Philippines - Second Municipal Development Project

Document of The World Bank FOR OlFICIAL USE ONLY Report No. P-5098-PH MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$40.0 MILLION TO THE REPUBLIC OF THE PHILIPPINES FOR A SECOND MUNICIPAL DEVELOPMENT PROJECT NOVEMBER 17, 1989 This document has a restricted distribution and may be used by recipients only in the performance of their oMfcal duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS 1 peso - US$0.048 21 peso - US$1.00 (As of September 1989) FISCAL YE= January 1 to December 31 HEIGHTS AND MEASURES 1 meter (i) - 3.28 feet (ft.) 1 kilometer (km) - 0.62 mile (mi) 1 square meter (sq. m) - 10.76 square feet (sq. ft.) ABBREVIATIONS AND ACRONYMS DOF - Department of Finance DPWH - Department of Public Works and Highways HDF - Municipal Development Fund MMINUTE - Metro Manila Infrastructiure and Engineering Program PHO - Project Management Office RPTA - Real Property Tax Administration Program  FOR OMCIAL USE ONLY PHILIPPINES SECOND MUNICIPAL DEVEIDPHENT PROJECT Loan and Project Summary Borrower: Republic of the Philippines Beneficiaries: Local Governments Amount: US$40 million equivalent Terms: Repayable in 20 years including 5 years of grace, at the Bank's standard variable interest rate. Financing Plan: Local Foreign Total ......(US$ Million)-- Local Governments 8.8 - 8.8 Department of Public Works and Highways 7.6 0.5 8.1 Department of Finance - 0.3 0.3 World Bank 17.7 22.3 40.0 T-Qtal 41 231 5. Economic Rate ofReturn: 16% Staff Aw,raisal Report: 7873-PH mu: No. IBRD 21292 This document has a restricted distribution and may be used by recipients only in the perfotmance of their official duties. Its contents may not otherwise be disclosed without World Bank authb..,on.J  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR A SECOND MUNICIPAL DEVELOPMENT PROJECT 1. The following memorandum and recommendation on a proposed loan to the Republic of the Philippines for US$40 million equivalent is submitted for your approval. The proposed loan would be for a term of 20 years including 5 years of grace at the Bank's standard variable interest rate and would finance basic infrastructure and other investments in the cities and municipalities in Metro Manila and the adjacent provinces and improvements in real property tax collections. 2. Background: The cities and municipalities (referred to as local governments hereafter) in the Philippines are having difficulties providing basic infrastructure and services for a growing urban population. This has resulted in poor roads, flooding and stagnant water, inadequate sanitation facilities, and congested and unsanitary public markets, all of which create health hazards, especially in low income communities. At current growth rates, Metro Manila, which is already facing serious infrastructure and service deficiencies, would have to accommodate close to 200,000 more people annually, equivalent to a medium sized city, severely taxing local governments' financial and managerial capabilities. 3. The Bank has been assisting the Government in coping with this urban growth by: (a) introducing low cost approaches to optimize the use of limited resources; and (b) strengthening sector institutions to plan and implement investments. The Metro Manila Infrastructure and Engineering Program (MMINUTE), a component of the Bank's Third Urban Project (Loan 1821-PH), developed a low-cost approach to providing basic facilities to poor communities in Metro Manila. MMINUTE was completed successfully in December 1988. While the local governments were the beneficiaries, planning and implementation of MMINUTE was carried out by the Department of Public Works and Highways (DPWH). Despite administrative, financial and technical weaknesses, local governments would need to play a larger role in the future since they are responsible for providing many of the basic services in urban areas. The First Municipal Development Project (Loan 2435-PH, US$ 40 million, 1984) established an institutional framework at the national level to assist local governments to finance and manage their own investments. That ongoing project provides local governments with: (a) regular access to long term financing through a Municipal Development Fund (NDF); (b) revenue enhancement through grant financing under the Real Property Tax Administration Program (RPTA) to conduct real property tax mapping and improve tax administration; and (c) :raining programs in planning, finance and project management. Tit project faced delays resulting from the wholesale changes in local executives in 1986 but is now making steady progress.  