World Bank Document

Document of FILE CQP~1 The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No.P-2046-PH

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE REPUBLIC OF THE PHILIPPINES

Public Disclosure Authorized FOR THE

NATIONAL IRRIGATION SYSTEMS IMPROVEMENT

PROJECT

April 20, 1977 Public Disclosure Authorized

This document has a restricted distribution and may be used by reciplents only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

Pesos (P) 7.50 US$1.00 P 1,000 = US$133.00 P 1 million = US$133,000

ABBREVIATIONS

ADB - Asian Development Bank DAR - Department of Agrarian Reform DOH - Department of Health NIA - National Irrigation Administration NISIS - National Irrigation Systems Improvement Study SCC - Schistosomiasis Control Council SPO - Special Projects Organization

REPUBLIC OF THE PHILIPPINES FISCAL YEAR

1975: July 1, 1974 - June 30, 1975 1976: July 1, 1975 - December 31, 1976 From 1977: January 1 - December 31 FOR OFFICIAL USE ONLY

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR THE NATIONAL IRRIGATION SYSTEKS IMPROVEMENT PROJECT

1. I submit the following report and recommendation on a proposed loan to the Republic of the Philippines for the equivalent of $50.0 million to help finance the National Irrigation Systems Improvement Project. The loan would have an interest rate of 8.2% per annum and a term of 20 years including 4.5 years of grace.

PART I - THE ECONOMY /1

2. An economic mission visited the Philippines in April/May 1975 and its report, "The Philippines: Priorities and Prospects for Development, Basic Economic Report" (No. 1095a-PH of May 5, 1976) was distributed to the Executive Directors on May 18, 1976 (SecM/76/366). Paragraphs 3-16 below are an updated summary of that report. Annex 1 contains country economic data.

3. During the 1960s, the economy grew in real terms at an annual rate of about 5-6%. However, the rate of growth was less than the level that might have been achieved if the considerable natural and human resources of the Philippines had been exploited more effectively. Moreover, the benefits of growth were distributed relatively unevenly. As the population and labor force continued to grow rapidly, unemployment rose. Low levels of taxation accentuated these problems and resulted in inadequate public investment in necessary infrastructure and social services. A relatively weak export performance combined with a failure to reduce the import dependence of domestic industry resulted in a steady deterioration in the balance of payments position.

4. During 1970-72, the authorities adopted policies of monetary and fiscal restraint in order to lay a firm basis for future growth. With assistance from the Consultative Group for the Philippines, they succeeded in improving substantially the maturity structure of the external public debt. Real GNP during that period increased at about 5% a year. In 1972, the Government initiated a series of social and economic reforms including an agrarian reform program, tax reforms, and an administrative reorganization.

5. In 1973, there was a sharp increase in the level of economic activity in the Philippines and the growth in real GNP doubled to 10%. This upsurge was led by the international commodity boom, which resulted in higher export incomes, a strong recovery in agricultural and industrial production for the domestic market, and an expansion in public and private investment.

]j This is the same discussion of the economy as that in the President's Report for the Fourth Rural Credit Project (P-2021-PH) of March 24, 1977.

I This document has restricted ditribution and may be used by recipients only in the performance | of their officl duties. Its contents my not otherwise be disclosed without World Bank authorintion. 6. Like most countries, the Philippines was profoundly affected by the events in the world economy that began with the marked increase in the prices for food and petroleum in late 1973. With international trade the equivalent of almost half of its GNP, the Philippines was quite vulnerable to the impact of world inflation, the increase in oil prices, and the prolonged recession in the industrialized countries. While adverse effects of the recession were cushioned somewhat in 1974 by a modest improvement in the external terms of trade, the Philippines was more seriously affected in 1975 by the continued rise in import prices and reduced demand for Philippine exports. While the international economic situation has made it difficult for the Government to realize its objective of accelerating the rate of development, GNP in 1974, 1975, and 1976, nevertheless, grew in real terms at an annual rate of about 6%.

7. Agricultural production has grown at an average rate of 3.2% per year during the 1970s, a period which has been characterized by unusually adverse weather conditions. Rice production increased by 25% in 1973/74, but because of damage by typhoons, grew by only 1% in 1974/75; the Government had to import 200,000 tons in the first half of 1975 to ensure adequate stocks. However, the rice harvest in 1975/76 was very good due to favorable weather conditions and during this period the Philippines was nearly self-sufficient in rice. The Government continues to give the highest priority to further increasing agricultural production and has initiated a number of programs designed to expand the use of fertilizer, irrigation and supervised credit. It has also intensified efforts to expand the social services needed in rural areas, including rural electrification, health and family planning services, and village road and small-scale irrigation projects.

8. Although progress has been slower than initially planned, the Government has made some progress with its agrarian reform for the nation's one million tenant farmers who grow rice and corn. By September 30, 1976, the Government had issued Certificates of Land Transfer to 224,000 of the 424,000 tenants on holdings of over 7 ha; thus, title to 390,000 ha of the total 825,000 ha of farms occupied by such tenants has been transferred. The Government has raised the cash portion of the compensation package to landlords to reduce their resistance to land reform, but strong administrative efforts will be necessary to ensure continued progress in the implementation of the program.

9. Industry accounts for almost 30% of net domestic product, one third of total fixed investment and 15% of total employment. Industrial production, which grew by 12% in 1973, was adversely affected in 1974 and 1975 by the worldwide economic slowdown and the depressed demand for Philippine exports. As a result, industrial production increased by only 4% in 1974 and 5% in 1975. Stepped-up public sector spending for infrastructure development and other priority projects has contributed significantly to sustaining the higher level of domestic activity in 1976, especially in the construction industry. The longer term prospects for industrial growth are favorable because of the natural and human resource endowment of the Philippines and a very active private sector. 10. The Government has made significant progress in increasing public investment. The ratio of public investment to GNP is currently over 4%, having risen from 1.8% in FY72./1 The Government has also implemented a series of long needed tax reforms and improvements in tax administration. These reforms, aided by the increased economic activity, the boom in export incomes, and domestic inflation, resulted in a 36% increase in national government tax revenues in FY73, and an estimated 47% in FY74. The ratio of national government tax revenues to GNP has increased from an average of 9% in the early 1970s to about 12% during the period FY74-76.

11. Significant financial reforms have also been introduced. At the beginning of 1976, the Central Bank issued circulars designed to help ration- alize the level and structure of deposit and lending rates; deposit rates were r4ised for the second time in 18 months; long-standing statutory ceilings on the long-term lending rates of banking institutions were increased from 12-14% to 19% per annum; and the ceilings on short-term lending rates were raised. Efforts were also made to control short-term money market operations and to strengthen the organized banking institutions. These actions should help to improve the mobilization and allocation of domestic resources in the Philippines.

12. In the latter part of 1973, inflation emerged as a major problem in the Philippines. The increase in prices was caused by the large increase in liquidity that came with the export boom in 1973/74, and by a number of cost-push factors, including the higher rate of world inflation. To deal with this problem, the Government adopted contractionary monetary and fiscal policies, and attempted to reduce the impact of inflation on consumers by subsidizing such essential goods as wheat, imported rice, and cooking oil. The annual inflation rate fell from 35% in 1974 to 8% in 1975 and 6% in 1976.

13. On the external side, the Philippines' balance of payments benefited considerably from the international commodity price boom during 1973. High prices for the country's chief exports, including coconut products, sugar, copper and wood products, resulted in a 70% increase in export earnings and a current account surplus of about $550 million. Since mid-1974, the external trade position has deteriorated, due to the sharp increases in the prices of oil and other imports, less favorable prices for Philippine exports, and reduced volume of some exports resulting from the downturn in the econo- mies of the Philippines' main trading partners. As a result, current account deficits of about $900 million in 1975 and about $1,000 million in 1976 were incurred. The current account deficits have been offset by direct foreign investment, inflows of medium- and long-term loan capital, the use of IMF facilities and some short-term borrowing by the Central Bank. External reserves were about $1.2 billion at the end of 1976, equivalent to four months' imports. Assuming continued sound debt management and the maintenance of a reasonable maturity structure of foreign borrowings, the overall level of external debt of the Philippines is expected to remain within reasonable limits, as the ratio of debt service payments to exports and

/1 Fiscal year July 1 to June 30. - 4 -

nonfactor services would average about 16-17% during the rest of this decade. At present, the Bank/IDA share in total debt outstanding is about 17% and its share in debt service is about 4%. These shares are expected to increase somewhat in the years ahead.

14. Substantial foreign assistance will be essential to help finance the large investment expenditures which will be necessary for the country's development. In order to ensure that disbursement of external assistance reaches levels commensurate with the level of development expenditures which will be required during the latter part of the decade and that debt service obligations remain within reasonable limits, total commitments of official assistance will need to be maintained in real terms at least at the annual level of about $500 million which was achieved in 1974. The Consultative Group for the Philippines at its meeting in Paris on June 15 and 16, 1976, agreed that it would be reasonable for the Philippine Government to seek official aid commitments of about $600 million in 1976 and $700 million in 1977. Total new commitments of public and private medium- and long-term capital are estimated to have reached $2 billion in 1976 and need to be maintained at approximately this level through 1980.

15. Despite the slowdown in the growth of the economy, which is primarily a result of worldwide economic conditions, the Government remains committed to regaining the growth momentum, which began in 1973, to provide for a continued increase in incomes and employment. Both the Philippine Government and the Bank's Basic Economic Report estimate that it should be possible in the longer term for the Philippine economy to grow in real terms at a rate of about 7% per annum provided that good economic management continues and international economic conditions improve. High priority must be accorded to expanding employment opportunities, because unemployment and underemployment are still high and the labor force continues to grow at 3% a year. Continued attention must also be given to expanding the Government's effective family planning program to reduce the rate of growth of the population and the labor force.

16. The Government is pursuing a development strategy which focuses on rural development with emphasis on food production, accelerated industriali- zation, both in capital-intensive resource based industries and labor-intensive export industries, and a substantial expansion in public sector investment in infrastructure to support the growth of the productive sectors. In support of these objectives, the Government plans to continue its efforts to increase public revenues, to strengthen the capacity of public sector agencies and to foster the growth of exports. The Government recognizes that the increased cost of petroleum and other imports cannot be financed indefinitely by borrowing abroad, and it is actively encouraging both local and foreign investors to expand productive investments. It will, however, take time for Government programs to have an impact on the balance of payments, and the Government is, therefore, seeking increased support from the international financial community to assist in the financing of its development effort. - 5 -

PART II - BANK GROUP OPERATIONS

17. By April 15, 1977, the Philippines had received 43 Bank loans (of which two were on Third Window terms) and three IDA credits for a total of $1,113.7 million, net of cancellations. About 40% of Bank lending ($401 million) has been for infrastructure projects in power, transportation, and water supply and one-third ($355 million) has been for agriculture. Of the remainder, about $250 million has been for industry and about $108 million has been for social sector projects in education, population and urban development. There has been a marked improvement in the execution of Bank- financed projects in the last four years compared with experience in the 1960s, when there were serious problems caused by a shortage of peso counter- part funds and poor administration. All ongoing projects are now being implemented reasonably well. Annex II contains a summary statement of Bank loans and IDA credits as of February 28, 1977, and IFC investments as of March 31, 1977 and notes on the execution of ongoing projects.

18. The Bank's lending program has been designed to continue to support the Philippine development effort with its emphasis on agriculture and infrastructure and its growing attention to the needs of lower income groups. About one third of Bank lending planned for the next few years would be for agriculture and rural development projects and another third would be for needed basic infrastructure projects, mainly in the fields of transportation and power. The amount of lending for social sector projects, including education, population and urban development, is expected to continue to grow rapidly and account for nearly 20% of future lending. The balance of future lending would be for industrial development, where growing attention is being given to the needs of small and medium industries with high employment potential. The rapid growth in public revenues during the past five years has allowed for a significant expansion in public investment and both the ambitious Philippine development program and the Bank's growing lending program have been designed to make good past neglect and to meet future needs. Bank lending totalled $165.1 million in FY74, $208 million in FY75 and $268 million in FY76 compared to about $30 million a year in the preceding five years.

