MLG has gained considerable experience through the implementation of a number of externally assisted projects and it is now familiar with the technical and administrative requirements of road network management. However, some provincial governments and barangay councils lack the technical expertise and experience necessary to manage their road networks and will depend heavily on assistance and support by MLG. The ongoing Rural Roads Improvement Project (Loan 1860-PH) and the ADB Third Highway Project provide technical assistance to MLG and selected provincial governments; these services will need to continue under the proposed Second Rural Roads Project which is being prepared separately. 2.17 MPWH's main responsibility is now for planning, design, construc- tion and maintenance of national highways. The Ministry was created in 1981 with the merging the Ministry of Public Works (MPW) and the Ministry of Public Highways (MPH). This reorganization was mainly to assure better cooperation of government staff on projects and to avoid duplication of MPW and MPH field organizations. 2.18 MPWH is headed by a Minister who is assisted by three Deputy Ministers (for planning, administration and finance; construction and quality control; and design, equipment and maintenance). In addition, MPWH has six staff services and five staff bureaus. MPWH field organization which consists of 14 Regional Offices (ROs), 94 District Offices (DOs) and 55 City Offices (COs). At present, MPWH has an approved establishment of about 19,000 personnel of which about 3,200 are headquarters and about 15,800 regional staff. The number of MPWH personnel is slightly larger than  - 14 - the former MPH (17,600) but considerably smaller than MPH/MPW combined (24,600). Most of the reduction has been in the regional staff which has been reduced by 25%. The organizations of MPWH headquarters and RO are shown in Chart 1 and 2 respectively; further details are given in Annex 2. 2.19 Because of the low government salary scales there is a shortage of well experienced middle-level technical staff at MPWH headquarters and in the field, particularly in the maintenance organization. To handle its staffing problems, MPWH engaged in 1981 a local management and engineering consulting firm which has provided a team of some 20 "in-house" consultants. These consultants assist MPWH headquarters staff in reviewing feasibility studies, designs, cost estimates, bid evaluations, contractors certificates, claims, variation orders, accounts, and others. MPWH is funding the "in-house" consultants services from its own budget and intends to continue this arrangement in the next few years until its implementation capabilities reach a satisfactory level. 2.20 Despite the priority MPWH has been giving to maintenance over the last two years, its maintenance organization remains weak. MPWH engaged in 1981 a foreign consulting firm to provide six maintenance experts to work at headquarters and in four pilot regions. As an incentive to its maintenance staff, in 1982 MPWH upgraded the Maintenance Engineers' positions in its ROs and DOs. Improvement of MPWH maintenance capabilities to a satisfactory level may take several years, and the proposed project, therefore, provides for continuation of the foreign technical assistance services in highway maintenance (para. 3.20). This assistance would, however, prepare MPWH for phasing out the foreign technical assistance in highway management. 2.21 Training for technical and administrative staff of the Ministry has been conducted for many years. Since 1974, training activities were institutionalized, and headquarters and regional training officer posts were established. To further strengthen its training functions, MPWH carried out a study under the Second Highway Project in 1975/76 to identify manpower development needs and to recommend suitable training programs. The study was followed up in 1977-79 through technical assistance under the Third Highway Project from three expatriate training advisers to the various training units. In late 1978, the Manpower Development Service (MDS) was established for planning and preparing training programs, including production of training aids, for implementation of the programs at the headquarters, and for assistance and guidance to the regional training units as well as coordination of their programs (Chart 1). 2.22 The internal training courses offeredl by MDS and the regional training units are satisfactory for the routine! training involving large groups of trainees. The MDS's training efforts are mainly directed towards reorientation courses and seminars for all MPWEH employees. In addition, MDS  - 15 - arranges regular training courses in a wide range of subjects for clerical and professional staff to attend on a selective basis. The training includes courses for development of personal skills, for example, in oral and written communication, and for professional and technical development, such as materials engineering and quality control, maintenance planning, programming and administration, and principles of flood control in bridge and highway design. In 1982, nearly 3,000 staff participated in the regular training courses conducted by MDS both at MPWH headquarters and in the regions. The regional training units also arrange training courses regularly, for example, for highway maintenance crews, drivers, mechanics, and equipment operators. Every year, several hundred staff attend formal training courses in each region. Further information and details on MPWH's training activities are in the Project File (Annex 4). 2.23 In addition to MPWH's internal training programs, a number of external training opportunities are available for MPWH staff, including overseas university courses and study tours. The Fourth Highway Project provided support for external training activities through advanced overseas technical training of 16 MPWH and MLG staff. This program met successfully the training objectives and the proposed project would continue this assistance (para. 3.23). F. Planning 2.24 Planning activities for national highways are initiated in MPWH, and the resultant proposals are forwarded to the Ministry of Budget (MOB) which incorporates them in a Budget Message of the President of the Philippines to the Batasang Pambansa (BP), the law-making body of the country. A brief description of the budget process is in Annex 3. 2.25 National highway projects are initially identified by MPWH's Planning Service in cooperation with NEDA. In selecting projects, the Planning Service considers the recommendations of the previous national transport studies and the NTPP study (completed in 1982), its evaluation of relative priorities, and the priorities expressed by the Regional DeveloiPment Councils. The Infrastructure Program comprises large investment projecits normally spread over several years and approved under the various Public Works Acts or Decrees. The Planning Service consolidates and finalizes the overall MPWH program. 2.26 Project proposals for provincial, city and municipal roads originate at the local government level and are submitted to MLG for approval on an annual basis. Projects to be implemented with assistance from external sources are prepared by MLG. In the case of barangay roads,  - 16 - project proposals are formulated at the barangay level, coordinated by DOs and ROs and submitted to MPWH headquarters for approval and fund allocation. These functions of MPWH are gradually being transferred to MLG. G. Design 2.27 Design and supervision of construction for national highways are carried out by MPWH, either directly or by employing consultants. Most large projects are designed by local consultants, but a few have been under- taken by MPWH headquarters or ROs. For smaller projects, design and super- vision of construction are done by ROs, often through their DOs or COs. The design and supervision of externally assisted projects is usually performed by local consulting firms, sometimes in joint venture with foreign firms, and occasionally by PMOs through a specially organized group for RO. For provincial and barangay roads, design and construction supervision are car- ried out by the provincial, city or municipal engineering offices, usually supported by MLG. In general, the quality of engineering is satisfactory. 2.28 Highway design is based on standards which were developed during the first UNDP-financed transport survey in the early 1970s. Since then a number of revisions have been made and additional standards have been developed. MPWH recently undertook a complete review of its design standards and intends to issue them officially in the near future. The new design standards (Table 6) are adequate for various types of national highways and terrain conditions in the Philippines. 2.29 The role and responsibilities of local consultants for both highway design and construction supervision have increased considerably over the last ten years. The Bank assisted this development, particularly under the Second Highway Project (para. 1.18). At present, over 25 local consulting firms offer services for highways and bridges, and some of the larger firms also work overseas. Their performance in technical matters such as design and supervision work is, in general, satisfactory; some improvement is, however, still needed in work organization and management. Local consultants thus continue to depend on expatriate staff for key roles such as Project Managers or Chief Resident Engineers on large projects. H. Construction 2.30 Most of the construction work for national and provincial roads is carried out by contract; some minor projects, particularly for barangay roads, are also executed by force account, in many cases utilizing village labor. The Bank is assisting the Government in this field by financing technical assistance and labor-intensive construction on several sections of  - 17 - barangay roads./l For government-funded projects, the road contracts are generally small, and are let to local firms after local competitive bidding. For large foreign-assisted projects, contracts are awarded following international competitive bidding. In this field, local contractors are also quite competitive with foreign contractors and succeed in getting most of the contracts. The Bank has assisted considerably the development of local contractors (para. 1.18). 2.31 The major impetus to the development of a domestic construction industry in the Philippines was the high level of rehabilitation needed at the end of World War II. In 1945, a group of ten founding members/contrac- tors formed the Philippine Contractors Association (PCA) which now has about 450 members. In 1982, some 6,000 persons/firms were identified as engaged in the contracting business in the country, and over 3,000 contractors were licensed by Government to carry out works in that year. In the last decade, the domestic construction industry has benefited from several government measures, such as reviews of Government's contract administration procedures and implementation rules, designed to assist domestic contractors to become competitive with foreign contractors. Moreover, the Government has recog- nized that the present contract documents are stipulated excessively in its own favor, and that its relationship with contractors should be placed on a more equitable footing. It established, therefore, in 1980 the Construction Industry Authority of the Philippines (CIAP) which represents both government and private sector interests, to evolve an overall strategy for the development of the construction industry. 2.32 The Bank has been involved in a continuing dialogue with the Government on this issue for some time. In 1981, the Bank financed a National Construction Industry Study under the Second Urban Development Project (Loan 1647-PH). This study has proposed further changes in the contract conditions, administrative procedures, contract implementation rules, and classification and categorization of contractors. The Government has accepted some of the recommendations, and has requested the Bank to assist CIAP. Accordingly, the Fourth Highway Project is financing technical assistance to CIAP and three short studies on availability of credit to contractors, equipment leasing operations, and construction industry data base requirements. Moreover, the Fourth Highway Project is financing advanced training on construction technology and construction project management for two permanent CIAP staff members. The proposed project would provide for further technical assistance to CIAP, additional follow up studies and training to CIAP staff (paras. 