Philippines - Earthquake Reconstruction Project

Doment of The World Bank FOa' OFFICIAL USE ONLY Ag 326 3 - P9 Report No. P-5379-PH NEMORA1DUM AND RECONMENDATION 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$125 MILLION TO THE REPUBLIC OF THE PHILIPPINES FOR AN EARTHQUAKE RECONSTRUCTION PROJECT SEPTEMBER 23, 1990 This document has a restricted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIYALENTS Currency unit Peso (P) US$1.00 - P 25.0 P 1 - US$0.04 (as of September 14, 1990) ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank BHS - Barangay Health Station CB - Central Bank of the Philippines CIF - Cost Insurance and Freight COA - Commission on Audit DBM - Department of Budget and Management DLG - Department of Local Government DOF - Department of Finance DOH - Department of Health DPWH - Department of Public Works and Highways DSWD - Department of Social Welfare and Development ERR - Economic Rate of Return GOP - Government of the Philippines GSIS - Government Services Insurance System HDMF - Home Development Mutual Fund HUDCC - Housing and Urban Development Coordinating Council IBRD - International Bank for Reconstruction and Development LCB - Local Competitive Bidding ICB - International Competitive Bidding MHC - Main Health Center NCR - National Capital Region NEDA - National Economic Development Authority NHA - National Housing Authority NHHFC - National Home Mortgage Finance Corporation NIA - National Irrigation Administration PCR - Project Completion Report PCU - Project Coordinating Unit PHC - Primary Health Care PIU - Project Implementation Unit RDC - Regional Development Council RHU - Rural Health Unit RP - Reconstruction Proposal SOE - Statement of Expenditure SSS - Social Security System TA - Technical Assistance USAID - United States Agency for International Development FISCAL YEAR January 1 - December 31  FOR OFmFCIAL USE ONLY PHILIPPINE EARTHOUAKE RECONSTRUCTION PROJECT Loan and Proiect SummarM Borrower: Republic of the Philippines Beneficiary: National Home Mortgage Finance Corporation for the housing component Amount: US$125 million equivalent Terms: Twenty years, including a five-year grace period, at the Bank's standard variable interest rate. Relending Terms: Interest Rate - A rate acceptable to the Bank will be agreed upon. Amortization Period - 20 years including a grace period of 5 years. Foreign Exchange Risk - To be borne by Borrower. Financing Plan: Government US$ 57.7 million IBRD USS 125.0 million Total USS 182.7 million Economic Rate of Return: Not applicable Staff ADpraisal &Reort: Not applicable. A Technical Annex is attached. M=ns: Nos. IBRD 22617, 22618 and 22619 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR AN EARTHOUAKE RECONSTRUCTION PROJECT 1. The following memorandum and recommendation on a proposed loan to the Republic of the Philippines for US$125 million equivalent is submitted for approval in support of the Government's earthquake reconstruction efforts. The proposed loan would have a term of 20 years, including five years of grace, at the standard variable interest rate. 2. Bacg]round. The earthquake experienced by the Philippines on July 16, 1990 was one of the strongest and most destructive to occur in the country during the last 40 years. The tremor had a magnitude of 7.7 on the Richter scale and affected an area of about 100,000 kmZ on the island of Luzon. The earthquake's epicenter was located near the city of Cabanatuan, about 60 miles north of Manila. Since July 16, about 130 aftershocks have occurred, at least 15 of which have had magnitudes of 5.0 or more on the Richter scale. The most serious damage occurred over an area of about 15,000 km2, affecting the cities of Baguio, Dagupan, and Cabanatuan and the towns of Agoo, Aringay, Caba and Sto. Tomas, which received severe damage to their municipal buildings, markets, schools and housing. Overall, at least 1,700 people have died, 700 are still missing, 3,500 were injured, and more than 24,000 houses were destroyed. The damage to homes and public infrastructure (mainly roads, bridges, ports, schools, hospitals, and government buildings) totals an estimated P 15 billion (US$600 million equivalent). The earthquake's total damage to agriculture, private buildings, mining and tourism, is still being assessed by the Government. 