ASIAN DEVELOPMENT BANK 

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON

PROPOSED LOANS

AND A

TECHNICAL ASSISTANCE GRANT

TO THE

REPUBLIC OF THE

FOR THE

PASIG RIVER ENVIRONMENTAL MANAGEMENT AND REHABILITATION SECTOR DEVELOPMENT PROGRAM

March 2000 CURRENCY EQUIVALENTS (as of 1 March 2000)

Currency Unit — Philippine Peso

P1.00 = $0.0244 $1.00 = P40.91

In this report, the rate of $1.00 = P38.20, generally prevailing at the time of preparation of the cost estimates, is used.

ABBREVIATIONS

AO - administrative order BOD - biochemical oxygen demand Danida - Danish International Development Assistance DENR - Department of Environment and Natural Resources DO - dissolved oxygen DPWH - Department of Public Works and Highways EIRR - economic internal rate of return EO - executive order EPA - environmental preservation area FIRR - financial internal rate of return GDP - gross domestic product HUDCC - Housing and Urban Development Coordinating Council JBIC - Japan Bank for International Cooperation LGU - local government unit LLDA - Laguna Lake Development Authority MMDA - Metro Development Authority MWSS - Metropolitan Manila Waterworks and Sewerage System NGO - nongovernment organization NHA - National Housing Authority OGCC - Office of the Government Corporate Counsel PMO - project management office PPMS - project performance monitoring system PRDP - River Development Plan PRRC - Pasig River Rehabilitation Commission SDP - sector development program TA - technical assistance THW - toxic and hazardous waste

NOTES

(i) The fiscal year (FY) of the Government coincides with the calendar year. (ii) In this report, "$" refers to US dollars. CONTENTS Page

LOAN AND PROGRAM SUMMARY ii

MAP viii

I. THE PROPOSAL 1

II. INTRODUCTION 1

III. THE SECTOR 3

A. Macroeconomic Context 3 B. Sector Description and Recent Performance 5 C. Constraints and Issues 10 D. Government Objectives and Strategy 12 E. External Assistance to the Sector 13 F. ADB’s Operations and Strategy in the Sector 13 G. Lessons Learned 14

IV. THE SECTOR DEVELOPMENT PROGRAM 15

A. Rationale 15 B. Objectives and Scope 16 C. Policy Framework and Actions 17 D. Capacity Building 20 E. The Investment Project 22 F. Environmental and Social Measures 25

V. THE PROPOSED LOANS 26

A. The Policy Loan 26 B. The Investment Loan 28

VI. THE TECHNICAL ASSISTANCE 31

VII. BENEFITS AND RISKS 32

A. Expected Impacts 32 B. Risks and Safeguards 36

VIII. ASSURANCES 37

A. Specific Assurances 37 B. Conditions for Disbursement 38 C. Conditions for Award of Contract 38

IX. RECOMMENDATION 39

APPENDIXES 40 LOAN AND PROGRAM SUMMARY

Borrower Republic of the Philippines

The Proposal The proposed sector development program (SDP) will make a significant contribution to the achievement of a clean and green urban environment for and improved water quality for the Pasig River basin through (i) policy reforms supported by a policy loan of $100 million, (ii) an investment loan of $75 million to finance the necessary public sector investments, and (iii) a technical assistance grant of $1 million for institutional capacity building for agencies with environmental management responsibilities.

Rationale The Pasig River passes through the urban heart of Metro Manila and is a major waterway of national significance to the historic, social, cultural, and commercial heritage of the Philippines. As a result of population growth, urbanization, and industrial activities, the indiscriminate discharge of untreated municipal and industrial wastewater and solid waste exceeds the absorptive capacity of the river system, and the Pasig River has become seriously polluted. The riverbanks are characterized by low grade, blighted urban development, including extensive squatter settlements, depressed residential areas, and large tracts of derelict industrial land. To restore the environment and realize the full socioeconomic development potential of the Pasig River and the adjacent urban areas, it is necessary to rehabilitate the river system, restore water quality, limit and control wastewater discharges, and promote urban renewal along the riverbanks.

Classification Primary: Environment Secondary: Human Development

Environmental Category B. An initial environmental examination was completed Assessment and its summary is attached as an appendix.

The Sector Development Program

Objectives and The SDP objective is to promote policy reforms and physical Scope improvements to enhance the water quality of the Pasig River, its tributaries, and esteros, to Class C standard by 2014. Class C standard river water is capable of sustaining aquatic life, is suitable for secondary contact sports, and after treatment, may be used for industrial processes. The SDP will promote the implementation of an integrated package of policy reforms and investments contained in the Pasig River Development Plan (PRDP). The components include measures to improve water quality, and actions to promote urban renewal and redevelopment along the riverbanks. These activities will bring about improvements in living conditions and public health standards for riverside communities. The components include measures to (i) establish and develop 10-meter (m) wide iii

environmental preservation areas (EPAs) along the riverbanks, (ii) upgrade infrastructure and provide municipal services and facilities in urban renewal areas adjacent to EPAs, (iii) introduce a septic tank maintenance service and provide a septage treatment facility to reduce the volume of untreated municipal wastewater being discharged into the river, and (iv) eliminate the illegal dumping of municipal solid waste into the river system.

Policy Framework The agreed policy framework includes (i) approving, adopting, and and Actions implementing the first phase of the PRDP from 2000-2004; (ii) providing sanitation services in addition to the targets set in the Metropolitan Manila Waterworks and Sewerage System (MWSS) concession agreements; (iii) establishing for Metro Manila a wastewater discharge permit system with a progressive tariff structure; (iv) improving domestic solid waste management for riverside barangays; (v) establishing EPAs along the riverbanks and undertaking urban renewal in adjacent areas; (vi) reviewing, strengthening, and unifying the environmental regulations and discharge standards; (vii) strengthening the water quality monitoring and enforcement capability and capacity; (viii) enhancing public awareness of environmental issues; and (ix) strengthening the institutional capacity of agencies concerned with environmental management.

Capacity Building A TA will develop the capacity of the Pasig River Rehabilitation Commission, the Metro Manila Development Authority (MMDA), and beneficiary local government units (LGUs) to implement the PRDP.

The Investment The investment Project includes urban renewal covering the Project establishment of EPAs along the riverbanks and infrastructure improvements for adjacent urban renewal areas. This will involve the relocation of approximately 10,000 squatter families currently living within EPAs and the redevelopment of the vacated areas as riverside parks and promenades.

Urban renewal will support the upgrading of approximately 500 hectares (ha) of depressed urban residential areas at different locations along the river. This will benefit about 80,000 low-income families. Two high priority, pilot areas of low-income, depressed housing — Sta. Ana, Manila and Santolan, Pasig — with about 3,400 families, were identified and feasibility studies developed. Upgrading will include the provision of basic infrastructure, community facilities, riverbank improvements, and land titling.

The sanitation component will include the procurement of 36 vacuum trucks for septic tank maintenance and the construction of a septage treatment plant. The sanitation service will provide coverage for about 185,000 households that are targeted to have zero sanitation coverage under the MWSS concession agreement. iv

For project implementation, consulting services will be provided to strengthen project management capabilities, and help with project coordination and implementation. The consultants will help to prepare the contract for the design, procurement, construction, and operation of the sanitation facilities, including septic tank maintenance service and septage treatment plant.

Social and Through the SDP, the living conditions of about 10,000 squatter Environmental families (about 55,000 people) living in deprived conditions within Measures EPAs will be improved by providing purpose-built and fully serviced accommodation at a variety of resettlement sites at in-city and near- to-town locations. A further 80,000 families (about 440,000 people) living in urban renewal areas will benefit from upgrading, including the provision of basic municipal services, essential infrastructure, and security of tenure. Pasig River water quality will be improved by reducing the discharge of polluted municipal and industrial wastewater to the river system, and reducing the amount of solid waste being dumped. About 185,000 households (1.0 million people) will directly benefit from the sanitation service. The entire population of Metro Manila (about 10 million people) will indirectly benefit from improved environmental conditions and a cleaner, greener, and healthier Pasig River basin.

Benefits Benefits derive mainly from water quality improvements in the Pasig River, and improvements in environmental quality along the riverbanks and adjacent urban areas. The benefits are generated jointly by the Project and other projects and programs. The economic analysis assessed the incremental impact of the Project on water quality and the urban environment, taking into account attributable improvements. The base case results in an economic internal rate of return of 16 percent, which remained satisfactory when subjected to sensitivity analysis.

The Policy Loan

Loan Amount and The Asian Development Bank (ADB) will provide a loan of $100 Terms million from its ordinary capital resources to support the necessary policy reforms. The Borrower will be the Republic of the Philippines. The loan will have a maturity of 15 years, including a grace period of 3 years, with interest determined in accordance with ADB’s pool- based variable lending rate system for US dollar loans and a commitment charge of 0.75 percent per annum.

Program Period The program loan will be disbursed in two tranches. The first and Tranching tranche of $40 million will be released upon loan effectiveness. The second tranche of $60 million is expected to be released after 12 months, subject to the conditions of release being fulfilled.

Executing Department of Finance and the Pasig River Rehabilitation Agencies Commission (PRRC). v

Procurement The loan proceeds will be used to finance the foreign exchange costs of items produced and procured in ADB member countries, excluding listed ineligible items, and imports financed by other bilateral and multilateral funding agencies.

Counterpart Funds The Government will ensure that sufficient counterpart funds generated from the loan proceeds are available to support the policy reforms to be initiated under the SDP and implementation of the project components. Any remaining funds will be used, first, to finance local currency costs of other ADB-financed projects, and second, for general development purposes.

The Investment Loan

Loan Amount and ADB will provide a loan of $75 million from its ordinary capital Terms resources to finance the foreign exchange and part of the local currency costs of the investment component of the SDP. The Borrower will be the Republic of the Philippines. The loan will have a maturity of 25 years, including a grace period of 5 years, with interest determined in accordance with ADB’s pool-based variable lending rate system for US dollar loans and a commitment charge of 0.75 percent per annum.

Cofinancing Cofinancing grants are being negotiated for capacity building and technical studies. The Danish International Development Assistance (Danida) and the United States Trade and Development Agency have indicated interest in financing capacity building for PRRC, a community-based environmental awareness program, livelihood program, further development of the mathematical model for water quality monitoring, toxic and hazardous waste management study, and an industrial location strategy study.

Implementation The PRRC will be the Executing Agency responsible for overall Arrangements and program coordination, monitoring, implementation, and capacity Executing Agency building. It has established a project management office for this purpose. The PRRC will be responsible for implementing the sanitation component, including the development of the septage treatment facility and the septic tank cleaning service. The Department of Environment and Natural Resources, in conjunction with the Laguna Lake Development Authority, will monitor water quality and enforce environmental regulations and standards. The Housing and Urban Development Coordinating Council, in collaboration with the National Housing Authority, and the LGUs will be responsible for development of squatter relocation sites and relocation of families from EPAs. MMDA and the LGUs will be responsible for implementing urban renewal, including community consultation, preparation activities, and provision of infrastructure and basic municipal services. vi

Procurement and Procurement of goods and services shall be subject to the Consultant provisions of ADB’s Guidelines for Procurement. Contracts for the Services sanitation and septage facilities will be awarded on the basis of international competitive bidding. Civil works contracts for EPAs and urban renewal areas, less than $3 million equivalent, will be awarded on the basis of local competitive bidding, in accordance with procedures acceptable to ADB. Consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants or other procedures acceptable to ADB for the selection of domestic consultants.

Time Frame The investment component of the SDP will be implemented over five years with completion expected by 31 July 2005.

Technical Assistance ADB will provide a $1 million technical assistance financed on a grant basis from the Asian Currency Crisis Support Facility, funded by the Government of Japan. The TA will provide capacity building for the PRRC, MMDA, and the LGUs.

Risks and Safeguards The principal risks include (i) a possible lack of Government commitment to implement and sustain the policy reform agenda and inadequate provision of Government counterpart funds, (ii) a legal challenge by the MWSS concessionaires asserting that the Concession Agreement confers upon them exclusive rights to provide and operate sanitation services, (iii) failure to enforce environmental standards and regulations, (iv) reluctance of the private sector to reduce the volume and improve the quality of industrial wastewater discharges, (v) resistance of squatters and other slum dwellers to relocate from EPAs to resettlement areas, and (vi) inadequate institutional capacity to effectively implement the SDP and operate and manage the facilities. Specific arrangements to minimize these risks are incorporated in the SDP design. The Government has shown strong commitment to the Pasig River rehabilitation, identifying it as a flagship project. The Office of the Government Corporate Counsel has issued a legal opinion stating that under the Concession Agreement the provision of sanitation services is not an exclusive right granted to the MWSS concessionaires. The policy loan will be released in tranches against the achievement of predetermined policy objectives, and the Government has agreed that adequate counterpart funds will be allocated for the Project. The investment loan is expected to restore the environment, improve living conditions, raise public health standards, and deliver essential infrastructure and basic municipal services for the riverside communities. Extensive consultations were undertaken with affected communities, including nongovernment organizations and community groups. In general, people are willing to relocate provided that there are employment opportunities and access to transport, education, and other social services. Through the SDP, it is proposed to give people an element of choice for relocation, including a range of in-city and near-to-town sites that will be developed with a full range of vii services and facilities. Actual relocation will be preceded by a period of community preparation, and assistance will be provided for livelihood skills training and job placement. Overall, the SDP will act as a catalyst for development by demonstrating successful environmental improvements in pilot areas, with the aim of attracting further public and private sector investment in the long term. viii

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99-2388 AM I. THE PROPOSAL

1. I submit for your approval the following Report and Recommendation on two proposed loans to the Republic of the Philippines for the Pasig River Environmental Management and Rehabilitation Sector Development Program (SDP). The report also describes proposed technical assistance (TA) for Institutional Capacity Building Support, and if the proposed loans are approved by the Board, I, acting under the authority delegated to me by the Board, shall approve the TA.

II. INTRODUCTION

2. In recent years, the Philippines has experienced a remarkable pace of urbanization, particularly affecting Metro Manila. The rapid urban growth is driven by high population growth and an influx of rural migrants attracted by the economic opportunities available in expanding cities. For Metro Manila, population growth has far outstripped the rate at which basic infrastructure and essential municipal services have been provided. The result is a severely overcrowded, congested, and environmentally degraded city that is beset with traffic problems; air and water pollution; and inadequate sanitation, sewerage, drainage, and solid waste management facilities. Ineffective land management and development control policies, and inappropriate land use zoning have resulted in an incompatible mix of industrial, commercial, and residential activities, interspersed with a proliferation of slum areas and squatter settlements. The Asian Development Bank (ADB) has already provided assistance1 to tackle air pollution problems in Metro Manila, and as part of an integrated environmental management package is now focusing on the problems of water quality management.

3. In the urban areas, particularly Metro Manila, economic growth, industrial operations, commercial activity, and rising living standards have led to a massive increase in water consumption. As a consequence, the volume of wastewater has also risen dramatically. Because wastewater collection, treatment, and disposal facilities are extremely limited in Metro Manila, most of the polluted wastewater is discharged, untreated, to the public drainage system and ultimately enters natural water bodies such as rivers, lakes, and the sea, causing pollution and environmental damage. In Metro Manila, the Pasig River system has been severely damaged by the discharge of polluted wastewater. The volume of pollution discharge far exceeds the assimilative capacity of the river, and water quality is below all the basic environmental standards set for the river. The Government has acknowledged this problem and through the Philippine National Development Plan,2 and the Philippine Medium-Term Development Plan3 is focusing greater attention on environmental concerns as a development issue. For future development, the Government plans to initiate a sustainable development process that respects the environment. The SDP is a prototype aimed at supporting the first phase of a long-term river environmental management and rehabilitation program.

4. The Government recognizes the historic, cultural, and economic importance of the Pasig River system to Metro Manila and the country. Over the years, the river system has become heavily polluted through the uncontrolled and indiscriminate discharge of untreated industrial and municipal wastewater and solid waste. The Government has set a high priority on restoring

1 Loan 1663-PHI: Metro Manila Air Quality Improvement Sector Development Program, for $200 million, approved on 16 December 1998. 2 National Economic and Development Authority. 1998. The Philippine National Development Plan: Directions for the 21st Century. Manila. 3 National Economic and Development Authority. 1999. Philippine Medium-Term Development Plan 1999-2004. Manila. 2 the water quality, improving environmental management, rehabilitating the river, and promoting urban renewal along the riverbanks. ADB provided TA4 to help the Government to (i) update and refine the comprehensive 15-year Pasig River Development Plan (PRDP), divided into three, five-year phases; and (ii) identify an integrated investment project to support the first five-year phase. The results of the TA and ADB missions show that to substantially reduce pollution due to the discharge of untreated wastewater, it is necessary to (i) improve the physical facilities for the collection, treatment, and disposal of municipal wastewater, industrial wastewater, and domestic solid waste; (ii) redevelop the urban areas in the vicinity of the riverbanks; and (iii) strengthen the institutional capacity of the Government agencies responsible for environmental monitoring and enforcement.

5. The achievement of sustainable improvements in Pasig River water quality and the encouragement of urban renewal will require the Government to adopt and implement a policy reform agenda. Accordingly, an outline policy framework was developed during fact-finding, aimed at (i) approving and adopting the PRDP, (ii) expanding and advancing sanitation coverage targets, (iii) introducing the polluter pays principle to Metro Manila, (iv) introducing community-based solid waste management, (v) establishing environmental preservation areas (EPAs) along the riverbanks, (vi) strengthening environmental standards and regulations, (vii) strengthening water quality monitoring and enforcement capability, (viii) enhancing public awareness of environmental issues, and (ix) strengthening the institutional capacity of environmental management agencies. This policy framework was further developed and refined during loan appraisal. It also became clear during fact-finding that, to support implementation of the policy agenda and physical improvements, adoption of ADB’s SDP modality would be the appropriate approach. Consequently, the proposed SDP will comprise the program loan linked to the implementation of the policy reform agenda and the investment loan to support the implementation of physical components and institutional capacity building.

6. At the request of the Government, ADB fielded the Appraisal Mission5 in July 1999. The Mission was to reach an agreement on the Pasig River rehabilitation program, including the policy reform agenda, the proposed loans and components, cost estimates, financing plan, institutional arrangements, and other aspects. The Mission focused on further developing the SDP and resolving outstanding issues, including firming up (i) the policy dialogue, (ii) sanitation coverage targets, (iii) resettlement plan, (iv) local government participation, (v) loan size and conditions for tranche releases for the policy loan, and (vi) size and scope of the investment loan. A memorandum of understanding was signed by the Government and ADB on 10 September 1999; it set out the understandings and agreements reached by the Mission and Government representatives. The SDP was formulated using the findings of ADB missions; information provided by the Government; discussions with other funding agencies, bilateral financing agencies, and private sector representatives; dialogue with beneficiaries and nongovernment organizations (NGOs); and the results of the TA. The program framework is presented in Appendix 1.

4 TA 2803-PHI: Pasig River Environmental Management and Rehabilitation Project, for $800,000, approved on 29 May 1997. The TA was completed in April 1998. 5 The Mission comprised A. Williams, Senior Urban Development Specialist/Mission Leader; S.N. Zahid, Senior Sector Specialist; Fei Yue, Programs Officer; E.P. Araneta, Counsel; R. Jayewardene, Social Development Specialist; J. Arthur, Urban Development Specialist/Staff Consultant; F. Waters, Urban Economic/Staff Consultant; D. Velasco, Municipal Finance Specialist/Staff Consultant; and B. Pallana, Resettlement Specialist/Staff Consultant. 3

III. THE SECTOR

A. Macroeconomic Context

1. Economic Development Challenges

7. The National Statistics Coordination Board’s published population census statistics6 show that the national population grew from 60.7 million in 1990 to 68.6 million in 1995, representing an annual average growth of 2.3 percent over the intercensus period. Over the same period, the Metro Manila (National Capital Region) population grew from 7.8 million to 9.5 million, representing an average annual growth of 3.3 percent. The population density of Metro Manila rose from about 12,500 persons per square kilometer (km2) to almost 15,000 (Metro Manila’s land area is 636 km2). The census population projections estimate that by 1999 the national population would be 74.7 million and will reach 84.2 million by 2005, representing an average annual growth rate of about 2.1 percent. The Metro Manila population was estimated at 10.2 million in 1999 and is forecast to reach 11.3 million by 2005, representing an annual average growth rate of about 1.8 percent; a considerable slowdown in growth rate from that experienced in previous years.

8. The country’s development potential rests on its well-educated population and abundant natural resources. The Government’s long-term development goal is to transform the country from an agriculture- and natural resource-based economy to an industrialized economy. This is to be achieved with steady growth in per capita income, elimination of poverty, and reduction of social and economic inequities. The Government’s growth targets, consistent with this long-term goal, visualize gross domestic product (GDP) growth in the range of 4.7 percent for the period 1999-2004. The Government also aims to significantly reduce poverty from the 1997 level of 32 percent to about 25 percent by 2004.

9. The major long-term challenges faced by the economy include rapid population growth; the high incidence of poverty, social and economic inequalities, low productivity, degradation of natural resources, deteriorating environment, and intense international competition. To tackle these problems, the Government’s economic planning and long-term development strategy set out in the Philippine National Development Plan and the Medium-Term Philippine Development Plan, 1999-2004 has adopted the concept of sustainable development. The Government has confirmed its commitment to sustainable development by emphasizing that future economic growth should be compatible with environmental protection and consistent with the environment’s carrying capacity.

2. Recent Economic Performance

10. The Asian currency crisis affected the Philippine peso and interrupted a phase of steady economic growth since the early 1990s. This growth was accompanied by a decline in inflation from 18.7 percent in 1991 to 5.1 percent in 1997. In 1996, prudent fiscal management, manageable expenditure programs, and improved revenue collection performance by the Bureau of Customs, Bureau of Internal Revenue, and Bureau of the Treasury, which together collected 95 percent of the total national revenues, enabled the Government to achieve a budget surplus of P6.3 billion. In the second half of 1997, the Asian financial crisis struck and affected several countries in the region, including the Philippines. In July 1997 the peso exchange rate was allowed to float and depreciated from about P26 to the dollar to P46 in

6 National Statistical Coordination Board. 1997. 1997 Philippine Statistical Year Book. Manila. 4

January 1998, before recovering to about P40 to the dollar. Nevertheless, for 1997, total revenue collection increased by 15 percent due mainly to the privatization revenues of P9.4 billion, an increase of 67 percent over the previous year. Through good fiscal management, the expected increase in expenditures due to the inflationary effects of the crisis were limited to 16 percent and the Government was able to register a budget surplus of P1.6 billion for 1997. The Government felt the full impact of the Asian financial crisis in 1998, with increased inflation, negative economic growth, and a sharp rise in unemployment. The economic difficulties have been further aggravated by the impact of the El Niño weather phenomenon, which probably had a more severe detrimental impact on the economy than the Asian currency crisis. Due to prolonged drought followed by unseasonal rainfall, the performance of the agriculture and fisheries sectors contracted by over 11 percent in 1998, posting the worst performance in 30 years. The El Niño episode cut the country’s rice output by 30 percent and corn production by 40 percent. During 1998, GDP contracted by 0.5 percent, inflation averaged 9.7 percent, and unemployment rose from 9 percent to 10.3 percent. Interest payments rose by 28 percent from P78 billion in 1997 to P100 billion in 1998, mainly as a result of currency devaluation. Operation and maintenance expenditures increased by 24 percent due to price escalation. During the year, Government revenues from Bureau of Customs and Bureau of the Treasury declined by 20 percent and 36 percent, as a result of the slowdown in industrial activity. Income from privatization declined by 82 percent, reflecting reduced Government activity and the prevailing weakness in the commercial and property sectors. The Government’s overall fiscal performance resulted in a budget deficit of P50 billion in 1998.

11. Following the negative growth recorded in 1998, the Philippine economy started to recover in 1999 and GDP grew by 3.2 percent. The recovery was supported by a revival in agriculture, which grew by over 6 percent, due to favorable weather conditions. The service sector remained resilient throughout the crisis period and grew by 4 percent in 1999. However, the industry sector remained weak and posted a growth rate of only 0.5 percent in 1999. The lingering effects of weak domestic demand and low investment are major concerns for a sustained recovery. In 1999 the budget deficit was P111 billion, due to poor revenue collection and increased expenditure. The Government is expected to record budget deficits for the next two or three years.

3. Economic Prospects

12. Given the ongoing economic adjustments in the region, it is difficult to make a definitive assessment of the country’s economic prospects. However, the Philippine economy is expected to recover to its precrisis sustained growth path in the medium term. The exchange rate adjustment should improve the international competitiveness of Philippine exports. The adjustment should also discourage further expansion of the bubble created by the rapid growth of foreign currency bank credits used for real estate investments. Over the long term, the economy may become more efficient, as a result of the adjustments brought about by the currency crisis.

13. In the short term, the pace of economic recovery will largely depend on prudent macroeconomic management and exogenous factors such as weather conditions and the regional economic environment. The Government faces the difficult task of maintaining crucial public investment without creating a large deficit. The concomitant problem of financing the deficit must be done in a manner that will prevent a rise in interest rates that could exacerbate the difficulties of the corporate and banking sectors. The Government is, therefore, proposing to undertake a combination of external and domestic borrowing, including borrowing from multilateral institutions. On the other hand, monetary policy must balance the need to control 5 inflation with the credit needs of the economy. The Government will also have to take measures to ameliorate the social impact of the crisis and prevent a rise in poverty.

14. The long-term effects on the environment of the Asian financial crisis and the abnormal weather are difficult to assess at this stage, but are likely to be detrimental. The financial crisis has forced more people into poverty, reversing recent trends of poverty reduction, and resulting in increases in the incidence of joblessness, squatting, and migration to the cities from the rural areas. This will put further pressure on already overstretched housing, water, sanitation, and other municipal services. Also, Government agencies and private sector entities are feeling the strains of the financial crisis and are cutting back on expenditure.

B. Sector Description and Recent Performance

1. Environmental Overview

15. The sector may be defined as the urban environment, with specific reference to wastewater management and urban renewal for Metro Manila. Sector indicators are given in Appendix 2. According to the Philippine National Development Plan, the Philippine environment is classified by the following types of ecosystems: (i) uplands and forests comprising 45 percent of the country’s land area and supporting about 30 percent of the people; (ii) coastal and marine areas comprising about 80 percent of the country’s territory; (iii) urban areas inhabited by more than half the nation’s population; (iv) agriculture and croplands occupying almost 10 million hectares (ha), about 34 percent of the country’s land area; and (v) freshwater systems comprising 384 major rivers and 59 lakes. The Pasig River is part of the freshwater ecosystem and has an impact on each of the other ecosystem types. The river is part of the Laguna Lake catchment basin, which is the nation’s largest freshwater lake. The basin includes extensive upland and forest areas, as well as substantial agricultural lands. The river discharges into the coastal marine ecosystem at Manila Bay and passes through the densely developed heart of Metro Manila, the country’s largest and most significant urban area.

16. Pollution of freshwater ecosystems is a major environmental problem. Four of Metro Manila’s six rivers, including the Pasig River, are biologically dead. Water quality monitoring shows that the pollution concentrations exceed the levels required to meet the water quality standards designated by the Department of Environment and Natural Resources (DENR) for the river. The main sources of water pollution are domestic wastewater, industrial wastewater, surface water runoff from urban areas, and chemicals from agricultural fertilizer and pesticides. Major lakes in the country, particularly Laguna Lake, Lake Danao, and Lake Lanao are threatened by siltation from soil erosion and pollution from agricultural, industrial, and urban activities. Eutrophication is a common phenomenon due to discharges of untreated domestic and industrial sewage, and surface water runoff from agricultural land and urban areas.

17. Urban decay is also a growing environmental problem. Metro Manila accounts for about 14 percent of the total Philippine population and approximately 30 percent of the nation’s urban population. Rapid urbanization has brought with it a proliferation of informal, unserviced, and overcrowded settlements. The absence of effective land use planning and urban management has resulted in the deterioration of cities, particularly Metro Manila, as human habitats. The metropolis is now beset with problems including traffic congestion; dilapidated road network; insufficient public transport; inadequate water supply, sanitation, and solid waste management services; drainage and flood control problems; air pollution; and water pollution. 6

2. The Pasig River System

18. The Pasig River is a major river of national significance in the historic, cultural, and commercial life of the Philippines. The river is an important navigation route for barges transporting bulk goods and materials between factories located along the riverbanks and ships anchored in Manila Bay. The river also provides an important drainage and flood protection function for Metro Manila. In the past, the Pasig River was an important transport route for people and a major recreational amenity. The Pasig River system is a complex waterway network comprising the Pasig, Marikina, and San Juan rivers and numerous small streams (esteros) and drainage canals. The Pasig River is the main outlet from Laguna Lake and the river system flows to Manila Bay through approximately 27 km of flat, coastal plain and the highly urbanized and densely developed part of Metro Manila. The San Juan River, which drains most of and the municipality of San Juan, joins the Pasig River about 9 km upstream from Manila Bay. The , which rises in the Sierra Madre mountains, joins the Pasig River about 19 km upstream from Manila Bay. The total catchment basin area for Laguna Lake, Pasig River, and all the tributaries covers about 4,150 km2. The SDP area is defined as the most densely populated part of the river basin within Metro Manila, comprising about 215 km2, or about 5 percent of the drainage basin land area, including the Pasig River, Marikina River downstream from Marikina Bridge, and the San Juan River. The river is tidal, and the flow is subject to wide seasonal variations, with high flows reaching 275 cubic meters per second (m3/sec) occurring between October and November, and low flows dropping to 12 m3/sec between April and May. The highest flows occur during the rainy season, when large parts of the urban area are susceptible to frequent flooding, particularly in the vicinity of the riverbanks. Low river flows occur during the dry season when high tides at Manila Bay cause the normal river flow to reverse direction, and polluted water drains back into Laguna Lake. The SDP area includes the administrative districts of 11 Metro Manila local government units (LGUs), including 8 cities7 and 3 municipalities.8

3. Water Quality Standards

19. The Pasig, San Juan, and Marikina rivers are designated as Class C water by DENR. DENR Administrative Order (AO) 34 defines Class C waters as suitable for the propagation and growth of fish and other aquatic resources; recreational use for secondary contact sports like boating; and after treatment, for industrial water supply for manufacturing processes. The principal water quality criteria for Class C water are dissolved oxygen (DO), 5 milligrams per liter (mg/l), minimum; biochemical oxygen demand (BOD), 10 mg/l, maximum; and total coliforms, 5,000 most probable number per 100 milliliters (MPN/100 ml), maximum. Currently, the Pasig River does not meet these water quality standards. Over the years, the river system has become polluted and environmentally degraded through the indiscriminate and direct discharge of untreated wastewater from industrial and municipal sources and the dumping of solid wastes. The worst environmental conditions occur during the dry season, when the river flow is at its lowest and consists mainly of wastewater discharges. At these times, the river takes on the appearance and smell of raw sewage. Water quality monitoring shows that during low flow, BOD reaches 120 mg/l, 12 times higher than the permitted level for Class C water; DO drops to zero; and total coliforms exceed the MPN/100 ml standard by up to several thousand degrees.