a2- 4. ationalfor Bank nvov n The proposed project would build on the oxporionco to date in municipal development by transferring to local governments the approach to planning and implementing low-cost investments targeted on the urban poor developed under MMINUTE, and by expanding the framework for financial and technical assistance developed under the First Municipal Development Project to local governments in Metro Manila and the surrounding provinces which were not included in the first project. The proposed project supports the Government's emphasis on promottng local autonomy. 5. Prolect O_ ectLie: The project would aim at: (a) assisting local governments in Metro Manila and the surrounding provinces to provide basic municipal infrastructure, services and facilities especially to lower income communities; (b) improving local governments' investment planning, financing and implementation capabilities; and (c) expanding the coverage of the MDF to include all local governments in the Philippines. 6. Proiect Descrintion: The proposed project would include financing for: (a) Suboroiects consisting of basic infrastructure (road, drainage, etc.), public facilities (communal faucets and toilets, markets, slaughterhouses), maintenance equipment, and consultant services for project preparation and construction supervision at the local level; (b) RPT to prepare tax maps and improve real property tax administration; and (c) Technical Assistance for a solid waste management study and advisory services to Department of Finance (DOF) to strengthen management of the MDF and to DPWH to support the Project Management Office (PMO). 7. Implementation of the subprojects at the local level would be carried out by DPWH and the local governments. Over 30 local governments in Metro Manila and the surrounding provinces are expected to participate in the project. Those starting implementation in 1991 and beyond would be included in the project subject to a subproject appraisal by the PMO and Bank approval of the appraisal report and onlending agreements. Smaller subloans would be made for consultancies to prepare local projects and would not require prior approval by the Bank. 8. The total project cost is estimated at about US$57 million equivalent with a foreign exchange component of US$23 million equivalent (40%). Part of the Bank loan, US$23 million equivalent (58%), would be on-lent to the local governments through the MDF to finance subprojects at the NDF's prevailing terms and conditions: variable interest rates (presently 11%), repayment over 20 years with 5 years grace, and equal payments of principal and interest. The balance, US$ 17 million equivalent (42%), would be passed on as budgetary allocations to DPWH for subproject investmerts and to DOF for Real Property Tax Administration. A breakdown of the costs and financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in the Philippines are given in  Schedules C and D, respectively. A map shoving the project area is also attached. The Staff Appraisal Report, No. 7873-PH dated November 17, 1989, is being distributed separately. 8. Actions Agreed: During negotiations, the Government confirmed: (a) counterpart financing availability; (b) commitment to finance technical assistance from its own sources; (c) the terms and conditions of subloans; (d) the Bank's prior approval of subloans; (e) its understanding that Bank guidelines will be followed in procurement of civil works; (e) staffing of the PMO; and (f) reporting and auditing arrangements. 