Philippines - Mindanao Rural Development Project

Document of The World Bank Report No 19639-PH PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$27.5 MILLION EQUIVALENT AND A GLOBAL ENVIRONMENT FACILITY GRANT OF SDRI.0 MILLION TO THE REPUBLIC OF THE PHILIPPINES FOR A MINDANAO RURAL DEVELOPMENT PROJECT (APL) November 8, 1999 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective November 3, 1999) Currency Unit = Peso I Peso= US$0.025 US$I = Peso 40.!0 FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AFMA Agriculture and Fisheries Modemization Act APL Adaptable Program Loan ARMM Autonomous Region for Muslim Mindanao BDC Barangay Development Council BFAR Bureau of Fisheries, and Aquatic Resources BLGF Bureau of Local Government Finance BWSA Barangay Waterworks and Sanitation Association CADC Certified Ancestral Domain Claim CADTEC Cotabato Agribusiness Development Technology Center CARP Comprehensive Agrarian Refonr Program CBRMP Community-Based Resource Management Project CF Community Fund CIDPII Second Communal Irrigation Development Project CIDSS Comprehensive Institutional and Delivery of Social Services CIS Communal Irrigation System CMBC Coastal Marine Biodiversity Conservation COA Commission on Audit DA Department of Agriculture DENR Department of Environment and Natural Resources DILG Department of Interior and Local Government DOF Department of Finance DOH Department of Health DPWH Department of Public Works and Highways DSWD Department of Social Welfare and Development ECC Environmental Compliance Certificate ERR Economic Rate of Return FRR Financial Rate of Return FMIPs Financial Management Improvement Programs FMR Farm-to-Market Road lAs Irrigators' Associations EPs Indigenous Peoples IRA Internal Revenue Allotment ISF Integrated Social Forestry LB-ES Labor Based-Equipment Supported LBP Land Bank of the Philippines LDCs Local Development Councils LGC Local Government Code of 1991 LGUs Local Government Units MBN Minimum Basic Needs  MDC Municipal Development Councils MDF Municipal Development Fund MDFO Municipal Development Fund Office MEO Municipal Engineer's Office M&E Monitoring and Evaluation MIS Management Information System MOA Memorandum of Agreement MPDC Municipal Planning and Development Council MPDO Municipal Planning and Development Office MRDP Mindanao Rural Development Program NGAs National Govemment Agencies NCIP National Commission for Indigenous Peoples NEDA National Economic and Development Authority NGOs Non-Government Organizations NIA National Irrigation Administration O & M Operation and Maintenance ODA Official Development Assistance OSCC Office of Southern Cultural Communities PCO Program Coordination Office PEO Provincial Engineer's Office PGB Policy Goveming Board of the MDF PIAs Project Implementing Agencies PIO Provincial Irrigation Office PMB Program Management Board PMC Provincial Monitoring Committee PMR Project Management Report PPDC Provincial Planning and Development Council PPDO Provincial Planning and Development Office PPIU Provincial Project Implementation Unit PRME Process and Results Monitoring and Evaluation RFU Regional Field Unit (of DA) SA Special Account Vice President: Jean-Michel Severino Country Director: Vinay K. Bhargava Sector Director: Geoffrey Fox Task Team Leader/Task Manager: Rahul Raturi   Philippines Mindanao Rural Development Project (Adaptable Program Loan) CONTENTS Page A. Program Purpose and Project Development Objective 1. Program Purpose and Design 2 2. Project development objective and key performance indicators 3 B. Strategic Context 1. Sector-related CAS goal supported by the project 4 2. Main sector issues and Government strategy 5 3. Sector issues to be addressed by the program/project and strategic choices 6 C. Project Description Summary 1. Project components 6 2. Key policy and institutional reforms supported by the project 9 3. Benefits and target population 9 4. Institutional and implementation arrangements 10 D. Project Rationale 1. Project alternatives considered and reasons for rejection 13 2. Major related projects financed by the Bank and/or other development agencies 14 3. Lessons learned and reflected in proposed project design 14 4. Indications of borrower commitment and ownership 15 5. Value added of Bank support in this project 16 E. Summary Project Analyses 1. Economic 16 2. Financial 18 3. Technical 18 4. Institutional 19 5. Social 19 6. Environmental assessment 20 7. Participatory approach 20 F. Sustainability and Risks 1. Sustainability 21 2. Critical risks 21 3. Possible controversial aspects 23  G. Main Loan Conditions 23 H. Readiness for Implementation 24 1. Compliance with Bank Policies 24 Annexes Annex 1. Project Design Summary Annex I (a) Letter of Development Program Annex I (b) Social Assessment Annex 2. Detailed Project Description Annex 2 (a) Infrastructure Component Annex 2 (b) Community Funds for Agricultural Development Component Annex 2 (c) Improving Microfinance Access Annex 2 (d) Institutional/Implementation Support Component Annex 2 (e) Coastal and Marine Biodiversity Conservation (GEF) Attachment. Incremental Cost Analysis Annex 3. Estimated Project Costs Annex 4. Economic Analysis Annex 5. LGU Fiscal Analysis Annex 6. Procurement and Disbursement Arrangements Table A. Project Costs by Procurement Arrangements Table Al. Consultant Selection Arrangements Table B. Thresholds for Procurement Methods and Prior Review Table C. Allocation of Loan Proceeds Annex 7. Project Processing Budget and Schedule Annex 8. Documents in Project File Annex 9. Statement of Loans and Credits Annex 10. Philippines: Country at a Glance Maps IBRD 30240 IBRD 30241  Philippines Mindanao Rural Development Project Project Appraisal Document East Asia and Pacific Region Philippines Country Department Date: November 8,1999 Task Teamn LeaderlTask Manager: Rahul Raturi Country Director: Vinay Bhargava Sector Director: Geoffrey Fox Project ID: PE-58842 Sector: Rural Development Prograrn Objective Category: Rural Development/Poverty LendinglInstrument: Adaptable Program Loan Program of TargetedlIntervention: [X] Yes ]No Program Phasing Total Cost External Financing Processing Bank Loan GEF Appraisal Bank Approval APL 1 January 2000-June 2003 US$41 .Om US$27.50m US$1 .25m June '99 Nov. 99 (Board) APL2 January 2003-Dec. 2006 US$150m US$90m US$3.50m Apr. '02 Oct. '02 (RVP) APL3 July 2006-June2010 US$200m US$100m US$4.75m Oct. '05 March '06 (RVP) APL4 January 2010-June 2013 US$160m US$72m US$4.50m Apr. '09 Oct. '09 (RVP) Total US$ 550m US$ 290m US$ 14.Om Project Financing Data [X} Loan [ Credit I Guarantee [X] Grant Amount (US$m): US$27.5 IBRD Loan SDR I .Om (US$1.25m equivalent) GEF Grant Proposed terms (Loan): [ Multicurrency [XI Single currency (US Dollar) Grace period (years): 5 L ] Standard Variable ] Fixed [X] LIBOR-based Years to maturity: 20 Commitment fee: 0.75% Service charge: 0.0% Financing plan (US$m): Source Local Foreign Total National Government 5.9 0.3 6.2 Local Governments 3.7 2.0 5.7 Beneficiaries 0.5 0.1 0.6 IBRD 17.6 9.6 27.2 GEF 1.2 0.1 1.3 Total 28.9 12.1 41.0 Borrower: Republic of the Philippines Responsible agency: Department of Agriculture Estimated disbursements IBRD Loan (Bank FY/US$M): 2000 2001 2002 2003 Annual 1.0 6.0 9.5 11.0 Cumulative 1.0 7.0 16.5 27.5 Estimated disbursements GEF Grant (Bank FY/US$M): 2000 2001 2002 2003 Annual 0.10 0.30 0.40 0.45 Cumulative 0.10 0.40 0.80 1.25 Project Implementation Period: January 1, 2000 to June 30, 2003  - 2- A: Program Purpose and Project Development Objective 1. Program purpose and program design Program Objectives. Poverty alleviation is a key objective of the Government's development plan for the medium term. Rural poverty accounts for nearly two thirds of the country's total poor. and Mindanao, the second largest island in the Philippines, accounts for nearly a third of the country's rural poor. Since the early 1980s, the island has seen an increase in the incidence of rural poverty. Fourteen of the countries 20 poorest provinces (based on minimum basic needs) are in Mindanao; and 72 percent of the island's 437 municipalities belong to the 4th to 6th LGU (local government unit) class using the DOF's classification based on income. Consequently, the government's development strategy places particular importance on supporting growth initiatives in Mindanao. With many of the rural poor relying on the agriculture sector (fisheries is considered as part of the sector) for their livelihood, the intensification and better management of the sector is seen to be extremely important for reducing rural poverty and conserving terrestrial, aquatic, and marine natural resources. The Rural Development Strategy' which was recently completed in close consultation with Government, highlights the constraints (policy, design and efficiency of existing investment programs, and institutional) faced in realizing the potential which exists in the agriculture sector; and outlines a variety of measures needed to address these constraints. The proposed Adaptable Program Loan (APL) program is set against the background of this analysis of constraints, and the fact that Mindanao, which despite the considerable potential for increasing agriculture production, has witnessed an increase in the incidence of rural poverty since the early 1980s. Accordingly, the APL program is designed as a targeted poverty reduction program for the rural poor and indigenous communities of Mindanao, aimed specifically at improving incomes and food security in the targeted rural communities within the 24 provinces of Mindanao. This would be achieved from the implementation of better targeted agricultural and fisheries-related rural development and biological diversity conservation programs, and improved LGU institutional, management and financial systems. At the same time, given the long history of conflict on the island of Mindanao, the realization of sustained rural growth and visible benefits to conflict-affected populations, will directly contribute to reinforcing the Government's efforts at consolidating the peace initiatives for the island. Program Design (see Annex 1): Past experience has shown that an effective program of poverty alleviation requires a sustained long-term commitment and involvement, which is often difficult to ensure through a single investment operation. Consequently, a phased long-term program involving a series of four Adaptable Program Loans (APL), supplemented by a GEF grant, each covering a period of between 3 to 4 years, is proposed, so as to effectively realize the above objectives, and secure sustainability in institutional capacity building and poverty alleviation. APL I, which is the subject of this appraisal document, would focus on a few selected provinces (see Map), to test out the approach, and initiate the process of engaging LGUs and rural communities in designing and implementing a rural development and coastal resources conservation program, in close association with concerned national government agencies (NGAs). The Government has confirmed the objectives and scope of the overall program in a letter to the Bank (Annex Ia), and agreed on key triggers for moving onto APL2, which would include: I Philippines: Promoting Equitable Rural Growth, Report No. 17979-PH, May 29, 1998.  * APL2 Project Preparation to be initiated once about 60 percent of the APLI Loan has been disbursed. Implementation evaluation of APL I to be carried out: social assessment of an initial group of eligible APL2 provinces to be carried out. * Institutional arrangements for implementation tested out and adapted based on experience in APL I; multisectoral committees for the Community Funds operating satisfactorily. * Overall satisfactory performance of APL 1, using the mid-term evaluation as a basis for assessment. * APL2 Loan to be approved once 80 percent of APLI Loan is disbursed, and the balance is substantially committed. 2. Project development objective and key performance indicators (see Annex 1): The project development objectives reflect the larger program goals, and aim to increase incomes and improve the food security of targeted agricultural and fisherfolk communities in around 32 municipalities within 5 provinces of Mindanao (North Cotabato, Sultan Kudarat, Agusan del Sur, Compostela Valley, Maguindanao). Together, these provinces cover an area of about 30,400 km2 (30 percent of Mindanao), and have a population of about 3.0 million; based on recent estimates of poverty, approximately 55 percent fall below the poverty line. It is expected that about 20 percent of this population will benefit from this first phase project. The project would also promote the participation of indigenous peoples (IPs), who represent a large part of the population of some municipalities, and of women, who play a key role in both agriculture and family nutrition. A social assessment was carried out in the first two provinces (North Cotabato and Sultan Kudarat) where program implementation will commence in Year 1, to ascertain the main constraints faced by rural communities, and guide the project design. Based on the survey and focus group discussions conducted (see Section E 6), rural infrastructure was identified as the highest priority by all communities, regardless of typologies, gender and ethnicity. Within infrastructure, the construction of access roads and bridges (especially in the rolling and mountainous areas where sitios are not even accessible from the barangay poblacion), and repair/rehabilitation of existing barangay roads, was considered most important. Potable water supply ranked second, while the construction/rehabilitation of irrigation systems and electricity followed in the infrastructure category. Agricultural inputs and other support services came next in priority, with post-harvest facilities, credit, government support price for goods and marketing assistance, farm inputs and extension services identified as most needed. IP communities, however, indicated farm animals (carabaos) and other farm implements as their highest priority. While sharing the communities' perception that roads are most essential to facilitate development within their areas, women consider potable water supply, livelihood opportunities, health and quality education services as priority needs. Despite the enactment of the Local Government Code (LGC) in 1991, the key challenge faced in the Philippines is how to implement the complementary roles seen for national government agencies (NGAs) and LGUs to efficiently deliver programs for rural/agricultural development, which effectively address the above mentioned constraints faced by rural communities. Responding to this challenge, APLI would aim to test out community-based systems for supporting rural development, as well as approaches for improving LGU capability for agricultural development planning and implementation in partnership with the concerned NGAs. The experience and lessons from APL I will help scale up the program under APL2 to other provinces in Mindanao which meet eligibility criteria. APLI would realize these objectives by: * Meeting community needs for essential rural infrastructure, to foster increased agricultural productivity and access to potential markets; facilitate the introduction of sustainable agricultural production systems and diversification of present cropping systems: improved access to financial  - 4- resources and agricultural inputs; and more effective technical support services. In doing so, the project would be supporting the Government in the implementation of the Agriculture and Fisheries Modernization Act (AFMA). Enhancing devolution and local autonomy, by reinforcing the implementation of the LGC, as it relates to aspects concerning agricultural and fisheries development and improved natural resources management. The first phase project would aim to strengthen rural development planning and implementation capacity of the different levels of LGUs, in partnership with concerned NGAs; improve monitoring and evaluation of ongoing rural development initiatives; and strengthening community participation in LGU planning for rural development. A strong participatory approach, using a program of social assessments, and involving the rural community, the LGUs, and local representatives of national government agencies (NGAs) would be a central feature of project implementation. Global Environmental Objective and Key Performance Indicators. The objectives of the proposed GEF- assisted component are to conserve and restore globally important coastal habitats and related marine biodiversity in Mindanao by mainstreaming biodiversity and marine ecosystem conservation in community development and in the coastal fisheries sector. Many coastal regions of Mindanao have received little international, national, and local attention to conserving natural marine resources. The proposed GEF-assisted component would help in creating sanctuaries and protected habitats for endangered species found in the area, including species of dugong and sea turtle. This project will also help to advance a model with broader applicability for mainstreaming biodiversity considerations in a sector with crucial social, economic, and environmental dimensions throughout Mindanao (including the ARMM), the Philippines, and tropical regions. Through the implementation of the proposed MRDP, the lessons learmed from first phase activities would be applied to arrest degradation and restore coastal and marine biodiversity in subsequent phases. The subsequent phases would expand project implementation to include additional qualifying sites in the coastal provinces of Mindanao included under the project. The key performance indicators for this component are provided in Annex 1. Key Performance Indicators. These (including those for the GEF component) are given in Annex 1, and will be monitored under a strong M&E system, which includes community-based monitoring mechanisms, already being developed under the project. It is important to emphasize, however, that addressing the institutional issues in the Philippines is complex, with decentralization offering both a challenge and an opportunity. No easy solutions are necessarily there, and expectations from this first phase APL, which will be making a start on addressing some of the key institutional issues, should be modest. However, in the long term context, the experience in implementing APL I will guide adaptations for the succeeding phases. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): CAS document number: Report No. 19137-PH Date of latest CAS discussion: May 4, 1999 In supporting the above development objectives, the proposed program is consistent with the Bank's Country Assistance Strategy, which has as its overarching objective, the restoration of sustainable economic growth with more poverty reduction and greater equity. For the sector, the CAS aims to support the Government's goal of accelerating environmentally sustainable agricultural growth and alleviating poverty in the rural areas. In doing so, the Bank's program is directed at alleviating the main constraints of low volume and impact of private and public investments and weak institutional capacity. Based on the outcomes of the social assessment, and what rural folk view as the principal constraints to income  - 5- growth and food security, the proposed MRDP APL program is seen as part of the Bank's program to address these constraints and support poverty alleviation. The APL I project is the first phase of this program, and will aim to address these constraints in 5 provinces and around 32 municipalities in Mindanao. 