Report and Recommendation of the President to the Board of Directors

Project Number: 33276 December 2006

Proposed Loan and Administration of Grant from the Global Environment Facility Republic of the Philippines: Integrated Coastal Resources Management Project

CURRENCY EQUIVALENTS (as of 15 November 2006)

Currency Unit – peso (P)

P1.00 = $0.0200481 $1.00 = P49.8800

ABBREVIATIONS

COA – Commission on Audit DA – Department of Agriculture DENR – Department of Environment and Natural Resources EIRR – economic internal rate of return FIRR – financial internal rate of return GEF – Global Environment Facility ha – hectare ICRM – integrated coastal resources management IEC – information, education, and communication IEE – initial environmental examination kg – kilogram km – kilometer LGU – local government unit MDFO – Municipal Development Fund Office MPA – marine protected area NGO – nongovernment organization PMO – project management office PPMS – project performance management system PSC – project steering committee SERF – shadow exchange rate factor USAID – United States Agency for International Development

NOTES

(i) The fiscal year of the Government and its agencies ends on 31 December. (ii) In this report, “$” refers to US dollars.

Vice President C. L. Greenwood, Jr., Operations 2 Director General R. M. Nag, Southeast Asia Department (SERD) Director U. S. Malik, Agriculture, Environment, and Natural Resources, SERD

Team leader M. J. Rahman, Principal Project Management Specialist, SERD Team members M. N. Islam, Environment Engineer, SERD M. E. Khan, Economist, Economics and Research Department Y. Kudo, Counsel, Office of the General Counsel A. Musa, Financial Analysis Specialist, SERD M. Oka, Social Development Specialist, SERD

CONTENTS Page LOAN AND PROJECT SUMMARY i

MAP vii I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 1 III. THE PROPOSED PROJECT 5 A. Impact and Outcome 5 B. Outputs 6 C. Special Features 8 D. Project Investment Plan 11 E. Financing Plan 11 F. Implementation Arrangements 12 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 16 A. Environmental, Social, and Poverty Reduction Benefits 16 B. Policy Impact and Institutional Benefits 17 C. Economic Benefits 18 D. Sustainability 18 E. Risks 19 V. ASSURANCES 20 A. Specific Assurances 20 B. Conditions for Loan Effectiveness 21 VI. RECOMMENDATION 21

APPENDIXES 1. Design and Monitoring Framework 22 2. Marine and Coastal Resources Sector Analysis 26 3. External Assistance to the Marine and Coastal Resources Sector 31 4. List of Project Municipalities 32 5. Selection Criteria for Social and Environmental Infrastructure 33 6. Summary Poverty Reduction and Social Strategy 34 7. Gender Action Plan 36 8. Summary Initial Environmental Evaluation 37 9. Mitigation Measures for Resource Access Restriction Impact 42 10. Summary Cost Estimates 46 11. National Government and Local Government Unit Cost-Sharing Policy 48 12. Project Organization Chart 49 13. Project Implementation Schedule 50 14. Procurement Plan 51 15. Outline Terms of Reference for Consultants 52 16. Project Financial Management 55 17. Financial and Economic Analyses 59

SUPPLEMENTARY APPENDIXES (available on request) A. Marine Biodiversity Corridors and Ecosystems B. Initial Environmental Examination C. Environmental Assessment and Review Framework D. Detailed Cost Estimates E. Project Financial Management F. Details of Financial and Economic Analyses

LOAN AND PROJECT SUMMARY

Borrower Republic of the Philippines

Classification Targeting classification: Targeted intervention Sector: Agriculture and natural resources Subsector: Environment and biodiversity Themes: Environmental sustainability, sustainable economic growth, governance Subthemes: Natural resources conservation, rural development, civil society participation

Environment Category B Assessment An initial environmental examination was undertaken

Project Description The Project will support the Government’s efforts to address the critical issues of sustainable management of marine and coastal resources. The salient activities of the Project include (i) develop an institutional framework for integrated coastal resources management (ICRM), address policy weaknesses and legal gaps, clarify roles of national government agencies concerned and local governments, and address their capacity-building needs; (ii) assess resources in the coastal zone of participating municipalities; develop and implement ICRM plans and participatory law enforcement; and develop ecocertification mechanisms for trade in coral-associated species; (iii) implement biodiversity conservation in priority marine biodiversity corridors supported by focused research on critical ecosystems and threatened species; (iv) help municipal fisherfolk develop sustainable enterprises and livelihoods, reducing their reliance on fishing; and (v) improve water supply, sanitation, and solid waste management; provide add-on classrooms to existing schools for disadvantaged coastal communities; provide infrastructure and facilities for mitigating coastal erosion and pollution; and support an information, education, and communication program on the link between population and environmental quality and population management.

The Project will be implemented in six priority marine biodiversity corridors and ecosystems covering 68 municipalities in the provinces of Cagayan, Cebu, Davao Oriental, Masbate, Siquijor, and Zambales. ii

Rationale The coastal and marine resources of the Philippines are of national and global importance because of their rich biodiversity and valuable contribution to the economy. However, these resources are declining and biodiversity is under threat due to human activities. Coral reefs, mangroves, sea grass, and other important coastal habitats are under severe stress with consequential decrease in the production of coastal fisheries. The resource depletion has affected the livelihood of fisherfolk; an overwhelming majority live in poverty.

Since the mid-1980s, the Government has implemented a number of coastal resources management programs, mostly as technical assistance from multilateral and bilateral agencies and some as part of major investment and policy initiatives in the sector. Interventions under these programs, notably in marine protected areas, resulted in significant positive impacts on biophysical parameters such as coral cover, fish catch, and biodiversity; promoted good governance practices especially locally with the participation of local communities in resource management and law enforcement; and created an awareness among local officials and coastal communities of the need for conservation and protection of coastal ecosystems. Despite these significant gains, threats to the management of coastal resources and marine biodiversity persist due to a number of complex factors including lack of an ICRM approach to coastal zone planning, policy and institutional weaknesses, weak law enforcement, high poverty incidence among coastal fisherfolk, and open access to marine and coastal resources.

Building on the experience of past programs, the Project will assist the Government to adopt a holistic approach to coastal resources management integrating terrestrial and coastal environments, strengthening policy and institutional frameworks, developing local government capacity, and reducing pressure on coastal resources.

Impact and Outcome The expected impact is enhanced coastal resources. The outcomes of the Project will be sustainable management of coastal resources and increased income for coastal communities.

Project Investment Plan The investment cost of the Project is estimated at $62.32 million, including taxes and duties of $5.15 million.

iii

Financing Plan A loan of $33.80 million from the ordinary capital resources of the Asian Development Bank (ADB) will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term including a grace period of 6 years, an interest rate determined in accordance with ADB’s LIBOR- based lending facility, and a commitment charge of 0.75% per annum, and such other terms and conditions set forth in the draft loan agreement

The Global Environment Facility (GEF) has approved a grant of $9.00 million to help finance the Project. The grant, to be administered by ADB, will cover costs for biodiversity conservation and management-related activities. The national and municipal governments and beneficiary communities will finance the remaining $19.52 million. ($ million) Source Total Percent Asian Development Bank 33.80 54.2 Global Environment Facility 9.00 14.4 Central Government 8.71 14.0 Local Governments and Beneficiaries 10.81 17.4 Total 62.32 100.0 Sources: Asian Development Bank and Government estimates.

Allocation and Relending The Government will allocate $9.38 million of the ADB loan Terms proceeds to municipal governments for priority social and environmental infrastructure as a mix of loan and grant; this will complement equity contributions of municipal governments and beneficiaries. The proportion of loan and grant and terms and conditions for the loan will be in accordance with the National Government and Local Government Unit Cost-Sharing Policy.

Period of Utilization Until 30 June 2013

Executing Agency Department of Environment and Natural Resources (DENR)

Implementation DENR, Department of Agriculture (DA), and participating Arrangements municipal governments will share the implementation responsibilities. The Foreign-Assisted and Special Projects Office at DENR central office will be the project management office. Implementation in the regions will be carried out by the protected area wildlife and coastal zone management services located at the DENR regional offices in regions II, III, V, VII, and XI; and the provincial environment and natural resources offices and community environment and natural resources offices (subprovincial).

iv

DA will designate the Office of the Assistant Director for Technical Services of its Bureau of Fisheries and Aquatic Resources central office as the focal point of its functions and responsibilities for the Project. DA will conduct field activities through its regional offices covering the project area. Municipal governments will undertake all resource management activities through the community-based fisheries and aquatic resources management councils, bantay- dagats (marine watch teams) and other peoples’ organizations. Similarly, municipal governments will implement most of the social and environmental infrastructure and facilities through beneficiary communities on a cost-sharing basis.

Procurement All goods and related services financed under the loan and GEF grant will be procured in accordance with ADB’s Procurement Guidelines (April 2006, as amended from time to time).

Consulting Services An estimated 369 person-months of consulting services, comprising 51 person-months international and 318 person- months national consultants, will be required to assist the national government agencies, local governments, and local communities in implementing the Project. Consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (April 2006, as amended from time to time) by Asian Development Bank and its borrowers.

Project Benefits and The Project will achieve the following major benefits: (i) laws and Beneficiaries regulations governing coastal resources management will be harmonized and interagency coordination will be improved; (ii) an ICRM system will be institutionalized in 68 municipalities; (iii) about 50 MPAs including about 5,000 hectares (ha) of sanctuary areas will be managed by local governments, with 10% increase in fish catch outside the protected areas; (iv) about 50,000 ha of coral reefs will be brought under improved management, with 10% improvement in hard coral cover; (v) 7,000 ha of existing mangroves will be enriched/rehabilitated, and 2,000 ha of mangrove will be reestablished, with 20% improvement in density; (vi) about 3,000 ha in watersheds will be reforested and 4,000 ha of denuded watershed will be rehabilitated, contributing to reduction in soil erosion and flash flooding; (vii) incidence of illegal fishing will be reduced by 50%; (viii) women’s participation in coastal resources management and alternative livelihood activities will be significantly enhanced; and (ix) disadvantaged coastal communities will have improved access to safe water, sanitation, and community services.

The poverty impact analysis in the sample municipalities indicates that about 71% of net economic gains will accrue to the poor. With 76% of coastal residents living below the poverty line and 61% of these employed in fishing, the Project will have a major impact in combating poverty and improving income distribution.

v

Risks and Assumptions The successful implementation of the Project will require stakeholders to agree and adjust to the policy and governance regime changes promoted by the Project. While most of the stakeholders have been supportive of these changes during project preparation, some may be slow in responding to the needs for change during project implementation. The risk will be mitigated by the emphasis on public information and capacity- building activities conducted throughout the project period.

I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on (i) a proposed loan, and (ii) proposed administration of a grant provided by the Global Environment Facility (GEF), both to the Republic of the Philippines for the Integrated Coastal Resources Management (ICRM) Project. The design and monitoring framework is in Appendix 1. II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Performance Indicators and Analysis 2. The Philippines comprises about 7,100 islands (300,000 square kilometers [km2] of land) and has an estimated 36,000 km of coastline extending 2,000 km from north to south. With the adoption of the United Nations Convention on the Law of the Sea, Philippine territorial waters comprise approximately 2.2 million km2 with a coastal area of 226,000 km2 and oceanic area of 1.93 million km2. Of the country’s 1,541 municipalities, 832 (or 54%) border the coast. Twenty- five major cities are located on the coast and 62% of the population lives in the coastal zone. 3. The marine and coastal areas of the Philippines support a large area of productive coastal ecosystems and habitats that include about 25,000 km2 of coral reefs, sea grass, and algal beds; 138,000 hectares (ha) of mangroves (reduced from 450,000 ha in 1920); a variety of productive fisheries that provide more than 50% of the animal protein consumed in the country; and many beaches and varied coastlines of value for tourism and other development. With 430 species of corals, 2,300 species of fishes, 16 species of sea grass, hundreds of seaweed species, and thousands of species of marine invertebrates, the Philippines has one of the richest marine and coastal ecosystems in the world. 4. Benefits derived directly from the coastal habitats are substantial. Although not all benefits are quantified in economic terms, coral reefs alone are currently estimated to contribute at least $1.06 billion annually to the economy. This estimate would be significantly more with improved coastal management efforts. The Philippines is the 11th largest fish producer in the world. Its annual total fisheries yield is estimated to be worth around $2.5 billion, equivalent to about 4.3% of its gross domestic product. Marine capture fisheries account for around 62% of the total annual fisheries yield, while the rest comes from aquaculture and inland fisheries. The annual harvest of marine capture fisheries is around 1.67 million tons, worth $578 million in 1994. Municipal fisheries (excluding reef fish) were estimated to yield annual economic benefits of $620 million in 2002. The Philippine fishing industry employs more than 1 million people (5% of the national labor force), with 68% employed in the municipal sector and 28% in the commercial and aquaculture sectors. B. Analysis of Key Problems and Opportunities 1. Demographics and Coastal Poverty 5. About 1 million coastal residents and their families are directly dependent on coastal and marine resources for sustenance and survival. Surveys in potential project areas indicate that a coastal household’s average annual income, is P56,486. Based on their source, employment provides the highest average (P86,134), followed by farming (P55,548), business (P52,831), and fishing (P50,310). Poverty incidence in the coastal community is extremely high at 76%, compared with the general level of 41.8% in the target provinces and 34.2 nationwide. 6. Social infrastructure is limited in most coastal areas. Some 28% of households lack toilets. Access to potable water for some is through dug shallow wells (18%), artesian wells (2%), water vendors (1%), or springs (1%). Garbage disposal is primarily by burning or 2 indiscriminate dumping in vacant lots or one’s own backyard. Less than 5% of households report that their garbage is collected through a municipal solid waste collection system. 2. Sector Issues 7. The coastal resources sector, although potentially rich and productive, is declining and under threat due to human activities. Of the 25,000 km2 of coral reefs, less than 5% are in excellent condition. Mangrove forests are declining at a rate of 2,000 ha/year; total coverage decreased from around 4,500 km2 in 1918 to about 1, 380 km2 in the 1990s. Municipal fisheries production has been declining, and the average reef fish catch per unit effort is now less than 2 kilograms (kg)/day, down from as much as 20 kg/day 30 years ago. 8. Overfishing, the use of destructive fishing practices, and habitat conversion have adversely affected coastal ecosystems, threatening permanent damage. Increasing pollution from land-based activities, industrial and urban development, deforestation, and soil erosion have lowered water quality and contributed to declining productivity in coastal waters. Rapid population growth and increasing concentration of population and economic activities near the coastal zone have added to the mounting pressure on finite coastal resources. 9. Policy and institutional weaknesses also serve as barriers to effective coastal resources management. The absence of a comprehensive ICRM policy and an institutional framework for its implementation has at times resulted in conflicting actions and initiatives by national government agencies and local governments. Some coastal resources management functions, notably fisheries, have been devolved to local governments but other functions pertaining to management of critical habitats such as mangroves and watersheds, pollution and foreshore management, and urban and industrial development in the coastal areas, have been retained by various agencies of the national Government. Local governments lack technical knowledge, skills, and resources to successfully develop effective management regimes and harmonize various interests operating in the coastal area. In addition, lack of qualified staff prevents the Department of Environment and Natural Resources (DENR) and other national agencies concerned from assisting local governments in effectively carrying out coastal management functions and properly coordinating with them. 10. A common issue in coastal resources management has been the poor compliance with laws and regulations. This is partly because of inconsistencies in laws, regulations, and guidelines that were developed over time and across sectors. Sometimes the national regulations and department administrative orders are in conflict with the interest of local governments and their legislative mandate. Moreover, most local governments do not have the capacity or budget to implement the laws under their jurisdiction. 11. Sector issues and threats to biodiversity are discussed in Appendix 2. 3. External Assistance to the Sector 12. Agencies providing external assistance to the Philippines marine and coastal resources sector include the Asian Development Bank (ADB), Canadian International Development Agency, GEF, Japan Bank for International Cooperation, Organization of Petroleum Exporting Countries, United Nations Development Programme, United States Agency for International Development (USAID), and World Bank. ADB has been the lead agency in the sector, providing nine loans for $169.5 million for six projects; and 10 project preparatory and advisory technical assistance projects for $3.8 million. The World Bank follows, providing loans for $115 million. External assistance to the marine and coastal resources sector is described in Appendix 3. 3

13. Earlier ADB-assisted projects aimed at improving fisheries production. Only two ADB projects have direct relevance to the proposed Project: the Fisheries Sector Program 1 and Fisheries Resources Management Project.2 Most of the other external assistance to the sector was also directed at increasing the efficiency of fishing fleets and developing aquaculture; only a few programs and projects were directed at marine and coastal resources management. The notables among the latter category are the USAID-financed Coastal Resources Management Project, German Government-supported Leyte Island Program for Sustainable Management of Natural Resources, and the World Bank-financed Central Visayas Regional Project and Community-Based Resource Management Project. 14. GEF has made significant direct contributions to conserving important Philippine biodiversity resources, both through regional and country-specific projects. The GEF-supported projects that are directly or indirectly supporting marine biodiversity conservation include (i) Conservation of Priority Protected Area Project, approved in May 1991; (ii) Partnership for the Environmental Management for the Seas of East Asia, approved in November 1998; (iii) Coastal Marine Biodiversity Conservation Project, approved in May 1999; (iv) Tubataha Reef National Marine Park, approved in March 2000; (v) Critical Ecosystems Partnership Fund, approved in July 2000; (vi) Bohol Marine Triangle, approved in December 2000; (vii) Asian Conservation Corporation and Asian Conservation Foundation, approved in May 2002; and (viii) Marine Aquaculture Market Transformation Initiative, approved in May 2004. 4. Lessons 15. The Government commenced its coastal resources management initiatives, implemented with bilateral and multilateral assistance, in the mid-1980s. Interventions, notably in marine protected areas (MPAs), resulted in significant positive impacts on biophysical parameters such as coral cover, fish catch, and biodiversity; promoted good governance practices, especially locally with the participation of local communities in resource management and law enforcement; and created an awareness among local officials and coastal communities of the need for conservation and protection of coastal ecosystems. About 150 coastal municipalities and cities have coastal resources management programs covering about 4,000 km of coastline, the incidence of illegal fishing has declined significantly in provinces with management programs, and more than 5,000 coastal resources management practitioners with various levels of training are now available within the government and nongovernment sectors in the country. 16. Despite these significant gains, threats to the management of coastal resources still persist due to a number of complex factors including lack of an integrated approach to coastal zone planning, policy and institutional weaknesses, weak law enforcement, high poverty incidence among coastal fisherfolk, and open access to marine and coastal resources. The following important lessons are identified from the implementation of previous programs: (i) Holistic approach to coastal resources management. The origin of threats to coastal areas spans from the watershed divide in the mountains to the sea. Effective coastal resources management, therefore, should follow an integrated, holistic approach that considers interaction among and within resource systems as well as interaction between humans and their environment. (ii) Local institutional strengthening. Local governments need to strengthen capacity to manage their natural resources, and the national Government and

1 ADB. 1989. Report and Recommendation of the President to the Republic of the Philippines for the Fisheries Sector Program. Manila (Loans 971[SF]/972-PHI for $80 million). 2 ADB. 1997. Report and Recommendation of the President to the Republic of the Philippines for the Fisheries Resources Management Project. Manila (Loans 1562[SF]/1563-PHI for $35.2 million).

4

sector agencies concerned should assist them by providing resources, legal mandate, and technical guidance. Academic institutions, nongovernment organizations (NGOs), and private firms can provide valuable technical assistance and training functions in an efficient manner. (iii) Participatory planning addressing local issues. Local government coastal management plans, developed through a community participation process, must integrate a comprehensive set of interventions in the coastal zone, depending on the issues and needs of the municipality. These include municipal water delineation and zoning, regulations for fisheries and the use of other coastal resources, legislation and enforcement of national and local laws on ICRM, establishment of marine sanctuaries, and foreshore and shoreline management. (iv) Income diversification. Enterprise development and alternative livelihoods for fisherfolk are essential to reduce pressure on coastal fisheries, and should precede conservation initiatives. Economic interventions with private sector investment and buy-in are more viable and allow for better and faster technology transfer to village-based partners.

