Philippines - Second Communal Irrigation Development Project (CIDP II)

Document of The World Bank FOR OFFIClAL USE ONLY Report No. P-5340-PH MEKORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT OF THE MEECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT EQUIVALENT TO US$46.2 MILLION TO THE REPUBLIC OF THE PHILIPPINES FOR A SECOND COMMUNAL IRRIGATION DEVELOPMENT PROJECT SEPTEMBER 5, 1990 This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY LQUIVALENTS (June, 1990) Currency Unit = Philippine Peso (I) P 1.00 - US$0.044 US$1.00 = P 22.8 WEIGHT AND MEASURES Metric System FISCAL YEAR Government of the Philippines January 1 - December 31 ACRONYMS AND ABBREVIATIONS CIS - Communal Irrigation System CIDP - Communal Irrigation Development Project IA - Irrigator Association IFAD - International Fund for Agricultural Development NIA - National Irrigation Administrationi  FOR OFFIACIL USE ONLY PHILIPPINES SECOND COMMUNAL IRRIGATION DEVELOPMENT PROJECT Loan and Project Summary Borrower: Republic of the Philippines Amount: US$46.2 million equivalent Terms: Repayable in 20 years, including 5 years of grace, at the Bank's standard variable interest rate. Financing Plan: IBED Loan US$46.2 million GovernmentlNIA US$18.2 million Total US$64.4 million Economic Rate of Return: 19Z Staff Appraisal Report: Report No. 8724-PH, dated August 31, 1990. Map: IBRD No. 22389 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 A SECOND COMMUNAL IRRIGATION DEVELOPMENT PROJECT 1. The following memorandum and recommendation on a proposed loan to the Republic of the Philippines for US$46.2 million equivalent is submitted for approval. The proposed loan would have a term of 20 years, including 5 years of grace, at the Bank's standard variable interest rate, and would assist the Government of the Philippines in its efforts to provide continuity and improvements in implementing its ongoing communal irrigation development program. 2. Background. The Government, through the National Irrigation Administration (NIA), provides services to national, communal and privately owned pump irrigation systems throughout the Philippines. Of a potential suitable area of about 3.2 million ha, some 1.45 million ha are currently irrigated: (a) 600,000 ha under the large national systems, which NIA constructs and manages, and for which it collects irrigation service fees from beneficiaries for operation and maintenance; (b) 150,000 ha under privately owned pump systems, for which NIA simply provides technical assistance; and (c) 700,000 ha under small run-of- river gravity communal systems (CIS) that are owned and operated by farmer groups. Some CISs have been built with NIA assistance and others without. When NIA is involved, it provides financial and technical assistance in planning and construction of the physical works, and develops and trains the irrigator associations (IAs). UAs are required to provide 1OZ of the chargeable costs during construction, and to pay the remainder in not more than 50 years without interest. In selected areas NIA is also trying out alternative methods of repayment which are expected to be moxe effective in recovering the chargeable cost. NIA's communal irrigation development program is well-regarded internationally as a very successful effort at actively involving smallholder irrigation beneficiaries in the design, implementation and O&M of their systems. 3. The ongoing Communal Irrigation Development Project (CIDP I, Bank Ln. 2173- PH/IFAD Ln. 108-PH, of June 1982) was the first foreign-assisted project in the Philippines to focus entirely on communal irrigation development based on active beneficiary participation. CIDP I was originally designed to cover 33,500 ha, comprising about 22,800 ha of new area and 10,700 ha of rehabilitation. Initial implementation delays were due mainly to general budgetary constraints during the early and mid-1980s, but as these constraints have eased in recent years, NIA has accelerated its communal program. Project implementation costs in US dollar terms proved much lower than expected, mainly because of the lower peso exchange rate and the fact that relatively more