3.18, 3.22 and 3.24). /1 The ongoing Rural Roads Improvement Project (Loan 1860-PH) (para. 1.21) includes upgrading of about 50 km of barangay roads by labor-intensive methods. Also, the Rural Infrastructure Project (Credit 790-PH) includes improvement of about 1,200 km of barangay roads of which some 50 km are being built by labor-intensive methods under guidance of technical assistance experts of the International Labor Organization.  - 18 - I. Maintenance 2.33 The greatest weakness in the Philippines highway sector has been inadequate maintenance. Since the Bank's involvement in the highway sector in early 1970s, it has observed a serious lack of attention to road maintenance in the field. The reasons were many: there was no proper organizational setup or staff capable of carrying out the required tasks; funds allocated for maintenance were either grossly inadequate or diverted to road construction, emergency bridge repairs or other activities; and maintenance operations and procedures were ill-defined. Essential items of equipment were unavailable when and where needed; hand tools were in short supply; workshop facilities to service and repair equipment were inadequate; and many depots were cluttered with broken-down equipment in scrap condition. Moreover, years of neglected road maintenance have resulted in the deterioration of a large part of the network to a point where it cannot be maintained by normal methods; restoration works are needed to put the roads in a maintainable condition. 2.34 In an attempt to improve this situation a maintenance study was initiated in 1972 under the First Highway Project and completed in 1975 under the Second Highway Project. Following the study recommendations, the Ministry was reorganized in 1974 (para. 2.17), and it has set up field offices for maintaining national highways, and prepared a Five-year Maintenance Program, which includes: (a) target annual budgetary requirements for routine and periodic maintenatnce; (b) substantial road restoration; (c) procurement and management of maintenance equipment and spare parts; and (d) a highway maintenance manual. 2.35 In order to reinforce the steps taken by MPWH to implement the first phase of the Five-Year Maintenance Program, the Third Highway Project included construction of workshops, procurement of maintenance equipment, restoration of deteriorated national roads, and technical assistance (para. 1.19). During appraisal of the Fourth Highway Project in 1977, it was observed that little work had been done on the road maintenance and restoration work components of the Third Highway Project. In view of this, the timing of the Fourth Highway Project was delayed until some progress on road maintenance and restoration work was achieved in 1979. The ongoing Fourth Highway Project provides for implementation of the second phase of the Five-Year Maintenance Program. 2.36 Field maintenance of national highways, which continues to be a problem, is handled at the DO and CO level under the control and direction of the appropriate RO. Almost all routine maintenance work is done through force account using MPWH equipment which is managed by ROs. Although the  - 19 - MPWH's Bureau of Maintenance (BOM) is responsible for ensuring adequate maintenance on national highways, it has initiated regular field inspections only recently. ROs report quarterly to BOM but mainly on financial accomplishments; and as proper monitoring and cost accounting of field operations is not performed, maintenance funds are often diverted to new construction or bridge reconstruction. In general, routine maintenance operations are being carried out but periodic maintenance is neglected in most regions. Over the last three years, MPWH has begun to give increasing emphasis to maintenance operations. In 1982 it started to implement in four pilot regions annual highway maintenance programs based on physical targets in each DO and CO together with resource requirements; in 1983 MPWR continued tb implement these pilot programs with considerable success. These programs were implemented with the assistance of six technical assistance experts financed under the Fourth Highway Project. With their help, BOM has prepared a reliable monitoring system which has enabled an assessment of the adequacy of funds being currently allocated for maintenance. MPWH is now introducing similar maintenance systems in all 14 regions. However, periodic maintenance has still been neglected. MPWH has, therefore, earmarked 20% of its 1984 maintenance funds for periodic maintenance, and this allocation would be increased to 25% in 1985 and onwards. MPWH intends to execute periodic maintenance by force account or, wherever it proves more advantageous by contract. All these changes, however, will require several years to produce results in the form of improved maintenance operations. As the present technical assistance services will end in September 1984, the proposed project would provide for continuation of the technical assistance in highway maintenance in order to further strengthen MPWH's maintenance capabilities (para. 3.20). 2.37 In 1971, MPWH developed with the help of its technical assistance consultants, a system for allocation of maintenance funds for national high- ways based on the concept of an equivalent maintenance kilometer (EMK), and has been using this formula since. Maintenance funds requirements are worked out in BOM by applying to the highway length the base EMK adjusted by the following factors: pavement width and type, length and type of bridges, and traffic volumes. The basic EMK norm should cover both routine and periodic maintenance; however, its last increase for price escalation took place in 1976 when the present basic EMK allocation of P 11,342 (US$810) was established. MPWH's requests for budgetary allocations for maintenance (Table 7) are approved by the Ministry of Budget (MOB); the maintenance funds are then suballotted by MPWH to its 14 ROs which, in turn, allocate funds to the various DOs and COs. As proper cost accounting for maintenance operations does not exist, it is difficult to assess if the yearly maintenance fund allocations are adequate or not. Following some experience of implementing the 1982 and 1983 maintenance programs in the four pilot regions (para. 2.36) MPWH has concluded that the present EMK allocation may be approximately sufficient to cover routine maintenance, but few funds would remain for periodic maintenance.  - 20 - 2.38 Consequently, MPWH has prepared a proposal for a revised EMK formula which would increase the basic EMK norm by some 23% and would thus provide adequate funds for periodic maintenance, and submitted this proposal for Bank review in March 1984. During negotiations, agreement was reached on the revised EMK formula and its biannual review in consultation with the Bank. The revised EMK formula would be submitted to the parliament for legislative approval in July 1984. MPWH would reduce its capital expenditure program over the next five years and increase the expenditures for national highway maintenance to specific amounts at the same time. The maintenance allocations are feasible within the current economic climate and should provide for adequate maintenance levels. The past and projected MPWH maintenance expenditures in relation to new construction and restoration expenditures are shown in the following Table 2.1. Table 2.1: EXPENDITURES ON NATIONAL HIGHWAYS (Current prices, Pesos million) Total Capital expenditures Mainte- % of expendi- New Total % of nance total tures construc- Resto- capital total expen- exp. Year tion ration exp. exp. ditures 1975 1,603.0 1,339.4 - 1,339.4 84 263.6 16 1980 3,836.2 3,280.0 113.0 3,393.0 88 443.2 12 1981 3,488.2 2,922.3 106.7 3,029.0 87 459.2 13 1982 3,499.0 2,962.0 90.0 3,052.0 87 447.0 13 1983 3,874.0 3,339.0 114.0 3,453.0 89 421.0 11 1984 3,115.0 2,553.0 127.0 2,680.0 86 435.0 14 1985 3,024.0 2,312.0 192.0 2,504.0 83 520.0 17 1986 3,290.0 2,384.0 356.0 2,740.0 83 550.0 17 1987 3,494.0 2,504.0 390.0 2,894.0 82 600.0 17 1988 3,661.0 2,654.0 357.0 3,011.0 82 650.0 18 1989 3,675.0 3,000.0 - 3,000.0 82 675.0 18  - 21 - The funds allocated for maintenance reflect MPWH's commitment to improved maintenance and restoration efforts and its intention to reduce new construction activities as necessary during the project period. The amounts specified are consistent with the recommendations of the draft EMK formula and should also provide for future price escalation. The use of increased maintenance funds would be also enhanced through better management methods, more efficient application of resources, and monitoring and cost accounting. 2.39 Restoration works on national highways should bring deteriorated and unmaintainable sections to their original standard and condition; these works included mainly road resurfacing, shaping of shoulders and improving drainage. The MPWH Five-Year Maintenance Program comprised restoration of about 13,000 km of national highways, consisting of some 7,500 km of resurfacing and 5,500 km of other works (mainly ditches and shoulders). The first phase restoration program (1977 and 1978) included in the Third Highway Project, originally comprised 2,200 km of road resurfacing and 2,500 km of other works, but the program was proceeding extremely slowly, mostly because of lengthy administrative procedures and slow contracting. In 1980, MPWH completed only 1,100 km of resurfacing and 1,300 km of other works. In 1981, the Bank agreed on revised and more realistic MPWH restoration programs for 1981 and 1982 which included resurfacing of some 1,250 km of roads. These two programs were completed in 1982 and some 2,350 km of national roads have thus been resurfaced. In addition, MPWH completed in 1981 and 1982 some 4,500 km of ditch and shoulder works as priority maintenance operations and excluded these works from its future restoration program. The second phase of the MPWH restoration program is now under way under the Fourth Highway Project, it is proceeding satisfactorily. Some 800 km of road resurfacing was completed in 1983 and some 500 km will be done in 1984. Nevertheless, at its completion, the MPWH restoration program would thus accomplish only some 3,650 km of road resurfacing and some 5,800 km of drainage and shoulder works in total./l This project would continue the MPWH restoration program in order to complete the restoration of the national highway network (para. 3.10). /1 The Loan Agreement for the Fourth Highway Project originally stipulated the target of 13,000 km of national road restoration. In December 1982, it was amended to include the restoration of about 9,000 km of national roads, including 3,200 km of road resurfacing and 5,800 km of ditches and shoulder work.  - 22 - 2.40 Maintenance of provincial, city and municipal roads is the responsibility of the respective local government authority and a maintenance equipment pool is generally maintained by its Engineering Office. Funds are provided partly from the local government budget and partly through grants from the National Government. The national government provides 67% of the total funds for provincial roads, 33% for city roads, and 60% for municipal roads. The total amount available for annual maintenance of provincial roads corresponds to 75% of the basic EMK for national highways, or P 8,506 (US$608) per kilometer, to cover both routine and periodic maintenance, and this is, in general, adequate. The maintenance funds from the National Government are channelled to local governments through MPWH. MLG is responsible for overall monitoring of the maintenance activities of the provinces. However, little monitoring is actually performed. This is due to the lack of available supervisory staff and to the ill-defined maintenance operations and practices of the provinces which MLG is supposed to monitor. In general, the status of maintenance operations on provincial roads is unsatisfactory. The Bank is assisting MLG, under the ongoing Rural Roads Improvement Project (Loan 1860-PH), in improving the situation in the six provinces included in the project by providing technical assistance and maintenance equipment. In 1982, MLG and the governments of the six provinces started annual maintenance programs establishing physical targets in each province together with resource requirements including organizational and procedural requirements, and continued with similar programs in 1983. The accomplishments in the six provinces have been closely monitored by technical assistance experts. The 1983 programs have been successfully completed and the 1984 programs are now underway. These activities represent an important first step towards improving provincial road maintenance; and the proposed Second Rural Roads Project (para. 1.21) will further assist MLG and provincial governments in their efforts. 