Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized
Report No: 37006-PH
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$83.752 MILLION Public Disclosure Authorized
TO THE
REPUBLIC OF THE PHILIPPINES
FOR A
MINDANAO RURAL DEVELOPMENT PROJECT
IN SUPPORT OF PHASE 2 OF THE MINDANAO RURAL DEVELOPMENT PROGRAM
Public Disclosure Authorized (APL)
March 1,2007
Rural Development, Natural Resources and Environment Sector Unit East Asia and Pacific Region
Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS
Exchange Rate Effective August 2006
Currency Unit = Philippine Peso Php 52 = US$1
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS
AFMA - Agriculture and Fisheries Modernization Act AFMPs - Agriculture and Fisheries Modernization Plans APL - Adaptable Program Loan ARMM - Autonomous Region in Muslim Mindanao AusAID - Australian Agency for International Development
Barangay AFMP - Barangay Agriculture and Fisheries Modernization Plan BDPs - Barangay Development Plans BFs - Barangay Facilitators BFAR - Bureau of Fisheries and Aquatic Resources BSWM- Bureau of Soils and Water Management BAWASA - Barangay Waterworks and Sanitation Association
CAS - Country Assistance Strategy CDD - Community Driven Development CFAD - Community Fund for Agricultural Development CIDA - Canadian International Development Agency CMBC - Coastal Marine and Biodiversity Conservation CO - Central Office COA - Commission on Audit CPAR - Country Procurement Assessment Report
DA - Department of Agriculture DAR - Department ofAgrarian Reform DBM - Department of Budget and Management DENR - Department of Environment and Natural Resources DesA - Designated Account DFIMDP - Diversified Farm Income and Market Development Project DILG - Department ofInterior and Local Government DOF - Department of Finance DTI - Department ofTrade and Industry DPWH - Department ofPublic Works and Highways
EA - Environmental Assessment ECC - Environmental Compliance Certificate EIS - Environmental Impact Statement EMB - Environmental Management Bureau FOR OFFICIAL USE ONLY
eNGAS - Electronic National Government Accounting System
FM - Financial Management FMR - Financial Monitoring Report FMRs - Farm-to-Market Roads FSDE- Feasibility Study/Detailed Engineering
GEM - Growth with Equity in Mindanao GOP - Government ofthe Philippines
IA - Irrigators Association ICR - Implementation Completion Report ICT - Information and Communications Techno1 gY IFC- International Finance Corporation IGR - Investments for Governance Reform IPS- Indigenous Peoples IPM - Integrated Pest Management IRA - Internal Revenue Allocation
JNA - Joint Needs Assessment
KALAHI - Kapit-Bisig Laban sa Kahirapan
LARR - Land Acquisition Rehabilitation and Resettlement LGC - Local Government Code LGU or LGUs - Local Government Unit/s
MA0 -Municipal Agricultural Office MDFO - Municipal Development Fund Office MEDCO - Mindanao Economic and Development Coordinating Office MFs - Municipal Facilitators MLGUs - Municipal Local Government Units MPDO - Municipal Planning Development Office MPMIUs - Municipal Program Management and Implementation Units MRDP1- Mindanao Rural Development Project APL Phase 1 MRDP2 - Mindanao Rural Development Project APL Phase 2 MSCs - Multi-sectoral Committees MTPDP - Medium Term Philippine Development Plan NCB - National Competitive Bidding NCIP -National Commission for Indigenous People NEDA - National Economic and Development Authority NG - National Government NGAS - National Government Accounting System NGOs - Non-Government Organizations NIA - National Irrigation Administration NIA-PI0 - National Irrigation Administration - Provincial Irrigation Officer NRh4 - Natural Resources Management
0 & M - Operation and Maintenance
PA0- Provincial Agricultural Office
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. PASUC - Philippine Association of State Colleges and Universities PBD - Philippine Bidding Document PCO - Program Coordination Office PLGUs - Provincial Local Government Units PAB - Program Advisory Board P/MAO - ProvincialMunicipal Agriculturist’s Office PMBO - ProvincialMunicipal Budget Office PMEO- ProvincialMunicipal Engineer’s Office PMPDO - ProvincialMunicipal Planning and Development Office POs - Peoples’ Organizations PPMrUs - Provincial Program Management and Implementation Units PRA - Participatory Rural Appraisal PSO - Program Support Office
RA - Republic Act RAFCs - Regional Agricultural and Fisheries Councils RFUs - Regional Field Units of the Department ofAgriculture RI- Rural Infrastructure RIARC - Regional Integrated Agricultural Research Center RPABs - Regional Program Advisory Boards RPCO/s - Regional Program Coordination Office/s RWSA - Rural Waterworks and Sanitation Association
SBD - Standard Bidding Document SLM- Sustainable Land Management SPCMAD - Special Project Coordination and Management Assistance Division SOE - Statement of Expenditure SUCs - State Universities and Colleges
USAID - United States Agency for International Development
Vice President: James Adams, EAPVP Country Director: Joachim von Amsberg, EACPF Sector Director Christian Delvoie, EASSD Sector Manager: Rahul Raturi, EASRE Task Team Leader: Carolina V. Figueroa-Geron, EASRE PHILIPPINES
Mindanao Rural Development Project .Phase ll
CONTENTS
Page I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues ...... 1 B. Rationale for Bank involvement ...... 2 C . Higher level objectives to which the project contributes ...... 3 I1. PROJECT DESCRIPTION...... 3 A . Lending instrument ...... 3 B. Program objective and Phases ...... 3 C . Project development objective and key indicators...... 5 D. Project components ...... 5 E. Lessons learned and reflected in the project design ...... 8 F. Alternatives considered and reasons for rejection ...... 9 I11. IMPLEMENTATION ...... 9 A . Partnership arrangements., ...... 9 B. Institutional and implementation arrangements...... 9 C . Monitoring and evaluation ofoutcomeshesults., ...... 11 D. Sustainability and Replicability ...... 11 E. Critical risks and possible controversial aspects ...... 11 F. Loadcredit conditions and covenants ...... 12 IV. APPRAISAL SUMMARY ...... 13 A . Economic and financial analyses ...... 13 B. Technical ...... 14 C . Fiduciary ...... 15 D. Social...... 16 E. Environment ...... 16 F. Safeguard Policies ...... 17 G. Policy Exceptions and Readiness ...... 17 Annex 1: Country and Sector or Program Background ...... 18 . Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 24 Annex 3: Results Framework and Monitoring ...... 25 Annex 4: Detailed Project Description...... 31 Attachment 1 to Annex 4: Mechanism and Guidelines for Perfonnance-Based Grants ...... 49 Attachment 2 to Annex 4: Anti-Comption Plan ...... 53 Annex 5: Project Costs ...... 56 Annex 6: Implementation Arrangements ...... 57 Annex 7: Financial Management and Disbursement Arrangements ...... 63 Annex 8: Procurement Arrangements ...... 74 Annex 9: Economic and Financial Analysis ...... 78 Annex 10: Safeguard Policy Issues, Social Assessment and Analysis ...... 86 Annex 11: Project Preparation and Supervision ...... 95 Annex 12: Documents in the Project File ...... 97 Annex 13: Statement of Loans and Credits ...... 98 Annex 14: Country at a Glance ...... 101 Annex 15: Maps...... 104 PHILIPPINES
MINDANAO RURAL DEVELOPMENT PROJECT - ADAPTABLE PROGRAM LOAN 2
PROJECT APPRAISAL DOCUMENT
EAST ASIA AND PACIFIC
EASRE
Date: March 1,2007 Team Leader: Carolina V. Figueroa-Geron Country Director: Joachim von Amsberg Sectors: General agriculture, fishing and Sector Managermirector: Rahul forestry sector (40%); Roads and highways Raturi/Christian Delvoie (30%); Sub-national government administration (15%); Water supply (1 5%) Themes: Rural services and infrastructure (P);Decentralization (P);Rural policies and institutions (P) Project ID: PO84967 Environmental screening category: Partial Assessment Lending Instrument: Adaptable Program Loan Project Financing Data [XI Loan [ ] Credit [ ]Grant [ ]Guarantee [ ]Other:
For Loans/Credits/Others: Total Bank financing (US$m.): 83.752 Proposed terms: FSL in US dollars, with 8-year grace period and payable over 20 years with level reDavments.
Source Local Foreign Total Borrower 39.900 0.000 39.900 International Bank for Reconstruction and 73.052 10.700 83.752 Development Total: 112.952 10.700 123.652
Responsible Agency: Department of Agriculture Office of the Secretary Elliptical Road Diliman, Quezon City Philippines Tel: (63-2) 9288741 Project implementation period: Start June 29,2007 End: June 29,2012 Expected effectiveness date: June 29, 2007 Expected closing date: December 3 1, 2012 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD I.C Does the project require any exceptions from Bank policies? Re$ PAD IKG [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Re$ PAD III,E Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Ref:., PAD IKG Project development objective Re$ PAD II.C, Technical Annex 3 MRDP 2 aims to (i)improve livelihood opportunities oftargeted communities and (ii) institutionalize a decentralized system for agriculture and fisheries service delivery that promotes participation, transparency and accountability.
Project description [one-sentence summary of each component] Re$ PAD II.D, Technical Annex 4 (1) Investments for Governance Reforms and Program Administration - aims to strengthen institutional capacities ofthe DA and the participating LGUs in operationalizing a decentralized agricultural and fisheries support service delivery system;
(2) Rural Infrastructure Component - aims to finance local infrastructure priorities responsive to the needs and priorities ofLGUs and communities, for increasing agricultural and fisheries productivity and market development.
(3) Community Fund for Agricultural Development (CFAD) Component - aims to address diverse investment priorities ofrural communities, through the financing of subprojects which meet community preferences and local priorities.
(4) Natural Resource Management Component - aims to conserve coastal resources and marine biodiversity through co-management ofcritical marine habitats, better resource management practices and the introduction ofimproved, upstream land management practices that would arrest land degradation and enhance the integrity of coastal ecosystems.
Which safeguard policies are triggered, if any? Re$ PAD IKF, Technical Annex 10 Indigenous Peoples Policy (OP/BP 4.10) Involuntary Resettlement Policy (OP/BP 4.12) Environmental Assessment Policy (OP/BP 4.01 Pest Management (OP4.09) Significant, non-standard conditions, if any, for: Re$ PAD III.F Loadcredit effectiveness: None.
Covenants applicable to project implementation: The Borrower will not amend, abrogate, suspend, or waive any provision ofthe Operations Manuals without the prior written concurrence ofthe Bank.
The Borrower, by June 30,2008, will establish baseline data for the Project according to terms ofreference satisfactory to the Bank.
The Borrower, through PSO will: (i)furnish to the Bank, not later than October 31 in each year, starting October 3 1, 2007 for review and comments, an annual work plan for the implementation ofthe Project in the following year prepared in accordance with the provisions ofthe Operations Manuals ; and (ii)afford the Bank a reasonable opportunity to exchange views with the Borrower on said plan and, thereafter, promptly take all actions necessary to implement said plan, taking into account the views ofthe Bank on the matter.
The Borrower, by December 3 1,2007, will reconstitute the PAB established under the first phase ofthe Program, and thereafter maintain it throughout the period ofimplementation of the Project, with composition, terms ofreference, staffing and other resources acceptable to the Bank, to be responsible for providing overall direction and oversight for the Project implementation.
The Borrower will prepare, under terms ofreference satisfactory to the Bank, and furnish to the Bank, on or about February 15,2010, a mid-term evaluation report integrating the results ofthe monitoring and evaluation activities performed on the progress achieved in the carrying out ofthe Project during the period preceding the date ofsaid report and setting out the measures recommended to ensure the efficient carrying out ofthe Project and the achievement ofthe objectives thereof during the period following such date.
The Borrower will prepare, under terms ofreference satisfactory to the Bank, and furnish to the Bank, on or about six months prior to the closing date, a terminal evaluation report.
The Borrower will establish, by December 3 1, 2007, and thereafter maintain throughout the period ofimplementation ofthe Project, an Internal Audit Service, with staffing, terms of reference, and other resources acceptable to the Bank, to be responsible for conducting internal audit for the Project accounts by June 30 and December 3 1 ofeach year, starting June 30,2008 and furnish a report to DA and the Bank upon completion of each said internal audit.
The Borrower shall maintain or cause to be maintained a financial management system in accordance with the Drovisions ofSection 5.09 ofthe General Conditions. . The Borrower shall prepare and furnish to the Bank, not later than one month after the end of each calendar quarter, interim un-audited financial reports for the Project covering the quarter, in form and substance satisfactory to the Bank.
The Borrower shall have its Financial Statements for the Project audited which shall cover the period ofone fiscal year. This shall be furnished to the Bank not later than six months after the end of such periods. I. STRATEGIC CONTEXT AND RATIONALE
A. Country and sector issues
1. Despite some improvement in recent years, the Philippine economy continues to lag others in Asia with lower levels ofGDP growth and investment per capita than for the region as a whole’. Weak economic performance, coupled with high population growth, has constrained the country’s ability to reduce poverty and meet other development objectives. Reversing these trends and promoting economic growth, therefore, are at the heart of the Presidents 10 Point Agenda for Growth, the Medium Term Philippine Development Plan (MTPDP 2004-2010) and the Bank’s Country Assistance Strategy (CAS) for 2006 to 2008*, which underpin the strategic framework for economic development, with social inclusion, poverty reduction and equity. The strategic goals of the MTPDP and the CAS for the agriculture sector are: enhancing growth through higher productivity and agribusiness, asset (land) reform, responsible management ofnatural resources and the environment and public sector/expenditure rationalization to improve public service delivery.
2. The Government has enacted further legislation to enhance agricultural and rural development including: (1) the Agriculture and Fisheries Modernization Act (AFMA), which aims to enhance the competitiveness ofPhilippine agriculture; and (2) the Local Government Code (LGC) which devolves greater responsibility for frontline service delivery Local Government Units (LGUs).
3. Despite these strategic initiatives, progress in achieving national policy goals has been constrained by various factors, including: (a) the low availability ofpublic expenditures for infrastructure, transport and market development; (b) inefficient input supply channels; (c) slow pace ofeffective devolution to LGUs, many ofwhom are still to become effective providers ofdevolved agricultural support services, and (d) poor linkages between rural development planning and implementation3. In addition, despite the enactment ofthe LGC in 1991, progress toward effective devolution to LGUs remains slow, and many LGUs are yet to mature as effective providers of devolved agricultural support services. Also, the Department ofAgriculture (DA) has not been quite effective in supporting LGUs to enable them to integrate communities into the LGU and DA decision-making processes for rural development priorities and investments.
4. Promoting poverty reduction and rural growth specifically in the island ofMindanao, remains particularly high on the Government’s and the Bank’s CAS policy and agenda given: (a) the island’s distinct climatic and geographic advantages which favor agriculture and fisheries sector growth, (b) the large proportion ofthe country’s poor (almost one third) located in this area; and (c) advancing the peace initiative in Mindanao through the provision of greater economic opportunities and integration, particularly to indigenous communities and other disadvantaged groups.
5. As part ofthe overall Adaptable Program Loan for the Mindanao Rural Development Program (MRDP) started in 2000, this second APL ofthe long-term program aims to strengthen and operationalize the process ofdevolution through effective partnerships between the National Government (NG) through the DA and the LGUs. This aspect ofthe project, moreover, is highly consistent with the objectives in the CAS related to developing the local platform, by helping build
’ Over the period 1960-2003 GDP per capita grew at 1.4% per annum in the Philippines compared to an average rate of around 5.4% for seven other (comparative) countries in the East Asia Region. Report No. 32141-PH, dated April 19,2005 For more background on country and sector issues see Annex 1 and section B 2 of the Project Appraisal Document (PAD) for phase one of the APL program. In addition, Report No. 36682-PH - A Working Paper on Rural Growth and Development Revisited, dated June 2006, provides a good discussion of these rural development issues.
1 LGU institutional capacities in service delivery, planning, budgeting and revenue management in transparent and efficient ways.
6. In addition, MRDP will strongly complement other strategic Bank-assisted development initiatives in Mindanao (such as the ARMM Social Fund Project4, the Mindanao Reconstruction and Development Trust Fund’, the Community Based Resource Management Project6, the Second Agrarian Reform Communities Development Project’ and the Kalahi-CIDSS project’). All these projects encompass strong approaches related to community-driven development (CDD), which is also at the heart of MRDP2.
B. Rationale for Bank involvement
7. In meeting the sector and country objectives related to agricultural development, poverty reduction, devolution and the focus on Mindanao, the Bank has been a pro-active partner ofGovernment since 1999, when the first phase ofthe long term Mindanao Rural Development Project (MRDP) was prepared and subsequently implemented starting 2000. The objectives and rationale for continued Bank involvement for the overall APL program still remain highly relevant in the transition to phase 2 (See section D ofthe MRDP1 PAD’). The program’s primary objectives remain the same. It aims to: (a) increase the incomes and improve the food security oftargeted agricultural communities in Mindanao, who are considered as among the most disadvantaged and socially excluded populations in the Philippines. Under phase 2, however the project coverage will be up scaled to a further 225 municipalities in all ofthe 27 provinces from the original coverage of32 municipalities in 5 provinces under MRDP1. The project will also promote the active and continued participation of indigenous peoples (IPS)and disadvantaged women in the development process in line with CDD approaches the Bank is advocating, through various complementary projects specifically in Mindanao; and (iii)strengthening the institutional, management and financial capacity ofLGUs to improve service delivery. The justification for continued Bank involvement is made stronger given the positive impacts and assimilation of valuable experiences and lessons learned from the first phase, which will be used in scaling up and expanding the program in MRDP2 to other provinces in Mindanao. (See Section 1I.E for more details). Collectively, close engagement in these processes demonstrate that the Bank is a credible partner in promoting effective models for accelerating decentralization in agriculture sector services in Mindanao which can be successfully replicated elsewhere in the country.
8. In addition to relevant experiences from Phase 1, implementation lessons and linkages to other Bank projects (such as KALAHI, ASFP, CBRMP and ARCDP2) on CDD approaches and operations manuals have been incorporated into the design of MRDP2. Coordination with other donor efforts in Mindanao (such as CIDA, USAID, ADB, AUSAID and IFC, and through the partner members ofthe Philippine Development Forum’s Working Group on Rural Development) have also been maintained in preparing MRDP2 to enhance its eventual effectiveness.
9. The Bank’s continued involvement and sustained partnership with the GOP in this long-term program is crucial for supporting its momentum for pushing and deepening the agenda for the decentralization offrontline support services delivery. It will help ensure the institutionalization offield-tested planning and implementation mechanisms for demand- and community-driven approaches for
Loan No. 7153-PH TF 054041 Loan No. 4299-PH ’ Loan No. 7 152-PH * Loan No. 7147-PH Report No. 19639-PH
2 agricultural and rural development. The scaling up ofthe program is part of the Bank’s overall agenda in contributing to rural and agricultural growth, especially in Mindanao where other complementary efforts are on-going. It also provides the Bank an opportunity to bring in development lessons and experiences on local governance reform from other countries. The practice ofintegrating community plans into higher tiers oflocal governments and sectoral agency planning and budget processes remains a major weakness in the Philippines. As such, the success ofMRDP1 on this aspect is almost unique and needs to be institutionalized, expanded and refined further. Overall, therefore, the Bank’s continued involvement and sustained partnership with the GOP and other partners in this long-term program remain crucial for maintaining momentum in further promoting decentralized development with active community participation.
C. Higher level objectives to which the project contributes
10. Within the strategic thrusts ofthe MTPDP, AFMA, the LGC and CAS, MRDP2 will further scale up successful practices piloted under the first phase ofthe APL program. The overall program objective at initial design of the APL program aimed at: (a) reducing poverty; (b) promoting growth with social inclusion (especially the integration ofIps and poor communities); and (c) further strengthening decentralization, devolution and NG/LGU collaboration. These program objectives still remain highly relevant. In addition, given continued conflict in Mindanao, the realization of sustained rural growth and visible benefits to conflict-affected populations, will directly contribute to reinforcing donor and Government efforts at consolidating the peace initiatives, a key policy goal (see section A.2 MRDP1 PAD). Although the higher-level objectives ofthe project remain consistent with those at the onset of the overall APL, the design ofMRDP2 will incorporate best practices and lessons learnt form MRDP1 to broaden and enhance overall program outcomes and further strengthen and harmonize linkages and processes with other Bank initiatives focusing on CDD approaches in Mindanao
11. PROJECT DESCRIPTION
A. Lending instrument
11. The project constitutes the second (five-year) APL ofa long term APL spanning 12 to 15 years. The selection of the APL loan instrument is highly consistent with the requirements ofthe Borrower. Long-term Bank experience in rural development in the Philippines, and particularly from the first phase ofMRDP, shows that an effective program of poverty alleviation involving multiple stakeholders and governments at different levels requires sustained long-term commitment and involvement, particularly given the intricacies offorging and strengthening delicate processes such as NG/LGU partnerships and community empowerment. These would be extremely difficult to attain through a single investment operation. The continuation ofa phased long-term program involving a series ofAPLs, each covering between 4 to 5 years, still remains as the most effective modality for achieving sector and national objectives related to poverty and development.
B. Program objective and Phases
12. The long term program’s purpose is to improve incomes and food security in the targeted rural communities within all ofthe provinces in Mindanao. The program is focused on strengthening rural public investment programs (supporting the implementation ofthe AFMA), reinforcing the LGC institutional framework, while ensuring close involvement ofrural communities in the design and implementation ofpublic investment programs intended to improve productivity and livelihoods. Taken together, these initiatives aim to support the GOP’s key objectives oftackling poverty and ensuring food security.
3 13. The 15-year program was envisioned to have four phases. The first phase aimed to initiate the program in a small group ofLGUs (5 provinces and 32 municipalities), for testing out and initiating a process of engaging LGUs and rural communities in designing and implementing a rural development program, in close association with concerned national government agencies, developing an implementation strategy, and establishing a mechanism for scaling up the program in the succeeding APLs. The second phase (MRDP2) is envisioned to provide for geographic coverage ofthe program across Mindanao, to provinces and municipalities which meet eligibility criteria. The program would be deepened in the Phase 1 provinces by enlarging the scale, and also ensuring that all eligible municipalities are included. The third phase (MRDP3) will continue support for all LGUs covered under Phase 2, and will complete the coverage across Mindanao. It would focus on deepening the program by ensuring that all eligible municipalities are fully engaged. The fourth phase (MRDP4) would focus on reinforcing the key thrusts underpinning the overall program and in securing both program and institutional sustainability of the development initiatives undertaken in support of increasing agricultural production and alleviating rural poverty.
14. MRDP1 was implemented and initiated in selected LGUs (32 municipalities in 5 provinces) in Mindanao from 2000 to 2004. Its implementation was successful, despite civil disturbances and implementation challenges in the early stages ofits implementation, and it brought about the active engagement of LGUs and rural communities towards a common agricultural development agenda. MRDP1 has helped develop a model ofpartnership between the DA and the LGUs for prioritizing critical support infrastructure and has provided effective mechanisms for engaging substantively with communities (through the CFAD block grants) and for linking the various LGU development plans and budgets with the annual regional DA plans and budgets. The project has also provided an opportunity to reinforce the key objectives ofdevolution - engaging LGUs on better public expenditure management, improving the linkage between the DA and the LGUs, and most importantly, bringing the concerns ofcommunities more centrally into the LGU and DA resource allocation process. In view ofthis, MRDP1 has demonstrated a credible and doable approach for accelerating decentralization ofagriculture sector services in Mindanao, and in developing decentralized models for countrywide replication.
15. With the fulfillment ofthe MRDP2 agreed triggers" (a year before its closing date in December 2004) and completion ofMRDP 1, the challenge and key development issues to be addressed for the second phase ofthe program will be to get more LGUs across Mindanao to be substantively engaged in prioritizing and delivering critical investments and efficient frontline services, which respond to priority needs ofrural communities. Moreover, the partnership ofthe DA with the LGUs will have to be broadened and deepened, with a view to improving the delivery ofdevolved services, all aimed at improving agricultural productivity and increasing rural incomes. With respect to the 2-year gap between the completion ofMRDP1 implementation (in December 2004) and the planned start of MRDP2 implementation (by mid 2007), it was noted that the delay was brought about by the Government's internal difficulties on finding an operational consensus on the formula for NG-LGU cost sharing for devolved investments, given the need to keep within the Government's broad objectives in addressing the fiscal deficit. During the course ofMRDP2 preparation, an operational
loThe following triggers for moving from APL 1 to APL 2 have been met: preparation for APLZ started when 60 percent of the APLl Loan was disbursed; completion of the Social Assessment of the next group of provinces, which expressed interest to participate; approval of APL2 Loan upon 80 percent disbursement of APLl Loan; testing out and adoption of institutional arrangements for implementation, based on experience; satisfactory operationalization of the multisectoral committees; overall satisfactory performance at mid-term; improved arrangements for routine road maintenance sourced from increased budgetary allocations by LGUs; completion of at least 60 percent of proposed infrastructureprogram in a particular province for its continued involvement in APL2; improved rural development planning and allocation of budgetary resources by LGUs, with community involvement; and greater integration of DA programs into LGU RD plans, synchronized through the regular planning and budgeting process and schedules.
4 consensus has been reached and MRDP2 provides an operational vehicle to pilot test a performance- based grant scheme which would provide additional grants to LGUs based on achievement ofagreed revenue targets".
16. As earlier envisioned MRDP 3 would focus on broader consolidation of the initiatives gained under MRDP Phases 1 and 2. Hence, as stated in the MRDP1 PAD Annex l(a), the agreed triggers to move from Phase 2 to 3 would be the following:
(a) Overall satisfactory performance, using the mid term evaluation as a basis for assessment ofkey performance indicators (similar to those mentioned above, plus, more importantly, degree of initiative by LGUs for instituting concrete mechanisms for sustainability ofinstitutional arrangements initiated under the MRDP). (b) Provincial LGUs already participating in the program (under Phases 1 and 2) should have rural development plans in place, which are linked to annual budgetary allocations. This should provide the basis for designing continued program support for these LGUs. (c) Acceptance by LGUs already participating in the program, ofincreased cost sharing on project supported activities (as reflected in proposed or approved budgets, etc.); increased share ofRD activities funded from central DA budget integrated into LGU financial and investment plans. (d) Project Preparation to be initiated once 60 percent ofthe ongoing APL Loan has been disbursed. Social Assessment in eligible provinces and municipalities to be completed. (e) Bank approval ofnew APL Loan to be done once 80 percent ofthe ongoing APL Loan is disbursed, and the balance is substantially committed.
C. Project development objective and key indicators
17. As envisioned, MRDP2 will expand its geographic coverage (involving 225 municipalities in all of the 27 provinces ofMindanao) to cover more LGUs and communities in Mindanao (horizontal broadening) after the first phase has successfully initiated the program in 5 provinces and 32 municipalities. Its project development objectives reflect the larger program purpose of improving incomes and food security. It will specifically aim to: (a) improve livelihood opportunities oftargeted communities; and (b) institutionalize a decentralized system for agriculture and fisheries service delivery that promotes participation, transparency and accountability.
18. The key outcome indicators to be measured would include: (a) an increase of20% in average household incomes ofbeneficiary communities over baseline and 10 % over control group; and (b) 15% and 35% oftarget beneficiaries report significant improvement in LGU service delivery, at mid- term and at the end ofMRDP2, respectively (please see Annex 3 on results monitoring).