7 The cities are , , , Manila, Marikina, , Pasig, and Quezon. 8 The municipalities are , San Juan, and Taguig. 7

4. Assimilative Capacity

20. The river’s assimilative capacity represents the amount of BOD load that it can absorb and remain within the Class C standards set by AO 34 for BOD and DO. The assimilative capacity is affected by several factors including the (i) distribution of BOD loading along the river; (ii) river flow, which varies seasonally, the lowest assimilative capacity occurs when river flow is at its lowest; (iii) water temperature, which varies seasonally — as the temperature increases the DO level decreases; and (iv) the reaeration capacity of the river, which is determined by the physical characteristics, rivers with fast and turbulent stream flow have higher reaeration capacity than slow-flowing rivers such as the Pasig. DENR has developed a computer simulation model to predict river water quality. Through this model, the assimilative capacity of the Pasig River for BOD is estimated at 200 tons per day (t/d). If the total daily discharge of BOD to the river is kept below this level, it is predicted that the Class C water quality parameters for BOD and DO will be met. However, the river water quality is well below Class C standard, and there is some concern that the true assimilative capacity of the Pasig River may be considerably lower than 200 t/d of BOD.

5. Pollution Loading and Targets

21. The current BOD loading entering the Pasig River is estimated at 242 t/d, which is 21 percent above the river’s estimated maximum assimilative capacity. The principal sources of this pollution load are domestic wastewater, contributing 168 t/d of BOD; industrial wastewater, contributing 69 t/d of BOD; and solid waste, contributing 5 t/d of BOD. Without any sewerage or sanitation interventions, the pollution load entering the river is expected to increase to 269 t/d in 2005, 308 t/d in 2010, and 359 t/d in 2015. All of this increase is expected to come from domestic sewage because the total BOD load due to industrial wastewater is forecast to decrease from 69 t/d in 2000 to 51 t/d in 2015, and BOD load due to solid waste will be eliminated by 2005. The planned activities for providing sewerage and sanitation services under the Metropolitan Manila Waterworks and Sewerage Systems (MWSS) concession agreements will enable the environmental condition of the Pasig River to remain unchanged compared with the present situation. In other words, the pollution control interventions planned by MWSS will not be sufficient to restore Class C water quality to the Pasig River, but will only cancel out the expected increase in pollution from population growth and greater water consumption within the river basin catchment area.

6. Urban Conditions in the Pasig River Basin

22. The urban areas adjacent to the Pasig River have a number of distinct environmental characteristics. Near the lower reaches of the river around , San Nicholas, , Quiapo, and San Miguel lies the historic core and traditional business and commercial center of Metro Manila. Problems in this area include dilapidated buildings, severe traffic congestion, inadequate infrastructure, riverbank squatters, and polluted esteros. Further to the east, between Malacañang Palace and Sta. Ana race course, the dominant land use is industrial; much of the industry is obsolete. Depressed, low-income housing and squatter settlements are interspersed among the industries. The upstream section of the river to the Channel, near Laguna Lake, including the San Juan and Marikina rivers, is characterized by mixed land development, covering industrial, commercial, and residential uses. Environmental problems along this stretch of river arise mainly from large industrial operations and squatter housing areas. The riverbanks contain substantial areas of housing for the urban poor in the form of established housing where land title has been determined, and informal housing occupied by squatters located in and over water courses and along riverbank easement areas. Common 8 problems include unacceptable living conditions, dilapidated structures, exposure to flood risk, fire hazards, and inadequate sanitation and public health facilities. The structure of the industrial economy in the area appears to be changing, and many factories are closing down or relocating to sites outside Metro Manila. This has resulted in a proliferation of derelict and underutilized industrial sites such as the former Marcelo Steel Works and the Benguet Foundry in the Sta. Ana area. The changing nature of the industry sector is resulting in the blighting of urban land that could be redeveloped for more intensive, higher economic order land uses.

7. Institutional Framework

a. The Pasig River Rehabilitation Commission

23. The institutional arrangements for the Pasig River rehabilitation are potentially complex because many central and local government agencies have responsibilities for different aspects of environmental management; urban renewal; and the development, management, and maintenance of the Pasig River system. To resolve this, the Government has created the Pasig River Rehabilitation Commission (PRRC) to be the executing agency responsible for all aspects of river rehabilitation, including coordination with the various implementing agencies. The Government created the PRRC in January 1999 through Executive Order (EO) 54, as amended by EO 65. The PRRC was created to ensure that the waterway is rehabilitated to its historically pristine condition conducive to transport, recreation, and tourism.

24. The PRRC is headed by the secretary, Department of Budget and Management as chairperson. The cochair is the chairperson, Metro Manila Development Authority (MMDA), and the secretaries or heads of the following Departments and agencies are members: DENR; Department of Finance; Department of the Interior and Local Government; Department of National Defense; Department of Public Works and Highways; Department of Tourism; Department of Trade and Industry; Department of Transport and Communications; Housing and Urban Development Coordinating Council (HUDCC); Office of the Executive Secretary, Office of the President; and three representatives of the private sector, appointed by the President.

25. To achieve its mandate of rehabilitating the Pasig River, the PRRC has powers and functions to (i) prepare an updated and integrated master plan for the rehabilitation of the Pasig River, taking into account its potential for transport, recreation, and tourism; (ii) ensure that the easements provided for in the Civil Code and other related laws are observed, including all the esteros and waterways that drain into the Pasig River; (iii) integrate and coordinate all programs related to the rehabilitation of the Pasig River such as, but not limited to, the PRDP (PD No. 274, Proclamation No. 704, Series of 1995) and the Pasig River Environmental Management and Rehabilitation Sector Development Program;9 (iv) abate the dumping of untreated industrial wastewater and sewage into the river, including all acts and omissions in violation of the Pollution Control Law and other related laws; (v) relocate settlers, squatters, and other unauthorized or unlawful occupants along the riverbanks; (vi) undertake civil works such as dredging, clearing of structures, and cleaning the river and all esteros and waterways that drain into it; (vii) submit regular reports to the Office of the President on the status of the Government’s efforts in rehabilitating and developing the Pasig River; and (viii) coordinate with all Government agencies and offices, including the LGUs, regarding the necessary measures to implement EO 54.

9 ADB’s proposed SDP loan is specifically mentioned in EO 54. 9

26. The initial requirements of the PRRC was financed from contingency funds. Also, the Pasig River Development Council, the Presidential Task Force on the Pasig River Rehabilitation, and the River Rehabilitation Secretariat were abolished by EO 54. The functions, equipment, and logistics of the abolished units were transferred to the PRRC, and all funds received by the abolished agencies that were contributed for the Pasig River rehabilitation were transferred to the PRRC. The PRRC’s implementing rules and regulations are in place, and it has set up five working committees to be responsible for various aspects of river rehabilitation. They include (i) environmental management committee under the leadership of DENR; (ii) housing and resettlement committee under the leadership of HUDCC; (iii) riverbanks, transport, and tourism development committee under the leadership of MMDA; (iv) flood control committee under the leadership of DPWH; and (v) information and advocacy committee, also under the leadership of MMDA.

27. The PRRC has also created a project management office (PMO) to provide technical, administrative, and logistical support, and serve as the link between the PRRC and the committees. The PMO is headed by an executive director assisted by deputy executive directors for finance and operations. The functions of the executive director are to provide full- time assistance to PRRC’s chairperson and cochair in the following: (i) administering and supervising personnel; (ii) coordinating and overseeing the Pasig River rehabilitation efforts through the PMO and committees; (iii) reorienting, evaluating, and integrating plans, programs, and projects for Pasig River rehabilitation for submission to, and approval of, the PRRC; (iv) monitoring the activities of the committees; (v) establishing linkages between the PRRC and the various committees; (vi) recommending policy guidelines and directions to the PRRC for Pasig River system rehabilitation; and (vii) preparing reports and performing other functions and duties determined by the PRRC. As the PRRC is newly created, it has not yet established a track record, but the early signs are that it is highly committed and professional with strong leadership, a strong mandate, and adequate resources to discharge its duties and obligations. There is a high degree of confidence in its ability to effectively execute the SDP and coordinate the implementation activities of other agencies. The PRRC’s organizational structure is given in Appendix 3.

28. The PRRC shall maintain the following linkages with other agencies: (i) National Economic and Development Authority, on planning through the submission of the master plan, development plans, and investment programs for integration into the Philippine Medium-Term Development Plan and Public Investment Program, and clearance by the Investment Coordinating Committee; (ii) HUDCC, MMDA, National Housing Authority (NHA), and the LGUs on preparation and implementation of the Pasig River land use plan and riverbanks development, with particular reference to the establishment of EPAs, including the relocation of squatters and development of the vacated areas for beneficial environmental use and the upgrading of adjacent urban renewal areas; and (iii) DENR, Laguna Lake Development Authority (LLDA), and the LGUs on the coordination and implementation of plans to monitor and enforce environmental standards and pollution control measures.

b. Other Agencies

29. Effective water quality management is compounded by the number of central and local government agencies involved in various aspects of environmental monitoring and management. DENR has nationwide responsibility for issuing environmental compliance certificates for projects, monitoring effluent discharges, enforcing compliance with environmental regulations and standards, and ensuring, through its Environmental Management Bureau and National Capital Region office, that environmental monitoring and enforcement are undertaken 10 within Metro Manila. The LLDA has responsibility for environmental monitoring and enforcement within the Laguna Lake drainage basin, which includes Metro Manila. LLDA differs from DENR in that it has the authority to impose, collect, and retain pollution discharge fees and fines from polluters not in compliance with regulations. MMDA is responsible for development and implementation of policies for physical framework planning, zoning, land use planning, and solid waste disposal, and has been involved in removing solid waste from the Pasig River. MMDA also oversees metropolitan-wide policies, such as establishment and maintenance of riverbank easements for EPAs, which are approved by the Metro Manila Mayors’ Council and managed by the LGUs. MWSS is responsible for providing water supply, sanitation, and sewerage services throughout its service area, including all the LGUs within Metro Manila. MWSS has privatized its operation and has entered into concession agreements with two private sector operators for the operation, management, maintenance, and further development of water supply and sewerage services for Metro Manila. HUDCC is responsible for the planning, coordination, and management of housing for the urban poor and for providing resettlement sites for the squatter families that have to be relocated from the riverbanks and esteros. The implementation of resettlement schemes is done by NHA, an agency of HUDCC, in consultation and cooperation with the affected LGUs. DPWH is responsible for engineering works on the river channel, such as the construction and repair of revetments, river walls, and channel dredging.

30. The LGUs play an important, though largely untapped, role in rehabilitating the Pasig River system. In general, local governments are responsible for the community preparation of squatter families to be relocated, physical improvements in the areas vacated by squatters, urban upgrading and renewal of areas adjacent to the river, and organizing community-based solid waste collection programs. Inclusion and involvement of the concerned LGUs in the Pasig River rehabilitation program is critical to its success, and supports the ongoing process of decentralization in the shelter and urban development sectors. The city of Manila has succeeded in relocating squatters and establishing successful riverside parks with community facilities. Other LGUs, such as the cities of Makati and Mandaluyong, are currently involved in in-city relocation of squatter residents to local social housing projects. Marikina City has implemented a highly successful relocation of about 5,000 squatter families from the banks of the Marikina River to an in-city resettlement site and has redeveloped the vacated area into a riverside park.

C. Constraints and Issues

31. Monitoring and enforcement of environmental regulations and effluent discharge standards have been inadequate and hampered by a lack of institutional capacity and insufficient information about pollution sources. Effective water quality management involves (i) formulating and implementing environmental management policies, plans, and programs; (ii) issuing consistent environmental regulations and effluent standards for wastewater discharges that are monitorable and enforceable; (iii) setting pollution absorption limits for river segments and monitoring the ambient water quality of the river system; (iv) identifying, measuring, and monitoring point and nonpoint sources of pollution entering the river system; and (v) enforcing environmental regulations and effluent discharge standards on a regular and consistent basis.

32. The existing deficiencies in the institutional capacity for environmental management of the Pasig River system indicates inadequate investment and budgetary support by the Government. For example, the 1999 budget for the Environmental Management Bureau was only P68 million for the whole country. Of this, only a very small amount was allocated for environmental management activities in the Pasig River basin. The Government is determined 11 to succeed in rehabilitating the Pasig River system and maintaining the improved water quality standards, and is committing substantial levels of investment and resources to be appropriately allocated through annual budgets to the concerned agencies. The costs of effective wastewater management and pollution control arise from the monitoring and enforcement costs incurred by the responsible Government environmental management agencies, and the costs incurred by enterprises to abate pollution and meet regulations and standards.

33. Most residential and commercial properties in Metro Manila use individual septic tanks for domestic sewage disposal, and only 10 percent of properties are connected to sewers. It is estimated that the Pasig River catchment basin currently contains about 1 million septic tanks, and this number is forecast to reach about 1.25 million by 2015. To maintain operational efficiency, septic tanks need to be desludged at intervals of two to seven years depending on tank design and usage. Septic tanks that are full of sludge provide no detention time for sewage, and suspended solids (SS) are unable to settle. Consequently, the discharged effluent retains high levels of SS, BOD, and fecal bacteria. In practice, septic tanks in Metro Manila are rarely desludged, and it is estimated that only about 15 percent of tanks are properly maintained. To tackle this problem effectively, it is necessary to empty septic tanks on a regular basis and treat the collected septage. The maintained septic tanks are serviced mainly by private contractors none of whom have treatment facilities for the collected septage. It is likely that most private contractors dispose of collected septage directly into water courses, the Pasig River, or the sea without treatment, causing considerable pollution, nuisance, and environmental damage. The private contractors should be regulated and monitored to ensure proper septage treatment and disposal. The private contractors will be allowed to use the septage treatment facility proposed under the SDP, but will be required to pay the appropriate discharge and treatment fee based on the volume of septage delivered to the plant.

34. The MWSS concession agreement with private sector operators sets time-bound service coverage targets for water supply, sanitation, and sewerage. In this context, sanitation means septic tank maintenance. The water supply targets are set to reach about 95 percent by 2006, and be sustained at that level throughout the concession period until 2021. The sewerage and sanitation targets are much lower and are to be achieved much later. Some areas will not receive sanitation coverage throughout the concession period; most will not begin to receive sewerage coverage until after 2006. The high level of water supply coverage, increasing urban population, and rising per capita water consumption will lead to an increase in the volume of untreated municipal sewage being discharged to the public system, and ultimately, the Pasig River, unless effective sanitation coverage is introduced over a wider area at an earlier date than envisaged in the concession agreements. Under the terms of the concession agreement, the concessionaires are not obliged to advance or increase the sanitation coverage targets. Also, the Office of the Government Corporate Counsel (OGCC), Department of Justice, has issued a legal opinion10 stating that the provision of sanitation services is not an exclusive right granted to the MWSS concessionaires under the Concession Agreement. The MWSS concession operators’ time-bound service coverage targets for water, sewerage, and sanitation are given in Appendix 4.

35. It is further estimated that there are up to 10,000 industrial and commercial establishments in the Pasig River basin, of which about 2,000, including 400 along the Pasig River banks, are discharging untreated wastewater into the Pasig River system. To reduce

10 Opinion No. 206, Series of 1999, Opinion on whether the provision of sanitation services is an exclusive right granted to the MWSS concessionaires, under the Concession Agreement, 20 October 1999. 12 pollution due to industrial wastewater, it is necessary to bring these establishments into compliance with environmental regulations and discharge standards.

36. To establish EPAs along the riverbanks, it is necessary to relocate squatter families living within the easement areas and develop EPAs for parks and other beneficial environmental uses. To promote urban renewal, it is necessary to initiate slum upgrading in poorly serviced areas adjacent to EPAs.

D. Government Objectives and Strategy

37. Environmental degradation and its impact on the population and economic growth continue to be a major challenge for the Government. All major environmental concerns such as water and air pollution, degraded forests and watersheds, and deterioration of marine and coastal resources are exacerbated by increased population pressure and intensified economic activities. To address these environmental concerns and to meet its international commitment to sustainable development, the Government adopted Philippine Agenda 21 in September 1996 as its national action plan to integrate environmental considerations into social and economic development decision making.

38. The Government recognizes that to address its environmental problems, the country needs not only increased financial investment for environmental rehabilitation and improvement, but also far-ranging policy reforms and enforcement measures for a more effective environmental management system. The major issues to be addressed in environmental management include (i) rationalizing the environmental regulations and standards, (ii) strengthening the institutional structure for environmental management at the national and local levels, (iii) developing institutional capacity and capability for environmental monitoring and enforcement, (iv) introducing market-based instruments for pollution control, (v) introducing demand-management techniques for power and water supply, (vi) undertaking environmental awareness and education programs, and (vii) introducing the polluter pays principle on a wider scale.

39. The 1998 National Development Plan provides guidance on economic and social policy reforms within the overall objectives for economic, social, and cultural transformation of the country envisaged in the Philippine 2000 concept. The key objectives of the Government’s development strategy are to reduce poverty, improve health and education, and protect the environment. The strategy recognizes the need for sustained high economic growth as a necessary condition for poverty reduction and stresses the need for better access by the poor to (i) publicly provided services and facilities such as health care, education, and sanitation; (ii) infrastructure facilities such as water, electricity, and roads; and (iii) economic assets like land.

40. The Government initiated the rehabilitation of Pasig River in 1989, with a grant from the Danish International Development Assistance (Danida). Danida provided assistance to develop the capability and capacity of DENR, initiate water quality monitoring for the Pasig River, build a database of polluting industries, develop and calibrate a mathematical model for water quality management, and prepare the Pasig River Rehabilitation Program, with the primary objective of rehabilitating the Pasig River system to Class C water quality. Danida also provided some limited assistance with squatter relocation for people living on stilted housing over the water, but not on a large-scale basis. DENR set up the River Rehabilitation Secretariat to coordinate and monitor implementation of the program, promote public awareness, and upgrade water quality in the river. However, due to the Government’s resource and capacity constraints, only modest 13 progress has been made in achieving the Rehabilitation Program objectives. Danida is continuing to support the Secretariat’s activities, which have been transferred to the PRRC.

E. External Assistance to the Sector

41. Official external assistance to the Philippines is provided by ADB, the World Bank, and other multilateral funding sources, including the United Nations system, the European Commission, and bilateral agencies from Australia, Canada, Denmark, Germany, Japan, and the United States. Japan accounts for 53 percent of total commitments, and the World Bank and ADB for 23 and 22 percent, respectively.

42. DPWH, with assistance from the Japan Bank for International Cooperation (JBIC),11 is preparing the Pasig-Marikina River Channel Improvement Project, aimed at repairing, rehabilitating, and improving the revetments, parapet walls, and drainage works; and undertaking selective channel dredging from the mouth of the Pasig River at Manila Bay, upstream to Marikina Bridge on the Marikina River. The JBIC-funded project is aimed at improving the flood control and drainage characteristics of the Pasig River, and is complementary to the proposed SDP, which is aimed at improving water quality and promoting urban renewal.

43. JBIC is processing the Environmental Infrastructure Credit Support Program, Phase II. The program is a ¥20.5 billion loan facility, channeled through the Development Bank of the Philippines to support investments that reduce industrial pollution, thereby improving industrial efficiency and environmental quality. The target sectors are industry, mining, and services. Eligible projects include pollution control, efficient use of natural resources, improvement of occupational health and safety, enhancement of environmental management systems, and environmental infrastructure under build-operate-transfer arrangements.

44. The Manila Second Sewerage Project, funded through a $57 million World Bank loan, has prepared a feasibility study and program for septage collection and disposal. The first phase of the program was approved in 1998. The facilities to be provided include (i) improvements to the central sewerage system, (ii) construction of septage loading stations on the Pasig River to transport untreated septage by barge for ocean dumping, (iii) improvements to the Ayala sewage treatment plant, and (iv) expansion of the Dagat-Dagatan sewage treatment plant. These sewerage and septage management facilities are included in the overall sewerage and sanitation targets of the MWSS concession operators. The septage management facilities proposed under the SDP are complementary and will increase the sanitation coverage, particularly for the urban poor living in riverside communities. The Japan International Cooperation Agency financed the preparation of a sewerage master plan for MWSS in 1996. The master plan contains recommendations for the MWSS service area up to 2015.

F. ADB’s Operations and Strategy in the Sector

45. Environmental degradation in the country has been an ADB concern for many years. In the past, the Bank’s lending was mainly focused on restoration and rehabilitation of the country’s forests and fisheries resources. In the area of urban environment, ADB made its first loan for Manila environmental improvement in 1980.12 Since then, however, no new loans were

11 This support was initially from the Overseas Economic Cooperation Fund, which on 1 October 1999, was merged with the Export-Import Bank of Japan to form JBIC. 12 Loan 457-PHI: Manila Sewerage Project, for $42.8 million, approved on 24 June 1980. 14 made specifically for urban environmental improvement until the recent Metro Manila Air Quality Improvement Sector Development Program. This lengthy lending gap was partly attributable to the economic and political situation in the 1980s and early 1990s that did not allow the Government to give high priority to the problems of urban pollution and environmental concerns. ADB has also approved 20 TAs for environmental improvement in the country.

46. Under ADB’s country assistance plan, 1999-2001, the policy support program for the Philippines will focus on (i) involving the private sector in infrastructure provision;13 (ii) developing domestic capital markets; (iii) supporting the Government’s decentralization program; (iv) capacity building for key national agencies and LGUs; (v) sustainable natural resource management, conservation, and regulation of air and water pollution; (vi) assistance for the social sectors, including health, education, sanitation, and water supply; and (vii) poverty reduction and the promotion of socioeconomic equity.

47. For the environment sector, ADB will take a more systematic approach to help the Government address the environmental concerns arising from the sustainable development policies stipulated in Philippine Agenda 21. In particular, emphasis will be placed on supporting the reform initiatives needed to establish a more effective legal and institutional system for environmental management. In its lending operations, ADB will support resource mobilization and help the Government in its efforts to tackle the serious problems of urban environmental pollution. Initially, lending for pollution control will focus on Metro Manila’s environmental problems where improvements in environmental management and pollution control are urgently needed and are warranted as a national priority. ADB will also focus on improving the effectiveness of the overall environmental management system through TA and promoting the participation of all stakeholders with environmental concerns.

48. In urban development, ADB will continue to support the Government’s urban sector policy reforms. This will include support for the decentralization policy through institutional strengthening and capacity building for LGUs. Further privatization of water supply operations will be encouraged, with concomitant reform of sector policies and strengthening of regulations, as well as public-private partnerships for the delivery and management of essential urban infrastructure facilities and municipal services. ADB-assisted projects will also encourage fair labor practices, and attention will be given to urban environmental management. Environmental aspects will be incorporated into integrated urban environmental management and components that interact with each other, such as water supply, sanitation, drainage, and solid waste management, and will be considered in a comprehensive and holistic way. Poverty reduction and community participation in project design and implementation will be a prime focus of attention in project formulation. ADB will provide capacity-building assistance for LGUs and service delivery agencies through lending and TA programs. ADB also seeks cofinancing to provide institutional development support for its integrated urban development projects.

G. Lessons Learned

49. The SDP will be ADB’s first experience with wastewater environmental management and river rehabilitation in urban areas in the Philippines. However, from ADB’s recent experience with a similar project14 in Shanghai, People’s Republic of China, it is well recognized that to be effective, environmental management must be supported at the highest levels of government and operate within the framework of a strong policy agenda. The policy agenda should be

13 Loan 7154/1696-PHI: Maynilad Water Services, Inc., for $171 million, approved on 14 September 1999. 14 Loan 1692-PRC: Suzhou Creek Rehabilitation Project, for $300 million, approved on 29 June 1999. 15 founded on the basic principle that the producers of pollution should pay proportionately for protecting the environment, and be required to provide effective waste treatment and disposal measures. Well-developed institutions with adequate capability, capacity, and resources are also essential to monitor wastewater discharges and enforce environmental regulations and standards. Environmental regulations and standards that are appropriate, transparent, monitorable, and enforceable are also necessary if the policy agenda is to be effective, and the environmental management agencies are able to operate. It is important also to raise public awareness of environmental issues, particularly for the benefits that accrue to civil society, as a result of creating and maintaining a clean, green, and healthy urban environment.

IV. THE SECTOR DEVELOPMENT PROGRAM

A. Rationale

50. As the Philippine economy recovers from the Asian financial crisis, the Government is indicating its strong commitment to economic development and growth that incorporates sound environmental management practices. Public sector policymakers are required to give environmental concerns a high priority in the planning, design, and implementation of development projects. Consequently, it is incumbent upon the private sector to also follow the principles of sustainable development, and ensure that economic development is not achieved at the cost of resource depletion and environmental degradation as frequently happened in the past.

51. To address the environmental problems facing Metro Manila, particularly for wastewater management, urban renewal, and sustainable rehabilitation of Pasig River water quality, it is necessary to implement an integrated set of policy reforms covering institutional, regulatory, technical, and financial aspects of environmental management, and initiate a series of specific interventions aimed at relocating squatters, establishing EPAs, promoting urban renewal, introducing regular septic tank maintenance, providing septage treatment and disposal capacity, and supporting institutional capacity building.

52. The policy reforms are far-reaching, and require strong Government commitment to achieve and sustain them. The physical interventions are needed to support the policy agenda and make a significant contribution to environmental management and river rehabilitation. For these reasons, the SDP modality is appropriate. The proposed SDP includes a program loan to support policy reforms and an investment loan to support sector investment in public infrastructure and capacity building.

53. The costs to be borne by the Government for Pasig River environmental management and rehabilitation are estimated at $750 million equivalent from 2000 to 2004. These costs will arise from (i) implementation of the first phase of PRDP, estimated at $300 million, covering urban renewal ($55 million), establishment of EPAs, including relocation of about 10,000 squatter families ($65 million), sewerage and sewage treatment ($100 million), sanitation ($30 million), industrial waste management ($30 million), and solid waste disposal ($20 million), which will be supported, in part, by the SDP with respect to sanitation, establishment of EPAs, and urban renewal; (ii) the provision of housing, resettlement, and livelihood development for about 50,000 additional squatter families living along riverbanks, creeks, and esteros in other parts of the Pasig River drainage basin ($350 million); and (iii) flood control and drainage projects, including revetments, river walls, and channel dredging along the Pasig, Marikina, and San Juan rivers ($100 million). Also, the DENR and LLDA will incur substantial costs to develop, 16 implement, and administer a better environmental monitoring, management, and enforcement program for Metro Manila, based on enhanced environmental regulations and standards.

54. In addition, substantial costs will be incurred by industrial and commercial enterprises to abate wastewater pollution and come into compliance with environmental regulations and discharge standards. Although a complete demand analysis has not been completed, it is estimated that the total cost of installing adequate on-site wastewater treatment facilities for industrial and commercial enterprises discharging waste into the Pasig River basin is about P10.0 billion, equivalent to $250 million. Enterprises may be able to internalize these costs through productivity gains and operational benefits, and achieve the desired environmental standards by introducing clean production technology, waste minimization and resource recovery methods, and on-site industrial wastewater treatment facilities. The environmental management authorities should also encourage enterprises to adopt more environment-friendly behavior and practices by providing incentives to enterprises that achieve wastewater pollution control benefits from process changes and the introduction of technology that reduces or eliminates industrial wastewater pollution in addition to end-of-pipe wastewater treatment systems.

55. The rationale for the SDP is to strengthen the environmental management policies for urban areas; develop the wastewater management and pollution control, monitoring, and enforcement capacities of the concerned national and local government agencies; and rehabilitate the Pasig River, its tributaries, and esteros to achieve a clean and green environment for the river basin. The aim is to restore water quality and create an urban environment for Metro Manila that makes it a clean, pleasant, and attractive place to live, work, and conduct business. The water quality improvements will be sustained by ensuring that credible monitoring and enforcement mechanisms are put in place. This will be achieved through the adoption of a long-term policy reform agenda and implementation of the first phase of the PRDP for river system rehabilitation.

B. Objectives and Scope

56. The sector objectives are to improve environmental management of the Pasig River basin within Metro Manila, particularly for wastewater management and to promote urban renewal. The specific purpose is to restore and sustain Class C water quality standard for the Pasig River, establish EPAs along the riverbanks, and upgrade adjacent urban renewal areas.

57. The policy reform agenda will cover (i) adopting and implementing Phase 1 of the PRDP, (ii) providing sanitation services in addition to the MWSS concession agreement targets, (iii) establishing a wastewater discharge permit system for Metro Manila, (iv) improving domestic solid waste management for riverside communities, (v) establishing EPAs along the riverbanks, (vi) strengthening environmental regulations and discharge standards, (vii) strengthening water quality monitoring, (viii) enhancing public awareness, and (ix) strengthening institutional capability and capacity.