17. Specific lessons from implementation of the Fisheries Sector Program loan (footnote 1) include (i) policy initiatives should be supported by information, education, and communication (IEC) campaigns and provide for adequate preparation of stakeholders; (ii) a process approach should be adopted that allows necessary changes/modifications to the original design; (iii) project implementation should involve local government units (LGUs) and provide for a mechanism for determining and delineating responsibilities between the national Government and LGUs; (iv) alternative livelihood programs should provide for adequate social preparation of beneficiaries; and (v) availability of capable local NGOs is often overestimated and this constraint should be considered in the project design.3 The implementation experience of the recently completed Fisheries Resources Management Project (footnote 2) identified the following: (i) capacity-building needs of implementing agencies should be addressed, (ii) LGUs should be directly involved in planning and implementing field activities, (iii) not all municipalities have capable NGOs to help with project implementation, and (iv) livelihood development activities should precede the implementation of conservation programs. 18. In addition, major lessons from various GEF-, USAID-, and World Bank-assisted projects in the country and region are (i) projects should have a broad stakeholder focus in planning, capacity building, and implementation; (ii) management plans should be flexible and adaptive to build on monitoring and research findings; (iii) projects should have a practical and simple approach involving proven and tested tools/activities; (iv) project design should emphasize institutional and financial sustainability of conservation and management initiatives; and (v) linkages with similar ongoing projects should be built in the project design. 5. Government Policy and Strategy for Coastal Resources Management 19. The Government recognizes the problems of (i) extensive poverty in the coastal community, (ii) degradation of natural resources, (iii) unbalanced use of aquatic resources, and (iv) increasing population concentration in coastal zones. In 2003, the Government drafted, with United Nations Development Programme assistance, ArcDev: A Framework for Sustainable Philippine Archipelagic Development, which articulates a common vision and unified strategy for coastal and marine resources development. The salient aspects of the framework are (i) promotion of archipelagic integration that recognizes the interaction of land, sea, air, and people in an archipelagic setting; (ii) meaningful and responsive participation of all stakeholders in

3 ADB. 2000. Project Performance Audit Report on the Fisheries Sector Program in the Philippines. Manila. 5 planning and implementing an integrated ocean management policy; (iii) conservation, protection, and use of marine resources and marine environment for the benefit of present and future generations; and (iv) sustainable development of coastal resources for economic development in the coastal region and well-being of coastal people. A draft policy on coastal resources management, prepared with USAID assistance, needs to be finalized through a consultative process taking into account recent developments, particularly the emphasis on a holistic approach to resource management. The Medium-Term Philippine Development Plan 2004–2010 emphasizes (i) participatory planning, zoning, and standard setting in coastal protection and management; (ii) delineation of coastal zones for protection, exploration, and utilization; and delineation of municipal waters in coastal areas with offshore islands; (iii) rehabilitation and management of mangrove and coastal watersheds; and (iv) establishment and management of MPAs in cooperation with LGUs. 20. In June 2006, the President of the Philippines issued Executive Order 533 adopting integrated coastal management as a national strategy to ensure sustainable development of the country’s coastal and marine environment and resources, and establishing supporting mechanisms for its implementation. The order requires DENR to develop a national program on coastal and marine resources management following an integrated approach and addressing related policy, institutional, legal, social, and economic issues. 6. ADB’s Sector Objectives and Strategies 21. ADB’s country operational strategy, 4 which is closely aligned with the Government’s development objectives, aims at supporting Government initiatives for improving fiscal responsibility and revitalizing the economy, improving management of assets, reducing poverty and geographical inequalities, protecting the environment, and promoting good governance. In the agriculture and natural resources sector, ADB will support resource management, development of sustainable enterprises and livelihoods, and development of basic social services and rural infrastructure. The sector will focus on improving the capacity of LGUs for devolved responsibilities, as well as strengthening the capacity of community-based organizations, NGOs, and local institutions. 22. The proposed Project belongs to group II of the priority classification of ADB’s Medium- Term Strategy II, and will support environmental management and biodiversity conservation. An important element of the Medium-Term Strategy II is promoting regional cooperation in the management of public goods such as natural resources including marine and coastal resources. The conservation and management impact of priority biodiversity corridors and marine ecosystems under the Project will go beyond Philippine waters, benefiting other countries in the region. In particular, the Project will be an important complementary activity to the work being discussed with neighboring governments to support the sustainable development of the Sulu- Sulawesi Sea ecoregion. III. THE PROPOSED PROJECT A. Impact and Outcome 23. The expected impact of the Project is enhanced coastal resources. The expected outcomes are sustainable management of coastal resources and increased income for coastal communities.

4 ADB. 2005. Country Strategy and Program (2005–2007) Philippines. Manila.

6

24. The Project will cover provinces and municipalities surrounding marine biodiversity corridors of national and global importance as identified by the Philippine Biodiversity Conservation Priorities.5 Four “extremely high” priority biodiversity corridors were selected: (i) the Babuyan corridor along the northern coast of Luzon joining the Pacific Ocean and South China Sea, (ii) the Ticao Pass–San Bernardino Strait–Samar Sea corridor, (iii) the Daanbantayan corridor straddling the Visayas Sea and the Tanon Strait, and (iv) the Pujada Bay corridor, an important point of convergence for bioregions of the Pacific Ocean and the Celebes Sea. Two more areas of “very high” to “high” priority marine biodiversity significance near to marine corridors were selected: (i) the Zambales marine ecosystem in the Luzon Sea, and (ii) the Siquijor small-island marine ecosystem between the Bohol Sea and Sulu Sea. Biodiversity significance and major threats of these marine corridors and ecosystems are described in Supplementary Appendix A. 25. Within the marine biodiversity corridor and ecosystems identified, six provinces were selected based on the following: (i) strategic location, (ii) status of coastal communities that can potentially benefit from the enhanced management of coastal resources, and (iii) willingness of provinces and municipalities to support an ICRM program. The provinces selected are Cagayan, Cebu, Davao Oriental, Masbate, Siquijor, and Zambales. Sixty-eight municipalities within these provinces were selected and are listed in Appendix 4. B. Outputs 26. The Project comprises four components: component A: policy and institutional strengthening and development; component B: ICRM and biodiversity conservation; component C: enterprise development and income diversification, and component D: social and environmental services and facilities. 1. Component A: Policy and Institutional Strengthening and Development 27. The component aims at (i) rationalizing Government policy for ICRM and improving coordination mechanisms, (ii) strengthening national and local government institutional capacity, and (iii) developing a performance-based incentive and disincentive system for local governments. Policy weaknesses and legal gaps in the management of coastal zones and habitats will be studied and corrective measures recommended. Drawing on the works under the previous United Nations Development Programme assistance, and as required under Executive Order 533 on integrated coastal management, the Project will develop an institutional framework for national and local government coordination of ICRM. A comprehensive national policy on ICRM will be finalized and an IEC campaign undertaken. In light of the national policy, the roles of the Department of Agriculture (DA), DENR, local governments, and other national Government agencies in ICRM and related activities will be clarified. Imposition and collection of user fees and resource rents for MPAs, mangroves, coral reefs, beaches, and foreshores as sustainable means for financing ICRM operations will be studied and operationalized. 28. The Project will support human resource and institutional development of DA, DENR, and local governments. Capacity-building needs of the institutions and their human resources will be assessed and appropriate strategies developed to address these. In view of the present moratorium on the creation of new regular staff positions in national government agencies, DENR will address the present shortage of qualified staff in marine and coastal resources management through staff redeployment and training. About 600 DA, DENR, and municipal government staff will be trained in various aspects of ICRM including basic practices of coastal resources management, resource enhancement, social preparation, environmental

5 DENR. 2002. Philippine Biodiversity Conservation Priorities: A Second Iteration of the National Biodiversity Strategy and Action Plan. Manila. 7 management, and biodiversity conservation. Multisector local government ICRM organizations, including fisheries and aquatic resources management committees, bantay dagats (marine watch teams), and NGOs will be developed and strengthened. 29. The Project will support identification and dissemination of a performance-based incentive-disincentive system that builds on and links to DENR’s coastal resources management certification system. The system establishes performance benchmarks for local governments. Viable material incentives will be provided to the certificate recipient local governments to continue good coastal resources management practices. The performance- based incentive system will be linked to the ecogovernance index developed under the USAID- assisted Ecogovernance Project of DENR. 2. Component B: ICRM and Biodiversity Conservation 30. The component will promote basic ICRM practices, i.e., adaptive planning and budgeting, municipal water zoning, law enforcement, pollution control and environmental management, resource use licensing, and management of foreshores, beaches, and mangroves. Coastal resources in 68 municipal waters will be assessed through participatory and scientific resource assessment. Participatory assessment will be undertaken for all the coastal waters, while scientific assessments will be done in selected sites of high biodiversity; the results will be reflected in the updated municipal coastal database and compiled in a national coastal resources database. ICRM plans will be developed and integrated into the municipal planning process. About 7,000 ha of mangroves will be brought under improved management and about 2,000 ha will be reforested. About 4,000 ha of denuded watersheds will be reforested and 3,500 ha of forests in watersheds will be rehabilitated. Local fisheries and aquatic resources management committees, marine watch teams, and NGOs will be trained on participatory enforcement mechanisms for fisheries laws and regulations, and provided with basic equipment and facilities. 31. The component will protect and manage coastal ecosystems in selected threatened areas of high biodiversity. Networks of 50 MPAs, comprising about 15–20 new MPAs and 30–35 existing MPAs, will be developed in the six priority biodiversity corridors and marine ecosystems. MPA management plans will be developed and/or strengthened and functional organizations will be put in place. The management plans will be supported by targeted research on critical biodiversity resources including sensitive ecosystems and threatened flagship species, and will include species restocking and pilot schemes for coral reef and giant clam transplanting. Five ICRM centers will be established as hubs for biodiversity monitoring and research, and training and demonstration activities. The centers will be located at the existing marine science institutions and project support will complement existing facilities for similar activities. ICRM centers will also be the focal points for undertaking an IEC campaign to be developed and implemented in coordination with the ongoing works under the communication, education, and public awareness program of the Convention on Biodiversity; operational links between the two will be examined and specific recommendations made during the initial stage of project implementation. 32. The Project will also support development and implementation of a system for ecocertification of sustainable harvesting activities in reef-associated species, taking into account the changing degree of vulnerability of species; and will link it to the Project’s biodiversity monitoring program. The system will cover food fish and ornamental fish for the aquarium market.6 The Project will train about 680 individuals from coastal communities and

6 In developing an ecocertification system for aquarium market fish, the Project will coordinate with the GEF-assisted Marine Aquarium Market Transformation Initiative, approved in May 2004.

8 participating municipality staff in 68 municipalities to regulate and manage the trade of marine species. 3. Component C: Enterprise Development and Income Diversification 33. The component aims at providing municipal fisherfolk with supplementary income and reducing their reliance on fishing by promoting environment-friendly sustainable enterprises and livelihoods. Technical and institutional support will be provided to undertake viable livelihoods and enterprises identified from similar ongoing programs and other potential ones. Enterprises providing employment opportunities to about 6,800 people will be developed during project implementation. Priority will be given to people affected by the restricted use of coastal resources. Activities will include (i) undertaking social preparation including community organization, needs and resource assessment, and savings mobilization; (ii) establishing an enterprise development unit in each province, identifying appropriate livelihoods and enterprises, and undertaking feasibility and market studies; (iii) establishing about 370 enterprises in 68 municipalities, and training 6,800 fisherfolk on technical and managerial aspects of enterprises; (iv) assisting community groups in preparing bankable business plans and accessing credit facilities of formal banking systems such as Land Bank of the Philippines, Development Bank of the Philippines, rural and thrift banks, cooperatives and NGOs, or other existing and programmed credit facilities including the Isang Bayan, Isang Produkto, Isang Milyong Piso programs; (v) helping develop partnerships between coastal communities and private entrepreneurs in enterprise operation, management, and marketing; and (vi) promoting and developing ICRM-related ecotourism. In developing livelihoods and enterprises, care will be taken to ensure that intended activities are aligned and connected with those existing in the project area. 4. Component D: Social and Environmental Services and Facilities 34. This component will address the basic social services needs of disadvantaged coastal communities, and support local governments’ efforts to mitigate coastal pollution and degradation of resources. The component will follow a demand-driven approach, providing technical and investment support to participating municipalities for improving water supply and sanitation, managing solid waste, providing add-on school classrooms and day-care centers, and mitigating coastal pollution and erosion. Beneficiaries will be trained on operation and maintenance of the completed subprojects. The selection criteria for social and environmental infrastructure are given in Appendix 5. C. Special Features 35. Biodiversity Conservation with GEF Participation. A key feature of the Project is the conservation of biodiversity of global importance with GEF involvement. The biodiversity conservation measures under the Project follow an innovative approach by developing networks of MPAs within marine corridors and ecosystems that are recognized as having high biodiversity of global significance. By promoting protection of sites over an extended area within the corridors, greater exchange of fish and larvae will result, improving chances of restoring biodiversity where resource depletion and habitat loss has occurred. By reducing gaps in management coverage in the corridors, weak links in the management chain will be reduced and more effective management of entire marine corridors will be supported. 36. Poverty Targeting. The project design includes a combination of measures to maximize project impact on poverty. The rural poverty incidence in the six provinces that will receive support for ICRM ranges between 25.8% and 77.0%, with a six-province average of 59.0% compared with the national average of 48.8%. Within the rural population, the incidence of 9 poverty is much higher in the coastal communities at 76.0%; the coastal population will be the primary beneficiary of improved coastal resources management supported by the Project. The criteria for selection of schemes under the social and environmental services and facilities component will give priority to communities that have a high incidence of poverty. Similarly, the income diversification and enterprise development component will focus on poor disadvantaged groups with little or no access to technology and capital. 37. Environmental Governance and Performance Monitoring. The Project will support implementation of the ecogovernance index developed by the USAID-assisted Ecogovernance Project of DENR, which aims at greater transparency, accountability, and participatory decision- making in the management of natural resources, including marine and coastal resources, and environmental management. The index includes four activities that represent the flow of government actions in resource management: planning, budgeting, implementation (including procurement and issuance of permits and licenses), and control or enforcement (monitoring, reporting, sanctioning, etc.). The index will be applied to measuring performance of DA, DENR, and local governments concerned; Internet access will be available through a website to be established for the Project. 38. Gender and Development. Despite their extensive involvement in the marketing of fisheries and other aquatic products, women are not well represented in coastal resources management, or in training, meetings and other related activities. While recognizing the need to respect local values and beliefs, and the choices of both men and women about taking part in specific activities, the Project will promote greater involvement of women in the decision-making process of ICRM. Specific activities include (i) national and local gender sensitization training and collection of gender-disaggregated data in household socioeconomic studies, biodiversity, and related ICRM research and policy and legal studies as the basis for defining intervention measures; (ii) integration of gender analysis in ICRM planning, monitoring, and evaluation; and (iii) conduct of gender and development orientation and related training to national and local government personnel and community members. The project strategy for gender and development is outlined in the summary poverty reduction and social strategy (Appendix 6). The gender action plan (Appendix 7) sets a participation target for women of 33% in membership in ICRM organizations, MPA management boards and self-reliant groups for livelihood; staff training in biodiversity and ICRM; and incremental staff recruitment for the Project. 39. Environmental Safeguards. The project activities are aimed at, among other things, sustainable management of marine and coastal resources and environmental protection, and by design are not expected to create any significant adverse environmental impact. An initial environmental examination (IEE) (Supplementary Appendix B) was conducted during project preparation and the findings are summarized in Appendix 8. The IEE determines that most activities will contribute to environmental improvement, and subprojects to be identified during implementation are likely to be classified as B or C. Activities with potential adverse impact relate to two components: (i) component C: income diversification and enterprise development, and (ii) component D: social and environmental facilities and services. Component C may support development of small-scale mariculture including cage farming, which could have small adverse environmental impacts. Such adverse impacts will be avoided or mitigated through appropriate siting, management, and monitoring. Prior to the commencement of mariculture, fisherfolk will be trained on the technology and management of mariculture, including environmental management. The mariculture operation will be monitored as part of the overall resource management plan and environmental problems and issues will be identified, consistent with the IEE for the Project, in time for appropriate action. Social and environmental facilities under component D will include development of rural water supply, public toilets, classrooms, day-care centers, and small-scale coastal erosion structures—construction of which, if not done

10 properly, may cause environmental problems. An environmental assessment and review framework (Supplementary Appendix C) was prepared to guide the screening of subprojects under components C and D, taking into account both ADB and Government safeguard requirements. An IEE will be prepared in accordance with the environmental assessment and review framework for each such scheme screened as category B, and will identify potential environmental concerns and recommend appropriate mitigation and monitoring measures. The IEE will be prepared by the local government concerned, and reviewed and approved by the relevant DENR office as per environment regulations of the Government. Provision has been made for budgetary support to the participating municipalities for undertaking environmental monitoring for the activities under components C and D over 5 years. Provision has also been made for capacity building of regional and municipal government staff in environmental management and monitoring through training courses to be conducted during the first year of project implementation. 40. Social Safeguards and Indigenous People. The Project will require small plots of land for the construction of social and environmental facilities, which will be obtained through allocation of available unoccupied public land, and purchases in the open market. Since the land acquisition will not entail exercising the right of eminent domain, such acquisition will not involve ADB’s involuntary resettlement policy.7 Infrastructure proposals will be identified during participatory formulation of the ICRM plan, which the regional steering committee (para. 52) and DENR will approve; this will trigger a feasibility study. The regional steering committee will review the feasibility study for technical and economic viability, and compliance with the selection criteria. Committee approval will be conditional on the municipality providing unoccupied public land or purchasing the land at market rate, if additional land is required. The Municipal Development Fund Office (para. 59) will enter into an agreement with the municipality for financing the infrastructure once these conditions are fulfilled and documentary evidence submitted. Documents will establish plot location, ownership, cost, and tenure status; and guarantees that land purchases are not forced upon the sellers and public land plots are unoccupied. 41. Resource management activities such as establishment of no-take zones8 within MPAs, control of destructive fishing, and mangrove and watershed management may have adverse impact on the livelihoods of some people; such impacts will, however, be small and temporary. The impacts will be mitigated through the community-based natural resources management contracts and group-based alternative livelihood enterprises to be supported by the Project under components B and C. The challenge will be to identify people affected and ensure their participation in these activities. The ICRM plan to be prepared for each municipality under component B, in a participatory manner, will identify people affected and ensure their inclusion in the mitigation program. They will be given priority for participation in the alternative livelihood activities under component D, which will begin implementation in year 1 of the Project. Resource access restriction impacts and mitigation measures including implementation arrangements are given in Appendix 9. 42. Available information suggests that the Project will not cover or affect any area inhabited by indigenous people. If such groups of people are identified as being significantly affected by the Project in any municipalities, then indigenous peoples’ development plans will be prepared in accordance with ADB’s indigenous peoples policy,9 and implementation of project activities in these municipalities will be conditional on ADB’s approval of the relevant indigenous peoples’ development plans.

7 ADB. 1995. Involuntary Resettlement. Manila. 8 Harvesting of fish or any other aquatic resources is not allowed within no-take zones. 9 ADB. 1998. The Bank’s Policy on Indigenous Peoples. Manila. 11

D. Project Investment Plan 43. The project investment cost is estimated at $62.32 million, including taxes and duties of $5.15 million (Table 1). A summary of cost estimates by expenditure category and by financier is given in Appendix 10 and details are provided in Supplementary Appendix D. Table 1: Project Investment Plan ($ million)

Item Total A. Policy and Institutional Strengthening and Development 1.38 B. ICRM and Biodiversity Conservation 29.85 C Enterprise Development and Income Diversification 6.11 D. Social and Environmental Services and Facilities 12.97 E. Project Implementation 3.00 Subtotal (A+B+C+D+E) 53.32 F. Contingencies 1. Physical 1.68 2. Price 1.05 G. Interest and Other Charges during Construction 6.27 Total 62.32 ICRM = integrated coastal resources management. Sources: Asian Development Bank and Government estimates.

E. Financing Plan 44. The Government has requested a loan of $33.80 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 6 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.75% per annum, and such other terms and conditions set forth in the draft loan agreement. The interest and other charges during implementation will be capitalized. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. 45. On behalf of the Government, ADB asked GEF to provide grant financing for the Project, and GEF approved a grant of $9.0 million on 1 December 2006. The grant, to be administered by ADB, will cover costs of activities related to conservation and management of biological diversity. 46. Activities related to social and environmental infrastructure under component D are devolved functions of municipalities; costs for these activities, estimated at $13.20 million equivalent including contingencies, will be partly borne by the participating municipalities in accordance with the applicable terms and conditions of the National Government and Local Government Unit Cost-Sharing Policy (Appendix 11). The Government’s financial support to the municipalities will be a mix of loan and grant, which will complement equity contributions from the municipalities and beneficiaries. In addition, the municipal governments and beneficiaries will finance $7.36 million as part of the costs under components B and C for activities related to participatory law enforcement, and biodiversity conservation.