19. This loan and the one for the Provincial Cities Water Supply Project are the fifth and sixth loans to be presented to the Executive Directors in FY77. Other loans which may be ready for presentation within two months are for a land settlement and a power project; a smallholder tree farming/forestry project and a rural infrastructure project are also under consideration and are well advanced in the appraisal cycle. A primary objective of most of these projects is to help the Government meet its objective of increasing the productivity and incomes of the poorer segments of the population.

20. As of March 31, 1977, IFC had made commitments in the Philippines totalling $79 million for investment in 14 projects in the fields of development banking, power, telecommunications, ceramic tiles, paper, petroleum products, nickel mining and refining, chemicals and synthetic fibres and edible oils. Of these investments, $27.4 million had been sold, cancelled or repaid, leaving a net portfolio of $51.6 million, including $0.6 million undisbursed. A Regional Mission for East Asia was established in Manila by IFC on April 1, 1977. - 6 -

PART III - THE AGRICULTURAL SECTOR

21. Agriculture is the predominant sector in the Philippine economy, accounting for about one-third of net domestic product, over one-half of total employment, and nearly three-quarters of export earnings. Over 70% of the 9 million ha of land under cultivation is used for the production of cereals, of which rice and corn are the most important. The remaining land is taken up by the major export crops: sugar, coconuts, abaca, pineapples, and tobacco.

22. The performance of the agricultural sector will be crucial in deter- mining whether the Philippines can increase incomes both rapidly and equitably. At present, the domestic market for industrial products is limited by relatively low rural incomes. Although in recent years there has been a substantial change in the terms of trade in favor of agriculture, the problems of poverty and income distribution continue to be particularly acute in rural areas; of the 15 million people in the lowest 40% of the income scale, 12 million live in rural areas. The Government is aware of these problems and, as noted in paras. 7 and 8, has initiated a number of programs designed to assist the rural poor.

23. A major Government objective is to increase rice and corn production as a means of raising the incomes of small farmers and of attaining national self-sufficiency in food grains. The deficit in rice, the main staple crop, has been a persistent problem in the Philippines, and annual rice imports have averaged about 200,000 tons in recent years. The ability to assure sus- tained self-sufficiency in rice will depend largely on improving yields through increased cropping intensity, the expanded use of fertilizer and agro-chemicals, and the provision of adequate credit and other supporting services. In order to achieve their full potential, high-yielding varieties, which helped to increase production in the late 1960s, require a much greater degree of water control than is possible under rainfed conditions or with the typical unimproved irrigation systems in the Philippines. At present, out of 3.2 million ha planted with rice, only 1.3 million ha, or 40%, is irrigated. A program to upgrade and expand irrigation facilities is therefore of high priority.

24. About one-half of the expected Bank lending for agriculture in the Philippines in the next five years is expected to be for irrigation. The Bank has already financed seven irrigation projects designed to increase rice production in the Philippines. These projects - three in Central Luzon, two in the Cagayan Valley of Northern Luzon, one on Mindoro Island, and one in the Visayas /1 - have set the pattern for the type of irrigation rehabilitation,

/1 The Upper Pampanga River Irrigation Project (Loan 637-PH), Aurora-Pena- randa Irrigation Project (Loan 984-PH, Credit 472-PH), Tarlac Irrigation Systems Improvement Project (Loan 1080-PH), Mindoro Rural Development Project (Loan 1102-PH), Magat River Multipurpose Project Stage I (Loan 1154-PH), Chico River Irrigation Project Stage I (Loan 1227-PH), and Jalaur Irrigation Project (Loan 1367-PH). - 7 -

new construction, and operations needed for increasing rice production. The projects are providing improved irrigation and drainage facilities, better road systems for efficiency of operations and maintenance and for the marketing of farm products, stronger supporting services to assist farmers in adopting the new techniques needed to increase production, and technical assistance and training to help the National Irrigation Administration (NIA) expand and improve its irrigation program. These projects, together with the project now proposed, would bring about substantial increases in rice production on about 284,000 ha and would benefit nearly 137,000 farmers, most of whom are smallholders. The existing projects are being well executed although initially there were some difficulties in attracting bids for civil works contracts and there have been cost increases under two of the projects as a result of the unexpectedly high rates of inflation during 1974 and 1975. These problems are being overcome and progress under the projects is satisfactory; all of the projects are expected to have high economic benefits.

25. The major focus of irrigation projects in the past has been on the large-scale gravity systems. Since the late 1960s the NIA, with the assistance of the Bank and the Asian Development Bank (ADB), has been engaged in upgrading and extending large national systems, mainly in Luzon and to a lesser extent in Mindanao. Particular attention has been given to the rehabilitation and new construction of canals and structures, the provision of better drainage and access, and the introduction of water management and rotational irrigation practices. Additional water supply is being provided in some areas through the construction of storage dams or by transbasin diversion. In order to provide a basis for improving the badly deteriorated but essential smaller systems scattered throughout the Philippines, a National Irrigation Systems Improvement Study (NISIS) was financed under Loan 1080-PH to inventory the smaller irrigation systems and to select a total of about 150,000 ha with the highest priority for improvement. The inventory of the national systems has been completed and priority projects have been identified on the basis of the need and potential of the system for improvement, the degree of human poverty in the area served by the system and the capacity of NIA's regional office to implement needed improvements. The proposed project is the first to be prepared under NISIS.

PART' IV - THE PROJECT

Background

26. The proposed project would support the Government's objectives of achieving self-sufficiency in rice, increasing ir.comes of poor farmers and providing for a better regional balance in the Philippines' development effort. The project would improve and expand irrigation facilities on 22 existing irrigation systems in three of the poorest regions of the country: the Ilocos and Cagayan regions of Northern Luzon and Leyte in the Eastern Visayas. In Leyte it would also provide for a schistosomiasis control program in one of the most severely affected regions in the country. The proposed project would be the first Bank-assisted irrigation project dealing with the relatively small widely scattered systems operated by NIA's regional offices and the first on the west coast of Luzon and in the Eastern Visayas. (See attached map.) - 8 -

27. The feasibility report for the project was prepared by NIA with the assistance of consultants. The project was appraised in October-November 1976 and negotiations were held in April 1977. The leaders of the Government negotiating team were His Excellency, Eduardo Z. Romualdez, the Philippines' Ambassador to the United States, and the Honorable Alfredo Juinio, Administrator of the National Irrigation Administration. The Appraisal Report (No. 1488a-PH) on the project is being circulated separately to the Executive Directors. Annex III of this report contains a loan and project summary and Annex IV contains supplementary project data.

The Project Area

28. Transplanted rice, both irrigated and rainfed, is the predominant crop in all three subproject areas, although there is a small area (1,300 ha) of dry-season irrigated tobacco in the Ilocos subproject area and some dry- season rainfed corn (2,000 ha) in the Leyte subproject area. The Ilocos region and the Eastern Visayas are rice deficit areas, while the Cagayan region is one of the major rice surplus areas in Luzon. The majority of farmers in the irrigated areas use improved rice varieties. In rainfed areas, farmers rely almost entirely on the lower yielding but hardier local varieties. In the irrigated areas, the mean paddy yields for both the wet and dry seasons are 2.5 tons/ha in Ilocos, 2.0 tons/ha in Cagayan, and 1.7 tons/ha in Leyte. In the rainfed areas the average paddy yields are 1.6 tons/ha in Ilocos, 1.5 tons/ha in Cagayan, and 1.4 tons/ha in Leyte.

29. Inadequate irrigation has been a major factor contributing to relatively low yields in subproject areas. The 22 existing NIA systems in these areas, which cover about 27,600 ha, have seriously deteriorated due to poor initial design and inadequate maintenance resulting from the lack of sufficient funds and equipment. The existing systems also have poor distribution networks which make it impossible for most farmers to obtain water at the right time and in the right amount. There are also few access roads, which makes it difficult for farmers to transport farm inputs and to market production.

30. Seven of the ten irrigation systems in the Leyte subproject are located on the island's northeastern plain, an area of natural and man-made swamps, which causes it to be one of the worst schistosomiasis-endemic regions in the Philippines. About 87,000, or 18% of the people living in northeastern Leyte, have been infected with schistosomiasis. The climate and topography of the coastal plain are particularly conducive to the disease, while the way of life of the rural population, with its constant exposure to water, and the low levels of public hygiene all work together to produce high infection rates. In many areas, the high incidence of schistosomiasis seriously inhibits agricultural production.

31. Approximately 37,000 farm families, or a total of about 200,000 people, live in the project area. About 60% of the farmers are in the Ilocos subproject area and the balance are evenly split between the Cagayan and Leyte subprojects. The mean farm size is about 1.3 ha, although there are substantial differences among the subproject areas; the mean farm size is 0.8 ha in Ilocos, 1.5 in Leyte and 2.5 in Cagayan. Survey and census data indicate that, in addition to farm operating households, there are approximately 6,000 landless agricultural households in the project area. - 9 -

32. Estimated present total net incomes vary considerably between subproject areas and within areas, depending on whether the farm is irrigated or rainfed. Present per capita annual incomes in the £arm models examined vary from a low of $45 for a 1.0 ha rainfed farm in the Leyte subproject to a high of $100 for a 2.5 ha irrigated farm in Cagayan. These figures corres- pond to between 10% and 23% of the national GNP per capita and are significantly less than the absolute poverty income figure for rural areas in the Philippines of $165.

33. Since 1972, the Government has pursued a program of agrarian reform aimed at the transfer of land ownership to tenant farmers on rice and corn lands. Presidential Decree No. 27, the basic legislation of the new program, provides for the transfer to the tenant, whether sharecropper or leaseholder, of the land he tills up to 3 ha in an irrigated area and 5 ha in a rainfed area. According to information of the Department of Agrarian Reform (DAR), the 49,400 ha of rice lands in the project area are owned by some 27,500 people, 97% of whom hold less than 7 ha, accounting for 77% of the land. The remaining 3% of the owners account for 11,330 ha, or 23% of the area, which will be transferred to about 7,695 tenants under the provisions of the agrarian reform program.

34. There are a number of small towns scattered throughout the project area. In the Ilocos and Leyte subproject areas the irrigation systems are close to major commercial centers providing banking, storage and processing facilities, as well as supplies of inputs to the agricultural areas. In the Cagayan subproject area, there are also a number of small towns, but major centers are fairly remote. The Ilocos and Leyte systems are served by good road networks, while the Cagayan systems are more isolated; however, the Government is engaged in a program of road improvement and bridge building in the area with assistance from the Government of Japan.

Description of the Project

35. The proposed project would finance the first phase of the National Irrigation Systems Improvement Program which is directed to the rehabilitation of small-scale irrigation schemes throughout the country. The project would include:

(a) irrigation development, including the rehabilitation of 27,600 ha of national irrigation systems in Northern Luzon and the Eastern Visayas, and the construction of new irrigation facilities on 21,800 ha of currently rainfed land in the same areas;

(b) a schistosomiasis control program on the island of Leyte;

(c) a pilot land consolidation subproject of up to 500 ha in Ilocos to determine the feasibility of introducing a degree of consolidation in an area of highly fragmented small farms; and

(d) a study to determine the optimum density of on-farm water distribution facilities for small farm holdings. - 10 -

Project Execution

36. NIA would be responsible for all components of the project, except for the health aspects of the schistosomiasis control program, which would be executed by the Department of Health (DOH) through its Schistosomiasis Control Council (SCC). NIA would work closely with the Department of Agrarian Reform (DAR) on the land consolidation pilot project.