58. The first five-year phase, 2000-2004, of the PRDP will be implemented to initiate water quality improvements, commence urban renewal along the riverbanks, and improve living conditions and public health standards for riverside communities. This will be achieved by (i) relocating squatters from the riverbanks and developing EPAs; (ii) upgrading infrastructure and municipal services in adjacent urban renewal areas; (iii) introducing septic tank cleaning service and septage treatment plants to reduce the volume and concentration of untreated municipal sewage being discharged into the river; (iv) improving the quality of industrial wastewater before 17 it is discharged into the river through improved environmental monitoring and enforcement, and the introduction of a wastewater discharge permit system to Metro Manila; (v) eliminating the illegal dumping of municipal solid waste into the river system; and (vi) providing consulting services to provide project implementation assistance. TA for institutional strengthening, capacity building, community involvement, and stakeholder participation will be provided.

C. Policy Framework and Actions

59. To bring about the stated sector objectives and achieve sustainable water quality and environmental management improvements for the Pasig River basin, the Government has recognized the need to identify and implement a program of policy reforms. Consequently, a policy framework and time-bound action plan were agreed to; they create the institutional, financial, and regulatory conditions necessary to successfully implement the PRDP and sustain the environmental improvements thus gained. The major policy priorities and time-bound actions are applicable throughout Metro Manila, and are described in the policy letter and set out in the policy matrix attached as Appendix 5.

1. Adopt and Implement the PRDP

60. Approval, adoption, and implementation of the first phase of the PRDP will provide the planning framework for improving water quality in the Pasig River, promoting urban renewal, and improving living conditions and public health standards for riverside communities. The PRDP is a result of extensive discussions among Government agencies, LGUs, utility companies, industrialists, the private sector, and the NGOs involved in the effort to rehabilitate the Pasig River, and was developed with ADB assistance through TA 2803 (footnote 4). The PRDP builds on the plans and proposals developed over recent years, and provides a comprehensive and integrated framework for their implementation. It is complementary to existing plans and proposals, including LGU land use plans and community-led initiatives. The PRDP recommends policy guidelines, strategies, an implementation schedule, and a framework for sustainable development aimed at rehabilitating the Pasig River. It includes strategies for (i) physical development framework implementation, (ii) sanitation and septage management, (iii) industrial wastewater management, and (iv) institutional strengthening and capacity building. Specific urban renewal and environmental upgrading components were identified, and implementation will result in improved water quality, better living conditions, and higher public health standards for riverside residents. The PRRC and the Metro Manila Council have reviewed, approved, and adopted the first phase of the PRDP.

2. Provide Additional Sanitation Services

61. The MWSS concession agreements with private sector operators set time-bound service coverage targets for water supply, sewerage, and sanitation. Compared with water supply targets, the planned coverage for sewerage and sanitation are much lower and are to be achieved much later. Most areas will not begin to receive sewerage coverage until after 2006. Some areas will not receive sanitation coverage throughout the concession period, even though 90 percent of Metro Manila is served by septic tanks. OGCC has issued an opinion that the provision of sanitation services is not an exclusive right of the concessionaires under the terms of the MWSS Concession Agreement. In view of this, the Government’s policy for sanitation is to (i) ensure that the concession operators meet the time-bound service coverage targets set out in the concession agreements, and (ii) enable the PRRC to provide additional sanitation coverage and deliver services at an earlier date than specified in the concession agreements for areas that have low or zero sanitation coverage. By 2005 the SDP investment Project will 18 provide septic tank maintenance services for about 185,000 households in areas scheduled for zero sanitation coverage under the MWSS Concession Agreement.

3. Establish a Wastewater Discharge Permit System for Metro Manila

62. Without adequate monitoring and enforcement of environmental regulations and standards, industrial activities will produce industrial wastewater pollution that jeopardizes economic growth, adversely affects human health, and degrades the environment. Within the Pasig River system, industrial wastewater is estimated to account for 35 percent of the BOD pollution load entering the river. Existing industries continue to pollute the Pasig River due to old and inefficient plant facilities and equipment; a lack of understanding of the need for wastewater management and pollution reduction; noncompliance with effluent discharge standards; poor detection; weak enforcement of environmental regulations and standards; and apathy among affected communities. Government attempts to solve the problem have been through traditional command and control approaches that rely on setting standards and controls, and monitoring and enforcing compliance. This approach includes a system of fines that assigns weights to a number of pollution factors, but the value of the fines have been eroded by inflation and do not adequately reflect the environmental damage caused by polluters. Noncompliance with environmental discharge standards results in a maximum penalty of P5,000 per day (about $125) regardless of facility size, and the probability of being detected and fined is low. As a result, many firms choose to risk being caught and fined rather than invest in wastewater treatment facilities, as the penalties are much lower than the cost of installing pollution control devices. The consequence of poor environmental monitoring and enforcement is the continued violation of pollution discharge regulations and a degraded environment. The policy is to establish, for Metro Manila, a wastewater discharge permit system with a progressive tariff structure based on the volume of wastewater discharged and the concentration of pollution loading for enterprises discharging effluents to the public system. Initially, the permits will not be tradable because the discharge permit system is a relatively new concept for the Philippines, and the institutional capacity to effectively operate and manage a tradable wastewater permit system needs further development and strengthening. The wastewater discharge permit system will be similar to that successfully introduced by LLDA in the area around Laguna Lake outside Metro Manila. The DENR will issue an administrative order authorizing a system of wastewater discharge permits and fees for Metro Manila.

4. Solid Waste Management

63. Illegal dumping of solid waste in the Pasig River system can be attributed to the inadequate household waste collection system, widespread lack of discipline and awareness of proper waste management practices among riverside communities, poor access to the interior of communities for effective waste collection, and uncoordinated and irregular scheduling of solid waste collection vehicles. The Government’s policy is to improve domestic solid waste collection and recycling by riverside barangays, and aim for a target of zero pollution caused by solid waste in the river. To achieve this, MMDA and the LGUs will mobilize the barangays along the river and use the services of relevant NGOs that have had experience with implementing community-based solid waste management projects through the Sagip Pasig Movement.15

15 Sagip Pasig means Save the Pasig. 19

5. Establish Environmental Preservation Areas

64. Establishing 10 m wide EPAs along the riverbanks is a policy priority and is critical to improving access to the river for public use, safety, and maintenance; rehabilitating the riverbank environment; and promoting urban renewal adjacent to the river. The creation of EPAs along all major rivers and esteros in Metro Manila will require the relocation of about 60,000 squatter families currently living in deprived conditions along the riverbanks and over the water. The relocation of squatter families living within the EPA zones is the first step to improving public health standards and quality of life for urban poor families currently living in inadequate, unserviced squatter shanties in dangerous locations along the riverbanks. The Government has already embarked on a program of relocation and early relocatees included families living in stilt houses over the water. Under the first phase of the PRDP, approximately 10,000 squatter families currently living within the designated EPAs along the main Pasig River will be relocated.

6. Strengthen Environmental Standards and Regulations

65. In some cases the environmental regulations and standards are outdated and incompatible with modern development and pollution control practices. It is necessary, therefore, to review, strengthen, modernize, and unify the environmental management regulations and pollution discharge standards for wastewater discharges for new and existing development within the Pasig River system. This will require modern, appropriate, implementable, and enforceable environmental standards and regulations, as well as appropriate market-based instruments for pollution control, to be developed for residential, commercial, institutional, and industrial development. It is also necessary to streamline the review and approval procedures for the issuance of environmental compliance certificates, and the monitoring and enforcement procedures for wastewater discharge permits. Also, the private septic tank cleaning companies will be subjected to stronger regulation to ensure that the collected septage is properly treated and disposed of, which is presently not the case. The PRRC has formed an interagency working group consisting of DENR, Department of Health, HUDCC, Housing and Land Use Regulatory Board, LLDA, and MMDA among other sector representatives to review, modify, and unify the various standards and regulations being adopted by different agencies.

7. Strengthen Water Quality Monitoring and Enforcement

66. To adequately monitor, manage, and control the volume and concentration of wastewater effluents discharged to the Pasig River system, the existing water monitoring and pollution control enforcement system must be reformed and expanded. A first step will be to increase the number of monitoring stations and frequency of water quality sampling, and improve the analysis of collected data. The Government has requested Danida to provide parallel cofinancing for capacity building assistance for the PMO and support for community awareness, livelihood activities, water quality monitoring, and industrial pollution data base. The Norwegian Government is also considering financing the provision of equipment for water quality monitoring stations in Laguna Lake and the Pasig River. Other steps to strengthen water quality monitoring and enforcement include regular semiannual and frequent random monitoring of holders of wastewater discharge permits. Monitoring will be done to ensure that the volume and BOD concentration of the discharged effluents conform with the limits set in the discharge permit. Enterprises participating in the discharge permit scheme will also be required to prepare and submit quarterly self-assessment reports on wastewater discharge volumes and concentrations, and show that the operations are in compliance with the discharge permit and the environmental regulations and standards. 20

8. Enhance Public Awareness of Environmental Issues

67. An important requirement for rehabilitating the Pasig River is the support of the general public and of various special interest groups, such as industry groups and NGOs. The majority of city residents are not fully aware of the detrimental impact that poor water quality and a degraded urban environment can have on their health, and the high cost that is imposed on the economy as a whole. To successfully implement many of the required policy reforms and measures, the full support of the public, Government agencies, media, the private sector, and NGOs must be mobilized. Public support and understanding is also needed of the benefits that will arise from the adoption and enforcement of strict environmental regulations. The Government has recognized the vital importance of establishing an effective public awareness program to introduce the necessary wastewater management policies and urban renewal activities. Continuous monitoring of the impact of various awareness campaigns will be carried out to identify their effectiveness and provide important feedback for further programs. The Advocacy Committee of the PRRC will act as the focal point for the design, coordination, and implementation of public awareness-raising campaigns. PRRC staff will receive training in the management and implementation of awareness-raising campaigns, and the design and implementation of impact assessment programs.

9. Institutional Strengthening

68. There is a direct relationship between inadequate water quality monitoring and management, and the limited capacity of the responsible government, private sector, and civil society organizations. The Government is giving high priority to improving the environmental management of the Pasig River basin; to achieve this it is necessary to have strong, capable environmental management agencies.

D. Capacity Building

69. The agencies responsible for environmental management in the Pasig River basin include the PRRC, DENR, and LLDA; each has limited capacity to monitor conditions and enforce environmental regulations and standards. A capacity-building program is needed for human resource development and training, and to provide additional equipment. The PRRC will prepare and implement plans to strengthen the ability of institutions to identify, quantify, and monitor pollution services; enforce regulations and standards; and impose and collect fees for wastewater discharge permits. The following capacity-building activities are proposed.

1. Technical Assistance

70. To enhance sustainability and support the implementation of the actions required under the policy reform agenda, the Government has asked ADB to provide TA for capacity building to help (i) the PRRC, through the PMO, to effectively coordinate with the funding sources and concerned agencies implementing the various development programs under the PRRP; (ii) MMDA to coordinate the plans and programs of the national agencies and LGUs within the Pasig River basin; and (iii) the LGUs within the Pasig River catchment to prepare comprehensive development and zoning plans for the areas adjacent to the river and in the development of proposals for urban renewal. 21

2. Bilateral Assistance

71. The Mission has undertaken discussions with potential cofinanciers and identified the possibility of parallel cofinancing on a grant basis being provided by Danida and the United States Trade and Development Agency for capacity-building activities and technical studies.

a. Proposed Danida Assistance

72. The Danida support will be targeted at developing the capacity of the PMO to collect, analyze, and dispense the information and data needed to better enable the PRRC to discharge its responsibilities for overall river rehabilitation. Care will be taken to avoid overlap with ADB’s proposed TA, which will focus specifically on developing the PMO’s capability and capacity to implement the Project. In addition to capacity building, Danida will provide support for (i) community awareness of environmental issues; (ii) development of community-based livelihood activities; (iii) continued support for the development and refinement of the mathematical model for Pasig River water quality monitoring; and (iv) development of industrial pollution data bank, to assist with industrial pollution control. The Danida assistance is estimated at DKr 16 million ($2.2 million equivalent).16 Capacity-building services will be provided over a period of about 2 years.

b. US-TDA Assistance

i. Toxic and Hazardous Waste Management

73. The study will assess the need for a regional toxic and hazardous waste (THW) management facility for Metro Manila. This will include an evaluation and assessment of ownership and operational conditions, deficiencies, and issues relating to institutional capabilities, regulations, enforcement, and compliance. The study will provide an assessment of the characteristics of THW generated in Metro Manila, and the level of public awareness of THW issues. The assistance will also focus on the review and evaluation of modalities for private sector participation, and prepare draft documentation and action plans for facility development, process, and siting for the first phase of the THW facility. The study will also cover the revenue potential of THW. The cost of the study is estimated at $500,000.

ii. Industrial Location Strategy Study

74. The study will prepare an industrial relocation strategy for industries situated along the Pasig River to fulfill the Government’s objective of reducing river pollution from industrial sources. This will include advice to the Government on the constraints to relocation, impact on employment in Metro Manila, the mechanisms and incentives required to overcome these constraints, and the resultant propensity for industries to relocate. The assistance will (i) prepare a baseline profile of industrial establishments located in the Pasig River basin; (ii) carry out a study of the oil industry with a view to relocating and redeveloping existing sites; (iii) determine the major constraints to relocation and devise a method for assessing the willingness of industries to relocate; (v) identify appropriate policy tools and other mechanisms to help with industrial relocation; (vi) identify the demand and potential for relocation into the proposed industrial cluster areas, including the potential for the private sector to satisfy that demand; and (vii) formulate a comprehensive industrial relocation strategy for the Pasig River system. The cost of the study is estimated at $500,000.

16 DKr = Danish kroner. 22

E. The Investment Project

1. Objectives and Scope

75. The main objective of the investment Project is to provide resources to support the implementation of public sector components necessary to improve the environmental management of the Pasig River basin within Metro Manila, particularly for wastewater management, and to promote urban renewal.

76. For the first phase of urban renewal, EPAs will be established along the Pasig River banks, and about 10,000 squatter families will be relocated to in-city, medium-rise apartment buildings and near-to-town house and lot schemes. Also, about 500 ha of low-income slum housing, adjacent to the EPAs, will be upgraded including regularization of tenure and provision of basic services. It is expected that about 80,000 families will benefit from upgrading. The removal of squatters and urban upgrading is expected to remove a further 5 t/d of BOD loading from the river. A summary of the components follows and a detailed description is given in Appendix 6.

77. To improve water quality, a sanitation service, comprising a septage treatment and disposal facility, and a septic tank cleaning service consisting of a fleet of vacuum tanker vehicles will be provided. The fleet will operate a two-shift system and be able to empty an average of four septic tanks per truck per day. The fleet will be operational for 260 days per year, and clean about 37,000 septic tanks annually. With an average desludging frequency of five years, this service would handle about 185,000 septic tanks and benefit about 1.0 million people. The septage collection service will reduce the current pollution load to the Pasig River by 16 tons of BOD per day, and in conjunction with the other sewerage and sanitation service being provided by MWSS concessionaires, will enable Class C standard water quality to be achieved and sustained for the Pasig River.

2. Components

a. Sanitation

78. The proposed sanitation services cover the collection of septage from septic tanks, and the treatment and disposal of the collected septage.

i. Collection Service

79. The septage collection service will add to the overall sanitation coverage in the Pasig River basin through the provision of 20 vacuum trucks with 10 m3 capacity and 16 vacuum trucks with 6 m3 capacity to service Makati, Mandaluyong, Pateros, San Juan, and Taguig, local government areas covered by the MWSS east concession that are targeted to receive zero sanitation coverage throughout the life of the concession agreement. By providing this service, the majority of septic tanks in the affected communities will operate more efficiently, thus significantly reducing the discharge of sludge and fecal material with high BOD loading into the storm drainage system, and ultimately the Pasig River.

ii. Septage Treatment Plant

80. The overall sanitation coverage will also be improved through the provision of a septage treatment plant with a capacity of 600 m3 per day. The plant will provide treatment for collected 23 septage and will include (i) receiving facilities for septage haulers; (ii) preliminary treatment, including mechanical screens and holding tanks with thickener mechanisms allowing septage to thicken prior to dewatering; (iii) septage dewatering equipment; and (iv) chemical stabilization. The treated liquid effluent will meet DENR discharge standards and will be suitable for discharge to public drainage systems. Pathogens will be removed from the residual sludge cake, which will be stable and suitable for use as soil conditioner. The design, construction, operation, and maintenance of the plant, and the procurement and operation of the vacuum trucks will be contracted through competitive and transparent bidding conducted in accordance with procedures acceptable to ADB. The sanitation services operating agreement will also be on terms and conditions acceptable to ADB.

b. Environmental Preservation Areas

81. Through the Project, the PRRC aims to establish parks, walkways, and greenbelts for about 23 km of 10 m wide EPAs along the Pasig River banks. This will include the relocation of approximately 10,000 squatter families currently living in depressed conditions along the riverbanks within the designated EPAs, and the development of EPAs. About 9,260 squatter families will be relocated to low-income sites-and-services housing projects near Metro Manila. Each relocated family will have one lot of 30 m2 and a core house with connections to water, sanitation, and electricity services. The principal relocation site is at Rodriguez, , about 30 minutes from Cubao, Quezon City by public transport. To give relocatees an element of choice, alternative sites are being identified in Cavite province. About 240 families will be relocated to five-storey, medium-rise, walk-up, apartment buildings within Metro Manila. The remaining 500 families will choose not to participate in the socialized housing scheme and will make their own arrangement for housing. The housing and apartment building projects will include a full range of community amenities, including schools, health centers, multipurpose halls, day-care centers, livelihood opportunities, and recreation facilities. The housing projects and apartment buildings will be developed by NHA and HUDCC through joint ventures with the private sector.

c. Urban Renewal Areas

82. Urban renewal areas, adjacent to EPAs, will be upgraded through the provision of basic infrastructure and essential municipal services, to improve living conditions and raise public health standards. The entire urban renewal program will cover about 500 ha of depressed, poorly serviced, low-income housing areas, and will benefit about 80,000 families. The upgrading and urban renewal will be carried out by participating LGUs and MMDA, in consultation with DENR, and will cover (i) the registration of all unregistered land; (ii) provision of basic infrastructure such as water, sanitation, drainage, roads, and community services and facilities, including flood prevention programs and solid waste management systems; and (iii) community-based livelihood schemes. Under TA 2803 (footnote 4), two pilot areas were identified, and feasibility studies prepared for them, as follows:

(i) Punta, Sta. Ana, Manila is home to 800 families on 5 ha of Government-owned land known as the DPWH Compound, adjacent to the Pasig River. It is proposed to undertake comprehensive urban upgrading to include land titling, provision of basic infrastructure, community facilities, and riverbank improvements.

(ii) Barangay Santolan, Pasig City comprises 17 ha of land with about 2,600 families adjacent to the Marikina River. The land is partly in public and partly private ownership. It is proposed to undertake land titling, infrastructure improvements, flood prevention, and livelihood schemes. 24

d. Project Implementation Assistance

83. Project implementation assistance will be provided to the PMO to strengthen project management capabilities; help with project coordination and implementation, particularly interagency coordination and the interface between the environment and urban management; and provide assistance for finalizing the sanitation component and preparing the necessary contract documentation. Specific assistance to the PMO will include (i) coordination, monitoring, and implementation of the Project; (ii) assistance to HUDCC, MMDA, NHA, and the LGUs in the implementation and management of EPAs and urban renewal components; and (iii) provision of specialist technical advice and assistance. Assistance will also be given to refine and further develop the feasibility study for the sanitation component, particularly site identification and selection for the septage treatment plant; wastewater engineering aspects; preparation of documentation for the design, procurement, construction, and operation contracts; and prequalification of contractors, bid evaluation, and overall project management. The consulting services for project implementation assistance will be provided over a period of three and a half years and will require 54 person-months of international consulting and 102 person-months of domestic consulting. The outline terms of reference for the project implementation assistance are given in Appendix 7.

3. Cost Estimates

84. The investment Project is estimated to cost $150.0 million equivalent, comprising $50.0 million in foreign exchange (33 percent) and $100.0 million (67 percent) equivalent in local currency costs. The cost estimates are summarized in Table 1. Detailed cost estimates are given in Appendix 8. The base cost estimates are in July 1999 prices, and include provision for interest and other charges during construction.

Table 1. Cost Estimate ($ million) Item Foreign Local Total Exchange Currency Cost A. Sanitation Cost Septage Collection Equipment 3.0 1.0 4.0 Septage Treatment Plant 5.5 18.0 23.5 B. Environmental Preservation Areas 18.0 42.0 60.0 C. Urban Renewal 12.0 37.0 49.0 D. Project Implementation Assistance 2.0 2.0 4.0 Subtotal 40.5 100.0 140.5 Interest During Construction 9.5 0.0 9.5 Total 50.0 100.0 150.0

4. Financing Plan

85. The Government has asked ADB to provide a loan of $75 million for the investment component; this represents 50 percent of the investment cost. The proceeds of the loan will be used to finance the entire foreign exchange component of the Project, including the interest during construction and a portion of the local currency cost equivalent to $25.0 million. The provision of local currency cost financing is considered warranted from the overall program viewpoint to ensure that sufficient and timely funding is available for consulting services, capacity building, and procurement, thereby minimizing risks of implementation delay and 25 ensuring appropriate capacity-building activities and timely project completion. Country considerations justify the provision of local currency cost financing. Concerted efforts have been made to maintain domestic investment at levels to sustain growth, but the country faces persistent pressure on the budget, arising from the currency crisis. For the balance of local currency costs, amounting to $75 million equivalent, the Government, through the PRRC, will provide grants amounting to $69.5 million equivalent, and the LGUs will provide $5.5 million equivalent. The financing plan is summarized in Table 2, and details are presented in Appendix 9.

Table 2: Financing Plan ($ million) Source Foreign Local Total Percentage Exchange Currency ADB 50.0 25.0 75.0 50 National Government 0.0 69.5 69.5 46 Local Government 0.0 5.5 5.5 4 Total 50.0 100.0 150.0 100

F. Environmental and Social Measures

1. Environment

86. Both the policy and investment loan elements of the SDP are expected to have a considerable beneficial impact on the environment and public health over the medium to long term. The SDP was designed in consultation with central and local government agencies, NGOs, community groups, people’s organizations, affected persons, and civil society in general, and is expected to benefit all residents of Metro Manila. These groups will participate in SDP implementation.

87. Through the sanitation component, the establishment and related development of EPAs along the riverbanks, and improvements in the urban renewal areas, it is envisaged that the SDP will have a significant beneficial impact on the Pasig River and riverside communities in particular, and the urban environment of Metro Manila in general. In view of the small size of the works undertaken in EPAs and the urban renewal areas, potential negative impacts due to construction activities will be minimal and readily mitigated.

88. Specific attention has been devoted to the relocation of affected persons living in EPAs. Resettlement is a highly consultative, iterative process to be implemented in a flexible, responsive manner, in accordance with the detailed resettlement plan prepared by the PRRC. Although the relocation sites will experience a change in land use, none includes any environmentally sensitive areas, and the developments are designed to minimize adverse impacts on the surrounding environment. Although site development is spread over a relatively wide area, the works are small in scale and adverse environmental impacts during construction can be readily mitigated.

89. The septage treatment plant is environmentally sensitive with respect to its location and design. Careful attention will be given to minimizing adverse environmental impacts arising from its operation, and the disposal of treated liquid effluents and stabilized biosolids. Furthermore, the selected site will be subjected to a full environmental siting study in accordance with ADB procedures and the preparation of an environmental impact statement in accordance with the 26 requirements of DENR. Overall, the SDP is classified as Environmental Category B, and the summary initial environmental examination is given in Appendix 10.

2. Social Analysis

90. SDP beneficiaries include both direct and indirect beneficiaries. Direct beneficiaries are (i) the 10,000 families relocated from squatter shanties to fully serviced permanent housing with security of tenure, (ii) the approximately 80,000 families living in substandard conditions who will benefit from urban renewal, and (iii) the approximately 185,000 households in the sanitation service area that will benefit from septic tank cleaning. The indirect beneficiaries are the resident population of Metro Manila who will benefit from overall environmental improvements, a cleaner Pasig River, and greater access to the river. Achievement of water quality Class C on the Pasig River will improve health standards and reduce the incidence of waterborne and sanitation-related diseases. Living conditions and health standards for people relocated from EPAs will improve considerably. This will particularly benefit women who are severely disadvantaged by poor living conditions and health standards. Establishment of EPAs will provide parks and open space, improve access to the river, and reduce the illegal dumping of solid waste and discharge of wastewater from riverside communities. Overall, the Pasig River and its surroundings will be more visually attractive, safe, and accessible to the whole population of Metro Manila. The improvements will enable the areas to be used for both recreational and commercial purposes, providing opportunities for income-generating activities. Upgrading in the urban renewal areas will benefit the poor communities outside EPAs. There will be a greater sense of security in acquiring land and permanency of residence. This will reduce stress and enhance opportunities to invest in shelter improvement. Living conditions of the families will be improved through access to better sanitation and facilities. Septage and domestic wastewater treatment will improve sanitation and reduce the discharge of pollutants to the Pasig River. There will be an overall health benefit for the beneficiaries within the serviced area due to reduced potential for waterborne diseases and nuisance of odors. The PRRC, through HUDCC and NHA, and with ADB assistance has prepared a detailed resettlement plan in close consultation with affected communities, NGOs, LGUs, and other stakeholders. The resettlement plan is in accordance with ADB’s guidelines, and is available to the public. The summary resettlement plan is attached as Appendix 11.

V. THE PROPOSED LOANS

A. The Policy Loan

1. Amount of Loan, Terms, and Source of Funds

91. It is proposed that ADB support the Government’s policy reform agenda by providing a loan of $100 million from its ordinary capital resources. The loan will have a maturity of 15 years, including a grace period of 3 years, with interest determined in accordance with ADB’s pool-based variable lending rate system for US dollar loans and a commitment charge of 0.75 percent per annum. The Borrower will be the Republic of the Philippines.

2. Implementation Arrangements and Executing Agencies

92. The Department of Finance and the PRRC will be the Executing Agencies for the policy loan. The PRRC will be responsible for ensuring that the tranche release conditions are met. 27

3. Procurement and Disbursement

93. The policy loan proceeds will be used to finance the foreign exchange costs of items produced and procured in ADB member countries, excluding listed ineligible items (Appendix 12), and imports financed under other official development assistance. The Borrower will certify that (i) in case the proceeds of the loan will finance imports already made, the value of eligible imports in the period concerned exceeds the amount of the requested withdrawal, or (ii) in case the proceeds of the loan will finance items to be imported, the value of eligible imports in the immediately preceding one-year period is equal to or greater than the amount of the requested withdrawal plus all other amounts expected to be withdrawn during the succeeding one-year period.

4. Counterpart Funds

94. The Government will ensure that the counterpart funds are used to support the reforms to be initiated or implemented under the SDP, and will, in particular, be used to support the implementation of the SDP works. The Borrower will make available, as part of its budgetary allocation throughout Program implementation, a total matching commitment of at least $75 million equivalent.

5. Monitoring and Tranching

95. The loan will be disbursed in two tranches. The first tranche of $40 million will be released upon loan effectiveness. For the SDP to be effective, it is essential that the Government initiate certain administrative and policy actions in advance of the first tranche release to demonstrate its commitment to the policy reform agenda. In recognition of this, the Government has completed the following: (i) the PRRC has reviewed and approved the first phase of the PRDP, submitted the plan to the Metro Manila Council, and issued a statement adopting the first phase of the PRDP; (ii) the Metro Manila Council has adopted the first phase of the PRDP; (iii) the PRRC has advised ADB that (a) the Government’s policy for sanitation is for the PRRC to provide additional sanitation coverage, (b) discussions on the tariff structure and charging mechanism have been initiated, (c) a legal opinion has been obtained from OGCC indicating that the provision of sanitation services is not an exclusive right of the MWSS concessionaires, and (d) satisfactory arrangements have been made with MWSS and the concessionaires regarding the sanitation component; (iv) the detailed and comprehensive resettlement plan has been prepared in consultation with the affected communities, and made available to the public; and (v) an initial information, education, and advocacy plan has been prepared for the campaign to enhance public awareness of environmental issues.

96. ADB will undertake an interim review of the SDP prior to the release of the second tranche. The second tranche, comprising the balance of the policy loan of $60 million, is expected to be released within 12 months of the effective date, provided that (i) the implementation of Phase 1 of the PRDP shall have been commenced by the preparation of time-bound development plans for the EPAs and two pilot urban renewal areas; the implementation of the Resettlement Action Plan, substantially in accordance with the implementation schedule set forth therein; the submission to ADB of satisfactory drafts of the following documents for additional sanitation and septage services: (a) a feasibility study, (b) an environmental siting study, (c) invitations and instructions to bid, and (d) contracts for the design, procurement, and operation of the sanitation facilities, the design and construction of the septage treatment plant on a full turnkey basis, and its subsequent operation; (ii) the PRRC charter shall have been amended to authorize the PRRC to contract for additional sanitation 28 and septage services and set an appropriate tariff structure therefore; (iii) a DENR administrative order shall have been issued introducing a system for wastewater discharge permits and permit fees, which permit fees shall be utilized to strengthen pollution monitoring and enforcement of environmental standards and regulations pertaining to the wastewater discharge; (iv) the MMDA shall have, jointly with each of any four LGUs (Makati, Mandaluyong, Manila, Marikina, Pasay, Pasig, Quezon, Pateros, San Juan and Taguig), (a) developed and submitted for the approval of the PRRC a time-bound action plan for mobilizing communities along the Pasig River to improve domestic solid waste collection and garbage recycling, (b) reviewed the land use plans and zoning classifications for riverside land, and (c) developed updated plans and classifications that will allow for the development of the EPAs along the riverside and mitigate the continued pollution of the Pasig River; (v) the interagency working group shall have reviewed the existing environmental standards and regulations affecting wastewater discharge into the Pasig River and, if determined necessary, developed new and appropriate environmental regulations, and initiated the development of environmental standards relating to wastewater discharge into the Pasig River by existing and new residential, commercial, institutional and industrial developments; (vi) the PRRC, DENR, and LLDA shall have developed, and the PRRC shall have approved, a time-bound action plan for the operation of monitoring stations to ensure frequent monitoring and regular sampling of the water quality of the Pasig River; and (vii) the PRRC, DENR, and LLDA shall have developed, approved, and commenced the implementation of a time-bound action plan to strengthen their capability and capacity to identify, quantify, and monitor pollution sources, enforce environmental standards and regulations, and impose and collect fees for wastewater discharge permits. B. The Investment Loan

1. Amount of Loan, Terms, and Source of Funds

97. It is proposed that ADB provide an investment loan of $75 million from its ordinary capital resources to finance the entire foreign exchange costs of the SDP and part of the local currency costs. The loan will carry an interest rate to be determined in accordance with ADB’s pool-based variable lending rate for US dollar loans, and a commitment charge of 0.75 percent. The loan will have a maturity of 25 years, including a grace period of 5 years, which is equivalent to the implementation period of the investment components to be financed. The Borrower will be the Republic of the Philippines. The Government will make the loan proceeds available to the Executing Agency through budgetary allocations.