3. To cope with the disaster, the Government has formulated a three- stage program. The first stage, rescue and relief operations, under the National Disaster Coordinating Committee, focused on the immediate actions needed to help the people affected and lasted for about two weeks. The second stage, rehabilitation and recovery, is under the direction of the Presidential Task Force on Rehabilitation and is focused on rapidly executed projects to put vital infrastructure back into service. The second stage started on July 25 with an expected duration of one year. The third stage, reconstruction and development, comprises the longer-term restoration effort, with about 50 days of planning and three to five years of execution. The National Economic and Development Authority (NEDA) in cooperation with other government agencies is responsible for this third task. 4. The overall Reconstruction Program for public infrastructure and housing would cost an estimated US$600 million, for which the Government will need about US$500 million in external financing. It is currently seeking this assistance from various external donors and multilateral sources. Many governments and multi-lateral donors have expressed a willingness to assist the Government of the Philippines (GOP) in financing its Reconstruction Program. The United States Agency for International Development (USAID) which has agreed to provide about US$20 million to finance the reconstru.tion of schools, public  - 2 - markets and local roads. The Asian Development Bank (ADB) is expected to complete its appraisal of a US$100.0 million loan on concessional terms in late September 1990. The Government of Japan has been requested to provide a US$ 300.0 million commodity loan and will respond after the GOP has completed the damage assessment and financing plan. The proposed Bank loan will provide 25% of the external financing required, and when combined with the reallocation of about US$79 million of uncommitted funds from existing loans, will provide the Government with about 34% of the estimated cost of the Reconstruction Program. 5. Bank Approach and Project Preparation. In response to the Government's request for assistance in reconstructing infrastructure damaged by the earthquake, the Bank's strategy was to begin immediately preparing a possible emergency reconstruction loan while at the same time identifying uncommitted funds from existing loans that could be reallocated to provide immediate financial assistance to the area. The Bank's initial damage assessment mission, comprising the Resident Representative in Manila, a highway engineer, and a port consultant, was dispatched one day after the earthquake, on July 17, to assess the situation and gather information for a possible reconstruction loan. This assessment mission was followed by a mission, beginning August 9, 1990, which identified and appraised the proposed project. Negotiations for the loan were conducted in Manila from September 12 - 14, 1990. During the appraisal, the Government indicated that the uncommitted balances in the loan accounts of six existing Bank loans would be utilized to address the needs of education, municipal development, port facilities, energy, irrigation, and housing. 6. Project Objectives and Rationale for Bank Involvement. The objective of the proposed multisectoral project would be to minimize the adverse economic impact of the disaster by assisting in the reconstruction of essential infrastructure and other facilities to promptly restore economic activity in the affected area. In addition, the project will introduce measures to lessen the impact of future earthquakes. The project will cover sectors in which the Bank has previous experience and current loans. and therefore a comparative advantage in quickly identifying needed repairs, coordinating new work with ongoing contracts, and ensuring that reconstruction plans are compatible with the overall policy framework in each sector. Bank involvement will also bring international experience to bear on the development of Reconstruction Proposals (RPs) for the affected area and to prevent the recurrence of similar earthquake damage in the future by strengthening existing building codes and/or their enforcement. Land use controls (height and building bulk limitations) will also be improved with special restrictions and penalties for high-risk zones, e.g., flood plains and unstable subsoils/geology. 