2. Main sector issues and Government strategy: Sector Performance and Issues About half of the Philippine population is rural, of which 64 percent is involved in agriculture. Agriculture accounted for about 17 percent of the country's GDP in 1998, and about 40 percent of the employed work force. In the high performning Asian countries, there has been a strong positive correlation between the rate of agricultural growth and the growth experienced in the non-agricultural sector. This linkage has been weak in the Philippines, where agricultural sector performance has been sluggish and uneven since the early 1980s. Excluding forestry, which has been declining consistently since the 1970s, the average annual rate of growth of agriculture decelerated from 5.8 percent in the 1 970s to 2.1 percent in the 1980s, and a mere 1.3 percent during the period 1993-98. While some of the factors which have slowed sector growth after the 1980s were beyond the control of Government, such as the overall downward trend in international commodity prices of the country's traditional export crops, deterioration of intersectoral terms of trade, and a series of natural calamities, there are others on which the Government could exercise control. Among the latter, was a serious under-investment in the rural sector by the Government, which was reflected in inadequate infrastructure and support services (other such factors included a slowdown in varietal improvements, particularly in paddy, marking a near completion of the green revolution by the early 1980s, and a poor macroeconomic environment). Low growth in the agricultural sector, high growth in the rural labor force (over 3 percent per annum in the 1 990s), and limited employment opportunities in non-farm activities, have resulted in high underemployment (21 percent) in the rural economy and a high rural poverty incidence (44 percent in 1997). The rural poor account for over two thirds of the poor in the country. Linked to reviving agriculture sector growth, the improved management of the critical natural resource base in the upland areas, as well as the coastal resources, is the other major development challenge for the country, and has important implications for ensuring the sustainability of rural growth, and for rural poverty alleviation. Many of the poor rural people live in the upland and coastal areas: the former are characterized by low-input shifting agriculture, with a high incidence of severely degraded areas; while the coastal and fishery resources are being depleted due to illegal and over exploitation. Finally, the enactment of the LGC in 199 1, and the resulting devolution of responsibilities and fiscal resources to local govemment units, has resulted in major changes in the institutional arrangements for supporting agriculture sector growth, and more broadly for rural development. As of mid-1997, about 70,000 national government employees had been devolved to LGUs; the devolved responsibilities cut across sectors, with agriculture and fisheries, infrastructure, social services and health being the main ones. Key issues which need to be addressed include: greater clarity and complementarity in the roles being played by the DA and the LGUs in supporting rural growth; strengthening of technical and administrative capability of LGUs to facilitate more effective planning and implementation of rural development programs; and closer involvement of local communities, NGOs and peoples organizations in program design and implementation. For Mindanao, the Government's development framework has identified a number of issues, key among which are the following: the high incidence of poverty; lack of livelihood and employment opportunities especially for the poor in the rural areas, and for those involved with agri-based occupations; inadequate access to basic infrastructure and services, particularly in the depressed areas and communities; and limitations in institutional capacity.  - 6- Government Strategy to Address Sector Issues The Government's strategy for securing sustained agriculture sector growth include: (i) deepening policy reforms to make the sector internationally more competitive; (ii) increased public investment in infrastructure, especially irrigation facilities, farm-to-market roads (FMR) and post-harvest facilities, to support intensive farming technologies; (iii) increased research and development investments, in partnership with the private sector; (iv) increased funding for agrarian reforn, and making it more effective and less costly: (v) improving natural resource management through policy reform, institutional strengthening, greater community participation, and development of appropriate tenurial and market-based instruments; (vi) streamlining the agriculture-related bureaucracy, including the interface between central and local governments; and (vii) making devolution more effective through improvement in the institutional capabilities of LGUs and channeling of adequate resources for devolved rural development activities. 3. Sector issues to be addressed by the program/project and strategic choices: The proposed program is closely aligned to the Government's strategic priorities as identified above. More specifically, the program would focus on strengthening local institutional capacity, following devolution, since the LGUs are key to securing sustained long-term rural growth. It would facilitate an increase in public investment for the agriculture and natural resources sectors in Mindanao, which the Government has identified as the major focus for agricultural and fisheries production due to its still largely untapped potential for development. It would focus particularly on rural infrastructure, which is viewed as a major bottleneck for increasing rural growth; strengthen the delivery of inputs, credit and technical support services to the smaller and more disadvantaged groups within farning community; and reinforce the implementation of the Local Government Code, by supporting measures which strengthen LGU rural development planning and implementation capacity, and ensure the more effective involvement of communities in programming of investments and their implementation. In reviewing alternative approaches while designing the proposed program, key considerations have included the following: (i) since responsibilities for most of the activities related to supporting rural development having been devolved (for example, rural infrastructure -- roads, communal irrigation, water supply, extension support services, etc.), a targeted approach, which takes the province as the basic unit for planning, is likely to be more effective in addressing the needs of the poorer rural communities; (ii) sustainability of the productive investments for such activities, and effective O&M arrangements, can be best assured with strong local government initiative and participation, and by seeking their long termn commitment to the program; and (iii) demand-driven and participatory approaches need to be at the core of the project planning and implementation process. C: Project Description Summary 1. Project components (see Annex 2for a detailed description andAnnex 3for a detailed cost breakdown): The design of the project has been guided by a social assessment carried out in selected municipalities of the first two program provinces of North Cotabato and Sultan Kudarat (see Map for year participating LGUs). Based on criteria developed in consultation with the heads of national agencies (DA. NEDA, DILG) from the six regions of Mindanao, as well as the Autonomous Region of Muslim Mindanao (ARMM), 3 additional provinces have been selected for inclusion in APLI - Agusan del Sur, Compostela Valley and Maguindanao, and a similar program of social assessments is being initiated in these new provinces. The thrust of the program is on meeting the key needs of rural communities for  - 7- supporting rural/agricultural development, and on strengthening the process of devolution and local capacity building. Rural Infrastructure (Annex 2a): The project will rehabilitate rural roads (an estimated 40 kms of provincial, and 460kms of farm market roads), from within the designated provincial and municipal/barangay farm-to-market roads (FMR) network, which are the direct responsibility of the relevant LGUs. Taking a network approach (with the province as the unit for planning purposes), the key principles underpinning the design of the proposed component are: adoption of least cost approaches for the FMRs (municipalities will be allocated lump sums, and the use of lower cost designs and options, will allow for the implementation of longer road lengths); contracting as opposed to implementation by force account; and emphasis on labor-based, equipment-supported (LB-ES) approaches. The selective improvement of provincial roads will ensure that all project supported rural roads meet an essential criteria that they link up with an existing all-weather road. The project will seek a commitment to undertake routine maintenance from the participating LGUs, with sanctions for non-performance (LGUs not fulfilling this commitment, will not be eligible for the following year's program). In supporting communal irrigation, APL I will facilitate transition arrangements for LGUs to take over greater responsibility for communal irrigation developments, as envisaged under the LGC. Given the limited role of LGUs in irrigation development so far, NIA will take the lead role in APLI (but closely involve LGU staff), in designing and implementing the program; LGU capacity will be strengthened in communal irrigation management, focusing particularly on supporting lAs in effective operation and maintenance of the schemes. The project will rehabilitate about 4,350 ha of existing communal irrigation systems (CIS), and selectively construct new projects (CIPs) in targeted poverty areas (about 850 ha, none to be implemented in year 1). Selection criteria for the schemes would follow those already in force under the ongoing Bank-financed Communal Irrigation Development Project II (CIDP II). In response to the priority placed by rural communities, particularly women, on the provision of safe potable water, the project will support rehabilitation and construction of Level I (point source) and II (communal faucet) spring development projects; provision has been made within APL I for the rehabilitation of around 140 units in 5th and 6`h class municipalities. The establishment of RuraVBarangay Water and Sanitation Association and certification from the Department of Health on satisfactory water quality will be pre- conditions for supporting rural water supply sub-projects within a community. Community Funds for Agricultural Development (Annex 2b): To address the diverse priorities of communities (varying also on account of their respective agro-ecological situation - coastal, marshland, lowland, mountainous), Community Funds for Agricultural Development (CF) will be set up at municipality level. Initially, a fund of PhP2.5 million would be available for each municipality, with contributions from the municipal LGU (PhPO.5m), DA (PhPO.5m), and the Loan proceeds (PhPI.5m). The CF will finance demand-driven sub-projects which are consistent with DA's programs and priorities for supporting agricultural and fisheries development. Poor communities will be targeted, and preference will be given to women and indigenous peoples groups. Multisectoral committees established at municipal level, with private sector/NGO representation, will manage the sub-project selection process. Selection criteria for the sub-projects would be kept simple (maximize beneficiaries per sub-project, projects are cooperatively owned, least cost per beneficiary, consistent with AFMA, size of counterpart contribution), given that these are going to be inexpensive and small in size. Overall, the objectives of CF are to: i) strengthen decision-making capacity at community level for design and implementation of sub- projects; ii) ensure that programs financed from DA's budgetary resources better reflect community needs; and iii) ensure that resource allocation for development projects at the LGU level better reflect community priorities. Together, these will reinforce the implementation of the LGC. 2 The mulitsectoral committees, which would include representatives from the rural community, would also facilitate the prioritization of roads from among those within a municipality which meet selection criteria.  - 8- LGU Institutionalflmplementation Support: Initiatives to strengthen local capacity will include the following: (i) Support for microfinance institutions (Annex 2c), given the limited access to financial services by small borrowers for both. farmn and non-farm purposes: (ii) Support for enhancing rural development planning and resource allocation capacity at the LGU level through TA and on-the- job training, and by bringing about a closer linkage with the DA at the regional level (Annex 2d; and (iii) linked to building rural development capacity, the project would provide implementation support and thereby enhance local govemment capacity in financial management, and monitoring and evaluation; in addition, the project would support the Program Coordination Office (PCO), which would also be responsible for providing implementation support to LGUs, and for preparing the next phase APL2 (Annex 2d). Coastal/Marine Biodiversity Conservation (Annex 2e): Complementing the above initiatives, and as an integral part of the overall program, a proposal for funds totaling US$1.25 million has been approved by the GEF Council (as earlier endorsed by DENR), to finance the incremental costs of promoting coastal and marine biodiversity conservation and sustainable use in the coastal waters of Mindanao. Two sites have been selected where the program would be implemented in APLI: Paril- Sangay Protected Seascape, Kalamansig, Sultan Kudarat Province; and Bongo Island, Parang, Maguindanao Province. Component Category Cost Incl. % of Bank/GEF % of Contingencies Total financing Bank/GEF (US$M) (US$M) -financing A. Rural Infrastructure Improvement 27.4 66.3 21.0 76.6 * Rural Roads/Access Physical 16.9 40.9 13.1 77.8 * Communal Irrigation Physical 8.5 20.6 6.7 79.2 * Rural Water Supply Physical 1.4 3.4 1.1 80.4 * Infra. Mgt. Capacity Building Instn. Bldg. 0.6 1.4 0.1 17.5 B. Community Funds for Agric. Dev. Physical 6.5 15.7 3.7 57.1 C. Institutional/lmplementation Support 5.4 13.1 2.5 46.3 * Rural Finance/Credit Instn. Bldg. 0.4 0.9 0.1 18.4 * Rural Development Planning Instn. Bldg. 1.3 3.2 0.6 46.3 * Financial Management Instn. Bldg. 0.4 1.0 0.3 61.0 * Monitoring and Evaluation lnstn. Bldg. 0.5 1.2 0.4 84.0 * Program Coordination Instn. Bldg. 2.8 6.9 1.1 39.9 D. Coastal Biodiversity Conservation -GEF | Phy./lnstn. 1.7 4.2 1.3 75.1 Total Project Costs 41.0 99.3 28.5 69.4 Front-end fee 0.3 0.7 0.3 100.0 Total Financing Required 41.3 100.0 28.8* 100.0 *Total financing includes a GEF grant of US$1.25 million and Bank loan of US$27.5 million; the front-end fee is included in the latter. Implementation Schedule. APL1 will be implemented over three and a half years, from January 1, 2000 to June 30, 2003. Since most of the infrastructure activities proposed under APL I can be implemented primarily during the dry season, which generally runs from around February to May, this will enable the program to be implemented over four dry seasons. Program implementation will commence in 2 provinces and 11 municipalities where all the necessary preparatory work has been undertaken, in close partnership with the LGUs as well as the potential beneficiary communities. A detailed program of procurement has been prepared, which aims to ensure that year I works contracts are awarded soon after effectiveness. Detailed preparatory work is being initiated to finalize the program for year 2, and initiate the key project start up activities in the additional 3 provinces and 21 municipalities (in particular the  9- Social Assessment, and firming up the physical programs); the additional municipalities were selected by representatives of concerned Mindanao based NGAs (DA, DILG, NEDA), and the relevant participating provinces, and confirmed prior to negotiations. It is planned that by early in year 2, the 3 additional provinces and all the remaining 21 municipalities which will participate in APL I, will be engaged in project implementation. Assurances were given at negotiations that commencing in the year 2000, and each year thereafter, the PCO will prepare a consolidated annual work plan for the physical and financial implementation targets to be achieved in the following year, including the requirements for counterpart budgetary resources from the national and local governments respectively, to be completed by March 31 each year. It was agreed that LGUs which do not meet their commitments (particularly in terms of allocating sufficient counterpart funds, and undertaking routine maintenance on roads), or are unable to successfully meet physical targets for implementation, will be excluded from the project, and replaced by new LGUs which meet the criteria for project participation. 2. Key policy and institutional reforms supported by the project: The proposed program is designed to strengthen the implementation of institutional reforms already put in place by the Government. It will build on the existing framework provided under the LGC (which transferred responsibility for certain sectors to local governments, as well as fiscal resources known as Internal Revenue Allotments, or IRA), and strengthen the devolution of responsibilities to LGUs, and enhance participatory planning and local autonomy in designing and implementing development programs. Presently, annual development plans of many LGUs are often listings of resolutions and requests for interventions to be funded out of the 20 percent Development Fund. This often results in projects being financed which are not always the most beneficial for the community, but possibly have persuasive local promoters, or are supported by local vested interests. In addition, the lack of sufficient funds with LGUs has adversely impacted allocation for rural capital investment, given the "lumpiness" of capital expenditures such as for roads, small-scale irrigation and rural water supply. The project will aim to bring about more efficient allocation of LGU resources in financing rural infrastructure, among others, (particularly on rural roads, and also seek their financial contribution in supporting small-scale irrigation), and a greater commitment from LGUs towards financing a program of routine maintenance of the rural/FMR road network. A related issue which will be addressed is the role of the NGAs, and how that needs to change with decentralization, from one of being providers and implementers of programs, to becoming facilitators providing technical support to LGUs. Taking the above into account, the project will endeavor to strengthen institutional capacity, bring about greater clarity in the respective roles of LGUs and NGAs, and work with particularly the DA, on how best to effect the transfer of additional financial resources for viable and pressing programs (and seek out ways to ensure greater complementarity in the programs financed from various sources). 