12

Table 2: Financing Plan ($ million)

Source Total Percent Asian Development Bank 33.80 54.2 Global Environment Facility 9.00 14.4 Central Government 8.71 14.0 Local Governments and Beneficiaries 10.81 17.4 Total 62.32 100.0 Sources: Asian Development Bank and the Government

F. Implementation Arrangements 1. Project Management 47. DENR, as the Executing Agency, will be responsible for overall project management. The project implementing agencies are as follows: (i) policy and institutional strengthening and development component: DA and DENR; (ii) ICRM and biodiversity conservation component: DA and DENR; (iii) enterprise development and income diversification component: DA and DENR; and (iv) social and environmental services and facilities component: municipal governments. DA and DENR will implement components (i) to (iii) with the active participation of municipal governments. 48. DENR will execute and implement the Project through its existing central, regional, and provincial organization. The Foreign-Assisted and Special Projects Office at the DENR central office will be the project management office (PMO). Working under the guidance of the secretary and direct supervision of the assistant secretary for foreign-assisted projects, the PMO will be responsible for overall planning, programming, budgeting, operations, monitoring, and management of the Project. As an implementing agency, DENR will be responsible for initiating activities related to rationalizing ICRM policies; developing regulation and coordination frameworks; developing national, regional, and municipal human resources; establishing marine protected areas; undertaking targeted research on biodiversity conservation and management; developing and implementing an ecocertification mechanism; and rehabilitating and managing mangroves and watersheds. DENR will implement these activities drawing technical support from its relevant specialized bureaus and offices at headquarters, including the Coastal and Marine Management Office, Protected Areas and Wildlife Bureau, and Environmental Management Bureau. Field implementation will be carried out through coastal and marine management divisions located at the DENR regional offices in regions II, III, V, VII, and XI; provincial environment and natural resources offices; and community environment and natural resources offices (subprovincial). 49. DA will be responsible, in collaboration with DENR and participating municipalities, for undertaking participatory and scientific resource assessment and developing a database on living aquatic resources in coastal waters; undertaking studies on conservation of traded and threatened marine species; enhancing habitat and stock; and identifying and promoting viable 13 alternative livelihoods for fisherfolk. DA will provide technical support to DENR in relevant policy studies including studies on resource rents and user fees as applicable to fishery activities and initiatives to harmonize conflicting jurisdiction between national agencies involved in ICRM. DA will provide these services through the Bureau of Fisheries and Aquatic Resources and its regional offices in the five project regions. The Office of the Assistant Director for Technical Services (central office of the Bureau of Fisheries and Aquatic Resources) will be responsible for planning, implementing, and monitoring DA activities and act as the DA focal point for the Project. 50. The five ICRM centers under component B will be established at or attached to existing marine science institutions. Two potential institutions of international repute are the University of the Philippines’ Marine Science Institute and Silliman University; one or both of these institutions will be selected for project participation. DENR will sign a memorandum of agreement with the selected institution(s) incorporating the institution’s functions and responsibilities and the financial and other support the Project will provide. The institutions will, in coordination with DENR, select a local university or college in each of the five project regions to host an ICRM center. 51. The municipal governments will be directly responsible for selection, design, and implementation of the infrastructure supports and facilities under component D. DENR and DA will engage project municipalities in participatory resource assessment, establishment and management of marine protected areas, enforcement of laws and regulations, and identification and promotion of alternative livelihoods. The municipal engineering office will be the designated municipal project unit for infrastructure development, while the municipal agriculture office will be the designated municipal project unit for activities related to resource management and biodiversity conservation. These offices will undertake the activities in coordination with the fisheries and aquatic resources management committees, marine watch teams, and other relevant people’s organizations in the municipality. 52. DENR will establish a project steering committee (PSC) to oversee and coordinate project implementation. The PSC will be chaired by the secretary, DENR (or his/her authorized representative); and comprise senior officials of DA and the departments of budget management, interior and local governments, and finance, and National Economic and Development Authority. Municipal and provincial governments will be invited to attend meetings on issues that require their participation. DENR will establish a regional steering committee in each of the region II, III and VII to oversee and coordinate project implementation within the region, and to review and approve municipal ICRM plans including subprojects under component D. The committee will comprise representatives of concerned regional agencies and institutions and participating local governments. The provinces of Davao Oriental and Masbate being far away from respective regional headquarters, DENR will establish a provincial steering committees in these two provinces performing the tasks similar to that of regional steering committees. The project organization chart is given in Appendix 12. 2. Implementation Period 53. The Project will be implemented over 6 years, commencing in early 2007. A summary project implementation schedule is given in Appendix 13. 3. Procurement 54. Goods and services financed partly or wholly by ADB and GEF will be procured in accordance with the ADB’s Procurement Guidelines. Equipment to be procured under the Project will consist primarily of office, laboratory and training equipment, motorbikes, utility

14 vehicles, and motorized boats. Contract packages exceeding $500,000 will be awarded on the basis of international competitive bidding. Each contract costing between $100,000 and $500,000 will be awarded through national competitive bidding. Minor equipment and materials costing less than $100,000 will be procured through shopping. A procurement plan is given in Appendix 14. 55. Most civil works under part D of the Project will be carried out using labor-intensive technology, with arrangements for cost-sharing by local communities in the form of labor, local material, or cash. Such civil works packages will be contracted out by the LGUs to the communities following the procedures for community participation in procurement as provided in ADB's Procurement Guidelines (April 2006, as amended from time to time), with a contract ceiling of $10,000. Civil works packages not exceeding $100,000 will be awarded on the basis of shopping. Civil works packages more than $100,000 will be awarded on the basis of national competitive bidding. No civil works package is estimated to exceed $150,000. 4. Consulting Services 56. The Project will require an estimated 369 person-months of consulting services: 51 person-months international and 318 person-months national. Fields of expertise and outline terms of reference are given in Appendix 15. All consultants except the enterprise development specialist will be selected and engaged as a firm in accordance with ADB’s Guidelines on the Use of Consultants (April 2006, as amended from time to time). In selecting the firm, the quality- and cost-based selection method will be used and the shortlisted firms will be required to submit full technical proposals. Provision has been made for one enterprise development specialist (national) with expertise in private sector development and different in nature from the rest of the consultant team, all of whom will work on coastal resources management. The enterprise development specialist will, therefore, be selected as an individual consultant. The Government has agreed to recruit the individual consultant in accordance with ADB’s procedure for recruiting individual consultant. The Project also provides for conducting special studies under components A and B, and for preparing detailed subproject proposals under component D; the cost will range from $2,500 to $25,000 per assignment. Competitive bidding will not be cost- effective for these very small size assignments, which will be contracted out to local firms following the single-source selection procedure. 5. Anticorruption Policy 57. ADB’s anticorruption policy10 was explained to and discussed with the Government and DENR. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s anticorruption policy are included in the loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB and GEF in connection with the Project will include provisions specifying the right of ADB to audit and examine the records and accounts of DENR and all contractors, suppliers, consultants, and other service providers as they relate to the Project. 58. The project design and implementation arrangements provide for mitigating corruption risks. Risks associated with project management, including procurement and disbursement, will be mitigated by using national, regional, and field participatory management, and improving transparency and accountability. The cost-sharing arrangement will motivate local governments to strive for economy and efficiency in project implementation, and avoid corrupt practices. Most

10 ADB. 1998. Anticorruption (as amended to date). Manila. 15 social and environmental infrastructure and facilities will be developed by beneficiary communities ensuring better use of the allocated funds. In addition, performance of DA, DENR, and local governments will be monitored against the ecogovernance index (para. 37). 6. Disbursement Arrangements 59. For activities to be implemented by DA and DENR, the ADB loan and GEF grant proceeds will be provided through budgetary allocation to these agencies. Activities to be implemented by municipal governments will be jointly financed by the national Government, municipality concerned, and local communities. ADB loan proceeds and national Government support for activities to be directly implemented by municipalities will be disbursed through the Municipal Development Fund Office (MDFO) of the Department of Finance as a mix of loan and grant. 60. The Department of Finance will establish three imprest accounts: two accounts for DENR (one each for the ADB loan and GEF grant), and one for MDFO (for the ADB loan). The accounts will facilitate timely release of funds for making payments, particularly for expenditures under small contracts. DENR and MDFO will operate and maintain the imprest accounts in accordance with ADB’s Loan Disbursement Handbook. The advance to the imprest accounts will be limited to 10% of the allocations of DENR and MDFO components financed by the ADB loan and 10% of the grant for the components financed by GEF, or 6 months projected expenditure of the respective components, whichever is less. ADB’s statement of expenditure procedure will be followed to liquidate funds advanced to the imprest accounts and will apply to contracts not exceeding $100,000. 61. An assessment of the financial management capability of DENR and the implementing agencies and specific arrangements for managing project funds are given in Appendix 16. 7. Accounting, Auditing, and Reporting 62. All agencies involved in project implementation will maintain separate accounts exclusively for project-related disbursements. The PMO will review and consolidate these accounts and have them audited annually in accordance with sound auditing practices by the sovereign audit agency of the Government or other auditors acceptable to ADB. The audit report will include a statement verifying whether or not the funds disbursed by ADB were used for the purpose for which they were provided. The report will include the auditor's opinion on the use of imprest account and statement of expenditure procedure. Copies of the audited accounts and auditor’s report will be submitted to ADB within 9 months after the end of each fiscal year. 8. Project Performance Monitoring and Evaluation 63. A project performance management system (PPMS) will be established at national and regional DENR operations. The Foreign-Assisted and Special Projects Office will be responsible for developing and operating the PPMS with information provided by the PMO and regional offices concerned. The PPMS will encompass the following elements: (i) monitoring of physical and financial progress, as well as the economy and efficiency in achieving major activities; (ii) monitoring of the level and adequacy of participation of various stakeholders in planning and implementing project activities, and the performance of DENR and implementing agencies against the ecogovernance index; (iii) collection of gender-disaggregated data in benchmark surveys and policy and legal studies; (iv) monitoring of the Project’s social, environmental, biodiversity conservation, and economic impacts, including the establishment of benchmark information and data; and (v) development of a mechanism for making necessary adjustments in project design and implementation arrangements in light of the PPMS findings.

16

64. Consistent with the GEF operational strategy, biodiversity monitoring will pay special attention to species selection, current occurrence, density, and other demographic parameters, including yield studies, regeneration surveys, and actual impacts of harvesting. The Project will coordinate with GEF in designing the monitoring and evaluation of biodiversity. The five ICRM centers will oversee the monitoring and evaluation program. The Project will also coordinate with the European Union-financed Association of Southeast Asian Nations Biodiversity Conservation Center, Philippines, to draw on their experience in developing a biodiversity information monitoring system. 65. The PPMS will provide for baseline, midterm, and completion surveys; and train staff on the proper monitoring of field activities for ICRM and biodiversity, alternative livelihoods, and social and environmental infrastructure. PPMS findings will be incorporated in quarterly project progress reports to be prepared by the PMO within 3 weeks of the end of the reporting period and submitted to ADB and Government oversight agencies and local governments concerned. The Project will establish a website, in English and Tagalog, for wider dissemination of project initiatives and achievements, and to provide a feedback mechanism. The website will draw upon the municipal coastal and MPA databases, and will serve as a depository for ICRM-related reports and publications. 9. Project Review 66. In addition to regular monitoring, the project performance will be reviewed at least twice a year jointly by ADB and the Government. The review will assess implementation performance and achievement of project outcomes and objectives, review financial progress, identify issues and constraints affecting the Project, and work out a time-bound action plan for their resolution. In 2009, ADB and the Government will undertake a midterm review of the Project to assess the implementation status; review the project parameters; and take appropriate measures including modification of scope and implementation arrangements, and reallocation of loan and grant proceeds, as appropriate, in light of implementation experience, to achieve the project objectives. IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS A. Environmental, Social, and Poverty Reduction Benefits 67. The Project will directly address threats to coral reefs, sea-grass beds, mangroves, and beaches—the major coastal ecosystems. These independent ecosystems perform a wide range of biological and physical functions that underline their environmental, biological, and economic importance. Ensuring their protection is vital to arresting declining fish catch and a potential collapse of coastal fisheries. At project completion, the fish catch outside the no-take zones of the project-supported 50 MPAs is expected to increase by 10% over the baseline; hard coral cover in the 50,000 ha reef areas to increase by 10%; density of the 5,000 ha of mangroves to be brought under improved management practices to improve by 20%; and incidence of destructive fishing in the coastal waters of 68 municipalities to be reduced by 50%. Other immediate benefits from the protection of these marine and coastal ecosystems are prevention of coastal erosion and saline water intrusion into the coastal aquifer, and natural assimilation and treatment of coastal wastes. 68. A major environmental benefit of the Project is protection of the globally significant biological diversity of Philippine waters. The 50 MPAs in the priority marine biodiversity corridors will form a network of reefs and associated coastal ecosystems that harbor unique flagship species and contribute to conservation and management of important marine and coastal species, including humpback whales, thresher sharks, whale sharks, manta rays, banded sea 17 snakes, dolphins, and olive ridley and hawksbill sea turtles. Illegal commercial poaching, overfishing, and destructive fishing being practiced in the MPAs will be eliminated or reduced, and the rich biological diversity conserved. 69. Mechanisms and strategies for beneficiary community participation, such as IEC campaigns, community organization and training, and credit access and enterprise development training, will help transform coastal communities into responsible resource users and managers. IEC and extension programs will result in behavioral changes in coastal communities, particularly in the use of coastal resources, and bring about improvements in reef health. 70. By improving coastal fisheries resources and generating opportunities, the Project will address two of the root causes of rural poverty in the Philippines as identified in ADB's Poverty Assessment for the Philippines (2004): (i) weak performance of the agriculture sector, and (ii) low employment-generation capacity of the economy. The decline in coral productivity and related fisheries resources, estimated at 2% per annum, has been directly affecting the real incomes of fisherfolk. The gains from the ICRM component will mostly be within the municipal waters of the 15 km zone, primarily the domain of small fisherfolk and off-limits to commercial fishing under the Fisheries Code of 1998. Community enforcement of regulations mainly through fisherfolk, most of whom are poor, will ensure that the majority of the project gains in terms of fish catch accrue to the poor. Additionally, the improved state of coastal waters will enhance ecotourism potential/values, which will generate employment opportunities in the communities, as experienced under similar ongoing projects. Employment will also be generated through community-driven watershed and mangrove rehabilitation. 71. Improvements in water supply, sanitation, and solid waste management will improve the general health and living environment of disadvantaged coastal communities, and enhance their productive capacity contributing to overall economic development in the area. Infrastructure construction will be undertaken through community contracts that will generate employment opportunities for the local population. 72. Enterprise development activities will lead to improved skills for fisherfolk, enabling them to establish enterprises or seek better employment opportunities. The alternative livelihood and enterprise schemes will relieve pressure on coastal resources, thus preventing their deterioration. Detailed assessments of potential and demand were undertaken in six sample municipalities, which led to identification of 12 representative livelihood/microenterprise activities. Incremental annual incomes net of labor costs from these enterprises are estimated in the range of P8,700–P98,000. The anticipated returns to labor are P200/day–P610/day, which is 1.68%–5.08% of the daily average wage rate of P120/day. 73. Improved management of coastal resources together with alternative livelihood and enterprise schemes will benefit about 10,000 fisherfolk families, with an average 10% increase in real household income. The poverty impact analysis in the sample municipalities indicates that about 71% of the net economic gains will accrue to the poor. With 76% of the population in coastal communities living below the poverty line, 61% of whom are employed in fishing, the Project will have a major impact in combating poverty and improving income distribution in the project area. B. Policy Impact and Institutional Benefits 74. The establishment of an institutional framework for ICRM will remove current deficiencies in national and regional ICRM coordination. A comprehensive ICRM policy will address weaknesses and legal gaps, and promote greater involvement of local governments in developing and managing local resources. Strengthened national, regional, and local

18 institutional capacity will facilitate a participatory approach to resource management, and enhance transparency and accountability in management decisions. Strengthened community organizations such as marine watch teams will be more effective in enforcing laws and regulation in municipal waters. The participatory approach, including the cost-sharing arrangement between national and local governments, will enhance local ownership and sustainability of benefits. C. Economic Benefits 75. The economic benefits of the Project will be derived from four major sources: (i) coral reef management and conservation, (ii) mangrove rehabilitation and management, (iii) watershed rehabilitation and management, and (iv) livelihood and enterprise development. The quantifiable benefits from coastal habitat (reef and mangrove) can be grouped as follows: (i) fishery values: the net value of sustainably managed commercial reef and mangrove fishery; (ii) local uses: marketed and nonmarketed uses from reefs and mangroves that are not associated with the commercial fishery, for example aquarium trade, gleaning of coral reef flats, small-scale capture fishery, and hunting in mangroves, etc.; (iii) erosion control and waste management: coral reefs and sea grass acting as barriers to destructive wave actions on coastlines, and mangroves protecting coastal zones against destructive typhoons and tidal waves, and managing wastes through assimilation; and (iv) global use values: sustainable export of live fish, international tourism, and aesthetic and biodiversity values of reefs. 76. An economic analysis was undertaken for the Project taking into account expected quantifiable benefits from these four sources of benefits. Valuation of benefits and the methodology for the analysis is given in Appendix 17. The anticipated economic internal rate of return of the Project is estimated at 16.1%; it is not sensitive to cost overruns or incremental benefit shortfalls. 77. Financial analyses were carried out for 12 representative livelihood/enterprise schemes; each scheme is financially viable with financial internal rate of return values between 70% and 200%. The sensitivity analysis shows that enterprises are not very sensitive to output prices or production costs. Evaluation of benefits and the methodology of the financial and economic analyses are given in Appendix 17. Details are provided in the Supplementary Appendix F. D. Sustainability 78. The participatory principle underpinning the project design and its financing arrangements will help develop a sense of ownership among various stakeholders─particularly local governments and communities─and this, in turn, will enhance the Project’s sustainability. Rationalization of sector policy providing greater management responsibility to local governments for foreshore areas and MPAs will enhance sustainability of project initiatives. National, regional, and municipal institutional weakness will be addressed; and government staff, local communities, and NGOs will be strengthened to assume their responsibilities. 79. Analysis of the current budget and expenditure patterns for project municipalities shows that on average, the annual counterpart funding requirements for project activities during project implementation would be about 2% of the revenues and 8% of the development expenditures of an average fourth class municipality─the majority group among project municipalities. During the postproject period, the annual funding requirements to support recurring costs for project initiatives, including operation and maintenance of infrastructure facilities, will be 1% of municipal revenues and 6% of the present development expenditures. Assuming that current trends in funding are maintained, municipal governments will have sufficient resources to sustain the Project’s impact. 19

80. The capacity of municipal governments for sustainable financing of ICRM will be augmented by developing appropriate policy for user fees and resource rents for MPA, mangroves, coral reefs, beaches, foreshore fisheries, and mariculture. The Project provides for undertaking relevant policy studies, formulating recommendations, and pilot testing the recommendations in five municipalities. Successful models will be supported at least in one third of the municipalities during the Project. E. Risks 81. Risks that may affect project implementation, constrain attainment of objectives, and ultimately impact project success include (i) degradation of the global environment and macroeconomic conditions, (ii) lack of political will to support the ICRMP, (iii) institutional weaknesses, (iv) peace and order situation, and (v) governance and anticorruption. 82. Degradation of Global Environment. Global and regional environment conditions (e.g., climate change, disease outbreaks, and coral bleaching) could undermine project gains in resource management and biodiversity conservation. In addition, populations of some severely depleted species in high biodiversity sites may not be restored through project interventions. The project design provides for countermeasures to address this risk. High biodiversity sites have been selected from various biogeographic regions throughout the Philippines; they are expected to respond differently or not be exposed to the same regional or global conditions. The Project will focus on several different threatened species and habitats, and promote the establishment of networks or corridors of MPAs to ensure that the risks are dispersed. 83. Institutional Weaknesses. DENR does not have an adequate number of qualified staff for the sector, and the existing moratorium on creating new regular positions may affect project implementation. DENR will address the issue by redeploying staff, enhancing their skills through in-house training, and hiring contractual staff. Provision is made in the project design for enhancing national, regional, and local staff skills, and hiring contractual staff. Moreover, in designing the implementation arrangements, care has been taken to mainstream the project functions and responsibilities into the existing organizational structure of DENR rather than establish new national and regional project management units exclusively for the Project. Institutional weaknesses will be further mitigated by DENR sharing the implementation responsibility with DA and municipal government and academic institutions. 84. Political Commitment. Since the early 1990s, the national Government has shown increasing commitment to marine and coastal resources management. Continued Government commitment to the sector is reiterated in the Presidential Executive Order 533 adopting integrated coastal management as a national strategy (para. 20). Local governments are also taking increasing initiatives to manage their coastal resources, and actively participated in project preparation. However, changes in local leadership during project implementation may affect emphasis on the sector. This risk will be mitigated through municipal council resolutions and memorandums of agreement between DENR and MDFO providing binding commitments covering the project period. 85. Breakdown of Peace and Order. The 68 municipalities selected for the Project do not currently have serious peace and order problems. If a problem develops in an area, the PSC could decide, in consultation with ADB, to redirect efforts and staff to a more secure area within the province. 86. Poor Governance. Good governance assumes an important dimension in the Project because its successful project implementation will require stakeholders concerned at various levels to agree and adjust to the policy and governance regime changes promoted by the

20

Project. Most of the stakeholders have been receptive to these changes; some may be slow in responding to the needs for change during project implementation. The risk will be mitigated by the emphasis on IEC campaigns to be conducted throughout the project period. V. ASSURANCES A. Specific Assurances 87. In addition to the standard assurances, the Government and DENR have given the following assurances, which are incorporated in the legal documents:

(i) Adequate budget will be provided for the project activities, and funds will be released regularly throughout the project period.