7. Project Descrigtion. The proposed project will finance reconstruction activities over a three and one half year period, including: (a) reconstruction investments in key infrastructure and housing (accounting for 79% of total base costs); (b) financing of critical construction materials and commodities needed to implement the project (16% of base costs); and (c) technical assistance for both project execution and the implementation of measures to mitigate earthquake damage in the future, including the provision of training in geology and seismology and the procurement of equipment for seismological studies (5% of base costs).  8. The reconstruction investments would be focused on four subsectors: (a) roads and bridges - to reconstruct and rehabilitate a portion of the national highway system destroyed or badly damaged by the earthquake and landslides which followed, and a portion of the local roads and bridges connecting towns and villages to the highway system; (b) housing - to reconstruct or repair homes destroyed or damaged in seven urban areas through the on-lending of project funds by the National Home Mortgage Finance Corporation (NHKFC) for housing credit programs carried out by the National Housing Authority (NHA) and private housing entities; (c) medical facilities - to reconstruct and re-equip damaged hospitals and clinics; and (d) irrigation - to reconstruct damaged irrigation systems. Project technical assistance would prepare detailed designs and procurement documents and supervise contracts for project components. It would also: (a) help develop Reconstruction Proposals for the affected areas; (b) recommend revisions to the local building codes where needed; (c) improve the level of technical expertise in earthquake-resistant construction, in both the construction industry and the public sector via training to enhance the quality and resilience of national infrastructure and private buildings; and (d) re- establish a network of seismic monitoring instruments throughout the country. 9. Estimated Costs and Financing Plan. The total cost of the proposed project, including taxes and contingencies, is estimated at US$182.7 million equivalent, with a foreign exchange component of US$106 million or 58%. The proposed Bank loan of US$125 million would finance about 70% of total project costs. A summary of project costs and financing is presented in Schedule A. Due to the emergency nature of the project, US$25.0 million will be provided under retroactive financing for the removal of debris, opening of roads and bridges, temporary hospitals and medical facilities, and the acquisition of essential construction materials. Amounts and methods of procurement, the proportion of expenditures to be financed 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. Maps (IBRD 22617, 22618 and 22619) are also attached. 10. Ilmlementation. To expedite execution, the project would be implemented within the Government's existing organizational framework and would rely on the line agencies' technical expertise to monitor and supervise the implementation of their respective project components. A small Project Coordinating Unit (PCU) has been created under the jurisdiction of the Department of Public Works and Highways (DPWH) to monitor and coordinate the project. This unit would be supplemented by geo-technical consultants to advise the implementing agencies on site location and design issues. Responsibility for actual project implementation, to inclu'de all procurement, contracting and submission of disbursement applications to the Bank, would be with the Project Implementation Units (PIUs) established in each of the line agencies for the implementation of the project. These agencies and departments are familiar with the Bank's policies and procurement procedures. A Steering Committee would be established in each of the affected regions to advise the PCU on procedures to facilitate project implementation. The Steering Committees would meet with the PCU on a quarterly basis for a formal review of the project. The PCU will submit quarterly and annual progress reports to the Bank, the Government's Project Facilitation Committee and to the Steering Committees. No problems are  - 4 - envisioned with project start-up since the first year's works are ready for immediate implementation. The implementing agencies have allocated available staff to the PIUs and will select consultants, where needed, to assist in the preparation of the detailed designs for the various project components. The completed designs will be reviewed by the geo-technical consultants working with the PCU and the PIUs prior to their submission to the Bank for review. A portion of the counterpart funds for the first year of project implementation have already .