rehabilitation work (v. new construction) was undertaken, as compared with appraisal estimates. In early 1988, the Bank and IFAD therefore agreed to almost a doubling of project targets to about 65,200 ha; the Bank loan was reduced to USS 38.5 million through the cancellation of US$ 20.1 million effective March 3, 1988 and US$ 12.5 million effective December 22, 1989, and the closing dates of the Bank and IFAD loans were extended thrice to December 31, 1990. Full utilization of the revised loan amount, by this date, is expected. Nearly 1002 of all original and part of the new targets have already been met, but completion of all incremental targets would require several further extensions. The Government has decided instead  - 2 - to formulate the proposed second stage project, using the opportunity to incorporate lessons learned during the implementation of CIDP I. These lessons concern mainly the need for increased attention to the quality and intensity of agricultural support services in irrigated areas; improvements to hydrological and service area assessments of irrigation system; better financial management and accounting of subproject capital cost recovery by lAs and NIA; greater independence of IAs from NIA following completion of construction; improved project benefit monitoring and evaluation systems, refinement of communal irrigation subproject selection criteria suitable for nationwide application; and more effective measures to ensure good quality construction and O&M of communal irrigation facilities. 4. Rationale for Bank Involvement. In the past, the Bank's extensive involvement in Philippine irrigation development related mainly to the larger national systems. CIDP I marked the beginning of Bank assistance for smaller, communally based irrigation efforts. The proposed project affords an opportunity to build on achievements made and lessons learned under CIDP I. expanding Bank support for NIA's pioneering approach to participatory irrigation development and management. Communal irrigation development in the Philippines is also an excellent avenue for poverty alleviation, wide dispersal of economic opportunities, and improving the quality of life of remote rural communities. 5. Project Objectives. The project aims to provide for continuity and im- provements in implementation of the Philippines' ongoing communal irrigation development efforts, based on experience gained under the first Bank and IFAD- financed Communal Irrigation Development Project (Bank Ln. 2173-PH/IFAD Ln. 108- PH). It would help to rehabilitate existing systems and extend smallholder communal irrigation services to other new areas in impoverished rural locations where over 90Z of the farmers live below the poverty threshold, thus contributing to the Government's goals of poverty alleviation and food sufficiency. The project would also strengthen both the National Irrigation Administration (NIA) and Irrigator Associations (TAs) throughout the country, in the fields of manag- ement, financial administration, design and construction, and operation and maintenance of communal facilities. 6. Project Description. The proposed five-year project would be nationwide in scope, commencing during late-CY 1990, and would include: (a) the construction of new (10,000 ha) and rehabilitation and improvement of existing (15,000 ha) communal irrigation systems, including provision of adequate service and access roads and simple IA storage facilities and drying floors, and erosion control measures in subproject catchments, where necessary; (b) development of communal lAs, including training of related NIA staff, community organizers and IAs, with particular emphasis on management, financial and O&M aspects; (c) institutional strengthening of NIA in the field of communal irrigation, including improvement of NIA's communal accounting system and collection efficiency; improvement of the monitoring and  - 3 - evaluation capabilities of the Communal Irrigation Department; upgrading of the physical facilities and equipment of the Provincial and Regional Irrigation Offices; training of irrigation technicians and designers; and upgrading of NIA's ability to assess micro- catchment hydrology; and (d) preparation and implementation of agricultural development plans for each communal scheme financed. 