2. Implementation Arrangements and Executing Agency

a. Project Management

98. The PRRC will be the project Executing Agency, responsible for overall management, coordination and monitoring of project implementation. The PRRC established the PMO to monitor the day-to-day progress of implementation of the policy reforms and coordinate implementation of the various components of the investment Project. To perform these tasks, the PMO will initiate project management mechanisms and procedures for the regular monitoring of implementation and problem-solving.

99. For the policy reform measures, the PRRC will ensure that the first phase of the PRDP is adopted and will be in charge of the establishment, development, and protection of EPAs along the riverbanks. The PRRC, in coordination with DENR and LLDA, will be responsible for reviewing, rationalizing, and strengthening the environmental regulations and effluent discharge standards from industrial, commercial, institutional, and residential establishments. DENR and 29

LLDA will introduce the polluter pays principle to Metro Manila, and will set the effluent discharge permit fees, assess and monitor industrial and commercial enterprises, issue discharge permits, and collect fees.

100. HUDCC and NHA will be responsible for developing the housing and apartment building projects, and the LGUs will be responsible for community consultation, providing assistance with squatter relocation and community preparation, and development of the areas vacated by the squatters.

101. The LGUs and MMDA will be responsible for implementing upgrading in the urban renewal areas with assistance as necessary from the PMO. LGU responsibility will include community consultation to prioritize project areas and components, and reach an agreement with communities on cost-sharing arrangements. The LGUs will also be responsible for project preparation activities for the provision of infrastructure and basic community services in the urban renewal areas.

b. Implementation Schedule

102. The Project will be implemented over a period of five years, from 2000 to 2005, in accordance with the implementation schedule given in Appendix 13. This schedule is considered appropriate and achievable because the PRRC has overall responsibility, and implementation of specific components will be undertaken by experienced implementing agencies.

3. Procurement

103. Procurement of goods and services shall be subject to the provisions of ADB’s Guidelines for Procurement. Contracts for the sanitation and septage facilities, including contracts for the lease and operation thereof, will be awarded on the basis of international competitive bidding. Bidders shall be prequalified before bidding but shall not be required to obtain a Philippine Contractor’s Accreditation Board License as a condition for prequalification, bidding, or award of contract. Civil works contracts for EPAs and urban renewal areas, all of which are expected to cost less than the equivalent of $3 million, will be awarded on the basis of local competitive bidding among prequalified contractors in accordance with the standard procurement procedures of the Borrower acceptable to ADB, provided that the apartment units in the medium-rise apartment buildings and the housing units will be procured in bulk from licensed private developers. Indicative contract packages for procurement are given in Appendix 14. 4. Consulting Services

104. Services of international and domestic consultants will be required to assist with project implementation and to review, refine, and further develop the feasibility study for the sanitation component. The consultants will be selected by the PRRC. All consultants to be financed from the proceeds of the ADB loan will be recruited in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants.

5. Flow of Funds

105. The Department of Finance, as the representative of the Borrower, will pass on the proceeds of the investment loan to the PRRC through budgetary allocations. The PRRC will 30 allocate, as budgetary allocations, appropriate amounts from the loan funds to the various Implementing Agencies, which are members of the PRRC, including MMDA for the urban renewal components, DENR/LLDA for water quality monitoring, and HUDCC/NHA for resettlement.

6. Imprest Account

106. To facilitate disbursement for small items of equipment, public awareness campaigns, and training activities, an imprest account, with a ceiling of $300,000, will be established after loan effectiveness in accordance with ADB’s Loan Disbursement Handbook. The imprest account will be operated by the PRRC. Disbursement from the imprest account will be supported by appropriate withdrawal application and related documentation. Individual payments reimbursed or liquidated under the statement of expenditures procedures will not exceed $50,000 equivalent.

7. Anticorruption

107. During project processing ADB’s anticorruption policy was explained to Government officials. Attention was drawn to the section on fraud and corruption that was recently added to ADB’s Guidelines for Procurement, particularly the need for bidders, suppliers, and contractors to observe the highest standards of ethics in the procurement and execution of ADB-financed contracts, and the sanctions if fraud and corruption are discovered. Similarly, the anticorruption provisions added to ADB's Guidelines on the Use of Consultants were also discussed. The ability of PRRC and the Implementing Agencies to prevent potentially corrupt practices will be enhanced through the introduction of appropriate project management and monitoring procedures developed through the capacity building provided by project implementation assistance and TA.

8. Project Reviews

108. ADB and the Government will undertake periodic reviews during project implementation. The reviews will include evaluations of the project scope, implementation arrangements, resettlement, consultation with affected persons, achievement of scheduled targets, progress on the agenda for policy reform, and capacity-building measures.

9. Reports

109. The PRRC will submit reports to ADB concerning the use of the loan proceeds and information concerning the administration and financial management of the Project. The reports will include (i) quarterly progress reports on project implementation, (ii) annual reports, and (iii) a project completion report to be submitted not later than six months after project completion. Progress reports will cover the areas of (i) policy reform, (ii) environmental management and water quality monitoring, (iii) resettlement, (iv) achievement of sanitation improvements, and (v) capacity building.

10. Accounts and Audit

110. It was explained to the PRRC that compliance with ADB’s revised guidelines, introduced in 1998, for the submission of project reports, audited accounts, and financial statements is mandatory and will be strictly enforced by ADB. In particular, the following consequences for noncompliance were highlighted: (i) suspension of disbursements, new contract awards, and 31 replenishment of the imprest account if compliance is delayed by more than 6 months; and (ii) suspension of the loan if compliance is delayed by more than 12 months.

11. Project Performance Monitoring System

111. The PRRC will integrate the project performance monitoring system (PPMS) into the project management information system, and with the assistance of consultants, will develop comprehensive PPMS procedures to systematically generate input and output data for each project component. The PPMS will also generate socioeconomic data and environmental indicators to measure project impacts. The PRRC will refine the PPMS framework, confirm achievable goals, firm up monitoring and recording arrangements, and establish reporting systems and procedures for initiating remedial action. The PPMS design will be flexible for project design, schedules, activities, and development impacts, and enables the adoption of appropriate remedial actions. To ensure that project impacts are monitored and reported in accordance with ADB’s requirements, the PRRC will monitor and assess activities, and include the results in the quarterly reports to ADB on the physical implementation and financial aspects of the Project. The PRRC will be responsible for monitoring socioeconomic indicators. The services of a specialist social sciences organization will be retained to survey and record the effects of the resettlement program, changes in land use and property values along the Pasig River, increased tourism, levels of private sector investment, and related improvements. Other indicators will also be monitored, including the incidence of waterborne and environment-related diseases, and degree of beneficiary satisfaction with general living conditions and quality of life in the project area. The beneficiaries’ awareness about project components and activities, and knowledge of good practice on environment-related behavior will be recorded. Internal and external resettlement indicators are built into the resettlement plan, including delivery of resettlement entitlements, and restoration of incomes and quality of life for the people affected. The PPMS will be designed with flexibility to address remedial actions that may be required to enhance the achievement of project objectives.

VI. THE TECHNICAL ASSISTANCE

A. Objective and Scope

112. The TA will provide capacity building for the PRRC, MMDA, and the LGUs. Capacity building for the PRRC to support the PMO in (i) realizing the policy reform agenda; (ii) strengthening the forward planning capabilities of the PRRC; (iii) strengthening the project evaluation, appraisal, approval, and implementation capabilities; (iv) effectively coordinating with other funding sources, and national and local government agencies implementing the various parts of the PRDP; (v) identifying potential funding and cost recovery mechanisms for the implementation of approved programs and projects under the PRDP; (vi) establishing and making operational a system to monitor and report the SDP activities; and (vii) developing procedures for contract tendering, bid evaluation, and award.

113. Capacity building for MMDA will provide assistance with (i) coordinating the plans and programs of national and local government agencies within the Pasig River basin; (ii) developing the systems and staff capabilities to enforce the establishment and retention of EPAs in accordance with the relevant ordinances and regulations; (iii) strengthening the planning and coordination capabilities of MMDA’s planning staff; (iv) developing a system for consolidating plans and programs prepared by national and local government organizations and the private sector for the Pasig River basin; and (v) establishing a system for monitoring development activities within the Pasig River basin. 32

114. LGU capacity building will focus on helping the LGUs identify urban renewal areas with potential for economic enterprises, commercial and residential activities, and community revitalization zones for urban poor communities. Assistance will be given for (i) preparing comprehensive development and zoning plans for the areas adjacent to the river, and developing proposals for urban renewal; (ii) defining the areas to be affected by the PRDP; and (iii) preparing zoning and development plans for these areas.

115. The TA will help to develop and establish mechanisms to motivate the community to become involved with local NGOs and LGUs in revitalizing the urban renewal areas economically and physically, by encouraging enterprises, introducing poverty reduction measures, and initiating environmental upgrading.

B. Cost Estimates, Financing, and Implementation

116. The cost of the TA is estimated at $1.43 million equivalent, comprising $695,000 in foreign exchange costs and $735,000 equivalent in local currency costs. ADB will provide $1.0 million, to cover the entire foreign exchange cost and $305,000 equivalent of the local currency cost. The TA will be financed on a grant basis from the Asian Currency Crisis Support Facility, funded by the Government of Japan. The balance of the local currency cost, equivalent to $430,000, will be met by the PRRC through payments in kind, through the provision of office accommodation, counterpart staff, surveys, and logistical support. The PRRC will be the Executing Agency for the TA, which will be conducted over 12 months and be completed by June 2001. The outline terms of reference for the TA are given in Appendix 15.

VII. BENEFITS AND RISKS

A. Expected Impacts

1. Economic Analysis

117. The polluted condition of the Pasig River degrades the environment of Metro Manila. It is unsightly and malodorous, poses health risks, and acts as a constraint to socioeconomic development of the surrounding urban areas. Improving water quality and the environment along the banks of the Pasig River are high Government priorities.

118. The economic analysis was prepared for the SDP as a whole, because the primary benefits derive from (i) water quality improvements in the Pasig River; and (ii) the improvements in environmental quality along the riverbanks and adjacent urban areas. These benefits are generated jointly by the SDP and by other projects and programs. The economic analysis assesses the incremental impact of the SDP on water quality and the urban environment, taking into account attributable improvements.

119. SDP beneficiaries are the residents of Metro Manila who will benefit from the cleaner and sweeter smelling river running thought the center of the city. Specifically, they will benefit from improved river water quality and environmental enhancement along the riverbanks, also through better access to the river, economic development, and recreational opportunities. In addition, families relocated from the riverbanks will benefit from healthier and safer living conditions, security of tenure, improved water supply, better sanitation facilities, and other basic services, less contact with contaminated water, and reduced risk from flooding. Similarly, although not relocated, families in the urban renewal areas will benefit from improved services such as water, sanitation, roads, lighting, security of tenure, and better access to the river. 33

120. The household survey undertaken through TA 2803 (footnote 4) showed that residents give high priority to environmental improvements to enhance their quality of life. Demand for sanitation has been assessed for Metro Manila, based on improving the combined sanitation and sewerage coverage to 60 percent by 2003, 80 percent by 2011, and 85 percent by 2016. Affordability analysis is also based on the household survey. The cost of housing for the resettled communities can be afforded by the poorest 5 percent of families, assuming that 25 percent of income is available for housing and special provisions have been made to provide rent assistance to the lowest income families. The risks to affordability are that the current income level of families is not sustained after relocating, however, the risks are considered to be relatively low because livelihood enhancement programs have been built into the resettlement plans.

121. The SDP components represent the most cost-effective options. Alternatives were considered for sanitation and urban renewal, and were found to be higher cost options, with implementation difficulties. For the resettlement, housing will be procured from the private sector through a competitive bidding system, enabling the Government to take advantage of the current weakness in the property market.

122. The economic internal rate of return (EIRR) was calculated for the SDP and subjected to sensitivity analysis. Three benefit streams were valued, including (i) the willingness of Metro Manila residents to pay for environmental improvements ensuing from the SDP, (ii) the benefits to communities resettled from the riverside, and (iii) the benefits of urban renewal to local residents. However, some important benefits could not be valued, including the effect of the SDP as a catalyst for further environmental improvements and in removing constraints to future economic growth.

123. The base case results in an EIRR of 16.0 percent, which exceeds the assumed economic cost of capital of 10 percent. Under the worst case sensitivity test, where costs increase by 10 percent and benefits decrease by 20 percent, the EIRR falls to 11.0 percent, but remains above the economic opportunity cost of capital. Due to considerable indirect benefits that result from urban environmental improvements, project benefits are understated, and the true EIRR is likely to be higher. The detailed economic analysis is given in Appendix 16.

2. Financial Analysis

124. The financial evaluation carried out for the sanitation component evaluates financial performance and pricing of services under three scenarios. For each scenario, the evaluation assumes that the required financial internal rate of return (FIRR) should be at least equal to the weighted average cost of capital for the scenario. In effect, the scenarios set the required FIRR, and the analysis calculates the required sanitation fee per household to deliver that rate of return. The first scenario assumes that Government will finance the septage collection and treatment operations, and the revenues from sanitation fees will be sufficient to cover operation and maintenance costs and debt service payments. This sets the lowest effective FIRR at 2.68 percent. The second scenario evaluates similar financial performance objectives but assumes that the capital investment finance will be secured from an existing finance facility offered by a Government finance institution for environmental projects. Under this scenario, the terms of financing were assumed to be 11 percent interest with loan financing of 80 percent of the SDP cost. This produced an effective FIRR of 8.8 percent. The third scenario assumes that the facilities are to be operated on full commercial terms and that investment decisions are made relative to maximum potential yields on available market instruments in the country, such as high yield bonds, mutual funds, and time deposits, giving the highest effective FIRR of 18 34 percent. The evaluation is centered on determining the price of service to attain the performance objectives or hurdle rates under the three stated scenarios. In this way, the Government is presented with policy options for the implementation of the sanitation component. It also allows the evaluation of cost recovery options against affordability considerations under each scenario.

125. Capital costs include all expenditures related to the construction of the component, including land, civil works, equipment and materials, consulting services, and physical and price contingencies. Capital costs were recorded for the year they are to be incurred. Interest payments and depreciation were excluded from the evaluation. Operation and maintenance costs for the septage collection service were assumed to be 8 percent of capital cost for equipment. Operation and maintenance costs for the septage treatment plant were assumed to be 5 percent of the capital cost of civil works, equipment, and materials.

126. Under the performance objectives of the first scenario, the combined price of cleaning one septic tank and treating the sludge would be P1,858 in 1999 prices. For full commercial operation, the price of collection and treatment services would be P4,861. Currently, private companies offer a septic tank emptying service charge about P2,600 per septic tank. However, the collected septage is disposed of without treatment; this is environmentally unacceptable. Table 3 shows the pricing and affordability indicators for each septic tank served. The detailed financial analysis is given in Appendix 17.

Table 3. Pricing for the Sanitation Service (P per septic tank served) Service Price of Service Scenario 1 Scenario 2 Scenario 3 Septage Collection 503 581 771 Septage Treatment 1,355 2,116 4,090 Total 1,858 2,697 4,861

3. Environmental Impact

127. The initial environmental examination was carried out by consultants in 1998 under TA 2803 (footnote 4), and will be submitted to DENR for an environmental compliance certificate, when the selection of individual sites for project components has been finalized. The establishment of EPAs along the river frontage is necessary to ensure safety, provide access for emergency and maintenance purposes, and provide recreational amenities. The relocation of squatters from the EPAs will bring about considerable environmental improvements for the river and riverbanks, and will result in substantially improved living conditions for the relocatees at purpose-built, fully serviced resettlement sites. The development of the urban renewal areas will introduce basic infrastructure and essential municipal services into depressed areas, and result in improved living conditions, higher public health standards, and a better environment. The introduction of sanitation services into areas with zero coverage will reduce the discharge of BOD to the river system and raise public health standards in the affected areas. The negative environmental impacts of the SDP are mostly temporary, related to the construction phase. These negative impacts will be easily mitigated through appropriate engineering design and adequate construction management and supervision. In general, the environmental impacts of the SDP are positive. The establishment of EPAs and development of urban renewal areas will provide open space, parks, and green areas along the river frontage. The relocation of squatters 35 and improvement of infrastructure is expected to reduce the direct discharge of sewage and solid waste to the Pasig River.

4. Impact on Poverty

128. The Philippines defines the poverty threshold as the minimum income needed by a family to obtain privately provided food and basic services. Based on this threshold, which varies regionally, the national incidence of poverty declined from 44 percent in 1985 to about 32 percent in 1997, but rose sharply to about 38 percent in 1998 as a result of the Asian financial crisis. These figures fail to capture the scope and scale of Metro Manila’s urban deprivation, where the incidence of urban poverty was estimated at about 18 percent in 1997, but about 35 percent of the urban population are squatters and slum dwellers living in unserviced or poorly serviced communities. The rate of job creation has not matched population growth, contributing to downward pressure on real wages, unemployment, underemployment, and poverty. It is estimated that Metro Manila had an unemployment rate of 14.5 percent in 1997, higher than the national rate, which was estimated at about 10 percent.

129. For the project area the poverty impact, social assessment, and affordability were determined through an affordability analysis based on the household survey, undertaken in 1997, under TA 2803 (footnote 4). The survey included households located in poor riverside communities at Quiapo, and barangays 900 and 905. Since the riverbank communities that are resettled will pay for housing at the resettlement sites, the analysis focuses on the ability of families to pay the rent or amortization set out in the resettlement program prepared by HUDCC, through NHA, for the PRRC. In 1999, the monthly household income among riverside communities was P2,560 for the lowest 5th percentile, ranging to P22,950 per month for the 95th percentile. The mean household monthly income was P8,350. The poverty threshold for Metro Manila is about P7,500 per month and about 35 percent of households affected by the project are living below the poverty line, which is almost twice the rate of poverty for Metro Manila as a whole. The lowest cost housing option is a lot with a core house at a choice of locations. For the first five years, families can rent; then in the sixth year, families are offered an option to purchase at a set amortization rate. The monthly rents in year one are set at P400, rising each year at P200 per month. From year six onward, rents will increase at 10 percent per year. The amortization rate is set at P1,385 for the first 10 years, rising to P2,243 for the remaining 15 years. For the poorest 20 percent of families, 25 percent of income is assumed to be available for housing. This is equivalent to P640 per month, which exceeds the monthly requirement for rent from the first year onward. For the remaining 80 percent of families, 20 percent is assumed to be available for housing, and the rents are within the affordability range. The affordability analysis shows that the rents will be affordable in the first five years, even to the poorest 5 percent of families, as the amount available in 2003 exceeds the proposed rent of P1,200. In the sixth year, either rent or amortization will also be affordable to all income groups.

130. Qualitative evidence also indicates that the rental and purchase options are affordable. The experience of NHA shows that, when offered a choice, people usually select the more desirable housing option, even if it is not the least expensive, though at first they may have indicated that it was not affordable. Also, in surveys, people tend to understate income and overstate expenditures, and evidence of this shows in the widespread ownership of nonessential items like televisions and electrical appliances. Also, discussion groups held under TA 2803 (footnote 4) and recent market evidence suggest that rents paid in the squatter settlements along the riverbanks are approximately P500 per month for a small room, which is higher than the first year rental cost for a house at the resettlement site. 36

131. The risks to affordability are that the incomes and livelihood of residents are reduced as a result of relocation, and that the livelihood program is not successful in raising the incomes of the poorest families. Given that incomes are likely to be understated, and the rents are lower in the early years to allow families to adjust to their new location, the risks are considered to be low. The poverty impact assessment is given in Appendix 18.

B. Risks and Safeguards

132. There is a risk that the SDP will not receive sufficient support from the Government and that adequate counterpart funds will not be available. The high level of visible support from the Government, which has adopted the Pasig River rehabilitation as a key priority, suggests that such risk is small. The creation of the PRRC and adoption of the PRDP, ahead of program implementation requirements, further suggests a high level of support and commitment to the SDP.

133. A second risk concerns the possible lack of enforcement of environmental regulations and standards, and the shortage of qualified and experienced environmental management and monitoring staff. Lack of enforcement in the past has resulted in many polluting industries and businesses not being brought into compliance. Major efforts are needed to ensure that adequate enforcement is properly undertaken, supervised, and reported, and that such activities are supervised and strengthened under the direction and guidance of the PRRC.

134. A third area of risk is that the Government will meet opposition to implementing the proposed sanitation component from the MWSS concessionaires because they believe that the Concession Agreement gives them exclusive rights to provide sanitation services. The OGCC has issued a legal opinion stating that the concessionaires do not have exclusive rights to sanitation services. However, the concessionaires could challenge this opinion. The PRRC has initiated a process of detailed consultation with DPWH, MWSS, and the concessionaires to explain the Government’s policy to rehabilitate the Pasig River, and seek the concessionaire’s support. The PRRC has indicated that the concessionaires have expressed willingness to support the Government’s policy, but so far, no formal agreement has been reached. Delays in the implementation of the sanitation component would impact on the success of the program.

135. Financial analysis of the proposed septage treatment plant indicates that the facility is financially viable and will generate a reasonable rate of return. Capacity-building assistance will be provided to the DENR, PRRC, LLDA, and MMDA to support the enforcement of regulations, review of investment plans for the disposal of septage and municipal wastewater for Metro Manila, and undertake discussions with MWSS. Implementation of the PRDP is expected to meet opposition from time to time, but given that the proposals have been discussed in detail with all affected parties and stakeholders, it is considered realistic and achievable. In particular, all interested NGOs and civil society groups have fully supported PRDP implementation.

136. The reluctance of squatters to relocate is the major risk attached to the urban renewal component. To address this risk, particular attention has been given to the full participation of affected communities in the design and implementation of the resettlement plan. Relocation will be kept to a minimum, and a choice of relocation options will be given to affected families at a variety of in-city apartment buildings and close-to-town house and lot developments. Resettlement will include the provision of social services, employment, and income-generating schemes. The resettlement sites will be developed with basic infrastructure facilities and 37 municipal services. Given that resettlement has been discussed in detail with all affected parties and stakeholders, and will be undertaken under comprehensive community-based resettlement action plans developed in consultation with affected communities, it is considered to be realistic and achievable.

VIII. ASSURANCES

A. Specific Assurances

137. The Government has given the following assurances, in addition to the standard assurances, which have been incorporated in the legal documents:

(i) The policies adopted and actions taken prior to the date of the Program Loan Agreement, as described in the development policy letter, will continue in effect for the duration of the program loan period, and the Government will promptly adopt the other policies and take the other actions included in the Program, as specified in the development policy letter and Program Loan Agreement, and ensure that such policies and actions continue in effect for the duration of the program loan period.

(ii) The Government will ensure that sufficient budgetary allocations are made to the PRRC and the Implementing Agencies in a timely manner for the efficient and timely implementation of the investment Project. The Government will make available, throughout the implementation of the investment Project, a total matching commitment of at least $75,000,000 equivalent.

(iii) The PRRC will develop, implement, and coordinate a public awareness campaign to inform the public of the policy reforms under the SDP, and the need for and benefits of stringent regulation of wastewater management, effluent standards, and enforcement of environmental regulations.

(iv) The Government will ensure that a full environmental siting study is conducted for the septage and sanitation components of the Investment Project, in accordance with ADB procedures and Philippine environmental laws for the site on which the septage plant is to be constructed, and the areas where effluents are treated, stabilized, and discharged.

(v) The Government will ensure that the investment Project is undertaken in compliance with all applicable rules and regulations relating to environmental protection, health, and safety, and comply with applicable environment assessment procedures. In particular, the Government will ensure that all necessary measures to protect and improve the environment, health, and safety are undertaken; appropriate environmental protection controls and safety devices are included in the design and implementation of all civil works and development activities; and facilities and civil works provided under the investment Project are operated and maintained in accordance with environmental guidelines of ADB and the Government.

(vi) The Government will acquire, in a timely manner and with due process of law, all land, properties, property rights, rights-of-way, easements, and leases as are required for implementation of the investment Project. 38

(vii) The Government will ensure that the relocation of the squatter families from the Pasig River banks is undertaken strictly in accordance with the Resettlement Plan and with due process of law. The Government will ensure that no involuntary resettlement, relocation, or movement is undertaken under the investment Project in relation to formal dwellers, commercial establishments, and small businesses along the Pasig River banks.

(viii) The Government will ensure that after the relocation of the squatter families, the EPAs, thus vacated, are promptly developed into parks, walkways, and greenbelts, and that the EPAs are not reoccupied.

(ix) The Government will, together with ADB, undertake periodic reviews during SDP implementation to evaluate the scope, implementation arrangements, progress of resettlement and its impact on the affected persons, achievement of scheduled targets, progress on the agenda for policy reform, and capacity-building measures.

B. Conditions for Disbursement

138. No disbursement will be made for the sanitation and septage components of the investment Project until

(i) a feasibility study; an environmental siting study; invitations to bid; instructions to bidders; and a draft contract or contracts for the design, construction, procurement, construction, lease, and operation of the septic tank emptying service and septage treatment plant, all in form and substance acceptable to ADB, are completed; and

(ii) a contract or contracts for the design, construction, commissioning, lease, and operation of the sanitation and septage facilities, all in form and substance acceptable to ADB, are duly executed, delivered, and become effective, and ADB receives a legal opinion in form and substance acceptable to ADB, from counsel acceptable to ADB, on such matters as ADB may reasonably require.

C. Conditions for Award of Contract

139. Two conditions must be met for the award of contracts:

(i) No contract will be awarded for the development of EPAs or portions thereof, until the PRRC approves the plans for such development, and copies of such plans are submitted to ADB.

(ii) No contract will be awarded for urban upgrade projects until ADB and the PRRC have agreed on the selection criteria for the urban upgrade projects, and an agreement is duly executed and delivered on behalf of the participating LGU and MMDA, specifying the plan for such upgrading, and the participating LGU’s contribution to the upgrade and maintenance of the facilities provided under the projects. 39

IX. RECOMMENDATION

140. I am satisfied that the proposed loans would comply with the Articles of Agreement of ADB, and recommend that the Board approve:

(i) the loan of $100 million from ADB’s ordinary capital resources, to the Republic of the Philippines for the Pasig River Environmental Management and Rehabilitation Sector Development Program, with a term of 15 years, including a grace period of 3 years, and with interest to be determined in accordance with ADB’s pool-based variable lending rate system for US dollar loans, and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan Agreement presented to the Board; and

(ii) the loan of $75 million from ADB’s ordinary capital resources, to the Republic of the Philippines for the Investment Component of the Pasig River Environmental Management and Rehabilitation Sector Development Program, with a term of 25 years, including a grace period of 5 years, and with interest to be determined in accordance with ADB’s pool-based variable lending rate system for US dollar loans, and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan Agreement presented to the Board.

TADAO CHINO President

20 March 2000 40

APPENDIXES

Number Title Page Cited On (page,para.)