-en released. The remainder of the counterpart funds will be released throughout the year. 11. Actions Agreed. The Government has agreed to: (a) include the expenditures required to implement the project in its annual. budget proposals for the project years, with adequate arrangements for the flow of counterpart funds; (b) implement the project in accordance with technical, financial, and environmental standards and procedures acceptable to the Bank; (c) prepare Reconstruction Proposals (RPs) for each jurisdiction in the affected area by March 31, 1991 and submit the RPs for review and comment by a technical panel, established by the Government in consultation with the Bank; (d) maintain adequate qualified staff in each of the PIUs and the PCU and provide the necessary facilities to ensure qualitative and timely implementation and supervision of the proposed project; (e) require the various implementing agencies to employ both local and foreign consultants, where needed, to serve as technical and project advisors to ensure rapid project implementation in accordance with appropriate geo-technical standards; and (f) on-lend a portion of the proceeds of the loan for the housing component under terms and conditions satisfactory to the Bank. 12. Benefits and Risks. The project would provide the Government with the financial and technical assistance needed to promptly reconstruct key infrastructure in the area most seriously damaged by the earthquake. The only significant risk is that the economic condition of the country may deteriorate, resulting in budgetary pressures to reduce the rate of project implementation and possibly 4.apede enforcement of improved standards for future construction of tho nat.ln's infrastructure and housing. Accordingly, the project provides technical assistance to support project implementation, enhance the training of professional staff and strengthen the existing building codes which have been found to be inadequate. Another project risk is the possibility of delays which could result from a potential loss of momentum normally experienced in reconstruction activities, and from inadequate personnel to implement all of the projects. To address these risks, the project will consist of short-term, well- focused components and will provide needed materials and implementation support. Frequent supervision missions are planned during the first two years of the three-year implementation period so that adjustments to the program can be made as needed to promptly resolve problems causing delays. In addition, the United Nations Center for Regional Development in Nagoya, Japan will assist in reviewing the project's implementation.  - 5 - 13. RsommendatiO;. 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 Attachments Washington, D.C. September 23, 1990  -6- Schedule A PHILIPPINE EARTHOUAKE RECONSTRUCTION PROJECT Estimated Costs and Financing Plan Local Foreign Total ------- (US$ million)---------- Estimated Cost Roads and Bridges 35.7 47.0 82.7 Housing Credit 9.4 4.2 13.6 Medical Facilities 5.2 6.4 11.6 Irrigation Systems 9.7 6.5 16.2 Critical Construction Materials and Commodities 0.0 25.0 25.0 Technical Assistance 2.0 6.5 8.5 Base Cost kmQ 95. 157.6 Physical Contingencies 6.0 6.5 12.5 Price Contingencies 8.4 4.2 12.6 TOTAL PROJECT COST 76.4 106.3 182.7 Financing Plan Government 57.7 0.0 57.7 IBRD 18.7 106.3 125.0 TOTAL 6.4 106i.3 182.7 Notes: 1. Total physical contingencies are about 8% of base costs; price contingencies (foreign and local) are about 8%. 2. Taxes and duties estimated at US$9.6 million equivalent are included in estimated costs. 3. Costs of project components include related equipment.  -7. Sphedule B Page 1 of 2 EARTHQUAKM RECONSTRUCTION PROJEC Pxocment Method (US$ million) Category ICB LCB Other La Total Civil Works 50.9 49.3 28.2 128.4 (30.1),& (29.1) (16.7) (75.9) Rousing Credit -- 7.5 7.2 14.7 -- (5.2) (5.0) (10.2) Critical Construction 25.0 -- -- 25.0 Materials and Commodities (25.0) -- -- (25.0) Equipment and Materials 5.5 1.0 0.9 7.4 (5.0) (0.9) (0.8) (6.7) Technical Assistance -- -- 7.2 7.2 -- -- (7.2) (7.2) TOTAL 81. 57.8 43.5 182.7 (60.1) (35.2) (29.7) (125.0) La "Other" includes force account, direct contracting and housing credits. Xb Figures in parentheses indicate the respective amounts financed by the Bank.  