37. NIA was created in 1964 to develop, operate, and maintain all national irrigation systems in the Philippines. NIA is governed by a Board of Directors, which provides policy guidance. An Administrator, appointed by the President of the Philippines, is responsible for the management of NIA's operations. NIA was recently reorganized in order to be able to implement more effectively the Government's program of accelerated irrigation development. One of the first steps taken in the reorganization was the integration of the major foreign-assisted projects under a Special Projects Organization (SPO) headed by an Assistant Administrator. Even before the establishment of the SPO, however, most of the foreign-assisted projects were not implemented by the NIA field offices, but were entrusted to ad hoc project offices especially created for the purpose. While these were necessary at the time to ensure effective project implementation, the regional field offices have suffered in terms of relative access to funds, staff, and equipment. The proposed project would not be suitable for implementation by a special projects office because it covers a large number of small systems scattered throughout a wide area; it would therefore be best implemented by NIA's regional field offices. The project would be the first major foreign-assisted project to be implemented by the regional offices and would include features designed to help strengthen their operational and maintenance capabilities. This would be achieved through more and better staffing in the regional and field offices and through the provision of an adequate supply of vehicles and equipment.

38. An Assistant Administrator for Engineering and Operations is responsible to the Administrator for the eight regional and two subregional NIA offices. The Regional Offices are headed by Regional Directors who are responsible for all NIA activities in the provinces constituting their regions, unless the projects are assigned to the SPO. NIA has appointed a Project Director to be based in Manila who would be directly responsible for the execution of the proposed project under the overall supervision of the Assistant Administrator for Engineering and Operations. The Project Director, with a small support staff, would have day-to-day responsibility for coordinating the work at headquarters of three NIA departments with significant roles in project implementation; he would also supervise execution at the field level which would be under the immediate control of the Regional Directors for NIA Regions I (Ilocos), 2 (Cagayan), and 6 (Leyte). A subregional office would be established at Laoag in NIA Region 1, since the existing office of Urdaneta is too far from most of the project works. The proposed project would also provide for the construction of two new field offices and the extension of office, storage and staff quarters facilities for eight existing field offices.

39. The technical responsibility for operating and maintaining all the project systems would rest with the Operations Department in NIA's central office and with the Operations Divisions in the regional offices. After - 11 -

construction of the project, the eight field offices would become irrigation districts, which in turn would be subdivided into irrigation divisions covering about 2,500 ha. The divisions would each be controlled by a super- visor and would be subdivided into units of 500 ha, each under a Water Manage- ment Technician. In the Ilocos and Leyte subprojects, a Water Management Technician would be responsible for 300 ha rather than the 500 ha which is usual in the Philippines, because of the small farm sizes and large farm population in Ilocos and the general backwardness of farming practices in Leyte. The smallest organizational entity would consist of two 50 ha units under a ditchtender.

40. About 160 Water Management Technicians would be required at the completion of project construction. NIA proposes to reserve up to 25% of these posts as an incentive for competent and experienced ditchtenders. All Water Management Technicians, whether directly recruited or promoted to the post, would undergo a one-year training program in water management, crop production, and farmer organization at one of the training centers being run by the SPO.

41. All of the NIA systems within the project areas are based on irrigation rotation areas of 50 ha, which are divided into rotation units of about 10 ha each. This configuration was based on average farm sizes of from 2.0-2.5 ha, thus giving between 4 and 5 farms per unit and between 20 and 25 farms per rotation area. The layout allows practically all farms to have direct access to irrigation water, thus minimizing potential conflicts between farmers and providing a manageable number of farms for NIA staff to handle. Census information, however, indicates that the sizes of farms located in the NIA irrigation systems have been decreasing over the last ten years, and that the trend will probably continue in the future. For this reason, an on-farm water distribution facilities study would be made to establish several different models of irrigation in areas characterized by holdings of less than 2.0 ha and with different cropping intensities to determine the most suitable level of facilities in terms of the requirements of the farmers and of NIA (see Section 3.01(a) and Part D of Schedule 2 of the draft Loan Agreement). The SPO would be responsible for carrying out the on-farm facilities study.

42. Although in the Cagayan and Leyte subproject areas there is little fragmentation of holdings, in the Ilocos subproject area the degree of land fragmentation is substantial and some degree of boundary realignment or consolidation would be desirable. An immediate program of consolidation and boundary realignment is unrealistic because of local inheritance practices, high population densities, and the lack of alternative employment. However, a small pilot project would be undertaken on up to 500 ha in selected areas of the irrigation systems in Ilocos Norte Province to determine the acceptability to farmers and landowners of land consolidation. Assuming agreement by farmers and owners, the pilot project would determine the most economic and least socially disruptive level of consolidation compatible with the greatest reduction in the number of land fragments and would evolve a methodology for implementation. The land consolidation pilot project would be carried out by NIA's Operations Department in close cooperation with DAR, which would be responsible for all cadastral work. It has been agreed that NIA and DAR would enter into a formal agreement acceptable to the Bank for implementation of the land consolidation pilot project by December 31, 1977 (see Section 3.01(b) (ii) of the draft Loan Agreement). - 12 -

43. The proposed schistosomiasis control program in Leyte would concen- trate on making the habitat less favorable to the disease by improving drainaRe. reducing the number of snails by use of molluscicides, lessening the population's contact with water by the provision of foot-bridges, improving general hygiene by environmental sanitation and health education, and reducing the effects of the disease by chemotherapy. The main emphasis of the engineering component of the program would be on improving the existing swampy conditions by opening up all existing drainage ways, increasing the intensity of drainage works in cropped areas, and making provision for good access to all drainage works so as to permit regular and efficient maintenance. The Govern- ment would provide NIA annually with sufficient funds to effectively maintain the drainage network built under the project (see Section 4.03 of the draft Loan Agreement). The public health component of the program would provide for a health education campaign, based primarily in the schools and barrio health centers, to alert the population to dangers of the disease, and to supply information on prevention and treatment. This would be backed up by an environmental sanitation drive to furnish all unequipped households in the area with water-seal toilets and improved water supplies. The elementary school population in the endemic area would be monitored yearly for the disease and all cases diagnosed would be treated. The Government established the Schistosomiasis Control Council (SCC), attached to the DOH, to coordinate all projects and activities aimed at controlling schistosomiasis. NIA, whose Administrator is a member of the SCC, would be responsible for all engineering and procurement aspects of the schistosomiasis control program, while the SCC would be responsible for the public health aspects of the program. NIA and DOH would enter into a formal agreement acceptable to the Bank for implementation of the schistosomiasis control program by December 31, 1977 (see Section 3.01 (b) (i) of the draft Loan Agreement).

44. Under the Government's Masagana campaign for increased rice production, provincial committees have been established by representatives of the National Food and Agricultural Council, which is responsible for coordinating all agencies concerned with agricultural production. The provincial committees would perform all the necessary coordinating functions for the various irrigation systems within the project area. The Water Management Technicians referred to in para. 40 would supplement the existing extension personnel already provided by various Government agencies and would help to improve the extension coverage in the project area.

45. All subproject areas are well served by dealers of fertilizer and agrochemicals who would handle the additional demand without difficulty. No problems are anticipated in obtaining the certified rice seed requirement, estimated at about 840 tons per year at full development. An increase in production credit would be required because of the increase in irrigated area, higher cropping intensity and better farming practices resulting from the project. At full project development, the annual credit requirement for all three subproject areas is expected to total $10.8 million; the existing credit institutions should be able to meet this requirement. The Government has agreed to use its best efforts to ensure that adequate production credit is made available to project beneficiaries (see Section 4.03 (b) (iii) of the draft Loan Agreement). - 13 -

46. Water samples from the majority of rivers in the subproject areas indicate that the water quality is good. However, tests of water samples taken from the Amburayan River in the Ilocos area show that mine tailings from two copper mines located upstream on two tributaries of the river cause silting in the canals and some deposition in the paddy fields. Although no toxic chemicals have been found in the water samples, some physical damage to crops from the polluted water has been reported during the dry season when river flows are low. NIA has agreed to prepare for Bank review by June 30, 1979, a study evaluating the effectiveness of the two dams constructed to deal with the problem of mine tailings in the valleys upstream of the Amburayan irrigation system (see Section 3.06 of the draft Loan Agreement).

47. The Agricultural Development Divisions in the regional offices would be responsible for monitoring the deployment of extension and water management personnel, the pace of land reform, the cropping patterns, use of inputs and credits, and incidence of pests and diseases. However, because these divisions are weak and understaffed, NIA has agreed to prepare a plan of action by December 31, 1977, to strengthen the agricultural capabilities of the regional offices in the project regions and, after submitting the plan of action for review by the Bank, to proceed with its implementation (see Section 3.02 of the draft Loan Agreement).

Project Cost and Financing

48. The project is estimated to cost a total of $107.2 million, of which $50.0 million, or approximately 47%, would be in foreign exchange. Project costs are based on quantity estimates from feasibility designs and unit prices prevailing in the Bank-assisted Luzon projects in mid-1976, adjusted to conditions in the three subproject areas. The cost estimates include a provision for physical contingencies of 20% for civil works for irrigation and the land consolidation pilot project, the on-farm facilities study, and the health aspect of the schistosomiasis control program. A physical contingency of 25% was used for irrigation civil works in the Cagayan extensions and for drainage works of the Leyte schistosomiasis control program because the quantities obtained from small-scale maps were less reliable and further refinements are likely to be necessary. A physical contingency of 10% was allowed for the operation and maintenance facilities. The cost estimates also include price contingencies, amounting to 24% of total costs, which assume annual inflation rates in 1977-79 of 9% for civil works and 7.5% for equipment and services, and in 1980-81 of 8% for civil works and 7% for equipment and services. The cost estimates also provide for 48 man-months of consultant services for the on-farm facilities study and the land consolidation subproject at an average cost of $6,500 per man-month. The Bank loan of $50.0 million would finance the foreign exchange cost of the project. The Government would finance the balance of $57.2 million from budgetary resources.

Cost Recovery

49. NIA is authorized to collect fees from users of irrigation systems to finance the costs of operation and maintenance and to recover construction costs. Irrigation fees on national irrigation systems were raised in July 1975 to the equivalent of 2.0 cavans (100 kg) of paddy per ha in the wet - 14 -

season and 3.0 cavans (150 kg) in the dry season, to be applied uniformly to all national irrigation systems. As an exception to the uniform rate policy, the Government has agreed to raise the rates on the Bank-assisted projects to a level equivalent to about 3.5 cavans (175 kg) of paddy per ha in the wet season and 4.4 cavans (220 kg) in the dry season. These rates would be reached gradually over a period of five years from completion of construction of the projects. It has been agreed that the same rates would apply to the irrigation facilities financed under the proposed project. These rates would result in a total cost recovery index (ratio of total revenue from water charges to total public sector outlays - including operation and maintenance costs - for the irrigation related work under the project) of 24%. About 25% of the farms' total surplus (after deducting imputed returns to capital, labor, management and uncertainty) would be paid in water charges. The costs of the schistosomiasis control program would not be recovered from water charges levied on farmers in the irrigation project systems because the program would benefit a far larger population.

50. NIA's total collection rate for the national systems was about 59% in FY75, but fell to about 25% in FY76 after the increase in rates in July 1975. However, preliminary information indicates that the collection rate will improve considerably in FY77. Historically, collection rates in the Cagayan subproject area have been among the highest in the Philippines, while collections in both the Ilocos and Leyte subproject areas have been well below the national average. Collection rates are expected to improve substantially as better services are provided throughout the national systems. NIA is currently preparing a plan of action for improvement of collections for review by the Bank under the provisions of the loan for the Jalaur project (Loan 1367-PH). The plan for improving collection of water charges would be for all NIA systems and would therefore cover the project area. While it may take several years to introduce the administrative and other improvements necessary to improve collections, reasonable progress is being made and performance can be expected to improve in the future.