(ii) An adequate number of qualified staff at national, regional, and provincial level will be made available for the Project throughout its implementation.

(iii) Each participating municipality will enter into an implementation agreement with the national Government on terms and conditions satisfactory to ADB, including the commitment of the municipality to provide the recurring expenditures of coastal resources management during and after project completion. Each municipality that is to obtain financing for component D will enter into an agreement with the national Government to provide the required equity contribution in cash or kind.

(iv) MDFO or its successor will disburse eligible loan and grant funds to the participating municipalities upon their fulfillment of the requirements.

(v) The gender action plan prepared for the Project will be fully implemented in a timely manner, and adequate resources will be allocated for the purpose. Gender-related indicators will be collected and included in the PPMS.

(vi) Project implementing agencies will comply with ADB’s policy on involuntary resettlement (footnote 7) and ensure that land acquired under the Project is either unoccupied public land or has been paid for in cash, and will not involve voluntary land donation. The evidence of such transaction will be kept on record during project implementation.

(vii) People who may be adversely affected by the resource access restrictions and discipline will be identified, and potential impacts on their incomes will be mitigated through their inclusion in the project-supported, community-based resource management and enterprise development and income-diversification activities. Identities of those affected and the proposed mitigation measures will form part of an ICRM plan to be prepared for each municipality and approved by DENR prior to imposition of resource access restrictions. Implementation of mitigation measures will commence prior to imposition of restrictions and will be monitored under the PPMS.

(viii) If the presence of indigenous people is identified in any of the project municipalities and who may be significantly affected, an indigenous peoples’ development plan will be prepared in accordance with ADB’s policy on indigenous peoples (footnote 9). Implementation of the project activities at such sites shall be conditional on ADB’s approval of the relevant indigenous peoples’ development plan.

21

(ix) The project facilities will be designed, constructed, operated, and maintained in compliance with applicable environmental laws and regulations of the Borrower, and ADB’s Environment Policy.11 An IEE will be prepared for each subproject and all mitigation measures and monitoring activities specified in the environmental management plan will be implemented and monitored to a satisfactory standard.

B. Conditions for Loan Effectiveness

88. The following are the conditions for loan effectiveness:

(i) A PSC will be established to oversee and coordinate project implementation.

(ii) A memorandum of agreement between DA and DENR stipulating their respective functions and responsibilities in project implementation and the fund flow and coordination mechanism will be signed

VI. RECOMMENDATION

89. I am satisfied that the proposed loan would comply with the Articles of Agreement of ADB and recommend that the Board approve

(i) the loan of $33,800,000 to the Republic of the Philippines for the Integrated Coastal Resources Management Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 6 years; 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 administration by ADB of grant assistance not exceeding the equivalent of $9,000,000 to the Republic of the Philippines for the Integrated Coastal Resources Management Project to be provided by the Global Environment Facility.

Haruhiko Kuroda President

8 December 2006

11 ADB. 2002. Environment Policy. Manila.

22 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Performance Data Sources/Reporting Design Summary Assumptions and Risks Targets/Indicators Mechanisms Impact Risk Enhanced coastal resources Depletion of coastal National statistics, and state of • Major global resources is arrested and ocean reports environmental or 30% improvement in macroeconomic crises

productivity and biophysical that can directly affect state of resources (year 20) coastal resources or national/regional

economies Outcome Assumption Sustainable management of 10% improvement over State of the ocean reports of • Effective enforcement of coastal resources baseline in fisheries the Department of regulations and other resources, 10% Environment and Natural policy instruments improvement in hard coral Resources (DENR), coastal cover, and 20% and marine habitat monitoring improvement in mangrove reports, project impact density in participating assessments, project municipalities (year 7) completion report 10% increase over baseline in fisherfolk household income (year 7) Outputs A. Policy environment and Increased stakeholder Department administrative Assumptions legal framework for participation in major policy orders and legal instruments, integrated coastal resources decisions, and resource and • Continued commitment of management (ICRM) budget allocation for ICRM national and local rationalized, institutional (year 4) governments ICRM and capacities strengthened, and biodiversity governance improved • Sufficient number of Participating local LGUs’ ICRM reports and qualified personnel will be government units (LGUs) project impact assessment available for training when score at least 75% on the required ecogovernance index and the Project scores at least • National Government is 80% (year 6) committed to providing B. ICRM institutionalized In the 68 participating Municipal development plans, performance-based and functional at the local municipalities, 50,000 and LGU budget documents incentives levels, and coastal hectares (ha) of coral reefs • Community-led ecosystems and resources with 5,000 ha of no-take implementation of ICRM in the threatened areas of zones, 9,000 ha of and biodiversity biodiversity are protected mangroves, and 7,500 ha of and managed watersheds are managed • Adequate coverage of with active participation of nongovernment communities (year 6) organizations (NGOs) and Incidence of illegal fishing, Records of ICRM rural finance institutions threats to marine habitats, organizations and encroachments to • LGUs have competent foreshore areas reduced by engineering staff to lead 50% (year 6) preparatory, construction, At least 30% increase in fish Reports of participatory and and operation and density and 5% increase in scientific assessments, maintenance works fish species richness over records of ICRM and baseline in no-take zones community organizations, and (year 6) project impact assessment Appendix 1 23

Performance Data Sources/Reporting Design Summary Assumptions and Risks Indicators/Targets Mechanisms C. Alternative and 680 enterprises are Records of ICRM and Risks supplementary livelihoods established, of which at least community organizations, and provided 60% remain operational project impact assessment • Lack of political beyond their first year of commitment operation (year 6) • Breakdown of peace and order

The enterprises provide Records of community supplemental employment organizations, and training opportunities to 6,800, of reports whom at least 30% are women (year 6) D. Health and social Households in at least 68 Records of ICRM and conditions in the coastal barangays benefiting from community organizations, and communities improved social facilities by year 6 project impact assessment

Activities with Milestones Inputs A. Policy and Institutional Strengthening and Development • Asian Development Bank (ADB) loan: $33.77 million 1. Policy Aspects a. Undertake studies and other preparatory work contributing to finalization of ICRM policy • Global Environment • Institutional framework (ArcDev) reviewed and finalized in light of Executive Order 533 of Facility (GEF) grant: 6 June 2006 on ICRM (year 1) $8.94 million • Implementing rules and regulations for the Executive Order 533 finalized (year 1) • Government of the • National, regional, and provincial coordinating bodies established (year 2) Philippines: $8.72 million • Policy studies on marine and costal water pollution, mangrove management, foreshore management, coastal ecotourism, environmental impact assessment, biodiversity • LGUs and communities: conservation, trade in coral reef-associated fish and vertebrate species completed, and $10.82 million disaster management completed (year 3) • Policy study on marine protected areas under the National Integrated Protected Area Total: $62.23 million Systems Act completed (year 2) • Policy study on delineation of responsibilities completed and the recommendations implemented through joint relevant administrative orders (year 2) • Resource Management • Policy study on user fees and resource rents for mangroves, coral reefs, beaches, $9.69 million foreshores, fisheries and mariculture, and on appropriate implementation arrangements is • Capacity Building completed and pilot tested (year 3) $2.79 million • Joint department administrative orders to implement new ICRM policy issued (year 3) • National Integrated Protected Area Systems Act revised (year 3) • Demonstration and Trials b. Undertake ICRM policy information, education, and communication campaigns (IECs) $3.60 million Campaigns completed for DENR, Department of Agriculture (DA), six provinces, and 68 LGUs • Dissemination Activities (year 4) $1.68 million 2. Capacity Building and Institutional Development a. Provide ICRM-related human resources and institutional development • PPMS, Studies, Surveys, • Assessment of human resources and institutions, and capacity-building requirements of and Audits DENR, DA, and LGUs; and develop strategies to address these (year 2) $4.22 million • 600 DENR, DA, and LGU staff (including at least 33% women) are trained in various • Consulting Services aspects of ICRM (year 6) $3.13 million b. Develop in-house ICRM and marine biodiversity research agenda for DENR and DA • Research agenda and plans are formulated and approved (year 2) • Equipment and Materials 3: Performance-based incentive and disincentive system $2.32 million a. Develop incentive-disincentive systems for ICRM Vehicles • Existing local, national, and international incentive and disincentive systems documented • $1.47 million and promising systems identified (year 2) • Incentive-disincentive system endorsed by at least 3 national government agencies (year • Land Purchase 3) $0.67 million • IEC materials prepared and campaign undertaken (year 3)

24 Appendix 1

Activities with Milestones Inputs

B. ICRM and Biodiversity Conservation • Civil Works 1. ICRM $10.66 million • Implementation and a. Undertake IEC campaign Supervision • IEC campaigns for communities, health workers, and LGU staff designed (year 2) $2.29 million • IEC campaigns implemented for coastal communities in the 68 municipalities (year 2 and thereafter every year) • Recurrent Costs • IEC campaigns on linkages between population growth and deteriorating coastal $10.79 million resources, and population management are implemented for health workers and 25,000 Total Base Costs community members (including at least 33% women) in the 68 municipalities (year 6) $53.32 million b. Undertake participatory coastal resources assessment and scientific observations • Participatory coastal resources assessments completed/updated in 68 municipalities Contingencies (including marine protected areas), and coastal resource maps indicating location, extent, $2.63 million and use patterns (years 2 and 6) • Scientific assessments of resources and habitats in six provinces completed (years 1, 3, Financing Charges and 6) $6.27 million c. Develop and strengthen ICRM organizations • Multisector and community organizations including fish and aquatic resources Total Cost management committees, NGOs, community organizations, bantay dagats (marine watch $62.32 million teams), and environment and natural resources protection committees strengthened/established in 68 municipalities (year 6) • 200 members (including at least 33% women) of ICRM organizations trained in organizational aspects (year 3) • 1,000 members of ICRM organizations trained in ICRM (year 3) d. Prepare participatory ICRM plans and institutionalize these in LGU planning and budgeting • Participatory planning workshops undertaken in 68 municipalities (year 2) • Integrated ICRM plans including the upland management developed and incorporated in municipal development plans in 68 municipalities and updated annually during project implementation (year 2 and thereafter every year) • Each of the 68 municipalities provides an adequate annual allocation for ICRM activities (year 3 and thereafter every year) e. Implement ICRM plans • Municipal coastal databases established/upgraded in 68 municipalities and national coastal database established (year 2)

• Environmental impact monitoring mechanism established in 68 municipalities (year 2)

• Within the municipal water participatory delineation of zones for economic uses and

implementation of a system of licensing in 68 municipalities (year 2)

Sustainable financing mechanisms (user fees, rents, and revenue generation) are • introduced in at least 33% of the municipalities (year 6)

• 7,000 ha of poorly managed/threatened mangroves are rehabilitated and 2,000 ha of mangrove areas reforested (year 6) • 3,500 ha of poorly managed/threatened watersheds are rehabilitated and 4,000 ha of watershed areas reforested (year 6) f. Establish and conduct participatory monitoring and evaluation for ICRM activities • Participatory monitoring and evaluation systems involving community members and municipal governments established and stakeholders trained in 68 municipalities (year 2) • Annual monitoring surveys and annual municipal workshops, and national feedback workshops (year 2 and thereafter every year) g. Design and implement participatory enforcement mechanisms • 680 bantay dagat (marine watch team) members and 680 community members familiarized with fisheries laws and regulations and trained in enforcement (year 3) • 80 patrol boats and 74 sets of enforcement equipment procured (year 2) • 68 legal seminars conducted for local judges (year 2)

Appendix 1 25

Activities with Milestones Inputs

2. Biodiversity conservation a. Establish ICRM centers • Five centers established and equipped (year 2) b. Conduct research on critical biodiversity resources • 30 studies including baseline studies and follow-up studies on habitat condition, population dynamics of threatened species, trends in the coastal resources completed (year 6) • Five international evaluation symposia, each with up to 100 participants, (year 6) d. Develop marine protected areas (MPAs) and tools • MPA database and rating system incorporating GEF tracking tools for protected areas operationalized (year 2) • 50 MPAs for effective management with at least 5,000 ha of sanctuary (no-take) areas identified (year 3) • Management plans for the 50 MPAs developed (year 3) • At least five coordinating bodies to manage MPA networks and corridors (year 3) • Conservation projects habitat rehabilitation, restoration, and stock enhancement activities emanating from management plans completed in 50 MPAs (year 6) • Reporting using GEF MPA management tracking tool (year 1 and thereafter every year) e. Establish and strengthen ecocertification/ecolabeling of sustainable harvesting activities • Appropriate ecocertification/ecolabeling instruments designed and 350 community members, 325 traders, and 350 municipal staff trained in ecocertification by (year 6) • In municipalities neighboring 50 MPAs, trade of marine species regulated and managed through ecocertification (year 6)

C. Enterprise Development and Income Diversification a. Develop enterprise development support infrastructure • Enterprise development units designated and equipped in six provinces (year 1) • Enterprise development unit staff trained in planning and setting up business (year 1 and thereafter every year) b. Develop livelihood-related IEC • Skills inventories completed in 68 municipalities (year 1) • Demand assessments and market studies completed (year 1 and 2) • IEC materials designed (year 2) and updated (year 3 and 4) c. Facilitate enterprise development • 680 self-reliant groups (with at least 33% women members) strengthened (year 4) • Internal savings mobilized in 75% of the community groups (year 5) • 340 land and aquatic, and 32 ecotourism-based demonstrations and training enterprises established through community participation (year 6) • 6,800 community members (including at least 33% women) trained in promising enterprises and entrepreneurial skills (year 6) • 50% of self-reliant groups linked to sources of credit (year 6) d. Facilitate private sector investment • Potential investment packages for private sector investment identified (year 3) • IEC aimed at attracting private sector investment conducted (year 4, 5 and 6) • Workshops for tourism operators and locally based tourism businesses undertaken (years 4, 5, and 6) D. Social and Environmental Services and Facilities • Feasibility studies including initial environmental evaluations or environmental impact assessments and social safeguards screening completed for infrastructure in 68 municipalities (year 5) • Agreements between 68 municipalities and municipal development fund on infrastructure financing reached (year 5) • Civil works completed for infrastructure in 68 municipalities (year 6) • Communities in 68 municipalities trained in operation and maintenance (year 6)

26 Appendix 2

MARINE AND COASTAL RESOURCES SECTOR ANALYSIS A. Declining Resources 1. Coral Reefs. Coral reefs provide food, livelihood, recreational and tourism opportunities, erosion protection, and extremely high biodiversity. Of the 25,000 square kilometers (km2) of coral reefs in the Philippines, less than 5% are still in excellent condition. Destructive fishing and coral mining are the most prevalent problems. Other major threats include sedimentation and coastal development. Coral reefs are the habitat of about 90% of the fish caught by coastal fishers; their degradation results in a rapid decrease of fisheries production in coastal areas. While nationwide decline in coral reef continues, conservation efforts initiated over the last decade or so are showing improvements at some sites, particularly in the Visayas region. 2. Mangroves. Mangrove coverage decreased from around 4,500 km2 in 1918 to only about 1, 380 km2 in the 1990s. Satellite image analyses indicate that Mindanao has the most remaining mangrove areas in the country (29% of the country’s total), while Luzon and Mindoro have the least. Old growth mangrove forests are to be found only in Palawan (5,317 ha) and Mindanao (4,582 hectares). The rapid loss of mangrove cover has exacerbated shoreline erosion, led to destruction of natural habitats for demersal fish and shrimp, increased the occurrence of saline water intrusion into freshwater aquifers, and affected the livelihood of coastal fishers. 3. Fisheries Resources. Various scientific studies demonstrate that Philippine fisheries had exceeded maximum sustainable yields by 1987. The average fish catch per unit effort for coral reef fisheries is now less than 2 kilograms/day, down from as much 20 kilograms/day 30 years ago. Total production has been static for the last 10 years despite the increased number and tonnage of commercial vessels and increased number of municipal fishers. Catch composition is changing to lower value species and economic revenues are declining. Much of the declining fisheries productivity can be attributed to overharvesting, destructive fishing, and loss of habitats. Excess capacity in the fishing industry, increasing population, and poverty put additional pressure on resources. Poverty forces people to use destructive methods to meet their immediate needs, which result in a cycle of resource depletion and continuing poverty. B. Impacts on Biodiversity 4. The current status of resources has adversely affected the coastal and marine biodiversity of the Philippines, which is of global importance (Table A1). C. Impacts on Coastal Population 5. Of the 1 million coastal fisherfolk, 69% are engaged in municipal fishing, 25% in aquaculture, and 6% in commercial fisheries. Municipal fisherfolk are among the poorest in the Philippines, with an average family income that is half the national average. With open access to the sea, an increasing number of subsistence fisherfolk compete with each other for fisheries resources that declined dramatically over the years. Consequently, the incidence of poverty among municipal fisherfolk is on the rise.

Appendix 2 27

Table A1: Threatened Marine Species and their Habitat Requirements

Species Habitat Requirements Reptiles Sea turtles (all species) Coral reefs, sea-grass beds, beaches, and near- shore waters Sea snakes (all species) Fringing coral reefs, midwater reefs Mammals Sea cow (dugong) Sea-grass beds, bays with reefs Dolphins (all species) Open water areas and midwater reefs Whales and porpoises (all species) Open water areas Fish Whale sharks (1 species) Open water and midwater reefs Manta rays (all species) Open water and coral reefs Milkfish (1 species) Estuaries, coral reefs, and open water areas Crabs Coconut crabs (Birgus latro) Beach areas Molluscs Giant clams (7 species) Coral reefs, sea-grass beds, and sandy areas Giant triton shell (Charonia tritonis) Coral reefs Helmet shell (Cassis spp.) Coral reefs Kapis shell (Placuna placenta) Coral reefs, sandy areas Corals Stony and precious corals (all species Estuaries, reefs, and mudflats Birds Seabirds Coral reefs Water birds (5 species inc. 1 extirpated) Remote, oceanic islets without human disturbance and predators; rocks; and cliffs Shorebirds (5 species) Coastal ecosystems; mangroves, ponds, lagoons Sources: World Bank. Philippines Environment Monitor 2005; DENR 2001; and International Conservation Union Red Data List 2004.