D. Project components
19. The project will have the same four components as MRDP1, which have been purposively modified to incorporate positive lessons and experience, in particular, aspects related to further strengthening the capacity of LGUs and communities to manage and execute development programs and make the process ofGovernment more transparent and accountable. In addition, emphasis will also be given to improving the capacity ofDA as a service provider (in working with LGUs) and to more effective program coordination (integrating planning and development at various levels), both areas which proved to be instrumental to the realization ofproject outcomes in MRDP1. The components are:
I' For more details, please see Attachment 1 to Annex 4
5 (a) Investments for Governance Reform (IGR) and Program Administration Component (total cost US$4.Imillion)
20. The principal target groups ofthe component will be the DA, principally at regional level (Regional Field Units or RFUs ofthe DA in Mindanao) and the Provincial and Municipal Local Government Units (PLGUs and MLGUs). The specific sector issues that the component will aim to address include furthering effective devolution in the Philippines in support ofthe LGC and improving competitiveness of the agriculture sector (in keeping with AFMA) through more effective public sector service delivery. In addition, it will aim to improve governance and accountability mechanisms, both at NG and LGU levels, which are major policy thrusts in the medium term development plan. Moreover, following agreement with the oversight agencies (DOF, DBM and NEDA) and LGUs, under MRDP2, the local governments will be required to implement governance reforms to be eligible for additional grant funding from National Government to implement projects involving devolved investments. This is highly innovative and strongly supports National Government objectives in the medium term to make LGUs more fiscally responsible and independent. The project will provide institutional support and targeted technical assistance to these target groups, to eventually enable DA to phase out and hand over devolved functions to LGUs, which have been progressively strengthened and capacitated. Technical assistance, for capacity strengthening will be based on a learning-by-doing approach (piloted under Phase l),to ensure relevant adjustments in approach are made when needed and that processes are wholly institutionalized.
2 1. The component will have three subcomponents: (a) Improving LGU Resource Management and Service Delivery Systems, including Enhancement of Governance Systems and Mechanisms; (b) Improving DA Capacity to Support LGUs; and (d) Program Support and Coordination.
(b) Rural Infrastructure (M) Component - (total cost US$83.852 million)
22. The underlying objectives and principles ofthe RI component remain identical to those for the program as a whole, though implementation lessons from Phase one has been incorporated in modifying component design. Mainly, these include greater emphasis on capacity building ofLGUs to supervise and undertake infrastructure projects, more attention to quality issues in the design and construction and to ensuring O&M is carried out. In common with the objectives ofthe overall program, LGUs, agricultural producers, communities, women and consumers will be the main target groups that an increase in the stock ofrural and agricultural infrastructure will benefit. The RI component remains highly pertinent with regards to key aspects ofnational and sector policy related to enhancing the competitive base ofagriculture through improved linkages between producers and consumers, enhanced productivity and improved value chains. MRDP2 will finance the rehabilitation and construction ofstrategically-selected sections ofroads and bridges, and other critical infrastructure which will help enhance agricultural and fisheries productivity and access to markets. Under the RI component, capabilities of LGUs will also be enhanced in overseeing the construction and rehabilitation ofdevolved communal irrigation systems, with operation and maintenance (O&M) lodged with irrigators’ associations. In response to priorities expressed by rural women, rehabilitation or construction ofpotable water systems will continue to be supported. The project will replicate good and sustainable O&M models on LGU-community partnerships. In addition, a performance- based grant for farm-to-market roads and communal irrigation subprojects will be provided to participating LGUs, upon fulfillment ofagreed local revenue generation targets.
6 (3) Community Fundfor Agricultural Development (CFAD) - (total cost US$30 million)
23. Similarly under MRDP1, CFAD will continue to be MRDP’s mechanism to strengthen community decision making capacity for the rational identification, design and implementation oflocal priorities, with DA, LGUs, NGOs and the private sector providing technical advice and other support services. It will continue to target disadvantaged and vulnerable sectors in order to provide opportunities for increased incomes from agriculture and fishery production, including allied value-adding activities, that make use of appropriate, sustainable and environment-friendly technologies which are socially and culturally acceptable to target communities. While CFAD continues to focus on the vulnerable segments of targeted communities, it will also respond to the needs offunctional Peoples’ Organizations (POs) for technical and business advisory services for their sustainable livelihood activities. CFAD will persist in implementing the principle of meaningful participation by beneficiaries in all decision-making processes over the entire project cycle, including the procurement and financial management aspects ofthe subprojects, which is an improvement over the features of CFAD in Phase 1. Ultimately, CFAD aims to empower communities to generate local savings and manage other investments basic to their development, in partnership with the LGUs and the other agricultural development stakeholders. At the country level, CFAD will specifically address aspects ofnational and sector policies related to: growth with social inclusion, poverty alleviation and mainstreaming disadvantaged groups and minorities in development. It provides development assistance to target groups that shall consist ofat least 30% Indigenous Peoples (IPS),rural women (with priorities for women-headed households) and youth and other disadvantaged sectors. Its four subcomponents include: (1) food security interventions for very vulnerable groups; (2) community- managed livelihood and agribusiness activities, (3) sustainable income-generating activities for NRM- covered municipalities; and (4) small support infrastructure.
(4) Natural Resources Management (NM) - (total cost US.8.5.4 million)
24. The NRM component will build on the positive lessons and implementation experiences under MRDP1’s Coastal Marine and Biodiversity Conservation (CMBC) component, which was funded by a Global Environment Fund (GEF) grant and was completed in December 200512 . The NRM component under MRDP2 will be focused on activities in upland watershed areas as well as land use management, which would impact on agricultural and fisheries productivity in the MRDP2 sites. It would contribute to the overall sector and long-term objective ofthe program through implementation of sound and sustainable management ofnatural resources and the conservation of coastal resources in priority areas. The target groups under the NRM component will be the relevant national agencies supporting LGUs and communities that have direct influence on terrestrial and coastal resource use. Specifically, the project will support (a) capability building ofcommunities, LGUs and national agencies to improve land management practices critical to protecting coastal areas; (b) the introduction and demonstration ofsustainable land management practices that can directly benefit upland resource users as well as downstream users (especially fisherfolk), through controlling erosion, improving the fertility ofland and limiting the release ofagrochemicals; and (c) an increase in awareness of the direct linkages between upland and downstream impacts to coastal ecosystems that will be mainstreamed into municipal policies and development plans.
25. Partnerships and coordination will be built with the Department ofEnvironment and Natural Resources (DENR) and the DA’s Bureau ofFisheries and Aquatic Resources (BFAR), Bureau of Soils and Water Management (BSWM), and RFUs, to ensure broad provision oftechnical service to local governments and communities. Its four subcomponents include: (a) NRM participatory community planning and development; (b) selective on-the-ground investments on coastal/marine and
’’Please see CMBC ICR dated June 29,2006, Report No. 36466-PH
7 3 sustainable land management practices; (c) assistance to the development of sustainable income generating activities; and (d) local policy development and strengthened partnerships in community enforcement,
26. In order to further broaden the scope of this NFW component within the targeted MRDP2 sites, a GEF grant proposal is currently being prepared by the DA. The grant is expected to be available no later than 12 to 18 months into the implementation ofthe MRDP2 loan. The GEF grant resources will complement and scale up MRDP2 activities and investments on sustainable land use management in coastal areas ofglobal biodiversity significance.
E. Lessons learned and reflected in the project design
26. A number ofdirect lessons have been incorporated in designing the project based on the implementation experiences from MRDPli3. Firstly, there is a need for the Bank and the Government to sustain long-term commitment to bringing around institutional changes. The design ofthe IGR component aims to improve on MRDP1 implementation and address these issues by ensuring a closer synergy between the workings ofNG and LGUs and ensuring greater involvement of the DA RFUs than was the case under MRDP1. Secondly, the program’s strong links to sectoral goals and policies has resulted to the strong political and social ownership in the program among diverse stakeholders. This again, was a positive lesson under the first phase as was the emphasis on retaining flexibility and learning-by-doing, which best operationalized and facilitated devolution, and showed how a national sectoral agency like the DA could facilitate devolution offunctions and responsibilities to LGUs in line with the LGC. The experience also showed practically that LGUs and the DA could be effective, equal partners in achieving national sectoral goals. Thirdly, building on capacity-building efforts under MRDP 1, strategies for MRDP2 have been further adapted in design to ensure that they are more practical, more action-oriented and more incentives-based. Attention has also been placed on interlinking capacity building with investment resources for local priority needs to enable change in the institutional behavior between LGUs and the DA. Fourthly, MRDP1 showed that strengthening grass roots organizations, local governments and communities was essential to induce meaningful participatory and integrated development. This instilled a strong sense ofconfidence among stakeholders that they could integrate and be effective drivers in the development process. These lessons have been used to further enforce the design ofthe IGR and CFAD components. MRDP2 will also place additional emphasis on establishing and gearing up systems for results monitoring and management and financial information systems aspects which were inadequately addressed under MRDP1.
27. In addition to the lessons incorporated from Phase 1, experiences have also been drawn from various other Bank projects in rural development which show that: (a) commitment and ownership to program goals is vital by all stakeholders including Government, implementing agencies, communities, and local people; (b) project design needs to incorporate proven technologies; and the goals must be realistic and specific; (c) project design should be flexible; (d) beneficiary participation, at both the planning stage and during implementation, is necessary; (e) credit and farm inputs are often critical to success; (0 arrangements for infrastructure O&M have to be in place from the start; and (8) social preparatory activities such as community organization and build-up should precede infrastructure development.
” Please see MRDPl Implementation Completion Report - Report No. 32660-PH, dated June 29,2005
8 F. Alternatives considered and reasons for rejection
28. MRDP2 is part of a long-term rolling program with strong and active participation ofGovernment and stakeholders. The model adopted under phase one was robust and largely successfid in meeting its desired outcomes, especially those related to decentralization ofpublic services and empowerment ofpoor communities. In light ofthese positive experiences the reasons for rejecting alternative approaches in designing MRDP 1 (single commodity, social fund and area-based approaches) still hold true for MRDP2. Nonetheless, key lessons during MRDP1 implementation were learned and have been incorporated in the design ofMRDP2 (See also lessons above in Section 11-E and Section D Project Alternatives Considered MRDP1 PAD).
111. IMPLEMENTATION
A. Partnership arrangements
29. A GEF grant proposal worth US$7 million is currently being prepared by the Borrower for financing coastal marine biodiversity conservation efforts in a focused number ofMRDP2 sites with global biodiversity significance. Collaboration, in terms ofinformation sharing, are currently being done with various development partners in Mindanao, such as the International Finance Corporation (IFC), who are supporting some agribusiness ventures in Mindanao and the AUSAID who is currently preparing a grant project which would focus on supporting local infrastructure for sustainable economic growth in Mindanao and the Visayas.
B. Institutional and implementation arrangements
30. Institutional arrangements will continue to emphasize the use ofpermanent and existing organizational structures within the DA and the LGUs, similar to what has been started under MRDP 1 and will be further reinforced under MRDP2.
3 1. DA will be the executing agency and will provide the overall management and supervision of the Program. The MRDP Program Advisory Board (PAB) will provide the overall direction and oversight on the implementation ofMRDP2. With the geographic expansion ofthe program under this second phase, the reconstituted PAB will have an expanded membership, and a new Executive Order, superseding the existing one (EO 474 signed by the President ofthe Philippines in April 1998) will be issued on or before December 3 1, 200714.
32. The DA’s Special Project Coordination and Management Assistance Division (SPCMAD), owing to its inherent function ofcoordinating and providing assistance to DA’s foreign-assisted projects, will act as secretariat to the PAB. The regional counterpart ofthe PAB will be the Regional Program Advisory Boards (RPABs) ”, already existing and operational in all ofthe Mindanao regions and
l4The Program Management Board or PMB during APL 1 will be reconstituted into the Project Advisory Board (PAB). It will still be chaired by the DA Secretary, co-chaired by the Director-Generalof the National Economic and Development Authority (NEDA), and composed of the Presidents of the Leagues of Provinces, Municipalities, and Cities; Secretaries (or their representatives) of Finance (DOF), DENR, Budget and Management (DBM), Agrarian Reform (DAR), Trade and Industry (DTI) Public Works and Highways (DPWH) and Interior and Local Government (DILG); a representative from the Mindanao Economic and Development Coordinating Office (MEDCO); the Presidents (or their representatives) of the Regional Agricultural and Fisheries Councils (RAFCs) in Mindanao; the President (or hisher representative) of the Philippine Association of State Colleges and Universities (PASUC); and representatives from Industry Associations in Mindanao. Is The RPAB is chaired by the DA Regional Executive Director and co-chaired by the NEDA Regional Director. Members include Governors of the participating provinces in the region, the President of the Provincial Leagues of Mayors, the RAFC Chair, BFAR Regional Director, Regional Directors of DENR, DAR, DILG and MEDCO, and representatives from industry associations. In the case of the Autonomous Region of Muslim Mindanao (ARMM), the RPAB shall be chaired by the Secretary of the ARMM Department of Agriculture and Fisheries.
9 presently functioning as the regional oversight ofthe DFIMDP16. The RPABs’ functions will be expanded to cover MRDP2. It shall provide regional perspective for the prioritization and approval of subprojects for funding under the Program.
33. Overall program support to coordination by the DA’s RFUs and the LGUs’ implementation under MRDP2 will be handled by a Program Support Office or the PSO (this was the Program Coordination Office or the PCO during MRDPl). The PCO’s main function will be re-focused from overall coordination to supporting overall program implementation. It is acknowledged that the PSO is a temporary and program-specific structure and the need to mainstream the program coordinating functions to regular units of the DA is critical”. To sustain the efforts done under the Program, the PSO, in the transition during MRDP2, will build capacities ofthe DA RFUs on program coordination, management and oversight ofproject activities being implemented at the local levels by the LGUs and the communities.
34. For the DA RFUs to fulfill its coordination roles and responsibilities, it will create the Regional Program Coordination Office (RPCO) using its existing regular and permanent staff. The six (6) RPCOs (of the 5 DA RFUs in Mindanao and the ARMM’s Department ofAgriculture and Fisheries) will be fully involved in project coordination and management for the various components of MRDP2. Related to this, the DA Secretary has issued a Special Order (SO 590, Series of 2006, dated September 20,2006) on the constitution and roles and responsibilities ofthe PSO and the RPCOs.
35. Institutional strengthening and capacity building efforts are focused on DA-RFUs and LGUs’ efficient and timely delivery ofdevolved agriculture- and fisheries-related services. Six months before the actual implementation, preparatory activities will be done and focused engagement ofboth the LGUs and DA RFUs is ensured to be on-the-ground so that by the time the Program is implemented, the implementers are ready to assume the various responsibilities required from them.
36. Similar to MRDP1 arrangements, the implementation ofsubprojects under all ofthe components will be done by the Municipal LGUs (MLGUs) through their Municipal Program Management and Implementing (MPMIUs). The MLGUs will be supported by the Provincial LGUs (PLGUs) through their Provincial Program Management and Implementing Units (PPMIUs) that will oversee the implementation ofMRDP2 subprojects. The Rural Infrastructure component will be implemented by the Municipal LGUs through their MPMIUs. They will be supported by the Provincial LGUs, through their respective PPMIUs to oversee implementation ofRI subprojects and other subprojects across municipalities. CFAD will provide block grants for community-identified and managed agribusiness and livelihood enterprises. The component will make use ofthe Multi-Sectoral Committees (MSCs) for project review, appraisal and approval ofsubprojects. During APL 1, the active involvement ofthe MSCs in the CFAD processes has improved the transparency ofLGU transactions, hence communities would like to adopt and institutionalize this mechanism to become part of the Municipal Development Council’8. The NRM component will mainstream NRM issues into the regular functions ofLGUs, which will be provided with training and capacity building in NRM issues. Technical assistance will be provided by BFAR, BSWM and the DENR. BFAR will focus on marinekoastal and inland fisheries, BSWMon watershed management, soil suitability and agricultural technologies for upland areas, and DENR on policy guidance related to terrestrialhpland areas.
l6The Diversified Farm Income and Market Development Project is a Bank-assisted project of the DA (Loan No. 7236-PH) which aims to assist the GOP to strengthen the capacity of its DA to provide market-oriented services to increase agricultural competitiveness and rural incomes. ” This, again, is a critical lesson learned under MRDP1, when focused institutional strengthening to DA RFUs was deemed inadequate; hence, under MRDP2, the important role of DA RFUs in strengthening the DA-LGU linkages would be given primary focus, especially through MRDP2’s institutional implementation arrangements. It is useful to note here that owing to the successful institutionalization of MSCs during MRDPl, both ARMM Social Fund and the Mindanao Trust Fund are also using the same institutional vehicle for engaging communities in reviewing and prioritizing their local investments.
10 37. The People’s Organizations (POs), based on the basic principle ofthe Program, will plan, manage, maintain and provide equity for subprojects at the community level.
C. Monitoring and evaluation of outcomes/results
38. In collaboration with the DA RPCOs and the DAF-ARMM RPCO, the PSO will have overall responsibility for collecting data and the monitoring ofresults. At the level ofthe project development objectives, the data will be derived from published socio-economic data for the project areas, a restricted baseline survey and periodic random surveys which will be designed to measure changes over time (before and after the project) and space (with- and without-project situations). A deficiency in M & E under MRDP1 was the lack ofrobust with- and without-project data, hence the recourse to inferring this was through the use ofbefore- and after-project data. For the intermediate results, the data will be from periodic surveys ofRFUs, LGUs and communities. External mid-term and terminal evaluations will be conducted by the Borrower in assessing project outcomes. As part of the overall program for strengthening institutional capacity, training will be provided to key personnel in M &E, data collection, collation and analysis. To retain transparency and objectivity, the project will finance independent consultants and institutions to undertake periodic evaluations. The results monitoring system will be incorporated as part ofthe DA’s overall system for management and financial information systems, which has already been established under MRDP1 for use by decision makers. To ensure that there is an appreciation of the results M&E information being collected, some hands-on training will be provided to the PSO, RPCOs and LGU staff. Community monitoring tools would also be actively used in order to promote better governance and transparency in project activities, with participating communities provided with hands-on and practical tools to conduct such monitoring.
D. Sustainability and Replicability
39. Experience from MRDP1, shows clearly that the overall program positively changed the direction of interaction between LGUs and the national government. The project also introduced crucial institutional momentum to support effective and participatory devolution in support ofthe LGC and the AFMA, which remain key policy instruments ofGovernment. This established a very strong sense of ownership and buy-in from various stakeholders and provided confidence to communities that local priorities can be effectively mainstreamed into public investment planning and implementation. LGUs feel much better equipped to make effective financial and resource allocation decisions based on the needs oftheir constituents, which has added greatly to their sense ofconfidence as partners (with national government) in development. Collectively, these experiences mean that there is strong and continued support at the national and local levels to the long-term objectives ofMRDP, which will be sustained in the current and subsequent phases ofthe overall program. The adaptation in design based on the lessons learned from MRDP1 also ensures sustainability as best practices have been scaled up, while those, which were less effective, have been modified to reflect ground realities.
E. Critical risks and possible controversial aspects
40. Results from phase one ofthe program indicate that the design ofthe MRDP is reasonably robust and able to withstand some ofthe critical risks envisaged in the original design. Nonetheless, the following risks remain that need attention:
11 Risk Mitigation Measure I RiskRating To oroiect develooment objective Deterioration ofpeace and order Provision for making changes to participating M in Mindanao, which may LGUs will enable moving to areas where constrain active implementation implementation is possible. Frequent changes in elected LGU Strong capacity building interventions targeted at M officials the LGU and community levels to enhance institutional sustainability and ownership; DA and the Bank will need to be pro-active in securing continued local political ownership (similar to MRDP1 efforts) To component results Potential risk that LGUs do not Provision ofadditional 20% grant fiom NG for M follow through on their LGU infrastructure subprojects would provide commitments under the program substantial incentives for sustained implementation and participation in the program Untimely provision of LGUs will be required to provide upfiont N counterpart (national and LGU counterpart fimding (similar to MRDP1) before levels), in view ofthe tight fiscal accessing program funds; DA can apply for 100% situation financing for all eligible expenditures Possibilitv that DA RFUs in The role ofthe Program Coordinating Office under M Mindanai may not be able to MRDP 1 will be refocused, from that of immediately take the lead in the coordination and oversight of implementation ofLGU subprojects
Overall Risk Rating
F. Loadcredit conditions and covenants
4 1. Implementation Covenants: (a) The Borrower will not amend, abrogate, suspend, or waive any provision ofthe Operations Manuals without the prior written concurrence ofthe Bank. (b) The Borrower, by June 30,2008, will establish baseline data for the Project according to terms ofreference satisfactory to the Bank. (c) The Borrower, through PSO will: (i)furnish to the Bank, not later than October 3 1 in each year, starting October 3 1,2007 for review and comments, an annual work plan for the implementation ofthe Project in the following year prepared in accordance with the provisions ofthe Operations Manuals ; and (ii)afford the Bank a reasonable opportunity to exchange views with the Borrower on said plan and, thereafter, promptly take all actions necessary to implement said plan, taking into account the views ofthe Bank on the matter. (d) The Borrower, by December 3 1, 2007, will reconstitute the PAB established under the first phase ofthe Program, and thereafter maintain it throughout the period ofimplementation ofthe Project, with composition, terms ofreference, staffing and other resources acceptable to the Bank, to be responsible for providing overall direction and oversight for Project implementation.
12 (e) The Borrower will prepare, under terms ofreference satisfactory to the Bank, and firnish to the Bank, on or about February 15, 2010, a mid-term evaluation report integrating the results of the monitoring and evaluation activities performed on the progress achieved in the carrying out of the Project during the period preceding the date ofsaid report, and setting out the measures recommended to ensure the efficient carrying out ofthe Project and the achievement of the objectives thereof during the period following such date. (0 The Borrower will prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, on or about six months prior to the closing date, a terminal evaluation report. (g) The Borrower will establish, by December 3 1, 2007, and thereafter maintain throughout the period ofimplementation ofthe Project, an Internal Audit Service, with staffing, terms of reference, and other resources acceptable to the Bank, to be responsible for conducting internal audit for the Project accounts by June 30 and December 3 1 of each year, starting June 30,2008 and furnish a report to DA and the Bank upon completion of each said internal audit.
42. Financial Covenants: (a) The Borrower shall maintain or cause to be maintained a financial management system in accordance with the provisions of Section 5.09 ofthe General Conditions. (b) The Borrower shall prepare and furnish to the Bank, not later than one month after the end of each calendar quarter, interim un-audited financial reports for the Project covering the quarter, in form and substance satisfactory to the Bank. (c) The Borrower shall have its Financial Statements for the Project audited which shall cover the period ofone fiscal year. This shall be furnished to the Bank not later than six months after the end ofsuch periods.
IV. APPRAISAL SUMMARY
A. Economic and financial analyses
43. Economic Analysis; The major quantifiable benefits ofthe project would result from: (a) the rehabilitation ofprovincial and farm to market roads and the subsequent savings in transportation and travel costs; (b) rehabilitation and investment in communal irrigation schemes which will enhance farm productivity; (c) investments in potable water supply resulting in increased time-savings for collecting water and reduced incidence of water-borne related sickness and disease; and (d) income generation activities for community-based development financed by the community funds. Given the programmatic nature of the project's design, and the fact that local communities will be driving the choice ofsubprojects (for example on the CFAD component, as well as the selection ofrural roads, water supply subprojects, etc.), the analysis adopts a modular approach and uses the indicative implementation plan as a base scenario for estimating the expected economic benefits for the project as a whole. In the case of CFAD, it is unrealistic to project apriori the detailed micro-projects to be financed, given the demand-driven nature ofthe component. Nonetheless, based on the MRDP1 experiences, some representative types of small-scale community income generation projects are analyzed in anticipation ofthe actual needs ofthe communities.
44. The overall project ERR is estimated at about 20% with NPV at PhP 803.4 million (opportunity cost ofcapital at 12%), based on the aggregation of the incremental benefits and costs from infi-astructure and CFAD components, and the incremental costs for project support and coordination and institutional strengthening and capacity building components. At the componenthubcomponent level, the investment in farm-to-market roads yields an ERR of21%; communal irrigation development, 24.8%; communal water supply development, 15 percent; and CFAD at 37%. The project is, either by component or as a whole, is economically viable. The ERR for the whole project is conservative,
13 as secondary benefits, such as those from substantial but unquantifiable benefits from NRM component, and the efficiency gains and social capital from the institutional and capacity building component have not been quantified (See Annex 9 for details).
45. Switching values were calculated for each component and for the project in its entirety, and the results confirm that the ERRSare relatively robust to changes in revenues and costs. Overall, total project costs would need to increase by 20 percent or benefits to reduce by 20 percent, for the overall ERR to drop down from 20 percent to 12 percent, suggesting that the program is more sensitive to changes in project benefits than to project costs. As discussed in more detail in Annex 9, the respective analyses for different components show greater sensitivity to changes in revenues than to costs. To a large extent, this reflects the conservative bias in the assumptions underpinning the analysis.
46. Financial Analysis: The financial analysis only applies to the revenue-earning entities. As such, the project as a whole and project interventions, including farm-to-market roads, irrigation schemes and water supply subprojects do not require financial analysis. However, farm income analysis, for CFAD-supported enterprises was undertaken to assess the financial attractiveness to the households involved in the irrigation schemes. Under a without-project situation, farm income averaged PhP P44,838 per year, while with the project, the average beneficiary households’ on-farm financial situation would improve substantially to reach approximately PhP 84,158 at hll development (based on a representative farmer household with land holding of 1.6 ha.). As stated in the above section, for CFAD, the target communities will ultimately determine the type and scope ofeach subproject; it is therefore unrealistic to conduct ex-ante costs and benefits for the whole component. Nevertheless, a number oftypical income generation subprojects (including asparagus production, high-value vegetable farming, coconut ropes and twines production) are selected for financial analysis. Those activities will be highly attractive to the beneficiaries with FIRRs ranging from 23% to 46%.
47. The major fiscal impact of the project during the implementation will be the provision of counterpart funding required from both national and local governments (see financing plan in Annex 5 and detailed project costs on file). This has been, by design, guaranteed by the national government through annual budget allocations and by the participating LGUs through the cost-sharing arrangement. The future demand for fiscal resources for the project after implementation from national budget will be negligible with fiscal decentralization reform and as prescribed by the project operational plans. On the part ofthe LGUs, there will be further demand for fiscal resources to cover the O&M costs for farm-to-market roads and irrigation systems. Based on MRDP1 experiences, LGUs will be in a good position to meet their financial commitments towards the project. Furthermore, positive fiscal impact can also be expected from improved allocations and more efficient use offiscal resources by LGUs.
B. Technical
48. As a rolling long-term program, the technical design of MRDP2 has benefited considerably from the experiences and lessons learned from Phase 1. A number ofthe relevant lessons have been outlined earlier with implications for design modifications for MRDP2. In addition, the operations manuals (OMS)have been significantly updated to reflect enhancements and new institutional arrangements affecting the PSO, the RPCOs and the LGUs. The OMSwill continue to be refined as lessons of experience build up with implementation, and attempts are being made to harmonize operational procedures with other Bank-implemented projects such as the ARMM Social Fund, the Mindanao Trust Fund and other CDD projects.
14 49. For the Rural Infrastructure component, year 1 subprojects have been identified and prepared by the LGUs. Detailed designs and related procurement documents for most year 1 subprojects have been prepared, with the emphasis being on: adopting low cost designs; provisions for adequate drainage and slope protection and encouraging labor-intensive construction methods. Selection criteria for the roads to be included under the program have been confirmed with the participating LGUs; communities will be involved in prioritizing investments among roads, which meet the required criteria, through the municipal multisectoral committees (MSCs). Commitments will be sought from the LGUs that they will allocate adequate resources for regular road maintenance, and the MOASand grant agreements would stipulate that additional performance-based grants would be provided to LGUs only upon fulfillment ofagreed revenue targets. For communal irrigation, MRDP2 will promote LGU-led implementation, consistent with the national policy on devolved functions. However, given the limited role of LGUs in irrigation development so far, NIA will assist in the preparation offeasibility studies and detailed engineering plans, and in providing technical assistance to LGUs during implementation. For rural water supply, water quality issues and satisfactory community-based institutional arrangements (RWSA/BWSA) will underpin decisions on individual subprojects. MRDP2 will also support other rural infrastructure subprojects (of public good nature and with clear provisions for accountabilities for O&M) in response to LGU and local community demands. Institutional arrangements have been designed, and necessary technical assistance provided under the project, to ensure the technical soundness ofproposals put forth by LGUs and communities. For the NRM component, possible training in NRM planning, watershed, land use management and coastal resources conservation and complementing capacity building activities has been developed based on proven practice in other similar projects. Partnerships with the DENR, BSWM and DA- BFAR have been established to provide strategic technical guidance to LGUs and communities.