Procurement

51. Contracts for the construction of the diversion weir and main canal of the Abulog right bank extension in the Cagayan subproject area ($5.0 million) and main drains and operation roads of the schistosomiasis control program in Leyte ($6.5 million) would be tendered on the basis of international competitive bidding in accordance with Bank Group Guidelines. Most of the remaining civil works ($37.8 million) would not be suitable for international competitive bidding, however, as they consist of relatively small works scattered over 25 separate locations in three different regions and would have to be planned and executed to avoid as far as possible the growing season and poor weather conditions. In the past, NIA experienced considerable difficulty in attracting bids for such works. In the last two years, however, several steps have been taken under Bank-asisted projects to strengthen local contractors, including the financing of reconditioned equipment and the provision of mobilization allowances. This has resulted in encouraging results in recent bids. However, it is doubtful that all the remaining civil works could be undertaken by local contractors. Some of the works would have to be carried out by force account, although it would not be desirable for NIA to expand its force account work too rapidly. For this reason, NIA would - 15 -

ensure that the aggregate amount of civil works done by force account would not exceed 40% of the total cost of the work. The balance of the civil works would be carried out on the basis of competitive bidding advertised locally in accordance with Government procedures which are acceptable to the Bank. Foreign firms would be eligible to participate. (See Schedule 4, B (a) of the draft Loan Agreement).

52. Equipment, vehicles and supplies for force account construction, operation and maintenance for the project areas, strengthening of regional operation and maintenance capability, and the schistosomiasis control program, costing about $13.9 million, would be procured after international competitive bidding in accordance with Bank Group Guidelines. For purposes of bid evaluation, a preference of 15% of the c.i.f. price of imported goods, or the customs duty, whichever is lower, would be extended to local manufacturers. Off-the-shelf items costing less than $10,000 each and not more than $300,000 in aggregate would be procured through existing Government procedures which are acceptable to the Bank.

Disbursements

53. The Bank loan would be disbursed for 100% of the cost of directly imported goods, 100% of the ex-factory cost of such items manufactured locally, and 65% of the cost of imported goods procured locally. Disbursements for civil works would be for 35% of total expenditures. For civil works contractors' mobilization and equipment, the loan would be disbursed for 100% of the foreign exchange cost. For consultants and technical assistance, the loan would be disbursed at the rate of 100% of the total cost.

Project Benefits and Risks

54. The proposed project would increase yields on about 49,400 ha currently dependent on run-of-the-river irrigation and rainfed cultivation by providing better water control, improved drainage and the necessary agricultural supporting services, and a substantial schistosomiasis control program in one of the most severely affected areas in the Philippines. At full agricultural development in 1987, total annual paddy production would be about 325,000 tons compared to 121,000 tons at present and an estimated 143,000 tons in the future without the project. Annual per capita incomes in the project area, which now vary between $45 and $100 (10% and 23% of the national per capita GNP, respectively), would increase to between $135 and $380 (23% and 64% of the projected per capita GNP in 1987). The project would therefore help to narrow the income gap that now exists between the project areas and other parts of the country.

55. Approximately 37,000 farm families and 6,000 landless laborers' families, for a total of about 240,000 people, would benefit directly from the increased production. The project would also create a demand for an additional 2.1 million man-days of farm labor per year, equivalent to some 10,500 full-time jobs, and would also provide farmers with increased access to markets through an improved and denser network of roads to be constructed along the canals and drainage system. In the Leyte subproject area, the - 16 -

project would provide the largest comprehensive campaign against schistosomiasis in the Philippines, which would reduce the disease risk and increase the productivity of a population of 475,000 people.

56. The project would meet the Government's objectives of increased food production and a more balanced regional distribution of development at a capital cost of about $1,800 per farm family. This would be at the low end of the cost range of irrigation projects in the Philippines, due to the high proportion of rehabilitation compared with new construction and the high population density in the Ilocos subproject. Assuming a 50-year project life and a 5-year construction period, and applying a shadow price for foreign exchange and a shadow wage rate for unskilled labor, the economic rate of return of the project would be 20%; if shadow prices were not used in the calculation the rate of return would be 18%. Rates of return for the subprojects using shadow prices would range from 18% for Ilocos to 20% for Cagayan and 21% for Leyte; the rates of return without shadow prices would range from 17% for Ilocos to 18% for Cagayan and 19% for Leyte. The rate of return is only moderately sensitive to different assumptions about project cost and the timing of benefits, and under all of the alternative assumptions tested the economic rate of return was not less than 16%. At full agricultural development, the project would result in rice import savings of $33.0 million per year at the forecast world market prices. After deducting the incremental cost of imported fertilizer, chemicals and fuel, the net foreign exchange savings would amount to about $28.0 million.

57. The risks normally associated with irrigation projects have been accounted for in the estimates of yields and in the areas to be irrigated during the dry season. Particular care has been taken in estimating yields in the Leyte subproject area to take into account the greater risks caused by the schistosomiasis problem and the difficulty of estimating the time lag between implementing prophylactic and therapeutic measures and their effect on the population.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

58. The draft Loan Agreement between the Republic of the Philippines and the Bank, the Report of the Committee provided for under Article III, Section 4(iii) of the Articles of Agreement of the Bank and the text of a draft Resolution approving the proposed loan are being distributed separately to the Executive Directors.

59. Special features of the Loan Agreement are listed in Section III of Annex IV to this report.

60. I am satisfied that the agreement would comply with the Articles of Agreement of the Bank. - 17 -

PART VI - RECOMMENDATION

61. I recommend that the Executive Directors approve the loan.

Robert S. McNamara President

Attachments

April 20, 1977

TA8L( 3A Page 1 of 4 pages PHILIPPINES $QSCIAL INDICATORS DATA SHEET AREA (THOU KM2I ...... LAND REFERENCE COUNTRIES (1970) ------PHILIPPINES TOTAL 3 00.0a MUSY RECENT TURKEY KOREA,RV. OF* AGRIC. 116.3 1960 1910 ESTIMATE THAILAND 8.0 20. GNP PER CAPI TA (USS) 1.0 300 7.02.0

POPULATION ANO VITAL STATISFICS 35.7 31. 4 POPULAtIIN (MID-YR. MILLION) 27.-4 36. 9 42. 5 36 .3

DENASITY POPULATION .0 4 6 .0 319. 0 PER SgUARE KM4. 91 .0 123.0 142.0 71 6 7.0 1 320. 0 PER SQ. KM. AGRICULTURAL. LAND . 219.0 326.0k/d

9 1141 STATISTLCS 6 35. 0 BIRTH RATE (/THOU) 4.5.1 4 4.2 43. 8 44 .3 4 0. AVERAGE 14. 4 55.6 AVERAGE DEATH RATE (/THOU) I17.9 1 3.2 10. 5 13.? 145.0 INFANT MORTALITY NATE CITHOU) a.0. 0 68.0 / 80.0 5 4 .4 51 .1 LIFE EXPECTANCY AT BIRTH (YRS) 49. 4 5 5. 6 58.4 55.5 3.2 2 .6 .b 2.6 0.OSS REPRODUCTION RATE 1.5/ 3.3 3.3

POPULATION GROWTH RATE (XI 3.1 2 .5 2.3 SOIAL 3 .0 3 .0 2.9 4~.2 6. 4 URBAN 4.0 4.-0 4. 0 4 .9 31.2 41. 2 USRAN POPULATION (I OF TOTAL) 25. 3 27T.6 29.0 15.0

AGE STRUCTURE (PERCENT) 4 1.8 42. 1 14 YEARS 45.7 45. 6 44J.0 45.3 0 10 5 3.9 54. 6 is TO 64 YEARS 51. 6 5 1.6 54 0 52.3 .0 4 .3 3.3 65 YEARS AND OVER Z.1 2.A 2.0 3 0.9 0.9 AGE UEPENOENCY RATIO 0.9 0.9 0.9 0.9 I1.1 1 ILs 1. 4 ECUONOIC DEPENDENCY RATIO I .3 A 1.5 1.A

PLANNING FAMILY 4 70. 0 ACCEPTORS (CUMULATIVE, THOU) . 35 4. 0 28 72. 5 10.82, 42.0 USERS (Z OF MARRIED WOMEN) .. 2. 0 19. 0

E MPLOYENT 14 50 0 .0 10 400 .0 rOThL LABOR FORCE (THOUSANO) 10103. 0 1 4300 .0 14200.0 1 670 0 . 5.5/ LAV0R FORCE IA AGRICULTURE CI) 61I.0 55.0/a 56. 0 / 7 9.3 67.0 L 5.O0 JNE4PLOTED (Z OF LABOR FORCE) 6.0 7.0 4.0 . 4.0

INCOME UISTRIAUTION

Z OF PRIVATE INCOME RECID BY- 3Z.8 11.1I HIIGHEST 5X OF HOUSEHOLDS 28.8 . .8 24.8/d. f 4 4. 5 300 OF HOUSEHOLDS 56 .2 . 54. O/d . 6 0.6 HIGHEST 9 1.1L LOTWEST 20Z OF HOUSEHOLDS 4.-2 .. 3.9 .2. 9.4 11. 1 LOWEST 401 OF HOUSEHOLDS 11. 9 * 1. 9 d ~

01,TRIBTVUION OF LAND OWNERSHIP 5 3.0 e8. 0 & UWNLD BY TOJP 10% OF OANERS .. .. . 0.9 2. 0 I UWNED VI SMHALL ES T 10X OWNER S . ... HEKLITH AND NUTR IT ION 22610.0 N. .. 3220.0 /a 1910.0 2 22 0.0 /c POPULATION PER PHTOICIA Z 1160.0 a PERSON . . 2000.0r 46 50 .0 1A8O0j0 POPULATION PER NURSING 49 0.0 1920. 0 POPULATION PER HOSPITAL BED 11 83.0 850.0 a.50.0

OF - PER CAPITA SUPPLY 10 3.0 1z OF REOUIAREmNTS) 8 3 .0 100. 0 97.0 105.0 110.1 CALORIES 78.0 65. 0 PROTEIN (GRAMS PER OAY) 4 4 .0 4 5.0 4 7.0 52.:0 0 22.OA 19 .0 -OF WHICH ANIMAL AND PUL-E 19.0/OL. 2.0 .11. 5.I0a DEAFH RATE 1/iHOUT AGES 1-4 9.0a 9. 0 9. 3L ..

EDACAr ION

ADJUSTED ENROLLMENT RATIO I II.0 Li 1 04. 0 PRIMARY SCHOJOL 91O/ to: D~ 110.04 82.0 260 4. 48.016.80 4. SECONDARY SCHOOL 80 4. YEARS OF SCHOOLING PROVIDED 64 4' 0 1 1. 0 12.0 (FIRST AND SECOND LEVEL) 10. 0 10.0 10. 0 12. VOCATIONAL ENROLLMENT L14.:0 16. 0 OF SECONDARY) 14. OLL 6.O , 9. 14.3 (I 5. 8. ADOULT L ITERA CY RAT E ()Z. .. 720 79.0 ~ ADO 5 190~~~~~~~~~~~~~~~~~~~~~~~~72 1 a55

. 2.7 PERSONS PER ROOM (AVERAGE) . 2. 1 ... OCCUPIED DWELLINGS WITHOUT PIPED WATER (Z) 80. 0 76.0 . 664.0 80.0 / TO ELECTRICITY ACCESS 4 1.0 50. 0 (Z OF ALL DWELLINGS) 11.0 213.0 .. DWELLINGS CONNECTED RURAL 1 8. 0 30. 0 TO ELECTRICITY (1) . 7.0 .