9. Benefits: The proposed project would: (a) enhance the ability of local governments in the fast developing metropolitan area to directly plan and manage investments to meet their investment needs; (b) improve sanitation and health, especially in low-income communities; and (c) strengthen the institutional framework for financing local government investments and increasing revenue generation at the local level. 10. Risks: The primary risk is that the local governments would not undertake fiscal measures to improve real property tax collections and market revenues required to qualify for MDF subloans. To minimize this risk, subloans would be for short periods (two to three years), with those local governments successfully carrying out fiscal improvements qualifying for follow-up subloans. Local council approval of required fiscal measures would be obtained prior to the start of implementation to assure political support. A second risk is that this project would overwhelm the institutional framework developed under the first project which is still at an early stage. However, the two projects cover different geographical areas and would be implemented in parallel by separate project offices, both of which are presently fully operational. The PMO would be responsible for the bulk of project administration so that the addition of the second project at this time is considered a manageable expansion. 11. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber B. Conable President By Ernest Stern Attachments Washington D.C. November 17, 1989  -4- SECOND MUNICIPAL DVELOPMENT PROJECT Estimated Costs and Financing Plan aJ (US$ Million) Local Foreign Total Estimated Cost: Subprojects . 21.0 14.6 35.6 Real Property Tax Administration 5.3 3.5 8.8 Technical Assistance Solid Waste Study 0.1 0.2 0.3 Advisory Services 0.6 0.2 0.9 Base Cost 27.0 18.6 45.6 Contingencies: Physical 2.4 1.2 3.6 Price 4.7 3.2 8.0 Total Project Cost b J 34.1 23.1 57.2 Financing Plan: Local Governments 8.8 - 8.8 DPWH 7.6 0.5 8.1 DOF - 0.3 0.3 World Bank 17.7 22.3 40.0 Total 34.1 23.1 57.2 aJ May not add up due to rounding. b J Net of taxes and duties.  . 5 - SECOND MUNICIPAL DEVELOPHINT PROJECT Procuramon and Disbreet (in US$ Million) YKS=;St Method Total Project Component ICB LCB Other Cost aJ Civil Works 35.7 - 35.7 (24.1) (24.1) Goods 4.0 - 6.8 10.8 (4.0) (5.7) (9.7) RPTA Services - 8.1 8.1 (4.8) (4.8) Consultant - 2.6 2.6 Services (1.4) (1.4) TOTALS 4.0 35.7 17.5 57.2 (4.0) (24.1) (11.9) (40.0) DibqXsem=ntz Cate92y Amount (US$ million) Subloans 23 2 1000 (of MDP disbursements) Civil Works (DPWH) 10.1 60% (of expenditures). RPTA 6.7 100% (of DOP disbursements) Estimated Disbursements Bank F 90 21 22 93 94 21 96 22 ---( US$ million)---- Annual 2.5 2.4 4.6 6.5 7.3 7.3 7.0 2.4 Cumulative 2.5 4.9 9.5 16.0 23.3 30.6 37.6 40.0 a_J Included physical and price contingencies; excludes taxes and duties. Numbers in brackets are Bank loan amounts.  -6- Schedule-C ILIPIZNES SECOND MUNICIPAL DEVELOPMN PROJECT Timetable for XEy Prolect Processinz Events (a) Time taken to Prepare One Year * (b) Prepared by DPWH (c) First Bank Mission May 1988 (d) Appraisel Mission Departure February 1989 (e) Negotiations November 1989 (f) Planned Date of Effectiveness April 1990 (g) Relevant PCRs and PPARs Third Urban Development Project (June 30, 1989)  _! t'krg aw BA 4N." oFTIMM i tz NWLt A.~ ST4U O AIA( 00 IPt eRAZ IN INA mmLPP ^.A r L- gAb* C La Lose or Creldt Plecol "UA"er Year orroeru P se - nm _ wr Righty-sin looms J a rin credlit fully dlbursed 3,1506 101.1b - 16 Sos Rp. of th Ph milne Mdiumlierl Srrlptlon 1040 In1 Rp. of the Phillpp AgrI. Sport Servies 11.00 4.48 11U 100 R. of the Philippi National lee NO velopnt 1.10 0.17 f1ll 1o Rep. of the Phil ppime Conmuel Irrilotien 51.00 U1.8J 1100 MS Re. of h Philpe Idueatlo VStI 10.40 0.10 11OO 1es8 Re. o' th Phillpine Watr Suptly and Seiotltlon 13.00 4.71 1137 10S RIp. es the PhilpIN Relonal 1 lea bv,lopmeI_ 47.00 10.13 28*0 1"4 b.f the Phli pines tetral Vlosyse