C. Fiduciary
50. Assessments were conducted during project preparation ofthe financial management (FM) and procurement capacity of the DA’s PSO and RFUs, and the sampled LGUs in relation to the project’s implementation arrangement and structure.
51 Financial Management. Based on the FM assessment done, the DA’s FM system would need to be improved in the area of fund management, reconciliation ofthe General and Subsidiary ledgers, reconciliation of asset physical existence against recorded accountabilities, regularity in financial reporting, adequacy of FM staffing, and internal audit function. Previous experience with the DA on audit compliance has been satisfactory. In view ofthe results of the assessment, mitigating measures were discussed and agreed with the DA (please see details in Annex 7) hence, the FM risk rating has been reduced to Moderate. In addition, the FM arrangements for MRDP2 will address the aforementioned deficiencies and would meet all ofthe Bank’s minimum requirements.
52. The Project will prepare quarterly Interim Financial Reports. It will disburse through Designated Accounts (DesAs) maintained at the Program Support Office (PSO) and at the Municipal Development Fund Office (MDFO).
53. Procurement Assessment. The assessment builds on the results of the successful harmonization effort with the Government and donors as well as the recent Country Procurement Assessment Reports. Hence, all procurement other than International Competitive Bidding will use the Government’s own procedures, with the exception of eight provisions in the national law which are not acceptable to the Bank, in line with the Bank’s desire to expand the use ofcountry systems” and to use procedures which are most appropriate for the project in terms offairness, economy and efficiency, transparency
’’ See World Bank, Expanding the Use of Country Systems in Bank Operations - Issues and Proposals. R 2005-0018/2, March 8,2005.
15 and accountability. The procurement will be carried out following the project’s procurement manual which is a consolidation ofthe various procurement chapters/sections in the individual component’s Operations Manual. This design is to ensure that procurement is mainstreamed into the project operations.
54. The overall project risk for procurement has been rated as average. Issues/risks concerning the procurement aspects for implementation have been identified, and these include lack ofcapacity of RFUs to undertake the oversight role to LGUs, inadequate capacity ofPSO to provide technical assistance to RFUs, weak procurement planning of LGUs and unclear LGU procurement process. The corrective measures which have been agreed upon include: designation ofprocurement specialists in the RFUs and PSO; capacity building in the areas ofprocurement planning and monitoring, and bid evaluation; and finalization ofthe consolidated procurement manual. While PSO staff has experienced procurement operations under MRDP1, there is still a need to augment its procurement capacity due to the higher number ofLGUs involved and the initial technical assistance it will extend to the RFUs who will be the main oversight, and who will review the LGU procurement actions. A training oftrainors, for each region, has been conducted in June 2006 to ensure appropriate capacities are present in the regions to oversee the LGUs’ procurement operations.
D. Social
55. The overall program was guided by a comprehensive social assessment in all five provinces covered under MRDP1 and was done to ensure that project areas and beneficiaries were appropriately selected, project objectives and strategies were responsive and acceptable to the intended beneficiaries, and the project would be feasible within the subject areas’ social, political and institutional contexts. The findings ofthe social assessment are still valid for MRDP2, as they were based on a representative sample ofagro-ecological zones that spread across Mindanao. Recently, there has also been a number ofsocial and needs assessments undertaken for Mindanao (e.g., Social Assessments ofConflict-Affected Areas in Mindanao*’; and Joint Needs Assessment (JNA) of Conflict-Affected Areas in Mindanao*l) which provided input into the preparation ofMRDP2.
56. Indigenous Peoples and other Vulnerable Groups. MRDP2 will be implemented in all provinces of Mindanao and in 225 ofthe more than 400 municipalities in Mindanao. To ensure that vulnerable groups such as Project-Affected Persons, IPS,women and children are provided with social safeguards in the implementation ofMRDP1, the Program developed the Indigenous Peoples Policy Framework and the Land Acquisition, Resettlement and Rehabilitation Policy Framework. These policy frameworks were developed and approved for the entire long-term program ofMRDP. The framework for Indigenous Peoples will continue to be used under MRDP2. The framework for Land Acquisition, Resettlement and Rehabilitation has been updated to reflect the new OP 4.12 on involuntary resettlement. Operational guidelines for these policies have been reviewed and enhanced based on the lessons and implementation experience ofMRDP1.
E. Environment
57. A Mindanao-wide environmental assessment (EA) covering all the 27 provinces ofMindanao was satisfactorily undertaken as part ofproject preparation. This document was properly disclosed in the country on August 28,2006. The EA assessed the impacts ofthe types and scale ofsubprojects to be
2o Social Assessment of Conflict-Affected Areas in Mindanao (Philippines Post Conflict Series #l),The World Bank, March 2003 2’ Joint Needs Assessment for Reconstruction and Development Program of Conflict-Affected Areas in Mindanao, The World Bank, December 2005.
16 supported under MRDP2, and also evaluated the implementation experience and lessons learned under MRDP1. Results of the EA indicated that the Project's environmental impacts are minor and localized, which can be easily managed through strict observance ofenvironmental guidelines developed as part of the EA and which are mainstreamed into each component. The environmental guidelines provide the basic environmental considerations in site selection, subproject planning, design, as well as implementation ofsimple mitigating measures. In addition, the EA also formulated environmental policies to enhance the positive impacts ofMRDP2 and identified a negative list of subprojects and activities, including purchase and/or massive use of chemical pesticides, to further safeguard the environment from any potential negative impacts. The Project has also formulated training programs to build the safeguard capacity ofthe PSO, the RPCOs and the LGU and community subproject proponents.
F. Safeguard Policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) [XI 11 Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [XI [I Cultural Property (OPN 11.03, being revised as OP 4.11) [I [XI Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OPIBP 4.10) [XI [I Forests (OPIBP 4.36) [I [XI Safety of Dams (OPIBP 4.37) [I [XI Projects in Disputed Areas (OPIBP 7.60). [I [XI Projects on International Waterways (OPIBP 7.50) [I [XI
G. Policy Exceptions and Readiness
58. MRDP2 complies with all applicable Bank policies. In terms ofreadiness for project implementation, design and procurement documents for Year 1 rural infrastructure subprojects program have been submitted to the Bank prior to negotiations. In addition, the list of Year 1 CFAD subproject proposals has also been submitted based on consultations with the MSCs. At the institutional level, the PSO and the RPCOs are already in place and LGU staff from the participating provinces and municipalities have been actively engaged in the preparation ofthe Year 1 subprojects. The revised Operations Manual, adapting the lessons from MRDP1, has also been submitted by the DA to the Bank in October 2006 prior to negotiations.
' By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas
17 Annex 1: Country and Sector or Program Background PHILIPPINES: Mindanao Rural Development Project - Phase 2
A significant percentage ofthe Philippine population is agricultural and rural. The sector accounts for around 20 percent of the country’s GDP and provides the largest share in employment. Although the agricultural sector will continue playing a strategic role in the economy and growth, its relative share of GDP is declining due to slow rate ofoutput growth. This contrasts with other emerging sectors, industry and services, which employ far less people than agriculture, but continue registering stronger productivity and growth rates. In the rwal/agricultural economy, there remain a number offactors that will influence future growth: (a) there are clear domestic growth triggers (an increasing population and an expanding non agricultural economy, with growing aggregate income, which will need to be supplied with food and food products; (b) with increasing incomes, the domestic market is becoming increasingly sophisticated and price and quality conscious. How much ofthis demand can be successfully captured by domestic suppliers (to limit inflow from imports) is a key challenge; (c) as other powerful regional economies grow, and trade barriers relax, the export market for agriculture produce is growing rapidly. The Philippines, however, has only been able to capture a small, and declining share; (d) the natural comparative advantages the Philippines has together with its literacy, technical and entrepreneurial skills have only been partially harnessed in pushing the economy - and little in agriculture; and (e) the overall peace and security situation, particularly in Mindanao continues to hinder investment and output.
2. The Government’s strategy for securing sustained agriculture sector growth include: (a) furthering policy reforms to make the sector internationally more competitive; (b) increased public investment in infrastructure, especially irrigation facilities, farm-to-market roads (FMRs) and post-harvest facilities, to support intensive farming technologies; (c) increased research and development investments, in partnership with the private sector; (d) increased funding for agrarian reform, and making it more effective and less costly: (e) improving natural resource management through policy reform, institutional strengthening, greater community participation, and development ofappropriate tenurial and market-based instruments; (0 streamlining the agnculture-related bureaucracy, including the interface between central and local governments; and (g) making devolution more effective through improvement in the institutional capabilities of LGUs and channeling resources for devolved rural development activities. The policy thrusts to promote general and rural economic growth are at the heart ofthe Medium-Term Philippine Development Plan (MTPDP 2004-2010) which underpins the strategic framework for poverty reduction and economic growth with social inclusion and equity. On the other hand, the Bank’s Country Assistance Strategy (CAS) for the Philippines 2006-2008 aims to stimulate a virtuous cycle of more effective public institutions, fiscal improvements, economic growth, poverty reduction, and greater social inclusion. More specifically, within the MTPDP and the CAS, the strategic development goals include enhancing agricultural productivity and agribusiness, asset (land) reform, responsible management ofnatural resources and the environment and public expenditure rationalization to improve public service delivery. In addition, the Government has two further pieces oflegislation to enhance agricultural and decentralized rural development, namely; (a) the 1997 Agriculture and Fisheries Modernization Act (AFMA), which aims to enhance the competitiveness ofPhilippine agriculture, and (b) the 1991 Local Government Code (LGC) which devolves greater responsibility for delivery offrontline support services to Local Government Units (LGUs).
3. Promoting poverty reduction and rural growth specifically on the island ofMindanao remains particularly high on the policy agenda given: (a) the island’s distinct climatic and geographic advantages which favor agriculture; (b) the large proportion of the country’s poor (almost one third)
18 located there; and (c) advancing the peace initiative in Mindanao through the provision ofgreater economic opportunities and integration. Despite these strategic initiatives progress in achieving policy goals has been constrained by various factors, including: (a) the low level ofpublic expenditures for infrastructure, transport and market development; (b) inefficient input supply channels; (c) slow pace ofeffective devolution to LGUs many ofwhich are still to mature as effective providers ofdevolved agricultural support services; and (d)] poor linkages between rural development planning and implementation.
4. A third ofthe rural poor in the Philippines can be found in Mindanao, with its rural sector remaining in a state of stagnation. Yet, with its distinct agro-climatic and geographic advantages, Mindanao holds tremendous potentials and has distinct comparative advantage for agriculture and fisheries sector growth. The poor situation in the rural areas has been brought about by low levels ofpublic expenditures for critical infrastructure, poorly functioning transport systems and rural markets, inadequate post-harvest facilities, limited reach of agricultural support services, difficulty in accessing necessary production inputs and ill-prepared and non-integrated rural development planning and implementation. The pace ofdecentralization has remained slow and many LGUs are yet to mature as effective providers ofdevolved agricultural support services, as stipulated in the LGC. Also, the Department ofAgriculture (DA) has not been quite effective in supporting LGUs to enable them to integrate communities into the LGU and the DA decision-making processes for rural development priorities and investments.
5. Hence, in 1999, the Government and the Bank started the discussions for the design for a long-term program for promoting rural development in Mindanao. The long-term program aimed to improve incomes and food security in targeted rural communities within all ofthe provinces ofMindanao, through implementation ofbetter targeted and sustainable agriculture and fisheries-related rural development and marine biodiversity conservation programs, and improved LGU institutional, management and financial systems. A letter of sector development objectives was submitted by the GOP to the World Bank in June 1999 (please see Annex l(a) ofMRDP1 PAD), wherein it was recognized that poverty alleviation and rural development are long-drawn processes that would require sustained support. In addition, it was also noted that while most ofthe responsibilities for agricultural and rural development have been devolved to LGUs (with the passage ofthe 1991 LGC), the institutional weaknesses ofLGUs continue to be the principal bottlenecks for effective and sustainable rural development. Building institutional capacity at the local levels and ensuring sustainability and support for such efforts at the national level also requires nurturing over a long period. Through the Bank’s loan instrument ofan Adaptable Program Loan (APL), an opportunity was presented to meet the specific, unique and long-term requirements for rural development. Outlined below are the agreed broad strokes of the long-term program agreed between the Government and the Bank:
(a) MRDPI: Would initiate the program in a relatively small group ofabout 5 provinces, for testing out and initiating a process ofengaging LGUs and rural communities in designing and implementing a rural development program, in close association with concerned national government agencies, developing an implementation strategy, and establishing a mechanism for scaling up the program in the succeeding APLs.
(b) MRDP2: Would provide for expanding the geographic coverage ofthe program across Mindanao, to provinces and municipalities which meet eligibility criteria; the program would be deepened in the APLl provinces by enlarging the scale, and also ensuring that all eligible municipalities are included.
19 Triggersfor moving on to Phase 2:
Project Preparation to be initiated once 60 percent ofthe APLl Loan has been disbursed. Social Assessment ofthe next group ofprovinces to be completed, which express interest in participating and meet eligibility criteria. Phase2 Loan to be approved by the Bank once 80 percent of APLl Loan is disbursed, and the balance is substantially committed. Institutional arrangements for implementation tested out and adapted based on experience’; multisectoral committees for the CFAD operating satisfactorily. m Overall satisfactory performance, using the mid term evaluation as a basis for assessment (key elements for assessment included adequacy and timeliness in providing counterpart funds in Phase 1 LGUs; improved arrangements for routine road maintenance sourced from increased budgetary allocations by LGUs; completion ofat least 60 percent of proposed infrastructure program in a particular province for its continued involvement in APL2; improved rural development planning and allocation ofbudgetary resources by LGUs, with community involvement; greater integration ofDA programs into LGU RD plans, synchronized through the regular planning and budgeting process and schedules).
(c) MRDP3: Would continue support for all provinces covered under APL2, and complete the coverage across Mindanao, to the extent that some provinces or municipalities remain outside the program due to their inability to meet eligibility criteria. It would focus on deepening the program by ensuring that all eligible municipalities are fully engaged.
(d) MRDP4: Would focus on reinforcing the key thrusts underpinning the overall program and in securing both program and more importantly, institutional sustainability ofthe developments undertaken in support of increasing agricultural production and alleviating rural poverty.
Triggersfor moving on to MRDP Phases 3 and 4:
Project Preparation to be initiated once 60 percent ofthe ongoing APL Loan has been disbursed. Social Assessment in eligible provinces and municipalities to be completed. Bank approval ofnew APL Loan to be done once 80 percent of the ongoing APL Loan is disbursed, and the balance is substantially committed. Acceptance by LGUs already participating in the program, ofincreased cost sharing on project-supported activities (as reflected in proposed or approved budgets, etc.); increased share ofrural development activities funded from central DA budget integrated into LGU financial and investment plans. Overall satisfactory performance, using the mid-term evaluation as a basis for assessment ofkey results indicators, plus, more importantly, degree ofinitiative by LGUs for instituting concrete mechanisms for sustainability ofinstitutional arrangements initiated under the MRDP). Provincial LGUs already participating in the program (under Phases 1 and 2) should have rural development plans in place, which are linked to annual budgetary allocations. This should provide the basis for designing continued program support for these LGUs.
20 Indicative Timetable for MRDP Program Phasing (as reflected in the MRDPl PAD):
Notes: (1) The proposed timing and amounts for Phases 2 to 4 are tentative, and will be subject to a full appraisal process. In preparing the above projections, it is assumed that 18 provinces and 218 municipalities will participate in Phase 2, and 24 provinces and 315 municipalities in both Phases 3 and 4. Share of Bank Loan financing in total project costs is assumed to decline from an average of around 70 percent in Phase 1, to 60 percent in Phase 2, 50 percent in Phase 3, and 45 percent in Phase 4.
(2) The implementation period for Phase 1 stretched to December 2004, in view of delays incurred due to the war in Mindanao dunng the first half of Phase 1 implementationand the lesson learned from implementation that capacity building and institutional strengthening through a learning-by-doingmode takes a longer time than was originally envisioned. In addition, in view of the tight fiscal situation of the country, there has been a lot of discussions at the macro level on the changes needed for the overall NG-LGU cost sharing which would govem modalities on the required minimum level of financing between NG and LGUs for devolved investments, during the second half of 2004 to first half of 2006. The second phase is now projected to take place from June 2007 to December 2012.
Eligibility Criteria for LGU Participation
The initial group ofLGUs shown below (provinces, and respective municipalities), which formed the basis for project preparation, and where program implementation commenced in Year 1 under MRDP1, were selected by the DA and NEDA, primarily on the basis of: firstly, the province having an agriculture sector ofsufficient diversity to represent Mindanao (including having coastal municipalities); and secondly, the municipalities selected, as shown below, were 4" to 6'h class municipalities. . North Cotabato Province: Aleosan, Banisilan, Antipas, Libungan, Arakan . Sultan Kudarat Province: Kalamansig, Sen. Ninoy Aquino, Lutayan, Lambayong, President Quirino, Columbio.
The regional heads ofnational government agencies (NEDA, DILG, and DA) from the six regions of Mindanao, as well as from ARMM and MEDCO, met in November 1998, and agreed on criteria while selecting the following additional three provinces for inclusion in MRDP 1: Agusan Sur, Maguindanao and Compostela Valley. This would result in four regions participating in the first phase, and consequently, at an institutional level, facilitate the geographic expansion ofthe program in subsequent Phases. If certain LGUs do not perform, and implementation performance suffers as a result, other provinces and municipalities can be brought in to replace the original LGUs; this would require the endorsement ofthe PAB.
The criteria for bringing in additional provinces (and municipalities) into MRDP1 (and establishing a ranking, if necessary for project preparation purposes, among provinces expressing interest in participating in MRDP2) include the following:
21 . Preferably allow for one province per Region, which will facilitate quicker replication within each Region. . Provincial LGUs should be willing to allocate financial, staff and other resources for undertaking project preparation; and commit themselves to facilitating, and participating in carrying out a Social Assessment. . Within a Region, preference would be given to the province with the highest levels ofpoverty, as evidenced by rural poverty incidence and rural poverty magnitude. Preference would be given to provinces with a higher potential in agriculture and fisheries, and with very limited or no similar externally financed project as MRDP. . Ability to service debt - projected annual debt service for next 3 years is less than 50 percent of development fund.
9. The above criteria were used in the beginning ofpreparation ofMRDP2, in short listing the provinces which will be included. However, towards the beginning of 2006 when there was clarity in the NG- LGU cost sharing, all of the 27 provinces of Mindanao expressed strong interest to be part of MRDP2. A similar criteria for the prioritization ofmunicipalities among the participating 27 provinces have been drawn up by the DA and had been applied by the provincial LGUs in coming up with their priority list of municipalities which would participate under MRDP2 (please see project files on criteria and process used by provincial LGUs in arriving at the list of 225 municipal LGUs which will be participating in MRDP2. .
Assessing Implementation Performance
10. The program will implement a strong M&E system, closely linked to enhancing LGU capacity in this area, and putting in place an effective mechanism for assessing performance within the context ofthe proposed phase program. In terms ofcapacity building, training courses, workshops as well as technical assistance for LGUs will be provided. The key areas to be monitored include the following:
Rate ofimplementation progress (e.g., no. ofkilometers ofroads rehabilitated within a period of time, increase in the no. ofirrigated areas irrigated, etc.) Processes which result in increased involvement ofcommunities in the decision making process (e.g., description ofthe mechanisms in which village level decision making is arrived at in determining investment priorities and in managing community-based resources at the village level, etc.) LGU plans becoming more responsive to broad community priorities (e.g., greater level of satisfaction among communities in the delivery ofdevolved agricultural and fisheries support services, etc.) DA programs and budgets being integrated into LGU plans (e.g., increasing yearly DA budgets which are incorporated into devolved agricultural and fisheries support services, increasing role ofLGUs in performing and delivering devolved activities, etc.) Direct impacts on beneficiaries from different components (e.g., increase in on- and off-farm incomes among targeted communities, improvement on access to basic services and markets, etc.)
11. Independent evaluation studies would be conducted at specific program milestones in order to assess effects and impacts ofinterventions, as well as to consider adaptations to the program. Baseline data would be collected at the provincial, municipal and community levels prior to implementing the various program components in order to provide the basis for assessing the effectiveness ofprogram interventions.
12. As can be gleaned from the MRDP1 Implementation Completion Reports (Report No. 32660-PH dated June 29,2005 and Report No.36466-PH dated June 29,2006), the first phase ofthe program
22 was implemented quite successfully and had achieved its project development objective. Equally important, lessons learned and implementation experience have been generated during MRDP1 which would facilitate broadening of the program to the rest ofprovinces and a much greater number of municipalities in Mindanao under MRDP2. One ofthe key lessons learned is in the need to ensure the usefulness ofplanned M&E interventions by making these better focused, further simplified, more operational, and results-oriented, Under MRDP2, a more results-based M&E framework is adopted to ensure more focused monitoring and evaluation ofthis phase’s interventions and ofthe evolving results and outcomes from the overall program.
13. The Bank’s continued involvement and sustained partnership with the GOP in this long-term program is crucial for supporting its momentum for pushing and deepening the agenda for the decentralization of frontline support services delivery. It will help ensure the institutionalization offield-tested planning and implementation mechanisms for demand- and community-driven approaches for agricultural and rural development. The scaling up ofthe program is part of the Bank’s overall agenda in contributing to rural and agricultural growth, especially in Mindanao. It also provides an opportunity for the Bank to bring in development lessons and experiences on local governance reform from within the region and elsewhere. The practice ofintegrating community plans into higher tiers of local governments and sectoral agency planning and budget processes remains a major weakness in the Philippines. As such, the success ofMRDP Phase 1 on this aspect is almost unique. It needs to be institutionalized, expanded and refined further, especially in light ofrecent policies to hasten the decentralization process, serving as a model for other sectoral programs requiring strong involvement ofcommunities and their local governments.
14. The justification for continued Bank involvement is made stronger given the positive impacts and assimilation of valuable experiences and lessons learnt from the first phase, which will be used in scaling up and guiding the program under MRDP Phase 2 to other provinces in Mindanao. Collectively, close engagement in these processes demonstrated the Bank as a credible partner in promoting effective models for accelerating decentralization in agriculture sector services in Mindanao which can been successfully replicated elsewhere in the country. In addition to experiences from MRDP Phase 1, implementation lessons and linkages to other Bank-assisted projects (such as KALAHI, ASFP and ARCDP 2) on CDD approaches and operations manuals have been incorporated into MRDP2. Coordination with other donor efforts in Mindanao (such as those being done by the ADB, USAID, IFC, CIDA, and AUSAID) has also been maintained in preparing and designing MRDP2 to enhance its eventual effectiveness. Overall, therefore, the Bank’s continued involvement and sustained partnership with the GOP and other partners in this long-term program, is crucial for maintaining momentum in further promoting decentralized development with active community participation
15. Within the strategic thrusts ofthe MTPDP, AFMA, the LGC and the CAS, MRDP2 will further scale up successful practices piloted under the first phase ofthe APL program. The overall program objective, started during MRDP1 and will be continued under MRDP2 will contribute to the GOP’s development goals on reducing poverty, promoting growth with social inclusion, and in further strengthening decentralization. In addition, given the continued conflict in Mindanao, the realization ofsustained rural growth and visible benefits to conflict-affected populations, will directly contribute to reinforcing GOP and donor community efforts at consolidating the peace initiatives, which is a key national policy goal. Moreover, it is aligned with the Bank’s CAS objective ofassisting the GOP to improve public institutions and service delivery mechanisms by harmonizing and synchronizing national and local agenda for sustained rural development.
23 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies PHILIPPINES: Mindanao Rural Development Project - Phase 2
Sector issue Project Latest ISR Ratings (As ofDecember 2006) (B ab-finance d rojects only) Implementation Development Progress (IP) Objective (DO) Bank-Assisted Area-based, targeted poverty alleviation; Mindanao Rural Completed S Strengthening Institutions for Promoting Development Program APL Decentralization 1 Local Infrastructure Provision to Targeted Agrarian Reform S S Groups; Microenterprise Development Communities Development Program Financing ofLocal Government Community-Based Resource S S Investments on NRM. Management Financing ofLocal Government Laguna Lake Institutional S S Investments on NRM., Watershed Strengthening and Management Community ParticipatiodLISCOP (LISCOP) Water resources planning and Water Resources Completed S management; watershed management Development Project Emergency Post-Conflict Recovery ARMM Social Fund Project S S Targeted Poverty Alleviation; KALAHI S S Strengthening Community Empowerment Enhancement ofDelivery ofMarket- Diversified Farm Income and U MU Oriented Services for enhancing Market Development Project Agricultural ComDetitiveness Other Development Agencies Targeted Area Development; poverty European Union: Upland n.a. n.a. focus, micro-project financing Development Project LGU Institutional Strengthening on NRM USAID: Environmental n.a. n.a. Governance Project Local Infrastructure Development ADB: INFRES Project n.a. n.a. Farmer linkage with Agri-business; USAID: Growth with Equity n.a. n.a. enterprise development in Mindanao (GEM) Project Note: IP/DO Ratings: HS (Highly Satisfactory), S (Sati Ictory), MS (Marginally Satisfactory), [U (Marginally Unsatir ctory), u (Unsatisfactory), HU (Highly Unsatisfactory)
24 Annex 3: Results Framework and Monitoring PHILIPPINES: Mindanao Rural Development Project - Phase 2
Results Framework
PDO Project Outcome Indicators Use of Project Outcome Information
Overall Program Purpose:
Improved incomes and food security in the targeted rural communities within the 27 provinces ofMindanao, from implementation ofbetter targeted and sustainable agricultural and fisheries-related rural development and marine biodiversity conservation program, and improved LGU institutional, management and financial systems.
Under MRDp2:
It will specifically aim to (i) Average household incomes of The increase in with-project improve access to livelihood beneficiary communities 20% income significantly higher opportunities oftargeted higher than baseline and 10 % (statistically) than base line and communities and (ii) higher than control group. control to show that the project is institutionalize a decentralized having a positive impact. system for agriculture and Conversely, if not significant, fisheries service delivery that may suggest that scaling-up the promotes participation, program needed to be more transparency and accountability. vertical than horizontal or was overambitious.
Intermediate Outcomes Intermediate Outcome Use of Intermediate Outcome Indicators Monitoring
Component 1: Investments for 70 % ofparticipating LGUs rate Low % ofLGUs reporting better Governance Reform (IGR) and their ability to better plan and ability in planning and Program Administration implement investment programs integration with national systems (control systems, planning, may flag that project activities in supervision) as satisfactory or the timeframe are overambitious better, attributing this to project
NG/LGU institutional linkages 15% and 35% oftarget Low (below target) levels of and framework for devolved beneficiaries report significant satisfaction signals that project services strengthened. improvement in LGU service activities in LGU strengthening
25 delivery, at midterm and at end are not effectively translating ofMRDP2, respectively into results in service delivery requiring reconsideration of 15% increase (compared to design. baseline) in expenditures for agricultural investments among Below target adoption of participating LGUs by end of improved financial and MRDP2 governance systems indicates overambitious design, or need to 80% ofprovincial and municipal further improve the quality and LGUs adopt resource generation, quantity ofinstitutional capacity allocation, utilization and building efforts aimed at accountability measures at the improving governance and local end ofAPL2 resource generation and mobilization.
Component 2: Rural Travel time in targeted areas Shortfall in meeting targets or Infrastructure reduced by at least 30% at the poor quality evaluation would end ofMRDP2 compared to suggest problems in the selection Improved access and increased baseline; ofsubprojects or targeting. stock of quality rural infrastructure Savings in passenger and No significant increases in yields produce transport costs increased would negate objectives of by at least 10% at the end of increased production and MRDP2 household incomes.
Average cropping intensity increased to a range of 150 % to 180% over baseline by the end of MRDP2
Time to fetch water reduced by 65% over baseline by end of project
At least 50% increase in the number ofhouseholds reporting reduced incidence ofwater-borne diseases by end ofproject.