CONSUMPTION 78.0 a89. 12I6.0 RAOTU RECEIVERS (PER THOU POP) 2Z. 0 4 5.0 45. 0 5.0 4. 0 2. 0 PASSENGER CARS (PER THOU POP) 3.0 8.0 9.0 247.0 301.0 ELECtRICITY lAWA/YR PER CAP) 100.0 235.0 315.0 124.0 0.17 3.4 NEAWSPRINT (AG/YR PER CAP) 1 .3 2.0 1.5 1.0

SEE NOTES AND DEFINITIONS ON REVERSE Page 2 of I pages

Unless otherwise noted, data for 1960 refer to a" year batesa 1959 end 1961, for 1970 beteen 1968 and 1970, end for Yst Recat etiesta bet.ee 19173 end 1975. -e Korea bee been selected as en objective centry on th. basis of its siilar popuiatison location and incise is-s and, like the Philippines. it is expected to growsepidly in the co.og years.

PHXLTFMES1360 A 1950-55; a4 Ratio of population under 15 and 65 end over to total labor force; A4 1960-62; Ld 1962; /4 7-12 sod 13-16 years of age respectively; If Rot including wecatisoal short-tee caress.

1970 /a As percetage of espleyment; A4 7-12 end 13-16 years of age respectivel; Z. Net inc-luing private vocational schools or vocational short-tees etsress.

ND? RflIT ETDEATRS IA 1972;1 /bRatio of population Ddtr 15 and 65 and ove to total labor force; La h percentage of of -ploysent; /d 1371; /4 Including midwives /f 1969-Tl average; /g 7-12 and 13-16 years of age respectively. THACILAN 1l970 5196h-66; 14 7-13 end 11-18 Years of ag respectively; A4 Public schools wh6ch incluede tenhutinal education at the poet-secondary level. TURIM ~19120a MRaludes 17 eastern provinces; /b 1965-67; 14 Ratin of populAtion under 15 aNd 65 end ovr to labor force 15 Years end over; 1d 15 years end over, excludes uonmployed; /e Reg,stered only,'; /t Disposable incise; LS In- cluding assistant nurses end midwives; A4 196h-66; /t 7-fl years of age; /4 Pwrsons 6 years old end over wdso tell the census takser they can rend and wrte.

M~M, REP. CI 1970 /a As percentage of amploysent; 1b Registered; /c Registered, oct eli precticing in the comntry; /d Water piped Inside. R8, Roamaber 3, 1976

DEFINfITIONSl OF SOCIAl. uTiDICtoiS

Land Area (thou ha,2) Pupulatian Per nursing person - Pupuietlue divided by nonhr of practicing T.i.1 - Tut.i -craco area ce-prining laod arcs and inland wateec. _1ie and ifaiol graduate noen "t-ot-d" or "certified" eunn,ad Agric. - Hunt r -etstiateoif riutas arcs unod tonporarily ar s_iliar prsonnel wth training at experience. Per-nannly fur crps, psataros, caner & hitch,, gardena or in Ii. Pupulation per honpirsi bed - PopuLtiton divded by nonher af hanpital beda fallow. -oilable in public and private general and specialioed honpitel and rehsbiiitstin teeters, secludes nurslig h-se and -stablialssnti fur IsP stiiar ( GNPl P.rperspita -uimates .icrrnt k- prices, -usiuda an-d prevn iJese calclateby ho uon cnvor ionmethd a World Bank Als(1973-75 Per tsotta Suoply of isore (I ofraieeie epid rneeg hue,i 9h0,1970 and 1975 dais, equivalent uf net food unpplina avilable in cunty per ita.pir.e day, avilabte iuppi.n. canprl- dnetlie pr-d-ctian, mpots leuu ponuts, Populatian and chat.ltstoiurirs and changes in crock; net aupplies euclude animal iced, snedn, qoanti- P.pul.ti-o meid-yr. "iltan) - us of July first' if nor av-clblo, ti-a used in fuod ptooessing aed lonneu in distnibotinn, reqoiron.ets -nrageu vf -w ned-year e-s Lease; 1960, 1970 snd 1975 data were osti-ated by PAO base.dan pbysilnlgical needs fcrc veI. activty ond hethb conaidonrig nvirnnests1 teeperture, body weights, ace and PuPul tion deenity - per squar us - Mid-yea PoPulation per square kil- aen dtutrihutions of population, and allowing 107. for waste at hones- eter (100 hectunes) f totala. a adlvl Populatio desn-ty - per uquare ganofu laud - Canpuied aabove for per cspta spply af prutein (gras, per day) - Pratein content cf pot agriraltura1 land only. capti. unt supply of toad par day; no t sapply at food Jc defined a shove;require-ents for all -teati.a eatab=ia d by US11 econ-nic Vital attirhc ereah Services providelfar a olei-c slleuI of 60" er-n nf tntal Crude birth rate got thnusand -Antsi Hio births per thovuand of mid- protein per dsy, and 20 grana of i1 animlsd pulse protein, uf which year popnlatioe; ten-year art -ntcvrag-ennding te 1960 and 1970, 10 grae shuuld he aniasI protini; these stadardu are Ineer thac thuse endffleya vrg nig c 1975 for uns recer- Cs s-i-te. of 71 gron nf total protein and 23 gre-on f anLIsu protein as as Crude death ros torhu-sad -lAunn-I deuths per ihouad of eid-year avrage for the world, proposed by PAO in the Third WrdSe-'rvy population, ten-yrar aritheseticaveragos ending is 1960 and 1970, and Per apt ert ni supply fr inanimlsde oulue - Protein supply of toad fine.-ya avrago ending in 1975 fvr ..ot r.eect estimate, de.raivediro2nlanimals and!pulue- In grams per day. In.fant ourtIeiM_tar .(,Lthgou - t-aeal deurk of infants onond. on ser f Dciu-h .yzth.l esI-A - Aunus 1 deaths per th-.sead in ages ru age per thousad live b-rth. 1-4 years, to children is this sag gr-sp,..nggeuted -a an indicator ci Life eceectancy atI birth (yes) - Average naher of yearu fi life rem,aining malntrition. at hirth, usualy (Av-yea -veegen endIng in 1960, 1970 and 1971 fur d evelp ingcn-nrie- Education nus, reproduction rse- -urrags e,uvber i lIve daughtor a es ill Adjusted euru1lseci rstio - priu,ary-hbno - coroIl.nLs vi all ages e hea.r Sc her norma reprod-t-v perod it she _peer_- Presen.t age- peroestage uf primary cnlaepopulation , includes child- meagd specific fertility raron usual..lyfive-year -vr-gnu ending in 1960, h-l1 years hut adjusted for diltferrt 1egthu of primary eduration; 1970 and 1975 fcc de-tpncooro.fcc cuonti.e with univeral educu.tlon,enulunicy nre..d 1007. population crowt rare oal-C o ndal ... nuI growth rates of sid- al-c uon pupiln are below or above the nffti1 school age. yea puutrioto llt-O,19h0-7(, and 1970-71. Adjusted Ienlnnrailn -seods schoul - Ceapted as above; p'oplio growth 'rae() ure - Ceaue ie rwhrt na ecnayeuatton requires at 1eaut font yeses nf approved primary PoPulation, different dafinitium of urban areas nay affet teapra- inetruction, provides general, vocational or teacher training b!.i~ityefdata,ann countries. in-iructions far pupils at 12 tu 17 yearo of age, correspondence pehas eeltios (7.nt total) - Rtaito f orbs, t total papultuian, 0 aras are gene.rally.exluded. different definiti onsniburbanreau may affect ceapersbility of dots Yearo uf ucolsheeided (first and second level) - Tote1 years of anong onuerien chneling, at secodary level, voational instruction any he par- denstuctre(perer)- Children (0-14 years),.-kiorig-age (15-64 years), 'Iay nr -eplt.lyencloded. adrtired (61 yearn.an d aver) au p-rrnrage of sid-yeer -Pnpltion Vocationalenrulo1u (7 of a.eodaryl - Vocational ioutitutions Age depenadencyrutio - gari.ofn popultion under 15 and 65 ed over in inclade technical,tindustrial nr urban programs hbih operate these of ages 11 throgh 64. Ludependently or as dpeparntsr ut secondary iuttltuion.. irEnoic eednyr.l - b.ib uf pnpnltsicc under 15 and 6) aud ovr Adult literacy rate (7 - Literate adults (ahle to read snd write) ,.iy he !ig_cet:,tolohr Iere in ug group of 15-64 yearo.- percenrage uf sntal adult populatiun aged 11 years and ovr. fuclyplanig-aceporuicaultie.thou) - Ceutive. sanber vf -cept-r of birth-contrl devices under so pises of national fontly H-ouJag PIoonieg protea'neoc inception. Peruon par ruon (-vragel -Average nonber f persas per eson is Folly planeing -ua.rs (7.of earned wone) - Perteetugeu ufrearned occupied coneeional dwellisgu in urban seed; dwellings seclude wae nf ihtld-hbating age il5-be yesrs) wb. -s birth-cotrol devices .-o-p-eannt atructure and unoccpied peers. to al eurrird wane in saut age group. Occupieddwelliaa1awihou~t pipd wae.r (7.)1- ccupied govantlona1 dwelling torbsan repe area without J-ids at ousteida piped emplooneet wa~~~~~~~~~~~~~~-terfscilities as per-entage-of all oneupied delIlimgs. utlurfore. (houad) - Eronealclly striv potions, iecluding Access ta ele selcity (M af all dweIllne) - Convetiue,sl dwellings soud fcrces and ceoplnyod but encludieg hovuewives, students, tet., with electricIty in Iving quarters as percen.t af total dwellings in dsfiuitiouiscrtn couctrie are cut eapsrable. urban end mrurlres Lahbarforce inaJ tutr (%.1 - Agriculturallao foce(i (oiog, Rrldelgsconnected to Ieetricity (7. - Ceapted as sh,n fee hsetr,bntiegand fiuling) as percen.tagesf minI1 lbor force, rura dwelligs only. ceeplaed(7.oflaborfore.) -. ueplynd are usually defined as peruo.. who see ahle and willieg to tkabsuJab, our of a Jab on a give day, loseLio remined ont sf a job, and seeking week for a speified einiza period Hedia~r -svr(pae thou nun) - All types ef raeeiver fur n-die hbmd- eaoet eedin one week, nay sot he conparable betwen cuetri.s due re tests te eee public per thouseed of papulation; secludes di ffereutddfinition of uempluyod sod sonrue of data, e.g., employ- onie e reclvre.. in ca.-tn.. add tn years wh.e -gistretion ol met ofice tstuiticu, sample cu-vys, conpulusry veployneet rnsres.edi sets ses in effect; deta far recant year ey net h.e oparable .stoe east countries abelish.d liconeing. incoas distribution - Pocrtonge of privus JeIc (herb in cash end hind) Ps.assemr care (par thas epp) - -a-se eds cre esprise ester seor rceived by richestIt, rinheut 207., psonees 207.. snd peereet A0l of sea ting less thaneight p-esoa, eunluden ambolase, hearses and husasha1ds. silitary vehicles. Electricis (kwh/yr per tsp) - Annua taseonption at industrial, cn Diarribotion of land -sserhip- Perceetagee of land owed by weahibtet serial,Ipublic and private electricity in kilawtct hones pat c.pit., 10. and peerest 107.uf land ownrs. generally besed on production data, without s11waste fee lasses. in grids but el11sein fee mports sod sap-err of slentricity. Hnahthand Nusrition N-weeint Cha/y Pr -eeP) - Per ssPita ea-I con-suption is kilegren Papulstbou per ebjysiclu - Pa.pel&ttondivided.by auberif precticing estimated Hfs dostln p-eduetim piu- ses Imports of nesspniet. phy sians qualifed troama-dite .shoolas onivenity leve. ANNEX I Page 3 of 4 pages

ECONOMIC INDICATORS

GROSS NATIONAL PRODUCT IN 1976 ANNUAL RATE OF GROWTH (%, constant prices)