D. Factors Affecting Coastal Resources 6. Factors directly affecting coastal resources include (i) unsustainable use of resources (overfishing and use of destructive methods and gear), (ii) habitat (mangrove and coral reef) loss, (iii) coastal pollution, (iv) erosion and sedimentation, and (v) unplanned foreshore and shoreline developments. Factors (i) and (ii) are discussed in paras. 1–3; discussion of factors (iii)–(v) follows. 7. Pollution. Coastal ecosystems are threatened by nutrient loading or eutrophication. Nutrients come from industrial, commercial, agricultural, and domestic wastewater runoff carrying organic wastes and fertilizer residue. Nutrients enhance the growth of algae (sometimes causing red tides) and bacteria, resulting in the reduction of light and oxygen in coastal waters. Most coastal ecosystems near urbanized areas have been affected by nutrient loading, and agricultural runoff is becoming a growing source of pollution in coastal waters. 8. Erosion and Sedimentation. Industrial logging, combined with lack of proper forest management has resulted in the loss of nearly 80% of the Philippines’ original forests. Agricultural activities are practiced on steep slopes, and contour farming and other soil conservation practices are not widely utilized. Poor management practices lead to soil erosion

28 Appendix 2 and increased flooding, which in turn causes higher costs of coastal infrastructure maintenance, risks to lives, and damage to aquatic habitats. 9. Foreshore and Shoreline Areas. Approximately 70% of the municipalities and 25 of the largest cities in the Philippines are located in the coastal zone. The country’s foreshore (the land strip between high and low tides) and shoreline areas are mainly used for settlements and housing. The proliferation of coastal dwellers, who have no rights over the land they occupy and often have no basic facilities for sanitation, solid waste management, sewerage, and water supply, contribute to the degradation and deterioration of the coastal environment. 10. These factors affecting coastal resource decline and degradation can be linked to issues such as weak law enforcement and legal gaps, national and local institutional weaknesses, lack of stakeholder awareness and participation in resource management, poverty among coastal communities, and lack of a holistic approach to resource management. 11. Weak Law Enforcement and Legal Gaps. A common issue with respect to the Philippines coastal resources management is poor compliance with laws and regulations. This is partly because of inconsistencies in policy documents developed over time and across sectors. Jurisdictional overlaps result when two or more laws govern different uses of a coastal resource. Moreover, the local application of these laws is affected by the local legislative mandate of the local government units, which have broad management functions and prerogatives under the Local Government Code. A discussion of some of the major gaps and inconsistencies in existing laws and regulations to deal with coastal resources management issues follows. 12. The law governing mangrove resources presently consists of general provisions contained in the Revised Forestry Code enacted in 1975 and the Fisheries Code of 1998. At present, the conversion, alienation, and disposition of mangroves are prohibited under prevailing laws, and those released for fishpond development but remain unutilized or were abandoned are required to be reverted to the public domain. The process for reversion to the public domain is usually a contentious issue among the Department of Environment and Natural Resources (DENR), Bureau of Fisheries and Aquatic Resources of the Department of Agriculture (DA), and the fishpond lessee. 13. Laws governing the foreshore are among the most archaic in the Philippines. They are also among the most scattered, spread across several different codes, including the Spanish Law of Waters of 1866, Civil Code, Public Land Act, Water Code, Fisheries Code, and Local Government Code. Although the local government units have ample powers for land classification, zoning, and regulation of all businesses and structures within their territorial jurisdiction, overlapping mandates with DENR and the Bureau of Fisheries and Aquatic Resources result in very little actual regulation. No definitive coastal land-use policy is in place to provide guidance as to the proper allocation of roles and responsibilities, as well as definite priorities for how coastal areas should be used. 14. Institutional Weaknesses. DENR and the Bureau of Fisheries and Aquatic Resources, the two key national agencies with responsibility for integrated coastal resources management, are short of qualified staff for the sector. Both the agencies have ongoing programs for staff redeployment and training to overcome these shortages. In addition, contractual staff have been recruited to meet immediate requirements. 15. The Local Government Code of 1991 devolved some of the coastal resources management functions and responsibilities to local governments. Local government capacity to carry out the responsibility has only recently begun to mature as a direct result of increasing Appendix 2 29 awareness of the socioeconomic importance of coastal resources. However, most local governments lack financial and technical resources to ensure sustainable management of resources. 16. Public Awareness. Since the early 1990s, various initiatives undertaken for coastal resources management with bilateral and multilateral assistance have been successful in creating awareness among coastal communities and other local stakeholders on the importance of sustainable use and conservation of coastal resources. However, still much needs to be done and a large number of coastal municipalities have not yet received any such support. 17. Holistic Approach to Coastal Resources Management. The decline of coastal resources has been caused by a complex set of threats, with their origin spanning the nearest watershed divide to the sea. Effective coastal resources management, therefore, should follow an integrated, holistic approach that considers interaction among and within resource systems as well as interaction between humans and their environment. E. Problems and Constraints Analysis 18. A summary of key barriers that restrict the marine and coastal resources and biodiversity and the conceptual model of the Project is given in Figure A1.

30

Figure A1: Threats to Coastal Resources and Biodiversity and the Project Conceptual Model Project Core Problem Immediate Threats Root/Underlying Causes 2 Appendix Interventions

Component A: Institutional Policy and institutional weaknesses (in NGAs, strengthening LGUs, NGOs, and development Siltation and pollution: COs) Policy aspects Erosion from degraded Capacity-building lands Performance-based Agricultural, industrial, and incentives urban runoff Inadequate Sewage and solid waste enforcement (patrolling, fines, and sanctions)

Component B: Lack of awareness and ICRM and biodiversity lack of stakeholder conservation Habitat destruction: participation ICRM Loss of coastal Mangrove clearing Biodiversity resources and Coral reef damage (e.g., conservation biodiversity from dynamite and cyanide) Inadequate information for decision making (carrying capacity, limits on utilization) Component C: Enterprise Unsustainable use of Poverty in coastal development and resources: communities income diversification Overfishing, overharvesting Blast and poison fishing Illegal commercial fishing Population pressures (accelerating growth rates) Component D: Social and environmental CO = community organizations, ICRM = integrated coastal resources management, services and facility LGU = local government unit, NGA = national government agency, NGO = nongovernment organization. Source: Asian Development Bank. Appendix 3 31

EXTERNAL ASSISTANCE TO THE MARINE AND COASTAL RESOURCES SECTOR

Amount Item ($'000)

A. Grant

1. Multilateral a. Asian Development Bank 3,800.0 b. European Union 8,900.0 c. Food and Agriculture Organization of the United Nations 251.0 d. International Atomic Energy Agency 134.0 e. Global Environment Facility 3,118.0 f. United Nations Development Programme 2,232.0 18,435.0

2. Bilateral a. Australian Agency for International Development 194.0 b. Canadian International Development Agency 10,500.0 c. Japan Bank for International Cooperation 64.0 d. Japan International Cooperation Agency 200.0 e. German Federal Ministry of Economic Cooperation 2,160.0 f. United States Agency for International Development 11,250.0a 33,364.0 57,732.0 Subtotal (A) 76,167.0

B. Loan

1. Multilateral a. Asian Development Bank 169,500.0 b. World Bank 115,000.0 284,500.0 2. Bilateral a. Japan Bank for International Cooperation 80,064.0 Subtotal (B) 364,564.0

Total 440,731.0 a Including for rural development Source: Asian Development Bank estimates.

32 Appendix 4

LIST OF PROJECT MUNICIPALITIES

Province/Municipality Province/Municipality

Cagayan Cebu 1. Abulog 1. Alcantara 2. Ballesteros 2. Alcoy 3. Buguey 3. Alegria 4. Gonzaga 4. Argao 5. Pamplona 5. Badian 6. Sta. Ana 6. Barili 7. Sanchez Mira 7. Boljoon 8. Sta. Praxedes 8. Carmen 9. Sta. Teresita 9. Cordova 10. Aparri 10. Daanbantayan 11. Calayan 11. Dalaguete 12. Claveria 12. Dumanjug 13. Ginatilan Masbate 14. Lapu-Lapu City 1. Aroroy 15. Malabuyoc 2. Baleno 16. Moalboal 3. Batuan 17. Ronda 4. Catanglan 18. Samboan 5. Cawayan 19. Sta. Fe 6. Claveria 20. Sibonga 7. Dimasalang 21. Tabogon 8. Esperanza 22. Tuburan 9. Mandaon 10. Masbate Davao Oriental 11. Milagros 1. Baganga 12. Monreal 2. Mati 13. Palanas 3. Tarragona 14. Pio V. Corpuz 15. Placer Zambales 16. San Fernando 1. Botolan 17. San Jacinto 2. Cabangan 18. San Pascual 3. Masinloc 19. Uson 4. Palauig 5. San Antonio Siquijor 6. San Felipe 1. Enrique Villanueva 7. San Narciso 2. Larena 8. Sta. Cruz 3. Lazi 4. Maria

Note: In addition to the listed 68 municipalities, the following municipalities recently indicated interest: Davao Oriental Province─Cateel, Caraga, and Manay; and Siquijor Province─San Juan and Siquijor. These municipalities could be considered for inclusion as replacements if any of the 68 municipalities withdraw their commitments. Source: Memorandum of Understanding between the Government and the Asian Development Bank Appraisal Mission, September 2006. Appendix 5 33

SELECTION CRITERIA FOR SOCIAL AND ENVIRONMENTAL INFRASTRUCTURE A. General Criteria 1. Proposals for social and environmental infrastructure must meet the following: (i) The social assessment for the community is complete and the subproject proposal is included in the municipal integrated coastal resources management (ICRM) plan approved by the Asian Development Bank (ADB). (ii) The land acquisition requirement for the subproject is minimal. The land to be acquisitioned is either unoccupied public land, or has been paid for in cash and the proof of the transaction submitted prior to commencement of civil works. (iii) If the social assessment identifies the presence of indigenous people or ethnic minorities or other disadvantaged groups in the community, the scheme provides equitable benefits to these groups. (iv) Alternate designs have been considered and the proposed design is the least- cost option. (v) The initial environmental examination is complete, with no significant adverse impact identified. If significant adverse impacts are identified, an environmental impact assessment must be undertaken and mitigating measures identified and provided in the plan, along with cost estimates. The relevant DENR office revises and approves the initial environmental examination/environmental impact assessment as per the Government environmental regulations. (vi) The community is willing to share the cost of operation and maintenance.

B. Specific Criteria 2. Criteria for drinking water schemes include the following: (i) The scheme benefits at least 25 households. (ii) The majority of the beneficiary population are poor, or have no ready access to safe drinking water. (iii) The scheme will reduce the average economic cost of water relative to the existing source.

3. Criteria for sanitation schemes include the following:

(i) The scheme benefits at least 25 households. (ii) The majority of the beneficiary population are poor, or the prevalence of poor sanitation-related disease among them is high.

4. For social facilities such as community centers and classrooms for existing schools, criteria include the following:

(i) The facility serves a community of at least 100 households. (ii) Classrooms will be add-ons to existing school facilities.

34 Appendix 6

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a Yes priority in country poverty analysis? national priority in country poverty No partnership agreement? No Contribution of the sector or subsector to reduce poverty in Philippines: A large proportion of the 40 million coastal population is highly dependent on coastal and marine resources for food and employment. More than 1 million (5% of the labor force) are employed in the commercial and municipal fisheries sector, which also supplies 50% of the country’s protein needs. A degraded resource base and inequitable access are some reasons cited as causes of poverty in coastal communities.

B. Poverty Analysis Targeting Classification: Targeted intervention

What type of poverty analysis is needed? Surveys in potential project areas indicate that a coastal household’s average annual income is P56,486. Based on their source of annual income, employment provides the highest average (P86,134), followed by farming (P55,548), business (P52,831), and fishing (P50,310). Poverty incidence in the coastal community is extremely high at 76%, compared with the general level of 41.8% in the target provinces and 34.2 nationwide.

Social infrastructure is limited in most coastal areas. Some 28% of households do not have toilets. Access to potable water for some is only through dug shallow wells (18%), artesian wells (2%), water vendors (1%), or springs (1%). Garbage disposal is primarily through burning, followed by indiscriminate dumping in vacant lots or one’s own backyard. Less than 5% of households report that their garbage is collected through a municipal solid waste collection system.

Women in coastal communities are more disadvantaged compared with their male counterparts. The prevailing gender division of labor, together with traditional practices in coastal communities, limits and hinders women’s access and control of community resources and optimization of their skills and potential for coastal fisheries development and resource management. Women’s contribution to the household and community services remains largely undervalued.

C. Participation Process

Is there a stakeholder analysis? Yes No Analysis identified the following stakeholders: coastal communities, fisherfolk, civil societies, municipal and provincial governments, and national government sector agencies.

Is there a participation strategy? Yes No Stakeholders participated during project preparation, and the project design provides for their strategic interventions during implementation.

D. Gender Development

Strategy to maximize impacts on women: The Project includes various steps to enhance women’s participation in coastal resources management planning, access to formal and informal training, participation in community and professional decision making, and ability to protect their interests and improve their livelihoods. Through gender sensitization training and gender-disaggregated data, awareness about gender and development issues will be enhanced among all project stakeholders. Full participation of women in all stages of ICRM development will be ensured through the implementation of a gender action plan.

Has an output been prepared? Yes No Appendix 6 35

E. Social Safeguards and Other Social Risks

Item Significant/ Plan Not Significant/ Strategy to Address Issues Required None The Project will require small plots of land for the Resettlement Significant construction of social and environmental facilities, Full which will be obtained through allocation of Not available unoccupied public land, and purchases in Short significant the open market. Documentation of plot location, ownership, cost and tenure status, and guarantees None None that land purchases are not forced upon the sellers and public land plots are unoccupied will be a condition of Asian Development Bank (ADB) approval for infrastructure facilities. Any people adversely affected by the access restriction and discipline to aquatic, mangrove, and watershed resources will be compensated in accordance with the Restricted Resource Use Framework. Significant Investments in clean water will contribute to Affordability lowering the cost in collecting and/or buying water Yes Not from vendors. Beneficiary contributions to resource significant management and social infrastructure and service No improvement will be in the form of labor and None participation, and will not affect their livelihoods. Significant No displacement of labor will occur as a result of the Yes Labor Not Project. significant No None Available information suggests that the Project will Indigenous Significant not cover or affect any area inhabited by indigenous Yes Peoples people. If such groups of people are identified who Not may be significantly affected by the Project in any No significant municipality, then indigenous peoples’ development plans will be prepared in accordance with ADB’s None indigenous peoples policy, and implementation of project activities in these municipalities will be conditional on ADB’s approval of the relevant indigenous peoples’ development plans. The Government will ensure that no project activity will take place in, or have adverse impacts on, land, inland waters, coastal areas, and natural resources within them, that are designated ancestral domains with corresponding certificate of title or are under claims as ancestral domains.

Other Risks Significant Yes and/or Vulnerabilities Not No significant

None

36 Appendix 7

GENDER ACTION PLAN

1. The gender action plan aims at promoting women’s participation in project activities and ensuring that they benefit equally from the Project. This will be achieved through a set of measures including the following: (i) collecting gender disaggregated data in household socioeconomic studies, national and municipal gender sensitization training, and integrating gender analysis in the municipal integrated coastal resources management (ICRM) planning, monitoring, and evaluation; (ii) including women as a major stakeholder for component C on enterprise development and income diversification; and ensuring their membership in self-reliant groups and involvement in the identification, establishment, and demonstration of viable enterprises and livelihood activities; and (iii) including women as a primary stakeholder in the identification, planning, construction, and operation and maintenance of social and environmental infrastructure and facilities under component D.

2. The Project sets a progressive target for gender action to be implemented and monitored (Table A7).

Table A7: Gender Approach and Target

Component/Activity Gender Approach and Target

Consultations • Women’s participation in consultations on policy issues will be ensured through participation of women’s interest groups and nongovernment organizations focusing on environmental issues Information, Education, and • IEC campaigns will include modules especially tailored for women’s Communication Campaigns role in ICRM (IECs) • IEC campaigns will target the linkage between population growth and deteriorating coastal resources, and population management ICRM Plans • At least 33% of members of ICRM organizations mobilized/revitalized by the Project will be women • At least 33% of the marine protected area board members will be women Training • At least 33% of the participants of ICRM and biodiversity for staff will be women • At least 33% of the participants of ICRM, biodiversity, enforcement, technical, and entrepreneurial training for beneficiaries will be women Livelihood Opportunities • At least 33% of the members in self-reliant groups will be women • At least 33% of the self-reliant group leaders will be women • At least 33% of the beneficiaries from training and demonstration enterprises will be women Social and Environmental • Through participation in ICRM plan preparation, women’s Infrastructure participation in planning, implementation, and maintenance will be ensured Incremental Staffing • At least 33% of the new staff recruited under the Project will be women ICRM = integrated coastal resource management. Source: Asian Development Bank.

Appendix 8 37

SUMMARY INITIAL ENVIRONMENTAL EVALUATION A. Introduction 1. An initial environmental examination (IEE) was conducted taking into consideration the nature of the project components and types of specific interventions proposed under each component. Due to the extensive and varied geographic scope of the Project, the IEE was not carried out on a site-specific basis, but rather on the type of intervention and potential impacts, regardless of site. A summary of impacts and mitigation measures (including a monitoring plan) for activities with some adverse impacts are identified and described in the IEE (Supplementary Appendix B). B. Description of the Project 2. The Project will consist of four components: component A: policy and institutional strengthening and development; component B: integrated coastal resource management and biodiversity conservation; component C: enterprise development and income diversification; and component D: social and environmental services and facilities. Environmental assessment was conducted for components C and D, while environmental safeguard consideration was included in components A and B. 3. The livelihood enterprises will be small-scale with investments ranging from P10,000 to P150,000. For component D, each drinking water and sanitation schemes will serve about 25 households, and each community centers, daycare centers, add-on class rooms will serve about 100 households. While the improved management of coastal resources will bring significant environmental benefits, some of the livelihood activities and social and environmental infrastructure, though of small-scale, may have adverse environmental impacts if environmental safeguards are not complied with during their implementation. C. Description of Environment 4. The project area covers 68 municipalities in the provinces of Cagayan, Zambales, Masbate, Cebu, Siquijor, and Davao Oriental. The area covers 1,800 kilometers (km) of coastline representing 10% of the total coastline of the country. Six municipalities were selected in these provinces as representative study sites. 5. Claveria, Cagayan. Claveria, located on the northwestern portion of the province of Cagayan, has 12 km of coastline made up of alluvial sand, sparse mangroves, and marginally developed coral reefs. The area is hypothesized to have an upwelling condition. Tuna, sailfish, dolphins, and sharks are some species that can be caught in the deep waters offshore; lobsters and the popular porphyra are harvested nearshore. Beach seining and milkfish fry gathering is done on a seasonal basis. The main environmental issues identified include (i) intrusion of foreign fishing fleets, (ii) fish kills due to density of fish cages in Pata river, and (iii) illegal occupation of foreshore lands. 6. Masinloc, Zambales. The municipality of Masinloc is bounded by Oyon and Masinloc bays. The total length of the coastline is about 42.2 km. Coastal resources include mangroves, coral reefs, and sea grass. Within the Masinloc–Oyon bay area, 260 hectares (ha) of mangroves are in good condition. Corals located near the cooling water outfall of the coal-fired power plant were dead but still standing, while those inside and outside the nearby San Salvador Fish Sanctuary appeared healthy. Fish biomass was observed to be highest inside and near the sanctuary. The area has more than 1,000 municipal fishers and 10 commercial fishing boats originating mainly from the Visayas.

38 Appendix 8

7. The main environmental issues in the municipality include erosion and sedimentation, pollution from residential areas situated along the coastline, and dust and discharge of cooling water from the power plant. Reclamation was also observed, mainly for housing, and unregulated construction of foreshore structures such as revetments. Blast fishing and cyanide fishing are considered major threats to fisheries and coral resources. 8. Batuan, Masbate. Batuan is the southernmost municipality on Ticao Island in the province of Masbate. It has 14 barangays, 10 of which are coastal. The municipality has seven coral reef areas, which are in poor to fair condition. The main coastal resource management problems are declining fish catch and poverty, which are attributed to mangrove and coral reef destruction due to illegal activities such as conversion and cutting for mangroves, and destructive fishing and sand quarrying for coral reefs. 9. Lazi, Siquijor. The Lazi is one of six municipalities comprising the island province of Siquijor. It is located at the southern part of the province bordered on the south by the Mindanao Sea. The municipality has a 15.59 km shoreline characterized by sandy and rocky beaches and limestone cliffs. The 24,574.96 ha area of municipal waters is three times larger than the land area. Mangrove habitat condition is rated fair to good (heavy cutting, fishpond conversions, and some cutting for firewood) and sea-grass condition is rated as good. The overall rating of the coral reef habitat is fair, having a 38.5% coral cover, and relatively high average fish abundance of economically important fish species. The main coastal resource issues include damaged coastal habitats, mainly from mangrove conversion, and low fish catch due to illegal fishing. Revival of an old limestone quarry may also pose a threat to the coastal environment. 10. Daanbantayan, Cebu. Daanbantayan is on the northern tip of Cebu bordering the Visayan Sea. The municipality has 20 barangays, 15 of which are coastal, and six offshore islands with only two inhabited. It has a coastline of 43 km. Daanbantayan is situated in one of the most highly fished areas of the Visayan Sea. Of the 70,000 population, about 17% are fishers. Not many mangroves were observed but considerable sea grass was noted and the coral reef is in its incipient stage of development. Thresher sharks, whales, dugongs, sharks, rays, and sea turtles are known to inhabit the area. Mangrove clearing, sand and pebble quarrying, and illegal occupation of foreshore areas are among the environmental issues in the area. Blast fishing is also rampant. 11. Mati, Davao Oriental. Mati is located in the southeastern part of Davao Oriental. The coastal waters comprise (i) Pujada Bay within which is located Balite Bay, (ii) Mayo Bay, and (iii) coastal waters south of Pujada Bay extending to Cape San Agustin. Pujada Bay is a seascape under the national integrated protected areas systems. The uncoordinated development of aquaculture and agricultural run-off contribute to coastal pollution resulting in occasional red tide outbreaks in the area. Weak enforcement of laws and regulations and lack of public awareness are other major environmental issues. D. Forecasting Environmental Impacts and Mitigation Measures 12. Components A and B will improve coastal biodiversity and the environment in the medium to long term. Components C and D may have some adverse environmental impacts and are discussed in the environmental management plan (EMP) template in Table A8.