2.41 Maintenance of barangay roads is the responsibility of barangay councils under supervision of MLG. Funds for this purpose (presently P 4,500) (US$321 per km) are provided annually by the National Government through MPWH and MIG to the barangays. No contribution is required from the provincial and local governments. Again, it is difficult to assess the adequacy of the yearly maintenance funds for barangay roads because monitoring of maintenance operations and cost accounting do not exist. The Provincial Engineer's Office is required to provide equipment, direction and technical assistance, and barangay labor is used to do the work. This arrangement is likely to be satisfactory in future, however, maintenance of barangay roads at present is generally inadequate.  - 23 - J. Financing, Budgeting and Accounting 2.42 In preparing its five-year financial plan, MPWH applies the fol- lowing priorities in descending order of importance: (i) foreign-assisted ongoing projects; (ii) foreign-assisted new projects; (iii) locally funded ongoing projects; and (iv) locally funded new projects. The MPWH financial plan for the next five years, as revised with MOB during negotiations, is in Table 8. The estimated funding requirements for the proposed project correspond with the MPWH budget amounts agreed during negotiations. 2.43 MPWH's accounting and auditing procedures are satisfactory. Accounting and auditing staff are well qualified, and despite the low government salary structure, MPWH has had no problems recruiting qualified accountants. Several accounting functions are fully or almost fully computerized (accounting system for MPWH financial/bookkeeping transactions, project accounting system, personnel system), others are being converted from manual to computer operation (for example, Cost of Construction Information System, Equipment Management System). A major effort is underway (MPWH's Infrastructure Computer Center) to extend the computer system to include modules supporting the planning and management information function. An audit unit within the MPWH's Accounting Division conducts internal audits and is also engaged in streamlining operations and procedures. The Government's Commission on Audit (COA) conducts a continuous external audit. After approval from COA, MPWH switched in 1982 from preauditing of transactions to postauditing, which significantly reduced processing time (especially for contract change orders).  - 24 - III. THE PROJECT A. Backgroundi 3.01 The proposed project was identified in January 1981. Subsequently discussions were held with the Government, particularly MPWH, MLG and NEDA, on the probable content and timing of the project which was originally intended to assist both national and rural roads. During 1982, implementa- tion of the ongoing highway and rural roads projects (paras. 1.19 to 1.21) was closely monitored and the implementation capacities of both MPWH and MLG were carefully assessed. In October 1982, it was agreed with the Government that, in order not to overstrain the implementation capacities of MPWH and MLG, the MPWH program for national highways would be split into two stages, the first stage to be assisted under this project and the second under a subsequent highway project. Further the assistance for rural roads would be processed in the proposed Second Rural Roads Project (para. 1.21). B. Objectives 3.02 The objectives of Bank lending for highways are to assist in: (a) providing an adequate road network; (b) executing proper maintenance and removing the backlog of restoration works; (c) improving the project preparation and implementation capabilities of MPWH; (d) developing the institutional framework of MPWH; (e) improving general highway management (planning, design, construction supervision, maintenance and cost account- ing); (f) developing the domestic construction industry; (g) improving the system of cost recovery from road users; and (h) improving the efficiency of transport industry operations. 3.03 The specific objectives of this project are to: (a) improve the existing network of national highways and bridges; (b) raise maintenance to adequate levels and in the process remove the backlog of restoration works on national highways; (c) improve general highway management, particularly execution of maintenance, and thus further strengthen the institutional framework of MPWH and its field organization; and (d) develop further the domestic construction industry. This project would also assist in reviewing the transport industry in order to improve its operations, and in formula- ting a proposal for deregulation of interisland shipping. It will thus carry one step further the Bank's efforts to assist in building up the institutions dealing with the transport sector in the Philippines. 3.04 The project is an integral part of the Government's five-year development plan for the period 1983-87 and will support the overall development objectives enunciated therein.  - 25 - C. Main Features 3.05 The project would comprise: (a) reconstruction program for some 435 bridges and culverts on national highways with an estimated total span length of 9,282 m; (b) improvement of a national highway section totalling about 83 km; (c) restoration program for some 1,223 km of national highways; (d) consulting services for: (i) detailed engineering and construction supervision; (ii) preparation of future projects; and (iii) studies related to highway management, traffic safety, and the domestic construction industry; (e) technical assistance to strengthen MPWH highway maintenance capabilities, to help MOTC in carrying out a review of the road transport industry in order to improve its operations, and developing a plan for the deregulation of road transport and interisland shipping, and to help CIAP in further developing the domestic construction industry; and (f) training of MPWH and CIAP staff. The links on national highways on which bridges would be reconstructed, and the national highway to be improved under the project are shown in Map 2. D. Detailed Description (a) Reconstruction Program for Bridges on National Highways 3.06 The project would include the first four-year phase (1985-88) of MPWH's eight-year bridge recontruction program (para. 2.03). Under this program, more than 800 bridges on about 60 national highway links would be reconstructed. While the NTPP study identified the highway links in the program, individual bridges for reconstruction were identified through a feasibility study carried out in 1982 by consultants, Lyon Associates (USA) in association with Technosphere (Philippines) and financed under the Fourth Highway Project. The priority ranking of links and bridges over the six-year program is based on a feasibility study which used an economic return analysis satisfactory to the Bank (para. 4.02). The first four-year phase in the project would include about 435 bridges and culverts in a total length of about 9,282 linear meters. They are located on some 40 national highway links scattered throughout all MPWH regions (Map 2). During appraisal, agreement was reached with MPWH on the first year (1985) program which included 72 structures (total length 1,718 meters) on 14 links of the highest priority (Table 9). For 1986, 1987 and 1988 the preliminary programs already drawn up would be reviewed by MPWH and the Bank at the  - 26 - appropriate time and modified as needed. In view of the large number of national highway links and structures involved, it is important that the scope of the bridge reconstruction component be kept flexible. During negotiations, the Government has agreed to submit before February 1, 1985, 1986 and 1987 for Bank review and approval, the list of bridges proposed for reconstruction in the following fiscal year and an update of their economic evaluation (para. 5.02). Only bridges with an economic rate of return (ERR) of 15% and higher would be included in the program. 3.07 The majority of bridges to be reconstructed are existing single lane timber bridges, Bailey bridges with timber decks or bridges with low load carrying capacity. These will be reconstructed to a two-lane standard in reinforced concrete or, for short spans on streams with low flows, with culverts, also in reinforced concrete. At a few locations with low volumes of traffic, single lane bridge superstructures will be used; and in some locations, submersible structures with provision for overflow during exceptionally heavy rainfalls will be used in order to reduce construction costs. Some of the existing bridges will be widened and strengthened to accommodate the projected traffic for 20 years. The waterway openings of the structures will be designed for 25 and 50-year flood for culverts and bridges, respectively. Nearly all of the proposed structures would be built at or near the existing bridge sites for which foundation conditions are quite well indicated; nevertheless, soil investigations will be thoroughly carried out at each site. For superstructures, standard designs would be used to the greatest possible extent. The structural design will follow the Bureau of Design's "Bridge Design Guidelines" which are similar to the "Standard Specifications for Highway Bridges" (1977) of the American Asso- ciation of State Highway and Transportation Officials (AASHTO). Structures designed according to these guidelines would accommodate vehicles with gross vehicle weight of up to about 40 tons. (b) Improvement of National Highway Baguio-Mt. Data 3.08 The project would include improvement of a national highway section between Baguio (Acop)-Mt. Data in Central Luzon, in a total length of some 83 km. This highway section was selected from a list of 11 national highways with a total length of nearly 1,000 km proposed by MPWH for financing under the project. 3.09 The Baguio (Acop)-Mt. Data section is a part of the Baguio- Bontoc-Banawe highway. The existing alignment is located in mountainous terrain with an average altitude of 1,300 m above sea level. The existing road surface is mostly gravel with some short stretches of asphalt or cement concrete pavements. The gravel surfaces are extremely poor and the asphalt sections are fast deteriorating. Pavement widths range from 4.0-6.0 m on  - 27 - the gravel and asphalt sections while the concrete pavements are 6.0 m wide with no distinct shoulders through most of the road. The proposed improve- ments would be to Class 1 of the MPWH design standards for a national highway in mountainous terrain (Table 6) and would include a 6.0 m wide cement concrete pavement with 0.5-1.0 m shoulders. The improved highway would generally follow the existing alignment except for some minor realignments. The proposed improvement standards are adequate to accommodate the projected traffic for the next 20 years (para. 4.06). Cement concrete pavement has been proposed to accommodate the heavy traffic from the Mt. Data mining areas, and to reduce maintenance costs in the mountainous terrain. The existing drainage would be improved and two substandard bridges would be replaced. The base cost of the proposed improvement works is estimated on average at US$215,000/km, excluding contingencies. (c) Restoration Program of National Highways 3.10 Under the Bank's ongoing highways projects, MPWH was required to carry out a nationwide road inventory, including data on conditions for planning road maintenance, restoration, and improvement programs for national highways. This task was completed in 1979, and since then MPWH has updated national highway inventory data on an annual basis. In the second part of 1982, MPWH began periodic inspection of national highways in all regions to update data on road conditions and assess the adequacy of the level of maintenance provided. From the preliminary data collected in 1982, MPWH estimates that, of the total 24,000 km of national highways, some 7,500 km are in good condition, some 13,0nO km of fair condition but requiring periodic maintenance shortly, and some 3,500 km in poor condition and in urgent need of restoration or improvement. The restoration program included in this project (Tables 10 and 11) would implement the balance of the restoration works on national highways started as the MPWH Five-Year Maintenance Program under the Third and Fourth Highway Projects, and would complete the restoration works needed to bring the national road network to a maintainable condition. 