7. The total project cost, including physical contingencies and expected price increases, is estimated at about US$64.4 million, with a foreign exchange component of US$28.3 million. The proposed Bank loan of US$46.2 million would finance about 75? of total cost excluding taxes, including 100? of the foreign exchange requirement and about 49? of local costs. The remaining project cost of US$18.2 million would be funded by NIA and the Government. To facilitate an early start-up of the project, expenditures of up to US$ 1.0 million, incurred after July 1, 1990, would be considered for retroactive financing. A summary of project costs and the financing plan is given in Schedule A. Amounts and methods of procurement and the disbursement schedule are shown in Schedule B. A timetable of key processing events and the status of Bank Group operations in the Philippines are given in Schedules C and D, respectively. A map is also attached. The Staff Appraisal Report, No. 8724-PH, dated August 31, 1990, is being distributed separately. 8. Actions Agreed. During negotiations, Government and NIA confirmed that: (a) NIA would adopt agreed nationwide selection criteria and design standards for all communal irrigation systems; (b) NIA would exclude from the project any irrigation systems which have been constructed or rehabilitated during the preceding five years except those damaged by natural calamities, and schemes with more than 20? of land still eligible for redistribution under the comprehensive agrarian reform program would be included only after emancipation patents have been issued; (c) to encourage increased IA independence, NIA would initiate a pilot project to test the use of lead farmers instead of regular NIA staff in developing IAs, in a manner satisfactory to the Bank; (d) NIA would retain consultants, by January 1, 1991, to review and recommend improvements in the financial accounting and management of communal irrigation systems, and commence the implementation of the results of the said study by July 1, 1992; and (e) prior to finalization of construction-level designs, NIA would furnish to the Bank for its review and comments full evaluation reports for irrigation systems estimated to cost more than USS 350,000 each and summary reports for irrigation systems estimated to cost up to US$ 350,000. 9. Benefits. Through its support for NIA's communal irrigation program, the proposed project would directly enhance and stabilize the incomes of about 20,000 low-income farm families, by increasing cropping intensities and output through reliable irrigation and improved agricultural support services. Indirectly, through the institutional strengthening components for the beneficiary IAs and NIA, the project would also improve the incomes of many additional small irrigator families in the nearly 3,000 NIA-assisted communal schemes throughout the country. The estimated economic rate of return of the project is 19?.  - 4 - 10. Risks. The investments to be made under the project do not face any major risks, although implementation could fall short of expectations in some areas due to sporadic peace and order problems. As the project is national in scope, such problems would not seriously affect the overall project impact. Also, potential difficulties would be eased by the opportunities afforded for active farmer participation through the lAs, thereby instilling an increased sense of responsibility on the part of the beneficiaries. 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 Attachments Washington, D.C September 5, 1990  -5- Schedule A PHILIPPINES SECOND COMHUNAL IRRIGATION DEVELOPMENT PROJECT Estimated Costs and Financing Plan Local Foreign Total ------ US$ million ------ Estimated Cost Irrigation Works 18.5 15.5 34.0 IA Development 2.4 0.3 2.7 Institutional Strengthening of NIA 4.3 7.0 11.3 Engineering and Administration 4.1 0.4 4.5 Agricultural Development 0.6 0.3 0.9 Total Base Cost 29.9 23.5 53.4 Physical Contingencies 2.6 1.9 4.5 Price Contingencies 3.6 2.9 6.5 Total Project Cost /a 36.1 28.3 64.4 Financing Plan IBRD 17.9 28.3 46.2 Government/NIA /b 18.2 - 18.2 Total 36.1 28.3 64.4 la Including taxes and duties of about US$2.9 million. lb Including about US$2 million of equity contributions from farmer beneficiaries. Minor differences in totals due to rounding.  -6- Schedule B Page 1 of 2 PHILIPPINES SECOND COMMUNAL IRRIGATION DEVELOPMENT PROJECT Procurement /a (US$ million) Not Total Expenditure category ICB LCB Other applicable cost Civil and agricultural works - 9.9 39.7 - 49.6 (6.9) (27.8) (-) (34.7) Equipment and vehicles 3.8 0.6 - - 4.4 (3.0) (0.5) (3.5) Reconditioning of O&M 1.7 2.4 0.7 - 4.8 equipment (1.3) (2.0) (0-6) (3.9) IA development, training, - - 0.5 5.1 5.6 consultants and M&E (0-3) (3.8) (4.1) Total 5.5 12.9 40.9 5.1 64.4 (4.3) (9.4) (28.7) (3.8) (46.2) /a Includes physical and price contingencies. Figures in parentheses are amounts to be financed by the Bank.  -7- Schedule B Page 2 of 2 PHILIPPINES SECOND COMMUNAL IRRIGATION DEVELOPMENT PROJECT Disbursements Category Amount 2 of Expenditures (US$ million) to be Financed (1) Civil and agricultural 33,000,000 70X works (2) Goods and equipment 7,000,000 100? of foreign reconditioning expenditures, 1001 of local expenditures (ex-factory cost) and 802 of local expenditures for other items procured locally (3) Technical assistance 4,000,000 752 (IA development, training, consultants and M&E (4) Unallocated 2,200,000 Total 46,200,000 Estimated IBRD Disbursements Bank FY 1991 1992 1993 1994 1995 1996 1997 -(US$----------- (US million) --------------- Annual 1.4 8.9 12.5 11.1 8.0 3.8 0.5 Cumulative 1.4 10.3 22.8 33.9 41.9 45.7 46.2  -8- Schedule C PHILIPPINES SECOND COMMUNAL IRRIGATION DEVELOPMENT PROJECT Timetable of Key Processing Events (a) Time taken to prepare : 1 years (b) Prepared by : Natio.al Irrigation Administration (c) First IBRD mission : February 1989 (d) Appraisal mission departure : March 1990 (e) Negotiations s August 20, 1990 (f) Planned date of effectiveness : January 15, 1991 (g) List of Relevant PPARs: Loan/Credit No. Project PPAR Date Loan 637-PH Upper Pamganga River Irrigation June 1980 Loan 984-PH Aurora Penaranda Irrigation June 1983 Loan 1080-PH Tarlac Irrigati on Systems Improvement December 1985 Loan 1367-PH Jalaur Irrigation December Loan 1554-PH Magat River Multipurpose Projects, Stage I Loan 1567-PH " Stage II Loan 1639-PH Stage III May 5, 1989 Loan 1639-PH/SAP " Stage III, Special Action Program Credit 790-PH Rural Infrastructure Project May 31, 1989  Schedul* D 9 Page 1 f2 THE STATUS OF BANK GROUP OPERATIONS IN iHE PHILIPPINES A. STATEMENT OF DANK LOANS AND IDA CREDITS /a (June 80, 1990) Loan or Credit Fiscal Amount (loss cancellsttons) Number Year Borrower Purpose -Bank IDA Undiisursed Eighty-nine loans and six credits fully disbursed 8,561.78 106.18 - Of which SECALs, SALs, and Program Loans 1903 1981 Rep. of the Philippine. SAL I 199.98 2268 19883 Rep. of the Philippines SAL II 802.26 2489 1985 Rep. of the Philippines Agriculture Sector Inputs 150.00 2787 1987 Rep. of the Philippines Economic Recovery Program 800.00 Sub-Totel 962.21 1809 1980 Rep. of the Philippines Medium-Scale Irrigstion 82.98 2.76 2040 1982 Rep. of the Philippines Agric. Support Services 22.00 3S38 2173 1982 Rep. of the Philippines Communal Irrigation 88.50 8.64 2200 1988 Rep. of the Philippines Education VIII 18.40 4.S4 2208 1983 Rep. of the Philippines Water Supply and Sanitation 29.00 0.16 2257 1983 Rep. of the Philippines Regional Cities Development 42.08 18.98 2360 1984 Rep. of the Philippines Central Vissyas Regional Development 24.97 9.27 2418 1984 Rep. of the Philippines Highways V 102.00 71.11 2436 1984 Rep. of the Philippines Municipal Development 40.00 29.38 2495 1985 Rep. of the Philippines Telecom. Tech. Assistance 4.00 0.78 2876 1986 Rep. of the Philippines Manila Water Distribution a8.00 17.14 2716 1988 Rep, of the Philippines Rural Roads II 62.00 68.80 2823 1987 Rep, of the Philippines Provincial Ports 82.00 18.21 2948 1988 Rep. of the Philippines Irrigation Operations Support 28.50 17.21 *2965 1988 Rep. of the Philippines Program for