Appendix 8 39

Table A8: Summary Matrix of Environmental Impacts and Mitigation Measures

Activity Impact/Mitigation Measures Component C Impacts (construction): Impacts include hazards to navigation and/or access to fishers; Mariculture impediments to water circulation and mixing; possible impacts to nearby coral reefs, (cage culture, sea-grass beds, or marine protection areas; water quality seaweed farming, etc) Impacts (operation): Impacts from overcrowding, unused fish feeds, dead fish and other chemicals, fish diseases, etc. The positive impacts of the Project during the operation/implementation phase are provision of livelihood and employment, relief of pressure on the fishery and coastal resource in the area, and additional income in the form of taxes for the host municipality.

Mitigation Measures (construction): For fish cages ,proper siting to reduce impacts, which includes selecting locations that will allow adequate mixing and circulation and not impede them, ensuring that criteria for 10% or more concentration of sea cages in water bodies is not exceeded and avoiding areas near coral reefs, sea-grass beds, and marine protected areas.

For seaweed farming, construction and maintenance of seaweed culture structure should cause minimal damage to the bottom habitat (e.g., minimal disturbance during construction of stakes, adequate spacing of seaweed plants to allow adequate light penetration to the bottom, etc.).

Mitigation Measures (operation): Maintaining correct stock density, following best management practices for feed management, efficient dead fish removal, and use of nontoxic chemicals. For seaweed farming, dead plants should be removed and disposed of in an environmentally safe manner in accordance with national and local codes. Component D Impacts (construction): Site clearing will result in loss of some vegetative cover in the site. Use of small construction equipment will increase the level of total suspended Construction of particles, sulfur oxides and nitrogen oxides. These impacts will however be small and small temporary. Social benefits will accrue as a result of the implementation of these infrastructure interventions, which would result in positive environmental benefits through improved facilities, such as well-being of the people. day-care facilities, Impacts (operation): Solid waste and sanitary wastewater generation. classrooms, coastal erosion Mitigation Measures (construction): Follow environmental screening criteria and control standard design practices. Minimal disturbance to existing vegetation and replanting of structures removed trees, soil erosion control measures like controlling off-site run-offs, reseeding disturbed areas, spraying water on disturbed areas to control dust, and maintenance of construction equipment and vehicles.

Mitigation Measures (operation): Solid waste bins and septic tank facilities with septage and solid waste disposed in an environmentally safe manner.

Water supply Impacts (construction): Some impacts of this activity will be generated during the system level II construction phases of implementation. Site clearing will result in the loss of vegetative and public toilets cover in the site and small increases in total suspended particles, sulfur oxides, and (component D, nitrogen oxides due to increase in mobile sources for construction activity. These environmental impacts are temporary and insignificant in magnitude. Improved sanitary and health management conditions will occur as a result of the implementation of these interventions, which will plan template) reduce further degradation of the receiving environment due to improved health and sanitary conditions.

40 Appendix 8

Activity Impact/Mitigation Measures

Impacts (operation): Well water contamination and sanitary effluent discharge.

Mitigation Measures (construction): Follow environmental screening criteria and standard design practices. Minimal disturbance to existing vegetation and replanting of removed trees, soil erosion control measures like controlling off-site run-off, reseeding disturbed areas, spraying water on disturbed areas to control dust, maintenance of construction equipment.

In addition during construction new or existing water supply and sanitation structures will not be located near each other (at least 100 feet apart), in flood-prone areas, or downhill of pollution sources.

Mitigation Measures (operation): Disposal of septage from sanitation facilities will be in an environmentally sound manner in accordance with national and local codes. A maintenance plan will be developed for both well water and sanitation systems. The systems will be operated based on sound engineering technical guidelines.

Stream bank Impacts (construction): This prototype intervention will not generate negative adverse stabilization impacts on the receiving environmental setting in the area, provided care is taken for appropriate disposal of construction soil, vegetation, etc., and maximum care is being taken not to disturb in-stream habitats and buffer zones. Implementation of this prototype intervention is expected to be beneficial to the coastal resources in the municipality by reducing erosion and consequent river pollution and sedimentation.

Impacts (operation): Damage to the structure and increased erosion potential.

Mitigation Measures (construction): The removed vegetation, soil, and debris will be disposed of in an environmentally safe manner in accordance with national and local codes.

Mitigation Measures (operation): Regular inspection and maintenance of the structures in accordance with an operation and maintenance plan.

Source: Asian Development Bank.

E. Institutional Requirements and Environmental Monitoring Plan 13. The municipal environment officer (or equivalent) with the assistance of a Department of Environment and Natural Resources (DENR) provincial environmental and natural resource officer and a DENR community environment and natural resource officer will be responsible for screening the subprojects for environmental criteria; preparing and implementing IEEs, EMP, and monitoring plan for category B subprojects; and developing the necessary paperwork for a DENR environmental clearance certificate. The community environment and natural resource officer will be responsible for overseeing implementation of the environmental management plan, take corrective action and report environment information to DENR’s Environment Management Bureau through the DENR provincial environment and natural resources office. 14. Monitoring activities will be performed for construction and disposal activities, equipment maintenance activities, water supply systems, mariculture, etc. Cost estimates for component C and D are inclusive of environmental mitigation measures. The total project cost includes P20,000 per municipality per year for environmental monitoring of project activities, particularly for components C and D. The monitoring activities, indicators, frequencies, responsibilities, Appendix 8 41 budget, and capacity-building activities are detailed in the IEE and updated for individual subprojects. F. Public Consultation and Disclosure 15. At the project feasibility stage, DENR facilitated provincial seminar-workshops in the six project provinces. During the workshops, preliminary findings and recommendations were presented, and comments and suggestions received from the participants who comprised provincial and municipal officials, representatives from the national government agencies, nongovernment organizations, people’s organizations, and members of academic institutions. During appraisal of the Project (10 August–7 September 2006), extensive public consultations with stakeholders were held in all project provinces. Meetings were held in Mati, Davao Oriental (10 August 2006); Cebu City, Cebu province (14–15 August and 7 September 2006); Masbate, Masbate province (17 August 2006); Aparri, Cagayan province (22 August 2006); Subic, Zambales province (24 August 2006); and Larena, Siquijor province (8 September 2006). The stakeholders included officials of the participating local government units, DENR, and Department of Agriculture regional offices; provincial government officials; community members; and fisherfolk. In all these consultations, the project concept and activities were introduced and environmental issues were discussed particularly with regard to implementation of mariculture and infrastructure subprojects. The environmental safeguard measures proposed for the Project were accepted by all the participants. G. Environmental Assessment and Review Framework 16. The environmental assessment and review framework was developed to guide the community environment and natural resource officer in (i) screening interventions through specific environmental checklists for ensuring compliance with environmental categorization, (ii) preparing necessary subproject IEEs, EMPs, and monitoring plans; and (iii) meeting safeguard requirements of the Philippine Government and the Asian Development Bank. The detailed procedural requirements are presented in Supplementary Appendix C. H. Conclusion 17. The Project is unlikely to cause any adverse environmental impacts because potential negative impacts are mainly during construction and will be temporary, minor, and localized in extent and can be mitigated to acceptable levels. According to the findings of the IEE, a detailed environmental impact assessment for the subprojects is not considered to be warranted. No interventions/activities are proposed that can be considered as environmentally critical or projected to create significant adverse or negative impacts on the environment. These will be ensured during project implementation by following the environmental assessment and review framework and checklists, and the environmental management and monitoring plan developed for prototype future interventions as specified in the IEE.

42 Appendix 9

MITIGATION MEASURES FOR RESOURCE ACCESS RESTRICTION IMPACT A. Background 1. The resource conservation and management initiatives of the Project are likely to affect, in the short-term, livelihoods of some people who currently engage in unsustainable practices in coastal waters and watershed and mangrove areas. Measures to mitigate the impact of resource use discipline on people, who could be affected, and the implementation and monitoring arrangements are outlined in this appendix. B. Impacts and Measures 2. Component B, integrated coastal resources management (ICRM), will promote adoption of ICRM practices that may result in various forms of resource access restrictions, such as (i) limited use of no-take zones in marine protected areas, (ii) control of destructive fishing using dynamite and cyanide, and (iii) limited use of mangroves and watersheds that will be rehabilitated and managed under the Project. The number and socioeconomic status of people who will be affected by the resource management practices are yet known as the location of no- take zones and scope of unsustainable practices that should be disciplined will be determined through community processes during the preparation of municipal ICRM plans. 3. Specific measures for mitigating the resource access restrictions and discipline impacts and improving incomes and livelihoods of those affected will be prepared and included in the ICRM plan. All people affected will be equally eligible for mitigation and rehabilitation assistance irrespective of social or economic standing, or any such discriminatory factors. Mitigation measures include (i) community-based watershed and/or mangrove rehabilitation and management contracts under component B, and (ii) alternative livelihood activities developed under component C: enterprise development and income diversification. Design and implementation of the mitigation measures will commence in year 1 of the Project, prior to the establishment of no-take zones, and rehabilitation and management of mangroves and watersheds; both types of activities commence in years 2 and 3. As a result, people who could be affected would no longer need to rely on unsustainable practices and therefore the anticipated impact of new ICRM practices on them would be relatively minor. Likely impacts, categories of potentially affected people, and proposed measures, and implementation responsibilities are detailed in Table A9. C. Implementation Arrangement 1. Institutional Responsibilities 4. The Department of Environment and Natural Resources (DENR) will be the Executing Agency for the Project. Mitigation measures including the livelihood program will be implemented by DENR and Department of Agriculture (DA). DENR and DA will engage project municipalities in participatory resource assessment, establishment and management of marine protected areas, enforcement of laws and regulations, and identification and promotion of alternative livelihoods. DENR will establish a project steering committee to oversee and coordinate project implementation. DENR will also establish a regional steering committee in each of the five project regions to oversee and coordinate project implementation within the region. The project and regional steering committees will also be responsible for compiling baseline data and monitoring data including the inventory of people affected.

Table A9: Potential Adverse Impacts of Project Activities and the Required Mitigation Measures

Mitigation Measures for Likely Activity Likely Impacts Potential Affected People Adverse Effects Implementation Responsibility Establishment Short Term Subsistence fisherfolk (i) Reduction in available fishing (i) Size of the no-take zone of no-take (i) Reduction in available fishing area will be minimal as no-take areas is fixed and no further zones areas; and (ii) difficult access to zones will be about 50 square actions are required. fishing areas if no-take zones kilometers, which is less than (ii) Coastal communities are located in immediate vicinity 0.5% of the municipal coastal including fisherfolk and of coastal communities areas along a coastline of about municipal governments will 1,800 kilometers prepare ICRM plans. The Medium to Long Term (ii) In preparation of an Department of Environment and Increased fish catch in areas integrated coastal resources Natural Resources (DENR) will bordering the no-take zones management (ICRM) plan for approve the plans. the municipality, the coastal (iii) The Enterprise Development communities including the Unit of the Department of subsistence fisherfolk will Agriculture (DA), DENR, and propose location of the no-take municipal governments will be zones responsible. (iii) Subsistence fisherfolk will be able to increase their incomes by opting for alternate livelihood activities facilitated by the Project Control of Short Term A fraction of the subsistence Subsistence fisherfolk will be DA’s enterprise development destructive Reduced fish catch rates for a fisherfolk population provided support to diversify and units and DENR along with fishing small population of coastal augment their incomes through support from municipal fisherfolk (less than 5% in case support from the Project for governments will be responsible of study municipalities) establishing land- and marine- for implementation of livelihood based enterprises. The diversification activities. People Medium Term enterprise development and to be affected will be identified Increased fish catch, but for a income diversification and specifically targeted through small population catch may be component accounts for about the ICRM plan for project

less than before 11% of the base costs. support. 9 Appendix Rehabilitation Short Term Communities residing adjacent (i) ICRM plans will identify (i) ICRM plans will be prepared of existing (i) Community enforced ban on to 7,000 hectares (ha) of people to be affected, who will by coastal communities, and mangroves logging; and (ii) communities mangroves Population size of be contracted for managing the municipal governments. DENR

that are poorly continue to fish in mangroves, such communities is very small mangrove areas. On average, will enter into contracts with 43 maintained undertake crab fattening, and as the existing mangrove areas P15,000 will be provided per ha communities for management of collect propagules are small and scattered in the (90% will accrue to community mangroves. project area: 1–10 ha. Larger members as wage for labor) (ii) DA’s enterprise development Medium Term plantations are already under over 2–3 year contracts. units and DENR along with (i) Increased fish catch, (ii) close protection regimes (ii) Community members may support from municipal increased crab harvest, and (iii) opt to expand their incomes by governments will be responsible increased propagule harvest participating in the enterprise for this. development and income

Mitigation Measures for Likely 44 Activity Likely Impacts Potential Affected People Adverse Effects Implementation Responsibility diversification component.

Reforestation Short Term No negative impacts. Not applicable ICRM plans will be prepared by 9 Appendix of areas that Employment generation through coastal communities, and previously mangrove planting. Positive benefits for municipal governments. DENR supported communities residing adjacent will enter into contracts with mangroves Medium Term to 2,000 ha that supported communities for reforestation of

(i) Increased fish catch, (ii) mangroves in the past. On mangroves. increased crab harvest, and (iii) average, the community increased propagule harvest members will be provided P25,000/ha (90% will accrue to community members as wage for their labor) for a 2–3 year contract Rehabilitation Short Term Communities residing in (i) ICRM plans will identify those (i) ICRM plans will be prepared of existing (i) Community enforced ban on immediate vicinity of 3,500 affected, who will be contracted by coastal communities, and watersheds logging, and (ii) communities hectares of poorly maintained for managing the watershed municipal governments. DENR that are poorly continue to collect forage for watersheds areas. On average, P20,000 will will enter into contracts with maintained livestock be provided per hectare (80% communities for the will accrue to community management of watersheds. Medium Term members as wage for labor) for (ii) DA’s enterprise development (i) Reduced erosion, and (ii) 2–3 year contracts. units and DENR along with improved forage availability for (ii) Community members may support from municipal livestock opt to expand their incomes by governments will be responsible participating in enterprise for the activities. development and income diversification component. Reforestation Short Term No negative impacts Not applicable ICRM plans will be prepared by of areas that Employment generation through coastal communities, and previously reforestation. Positive benefits for municipal governments. DENR supported communities residing adjacent will enter into contracts with watersheds Medium Term to 2,000 ha that supported communities for reforestation of (i) Reduced erosion, and (ii) watersheds in the past watershed areas. increased forage for livestock On average, community members will be provided P25,000/ ha (90% will accrue to community members as wages for their labor) for a 2–3 year contract.

Sources: Appraisal Mission and Government findings.

Appendix 9 45

2. Procedures 5. An initial inventory of people affected will be prepared by the municipal government, which will be verified during ICRM plan preparation, as the site selection of no-take zones and determination of the unsustainable practices within the watershed and mangrove areas that should be stopped will be done during ICRM plan preparation. 6. In preparing and implementing ICRM plans, the following procedures will be followed: (i) consult with various stakeholders to obtain their views on how to avoid or minimize adverse impacts, and identify the needs and preferences of individuals affected; (ii) collect socioeconomic data and identify different categories of people affected based on the degree and scale of impacts, with the participation of affected communities; (iii) formulate a time-bound action plan or schedule for ICRM plan preparation/implementation, procedures for grievance redress and monitoring and evaluation, and allocation of budget; (iv) prepare an ICRM plan incorporating mitigation measures, translate into local languages, and present the draft during consultation and public meetings for comments; incorporate comments and suggestions of the affected communities in the final ICRM plan; (v) submit the ICRM plan to DENR for review and approval prior to imposition of resource access restrictions; copies of DENR-approved ICRM Plans will be submitted to ADB for review and record; and (vi) implement the ICRM plan and submit progress reports to ADB as part of the monitoring activities.

3. Monitoring and Evaluation

7. The project management office at DENR central office will supervise the preparation and implementation of ICRM plans, and monitor and report on activities that involve the people affected. The monitoring and evaluation will form an integral part of the project performance management system to be established and supported by the Project, and will focus on socioeconomic impacts and whether individuals affected are able to restore, and preferably improve upon, their pre-project income and livelihoods. The findings will be consolidated and reflected in the regular progress reports for submission to ADB and the Government.

4. Budget

8. The project budget includes an allocation of $6.2 million for watershed and mangrove management contracts of which 85% is to accrue to communities. Allocation for livelihood improvement activities is $6.1 million or 11% of the project base costs.

SUMMARY COST ESTIMATES 46 Table A10.1: Cost Estimates by Expenditure Category

P million $ million % of Total 10 Appendix Local Foreign Local Foreign Base Item Currency Exchange Total Currency Exchange Total Cost A. Investment Costsa

Resource Management 455.07 50.56 505.63 8.72 0.97 9.69 18 Capacity Building 131.17 14.57 145.75 2.51 0.28 2.79 5 Demonstrations and Trials 169.29 18.81 188.10 3.24 0.36 3.60 7 Dissemination Activities 79.01 8.78 87.79 1.51 0.17 1.68 3 PPMS, Studies, Surveys, and Audits 154.12 66.05 220.18 2.95 1.27 4.22 8 Consulting Services International 5.32 47.92 53.24 0.10 0.92 1.02 2 National 77.12 33.05 110.17 1.48 0.63 2.11 4 Equipment and Materials 53.58 67.31 120.89 1.03 1.29 2.32 4 Vehicles 15.37 61.48 76.85 0.29 1.18 1.47 3 Land Purchase 35.00 35.00 0.67 0.67 1 Civil Works 445.20 111.30 556.50 8.53 2.13 10.66 20 Implementation and Supervision 119.58 119.58 2.29 2.29 4 Subtotal (A) 1,739.83 479.84 2,219.67 33.33 9.19 42.52 80 B. Recurrent Costs 563.38 563.38 10.79 10.79 20 Subtotal (A+B) 2,303.22 479.84 2,783.05 44.12 9.19 53.32 100 C. Physical Contingenciesb 69.62 18.11 87.73 1.33 0.35 1.68 3 D. Price Contingenciesc 180.80 18.02 198.82 0.96 0.09 1.05 2 Subtotal (A+B+C+D) 2,553.64 515.97 3,069.61 46.41 9.63 56.05 105 E. Financing Charges during Implementationd Interest during Implementation 309.14 309.14 5.75 5.75 11 Commitment Charges 28.98 28.98 0.52 0.52 1 Total 2,553.64 854.09 3,407.73 46.41 15.90 62.32 117 PPMS = project performance management system. a In mid-2006 prices. b Computed at 5% for categories other than capacity building, consulting services, land purchase, and implementation and supervision, which are assumed at 0%. c Computed at 1.2% for the foreign component of the costs and at 4.0% for the local component of the costs. For instance such as civil woks for environment and social infrastructure where allocations/provisions are a block provision or have a ceiling, no price contingencies were assumed. d Interest during construction has been computed at the 5-year forward London interbank-offered rate plus a spread of 0.6%. Sources: Asian Development Bank and Government estimates.

Appendix 10 47

Table A10.2: Cost Estimates by Financier

Asian Global Environment Government and Total Development Bank Facility Communities Amount Item $a % of Cost $ % of Cost $ % of Cost Category Category Category A. Investment Costs Resource Management 6.41 68.1 3.00 31.9 9.41 Capacity Building 0.65 25.5 1.88 74.5 2.53 Demonstrations and Trials 3.46 97.3 0.10 2.7 3.56 Dissemination Activities 1.36 83.1 0.20 12.2 0.08 4.7 1.64 PPMS, Studies, Surveys, 2.42 59.4 1.63 39.6 0.04 1.0 4.09 and Audits Consulting Services International 0.34 36.1 0.60 63.9 0.95 National 1.39 72.5 0.53 27.5 1.92 Subtotal (A+B) 1.74 60.5 1.13 39.5 2.87 Equipment and Materials Equipment 1.18 62.4 0.72 37.6 1.90 Materials 0.30 97.0 0.01 3.0 0.31 Furnishing and Furniture 0.01 100.0 0.01 Subtotal (C) 1.49 67.4 0.73 32.6 2.22 Vehicles 1.27 90.9 0.13 9.1 1.40 Land Purchase 0.63 100.0 0.63 Civil Works 9.38 97.6 0.24 2.4 9.62 Implementation and 2.06 100.02.06 Supervision B. Recurrent Costs 1.20 10.9 9.67 89.1 10.86 C. Taxes and Duties 5.15 100.0 5.15 Total Base Costs 27.53 49.1 9.00 16.0 19.52 34.9 56.05 D. Interest during 5.75 100.0 5.75 Implementation E. Commitment Charges 0.52 100.0 0.52 Total 33.80 9.00 19.52 62.32

% Total Project Costs 54.3 14.4 31.4 100.0 PPMS = project performance management system. a Amount of the Asian Development Bank loan proceeds allocated to the cost category. Sources: Asian Development Bank and Government estimates.