US$ million X 1965-70 1970-75 1976

GNP at Market Prices 17,515 100.0 5.7 6.3 6.3 Gross Domestic Investment 5,408 30.9 1.6 12.5 3.7 Gross National Saving 4,382 25.0 3.6 7.6 -2.0 Current Account Balance -1,026 -5.9 Exports of Goods, NFS 3,105 17.7 4.5 2.2 17.2 Imports of Goods, NFS 4,201 24.0 7.2 6.5 0.0

OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1975

Value Added Labor Force V.A. per worker US$ million _____ Million %__ US$ Z

Agriculture 4,606 29.0 7.8 51.6 591 56,2 Industry 5,323 33.5 2.2 14.6 2,420 230.0 Services 5,961 37.5 4.5 29.8 1,325 126.0 Unemployed . * 0.6 4.0 . _ Total/Average 15,890 100.0 15.1 100.0 1,052 100.0

GOVERNMENT FINANCE

General Government Central Government (Million) % of GDP (Pesos million) x of GDP 197 197 196 -7 1975 1975 1973-75

Current Receipts ...... 16,838 14.6 14.0 Current Expenditure . . 14,773 12.8 11.0 Current Surplus ...... 2,065 1.8 3.0 Capital Expenditures ...... 3,425 3.0 2.8 External Assistance (net) ...... 287 0.2 0.3

MONEY, CREDIT AND PRICES 1970 1971 1972 1973 1974 1975 (Million Pesos Outstanding End Period)

Money and Quasi Money 9,001 10,325 11,872 14,021 16,773 19,254 Bank Credit to Public Sector 3,263 3,087 2,994 2,860 3,462 6,296 Bank Credit to Private Sector 8,442 9,688 11,646 15,464 23,098 26,977

(Percentages or Index Numbers)

Money and Quasi Money as % of GDP 22.1 20.4 20.9 19.6 16.8 16.7 General Price Index (1965 = 100) 137.7 159.3 175.4 218.4 337.5 364.8 Annual Percentage Changes in: General Price Index 23.6 15.7 10.0 24.6 54.5 8.1 Bank Credit to Public Sector -2.4 -5.4 -3.0 -4.5 21.0 181.9 Bank Credit to Private Sector 17.2 14.8 20.2 32.8 49.4 16.8

Niote: All conversions to dollars in this table are at the average exchange rate prevailing during the period covered.

Not available.

Not applicable. ANNEX I Page 4 of 4 pages

TRADE PAYMENTS AND CAPITAL FLOWS

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1974-76)

1974 1975 1976 US5 million X (US$ million)

Exports of Goods, NFS 3,357 2,954 3,105 Coconut Products 539 21.5 Imports of Goods, NFS 3,782 4,036 4,201 Sugar Products 607 24.3 Resource Gap (deficit = -) -425 -1,082 -1,096 Forest Products 289 11.6 Mineral Products 437 17.5 Interest Payments (net) -55 -110 -161 Fruits & Other Agric. Products 119 4.7 Workers' Remittances 72 106 Other Manufactures 511 20.4 Other Factor Payments (net) -121 -118 Total 2,502 100.0 Net Transfers 271 318 243 Balance on Current Account -210 -923 -1,026

Direct Foreign Investment 59 125 94 EXTERNAL DEBT, DECEMBER 31, 1975 /e Net MLT Borrowiag Disbursements 402 677 883 US$ million Amortization 339 320 355 Subtotal 63 357 528 Public Debt, including Guaranteed 1,554 Capital Grants Non-Guaranteed Private Debt 1.417 Other Capital (net) /a 373 547 581 Total Outstanding and Disbursed 2,971 Other Items n.e.i. /b 4 -182 -109 Increase in Reserves (+) 289 -76 68 DEBT SERVICE RATIO FOR 1975 /f

Gross Reserves (end year) /c 1,978 1,360 1,640 x Inter. Reserves (end year) /d 1,165 1,089 1,157 Public Debt, including Guaranteed 7.7 Non-Guranteed Private Debt 8.9 Fuel and Related Materials Total Outstanding and Disbursed 16.6 Imports of Goods, NFS 3,782 4,036 4,201 of which: Petroleum 653 710 800 IBRD/IDA LENDING, February 28, 1977 (US$ million)

RATE OF EXCHANGE IBRD IDA 1965-69 1970-71 Outstanding and Disbursed 319.2 27.0 US$ 1.00 = Ps. 3.92 6.43 Undisbursed 606.3 5.2 Ps. 1.00 = US$ 0.26 0.16 Outstanding, incl. Undisbursed 925.5 32.2

April 1972-July 1975 Since July 1975

US$ 1.00 = Ps. 6.78 US$ 1.00 = Ps. 7.5 Ps. 1.00 = US$ 0.15 Ps. 1.00 = US$ 0.133

/a Includes SDRs, short-term private loans, Central Bank liabilities and use of IMF credit. lb Errors and omissions.

/c Gross reserves of the Central Bank.

/d Gross reserves of Central Bank plus net reserves of commercial banks.

/e Excludes short-term debt and IMF standby credit and is on a disburse'ment basis.

/f Ratio of Debt-Service to Exports of Goods and Nonfactor Services. ANNEX II Page 1

THE STATUS OF BANK GROUP OPERATIONS IN THE PHILIPPINES

A. STATEMENT OF BANK LOANS AND IDA CREDITS As of February 28, 1977 /I

Loan or Credit Amounts (US$ millions) Number Year Borrower Purpose Bank IDA Undisbursed

Fourteen loans and one credit fully disbursed 196.5 10.0 637-PH 1969 Republic of the Phllippines Irrigation 34.0 0.7 720-PH 1971 Rice Processing ". and Storage 14.3 6.9 809-PH 1972 National Power Corporation Power 22.0 8.2 349-PH 1973 Republic of the Philippines Education II 12.7 4.7 891-PH 1973 " Fisheries 11.6 5.4 939-PH 1973 Ports 6.1 5.0 950-PH 1973 Highway II 68.0 28.1 472-PH 1974 Aurora-Penaranda Irrigation 9.5 0.2 984-PH 1974 Aurora-Penaranda Irrigation 9.5 8.6 998-PH 1974 DFC-DBP I 50.0 12.0 1010-PH 1974 Third Rural Credit 22.0 0.0 1034-PH 1974 National Power Corporation Power 61.0 36.1 1035-PH 1974 Republic of the Philippines Population 25.0 23.1 1048-PH 1974 " Shipping 20.0 18.1 1052-PH 1974 Philippine National Bank DFC 30.0 23.2 1080-PH 1975 Republic of the Tarlac Philippines Irrigation 17.0 15.8 1102-PH 1975 Rural Development 25.0 24.6 1120-PH 1975 Small and Medium Industries 30.0 11.9 1154-PH 1976 Magat Irrigation 42.0 41.0 1190-PH 1976 * DFC-DBP II 75.0 75.0 1224-T-PH 1976 Education III 25.0 22.8 1225-PH 1976 " Livestock II 20.5 17.7 1227-PH 1976 " Chico Irrigation 50.0 50.0 1272-T-PH 1976 Manila Urban 10.0 10.0 1282-PH 1976 Manila Urban 22.0 22.0 1269-PH 1976 Second Grain Processing 11.5 11.5 1270-PH 1976 " Second Fisheries 12.0 12.0 1353-PH 1977 Third Highways 95.0 95.0 1367-PH /2 1977 Jalaur Irrigation 15.0 15.0

Total 1,020.0 32.2 604.6 of which has been repaid (Bank and third parties) 93.3 - Total now outstanding 926.7 32.2 Amount sold 14.2 of which has been repaid (third parties) 12.6 1.6 -

Total now held by Bank and IDA (prior to exchange rate adjustments) 925.1 32.2 Total undisbursed 599.7 4.9 604.6

/1 A loan of $25 million for a fourth education project was approved by the Executive Directors on March 1, 1977, and signed on March 25, 1977. A loan of $36.5 million for a fourth rural credic project was approved by the Executive Directors on April 5, 1977, and was signed on April 11, 1977. /2 Not yet effective. ANNEX II Page 2

B. STATEMENT OF IFC INVESTMENTS As of March 31, 1977

Fiscal Amounts ($ million) Year Company Loan Equity Total

1963 & 1973 Private Development Corporation of the Philippines 15.0 4.4 19.4

1967 Manila Electric Company 8.0 - 8.0

1967 Meralco Securities Corporation - 4.0 4.0

1970 Philippine Long Distance Telephone Company 4.5 - 4.5

1970 & 1972 Mariwasa Manufacturing Inc. 0.8 0.4 1.2

1970 Paper Industries Corporation of the Philippines - 2.2 2.2

1971 Philippine Petroleum Corporation 6.2 1.8 8.0

1972 Marinduque Mining and Industrial Corporation 15.0 - 15.0

1973 Victorias Chemical Corporation 1.9 0.3 2.2

1974 Filipinas Synthetic Fiber Corporation 1.5 - 1.5

1974 Maria Christina Chemical Industries, Inc. 1.5 0.5 2.0

1974 Republic Flour Mills Corporation 1.2 - 1.2

1975 Philippine Polyamide Industrial Corporation 7.0 - 7.0

1976 Philagro Edible Oils, Inc. 2.6 0.2 2.8

Total gross commitments 65.2 13.8 79.0

Less sold, acquired by others, repaid or cancelled 20.2 7.2 27.4

Total commitments now held by IFC 45.0 6.6 51.6

Undisbursed 0.6 - 0.6 ANNEX II Page 3

C. PROJECTS IN EXECUTION /1

Loan No. 637 Upper Pampanga River Irrigation; $34.0 Million Loan of August 18, 1960; Date of Effectiveness: October 15, 1969; Closing Date: June 30, 1977

This is the first major irrigation project in the Philippines and will supply water year-round to nearly all its 84,000 ha command area. The project's on-farm development scheme is setting a pattern for future irrigation development in the country. Some delays were caused by the 1972 floods, but construction has progressed satisfactorily since then. All works will be substantially completed and the Loan fully disbursed by the Closing Date of June 30, 1977. Project costs have increased 72% over appraisal estimates, largely as a result of rapid inflation, the effects of successive devaluations of the peso, and design changes in the dam (which accounted for about one- quarter of the increase in costs). However, as a result of the close coordi- nation established between irrigation and agricultural support services, the project is expected to reach full development sooner than was anticipated at the time of appraisal. Also, there are added benefits from early closure of the dam resulting in water storage and releases sooner than planned, and nearly 7,000 ha have been added to the project. Finally, there has been a considerable increase in the projected world market price of rice. As a result the estimated rate of return is about the same as at appraisal.

Loan No. 720 Rice Processing and Storage; $14.3 Million Loan of February 4, 1971; Date of Effectiveness: May 10, 1971; Closing Date: June 30, 1979

This project provides long-term credit through the Development Bank of the Philippines to finance a program for the development and modern- ization of the rice and corn processing industry. Originally the project was restricted to rice and to the private sector, and the emphasis was on the construction of new integrated large capacity rice mills. Due in part to poor harvests and in part to,large cost increases for rice mills, the demand for subloans for new integrated rice mills turned out to be small

/1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 4

and, as explained in the President's Memorandum, dated June 8, 1972 (R72-40), the Loan Agreement was amended to shift the project emphasis to rehabilitation of existing rice milling facilities. The Loan Agreement was further amended in April 1974 to (a) expand the scope of the project to include corn in addition to rice, (b) enable local governments and the National Grains Authority to borrow funds under the project, and (c) streamline procurement procedures (President's Memorandum SeciM74-244 of April 15, 1974). As a result of these amendments, the project is now progressing satisfactorily. However, because of long construction period required for the large subprojects, full disbursement will be delayed by about two years and the Closing Date has been postponed to June 30, 1979.

