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Document of .. J , % The World Bank FOR OFFICIAL USE ONLY FILE C0PY Public Disclosure Authorized Report No. 1911-PH PHILIPPINES Public Disclosure Authorized MAGAT RIVER MULTIPURPOSE PROJECT: STAGE II STAFF APPRAISAL REPORT Public Disclosure Authorized April 28, 1978 Public Disclosure Authorized Projects Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$ 1.00 Pesos (P) 7.40 P 1.00 US$0.135 WEIGHTS AND MEASURES 1 hectare (ha) = 2.47 acres 1 kilometer (km) = 0.62 miles 1 square kilometer (sq km) = 0.386 square miles 1 meter (m) = 39.37 inches 1 square meter (sq m) = 10.76 square feet 1 cubic meter (cu m) = 35.31 cubic feet 1 million cubic meters (MCM) 810.7 acre feet 1 millimeter (mm) = 0.039 inches 1 kilogram (kg) = 2.2 pounds I cavan (paddy) = 50 kg 20 cavans = 1 metric ton 1 megawatt (MW) = 1,000 (kW) Kilowatts 1 gigawatt hour (GWh) = 1 million kilowatt hours (kWh) 1 kilo"volt (kV) = 1,000 volts (V) 1 megavolt amp (MVA) = 1,000 Kilovolt amp ABBREVIATIONS ADB - Asian Development Bank AMIADP - Angat Magat Integrated Agricultural Development Project El. - Elevation above sea level FSL - Full supply level MARIS - Magat River Irrigation System MCM - Million cubic meters of water MECO - Manila Electric Company MRMP - Magat River Multipurpose Project NBC - NIA Board of Consultants NEA - National Electrification Administration NIA - National Irrigation Administration NPC - National Power Corporation PDR - Project Design Report RRD - Resettlement and Reservoir Division SIFRIS - Siffu River Irrigation System SPO - Special Projects Organization UPRP - Upper Pampanga River Project USBR - United States Bureau of Reclamation GOVERNMENT OF THE PHILIPPINES Fiscal Year January 1-December 31 FOR OFFICIAL USE ONLY PHILIPPINES MAGAT RIVER MULTIPURPOSE PROJECT: STAGE II STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. 1. BACKGROUND. 1 The Agricultural Sector. .1. 1 The Power Sector . 3 Project Formulation . .. 7 2. THE PROJECT AREA . 9 General . 9 Climate. 9 Hydrology. .. .. 11 Sedimentation . .. 11 Geology ... 12 Seismicity ......................... 12 Irrigation Facilities . 13 Population,Farm Size and Land Tenure . 13 Reservoir Area . 13 Transportation . 14 Transmission Facilities ... 14 3. THE PROJECT . .. 15 Project Works . .. 15 Engineering and Construction.. 16 Reservoir Resettlement . 21 Cost Estimates . 22 Financing . 23 Procurement . .. 26 Disbursements . 27 Accounts and Audit . .......... 27 Environmental Effects . .... ....... 28 4. ORGANIZATION AND MANAGEMENT . 29 The National Irrigation Administration . 29 National Power Corporation . .. 29 Project Management .. .. 30 Consulting Services . 31 Safety of Dam . 31 Cost Recovery .. 32 This document has a restricteddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Page No. 5. BENEFITS, JUSTIFICATION AND RISKS . 33 6. AGREEMENTS REACHED AND RECOMMENDATION . 41 ANNEXES 1. Project Features, Detailed Cost Estimates, Equipment List, Price 42 Increases, Expenditures, Disbursements and Allocation of Loan Proceeds. 2. Farm Labor Costs, Input Prices, Rice Prices, Farm Budgets, and 54 Systems Development Program:Luzon Grid. 3. Schedule of Early Events. 59 4. Related Documents and Data Available in the Project File. 60 LIST OF TABLES IN THE MAIN TEXT Table No. 2.1 Summary of Climatological Data 10 3.1 Project Cost Fstimate (Package 2) 24 3.2 Estimated Total Cost Stage II Development 25 5.1 Rice and Fertilizer Prices 34 5.2 Farm Incomes 35 5.3 Irrigation - Net Value of Production 36 5.4 Economic Costs and Benefits 38 5.5 Sensitivity Analysis 38 5.6 Least Cost Analysis of Stage II Investment 40 LIST OF FIGURES Figure 1.1 - Stage II Development Implementation Schedule 61 Figure 3.1 - Philipines: Magat Dam Project Layout 62 Figure 3.2 - Philippines: Magat Dam - Sections through Dam and Spillway 63 Figure 3.3 - Stage II - Package 2 - Magat Dam Construction Schedule 64 Figure 4.1 - NIA Organization for Special Projects 65 Figure 4.2 - Proposed Organization for Project Construction 66 LIST OF M1APS IBRD 13283 - Magat River Multipurpose Project IBRD 3562R4 - Luzon Grid Power Plant and 230 kV Transmission System PHILIPPINES MAGAT RIVER MULTIPURPOSE PROJECT: STAGE II STAFF APPRAISAL REPORT 1. BACKGROUND General 1.01 The Government of the Philippines has requested Bank assistance in financing the second stage of development of the Magat River Multipurpose Project in Northern Luzon. The first stage of development consists of the provision of water distribution systems to irrigate a total of 75,000 ha of rice in the wet season and 29,000 ha in the dry season. The Asian Develop- ment Bank (ADB) extended a loan in 1973 to assist in the rehabilitation of 40,000 ha of existing irrigation systems under provision of the Angat-Magat Integrated Agricultural Development Project (AMIADP). The Bank provided financial assistance for the development of irrigation facilities in the remaining 35,000 ha of Stage I land in 1975 (Loan 1154-PH). The loan also provided for engineering studies to review and update the technical and economic feasibility of implementing the second stage of development of the Magat river consisting of the provision of reservoir storage for year round irrigation and for power generation. 