3.11 Under this project, some 1,223 km of badly deteriorated national highways would be restored to a condition where normal maintenance will be adequate for their upkeep under the present traffic needs; of that total, some 183 km of national highways would be overlaid in asphalt concrete. The restoration works would include resurfacing of carriageways (such as regra- velling, double bituminous surface treatment on the existing bituminous or gravel pavement, and 5 cm asphalt concrete overlay on the existing bituminous or portland cement pavement) shaping of shoulders, and improve- ment to drainage; raising of road formation over short sections subject to flooding would also be included. The restoration program would thus correct deficiencies and eliminate maintenance trouble-spots on existing highways.  - 28 - The program would be executed over a four-year period starting in January 1985 as an immediate follow-up to the ongoing Fourth Highway Project's restoration program (para. 2.39) which should be completed by the end of 1984. As with the Fourth Highway Project's program, ROs will use a simple rating system based on economic and cost criteria to identify the sections to be restored and to determine the nature of the works. At appraisal, MPWH had identified the national highway sections to be restored in the first year (1985) of this program (Table 11), and had tentatively identified the scope of works for 1986, 1987 and 1988. During negotiations, the Government has agreed to submit before July 1, 1985, 1986 and 1987, for Bank review and approval, its proposed list of national highway sections to be restored in the following year's program (para. 5.02). (d) Consulting Services 3.12 In addition to consulting services needed for implementation of this project (detailed engineering and construction supervision) the project would provide about 1,990 man-months for studies and preparation of future projects (Table 12). Of the total, about 95% of the consulting services would be carried out by local and about 5% of the services by foreign consultants. (i) Detailed Engineering and Construction Supervision for the Bridge Reconstruction Program 3.13 Detailed engineering of bridges and culverts for the 1985-88 pro- grams is being carried out by ten local consulting firms, each covering design work for about 40 structures. Standard bridge designs satisfactory to the Bank and developed either during the bridge feasibility study (para. 3.06) or in the initial year of the design works, are being used to the greatest possible extent for designing the structures in the entire program. The work is coordinated by one expatriate expert from Lyon Associates, the same consulting firm which carried out the bridge reconstruction feasibility study. The same consultants, local as well as foreign, would also be responsible for construction supervision; the consultants would arrange for one supervisory team to cover a contract package or a highway link consisting of several bridge structures. Involvement of the foreign consultants would, however, be limited to 48 man-months during t'he first year of detailed engineering and in subsequent years to assist in construction supervision and contract administration. Detailed engineering of bridges and culverts for the 1989-92 programs would require an additional 1,600 man-months of local consultants' services; this is included in the project. The terms of reference (TOR) for these services have been agreed with MPWH and are in the Project File.  - 29 - (ii) Construction Supervision for Improvement of National Highway Baguio-Mt. Data 3.14 For the improvement of the national highway Baguio (Acop) - Mt. Data (para. 3.08), construction supervision would be undertaken by the same local consultants who carried out detailed engineering of the project road. To strengthen their supervision staff, the local firm will engage expe- rienced expatriate experts for key positions (Chief Resident Engineer and Chief Materials/Soils Engineer) if experienced local staff are not available. TOR for these services have been agreed with MPWH and are in the Project File. (iii) Feasibility Studies and Detailed Engineering for Future National Highway Projects 3.15 The project would provide about 250 man-months of consulting services to undertake feasibility studies and detailed engineering for about 500 km of national highways identified under the NTPP Study (Table 13). It is estimated that local consultants would carry out about 200 man-months and foreign consultants about 50 man-months of these services. TOR for these services have been agreed with MPWH and are in the Project File. (iv) Road Classification Study 3.16 To assist MPWH and MLG in reviewing the classification of the national and provincial road network (para. 2.02), the project would provide for a road classification study (18 man-months) to be carried out partly by local (12 man-months) and partly by foreign consultants (6 man-months). TOR have been agreed with the Government and are in the Project File. (v) Traffic Safety Study 3.17 In recognition of the pressing problem of traffic safety on Philippine roads (para. 2.09), the project would include a traffic safety study (50 man-months) to be carried out mainly by foreign consultants. The study is to review the adequacy of laws and regulations governing traffic safety, accident reporting procedures, Highway Police activities, and the interlinkages of highway design and safety, and to recommend improvements. TOR have been agreed with the Government and are in the Project File. (vi) Construction Industry Studies 3.18 To assist CIAP in further developing the domestic construction industry (para. 2.32), the project would provide some 72 man-months of local consultants' services for three minor studies on regional profiles of the construction industry, on the needs of small and medium constructors, and on the construction materials industry; their TOR have been agreed with the Government during negotiations (para. 5.02).  - 30 - (e) Technical Assistance 3.19 In total, the project would provide about 242 man-months of technical assistance services (Table 12) of which about 72 man-months would be carried out by local and about 170 man-months by foreign consultants. (i) Technical Assistance to MPWH 3.20 As continuing shortages of local staff experienced in up-to-date highway management impede its efforts to improve highway maintenance, MPWH has requested that the project include continuation of the foreign technical assistance provided in this field under the ongoing Fourth Highway Project (para. 2.36). The project would, therefore, include 72 man-months for technical assistance services to be provided by a foreign firm. A team of four expatriate advisers would assist MPWH. One Senior Maintenance Adviser would advise BOM headquarters on planning, technical and operational manage- ment, control, monitoring, and cost accounting. Another Maintenance Adviser would assist in introducing in all regions the maintenance management system, previously tested in the four pilot regions, and a Road Restoration Adviser would help BOM and ROs in planning, programming and implementing the restoration program under this project. Moreover, one Computer System Specialist would assist MPWH in developing and establishing a computerized data information system for the national highways inventory. TOR for these technical assistance services have been agreed with MPWH and are in the Project File. (ii) Technical Assistance to MOTC 3.21 To help MOTC devise policies which will improve the efficiency of the road transport industry, make a start in gradually eliminating regulations in the road and inter-island transport industrLes and improve railway oper- ations, the project would provide continuation of the present technical assistance services to MOTC (para. 1.11). Some 98 man-months would be provided by a foreign firm to extend the services of the present four advisers with terms expiring in 1984 and 1985 and to provide two additional advisers, one for 12 and the other for 24 months. The technical assistance team would: (i) review the road transport industry in order to improve its efficiency, would determine the feasibility of freight and passenger teminals throughout the country, and make proposals for necessary deregulatory measures; (ii) review the efficiency of interisland shipping and recommend a plan for its deregulation; (iii) develop within MOTC a management data base to provide information related to commodity flows, trucking industry statistics and financial data of the industry; and (iv) provide guidance to PNR in order to improve railway operations, facilities and maintenance.  - 31 - During negotiations, it was agreed that MOTC counterpart staff should continue to be assigned to work with advisers and that this assistance would be phased out by about December 1986, at which time local staff would assume these functions. During negotiations, outline TOR for the MOTC technical assistance have been agreed with MOTC and are in the Project File (para. 5.02). (iii) Technical Assistance to CIAP 3.22 To assist the Government in its long-term objective of further developing the domestic construction industry (para 2.32), the project would provide 24 man-months of local technical assistance services to CIAP in order to continue the ongoing services financed under the Fourth Highway Project. TOR for these services have been agreed with CIAP and are in the Project File. In addition, the project would provide 48 man-months of local technical assistance for developing a construction industry monitoring system and expanding the CIAP management information system. TOR for these services have been agreed with the Government during negotiations (para. 5.02). (f) Training of MPWH and CIAP Staff 3.23 MPWH staff requiring advanced training in specialized subjects are usually sent overseas to educational institutions or on study tours, and such a program has been quite successful under the Fourth Highway Project (para. 2.23) This project would provide for continuation of the MPWH overseas training programs. Altogether, 30 permanent MPWH staff members would benefit from the project program. Three staff members would be sent on a one-year academic course and 27 (in five groups) would be sent on study tours of 8 to 12 weeks. The academic courses would cover highway engineering and structural design, while the study tours would cover: (i) highway maintenance, including labor-intensive techniques, (ii) construction and contract management, (iii) equipment programming, utilization and maintenance, and workshop management and control, (iv) materials testing and quality control, and (v) manpower planning and development. MPWH has established regulations that obligate staff trained overseas to remain in their employment for at least three years after the training, and to disseminate learning and experience gained to other staff members.  - 32 - 3.24 In CIAP, short study tours have been provided for two permanent staff members under the Fourth Highway Project (para. 2.32). lJnder this project, two staff members would undertake 8 to 12 weeks study tours covering financia'l management and building research. E. Status of Preparation 3.25 The consultants for the bridge reconstruction program completed, as part of the feasibility study (para. 3.06), detailed engineering of ten typical bridges representative of the entire range of bridge designs to be used in the program; their detailed engineerinig work is satisfactory. All bridge sites on the 66 highway links included in the study were surveyed and preliminary engineering carried out to determiLne the most appropriate type of structure. Further refinements and final decisions on the choice of structure are being made during the detailed engineering phase (para. 3.13). This phase began in January 1984, with substantial completion of the detailed engineering for the first year's program scheduled by May 31, 1984. During negotiations, it was ascertained that the work: on the detailed engineering for the first year's program has progressed sukfficiently to enable its completion by May 31, 1984 (para. 5.02). The detailed engineering for each of the subsequent years' programs would begin about one year before the scheduled start of construction. Most of the new designs would be for reconstructing existing bridges at the same location. However, alignment improvements of the approach embankments would be made at some locations for which relatively small areas of land may have to be acquired. The land acquisition process is scheduled to begin in July 1984 for the first year program upon completion of the detailed engineering and would be continued in the following years for the remainder of the program. Considering the long period provided for acquisition, no problems are anticipated (para. 3.45). 