3. Benefits and target population: National Benefits: The project would contribute to an increase in overall value added in the rural economy, incomes and employment, and thereby result in an improved quality of life for some 105,000 poor rural families (involving more than 600,000 individuals), which represents nearly 20 percent of the population of the 5 participating provinces. The direct benefits would come from increased agricultural production and crop diversification, as well as savings in vehicle operating costs and from safer water supply to rural communities. Subprojects financed under the community fund component would provide some of the poorer rural families with investment and income enhancing opportunities, and also facilitate ownership of assets at the local level. Significant institutional and social benefits should accrue from the focus on improving rural development planning, implementation and M&E capacity of LGUs, better allocation of available resources made available from both local government and national levels to support rural development, as well as from increasing the role of rural communities and the participation of project beneficiaries in the decision making processes. The latter will directly contribute to fostering  - 10- the creation of social capital. Nearly 85 percent of the project resources support productive investment and community-based investments, and will flow directly to the target populations in the rural areas. Global Benefits: The areas considered for biodiversity protection host three species of marine turtles and dugongs whose distribution range have been shrinking due to habitat destruction. The project sites will become an important and substantial addition to their natural distribution range. The project will reap significant benefits on the conservation of this globally important areas with its host of rare species of seagrasses (Thalassodendrum ciliatum) and highly diverse corals. Target Population: The proposed program is part of the Bank's program of targeted interventions, and will support provinces in Mindanao with high levels of poverty incidence and a largely agricultural base. The primary beneficiaries will be the rural poor, being mainly the small farmers and fisherfolk, those who live in the coastal and highland communities, the agrarian reform communities, and indigenous peoples. Criteria have been agreed with government (focusing on poverty and agriculture profiles) for selecting and prioritizing the participation of provinces in the program (see Annex I a). The targeting of communities and areas would be pursued using the following approach: * Geographical targeting: Selection of the municipalities where the project would be implemented is based on: scale of poverty incidence and magnitude; importance of agriculture and fisheries in the local economy (in line with the objectives of the Government's Anti-Poverty legislation); and absence of other similar rural development donor-supported programs. Income class was taken into account in selecting the first 11 municipalities (with guidance from NEDA), but this criteria is not being considered for the remaining 22 municipalities, given the lack of correlation between income class and poverty. * Beneficiary targeting: The program is designed to target the less well-off communities, for example, existing agrarian reform communities, as well as indigenous communities and women living within the participating provinces. Women and IP communities would be specially targeted under the CF, with 40 percent of the funds earmarked to support their subproject proposals. The emphasis on community involvement in selecting location and type of interventions (in the case of the CF subprojects) aims to ensure maximum impact on the rural communities. Social assessments being done of the rural communities (already completed in the initial two provinces of North Cotabato and Sultan Kudarat) allow for better targeting of communities and areas under the project. 4. Institutional and implementation arrangements: Overall, the program would fall under the Department of Agriculture (DA), and directed by a Program Management Board (PMB), chaired by the Secretary DA, which has already been established under Executive Order no. 474 dated March 24, 1998 signed by the President. A senior official in DA's RFU in each of the participating Regions will be responsible for overseeing and facilitating MRDP implementation from the DA's perspective. Given the Mindanao wide context of the program, the Program Coordination Office (PCO) staffed by the DA, which has also been established by virtue of EO 474, would coordinate and support the implementation of the program. Direct project planning and implementation responsibility would be vested in the LGUs. Within this framework, the respective responsibilities at the different levels are outlined below. The Program Coordination Office would be responsible for overall implementation coordination; and promoting the project to secure expansion to new provinces and municipalities across Mindanao. It will be the secretariat to the Program Management Board (PMB), and be responsible for putting together proposals for approval by the Board - annual work program and budget; schedule of sub-  - 11- projects requiring PMB approval. Together with DA-RFU (and where relevant, involving the multi- sectoral committees at the municipal or community level for the CF component), it would be responsible for appraisal/approval of subprojects for implementation under the program. It would ensure that environmental and social guidelines are followed in both developing proposals, and in implementation; and it would support provinces and municipalities in ensuring the Bank guidelines and procedures are followed on procurement, disbursements, auditing and overall financial management. It would consolidate total program accounts, have them audited and facilitate overall program financial management. It would be responsible for overall Program MIS and Monitoring and Evaluation; TA to provinces; and putting together periodic monitoring reports, and implementation evaluation at the end of year 2. Periodically, it will bring together implementation staff from the participating LGUs, to review progress and identify bottlenecks, if any, being experienced in implementing the project. The PCO would have no direct implementation related responsibilities. Prior to negotiations; key staff of the PCO were appointed, including the PCO Head; Heads of the Technical Services, Infrastructure, and Administration and Finance Sections, and staff of the Institutional Development and M&E Units. Provincial and Municipal Offices. At the provincial level, a Provincial Project Implementation Unit (PPIU) would be established within the Provincial Planning and Development Office (PPDO); existing LGU offices will be used in supporting project implementation. At the municipal level, which is expected to take the lead in implementation, coordination responsibility would lie with the Municipal Planning and Development Office (MPDO). Broadly, responsibilities at respective LGU levels would be the following: * Provincial Level. Supporting LGU capacity building, and overall Rural Development Program Planning; mobilizing the Provincial Development Council (PDC) and concerned municipal mayors around the MRDP initiatives, and linking with RFUs for technical backstopping; working with municipalities in consolidating subproject proposals, for which MRDP support is being sought for the province, for submission to the PCO; linking with participating municipalities, and preparing annual workplans and budgets for the overall provincial program, and later ensuring implementation coordination, and overall program M&E; using the network approach for guiding the selection process for road-related investments; linking with NIA on irrigation related investments; supporting the procurement process, and overall accounting and financial management of the program. MRDP Coordinators for the provinces of North Cotabato and Sultan Kudarat, and all staff responsible of provincial level implementation (in the Planning, Institutional Development, M&E, Financial Management and Infrastructure Units) in these two provincies were appointed prior to negotiations. * Municipal level: Engaging communities in identifying priorities; specific component-related investment planning and implementation; facilitating the work of multi-sectoral committees in approving CF sub-projects; contracting with private sector contractors and communities; mobilizing communities in supporting implementation where appropriate; implementing agreed O&M arrangements for infrastructure; maintaining financial records: regular monitoring of implementation progress and maintaining records for the M&E system. Procurement (Annex 6). Procurement of works for the rural roads/access and rural water supply sub- components will be undertaken by the respective LGUs; while that for the communal irrigation sub- component will be undertaken by the NIA. Procurement of works and goods for small community infrastructure under the communal funds component will be undertaken by the beneficiary communities, with the involvement of the multisectoral committees and LGUs. The PCO will undertake procurement of goods and consultants services to be provided at the PCO level and made available to the respective LGUs for their institutional development and capacity building. Procurement arrangements, which will follow Bank guidelines, are detailed in Annex 6. Overall, the project will be used as a vehicle to encourage more efficient contracting arrangements at the LGU level, rather than the present system of  - 12- force account which often encourages the purchase of large equipment by LGUs which are not always utilized to their full potential. It will also look to increased community-based contracting in the implementation of the different components, wherever appropriate. Flow of Funds (Annex 6). The World Bank funds for the rural infrastructure and community funds for agriculture development components will be channeled through the Municipal Development Fund Office (MDFO) to the Project Implementing Agencies (PIA), i.e. Provincial LGUs and central Government agencies such as the NIA. The funds for the LGU Institutional Support component will be channeled through the Department of Agriculture, while those for the CMBC component through DENR. The MDFO will maintain the Bank's Special Account for funds channeled through it. On authorization of budget allotment by DBM, funds not exceeding three months of estimated expenditures will be advanced by MDFO out of its own resources to the participating PlAs; this would be subject to the normnal MDFO- Policy Governing Board approval process. The PIAs will request replenishment of funds from MDF from time to time based on submission of Statement of Expenditures. MDFO will be responsible for submission of Withdrawal Applications to the Bank for replenishment of the Special Account. A separate Special Account will be opened by the Department of Agriculture for the Institutional Support Component for which, submission of withdrawal applications will be the responsibility of the DA. Finally, a separate Special Account will be opened by the DENR, for the CMBC component. Financial Management (Annex 6). An analysis of the financial management capacity of the two initial provinces and selected municipalities has been completed prior to appraisal. The objective of the financial management review was to assess whether the systems in place at PIAs do meet the minimum requirements as required by the Bank's OPIBP 10.02. Overall, it is considered that the financial management systems at the municipal level presently do not meet the minimum requirements for Bank projects. At the provincial level, the accounting systems were considered adequate and do meet the Bank's minimum requirements; however, they are considered ineligible for PMR-based disbursements due to weaknesses in their budgeting and reporting systems. Consequently, till such time that municipal financial management capabilities are significantly improved, all financial management activities for the project will be carried out by the Provinces. As the proposed project is an APL, and provinces and municipalities will be joining the project as implementation proceeds, it was not be feasible to carry out financial management assessment for all prospective participating units at the beginning of the Project. The PCO Head of Finance, in close collaboration with the MDFO and the relevant BLGF regional offices, shall be responsible for carrying out financial management assessments of the participating provinces, based on the FMS assessment models developed for the two initial provinces, and certifying their eligibility to receive project funds before any loan proceeds are disbursed. In case of Provinces with weak financial management systems, the PCO head will develop a time-bound action plan to improve the systems. Similarly, the PCO with the Finance staff of the respective provinces, also, in close collaboration with the MDFO and the relevant BLGF regional offices, will carry out FMS assessments of participating municipalities and develop Financial Management Improvement Programs (FMIPs) as a condition of including the municipalities in the Project. An action plan to complete the FMS assessments of the eleven municipalities identified to participate in the first year of the Project was agreed at appraisal. The Bank will review annually the effectiveness of the FMS assessment and the progress in implementing FMIPs for Provinces and Municipalities. The funding for the Community Fund for Agricultural Development will be released by the MDFO directly to the participating municipalities. The municipalities will be responsible for maintaining separate project accounts to account for the expenditures under these funds. The PCO and the Provincial finance staff will be responsible for monitoring the management of these funds by the municipalities.  - 13- Project accounts for recording the LGU Institutional/Implementation Support expenditures will be the responsibility of DA/PCO. The PCO shall be responsible for consolidation of audited project financial statements from LGUs, DA and other PIAs. The MDFO, DENR and the PCO will be responsible for submission of annual financial statements for their respective Special Accounts for audit by COA. Consolidated audited financial statements shall be submitted to the Bank no later than six months after the end of the fiscal year. Monitoring and Evaluation. The proposed program aims to build a strong system for monitoring and evaluation to: enhance the capacities of involved local and national institutions, as well as rural communities; and to provide a mechanism for assessing the program's efficiency in delivering its interventions, as well as the effectiveness of realizing desired objectives. The proposed M&E structure will be integrated into the various levels (national, program, provincial, municipal and community) of MRDP implementation. Beginning at the community level, beneficiary monitoring will be an important element of the structure. At the municipal level, the Municipal Planning and Development Office (MPDO) will be the focal point for M&E, in close coordination with the offices of the municipal agriculturist, municipal engineer, and the financial staff. At the provincial level, an M&E unit will be developed and strengthened within the Provincial Planning and Development Office (PPDO), which will coordinate M&E activities among the offices of the Provincial Agriculturist, the Provincial Engineer and the Provincial financial staff. The MRDP's PCO, through its Monitoring, Evaluation and Social Assessment Unit would consolidate all M&E reports, for submission to DA Central and Regional Field Offices, the World Bank, as well as other concerned oversight agencies. Evaluation studies will be done in the midyear implementation and last year of each APL phase. For APLI, evaluation studies will be conducted at the end of Year 2. As a support to evaluation, baseline studies will be conducted prior to sub-project implementation. Evaluation studies will be done by independent institutions (such as local universities, private research groups, etc.) in order to ensure impartiality of study results. D: Project Rationale 1. Project alternatives considered and reasons for rejection: In designing the proposed project, various alternative approaches were considered. These included the following options: (i) single commodity-based projects, such as the Small Coconut Farms Development Project; (ii) sub-sectoral interventions, such as Communal Irrigation; Research and Extension; (iii) social funds or community-based initiatives; and (iv) area-based rural development projects targeted at the poor. While the first three approaches could support the overarching objective of poverty alleviation, two important considerations have guided the decision towards the last mentioned approach. Firstly, under the Local Government Code, most of the responsibilities for agricultural development have been devolved to local governments; and secondly, in the absence of effective transition arrangements having been in place at the time of enacting the Local Government Code, the institutional weaknesses of many LGUs are posing to be the principal bottlenecks for effective and sustainable rural development, despite a clear commitment towards this objective at those levels. In addition, there continues to be lack of clarity in the respective roles and responsibilities of LGUs vis-a-vis national government agencies, in the context of supporting rural development programs. Within the context of devolution, the LGUs need to be the focal point for setting priorities, and be responsible for designing and implementing development programs. The proposed approach will allow for a holistic approach to poverty alleviation within the farming and fishing communities; with the province being the largest feasible geographical/political unit, around which project initiatives for both physical investments  - 14- as well as capacity building can be planned. The use of the Adaptable Program Loan instrument would allow for longer term perspective being taken in addressing the development issues (particularly on the institutional side), and will enable a sustained commitment of both the Bank and the Government to the proposed program. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned): Sector issue Project Latest Supervision (Form 590) Ratings (as of June 1999) (Bank-financed projects only) Implementation Development Progress (IP) Objective (DO) Bank-financed * Local Institutional Capacity; Operation and Second Rural Roads Project S S Maintenance (closed; ICR completed) * Beneficiary participation in irrigation Second Communal Irrigation S S development and management Development *Realigning role of DENR, LGU capacity Environment and Natural S S building, community involvement in natural Resources Sector Adjustment resources mgt. Loan *Water resources planning and management; Water Resources Development S S watershed management Project *Targeted poverty reduction Agrarian Reform S S Communities *Emergency Post-Conflict Recovery; poverty SZOPAD Social Fund Project S S alleviation *Tackling the nexus between poverty and Community-Based Resource U S natural resources management Management Other development agencies *Targeted Area Development; poverty focus, European Union: Southern n.a. n.a. micro-project financing Mindanao Agricultural Prograrnme *LGU Institutional Capacity CIDA: Local Government n.a. n.a. Support *LGU Capacity building USAID: Govemance and n.a. n.a. Local Democracy (GOLD) Project *Farmer linkage with Agri-business; USAID: Growth with Equity n.a. n.a. enterprise development in Mindanao (GEM) Project IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: There are lessons from a variety of sources which have been taken into account, first in defining the manner in which project preparation would be undertaken, and later in designing the proposed program. A review of the Bank's experience with rural development projects in the past has highlighted the following lessons: (i) commitment and ownership to the program is vital, not just by Government, but by implementing agencies and the rural people directly affected; (ii) project design should draw upon proven technologies; and the goals must be realistic and precise; (iii) project design must be flexible; (iv) beneficiary participation, at both the planning stage and during implementation, is necessary; (v) credit and farm inputs are often critical to success; (vi) arrangement for infrastructure maintenance have to be in place from the start; (vii) social preparatory activities such as community organization and build up should precede infrastructure development. A review (by QAG) of selected poverty reduction projects in East Asia, undertaken in 1998, has also highlighted some important conclusions: the need for greater focus on addressing the long term institutional implications of a project to ensure sustainability; need for  - 15- simplifying and increasing flexibility in the Bank's procurement procedures; need for greater analytical focus in monitoring the project's long term impact, which needs to be built into the project design; importance of local contribution to financing the project, both from Government and communities, to ensure ownership and commitment. Experience with projects in the Philippines reinforce the above conclusions. The Bank has supported numerous projects in agricultural development, irrigation and rural infrastructure, with varying degrees of success. The overriding lesson from this experience is that centrally planned and executed investments in rural infrastructure tend to receive secondary attention from the line ministries at the center. As a result, delays are endemic, monitoring of quality is limited and sustainability in terms of maintenance and operation is uncertain at best. The conclusion is that active local participation and responsibility from planning to design to implementation is essential. This approach is consistent with the Government's thrust on substantial fiscal decentralization. 