48 Appendix 11

NATIONAL GOVERNMENT AND LOCAL GOVERNMENT UNIT COST-SHARING POLICY1

A. Subproject Cluster Cluster 1. Subprojects that are generally considered as public economic enterprises include (i) public markets; (ii) slaughterhouses; (iii) bus and jeepney terminals; (iv) municipal wharves and fish ports; (v) postharvest facilities; (vi) cold storage facilities; (vii) ice plants, water supply level III; and (viii) public memorial parks

Local Government Unit Municipalities and Provinces Cities Income Class Loan Grant Equity Loan Grant Equity First and second 0 0 0 0 0 0 Third and fourth 70 20 10 0 0 0 Fifth and sixth 40 50 10 0 0 0

Cluster 2. Subprojects that are generally social and green/blue environment related include (i) social subprojects: health centers, lying-in clinics and hospitals, school buildings, water supply levels I and II, communal irrigation, farm-to-market roads, rural roads or local roads, bridges; and (ii) green/blue subprojects: reforestation, forest-related activities, soil conservation, mangrove and watershed protection, river and seashore protection.

Local Government Unit Municipalities and Provinces Cities Income Class Loan Grant Equity Loan Grant Equity First and second 50 30 20 80 0 20 Third and fourth 45 40 15 80 0 20 Firth and sixth 40 50 10 50 30 20

Cluster 3. Consists of brown environment-related subprojects that include (i) solid waste management, (ii) drainage, (iii) sewerage, and (iv) sanitary support facilities.

Local Government Unit Municipalities and Provinces Cities Income Class Loan Grant Equity Loan Grant Equity First and second 60 20 20 80 0 20 Third and fourth 45 40 15 80 0 20 Fifth and sixth 40 50 10 60 20 20

B. Lending Terms Interest rate Currently at 12% per annum Repayment period Payable in equal installments in 15 years inclusive of 3 years grace period on the principal payment

1 An extract from the National Economic and Development Authority and Municipal Development Fund office documents on the cost-sharing policy approved by the Investment Coordination Committee on 12 December 2002. Appendix 12 49

PROJECT ORGANIZATION CHART

Project Steering Committee

DA, BDM, DENR, DILG, DOF, NEDA

DENR DA

FASPO/PMO BFAR NATIONAL NATIONAL

Regional Steering Committee DENR Regional DA Regional Office

Office Regions II, III, VII ∩ PAWCZM Service DA, DBM, DENR, DILG, BFAR NEDA, Provincial REGIONAL REGIONAL Government

PENRO Provincial Steering Committee (Davao Oriental/Masbate) PROVINCIAL PROVINCIAL

CENRO Municipal Government MUNICIPAL MUNICIPAL

ICRM Organizations (FARMCs, Bantay Dagat ICRM Organizations and POs) (FARMCs, Bantay Dagat and POs)

Bantay Dagat = Marine Watch, BFAR = Bureau of Fisheries and Aquatic Resources, CENRO = Community Environment and Natural Resources Office, DA = Department of Agriculture, DBM = Department of Budget Management, DENR= Department of Environment and Natural Resources, DILG = Department of Interior and Local Government, DOF = Department of Finance, FARMC = Fisheries and Aquatic Resources Management Council, FASPO = Foreign Assisted and Special Projects Office, NEDA = National Economic and Development Authority, PAWCZM = Protected Area, Wildlife and Coastal Zone Management, PENRO = provincial environment and natural resources office, PMO = project management office, PO = people’s organization.

Sources: Asian Development Bank and the Government.

50 Appendix 13

PROJECT IMPLEMENTATION SCHEDULE Year Activity 1 2 3 4 5 6 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 A. Component A: Policy and Institutional Strengthening and Development 1. Policy Aspects a. Update of institutional framework and preparation of implementing rules and regulations for executive order on ICRM b. Policy studies to finalize ICRM policy c. Joint administrative orders for implementation of ICRM policy and revised National Integrated Protected Area Systems Act d. Clarification of stakeholder roles in ICRM and biodiversity conservation e. Information education and communication campaign 2. Capacity-Building and Institutional Development a. Assessment of human resources and institutional capacities of DENR, Bureau of Fisheries and Aquatic Resources, and LGUs b. Training programs for Department of Environment and Natural Resources, Bureau of Fisheries and Aquatic Resources, and LGUs c. Development of ICRM and marine biodiversity research agenda 3. Performance-Based Incentive and Disincentive Systems a. Identification of viable incentive and disincentive systems b. Endorsement of incentive and disincentive system c. Information, education, and communication campaign B. Component B: Coastal Resources Management and Biodiversity Conservation 1. Integrated Coastal Resources Management a. Information, education, and communication campaign b. Participatory coastal resources and scientific assessments c. Municipal and national coastal resources database development d. Development and strengthening of ICRM organizations e. Training for ICRM organizations in ICRM f. Environmental impact monitoring system g. Participatory ICRM planning and zoning of waters h. Mangrove and watershed rehabilitation and management i. Participatory enforcement j. Participatory monitoring and evaluation 2. Biodiversity Conservation a. Establishment of ICRM centers b. Research on critical biodiversity resources c. Identification of MPAs and networks or corridors of MPAs d. MPA management plans preparation e. Conservation and resource enhancement activities f. Establishment of ecocertification/ecolabeling systems C. Component C: Enterprise Development and Poverty Reduction 1. Mobilization of self-reliant groups 2. Establishment of enterprise development units 3. Potential mapping, skills inventories, and market and feasibility studies 4. Facilitation of enterprise development 5. Facilitation of private sector investment D. Component D: Social and Environmental Services and Facilities 1. Conduct feasibility studies, IEE, or EIA and implement interventions to address coastal pollution or erosion 2. Civil works 3. Training for operation and maintenance of infrastructure 4. Operation and maintenance EIA = environmental impact assessment, ICRM = integrated coastal resources management, IEI = initial environmental examination, LGU = local government unit, MPA = marine protected area. Sources: Asian Development Bank and Department of Environment and Natural Resources. Appendix 14 51

PROCUREMENT PLAN

Project Information Country Republic of the Philippines Name of Borrower Republic of the Philippines Project Name Integrated Coastal Resources Management (ICRM) Loan or TA Reference To be determined Date of Effectiveness To be determined Amount US$ (total from all financiers): $62,230,000 Of which ADB Committed, $ $33,770,000 Executing Agency Department of Environment and Natural Resources Approval Date of Original Procurement Plan To be determined Approval of Most Recent Procurement Plan To be determined Publication for Local Advertisementa To be determined Period Covered by this Plan 2007–2012

Procurement Thresholds, Goods and Related Services, Works, and Supply and Install Procurement Methods To be used above/below ($) International Competitive Bidding (ICB) works At least $1,000,000 International Competitive Bidding goods At least $500,000 National Competitive Bidding (NCB) works Less than $1,000,000 but more than $100,000 National Competitive Bidding goods Less than $500,000 but more than $100,000 Shopping works Less than $100,000 Shopping goods Less than $100,000

Procurement Thresholds, Consultants Services Procurement Methods To be used above/below ($) Quality- and Cost-Based Selection (QCBS) At least $200,000 Consultants Qualifications Selection At least $100,000 Least Cost Selection Less than $100,000 Single Source Selection Less than $100,000

List of Contract Packages of Goods, Works and Consulting Services Exceeding $100,000 Estimated Expected Date Cost Procurement of Prior No Contract Description ($) Method Advertisement Review Agency 1 Consulting Services 3,000,000 QCBS Second quarter Yes DENR (1 package) 2007 2 Information, Education, and 1,200,000 NCB Second quarter Yes DENR Communication Campaigns (12 packages) 2007 and ongoing 3 Vehicles—Land Based 500,000 NCB Fourth quarter Yes DENR and (3 packages) 2007 DA 4 Vehicles—Speed 1,000,000 NCB Second quarter Yes DENR Boats/Motor Boats (3 packages) 2008 5 Enforcement Equipment 750,000 NCB Fourth quarter Yes DENR (2 package) 2007 6 Computers and Accessories 325,000 NCB Fourth quarter Yes DENR for Provinces/ Municipalities (2 packages) 2007 7 Equipment for ICRM 275,000 NCB Fourth quarter Yes DENR Centers (1 package) 2008 8 DENR Office, Field, and 200,000 NCB Third quarter Yes DENR Computer Equipment (2 packages) 2007 9 DA Office, Field, and 100,000 NCB Third quarter Yes DA Computer Equipment (1 package) 2007 DA = Department of Agriculture, DENR = Department of Environment and Natural Resources. a General procurement notice, invitations to prequalify and bid, calls for expressions of interest. Sources: Asian Development Bank and the Government.

52 Appendix 15

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS A. Introduction 1. A team of international and national consultants will be recruited to assist the Government in implementing the Project. Consultants will be located at the national and provincial implementation sites. Thirteen consultant positions are proposed for the national project management office (PMO), four international and nine national consultants. Three national consultant positions will be at the provincial operation sites. B. National Government 1. International Consultants 2. The four international consultants are (i) integrated coastal resources management (ICRM) specialist, project management consultant, and team leader (14 person-months); (ii) biodiversity conservation specialist (22 person-months); (iii) biodiversity research specialist (10 person-months); and (iv) project performance management specialist (5 person-months). 3. ICRM Specialist (Team Leader). The consultant will help the PMO with overall project management and administration; supervise the project consultant team; and refine the scope of work for all project staff and consultants consistent with the project framework, indicators, and required outputs, in consultation with the departments of environment and natural resources (DENR) and agriculture (DA). The consultant will (i) provide technical guidance on activities related to policy reform and advocacy, biodiversity, local governance, and local governance; (ii) initiate required programs to facilitate national, regional, provincial, and municipal project implementation; (iii) ensure the delivery of project reports and outputs required by the Government and Asian Development Bank (ADB); and (iv) assist the PMO in organizing periodic national and regional project meetings.

4. Biodiversity Conservation Specialist. The consultant will provide technical leadership in the following areas: (i) improving the design and management of marine protected areas (MPAs) and targeting the development of MPA networks; (ii) developing biodiversity conservation training programs for relevant staff of DA, DENR, and participating municipalities; and (iii) providing guidance to DA, DENR, academic and scientific organizations, and nongovernment organizations for strengthening eco-certification programs. The consultant will (i) provide technical input to DA and DENR national and regional offices in the development of programs and activities for habitat restoration and species enhancement; (ii)l coordinate with the research adviser (biodiversity) and biodiversity consultant (national) on the development of research programs, approaches, and interventions for biodiversity conservation aspects of the Project; (iii) work in tandem with the information, education, and communication (IEC) specialist on the development of multimedia IEC materials, and design and operation of ICRM centers with respect to incorporation of educational displays, exhibits, and activities; and (iv) help plan and implement regional and national biodiversity and MPA management workshops and an international conference.

5. Biodiversity Research Specialist. The consultant will (i) design and analyze a needs assessment study to identify critical areas of research required to fill data gaps with respect to biodiversity resources, and conservation and management needs; (ii) in consultation with the biodiversity specialist and bureaus of DENR and DA concerned, help establish a selection committee and develop criteria for formulation and evaluation of research proposals; (iii) monitor progress of targeted research activities, including review of reports, site visits to observe research activities, etc.; (iv) issue regular progress reports on biodiversity conservation Appendix 15 53 research; and (v) assist in planning and implementing regional and national biodiversity and MPA management workshops and an international conference.

6. Project Performance Management Specialist. The consultant will (i) work with the project performance management system (PPMS) specialist (national) to help the national and provincial consultants as well as the DENR-PMO and Bureau of Fisheries and Aquatic Resources project implementation unit with project monitoring and evaluation; (ii) help design and establish a PPMS that will encompass the elements identified in para. 63 of the main text; (iii) provide for baseline, midterm, and completion surveys; (iv) train regional and provincial staff on monitoring field activities for ICRM and biodiversity, alternative livelihoods, and social and environmental infrastructure; and (v) prepare quarterly or annual project data summaries and assessments of progress (relative to the implementation schedule) and performance (relative to indicators), as needed for reporting purposes. 2. National Consultants

7. The nine national consultants are (i) ICRM specialist and deputy team leader (38 person-months); (ii) policy and institutional development specialist (34 person-months); (iii) legal specialist (24 person-months); (iv) IEC and training specialist (6 person-months); (v) biodiversity specialist (23 person-months); (vi) biodiversity research specialist (3 person-months); (vii) enterprise development specialist (33 person-months); (viii) environmental management specialist (21 person-months); and (ix) PPMS specialist (22 person-months).

8. ICRM Specialist and Deputy Team Leader. Terms of reference of the consultant will be similar to the international ICRM specialist. The consultant will take over from the international consultant during the second year of the Project. 9. Policy and Institutional Development Specialist. The consultant will (i) help with activities related to policy reform, advocacy, and institutional strengthening; (ii) in coordination with the legal consultant, review the status of implementation of national ICRM policy and issuance of relevant administrative orders, circulars, and regulations; (iii) help draft and conduct advocacy work for ICRM legislation; (iv) assist in establishing national, regional, and provincial interagency coordination frameworks on ICRM-related aspects; and (v) help develop a national ICRM incentive and disincentive system in coordination with the ICRM team leader and the PPMS consultant.

10. Legal Specialist. The legal specialist will (i) provide legal research services, legal opinions, and recommendations to DENR, Bureau of Fisheries and Aquatic Resources, and municipalities on proposed policy reforms pertaining to the identified issues areas in ICRM; (ii) help DENR, Bureau of Fisheries and Aquatic Resources, and participating municipalities develop policy instruments required during project implementation, including the drafting and development of department administrative orders and municipal ordinances; (iii) assist in developing the ICRM incentive and disincentive system, particularly its legal implications; and (iv) help the policy and institutional development specialist develop capacity-building programs to strengthen policy and decision-making offices and personnel of DENR and the municipalities. 11. IEC Specialist. The consultant will (i) design and help implement an IEC and advocacy campaign to increase national, regional, and municipal awareness of ICRM and marine biodiversity conservation; (ii) assist in making an assessment of ICRM and biodiversity awareness among various stakeholders; (iii) help develop an IEC strategy for the Project; and (iv) coordinate design and production of IEC materials and programs for print and multimedia.

54 Appendix 15

12. Biodiversity Specialist. The consultant will work under the guidance of the international biodiversity specialist and share the same terms of reference.

13. Biodiversity Research Specialist. The consultant will work under the guidance of the international biodiversity research specialist with similar terms of reference. 14. Enterprise Development Specialist. The consultant will (i) help enterprise development units, municipal governments, and DA staff identify enterprise opportunities, market linkages, and potential financial intermediaries; (ii) take the lead in building the capacity of enterprise development units as service centers on sustainable livelihood and enterprise development through mentoring, technical guidance, and workshops; and (iii) supervise and provide oversight to assistant enterprise development specialists to be engaged by the Project.

15. Environmental Management Specialist. The consultant will (i) assist DENR in disseminating the environmental safeguards, and environmental assessment and review framework of the Project to stakeholders including staff of regional and provincial DENR and DA offices, participating local government units, civil society and peoples’ organizations, and coastal communities; (ii) assist DENR in coordinating with DA and local governments on implementing the environmental management plan to establish and operate livelihood enterprises under component C; and in selecting, designing, constructing, and operating infrastructure and facilities under component D; and (iii) coordinate with and assist the PMO in developing and preparing training modules related to environmental management.

16. PPMS Specialist. The PPMS specialist (national) will work with the PPMS specialist (international) to help national and provincial consultants as well as the DENR-PMO and DA- focal point with project monitoring and evaluation. The functions and qualifications for the PPMS specialist (national) are similar to that of the international PPMS specialist. C. Provincial Assistance

17. ICRM Specialist. Three provincial ICRM specialists (38 person-months each) will cover the project provinces. The consultants will (i) serve as the focal point and facilitator for all activities in the province; (ii) facilitate the ICRM planning and implementation process in participating municipalities; (iii) compile and be responsible for baseline data for the preparation of coastal area profiles and monitoring data for the provincial and municipal PPMS; (iv) coordinate with consultants working at the national level; and (v) assist in developing and conducting training sessions for the ICRM implementation team.

Appendix 16 55

PROJECT FINANCIAL MANAGEMENT

A. Introduction 1. The financial management assessment focused on (i) the institutional framework in which the Project is to be implemented; (ii) assessment of the financial management capacity and readiness of the project Executing Agency—the Department of Environment and Natural Resources (DENR)—and implementing agencies; and adequacy of implementation arrangements to ensure that loan and grant funds will be utilized effectively for the intended purpose. The assessment employed discussions with the relevant national, regional, provincial and municipal officials, as well as a review of past Asian Development Bank (ADB) and other funding agencies’ projects implemented by DENR and other implementing agencies. B. Assessment of DENR and the Implementing Agencies 2. DENR, the Executing Agency, will be responsible for overall management of the Project. The project implementing agencies are the Department of Agriculture (DA), DENR, and 68 participating municipalities. 3. DENR has extensive experience in managing externally assisted projects, including several ADB-financed projects. While most of the previous projects were completed satisfactorily, DENR performance in recent years was affected by major budget cuts impacting project implementation. 1 DENR performance with financial management of ADB-financed projects has been satisfactory; no major irregularities have been identified. 4. DA also has been a major executing and implementing agency of externally assisted projects including 15 investment and program loan projects of ADB. The overall performance with ADB-financed projects has been satisfactory and no major financial irregularities have been identified. 5. Since the Government adopted the Local Government Code in 1991, all funds flow for similar projects to local government units (LGUs) (municipalities and provinces) are channeled through the Department of Finance’s Municipal Development Fund Office (MDFO). MDFO has dedicated financial management specialists that oversee the transfer of funds to local governments, fund utilization, and preparation of withdrawal applications. On a number of projects in the agriculture and social sectors, ADB has worked with MDFO as a conduit for channeling funds to municipal governments; no major irregularities have been reported. C. Funds Flow Arrangements 6. The national Government will provide part of the loan and grant proceeds and its own counterpart funds to DENR through budgetary transfers for expenditures to be incurred by DENR and DA. Part of the loan proceeds and counterpart funds will be released to MDFO for transfer to participating municipalities as a mix of loan and grant in accordance with the National Government and Local Government Unit Cost-Sharing Policy of 2003. The funds flow arrangements are shown in Figure A16.

1 To avoid similar budget cuts, approval of future projects by the Government is subject to preparation of a project - specific budget strategy in accordance with the agency’s overall medium-term public sector expenditure program. The funding strategy outlines yearly funding requirements and source of funds, and is approved by the secretary, Department of Budget Management. A budget strategy for the Integrated Coastal Resources Management Project was approved in September 2006.