3.26 As regards the improvement of the national highway Baguio-Mt. Data, the feasibility study and detailed engineering for this section have been completed and are satisfactory. Although improvement works on this highway section will generally be on the existing alignment and mostly within the existing right-of-way, some land may have to be acquired for short realignments. MPWH started the land acquisition process in late 1983. Considering the relatively small areas of land required and the long period provided for acquisition, no problems are anticipated. 3.27 Following the satisfactory experience gained on preparation of the minor works in the road restoration program undler the Third and Fourth Highway Projects, the relatively simple engineering for this program under the proposed project will continue to be prepared in MPWH regional offices. ROs have started simplified engineering for the 1985 restoration program, and its preparation should be completed by July 1984. Preparation of the 1986, 1987, and 1988 programs would follow. There are no land acquisition requirements related to restoration work.  - 33 - F. Cost Estimates 3.28 The total estimated financing required for the project, including contingency allowances and the capitalized front-end fee on the Bank loan, is estimated at about P 2,652.5 million or US$189.46 million. Total cost includes: (a) physical contingencies of 10% of base costs on all items;/1 and (b) price contingencies amounting to about 30% of base costs on all items, including physical contingencies (estimated for foreign costs at 3.5% for 1984, 8.0% for 1985, 9.0% for 1986, 1987 and 1988, and for local costs at 20.0% for 1984, 12.0% for 1985, 10.0% for 1986 and 7.0% for 1987 and 1988). Overall, physical and price contingencies combined represent about 30% of the project cost. The cost estimates include approximately 10% for taxes and duties. Detailed cost estimates are given in Table 14 and are summarized below in Table 3.1. 3.29 For the bridge reconstruction program, the consultants prepared preliminary engineering of each bridge site which as a result gave type, length, and an assessment of foundation conditions for the proposed structure. Combining these data with cost estimates prepared in connection with detailed engineering of typical structures and the ten actual bridge sites, the consultants then estimated construction costs for all bridges in the program. The unit rates used in the estimates were established based on a detailed price analysis, and the rates were compared to recent tenders for bridge and road works. The base cost per linear meter for a two-lane reinforced concrete bridge ranges from US$3,000 to US$6,000, with an average of about US$4,000. These estimates are reasonable. 3.30 For the improvement of the national highway Baguio-Mt. Data, the design consultants prepared cost estimates based on quantities derived from completed detailed engineering, and unit rates established through a detailed price analysis and compared to recent tender results. The estimated average base costs per kilometer, excluding contingencies, is US$215,000 which is reasonable. 3.31 For the restoration program, the average cost per kilometer (excluding contingency allowances) is estimated at about US$20,000 equivalent for gravel road and at about US$60,000 equivalent for bituminous sealed road; and the average cost per kilometer of asphalt concrete overlay (excluding contingency allowances) is estimated at about USS70,000 equivalent. In view of the experience gained under the Third and Fourth Highway Projects, these cost estimates are reasonable. /1 Although the scopes of the programs for reconstruction of bridges and restoration of national highways are flexible, physical contingencies have been applied in order to provide for changes in contract quanti- ties and construction methods during implementation of the agreed programs.  Table 3.1: SUMMARY OF PROJECT COSTS /a Foreign Local Taxes Foreign Total Local Taxes Foreign Total exchange --- (Pesos million) ------- --------- (US$ million) -- (% of total) Reconstruction program for bridges on national highways 181.7 51.9 285.9 519.5 12.97 3.72 20.42 37.11 55 Improvement of national highway Baguio-Mt. Data 87.5 25.0 137.5 250.0 6.25 1.79 9.82 17.86 55 Restoration program of national highways 337.3 86.5 441.0 864.8 24.07 6.17 31.53 61.77 51 Consulting services 99.8 10.9 47.8 158.5 7.13 0.80 3.39 11.32 30 Technical assistance 6.5 0.7 25.7 32.9 0.46 0.05 1.84 2.35 78 Training - - 6.2 6.2 - - 0-44 0.44 100 Land acquisition 20.0 - - 20.0 1.43 - - 1.43 Base Costs /a 732.8 175.0 944.1 1,851.9 52.31 12.53 67.44 132.28 51 Contingencies Physical 73.3 17.5 94.4 185.2 5.23 1.25 6.74 13.22 51 Price 293.4 73.4 244.4 611.2 20.96 5.24 17.46 43.66 40 Total Project Cost 1,099.5 265.9 1,282.9 2,648.3 78.50 19.02 91.64 189.16 48 Front-end fee on Bank loan - - 4.2 4.2 - - 0.30 0.30 100 Total Financing Required 1,099.5 265.9 1,287.1 2,652.5 78.50 19.02 91.94 189.46 49 /a May 1984 prices.  - 35 - 3.32 Consulting services (Table 12) for detailed engineering of the MPWH bridge reconstruction program (1985-92) are estimated at the total cost of US$5.50 million equivalent (excluding contingency allowances). These costs amount to about 7% of the estimated reconstruction costs for the bridges. Consulting services for supervision of the reconstruction works for the project bridges and for supervision of the improvement works of the national highway Baguio-Mt. Data are estimated at the total cost of US$4.26 million. These costs are based on experience in implementing the Third and Fourth Highway Projects and amount to about 8% of the estimated reconstruc- tion and improvement costs for the project bridges and the highway. Consulting services for the feasibility studies and detailed engineering of future highway projects will require about 250 man-months at a total estimated cost of US$0.75 million; and consulting services for studies of road classification, traffic safety, and construction industry will require the total 140 man-months at an estimated total cost of US$0.81 million equivalent. These costs are based on the cost of similar consultant's services under previous projects in the Philippines and other countries. 3.33 Consulting services for technical assistance to MPWH, MOTC and CIAP will require a total of 242 man-months at an estimated cost of US$2.35 million equivalent (Table 12). These costs are based on the cost of similar technical assistance services provided under previous projects in the Philippines and other countries. All foreign and local consultants costs include salaries, social costs, firm's overhead and profit, subsistence and other allowances, and reimbursable items such as local and, in case of foreign experts, international air travel. These costs are considered reasonable. G. Financing 3.34 The proposed Bank loan of US$102.0 million would finance the project's foreign exchange costs, estimated at US$91.94 million (or 49% of total estimated cost) and US$10.06 million of local costs. Local cost financing is justified in view of the severe domestic resource constraints. The loan would thus finance 60% of the total estimated project cost without  - 36 - taxes. The loan includes US$0.3 million for the capitalized front-end fee on the Bank loan. Retroactive financing of US$500,000 equivalent is recommended for expenditure incurred after October 31, 1983 for the detailed engineering for the first year bridge reconstruction program, which was carried out by NPWH through consultants (Lyon Assoc., USA; Trans-Asia, Phil. Int. Cons., Certeza Dev. Corp., Techniks, A. Lazaro, Philnor Cons., Technosphere, F.F. Cruz, R.C. Gaite, and DCCD, all Philippines (para. 3.13). The Government would finance the remaining US$87.46 million equivalent through annual budgetary allocations to MPWH (Table 3.1). H. Implementation 3.35 MPWH, assisted by qualified consultants, will be responsible for implementation of the project. MOTC will be responsible for execution of the transport industry study and its technical assistance; and CIAP will be responsible for execution of the construction industry studies, its technical assistance and training. In view of the experience gained in implementing the Third and Fourth Highway Projects, the implementation capacity of MPWH and its ROs was carefully assessed at appraisal, and the scope and size of this project has been designed accordingly. 3.36 Concerning the reconstruction program for bridges on national highways, Table 9 shows the list of links and structures agreed with MPWH at appraisal for the first year program (1985). For 1986, 1987 and 1988 programs, MPWH will submit by February 1, 1985, 1986, and 1987, for Bank review and approval, a proposed list of bridges, including an update of the economic evaluation (para. 4.02), to be reconstructed in the following year's program (para. 3.06). During appraisal, it was agreed that only bridges with an ERR of 15% and higher would be included in the program; this was confirmed during negotiations. 3.37 A similar arrangement has been agreed with MPWH for implementation of the restoration program of national highways. Based on a tentative list of restoration for the 1985 program (Table 11) MPWH and ROs will prepare the final list of proposed projects and their cost estimates and submit it for Bank's review and approval by July 1, 1984. For 1986, 1987 and 1988 programs, NPWH will submit by July 1, 1985, 1986 and 1987, for Bank review and approval, a proposed list of national highway sections to be restored in the following year program (para. 3.11). 3.38 Civil works for the bridge reconstruction program would be carried out by contract, following international competitive bidding (ICB) for larger contract packages (value over US$2.5 million) and local competitive  - 37 - bidding (LCB) for smaller contract packages. Bridges on one road link would usually be tendered as one package, but links with few structures could be combined into one package for tender purposes provided the links are located in the vicinity of each other. The MPWH project office handling Bank-financed projects would be responsible for all administrative arrangements, assisted by consultants for contract administration and supervision. Civil works for the improvement of the national highway Baguio-Mt. Data would be carried out by contract, following strict prequalification of contractors and ICB. The works have been divided into three contracts in the length of 25 to 32 km each. The administrative arrangements for implementation of the contracts would be similar to those for the bridge reconstruction program. Civil works for the restoration of national highways would be carried out under contract, following ICB for larger contract packages of the asphalt concrete overlay works (value over US$1.0 million) and LCB for smaller contract packages. Under BOM super- vision, ROs will be responsible for contract tendering, administration and supervision. 3.39 The project would be implemented over a four-year period and should be completed by December 31, 1988. Contractors would be responsible for maintaining their respective works for a 12-month period after comple- tion, after which BOM would assume this responsibility. An implementation schedule is attached as Chart 3. During negotiations, the schedule was agreed and assurances obtained that the Government would: (a) adhere to the agreed action program (Annex 1) (para. 5.02); (b) submit semi-annual progress reports to the Bank; (c) monitor overall implementation of the project; and (d) prepare a Completion Report within six months of the Closing Date. I. Procurement 3.40 Civil works (totalling US$68.33 million) for the improvement of the Baguio-Mt. Data highway and for larger contract packages of the bridge reconstruction program and of the asphalt concrete overlay of national highways would be procured under contracts through ICB in accordance with the Bank's Guidelines for Procurement (July 1980). Payments under construction contracts in the Philippines are made exclusively in local currency, whether the project is externally financed or not. Since international contractors are allowed to convert a proportion of their payments (stipulated in the contract) into foreign exchange this regulation does not impede their participation in ICB. Key procurement information is summarized below in Table 3.2.  - 38 - Table 3.2: PROCUREMENT SUMMARY (US$ million) Procurement Method Project element ICB LCB Other Total cost Civil Works Reconstruction of bridges 34.00 20.88 54.88 (17.00) (10.00) (27.00) Improvement of Baguio-Mt. Data 25.33 25.33 highway (13.00) (13.00) Restoration of national highways 70.05 70.05 (35.00) (35.00) Asphalt concrete overlay of 9.00 9.59 18.59 national highways (4.50) (3.98) (8.48) Subtotal 68.33 100.52 168.85 (34.50) (48.98) (83.48) Services Consulting services 3.76 14.00 17.76 (3.70) (14.00) (17.70) Training 0.52 0.52 (0.52) (0.52) Subtotal 3.76 14.00 0.52 18.28 (3.70) (14.00) (0.52) (18.28) Land acquisition 2.03 2.03 (nil) (nil) TOTAL 72.09 114.52 2.55 189.16 (38.20) (62.98) (0.52) (101.70) Notes: 1. Amounts shown for each project element include its share of physical and price contingencies. 