At least 80% ofparticipating LGUs have increased their revenues in accordance with set targets over baseline. Component 3: CFAD
Increased household income Average household incomes of Low levels ofincome increase for vulnerable groups beneficiary communities 20% over controlhaseline flags higher than baseline and 10 % problems with the menu of higher than control group. subprojects or over-estimation of
26 ex ante financial/economic At least 30% of CFAD returns allocations are accessed by IPS and women by end of the project Component 4
Natural Resource Management 10% decrease in siltation and No improvement in siltation and sedimentation in coastal areas, as sedimentation levels suggests a result of better land problems in sustainable land management practices. management interventions.
20% increase in public awareness Lack of recognition and and community participation in information on sustainable land better land management management practices, and coastal and marine biodiversity conservation.
27 B
I e e cE ! e e e c E E z c E
0 m
c b Annex 4: Detailed Project Description PHILIPPINES: Mindanao Rural Development Project - Phase 2
Component 1: Investments for Governance Reforms and Program Administration (US$4.4 million total cost)
Background/Key Institutional Issues. MRDP 1 strengthened the technical, financial and management capabilities of32 municipalities and five provinces to perform their legally-mandated roles under the LGC and AFMA. Successful initiatives will be further enhanced and expanded in MRDP2 to cover all 27 provinces in Mindanao to improve capacities ofother LGUs as providers of devolved agriculture and fisheries support services. The project will integrate agriculture and fisheries planning and implementation being done separately by the DA RFUs, the LGUs and other agencies. The RFUs will be assisted to better orchestrate agriculture development-related support to the LGUs coming from DENR, MDFO, NEDA, MEDCO, DILG, NCIP, and other sources. Finally, MRDP2 will continue to mainstream community engagement in the process ofjoint DA and LGU planning, budgeting and implementation ofagriculture and fisheries projects and activities, using lessons learned under the first phase.
2. Component Objective and Expected Outcomes. The overall objective is to strengthen the framework and linkages for the integrated delivery ofdevolved services by the national and local government units. The LGUs at the provincial, municipal and barangay levels comprise the principal target group. The principal outcome from institutional strengthening will be LGUs effectively delivering all devolved agriculture and fisheries services in a manner and quality satisfactory to target client-farmers and fishers, particularly but not limited to those who are organized, leading to measurable increases in incomes. Outcome achievement will be determined through client satisfaction and LGU self-rating surveys. As a means ofachieving this primary outcome, the project will strengthen DA and other key institutions mandated by law to support the LGUs.
3. MRDP2 will facilitate DA’s systematic phase-out from directly performing devolved functions, and shift towards providing LGUs with planning and budgeting, research and extension, monitoring and evaluation, and related enabling support.22 Community groups will continue to be strengthened so that completed infrastructure and livelihood subprojects can be properly and sustainably operated and maintained. The ATI, SUO, NGOs, AFCs, industry associations, and other relevant institutions will be enabled to regularly participate as resource institutions in local planning, budgeting and implementation ofagriculture and fisheries initiatives. Taking off from the component’s outcome, the following diagram summarizes what will be done under the component, as will be discussed further below.
22 These are the Department’s “core functions”. Other core functions, namely policy, regulatory and market development support, are covered under the World Bank-assisted Diversified Farm Income and Market Development Project (DFIMDP).
31 Output 1: Improved Output 2: Improved Output 3: Enhanced output 4: LGU Resource Mgt DA Capacity to Governance Systems Established Project and Service Delivery Support LGUs & Mechanisms in DA Coordination & Systems & LGUs Support System -
I Training Inputs: Non-Training Inputs: Formal training * Organizational Non-formal/on-the- development job training . Change management
Figure 1
4. Interventions under the Component. Institutional strengthening will support achievement not only ofthe overall MRDP2 objectives but also those of the RI, CFAD and NRM components. Interventions will include both training and non-training activities. Training - both formal and on- the-job - will cover technical areas (such as planning and budgeting), financial management, and project administration. On the other hand, non-training interventions will include the review and refinement ofinstitutional mandates, organizational structures, personnel policies, scopes ofwork, staffing, staff development, and performance standards - all in line with the Government’s on-going organizational development and rationalization program. The following are the three subcomponents:
(a) Subcomponent 1,Improving LGU Resource Management and Sewice Delivery Systems, including Enhancement of Governance Systems and Mechanisms The objective of the first subcomponent is to enable LGUs to ably and sustainably perform the full range offunctions assigned to them under the LGC and AFMA. Institutional strengthening must recognize heterogeneity among LGUs. Capacity-building therefore will not be standardized but rather, will cater to the wide diversity in the socio-economic and leadership conditions, which lead to wide disparities in LGU technical and financial capacities. Capacity-building ofLGUs will be done through learning-by-doing modes, which was proven effective during MRDP1. MRDP2 will address the lack ofsustained LGU capacity-building (e.g., by preparing simple training manuals) that coupled with a high rate of staff turnover results in the endless clamor for more training. Moreover, incentives will be provided to MRDP2 participating LGUs to adopt cross-cutting best practices in transparency, accountability and participation in local governance. Improved governance will enhance and sustain the results ofthe other components and subcomponents. This is an innovative feature under the second phase ofthe program wherein the project will pilot test the operationalization ofa performance-based grants mechanism for LGUs which would apply to the subprojects being supported under the Rural Infrastructure Component. Measures ofperformance will include adherence to practices which would promote good governance and measures which will enhance local revenue generation. Based on LGU performance, additional grant resources from national government would then be provided to participating LGUs for the implementation oftheir priority local infrastructure. The major activities under the subcomponent are: (i) Institutionalization of
32 Participatoy, Integrated, and Decentralized Local Development Planning and Implementation; (ii) Strengthening of Local Research and Extension Services; (iii) Local Revenue Enhancement and Management; (iv) Procurement Reform; and (v) Mobilizing Participating Institutions toward Broad Convergence and Enhancement of Anti-Corruption Measures.
(b) Subcomponent 2: Improving DA Capacity to Support LGUs
The objective of this subcomponent is to refocus the RFUs’ role towards supporting the implementation of a decentralized service delivery system in agriculture and fisheries. A popular lament about the LGC is that it cut off the LGUs from DA technical services, training and funding that used to be channeled through the RFUs. Under MRDP1, the RFUs began to revisit their role vis- histhe LGUs. MRDP2 will re-affirm the nurturing links between the DA and the LGUs, not the pre-LGC model ofthe DA, but playing an enabling role to build capacities ofLGUs to deliver frontline support services. The major activities under this subcomponent are: (i) Support to Local Development Planning and Implementation; and (ii) Support to Strengthening Local Research and Extension.
(e) Subcomponent 3: Program Support and Coordination
The objective ofthis third subcomponent is to lay down and to maintain the institutional foundation for effective program implementation. Capacity-building will target operating units within the LGUs and the DA, as these same offices and staff are expected to carry on lead and supportive roles in the longer-tern planning and delivery ofall devolved services in the sector. At the LGU level, training and non-training interventions on project support and coordination will target staff from the planning and financial management offices, plus those coming from the offices ofthe LGU agriculturist and engineers, who will be officially assigned project facilitation roles. For DA, capacity-building will be directed at officially-designated personnel of the RFUs and key service units at the DA central office particularly those for planning, field operations, and financial management. There will be three major activities under this final subcomponent: (9 Strengthening the Enabling Environmentfor Program Coordination; (ii) Strengthening Systems and Procedures; and (iii) Strengthening Support Systems for Program Coordination.
More details on the design ofthe component and its subcomponents can be found in a working paper on file.
Component 2: Rural Infrastructure (US$83.852 million total cost)
5. Inadequate rural infrastructure stands out as a principal constraint to agricultural development and poverty reduction in Mindanao. A key impediment is the difficulty and cost ofhauling inputs to fanners and fishers and outputs to markets caused by the inadequate and poor condition ofroad access infrastructure. In general terms, key elements ofinfrastructure provision in Mindanao are presented in the following table:
33 Table 1. Mindanao: Some key elements of infrastructure provision (2006)
Note: Rural roads include all roads below the national roads.
6. A survey undertaken as preparatory work for the project shows that rural infrastructure improvements rank high among the top local development priorities of communities. Consultations with various groups held during project preparation revealed that the types ofrural infrastructure implemented under MRDP1 will remain the same for MRDP2 and will include: rural roads and bridges, communal irrigation and potable water supply systems. Additionally, other infrastructure related works would also qualify for financing, including timber ports, rock causeways, pedestrian hanging bridges, and post-harvest facilities. Infrastructure subprojects are strongly interlinked and need careful planning, such as the construction ofpost-harvest facilities in conjunction with farm-to-market roads, etc.
7. Based on the experiences ofMRDP1, scope and ceiling for unit costs for the rural infrastructure component are estimated as follows:
Table 2. Total Cost of Infrastructure Subcomponent (US$ million)
34 Table 3. Unit Cost Ceilings and Estimated Average Unit Costs Subcomponent Output Unit Unit Cost (ceiling), Estimated Average US$/unit Unit Cost (US$/unit) A. Rural Farm-to-market road 34,615 US$h 25,000 US$h Roads/Access (rehabilitated) Farm-to-market road 48,077 US$/km 34,615 US$h (construction) Single-lane bridge 3,846 US$/linear meter 3,846 US$h (constructed) B. Communal Run-of-river communal 1,923 US$/ha 1,731 US$/ha Irrigation irrigation system, CIS Systems (rehabilitated) Communal irrigation 2,885 US$iha 2,692 US$/ha project, CIP (new scheme) C. Rural Water Communal faucet water 154 US$/h.h. 13,462 US$/subproject Supply systems (constructedrehabilitated) D. Other rural units 28,846 US$/subproject 19,230 US$/subproject infrastructure
8. Institutional strengthening and capacity building oflocal institutions including RFUs and LGUs involved in the implementation ofrural infrastructure works, including that for community groups tasked in the operation and maintenance ofcompleted subprojects (e.g. rural water and sanitation associations, irrigators associations, etc.), shall be supported through training and capacity building efforts.
9. In general terms, the rural infrastructure component envisages working with 225 municipalities in all of the 27 provinces ofMindanao. The first year’s program financed under the project includes mainly subproject proposals from the 32 municipalities that participated under MRDP1. It also includes a number ofnew LGUs that have earlier indicated commitment to participate in MRDP2. As in the previous phase ofthe program, MRDP2 will continue to support rural infrastructure subprojects in order to: (a) improve access to basic rural infrastructure services, and (b) enhance current operations and maintenance standards for infrastructure as practiced by LGUs and communities.
10. The component will follow all guiding principles and procedures established under MRDP223(as reflected in the Operations Manual or OM), for identifying and implementing subprojects. The main guiding principles are summarized as following:
Adopt program and network approach in selection of rural infrastructure subprojects with active participation ofrural communities as outlined in the OM . Follow World Bank safeguard policies as outlined in Annex 10 . Monitor and evaluate the set of proposed indicators before the start and after the completion ofinfrastructure works . O&M system (as outlined in the OM) needs to be put in place in order to make sure that infrastructure assets rehabilitated under the project are kept in good and fair condition after completion ofworks Follow design features for subprojects according to the OM
23 Technical specifications for the rural infrastructure works under MRDP2 are found in the Operations Manual and follow the accepted minimum specifications as issued by the Philippine Department of Public Works and Highways and similarly adopted in other development projects in the Philippines.
35 Rural RoadsIAccess
11. This activity combines the rehabilitation ofabout 1,950 kms. and the construction of200 kms of farm-to-market roads with about 1,000 linear meters small-scale bridge construction and replacement. Consultations in the representative target areas indicated the high priority given to rural roads by rural communities (as is often the case in poor rural areas). Given this high demand amid recurring issues that contribute to the low quality ofrural roads, the project will fund the rehabilitation and in some selective cases the construction/opening ofrural roads while seeking to promote best practices in the development ofa sustainable rural road sector. Rural roads are defined as farm-to-market roads and are designated roads below the provincial roads leading from the farm-gate to provincial, national or municipal town roads. Rural roads under this definition are therefore the responsibility ofthe municipality andor barangay LGU. National and sub-national roads, which are under DPWH responsibility and supported through other programs, and the municipal town roads are not included in the project. The community footpaths and footbridges which fall beyond the designated network will be financed under the CFAD component ofthe project, based on community expressed demand.
12. The project under this component will continue to facilitate implementation ofthe Local Government Code (LGC) which designates responsibility for farm-to-market roads to the LGUs. Implementation of works will move from force account to implementation by contract, and will encourage labor- basedequipment supported rehabilitation when economically justified as compared to equipment based construction (labor-basedequipment supported works costs shall not be higher by more than 10 percent ofequipment based costs). Routine maintenance shall be required for all completed road subprojects, as per agreed standards, otherwise sanctions may be imposed on the erring LGU (sanctions may include temporary suspension or disqualification ofthe LGU from further participation in the project), Subproject planning will continue to adopt the network approach, taking the province as the unit for planning purposes.
13. As indicated in Tables 2 and 3, the project will provide support to an estimated minimum of 1,950 kms ofrehabilitated and 200 kms ofnewly constructed farm-to-market roads, together with about 1,000 linear meters ofsingle lane small-scale bridges. Upper unit cost limits are indicated. For roads, the project will continue to promote the least-cost approach (priority given to basic access as against speed; following ofexisting grade lines thus minimizing excessive cut and fill) thus ensuring that limited resources be made available to a greater number ofbeneficiaries. Learning from MRDP1 however, more attention shall be given to adequate drainage and better slope protection.
14. Selection criteria, All subprojects to be considered for financing under MRDP1 (including the proposed year 1 subprojects) need to satisfy the following criteria: a. Rural roads must link to an existing all weather road; b. They must be a vital link to key agricultural production areas ofthe municipality as shown in the LGUs’ Comprehensive Land Use Plans (CLUPs) and prioritized under the approved local development plans; c. Road must have sufficient traffic, minimum of50 vehicles per day (may convert pedestrians to passenger carrying units); d. Must have minimum Economic Rate ofReturn (ERR) of 15% (NEDA requirement); e. Unit cost must not exceed the following amounts: (i) Farm-to-market road rehabilitation: PhPl.8 million (US$34,615) per km (ii) Farm-to-market road construction: PhP2.5 million (US$48,077) per km (iii) Single-lane concrete bridge (RCDG): PhP200,OOO (US$3,846) per linear meter
15. Environmental Impact and Land Acquisition and Resettlement. All road rehabilitation subprojects will follow current alignments thus minimizing potential environmental impacts and land
36 acquisition. New opening ofroads shall comply with project guidelines on environmental and social safeguards in accordance with the Bank’s OP/BP 4.01, OP/BP 4.10, and OP/BP 4.12. Appropriate guidelines covering the three phases ofsubproject development, namely - site selection, design and implementation, will be included in the Operations Manual of the project.
16. Implementation arrangements. The specific arrangements are given in the operations manual.
7. Subproject design steps for rural roads Feasibility study (FS) preparation Municipal Planning Development Officer (MPDO) - (in-house or out- sourced) Detailed engineering and preparation ofbid documents Municipal Engineer (ME) - (in-house or out-sourced) Bidding process and award ofcontract ME & MPDO Supervision ofcontract ME
18. The FS preparation, detailed engineering, bidding and supervision will be done by the LGUs. Where capacity is limited at the Municipal LGU, they may call on the assistance of the Provincial LGU, or on the services ofprivate professionals/firm the cost ofwhich will be counted as part ofLGU’s equity. The average size ofa contract is expected to be about US$125,000, with a 5-month implementation period preferably during the dry season (every January to May each year).
19. Operation and Maintenance. The project will continue to emphasize routine maintenance, seeking a commitment to undertake routine maintenance from the participating LGUs, with sanctions for non- performance (LGUs not fulfilling this commitment will not be eligible for the following year’s program). For any ofthe 32 ApL1 LGUs to participate in ApL2, an audit following the O&M audit program undertaken in APL1, shall be conducted by the RPCO and should show an overall passing rate for the LGU in order for it to commence with its Year 1 subprojects. The same commitment from all LGUs in the ensuing years shall be required (i.e. stipulated in the subproject grant agreement; with proof ofapproved annual budget for O&M, etc.) and regularly tested through a semi-annual O&M audit, the mechanics ofwhich are described in the Operations Manual. In order to assist LGUs to comply with this commitment, the project will provide technical assistance to LGUs in routine maintenance and promote adoption ofschemes such as the “length-man” system.
20. Monitoring and Evaluation (M&E). The following indicators shall be measured, to be consolidated by the project’s MIS, before the subproject is started and upon the end of APL2: traffic count (average daily traffic) on farm-to-market roads financed under the project, and travel survey over length offarm-to-market road (km/hr). The PSO and the RPCOs shall conduct semiannual O&M audit program ofall completed road subprojects and track LGU’s compliance with O&M standards as set out in the Operations Manual.
Communal Irrigation Systems
2 1. Although there still remains room to convert potential non-irrigated areas (about 959,000 hectares, see Table 1) in Mindanao into irrigated areas, the number of existing communal irrigation systems that need rehabilitation (due to a lack ofO&M funds at NIA) remains a priority challenge. MRDP2, will therefore support the rehabilitation ofan estimated 8,300 hectares, comprising community-owned and managed run-of-river communal irrigation systems (CIS), as well as, the construction ofa few estimated at 800 hectares, new communal irrigation projects (CIP). Rehabilitation ofexisting communal irrigation systems as well as new communal irrigation projects to be funded shall not
37 exceed more than 1,000 hectares in service area. The new systems are based on gravity-type systems that do not rely on electrical equipment such as pumps, etc. to deliver the water to the field.
22. As is the case for rural roads, the Government is designating responsibilities to the LGUs in fully taking over the implementation, operation and maintenance ofcommunal irrigation as stipulated under the LGC of 1991. This represents a major shift from APLl wherein NIA implemented all communal irrigation subprojects. Under MRDP2, LGUs shall lead the implementation. The challenges to this new arrangement are daunting, considering the following three factors: high capital investment required; low political value due to low number ofbeneficiaries when compared to other types ofrural infrastructure; and weak technical capability in irrigation systems by LGUs.
23. The project is addressing these challenges by: (a) encouraging municipal LGUs to implement communal irrigation subprojects at a manageable scale ofonly 50 to 100 hectares per subproject, larger ones may be implemented by Provincial LGUs; (b) promoting the more affordable 70-30 cost sharing offered by NEDA-ICC which is conditioned on fulfillment ofgovernance reforms, (c) securing participation by Irrigators Association (IA) in putting up at least half ofthe LGU’s 30% equity (mechanics are described in detail in the Operations Manual), and (d) enlisting technical assistance from NIA or former NIA experts on FSDE preparation, construction supervision and institutional development.
24. Selection criteria. The selection criteria for this subcomponent are outlined in the Operations Manual and are the same as those indicated in the PAD of MRDP1.
25, Subproject design features for communal irrigation systems. After pre-appraisal ofproposed irrigation subprojects by the DA-RFU, the LGU shall proceed to prepare a feasibility study according to standards and guidelines currently used by the NIA-PIO. In the event that the LGU is not yet capable, it may opt to contract the NIA-PI0 to undertake FS preparation, or hire a team ofengineers who are qualified to do the same.
26. Implementation arrangements. Overall coordination ofthe irrigation subcomponent shall be the responsibility ofthe Program Support Office (PSO) at the Mindanao-wide level, and the DA-RFU at the regional level. Overall management at the LGU level shall be the responsibility ofthe Provincial and Municipal Program Coordinators. The LGU shall be primarily responsible for the implementation of its irrigation subprojects. The LGU will have at its option: (a) to bid out the civil works to private contractors; or (b) to negotiate with NIA-PI0 through a Memorandum of Understanding (MOU) for NIA to implement the civil works. In the case ofprivate contractors, procurement shall follow agreed guidelines for the project. Arrangements for the second option for the LGU to work with NIA are described in detail in the Operation Manual.
27. Operation and maintenance. Operation and maintenance of communal irrigation facilities shall be mainly the responsibility ofthe Irrigators Associations (IAs). Institutional development activities prior to and immediately during the initial year after subproject turnover shall focus on enabling the IA to be adequately trained in the day-to-day operational activities and to be financially self sustaining through efficient collection ofirrigation user fees for the system’s maintenance requirements. Communal irrigation systems (CIS) currently under the supervision ofthe NIA, even if rehabilitated under APL2, shall continue to be monitored and assisted for O&M by the NIA-PIO. On the other hand, new schemes constructed by the LGUs shall be monitored and assisted by the MAOPAO. IAs that have existing repayment obligations to the NIA shall continue to pay their amortization to the NIA. However, the cost ofrehabilitation shall not be added to their obligation.
38 28. Monitoring and evaluation. Under the project, institutional strengthening is envisaged in the LGU, to carry out the function ofmonitoring and evaluation ofO&M by IAs and providing assistance for IA in carrying out remedial actions to improve O&M, whenever deficient. The MAOPAO shall be tasked to collect data on the crops grown and yields in each cropping season.
Rural Water Supply
29. Mindanao-wide consultations conducted during project preparation confirmed that water supply remains as a priority need among the rural poor. Under the project, rehabilitation and construction of level 2 (communal faucets) water systems shall be supported. Level 1 (point source) water systems, which are generally much smaller in scale, shall be implemented under the CFAD component.
30. Implementation arrangements and selection criteria: The specific arrangements and selection criteria are given in the operations manual.
3 1. Operation and maintenance: The formation and training ofa RuraVBarangay Waterworks and Sanitation Association (RWSAdBAWASAs) in O&M shall be a pre-condition for subproject approval. Implementation shall be by Municipal LGU through contract, with community labor input, as is currently the case for most rural water supply subprojects. More specific criteria for the identification and selection ofwater supply subprojects are described in the Operations Manual.
32. Monitoring and evaluation. The following indicators shall be measured, to be consolidated by the project’s MIS, before the subproject is started and upon the end of APL2: Number ofpotable water supply systems constructed including the number ofhouseholds served; percentage reduction in time to fetch water over baseline at the end ofthe project; and percentage reduction in the number of households in subproject areas reporting reduced incidence ofwater-borne diseases by the end ofthe project.
Other Rural Infrastructure
33. Description of subcomponent. In addition to the types of subprojects supported under the previous phase, other types were identified which are distinct to some localities not previously included under MRDP1, These other infrastructure would need to be ofpublic good nature, with clear provisions for accountabilities for O&M. The following are grouped together under this subcomponent: pedestrian hanging bridges, timber ports with pier head, rock causeways, multi-purpose centers, warehouse with solar drying pavements, and other agriculture and fisheries related infrastructure. Technical selection criteria for each ofthese subproject types are described in detail in the Operations Manual. The Municipal LGU shall still be responsible in the implementation ofthese subprojects in close collaboration with appropriate organized groups (e.g. farmers association, Barangay LGU, etc.) which shall be tasked with O&M upon subproject completion and turnover.
34. Mechanism for the Performance-Based Grants Scheme. The mechanism and guidelines for availing ofan additional grant for rural infrastructure subprojects, based on the successful achievement ofrevenue generation targets by participating LGUs, is presented in Attachment 1 to this Annex 4.
39 Component 3: Community Fund for Agriculture Development (CFAD) - (US$30 million total cost)
35. The MRDP1 Implementation Completion Report (No. 32660-PH dated June 29,2005) stated very clearly that along with the IGR component, the CFAD was: . the “main driver for institutional development, skills transfer and capability-building under MRDP 1”; Approximately 1,5 83 income-generating and productivity-enhancing subprojects benefited at least 37,000 households while community-based small infrastructure subprojects served around 16,000 individuals; and that allowing poor communities, vulnerable women and IPSto access opportunities for planning and decision-making established a sense of ownership, generated high levels ofparticipation in subproject activities, and empowered beneficiaries to pursue other development priorities within their communities.”
36. Component Description: Similarly under MRDP1, CFAD will continue to serve as the mechanism through which MRDP shall make available funds to strengthen decision-making capacities at the community level for the identification, design and implementation oflocal priorities. With the DA and the LGUs providing technical advice and other support services, CFAD will provide disadvantaged and vulnerable sectors in Mindanao “graduated” opportunities for increased income from agriculture and fishery production, including allied value-adding activities that make use of appropriate and sustainable technologies which are socially and culturally acceptable by the target groups. It will ensure their meaningful participation in decision making over the entire project cycle. Ultimately, it aims to make communities capable ofgenerating savings for their own community development, and managing other investments basic to their areas’ continued growth. In the process ofrelating closely with the LGUs and other stakeholders for agricultural development, beneficiaries and POs are envisioned to become active partners ofthe LGUs and the private sector in pursuing development within their municipalities/provinces.
37. Key Principles. CFAD activities shall be guided by the same principles used throughout all the MRDP components:
w Transparency- degree to which the general public has access to timely, relevant, accurate, understandable and complete information about CFAD operations; Accountability - extent to which CFAD key stakeholders can be held responsible (rewarded or penalized) for their decisions or actions (or lack thereof) based on an objective assessment of performance in terms of set standards; . Participation - degree to which stakeholders are effectively and meaningfully able to take part in processes that lead to key actions/decisions being made; and Good Governance- consistent application by the beneficiaries ofwidely-accepted best practices that lead to the effective performance ofmandated functions.
38. Subcomponents. (a) food security interventions for very vulnerable groups; (b) community- managed livelihood and agribusiness activities, (c) sustainable income-generating activities for NRM- covered municipalities; and (d) small support infrastructure. Social acceptability and sustainability (which includes environment-friendly characteristics) shall be considered key considerations for the identification ofsubprojects. Access to higher levels of CFAD assistance shall be dependent on the analysis ofexisting competencies ofbeneficiaries to manage proposed subprojects. Indicators and readiness filters are reflected in the CFAD Operations Manual, and possible types ofinterventions are included in the “Ladderized Menu” ofsubprojects.
40 39. For small rural infrastructure benefiting the general community, a ceiling ofPhP 500,000 has been agreed upon as the maximum amount ofinfrastructure that can be implemented and managed directly by the CFAD beneficiaries. Beyond this amount, the subproject will be managed by the LGU concerned. However, for water supply and sanitation subprojects, technical and administrative supervision of such types of subprojects will be an accountability ofthe LGUs, while the organization and mobilization ofpotential water users to participate actively in the design, implementation and operations and maintenance ofthe facilities will be the responsibilities ofthe CFAD Beneficiaries.
40. To ensure success, CFAD will utilize the following strategies:
Targeting ofbeneficiaries will be purposive and indicators are laid out in the CFAD Operations Manual to guide Implementing Units. As discussed with key stakeholders during preparation, beneficiaries ofMRDP2 will now cover, aside fiom the vulnerable groups (Indigenous Peoples, Women, Out-of-School Youth and other marginalized sectors), functional Peoples Organizations comprising poor households, which need investments for expanding a community-managed livelihood subprojects which are evaluated to be potentially a good business for the target areas; Interventions will be identified and designed based on the needs and competencies oftargeted beneficiaries, to create the most impact for the least cost; Expertise of the DA, LGU, Academic Institutions, NGOs and the private sector shall be tapped to provide beneficiaries with the necessary advise and services to develop the beneficiaries’ capabilities for managing sustainable interventions; Information, education and communication materials shall be developed and distributed to CFAD stakeholders to maximize use ofinformation for development and expansion ofCFAD activities; Appropriate training will be provided to improve LGU capabilities to identify, mobilize, organize and develop beneficiaries’ capabilities for organization and management oftheir respective CFAD subprojects; Training for the beneficiaries will utilize experiential learning methodologies such as structured cross-visits to model sites, farmers’ field schools and demonstration sites to showcase innovative and appropriate technologies being promoted to facilitate beneficiary learning; All subprojects will be community-driven in character. Maximumparticipation ofbeneficiaries in the decision-making processes for the entire subproject cycle will be required to develop capabilities ofbeneficiaries for self-governance. As an improvement ofthe MRDP1 CFAD processes, procurement and financial management processes are now key features ofthe MRDP2 CFAD operations manual; and finally, Savings mobilization will strongly be encouraged to generate funds for the continued expansion and institutionalization of CFAD activities and processes way beyond the Program life.