Regtioal hviovpmsn 14.37 11.01 2410 1004 Rep. sh the hil ppine Hlia ys V 101.00 I6.00 1485 1004 Rep. of the Phlippnes Muaelpal DWevlopment 40.00 C1.05 14" 10 Rpo. of tho PhilliiN Teleem. Tegh. Aegiatae 4.00 0.00 1370 100S C"tral slan of xt Plhil. Agricultulral Credit 100.00 0.71 1676 1006 R. of the Phil lppie Manil Water Dlstribution. JO.OO 910.0 1710 1080 Rop. of the Philippines Rural Road U 31.00 76.81 1767 1007 Rep. of the PhiI ipinesr m eoonemi. R eovory Lon 800.00 100.00 131 1067 Rep. of the Phillppines Provincial Porfte 8.00 10.15 1146 isW R" . of the PhilIppines Irriestlon Operations Support 28.50 10.81 1336 IWO Re . of the Phi I ppine Proorf" for Governmnt Rofore 100.00 113.00 me63 lOSS PhilIppino Not Il 01 Co. Socen-Manito Geotbermfl Poer 41.00 J8.84 ow-l 100" Phil. Nat'i Poer Corp. Sac.n-ManIto Geotherrol Pover 30.00 000 1374 10t0 Rep. of th Philippi ms "uselng fectr 160.00 t1.1n -08 1ng Rep. of the PhlIppine 111 IV 60.00 56.00 8049 103 Rp . of the PhilIppinls Pinancial Sector 800.00 130.00 84 19" Div. Deank of t Phil. goanie Power Distribution 6.60 ".O0 800 1000 Rep. of the PhlI ppine Health Development 70.10 70.10 Tout 5,068.1! 108.16 1,100.78 Of which has boe repid 1,139.89 2.58 Total Now Outtndin $,.7 101.68 Least Amount sold 81.85 Of which has ben repald 81.85 . - Total N., Held by lank end tDA 8,798. 106.40 Total Undlebureed 1,163.75 - 1,169.73 /a The statu of the project.. listd In Part A Is dePcrbed In a sprate eport on all Sank/IOA-flnened project In enecutlon, whibh a updated tileo yearly and circulated to the becutlve Dlretore on April 80 and October 81.  -8- ~~~~~~~Sehlmdl D ra; * ov 2 . STATIT ff IFC INSSTTS (AS of Weptmbe w, 1W3) Ivetmt FLoeol n Equity Totsl nbe yr Obligor Type of buslo --li(eStlton) --- 57/1n8 166/197 Private 1e. Corp. of the Phillppinle Delopet finance 15.0 4.4 19.4 116/1060 1MA1M9 Meraleo Securities Corporation UtlIlthe We. 4.0 40.8 16J7/69/1001 1970 Phil. Lon Distance Telophone Co. Utliltles 7.7 0.6 50.3 159/211 1970/1907 Marlee** manufacturing, itnc. C_met & sonetr. t. 0.6 0.4 1.2 165 1970 Papr Indtr its Corp. of the Phil. Pulp a paper products - 2.2 2.2 1W/N09 1971/1907 Pb illppln Petroleu Corpation Chlicelpe r a oc_e.. 6.2 2.1 J.8 207 1972 Iarind e Vining & Industrial Corp. mining 16.0 - 15.0 241 1978 Victories ChmIlcal Corporation ChmIcale & petroebm. 1.9 0.8 2.2 267 1074 Filiples Syntbeti Fibr Corp. ToYtlls & fibers 1.6 - 1.5 272/464 1974/1979 Ibrlo Chriteln, Clw. Ind. Inc. Iron A steel 1.6 0.8 2.2 2" 1974 epuibilc Flour Mliii Corp. (M) food A fodprocesing 1.2 - 1.2 SO 1t76 Pblippine Polyuide Industrial Corp. Textilee S flber 7.0 - 7.0 S29 1970/1900 Pbilero Ediblb Oile, Inc. Coconut oil a copra 2.6 0.2 2.6 $79/756 1977/1965 AcoeJ Mining Compny, Inc. Mllning 2.5 1.2 8.7 874 1977 SOrmlento Indutrlen, Ine. Plywood 8.5 - 8.5 428 1970 Cba Shipyard * Erg. Workos Inc. Ship re airing 2.1 - 2.1 469 1979 @ea.lI milirng Corporation Foo a food proceesoin 4.0 1.1 5.1 401/065/ 1960/US/ FIS0 Lossis Corp. (All Asia capltal) Voney capitol market 11.1 0.5 11.8 1140 95/09 400 1960 Venture. i Intdutry & 6sninee Mony a capitol oarket - 0.8 0.8 Enterprise, Inc. u12s log; 1 waq MonAy S capital markets - 2.4 2.4 519 191;: Conrolideted Industrial oaes, Iec. Chemicals A petrochem. 4.5 - 4.5 582 1961 Loan to Seven Corp. for SlE Moey a copital market 19.5 0.6 19.1 Me 1961 Pbil. Aesoc. Smeltlng Refin. Corp. Mining - 5.0 5.0 572 1901 Dave* Unlie Cemnt Corp. c_mt A conetr. .t. 16.0 - 16.0 01,27 1902 tmC-Gutrl- Plantations Pole oil 11.0 - 11.0 041 1906 Pure Foods Fod & food proeIng - 1.4 1.4 946 1060 BPI Agriculturel Devlopment San Devlopment finance - 1.0 1.0 1061 1060 PbilIlfwd Money a capital markets - 4.2 4.2 Totel roe Comitmente 220.0 82.7 252.7 Lea cancelltiaon, telr tion. 110.7 16.6 15.5 repyment snd *ala. Totl Comltmnt NMm Held by IfC 101.8 15.9 117.2 Total Undlberoed (including partcliepnt. portion) 06.8 2.4 66.7  IBRD 21292 NUEVA ECIJA PHILIPPINES J SW~~~~~~~~, MIGUEE Y'- * Manila PAMPANGA SAN ILiUC'NSo BULACAN SAN RAFAt ) /~~~~NGAT | ~ ' <,,,.f KAY ~NORZAGAR \ s r ~~~~~~~PW