56 Appendix 16

7. DENR will open two separate imprest accounts, one for the ADB loan and one for the Global Environment Facility grant, in a commercial bank specifically authorized for this purpose by the Bangko Sentral ng Plipinas, on terms and conditions satisfactory to ADB. The imprest accounts will be managed in accordance with ADB’s Loan Disbursement Handbook and detailed arrangements agreed upon by the Government and ADB. The advance to be deposited to each account will be based on an estimated 6 months of the project expenditure or a maximum of 10% of the ADB loan and Global Environment Facility grant, whichever is lower. Applications to replenish the accounts, supported by appropriate documentation, will be submitted regularly (preferably monthly, but not more than quarterly) and/or whenever the accounts are drawn down by 20% of the initial deposit. The imprest accounts and statements of expenditure will be audited annually by auditors acceptable to ADB. Similarly, MDFO will open and manage an imprest account for channeling ADB loan proceeds to municipal governments. 8. To facilitate project implementation in a devolved environment, DENR may agree to a 90-day cash advance facility to DA. DENR will ensure that the DA project unit has the capacity to manage the fund. DA will submit its 90-day cash requirements to DENR together with its work plan and funding requirements. DENR will monitor and control the transfer of the cash advance, and monthly replenishment of such cash advances will be required with the submission of satisfactory proof of incurred eligible expenditures. D. Accounting, Financial Reporting, and Auditing Arrangement 9. The Commission on Audit (COA) has developed a financial information system for foreign-assisted projects, which has the following features: (i) application of commercial methods of accounting; (ii) a perpetual inventory method; (iii) an improved chart of account and coding system; (iv) clear recording and reporting of accounting data from LGUs to DENR and the implementing agencies; and (v) generation of accurate and timely financial reports that are needed by agency management, oversight agencies, and funding institutions. The financial information system runs on a financial accounting software platform with ability for customization to suit the needs of any project; it is being used by DENR, DA, and MDFO. 10. MDFO will use electronic National Government Accounting System (e-NGAS), which has the following features: (i) data validation to avoid duplication and redundancy; (ii) electronic processing, approval of journal entry voucher, recording of transactions in the general journal and posting to respective general ledger (GL) and subsidiary ledgers (SL); (iii) inclusion of the standard national government accounting system chart of accounts; (iv) new coding structure; (v) inventory costing for supplies and material; (vi) property, plant and equipment monitoring; (vii) keeps track of project cost components, thereby promoting transparency and accountability over government infrastructures/projects; (viii) ensures reconciliation of GL control accounts with SL accounts; (ix) strengthen internal control function by requiring the maintenance of SLs by the accounting unit of the agency; (x) generates monthly or on demand financial statements and reports; (xi) public infrastructures/reforestation projects monitoring; (xii) online query on documents and special reports with option to print. 11. Project disbursements to municipalities/LGUs through MDFO will be a mix of loans and grants. The accounting policies and procedures of the MDFO are governed by Department of Budget and Management and COA circular 6-87 of 17 August 1987. The circular describes the accounting policies and procedures, the chart of accounts, and accounting entries. MDFO produces separate financial reports for each project, accounting for both subloans and grants. Appendix 16 57

E. Staffing 12. DENR’s Accounting Section comprises qualified accounting graduates and is headed by a chief accountant. The accounting, disbursement, and record-keeping functions are segregated and independent of each other. DENR relies on statements of expenditure submitted by implementing agencies to release funds. DENR does not have sufficient staff to review the financial management arrangements of the implementing agencies but relies on COA verification and approval of statements of expenditure. To ensure sound financial management, necessary adjustments will be made within the existing staff resources of the DENR Accounting Section to establish a unit devoted to the project requirements. Keeping in view the large number of municipalities receiving support from the Project, additional dedicated accounting staff will be provided at MDFO. F. Reporting and Auditing 13. DA and MDFO will submit standard financial management reports on a quarterly basis to DENR. DENR will prepare a consolidated report adding its own financial reports. The reports will be in format acceptable to ADB and will be used for monitoring project progress by the implementing agencies, i.e., DENR, DA, and municipalities. DENR will also prepare annual consolidated project financial statements for the Project. COA will audit and render an opinion on the DENR financial statements. MDFO will prepare a separate consolidated financial report (CFR) which pertains only to the funds that the MDFO will administer and the accounts are with MDFO. The reports will be in format acceptable to ADB and will be used for monitoring of project progress by implementing agencies i.e DENR, DA, and municipalities. The CFR prepared by MDFO exclusively for the sub-projects will be audited by COA, which will render an opinion thereon. Audited CFR will be submitted by MDFO directly to ADB, with a copy to DENR. G. Conclusions 14. The appraisal mission’s assessments and review of DENR and the implementing agencies’ track record in implementing externally funded projects shows that implementation arrangements for the Project are adequate to ensure that loan and grant funds will be utilized effectively for the intended purpose. The mission incorporated additional features and mechanisms such as adoption of an ecogovernance framework into the project design for greater municipal and community transparency and accountability.

58 Appendix 16

Figure A16: Funds Flow Diagram

Asian Global Development Environment Bank Facility

Department of Finance

Department of Municipal Environment Development and Natural Fund Office Resources (MDFO) (DENR)

Marine/Costal Department of Research Agriculture Institutions (DA)

Regional Regional DA DENR Office Office Integrated Coastal Resources Management Centers Enterprise Provincial Development DENR Office Unit

Municipal Municipal DENR Office Governments

Communities

DA = Department of Agriculture, DENR = Department of Environment and Natural Resources. Sources: Asian Development Bank and Department of Environment and Natural Resources. Appendix 17 59

FINANCIAL AND ECONOMIC ANALYSES A. Introduction 1. The Project will facilitate sustainable management of coastal resources by (i) strengthening the overall policy and legal framework; (ii) building capacities of communities; civil society groups; and national, provincial, and municipal government institutions; (iii) undertaking participatory resource use planning and management, biodiversity conservation, and resource enhancement; and (iv) providing social and environmental services and facilities. By reducing the decline in quality and productive capacity of coastal habitat, the Project will lead to direct and indirect economic benefits including improved fish catch, reduced erosion in foreshore and upland areas, and increased local and global use values.1 The development of alternative and supplemental incomes, through viable livelihood and microenterprises, will relieve pressure on the coastal resources. The progressive population management programs in the coastal barangays, with education on reproductive health the linkage between population and environmental quality, will reduce future population pressure on coastal resources. B. Methodology 2. The Project will be implemented over 6 years; the economic life of the project interventions is expected to be 20 years. 3. Exchange Rate and Discount Rate. For this analysis, the prevailing interbank exchange rate of P52.2/$1.0 is used. A discount rate of 12% is used to ascertain the net present value and also as a cutoff point for the economic internal rate of return (EIRR). 4. Price Assumptions. Financial benefits and costs are estimated in constant 2006 terms. Financial prices are based on findings of the surveys undertaken during the feasibility study. The analysis uses a domestic price numeraire where the shadow exchange rate factor (SERF) is used to adjust the prices of traded commodities to domestic levels. The SERF is assumed to be 1.2, which is the standard SERF for the Philippines as indicated in the Government’s Investment Coordination Committee’s Project Evaluation Procedures and Guidelines. The values of coastal resources and products from livelihood activities are taken at the border price and their economic values derived by adjusting these with the SERF. To take into account local unemployment and underemployment, labor costs are shadow priced at 0.61. 5. Natural Resource Values. The Project will undertake an integrated approach to managing coastal resources, which will imply a focus on the coastal resources as well as upland resources such as watersheds. Literature on valuation of these resources in the Philippines is abundant and a detailed discussion is presented in Supplementary Appendix F. The main resource values associated with the coral reefs originate from fisheries for local consumption, erosion control, local use (tourism with on-site residence), and global use (fisheries for live export, off-site tourism, and aesthetic/biodiversity value). The main benefits from mangroves include wood use, fisheries, erosion control, waste treatment, recreation, and habitat/refugia (biodiversity). As the Government has banned cutting of mangroves, the analysis excludes any benefits expected from wood use. The resource use values for erosion control and waste treatment have not been established for the Philippines; however, the literature shows these have potentially high values. For the purpose of this analysis, the values for erosion control are conservatively estimated at 10% and waste treatment at 5% of estimated values for other countries. The wood and soil erosion abatement are primary benefits from the watersheds. Recent estimates estimate that 1 hectare of mature plantation can annually prevent loss of 8.58

1 Most commonly documented local and global use values include tourism, recreation, and habitat/refugia.

60 Appendix 17 tons of soil,2 which is estimated at P810/ton in 2006 terms. Table A17.1 presents the use values for the coastal and watershed resources, which are updated to 2006 levels using the G-5 Manufacturing Unit Value (MUV) Index. Table A17.1: Resource Use Values in the Financial Terms

Price Values in 2006 Terms (P/km2/year) Resource (P/ton) Excellent Fair Poor Coral Reef Fisheries 44,000 Erosion Control 865,000 865,000 346,000 Local Use 634,000 253,000 127,000 Global Use 1,326,000 732,000 438,000 Mangroves Fisheries 44,000 Fuelwood Erosion Control 1,060,000 Waste Treatment 3,860,000 Global Use (recreation) 3,793,000 Global use (habitat/refugia) 974,000 Watershed Averted Soil Loss 810 km2 = square kilometers, P = peso. Source: White, A. T. and A. Cruz-Trinidad. 1998. The Values of Philippine Coastal Resources: Why Protection and Management are Critical. Cebu Coastal Resource Management Project.

6. Enterprise Models. During the feasibility study, interviews and focus group discussions were conducted with entrepreneurs and key informants in the study municipalities, which provide the basis for setting up enterprise models for the representative livelihood/microenterprise schemes. The range of representative activities include (i) land-based (e.g., production of organic fertilizer, fiber and coir dust, rope and twine, geotextile nets, as well as raising of swine); (ii) fishery-related (such as tilapia culture in earthen ponds, salt making, dried seaweed production, fish-cage culture, and dried salted fish production; and (iii) microenterprise (e.g., soap making, and mushroom culture). The selection of these representative enterprises, aside from being financially viable, takes into account the limited financial, technical, and entrepreneurial capabilities of fisherfolk. 7. The models for the enterprises span over 6 years, which provides for an establishment period of 1 year and an operation period of 5 years. The useful life of the structures such as sheds and boats are assumed to be 6 years, while that for tools and other capital investment is 3 years. 8. The working capital requirement for the enterprises is estimated on the basis of the costs required for initiating production operation, and depending on the type of the enterprise the requirement is assumed to range between 1 and 3 months. C. Project Benefits 9. Project Coverage and Benefit Area. The Project will cover 68 municipalities in six provinces and will build the capacity of 600 national, regional, provincial, and municipal government staff. Additionally, the Project will train more than 1,000 community members and

2 Estimated value of soil derived through replacement method by Pabuayon, I. M., R. V. O. Cruz, M. M. Calderon, M. N. Rivera, L. C. Lumanta, N. O. and Tolentino. 2000. Economic Valuation of Philippine Bamboo Resources, A Final Report. Manila. Appendix 17 61 civil society representatives in integrated coastal resources management and will strengthen bantay dagats (marine watch teams) in the participating municipalities. The Project will also provide social and environmental infrastructure in 136 coastal barangays and raise awareness on population management in the 68 municipalities. Moreover, the Project will facilitate establishment of 680 enterprises to provide alternate and supplemental livelihood, which will directly benefit 6,800 fisherfolk. 10. During the feasibility study, six municipalities were studied in detail and sufficient information on the resources was obtained through secondary sources for a seventh municipality. In absence of detailed information for the remaining municipalities, the analysis was undertaken for seven municipalities with the benefits are based on the resources available within these municipalities and the overall project costs are taken on a pro rata basis. 11. In the study municipalities, the data available from the municipal coastal databases and the assessments undertaken through the feasibility study are used to classify the coastal resources on the basis of their habitat quality/condition. Table A17.2 summarizes the coral reef and mangrove areas in the study municipalities. Table A17.2: Coral Reef and Mangrove Area in the Study Municipalities

Coral Reef Area (km2) Mangrove Area Municipality Excellent Fair Poor (km2) Masinloc, Zambales 0.91 1.37 7.72 0.10 Claveria, Cagayan 0.01 0.01 0.09 - Daanbantayan, Cebu 1.83 2.73 15.43 0.05 Lazi, Siquijor 0.18 0.27 1.54 0.03 Bagangga and Mati, Davao Oriental 3.66 5.47 30.87 17.20 Batuan, Masbate 0.37 0.55 3.09 2.60 All Study Municipalities 6.96 10.40 58.74 19.98 km2 = square kilometer. Note: Feasibility study assessments. Source: Asian Development Bank. 2003. The Integrated Coastal Resources Management Project, Final Report. Manila.

12. The Project will establish 50 marine protected areas (MPAs), each of which on average will include a no-take zone of 100 hectares (1 km2), or 5,000 hectares (50 km2) in aggregate. For the purpose of this analysis, the no-take zones are assumed to be coral reef areas of fair habitat quality/condition and proportionally divided between the municipalities. Similarly, the Project will reforest 2,000 hectares of mangroves and 4,000 hectares of watersheds, and enrich 7,000 hectares of existing mangrove plantations and 3,000 hectares of watersheds. For the purpose of this analysis, the livelihood activities and microenterprises are also assumed to be proportionally distributed between the study municipalities. 13. Quantified Benefits. In the without-project scenario, the productivity of the coral reefs is assumed to decline at a rate of 2% per annum; the historic rate of decline recorded for the Philippines. 3 While the Project anticipates stopping the decline and significantly improving productivity, the analysis conservatively assumes that in the with-project scenario, the decline rate in coral reef productivity will only be halved in the participating municipalities. In case of MPAs, the without-project benefits are assured to follow the pattern for coral reefs in fair condition. Given that the no-take zones will be a fraction of the municipal waters within each of the municipalities and will be the focus of more intense activities, the productivity gains from the

3 McAllister, D. E. 1988. Environmental, Economic and Social Costs of Coral Reef Destruction in the Philippines. Manila. (Galaxea 7: pp. 161–178).

62 Appendix 17 no-take zones are anticipated to increase at 10% per year or the productivity to triple in 20 years. 4 However, the analysis conservatively assumes that productivity will double over 20 years. 14. In the case of the mangroves, resource values and productivity are expected to decline at a rate of 1.6% per annum, the historic decline rate for the Philippines. With enrichment planting and effective enforcement of regulations through community participation, the productivity of mangroves is anticipated to improve in the participating municipalities. However, for the purpose of this analysis, the annual decline in mangrove productivity is conservatively assumed to be reduced to 1.0% in the with-project scenario. In addition, the areas of mangroves reestablished with community participation are assumed to reach full productivity by year 5 and thereafter productivity will be maintained through continued community management. 15. With the ban on logging in the watersheds, in the without-project scenario the soil erosion abatement capacity in the partially denuded forest areas is assumed to be maintained. In the with-project scenario, rehabilitation in the form of timber stand improvement is assumed to recover the soil erosion abatement capacity by one third over 5 years. For the completely denuded forest areas, soil erosion increases with time; however, in absence of data on the trends in soil erosion, the analysis assumes that erosion levels are steady. In the with-project scenario, the reforested watersheds are assumed to reach their full soil erosion abatement capacity by year 5. 16. In case of the livelihood activities and microenterprises, the analysis assumes that all enterprises will be incremental. While the enterprise development activities are anticipated to continue beyond project implementation, the analysis conservatively considers only enterprises to be established during project implementation. 17. Nonquantifiable Benefits. Apart from the benefits discussed in the preceding sections, a number of benefits cannot be readily quantified, e.g., (i) improved nation-wide coastal resources management resulting from improved policy and legal framework and institutional strengthening of Department of Environment and Natural Resources, Department of Agriculture’s Bureau of Fisheries and Aquatic Resources, and municipal local government units; (ii) improved coastal resources management in neighboring municipalities resulting from the information, education, and communication campaigns in the project area; (iii) improved revenues for the local government units through introduction of user fees; (iv) improved ecological governance resulting from empowerment of coastal communities in resources management and project implementation; (v) reduced cost and improved quality of social and environment-related infrastructure resulting from greater community participation in planning, design, and construction activities; and (vi) improved community welfare resulting from provision of social and environmental services and infrastructure. D. Assessment of Financial Returns from Livelihood Enterprises 18. The results of the financial analysis are detailed in Supplementary Appendix F. The results show that the financial rates of return (FIRR) for the enterprises are anticipated to range from 70% to 200%. Depending on the size of the enterprise, the annual income net of cash and

4 The benefits from establishing MPAs were first documented by the Silliman University Marine Laboratory at the Sumilon Island fish sanctuary, which was established in 1974. This initial experiment on coral reef management, which prohibited all types of fishing activities on a portion of the island over 8 years, allowed researchers to monitor and collect data on the regenerative capacity of the reef under an effective management scheme. Observed benefits included (i) improved coral reef substrate condition; (ii) tripling of individual fish abundance per 500 square meters with the most significant increase among fish targeted by fishers; and (iii) substantial increases in yearly fish catch to fishers on the Sumilon Island reef, not in the sanctuary, from about 14 tons/square kilometer/year to almost 36 tons/square kilometer/year or a regeneration rate of about 12%/year (Russ and Alcala 1996). Appendix 17 63 in-kind costs ranges from P8,500 to P102,000. Returns to labor, which are calculated by dividing revenue, less all costs except labor, by the amount of labor required, are significantly higher than the minimum wage rate applied in the rural areas for agriculture-related activities. 19. Livelihood and microenterprise schemes typically exhibit very high FIRR values (mainly due to low capital investment and production costs relative to high revenues), which in turn are highly volatile to changes in output prices and production cost. This is confirmed by the results of the sensitivity analysis conducted on the FIRR values of each livelihood/microenterprise scheme. The results of the sensitivity analysis also indicate that the FIRR values of the projects are more sensitive to decreases in output price or revenue (i.e., sensitivity indicator ranging from 1.84 to 4.22) than to increases in costs (i.e., sensitivity indicator ranging from 1.21 to 3.51). E. Assessment of Economic Returns 20. Project Investment and Recurrent Costs. All costs are in constant 2006 terms. Investment costs are net of price contingencies, interest during construction, and taxes and duties. Foreign cost content of the costs was adjusted by the SERF, while the local component was taken at its full value. While the scope of benefits from the policy aspects, institutional development, capacity building, and community development may not be limited to the project area, the analysis takes into account costs of all the project activities. To assess returns to study municipalities, the costs are derived on a pro rata basis. 21. Economic Worth. The economic viability was undertaken based on the calculated stream of net incremental costs and quantified benefits attributable to the project activities over 20 years. The EIRR was assessed for the study municipalities and extrapolated for the Project with the assumption that the study municipalities are representative of the Project as a whole. The EIRR for the study municipalities is estimated at about 16.1% and the economic net present value at a discount rate of 12% is estimated at P54.9 million. The Project EIRR is also estimated at about 16.1% and the economic net present value at P509.8 million. 22. Sensitivity of the Project’s anticipated economic worth to critical factors was analyzed and the results show that the Project is anticipated to remain economically viable at cost overruns of up to 34.5% and reduction in incremental benefits of up to 20.8%. Similarly, the Project is anticipated to remain economically viable at shortfalls in incremental fish catch by 103.0%, incremental coral reef benefits by 91.0%, and incremental mangrove benefits by 35.6%. F. Distribution Analysis and Poverty Impact Assessment 23. Table A17.3 summarizes the poverty impact analysis and distribution analysis for the study municipalities. The net economic benefits (difference in net present value of economic and financial benefits) are estimated to be about P59.0 million of which 55% are expected to accrue directly to the fisherfolk, while another 31% are expected to accrue to the coastal communities. The gains to the economy accruing from the global use values are estimated at P15.9 million, which offset the net resource outflow of P7.5 million from the Government. Apportioning the gains between the poor and those living above the poverty line within the fisherfolk and the coastal communities, and assuming that Government tax revenues will be evenly expended among the population, the Project yields a poverty impact ratio of 0.71.

64 Appendix 17

Table A17.3: Poverty Impact and Distribution Analysis of Project Returns

Distribution of Gains and Losses

Financial Economic Net Coastal Gov’t and Benefit/Cost Present Present Economic Overall Fisherfolk Community Economy Value a Value a Benefit

Incremental Benefits (P million) Fisheries Value: Legal 71.60 85.92 14.32 14.32 Fisheries Value: Illegal (27.33) (32.79) (5.47) (5.47) Erosion Control: Upland 0.06 0.07 0.01 0.01 Erosion Control: Foreshore 40.74 48.89 8.15 8.15 Waste Treatment 39.24 47.09 7.85 7.85 Local Use Value 10.92 13.10 2.18 2.18 Global Use Value 79.34 95.21 15.87 15.87 Livelihood Enterprises 15.80 18.95 3.16 3.16 Incremental Costs (P million) Implementation Costs: Nonlabor (145.10) (138.96) 6.15 6.15 Implementation Costs: Labor (16.21) (8.63) 7.59 7.59

Enterprise Investment Costs (1.97) (2.36) (0.39) (0.39) Enterprise Operating Costs: Nonlabor (7.10) (8.52) (1.42) (1.42) Enterprise Operating Costs: Labor (2.58) (1.57) 1.00 1.00 Recurrent Costs: Nonlabor (23.04) (36.71) (13.67) (13.67) Recurrent Costs: Labor (30.91) (17.24) 13.67 13.67 Net Present Value (P million) 3.47 62.48 59.00 32.46 18.19 8.35 Gains and Losses (P million) 32.46 18.19 8.35 59.00 Proportion of the Poor (%) b, c 79 76 34 Net Benefits for the Poor (P million) 25.50 13.75 2.84 42.09 Poverty Impact Ratio 0.71 ( ) = negative, Gov’t = Government. a At a discount rate of 12%. b Poverty incidence among fisherfolk and coastal communities is based on surveys undertaken by feasibility study. c The national poverty incidence as reported by the Philippines Institute of Development Sciences for 2002. Source: Asian Development Bank. Project Appraisal Mission, September 2006.