4 1. Institutional Arrangements for Implementation. Institutional arrangements emphasize the use of permanent structures within Government to ensure that the gains and benefits ofCFAD implementation will be mainstreamed and institutionalized in their regular operations. New municipalities will set up the same implementing structures for CFAD. Multi-Sectoral Committees which proved to be very effective in rationalizing and depoliticizing decisions over MRDP and CFAD Beneficiary subprojects will still be created in all LGUs qualified to participate in CFAD implementation. The composition ofthe MSC shall be maintained, with Peoples Organizations, the Private Sector and Civil Society comprising more than half ofthe Committee members. Again, the Municipal Agriculturist, the Municipal Planning and Development Coordinator, the Chairpersons of the Municipal Development Councils for Agriculture and Infrastructure will represent, among others, the government sector.
41 42. Municipal and Barangay (the lowest geo-political unit of governance ofthe country). Facilitators will be selected using criteria stipulated in the Operations Manual, and provided the appropriate training through the Program’s Institutional Strengthening component, to enable them to acquire or enhance their knowledge ofparticipatory processes, organizing, mobilizing and developing PO capabilities for subproject management.
43. DA Regional and other support offices, together with their Provincial counterparts, shall organize themselves to respond to the technical assistance requirements ofthe CFAD beneficiaries, starting from the identification of appropriate interventions, designing them, implementing and managing them, up to sustaining the initial beneficiary gains from the subprojects. In addition, supportive monitoring will be done by the relevant LGU and DA organizational units, to ensure that expected benefits from the CFAD implementation are fully realized.
44. Cost-Sharing. MRDP2 shall maintain the original cost-sharing scheme for CFAD, with 80% ofthe Fund coming from the GOP (60% from the Loan Proceeds, and another 20% representing the DA- GOP budget), while the remaining 20% drawn from the participating LGU. As illustrated in the CFAD Operations Manual, the Community Fund for Agricultural Development will have the following pattern per year, per municipality:
LGU Equity PhP 500,000.00 (20%) GOP (DA) Matching Fund 500,000.00 (20%) Loan Proceeds 1,500.000.00 (60%)
TOTAL PhP 2,500,000.00 (about US$48,000)
45. Beneficiary Equity. For income-generating and livelihood expansion subprojects, CFAD Beneficiaries shall be required to generate equity of25 % ofthe total subproject cost. For small support infi-astructure subprojects, the CFAD Beneficiaries equity will be equivalent to 10 % ofthe total subproject cost, which can either be in the form ofcash or in-kind.
46. In conflict-affected areas ofMindanao where LGUs have neither the number ofmunicipal staff to do community organization and development work nor any experience implementing community-driven development projects, a Service Provider may be selected by the Program Support Office, to manage and disburse the CFAD account. Selection of the Service Provider, which will enter into a Program Contract with the Municipal Local Chief Executive, will be done in collaboration with the concerned Multi-Sectoral Committee. Approval ofdisbursements will, however, remain with the municipal Multi-Sectoral Committee.
Monitoring and Evaluation of CFAD ImplementationProcesses and Outputs
47. The Monitoring and Evaluation Manual ofOperations for MRDP2 include provisions for the monitoring and evaluation ofCFAD outputs and outcomes. Baseline data will be included as part of the initial LGU implementation requirements and beneficiary baseline information will be included in the beneficiaries’ subproject proposals. An improvement over the MRDP 1 monitoring and evaluation system is the creation and subsequent training for community-based monitoring and evaluation committees. This will help ensure that problems in implementation are immediately captured and processed, to enable CFAD implementation to proceed with minimum deviation and achieve desired results. If these committees perform well according to Program expectations, they can be institutionalized to become part ofthe governance structure ofthe LGUs later on.
42 Component 4: Natural Resources Management (US%5.4 million)
48. In Mindanao, as in the remainder ofthe country, a large proportion ofthe population depends on the natural resource base for its livelihood. However, a range of socio-economic factors, together with institutional and policy failures, are causing serious environmental degradation. The major environmental problems affecting coastal resources and habitats include: pollution and siltation of coastal waters and estuaries; depletion oflive corals, sea grasses and mangroves; improper use of foreshore lands, wetlands and estuarine areas; and depletion offish stocks. In the upland areas of Mindanao, land degradation is driven by legal and illegal logging, swidden agriculture (in turn driven by limited access to resources by a growing population), poor soil management and improper use of agrochemicals. A combination ofpoor upland and coastal resource management is degrading critical ecosystems that contain biodiversity ofglobal significance (e.g., sea turtles, dugong, rare corals, etc.). Inadequate upland management causes erosion that reduces the fertility and increases soil loss raising agricultural production costs; concurrently degrading downstream marine ecosystems (e.g., habitats such as coral reefs and sea grass beds). However, the linkages between upland and coastal systems and the need for sustainable management ofboth are not well understood and integrated ecosystem management is not practiced. This situation, combined with related policy failures, is degrading the natural ecosystems on which many local communities depend and seriously threatening much of Mindanao’s significant coastal and marine biodiversity.
49. Lessons learned from the GEF-assisted Coastal and Marine Biodiversity Conservation Project (CMBC), a component under the MRDP1 demonstrated that sustainable, integrated management of upland and coastal ecosystems can simultaneously raise community well-being and help to conserve marine and coastal biodiversity. It also illustrated that the direct engagement ofconcerned communities in the formulation ofpolicies, design and implementation ofecosystem management plans is critical for the sustainability ofimproved management practices. Further, it showed that complementary action on an institutional level is much needed to ensure that government systems and procedures support community marine resource management. These lessons are all reflected in this component, and there will be continued effort to support CMBCl sites, specifically on: (a) institutional strengthening; (b) resource monitoring ofmarine protected areas; and (c) subproject monitoring.
50. Component Objective. The objective ofthe component will be to conserve coastal resources and marine biodiversity through co-management ofcritical marine habitats, better resource management practices and the introduction ofimproved, upstream land management practices that would arrest land degradation, enhance the integrity ofimportant ecosystems and benefit landholders who are mostly poor farmers, fisherfolk, andor indigenous people. The project will further remove the barriers to mainstreaming marine and coastal biodiversity conservation by: (a) establishing local community-based natural resource management mechanisms; (b) strengthening local capacity to address marine ecosystem and land use management issues; (c) enhancing the knowledge base for sound ecosystem management and decision- making, including monitoring and evaluation for sustainable long-term marine ecosystem management; (d) identifying key upstream land management malpractices and introducing and adopting better land use methods through the participatory involvement of communities and households; and (e) developing and implementing institutional and community action plans and local policies for marine biodiversity conservation and sustainable land management and mainstreaming them into coastal development and land use plans, respectively. The concept is based on the precept and the experiences that show that integrated upland and marine management can simultaneously conserve and protect biodiversity and increase fisheries productivity as well as improve the economic efficiency and productivity ofland use practices.
43 5 1. Outputs. The main outputs ofthe component will be:
(a) Establishment and co-management ofmarine sanctuaries and/or protected areas between communities, local government and national agencies with direct linkages to improving upland land management practices critical to protecting biodiversity through cooperative arrangements, between and among local communities, national and local government agencies and academic institutions. (b) Introduction and demonstration of sustainable land management practices like ago-forestry and reforestation initiatives like tree plantation establishment that can benefit land users as well as downstream users, especially fisherfolk, through controlling erosion, improving the fertility of land and limiting the release ofagrochemicals (pesticides and chemical fertilizers) into coastal areas where critical marine habitats exist. (c) Establishment of streambank stabilization measures that minimize soil erosion that drains to coastal areas. Reduction ofstreambank erosion can be done in several ways; vegetative measures, bio-engineering means, structural reinforcement, and combination ofany ofthe cited measures. (d) Development ofappropriate knowledge management systems that on a large-scale basis increase awareness of stakeholders on the direct linkages between upland management and downstream impacts to coastal ecosystems; mainstreamed into municipal policies and development plans, thereby reducing barriers to improved environmental management in a comprehensive manner that will foster synergies between sustainable land and coastal waters management.
52. Selection Criteria and Priority Sites for NRM. There are about 206 coastal municipalities in Mindanao, most ofwhich have been identified as requiring immediate coastal and marine resource management intervention. Around 180 ofthese municipalities are located in zones identified as key conservation priority areas by the Philippine Biodiversity and Conservation Priority-Setting Program (Year 2000), all ofwhich have global significance. Project site selection followed the criteria for MRDP2 to wit; (a) poverty level; (b) significance ofagriculture and/or fisheries to total local economy; (c) existence of a BDP; (d) existence ofLGU NRM initiatives; (e) geography (must showcase interdependence ofupland and coastal areas and influence on apculture and fisheries productivity, including presence of environmentally critical or sensitive areas & activities); and (0 presence of similar projects. Preference is given to those that are not recipients ofsimilar government or non-government programs. A total of25 municipalities will be selected out ofthe total number of municipalities participating under MRDP2.
53. Subcomponents. To achieve these results in selected new project areas, as well as some continued support to the two areas under CMBCl, the following subcomponents would be inter-phased with those ofother project components:
a. NRM Participatory Community Planning and Development: The main objective ofthis subcomponent is to foster NRM planning and mainstream this at the local development processes. It also aims to provide a comprehensive and rational basis for sustainable use ofnatural resources and proactive measures fkom the local community in favor ofprotecting and conserving the local environment and remaining natural resources. Local communities are engaged through participatory resource and social assessment surveys with the assistance fkom a capacitated PSO and technical specialists assigned by the Project, as well as cooperating institutions like DA (WUs, BFAR, and BSWM), DENR, academe, NGOs, etc. Baseline information will be generated at project onset to be used as reference points in achieving key targets. Results ofthe participatory resource and social assessment will be utilized as bases for appropriate multi- stakeholder environmental action planning that either formulates new or enhances existing
44 management plans. All information generated fkom the resource and social assessment and monitoring and evaluation activities will be managed by the stakeholders to modify practices to achieve optimal management ofthe resources. By and large, the project will provide institutional support and targeted technical assistance to the DA, LGU and community implementersibene ficiaries. b. Selective on-the-Ground Investments on Coastal/Marine and SLM Management Practices: Natural resources management investments to be eligible for MRDP-APL2 funding should be included in the barangay development plans (BDPs), and consequently in the comprehensive land use plans (CLUPs) at the municipal levels. On-the-ground investments involve infusing funds, effort, time and other resources to ensure appropriate balance between economic development and resource conservation and protection. Marine sanctuaries will be established and managed to conserve biodiversity while simultaneously improving land management practices in upland areas. Proper management ofcritical marine habitats has direct benefit to coastal fishing communities as it effects upon fish population. On the other hand, interventions in sustainable land management may decrease water turbidity caused by siltation and sedimentation in coastal areas. This subcomponent has two major areas pipelined for possible on-the-ground investments that build upon results ofthe first subcomponent; (i)marine and coastal interventions and (ii) sustainable land management interventions. Marine and coastal investments intend to establish and co-manage marine sanctuaries and/or protected areas between communities, local government and national agencies through the establishment ofmarine protected areas and reforestatiordrehabilitation ofmangrove areas or reversion ofabandoned fishponds into mangrove areas by affected communities. There are three potential investment areas under sustainable land management; (i)establishment ofsustainable hilly land farming practices through agroforestry; (ii)rehabilitation ofdegraded lands through reforestation, specifically establishment offorest plantations; and (iii)establishment ofsoil erosion measures directly affecting river systems that may include structural measures, vegetative, bio-engineering designs, and/or combination ofall three types. A possible option may be on waste management, depending upon results of subcomponent 1 assessments.
c. Assistance to the Development of Sustainable Income Generating Activities: Inasmuch as upfront support to community livelihood initiatives will be under the aegis ofCFAD, this subcomponent on sustainable income generating activities (SIGA) will provide technical assistance to communities to improve their capacity and capability to implement and sustain their alternative income generating activities. Site-suitable SIGA subprojects will be matched with communities based on results ofresource assessment as well as socially acceptable and capable NGO-PO partners and will build capacities and legitimize identified NGOs-POs. It will improve on initially prepared pre-FS grade SIGAs and train POs and communities to undertake activities by way oflivelihood resource assessment, SIGA identification and screening, financial feasibility assessment, final SIGA selection, fund mobilization, implementation strategies and sustainability plan, repayment, capital build-up and reinvestment, and the formulation ofresponsible benefit sharing system. Once these systems are in place, and mature livelihoods projects are evident, further training will be conducted in support ofenterprise development. Said trainings may include savings/resource mobilization, product market/subsector analysis, enterprise feasibility analysis, business planning, basic accounting, financial management, and the like. The project will support the provision ofcommunity development specialists/extension workers to undertake the needed capacity building activities ofcommunities and people's organizations.
d. Local Policy Development and Strengthened Partnerships in Community Enforcement: The fourth subcomponent intends to build and strengthen local partnerships among stakeholders as regards local policy development, advocacy, and enforcement ofNRM regulations. It is
45 envisaged that at the end ofthe project cycle, community-based natural resource management plans, programs, projects, and policies linking marine ecosystems and SLM schemas are mainstreamed across various levels ofdevelopment initiatives and land use plans ofall target sites. The institutionalization ofMunicipal Environment and Natural Resource Offices (MENROs) or enhancing the capabilities of existing and appropriate local organic offices and staff within Project areas will be supported under this subcomponent. With stronger partnerships between communities and LGUs and national agencies on enforcement and curbing illegal fishing, there is greater potential to stop illegal extraction practices and exploitation in the no-take zones. The coordination ofthe provision of SIGA and strengthened community participation in enforcement, hopes to see less households engaged in destructive farming methods. Activities under this subcomponent may comprise the following: (i)establish venues for national and local policy consultations within the LGUs, (ii)create local partnerships or advocacy groups for NRM regulations enforcement, and (iii)advocate for integration and adoption ofNRM plans in LGU policy planning process. As such, this component will entail the conduct ofpolicy assessment/studies and consultations, as well as discussions on national and local NRM policy issues. It will likewise advocate for the incorporation ofcoastal and marine conservation and SLM into local development plans as well as the identification and enactment ofkey municipal/provincial ordinances/regulations related to law enforcement. Partnerships may be established by way offorging alliances with relevant national/regional agencies as regards law enforcement initiatives that provide support for the active participation ofexisting institutions like FARMCs, Bantay Dagat/Gubat, community volunteers in surveillance and enforcement activities. Through this subcomponent, the project seeks to support LGUs in either establishing their respective MENRO positions or improving the capacities oftheir organic offices to perform NRM. This will enable the LGUs to better facilitate municipal NRM and environmental planning and implementation, policy formulation and regulation, actualizing institutional linkages/partnerships, coordinating environmental activities between line agencies, and resource generation efforts. Through alliance building and networking, it also aims to facilitate exchange ofassistance and ideas on NRM issues and develop local leadership in NRM advocacy.
e. Development and Conduct of NRM-Oriented Knowledge Management Program. The major objective ofthis subcomponent is, through an appropriate and viable knowledge management program, to elevate the consciousness of all sectors ofsociety at the local as well as regional and national levels with respect to environmental awareness, biodiversity conservation and the integrated management ofcoastal and upland ecosystems. More specifically this subcomponent aims to instill in the public's mind the understanding on the significance oflinking CMBC and SLM by way of: (i)developing training modules on environmental awareness; (ii)training DEWBFAR officers, LGU/NGO/PO staff, and schoolteachers as eventual trainers in sustainable marine, fisheries and improved land management; and (iii)formulating, implementing and disseminating IEC programs and materials for continuous environmental public awareness and facilitating behavioral changes supportive ofsustainable resource management and utilization. As per specific objectives, training modules on CMBC, SLM and an integrated module linking both CMBC and SLM will be formulated and packaged, trainings will be conducted for DENR, DA-BFAR, DA-BSWM, and DA-RFU staff, LGUs, NGOs, POs, and schoolteachers as possible trainers in sustainable marine, fisheries and improved land management. A detailed IEC plan will be made, operationalized and sustained by trained participants in the previous subcomponent. Increase in public awareness and community participation in protection and monitoring of endangered species and observed upland ecosystem management is expected after 5 years of project implementation.
54. Implementation Arrangements. The overall coordination ofthe implementation ofthe NRM component, including the potential GEF-assisted activities, will be led by the DA. The DA will
46 ensure the proper coordination and adequate provision ofimplementation oftechnical support to participating LGUs and communities in implementing the various components ofMRDP2, through relevant national and regional offices such as the DENR and its related agencies, as well as through its own agencies such as the Bureau ofFisheries and Aquatic Resources (BFAR), DA Regional Field Offices, Bureau ofSoils and Water Management (BSWM), etc.
55. The envisaged result would be to strengthen the capacities ofLGUs and local communities to design, implement, monitor and sustain their NRM initiatives. This will be ensured through the technical support from national agencies (such as the DENR and the DA) through co-management arrangements and institutionalizing comprehensive natural resources planning. Necessary tenure security instruments will be provided to ensure sustained ownership and accountability of communities and LGUs over their NRM efforts. Technical assistance will be provided by partner agencies and preference is for those organic to the participating institutions. Consultants may be individually hired should the expertise not be available for secondment from the participating institutions. Table 4 below indicates the types ofactivities to be pursued per subcomponent:
SUBCOMPONENT ACTIVITY
SUBCOMPONENT 1: NRM (i)Technical review ofexisting municipal and barangay LGU Participatory Community Planning and plans Development (ii)Training in, and conduct of, participatory resource assessment (iii)Formulatiodenhancement ofmunicipal and barangay development plans through participatory processes (iv) Conduct ofparticipatory NRM action planning workshous I (v) Formulatiodenhancement ofbarangay land use/development plans (vi) Integration ofbarangay development plans into municipal development plans or comprehensive land use plans SUBCOMPONENT 2: Selective on- (i)Detailed Site Assessment (PRA, Community Resource
I the-Ground Investments on Matmind.. -I CoastaVMarine and SLMManagement (ii)Identification, matching and adoption of appropriate Practices CMBC and SLM modules (iii)Conduct ofPO-based organizational diagnosis and training needs assessment for POs and LGUs (iv) Community organizing (PO formation and registration) and PO strengthening (v) Providing assistance on appropriate tenurial instruments (vi) Formulation of long term development plan (vii) Site development
1 Boundary delineation and demarcation Nursery establishment
1 Plantation development Maintenance and protection .Harvesting/utilization (viii) Improving capacities of beneficiaries and partners (ix) Providing support services on marketing and value-added
47 urocessing (x) Monitoring of on-site improvement: marine indicator species, condition of seagrass, mangrove, and corals, rates of soil erosion and seedling survival rates (xi) Documentation and popularization oflearnings from pilot sites SUBCOMPONENT 3: Assistance to (i)Identification of site-suitable SIGAs and socially the Development of Sustainable Income acceptable PO Partners Generating Activities - Based on results ofResource Assessment, preparation of Menu of SIGA Options. Conduct ofPO-based organizational diagnosis and training needs assessment for POs & LGUs
1 Formation of legitimate PO Partnerships (ii)Improving capacities and legitimization of SIGA NGO- PO partners Training and capacity building ofPOs and communities to undertake AIG activities .Formulation of resuonsible benefit sharing system 1 Traininglworkshops and capacity building of communities with mature livelihood projects in undertaking enterprise development SUBCOMPONENT 4: Local Policy (i)Conduct ofPO-based organizational diagnosis and training Development and Strengthened needs assessment for POs and LGUs Partnerships in Community (ii)Formulation of municipal level NRM capability-building Enforcement plans for LGUs and the POs (iii)Assistance to institutionalization of MENRO (iv) Review and formulation or enhancement of local policies and instruments for the conservation ofupland and coastahmine resources, including development of environmental code (v) Networking for NRM (vi) Formation ofregional, provincial, municipal or ecological zone partnership forums (vii) Formulation and execution ofpartnership agreements building on existing structures SUBCOMPONENT 5: Development (i)Conduct of Social Assessment in order to formulate and Conduct ofNRM-Oriented Change Management Plan Knowledge Management Program (ii)Conduct of Mindanao-wide training-workshop for the participatory formulation of framework Information, Education and Communication (IEC) and advocacy plans (iii)Development ofprototype print, broadcast and multi- media IEC and advocacy materials and guides for non- mediated communication activities (iv) Conduct ofregional echo training-workshop for the localization (by region) of the IEC and Advocacy framework (v) Implementation of the regional IEC and advocacy plans (vi) Documentation and dissemination ofNRM success stories
48 Attachment 1 to Annex 4: Mechanism and Guidelines for Performance-Based Grants24
PHILIPPINES: Mindanao Rural Development Project - Phase 2
1. Availment of Performance-Based Grants. This mechanism was developed in response to the request ofthe ICC for a transparent process ofproviding incentives to Local Government Units instituting significant policy reforms objectives set by the national government, for the meantime that the “performance based grant system for LGUs” is not yet developed.
2. Eligible for Infrastructure Projects. All local/devolved development infrastructure projects identified in the 2003 NEDA Board approved NG-LGU cost sharing scheme.
3. Treatment of Multiple Subprojects from Various NG ProgramsRrojects. If an LGU opts to engage more than one subproject from various programs/projects ofNGA involving devolved activities; the percentage targets shall be multiplied correspondingly. This is to properly account the additional grant from one project to the other. Meaning, each additional 20% grant has a corresponding reform every time an LGU avails ofNG program(s) covering devolved activities.
4. Qualification to avail. All LGUs are qualified to avail ofthe 20% additional grant for devolved activities from various NG programs or projects devolved to LGUs. However, LGUs should be allowed by the proper bodies to enter into a performance contract (this might require Council Resolution) with the implementing agency undertaking the project. The performance contract would contain the baseline data, timeframe and targets ofthe LGU. Repeater LGUs availing ofthe additional 20% grant can only be accommodated if it satisfactorily complied with the previous performanc e contract(s) .
5. Monitoring mechanism. LGU has to monitor its performance and request for the evaluation ofits accomplishment from the agency(ies) who developed the reform targets (in the case ofMRDP2, BLGF with support staff from DA) to instill in them proper monitoring oftheir targets and commitments. Otherwise, the LGU will be considered not interested to avail ofthe additional 20% grant even if unknowingly they have achieved the reform targets.
6. Performance is measured against the targets set in the performance contract as allowed under the Council Resolution. All targets should be met to qualify for the additional 20% grant, the implementing agency and the agency that established the baseline data shall determine whether or not the LGU has successfully met or complied with the agreed targets. As such, details ofevaluation criteria, milestones and processes will be formulated by the concerned agencies implementing the project and pushing for the reforms.
7. LGUs are encouraged to meet their annual target. Nevertheless, to give some flexibility, the LGU may opt to be evaluated after three years. However, the LGU should be able to meet the cumulative absolute amount ofactivities computed from the agreed starting and end dates ofthe performance contract .
8. Budgetary requirement. Budget cover for the Grant will be sourced from the agency’s ceiling. In the event that the reform targets are met, the additional 20% cash grant shall be sourced from the loan proceeds. Therefore, it requires the implementing agencies should include in the project design the
24 The mechanism and guidelines have been endorsed by the DOF-MDFO to the ICC Secretariat in a letter (see Project Files) dated February 12, 2007 by DOF Undersecretary Roberto Tan.
49 provision ofcash grants as an eligible expense item. In addition, a leveraging mechanism should also be included in the project design in case ofa low additional grant availment to maximize the use of the loan proceeds.
General issues on providing the menu of reforms for LGUs
9. BLGF’s expertise on local finance is only appropriate to be utilized on the revenue reforms. Reforms for expenditure, governance, environment, planning, etc., should be handled and formulated by government agencies with expert knowledge on these reforms and has readily available baseline data. Policy decision should be made whether the LGUs could select one thematic reform or should the NG package a reform encompassing all of the themes. The problem with the latter is the implementation and monitoring arrangement and budget concerns.
Agreed Guidelines for LGUs Availing of the Additional 20% Grant under MRDP2
10. Target Growth Rate Indicator for Participant LGUs. The main target indicator that shall be the basis in giving the additional 20% grant to LGUs under MRDP2 is the growth rate of locally-sourced revenues on top ofthe regular average growth rate (AGR) for the past five years. It is expected that the participating LGUs would have experienced additional growth in terms ofsuch local revenues after implementing local fiscal reform. These additional local resources will enable the participant LGU to ensure the sustainability ofits MRDP2 subprojects especially in terms ofmaintenance costs.
11. A flat target rate may be considered as too encompassing especially if applied across all LGUs. This flat rate may be discriminatory against lower class LGUs. At same time, such a flat rate may be too low and understated, making it easily achievable to higher class LGUs. It is thus suggested that a tiered structure ofAGR be considered in applying a graduated scheme oftarget growth rates ranging from 5% to 20%. This is to take into account the wide variance in the 5-year AGR ofthe LGUs in Mindanao. The table below shows the possible target growth rate to be applied to the participating LGU depending on its 5-year AGR and the range where it fits in.