4. Indications of borrower commitment and ownership: As outlined below, the borrower (including agencies at national and LGU levels) has been closely involved in project preparation, providing a strong indication of borrower commitment and ownership. * The proposed project is the result of the work done in close cooperation with the Government in articulating the Rural Development Strategy, which was discussed with a variety of stakeholders. * At identification, the project concept was endorsed by the national level Rural Development Steering Committee, which was chaired by NEDA, and included representation from the Departments of Finance, Budget and Management, Agriculture, Environment and Natural Resources, and Agrarian Reform. DA played an active role in facilitating project preparation (PHRID legal documents were signed within a week). In briefings by the Bank for the new Government in July 1998, the incoming Secretary of DA expressed strong support for the project. * During Consultative Group Meetings in the last three years, the Government appealed to donors to focus development efforts on Mindanao. * Project preparation has been led from Mindanao, with the establishment of the overall Program Management Office (PMO), in Kidapawan (Mindanao), which was authorized by an Executive Order signed by the President of the Philippines (EO No. 474) in April 1998. The PMO (which is being converted into a Program Coordination Office to support implementation) was established by the DA in August 1998, prior to start of project preparation. * Local Governments in the two initial provinces expressed strong interest in participating in the project. The Governors of North Cotabato and Sultan Kudarat established Provincial Task Forces (some members of which received training in project preparation in Manila in July 1998), which supported the consultant team, as well as the PCO, in preparing the feasibility study. * A Social Assessment was completed in the initial two provinces, in which LGU and PMO staff participated actively. There was strong interest in discussing the findings of the Social Assessment among the cross section of LGU officials, at municipality level workshops held during October and November 1998. * The heads of the agencies (NEDA, DILG, DA) from the six regions of Mindanao, and ARMM and MEDCO representatives met in November 1998, together with PMO staff, and Bank team members, and agreed on criteria for selecting the first group of provinces in which the program would be initiated in APLI. It was agreed that in addition to the two initial provinces, Agusan Sur, Maguindanao and Compostela Valley would be added to APL I; this would involve 4 regions, and consequently, institutionally facilitate the subsequent geographic expansion of the program. Importantly, it was agreed that if certain LGUs do not perform, and APL I implementation performance as a whole suffers as a result, other provinces can be brought into the program.  - 16- The MRDP Program Management Board, chaired by the Secretary of DA, met in Kidapawan in November 1998, even prior to completion of project preparation, and confirmed the above recommendations. CF Pilots prior to Project Start up. Highlighting the considerable local commitment to the program. and also to provide an opportunity to better prepare for implementation of the Community Fund component, two municipal LGUs (Sen. Ninoy Aquino in Sultan Kudarat and Libungan in North Cotabato), together with the respective provinces, agreed during appraisal to initiate pilot activities, and have since committed IRA resources from their existing budget totaling Php 1.0 million each, to test out implementation arrangements for the component. The DA Secretary confirmed that the Department will match the LGU contribution. Implementation of these pilots has been initiated, with the early activities focusing on information dissemination, community organizing in the barangays, establishment of the multisectoral committees, seeking subproject proposals from communities, and the selection process, to be carried out between August and December 1999. 5. Value added of Bank support in this project. The Bank's close involvement in articulating the Rural Development Strategy, which provides the underpinnings for the project's design, and the experience it has in supporting community-based rural development and resource management projects in the Philippines, provides the comparative advantage for the Bank vis-a-vis the proposed project. A number of bilateral donors have supported capacity building initiatives for LGUs since 1992. However, in most instances, there have been no funds to adequately complement training received with real sector investment programs to enable more effective on the job training. MRDP is designed to overcome this weakness. In addition, over the years, the Bank has built up considerable experience with projects and programs dealing with rural poverty alleviation related issues and rural development projects. The lessons from this experience, both positive and negative, can be brought to bear in designing the proposed program. The use of the Adaptable Program Loan instrument provides a potentially effective means for ensuring flexibility in project design, and continuity of a program which needs a long-term approach. Finally, concerning the coastal and marine biodiversity conservation component, a strong leadership role is required given the magnitude of issues and the number of donors working in the sector and the impact of investments of other sectors on coastal resources and marine biodiversity. The Bank is in a unique position to play that role given its experience in the sector, particularly in the East Asia region, and its understanding of what is needed to manage the sector. E: Summary Project Analyses (Detailed analysis are in the project file, see Annex 8) 1. Economic (supported by Annex 4): ERR= 22 percent The economic benefits of the project would result from (i) the rehabilitation of provincial and farm to market roads and the subsequent savings in vehicle operating costs; (ii) rehabilitation and investment in communal irrigation schemes which will generate an increase in farm productivity; (iii) investments in improving the supply of potable water resulting in increased time-saving from collecting water and reduced incidence of water-bome related sickness and disease; and (iv) community-based development through the availability of community funds. In addition, as indicated earlier, investments to support local government and other institutional capacity building, as well as to strengthen decentralized and community-based decision making, will facilitate better implementation of rural development programs, help foster the creation of social capital, and strengthen staff skills of all implementing agencies at the local level, with resulting efficiency gains.  - 17- Methodology: Given the programmatic nature of the project's design, and the fact that local communities will be driving the choice of sub-projects in many instances (for example on the CF component, as well as the selection of rural roads, and water supply sub-projects), the analysis is based on a modular approach, taking the projects prepared for the Year One program as the basis for estimating the expected economic benefits for the project as a whole. A strong monitoring and evaluation component is being supported under the project, which will facilitate a better evaluation of projects put forward for consideration, using the baseline information being collected, and the actual experience of implementation as a basis for later analysis. In the case of the community funds for agricultural development, it is not possible to know a priori which micro-projects will be financed, given the demand-driven nature of the component. Nonetheless, a variety of small-scale community development projects are analyzed in anticipation of the actual needs of a given barangay as conveyed through responses in the social assessment. Overall, the proposed project yields an ERR of 22 percent, a net present value of $11.5 million and a benefit-cost ratio of approximately 1.4 (using a discount rate of 12 percent), over a 20-year period of analysis. At the component level, the farm-to-market roads investment yields an ERR of 15%; the proposed investments in communal irrigation development generate an ERR of 39 percent; communal spring development are expected to result in ERRs of around 11 percent (the estimate excludes significant social and health benefits to be derived, which are difficult to quantify); and finally, using a range of possible investments which the communities may undertake under the Community Fund component as a basis, the ERR for the component is estimated at 31 percent. Sensitivity Analysis: Switching values were calculated for each component and for the project in its entirety, and the results confirm that the ERRs are relatively robust to changes in revenues and costs. Overall, total project costs would need to increase by 26 percent or benefits to reduce by 20 percent, for the overall ERR to drop down from 22 percent to 12 percent, suggesting that the program is more sensitive to changes in project benefits than to project costs. As discussed in more detail in the annex, the respective analyses for different components shows greater sensitivity to changes in revenues than to costs; to a large extent, this reflects the conservative bias in the assumptions underpinning the analysis. 2. GEF Component - Incremental Cost Analysis (Annex 2e: Attachment 1) This project will also help develop a model with broader applicability for mainstreaming coastal and marine biodiversity considerations in a sector with crucial social, economic, and environmental dimensions in Mindanao, and more broadly in the Philippines. Under the GEF scenario, substantial information, capacity, and experience will be developed to promote the mainstreaming of marine biodiversity conservation and sustainable use within the fisheries sector, particularly at the community level. The GEF approach relies on removing barriers for successful mainstreaming through demonstration, capacity building, enhancement of the information base for sound decision making, and policy development in Mindanao as part of the project, where little attention has been paid in the past to marine resource and biodiversity conservation. The GEF component will support the piloting of community-based marine sanctuaries to benefit both fishing resources and marine biodiversity; enhance local capacity for addressing coastal ecosystem management issues; and improve the knowledge base for sound ecosystem management and decision-making. It would assist in the demarcation and protection of marine areas with habitats and species of global importance and assist in their sustained management and protection. Without the CMBC component, these marine biodiversity conservation-related activities would not be implemented in the project area. The incremental costs are calculated as the difference between the GEF scenario ($6.05m) and the baseline scenario ($4.8m) and total US$1.25 million.  - 18- 3. Financial (see Annex 5) Fiscal Impact: The fiscal impact of the project results from various sources. Firstly. the program will result in an increase in national and LGU fiscal resources being allocated to support rural development in the initial group of 5 provinces. Over the life of the project, the DA will be required to commit an estimated US$5.9 million, by way of counterpart funds, while the 5 provinces and 32 municipalities will, together, be required to provide an estimated US$6.0 million towards the financing of the project. In taking a programmatic approach, and by supporting ongoing DA programs, it is proposed that the project's demands on national level counterpart funds should largely be absorbed within the annual budget envelope. On the part of the LGUs, the demand for counterpart resources would arise in financing all of the components. The analysis of LGU fiscal resources shows that, at a global level, and taking into account projects increases in IRA resources, LGUs should be able to meet their financial commitments towards the project. Their ability to do so in a timely manner, will provide an indication of their commitment to the program. In addition to the above, a significant positive fiscal impact can be expected from the project as a result of improved rural development planning, increased community participation, and new and better ways of allocating fiscal resources by LGUs while supporting rural development priorities viewed as important by rural communities. In addition, based on experience elsewhere, greater efficiency in resource use can be expected with the implementation of the $16.8 million rural roads components by contract rather than force account. Similarly, given that community-based setting of priorities and execution of project should be more efficient, the implementation of the CF component should generate significant efficiency gains in the use of DA and LGU fiscal resources. These benefits should multiply exponentially, as more LGUs join in implementing the program. 4. Technical. TIhe project's design has benefited from a detailed review of key technical issues related to the principal components being supported under the project. In addition, implementation/operations manuals have been drafted, which will guide the procedures and arrangements to be followed during implementation. The manuals will continue to be refined, as lessons of experience build up with implementation. * For the roads/access component, a detailed review of the roads network of the first two provinces has been completed, and the year I program identified in close consultation with the LGUs. Detailed designs and related procurement documents for virtually all of the year I program of works have been prepared, with the emphasis being on: adopting low cost designs; encouraging the use of labor-based equipment-supported road construction; designing contracts so as to seek out an increased participation of women. Selection criteria for the roads to be included under the program have been confirmed with the participating LGUs; communities will be involved in prioritizing investments among roads which meet criteria. Commitments will be sought from the LGUs that they will allocate adequate resources for regular road maintenance, and the implementation agreements would stipulate that grants provided to LGUs under this project by the national government would be converted into loans if this commitment is not met. * For communal irrigation, the criteria for selecting schemes have been agreed (being largely in line with the ongoing CIDP II); and the key technical requirements which would need to be confirmed in the feasibility studies have been outlined (for example, dealing with the availability of water, suitability of soils, land holding patterns, and the absence of water-borne diseases). While NIA will continue to be responsible for the technical aspects of design and implementation management, APL I will aim to develop local capacity by seeking involvement of designated LGU staff to work alongside NIA during implementation.  - 19- * For rural water supply, water quality issues and satisfactory community-based institutional arrangements (RWSA/BWSA) will underpin decisions on individual projects. Institutional arrangements have been designed, and necessary technical assistance provided under the project, to ensure the technical soundness of proposals which will be brought forward for financing by local governments and communities, during the implementation phase of the program. 5. Institutional: a. Executing agencies: Department of Agriculture, Department of Environment and Natural Resources and participating Local Government Units. b. Project Management: The detailed implementation arrangements outlined earlier, are guided by the objective of using MRDP to reinforce the implementation of the LGC; and bring the DA Regional Field Units' (RFUs) technical backstopping role better into focus with the LGU's direct planning and implementation role. As mentioned earlier, this is a challenging task in the Philippines, and the ability to realize these objectives depends on the commitment of local institutions. In the Letter of Sector Development Objectives, the DA Secretary has reaffirned DA's commitment to pursue these objectives (Annex I a); furthermore, participating provinces will be required to provide a similar commitment, as already done by the first two participants (North Cotabato and Sultan Kudarat) in their respective Letters of Development Objectives submitted to the Bank prior to negotiations. In this context, an important feature of the proposed project management arrangements is that, firstly the Program Coordination Office was established in Mindanao (and not Manila) even prior to the start of detailed project preparation, and hence has been involved in the entire process. Secondly, staff from the local governments too worked with the project preparation tearn, and also participated in the social assessment work; this has contributed to building local capacity and ownership of the project, and will facilitate overall project management once implementation commences. 6. Social: During project preparation, a wide ranging Social Assessment was carried out in the first two project provinces (Annex I b); it is now being initiated in the three additional APL I provinces. The Social Assessment in North Cotabato and Sultan Kudarat Provinces conducted a total of 1,350 household surveys from 90 barangays in 20 municipalities, and 120 focus group discussions from 60 barangays involving some 2,000 rural community residents. Barangays were selected such that they represented the various types of agro-ecological systems found in Mindanao: mountainous, rolling, lowland, marshlands, and coastal. The Social Assessment was conducted with the active involvement of the LGUs, which provided the counterpart resources and staff. The latter worked effectively with the two area-based institutions which implemented the Social Assessment: a non-government organization, CADTEC, which was responsible for conducting the focus group discussions, and the University of Southern Mindanao, which was responsible for the household surveys. A series of participatory planning workshops were conducted in various municipalities where the key findings of the Social Assessment were presented to municipal and barangay management and legislative officials. As indicated earlier, the main priorities of most people were for infrastructure, followed by agricultural inputs, and lastly by other basic social services. Women in general. mentioned health services and water and sanitation facilities as their more important priorities. Indigenous peoples households were concerned about physical accessibility, draft animals and their children's education. The findings from the social assessments in the two provinces provide the underpinnings for the design of the project.  - 20- Indigenous Peoples. Indigenous People's policy guidelines have been developed for the Program which will guide the participation of the indigenous population in Mindanao. This part of the Philippines is home to many IP groups, many of whom are poor and will be eligible for program funding, particularly under the Community Fund component. The Indigenous People's policy guidelines for MRDP closely follows the program developed by Cotabato Province known as "Integrated Provincial Management Assistance and Policy Support Program for the Indigenous People..." which conforms to the Bank's OD 4.20. The IP guidelines are included in the Operations Manual, and have been endorsed by the DA; project staff, particularly those in the Community Fund component unit, will be provided orientation on Bank OD 4.20 and training on development for indigenous populations. Land Acquisition and Resettlement. Given the nature of the components, land acquisition and demolition of houses/structures and displacement of persons are not anticipated in MRDP. All roads will follow current alignments, thus minimizing potential environmental impacts and land acquisition. Should these be necessary, e.g., in rehabilitation of infrastructure (including any minor right of way adjustments for roads or irrigation canals), they would be kept to a minimum; for new communal irrigation projects, the lands required for the canal system will be acquired in consultation with the benefiting communities and will be consistent with existing practice under CIDP II. A Policy Framework for Land Acquisition, Resettlement and Rehabilitation of Project Affected Persons (Policy Framework) has been prepared for MRDP and it lays out the guidelines to be followed in the event of land acquisition necessitated and resettlement and rehabilitation of persons affected by subprojects under MRDP. However, a recently issued Administrative Order No. 50 (AO 50) limits the Government's ability to initially offer compensation to landowners at zonal value of the land plus ten percent, which amount may or may not equal replacement cost of the land. Landowners that do not accept the offer may request court adjudication. Notwithstanding AO 50, and for the purposes of MRDP, the Government has it to establish a procedure that would ensure that Project Affected Persons (PAPs) are compensated at replacement costs for their land prior to the displacement of such persons by project works. To reflect this agreement, the Government has adopted a revised the Policy Framework which sets out the procedure by which the difference, if any, between zonal value plus ten percent and replacement cost will be paid to project affected persons accepting the Government's offer prior to their displacement. 7. Environmental assessment: Environmental Category [ J A [X] B []C The project is assigned a "B" environmental classification. MRDP will focus primarily on the rehabilitation of small rural infrastructure, and other than the small component proposed for new communal irrigation projects (covering an estimated 850 ha), will not enter into any substantial new construction. Environmental assessment will be undertaken on all infrastructure projects, although given the nature and small-size of sub-projects, no significant adverse environmental impacts are anticipated. Road improvements would largely follow existing alignments, and irrigation works would usually benefit areas where rice is already grown. Environmental Impact assessments with mitigation plans, where relevant, would be submitted for review and clearance by DENR. Institutional arrangements to ensure that environmental compliance is followed during the implementation phase have been incorporated in the Operations Manual. For the first-year program, an environmental assessment has been undertaken for the roads and water supply sub-components, through the PCO; NIA will complete a similar assessment for the proposed irrigation component. The assessment for roads indicate that most of the impacts are not significant, and that the impacts during the implementation stage will be temporary. Similarly, for the water supply activities, there are small or no adverse impacts. Where appropriate, mitigation measures have been recommended and will be acted upon during project implementation.  - 21- 8. Participatory approach: Primary beneficiaries and other affected groups: A strong participatory approach has been taken in preparing the project, which will also be pursued during the implementation of the project; in order to get the communities engaged in the process, the program of social assessments will continue with the new provinces and municipalities. The preparation process endeavored to get rural communities involved in identifying the key issues and constraints which they face, and which need to be tackled to improve the livelihood of rural people. Importantly, the findings were then discussed at workshops involving officials from LGUs (municipal and provincial), so as to engage them in the design of the program. Overall, the design of the program aims to reinforce the role of key stakeholders in guiding the allocation of resources for rural development; in particular, the Community Fund component will bring together rural communities, LGUs and the DA in a manner which will strengthen participation/consultation in supporting rural development, and in the implementation of the LGC. In addition, it is envisaged that other stakeholders, such as NGOs, local technical and academic institutions, etc. will get involved in guiding the implementation of some components, in particular the CF, as well as in supporting initiatives aimed at enhancing agricultural productivity. F: Sustainability and Risks 1. Sustainability: Sustainability of the proposed operation is being pursued from various fronts. Firstly, and most importantly, institutional sustainability is being pursued through the highly consultative process followed during the project preparation, which has confirmed LGU commitment and interest in the program (they have set up local teams, and contributed staff and other resources to project preparation), and has also involved local communities. This will be reinforced during implementation, with the implementation of local capacity building measures, both at the technical level, as well as in rural development planning. Secondly, institutional ownership to the program can be expected to be strong, since LGUs and the benefiting communities will be contributing towards the cost of the different components, either from the LGU's IRA resources, or as equity contribution from the beneficiaries. Finally, at a technical level, the project will be supporting the involvement of appropriate technical institutions available locally, as well as national government agencies, to work with the LGUs, in implementing measures aimed at the better and more efficient management of land and water resources, including improved natural resources management in the uplands. 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): While the program's design is not complex, the proposed implementation period of three and a half years is ambitious, for a program of this size. The principal reason for opting for this shorter timeframe is that good preparatory work has already been done, both at the LGU level, as well as at the level of the communities. As outlined earlier, project preparation has been carried out locally in Mindanao following a highly participatory process, involving DA representatives from the RFUs, the LGUs and the communities; in addition, the Program Coordination Office is already in place. Given the nature of the program, involving NGAs (DA and DENR), LGUs, rural communities, it will be important for the Bank to commit supervision resources beyond existing norms, particularly during the first 18 to 24 months, in order to facilitate an effective start up of this program. Risks which need to be managed from the Government's side are discussed below.  - 22- Risk Risk Rating Risk Minimization Measure From Outputs to Development Objective Inadequate LGU and beneficiary commitment to M Continued support under the program would be O&M. conditional on provision of LGU resources to ensuring satisfactory O&M. Poor technical or engineering support N Generally, for the types of investments being forthcoming locally. proposed, skills are available in the LGUs. These will be further enhanced through implementation support, on-the-job capacity building, and needed TA provided under the project. Communities are not fully brought into the M The social assessment process, and the planning/implementation process; political subsequent workshops held at municipal level, establishment does not actively participate in the have demonstrated the willingness of the political process. establishment to pursue a participatory approach involving communities. Project design, in terms of making year 2 allocations for the community funds focus on getting communities involved with LGUs. Escalation of civil strife in Mindanao, should M There is provision for making changes to the there be a breakdown of the peace agreement. participating LGUs, to enable project to move to areas where implementation is possible. However, a major breakdown will adversely impact ability to realize development objectives. From Components to Outputs Inadequate demand from LGUs for subprojects; M The substantial consultation process during the willingness to borrow from the national preparation phase has confirmed strong LGU government. interest; and Year I program is firm. Given poverty incidence and low class of the LGUs, it is proposed that most of the Loan funds should come as grants (the percentage can be changed during implementation, based on experience). Counterpart funding from both national M Project funding as part of the draft FY00 budget government, and the LGUs is not provided on an has been confirmed; LGUs will be required to adequate and timely manner. contribute upfront before accessing funds from the MDF. Bank will also need to be pro-active, together with other stakeholders, to secure budget resources in later years. Changes in elected officials in LGUs (possible M Project supports capacity building at both LGU every 3 years), reducing capacity and and community level, to enhance institutional commitment to the program sustainability; Bank will need to be pro-active in securing continued political ownership at the LGU level. PMO does not have competent staff M Satisfactory staffing of the PCO is a condition of negotiations. Overall Risk Rating M As part of an APL, proposed project intends to test out approaches, before scaling up program geographically across Mindanao. M&E is being designed to support adaptations and changes, as implementation proceeds. Overall, successful implementation, with more effective LGU roles, and more efficient and community-based use of DA budgetary resources has potentially very significant pay off. Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)  - 23- 3. Possible Controversial Aspects: None. G: Main Loan Conditions 1. Effectiveness Conditions: For the Loan Agreement, the conditions of effectiveness include the following: (i) The DA shall have concluded Implementation Agreements covering the year I programs with the provinces of North Cotabato and Sultan Kudarat; (ii) a Memorandum of Agreement shall have concluded between the Department of Finance and the DA; (iii) endorsement/adoption of revised sections of the Operations Manual dealing with the Community Fund, Financial Management, and the Resettlement Policy Framework. For the GEF Grant Agreement, the conditions of effectiveness include the following: (i) The Loan Agreement will have been declared effective; (ii) a Memorandum of Agreement shall have concluded between the DENR and DA, setting forth their cooperating and coordinating arrangements; (iii) the Implementation Manual should have been adopted and put into effect. 2. Assurances obtained at Negotiations: Program Implementation: (i) Overall program implementation to be in line with the provisions in the Operations Manuals, which includes criteria and process for sub-project selection; (ii) Project affected persons coming under the purview of OD4.30 (involuntary resettlement) due to a proposed subproject, shall have been resettled, compensated and/or rehabilitated, prior to the concerned-subproject being implemented; (iii) Each LGU to allocate funds and other resources, and then carry out a program of routine maintenance on agreed sections of roads; (iv) LGUs to disseminate information (including maintaining bulletin boards) on all CF sub-project proposals (both approvals and rejections) submitted within its jurisdiction, and on status of implementation; (v) Provincial LGUs, in association with MDFO/BLGF, to carry out financial management assessment of participating municipal LGUs within their province, within 12 months ofjoining the program. Project Management: (i) Project Management Board, chaired by the Secretary DA, and a Program Coordination Office within DA, and located in Mindanao, to be maintained throughout the implementation period of the project. (ii) PCO to prepare annually, not later than March 31, an annual work plan, including the allocation of counterpart budgetary resources from the national and local governments. (iii) Participating provinces will establish and maintain a Provincial Project Implementation Unit (PPIU), while the Municipal Planning and Development Office (MPDO) will be responsible for coordinating implementation at the municipal level. (iv) For supporting the implementation of the CF component, as well as to prioritize the road rehabilitation program, each municipality shall establish and maintain a multisectoral committee. Monitoring and Reporting: (i) Each LGU to monitor and evaluate on an ongoing basis, the implementation and achievements of the projects, in line with agreed performance indicators. (ii) The PCO will submit semi-annual reports for the periods January to June, and July to December, on progress on implementation, to be submitted to the Bank by September 30 and March 31 following the respective periods each year. These will be based on separate reports prepared by each participating LGU. (iii) The PCO will ensure that a detailed evaluation of program implementation is undertaken, and a consolidated report submitted to the Bank by March 31, 2002; the report to be jointly reviewed with the Bank by June 30, 2003. (iv) ICR to be prepared by the Borrower six months prior to closing of the project. Financial Reporting: (i) A financial management system shall be maintained, including records, accounts, and financial statements, involving all LGUs and other implementation units (such as the PCO and NIA); consolidated for the project as a whole, and together with the Special Accounts, audited annually; certified copies of finandial statements to be forwarded to the Bank not later than six months after the end of each fiscal year.  - 24- H. Readiness for Implementation Engineering design documents for year I road program, and procurement documents for the proposed works (as well as for goods) were completed prior to negotiations. Engineering design documents for the proposed rehabilitation of communal irrigation schemes will be completed soon after negotiations, using loan funds to be available under retroactive financing. In addition, a pilot for the Community Fund component is being implemented, using LGU and DA resources, which will facilitate the later implementation of the component. At the institutional level, the PCO is already in place (with staffing substantially completed prior to negotiations), and staff from the year I participating LGUs, who will be part of the Provincial Project Implementing Unit (PPIU), have been actively engaged in the project preparation process. The Operations Manual for guiding implementation has been endorsed by DA prior to negotiations, which will be adapted from the lessons of experience. I. Compliance with Bank Policies This project complies with all applicable Bank policies. Task Team Leader: Rahul Raturi CountryDiretor: ffrey Fox Country Director: Vinay K. Bhargava  - 25- Annex 1 Philippines: Mindanao Rural Development Project Project Design Summary Narrative Summary Key Performance Indicators Monitoring and Critical Assumptions Evaluation Sector-related CAS Goal: (Goal to Bank Mission) 1. Poverty Reduction by lmplementation of targeted and Periodic surveys; Political commitment and accelerating Environmentally priority rural poverty alleviation midterm and final financial support to Sustainable Rural programs. project evaluations. actively pursue programs Development. and policies targeted at Improved delivery of services in poverty alleviation. support of better defined rural development goals and targets. GEF Operational Program Goal: Prevalence of species of global Semi-annual assessment Improved management Conservation and restoration importance in the project areas. of marine ecology at and conservation of of Coastal, Marine and project sites and changes natural marine and Freshwater Ecosystems. in fisheries productivity fisheries resources would and efficiency. concurrently improve incomes from resultant effects. Program Purpose: (From Purpose to Goal) Improved incomes and food Evidence of a sustainable Evaluation Reports from National Government will security in the targeted rural declining trend in rural poverty each phase of the sustain political and communities within the 24 incidence within the targeted program. Baseline budgetary commitment to provinces of Mindanao, from communities by the end of APL2. information to be supporting devolution; implementation of better generated prior to start APL approach seen as a targeted and sustainable Increase in employment of program. vehicle to support agricultural and fisheries- opportunities in targeted areas, and programmatic related rural development and in the incomes of participating implementation. marine biodiversity households. conservation programs, and NEDA sponsored, APL Program developed improved LGU institutional, LGU-NGA partnership periodic and initially is acceptable to, management and financial institutionalized, and increased independent reviews of and can be successfully systems. public funding for LGU development plans replicated in other LGU/community managed rural and accomplishment provinces and Phase I (APL 1) - development programs, consistent reports. municipalities. Initiation of program in with AFMA/national agricultural selected provinces development plans. Periodic FIES Reports General economic stabilitN in the country/regions, anc Phase II (APL 2) - peace and order Geographic expansion across maintained in Mindanao. Mindanao Increased LGU and community involvement in rural development DENR would coordinate Demonstration effect of Phase HI (APL 3) - and marine biodiversity periodic independent community-based Deepening and conservation program design, reviews of development management efforts under  - 26- Institutionalization M&E and implementation. plans, actual physical APLI would provide progress, and useful examples and Phase IV (APL 4) - verification of reported lessons learned for Securing Program progress. replication in other project Sustainability areas during subsequent Phases. APLI - Project Development (Objective to Purpose) Objective: Institutional, financial and At least 50 percent of participating Sangguniang Bayan No major natural community-based planning LGUs (provincial and municipal) resolutions calamities, or drastic and management systems adopt agricultural development LGU directives changes in weather (such implemented and refined for