2. Figures in parentheses are the respective amounts financed by the Bank loan, including a prorated share of unallocated funds.  - 39 - 3.41 Civil works (totalling US$100.52 million) for smaller contract packages of the bridge reconstruction program and for restoration and asphalt concrete overlay of national highways would be procured under contracts (value of each package not exceeding US$2.5 million for bridge works and US$1.0 million for restoration and overlay works) through LCB procedures satisfactory to the Bank. During the review of each year's program (para. 3.06), agreement will be reached concerning the specific packaging of bridge reconstruction contracts. Contractors would be eligible to bid for one or several packages. The bidding would be arranged in stages so that unsuccessful bidders on early contracts could bid on subsequent contracts. International contractors represented in the country will be allowed to participate in all LCB for Bank-financed projects. 3.42 All bidding packages for civil works estimated to cost US$1.0 mil- lion equivalent or more (i.e., 50% of the total civil works financed under the project) would be subject to the Bank's prior review of procurement documentation. The bidding packages for civil works estimated to cost less than US$1.0 million equivalent (i.e., 50% of the total civil works financed under the project) would not be reviewed routinely by the Bank but MPWH would maintain copies of the bid evaluation for the Bank's inspection and send final contracts to the Bank prior to submission of the first withdrawal application. 3.43 Consultant services for detailed engineering/construction super- vision, studies, and technical assistance would be obtained in accordance with the relevant Bank Guidelines (August 1981). 3.44 Contractors will be free to choose their own construction methods, including the most economical use of equipment and labor, subject to their work complying with the technical specifications. It would be impractical to stipulate that contractors should carry out the work largely by labor because of their and MPWH's relative inexperience in managing labor- intensive projects,/l and because it would be technically difficult to achieve satisfactory quality. 3.45 The Government acquires right-of-way by negotiation as far as possible, although it has adequate compulsory powers if needed. As there have been cases in previous projects where delay in acquiring right-of-way has caused disruption of scheduling, confirmation was obtained during negotiations that the Government would take action to make available the right-of-way on each highway section or bridge site before awarding the contract for its improvement or reconstruction, and will consult with the Bank prior to award of contracts in cases where other considerations make it desirable to begin work before all right-of-way has been acquired (para. 5.02). /1 MPWH's staff is being trained in management of labor-intensive construc- tion projects on the ongoing experimental sections of barangay roads (para. 2.30).  - 40 - J. Disbursements 3.46 Disbursements would be made for: (a) 50% of total expenditures for civil works; and (b) 100% of total expenditures for consulting and tech- nical assistance services, whether expatriate or local, and for training. All expenditures would be fully documented except expenditures: (a) under civil works contracts whose value is less than US$100,000, and (b) under consultant's services contracts whose value is less than US$50,000, and under training programs. Disbursements for these expenditures will be made on the basis of statements of expenditure (SOE) certified by the Deputy Minister of MPWH. Supporting documentation would be retained by MPWH and made available for review by Bank staff. MPWH's detailed audit reports of SOE for bridge reconstruction and highway restoration works would be made available to the Bank within a reasonable time. Payments will be subject to audit by MPWH and COA. The schedule of estimated disbursements (Table 15) follows, with some modifications, the regional profile and provides for unexpected delays in implementation. 3.47 In order to facilitate implementatilon of the project, the Bank would make advance payments into a Special Account to cover the estimated Bank share of expenditures. The Special Account would be in US dollars in the Central Bank of the Philippines. The amount on deposit in the Special Account would at no time exceed US$7.0 million which is the estimated quarterly Bank share of expenditures including a 20% margin. Replenishment of the account by the Bank would be subject to review and approval of withdrawal application justifying expenditures from the account. K. Environmental Aspects 3.48 The project is not expected to have any significant adverse ecological effects. Location of the civil works, bridges and road improve- ments, is largely on existing alignments, thus minimizing the requirements for additional land and disturbance to property. The improvement works include features like drainage improvements, raising embankments to avoid flooding, provision of hard asphalt or concrete pavement surfaces on gravel and earth roads, construction of wider and better shoulders, and some alignment improvements, all of which would improve the environmental conditions along the roads. L. Role of Women 3.49 Approximately half the population to be served by the project is expected to be female.  - 41 - IV. ECONOMIC EVALUATION A. General 4.01 The project has four principal components: (i) a reconstruction program for bridges on national highways, (ii) improvement of a high priority national highway Baguio-Mt. Data, (iii) a restoration program of national highways, and (iv) consulting and technical assistance services, and training. The economic evaluation focussed on the first three components, as the benefits of many of the individual items in the last component are not quanitifiable. The cost of consultancy services for detailed engineering and construction supervision of the first three components were, however, taken into account in their evaluation. B. Reconstruction Program for Bridges 4.02 The bridge program involves the construction or reconstruction of some 435 structures that have outlived their useful economic and, in many instances, technical lives. In addition to evaluating each of over 1,600 structures, the consultants who undertook the feasibility study evaluated together all structures involved on each section of road, if failure of one structure could frustrate the better use of the whole section, to select the 435 structures included in this project. A minimum economic rate of return of 15% was used as the cut-off point. 4.03 The average daily traffic (ADT) on the 435 bridges and culverts selected under the project is over 300, with a low of 30 and a high of over 6,000. Cars and jeepneys comprise about 50% of the traffic and trucks and buses 50% on the average, but with low-traffic roads reporting mostly buses and trucks. Traffic growth is projected at under 3% p.a. for,passenger vehicles and at around 9% p.a. for trucks. 4.04 At present, vehicle deceleration and acceleration at each of the project bridges is estimated to require an additional 1/2 minute for cars to 1 minute for trucks, with added running costs of P 0.30 and P 0.80, respectively for the two types of vehicles; the proposed project will eliminate this cost. Without the project, bridge closure in the event of failure or for floods is estimated to require a diversion of up to 50 km, with closure for floods lasting several days each year. By removing the low load limits on weak bridges, the project will also help improve truck load factors and thus result in a minimum 5% reduction in the number of truck trips needed to carry freight and a corresponding reduction in trucking  - 42 - costs. (Although trucks are generally overloaded on the main highways, overloading is not so common on secondary roads and especially on bridges with weight restrictions for safety reasons.) 4.05 For a typical 25 m bridge with an economic cost of about F 1.1 million (US$0.08 million) and ADT of 300, the economic return is estimated at over 20%. For a typical link on which this is one of three bridges to be reconstructed under the project, ERR is over 25%. As some 70 structures are included in the 1985 program, detailed cost/benefit streams have not been shown. For the bridge program as a whole, the ERR is estimated at 23%, with 35% for the 1985 program, 26% for the 1986 program, 20% for the 1987 program, and 17% for the 1988 program. C. Improvement of National Highways Baguio - Mt. Data 4.06 This is the only road which links three inland provinces in north- central Luzon with the rest of Central Luzon, mainly Manila (Map 2). The road serves an important vegetable-growing area which supplies fresh produce to the capital city and surroundings. Copper and other metallic ores are also mined in the area and the ore concentrates transported out of the area by trucks. Traffic volume on the present road (which is mostly gravel) ranges from 2,740 vpd near Baguio to 395 near Mt. Data, with the number of heavy vehicles (trucks and buses) declining from 300 near Baguio to 150 close to Mt. Data. ADT is estimated at about 700 of which one third are heavy vehicles. Future growth is projected at 6% a year in the first few years, declining to under 5% later on, in line with past experience. A somewhat higher growth is forecast for cars, reflecting the faster growth of passenger traffic as a whole as per capita incomes improve. 4.07 The principal benefits of the project would be savings in vehicle operating costs and in road maintenance costs. Vehicle operating cost savings are estimated at P 0.90 per km for cars, P 0.80 for jeepneys, E 2.70 for buses and P 2.80 for trucks, after taking into account the higher operating costs caused by the terrain and geometry of both the old and the new road (Table 16). The total of such savings are estimated at P 54.0 million (US$3.86 million) (in October 1983 values) in the first year after project completion and would increase wijth traffic growth. Maintenance cost savings are estimated at P 7,000 (US$500) per km per year, or P 0.60 million (US$ 0.04 million) per year. Together these savings are estimated to yield an ERR of 30% on the proposed investment; the cost/benefit streams are shown in Table 18.  - 43 - D. Restoration Program 4.08 The proposed road restoration program will cover 1,223 km of badly deteriorated national highways. Based on experience it is assumed that road restoration with asphalt overlay will improve the road condition from fair to good, and without asphalt overlay from very poor to fair. The Planning Service of MPWH undertook an evaluation of the roads included in this program on the basis of vehicle operating cost savings and identified 338 km of roads for regravelling, 702 km of roads for bituminous sealing, and 183 km for asphalt concrete overlay. 4.09 As a result of the project, vehicle operating costs are expected to decline by 26% to 35% in the case of gravel roads, by 15% to 19% for bituminous sealed roads and by 17% to 22% for asphalt concrete roads, with around 300 vehicles per day on gravel roads and up to around 10,000 vehicles per day on roads to be overlaid with asphalt concrete. Heavy vehicles constitute about 35% of the traffic. For all categories of roads, traffic is expected to grow about 6% p.a. Benefits in the opening year after completion of restoration works are estimated at P 100,000 (US$7,100) per km for upgraded gravel and bituminous roads and P 1.25 million (US$0.09 million) for asphalt concrete overlaid roads. As some 20 restoration projects are included in the 1985 program, detailed cost/benefit streams have not been shown. With the projected growth in traffic the above benefits are expected to yield ERRs of 32% on gravel and bituminous roads and over 100% on asphalt concrete overlaid roads included in the project. E. Economic Return on Whole Project 4.10 The weighted ERR on the project as a whole is estimated at over 40%. This is very satisfactory. For calculating the economic returns, the foreign exchange component of both costs and benefits were valued at P 15.4 to US$1, 10% higher than the official rate; and both costs and benefits were adjusted to October 1983 values. Taxes and fees that were in the nature of transfer payments were, where relevant, excluded from the calculations. F. Risks 4.11 The principal project risk is that the construction cost of the project elements would be higher than estimated. However, several factors minimize the possibility and consequences of such a risk. With respect to the bridge reconstruction program, nearly all of the new structures will replace existing structures, soil conditions at all sites will, nevertheless, be thoroughly investigated, and standard designs for superstructures employed. On the national highway section included in the project, the improvement works are relatively simple. On the highway restoration program, the works  - 44 - proposed are relatively small-scale and their costs are based on experience in implementing previous restoration programs. While there may still be some small risk of cost overruns, the possibility of cost increases making the project works uneconomic are not considered to be serious. 