Loan No. 809 Fifth Power; $22.0 Million Loan and $10.0 Million Credit No. 296 Credit of April 3, 1972; Date of Effectiveness July 1, 1972; Closing Date: June 30, 1978

The project is helping the National Power Corporation (NPC) to finance the construction of a second thermal unit of 150 MW at Bataan and transmission facilities in Luzon. Although there has been some minor delay due to the late delivery of transformers, the project is proceeding satisfactorily, and the unit is expected to be commissioned shortly. The erec- tion of transmission lines has been somewhat delayed due to unfavorable weather and poor soil conditions and is now expected to be completed in April 1977. A tariff increase was approved in October 1976. However, it was too late for NPC to achieve the expected rate of return of 8% on its net fixed assets in operation in 1976.

Credit No. 471 Aurora-Penaranda Irrigation; $9.5 Million Credit and Loan No. 984 $9.5 Million Loan of May 14, 1974; Date of Effectiveness: August 22, 1974; Closing Date: June 30, 1979

Although there has been some delay in constructing the two diversion dams because of the need for more extensive foundations and abutment area grouting than originally expected, most difficulties have been overcome and the work is progressing satisfactorily. Diversion of 75% of Aurora water into the Pantabangan Reservoir was achieved in September 1975, one year ahead of the appraisal schedule. All remaining engineering work on the second diversion dam was completed in July 1976, one year ahead of schedule. In the area served by the project, lack of competition caused some delay in the awarding of contracts, but this has been overcome. Efforts to attract bids from more local contractors have been very effective. Urgent work is being done by Government force account. Project costs have increased about 54% over appraisal estimates, largely as a result of inflation. There would be added benefits from early diversion, however, resulting in additional water for irrigation sooner than planned, but the rate of return is expected to fall from the 17% estimated at the time of appraisal to 14%. The credit has been fully disbursed and disbursement on the loan has now begun. ANNEX II Page 5

Loan No. 998 Industrial Investment and Smallholder Tree-Farming: $50.0 Million Loan of June 12, 1974: Date of Effectiveness: September 9, 1974; Closing Date: December 31, 1981

The proceeds of the Loan are being relent to the Development Bank of the Philippines (DBP). The industrial portion of the Loan ($48 million) is being used by DBP to finance direct imports for medium and relatively large industrial projects. DBP is using the balance ($2 million) to finance about 1,300 smallholders in a pilot tree-farming project. The Loan is now fully committed for subloans and disbursements are expected to be completed before the closing date.

Loan No. 1010 Third Rural Credit; $22.0 Million Loan of June 17, 1974; Date of Effectiveness: August 27, 1974; Closing Date: December 31, 1977

The Loan was fully committed by December 31, 1975 and disbursements are expected to be completed well before the closing date.

Loan No. 1034 Sixth Power: $61.0 Million Loan of July 31, 1974: Date of Effectiveness: November 15, 1974; Closing Date: December 31, 1978

The project is helping the National Power Corporation (NPC) to finance a 100 MW hydro plant at Pantabangan and transmission lines for the further expansion of the Luzon grid and feasibility studies by consultants for a future power project. Major equipment for the plant has been con- tracted and project commissioning is expected this year. The transmission component of the project is behind schedule because necessary design work has been delayed due to NPC's heavy construction program. It is now expected that this part of the project will be completed by the end of 1978, i.e. one year behind schedule.

Credit No. 349 Second Education; $12.7 Million Credit of January 5, 1973; Date of Effectiveness: April 11, 1973; Closing Date: December 31, 1978

The Credit provides $12.7 million to f-nance improvements to existing middle and higher level agricultural education institutions, curriculum development, and new technical and vocational institutions in rural areas. The physical facilities are nearing completion but are about 11 months behind appraisal schedule due to earlier delays. All project institutions are expected to be in full use by mid-1977. The technical assistance program, however, is not expected to be completed until late 1978. Therefore, the postponement of the Closing Date to December 31, 1979 is being considered. ANNEX II Page 6

Loan No. 891 Fisheries; $11.6 Million Loan of May 21, 1973; Date of Effectiveness: December 5, 1973; Closing Date: June 30, 1979

This project is designed to provide long-term credit to the private sector through the Development Bank of the Philippines for marine and inland fisheries development. The demand for subloans has been adequate, and the organization to implement them has been properly established. The project is progressing satisfactorily, and all funds were fully committed by July 1976 and are likely to be disbursed by the closing date.

Loan No. 939 Second Ports; $6.1 Million Loan of October 24, 1973; Date of Effectiveness: December 19, 1973; Closing Date: December 31, 1977

Progress on civil works construction for both General Santos and Cagayan de Oro has been slow, due mainly to frequent breakdowns of the contractor's dredger in General Santos, and the slow mobilization of contractor's plant in Cagayan de Oro. The contractors are making efforts to overcome the difficulties. By February 1977, work was 17% completed in General Santos, whereas in Cagayan de Oro progress has so far mainly been in mobilization and site preparation. The present estimated total project cost is 75% higher than the appraisal estimate due to worldwide price increases. However, foreign exchange costs are lower than appraisal estimates as the contractors are locally based. Total traffic at the project ports is in line with appraisal forecasts and a reasonable financial rate of return is being earned.

Loan No. 950 Second Highway; $68.0 Million Loan of December 12, 1973; Date of Effectiveness: December 27, 1973; Closing Date: December 31, 1977

Overall construction progress is satisfactory with about 80% of the works completed. However, progress on one of the national roads is not satisfactory and this is expected to delay project completion by about 12 months compared to the appraisal estimate. UNDP-financed road feasibility studies were completed in June 1975, and detailed engineering for the Third Highway Project (Loan 1353-PH) was completed in August 1976. Detailed engineering for the proposed Fourth Highway Project is underway and expected to be completed by August 1977. The total cost of the project has risen substantially (about 40% above appraisal estimate) because of inflation following the oil price increase in late 1973. ANNEX II Page 7

Loan No. 1035 Population; $25.0 Million Loan of July 31, 1974; Date of Effectiveness: November 13, 1974; Closing Date: December 31, 1979

The project is assisting the Government in expanding rural health infrastructure, and in providing staff training facilities and technical assistance for the development of a management information system and for training. Under the direction of the Project Management Staff in the Depart- ment of Health, overall project implementation is progressing well. Training activities are well ahead of schedule in all 12 regions; the civil works component lags by 9 months, but is projected to be completed ahead of the appraisal report timetable due to simplification of construction design. Progress under the project is satisfactory.

Loan No. 1048 Interisland Shipping; $20 Million Loan of October 29, 1974; Date of Effectiveness: January 15. 1975; Closing Date: June 30, 1979

The Government is relending the proceeds of the Loan to the Development Bank of the Philippines (DBP) for onlending to beneficiaries for the acquisition of new and used ships and for major repairs and conversions. Progress under the project is satisfactory. Commitments were originally slow, because of lack of demand from the private sector and DBP's restrictive collateral requirements. These problems are now being resolved and subloan commitments are expected to increase during the coming months.

Loan No. 1052 Private Development Corporation of the Philippines; $30 million Loan of November 12, 1974; Date of Effectiveness: February 7, 1975; Closing Date: June 30, 1979

The project assists in the financing of industrial subprojects, the bulk of which are expected to go to export-oriented manufacturing projects. As of March 31, 1977, commitments for subloans totalling $12.5 million had been made. While subloan commitments have been somewhat slower than originally expected due to the generally slow pace of business activity, the implementation of the project is satisfactory.

Loan No. 1080 Tarlac Irrigation; $17.0 Million Loan of January 27, 1975; Date of Effectiveness: April 27, 1975; Closing Date: December 31, 1980

The project is assisting the Government to improve 21,000 ha of land under three existing national irrigation systems and expand irrigation on 13,000 ha of additional land in Central Luzon. Progress on the groundwater, ANNEX II Page 8

water management training and NISIS components of the project has been good. Force account work on the irrigation component is about 38% completed, but contract construction which will amount to 80% of the total work has only started. However, all major civil works contracts are now awarded and the remaining work is all under way. Also, most equipment contracts are awarded.

Loan No. 1102 Rural Development; $25.0 Million Loan of April 16, 1975; Date of Effectiveness: July 28, 1975; Closing Date: June 30, 1981

The project is assisting the Government to carry out a rural development project on the island of Mindoro. This includes constructing and improving 150 km of national highways and 280 km of provincial roads, rehabilitating and upgrading Calapan port, improving and extending two national irrigation systems to serve 12,000 ha of rice land, and 3,000 ha under communal irrigation systems, providing an agricultural program involving seed testing laboratories and rat control, providing protection programs in four watersheds, schistosomiasis control and assistance to Mangyan tribes. Pro- gress is satisfactory on irrigation and roads, which are being implemented by agencies having experience with Bank-funded projects, and construction has begun on Calapan Port. With the exception of the Mangyan Assistance Program, however, there was little progress under the other programs because of inadequate budgeting by the various agencies for the new programs. Adequate 1977 budgets have been approved and all work is now expected to proceed rapidly.

Loan No. 1120 Small and Medium Industries Development; $30.0 Million Loan of June 5, 1975; Date of Effectiveness: August 20, 1975; Closing Date: August 31, 1979

The DBP portion of the funds has been fully committed. After a slow start, commitment of funds under the Industrial Guarantee Loan Fund and National Electrification Administration is now proceeding well. Overall progress of the project is satisfactory.

Loan No. 1154 Magat Multipurpose Project; $42.0 Million Loan of August 7, 1975; Date of Effectiveness: November 4, 1975; Closing Date: June 30, 1982

The project is assisting the Government to improve and expand irrigation on 35,000 ha of land in the Cagayan Valley of Northern Luzon. Consultant's work on the engineering and economic evaluation studies is making good progress. The water management training is underway and satisfactory progress is being made on civil works. ANNEX II Page 9

Loan No. 1190 Industrial Investment; $75.0 Million Loan of January 28, 1975; Date of Effectiveness: April 6, 1976; Closing Date: March 31, 1980

The proceeds of the Loan are being relent to the Development Bank of the Philippines for subloans to finance direct imports for medium and relatively large industrial projects. Commitments of funds, which were initially much slower than expected due to a slowdown of investment in the industrial sector as a whole over the past twelve months,have recently improved. As of April 11, 1977, commitments for subloans totaling $7.7 million had been made. The Executive Directors approved a proposal to reallocate $25 million of the funds for small and medium industries on February 25, 1977, and an amendment to the Loan Agreement to this effect was signed on March 16, 1977.

Loan No. 1224 Third Education Project; $25 Million Loan of April 8, 1976; Date of Effectiveness: July 29, 1976; Closing Date: June 30, 1981

The project covers the first phase (1976-80) of the Government's eight-year textbook program and provides for the development, production and distribution of 27 million textbooks. It also provides for curriculum development, teacher training and technical assistance. Progress under the project is satisfactory.

Loan No. 1225 Second Livestock; $20.5 Million Loan of April 8, 1976; Date of Effectiveness: September 13, 1976; Closing Date: June 30, 1982

The Loan became effective on September 13, 1976, and initial progress is satisfactory.

Loan No. 1227 Chico River Irrigation Project; $50.0 Million Loan of April 8, 1976; Date of Effectiveness: July 19, 1976; Closing Date: June 30, 1981

The project will assist the Government to improve and expand irrigation on 19,700 ha in the Cagayan Valley. Initial progress under the project is satisfactory.

Loan No. 1269 Second Grain Processing Project; $11.5 Million Loan of July 2, 1976; Date of Effectiveness: November 12, 1976; Closing Date: June 30, 1981

The project provides long-term credit through the Development Bank of the Philippines to assist in modernizing and expanding the Philippine grain processing industry. The Loan became effective on November 12, 1976, and initial progress under the project is satisfactory. ANNEX II Page 10

Loan No. 1270 Second Fisheries Project; $12.0 Million Loan of July 2, 1976; Date of Effectiveness: November 12, 1976; Closing Date: June 30, 1981

The project provides long-term credit through the Development Bank of the Philippines to assist in increasing fish production for domestic consumption. The Loan became effective on November 12, 1976 and initial progress under the project is satisfactory.