5-Year Average Target Growth Growth Rate of LGU Rate Indicator Rate 110% 5% 10% 12. Qualification Documents for Participant LGUs. Further to the participation of the LGUs in the availment of the additional 20% grant, other documents may have to be submitted aside from the usual documents submitted to the implementing agency in relation to MRDP2. Nonetheless, the following basic documents may have to be obtained by LGUs in connection with the grant application: (a) Letter oflntent. This is a regular qualification document for loan applications duly signed by the local chief executive officially stating the intention ofthe local government to both avail of the MRDP2 and the additional 20% grant funding in relation to implementing local fiscal reforms. This document shall be submitted to the implementing agency, copy furnished to BLGF. 50 (b) Local Sanggunian Resolution. Another common qualification document for loan applications stating the support ofthe local sanggunian concerned in the intention of the local government to participate both in MRDP2 and the additional 20% grant funding. This will also include the authorization for the local chief executive to enter into a subproject loan agreement, as appropriate, provision ofcounterpart equity, appropriation of loans and other necessary requirements. (c) Certifzcation of Debt-Service Capacity, as appropriate. BLGF regularly issues this certification to all LGUs applying for loan and other credit facilities including the forthcoming MRDP2. BLGF will also forward a copy ofthis certification to the implementing agency. (d) Certifzcation of Five (5)-Year Average Growth Rate (AGR). Owing to its existing database of LGU Statements ofIncome and Expenditures (SIE), BLGF in coordination with the participant LGU shall determine the average growth rate (AGR) ofall locally-sourced revenues in the last five (5) years. The BLGF will then issue an official certification ofthe 5-year AGR of the LGU that shall be the bases in the determination of the target growth rate indicator as previously shown in Table 1. In absence ofan SIE record for certain fiscal years, the LGU may submit to BLGF for validation the relevant SIE duly certified by its local treasurer. For purposed of evaluating the fiscal performance ofthe participant LGU, BLGF will hmish a copy ofthis certification to the implementing agency. (e) Local Fiscal Reform Action Plan. The participating LGU should show its intention and desire to undertake local fiscal reform in relation to the availment ofthe additional 20% grant. To concretize this endeavor, the participant LGU shall formulate an action plan oflocal fiscal reforms that are proposed to be undertaken as part ofthe program in coordination with BLGF and the implementing agency. This action plan shall serve as a guide to participating LGUs in their implementation oflocal fiscal reforms during MRDP2 and even in similar initiatives as part ofother development assistance programs. A draft action plan is shown below, which shall be accomplished by the participating LGU through the assistance of BLGF and the implementing agency. This action plan may be finalized into a pro-forma document in consultation with the implementing agency to facilitate the approval, implementation and evaluation process ofall participant LGUs. It is understood that by undertaking these listed strategies in the timeframe ofMRDP2, the LGU would have achieved growth in its locally- sourced revenues on top ofits average growth rate. Table 2. Draft Action Plan on Local fiscal Reforms of the LGU Participant (0 Failure to submit the qualifzcation documents on time shall automatically mean that the participating LGU has waived its privilege to avail of the 20% additional grant on top of the NEDA Board-approved 50% grant under MRDP2. With the limited timeframe ofMRDP2, it is incumbent upon the participating LGU that the submission ofrequired documents is done at the 51 soonest possible time considering the volume ofLGU applications and consequent appraisal for this development program. 13. Evaluation of LGU Performance in its Local Fiscal Reforms. After a designated period subsequent to the implementation of the local fiscal reforms, the LGU will have to officially request BLGF and the implementing agency for an appropriate evaluation of such implemented reforms in relation to its target growth rate indicator on top of its regular annual average growth rate oflocally- sourced revenues. To this end, there will be two documents that will be essential to the evaluation of the LGU fiscal performance, specifically: (a) Post-Implementation SIEs Duly Certified by COA Local Ofice. When requesting for an evaluation ofits fiscal performance after the implementation period, the participating LGU will have to submit to BLGF its SIEs relevant to the evaluation period, duly certified by the COA Local Office having jurisdiction over the LGU. (b) CertiJcation of LGU Fiscal Performance. In coordination with the implementing agency and the participating LGU, BLGF will issue a certification that the participating LGU has achieved its target fiscal performance as a result ofundertaking local fiscal reforms relative to its desire to avail ofthe additional 20% grant. With the evaluation ofthe LGU fiscal performance as the basis, this certification shall be forwarded to the implementing agency, as well as to other concerned agencies to facilitate the award of the additional 20% grant in the event ofLGU compliance in attaining the required target indicators. 52 Attachment 2 to Annex 4: Anti-Corruption Plan PHILIPPINES: Mindanao Rural Development Project - Phase 2 Overview of Anti-Corruption Plan 1. A major theme that pervades project design is improved governance at the local, regional and national levels. Consistent use oftransparent, accountable and participatory governance practices is necessary to enhance and sustain the socio-economic and institutional improvements that will result from project implementation. The same practices also address the threat ofcorruption at all levels. The anti-corruption policies, mechanisms and activities described below are embedded into project design. Many of these were successfully employed under MRDP1, and fine-tuned for replication during the next phase. 2. The Government of the Philippines and the World Bank have both intensified anti-corruption campaigns that will be adopted in the project. Foremost ofthese measures is community-driven development - in an open society such as in the Philippines, the most effective deterrent to corruption is a well-informed and duly organized citizenry. Anti-corruption programs clearly link corruption to the diminution ofbenefits to a target community. Corruption will thrive only to the degree that it will be continually tolerated by the citizenry. MRDP capacity-building seeks to replace the community’s feeling ofhelplessness and frustration, to one ofself-respect, self-reliance and self-determination. 3. Mainstreamed anti-corruption measures under MRDP2 will include (a) transparent financial management systems - controls, public disclosure, and sanctions for wrongdoing; (b) strengthening grassroots access to results ofregular audit reports on the project; and (c) procurement reform that requires, among others, that ordinary citizens be proactively informed about procurement processes, activities and results. In addition and as will be discussed below, some non-traditional measures, such as rewarding good governance, and community monitoring ofinfrastructure construction, will also be adopted. 4. Overall responsibility for tracking the implementation and effectiveness ofanti-corruption activities will be vested on the Program Support Office (PSO). The PSO will establish reliable channels and mechanisms for communicating relevant information; ensuring confidentiality as appropriate; and overseeing the process for receiving and deciding on information about alleged corrupt practices. Mechanisms will include: (a) subproject billboards announcing the start and end date ofconstruction, budget and fund sourceh, name ofcontractor/s; (b) mass media (especially radio) to broadcast project opportunities and highlights; and (c) indigenous fora such as barangay meetings. 5. The PSO M&E system will be one key to the anti-corruption plan because ofthe range and frequency ofinformation to be generated. The PSO will be sensitive to seeming anomalies in data and reports that could suggest incipient corruption. The upward flow ofinformation from the community will be strengthened. The PSO will ensure that all legitimate reports/complaints are promptly and appropriately acted upon to encourage sustained public interest and participation. An anti-corruption campaign will break down as soon as it is perceived by the public to be lacking in “political will”. 53 Policies to Mitigate Corruption 6. Community-Based - The threat ofbeing exposed by an aggrieved and agitated local community is perhaps the single most potentially effective deterrent to any thought ofwrongdoing. The foundation ofthe MRDP2 anti-corruption plan will therefore be the local communities that will be enabled not only to drive the resource allocation process but to perform a watchdog role in seeing to it that earmarked resources are indeed used for the intended purpose, and that the benefits expected by the community will materialize. Anti-corruption policies and measures will be integrated into community planning and organizing activities particularly under the IGR and CFAD components. 7. Responsible Fiscalizing - While MRDP2 will employ concrete anti-corruption measures commensurate to the threat ofcorruption at various levels, it will also put in place safeguard mechanisms that will prevent abuse ofsuch measures. Sources ofabuse may include disgruntled bureaucrats, local political officials, and misinformed NGOs/POs/ordinary citizens - any and all of whom can easily generate sufficient “noise” to clog channels for processing reports/complaints, prevent legitimate concerns from being addressed in an adequate and timely manner, and even severely disrupt overall project implementation. Complaints/reports will be validated before being coursed through the established procedure. 8. Combining Incentives and Disincentives - Purely punitive measures alone will not be effective in the fight against corruption, Good performance ofindividuals, community groups, and public agencies should also be recognized or rewarded. Incentives and disincentives will be conceived in the context oflocal norms of social behavior. Case studies ofmodel citizens and local groups may be written for wide dissemination. Under the IGR component, LGUs that adhere to agreed governance reforms will be entitled to additional grant (see below) from the national government for subprojects under the Rural Infrastructure Component. 9. Independent Monitoring- The planned external impact studies during start-up, mid-term and end- of-project will include clients’ perception on corruption trends. The results - along with findings from other studies and audits - will be made accessible to community-based groups and to the general public through a variety ofprint, audio, video and electronic channels. An inter-agency body composed ofoversight agency representatives will monitor targets in local revenue and financial management, adoption ofe-procurement, and broadening the participation ofother public and non- government stakeholders in LGU planning and budgeting, subproject design and implementation, and community-based monitoring and evaluation. Component Level Anti-Corruption Measures 10. Component 1: Investments for Governance Reform and Program Administration. Under this component, incentives to participating LGUs to adopt cross-cutting best practices will be provided. Firstly, local revenue and financial management will balance flexibility needed in the pursuit of development objectives, with the need for tighter financial controls to reduce corruption. Software, Internet connection and training will be provided for LGUs to automate the current manual form of the National Government Accounting System (NGAS). Secondly, procurement reform will involve technical assistance and training to provinces, cities and first and second class municipalities to adopt e-procurement as provided for under the Procurement Reform Act (Republic Act 9 184). Thirdly, promoting “broad convergence” will draw more effective participation by other government and non- government institutions in local governance. 11. Component 2: Rural Infrastructure. Strengthening and capacity-building oflocal institutions will include WUs, LGUs and community groups (such as irrigators’ associations and water users’ 54 associations) that will be tasked to operate and maintain completed subprojects. These groups will also serve as fora for promoting and operationalizing anti-conuption practices that will prevent diminished and unsustainable subproject benefits to the community. Community monitoring and supervision ofthe construction or rehabilitation ofinfrastructure subprojects is also an effective way to ensure that the approved design will be followed by the contractor, and that the subproject will be completed as scheduled. Community Monitoring Groups within the existing and participating local groups will be formed, and would have clear channels for reporting and for triggering required action. 12. Component 3: Community Fund for Agricultural Development. CFAD will continue to strengthen the decision-making capabilities ofcommunities - including disadvantaged and vulnerable sectors - in the design and implementation of local priorities, with DA and LGU programs and technical assistance better reflecting their needs and priorities. In so doing, local communities will be able to look after their own well-being by ensuring through close day-to-day observation of governance processes that scarce resources are not misused at any stage ofthe subproject cycle; and if misused, properly reported and sanctioned. 13, Component 4: Natural Resources Management: One common corrupt practice related to natural resources management is for local (and non-local) rent-seeking elites to capture a substantial portion ofbenefits from marine and forest resources, e.g., in securing forestland or foreshore lease agreements. This will be addressed by the NRM component by (a) establishing or strengthening community-based natural resource management systems; (b) strengthening local capacity to address marine ecosystem and land use management issues; and (c) enhancing the knowledge base for sound ecosystem management and decision-making including monitoring and evaluation for sustainable long-term marine ecosystem management. 55 Annex 5: Project Costs PHILIPPINES: Mindanao Rural Development Project - Phase 2 Local Foreign Total Project Cost By Component andor Activity US $million US $million US $million 1. Investment for Governance Reforms & Program 4.300 0.100 4.400 Administration 2. Rural Infrastructure 83.852 83.852 3. Community Subprojects 2 1.ooo 9.000 30.000 4. Natural Resource Management 3.800 1.600 5.400 Total Project Costs 112.952 10.700 123.652 Notes: Exchange Rate ofUS$ 1 = PhP 52; Front-End Fee has been waived Loan GOP m.. ioral Project Cost By Component andor Activity Proceeds Counterpart us $million US $million US $million 1. Investment for Governance Reforms & Program 2.600 1.800 4.400 Administration 2. Rural Infrastructure 58.752 25.100 83.852 3. Community Fund for Agricultural Development 18,000 12.000 30.000 4. Natural Resource Management 4.400 1.ooo 5.400 Total Project Costs 83.752 39.900 123.652 Notes: Exchange Rate ofUS$ 1 = PhP 52; Front-End Fee has been waived 56 Annex 6: Implementation Arrangements PHILIPPINES: Mindanao Rural Development Project - Phase 2 1. Key Institutional Issues. Based on the consultations with all ofthe six Mindanao DA-Regional Field Units (RFUs), representative group ofMindanao Local Government Units (LGUs) and other national and local stakeholders, the following were identified as the main challenges in the delivery of effective decentralized agricultural services. (a) Improving coordination between the RFUs and the LGUs. The planning and programming activities ofLGUs and RFUs are not synchronized and plans are not integrated. Attempts have been made to improve the situation using the Strategic Agriculture and Fisheries Development Zone (SAFDZ) concept as the basis for preparing municipal and provincial Agriculture and Fisheries Modernization Plans (AFMPs). However, a number ofobstacles were encountered and in general the expected levels ofintegration and synchronization have not materialized. (b) Coordinating research functions and activities. A review ofon-going research activities at the national and regional levels revealed that the functions of the various concerned agencies often overlap and are not well coordinated. Moreover, research activities at the regional level are similarly not well coordinated. The organizational arrangements are inefficient and confusing; and they are not as responsive as they should be to the real needs ofthe LGUs and communities. (c) Linking research and extension functions and activities. The weak link between the DA research community and LGU extension workers is considered a major constraint in the delivery of effective extension services. Under the decentralized system the DA established a Regional Integrated Agricultural Research Center (RIARC) in each region, intended to conduct mid-stream and downstream research and disseminate results to the LGU extension services. The level of interaction between RIARCs and the extension workers has been below expectations. Improving the situation will require considerable work before links between research and extension functions may be considered satisfactory. (d) Re-orienting research towards the markets. Very few research projects are oriented towards the markets and there is very little collaboration with the private sector to support such kind of endeavor. There is a need to ensure research activities will focus on market requirements, like product quality and post-harvest processing, rather than on increasing production only. (e) Commercializing research results. The managers ofNARCS generally acknowledge that while they have developed new technologies that are relevant to farmers, they have not been able to ensure that these technologies are made available and used on a commercial basis. The Bureau of Agricultural Research (BAR) has recently introduced a program to speed up the commercialization ofnew technologies and this program may serve as the basis for further efforts in this respect. (0 Strengthening the LGUs ’ capacity to deliver devolved service. More training and mentoring is still required to ensure that the extension workers themselves acquire the knowledge, skills and resources to access and make use ofinformation available at the various research institutions and to work effectively with the local communities. (g) Strengthening the LGUs ’ capability to generate their own resource. Ultimately, LGUs can only implement an effective extension service if they have sufficient funds. Most LGUs in Mindanao 57 have extremely limited funds and are almost dependent on the Internal Revenue Allocation (IRA) and only small amount is available for development purposes. However, there were a number of LGUs that have been able to strengthen their local tax base and identified other sources of income, for example from service charges and fees, resulting in significant increases to the resources available 2. Design Considerations. Recognizing the need for more effective transition arrangements towards full decentralization within a fixed timeframe and within sustainable institutional framework, MRDP2 will enhance the partnership established between LGUs as provider ofdevolved services and the DA as support agency to the LGUs through the following: (a) Implementation and refinement ofinstitutional, financial and community-based planning and management systems for supporting rural development (b) Strengthening and operationalization ofdecentralized agricultural service system through the improvement ofcapacities ofcommunities, LGUs and DA (c) Addressing community priorities for sustainable rural development and agricultural productivity (d) Institutionalization ofcommunity-based mechanismshystems to conserve or restore coastal and terrestrial ecosystems 3. Forms of Intervention. The Program has been developed to constitute four distinct components which are all interconnected and interdependent with each other: (a) Investments for Governance Reforms. This component will strengthen the capacities ofthe institutions involved in the delivery ofdecentralized services, integrate the planning process at the community level, institute governance reforms to increase locally-generated revenue, and improve fund utilization and coordinate the activities at the program level. (b) Rural infrastructure (M)).The RI component will make investment funds available for local communities to build or rehabilitate local roads, irrigation systems and potable water supply systems, and other critical agriculture and fisheries related support infrastructure. These interventions will be supported by the beneficiaries’ capacity building program focused only on the operations and maintenance for all the infrastructure and institutional development for Irrigators Associations. (c) Provision of Community Fund for Agricultural Development (CFAD) subprojects. This component will involve direct participation from the communities and will include subprojects such as food security interventions, community-managed livelihood and agribusiness activities, alternative income-generating enterprises, and small infrastructure. (d) Natural Resource Management (N..).This component will institutionalize community-based mechanismshystems to conserve and restore coastal and terrestrial ecosystems in Mindanao. It will be supported by capability building ofDA-RFUs, participating LGUs and target communities on planning, subproject implementation and monitoring. 4. Institutional and Implementation Mechanisms, Strategies and Approaches. MRDP2 will be implemented over 5 years across 27 provinces and 225 municipalities. The selection of municipalities will be carried out using the agreed pre-condition which is the commitment ofLGUs to participate by providing the equity for RI subprojects and other counterpart funds for other components. To further trim down the number ofmunicipalities, selection criteria was also established and this includes poverty incidence, agricultural potential, absence offoreign-assisted projects (FAPs) and availability ofdevelopment plans. APL1 LGUs that did not perform according to standards set under the Program are automatically disqualified. 58 5. Institutional arrangements emphasize the use ofpermanent and existing structures within the government MRDP2 completely abides by this principle. DA will be the executing agency and will provide the overall management and supervision ofthe Program. The MRDP Program Advisory Board (PAB) will provide the overall direction and oversight on the implementation ofMRDP2. With the geographic expansion ofthe program under this second phase, the reconstituted PAB will have an expanded membership, and a new Executive Order, superseding the existing one (EO 474 signed by the President of the Philippines in April 1998) will be issued on or beforeDecember 3 1, 200725. 6. The DA’s Special Project Coordination and Management Assistance Division (SPCMAD), owing to its inherent function of coordinating and providing assistance to DA’s foreign-assisted projects, will act as secretariat to the PAB. The regional counterpart ofthe PAB will be the Regional Program Advisory Boards (RPABs) 26, already existing and operational in all ofthe Mindanao regions and presently functioning as the regional oversight ofthe DFIMDP*’. The RPABs’ functions will be expanded to cover MRDP2. It shall provide regional perspective for the prioritization and approval of subprojects for funding under the Program. 7. Overall program support to coordination by the DA’s RFUs and the LGUs’ implementation under MRDP2 will be handled by a Program Support Office or the PSO (this was the Program Coordination Office or the PCO during MRDPl). The PCO’s main function will be re-focused from overall coordination to supporting overall program implementation. It is acknowledged that the PSO is a temporary and program-specific structure and the need to mainstream the program coordinating functions to regular units ofthe DA is critical28.To sustain the efforts done under the Program, the PSO, in the transition during MRDP2, will build capacities ofthe DA RFUs on program coordination, management and oversight ofproject activities being implemented at the local levels by the LGUs and the communities. 8. For the DA RFUs to fulfill its coordination roles and responsibilities, it will create the Regional Program Coordination Office (RPCO) using its existing regular and permanent staff. The six (6) RPCOs (of the 5 DA RFUs in Mindanao and the ARMM’s Department ofAgriculture and Fisheries) will be fully involved in project coordination and management for the various components of MRDP2. Related to this, the DA Secretary has issued a Special Order (NO. 590, Series of 2006, dated September 20,2006) on the constitution and roles and responsibilities ofthe PSO and the RPCOS. 9. In general, MRDP2 will adhere to the valuable approaches applied in MRDPI. The learning-by- doing approach is most appropriate when implementing a multi-faceted project like MRDP as the processes can easily be acquired and internalized. To ensure efficient implementation, integrated and zs The Program Management Board (PMB) under MRDPl will be reconstituted into a Program Advisory Board or PAB. It will still be chaired by the DA Secretary, co-chaired by the Director-General of the National Economic and Development Authority (NEDA), and composed of the Presidents of the Leagues of Provinces, Municipalities, and Cities; Secretaries (or their representatives) of Finance (DOF), DENR, Budget and Management (DBM), Agrarian Reform (DAR), Trade and Industry (DTI) Public Works and Highways (DPWH) and Interior and Local Government (DILG); a representative from the Mindanao Economic and Development Coordinating Office (MEDCO); the Presidents (or their representatives) of the Regional Agricultural and Fisheries Councils (RAFCs) in Mindanao; the President (or hisiher representative) of the Philippine Association of State Colleges and Universities (PASUC); and representatives from Industry Associations in Mindanao. 26 The RPAB is chaired by the DA Regional Executive Director and co-chaired by the NEDA Regional Director. Members include Governors of the participating provinces in the region, the President of the Provincial Leagues of Mayors, the RAFC Chair, BFAR Regional Director, Regional Directors of DENR, DAR, DILG and MEDCO, and representatives from industry associations. In the case of the Autonomous Region of Muslim Mindanao (ARMM), the RPAB shall be chaired by the Secretary of the ARMM Department of Agriculture and Fisheries. ” The Diversified Farm Income and Market Development Project is a Bank-assisted project of the DA (Loan No. 7236-PH) which aims to assist the GOP to strengthen the capacity of its DA to provide market-oriented services to increase agricultural competitiveness and rural incomes. 28 This, again, is a critical lesson learned under MRDP1, when focused institutional strengthening to DA RFUs was deemed inadequate; hence, under MRDP2 the important role of DA RFUs in strengthening the DA-LGU linkages would be given primary focus, especially through MRDP2’s institutional implementation arrangements. 59 coordinated plan ofactivities across components will be put in place so as to prevent overlapping and duplication. One ofthe apparent flaws ofMRDP1 was the lack ofclear operational linkage between components, particularly ofthe RDPAP and the CFAD. Both units were involved in developing the barangay development plans which instead ofbecoming facilitative, it created more confusion to the beneficiaries and the communities. The implementing units under MRDP2 will now pursue activities with strategic focus and work collectively and with competence towards a common goal. 10. Another useful strategy of MRDP1 was the development of operation manuals for each and every component which details out the implementation procedures and processes. These same documents will also be used in MRDP2 but have been reviewed and updated to include field experiences as well as the new innovations that will be applied in the project. The operations manuals serve as guide to the implementing units for standardized and sequential procedures ofcarrying out the various component activities. 11. In executing the project, a Program Contract will be forged with the implementing units, incorporating the roles, functions and responsibilities of agreeing parties and various implementation and financial arrangements including compliance to the World Bank’s environmental and social safeguards, specifically for subprojects under RI, CFAD and NRM components. 12. Investments for Governance Reform and Program Administration. Program coordination was handled by the Program Coordination Office (PCO), which during MRDP1 implementation, was instrumental in realizing the Program objectives. However, under MRDP2, the PCO will be transformed into a Program Support Office (PSO) since its main function will be re-focused from coordinating to supporting program implementation. The basic function ofPSO is to improved the capacities ofthe five (5) Regional Field Units (RFUs) ofDA and the DAF-ARMM RPCO on coordinating and overseeing ofproject activities implemented at the local level. As part ofthe mid- term review ofAPL 2, the PSO is proposed to be evaluated and reviewed and eventually, options may be considered for transferring some ofits functions to DA-RFUs, depending on the RFUs absorptive capacities. The functions that may likely be downloaded to RFUs are the monitoring on the compliance ofenvironmental and social safeguards under RI and CFAD subprojects, ensuring transparency in the conduct ofLGUs on bidding and awards of subprojects, coordinating the integration ofplans from communities to MLGUs and PLGUs, and other functions that maybe identified during the mid-term review. Thereafter, the PSO will function as a technical advisory body to RFUs with a leaner and meaner structure. 13, The six (6) RFUs ofMindanao include DA-RFUs 9, 10, 11, 12, 13 (CARAGA) and Autonomous Region ofMuslim Mindanao (ARMM). For the RFU to fulfill its roles and responsibilities, it has create the Regional Program Coordination Office (RPCO) using its existing regular and permanent staff and utilizing the same structure as the PSO. Owing to its unique structure, ARMM will have a slightly different structure and implementation arrangements. The 6 RPCOs will take on the main responsibility for planning, project coordination and monitoring offield activities for the various subcomponents ofthe Program. 14. The institutional strengthening and capacity building activities will facilitate the DA’s systematic phase-out from directly performing devolved functions and shift towards providing support to the LGUs in planning and budgeting, research and extension, and monitoring and evaluation. Six months before the actual implementation, preparatory activities will be done and engagement ofboth the LGUs and RFUs is ensured to be on the ground and by the time the Program is implemented, these units ofimplementers are ready to assume the various responsibilities required from them. The LGUs will be provided with the technical assistance to institutionalize demand-driven and participatory approach ofplanning at the community level to ensure that the plan is reflective ofthe real needs and 60 likewise developing the sense ofownership within the communities. Under this component, it is expected to come-up with a harmonized Barangay Development Planning, that integrates all development plans at the barangay level including those for livelihood, food security, ancestral domain protection and natural resources management, and which will be called Barangay Agriculture and Fisheries Modernization Plan (Barangay AFMP). A model-based strategy will also be adopted for research and extension which was done during APL 1 but the assistance in APL 2 is not limited to showcasing production technologies alone. The effort under research and extension is expected to be more ofmarket-oriented type which would enhance the communities’ income generation activities. The RFUs on the other hand will be capacitated in terms ofMFO-based planning and decision-driven monitoring and evaluation in support ofthe decentralized delivery ofservices. 15. The subcomponent on improving LGU resource management and service delivery systems centers on the enhancement oflocal revenue generation ofparticipating LGUs. Incentives will be awarded to LGUs that will institute measures for enhancing governance systems and mechanisms. LGUs that will initiate the reform measures will qualify for a 70:30 NG-LGU cost sharing under the RI component ofAPL 2. 16. Rural Infrastructure @I).This component will be implemented by the Municipal LGUs (MLGUs) through the Municipal Program Management and Implementing (MPMIUs). The MLGUs will be supported by the Provincial LGUs and will also create the Provincial Program Management and Implementing Units (PPMIUs) that will oversee the implementation ofRI and other subprojects. As mentioned in the above discussions, the RI subprojects will adopt the national government’s (NG) policy on cost-sharing scheme. The current policy of5050 sharing arrangement for NG and LGUs for infrastructure projects was highly problematic as most ofthe LGUs even outside Mindanao are unable to provide the equity as experienced by other foreign-assisted projects. Aside from the current cost sharing, the oversight agencies has allowed DA to adopt a more implementable arrangement of 70:30 NG-LGU cost sharing provided that LGUs will implement a set ofgovernance reforms subject to certain performance target indicators (see Annex 4). 17. On the staffing requirement at the WCO level, secondment of staff from the participating PLGUs and MLGUs is allowed for RI component since the mandates ofperforming the function related to farm to market roads and communal irrigation has now been devolved to LGUs. This arrangement is more sustainable as it will further enhance the capacities ofLGUs in terms ofimplementing infrastructure projects. 18. CFAD. This component opens opportunities for disadvantaged and vulnerable sectors and supports community-identified and managed subprojects for increased income. The APL 1 strategies for community participatory for decision-making shall be maintained for APL 2. CFAD shows respect to various ethnic groups and considers their own sets oftraditions, values and development priorities as important inputs in developing package oftechnologies to attain food security. Likewise, the component will provide funds for agribusiness and livelihood enterprise that shall be covered by a targeted savings mobilization policy for CFAD. Specific terms and conditions for the Savings Mobilization Plan shall be formulated with CFAD stakeholders’ participation during the pre- implementation Phase of the Program 19. CFAD will also provide financial and technical assistance for the development ofagro-based Sustainable Income-Generating Activities (SIGA) for communities and POs from NRM participating municipalities. The component will make use ofthe Multi-Sectoral Committees (MSCs) established under MRDP1 for project review, appraisal and approval ofsubprojects. During MRDPI, the active involvement ofthe MSC in the CFAD processes has improved the transparency ofLGU transactions, 61 hence communities would like to adopt and institutionalize this mechanism to become part ofthe Municipal Development Council. 20. Under the component, the original scheme ofcost-sharing among government stakeholders will be maintained. Thus, the national government will provide 80% ofthe PhP 2.5 Million (with 60% coming from the loan proceeds, and 20% coming from the regular DA-GOP budget) for the CFAD Trust Account, and the Municipal LGU will put up the remaining 20% as its counterpart. For income- generating and livelihood expansion subprojects, Peoples Organizations (POs) shall be required to provide an equity of25% of the total subproject cost; while for small support infrastructure, POs are expected to put up a minimum of 10% equity, in cash or in-kind. 21. NRM. The critical feature ofthis component is mainstreaming NRM as one ofthe regular functions of LGUs and as such, it is focused on enhancing local mechanisms and appropriate technologies for conserving, rehabilitating and utilizing natural resources in the coastal, marine and terrestrial habitats. The LGUs will be the direct implementers ofthe NRM subprojects with technical assistance to be provided by DA-Bureau ofFisheries and Aquatic Resources (BFAR), DA-Bureau of Soils and Water Management (BSWM) and the Department of Environment and Natural Resources (DENR). DA- BFAR shall provide technical assistance for fisheries and other marine and coastal concerns and BSWMshall provide assistance on land resource evaluation like soil characterization, determination of topographic features, land management technologies, soil maps and other information materials. DENR on the other hand, shall provide TA on sustainable development and environmental related activities. 