4.12 In order to test the sensitivity of the economic returns to possible cost increases, a sensitivity test was carried out to assess the impact of a 10% increase in costs. It was found that this would reduce the return on the project only marginally compared with the best estimates. The returns were also tested to assess their sensitivity to smaller benefits caused by slower traffic growth than those assumed (although from past experience, this is unlikely). For a 10% drop in traffic, the returns would decline only marginally, and the project would still be acceptable (Table 19). 4.13 Another major risk is that improvement works carried out under the project may not be adequately maintained after completion. Some measures for improving highway maintenance have already been initiated by MPWH. This is to be further dealt with through strengthening of MPWH maintenance capabilities by providing technical assistance under the project. Finally, there is the risk that the project's policy and institutional objectives (improving highway management, particularly maintenance; developing further the construction industry; deregulating road transport and inter-island shipping; and improving transport sector efficiency) would not be met because the consultants would not be recruited to schedule. To reduce this risk, the project implementation schedule has been extended in order to accommodate unexpected delays of up to a year in appointing consultants. G. Beneficiaries 4.14 The populations served by the project works will be the main bene- ficiaries of the investments. Because of the de facto free market in the trucking industry and the intense competition for freight among truckers, reductions in truck operating costs will be reflected in reductions in freight charges. This will also apply to a substantial extent for passenger transport by jeepneys and, to a lesser extent, by buses. Private car-owners will, of course, reap the full benefit of all savings in vehicle operating costs resulting from the project. The construction activities that the project would generate will give direct employment to some 1,500 workers over a period of four years. Moreover, the domestic construction industry would benefit from the project in both work availability and construction experience.  - 45 - V. AGREEMENTS REACHED AND RECOMMENDATIONS 5.01 Prior to negotiations the Bank has received MPWH's proposal for a revised EMK highway maintenance formula (para. 2.38). 5.02 During negotiations, agreement was reached with the Government on the following: (a) MPWH's revised EMK formula for national highway maintenance allocations, its timely implementation and its biannual review in consultation with the Bank (para. 2.38); (b) MPWH's submission before February 1, 1985, 1986 1987 for Bank review and approval, of its proposed list of bridges to be reconstructed in the following year's program (para. 3.06); (c) MPWH's submission before July 1, 1985, 1986, and 1987 for Bank review and approval, of its proposed lists of national highway sections to be restored in the following year program (para. 3.11); (d) TOR for the construction industry studies (para. 3.18); (e) TOR for the technical assistance to MOTC and CIAP (paras. 3.21 and 3.22). (f) completion date of May 31, 1984, for the detailed engineering for the first year of the bridge reconstruction program (para. 3.25); (g) MPWH adherence to the agreed implementation schedule and action program (para. 3.39); and (h) MPWH's arrangements for timely acquisition of land, for right-of- way for each national highway section or bridge site before awarding contracts or consult with the Bank in advance in cases where it is desired to proceed before all right-of-way has been acquired (para. 3.45). 5.03 Subject to the above, the project provides a suitable basis for a Bank loan of US$102.0 million equivalent to the Government of the Philippines, for a period of 20 years, including a grace period of five years.  ANNEX 1 Page 1 -46 - PHILIPPINES FIFTH HIGHWAY PROJECT Action Program for Project Implementation Implementation Project item Start Complete A. Reconstruction Program for Bridges on National Highways Detailed Engineering 1. Design of structures in 1985 program, includ- ing cost estimates, bid documents, and update of economic evaluation 01/15/84 05/31/84 2. Updating of list of highway links and struc- tures for 1986 program 10/01/84 01/31/85 3. Design of structures in 1986 program, :includ- ing cost estimates, bid documents, and update of economic evaluation, and submittal of pro- gram to Bank for review and agreement 06/01/84 01/31/85 4. Bank review and agreement to 1986 program 02/01/85 02/28/85 5. Repetition of Steps 2, 3 and 4 on an annual cycle for the 1987 and 1988 programs 10/01/85 01/31/87 6. Preparation of 1989-92 programs, including update of economic evaluation, and submittal to Bank for review and agreement 04/01/86 01/31/87 7. Design of structures in 1982-92 programs, including cost estimates, bid documents and update of economic evaluation 04/01/87 06/30/88 Construction (on an annual cycle, shown for 1985 program) 8. International and local advertisement of prequalification of contractors and descrip- tion of work to be tendered 05/01/84 05/15/84 9. Receipt of completed prequalification ques- tionnaires, screening and evaluation of these, and classification of prequalified contractors 05/15/84 06/30/84 10. Send out invitations to prequalified contrac- tors to bid on 1985 construction packages - 07/31/84 11. Receive and open bids, bid evaluation, and award of contracts 08/01/84 10/31/84  ANNEX 1 Page 2 - 47 - Implementation Project item Start Complete 12. Construction, including supervision by design consultants 01/01/85 12/31/85 Land Acquisition (on an annual cycle, shown for 1985 program) 13. Cadastral surveys 04/15/84 06/30/84 14. Advertisement/notification of landowners 07/01/84 07/31/84 15. Negotiations with landowners 08/01/84 10/30/84 16. Payment: to landowners/acquisition of land 11/01/84 12/01/84 B. Improvement of National Highway Baguio - Mt. Data Construction 1. Preparation of detailed procurement notice and submission to Bank for insertion in Development Forum 04/15/84 05/15/84 2. International and local advertisement of pre- qualification of contractors and description of work 05/01/84 05/15/84 3. Receipt: of completed prequalification ques- tionnaires, prequalification of contractors, and submission to Bank for review and comment 05/15/84 06/30/84 4. Invite bids from prequalified contractors: 07/15/84 07/31/84 6. Receive and open bids, bid evaluation and submission to Bank of Government's proposal for contract award 08/01/84 11/30/84 7. Bank review and agreement for: 11/30/84 12/15/84 8. Contract award and construction 01/01/85 12/31/87 Land Acquisition 9. Cadastral surveys 04/15/84 06/30/84 10. Advertisement/notification of landowners 07/01/84 07/31/84 11. Negotiations with landowners 08/01/84 10/31/84 12. Payment: to landowners/acquisition of land 11/01/84 12/31/84 C. Restoration Program Survey and Engineering 1. Detailed engineering of 1985 program 03/01/83 06/30/84 2. Finalization of 1985 program, and submittal to Bank for review and agreement 07/01/84 07/31/84  ANNEX 1 Page 3 - 48 - Implementation Project item Start Complete 3. Survey of national highways, identification of highway sections for restoration, prepara- tion of 1986 program 01/01/84 02/29/84 4. Detai'led engineering of 1986 program 03/01/84 06/30/85 5. Finalization of 1986 program and submittal to Bank for review and agreement 07/01/85 07/31/85 6. Repetition of Steps 3, 4 and 5 on an annual cycle for the 1987 and 1988 programs 01/01/85 07/31/86 Construction 8. Local advertisement of tender for restoration work 08/01/84 08/31/84 9. Receive and open bids, bid evaluation and award of contracts 10/01/84 11/30/84 10. Construction of restoration works 12/01/84 12/31/85 (on annual cycle, shown for 1986 program): 11. Preparation of detailed procurement notice and submission to Bank for insertion in Deve:Lopment Forum for asphalt concrete overlay work 04/15/85 05/15/85 12. International and local advertisement of prequialification of contractors and descrip- tion of asphalt concrete overlay to be tendered 05/01/85 05/15/85 13. Loca:L advertisement of tender for restoration work 08/01/85 08/31/85 14. Receive and open bids, bid evaluation and award of contracts 10/01/85 11/30/85 15. Consl:ruction of restoration and asphalt concrete overlay works 12/01/85 12/31/86 D. Consulting Services for Studies /a 1. Highwiay feasibility studies and detai:Led engineering for future projects 07/01/85 06/30/86 2. Road classification study 01/01/85 12/31/85 3. Traffic safety study 01/01/85 12/31/85 4. Construction industry studies 07/01/85 12/31/86  ANNEX 1 Page 4 - 49 - Implementation Project item Start Complete E. Technical Assistance /a 1. To MPWH 01/01/85 12/31/86 2. To MOTC 01/01/85 12/31/86 3. To CIAP 01/01/85 12/31/85 F. Advanced Technical Training for MPWH and CIAP Staff 1. Finalization of program, and practical arrangements for university courses and study tours overseas 06/01/84 08/31/84 2. Screening and selection of candidates 06/01/84 08/31/84 3. Implementation of training courses and study tours 01/01/85 06/30/86 /a Appointment of consultants is preceded by standard series of steps as follows: Days 1. Invite and receive proposals 45 2. Evaluate proposals 20 3. Obtain approval of MPWH and Bank concurrence 30 4. Invite and negotiate with consultants 15 5. Prepare initialed draft contract 15 6. Obtain approval of Government agencies and Bank concurrence to draft final contract 30 7. Sign contract and issue notice to proceed 15 8. Consultants" mobilization 45 Total 215 May 1984  -50 - ANNEX 2 PHILIPPINES FIFTH HIGHWAY PROJECT Ministry of Public Works and Highways - Organizational Set-up 1. In the NPWH field organization, each RO comprises seven divisions (including planning/design, construction, maintenance, materials/quality control, and three administrative divisions) and a legal section (Chart 2). Attached to the office of the Regional Director are regional equipment depots and materials/quality control laboratories. On average, RO has seven subor- dinate DOs and four COs. Regional staff range from 600 to 950, of whom around 190 are attached to RO and the rest to equipment depots and shops. In one RO there are 70-75 senior technical positions composed of civil, mechanical and electrical engineers, architects and economists. The administrative divisions and the legal section are supported by about 120-125 personnel. An organizational scheme of RO is shown in Chart 2. 2. As now structured, MPWH has at least one DO for each of the 73 provinces; however, some provinces have as many as three DOs because of their size and location. DOs are classified into tlhree categories according to the length of national highways supervised: (i) First Class, over 300 km; (ii) Second Class, 150 km to 300 km; (iii) Third Class, less than 150 km. Each DO is headgd by a District Engineer (by position a Chief Civil Engineer), with an Assistant District Engineer. A typical DO has four engineering sections, an administration unit and a finance unit. The engineering sections each headed by a Section Chief (Civil Engineer) include: (i) planning and design; (ii) construction; (iii) maintenance; and (iv) building code. A first class DO has a total force of about 90 personnel made up of 50 technical and 40 administrative positions. 