plans, which also incorporate as earthquakes, excessive supporting rural development outcome of consultation process Implementation of typhoons, prolonged within targeted agricultural with communities, and local and specific studies to droughts, el nino. etc.) and fishing communities, in 5 national technical agencies. monitor progress; to 6 provinces, covering at beneficiary surveys. least 30 municipalities. DA budgetary allocations under AFMA/national agric. Baseline information on Improved LGU capability for development plans for the APLI communities and agricultural development participating LGUs integrated into areas to be generated planning, implementation and the latter's respective financial and prior to start up of M&E, in partnership with investment plans. project implementation. national government agencies (DA), and local technical Increase in agricultural institutions. productivity - corn and palay yields in target communities; Responding to community increase in area planted to priorities for key rural diversified crops; reduced post infrastructure. harvest losses. Household incomes in targeted communities increased; at least 75 percent of the direct beneficiaries of the project improve incomes by at least 30 percent by the end of APL2. Project Global Objective: To conserve and restore Increased involvement of local The project would The financial and fisheries globally important coastal stakeholders in partnerships with conduct periodic productivity benefits to the habitats and related marine public sector agencies for planning evaluations of changes communities and biodiversity in Mindanao by resource allocation and use, and in to marine ecology individuals that result fron mainstreaming biodiversity conservation of coastal resources (biodiversity) and marine sanctuary and and marine ecosystem and biodiversity through increased fisheries productivity biodiversity conservation conservation in community (I) number of active locally based and efficiency at and in and management would development and in the coastal planning and development the vicinity of the provide the incentive for fisheries sector. committees; (2) number of project sites that result continued sustainable households participating in from project management of these forrnulating decisions for planning, intervention. resources. implementing, monitoring and evaluating local development  - 27- interventions; and (3) amount of community resources (cash and non-cash) being contributed for the construction, maintenance and rehabilitation of local infrastructure facilities. Outputs: (Outputs to Objective) Rural Infrastructure: * improved rural access, * Rehabilitate about 460 km of Bi-annual Monitoring Insufficient LGU and through rehabilitation of rural rural and 40 km of provincial Reports beneficiary commitment tc roads, trails and bridges; roads. Will lead to: increased O&M. traffic; access to larger number of Reports of Annual markets for farm inputs and Implementation Poor technical or outputs, located along/near road Progress, for Program engineering support sectors/bridges being rehabilitated, Management Board forthcoming locally. changes in prices for farm inputs (PMB); Minutes of PMB and outputs, reduced travel time Meetings Communities are not fully from farm to market, and reduced brought into the planning goods/passenger transport costs. Process and Results and implementation M&E Reports (PRME) process; political * improved irrigation for small * Rehabilitate about 3,500 ha and establishment in LGUs farmers, from rehabilitated construct 1,500 ha of new Detailed program does not actively communal irrigation systems; communal irrigation systems. Will evaluation after the end participate in the process. result in: increased irrigation of year 2 of APL. service areas in target provinces; Escalation of civil strife in higher cropping intensities, and Bank Supervision Mindanao, should there be crop yields; increased farm Mission Reports a breakdown of the peace incomes. agreement. * rural water supply and * Develop around 130 new spring sanitation systems for targeted water systems. Will result in communities; increased number of households in project municipalities with access to safe water, lesser incidence of water borne disease, lesser kms walked by water bearers in collecting water * enhanced maintenance of * Sustained increase in LGU infra by LGUs and budgets for maintenance; communities. improved condition of road network (change in proportion of good-fair-bad roads). Community Funds for Agric. Development: * Implementation of economic * Annual disbursement of P2.5m investments based on each, in 32 municipalities, to community defined priorities, support community-based projects. incl. those for supporting Increased employment in target  - 28- improvements in agricultural areas, from implementation of and fisheries productivity. rural community initiatives; increase in number of women and IP communities involved in local decision making bodies; increase in the number of households involved in planning, implementing, monitoring and evaluating local community priorities lower rates of unemployment among males and females; LGU incorporates community needs into plans; DA programs more responsive to community needs. Institutional Capacity Building: * Enhanced rural development * LGU staff and community planning, implementation and leaders trained (formally and M&E capabilities within informally); technical skills LGUs; closer interaction upgraded. between DA at national level, Rural development plans adopted and LGUs, and rural and monitored by LGUs, based on communities at local level. community needs, analysis of Improved interaction between resource base, and poverty LGUs and local distribution. On farm technical/research institutions. demonstrations of technology to respond to small farm issues; better linkage with local technical/research institutions. Increasing percent of national budget expenditures within participating LGUs being integrated into the latter's annual plans. MIS system developed; and PRME implemented. Community-based monitoring implemented. * Strengthened capacity to * At least 90 staff from key meet micro-finance and rural cooperatives, and 80 from MFIs credit needs. trained and loan agent scheme piloted in the 5 provinces, one successful coop transformed into a rural people's bank. Improved/increased delivery of rural credit - purpose and maturity diversified in targeted communities.  - 29- * Improved Financial * Train LGU staff and develop Management, to support more financial management and M&E efficient rural development capacity. FMIP implemented, and program implementation and bank reconciliation completed in monitoring. all participating municipalities. * Data collection and recording system established. Conservation of coastal marine biodiversity: *Conduct of a resource *Direct involvement of local assessment survey; communities and people's organizations in the establishment *Data collected and *Partnerships would be of protected coastal areas through tabulated for efficient formed and between and *Application of a participatory participatory activities. analysis with community capacities of public and planning and management participation. private sector agencies process for identification and Reports of meetings and (individuals/organizations development of protected *Number of incidents of illegal progress with the that would foster improvec areas; activities reported and consistently establishment of marine resource acted upon and resolved by protected areas. management, and *Strengthening of local marine enforcement agencies. biodiversity conservation. resources surveillance by *Community and coastal communities linked to *Continued collection and enforcement agency existing enforcement agencies; evaluation of data on marine reports of intervention ecology and changes in into illegal and *Resource monitoring and community well-being. destructive activities. evaluation program; *Number of new employment *Consultant/NGO/DEN opportunities created that do not R joint reports on have adverse impacts upon marine progress with *Assistance to the biodiversity and natural resources. implementation and development of alternative resultant impacts. income generating (AIG) activities *Records of new jobs created. Program Management: Program Implementation and Coordination mechanisms * MRDP organizational structure tested, and adapted for larger established at all operating levels program implementation. (PCO, and in LGUs and participating communities); key operations manuals developed, tested and adapted to experience. LGU political establishment fully engaged.  - 30- Project Components/Sub- Inputs: (budget for each (Components to components: (see Annex 2 for component) Outputs) project description) Rural Infrastructure subprojects: Quarterly monitoring and Progress Reports Inadequate demand from . Rural access/roads US$16.9 million the LGUs for the * Small scale irrigation US$ 8.5 million Financial Monitoring subprojects; insufficient . Rural water supply US$ 1.4 million Reports willingness to borrow from the national Bank Supervision government. Program of targeted Poverty US$ 6.5 million Reports Interventions - Community Overall, counterpart Fund Program for LGUs/rural funding is not provided on communities, to support an adequate and timely agricultural development. manner by both national and local governments. Coastal/Marine Biodiversity US$ 1.7 million Protection (GEF) Changes in elected officials (possible every Implementation Support and US$ 3.2 million three years), reducing capability building for LGUs, capacity and commitment rural communities, and for to the program. improving DA/LGU linkage. Overall Program Management US$ 2.8 million Program Management and Coordination. Office is not fully operational and staffed with appropriate staff.  - 31- Annex 1 (a) Philippines: Mindanao Rural Development Project Letter of Development Program Republic of the Philippines 5, ; DEPARTMENT OF AGRICUl TUREF'/-" / TIli i\CiT' OfficeoftheSecretaryR 17 .2 )91 fJi rm r ___ * jtlEliptical Road, Diliman, Quezon CitU ! -llN R June22, 1999 w 1 VINAY K BHARGAVA y Y f--- Country Director, Philppines East Asia and Pacifc Region 23'd Floor, Taipan Place, Emerald Aven, Ortigas Center Mandaluyong City Subject: Letter of Sector DeelopentObjectives Mindanao Rural Devek,pment Progam Dear fr'. /3 The Governments Medium Term Phlippine Development Plan (MTPDP) for 1999- 2004 highiigt the foldwing objecives: alleviating poverty' modernizg agricultre; improvng the delivery of basic social development sevices; infrastructure devebpment partijairly in th rural areas; te pursuit of pnvatzaion, derugibaon, lberaizaion and globalizon, while maintainirg economic stability, and reformig governnce. Within the conted of the MTPDP, the Eshada admnsion accords a partiularly high priority to agrcAure and runr development wich is viewed as ticai to Dreazn t Govements objectives of reducing powrty, gerag v empoyment aid ensmu food secuty. This task is particularly challenging in Mindno, which accout for just over a third of the total lad area of he country, has a poputon of 16 million (24 pent of te countys total in 1995), and which has a vey high incidence o rral poerty (61 percent in 1994). Seventen of the isand's 24 provinces rank among the couts poormst and over 70 percnt of the islands 437 municpaities .fal within the 4" aid c dass under DOF's classifation based on income. In mrlate terms, the region has been less successful in bringing down the levels of poverty over the past two decades, when compared wfth the other regions of the country and the nral sector in Mindanao has remaied in a state of sagnatom. Yet with its dimac and geoguplc adoP m Midrao holds iendmus potenials and has distinct comparabve advantes for agriclture and fisheries sector growth, which if develped, could serve as a stmng foundation for sustaiable grwth of the natbonal economy. The above situation has arisen due to many factors. Historically, goverment expenditure in Minnao has been low as compared to its population and land area. Infrasure expenditre hi Mindanao averaged only 20 prcent of the total country's outlays during the period between 1982 to 1993, resultin poorer availability of, among others, rual feeder roads and irrigation facilities. Apart from inadequate expenditures on rural infrastrucbure, the major constaints to development in rural Mindanao are poorly functioning mral markets and insufficient post-harvest support and facilities, limited reach of agcuttural developmet services, difft in accessing production credit, paricjaly by smaliholders and those not having ibt to band, and ill-prepared LGUs for nrual devetopen pianing and implementation. In addition, te Department of Agriculture has not ahiays been effeclive in providing technical support to LGUs, and communities have not been integraed into the desrn-makong processes of the LGUs and the DA whije identiyng pnontes for Jnvestment dc, 64/f 1_44,e9 ' n4. i * C _ Z EAfi,f, MI,g  - 32- The Philippine Governrment attaches high prionty to the devebopment of Mindanao as part of the peace process, and to realize its potentials and contribubons to the national economy. In addressing the above issues, the Government recognizes that poverty alleviation and rural development are ong drawn processes that require sustained support And while most of the r isponsbtes for agricultural and rural development have been devolved to LGUs under the Local Government Code, the institutonal weaknesses of LGUs continue to be the prindpai bottlenecks for effective and sustaiable rual development Building instituonal cac at the loca level, and ensuring sustauiab*ity also requres nurturing over a blog peiod. The Adaptable Prograrn Loan fadihty of the aorld Bak offers an opport to meet the spedcf, uniqL e and long term requirmeits of rral devebpment and insti.rtienailization; and the Government would like to avail of this facility for the Mhndaro Rural DevebplmenT Program. Phase I of the program has almeady been endorsed by ICC Tediical Board, as weUl as the Cabinet Comrrmitee for Investment Coordination and the NEDA Board. The design of tee proposed MRDP responds to the key findings and recommendations i t recently copld Rural Develpmnt Sbategy for achieving rural growth and poverty alleviation, on which there is agrewnent between te Government and te World Bnk and which also benefrtd from consuitations with ntebrs of cvil society. A long term apprach is necessary for secLing sustained grwth in toe agncult seor, focused on s hingig rural pubbc invstment progams (supportin the hmpemntaio of the Agriulue and Fishewes Modemnizaton Act), uiprovig the institonal fimewoel which supports rual development (reforcing the implementaion of the Local Government Code), and ensurng tV rural communites are dosely involved in the design and iplemantion of ptc investment programs intended fir imroing their Iveliood. Taken together, these initaves aim to support the Governents key objetes of taddkng poverty and ensuning food securty. The program msponds to the prority pbaced by the Government on Mintbnao, which accounts for nearty a third of the counrys nrral poor, and has comparative advatges and an untapped poentil for rasasin agricultural sector gmh trditionally, the isand is vowed as te food aid rf maletial supplief1r fth country. In preparing the program, an effort has been made to seek the di input of the participating koca govenu ertr and communites from an earty stage. The Governmen kinifd teo first t prowics and 11 municipalities, based on agreed crit (which evhmp LGU cass, ifs poverty profile, and the relative importance of the agrigture sector to the provicia economy), on the basis of which project preparabon has been conducted, addtoa provinces are being added to the program following citena detaied below. A wide ranging Social Assessment has been complWed in the initial sto provinrcs which has highlighted community concerns and priorities and which has guided the design of the pram. Project prepration has been led from, and carned out entirely wihin Mindanao (with ft establihert of the Program Management Office pnor to start of preparbon work: this will diarge to Program Caordination Office once implementation commrenes). In addition, the providal LGUs established courterpart teams which, togetr with staff from the muniipal LGUs, have worked on project preparation. Recognzing that poverty alleviation requirs sustained long termn involent as does institutional capacity buikingr, Fe MRDP is designed as a bng term APL Program, coverin 12 to 15 years, involving 4 APLs (each covering between 3 to 4 years). At the end of the second year of each APL (or once 60 percent of te Bank Loan for that APL is  - 33- disbursed, if earlier), a detailed mkierm evaluation of implemeration would be canied out, with a view to making adaptaions if necessary, and for guiding the design of te next APL A strong focus on M&E is an integral part of the APL's design, and a comrporent to strengten local LGU capacity, as well as to support commntity based M&E, is included in APLI. This approach emphasized learning by doing, which will allow for contimuous adjrents to prgect design based on lessons learned from implmentaion, early idenication of problems and risks, ard the implementation of cotrecti measre as geographic covage expands. In addrition, its is proposed that participating pmvnialmuncpul LGU weaud receive a declining percent of the Bank Loan on grant teffns (i.e. increasing oDsts to be borne by the LGU). as it contiues its invovnent in succeeding APLs. The proposed design of the program is set out in the attached annex We believe hat te MRDP, as we have designed it in dose corsuaion with Xt rual communites, pwaitg LGUs and the WoVrld Bank, wd pnTide excellent opporhurwis for both te nabonar govemnmert agencies and th LGUs, for inforng the intent and implementation of the 1991 Local Govern t Code, and for allVtg povt in the rural areas wfflin te ovemall conteXt of enrdncng agdncitLra and shewes prnx1ucivty in Mindanao It is then impeatbve hat the devlpment efforts W re currety doing in Mindanao be immediately supported by te poveny tageted inbrventions of the MRDP. Very truty yours, S 9Z;J. VA% X M Secreary  - 34- Annex To Letter of Sector Development Program APL 1: Would initiate the program in a relatively small group of about 5 provinces, for testing out and initiating a process of engaging LGUs and rural communities in designing and implementing a rural development program, in close association with the concerned national government agency, developing an implementation strategy, and establishing a mechanism for scaling up the program in the succeeding APLs. APL 2: Would provide for expanding the geographic coverage of the program across Mindanao, to provinces and municipalities which meet eligibility criteria; the program would be deepened in the APLI provinces by enlarging the scale, and also ensuring that all eligible municipalities are included. Consideration could be given to including a rural communities health component. Triggers for moving on to APL2. * Project Preparation to be initiated once 60 percent of the APLI Loan has been disbursed. Social Assessment of the next group of provinces, which express interest in participating and meet eligibility criteria, to be completed. * APL2 Loan to be approved by the Bank once 80 percent of APL I Loan is disbursed, and the balance is substantially committed. * Institutional arrangements for implementation tested out and adapted based on experience; multisectoral committees for the CF operating satisfactorily. * Overall satisfactory performance, using the mid term evaluation as a basis for assessment (key elements for assessment will include adequacy and timeliness in providing counterpart funds in APLI LGUs; improved arrangements for routine road maintenance sourced from increased budgetary allocations by LGUs; completion of at least 60 percent of proposed infrastructure program in a particular province for its continued involvement in APL2; improved rural development planning and allocation of budgetary resources by LGUs, with community involvement; greater integration of DA programs into LGU RD plans, synchronized through the regular planning and budgeting process and schedules). Criteria for selecting new provinces where project preparation can be initiated for APL2 are given below: APL 3: Would continue support for all provinces covered under APL2, and complete the coverage across Mindanao, to the extent that some provinces or municipalities remain outside the program due to their inability to meet eligibility criteria. It would focus on deepening the program by ensuring that all eligible municipalities are fully engaged. APL 4: Would focus on reinforcing the key thrusts underpinning the overall program, and in securing both program and more importantly, institutional sustainability of the developments undertaken in support of increasing agricultural production and alleviating rural poverty. Triggers for moving on to APLs 3 and 4: * Project Preparation to be initiated once 60 percent of the ongoing APL Loan has been disbursed. Social Assessment in eligible provinces and municipalities to be completed. * Bank approval of new APL Loan to be done once 80 percent of the ongoing APL Loan is disbursed, and the balance is substantially committed.  -35- * Acceptance by LGUs already participating in the program, of increased cost sharing on project supported activities (as reflected in proposed or approved budgets, etc.); increased share of RD activities funded from central DA budget integrated into LGU financial and investment plans. * Overall satisfactory performance, using the mid term evaluation as a basis for assessment of key performance indicators (similar to those mentioned above, plus, more importantly, degree of initiative by LGUs for instituting concrete mechanisms for sustainability of institutional arrangements initiated under the MRDP). * Provincial LGUs already participating in the program (under APLs I and 2) should have rurai development plans in place (see component on Strengthening LGU RD Planning), which are linked to annual budgetary allocations. This should provide the basis for designing continued program support for these LGUs. APLs Impln. Period Estim. Cost Bank Loan GEF APL I January 2000 - US$41 .Om US$27.5m US$1 .25m _ une 2003 __ __ ___ _ APL 2 January 2003 - US$150m US$90m US$3.50m December 2006 APL 3 July 2006 - US$200m US$ 1OOm US$4.75m June 2010 APL 4 January 2010 - US$160m US$72m US$4.50m June 2013 Total J 1US$550m US$290m US$14.Om Note: The proposed timing and amounts for APLs 2 to 4 are tentative, and will be subject to a fill appraisal process. In preparing the above projections, it is assumed that 18 provinces and 218 municipalities will participate in APL2, and 24 provinces and 315 municipalities in both APLs 3 and 4. Share of Bank Loan financing in total project costs is assumed to decline from an average of around 70 percent in APLI, to 60 percent in APL2, 50 percent in APL3, and 45 percent in APL4. Eligibility Criteria for LGU Participation The initial group of LGUs shown below (provinces, and respective municipalities), which formed the basis for project preparation, and where program implementation will commence in Year 1, were selected by the DA and NEDA, primarily on the basis of: firstly, the province having an agriculture sector of sufficient diversity to represent Mindanao (including having coastal municipalities); and secondly, the municipalities selected, as shown below, were Class 4 to 6 LGUs. * North Cotabato Province: Aleosan, Banisilan, Antipas, Libungan, Arakan * Sultan Kudarat Province: Kalamansig, Sen. Ninoy Aquino. Lutayan, Lambayong, President Quirino, Columbio. The regional heads of national government agencies (NEDA, DILG, DA) from the six regions of Mindanao, as well as from ARMM and MEDCO, met in November 1998, and agreed on criteria while selecting the following additional three provinces for inclusion in APL 1: Agusan Sur, Maguindanao and Compostela Valley. This would result in four regions participating in APL 1, and consequently, at an institutional level, facilitate the geographic expansion of the program in subsequent APLs. If certain LGUs do not perform, and APLI implementation performance suffers as a result, other provinces and municipalities can be brought in to replace the original LGUs; this would require the endorsement of the Program Management Board.  - 36- The criteria for bringing in additional provinces (and municipalities) into APL I (and establishing a ranking, if necessary for project preparation purposes, among provinces expressing interest in participating in APL2) include the following: * Preferably allow for one province per Region, which will facilitate quicker replication within each Region. * Provincial LGUs should be willing to allocate financial, staff and other resources for undertaking project preparation; and commit themselves to facilitating, and participating in carrying out a Social Assessment. * Within a Region, preference would be given to the province with the highest levels of poverty, as evidenced by rural poverty incidence and rural poverty magnitude. * Preference would be given to provinces with a higher potential in agriculture and fisheries, and with very limited or no similar externally financed project as MRDP. * Ability to service debt - projected annual debt service for next 3 years is less than 50 percent of development fund. Assessing Implementation Performance The program will implement a strong M&E system, closely linked to enhancing LGU capacity in this area, and putting in place an effective mechanism for assessing performance within the context of the proposed APL program. In terms of capacity building, training courses, workshops as well as technical assistance for LGUs will be provided. The key areas to be monitored includes the following: - Rate of implementation progress (eg., no. of kilometers of roads rehabilitated within a period of time, increase in the no. of irrigated areas irrigated, etc.) - Processes which result in increased involvement of communities in the decision making process (eg., description of the mechanisms in which village level decision making is arrived at in determining investment priorities and in managing community-based resources at the village level, etc.) - LGU plans becoming more responsive to broad community priorities (eg., greater level of satisfaction among communities in the delivery of devolved agricultural and fisheries support services, etc.) * DA programs and budgets being integrated into LGU plans (eg., increasing yearly DA budgets which are incorporated into devolved agricuiltural and fisheries support services, increasing role of LGUs in performing and delivering devolved activities, etc.) * Direct impacts on beneficiaries from different components (eg., increase in on- and off-farm incomes among targeted communities, improvement on access to basic services and markets, etc.) Independent evaluation studies would be conducted at specific program milestones in order to assess effects and impacts of interventions, as well as to consider adaptations to the program. Baseline data would be collected at the provincial, municipal and community levels prior to implementing the various program components in order to provide the basis for assessing the effectiveness of program interventions.  - 37- Annex 1 (b) Philippines: Mindanao Rural Development Project Social Assessment I. Social Assessment (SA) led MRDP preparation activities. The Social Assessment was implemented to ensure that project areas were appropriately selected, project objectives and strategies were responsive and acceptable to the intended beneficiaries, and feasible within the subject areas' social, political and institutional contexts. Further, the Social Assessment examined the experiences of the various communities in their own development activities to see where the Project can build upon. Social Assessment data collection focused on two provinces for project preparation and will be conducted in the three additional provinces for their participation in APL 1. The first Social Assessment in Cotabato Province (population 862,666) and Sultan Kudarat Province (population 522,187) conducted a total of 1,350 household surveys from 90 barangays in 20 municipalities and 120 focus group discussions from 60 barangays involving some 2,000 community residents. Barangays were selected such that they represented the various types of agro-ecological systems found in Mindanao: mountainous, rolling, lowland, marshlands, and coastal. Municipalities selected for the Social Assessment came from both 4h to 6th class (50%) and from 1' to 3rd class (50%). Secondary data was also used. Similar Social Assessment with improved questionnaires and smaller sample size are being initiated in the three additional provinces (Agusan del Sur, Compostela Valley and Maguindanao) in APL 1. 2. The Social Assessment was conducted with the active involvement of the local government units (LGUs), which provided counterpart resources and staff. The latter worked effectively with the two area- based institutions which implemented the Social Assessment: a non-government organization, CADTEC, which was responsible for conducting the qualitative focus group discussions, and the University of Southern Mindanao which was responsible for the quantitative household surveys. A series of participatory planning workshops were conducted in various municipalities where the key findings of the Social Assessment were presented to municipal and barangay management and legislative officials. The close partnership with LGUs in the conduct of the Social Assessment has generated a strong sense of local ownership for the Project. Social Assessment Key Findings. 3. In 1997, Cotabato and Sultan Kudarat (SK) were classified as among those with the highest poverty incidence in the country with 52.9% and 50.6% respectively as against the country's 32.1% poverty incidence. The two provinces are similar in termns of manpower and natural resources Their geography is mainly mountainous and rolling plains with 80% in Cotabato and 53% in SK. Agriculture is the main occupation of more than half the population. 4. Corn is the main crop planted across all ecosystems, especially in the rolling and mountainous areas, while rice is widely planted in the irrigated lowlands. In SK, farmers are increasingly growing coffee in the rolling terrain. SK farmers in the coastal areas plant coconut trees and augment their income through fishing. According to the study, more than 60% of farmers cultivate less than half of their entire farm. 5. Inadequate infrastructure services cited as a major concern by communities, include the virtual absence of access roads in the rolling and mountainous areas (especially those connecting the sitios to the barangay poblacion), farm to market roads (55% are earth roads) which become unpassable during the rainy season, and the poor condition of existing ones in the lowlands. The poor road conditions contribute to high transport costs for the farm produce and create problems for women and children in accessing health and school facilities and services. In both provinces, less than 50% of the population have access to potable water. This contributes to infant morbidity rates caused by diarrhea and other  water and sanitation-related diseases. Irrigation facilities in both provinces are mostly concentrated in the lowlands. About 55% of the total irrigable area of the two provinces, covering some 113,566 hectares, have untapped agricultural potential in the absence of irrigation facilities. Electricity is available only to 46% and 26% of the total households in Cotabato and Sultan Kudarat respectively. 6. Farmers cite the lack of capital to adopt technology packages and improved farm inputs (seeds). The adoption of more productive and efficient technology is further hindered by other factors such as inadequate post-harvest facilities, farm tools, draft animals (carabao) and the high cost of credit. To acquire capital for farm inputs and tools, farmers depend on traders and usurers charging exorbitant interest rates of 17%-20% a month. They are unable to access loans from formal lending institutions like banks because of the stringent requirements of these institutions; whereas traders/usurers offer them credit lines without any collateral requirements. Further, traders send their agents (locally called "snipers") directly to the farms, making them the most accessible source of credit in the remote areas. 7. Coastal communities, considered one of the poorest among agricultural communities, indicate the need for undertaking measures for improving their incomes from fishing and other coastal activities. This in turn suggests the need for improved coastal and marine resources management with emphasis upon community-based conservation of critical habitats, and introduction of sustainable fisheries management and control in coastal waters, which should lead to improving the availability of fish resources in local waters. 8. Many communities in the rolling and mountainous areas have very limited access to basic health services as reflected by the leading causes of morbidity and mortality rates (diarrhea, bronchitis and pneumonia). These ailments are supposedly preventable diseases but the acute lack of health personnel and other medical services, particularly in the mountainous Table : Ccotabato Community Priorities MRDP Survey 1998 areas compound health problems. Education offered is mostly is WR..t bri. 1 i -- primary level, except in the 403lowlands where secondary schools 35 l lil l glCr*dn can be found. In the rolling and gL2 osm oodlobs mountainous areas, the multi-grade I2 _ UIZ Efl system is practiced, wherein one I 0 _ i 1111 1l ll 1! _1 -1 zPosthTn#esls*Xs:teacher simultaneously handles two 5 M||1 11| N P"`eore I 9 low111 * il ll 1 W [ { arDndantPnats or more grade levels in one Mountain Rolling oand Mansh Cotabato classroom. Schools in these areas Ecooywamn are oftentimes inaccessible during the rainy season, when bamboo bridges are destroyed by floods. Table 2: Sultan Kud?rat Community Priorities Further, facilities are acutely MRDP Survey 1998 lacking, with 1 table being shared by 5-7 children while I book is 45 WR..dl -d tw4gl shared by 8 children. 40 L-thh.WoodPb, 35 u~~~~~~~~~~~~~~~~~~~~~w.ra-app~o 3 _ons.t 9. Indigenous Peoples. 25 _ sPoslharveslhcirmes~~UP D r rx 25 I C= E> 8 r socasewors Among all ecosystems, the 15 _ =OFhg communities in the mountainous ^ | W 01F,tm P,U-ts areas have the least access to all D OD.lt.nm.b infrastructure, agricultural inputs Mountain Rolling Lowiamd Coast S K.darat up.... and other support services and E- osyotss basic social services Among all  - 39- ethnic groups. the Indigenous Peoples (IP), living in the rolling and mountainous areas, are evidently the poorest. The tribes verbalize feelings of inferiority as compared to their non-IP neighbors, and indicated fears of gradually losing control over their ancestral lands. 10. Women Concerns. Women assume multiple burdens (reproductive and economic production roles) and are the most stressed during periods of low income, food scarcity and occurrence of natural and man-made calamities. Income-generating opportunities for women are few and projects not sustainable; livelihood projects such as dressmaking and stuffed toys reach as far as the training stage only. Compared to other livelihood projects, women consider animal production as most beneficial and with the greatest potential for generating additional income. Women raise hogs and goats not so much for their meat and milk but as a source of cash for paying school fees, family health care, and general family expenses. II. Community Priorities (refer to charts on previous page). Based on the survey and focus group discussions conducted, rural infrastructure is the number one priority of all communities, regardless of typologies, gender and ethnicity. On top of the infrastructure needs is the construction of access roads and bridges (especially in the rolling and mountainous areas where sitios are not even accessible from the barangay poblacion), and repair/rehabilitation of existing barangay roads. Potable water supply ranks second, while irrigation systems construction/rehabilitation, and electricity follow suit. 92. Agricultural inputs and other support services are second priority, under which, post-harvest facilities, credit, government support price for goods and marketing assistance, farm inputs and extension services are identified as most needed. IP communities, however, indicated farm animals (carabaos) and other farm implements as first priority. While sharing the communities' perception that roads are the most essential project inputs to facilitate development within their areas, women consider potable water supply, livelihood opportunities, health and quality education services as priority needs to be addressed. 103. Community Collective/Development Experience. The lowland and coastal communities are more exposed to development projects, as shown by the number of community projects implemented in their areas. As a result, their participatory development experience is much wider as compared to their counterparts in the rolling and mountainous areas. Among all government projects implemented, solar dryers and multi-purpose payments are appreciated across all ecosystems. Some weaknesses in the delivery process have been noted, among which are the inappropriate location of some constructed facilities, absence of clear-cut guidelines relative to its utilization, operation and maintenance, and poor quality of construction work. Hogs and cattle dispersal, seeds/seedlings distribution are likewise appreciated, although negative perceptions associated with the projects' "biased" distribution system and the poor quality of some animals/seedlings which are provided greatly affected project success/sustainability. As indicated in the focus group discussions, the number of development projects thin out as one goes up to the rolling and mountainous areas. People's participation in these community projects is mostly limited to the projects' implementation phase with no participation in planning and design. They contribute labor, food, sites for project facilities, locally available materials (bamboo, gravel, sand, coconut trunks/lumber) and allocate time for meetings. 