Loan No. 1272T Manila Urban Development Project; $10.0 Million and Loan No. 1282 $22.0 Million Loans of June 9, 1976; Date of Effectiveness: December 9, 1976; Closing Date: September 30, 1981

The loan will finance (a) improvements in basic sanitary services for families living in the Tondo Foreshore and Dagat Dagatan area, and (b) improvements in transportation and traffic in the Greater Manila Area. Tendering is underway for construction of 1,500 of 2,000 serviced lots at Dagat Dagatan, secondary water mains for Tondo, and the interceptor sewer for Tondo.

Loan No. 1353 Third Highway Project; $95.0 Million Loan of January 12, 1977; Date of Effectiveness: March 30, 1977 Closing Date: June 30, 1981

The project will assist the Government in improving the national and rural road systems and their maintenance. The loan became effective on March 30, 1977.

Loan No. 1367 Jalaur Irrigation Project; $15.0 Million Loan of February 14, 1977; Date of Effectiveness: Not Yet Effective Closing Date: December 31, 1982

This Loan will assist the Government in rehabilitating about 22,000 ha of existing irrigation schemes and constructing new irrigation and drainage facilities for about 2,900 ha of rice land on the island of Panay. The Loan is not yet effective.

Loan No. 1374 Fourth Education Project; $25.0 Million Loan of March 25, 1977; Date of Effectiveness: Not Yet Effective; Closing Date: December 31, 1981

This project is for agricultural education and training. It includes assistance for: specialized facilities for forestry, animal science, and veterinary medicine; a regional agricultural college in the Visayas; and training for extension workers and farmer leaders. The loan is not yet effective. ANNEX III Page 1

PHILIPPINES

NATIONAL IRRIGATION SYSTEMS IMPROVEMENT PROJECT

Loan and Project Summary

Borrower: Republic of the Philippines

Amount: $50.0 million equivalent

Terms: The loan would be for a term of 20 years, including a grace period of 4.5 (four and a half) years at an interest rate of 8.2% per annum.

Project Description: The project includes:

(a) Irrigation Development:

(i) rehabilitation of 22 existing NIA irrigation systems serving a total area of about 27,600 ha;

(ii) construction of new irrigation drainage and road facilities for about 21,800 ha of rainfed land;

(iii) construction of a subregional headquarters building; two new field offices; and the extension of office, storage, and staff quarters facilities for eight existing field offices; and

(iv) procurement of vehicles and equipment;

(b) a Schistosomiasis Control Program:

(i) improvement and construction of drainage facilities covering a total area of about 20,000 ha;

(ii) construction of footbridges on irrigation and drainage channels;

(iii) provision of a health education program in all schools and health centers in 21 disease-affected municipalities;

(iv) establishment of a diagnostic screening campaign in all elementary schools, and chemotherapy treatment for 45,000 cases;

(v) provision of about 20,000 water-seal toilets; ANNEX III Page 2

(vi) improvement of about 5,000 wells;

(vii) provision of molluscicides to assist snail control; and

(viii) procurement of vehicles and equipment.

(c) a Pilot Land Consolidation Project in Ilocos to determine the feasibility of introducing a degree of consolidation in an area of highly fragmented small farms; and

(d) an On-Farm Facilities Study to determine the optimum density of terminal on-farm facilities best suited to very small holdings.

Estimated Cost: Foreign Local Foreign Total Exchange ------($ Million) ------(%)

Irrigation works 31.5 23.8 55.3 43

Strengthening of O&M capability 0.2 1.2 1.4 85

Land consolidation 0.4 0.3 0.7 41

On-farm facilities study 0.3 0.5 0.8 57

Schistosomiasis control program 6.9 6.2 13.1 48

O&M equipment 0.1 1.9 2.0 95

Base cost estimate 39.4 33.9 73.3 46

Physical contingencies 6.7 6.3 13.0 48

Price contingencies 11.1 9.8 20.9 47

Total project cost 57.2 50.0 107.2 47

Financing: Government Bank Total ------$ Million ------

57.2 50.0 107.2 ANNEX III Page 3

Annual Cumulative Disbursements: Fiscal Years Disbursements Disbursements (July 1 - June 30) ------$ Million ------

1978 2.4 2.4 1979 9.7 12.1 1980 13.2 25.3 1981 13.2 38.5 1982 8.0 46.5 1983 3.5 50.0

Procurement: Equipment, vehicles and supplies for force account construction, operation and maintenance for the project areas, strengthening of regional operation and maintenance capability, and the schistosomiasis control program (costing a total of about $13.9 million) would be procured after international competitive bidding in accordance with Bank Group Guidelines. A preference limited to 15% of the c.i.f. price of imported goods, or the customs duty, whichever is lower, would be extended to local manufacturers in the evaluation of bids. Off-the-shelf items costing less than $10,000 each and not more than $300,000 in aggregate would be procured through existing Government procedures which are acceptable to the Bank.

Civil works contracts for construction of the diversion weir and main canal of the Abulog extension in the Cagayan subproject ($5.0 million) and main drains and operation roads of the schistosomiasis control program in Leyte ($6.5 million) would be procured on the basis of international competitive bidding in accordance with Bank Group Guidelines. Up to 40% of the civil works ($37.8 million) would be carried out by force account because of the difficulty of finding local contractors. The balance of the civil works would be procured on the basis of competitive bidding advertised locally in accordance with local procedures which are acceptable to the Bank.

Consultants: Provision would be made for consultants' services to: (a) assist in implementing the land consolidation pilot project (12 man-months) and (b) assist in carrying out the on-farm facilities study (36 man-months).

Rate of Return: The economic rate of return of the project is estimated to be 20%; rates of return for the subprojects would range from 18% for Ilocos to 20% for Cagayan and 21% for Leyte.

Appraisal Report: No. 1488a-PH, dated April 12, 1977. ANNEX IV Page 1

PHILIPPINES

NATIONAL SYSTEMS IMPROVEMENT PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken by country to prepare project: 20 months. The project was prepared by the NIA with the assistance of Sanyu Consultants Incorporated of Japan.

(b) First presentation to the Bank: April 1974. First Bank mission to consider the project: April 1974.

(d) Completion of Negotiations: April 1977.

(e) Planned date of effectiveness: August 1977.

Section II: Special Bank Implementation Actions

(a) The Bank and the Philippine Government have agreed on an implementation timetable to ensure effective project implementation.

(b) A Bank mission would visit Manila during the coming months to review progress in project implementation.

(i) the draft agreement between NIA and DOH for the schistosomiasis control component and, in particular, arrangements for the implementation of the public health component;

(ii) the draft agreement between NIA and DAR for the implementation of the land consolidation pilot project;

(iii) NIA's plans for strengthening the agricultural capabilities of its regional offices in regions 1, 2 and 6; and

(iv) the progress being made by NIA in improving the rate of collection of water charges. ANNEX IV Page 2

Section III: Special Conditions

The Borrower agreed during negotiations that:

(a) NIA would prepare a study for Bank review to deal with the problem of mine tailings in the valleys upstream of the Amburayan irrigation system by June 30, 1979 (para. 46);

(b) NIA would ensure that the amount of civil works done by force account would not exceed 40% of the total cost of the work (para. 51);

(c) NIA and DAR would enter into a formal agreement acceptable to the Bank for implementation of the Land Consolidation Pilot Project by December 31, 1977 (para. 42);

(d) NIA and DOR would enter into a formal agreement acceptable to the Bank for implementation of the Schistosomiasis Control Program by December 31, 1977 (para. 43);

(e) The Government would use its best efforts to ensure that an adequate supply of production credit is made available to project beneficiaries (para. 45);

(f) NIA would prepare by December 31, 1977 a plan of action for strengthening the agricultural capabilities of the regional offices in Regions 1, 2 and 6 and, after reviewing such plan of action with the Bank, would proceed with its implementation (para. 47);

(g) NIA would make annual budgeting provisions to supply the funds necessary for O&M of the project works; would take all necessary action to ensure full and prompt collection of irrigation fees; and would gradually increase irrigation fees over a period of five years from completion of construction to a level equivalent to about 3.5 cavans of paddy/ha in the wet season and 4.4 cavans in the dry season (para. 49); and

(h) the Government would provide NIA annually with sufficient funds to effectively maintain the anti-schistosomiasis drainage network built under the project (para. 43).

IBRD 12507 1160 1200 124° JANUARY 1977 CLASSIFICATION OF PROVINCES PH ILIPPINES BY GEOGRAPHICAL REGIONS Nationol Irrigation Systems Improvement Project I ILOCOS WESTERN VISAYAS I IocosNorte 37 Akianl 2 AobrfoasNon 38 CAakPiTzn SYSTEMS LOCATIONS 3 l..cos Sur 39 Antique 8 2 4 Mounta,,n 40 110110 8200- 5 La Union 41 Negros Occidental A Project areas S6La Unget CENTRAL VISAYAS 6PBengaes 42 Cebu (D Previous IBRD project areas 7 Pao1ganieon 43 Negros Oriental CAGAYAN VALLEY 44 Bohol Roads 8 Batanes 45 Siquilor 9 Cagayan EASTERN VISAYAS Railways 10 Kahnga-Apayao 46 Northern Samar 11 Isabela 47 Samar Rivers

12Itgao 48 EasternSamar* k3 1213 NueagN.reaV,zcaya 4948eVSA Leyte A AOrI_____Aaap\ _ 3 -NIA regional boundaries and numbers 14 Oainno ~~~~50Southern Leyte Laoa. 9 A nn~NArgoa fie CENTRAL LUZON WESTERN MINDANAO 1Cuov3n NIA regional offices 15N.ena Ealta 51 Zameboangadel Norte ,~ l oleaa 16 Taralc 52 Zamboanga del Sur Ce RIVER - - - -_____Provincialboundaries 17 Zambales 53 Basilan 4 J IRRIATONPROJLcT 18 Pampanga 54 SUlu , 1 / 2 19 Bulacan 55 Taw,taw, A3 20 Bataan NORTHERN MINDANAO * 1 tl n SOUTHERN TAGALOG 56 Surigao del Norte *7 21 Quezon 57 Camiguin SFen 5 6 - ISAGAT RIVER 22 RICai 58 Agusan del Norte, nando / V. 4 \ I PROJECT 55 t00 150 206 2bO 306

24 Luna 59 MNsarnsOrIental t1, L5 0I 50 2 300 o16' 25 Batangas 60 Misa.elsOccidental KILOMETERS 26 Marinduque 61 Lanao del Norte Dagar\ y0\ 2100 27 Mindoro Oriental 62 Lanao del Sur r -,PAMPAAuGA RIVER PROJECT 28 Mindoro Occidental 63 Buk,dnon AURRA PFIJARAIVDAIRRIGATIOIV PROJECT MILES 29 Romblon 64 Agusandel Sur 30 Poloswao] 65 SArI900del Sur 1 t). a u |4RLAC IRRIGA TI SYSTpIdoSSTE ThehrndAC-Ply -,d-- 1> .'p'-1RRIoTION b, BICOL SOUTHERN MINDANAO AI I 19 ,MPROVEMENrPROJECT W-laId ae-k,dIt ,fjifitec 3t CamarmIles Norte 66 Magu,ndanao 32 CamarnnesSur 67 North Cotabato OlongaRe ' 21 33 Catanduanes 68 Davao 2 in 34 Albay 69 OavaoOriental 35 Sonsogon 70 Davaodel Sur 3 36 Masbate 71 Sultan Kudarat t- 'Pablo .+ o Does 72 South Cotabato N 5

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