22. M&E System. In line with the mainstreaming efforts under the MRDP2, the M&E function will be lodged with the M&E units ofDA-RFUs and the respective planning and development offices of PLGUs and MLGUs. The operational M&E system and framework ofNational Government Agencies like DA, NEDA and DBM which is linked to the major final outputs (MFOs) as agreed with NEDA and DBM, will be adopted. 23. The project’s results framework provides outcome indicators which would be the basis during evaluation. Two evaluation activities will be conducted under MRDP2. The Mid-term evaluation to be conducted in February 20 10 will focus on the implementation systems and procedures and on the emerging effects ofproject interventions. Case studies in selected project areas may be undertaken for a deeper analysis ofsubprojects and component interventions. End-of-project evaluation will be done during the last year ofimplementation and will look into the emerging results and outcomes arising from project implementation. The World Bank will undertake periodic review and supervision mission during the five-year implementation ofthe project. 24. The baseline survey would be initiated during pre-implementation and should be completed prior to June 2008. 62 Annex 7: Financial Management and Disbursement Arrangements PHILIPPINES: Mindanao Rural Development Project - Phase 2 Executive Summary2’ A Financial Management Assessment Review ofthe Department ofAgriculture (DA) was undertaken to ensure that there is adequate financial management (FM) systems in place within the agency which satisfies the World Bank’s Operational Policy/ Business Procedure (OPBP) 10.02. Under OP/BP 10.02, the borrower and the project implementing entities should maintain adequate financial management systems (which include accounting, financial reporting, and auditing systems) to ensure that they can readily provide accurate and timely information regarding project resources and expenditures. The review was carried out in accordance with the Bank’s guidelines under Financial Management Practices in World Bank - Finance Investment Operations dated November 3,2005. It focused on the assessment ofDA’s FM system including those for foreign-assisted Projects and considered the country and the sector’s FM situation. The FM review indicates that the FM system ofthe DA does not comply with the Bank’s requirements as it has weaknesses in its Internal Control, lacks staffing at the Central Office to handle project FM requirements, has delays in Consolidation ofAccounts, and has no Internal Audit function. The weaknesses in Internal Control resulted to the issuance ofan Adverse Audit Opinion on the 2005 Financial Statements ofDA, which enumerated the following deficiencies: unreconciled cash accounts; undocumented and unliquidated advances; unreconciled physical count ofinventories and properties; unrecorded payables; and erroneous transaction entries. With the deficiencies in the DA FM system and weak LGU FM capacity, as well as the perceived corruption in the country, there is a high risk for the possibility ofmisusing the loan funds. In view ofthe risks involved and even during MRDP1, overall implementation support and coordination has been done through a Program Coordination Office (PCO) based in Cotabato Province, which included a separate FM Unit which supported and facilitated implementation. The PCO staff including its FM unit was staffed by regular FM staff from the Department of Agriculture and the participating LGUs seconded to the Project, and supplemented by some contracted staff. MRDP1 was implemented satisfactorily, including its FM aspects. Since MRDP1 formally closed in December 2004, the DA continued to maintain a leaner PCO staffing, which included FM staff which managed the MRDP2 PHRD project preparation grant resources and supported project preparation activities for MRDP2. The PCO FM Unit continues to be headed by a regular DA staff, backed up by seconded staff from LGUs. Hence, under MRDP2, the DA has proposed a Financial Management arrangement similar to MRDP1. The following are its features: The Project shall be implemented through the Financial Management function to be created at the Program Support Office (PSO), now to be based in Davao City. It will use the NGAS accounting system including its Internal Control policies and procedures with changes in the Chart ofAccounts and financial reports based on project requirements. RFUs, LGUs and POs will maintain separate books ofaccounts for the project and submit periodic financial reports, as required by the Bank. The PSO is the main implementation support office for the Project. It is under the Special Projects Coordination Management and Assistance Division (SPCMAD) ofDA, which in turn reports to the 29 Please see project files for the detailed Financial Management Assessment Review 63 Undersecretary for Operations (who is also the DA’s Project Implementation Officer). The PSO FM function shall also be reporting to the DA Finance function at the Central Office under the Director for Financial & Management Service (FMS). The PSO FM function is currently staffed with experienced MRDP1 Project Coordination Office (PCO) FM staff. FM staffing at the MDFO, RFU & LGU levels will be handled by their respective FM functions with appointed staff for the Project 5. The following are the elements ofthe FM Action Plan under the project: a. PSO FM staffing shall be in place prior to implementation. FM staffing at the RFU, LGU and PO levels shall be in place prior to implementation oftheir respective components. The PSO key FM staff shall be regular FM staff ofDNLGUs. b. The Borrower through DA shall, by December 3 1,2007, establish and thereafter maintain throughout the period ofimplementation ofthe Project, an Internal Audit Service, with staffing, terms ofreference, and other resources acceptable to the Bank, to be responsible for conducting internal audit for the Project accounts by June 30 and December 3 1 ofeach year, starting June 30,2008 and furnish a report to DA and the Bank upon completion ofeach said internal audit. C. The PSO will prepare simple FM guidelines for the Project at the PO, LGU, RFU, MDFO & PSO levels, which will adopt the lessons learned from MRDP1, The FM Guidelines would be broadly disseminated to all concerned prior to project implementation. 6. The FM risk ofthe Project would be mitigated to an acceptable level when the abovementioned measures are implemented and have shown effective impact. 7. The Project shall be preparing quarterly unaudited Interim Financial Reports (IFRs). It will disburse through two Designated Accounts (DesAs) maintained at the PSO and at the MDFO. 8. Funds flow ofthe loan proceeds will be from the World Bank to the Philippine Treasury, then to the DesAs ofthe project after issuance of a Notice ofCash Allotment (NCA) issued by the Department of Budget and Management (DBM). Payments of eligible expenditures are paid out ofthe DesAs. 9. Counterpart funds shall be through the normal government funds flow which is through its common fund maintained at a Government authorized servicing Bank. This account is funded by the Bureau of Treasury with the issuance by the DBM ofthe Notice ofCash Allocation (NCA). 10. The Project shall be required to submit annual audited Project Financial Statements. Its auditor will be the supreme audit institution ofthe government, the Commission on Audit. Financial Management Assessment 11. Country Issues. The issues identified are as follows: a. Perceived corruption in the country - The country’s corruption rating by international institution monitoring corruption is high. While the rating is a perception, there is a related risk involved in the country. b. Weak internal audit capacity- Internal auditing in government agencies is not a well developed function. Although they are authorized under the Internal Audit Code, very few 64 government agencies have established their Internal Audit units mainly due to budgetary constraints. This is a weakness in internal control ofthe country and its Agencies. C. Weak LGU FM capacity - FM capacity ofpoor LGUs ofthe 5th to 6th class category are generally weak. This is basically brought about by their lack offunding resources as well as the lack ofqualified FM staff who could accept low level salary rates. Risk Assessment & Mitigation 12. The Risk assessment table below gives details ofthe High FM risk rating ofthe DA FM system. Risk Categofy I Risk Risk mitigating Measures Condition of Main FM Risk Rating Board or Effectiveness (Y/N?) [nherent Risk H N Country : H N a. Perceived corruption H The Bank is currently working with government on N in the country [ntegrity Development Action Plans under its anti sorruption efforts. No substantial progress on this yet as it is in the early stages. In the mean time, the Project will be ring fenced as detailed under FM arrangements for the Project. b. Weak Internal Audit H The Bank has initiated addressing this through its Grant N function. on Strengthening the Internal Audit (IA) with the Philippine Anti Graft Commission as its implementing entity. This is still in its early stages. Please see IA arrangement for the Project below. c. Weak Poor LGU FM H Include in new Philippine Projects FM capacity N capacity strengthening for LGUs Sector : None. Implementing Entity H Proposed FM arrangements replicates Project phase 1 N (DA) - Adverse Audit arrangements which has been satisfactory. Such Staffing under the opinion, delayed arrangements included the staffing arrangement at the IASpecial Order consolidation ofaccounts, LGU & RFU levels. is already in EMstaffing not adequate, place. no Internal Audit function. Project Level H RFU and LGU FM staff will be working with PSO N Wide geographical office to ensure that proper communication, coverage with lots of consolidation ofaccounts and reporting ofexpenditures implementing entities and progress is in place. PSO FM staff will be involved. supervising the LGUs concerned including periodic visits. Control Risk H N 65 ____ Usk Category I Risk Risk mitigating Measures Condition of lain FM Risk Rating Board or Effectiveness (Y/N?) Financial Planning H idopt Project financial planning, funds flow and N and Funds Flow ierformance based Program Contract with payment by ranches based on milestones. Staffing H Ensure PSO, RPCOs and LGU FM staff in place. N FM staff already n place as named in the Special Order issued by the DA Accounting M Use NGAS with Chart ofAccounts & financial reporting N Policies and adapted to the Project components. Procedures Internal Control H Replicate the FM system ofMRDP1 including its Internal N Control Policies and Procedures to be documented in the Project FM Project’s FM ManualdGuidelines. Manuall Guidelines already in place and acceptable. Reporting and H Require submission ofInterim unaudited Financial N Monitoring, Reports (IFRs) with periodic consolidation by FM IFR format Delayed reporting coordinating and supervising staff at the PO, LGU, RFU, ilready submitted and consolidation MDFO and PSO levels. as part ofthe FM ofDA financials. Manual and agreed. N Internal Audit (IA H The DA will create an Internal Audit Service (IAS), N headed by an Undersecretary or Assistant Secretary with rhis is considerec no incompatible functions and directly reporting to the under a dated DA Secretary, by December 3 1, 2007. The IAS will covenant. cover the Project in their review every 6 months with a report submitted to DA Management, with a copy furnished to the Bank. The first IAS report will be due no later than a year after project effectiveness. Progress in strengthening the Internal Audit will be monitored using the benchmarking tool supported by the Presidential Anti. Graft Commission. External Audit M Continue use ofCOA as auditors. N I-High M - Mode Strengths and Weaknesses 13, The strengths of the DA Financial Management system are: a. The use of the NGAS has upgraded the accounting system of the Agency to Internationally Accepted Accounting Standards. The Agency personnel have been trained in NGAS and they 66 have now adopted the said system. This provides the foundation for good accounting of Agency and project transactions. The Agency is now in the process of installing the electronic version of the NGAS, the eNGAS at the Central office and later at its Regional Field Operating Units. b. Documented policies and procedures as well as organization charts and job descriptions ofstaff ensure clarity ofjobs and responsibilities. 14. The weaknesses of the DA Financial Management system are: a. There are deficiencies in the Internal Controls as reflected in the audit findings resulting to an Adverse Opinion on the Financial Statements of DA. These are violations ofNGAS policies and procedures. The deficiencies pertain mainly to unreconciled cash accounts, undocumented and unliquidated advances, unreconciled physical count ofinventories and properties, unrecorded payables and erroneous transaction entries. The total amount ofthese qualifications is about PhP20 billion out of a total assets ofabout PhP68 billion. This deficiency in Internal Control reflects the need for closer supervision ofthe FM function. b. The eNGAS chart of accounts ofthe NGAS has been hard coded into the computer system such that it becomes inflexible for Project FM reporting. c. Consolidation ofthe Accounts is delayed resulting to delayed submission of financial statements. d. The lack ofan Internal Audit function at DA weakens its risk management, control and governance review. Financial Management Arrangements 15. The Financial Management arrangements for the project shall be mainly through the PSO FM function with coordination with the Finance and Management Service (FMS) at the DA Central Office. Following are the key FM arrangements: Financial Management Organization and Staffing 16. The Financial Management arrangements for the Project shall mainly be implemented through the Financial Management function to be created at the Project Support Office (PSO), now to be based in Davao City. The PSO is the main implementation support office for the project. The PSO is under the Special Projects Coordination Management and Assistance Division (SPCMAD) ofDA which in turn reports to the Undersecretary for Operations (who is also the DA’s Project Implementation Officer). The PSO FM function shall also be reporting to the DA Finance function at the Central Office under the Director for Finance and Management Service (FMS). The PSO FM function shall be staffed with experienced MRDP1 Program Coordination Office (PCO) FM staff. FM staffing at the MDFO, RFU & LGU levels shall be handled by their respective FM functions with a dedicated staff for the Project. 17. The FM staffing for the Project shall be at the following levels: PSO, RFUs and LGUs. At the PSO level (based in Davao), an FM Unit shall be created and will be headed by a Finance Unit Head assisted by a Chief Accountant for the PSO books and an FM Specialist for the coordination, supervision and consolidation ofreports for MDFO, RFUs, and LGUs. The MDFO will have a devoted FM specialist for the Project. For the RFUs and the LGUs, this will be handled by their FM function. Should additional staffing be needed by MDFO, RFUs or LGUs, hiring shall be done chargeable to the project. 67 18. Regional Offices have typical FM Organizational setup which mirrors the set up in the Central Office on a small-scale basis, as follows: The Finance Division is headed by a Chief who reports to an Assistant Director who in turn reports to the Regional Director. The Finance Division is composed of three sections (Accounting, Budget and Cashiering Sections), each headed by Section Heads. 19. The Region’s Accounting Section has two Units, the Bookkeeping and Disbursements Units staffed by accountants, bookkeepers and accounting clerks. The Budget Section on the other hand is staffed by Budget Officers and clerks. The Cashiering Section is staffed by cashiers, disbursing officers and clerks. 20. The sample Regional Office visited has need for additional FM Staffing, good accounting system using the NGAS, and an up to date Reporting system. Their internal control system ensures that there is proper check and balance and approval oftransactions. There are no incompatible functions combined. The audit reports, though having a qualified audit opinion, do not have findings that indicate a weak financial management system. The qualification ofthe auditor on cash and Properties pertain to defunct Bureaus. 2 1. For every Region which will participate in the project, a similar assessment would need to be done by the Bank before they are approved for the Project. 22. For LGUs, they have a similar set up as the RFUs, except that these are at a smaller scale. An FM assessment would need to be done by the PSO and a corresponding Action Plan committed by the LGU before they are approved for the project. 23. At the community level, the community shall have a person who shall act as accountant for the project to do simple bookkeeping and reporting. Planning and Budget 24. The project while doing its own planning will be integrated into the DA’s planning and budgeting process. Thus it will be done consistent with the planning cycle and process of the Government. 25. Under the Government system, budgets are prepared based on the budget call of the DBM with indicative ceilings. Regions, Services, Bureaus and PMOSare required to submit their detailed plans for the year. A work and financial Plan is required to support budget submissions with corresponding computations or assumptions. These are then reviewed by the respective Directors for discussion and adjustment by Management. These are checked as to their relevance with the mandate, programs and priorities of the Agency. The Secretary would then have the final say on the Budget and this is endorsed to the DBM for further screening. After DBM approves ofthe Budget, it transmits this to the office ofthe president who in turn would transmit it to Congress for its deliberation. After the budget is approved by Congress, this is sent to the President for final approval and issuance as the General Appropriations Act (GAA). The GAA then becomes the basis ofthe quarterly release of funds (through the issuance ofa Notice ofCash Allotment or NCA) to the Agency or projects. Adequate budget registers to control budget implementation and reporting is maintained through the NGAS. Accounting Policies and Procedures 26. The project will use the NGAS accounting system including its Internal Control policies and procedures with changes in the Chart ofAccounts and financial reports based on Project 68 requirements. RFUs, LGUs and POs will maintain separate books ofaccounts for the project and submit periodic financial reports as required by the Bank. The PSO FM Unit shall provide a copy of its quarterly Financial Statements to the Finance & Management Service Director ofDA’s Central Office. Internal Control and Internal Audit 27. The following are the key Internal Control arrangements: It will follow the Internal Control applicable in the NGAS. Approval offinancial transactions shall be under the respective Heads ofthe PSO, RFU and MDFO together with their FM Heads and thereafter follow the corresponding entity’s Cash disbursement procedures. Separate books ofaccounts and subsidiary ledgers shall be used with periodic reconciliations. Designated Accounts shall be separately created for the disbursement centers ofthe Project which is in the PSO, and in the MDFO. Cash Advances shall not be allowed since a Designated Account will be set up. Monthly Bank Reconciliation Statements shall be prepared to be submitted no later than the end ofthe following month. A Financial Plan shall be prepared for the whole term ofthe project with details per month for the current year. The PSO and the MDFO shall maintain copies ofsupporting documents and contracts in addition to those submitted to Accounting/COA. When applicable, Properties and Inventories under the project shall be required to have a physical inventory taking annually with a report to be submitted to DA Management on the results and reconciliation with recorded accountabilities and the disposition ofthe differences. The responsibilities ofthe FM staff for the project shall have a detailed list ofthe duties and responsibilities. The project shall be subject to a semi annual Internal Audit review by the IAS to be created by the DA (please see prior discussion on this). Funds Flow and Disbursement Arrangements 28. The funds ofthe Project come from loan proceeds and Government counterpart fund. The expenditure centers ofthe Project would be at the PSO for Investments for Governance Reform and Program Administration and NRM components; and at the MDFO for Rural Infrastructure and CFAD components. Estimated amount of loan funds to be channeled into each expenditure center are as follows: MDFO US$ 76.752 million PSO (includes RFUs) US$ 7.000 million Total US$ 83.752 million 29. The flow offunds is as follows: a. For loan hnds - Funds fi-om the Bank are remitted through the Bureau ofTreasury’s Account with the Bangko Sentral ng Pilipinas (Central Bank) which will in turn remit this to the Government Commercial bank where the Project’s Designated Accounts are maintained at the PSO, and MDFO; 69 b. For the Government counterpart fund - Counterpart funds shall be through the normal government funds flow, which is through its common fund maintained at a Government commercial bank. This account is funded by the Bureau ofTreasury with the issuance by the DBM ofthe Notice ofCash Allocation (NCA). Counterpart fund expenditures are paid through a check issued from the Agency's account in the said Government authorized servicing Bank. 30. Funds to be released to LGUs shall be coming from the MDFO Designated Account. Funds are paid to LGUs based milestones to be developed under a signed Performance Contract. For funds for Communities, these are likewise paid based on milestones to be developed under a signed Performance Contract. Reports are submitted by the communities to the LGUs, which in turn will consolidate these and submit to the PSO and MDFO, properly linked to physical accomplishment (please see discussion on Financial Reporting), 3 1. MRDP2 shall be disbursed over a period of5 years as an Adaptable Program Loan in the amount of US83.752 million. The disbursements of the loan shall be in accordance with the Financial Plan for the project for the following categories (in US$ millions): Category Amount ofthe Loan Percentage of Expenditures to be Allocated financed (expressed in USD) (1) Goods, works, consultants' service, 7,000,000 100% and Operating Costs) under Parts A and D of the Project (2) Civil Works (a) under Parts B1, B2, and B4 of the 40,000,000 50% Project (b) under Part B3 of the Project 3,000,000 70% (3) Performance-based Grants 15,752,000 100% of the Performance-based Under Part B of the Project Grant amount disbursed (4) CFAD Block Grants 18,000,000 100% of CFAD Block Grant Under Part C of the Project amount disbursed (5) Premia for Interest Rate 0 Amount due under Section Caps and Interest Rate 2.08 (c) of this Agreement Collars (6) Front-end fee 03" Amount payable pursuant to Section 2.04 of this Agreement in accordance with Section 2.07 (b) of the General Conditions TOTAL AMOUNT 83.752.ooo 30 The fee is based on a full waiver of the 1% fee which applies to all IBRD loans presented to the Board from August 11,2006 through the date on which the Board decides upon any front-end fee waiver for FY08 (likely, in August 2007). 70 32. Designated Accounts (DesAs) shall be maintained at the Project at Expenditure centers at the PSO & MDFO with the Land Bank ofthe Philippines (LBP). The DesAs allocation shall be US$6.2 million broken down into US$2.0M for PSO, and US$4.4M for MDFO. Should the DesAs become insufficient for the operations ofthe Project, a request with justification for an increase may be done. Thresholds for direct payments shall be applied on the individual DesAs and not on their total. 33. Disbursement for the project shall be through the use ofa summary report in the form ofa Statement of Expenditure with option to convert to a summary report in the form ofan unaudited interim financial report (IFR) with concurrence of the Bank. In any case, IFRs shall be required to be submitted by the project, the format for which shall be agreed with the Bank. 34. Retroactive financing will be provided under the project for up to US$500,000 ofthe Bank loan to finance eligible expenditures for project activities incurred on or after July 1,2006. Eligible expenditures are those under Category 1 which are Goods, works, consultants’ service, and Operating Costs under Parts A and D ofthe Project; and Categories 2(a) and 2(b) which are Civil Works under Parts B1, B2, B3, and B4 of the Project (please see Disbursement Schedule in the preceding page). During pre-implementation, a number ofactivities have been done to ensure that Year 1 subprojects for rural infrastructure are ready for award and implementation upon project effectiveness, hence, this retroactive financing would be used for payment of such eligible expenditures which the project have incurred on or after July 1,2006, prior to loan effectiveness. Financial Reporting 35. The project shall submit a consolidated unaudited Interim Financial Report (IFR) on a quarterly basis. The IFRs shall consist ofthe following: a. Balance Sheet - A report on the financial resources (assets & liabilities and government contributions) ofthe project. b. Statement ofSources and Uses ofFunds - A report on the receipt and uses of funds by project components by categories. 36. The IFRs should include both the loan and counterpart funds. Consolidations shall be done at the LGU, RFU, MDFO and PSO levels. The IFR should be linked to the Project Progress Report, as required, as part of the project operations report. Delays in the submission ofIFRs shall give the Bank the right not to remit funds. The quarterly submissions ofthe IFRs shall be due no later than the end ofthe following month. Communities shall submit their simplified financial report to the LGUs who in turn consolidates and submits this to their respective RFUs attaching the Reports of the Communities. The RFUs in turn consolidates these and submit these to the PSO. 37. The Financial reporting flow shall be as follows: MDFO - From communities to LGUs to RFUs then to PSO (Please note that every liquidation ofcommunities or LGUs are sent to RFUs and are consolidated into an SOE and submitted to MDFO. MDFO merely acts as an intermediary offunds for LGUs). MDFO submits a report to PSO on the status ofbudget and fund releases. RFUs - RFUs submit reports to the PSO. PSO then does the final consolidation ofreports and sends this to DA- FMS, SPCMAD and the World Bank. 71 External Audit 38. The External Auditor ofthe project shall be the Commission on Audit (COA) and shall be required to submit audited Financial Statements on the Loan as well as a Management Letter reflecting its audit findings and recommendations. The Financial Statements covered shall consist ofthe Balance Sheet and the Sources & Uses ofFunds. The Audit Certificate to be issued shall use the Bank’s required pro forma audit certificate to be adopted depending on the findings ofthe audit. The audit reports and the management letter shall be due no later than 6 months after the end ofthe fiscal year ofDA. Delay in the submission ofthe Audit reports and the management letter shall automatically give the right to the Bank to suspend disbursements on the Loan. 39. Quarterly IFRs are required to be submitted to COA so they could do progressive audit ofthe accounts and a documented agreement with COA on the detailed timetable for the audit of the Project will be required. Financial Management Action Plan 40. Following are the elements ofthe said action plan: Action Responsibility Deadline 1. Hire FM Staff as follows: a. PSO FM staff. DA Undersecretary for Substantially complied Operations since October 2006 b. FM staffing at the RFU, LGU and DA Undersecretary for PO Operations 2. The IAS will cover the Project in their Secretary Creation ofIAS -by Dec. review every 6 months with a report 3 1, 2007. submitted to DA Management, with a copy IA review ofthe Project fUrnished to the Bank. The first IAS report and submission ofreport - will be due no later than a year after project Every June and December effectiveness. Progress in strengthening the ofeach year, starting after Internal Audit will be monitored using the one year ofProject benchmarking tool supported by the effectiveness. Presidential Anti-Graft Commission 3, Preparation ofsimple FM manuavguidelines Director Financial & Substantially complied as for the Project at the PO, LGU, RFU & PSO Management Service ofOctober 2006. levels and the format ofthe IFRs Loan Conditions 41. Project Management The Borrower through DA shall, by December 3 1,2007, establish and thereafter maintain throughout the period ofimplementation of the Project, an Internal Audit Service, with staffing, terms ofreference, and other resources acceptable to the Bank, to be responsible for conducting internal audit for the Project accounts by June 30 and December 3 1 of each year, starting June 30,2008 and furnish a report to DA and the Bank upon completion ofeach said internal audit. 72 42. Financial Covenants: a. The Borrower shall maintain or cause to be maintained an adequate financial management system with appropriate books of accounts in accordance with generally accepted accounting principles. b. The IFRs shall be submitted to the Bank on a quarterly basis in a form and substance acceptable to the Bank. c. The Auditor will be COA and their TOR will be similar with the current Bank-assisted projects which they audit. The following shall be the required audit submissions: Type ofFinancial Description Deadline Audit Opinion coverage Statements 1. Project Financial Composed of June 30 of the following To cover the whole Statements 1. Consolidated Project calendar year. Project on a Balance Sheet consolidated basis. 2. Consolidated Project Sources & Uses of Funds with audit certificate using Bank’s pro forma adapted to their audit findings. Detailed audit findings June 30 ofthe following 2. Audit Management and recommendations calendar year. To cover the whole Letter Project on a consolidated basis Supervision Plan 43. Objective & Nature: The FM supervision ofthe project shall be periodically done to ensure that loan proceeds are used only for the purposes for which it was granted, with due regard to economy, efficiency, and the achievement ofthe project’s objectives. 44. Coverage: The coverage ofthe supervision should address the total project financial arrangements including those on the counterpart funds of the national and local governments. 45. Frequency & Duration: The project should be supervised periodically, at least every 6 months. A more frequent supervision would be done should any deterioration ofthe agreed FM system happen. By the nature of the work required under Bank’s policy and depending on the state ofthe project’s financial management and the status ofthe FM action plans, every supervision should be at a minimum of2 weeks. However, 2-to-3-day visits could be done on a more frequent basis addressing limited FM concerns. 46. Staffing: The supervision should be done by at least a qualified FMS. 73 Annex 8: Procurement Arrangements PHILIPPINES: Mindanao Rural Development Project - Phase 2 General 1. Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, and “Guidelines: Selection and Employment ofConsultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the Legal Agreement. While the new Philippine Procurement Law (RA 9184) is sufficiently in harmony with the Guidelines at the NCB level, the Procurement Schedule ofthe Loan Agreement will include an annex detailing the procedures under the national law that are not acceptable to the Bank. Other than that, NCB procurement will be carried out in accordance with the country’s law. The general description ofvarious items under different expenditure categories for the first 18 months are described below and summarized in the attached Procurement Plan. For each contract to be financed by the Loan, the different procurement methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank task team in the Procurement Plan. The Procurement Plan will be a rolling plan that will be updated at least annually or as required to reflect the actual project implementation needs and improvements in the institutional capacity ofthe implementing units. 2. Procurement of Works /Rural Infrastructure Subprojects (US$58.752 million): Works procured under this project would include construction and rehabilitation of farm-to-market roads and bridges, irrigation canals, water supply system and other rural and environmental infrastructures. No international competitive bidding (ICB) is expected under the proposed project due to the small size and dispersed nature ofthe contracts. Contracts estimated to cost US$50,000 or more will be procured following national competitive bidding (NCB) procedures using the Philippine Bidding Document (PBD) as harmonized with the Bank. The advertisement would include publication in at least one newspaper of general circulation, and the government’s electronic procurement system website (PhilGEPS). Most ofthe contracts are envisaged to be procured through NCB, however in cases of smaller value contracts, widely dispersed works which are not efficiently and economically justified to package, Procurement of Small Works costing below US$50,000 will be awarded based on shopping procedures, by comparing price quotations obtained from several contractors, usually at least three, as defined in Para. 3.5 ofthe Guidelines. Additionally, advertisement through the PhilGEPS would be required. 3. Procurement of Goods (US%US$O.5million): Goods procured under this project would include office equipment and furniture, information and communication technology goods, resource monitoring equipment, agricultural extension kits, surveying equipment and vehicles. The procurement for contracts costing US$500,000 or more will be done through ICB using the Bank’s standard bidding document (SBD). Contracts estimated to cost US$50,000 up to less than US$500,000 will be procured following national competitive bidding (NCB) procedures using the Philippine Bidding Document (PBD) as harmonized with the Bank. The advertisement would include publication in at least one newspaper of general circulation, and the PhilGEPS website. Procurement for off-the-shelf goods and small value contracts costing below US$50,000 will be awarded based on shopping procedures, by comparing price quotations obtained from several suppliers, usually at least three, as defined in Para. 3.5 ofthe Guidelines, 4. Selection of Consultants (US%0.5 million): Consultancy services to support implementation and operations of the project will be financed under the program. Fixed budget selection (FBS) and quality and cost based selection (QCBS) procedures will be followed in the hiring ofconsulting firms with contracts estimated to cost the equivalent ofUS$lOO,OOO or more. Contracts estimated to cost less than US$lOO,OOO equivalent may be procured through selection based on consultants’ 74 qualifications (CQ) fixed budget selection (FBS), or through single source selection (SSS), with the Bank’s prior Agreement, in accordance with the provisions ofthe Consultant Guidelines. In view of the unique knowledge ofthe local environment and communities, non-government organizations (NGO’s) and state universities and research institutions may be contracted through SSS to undertake specific tasks. Individual Consultants necessary to support the program, meeting the requirements set forth in Section 5 ofthe Consultant Guidelines, will be selected under contracts awarded on the basis ofcompetition in accordance with the provisions ofthe Consultant Guidelines. 