Government Reform 200.00 125.00 2989 1988 Philippine Nat'l Oil Co. Bacon-Manito Geothermal Power 41.00 21.17 2989-1 1988 Phil. Net'[ Power Corp. Bacon-Manito Geothermal Power 59.00 58.84 2974 1988 Rep. of the Philippines Housing Sector 180.00 56.75 8038 1989 Rep. of the Philippines SMI IV 00.00 46.06 o3049 1989 Rep. of the Philippines Financial Sector 300.00 1l0.00 8084 1989 Dev. Bank of the Phil. Manila Power Distribution 65.50 B.60 3099 1989 Rep. of the Philippines Health Development 70.10 66.10 8123 1990 Dev. Bank of the Phil. Industrial Investment Credit 85.00 47.12 3124 1990 Metro. Waterworks A Sew. Angat Water Supply 40.00 81.96 3148 1990 Rep. of the Philippines Municpal Development II 40.00 40.00 8149 1990 Rep. of the Philippines Debt Management Loan 200.00 50.00 3183 1990 Phil. National Power Corp. Energy Sector Loan 200.00 186.00 3184 1980 Phil. National Oil Co. Energy Sector Loan 150.00 150.00 8186 1990 Rep. of the Philippines 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/Sewer/Sanitation 85.00 85.00 Total 6,976.56 106.18 1,806.17 of which has been repaid 1 434 17 3.88 Total now held by Bank and IDA 4 - Amount sold 81.85 of which repaid 31.38 Total undisbursed l,606.17 - 1,808.17 /a The status of the projects listed In Part A is described in a separate report on all Bank/IDA-financed projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 80 and October 31. * SAL, SECAL or Program Loan.  Schedule 0 - 10 - Peg 2 of 2 8. STATEMENT OF IFC INVESTMENTS (As of June 80, 1990) Investment Fiscal Loan Equity Total number year Obligor Type of business ---- (USS million) --- 57/233 1963/1973 Private Dev. Corp. of the Philippines Development finance 16.0 4.4 19.4 116/1088 1967/1989 Merolco Securities Corporation Utilities 38.2 4.0 87.2 157/899/ 1970/82/87/ Phil. Long Diotance Telephone Co. Utilities 127.7 0.8 128.6 1091/1191 88/90 168/218 1970/1972 Mdariwasa Manufacturing, Inc. Cement & constr. met. 0.8 0.4 1.2 186 1970 Paper Industrios Corp. of the Phil. Pulp A paper products - 2.2 2.2 188/369 1971/1977 Philippine Petroleum Corporation Chemicals A petrochem. 6.2 2.1 8.3 207 1972 Marinduque Mining & Industrial Corp. Mining 16.0 - 16.0 241 1973 Victorias Chemical Corporation Chemicals A petrocham. 1.9 0.8 2.2 2b7 1974 Filipinas Synthetic Fiber Corp. Textiles & fibers 1.5 - 1.5 272/484 1974/1979 Maria Christina Chem. Ind. Inc. Iron & stoel 1.8 0.6 2.2 288 1974 Republic Flour Mills Corp. (RFIS) Food Os food processing 1.2 - 1.2 300 1976 Philippine Polyamide Industrial Corp. Textiles & fiber 7.0 - 7.0 329 1976/1980 Philagro Edible Oils, Inc. Coconut oil A copra 2.6 0.2 2.8 379/756 1977/1986 Acoje Mining Company, Inc. Mining 2.6 1.2 8.7 374 1977 Sarmiento Industries, Inc. Plywood 8.5 - 8.5 423 1978 Cebu Shipyard a Eng. Works, Inc. Ship repairing 2.1 - 2.1 489 1979 General Milling Corporation Food & food processing 4.0 1.7 5.7 481/865/ 1980/83/ PISO Leasing Corp. (All Asia capital) Money A capital market 11.1 0.8 11.9 1148/2261 85/89/90 480 1980 Ventures in Industry A Business Money A capital market - 0.8 0.3 Enterprises, Inc. 619 1980 Consolidated Industrial Gases, Inc. Chemicals A petrochem. 4.5 - 4.6 682 1981 Loans to Seven Corp. for SMSE Money a capital market 18.6 0.6 19.1 653 1981 Phil. Assoc. Smelting a Refin. Corp. Mining - 5.0 5.0 572 1981 Davao Union Cement Corp. Cement A constr. mat. 18.0 - 16.0 627 1982 NDC-Guthrie Plantations Palm oil 11.0 - 11.0 841 1986 Pure Foods Food A food processing - 1.4 1.4 948 1988 BPI Agricultural Development Bank Development finance - 1.0 1.0 1051 1988 Philifund Money A capital markets - 4.2 4.2 1126 1989 Hambrect and Quist Money a capital markets - 2.3 2.8 1182 1990 Manila Fund Money A capital markets - 7.0 7.0 1194 1990 TFPF Money A Capital Market _ 29.7 29.7 Total gross commitment 286.9 70.2 857.1 Less cancellations, terminations, repayments and sales 159.8 67.7 217.5 Total commitment now held by IFC 127.1 12.6 139.6 Total undisbursed (including participants' portion) 62.5 0.7 53.2  IlERI) 22 i419i 116 12,W 1234' 128 PHILIPPINsIES CLASSIFICATION OF PROVINCES SECOND COMMUNAL IRRIGATION BY GEOGRAPHICAL REGIONS DEVELOPMENT PROJECT tLOcaS I WESTRN VIStAAS