1.02 A feasibility study for second stage development of the Magat river was prepared under the provisions of Loan 1154-PH by the National Irrigation Administration with assistance of the associated consulting firms Engineering Consultants Inc. of Denver, Colorado; Shawinigan Engineering Co. Ltd. of Montreal, Canada; Engineering and Development Corporation of the Philippines and DCCD Engineering Corporation of Manila. This report is based on that study and the findings of a Bank appraisal mission which visited the Philippines in October-November 1977, composed of Messrs. E. G. Giglioli, R. R. Morton and E. von Loehneysen; Messrs. R. L. P. Harris, V. Talvadkar and J. Cavallotti also assisted with the report. The Agricultural Sector 1.03 Agriculture is the predominant sector in the Philippine economy, accounting for about one third of net domestic product, over one half of total employment, and nearly three quarters of export earnings. Over 70% of the 9 million ha of land under cultivation is used for the production of cereals, of which rice and corn are the most important. The remaining land is taken up by the major export crops: sugar, coconuts, abaca, pineapples, and tobacco. 1.04 The performance of the agricultural sector will be crucial in deter- mining whether the Philippines can increase incomes both rapidly and equitably. At present, the domestic market for industrial products is limited by relatively low rural incomes. Although in recent years there has been a substantial change in the terms of trade in favor of agriculture, the problems of poverty and income - 2 - distribution continue to be particularly acute in rural areas; of the 15 million people in the lowest 40% of the income scale, 12 million live in rural areas. The Government is aware of these problems and has initiated a number of programs designed to assist the rural poor. 1.05 A major Government objective is to increase rice and corn produc- tion as a means of raising the incomes of small farmers and of attaining national self-sufficiency in food grains. After experiencing substantial deficits in the early 1970s, rice production grew by 5% p.a. during crop years 1974-77 and the Philippines was able to provide for consumption solely from domestic production during the crop years 1975-77. The good performance in the past three years has been due mainly to an increase in yields brought about by favorable weather, expansion of the irrigation systems and an increase in the area planted. With the continued growth of population and incomes, the demand for rice will rise by 3.5% annually. If rice production is to increase at a rate sufficient to maintain self-sufficiency on a sustained basis, further expansion of the irrigated area will be necessary. At present, only 0.9 million ha, or 28% of the 3.2 million ha devoted to rice production, are irrigated. 1.06 The Government recognizes that in order to increase production in both irrigated and nonirrigated areas substantial improvements in the quality of supporting services will be necessary. In 1973, the Government instituted a national program for supervised credit for rice production, Masagana 99, which greatly increased the provision of production credit, mainly to smaller farmers. However, the levels of arrears under the program have been very high in the last several years and as a result the coverage of the program has declined sharply. The Government is aware of this problem and the Technical Board for Agricultural Credit is undertaking a study of the causes of the high arrears under Loan 1399-PH which will be discussed with Bank staff in early 1978 with a view to reaching agreement on the steps necessary to reduce arrears and maintain the flow of production credit. 1.07 The Government is also considering the steps necessary to bring about needed improvements in the national extension service. A Bank technical assistance mission visited the Philippines in April 1977 and a report has been given to the Government which suggests a number of organizational improvements and better logistical support in the form of training, vehicles and other facilities. Missions were in the field in February-March of 1978 to appraise a national extension project for possible Bank financing and to help the Government prepare a comprehensive program for strengthening support services (provision of credit, extension, fertilizer, seeds, and crop protection). 1.08 Since 1969 the Bank Group has financed nine irrigation projects designed to increase rice production in the country.