114. Community Willingness to Participate. The Social Assessment found that all groups were willing to contribute for projects to be implemented in their areas. Their contribution can be in the form of some free labor, reduced daily rates for paid labor, locally available material, some right-of-way, food during construction, time to accompany project staff, clearing proposed road routes and data gathering. According to the IPs and Muslim communities, there is nothing in their culture or traditions, which mav affect their successful participation in any project which will benefit their communities. IP communities value consensus, engage in communal activities, sharing of resources and are generous (which, they say,  - 40- lowlanders, take advantage of). Contrary to popular beliefs. IPs are currently slowly moving into crop production farming systems. Conclusions and Recommendations 125. In response to the key issues highlighted by communities and LGUs during the Social Assessment consultation process, MRDP has proposed the following three components for the design of the first phase. APL 1. Rural Infrastructure: This will include support for (i) rural and farm-to-market roads, taking a network approach for the province as a whole in the definition of the component; (ii) rehabilitation of communal irrigation systems; and (iii) rural water supply schemes. Community Funds: Given the variety of needs and demand expressed by communities during the Social Assessment, and the fact that these differ between communities within a municipality and a province, it is proposed that community funds be made available at the municipal level to finance sub-projects identified by communities themselves, which fall within an agreed menu of investment and services related to agricultural development. From within the community funds, a specified share will be earmarked for supporting targeted groups and communities, such as rural women and IPs. Institutional Development: This component is expected to provide implementation support for LGUs, and improve their capacity in managing decentralization and local autonomy. In addition to these three components, a Coastal and Marine Biodiversity Conservation Component of the program is being supported using a grant from GEF. 136. Other Recommendations. The Social Assessment findings indicate that the poor in both provinces totally depend mainly on corn for their subsistence. There is an urgent need to address their continuing marginalization, while taking into consideration the observation that the high soil erosion rates noted in both provinces is attributable to corn production in the rolling and mountainous areas. Alternative crops and sustainable farming systems must be developed, with the close collaboration among the agricultural research institutions, non-government organizations, the LGU agricultural staff and the target communities. Another specific intervention which can have greater impact on the poor is in improving fish production, processing and marketing in the coastal areas of Sultan Kudarat. Some aspects of community needs can be supported by the community funds (e.g., dryers and storage) but other aspects cannot be tackled piecemeal but require systematic interventions in an integrated manner. 17. Given the negative feedback relative to community projects implemented in their areas, MRDP, as a policy, must promote accountability, transparency and openness during implementation, and demand political participation for all stakeholders. Setting up mechanisms to ensure operationalization of these implementation policies will prevent occurrence of such negative perceptions and build support for the gradual internalization of new behavioral processes which the Project hopes to institutionalize. 18. The Community Fund has a strategic importance to poverty alleviation in the long term. The guiding principles underpinning the project's design, aim to ensure the meaningful participation of target beneficiaries in decision-making activities all throughout the project design/execution stages; this should eventually lead to "enabled" communities capable of pursuing other projects basic to their development. Towards this end, the LGUs must partner with support institutions, such as NGOs, the tribal associations, peoples organizations, the religious and academic institutions skilled in community mobilization and leadership development. Using the results of the Social Assessment, these groups must continue the momentum gained in community mobilization, and enable communities to plan rationally the priority projects, organize and mobilize sub-groups for the project implementation activities, and develop plans for the subsequent operation, maintenance and expansion of the services they will derive, as a result of accessing the Community Funds. The quality of the organization work implemented by the partnership will eventually spell the difference between failures and successes.  - 41- Annex 2 (a) Philippines: Mindanao Rural Development Project Rural Infrastructure Component The table below outlines the scope, in physical terms, of the proposed rural infrastructure component (US$27.4 million). In addition, the project will selectively provide for capacity building of local institutions, linking it closely to physical implementation. Estimated Maximum US$ Component Quantity Unit Cost Number of LGUs million A. Rural Roads/ Access 16.9 Provincial roads 40 km $75,000 5 provinces Provincial 2-lane bridge 100 lm $6,250 5 provinces Routine maintenance $1,250/km 5 provinces Municipal FMR 460 km $20,000 32 municipalities Municipal FMR I-lane 750 Im 32 municipalities bridge__ _ _ _ _ __ _ _ _ _ _ _ _ Municipal FMR routine $750/km 32 municipalities maintenance B. Rural Water Supply 140 units $8,750 32 municipalities 1.4 C. Communal Irrigation 8.5 CIP (new schemes) 855 ha 5 provinces CIS (rehabilitation) 4,350 ha 5 provinces D. Capacity Building 1 0.6 Total 27.4 The rural infrastructure component targets 32 municipalities, in the 5 provinces of Cotabato, Sultan Kudorat, Maguindanao, Agusan Sur, and Compostela Valley. The Year I program has been designed within the initial two provinces of Cotabato and Sultan Kudarat. The 11 municipalities involved in Year I (selection based on guidance provided by NEDA in the earlier stages of processing) are the following: * North Cotabato: Aleosan, Banisilan, Antipas, Libungan, Arakan * Sultan Kudarat: Kalamansig, Senator Ninoy Aquino, Lutayan, Lambayong, President Quirino, Columbio A. Rural Roads/Access (Base Cost-US$15.68 million) Strategy for rural roads The Social Assessment in the project target area indicated the high priority given to rural roads by rural communities as is often the case in poor rural areas. Given this clearly articulated need, the project includes rural roads, even though presently there is no explicit national government strategy for rural roads in the Philippines. The NEDA has requested the World Bank to assist with the development of a strategy for rural roads, and this work is ongoing, and results will feed into the subsequent phases of the APL. Since the project team recognizes that some of the sector issues are contributing to the low quality of the rural roads, the project aims to utilize several aspects which are considered to be good practice in development of a sustainable rural roads sector, and will be able to test some aspects of the proposed strategy as it develops. An important objective of the project is to facilitate implementation of the Local Government Code which designates inter alia responsibility for farm-to-market roads to the LGUs. With a large share  - 42- of funding for farm-to-market roads presently coming from a variety of national government sources, particularly Department of Agriculture (DA), the current method of implementing farm-to-market roads is essentially a centralized government implementation approach sometimes utilizing DPWH which does not always fully involve the relevant LGUs. These central agencies then typically hand-over the completed project to the LGU for maintenance. This disconnect between the implementer of the works and the agency responsible for maintenance leads to lack of commitment to undertake maintenance. The project will implement in line with the Local Government Code which designates authority for rural roads to the LGUs. The table below outlines how the project moves from the current situation to improved aspects of infrastructure management. CURRENT SITUATION WITH PROJECT * Centralized management and implementation * Decentralized management and Implementation by national government agencies such as DPWH by the responsible local government unit and NIA * By Force Account * By Contract * By Equipment * By labor based equipment supported * Heavy equipment purchased by LGUs * No equipment purchase for road works * No Routine maintenance * Project setting up routine maintenance structure * Limited Planning; Prioritization * Selection criteria; network approach * Ownership not designated * Ownership being clarified: provincial. municipal, community Description of component The proposed rural roads component will rehabilitate designated i) Provincial roads and ii) "Municipal/barangay farm-to-market roads (FMR)", both of which are the direct responsibility of the relevant Provincial and Municipal Local Government Units (LGUs) respectively. Farm-to-market roads are defined as designated roads below the Provincial roads leading from the farm- gate to Provincial, National or Municipal town roads. National and sub-national roads, which are under DPWH responsibility and supported through other programs, and the municipal town roads are not included in the project. The community footpaths and footbridges which fall beyond the designated network will be financed under the Community Fund component of the project, based on community expressed demand. As outlined in the table above, the project would provide support for an estimated minimum of 40 kms of provincial roads (and around 40 linear meters of bridges); and around 460 kms of municipal roads (together with about 750 linear meters of bridges) covering 5 provinces. Upper unit cost limits are indicated. The project aims to encourage LGUs to implement at lower cost by giving a fixed amount of funds thereby allowing a greater length to be implemented if done at lower unit cost. Importantly, the project will adopt a network approach (taking the province as the unit for planning purposes), and strengthen local capacity in doing so, while prioritizing the proposed investments on farm to market roads. The selective improvement of provincial roads will ensure that all project supported FMRs meet an essential criteria that they link up with an existing all weather road. There will be no new road construction but rather rehabilitation and maintenance, and in the case of provincial roads, upgrading to bituminous surfacing where justified. The provincial roads will be 6 m wide and farm-to-market roads 4 m wide. Selection criteria The year I works were proposed by the LGUs at workshops held in January 1999 and satisfy the criteria set out below. The program of works for future years will be selected by a local committee to be established by the LGU (possibly use a subset of members from the multisectoral  - 43- committee to be established for the Community Funds component), which will include representatives from the private sector - farmers, transporters, civil society, to ensure that planning of investments serve the real needs of the users. The selection criteria include: * FMR must link into an existing all weather road; * It must be a vital link from existing or potential key production areas in target municipalities; for provincial roads, it must lead to target municipalities; * They must have sufficient traffic: for provincial roads proposed to be upgraded from gravel to asphalt (or concrete), minimum 200 vpd to be considered; for municipal/barangay farm-to-market roads, minimum 50 vpd to be considered (may convert pedestrians, etc to pcu); * Must have minimum Economic Rate of Return ERR of 15% (NEDA requirement); * Unit cost must not exceed the following amounts: * Provincial roads: PhP 3,000,000/km (US$75,000/kin) * Municipal/barangay farm-to-market road: PhP 800,000/km (US$20,000/km). Environmental Impact and Land Acquisition and Resettlement All roads will follow current alignments thus minimizing potential environmental impacts and land acquisition. An Environment Impact Statement has been prepared for the year I roads. A Land Acquisition and Resettlement Policy Framework, which has been prepared, clearly lays out the conditions and compensation entitlements in accordance with the Bank's OD 4.30. The guidelines and forms for required information will be in the Operation Manual of the Program. Inventories for the first year infrastructure program have been collected by the PCO. Implementation arrangements The specific arrangements are given in the implementation manuals, and can be summarized as follows: Provincial roads - Provincial LGU: Detailed engineering and preparation of bidding documents Provincial Engineer (PE) Bidding Process and award of contract PPDO and PBAC Supervision of contract PE Municipal/barangayfarm-to-market roads - Municipal LGUU: Detailed engineering and preparation of bidding documents Municipal Engineer (ME) Bidding Process and award of contract ME & MPDO Supervision of contract ME The detailed engineering, bidding and supervision will be done by the LGUs. Where capacity is limited at the Municipal LGU, they may call on the assistance of the Provincial LGU or on the services of a consulting firm to be on recruited on a retainer basis through the Program Coordination Office (PCO). The average size of a contract is expected to be about US$100,000. with a 5 month implementation period, preferably in the dry season (February to July). Labor The minimum regional wage is PhP 120 per day (US$ 3 per day equivalent), thus making use of labor-based methods economic (the threshold is normally US$ 4 per day, below which labor-based is considered economically viable). Given that high levels of unemployment and under-employment prevail in Mindanao, the design of the project will encourage the use of labor-based road construction. The roads will be designed to encourage a greater use of labor by the contractors (trapezoidal drains rather than V shaped drains are specified), and the size of the contracts which are generally less than USD$100,000 per contract will encourage smaller contractors who find labor preferable to hiring equipment. The decentralized implementation should ensure faster payments than centralized  - 44- implementation, and this is important for encouraging small contractors. The percent of labor in the cost of works is targeted at 50 percent (currently it is about 35 percent). The option of imposing labor-based construction was not considered to be workable: there have been several such projects in the past in Philippines which remained as donor driven pilots and were never successfully mainstreamed. Thus this proposal of designing the project to make use of labor-based the most economic solution was chosen. A public information campaign will also be used to highlight to contractors and implementing agencies the benefits of labor-based construction. If it is determined that after the first year contracts these targets are not being met then the contract structure will be reviewed and specific requirements may be considered. Gender impact The social assessment indicates that the lack of income opportunities constrains women, and they emigrate to seek menial employment in town centers. The project will include a public information campaign in the beneficiary community, once the contract has been signed and before the recruitment of labor is started, to inform women of the contract and when to apply for the jobs. Current legislation specifies that of the labor required for a contract, 70 percent be recruited from the beneficiary community. The target for participation by women is 25 percent of the labor. If it is determined that after the first year contracts this target is not being met, then the contract structure will be reviewed and specific requirements or quotas may be considered. Economic impact All year I municipalities have completed traffic counts on the proposed farm- to-market roads. The traffic counts included all Non-Motorized Transport i.e. pedestrians and animal drawn carts. Indications are that the traffic levels are high enough to justify the proposed interventions. Further economic analysis is discussed under the Annex 4. Operations and Maintenance The project emphasizes routine maintenance, seeking a commitment to undertake routine maintenance from the participating LGUs, with sanctions for non- performance (LGUs not fulfilling this commitment will not be eligible for the following years program). The cost of routine maintenance is included in the project cost and will be financed by the LGUs. Currently, the LGUs have little experience with routine maintenance, but rather use their funds to respond to rehabilitation and emergency maintenance needs. They are however committed to the routine maintenance but have little understanding of what it actually is. Therefore the project will work with demonstration sections assisted by technical assistance to demonstrate the positive benefits. The cost of routine maintenance of those roads currently in good condition are included in the project costs from Year 1 at a unit cost of PhP50,000 1km/year (US$1,250/kmlyear) for provincial roads and PhP30,000/km/year (US$750/km/year) for farm-to-market roads in the target municipalities. Each LGU will be required to identify a 2-3 km test stretch per year. This will be audited to determine that the maintenance was undertaken. Each year another stretch will be added thus increasing the stock of roads under routine maintenance by the end of the project. Each LGU has on average 50 km of roads, thus the project will ensure maintenance of about up to 25 percent of the road stock and also will show a demonstration effect with the idea that the LGU may add to this stock voluntarily. The project will test out different approaches for introducing routine maintenance. A technical assistance component will be used to assist the LGUs; the options of developing Small and Medium Enterprises or using the "length man" system will be explored.  - 45- Monitoring and evaluation Indicator Measurements to be done "before" Unit Responsibility and "after" Increase in traffic levels Traffic count ADT PE/ME Reduction in travel time Travel time survey over length of Km/hr PE/ME road Reduction in passenger fares Review of fares on skylabs and Pesos/ PE/ME jeepneys * trip Reduction in goods transport Review of charges for an item of Pesos/ PE/ME costs produce e.g. rice * ton I Condition of road network in Condition survey to determine % Percent PE/ME target areas good, fair and bad % Note: * In these cases a non-project road in the vicinity will also be monitored since transport fares can change due to outside influences as well. B. Rural Water Supply (Base Cost - US$ 1.29 million) Description The provision of safe potable water was identified in the social assessment as a major concern for rural communities. A number of communities have been provided with schemes through the national and local government units. The project will support continued rehabilitation and construction of Level I (point source) and 11 (communal faucet) spring development projects. There are on average 18 barangays per municipality. Some have existing water supply systems which need rehabilitation work of less than P 350,000 (US$ 8,750). Some barangays have no potential spring source and will be provided with artesian wells possibly under the Community Fund component. These point source Level I artesian well costs about PhP 100,000 (US$2,500) per unit and will be targeted in Class 5 and 6 municipalities. Implementing arrangements: These will be implemented by Municipal LGUs with community labor input, as is currently the case. Rural/Barangay Waterworks and Sanitation Associations (RWSAs/BWSAs) are currently the beneficiaries of the LGU water supply projects, and water charges are levied by then for the operations and maintenance of the systems. The establishment of such committees will be a pre-condition of support to the rural water supply and sanitation sub-projects. Selection criteria * Class 5 and 6 municipality; or high incidence of poverty. * Proposed sites must have a reliable water supply throughout the year. * Water sample must be free from any contamination and certified safe by the Department of Health or local health officer etc.. C. Communal Irrigation (Base cost US$6.68 million) Description The project, under APL 1, will support the rehabilitation of the community owned and managed run-of-river communal irrigation schemes (CIS), as well as, the construction of a few new communal irrigation projects (CIP). The priority shall be given to the CIS. The CIP shall be limited to relatively smaller schemes where sufficient water is available in close proximity of the proposed service area, where long canals from the source are not required and where there are no difficult right of way acquisition problems. The Provincial Irrigation Office (PIO) of the National Irrigation Administration (NIA) will be responsible for implementation.  - 46- Selection criteria