1 Program Framework 41 2, 6 2 Sector Indicators 45 5, 15 3 The Pasig River Rehabilitation Commission 47 9, 27 4 MWSS Concession Agreement for Areas West and East: 50 11, 34 Coverage Targets for Water Supply, Sanitation, and Sewerage 5 Development Policy Letter and Policy Matrix 51 17, 59 6 Summary of Project Components 60 22, 76 7 Project Implementation Assistance 65 24, 83 8 Cost Estimates 67 24, 84 9 Financing Plan 69 25, 85 10 Summary Initial Environmental Examination 70 26, 89 11 Summary Resettlement Action Plan 75 26, 90 12 List of Ineligible Items 84 27, 93 13 Implementation Schedule 85 29, 102 14 Indicative Contract Packages for Procurement 86 29, 103 15 Technical Assistance for Capacity-Building Support 87 32, 116 16 Economic Analysis 89 33, 123 17 Financial Analysis 96 34, 126 18 Poverty Impact Assessment 97 36, 131

SUPPLEMENTARY APPENDIXES (available on request)

A The Government’s Fiscal Performance, 1996-1998 B Detailed Project Description C Initial Environmental Examination D Resettlement Action Plan E Detailed Cost Estimates F Detailed Economic Analysis PROGRAM FRAMEWORK Design Performance Monitoring Assumptions Summary Indicators Mechanisms and Risks Sector/Area Goals

1. Improve environmental • Pasig River water quality reaches Class • Department of Environment and • Metro Manila Waterworks and management of the Pasig C standard by December 2014. 1 Natural Resources (DENR) to Sewerage Systems (MWSS) River basin within Metro monitor Pasig River water quality private sector concessionaires Manila, particularly for The total biochemical oxygen demand by sampling, testing, and achieve and sustain the levels of wastewater management. (BOD) loading discharged to the river reporting the results. sewerage and sanitation should be less than the maximum coverage set out in the assimilative capacity of the Pasig River concession agreements. for BOD loading, which is estimated at 200 tons per day (t/d). • The Pasig River Rehabilitation Commission (PRRC) expands the sanitation service coverage to local government units (LGUs) in the Pasig River basin where the MWSS targets are zero. 2. Promote urban regeneration • Establish environmental preservation • Reports of the Housing and • Squatters occupying the EPAs and renewal in the vicinity of areas (EPAs) along both banks of the Urban Development are relocated, Appendix1,page1 the vacated areas 41 the Pasig River. river by December 2004. Coordinating Council (HUDCC) are protected from further and National Housing Authority occupation, and are developed (NHA) on the relocation of for beneficial environmental squatters. uses. • Reports of the Metro Manila Development Authority (MMDA) on the establishment and beneficial development of the EPAs. Purpose 1. Improve the water quality of • BOD loading entering the Pasig River is • The PRRC, DENR, and Lake • The sanitation facilities are the Pasig River. reduced by 18 t/d by December 2004. Laguna Development Authority constructed and made This is a significant step toward (LLDA) will monitor wastewater operational in a timely manner. reducing the BOD loading to match the discharges, issue wastewater • Wastewater discharges are maximum assimilative capacity of the discharge permits, and collect monitored and environmental river. the fees. regulations and standards are enforced. Design Performance Monitoring Assumptions Summary Indicators Mechanisms and Risks

1 Class C water is suitable for fish propagation and sustaining aquatic life and for secondary contact sports like boating. After treatment, the water may be used for industrial processing. Key criteria for Class C water are: maximum biochemical oxygen demand (BOD), 10 milligrams per liter (mg/l); and minimum dissolved oxygen (DO), 5 mg/l. Total coliforms, 5,000 most probable number (MPN) per 100 mg. 42 Appendix 1, page 2 and Risks Assumptions operators meet the sewerage and sanitation coverage targets set out in the concession agreements. have the capability and capacity to monitor discharges and the political will to impose and collect polluter pays charges. monitor the Pasig River water quality. cooperate with the TA consultants and provide sufficient counterpart staff and logistical support. competent and deliver adequate capability and capacity building inputs to the PRRC, MMDA, and LGUs. with MWSS and the concession operators on the provision of additional sanitation service coverage and capacity. treatment plant is made available and adequate counterpart funds are provided in a timely manner. and MMDA on the institutional arrangements for the operation and maintenance of the septic tank cleaning and emptying service. The MWSS concession The PRRC, DENR, and LLDA DENR has the capacity to The PRRC, MMDA, and LGUs The selected TA consultants are The PRRC reaches agreement The site for the septage The PRRC agrees with MWSS • • • • • • • • Monitoring Mechanisms River water quality through sampling and testing, will report the results. consultant reports Project implementation reports ADB review missions DENR will monitor the Pasig Project implementation reports MMDA and LGU reports ADB review missions Technical assistance (TA) Project implementation reports ADB review missions • • • • • • • • • ) per day is 3 Indicators Performance constructed and commissioned by December 2004. m wide EPA are established along the banks of the Pasig River by December 2004. depressed urban slums are upgraded by December 2004. the implementation of Sector Development Program (SDP) in accordance with the design, implementation schedule, and budget. maintains the EPAs along riverbanks. squatter relocation and development of the urban regeneration areas. emptying vehicles is operating and servicing about 37,000 septic tanks per year by December 2005. of 600 cubic meters (m Approximately 23 kilometers (km) of 10 Approximately 500 hectares (ha) of The PRRC arranges and coordinates MMDA establishes, develops, and The LGUs provide assistance with A fleet of 36 septic tank cleaning and Septage treatment plant with capacity • • • • • • • Design Summary riverbanks and upgrade adjacent urban regeneration areas. management capability and capacity of (i) PRRC, and (ii) MMDA, LGUs. (iii) the emptying service disposal facility 2. Establish EPAs along the 3. Strengthen the operational and 2. Septic tank cleaning and Outputs 1. Septage treatment and 43 Appendix 1, page 3 available for procurement, and operation and maintenance of the vehicles in a timely manner. and can afford the housing options offered. from reoccupation, and are developed for beneficial environmental use. in a timely manner. participate in the upgrading. borrow to finance consulting services. timely manner, are competent, and perform adequately. reference are appropriate and adequate. LGUs benefit from and accept the institutional capacity building delivered by the TA consultants. appropriate. Adequate counterpart funds are Squatters are willing to relocate The vacated EPAs are protected Counterpart funds are provided Local government units The Government is willing to The consultants are retained in a The consultants’ terms of The Commission, MMDA, and The terms of reference are • • • • • • • • • • relocation of squatters development of EPAs Project implementation reports HUDCC/NHA reports on the MMDA reports on the ADB review missions Project implementation reports MMDA and LGU reports ADB review missions Project implementation reports reports ADB review missions Consultant’s Project implementation reports report TA review missions Consultants • • • • • • • • • • • • • squatter families have been relocated to in-city, medium-rise apartment buildings and out-of-town house lot schemes; and the EPAs have been developed for beneficial environmental use. income slum housing adjacent to EPAs, including regularization of land tenure and provision of basic services to benefit about 80,000 families by December 2004. international consulting and 102 person-months of domestic consulting are retained to provide the PRRC, as the Executing Agency, and various Implementing Agencies with technical guidance and assistance for project implementation. international consulting and 56 person- months of domestic consulting are provided through ADB TA to develop capability and capacity of PRRC, MMDA, DENR, LLDA, and LGUs. By December 2004, about 10,000 Upgrading approximately 500 ha of low- Approximately 54 person-months of Approximately 24 person-months of • • • • areas assistance building 3. Environmental preservation 3. Environmental 4. Urban regeneration areas 5. Project implementation 5. Project 6. TA on institutional capacity 44 Appendix 1, page 4 and Risks Assumptions and timely. and timely. Procurement process is effective Counterpart funds are sufficient • • Monitoring Mechanisms SDP implementation reports ADB review missions • • Indicators Performance Design, build, and operate contracts are awarded for the septage treatment and disposal facility, and the septic tank cleaning vehicles. $23.5 million $4.0 million Contracts for medium-rise apartment buildings, and house lot packages are awarded for relocating squatters. $60.0 million Contracts for infrastructure improvements. $49.0 million Consulting services $4.0 million $9.5 million $150.0 million Consulting Services $1.4 million Design Summary disposal facility vehicles Areas Assistance Interest During Construction Total Project Cost 1. Septage treatment and 2. Septic tank cleaning Inputs A. Sanitation Preservation B. Environmental C. Urban Renewal Areas D. Project Implementation E. Technical Assistance 45 Appendix 2, page 1

SECTOR INDICATORS

A. Environmental Indicators 1. Drainage Basin Area Water Section Area (km2) Pasig River 62 Marikina River (below Marikina Bridge) 17 San Juan River 86 Pateros-Taguig River 50 Total SDP Area 215 Laguna Lake 3,580 Marikina River (above Marikina Bridge) 355 Total Outside Project Area 3,935 Total Drainage Basin 4,150

2. Pasig River Characteristics Length (kilometers) 27 High Flow - October and November (cubic meters/second) 275 Low Flow - March to May (cubic meters/second) 12

3. Water Quality Standards Class C standards are provided by Department of Environment and Natural Resources (DENR), AO 34, and include Minimum Dissolved Oxygen (DO) (milligrams/liter) 5 Maximum Biochemical Oxygen Demand (BOD) (milligrams/liter) 10 Maximum Total Coliforms 5,000 Most probable number (MPN)/100 ml Pasig River Water Quality Minimum DO Zero Maximum BOD 120 mg/l Maximum Total Coliforms Exceed Class C standard by several thousand degrees

4. Effluent Discharge Standards The effluent discharge standards for municipal sewage are provided by DENR, AO 34, and include Maximum BOD 50 mg/l Maximum Suspended Solids (SS) 70 mg/l

5. Pasig River Estimated Pollution Loads Pollution Source BOD Loading (tons/day) 1990 1995 2000 2005 2010 2015 Domestic Wastewater 119 138 168 206 252 308 Industrial Wastewater 142 75 69 63 56 51 Solid Waste 34 10 5 0 0 0 Total 295 223 242 269 308 359 The maximum assimilative capacity of the Pasig River is estimated at 200 t/d of BOD loading. 46 Appendix 2, page 2

B. Urban Indicators 1. National Capital Region (Metro Manila) a. Geographical Description Land Area 636 km2 Cities 10 Municipalities 7 b. Population Statistics 1995 Population: Philippines 68.6 million National Capital Region 9.4 million Population Density 14,482 persons per km2 c. Population Projectionsa 1998 2004 Philippines 73.1 million 82.6 million NCR 10.0 million 11.1 million d. Leading Water and Sanitation Related Diseases (1995) Number of Rate per 100,000 Causes Reported population Cases Pneumonia 110,348 1,184 Diarrhea 101,947 1,094 Tuberculosis, all forms 32,546 349 Influenza 18,378 197 Dengue Fever 5,884 63

2. Project Area Land Persons No. ofb Population Population LGU Population Area Households per Squatter Growth Density (1995) (km2) Household Families (% per annum) (persons/km2)

1. Makati 484,000 29.9 101,000 4.8 1,291 1.25 16,200 2. Manila 1,655,000 38.3 276,000 6.0 7,138 0.62 43,200 3. Mandaluyong 287,000 26.0 61,000 4.7 4,770 2.75 11,000 4. Marikina 357,000 38.9 73,000 4.9 1,019 2.68 9,200 5. Pateros 55,000 10.4 11,000 5.0 5,000 1.37 5,300 6. Pasig 471,000 13.0 104,000 4.5 9,579 3.22 36,200 7. San Juan 124,000 10.4 26,000 4.8 2,463 (0.40) 11,900 8. Taguig 381,000 33.7 79,000 4.8 5,500 6.93 11,300 9. Quezon City 1,989,000 166.2 416,000 4.8 7,732 3.34 12,000 10. Caloocan 1,023,000 55.8 186,000 – 5.64 5.64 18,300 11. Pasay 409,000 13.9 72,000 5.7 – 1.96 29,400 Project Area 7,235,000 436.5 1,405,000 5.1 44,492 16,600

LGU = local government unit. Source: National Census Statistics Office. a National Statistical Coordination Board. 1997. 1997 Philippine Statistical Yearbook. Manila. b Data provided by the concerned LGUs and National Housing Authority. 47 Appendix 3, page 1

THE PASIG RIVER REHABILITATION COMMISSION

1. The Pasig River Rehabilitation Commission (PRRC) was established on 6 January 1999 through Executive Order No. 54, Series of 1999 (EO 54) to ensure that the waterway system, including the Pasig, Marikina, and San Juan rivers and the smaller streams and esteros, is rehabilitated to its historically pristine condition conducive to transport, recreation, and tourism. On 19 January 1999, EO 65 was issued, amending EO 54 and designating additional members of the PRRC. To enable the PRRC to discharge its duties, EO 54 authorized P10 million to be generated out of the contingency funds for its initial requirements. Also, the Pasig River Development Council, the Presidential Task Force on Pasig River Rehabilitation, and the River Rehabilitation Secretariat were abolished and the functions, equipment, and logistics were transferred to the PRRC. Any funds received by the abolished agencies, contributed for the rehabilitation of the Pasig River, were transferred to the PRRC. Figure A3 presents the organizational structure of the PRRC.

2. The membership of the PRRC, based on EO 54 and EO 65, is composed of (i) secretary, Department of Budget and Management (DBM), as chairperson, (ii) chairperson, Metro Manila Development Authority (MMDA), as cochair, and (iii) secretaries and heads of the following agencies: Department of Environment and Natural Resources (DENR); Department of the Interior and Local Government (DILG); Department of National Defense (DND); Department of Finance (DOF); Department of Tourism (DOT); Department of Transport and Communications (DOTC); Department of Public Works and Highways (DPWH); Department of Trade and Industry (DTI); Housing and Urban Development Coordinating Council (HUDCC); Office of the Executive Secretary, Office of the President (OESOP); and three representatives from the private sector, appointed by the President.

3. The PRRC has the following powers and functions to achieve its mandate of rehabilitating the Pasig River system: (i) prepare an updated and integrated master plan for the rehabilitation of the Pasig River system, taking into account its potential for transportation, recreation, and tourism; (ii) ensure that the easements provided for in the Civil Code and other laws are observed, including all the esteros and waterways that drain into the Pasig River; (iii) integrate and coordinate all programs related to the rehabilitation of the Pasig River, such as, but not limited to, the Pasig River Development Program (PD No. 274, Proclamation No. 704, Series of 1995), and the Pasig River Environmental Management and Rehabilitation Sector Development Program;1 (iv) abate the dumping of untreated industrial wastewater and sewage into the river, including all acts and omissions in violation of the Pollution Control Law and other related laws; (v) relocate settlers, squatters, and other unauthorized or unlawful occupants along its banks; (vi) undertake civil works for the purpose such as dredging, clearing of structures, cleaning of the rivers and all the esteros and waterways that drains into it; (vii) submit regular reports to the Office of the President on the status of the Government’s efforts on the rehabilitation and development of the Pasig River; and (viii) coordinate with all Government agencies and offices, including local government units (LGUs) regarding the necessary measures to implement EO 54.

4. The implementing rules and regulations for the PRRC include

(i) Proceedings. The PRRC will hold regular monthly meetings and such special meetings as may be needed, upon the call of the chairperson or cochair. A quorum consisting of a majority of the regular members and/or their permanent

1 ADB’s proposed sector development program was specifically identified in EO 54. 48 Appendix 3, page 2

alternates will be present to transact business. The presiding officer will be the chairperson or cochair. The PRRC will create an executive committee, composed of three regular members, to evaluate and recommend matters for the discussion approval and action of the PRRC. A majority vote on any matter will be sufficient, there being a quorum, the presiding officer will only vote to break a tie.

(ii) Powers, Functions, and Duties of the PRRC Officers. The chairperson and cochair will jointly supervise and control all activities of the PRRC, including (a) appoint all officers and employees; (b) negotiate and enter into contracts, and memorandums of agreement with foreign and local funding institutions, LGUs, Government agencies, NGOs, and private sector for the purposes of obtaining financial support for the PRRC’s programs and projects; (c) execute the policies and measures approved by the PRRC and be responsible for efficient day-to-day management and operations; (d) organize a project management office (PMO) and supervise the activities including the preparation of annual budgets, staffing plan, constituting the prequalification, bids, and awards committee (PBAC); and (e) prepare and submit PRRC-approved development plans and investment programs to the National Economic and Development Authority (NEDA).

(iii) Technical Committees. Because of the technical involvement of PRRC members, technical committees will be organized according to sector concerns, to be headed by the appropriate PRRC members. The technical committees may constitute technical working groups to address the day-to-day activities.

(iv) Project Management Office (PMO). The PRRC will create a PMO, headed by an executive director, to provide the necessary executive, technical, administrative, and support services. The PMO will serve as the link between the PRRC, the technical committees, and the technical working groups.

(v) The Executive Director. The PRRC will appoint a full-time executive director to assist the chairperson and cochair with (a) PRRC administration and supervision of personnel; (b) overall direction, coordination, and oversight of the Pasig River rehabilitation efforts through the PMO and technical working groups; (c) review, evaluate, and integrate plans, programs, and projects for the Pasig, Marikina, and San Juan rivers for approval of the PRRC; (d) monitoring the development of activities being undertaken by the technical committees; (e) establishing the necessary linkages and secretariat support for the PRRC and the technical committees; (f) recommending policy directions and guidelines to the PRRC; and (g) preparation of reports on the PRRC’s activities for submission to the President.

(vi) The PRRC’s Institutional Linkages. To the extent possible, the PRRC will adopt a policy of decentralizing functions and responsibilities for the project implementation. The PRRC’s member agencies will continue to implement their respective programs for the Pasig, Marikina, and San Juan rivers, upon prior approval of the PRRC. The PRRC will consult, coordinate, and work closely with the LGUs, Government agencies, people’s organizations, and nongovernment organizations. In particular, the PRRC will maintain linkages with (a) NEDA on planning, including submission of plans and investment programs; (b) HUDCC, Housing and Land Use Regulatory Board (HLURB), National Housing Authority (NHA), DILG, DND, DTI, MMDA, and the LGUs concerned with land use, zoning, 49 Appendix 3, page 3

urban renewal, and shelter in connection with the riverbanks development; (c) DENR, DILG, MMDA, Laguna Lake Development Authority (LLDA), and the LGUs on urban environmental protection and pollution control, including monitoring, enforcement, and implementation of environmental enhancement programs; (d) DOTC and DTI, concerning plans to use the Pasig River as a major transport corridor for Metro Manila; (e) DOT and DTI, concerning the development of the tourism potential of the Pasig River; (f) DPWH, MWSS, and the LGUs to coordinate and integrate their plans and programs for the Pasig River and its tributaries; (g) DBM, DOF, and OESOP for the purpose of obtaining financial assistance including foreign loans and grants to support the river rehabilitation program; and (h) LGUs to ensure consultation and coordination with local mayors and councils.

(vii) Finance. The PRRC shall open and maintain accounts for (a) general fund for annual appropriation; (b) special accounts for the proceeds of specific revenue measures earmarked for specific project purposes; and (c) fiduciary trust funds, for public or private money officially in the possession of the PRRC as trustee, agency, or administrator.

Figure A3: Organizational Structure of Pasig River Rehabilitation Commission

Chairperson Cochair PRRC Members

Consultants Executive Director

Interagency Monitoring Group Project Management Office

Environmental Housing and Flood Control Riverbanks, Advocacy Management Resettlement Committee Transport, and Group Committee Committee Tourism Committee DPWH* Development HUDCC* MMDA Committee DENR* MMDA MMDA* MMDA OES OES OES DOTC MMDA* DPWH DOF DOTC Private DOTC DOLE DOT Sector DPWH DPWH NGOs DSWD OES DTI DND NGOs DILG TLRC

DENR = Department of Environment and Natural Resources DSWD = Department of Social Welfare and Development DILG = Department of the Interior and Local Government DTI = Department of Trade and Industry DND = Department of National Defense HUDCC = Housing and Urban Development Coordinating DOF = Department of Finance Council DOLE = Department of Labor and Employment MMDA = Metropolitan Manila Development Authority DOT = Department of Tourism NGOs = Nongovernment Organizations DOTC = Department of Transport and Communications NHA = National Housing Authority DPWH = Department of Public Works and Highways OES = Office of the Secretary * Lead Agency TLRC = Technology and Livelihood Resources Center 50 Appendix 4

MWSS CONCESSION AGREEMENT FOR AREAS WEST AND EAST COVERAGE TARGETS FOR WATER SUPPLY, SANITATION, AND SEWERAGE (%)

Total Area 2001 2006 2011 2016 2021 Targets West East West East West East West East West East Water Supply 87.4 77.1 97.1 94.1 97.4 94.1 97.7 94.1 98.4 94.6 Sanitation 43.0 38.0 46.0 32.0 43.0 27.0 39.0 24.0 27.0 19.0 Sewerage 16.0 3.0 20.0 16.0 21.0 51.0 31.0 52.0 66.0 55.0

Specific Concession 2001 2006 2011 2016 2021 Local Government Units Area A. Cities Caloocan Water West 100.0 100.0 100.0 100.0 100.0 Sanitation West 30.0 61.0 47.0 42.0 21.0 Sewerage West 3.0 2.0 2.0 32.0 79.0 Makati Water East 92.0 100.0 100.0 100.0 100.0 Sanitation East 0.0 0.0 0.0 0.0 0.0 Sewerage East 22.0 52.0 100.0 100.0 100.0 Mandaluyong Water East 100.0 100.0 100.0 100.0 100.0 Sanitation East 0.0 0.0 0.0 0.0 0.0 Sewerage East 0.0 0.0 100.0 100.0 100.0 Manila Water West 100.0 100.0 100.0 100.0 100.0 Sanitation West 9.0 9.0 9.0 9.0 9.0 Sewerage West 55.0 71.0 77.0 83.0 91.0 Marikina Water East 92.0 100.0 100.0 100.0 100.0 Sanitation East 63.0 79.0 73.0 64.0 60.0 Sewerage East 0.0 0.0 0.0 0.0 0.0 Pasay Water West 100.0 100.0 100.0 100.0 100.0 Sanitation West 73.0 68.0 66.0 47.0 0.0 Sewerage West 0.0 0.0 0.0 16.0 95.0 Pasig Water East 92.0 100.0 100.0 100.0 100.0 Sanitation East 83.0 58.0 32.0 27.0 25.0 Sewerage East 0.0 41.0 68.0 68.0 68.0 Quezon Water West 100.0 100.0 100.0 100.0 100.0 Water East 100.0 100.0 100.0 100.0 100.0 Sanitation West 41.0 37.0 38.0 97.0 45.0 Sanitation East 24.0 21.0 16.0 12.0 2.0 Sewerage West 0.0 0.0 0.0 0.0 54.0 Sewerage East 0.0 0.0 83.0 87.0 98.0 B. Municipalities Pateros Water East 84.0 100.0 100.0 100.0 100.0 Sanitation East 0.0 0.0 0.0 0.0 0.0 Sewerage East 0.0 60.0 100.0 100.0 100.0 San Juan Water East 96.0 100.0 100.0 100.0 100.0 Sanitation East 0.0 0.0 0.0 0.0 0.0 Sewerage East 0.0 0.0 100.0 100.0 100.0 Taguig Water East 44.0 100.0 100.0 100.0 100.0 Sanitation East 0.0 0.0 0.0 0.0 0.0 Sewerage East 0.0 52.0 75.0 84.0 100.0 MWSS = Metropolitan Manila Waterworks and Sewerage System. Notes: 1. Water coverage targets are expressed as a percentage of the total population in the designated local government unit (LGU) at the time of the target, excluding users who are connected to a pipe water source other than from the Metropolitan Manila Waterworks and Sewerage System (MWSS). 2. Sanitation and sewerage coverage targets are expressed as a percentage of the total population in the designated LGU connected to the concessionaire’s water system at the time of the target.

54 Appendix 5, Page 4 submission, completed on schedule submission, completed on schedule submission, completed on schedule submission, completed on schedule submission, completed on schedule implementation of Phase 1 will be a condition for second tranche release Condition for Board Condition for Board Condition for Board Condition for Board Condition for Board Initiation of the       l implementation of the PRDP is a ies for its full implementation. 1 September 1999 20 October 1999 20 October 1999 21 September 1999 24 September 1999 1 April 2000-31 July 2005       is a Policy Matrix Commission (PRRC) reviews the PRDP and issue a memorandum stating that the first phase of the PRDP is approved. adopt the first phase of PRDP. implemented by the PRRC, Metropolitan Manila Development Authority (MMDA), and local government units (LGUs). sanitation is for the PRRC to provide additional sanitation coverage and deliver services; structure and charging mechanisms for the additional sanitation service coverage have been initiated; legal opinion from the Office of the Government Corporate Counsel (OGCC) that, under the terms of the MWSS Concession Agreement, the provision of sanitation services is not an exclusive right of the concessionaires; Pasig River Rehabilitation The Metro Manila Council to Phase 1 of the PRDP The PRRC will advise ADB:     (i) that the Government’s policy for (ii) that discussions on the tariff (iii) that the PRRC has obtained a The PRDP provides the framework for improving water quality in the Pasig River, promoting urban renewal along the riverbanks, and improving living conditions and public health standards for riverside communities. The MWSS Concession Agreement with private sector operators sets time-bound service coverage targets for water supply, sanitation, and sewerage. The water supply targets are set to reach about 95 percent by 2001 and be sustained at that level throughout the concession period until 2021. The sewerage and sanitation targets are much lower and are to be achieved much later. Some areas will not receive sanitation coverage throughout the concession period even though about 90 percent of Metro Manila is served by septic tanks and the number of septic tanks in the project area is forecast to Policy Priorities Rationale Actions to be Taken Time Frame Remarks implement the first phase of the Pasig River Development Plan (PRDP). sanitation services beyond the targets in the Metropolitan Manila Waterworks and Sewerage System (MWSS) Concession Agreement to provide sanitation service coverage for 185,000 households, targeted to have zero sanitation service throughout the life of the MWSS Concession Agreement. long-term activity that goes well beyond the second tranche release and will require commitment of relevant agenc Phase 1 of the PRDP is scheduled for 2000 to 2004, 2 2005 2009, and 3 2010 2014. The ful 1. Approve, adopt, and additional 2. Provide a 55 Appendix 5, Page 5 feasibility study, environmental siting study, and contract documents are a condition for second tranche release evaluation, and award period submission, completed on schedule submission is a condition for second tranche release The drafts of the bidding, Contract Condition for Board Condition for Board The issuance of the EO      1 July 2001-30 April 2001 30 April 2001 1 September 1999 25 November 1999 30 April 2001      build, and operate contract, on a full turnkey basis, for the septage treatment plant and septic tank cleaning service, and supervise the construction. draft of the feasibility study for the septage treatment plant and septic tank cleaning service, identify the site, prepare an environmental siting study, and draft contract documents. authorizing PRRC to contract for the sanitation services and set the tariff structure will be issued. discussions with MWSS and concession operators to explain the Government’s policy agenda for Pasig River rehabilitation and the important role of improved sanitation in the achievement of the policy objectives; and the concession operators for the Government’s sanitation policy; and to ADB, have been made with MWSS regarding the sanitation component; The PRRC will award a design, The PRRC will submit the first An executive order (EO),   (iv) that the PRRC has initiated (v) to seek the support of MWSS (vi) that arrangements, satisfactory  increase from an estimated 1 million in 1999 to 1.25 by 2015. Most areas will not begin to receive sewerage coverage until after 2006. The high level of water supply coverage, and increasing urban population rising per capita water consumption will lead to an increase in the volume of untreated municipal sewage being discharged to the public system, and ultimately, the Pasig River, unless effective sanitation coverage is introduced over a wider area at an earlier date than envisaged in the concession agreements. Policy Priorities Rationale Actions to be Taken Time Frame Remarks 56 Appendix 5, Page 6 condition for second tranche release discharge permit system for Metro Manila should become effective as early as possible to maximize its impact on the rehabilitation of river. bound action plan to the PRRC will be a condition for second tranche release. Issuance of the AO is a wastewater The Submission of the time-    30 April 2001 2001 III 30 April 2001    Order (AO), authorizing a system of wastewater discharge permits and fees. implement the wastewater discharge permit system within Metro Manila. with each of any four LGUs (Caloocan, Makati, Mandaluyong, Manila, Marikina, Pasay, Pasig, Quezon City, Pateros, San Juan, and Taguig), developed and submitted to the PRRC a time- bound action plan, satisfactory to ADB, for mobilizing communities along the Pasig River to improve domestic solid waste collection and garbage recycling. Issue a DENR Administrative The PRRC, DENR, and LLDA The MMDA shall have, jointly    Wastewater discharge permits and charges in the area around Laguna Lake outside Metro Manila have been successfully introduced. Appropriate administrative arrangements may be made to introduce the wastewater discharge permit system to Metro Manila. The introduction of the polluter pays principle to Metro Manila with a progressive tariff structure will create the incentive for enterprises to seek to reduce pollution discharges and thus lower the charges incurred for wastewater discharge permits. Enterprises may achieve environmental improvements through the installation of clean production technology, waste minimization methods and resource recovery programs, and on-site industrial wastewater treatment systems. Because the collection service for many riverside barangays is ineffective, most solid waste from these areas is dumped into the Pasig River or esteros. To achieve the target of zero pollution due to solid waste in the river, it is necessary to mobilize the local communities, provide training, and conduct publicity campaigns to raise public awareness of environmental issues and introduce community-based solid waste management programs. Policy Priorities Rationale Actions to be Taken Time Frame Remarks Manila, a wastewater discharge permit system with a progressive tariff structure based on the volume of wastewater discharged and concentration of pollution loading for enterprises discharging effluents to the public system. waste collection and recycling by riverside barangays. 3. Establish, for Metro 4. Improve domestic solid 57 Appendix 5, Page 7 submission relocation is a condition for second tranche release. plan for EPAs and two urban renewal areas is a condition for second tranche release for zoning classification any four LGUs are a condition for second tranche release Condition for Board Initiation of squatter The time-bound action The land use plans and     15 March 2000 III 2000–II 2005 30 April 2001 30 April 2001     substance acceptable to ADB, for about 10,000 informal settler families along the Pasig River banks shall have been prepared, approved, released to the public, and a copy submitted to ADB. squatters living within the 10 m wide environmental protection zone. bound development plan, acceptable to ADB, for (i) the development and improvement of EPAs and (ii) for two pilot urban renewal areas which may include Punta, Sta. Ana, Manila and Barangay Santolan, Pasig City. with each of any four LGUs (Makati, Mandaluyong, Manila, Marikina, Pasig, Pateros, Quezon City, San Juan, and Taguig, (i) reviewed the land use plans and zoning classification for riverside land, and (ii) developed updated plans and classification, satisfactory to ADB, that will allow for the development of EPAs along the riverside and mitigate the continued pollution of the Pasig River. A resettlement plan, in form and NHA and HUDCC to resettle The development of a time- The MMDA shall have, jointly     Encroachments along the riverbanks include informal settler colonies. It is necessary to relocate squatters and ensure that encroachers abide by the legal requirement to maintain a 3 m wide easement area along the riverbank. In addition to establishing a 10 m wide environmental protection zone along the riverbank, as required by MMDA Zoning Regulation 81-01, it will be necessary to revise riverside land zoning classification and acquire land. To complete urban renewal along the river, low income slum areas will also need to be upgraded. Policy Priorities Rationale Actions to be Taken Time Frame Remarks wide environmental preservation areas along the riverbanks, and undertake urban renewal in adjacent urban regeneration areas. 5. Establish the 10 m 58 Appendix 5, Page 8 tranche release plan is a condition for second tranche release information, education, and advocacy plan is a condition for Board submission, and has been completed Condition for second The time-bound action Submission of the initial    30 April 2001 30 April 2001 1 September 1999    consisting of representatives from DENR, DOH, HLURB, HUDCC, MMDA, and LLDA, and chaired by the PRRC chairperson, shall have (i) reviewed the existing environmental standards and regulations affecting wastewater discharge into the Pasig River; and if necessary (ii) developed new and appropriate environmental regulations, and initiate the development of environmental standards, acceptable to ADB, relating wastewater discharge disposal into the Pasig River by (a) existing residential, commercial, institutional, and industrial developments, and (b) new residential, commercial, institutional, and industrial developments. shall have developed, and the PRRC shall have approved, a time-bound action plan, satisfactory to ADB, for the operation of monitoring stations to ensure frequent monitoring and regular sampling of the water quality of the Pasig River. information, education, and advocacy plan. The interagency working group The PRRC, DENR, and LLDA The PRRC will prepare an    There is a need to review, modify, and unify the various standards and regulations being used by different agencies. These agencies, apart from the PRRC, include DENR, MMDA, HUDCC, Housing and Land Use Regulatory Board (HLURB), LLDA, and Department of Health (DOH). It is also necessary to streamline the approval procedure for issuance of clearance certification, and monitoring enforcement procedures. The present monitoring system is weak and inadequate requires major strengthening to facilitate the rehabilitation of river. This is particularly relevant to elicit community and public support for the PRRP. In particular, issues such as sanitation and solid waste management need to be publicized. Policy Priorities Rationale Actions to be Taken Time Frame Remarks and unify the environmental regulations and discharge standards for new and existing development. quality monitoring in the Pasig River. awareness. 6. Review, strengthen, 6. Review, water 7. Strengthen public 8. Enhance 59 Appendix 5, Page 9 plan is a condition for second tranche release The time-bound action  30 April 2001  shall have developed, and the PRRC shall have approved, a time-bound action plan, satisfactory to ADB, strengthen their capacity to identify, quantify, and monitor pollution sources, enforce environmental standards and regulations, and impose collect fees for wastewater discharge permits. The PRRC, DENR, and LLDA  The Government is giving high priority to improving the environmental management of Metro Manila, particularly the Pasig River basin. To achieve significant improvements, it is necessary to have strong, capable, environmental management agencies with adequate capacity to monitor the environment, enforce environmental regulations and standards, and implement environmental management programs and projects. At present, the responsible agencies, including the PRRC, DENR, and LLDA have limited capacity to monitor conditions and enforce environmental regulations and standards for the Pasig River. Policy Priorities Rationale Actions to be Taken Time Frame Remarks capability and capacity of the PRRC, DENR, LLDA, and other relevant agencies to monitor and enforce environmental regulations and standards for the Pasig River. 9. Strengthen the 60 Appendix 6, page 1

SUMMARY OF PROJECT COMPONENTS A. Sanitation

1. The major source of pollution in the Pasig River is municipal wastewater. The current coverage of sewerage in the Pasig River basin is about 10 percent, and for sanitation (septic tank emptying) is about 15 percent. Privatization of Metropolitan Manila Waterworks and Sewerage System (MWSS) operations provides new opportunities, but the commitment to expanding sanitation services is limited, and the benefits from the sewerage program will not be realized until after 2006. The low assimilative capacity of the river and expected increase in wastewater generation indicate that even if the MWSS sewerage and sanitation targets are met, the objective of achieving Class C water quality for the river will not be achieved. The sanitation component will close this gap and increase the provision of sanitation services in the next five years. The objectives are to (i) provide a septage management program for Makati, Mandaluyong, Pateros, San Juan, and Taguig, local government units (LGUs) that are not covered by the MWSS sanitation program; and (ii) provide a septage treatment facility.