3. In addition, MPWH has a pool of 25 P'roject Management Offices (PMOs) which have been established to oversee special, usually externally assisted, projects, including all types of public works projects. Occasionally, PMO may have a specially organized group in RO to carry out specific tasks in the regions. The PMO established for the Bank-assisted highway projects is headed by a Director, with a Deputy, supported by three Project Engineers each of whom is responsible for one Bank-assisted Project. This PMO has about 30 technical and 30 administrative staff. In general, the PMO system is satis- factory. As PMOs offer salaries slightly higher than the main MPWH organiza- tion, they attract: experienced technical staff.  -51 - ANNEX 3 Page 1 PHILIPPINES FIFTH HIGHWAY PROJECT Government Budget Process 1. The overall policy framework for the national budget is set by the interministerial Development Budget Coordinating Committee (DBCC) which prepares overall budget levels on the basis of revenue forecasts from the Ministry of Finance and domestic credit and balance of payments targets prepared by the Central Bank. The budget process commences about a year and a half prior to the beginning of the budget year. At that time, MOB sets the budget guidelines for the fiscal year under consideration. From about October to about January, the individual ministries and agencies prepare a first draft of their budget, for the next two years. This first draft is prepared from "the bottom up," that is, the lowest budgetary units within an agency prepare detailed lists of proposed projects, expenditures and expected revenues. These data are then reviewed and consolidated within the agency during February and early March. As a result, the initial budget requests may get rearranged or scaled down to what the ministry considers realistic levels. This budget then is submitted to MOB before March 15. Concurrently, the various agencies and corporations implementing projects in the NEDA Infrastructure Program must also submit their investment plans for the next five years to NEDA. The infrastructure program comprises the capital investments of major government corporations and capital outlays implemented by MPWH and MOTC. NEDA staff then consolidate the infrastructure investment plans into an expenditure program in line with overall national development priorities. From late March on, MOB holds budget hearings to review both the technical feasibility of budget requests and to develop detailed priorities for expenditure, which may lead to further scaling down or rearranging of the budgets proposals. At the end of this process, MOB produces a program of expenditure for national government agencies and estimates of equity contribution to government corporations that is within the aggregate targets set by DBCC. This final version of the budget is sent to the National Assembly (Interim Parliament till 1984) as the President's Budget Message. There are two appropriations Acts: the General Appropriation Acts and the other is in the Public Works Acts. The General Appropriation Acts includes the national government's current operating expenditures, noninfrastructure capital outlays and equity contributions to government corporations. The Public Works Act legislates appropriations for infrastructure projects that extend over several years. Between October to December, NEDA requests the various infrastructure agencies, including MPWH to submit their program based on the cash ceiling set by MOB. These Annual Infrastructure Programs of the different agencies,  - 52 - ANNEX 3 Page 2 consolidated by NEDA, are submitted to the Cabinet's Committee of Infrastructure for review; after approval by the committee, they are submitted through the Executive Committee to the President for final approval. 2. Budget execution rests on a system that first controls the amount of expenditures obligated for a specific purpose, and then controls the actual timing in the release of funds. First, the Advise of Allotment (AA) is issued by MOB and specifies the ceiling on obligations the agencies can enter into. For infrastructure projects, these AA's cover the whole project construction period broken down by years in accordance with the project program. The allotment issued for one year is only valid for that year and any unexpended balance will have to be programmed the succeeding year. As soon as AA's are received, the ministries are allowed to enter into contracts up to the total amount indicated in AA. Second, the Cash Disbursement Ceiling (CDC) is used by the Treasury to control the actual timing in the release of funds. CDCs are issued on a quarterly basis and for specific projects. To allow for some flexibility, the validity of the first three quarters' CDCs is extended up to the end of the calendar year and the fourth quarterly CDC's validity is extended up to the end of the first quarter of the following year. The maximum amount of CDC's for a project would normally equal the sum of AA's. In case of a shortfall in CDC of one project, the ministry is allowed to realign CDC's every quarter in order to adjust them in line with the performance of the projects and provided this does not result in an increase in CDC for the Ministry. Request for AA's and CDC's have to be submitted to OBM at least by the middle of December prior to the budget year. The CDC stringency has had occasional detrimental effects on project implementation as project expenditures are difficult to estimate that far in advance.  - 53 - ANNEX 4 Page 1 PHILIPPINES FIFTH HIGHWAY PROJECT Project--related Documents and Data Available in the Project File A. General Reports and Studies I. Studies and Reports A-1 National Transportation Planning Project, Renardet-Sauti (Italy) and Hoff & Overgaard (Denmark), June 1982. A-2 Rural Roads Development Program II, Norconsult (Norway), Renardet (Italy), Philnor (Philippines) and Hoff & Overgaard (Denmark), May 1982. A-3 Bridge Feasibility Study, Lyon Associates (USA) and Technosphere (Philippines), March 1983. A-4 National Construction Industry Study, Redecon (Australia) and DCCD (Philippines), November 1981 II. Detailed Engineering Reports A-5 Baquio-Bontoc-Banawe Road Project Executive Summary. Angel Lazaro & Associates, Inc., March 1983. III. Government Reports A-6 Improvement of National Roads Component, MPWH, March 1983. A-7 Productivity of Heavy Equipment Repair and Maintenance, BOE, March 1983. A-8 Planning, construction and Maintenance of Philippine Roads, MPWH, March 1983. A-9 Land Acquisition Program for Improvement of National Highways, MPWH, March 1983. A-10 MPWH: Five-Year Financial Plan, 1983-1987, March 1983. A-11 Inspection Report on Proposed Overlay Projects on National Highways, MPWH, R. Jorgensen Asso./TAMS, October 1982.  - 54 - ANNEX 4 Page 2 A-12 Annual Report. Manpower Development. CY1982. MPWH, March 1983. A-13 CY1983. Training Calendar. MPWH, January 1983. A-14 Proposed Training Program. CY1983. MPWH Regional Office No. IV-A. November 1982. A-15 Training Project Proposal. Fifth IBRD Highway Project. MPWH, MDS, March 1983. A-16 Proposed Fifth IBRD Highway Project. Economic Re-evaluation, MPWH PMO -- Feasibility Studies, February 1983. A-17 Justification of National Road Restoration Program, 1985-87, MPWH, March 1983. B. Selected Working Papers B-1 Parameters for Price Contingency Calculations B-2 Cash Flow Analysis and Contingency Calculations for Project Components B-3 Detailed Cost Estimates, including computer program for calculation of the cost Table B-4 Detailed schedule of disbursements and ae graph showing cumulative disbursements for the project and regional sector profile B-S Economic Rate of Return and Sensitivity Analysis Calculations B-6 Terms of Reference for Consulting and Technical Assistance Services B-7 Miscellaneous working papers  Table 1 -55 - PHILIPPINES FIFTH HIGHWAY PROJECT Government Investments in Transport Sector Infrastructure (in million pesos, 1980 prices) Total Total 1983-87 1977 1978 1979 1980 1981 1977-81 (planned) Highways & roads 2,353(86) 2,128(81) 3,133(79) 3,358(87) 2,780(78) 13,752(82) 28,664(71) Airports & air navi- gation 153 (5) 224 (8) 183 (5) 191 (5) 174 (5) 925 (6) 3,000 (6) Railways 104 (4) 122 (5) 312 (8) 105 (3) 100 (3) 743 (4) 2,267 (7) Port works 129 (5) 160 (6) 335 (8) 207 (5) 514(14) 1,345 (8) 6,241(16) Total 2,739 2,634 3,963 3,861 3,568 16,765 40,172 Note: Figures in parentheses represent percentages. Sources: NTPP and NEDA. April 1984  - 56 - Table 2 PHILIPPINES FIFTH HIGHWAY PROJECT Public Road Network 1982 Surface Classification Concrete Asphilt Gravel Earth Total National Highways Expressway 122 - - - 122 Other 5,323 4,970 12,674 868 23,835 Subtotal 5,445 4,970 12,674 868 23,957 Provincial Roads 690 2,666 20,074 6,524 29,954 City & Municipal Roads 1,936 3,4Ci5 6,881 3,416 15,638 Subtotal 2,626 6,071 26,955 9,940 45,592 Barangay Roads 558 857 42,290 41,559 85,264 Total 8,629 11,898 81,919 52,367 154,813 1975-82 City & National Provincial municipal Barangay Year highways roads roads roads Total 1982 23,957 29,954 15,638 85,264 154,813 1981 23,763 29,755 15,136 81,209 149,863 1980 23,674 30,034 14,0151 81,734 149,503 1979 22,912 28,997 13,449 87,465 152,823 1978 22,305 28,224 12,530 56,519 119,578 1977 21,852 29,189 11,954 52,886 115,881 1976 21,255 28,872 13,793 51,842 115,762 1975 21,260 28,431 10,7]L9 32,086 92,496 Source: MPWH. April 1984  - 57 - Table 3 PHILIPPINES FIFTH HIGHWAY PROJECT Vehicle Fleet by Type, 1970-80 /a Jeepneys Year Cars /b /c Buses Trucks EMV /d Total 1970 268,260 43,262 13,506 152,664 30,530 488,322 1971 276,547 43,739 13,018 140,850 32,184 506,338 1972 301,992 44,940 15,870 152,413 42,593 557,808 1973 318,022 57,729 17,532 175,582 50,328 614,392 1974 371,334 59,268 19,199 204,791 54,569 709,581 197.5 388,890 56,901 18,325 207,758 58,917 730,791 1976 391,800 59,183 18,721 223,143 59,274 752,121 1977 433,837 69,008 19,485 246,060 66,974 835,364 1978 433,527 74,336 18,716 240,015 69,775 836,369 1979 455,479 64,147 15,499 289,591 74,951 899,667 1980 471,355 81,228 18,016 292,809 78,610 942,018 Average Annual Change (%) 1970-72 6.1 1.9 8.4 -0.08 18.1 6.9 1972-74 10.9 14.8 10.0 15.9 13.2 12.8 1974-76 2.7 -0.07 -1.3 4.4 4.2 3.0 1976/77 10.7 16.6 4.1 10.3 13.0 11.1 1977/78 -0.1 7.7 -4.1 -2.5 4.2 0.1 1978/79 5.1 -15.9 -20.8 20.7 7.4 7.6 1979/80 3.5 26.6 16.2 1.1 4.9 4.7 Changing Composition (x) 1976 51 8 2 31 8 100 1977 52 8 2 30 8 100 1978 52 9 2 29 8 100 1979 51 7 2 32 8 100 1980 50 9 2 31 8 100 /a Excludes trailers with no power units. lb Includes jeeps (noncommercial). /c Jeepneys and jeeps converted for passenger transport. /d Equivalent motor vehicles (4 wheelers) for motorcycles (3 motorcycles 1 EMV). Sources: MOTC and MPWH. April 1984  PHILIPPINES FIFTH HIGHfWAY PROJECT Road User Revenues and Expenditures: 1970-81 (In -P million) 1981 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 lb Revenues Fuel taxes 189 198 208 186 467 805 1,172 1,512 1,904 2,280 2,673 4,499 Motor vehicle fees 97 102 110 99 145 156 259 242 254 265 337 649 Total 286 300 318 285 612 965 1,431 1,754 1,258 2,545 3,010 5,148 Road Expenditures /a Maintenance 104 122 156 216 270 533 796 875 894 872 1,138 1,164 New conistruction 414 231 354 531 610 1,440 2,880 1,618 1,586 2,664 3,312 2,977 Administration 55 53 70 05 179 284 234 239 285 305 309 309 Total 573 405 580 852 1,059 2,157 3,910 2,732 2,765 3,841 4,759 4,450 /a Covering the entire public road network. 7-b 1982 data being processed. Source: MPWH. April 1984  Table 5 - 59 - PHILIPPINES FIFTH HIGHWAY PROJECT Motor Vehicle Fuel Consumption, 1970-81 Gasoline Diesel fuel Million Liters 1970 2,280 1,919 1971 2,481 1,721 1972 2,710 1,902 1973 2,839 2,320 1974 2,570 2,181 1975 2,294 1,994 1976 2,335 2,201 1977 2,313 2,330 1978 2,284 2,369 1979 2,343 2,641 1980 1,807 2,768 1981 1,420 2,733 Average Annual Change (%) 1970-73 7.6 -0.3 1973-75 -11.1 -7.8 1975/76 1.8 9.4 1976/77 -1.0 5.8 1977/78 -1.3 1.7 1978/79 2.6 11.0 1979/80 -29.7 4.8 1980/81 -27.3 -1.3 Source: Board of Energy Utilization, Philippines. April 1984  -60- Table 6 PHILIPPINES FIFTH HIGHWAY PROJECT Design Standards for National Highways Class Minor 1 /a 2 /b 3 /c 4 /d roads /a Average Daily Traffic 200 200-400 400-1,000 1,000-2,000 > 2,000 Mini- Desir- Mini- Desir- Mini- Desir- mum able mum able mum able Design Speed (kph) Flat topography 60 70 70 90 80 95 90 100 Rolling topography 40 50 60 80 60 80 70 90 Mountainous topography 30 40 40 30 50 60 60 70 Radius (m) Flat topography 120 160 160 280 220 320 280 350 Rolling topography 55 85 120 220 120 220 160 280 Mountainous topography 30 50 50 80 80 120 180 160 Grade (x) Flat topography 6.0 6.0 3.0 5.0 3.0 4.0 3.0 4.0 Rolling topography 8.0 7.0 5.0 6.0 5.0 5.0 4.0 5.0 Mountainous topography 10.0-12.0 9.0 6.0 8.0 6.0 7.0 5.0 7.0 Pavement width (m) 4.0 5.5-6.0 -*-- 6.1 -- --- 6.7 -- 6.7 7.3 Shoulder width (m) 0.5 1.0 1.5 2.0 2.5 3.0 --- 3.0 --- Right-of-way width (m) 20 30 --- 30 -- 30 30 --- 60 --- Superelevation (m/m) ----------------------- 0.10 (max.) --------------------