Schedule B Page 2 of 2 R1n'zpINEI EARTHQUAKE RECONSTRCION PROJECT D'enigts Amount of Loan Percent of Allocated Expenditure Loan Category (US$ million) to be Financed Civil Works Roads and Bridges 46.0 60% Irrigation Systems 7.3 70% Medical Facilities 6.4 70% Equipment and Materials 5.9 100% of foreign expenditures, 100% of local expendi- tures (ex-factory cost) and 65% of local expenditures for other items procured locally. Housing Credit 8.3 70% Critical Construction 25.0 100% of foreign Materials and Commodities expenditures Technical Assistance 6.1 100% Unallocated 20.0 TOTAL 125.0 Estimated Bank Disbursements (US$ million) Bank Year .2 Annual 35.00 14.00 29.00 29.50 17.50 Cumulative 35.00 49.00 78.00 107.50 125.00  -9 achedule C PHILIPPINE EARTh A RECONSTRUCTION ROCT TILmetQbl of Key Project MEqessing Events (a) Time taken to prepare: Two months (b) Prepared by: Government with World Bank assistance (c) First mission: July 17, 1990 (d) Appraisal mission departure: August 9, 1990 (e) Negotiations: September 12, 1990 (f) Planned date of effectiveness: November 30, 1990 (g) List of relevant PCRs and PPARs: None  Schodul- 0 - 10 Page 1 of 2 THE STATUS Of SANK COU OPERATIONS IN THE PHILIPPINES A. STATEMENT OF ANK LOANS AND IDA CREDITS La (June got 199) Loan or Credit Flecol Amount tloo canaellation-) Number 'oar Borrower Purpose Bank IDA ndisbursed Eighty-nine loan a*nd six credits fully disburse 8J551.78 105.18 - Of which SECAL, SALs, and Progrm Loans 1903 1991 Rep. of the Philippines SAL 1 190.96 2286 1918 Rep. of the PhilIlppines SAL II 802.25 2489 1995 Rep. of the Phillppines Agrlculture Sector Inpute 160.00 2787 1987 Rep. of the Philippines Economic Recovery Program 00.00 Sub-Total 9K2.21 1809 1980 Rep. of the Phil ppines Medium-Scale Irrigation 82.98 2.70 2040 1982 Rep. of the Phillppines Agric. Support Services 22.00 8.38 2173 1982 Rep. of the Philippines Communal Irrigation 38.60 8.64 2200 1988 Rep. of the Philippines Education VIII 16.40 4.36 2206 1988 Rep. of the Philippines Water Supply and Sanitation 29.00 0.18 2267 1983 Rep. of the Philippines Regional Cities Development 42.08 18.98 2380 1984 Rep. of the Philippines Central Visoyas Regional Developmnt 24.97 9.27 2418 1984 Rep. of the Phillippine Highways V 102.00 71.11 2436 1984 Rep. of the Pilitppines Municipal Development 40.00 29.38 2495 1985 Rep. of the Philippines Teloe. Tech. Assistance 4.00 0.78 2676 1988 Rep. of the Philippines Manila Water Distribution 38.00 17.14 2718 1986 Rep. of the Philippines Rurel Roads It 92.00 8.830 2823 1987 Rep. of the Philippines Provinciel Pert 32.00 18.21 2948 1988 Rep. of the Philippines Irrigation Operatione Support 28.S0 17.21 02958 1988 Rop. of the Philippines Program for Government Reform 200.00 125.00 2969 1988 Philippine Nat'l Oil Co. aso"n-Manit* Geothermal Power 41.00 21.17 2969-1 1988 Phil. Nat'l Power Corp. Bsacon-onito Geothermal Power 59.00 56.84 2974 1988 Rep. of the Philippines Housing Setor 160.00 65.75 8038 1989 Rep. of the Philippines SMI IV 60.00 48.05 *3049 1989 Rep. of the Philippine. Financial Sector 800.00 160.00 8084 1989 Dev. Bank of tho Phil. Manila Power Distribution 65.50 6550 8099 1989 Rep. of the Philippine Health Development ?0.10 66.10 3128 1900 Dcv. Bank of the Phil. Industrial Investmaent Credit 65.00 47.12 3124 1990 Metro. Waterworks A Sew. Angat Water Supply 40.00 31.88 3148 1990 Rep. of the Philippines Muntcpal Development lI 40.00 40.00 3149 1990 Rep. of the Philippines DObt Management Loan 200.00 50.00 3163 1990 Phil. National Poe r Corp. Energy Sector Loan 200.00 185.00 3164 1990 Phil. National Oil CO. Energy Sector Loan 150.00 150.00 8165 1990 Rep. of the Philippine. Energy Sector Loan 40.00 40.00 3204 1990 Rep. of the Philippines Coconut Farms Development 121.80 121.80 3242 1990 Rep. of the Philippines WS/Sower/Sanitation 86.00 86.00 Totel 5,98.56 105.18 1,606.17 of which has ben repaid 1 434 17 3.38 Total now held by Bonk and IDA WM Amount sold 81.36 of which repaid 81.35 Total undieburosd 1,606.17 - 1,60. 17 L The status of the projects lsted in Part A Is described in a separate report on all Bank/IDA-financed projects in execution, which is updated teice yerly and circulated to the Executive Directors on April 30 and October 81. * SAL, SECAL or Program Loan.  Schodulo D - 11- ~T B. SATEMENT OF ICE (AS Of JUO Ws 1990) Investeont Fiscal Loen Equity Total number year Obilior Type of buotnes CUSS millton) --- 57/283 1963/1973 Privte D.v. Corp. of the PhilippiWns Developest ftinance 1C.0 4.4 19.4 116/1086 1967/1989 Meral