1. Septic Tank Emptying

2. The MWSS sanitation targets for Makati, Mandaluyong, Pateros, San Juan, and Taguig are zero coverage throughout the concession period. The area contains about 230,000 septic tanks, the majority of which are not desludged regularly. Projections for the growth of septic tank numbers in the Pasig River basin are as shown in Table A6.1.

Table A6.1: Septic Tank Projections in the Pasig River Basin LGUs 1993 1998 2000 2005 2010 2015 No. No. No. No. No. No. Manila 79,234 82,792 78,926 79,333 79,740 80,147 Pasay 71,897 75,879 78,675 82,111 85,547 88,983 Quezon City 327,988 332,823 337,068 359,617 382,165 404,714 Caloocan 143,142 146,593 149,985 164,692 179,398 194,105 Mandaluyong 49,907 50,049 50,106 51,589 53,072 54,555 Makati 89,158 91,672 92,678 96,280 99,882 103,484 Marikina 66,783 68,139 70,476 78,444 86,411 94,379 Pasig 79,527 84,250 90,139 101,129 112,119 123,109 Pateros 10,139 10,948 11,272 12,420 13,567 14,715 San Juan 24,585 25,059 25,248 26,001 26,754 27,507 Taguig 52,839 51,952 51,597 56,948 62,299 67,650 Total 995,199 1,020,156 1,036,170 1,108,564 1,180,954 1,253,348 Project LGU Total 226,628 229,680 230,901 243,238 255,574 267,911 Note: Local government units (LGUs) shown in bold type are those with zero sanitation coverage under the MWSS concession agreements and are the focus of the septage collection service.

3. The sanitation component aims to provide 36 vacuum trucks for septic tank emptying. To provide for flexible operations, 20 trucks will have a capacity of 10 cubic meters (m3) and 16 trucks will have a capacity of 6 m3. The fleet will work a two-shift system and service an average of four septic tanks per truck per day. The fleet will operate for 260 days per year, emptying 37,000 septic tanks annually. The average desludging frequency for septic tanks is five years, and the service will cover 185,000 septic tanks in one complete five-year cycle. The service will directly benefit about 1.0 million people and will reduce the biochemical oxygen demand (BOD) pollution load to the Pasig River by about 16 tons per day (t/d). 61 Appendix 6, page 2

2. Septic Treatment and Disposal Facility

4. The septage collected from the septic tanks is a partially stabilized organic sludge that contains pathogenic organisms and requires further treatment before final disposal to the environment. Metro Manila has little septage treatment capacity and most septage collected is discharged, untreated, to rivers, esteros, open land, or the sea, causing environmental damage and nuisance. To treat and dispose the septage collected, a septage treatment plant (STP) will be constructed, with a capacity of 600 m3/d.

5. The sanitation component design characteristics are shown in Table A6.2.

Table A6.2. Sanitation Component Design Characteristics

Volume of Septage Treated 600 m3/day Operation Days 260 days/year Volume Accommodated 156,000 m3/year

Collection Assumptions Frequency of Collection 5 years Average Septic Tank Volume 4.0 m3 Average Persons/Septic Tank 6.1

Total Service Population 1,128,000 Total Septic Tanks Served 185,000 septic tanks

Average BOD Contribution 0.040 kg BOD/cap/day Total BOD Discharged 45,120 kg BOD/day BOD Removal Efficiency 35 percent

BOD Removed by Septic Tanks 15,792 kg BOD/day Balance of BOD to River System 29,328 kg BOD/day BOD = biochemical oxygen demand; kg = kilogram; m3 = cubic meters.

6. The STP will treat septage collected from the service area. As MWSS sewerage and sewage treatment facilities are introduced, the use of septic tanks will be phased out. However, based on the MWSS installation targets for sewerage, it is expected that the STP will be needed at least until 2021.

7. The STP will provide the following septage treatment processes:

(i) Stabilization. stabilization of partially stabilized septage through biological digestion (either aerobic or anaerobic) and chemical stabilization using lime;

(ii) Dewatering. to produce a solidified end product suitable for handling with earth- moving equipment; and

(iii) Pathogen Reduction. septage contains pathogenic organisms that must be inactivated during the treatment process.

8. To provide this level of treatment, the STP will comprise the following

(i) Receiving Facilities. Septage will be delivered in vacuum trucks, and receiving facilities for the simultaneous unloading of 8 trucks will be provided. Septage 62 Appendix 6, page 3

unloading will be by gravity to sealed connection points to avoid odor release; the septage will flow by gravity to the screening station.

(ii) Preliminary Treatment. Preliminary treatment will include mechanical screens to remove large objects, rags, and other stringy materials, and aerated grit chambers to remove hard, abrasive materials. The pretreated septage will pass to a pump station wet well, and two heavy-duty diaphragm pumps will pump septage to one of two septage holding tanks, each with capacity to store one day’s sludge volume. The holding tanks will be equipped with thickener mechanisms to allow the septage to thicken prior to dewatering.

(iii) Septage Dewatering. Thickened sludge will be withdrawn from the septage holding tanks by two sludge pumps and pumped to one of two centrifuges. A conditioning polymer will be added to the septage prior to separation of the liquid and solid materials in the centrifuge. The solids concentration of the sludge cake should achieve about 20 percent. The liquid centrate will discharge from the centrifuges and flow to a wastewater treatment facility. The sludge cake will be collected from the centrifuges by a system of screw conveyors.

(iv) Chemical Stabilization. The dewatered sludge cake will be mixed with quicklime to raise the pH. The heat generated from the chemical reaction, coupled with the high pH, reduces the pathogens in the sludge.

(v) Liquid Waste Treatment. The liquid centrate will be high in BOD and an activated sludge process will be used to achieve an effluent that conforms to the requirements of DENR Administrative Order No. 35. The treated liquid effluent will be discharged to the environment via the public drainage system.

(vi) Odor Control. All process equipment will be located in buildings and all storage tanks will be covered. A ventilation system will be provided to extract air from the controlled areas to keep them under negative pressure at all times. The collected gases will be discharged through a soil filter.

9. The biosolids will be disposed of by land application, which benefits the land by recycling nutrients and reduces the need for chemical fertilizers. Potential sites could be agricultural lands surrounding Manila and land areas damaged by the volcanic eruption of Mt. Pinatubo. The land area required for the STP is about 5 hectares (ha), including an adequate buffer zone, which will be landscaped.

B. Environmental Preservation Areas

10. For the Pasig River system, the Metro Manila Development Authority (MMDA) provided a directive (MMDA No. 3 series of 1996) to all LGUs with river frontage to adopt a uniform 10 meter (m) easement along the river system, including its tributaries, to ensure (i) on-shore safety, (ii) access for emergency and maintenance purposes, and (iii) a pleasant riverside environment.

11. Development plans for the Pasig River banks are contained in the Physical Development Framework Plan, 1996-2016, prepared by MMDA. This plan identified the easements as environmental preservation areas (EPAs), and depressed areas adjacent to the EPAs as urban renewal areas. It is estimated that about 10,000 families live in the designated EPAs. These families are living in dangerous conditions and are constantly exposed to (i) frequent inundation by flood waters, (ii) fire hazard, and (iii) major public health risks due to 63 Appendix 6, page 4 unsanitary living conditions and exposure to waterborne diseases. Under the Project, it is proposed to rehouse squatter families at purpose-built resettlement sites and develop urban renewal areas to provide basic infrastructure and municipal services to improve living conditions and raise public health standards.

1. Relocation

12. Approximately 10,000 squatter families living within EPAs will be relocated. The relocation comprises (i) the development of low-income housing projects near Metro Manila with fully serviced housing lots; a core house; water, sanitation, and electricity connections; and access to a full range of community amenities including schools, health center, multipurpose hall, day-care center, livelihood opportunities, and recreation facilities; and (ii) apartments in medium- rise buildings on various sites within Metro Manila. Both housing options will be developed by the Housing and Urban Development Coordinating Council (HUDCC), through the National Housing Authority (NHA), in joint ventures with the private sector. Relocatees will choose their housing option based on individual preference, affordability, and willingness to pay. The units will be offered for rent for the first five years with an option to buy thereafter.

a. Apartments in Medium-Rise Buildings

13. Apartments will be developed by the private sector in joint venture with NHA. The five- storey walk-up units will provide 25 m2 fully serviced apartments. About 240 families are expected to opt for this alternative. A number of sites have been identified, including C5-MRB Condominium in Taguig.

b. Sites and Services with Core housing

14. Fully serviced row houses will be provided at resettlement sites near Metro Manila, for about 9,260 families. Several potential sites have been identified, including the principal site at Rodriguez, Rizal, near Quezon City, to which most relocatees are likely to move. The dwelling units consist of a core house with a 20 m2 floor area on a 30 m2 plot.

2. Development of EPAs

15. The EPAs will be developed as riverside parks. The areas for each LGU are indicated in Table A6.3.

Table A6.3. Locality and Length of Potential Riverpark Development

Municipality Length (meters) Quezon City 1,200 San Juan 2,100 Pasig 6,800 Mandaluyong 5,000 Makati 1,000 Manila 4,100 Taguig 750 Pateros 3,000 Total 23,950 64 Appendix 6, page 5

3. Urban Renewal Areas

16. Six potential urban renewal areas, adjacent to the EPAs, have been identified for upgrading with basic infrastructure and municipal services to improve living conditions and raise public health standards. The areas are located at San Nicolas, Binondo, Quiapo, Intramuros, Sta. Ana, and Santolan. Within these districts, a number of priority areas have been considered, including Barangay 905, Punta, Sta. Ana (City of Manila); Vulcan Estate, Punta, Sta. Ana (Barangay 900, City of Manila); Islamic Center, Quiapo (Barangay 629, City of Manila); Barangay Talayan, Quezon City; Barangay Damayang Lagi, Quezon City; Barangay Barangka Drive, Manduluyong City; and Barangay Santolan, Pasig City.

17. Following site appraisal and discussion with community leaders, conceptual plans for comprehensive urban renewal were prepared for

(i) Punta, Sta. Ana, Manila, comprising an area of 5 ha with about 800 families on Government land known as the DPWH Compound, adjacent to the Pasig River; comprehensive urban upgrading will include land titling, basic infrastructure, community facilities, and riverbank improvements; and

(ii) Barangay Santolan, Pasig City, comprising 17 ha of partly public and partly private land with about 2,600 families, adjacent to the Marikina River. Upgrading will comprise land titling; infrastructure improvements: roads, covered footpaths, drainage, water supply, sanitation, solid waste collection, street lighting, and community facilities; flood prevention; riverside park; and livelihood program. 65 Appendix 7, page 1

PROJECT IMPLEMENTATION ASSISTANCE

A. Scope of Work

1. Project implementation assistance will be provided to the project management office (PMO) for four components:

1. Project Management and Coordination

2. The assistance will include the following: (i) advise and assist with project planning, management, financial management, implementation, and monitoring; (ii) help prepare plans, programs, and budgets for the implementing agencies; (iii) advise the local government units (LGUs) on project implementation problems; (iv) help evaluate urban renewal and riverbank development projects submitted by Metropolitan Manila Development Authority (MMDA) and the LGUs for funding; (v) help MMDA to integrate the Pasig River Development Program (PRDP) into the Metro Manila Framework Plan; (vi) help the PMO coordinate and manage the activities of the project consultants, including the technical assistance consultants, and the consultants financed through bilateral cofinancing; and (vii) advise on the project performance monitoring system and project reporting requirements.

2. Financial Management

3. The implementation assistance will include the following: (i) help design and establish a project accounting system, and financial monitoring and reporting procedures, including staff training in the appropriate financial management and monitoring systems; (ii) develop analytical tools for financial forecasting, and set up methodologies and systems for preparing financial and economic analysis, and training PMO personnel in the financial and economic techniques; (iii) assist MMDA and LGUs in the financial evaluation and management of urban renewal programs; (iv) assist the implementing agencies to prepare time-bound institutional, operational, and financial action plans; and (v) help the LGUs evaluate alternative initiatives for urban renewal.

3. Wastewater Management

4. The assistance provided will include the following: (i) assist the PMO and Laguna Lake Development Authority (LLDA) to develop and introduce the industrial wastewater discharge permit system to Metro Manila; (ii) develop the Pasig River Rehabilitation Commission’s (PRRC) advocacy role for enterprises and industries in the project area to access the Development Bank of the Philippines’ Environmental Infrastructure Support Credit Program supported by Overseas Economic Cooperation Fund (OECF);1 (iii) help Implementing Agencies and LGUs to prepare routine and periodic maintenance programs and budget for the infrastructure and services provided through the Project; and (iv) develop community-based approaches for the maintenance of public facilities.

4. Sanitation Component

5. The sanitation component requires further technical development of the wastewater engineering aspects of the Project; preparation of documentation for the proposed design, build, and operate contracts; and overall project management, as follows: (i) assist the PMO to review and confirm the sanitation component, including discussions with MWSS on the technical,

1 This support was initially from the Overseas Economic Cooperation Fund, which on 1 October 1999 was merged with the Export-Import Bank of Japan to form Japan Bank for International Cooperation (JBIC). 66 Appendix 7, page 2 operational, financial, legal, and administrative aspects, and confirm the institutional arrangements for construction and operation of the facility; (ii) assist the PMO in identifying a site for the septage treatment plant (STP) and prepare an environmental siting study according to the requirements of Department of Environment and Natural Resources (DENR) and ADB; (iii) update the costs and feasibility study for the STP, based on the specific location, and confirm the technical, economic, and financial feasibility; (iv) advise on the appropriate procurement mechanism and procedures for the sanitation component, and prepare the necessary performance specifications and contract documents. It is anticipated that the facility will be designed, constructed, and operated under a design-build-operate modality; (v) help with the prequalification of contractors and the establishment of bid evaluation criteria; (vi) assist the PMO with bid evaluation and preparing for negotiations with the winning contractor; and (vii) provide overall project management assistance on all project consultation activities.

B. Consultant Inputs

6. The international and domestic consultant inputs required are presented in Table A7.

Table A7: Consulting Requirements Consultant Person-month

A. International Project Manager 36 Wastewater Engineer 6 Contract Specialist 3 Environmental Engineer 1 Financial Analyst 1 Equipment Specialist 1 B. Domestic Wastewater Engineer 8 Environmental Engineer 3 Equipment Engineer 2 Financial Analyst 3 Legal Expert 1 Institutional Expert 1 COST ESTIMATE

Total 2000 2001 2002 2003 2004 . Items Foreign Local Total Foreign Local Total Foreign Local Total Foreign Local Total Foreign Local Total Foreign Local Total . . Sanitation . Septage Collection Services . Land Acquisition 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Civil Works 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Plant and Equipment 2.3 0.6 2.8 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.3 1.4 1.1 0.3 1.4 0.0 0.0 0.0 . Incremental Administration 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Design and Supervision 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Base Cost 2.3 0.7 2.9 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.3 1.5 1.1 0.3 1.5 0.0 0.0 0.0 . Physical Contingency 0.2 0.1 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.1 0.0 0.1 0.0 0.0 0.0 . Subtotal 2.5 0.7 3.2 0.0 0.0 0.0 0.0 0.0 0.0 1.2 0.4 1.6 1.2 0.4 1.6 0.0 0.0 0.0 . Price Contingency 0.5 0.1 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.1 0.3 0.3 0.1 0.4 0.0 0.0 0.0 . Subtotal 3.0 0.9 3.9 0.0 0.0 0.0 0.0 0.0 0.0 1.4 0.4 1.9 1.5 0.5 2.0 0.0 0.0 0.0 .

. 67 Septage Treatment Plant . Land Acquisition 0.0 7.5 7.5 0.0 7.5 7.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Civil Works 2.0 4.6 6.6 0.0 0.0 0.0 2.0 4.6 6.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Plant and Equipment 1.6 3.3 5.0 0.0 0.0 0.0 0.0 0.0 0.0 0.8 1.7 2.5 0.8 1.7 2.5 0.0 0.0 0.0 . Incremental Administration 0.0 0.2 0.2 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Design and Supervision 0.6 0.6 1.2 0.0 0.0 0.0 0.2 0.2 0.4 0.2 0.2 0.4 0.2 0.2 0.4 0.0 0.0 0.0 . Base Cost 4.2 16.3 20.5 0.0 7.5 7.5 2.2 5.0 7.2 1.0 1.9 2.9 1.0 1.9 2.9 0.0 0.0 0.0 . Physical Contingency 0.4 0.9 1.3 0.0 0.0 0.0 0.2 0.5 0.7 0.1 0.2 0.3 0.1 0.2 0.3 0.0 0.0 0.0 . Subtotal 4.6 17.2 21.8 0.0 7.5 7.5 2.4 5.5 7.9 1.1 2.1 3.2 1.1 2.1 3.2 0.0 0.0 0.0 . Price Contingency 0.7 1.3 2.0 0.0 0.0 0.0 0.2 0.5 0.8 0.2 0.3 0.5 0.3 0.5 0.7 0.0 0.0 0.0 . Subtotal 5.3 18.5 23.8 0.0 7.5 7.5 2.6 6.0 8.6 1.3 2.4 3.7 1.4 2.6 4.0 0.0 0.0 0.0 . . Environmental Preservation Areas . Resettlement . Land Acquisition 0.0 2.6 2.6 0.0 2.6 2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Civil Works 12.2 18.3 30.4 7.3 11.0 18.3 4.9 7.3 12.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Plant and Equipment 1.0 1.6 2.6 0.6 0.9 1.6 0.4 0.6 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Resettlement Cost 0.7 3.3 3.9 0.4 1.5 1.9 0.3 1.4 1.6 0.0 0.4 0.4 0.0 0.0 0.0 0.0 0.0 0.0 . Incremental Administration 0.0 6.4 6.4 0.0 2.2 2.2 0.0 1.8 1.8 0.0 0.8 0.8 0.0 0.8 0.8 0.0 0.8 0.8 . Design and Supervision 0.0 2.6 2.6 0.0 1.6 1.6 0.0 1.1 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Base Cost 13.9 34.8 48.6 8.3 19.8 28.1 5.6 12.1 17.7 0.0 1.2 1.2 0.0 0.8 0.8 0.0 0.8 0.8 . Physical Contingency 1.4 3.2 4.6 0.8 1.7 2.6 0.6 1.2 1.8 0.0 0.1 0.1 0.0 0.1 0.1 0.0 0.1 0.1 . Subtotal 15.3 38.0 53.3 9.2 21.5 30.6 6.1 13.4 19.5 0.0 1.4 1.4 0.0 0.9 0.9 0.0 0.9 0.9 . Price Contingency 0.3 1.0 1.3 0.1 0.2 0.3 0.2 0.5 0.7 0.0 0.1 0.1 0.0 0.1 0.1 0.0 0.1 0.1 . Subtotal 15.6 39.0 54.6 9.3 21.7 31.0 6.3 13.8 20.2 0.0 1.4 1.4 0.0 1.0 1.0 0.0 1.0 1.0 . . Development of EPAs . Land Acquisition 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Civil Works 1.7 2.6 4.3 0.4 0.6 1.1 0.9 1.3 2.2 0.4 0.6 1.1 0.0 0.0 0.0 0.0 0.0 0.0 . Appendix 8,page1 Plant and Equipment 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Incremental Administration 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Design and Supervision 0.0 0.2 0.2 0.0 0.1 0.1 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 . Base Cost 1.8 2.9 4.7 0.5 0.8 1.2 0.9 1.5 2.4 0.5 0.7 1.1 0.0 0.0 0.0 0.0 0.0 0.0 . Physical Contingency 0.2 0.3 0.5 0.0 0.1 0.1 0.1 0.1 0.2 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 . Subtotal 2.0 3.2 5.2 0.5 0.8 1.3 1.0 1.6 2.6 0.5 0.7 1.2 0.0 0.0 0.0 0.0 0.0 0.0 . Price Contingency 0.1 0.1 0.2 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 . Subtotal 2.1 3.3 5.4 0.5 0.9 1.4 1.0 1.7 2.7 0.5 0.8 1.3 0.0 0.0 0.0 0.0 0.0 0.0 . COST ESTIMATE

Total 2000 2001 2002 2003 2004 Items Foreign Local Total Foreign Local Total Foreign Local Total Foreign Local Total Foreign Local Total Foreign Local Total

Urban Renewal Areas . Development . Land Acquisition 0.0 31.2 31.2 0.0 1.3 1.3 0.0 0.0 0.0 0.0 29.9 29.9 0.0 0.0 0.0 0.0 0.0 0.0 - Civil Works 9.7 3.9 13.6 0.0 0.0 0.0 0.2 0.1 0.3 0.1 0.2 0.3 5.4 1.7 7.1 4.1 1.9 5.9 Plant and Equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Incremental Administration 0.0 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.1 0.1 Design and Supervision 0.0 0.6 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.0 0.4 0.4 Base Cost 9.7 35.9 45.6 0.0 1.3 1.3 0.2 0.2 0.3 0.1 30.1 30.2 5.4 2.0 7.3 4.1 2.4 6.4 Physical Contingency 1.9 0.9 2.9 0.0 0.0 0.0 0.0 0.0 0.0 0.5 0.2 0.7 0.4 0.2 0.6 1.0 0.5 1.4 Subtotal 11.7 36.8 48.5 0.0 1.3 1.3 0.2 0.2 0.4 0.7 30.3 31.0 5.8 2.2 8.0 5.0 2.8 7.9 Price Contingency 0.5 0.2 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.1 0.3 0.3 0.2 0.4 Subtotal 12.2 37.0 49.2 0.0 1.3 1.3 0.2 0.2 0.4 0.7 30.3 31.0 6.0 2.3 8.3 5.3 3.0 8.3

. 68 Project Implementation Assistance Consulting Services 1.5 1.7 3.2 0.3 0.4 0.7 0.5 0.8 1.3 0.4 0.3 0.6 0.3 0.3 0.6 0.0 0.0 0.0 Physical Contingency 0.1 0.3 0.5 0.0 0.0 0.1 0.0 0.1 0.1 0.0 0.1 0.1 0.0 0.1 0.1 0.0 0.0 0.1 Subtotal 1.6 2.1 3.6 0.3 0.4 0.7 0.5 0.9 1.4 0.4 0.4 0.7 0.3 0.4 0.7 0.0 0.1 0.1 Price Contingency 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Subtotal 1.6 2.1 3.6 0.3 0.4 0.7 0.5 0.9 1.4 0.4 0.4 0.7 0.3 0.4 0.7 0.0 0.1 0.1

Summary . Land Acquisition 0.0 41.3 41.3 0.0 11.4 11.4 0.0 0.0 0.0 0.0 29.9 29.9 0.0 0.0 0.0 0.0 0.0 0.0 .

Civil Works 25.6 29.4 55.0 7.7 11.6 19.3 7.9 13.4 21.3 0.6 0.8 1.4 5.4 1.7 7.1 4.1 1.9 5.9 . Appendix 8,page2 Plant and Equipment 5.0 5.5 10.6 0.6 1.0 1.6 0.5 0.7 1.1 2.0 2.0 3.9 2.0 2.0 3.9 0.0 0.0 0.0 . Resettlement Cost 0.7 3.3 3.9 0.4 1.5 1.9 0.3 1.4 1.6 0.0 0.4 0.4 0.0 0.0 0.0 0.0 0.0 0.0 . Incremental Administration 1.5 8.7 10.1 0.3 2.6 2.9 0.5 2.8 3.2 0.4 1.2 1.5 0.3 1.2 1.5 0.0 0.9 0.9 . Design and Supervision 0.6 4.1 4.7 0.0 1.7 1.7 0.2 1.4 1.6 0.2 0.3 0.5 0.2 0.4 0.6 0.0 0.4 0.4 . Base Cost 33.4 92.3 125.7 9.1 29.7 38.8 9.3 19.5 28.8 3.1 34.6 37.6 7.8 5.3 13.1 4.1 3.2 7.3 . Physical Contingency 4.3 5.7 10.0 0.9 1.8 2.8 0.9 2.0 2.9 0.8 0.7 1.5 0.7 0.6 1.3 1.0 0.6 1.6 . Subtotal 37.7 98.0 135.6 10.0 31.5 41.5 10.2 21.5 31.7 3.9 35.2 39.2 8.5 5.9 14.4 5.1 3.8 8.9 . Price Contingency 2.1 2.8 4.9 0.1 0.2 0.4 0.5 1.1 1.6 0.4 0.5 1.0 0.8 0.7 1.5 0.3 0.3 0.5 . Subtotal 39.7 100.8 140.5 10.1 31.8 41.9 10.7 22.6 33.2 4.3 35.8 40.1 9.3 6.6 15.9 5.3 4.1 9.4 . . Appendix 9 69

FINANCING PLAN ($ million)

Percentage of Financing Components Foreign Local Exchange Currency Total Component Loan A. Sanitation 1. Septage Collection Equipment ADB 3.0 0.0 3.0 75 4 National Government 0.0 1.0 1.0 25 Local Governments 0.0 0.0 0.0 0 Subtotal (A) 3.0 1.0 4.0 100 2. Septage Treatment Plant ADB 5.5 3.0 8.5 35 11 National Government 0.0 16.0 16.0 65 Local Governments 0.0 0.0 0.0 0 Subtotal (B) 5.5 19.0 24.5 100 B. Environmental Preservation Areas ADB 18.0 6.0 24.0 40 32 National Government 0.0 36.0 36.0 60 Local Governments 0.0 0.0 0.0 0 Subtotal (C) 18.0 42.0 60.0 100 C. Urban Renewal Areas ADB 12.0 15.0 27.0 56 36 National Government 0.0 15.5 15.5 32 Local Governments 0.0 5.5 5.5 11 Subtotal (D) 12.0 36.0 48.0 100 D. Project Implementation Assistance ADB 2.0 1.0 3.0 75 4 National Government 0.0 1.0 1.0 25 Local Governments 0.0 0.0 0.0 Subtotal (E) 2.0 2.0 4.0 100 E. Interest During Construction ADB 9.5 0.0 9.5 100 13 Subtotal (A+B+C+D+E) 50.0 100.0 150.0 Summary ADB 50.0 25.0 75.0 50 100 National Government 0.0 69.5 69.5 46 Local Governments 0.0 5.5 5.5 4 Total 50.0 100.0 150.0 100

ADB = Asian Development Bank. 70 Appendix 10, page 1

SUMMARY INITIAL ENVIRONMENTAL EXAMINATION

A. Introduction

1. The initial environmental examination (IEE) was prepared by consultants as part of the sector development program (SDP) feasibility study under the project preparation technical assistance.1 The IEE will be submitted to the Environment Management Bureau (EMB) for issuance of an environmental compliance certificate (ECC) when the identification and selection of sites for project components have been finalized. Although the site location for the septage treatment plant (STP) has not been finalized, site selection guidelines are indicated in the IEE, including the necessary measures needed to minimize potential adverse environmental impacts. When the site location is finalized, and the STP feasibility study is refined, the Pasig River Rehabilitation Commission (PRRC), the Executing Agency, will prepare an environmental siting study for review by the Asian Development Bank (ADB) and EMB.

B. Existing Environmental Considerations

1. Physical Environment

a. Environmental Preservation Areas

2. Regulations in the Civil Code provide for the establishment of easements along the river frontage to ensure safety, and access for emergency and maintenance purposes. Almost the entire frontage of the Pasig River and its tributaries is occupied by slum and squatter colonies. The squatter houses often protrude into and obstruct the river channels. The slum extends inward covering public and private properties. The Metropolitan Manila Development Authority (MMDA) confirmed through MMDA Resolution No. 3 of 1996, its intention to enforce the establishment of a 10-meter wide environmental preservation area (EPA) along both banks of the river, and to provide recreational amenities. The designated EPAs and adjacent areas are subject to flooding, and because of inefficient solid waste collection in the upstream portions, considerable volumes of solid waste, silt, and other materials are carried into the houses. When the floodwaters recede, the solid wastes are deposited and left to decompose on the walkways connecting the houses and under the stilted housing structures. In some sections of the Pasig River, especially in Manila and Makati, flooding is also caused by high tides. In areas where slums have not developed, adjacent private property owners have encroached into the EPAs. In many cases, private property owners have fenced the illegally acquired EPA land to prevent squatters from moving in. The soil is black, caused by decaying solid wastes and other organic materials. The air quality is poor due to the odor of decaying organic materials and smoke from domestic cooking fires burning wood and other scavenged materials. The groundwater and surface water quality are poor and highly polluted from the decaying solid wastes as well as infiltration from the Pasig River.

b. Urban Renewal Areas

3. The urban renewal areas cover about 500 hectares (ha) of private and public land at different locations along the Pasig River and its tributaries. These areas are extensions of the

1 TA 2803-PHI: Pasig River Environmental Management and Rehabilitation Project, for $800,000, approved on 29 May 1997. The TA was completed in April 1998. 71 Appendix 10, page 2

slum colonies located in EPAs along the river frontage and are not provided with basic urban services. As a result, the environment is unsanitary due to inadequate excreta disposal, and the air quality is poor, caused by the odor generated by decaying solid wastes. While the inland areas are not as flood prone as the river frontage land, the drainage systems are informal and inadequate, and the water flowing in the open drainage system is highly polluted.

4. The resettlement areas at Rodriguez and at other locations outside Metro Manila are green-field sites, occupying about 50 hectares of land zoned for residential use. The existing land use is mainly low-grade grazing and agricultural land.

c. Sanitation

5. The sanitation service area covers residential, commercial, and institutional areas in the Pasig River watershed. The service area does not have a sewerage system. The drainage system serves as a combined sewer system draining the effluent from septic tanks. The water in the drainage system is septic. Foul odors are emitted from drainage service holes, especially during the dry season when the dilution rate is low and the warm weather stimulates rapid bacterial activity. The groundwater in the service area has been polluted by salt water intrusion due to the overextraction of groundwater for domestic and industrial uses. The sanitation condition in Pasig River watershed is discussed in paras. 32-34 of the main text.

2. Biological Environment

a. Environmental Preservation Areas

6. The terrestrial flora in the area are few and limited to ornamental plants and vegetables grown in small pots. The terrestrial fauna are mostly composed of insects, rodents, and domestic animals. The aquatic life in the river is limited to surface breathing fish that survive in anaerobic conditions as well as insect larvae. During heavy rain, floating aquatic plants such as water lilies and hyacinth are washed out into the area. There are no endangered species of flora or fauna in the area.

b. Urban Renewal Areas

7. The ecology in the urban renewal areas is similar to that in the EPAs. There are no endangered species of flora or fauna.

c. Sanitation

8. In high- and middle-income residential areas, residents have gardens with lawns and ornamental plants. In low-income areas the conditions are similar to the proposed urban renewal areas. However, in commercial and institutional areas, almost the entire area is covered with concrete and asphalt. The fauna are typical of urban centers, primarily domestic animals and other life forms such as rats, cockroaches, flies, and mosquitoes that thrive on urban wastes. 72 Appendix 10, page 3

3. Sociocultural Environment

a. Environmental Preservation Areas

9. Because the slums are largely illegal settlements, there are few provisions for basic urban infrastructure. There is inadequate water supply, sanitation services, solid waste collection, drainage, and street lighting. Public primary schools have been built at the edges of slum areas. The local barangay hall serves as a multipurpose center, accommodating the local law enforcement authority (known as the barangay tanod), health clinic for visiting nurses and doctors, and local social hall. Household incomes are largely below the average income level and a significant number are below the poverty level.

b. Urban Renewal Areas

10. The social conditions in the proposed urban renewal area are similar to conditions in the EPAs, however, the income levels are generally higher.

c. Sanitation

11. The socioeconomic conditions in the sanitation service area are described in para. 22 of the main text.

C. Potential Environmental Impacts and Mitigation Measures

1. Environmental Preservation Areas

12. The negative environmental impacts of the development of EPAs are related to construction activities; these are temporary and short-term. The negative impacts during construction are related to dust, noise, and traffic congestion. A detailed resettlement plan has been prepared to mitigate the social impact of the relocation of approximately 10,000 squatter families, and is summarized in Appendix 11. In general the long-term environmental impact of EPAs is positive. EPAs will provide open space, parks, and green areas along the river frontage. The relocation of the squatter families is expected to reduce the daily sewage and solid waste discharges to the Pasig River by 1,800 m3 and 12 tons, respectively.

2. Urban Renewal Areas

13. The negative environmental impacts of the urban renewal component are mostly related to construction activities; these are temporary and short-term in nature. The negative environmental impacts are from noise, dust, and traffic congestion. The long-term socioeconomic impacts are positive with the development and provision of basic urban services and infrastructure to the area, issuance of land titles to families to secure their tenure to the land, and improvement of economic activities that normally go with improvement in infrastructure and services. The long-term impact on the environment will also be positive with the reduction of the sewage and solid wastes discharge to the Pasig River and its tributaries estimated at 2 t/d of biochemical oxygen demand (BOD). 73 Appendix 10, page 4

3. Sanitation

14. The negative impacts of the septic desludging operation are odor, nuisance, and noise. These negative impacts are minimized by specially designed trucks with high-capacity, positive- displacement pumps and flexible pipe connections. The high-capacity positive-displacement pump will minimize the time required to empty a septic tank, and reduce the volume of dilution water needed to attain the desired slurry consistency. The special pipe coupling will reduce, if not eliminate, the risk of spillage and the volume of water needed to flush the equipment and pipes. The tanks are also especially designed for the job and will eliminate spillage during hauling. The septage treatment process design uses a physico-chemical treatment process to reduce the potential odor problem during treatment. The addition of lime will fix the malodorous hydrogen sulfide (this gives the rotten egg odor to decomposing organic matter). The physico- chemical treatment plant will be totally enclosed. Air vented from the plant will be scrubbed by an activated carbon filter. The supernatant will be treated in a conventional activated sludge wastewater treatment plant prior to discharge to the environment. The dried sludge will be used for soil conditioning.

15. For site selection, the STP should be located 100 m from the nearest residential area and will have a minimum area of 5 ha. The building and superstructure required to treat 600 m3 per day of septage is estimated at 5,000 m2. A 20 m buffer zone, planted with tropical trees, will be provided around the STP. Also, the parking space estimated at 6,000 m2 will provide additional buffer zone. The entire STP site will be enclosed by a 2-m high fence.

D. Institutional Requirement and Environmental Monitoring Program

16. During construction, the Executing Agency’s (EA) project management office (PMO) will retain four safety and environmental professionals. One of the safety and environmental professionals will serve as team leader and will report directly to the PMO’s executive director. At any time during the construction, one safety and environmental professional will be on the job. In addition, any contractor with a contract of more than P100 million will be required to hire and field one safety and environmental professional. The contractors’ safety and environmental professional will maintain a construction field book noting all safety and environmental concerns, especially those that have been identified in the IEE report. The PMO’s safety and environmental professional will note in the log book any deficiencies and measures required to improve the implementation of the mitigation measures in addition to reports to the PMO’s executive director.

17. The PMO’s safety and environmental officer will measure the noise level and dust level at the construction site at least once per working shift at random time intervals. The EA will purchase a noise meter and dust sampler prior to the execution of the contract.

18. The sanitation component will include the provision of laboratory facilities at the STP site. The laboratory will be capable of analyzing for BOD, chemical oxygen demand (COD), suspended solids, total nitrogen, phosphates, sulfates, hydrogen sulfide, color, pH, temperature, and turbidity. The laboratory will be also equipped to measure Escherichia coli most probable number (MPN). Two licensed chemists will be hired to monitor the quality of the STP effluent and sludge. The effluent quality will be measured every four hours during start-up of the process, once a day during the first six months of operation, and once a week thereafter. Once every six months the laboratory will send samples of the sludge to a reputable laboratory for 74 Appendix 10, page 5

analysis of heavy metals and intractable chemicals that could affect the uses of the sludge. The heavy metals and intractable chemicals analysis will preferably include measurements for mercury, cadmium, lead, chromium, chlorinated organic compounds, and pesticides. The sanitation services provider will collate and submit the monitoring results to ADB annually along with the permits and notices from the relevant Government agency.

E. Findings and Recommendations

19. The negative environmental impacts of the SDP are temporary and reversible, mostly related to the construction activities. The long-term negative environmental impacts are related to the resettlement of the families living in the proposed EPAs and those families that could not be accommodated in the urban renewal project. The other long-term impacts of the SDP on the environment are positive, mostly related to the (i) reduction of sewage and solid wastes discharges to the Pasig River from the residential, commercial, and institutional establishments in the watershed; (ii) improvement of the river flow regime with the removal of obstructions caused by the squatter settlements; (iii) provision of parks, green areas, and other urban amenities in approximately 23 km EPA; (iv) provision of basic urban infrastructure including those related to health and environment to the blighted areas adjacent to the EPAs through the urban renewal subproject; and (v) reduction and elimination of high risk from floods and fire in heavily populated slums.

F. Conclusion

20. The SDP’s negative environmental impacts are mostly short term and reversible, related to the construction activities in the development of the EPAs and basic infrastructure for urban renewal. The long-term environmental impacts of the SDP are mostly positive in terms of reducing the organic load to the Pasig River and its tributaries, improving health of the residents near the river, and provision of more parks and green areas. As the SDP’s long-term environmental impacts are mostly positive, a detailed environmental impact assessment is not required. 75 Appendix 11, page 1

SUMMARY RESETTLEMENT ACTION PLAN

A. Introduction

1. The summary resettlement plan is based on the Resettlement Action Plan (RAP) prepared for squatters living within the 10 meter wide environmental preservation areas (EPAs) along the banks of the Pasig River. The RAP was prepared by the Housing and Resettlement Committee (HRC) of the Pasig River Rehabilitation Commission (PRRC) through a highly consultative process with affected communities, nongovernment organizations (NGOs), local government units (LGUs), and other stakeholders. Only informal settlers living within EPAs will be affected by resettlement under the first phase of the Pasig River Development Plan (PRDP).

B. Scope of Resettlement

2. In 1997, the National Housing Authority (NHA) and the Department of Environment and Natural Resources (DENR), in coordination with local government units (LGUs), conducted a census of households and tagging of structures within the EPAs, and registered 8,286 informal households, however, the 1999 census validation check indicated 10,000 households within the EPAs, as indicated in Table A11.1. This increase may be attributed to some underrecording in the 1997 census and new arrivals.

Table A11.1. 1997 Census of Households within EPAs

Local Government Units Affected Households (LGUs) 1997 Survey May 1999 Validation Survey Manila 2,272 3,580 Mandaluyong 486 516 Pasig 537 572 Makati 1,166 1,236 Pateros 924 984 San Juan 576 611 Taguig 467 497 Quezon City 1,858 2,004 Total 8,286 10,000

C. Socioeconomic Information

3. In 1997, a socioeconomic survey was carried out through interviews and 6,154 (75 percent) households responded, while 2,082 (25 percent) households were either not available during the census or refused to be interviewed. The total population of the surveyed households is about 26,600 people, giving an average of 4.3 persons per household in the EPAs. The survey shows that 63 percent of households are the owners or co-owners of the housing structure, 23 percent are renters, and 14 percent live rent-free. The survey shows that 8,766 persons (33 percent) are employed, equivalent to 1.4 employed persons per household. The household income data appears to be unreliable and has probably been understated in many cases. About 20 percent of households that participated in the survey declined to answer questions about income, 5 percent indicated income below P2,000 per month; 30 percent were in the range P2,001-P4,000 per month and 21 percent of households had incomes ranging from P4,001 to P6,000; 9 percent have incomes in the range of P6,001 to P8,000; 5 percent range 76 Appendix 11, page 2 from P8,001 to P10,000; and 10 percent have income in excess of P10,000. The average household expenditure is about P6,850 per month.

D. Resettlement Policies and Objectives

4. The objective of the RAP is to facilitate the orderly and peaceful relocation of about 10,000 informal households currently occupying the 10-m wide EPAs along both banks of the Pasig River. The objective is to ensure that the affected persons (APs) are relocated to secure and affordable socialized housing projects within or near Metro Manila. The purpose is to give the APs a stake in the formal housing sector and thus remove them from squatting. The guiding principle is to ensure that APs will be at least as well-off after relocation as they are in their present condition. To ensure this, a full range of mitigation measures are available to help APs to overcome the potentially adverse effects of moving from their current location.

E. Community Consultation and Participation

5. The Philippine Constitution requires community consultation and the participation of all Filipinos in development projects, and this approach has been institutionalized in the Local Government Code.

F. Redress of Grievances

6. The HRC has created an Awards and Arbitration Committee (AAC) in each sending LGU to determine qualified beneficiaries for resettlement, arbitrate in matters of claims and disputes, and safeguard the rights of the APs. The procedures for grievance redress were developed to determine the qualified beneficiaries living in the EPAs. Through the RAP, the procedures are expanded to cover the actual implementation of the RAP and to ensure that post-relocation problems are properly addressed and satisfactorily resolved. Also, during the actual relocation and after relocation, grievances and problems may be brought to the NHA, Site Management Office for resolution and may ultimately be elevated to the HRC if satisfactory resolution is not achieved at the site level.

G. The Resettlement Scheme

7. The general approach to resettlement is to provide all affected families with the option of an affordable socialized housing package. The housing package options comprise (i) an apartment in a five-storey medium-rise building at a location within Metro Manila; (ii) a house and lot package at fully developed and serviced sites at a choice of locations near to Metro Manila; or (iii) a serviced housing lot upon which the resettlers will construct their own house. The specific resettlement sites are given in Table A11.2.

Table A11.2. Resettlement Sites Location No. of Type of Housing Scheme Units A. Within Metro Manila MRB Condominium, Kasiglahan 240 Apartment Rent with option to buy Village II, C-5 after 5 years

B. Near Metro Manila Kasiglahan Village I, Rodriguez, Rizal 5,000 House and lot Rent with option to buy after 5 years 77 Appendix 11, page 3

Location No. of Type of Housing Scheme Units (Con’t.) Sunny Brooke and Country Meadows } General Trias, Cavite } 3,760 House and lot Rent with option to buy Summerfield, Trece Martires, Cavite } after 5 years

Taytay and Taguig 500 LTAP Raw land acquisition and land development financing

C. Other Destinations 500 Own Relocatees decide not to arrangements participate in socialized housing scheme

TOTAL 10,000 LTAP = Land Tenurial Assistance Program.

H. Entitlements

8. In addition to housing, other benefits covering transportation, livelihood development, food assistance, and education assistance are offered to help relocatees to make a smooth transition. The entitlement matrix is given in Table A11.3.

Table A11.3. Entitlement Matrix

Eligible Beneficiaries Entitlement 1. Housing All families to be relocated from All relocated families will be offered a choice of socialized EPAs housing options. Each family will be entitled to one housing unit. Chosen option will depend on personal preference and affordability.

Assistance for Eligible Low-Income Families Poorest families with total The house and lot package at a site near Metro Manila will be household income of P2,500 provided through a flexible rent assistance scheme where rent is per month or less. Estimated prorated to capability to pay determined through means testing. 500 families The assistance will be provided for a maximum of 12 months.

2. Transport Assistance Transportation to the Resettlement Site All families to be relocated from Transportation to the resettlement site for family members and EPAs. personal possessions during the actual relocation.

All workers with jobs in Metro Daily Shuttle Service to Metro Manila Manila and all college students A daily shuttle service will be provided between the resettlement attending colleges/universities site and a major transport node within Metro Manila, for workers in Metro Manila. with jobs in the city and college students.

Families that Opt for Other Destinations Families who opt not to accept Transport for family members and personal possessions, the socialized housing scheme, including salvageable materials, up to 80 km from Metro Manila estimated 500 families within Luzon, or one-way ticket for each family member to home province. 78 Appendix 11, page 4

Eligible Beneficiaries Entitlement (Con’t.) 3. Livelihood Development a) Training All adults at the resettlement (i) Vocational skills training, and formation of workers site are eligible to participate in guilds the livelihood program. For low- (ii) Small business development training and income families receiving rent assistance with business management and marketing assistance, it is compulsory that b) Microcredit at least one adult family Loans to establish small business and enterprises will be member undergoes livelihood available. training. c) Job Placement (i) Assistance to find jobs with local employers (ii) Assistance to secure contracts and/or subcontracts for workers guilds d) Cooperatives Assistance to establish cooperatives for service providers, producers, consumers, transport, and credit associations.

4. Food Assistance a) During Transfer All families to be relocated from A minimum of 3 days food assistance, comprising rice and the EPAs. canned goods will be provided by the sending LGU to every family being relocated. b) Assistance for Eligible Low-Income Families Poorest families with total Each eligible low-income family receiving rent assistance household income of P2,500 and participating in the livelihood training program is entitled per month or less, estimated at to one 50 kg sack of rice per month for a maximum of 12 500 families. months. c) Families that Opt for Other Destinations Families who opt not to accept Three days food assistance, comprising rice and canned the socialized housing scheme, goods provided by the sending LGUs. estimated at 500 families.

5. Education Assistance All elementary and high school Until schools are established within the resettlement site, every students elementary and high school student will be guaranteed enrollment in the nearest public school. If the school is 5 km or more from the resettlement site, free transport will be provided for the students.

I. Rental Scheme

9. The rental scheme is summarized in Table A11.4.

Table A11.4. Rental Scheme Housing Package Rent (P per month) Year 12345 A. House and Lot 400.0 600.0 800.0 1,000.0 1,200.0 (Lot area 36 m2; house area 25 m2 Purchase price: P165,000) 79 Appendix 11, page 5

Housing Package Rent (P per month) Year 12345 (Con’t.) B. Apartment (5-storey, walk-up medium-rise building, apartment floor area 20 m2) Floor 1 1,100.0 1,200.0 1,300.0 1,400.0 1,500.0 2 1,100.0 1,100.0 1,200.0 1,300.0 1,400.0 3 900.0 1,000.0 1,100.0 1,200.0 1,300.0 4&5 800.0 900.0 1,000.0 1,100.0 1,200.0

C. LTAP Lot (Lot area 32 m2; purchase price, P112,000; Not available for rent. mortgage available) LTAP = Land Tenurial Assistance Program.

J. Implementation Schedule

10. The relocation of affected households shall be implemented in batches with adequate social preparation preceding the actual relocation. Prioritization and phasing of informal settlements to be relocated shall be undertaken with close coordination among the communities concerned and HRC, NHA, LGUs, and Riverbanks Development Committee of PRRC. The indicative schedule for relocation is given in Table A11.5, which may be adjusted subject to actual conditions prevailing during resettlement.

Table A11.5. Schedule for Relocation

Year 1 Year 2 Year 3 Year 4 Year 5 Total Place of Origin Manila 1,074 1,432 1,074 – – 3,580 Mandaluyong 155 206 155 – – 516 Pasig 172 229 171 – – 572 Makati 371 494 371 – – 1,236 Pateros 590 394 – – 984 San Juan 367 244 – – 611 Taguig 298 199 – – 497 Quezon City 1,202 802 – – 2,004 Total 1,772 4,818 3,410 – – 10,000

Distribution to Housing Preference House and Lot Kasiglahan, Rodriguez, Rizal 886 2,409 1,705 – – 5,000 Summerfield, Trece Martirez, Cavite 234 964 683 – – 1,881 Sunny Brooke, General Trias 234 963 682 – – 1,879 Apartments, C-5, Taguig 240 ––––240 LTAP Lots 89 241 170 – – 500 Other Destinations 89 241 170 – – 500 Total 1,772 4,818 3,410 – – 10,000

LTAP = Land Tenurial Assistance Program. 80 Appendix 11, page 6

K. Summary Cost Estimate

11. The cost estimate of resettlement is summarized in Table A11.6.

Table A11.6. Summary Cost Estimate (P million)

Activities Year Total 1 2345 Housing 276.6 742.4 525.6 0.0 0.0 1,544.6 Pre-Relocation 1.9 2.5 1.8 0.0 0.0 6.2 Relocation 17.5 17.5 17.5 5.8 0.0 58.4 Assistance Packages 10.4 37.5 45.5 18.1 0.0 111.4 Livelihood Assistance 22.4 38.6 32.1 7.7 4.0 104.8 Project Management 12.5 19.3 21.2 9.3 5.1 67.4 Site Management and Monitoring 23.7 18.4 19.3 19.9 20.7 102.1 External Monitoring and Evaluation 3.9 3.7 4.0 4.4 4.5 20.6 Subtotal 368.9 879.8 667.0 65.3 34.4 2,015.4 Contingency 18.4 44.0 33.3 3.3 1.7 100.8 Total 387.3 923.8 700.3 68.6 36.1 2,116.2 81 Appendix 12

LIST OF INELIGIBLE ITEMS

No withdrawal may be made in respect of

(i) expenditures for goods included in the following chapters or headings of the Customs Coordination Council Nomenclature (Alphabetic Index to the Nomenclature and Explanatory Notes, amending Supplement No. 15, Customs Coordination Council, Brussels, 2nd Edition, June 1978), as designated by the Asian Development Bank (ADB) by notice to the Borrower:

Chapter Heading Description of Items

22 22.03 - 22.10 Alcoholic beverages

24 24.01 Tobacco, unmanufactured; tobacco refuse

24 24.02 Tobacco, manufactured (whether or not containing tobacco substitutes)

28 28.50 - 28.52 Radioactive and associated materials

71 71.01 71.04 Pearls; precious and semiprecious stones, unworked or worked

71 71.05 71.06 Jewelry of gold, silver, or platinum group metals

71 71.09 71.15 (except watches and watch cases) and goldsmiths or silversmiths wares (including set gems)

71 71.07 71.08 Gold, nonmonetary (excluding gold ores and concentrates)

84 84.59 Nuclear reactors, and parts thereof, fuel elements (cartridges), nonirradiated for nuclear reactors.

(ii) expenditures for goods intended for a military or paramilitary purpose or for luxury consumption;

(iii) expenditures for pesticides categorized as extremely hazardous or highly hazardous in Class 1a or 1b, respectively, of the World Health Organization’s Classification of Pesticides by Hazard and Guidelines to Classification;

(iv) expenditures for goods supplied or to be supplied under any contract that a national or international financing institution or any other financial agency has financed or agreed to finance, including any contract financed or to be financed under any loan from ADB; and

(v) expenditures incurred more than 180 days prior to the date of effectiveness of the loan. IMPLEMENTATION SCHEDULE

COMPONENT 2000/01 2001/02 2002/03 2003/04 2004/05 Part A: Sanitation Site Identification and Feasibility Study Prepare Bid Documents for Turnkey Contract Bidding, Evaluation, and Contract Award Implementation of Sanitation Component Part B: Environmental Preservation Areas (EPA)

Resettlement 82 Development Plan for EPAs Design Bidding, Evaluation, and Contract Award Implementation of EPA Component Part C: Urban Renewal Areas (URA) Development Plan for URAs

Design Appendix 13 Bidding, Evaluation, and Contract Award Implementation of URA Component Part D: Implementation Assistance Consultant Selection Consultant Services 83 Appendix 14

INDICATIVE CONTRACT PACKAGES FOR PROCUREMENT

Item Number of Indicative Procurement Packages Base Cost Mode per Package ($ million)

A. Sanitation

1. Septage Collection 1 3.0 ICB Equipment

2. Septage Treatment Plant (civil works) 1 7.0 ICB (plant and equipment) 1 5.0 ICB

B. Environmental Preservation Areas (EPAs)

1. Resettlement 20 2.5 LCB (house and lot packages)

2. Develop EPAs 5 1.0 LCB

C. Urban Renewal Areas 15 2.5 LCB

EPA = environmental preservation area; ICB = international competitive bidding; LCB = local competitive bidding. 84 Appendix 15, page 1

TECHNICAL ASSISTANCE FOR CAPACITY-BUILDING SUPPORT

A. Objectives and Scope

1. The objective of the technical assistance (TA) is to build the capacity of the Pasig River Rehabilitation Commission (PRRC), the Metro Manila Development Authority (MMDA), and the beneficiary local government units (LGUs) to execute and implement the Pasig River Development Plan (PRDP) from 1999-2014. The TA will help the PRRC, MMDA, and LGUs to (i) implement the targets set out in the policy reform action plan; and (ii) develop and implement environmental management, rehabilitation, and urban renewal plans for the Pasig River, its banks, and the immediate environs. The TA will ensure that the PRDP (i) is efficiently coordinated, phased, and sequenced; (ii) is implemented effectively; and (iii) maximizes the potential social, environmental, economic, and financial development benefits of the river cleanup.

2. Capacity building for the PRRC will focus on the project management office (PMO) and support (i) realization of the policy reform agenda; (ii) strengthening the forward planning capabilities of the PRRC; (iii) strengthening the project evaluation, appraisal, approval, and implementation capabilities; (iv) coordinating effectively with the financing agencies and national and local government agencies implementing the various development programs under the PRDP; (v) identifying potential funding and cost recovery mechanisms for utilization in the implementation of approved programs and projects; (vi) establishing and operationalizing a system for monitoring and reporting on project and program activities; and (vi) developing procedures for contract tendering, bid evaluation, and award.

3. Capacity building for MMDA will focus on helping (i) coordinate the plans and programs of national and local government agencies within the Pasig River basin, (ii) develop the systems and staff capabilities to enforce the observance of the easement and retention of environmental preservation areas (EPAs) in accordance with the relevant MMDA ordinances and regulations, (iii) strengthen planning and coordination capabilities of MMDA planning staff, (iv) develop a system to consolidate plans and programs prepared by national and local government organizations and the private sector for the Pasig River basin, and (v) establish a system for monitoring development activities within the Pasig River basin.

4. Capacity building for the LGUs within the Pasig River basin will focus on (i) preparing comprehensive development and zoning plans for the areas adjacent to the river and in the development of proposals for urban renewal; (ii) defining the extent of areas likely to be affected by the Pasig River Rehabilitation Program; (iii) preparing zoning and development plans for these areas; and (iv) helping LGUs identify areas with potential for urban renewal, either as economic enterprise zones (high growth commercial or mixed commercial and residential areas) or community revitalization zones (urban poor communities).

5. For these areas, assistance will be provided to establish mechanisms to motivate the community to become involved with local nongovernment organizations (NGOs) and LGUs in revitalizing these areas economically, (such as through encouraging enterprise and poverty reduction measures) and physically (e.g., through environmental upgrading).

B. Cost Estimates and Financing Plan

6. The total cost of the TA is estimated at $1,430,000 equivalent, including $695,000 in foreign exchange costs and $735,000 equivalent in local currency costs. The Asian 85 Appendix 15, page 2

Development Bank (ADB) will provide $1.0 million to finance the entire foreign exchange costs and $305,000 equivalent of the local currency costs on a grant basis from the Asian Currency Crisis Support Facility (ACCSF), funded by the Government of Japan. If this is not approved, the TA will be funded from the ADB-funded TA program. The Government will contribute $430,000 in local currency costs. Table A15 shows the detailed cost estimates and financing plan for the TA.

C. Implementation Arrangements

7. The Executing Agency for the TA will be the PRRC, working in close collaboration with MMDA and the participating LGUs, which will also be the beneficiaries of the TA.

8. To perform the services, 24 person-months of international consulting and 56 person- months of domestic consulting are needed. The international consultants will comprise an urban planner, 11 person-months; a municipal engineer, 4 person-months; an industrial wastewater engineer, 2 person-months; a financial analyst, 4 person-months; an urban economist, 2 person-months; and a legal/privatization adviser, 1 person-months. The domestic consultants will include a town planner (12 person-months), community development specialist (10 person- months), municipal engineer (10 person-months), economist (6 person-months), a legal adviser (2 person-months), a training specialist (10 person-months), and sanitary engineer (6 person- months). The TA will be conducted over a period of 12 months and is expected to be completed by June 2001.

Table A15. Cost Estimates and Financing Plan ($'000) Foreign Local Total Item Exchange Currency Cost A. Bank Financing 1. Consultants a. Remuneration i. International Consultants 430 0 430 ii. Domestic Consultants 0 265 265 b. Per Diem i. International Consultants 115 0 115 c. International Travel 30 0 30 d. Reports and Communications 15 5 20 2. Equipment 15 0 15 3. Workshops 0 5 5 4. Miscellaneous Administration and Support Costs 0 5 5 6. Contingencies 90 30 120 Subtotal (A) 695 305 1,000 B. Government Financing 1. Office Accommodation 0 100 100 2. Transport 0 100 100 3. Counterpart Staff 0 150 150 4. Reports 0 25 25 5. Surveys 0 25 25 6. Workshops 0 30 30 Subtotal (B) 0 430 430 Total 695 735 1,430 86 Appendix 16, page 1

ECONOMIC ANALYSIS

A. Economic Context

1. The polluted condition of the Pasig River degrades the environment of Metro Manila. It is unsightly and malodorous, poses health risks, and acts as a constraint to socioeconomic development of the surrounding urban areas. Improving water quality and the environment along the banks of the river is a Government priority.

B. Approach and Project Rationale

2. The economic analysis was made for the Project as a whole as the primary project benefits are (i) improved water quality of the Pasig River, and (ii) improved environmental quality of the riverbanks and adjacent areas. These benefits are generated jointly by project components and by other projects and policies outside the project scope.

C. Situation With and Without the Project

3. River pollution comes from three main sources: solid waste, industrial wastewater, and domestic wastewater, of which domestic wastewater is the largest pollution source. The Project will reduce the pollution load in the Pasig River from each of the three sources, with the greatest impact on reducing domestic wastewater. However, it is expected that other projects and programs will reduce the level of pollution, particularly in the long term as investment in sewerage takes place. The economic analysis assesses the incremental impact of the Project on water quality and the urban environment, taking into account the environmental improvements due to other interventions.

D. Project Beneficiaries

4. The Project has three physical components: (i) sanitation, including collection and treatment of septic tanks sludge, known as septage; (ii) establishment of and improvements to environmental preservation areas (EPAs) along the riverbanks from which squatters will be relocated and the vacated areas developed for public access, amenity, and recreation; and (iii) urban renewal in areas adjacent to the EPAs.

5. Project beneficiaries are the residents of Metro Manila who will benefit from the improvement of an unsightly and polluted river running thought the city center. Specifically residents will benefit from a higher standard of river water quality and environmental improvements along the riverbanks through improved access to the river and from its economic development and recreational potential. In addition, squatter families relocating from the riverbanks will benefit from improved living conditions; security of tenure; better health from improved water, sanitation, and other basic services; reduced contact with contaminated water; and reduced risk from flooding. Similarly, although not relocated, families in the urban renewal areas will benefit from improved services such as water, sanitation, roads, lighting, security of tenure, and better access to the river.

E. Project Demand and Affordability

6. The household survey undertaken with Asian Development Bank (ADB) assistance in 1997 showed that residents rank improvements to the environment as a high priority to improving the quality of life. Demand for sanitation has been assessed for Metro Manila, based 87 Appendix 16, page 2 on the anticipated growth in the number of septic tanks resulting from population growth and the increased number of dwellings, and the relatively low sanitation and sewerage coverage targets to be provided by the Metropolitan Manila Waterworks and Sewerage System (MWSS) concessionaires. These coverage targets are low, particularly up to 2011 before the initial sewerage investment will be operational.1 Demand has been based on improving the minimum coverage to 60 percent in 2003, 80 percent in 2011, and 85 percent in 2016.

7. The affordability analysis is based on the household survey. The declared incomes suggest that all families can currently afford the lowest cost house and lot option. Over the next five years, the cost of housing provided under the program will increase in real terms. Assuming that real incomes increase in line with the historic Metro Manila average, and that the livelihood component of the relocation program will make an impact,2 the cost of housing for the resettled communities is affordable to the poorest 5 percent of families. In support of affordability analysis based on incomes, current rent levels in the squatter areas are considerably higher than at the resettlement site (around 3 times for a basic house). In surveys, households tend to understate their real income, while previous programs of the National Housing Authority (NHA) showed that, when offered a choice, people tend to opt for the more desirable option even if at first they considered it to be too expensive. The risks to affordability are that the current income level is not sustainable once the families are relocated. However, considering the low cost of rent in the earlier years, to give people time to adjust the livelihood program and the fallback mechanisms incorporated in the Resettlement Plan, the risks are considered to be low.

F. Alternative Options and Least Cost Analysis

8. Standard least cost analysis, in economic terms, has not been carried out, but for two components, alternatives were considered. For the resettlement component, the innovative approach to providing low-cost housing through the private sector is considered as a proxy for the least cost, in economic terms.

9. For sanitation, two alternatives were considered, which achieve an equivalent reduction in biochemical oxygen demand (BOD) pollution load for the same stretch of river as the Project. The first alternative is to provide conventional sewerage in an area, which will remove the equivalent amount of BOD from the Pasig River (16 tons per day), treat, and dispose of the waste material. The financial cost of this alternative is estimated at P3,000 million ($80 million). However, this option has considerable implementation difficulties as under the MWSS Concession Agreement, the exclusive rights to provide sewerage services in Manila are held by the concessionaires and implementation of this option would require the Concession Agreement to be renegotiated.

10. The second alternative is to construct sewers to intercept the existing combined drainage system and convey wastewater to an outfall that would discharge beyond Manila Bay. This option would also include stormwater overflows that would discharge into the Pasig River, but under storm conditions, wastewater is diluted. However, to achieve the same degree of pollution reduction, the interceptor sewers must be located upstream, increasing cost. While this option would remove more pollution load than the Project, sunk costs are high. To achieve the same pollution load reduction as the Project, investment costs would not decrease proportionately. The financial cost of this alternative is estimated at P5,700 million ($150 

1 Assumed 75 percent of those served by sewerage are connected. 2 Assumed, 10 percent additional growth in real incomes for the poorest 20 percent, once the livelihood program has been fully established. 88 Appendix 16, page 3 million). In addition, the outputs are not equivalent to the Project because disposing of wastewater to the sea has environmental impacts and other costs, which should be internalized for true economic comparison. The project option is clearly the least-cost financial option, and this is considered a reasonable proxy for the least-cost economic option, given the large difference in financial costs.

11. Families to be relocated will be offered a range of locations, including apartments in medium-rise buildings or a house and lot. Housing development will be undertaken by the private sector, following a competitive bidding process organized by NHA. NHA received 68 proposals, and bids were evaluated according to set criteria including price, location, scope for expansion, additional features, delivery date, and terms and conditions of payment. In addition, NHA has taken advantage of the fall in property prices to provide accommodation for relocating families at least cost. This method of providing low-cost housing is considered to deliver a cost- effective solution.

12. The Project will provide varying levels of infrastructure improvements to areas where the urban fabric has deteriorated, and the levels of infrastructure services are poor. The Project uses two pilot areas, Punta and Santolan, for urban renewal, land titling, flood prevention, and improvements to services. The Project allows communities and local governments to decide on the appropriate level of upgrading required. The alternative to urban renewal involves relocation of families, demolition, and redevelopment. The financial cost per family of upgrading is approximately one tenth of the cost of relocation, and is estimated at P22,000 per family compared with P180,000 per family for resettlement. The financial least cost is considered to deliver the same choice of option as the economic least cost, given the socioeconomic implications of resettlement and the scale of the difference in financial costs.

G. Scope

13. Having considered project demand and alternatives, the economic analysis estimates the economic costs and economic benefits, and computes the economic internal rate of return (EIRR) and net present value (NPV) for the Project as a whole.

14. The economic analysis uses the domestic price numeraire, given that the project outputs are nontradable in nature. The project life is assumed to be 25 years. The economic opportunity cost of capital (EOCC) is taken as 10 percent as there are many benefits that cannot be valued, and the computed economic internal rate of return (EIRR) will likely understate the true worth of the Project.

15. The analysis tests the sensitivity of the results by considering a 10 percent increase in costs and a 20 percent decrease in benefits. The benefit decrease is considered appropriate as it reflects the risks associated with valuing the benefits of environmental projects of this type. The effect of delaying the benefits by one year is also considered.

H. Costs

16. Financial costs are converted to economic costs. Taxes are excluded, at the rate of 5 percent for land, 10 percent value-added tax (VAT) for relevant costs, and 15 percent import duty. Unskilled labor is assigned a conversion factor of 0.6, in line with other recent projects. Land is assigned a conversion factor of 0.2 for the resettlement component, valued at its opportunity cost, based on land values for residential and agricultural land. For other components, where land is within Metro Manila, no conversion factor is used for land. The 89 Appendix 16, page 4 results of the analysis are not sensitive to changes in these conversion factors. Tradable items are assigned a shadow exchange rate factor (SERF) of 1.21, the reciprocal of the standard conversion factor (SCF), which is 0.82. No conversion factors are used for other items. Table A16.1 shows the total economic costs for the Project.

I. Benefits

1. Valued Benefits

17. Three benefit streams are valued. The first benefit stream is a proxy for the residents’ willingness to pay for environmental improvements and improved water quality in the Pasig River. This is measured using the current environmental tariff of 10 percent surcharge on water bills for those not connected to the sewer system and the 50 percent surcharge for those who are connected.3 However, not all of the environmental and water quality improvements are attributable to the Project. The benefit stream allocated to the Project reflects the proportion of the estimated total reduction in biochemical oxygen demand (BOD), that occurs as a result of the Project. This is proportionate to the estimated pollution load reduction that would happen, as a result of other programs and projects. In 2003, 34 percent of the estimated total pollution load reduction occurs as a result of the Project. By 2021, only 7 percent of the pollution load reduction is attributable to the Project.

18. Benefits to the relocated families include services, such as water, sanitation, lighting, roads, improved health and safety, and security of tenure. These improvements are captured in the rental that families will pay at the new resettlement sites. Benefits are valued using the least- cost property option, rental in the first five years, and then amortization from year six onward, in constant price terms.

19. Urban renewal increases the economic value of the property in the area, which is reflected in a person’s willingness to pay an increased financial price for the property. Comparison of similar areas with different levels of services and amenities indicate the economic price of service level improvements. Reliable data on the value of properties is unavailable and would be difficult to assess as the market is severely distorted by the lack of land title and transaction difficulties. The benefits of upgrading are valued using willingness to pay evidence from the household survey. Residents of urban renewal areas demonstrate a willingness to pay P153 per household per month for improved water, sanitation, and roads. This gives an annual willingness to pay of P1,850 per household. Under the same survey, the willingness to pay for security of tenure was on average P560 per month or P6,700 per annum. This gives total benefits of P471 million per year.

2. Nonvalued Benefits

20. The valued benefits attempt to capture the overall worth of the Project, and incorporate specific benefits such as health, flood aversion, safety, and amenity. However, due to considerable indirect benefits that result from urban environmental improvements of this type, project benefits are likely to be understated. 

3 The concession agreements for water and sewerage provision include one-time increases in tariffs in 2003, to 75 percent for those households not connected to the sewerage system and 150 percent for those households that are connected. These increases have not been included in the valuation, as there is no evidence that consumers are willing or able to pay for these increases. Water consumption is assumed to remain constant and the number of households is assumed to grow at the Manila average of 1.6 per annum. These assumptions are conservative and are likely to understate the true value of environmental benefits. 90 Appendix 16, page 5

21. The relocation of families along the river and establishment of the EPAs is a precondition for the successful implementation of the Pasig River Development Plan, which will improve the environment of Metro Manila. Without resettlement, the rehabilitation of the river and in particular, the environmental improvement of the river banks would not occur.

22. Similarly, the rehabilitation of the river, and water quality improvement will remove a constraint to economic development in the center of the city. While not driving growth directly, environmental improvement will act as a catalyst for further improvements along the river, and help the area along the Pasig reach its economic potential.

J. Results

23. Table A16.2 shows the economic costs and benefits of the Project and the calculation of the EIRR. Table A16.3 shows a summary of the results of the economic analysis. The base case results in an EIRR of 16.0 percent, which exceeds the assumed economic cost of capital of 10 percent. The net present value (NPV), discounted at 10 percent, is P1,775 million, equivalent to $46.5 million. The EIRR falls to 11.0 percent under the worst case scenario of the sensitivity analysis, where costs increase by 10 percent and benefits are reduced by 20 percent, which is considered unlikely. Under no scenario did the EIRR fall below the EOCC, however, the EIRR falls below the EOCC if costs increase by more than 33 percent, or benefits decrease by more than 25 percent.

24. Considering the importance of benefits that have not been valued, the reported EIRR is lower than the true EIRR for the Project, which is considered to be much higher.

Table A16.3. Summary of the Economic Analysis

Item EIRR NPV Sensitivity Switching (%) (P million) Indicator Value Economic opportunity cost of capital @ 10 percent Base case 16.0 1,775 Costs increase by 10 percent 14.3 1,385 1.03 33 Benefits reduce by 20 percent 12.3 640 1.16 25 Costs increase by 10 percent and 11.0 300 benefits reduce by 20 percent Benefits delayed by one year 13.7 1,193 EIRR = economic internal rate of return; NPV = net present value. Table A16.1: Economic Costs

Sanitation Environmental Protection Areas Urban Renewal Treatment and Project Implementation Year Collection Services Resttlement Development Punta and Santolan Program Total Disposal Assistance Capital O&M Capital O&M Capital O&M Capital O&M Capital O&M Capital O&M Capital O&M Capital O&M

2000 0.00 0.00 932.48 45.56 51.06 0.00 26.88 1,055.98 2001 0.00 74.96 626.59 87.73 12.05 0.00 50.60 851.93 0.00 2002 51.01 371.30 39.45 6.15 42.18 11.88 0.65 1217.01 14.39 25.74 1,758.57 21.19 2003 51.01 109.87 22.99 30.89 6.15 0.00 4.96 0.00 0.65 294.72 14.39 23.51 510.00 49.14 2004 8.16 22.99 30.89 6.15 4.96 0.65 191.08 14.39 1.54 223.51 57.30 2005 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2006 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2007 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2008 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2009 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2010 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 91 2011 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2012 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2013 56.68 8.16 22.99 6.15 4.96 0.65 14.39 56.68 57.30 2014 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2015 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2016 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2017 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 Appendix 16,page6 2018 8.16 101.71 22.99 6.15 4.96 0.65 14.39 101.71 57.30 2019 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2020 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2021 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2022 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2023 8.16 22.99 6.15 4.96 0.65 14.39 0.00 57.30 2024 28.34 8.16 22.99 6.15 4.96 0.65 14.39 28.34 57.30 2025 (25.51) 8.16 22.99 6.15 4.96 0.65 14.39 (25.51) 57.30 Total 161.54 179.56 657.84 528.82 1,660.30 147.51 175.46 114.08 75.00 15.62 1702.81 345.43 128.26 0.00 4,561.22 1,331.04 O&M = operation and maintenance.

Notes: Life of components is assumed to be 25 years, except haulage trucks, which have a life of 10 years. Trucks are replaced, 20 trucks after 10 years and 10 trucks after 20 years. Table A16.2: Economic Analysis (P million)

Economic Cost Economic Benefits Sensitivity Tests Year Capital O&M Total SanitationResettlement Urban Total Net Cost plus Benefits Renewal Benefits Benefits Costs plus Benefits less 10% and Delayed 1 year Benefits 10% 20% less 20% 2000 1,056 0 1,056 16 16 (1,040) (1,146) (1,043) (1,149) (1,056) 2001 852 0 852 61 45 106 (746) (831) (767) (852) (836) 2002 1,759 21 1,780 61 85 31 177 (1,603) (1,781) (1,638) (1,816) (1,674) 2003 510 49 559 248 100 146 493 (66) (122) (165) (221) (382) 2004 224 57 281 248 112 471 831 550 522 384 356 212 2005 0 57 57 248 116 471 835 777 772 611 605 774 2006 0 57 57 256 120 471 847 790 784 621 615 777 2007 0 57 57 256 124 471 851 794 788 624 618 790 2008 0 57 57 256 129 471 856 798 793 627 621 794 2009 0 57 57 256 133 471 860 803 797 631 625 798 2010 0 57 57 256 137 471 865 807 802 634 629 803 2011 0 57 57 242 142 471 855 797 792 626 621 807 92 2012 0 57 57 242 147 471 860 802 796 630 625 797 2013 57 57 114 242 152 471 865 751 739 578 566 746 2014 0 57 57 242 157 471 870 812 807 638 633 807 2015 0 57 57 242 162 471 875 818 812 643 637 812 2016 0 57 57 199 168 471 838 780 775 613 607 818 2017 0 57 57 199 174 471 843 786 780 617 612 780 2018 102 57 159 199 180 471 849 690 674 520 504 684 2019 0 57 57 199 186 471 855 798 792 627 621 792 2020 0 57 57 199 192 471 862 804 799 632 626 798 2021 0 57 57 169 198 471 838 781 775 613 608 804

2022 0 57 57 169 205 471 845 788 782 619 613 781 Appendix16,page7 2023 0 57 57 169 212 471 852 795 789 624 795 788 2024 28 57 86 169 219 471 859 774 765 602 774 767 2025 (26) 57 32 169 227 471 867 835 832 662 835 828 Total 4,561 1,331 5,892 5,191 3,839 10,539 188 (5,704) 13,088 9,763 9,707 12,810 27% 20% 54% Net Present Value @ 10% 1,775 1,385 640 300 1,193 EIRR 16.0% 14.3% 12.3% 11.0% 13.7% Sensitivity Indicator 1.03 1.16 Switching Value 33 25 EIRR = economic internal rate of return; O&M = operation and maintenance.

Notes: Life of components is assumed to be 25 years, except haulage trucks, which have a life of 10 years. Trucks are replaced, 20 trucks after 10 years and 10 trucks after 20 years. FINANCIAL ANALYSIS Financial Evaluation (Sanitation) (in current prices) Price per Tank Revenues (P million) Capital Cost Operation and Maintenance Net Revenues No. of Volume No. of Collection Treatment Collection Treatment Collection Treatment Collection Treatment Total Collection Treatment Treatment Year Septic Collected Truck Cost and Tanks Trips Collection 2000 0.00 286.69 286.69 (286.69) (286.69) 2001 0.00 330.02 330.02 (330.02) (330.02) 2002 71.84 132.62 204.46 (71.84) (132.62) (204.46) 2003 76.15 140.58 216.73 (76.15) (140.58) (216.73) 2004 39,660 158,640 19,830 785 2,859 31.13 113.39 9.16 23.54 32.69 21.97 89.85 111.83 2005 37,778 151,112 18,889 832 3,031 31.43 114.51 9.71 24.95 34.66 21.72 89.56 111.28 2006 36,611 146,443 18,305 882 3,213 32.29 117.63 10.29 26.45 36.74 22.00 91.18 113.18 2007 35,479 141,918 17,740 935 3,406 33.17 120.84 10.91 28.03 38.94 22.27 92.81 115.08 2008 34,383 137,532 17,192 991 3,610 34.07 124.12 11.56 29.71 41.28 22.51 94.41 116.92 2009 33,321 133,282 16,660 1,050 3,827 34.99 127.52 12.26 31.50 43.75 22.73 96.02 118.75 2010 32,291 129,164 16,146 1,113 4,057 35.94 131.00 12.99 33.39 46.38 22.95 97.62 120.57 2011 32,360 129,440 16,180 1,180 4,300 38.18 139.15 13.77 35.39 49.16 24.41 103.76 128.17 2012 32,429 129,717 16,215 1,251 4,558 40.57 147.81 14.60 37.51 52.11 25.97 110.30 136.27 2013 32,499 129,995 16,249 1,326 4,831 43.09 157.00 157.86 15.47 39.78 213.09 (130.24) 117.24 (13.00) 2014 32,568 130,273 16,284 1,406 5,121 45.79 166.78 16.40 42.15 58.55 29.39 124.63 154.02 2015 32,638 130,552 16,319 1,490 5,428 48.63 177.16 17.39 44.68 62.06 31.25 132.48 163.73 2016 30,937 123,748 15,468 1,579 5,754 48.85 178.01 18.43 47.36 65.79 30.42 130.65 161.07 2017 29,324 117,298 14,662 1,674 6,099 49.09 178.85 19.53 50.20 69.74 29.55 128.65 158.20 93 2018 27,796 111,184 13,898 1,774 6,465 49.31 179.70 20.71 53.21 73.92 28.60 126.49 155.09 2019 26,347 105,389 13,174 1,880 6,853 49.53 180.56 21.95 56.41 78.35 27.58 124.15 151.74 2020 24,974 99,896 12,487 1,993 7,264 49.77 181.41 23.27 59.79 83.06 26.51 121.62 148.13 2021 23,672 94,689 11,836 2,113 7,700 50.02 182.28 24.66 63.38 88.04 25.36 118.90 144.26 2022 22,439 89,754 11,219 2,240 8,162 50.26 183.14 26.14 67.18 93.32 24.12 115.96 140.08 2023 21,269 85,076 10,634 2,374 8,652 50.49 184.02 103.59 27.71 71.21 202.51 -80.81 112.81 32.00 2024 20,160 80,642 10,080 2,516 9,171 50.72 184.89 29.37 75.48 104.86 21.35 109.41 130.76 2025 19,110 76,439 9,555 2,667 9,721 50.97 185.76 31.13 80.01 111.15 19.83 105.75 125.58 2026 18,114 72,455 9,057 2,827 10,304 51.21 186.64 33.00 84.81 117.82 18.20 101.83 120.03 2027 17,170 68,678 8,585 2,997 10,922 51.46 187.53 34.98 89.90 124.89 16.47 97.62 114.10 2028 16,275 65,099 8,137 3,177 11,577 51.70 188.41 37.08 95.30 132.38 14.62 93.11 107.74

Collection Treatment Total WACC Available Market Interest ADB-Assisted Financing Rate for Environmental Projects NPV @ 18% (34.02) (351.60) (385.62) 18.00% (80% financing) NPV @ WACC 93.69 913.38 1,007.07 2.68% Amount Interest Rate WACC Amount Interest Rate WACC (2.68%) NPV @ WACC (0.38) 0.77 0.40 8.80% Loan 445.28 6.24% 2.68% Loan 830.32 11.00% 8.80% (8.80%) Equity 592.62 0.00% 0.00% Equity 207.58 0.00% 0.00% FIRR 8.75% 8.81% 8.80% 1,037.90 2.68% 1,037.90 8.80%

ADB = Asian Development Bank; FIRR = financial internal rate of return; O&M = operation and maintenance; NPV = net present value; WACC = weighted average of capital cost. Performance Targets Pricing/Affordability Indicator (in 1999 prices) Septage Item Rate of Return Index Year No. of Septic Volume of No. of G. Rate in No. Tanks Cleaned Septage Truck Trips of Tanks 2.68% 8.80% 18.00% Collected 2000 48,173 192,692 24,087 Collection 503 581 771 2005 37,778 151,112 18,889 (4.7%) Treatment 1,355 2,116 4,090 2010 32,291 129,164 16,146 (3.1%) 2015 32,638 130,552 16,319 0.2% Total Charge/Tank 1,858 2,697 4,861

2020 24,974 99,896 12,487 (5.2%) Appendix 17

Assumptions: Average Volume per Tank 4 m3 Average Volume per Truck 8 m3 O&M Collection 8% 108.00 8.64 Treatment 5% 444.08 22.20

Pricing Collection Treatment Total (1999 prices) Per Septic Tank 581 2,116 2,697 94 Appendix 18, page 1

POVERTY IMPACT ASSESSMENT

A. Introduction

1. The poverty impact assessment covers the effects of the Project on the low-income groups, squatters, and other vulnerable groups, and indicates the necessary actions to ensure the well-being of project beneficiaries and stakeholders. The poverty impact assessment evaluates the project impact using data from previous studies, focus group discussions, and the findings of the willingness-to-pay survey, representing about 20 percent of the affected people in target communities.

B. Household Income and Expenditures

2. The effective household income comprises the earnings of all workers in the household plus additional, regular sources of income such as from rents and remittances. About one quarter of households surveyed receive additional regular income. The effective household incomes vary from about P2,300 per month for the lowest 5 percentile to more than P21,000 per month. The mean household income is P8,200 per month and mean monthly expenditure for households is P6,851.

C. The Impact of Project Components on the Poor

1. Septage Management

3. The septage management component will involve operating and maintaining a septic tank cleaning program and providing a septage treatment facility. A survey was made to assess the present conditions of families and their views on domestic wastewater management. Of the total households surveyed, 38 percent have access to a sanitary drainage system and 32 percent dispose wastewater directly into the Pasig River. About 90 percent of the households have individual toilet facilities, the rest use a neighbor’s toilet or public toilet. Almost one third of the households do not know how the septic tank is emptied. Only 44 percent of respondents recognize the need to improve wastewater facilities; most people do not consider that improved sanitation facilities are important. The problem is particularly acute in Quiapo where 82 percent of the squatters in the area dispose of wastewater directly into the river. The squatter settlement in Punta is partly served by a sanitary drainage system, but in the area wastewater disposal to the river and canals is also prevalent. Of those respondents who recognize the need for sanitation improvements, 92 percent indicated a willingness to pay up to P50 per month for services.

2. Urban Renewal Areas

4. For people living in depressed areas outside the environmental preservation areas, regularization of land tenure and on-site upgrading is the preferred approach of the community, rather than relocation. Demonstration sites to illustrate the viability of slum upgrading have been identified in Manila and Pasig. The upgrading will involve regularization of land tenure and development of (i) roads and footpaths; (ii) drainage system; (iii) water supply; (iv) street lighting; and (v) basic social services such as health centers, barangay hall, and day-care center. The Project offers many potential benefits such as security of land tenure, which encourages householders to invest their own resources in house improvement and expansion; health benefit as a result of improved sanitation, drainage, and water supply; improved accessibility and mobility to schools, markets, and work places; and social welfare benefits. 95 Appendix 18, page 2

Ownership of land is important to the affected families, and people have indicated a willingness to pay up to P5,000 per month, depending on household income. A significant number of the families want to take part in a mortgage program.

3. Environmental Preservation Areas

5. This component will involve the relocation of about 10,000 squatter families from the 10- meter environmental preservation areas (EPAs) along the banks of the Pasig River to various resettlement sites. Squatter families are often low-wage earners employed as construction workers, artisans, or casual laborers. Large numbers of riverbank squatters are migrants from the rural areas. They came to Manila to find employment and improve their quality of life. Upon arrival in Metro Manila, squatting is the only affordable, low-cost housing solution available, and squatting offers flexibility and ease of entry to the housing sector. The primary locational motivation is access to employment. Because incomes are low and work hours long, most people do not want to spend time and money on travel to work. Therefore, the key criteria in choosing relocation sites are access to existing sources of livelihood, availability of alternative jobs, secure housing, and access to basic welfare services.

D. Affordability of the Housing Options

6. The lowest cost housing option offered to relocating families is a core house at a choice of locations. For the first five years, families may rent; in the sixth year, families will be offered an option to purchase at a set amortization rate. The rents in year one are set at P400 per month, rising each year at P200 per month until year six. After year six, rents increase at the rate of 10 percent each year. For house purchase, the amortization rate is set at P1,385 for the first 10 years rising to P2,243 for the remaining 15 years. Table A18.1 shows the monthly income distribution identified from the household survey and the income available for housing. For the poorest 20 percent of families, 25 percent of income is assumed to be available for housing. For the remaining 80 percent of families, 20 percent is assumed to be available for housing. The estimated amounts available for housing for each percentile are shown for the years 1999 to 2003. The projections take into account inflation, real growth in incomes, and the impact of the livelihood program on the poorest families.1 The analysis shows that the rents will be affordable to the poorest 5 percent of families. Also, the amount available in 2003 exceeds the proposed rent at P1,200. In the sixth year, either rent or amortization will also be affordable to all.2 In addition, the following qualitative evidence suggests that the options are affordable:

(i) Experience from NHA shows that when offered a choice, people opt for the more expensive housing option over the less desirable option, even if at first they indicate that it is too expensive.

(ii) Ownership of nonessential items such as television sets is widespread, indicating that considerable discretionary spending income is available.

1 Inflation assumed at ADB rates. Real income growth assumed at 3.5 percent per year, in line with the average for Manila. The livelihood program is assumed to increase the incomes of the poorest 20 percent of families by 10 percent per annum, once the program is in place. The livelihood program is detailed in the Resettlement Plan. 2 Inflation and real income growth are assumed to continue at 6 percent and 3.5 percent. 96 Appendix 18, page 3

(iii) Discussion groups held under the technical assistance3 and recent market evidence suggest that rents paid in the squatter settlements are approximately P500 per month for a bed space, higher than the cost of a house in the first year at the resettlement site.

Table A18.1. Monthly Income Available for Housing (P) Monthly Estimated Percentile Income Monthly Available Monthly Incomea per Income per Household Household 1997 1999 1999 2000 2001 2002 2003 5 1,999 2,379 595 717 857 1,024 1,224 10 2,823 3,360 840 1,012 1,210 1,445 1,727 15 3,600 4,285 1,071 1,183 1,296 1,419 1,554 20 4,369 5,201 1,300 1,437 1,573 1,722 1,886 25 4,839 5,759 1,152 1,273 1,394 1,526 1,671 30 5,237 6,233 1,247 1,378 1,509 1,652 1,809 35 5,646 6,721 1,344 1,485 1,626 1,781 1,950 40 5,947 7,079 1,416 1,565 1,713 1,876 2,054 45 6,443 7,669 1,534 1,695 1,856 2,032 2,226 50 6,897 8,209 1,642 1,814 1,987 2,176 2,382 55 7,523 8,955 1,791 1,979 2,167 2,373 2,598 60 7,940 9,451 1,890 2,088 2,287 2,504 2,742 65 8,500 10,117 2,023 2,235 2,448 2,680 2,935 70 9,375 11,159 2,232 2,466 2,701 2,957 3,238 75 10,114 12,039 2,408 2,661 2,914 3,190 3,494 80 11,333 13,490 2,698 2,981 3,265 3,575 3,914 85 12,953 15,418 3,084 3,408 3,732 4,086 4,474 90 15,977 19,017 3,803 4,202 4,602 5,039 5,517 95 17,895 21,300 4,260 4,707 5,154 5,644 6,180 Inflation 7% 6% 6% 6% Real Income 4% 4% 4% 4% Livelihood Impact 10% 10% 10% 10% a Estimate of available monthly income available for housing is based on 25 percent of income for households in the lowest 20 percent income land; and 20 percent of income for other households. Source: Monthly Household Income, Household Survey 1997, TA 2803-PHI: Pasig River Environmental Management and Rehabilitation Project, for $800,000, approved on 27 May 1997. The TA was completed in April 1998.

7. The principal risk to affordability is that the income of residents is reduced as a result of relocation, and that the livelihood program is not successful in raising the incomes of the poorest families. Given that incomes are likely to be understated and the rents are lower in the early years to allow families to adjust to their new location, the risks are considered to be low.

3 TA 2803-PHI: Pasig River Environmental Management and Rehabilitation Project, for $800,000, approved on 29 May 1997.