5. Community Fund for Agricultural Development (CFAD) Subprojects (US$18 million). A broad spectrum ofactivities to be undertaken with the direct participation and involvement ofthe CFAD beneficiaries will be financed by the project through grants. The main purchases to be made would consist of construction materials for small works such as pavements, trails, water supply system, storage facilities, etc., small equipment, agricultural related materials and supplies, small ruminants, plants and seeds, and local technical support. An Operations Manual for CFAD was used under the first APL; this was revised and enhanced to incorporate lessons learned and innovations to make the CFAD more operationally functional to the intended CFAD beneficiaries. A dedicated section in the Operations Manual provides the procedures and processes involved in the procurement operations for the grants. 6. Natural Resource Management (NRM) Subprojects (US$4.4 million). A broad spectrum of activities to be undertaken with the direct participation and involvement ofthe LGUs and community- beneficiaries will be financed by the project through grants. The main purchases to be made would consist ofconstruction materials for small works and activities such as reforestation, embankment improvement, desiltation, dredging, small equipment, agricultural related materials and supplies, plants and seeds, local technical support, etc. An Operations Manual for NRM has been prepared to incorporate lessons learned under CMBC 1 and innovations to make the NRM Component more operationally functional to the intended beneficiaries. A dedicated section in the Operations Manual provides the procedures and processes involved in the procurement operations for the grants. 7. Training and Workshops (US$0.7 million): Training and workshops, including related expenditures for travel and accommodation, fees and materials, related to the project operations will be procured in accordance with existing government prescribed procedures and limits which are acceptable to the Bank. 8. Operating Costs (US$0.9 million). Activities relating to managing the project, including staff travel and office utilities and supporting the project operations will be provided in accordance with existing government prescribed limits and procedures acceptable to the Bank. Assessment of the agency’s capacity to implement procurement 9. Procurement activities will be carried out by the Department ofAgriculture’s Regional Field Units (RFUs) and Project Support Office (PSO), and the participating local government units (LGUs). The bulk ofthe procurement will be undertaken by the LGU’s under the Rural Infrastructure Component while the RFUs and PSO will be undertaking mostly minor goods and consultancy procurements. Each ofthe project’s components will have operations manual in which procurement aspects are covered in the manuals to make the procurement mainstreamed in the project operations. The procurement chaptershections in the different components’ operations manuals will form part ofthe consolidated procurement manual. The LGUs will implement the rural infkastructure component, and will undertake the related procurement activities. RFUs and PSO will provide support and oversight to the LGU’s implementing procurement activities. CFAD grants will be carried out either by the LGUs or the beneficiary communities depending on the nature ofthe expenditures and/or the required capacity. RFUs will also undertake their own procurement of small value goods and specific 75 consultancy contracts for the region while the PSO will undertake procurement ofconsolidated requirements for goods, and technical assistance covering multiple regions. 10. The Procurement Specialist made an assessment, during the months ofJune and September 2006, with the participation of DA and LGU staff of the capacity ofthe implementing agencies to undertake procurement activities for the project. The assessment reviewed the organizational structure for implementing the project and the interaction among the project’s staff responsible for procurement. The assessment took into consideration various studies, including the Country Procurement Assessment Report (CPAR) and its recent update of March 2005, and the baseline indicator system (BIS) assessment in which an independent consultant determined that the country, in general, was substantially achieving the desirable standards for reliance on its public procurement system. Based on the sampled LGUs’ and RFUs’ procurement performance indicators, adopted and customized from the DAC/OECD developed indicators, the implementing agencies have been diagnosed as generally acceptable in adopting the country system for its procurement undertakings. The implementing agencies have greatly benefited from the procurement and implementation reforms initiated under previous Bank-financed activities in MRDP1, and the on-going government procurement reform programs. Appropriate trainings have been provided to the LGUs in relation to the new Procurement Law (RA 9 184), and its implementing rules and regulations, and the use ofPhilippine Bidding Documents. 11. Issues/risks concerning the procurement aspects for implementation ofthe project have been identified, and these include lack ofcapacity ofRFUs to undertake the oversight and supporting roles to LGUs, inadequate capacity ofthe PSO to provide technical assistance to RFUs, weak procurement planning ofLGUs, and unclear project procurement process. The corrective measures which have been agreed upon include: designation ofprocurement coordinators/specialists in the RFUs and in the PSO; capacity building in the areas ofprocurement planning and monitoring, and bid evaluation; finalization ofthe consolidated procurement manual. While PSO staff have experienced procurement operations for this type ofproject under MRDP1, there is still a need to augment its procurement capacity due to the number of LGUs involved and the initial technical assistance it will extend to the RFUs who will be the main oversight and support unit in the regions, and who will review the LGU procurement actions. A training oftrainors has been conducted in June 2006 to ensure appropriate capacities are present in the regions. The training and knowledge have been echoed by the participating LGU’s by the regional trainors. The overall project risk for procurement is average. Procurement Plan 12. The DA developed a Procurement Plan for the first 18 months ofproject implementation, which provides the basis for the procurement methods. The Borrower and the Project Team both agreed upon this plan on February 8, 2007; it is available at the PSO ofDA and in the Project Files. It is also available through the Bank’s external website. The Procurement Plan will be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Frequency of Procurement Supervision 13. Based on the overall risk assessment, twice a year field supervision missions including post review of procurement action is to be implemented in addition to the prior review to be carried out from the Bank’s Manila office. With respect to each contract not subject to prior review, the procedures set forth in paragraph 4 ofAppendix 1 to the Procurement and Consultant Guidelines will apply at an initial ratio of not less than one (1) in five (5) contracts. This ratio may be adjusted based on the performance ofthe implementing units. 76 Prior Review Thresholds: 14. The first contract for goods and works per region per year, and subsequent contracts estimated to cost US$300,000 and above per contract will be subject to prior review by the Bank. 15. The first contract to be awarded following a particular selection method, and subsequent contracts estimated to cost US$lOO,OOO and above for firm, and US$50,000 and above for individual consultants, per contract will be subject to prior review by the Bank. 16. Shortlists ofconsultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely ofnational consultants in accordance with the provisions ofparagraph 2.7 of the Consultant Guidelines. 77 Annex 9: Economic and Financial Analysis PHILIPPINES: Mindanao Rural Development Project - Phase 2 Overview 1. The overall economic benefits of the project would mainly be derived from (i)the rehabilitation of farm to market roads and the subsequent savings in traveling time and reduction in vehicle operating costs; (ii)communal irrigation schemes which will generate an increase in farm productivity; (iii) improvements in the supply ofpotable water resulting in increased time savings from collecting water and reduced incidence ofwater-borne related sickness and disease; and (iv) community-based development through the availability ofcommunity funds. In addition, investments to support governance reforms, local government and other institutional capacity building, as well as to strengthen decentralized and community based decision making, will facilitate better implementation ofrural development programs, create social capital, and strengthen staff skills ofimplementing agencies at the local level. 2. The financial and economic analysis has been undertaken for investments in infrastructure and the community subproject components, from which quantifiable benefits can be estimated. The assumptions underpinning the analysis, the models for each subcomponent, key data and the results are based on the feasibility study submitted by the DA and the Bank’s ICR for MRDP1. Farm-to-Market Roads (FMRs) 3. The project aims to rehabilitate and construct some 1950 km and 200 km offarm-to-market roads (i.e,, roads), respectively. Additionally, 1000 lineal meters ofbridges will also be built. Rural roads targeted for rehabilitation are feeder roads to production areas and are not otherwise classified as national, provincial or city roads. By rehabilitating these roads which are already part ofan existing network ofroads, the overall use and value ofthe rural road network is increased. By ensuring that these roads are passable on a year-round basis, greater benefits are generated in terms ofreducing the cost oftransporting people, transporting agricultural produce to the market and transporting non- agricultural produce. The proposed Year 1 rehabilitation works, covering some 42 kms ofrural roads and 40 lm ofbridges, were proposed by the LGUs under APL1 but were not implemented as APL1 closed in December 2004. Succeeding targets will be selected, based on selection and prioritization criteria by the LGUs in close coordination with the RFUs concerned. 4. The economic analysis for the FMRs follows the consumer surplus approach. The approach makes use of traffic counts which are easily collected and are direct indicators of the level ofeconomic activity in a defined area. The benefits primarily considered in the analysis are the savings in Vehicle Operating Costs (VOC) and savings in travel time for rural commuters in view oftheir ability to take motorized transport once the roads are rehabilitated. 5. Other non-quantifiable economic and social benefits include: (a) improved access to inputs and output markets (b) reduced transport time in hauling produce to the market, and (c) improved access to education, health, communication and other technical and economic services, which are generally located in town centers. 78 6. Model Assumptions: The economic models used are based on the following assumptions: a. Road Condition: The model indicates the likely costs and benefits from rehabilitating a “typical” project road. As per project selection criteria, the typical farm-to-market or Barangay road identifiedby the project has gravel or packed earth surface and is in very bad or bad condition. Moreover, most project roads have stretches that are impassable and therefore require major reconstruction. It is assumed that rehabilitation ofrural roads under the project will bring the typical project gravel road to a good condition. b. Rehabilitation/Routine Maintenance costs: Estimated costs ofPhPl.8 millionflun and PhPl.3 millionflun for rural road construction and rehabilitation are used, respectively. A routine maintenance cost per year equivalent of PhP50,000/km. is also used. An added cost to this relates to investments in capability enhancements for the local staff to implement routine maintenance works to ensure that the rehabilitated roads remain in good condition. c. Investment Period: A 20-year life-span for newly constructed and rehabilitated rural road, maintained regularly by labor-based methods, is assumed. Investments in road construction and rehabilitation start in Year 1 and routine maintenance in Year 2. Benefits are estimated and accrued as soon as the project FMR is constructed or improved. d. TrafJic Volume Projection: A 1.5% annual growth rate in both population and traffic is assumed for each year following road rehabilitation. e. Vehicle Operating Cost (VOC) Savings: The analysis ofthe per kilometer cost associated with operating each type ofmotorized and non-motorized vehicle traveling on rural roads in the Philippines is conducted by the Department of Public Works and Highways (DPWH) on a regular basis. For the analysis, VOC savings per kilometer cost data are based on the MRDP1 impact studies conducted in 2004 (adjusted to 2005 prices). However, no benefits are assigned to savings in VOC for non-motorized traffic. Likewise, benefits accruing from savings using more cost- effective forms of transport are not considered in the analysis. f. Value of Time (VOT) Savings. The household survey conducted for the evaluation ofthe rural roads for MRDPI ICR, showed an average savings of0.26 hour oftravel time among the beneficiaries as compared to the baseline. The survey further reveals that 54 percent ofthe respondents reported a decrease in travel time by using the road. The analysis assumed an average daily wage rate ofPhP120 per day in computing the value ofthe time saved. g. Standard Conversion Factor (SCF): To convert financial cost to economic costs, a standard conversion factor of0.80 was applied to investment, O& M and VOC costs, and a CF of0.6 was applied to value the time savings. Based on the assumptions and parameters above, the ERR for FMRs for traffic roads (used daily) is estimated at 20% and for development roads (used seasonally) is estimated at 33.5%. The estimate should be interpreted with caution as there are significant economic and social benefits not factored in the quantitative analysis. Sensitivity test results suggest that a 10% increase in cost and reduction in benefits would bring down the ERR to 17.52 % and 17.13%, respectively. A simultaneous occurrence ofthese two events would result in an ERR of 13.67%. Extending the analysis further, the switching values indicate that the rural (traffic) roads can withstand a cost (investment and 0 & M costs) overrun of as much as 19% for the ERR to equal the required (Government NEDA) hurdle rate of 15%. On the benefit side, VOC savings and savings in time need to aggregately fall by 15% before the project yields a rate lower than 15%. 79 Communal Irrigation Subprojects 8. Agricultural productivity in the influence areas is expected to improve since the project will support small-scale communal irrigation by rehabilitating existing gravity schemes which are no longer operational or are inefficient and constructing new ones. The proposed rehabilitation will affect a total of 8,300 hectares. New construction of CIS will bring in an additional 800 hectares under irrigation. Under MRDP1, a socio-economic Survey ofnine (9) municipalities in the provinces ofMaguindanao and North Cotabato covering 3,052 respondents revealed that the average farm size per family is 1.58 hectare^.^' The number offarm households affected by proposed irrigation improvement interventions therefore may range from 5,253 to 5,759 families. At an average household size of 6 members, the total number ofbeneficiaries ranges from 3 1,520 to 34,557 individuals. 9. The rehabilitation of existing schemes will enable farmers to shift from unimproved irrigation to improved irrigation hence increasing crop yields and cropping intensity as compared to the present farming situation. In some cases, it is expected that once the systems are rehabilitated, farmers will be able to bring into the service area additional areas which hitherto remain non-irrigated, or even plant a third crop, albeit on a much smaller scale. 10. The benefits that arise from: (a) an overall increase in cropping intensity as more area ofland is brought under irrigated agriculture; (b) an improvement in farm productivity as adequate amounts of water is made available in a timely manner; and (c) crop diversification (i.e., vegetable growing) may likewise be an option that some beneficiaries might venture into at full development of the project. The benefits from such farming system, however, are not considered in the analysis. 11. Financial Analysis: Representative crop budgets have been prepared based on the baseline data and survey by project authorities, with key parameters and assumptions for crop budgets and farm income analysis are outlined below: a. -Model Structure: Incremental benefits are assessed by comparing the net benefit (after all costs) from without to with intervention scenarios. Only benefits accrued to the farm area brought from unimproved irrigation to improved irrigation are considered under the analysis that focuses on project rehabilitation. All agricultural area falling within the influence area ofa newly constructed scheme is considered in the assessment of new construction. b. Agricultural Seasons: While the Mindanao region as a whole is classified as having rainfall more or less evenly distributed throughout the year, farmers recognize two distinct agricultural seasons, a wet season which spans May to September and a dry season which spans October to April. Moreover, wet season irrigation is more productive with yields around 10% greater than those dry season yields in this region. c. Cropping Intensity:-The model assumes that with project (WiP) there will be 100% cropping in the wet season and 100% cropping in the dry season; in the without project (WoP) scenario, the cropping intensity is assumed to be 100% in the wet season and 50% in the dry season. Access to water for irrigation is a well hownconstraint to boosting farm productivity in the region. d. Full development benefits: Full development benefits for newly-constructed and rehabilitated communal irrigation systems are accrued in the year immediately following construction and rehabilitation works. 3' Proposed Liguasan Marsh Protected Area - Investment Program, DENR. 80 e. The estimated investment costs for rehabilitating existing irrigation systems and constructing a new system are PhP90,OOO and PhP140,OOO per hectare, respectively. Recurrent cost per annum is estimated at PhP700 per hectare per year. Project lifespan is pegged at 25 years. 12. Financial rate ofreturn calculation does not apply to individual schemes or subcomponent as a whole because no schemes or the whole subcomponent qualify in regard to the investment as “profit earning entities”. In other words, the investment in the scheme rehabilitation and new construction represent transfer payment or subsidy to farmers in the service areas as long as the investment costs are not meant to be recovered. Therefore the farm income analysis has been undertaken to assess the profitability for the households involved in the project. Based on the above, a representative farm size of 1.6 hectares, incremental farm income is estimated at PhP38,222 once the irrigation construction and improvement works are completed. This is based on the farm income analysis which depicts the average farm beneficiary’s on-farm income improving substantially from PhP40,75 8 per year under the “without project” scenario to PhP78,980 per year under the “with project” scenario. 13. Economic Analysis: Based on the financial analysis, the ERR calculation taken in account all the incremental benefits and costs in an aggregated economic cash flow, built up in line with physical achievements by year. The financial prices were converted into economic prices using the CFs as defined below: (a) For converting construction costs ofnew schemes and rehabilitation ofexisting schemes, the Standard Conversion Factor (SCF) of 0.8 was applied; and for the major tradable goods ( paddy), the parity prices were used; (b) for agricultural labor, a conversion factor of0.60 is used in assessing the ERR for the entire irrigation subproject; and (c) a conversion factor ofzero is applied to irrigation user fees and land tax since they are transfer payments. 14. Based on the above assumptions, the ERR for the communal irrigation subcomponent is estimated at 26.53% (NPV ofP320 million, at a discount rate of 15%). Sensitivity test results meanwhile reveal that this subcomponent would still yield an acceptable ERR should any ofthe following events ensue: 20% reduction in benefits (ERR of 14%); or 30% cost overrun (ERR of 15%). Improvement of Water Supply Systems 15. The project will support improvements ofdomestic water supply for the upland and lowland communities in the participating LGUs. It is estimated that some 68,000 households are expected to benefit from this subcomponent starting on Year 2 of the project. The expected impact ofthe component is assessed using a simple model developed below. The capital expenditure requirement for the proposed development of342 water supply systems is estimated at PhP239.4 million or an average cost ofPhP700,OOO per unit for either a Level 1 or Level 2 water system. As with MRDP1 experience, unskilled labor and raw materials and supplies required for annual operation and maintenance ofthe systems programmed for rehabilitation under MRDP2 will be provided by the beneficiary barangay. The estimated imputed annual operating and maintenance cost per household is deemed equivalent to 1.0% ofthe investment cost. Some 200 households will be served by each water system. Under ApL1, savings in time for fetching water was empirically measured at 36 minutes per day per household. For purposes ofanalysis, this figure is adopted in the estimation ofeconomic benefits. 16. The analysis is based on benefits generated from avoided costs with the project with the following assumptions: 17. Benefits: The economic analysis for this subcomponent considered only the benefits derived from savings in time for fetching potable water as these could be used for income generating activities by the beneficiary households. The savings in time generated from the household survey was 36 minutes 81 per day per household. Since water fetching is usually done by women and children, the assumed wage rate was PhP120/day and only half ofthe time savings converted into economic price by using 0.6. Non-quantified benefits include increases in beneficiary household productivity as a result ofthe availability ofwater as an input for household activities and other social benefits, and avoidance of waterborne diseases. 18. Costs: The financial investment costs are converted to economic costs using the standard conversion factor of 0.8 for the investment costs, while O&M costs and the benefit oftime savings are adjusted by the conversion factor of0.6. The assumed annual maintenance costs were 1% ofthe total investment, which will be financed by the barangay, and a monthly water fee is being collected from the beneficiaries for this purpose. A major repair cost of 10% ofthe original investment was also assumed in every ten years. 19. The net present value (NPV) and economic rate ofreturn (EIRR) are assessed assuming a discount rate of 15 % and a project life-span of 15 years. Based on the above, the estimated ERR for this subcomponent is 46.5 percent. 20. As stated above, the non-quantified benefits such as increases in beneficiary household productivity as a result ofthe availability ofwater as an input for household activities and avoidance ofwaterborne diseases are significant but not included in the analysis. The ERR therefore is considered conservative and such no sensitivity analysis is needed. Miscellaneous Small Rural Infrastructure 21. LGUs have a tendency to concentrate most oftheir investment proposals in access infrastructure. During the Mindanao-wide consultations conducted by the APL2 Project Preparation Team, miscellaneous small rural infrastructures were brought out for possible financing under APL2. These include: (a) hanging bridges; (b) motor trails; (c) timber ports; (d) rock causeways and walkways; (e) pedestrian walkways; and (f) solar drying pavements. Since the demand for these infrastructure facilities is much smaller than the three main subcomponents, their investment requirement is lumped into one subcomponent. Under APL2, a total ofPhp180.0 million is proposed to finance miscellaneous rural infrastructure projects over a five-year period. However, since the specific configurations, distribution, demand patterns and locations ofthese miscellaneous rural infrastructure projects have yet to be established, this subcomponent can not lend itself to a substantive viability analysis at this stage. Rural Infrastructure - Component Analysis 22. The rates ofreturn analysis for the various subcomponents are indicated above. These indicators may be deemed conservative considering that the upper limits ofconstruction and rehabilitation cost estimates are used in the analysis. Benefits that are supposed to accrue from the implementation of certain miscellaneous small infrastructure projects are also excluded. Community Fund for Agricultural Development (CFAD) Subprojects 23. Building on the experience in MRDP1, the Project will continue to address the need for diverse and sustainable income generating projects in targeted poor and very poor communities in rural Mindanao by supporting the development ofmicro-enterprises under the CFAD. The intent ofmicro-enterprise development is to address poverty by increasing agricultural production and enhancing agricultural productivity, creating livelihood and employment opportunities, and also providing access to assets 82 (e.g., infrastructure) and production resources (e.g., financial and technical assistance). Operating within the scope ofthe Agriculture and Fisheries Modernization Act (AFMA) and supporting the implementation ofthe Local Government Code, this component shall at the municipal level make available funds for community-based projects that reflect local priority needs. It shall also draw lessons learned fiom and best practices observed under the earlier phase. 24. A menu ofpossible micro- and small-enterprises will be offered to the targeted communities. These will be undertaken with direct participation and financial contribution ofbeneficiaries. Each ofthe 225 municipalities identified under this phase will be involved in implementing this component with each one being allocated a block grant amounting to PhP1.5 million and PhP0.5 million for the loan proceeds and the Department ofAgriculture, respectively. Adding the LGU’s counterpart contributions ofPhP0.5 million, each participating municipality carries a portfolio amounting to PhP2.5 million. Estimation Methodology and Results 25. Since the target communities will ultimately determine the type and scope ofeach subproject, an ex- ante quantification ofcosts and benefits can not be undertaken accurately. However, for the purpose ofanalysis, four (4) likely subprojects are presented and examined in some detail. These subprojects include: (a) asparagus production, (b) high-value vegetable farming, (c) coconut ropes and twine production, (d) banana production and (e) cocoa fiber. Using the modular approach, the impact of these interventions is estimated. The first step is to examine the costs and the benefits ofthe individual subprojects. With the amount allocated to each community used as a cap, the subprojects are then collectively analyzed as a component. 26. Based on this approach, the economic analysis conducted indicate that given an investment fund of PhP2.5 million per municipality, the overall ERR “with project” stands at a robust 37.4%. This estimate can vary depending on the combination ofsubprojects adopted by each community. Regardless ofwhatever combination of subprojects is adopted within the investment cap by a community, however, this component will be able to retain its economic viability. Total project EFWNPV 27. At the component level, the farm-to-market roads investment yields an ERR of20.06 percent (for traffic roads) and 33.48% (for development roads); the investments in communal irrigation development generate an ERR of26.53%; communal water system development results in ERR of around 46.52%. The ERR for the Community Fund component at 37.4%. The overall project ERR and NPV aggregates the incremental benefits and costs from infrastructure and CFAD components, and included (a) total costs for project management, (b) 50% oftotal costs for institutional strengthening and capacity building components, on the grounds that the benefits accrued from improved public services delivery will not only serve the project per se but will be shared by the local economy as whole. The NRM component is not included in the analysis as the Cost- Benefit Analysis approach is not applicable for this component. As such the overall project ERR is estimated at about 21.51% with NPV at PhP 1.05 billion (OCC at 15%). 28. The project, either by component or as a whole is economically viable. No sensitivity analysis was carried out for the project as a whole as quantifiable benefits were estimated on a conservative basis and substantial unquantifiable benefits (and other beneficial externalities, see Section below) were not taken into account in the ERR calculation. 83 Externalities 29. A multi-pronged development project such as the MRDP2 affects a large number ofpeople within and outside the region of location. It has primary and secondary benefits, each ofwhich creating its own multiplier effects. The term “external effects” or “secondary benefits” used in this study is a catch-all term to describe the indirect contributions that MRDP2 would make apart from those reflected in the direct utilization ofthe project outputs. 30. Other than reinvestments, the principal source ofsecondary benefits with respect to the regional objectives ofincreasing aggregate consumption or promoting economic growth in the region is private investments that would be induced by public projects such as MRDP2. For instance, the intensive operations in all affected landholdings ofbeneficiaries (complemented by an effective delivery ofextension services, better farm-to-market roads and improved access to private capital) could lead to the adoption of improved mix or diversified farming system in farms adjacent to the project sites, and consequently, to investments by farmers and their dependents in fertilizers, crop protection, conservation measures and agri-based livelihood enterprises. 3 1. Another source of secondary benefit vis-a-vis the regional growth objective is the consumption produced by the spending of the beneficiaries ofthe project in ancillary production activities. As APL2 raises the incomes ofbeneficiary-families, they consume more and their expenditures give rise to additional employment, income and consumption. The consumption ofthose who earn wages and profits from the sale of goods and services to the target beneficiaries creates still more employment, income and consumption, and so on in a chain reaction that is difficult to “internalize”. Fiscal Impact 32. As with MRDP1, the Program by design, is treated as “budget support” from central government with co-financing arrangement with local governments. The results of the analysis ofthe fiscal resources ofMindanao LGUs highlight the crucial role that participating local government units will assume in implementing and “owning” the proposed subprojects ofMRDP2. The strengthened revenue generation and enhanced efficiency in allocating these resources to well-planned development initiatives alongside measured commitments to lessen their dependency on the PRA will generate a significant positive fiscal impact for the project. With greater flexibility and willingness to provide a bigger share ofthe Development Fund to rural development projects and to reallocate IRA resources for the much needed rural and economic infrastructure facilities in their respective localities, participating LGUs shall be able to meet their financial commitments to the project during its implementation. For the less financially endowed municipalities, securing the assistance ofprovincial LGUs in augmenting municipal LGUs’ capability to provide the counterpart funds required can not be overemphasized. Over the life ofthe Project, these LGUs will be required to commit an aggregate amount of some PhP1.66 billion or US $32,01million by way ofcounterpart funds while the DA will be required to put up an estimated amount ofPhp436.37 million or US$8.39 million towards financing the Project. It becomes imperative therefore for the DA to ensure that its annual counterpart contribution to the Project is appropriately covered by the agency annual budget. 33. Furthermore, a fundamental fiscal impact that can be achieved from the Project is the effective and enhanced fiscal management and administration system, rural developmental planning and effective and organized community participation. These are likely to result in improved poverty alleviation in affected areas as rural communities’ access to social and rural infrastructures becomes better. The intensified implementation ofparticipatory community subprojects, which has an aggregate budget of PhP 1.55 billion or US$29.8 million, will strengthen agncultural support and socio-economic development initiatives ofthe LGUs particularly in the bottom-up planning, governance and 84 ownership. This will promote agribusiness, crop diversification and small scale-investments which in the long run will help sustain the gains of the project. In addition, the implementation by contract, rather than by force account, ofthe rural infrastructure component ofthe project, which has a budget ofPhP4 billion or US$84 million, will promote cost-effectiveness as well as cost-efficiency consciousness in project execution among LGUs. The LGUs’ intensified adoption ofthis system could also ensue from improved fiscal management. These improved modalities in implementing both the CFAD subprojects and rural infrastructure components will ultimately lead to greater efficiency in the use ofboth national and local government resources. 34. The future fiscal impact after project completion for national budget will be small as national level counterpart funds will already have been absorbed as part ofannual budget funding. On the part of the LGUs, there will be further demand for fiscal resources to cover the O&M costs for FMRs and irrigation systems. Based on MRDP1 experiences, LGUs will be in a satisfactory position to meet their financial commitments towards the project. Furthermore, as mentioned above, positive fiscal impact can be expected from the project as a result of improved rural development planning, increased community participation, and new and better ways ofallocating fiscal resources by LGUs while supporting rural development priorities viewed as important by rural communities. 85 Annex 10: Safeguard Policy Issues, Social Assessment and Analysis PHILIPPINES: Mindanao Rural Development Project - Phase 2 Background 1. The first phase ofthe MRDP provided the operational model to effectively “translate into action” the government’s policies toward rural poverty reduction, decentralization offunctions and responsibilities to Local Government Units (LGUs), and participatory development processes in local governance (targeted to include minority groups) in Mindanao, an area ofconsiderable socio- political, economic and policy significance. 2. The long-term rural development program was designed as a targeted poverty reduction program for the rural poor and indigenous communities of Mindanao by improving incomes and food security in the targeted rural communities in the 27 provinces ofMindanao. Poverty reduction efforts were to be directed not only in agricultural and fisheries-related rural development and biological diversity programs, but also in strengthening capabilities ofparticipating local government units to provide the needed agriculture and fisheries services to the rural communities. Between 2000 and 2004, MRDP1 set out to implement its development objectives using a multi-pronged approach towards rural development. It laid the groundwork by setting up the processes in engaging the LGUs, rural poor communities, the Department ofAgriculture, and the Department ofEnvironment and Natural Resources (DENR) in planning, designing, and implementing rural development and coastal resource conservation programs. 3. Overall, MRDP1 is regarded to have succeeded in reaching its objectives. Notable among its accomplishments are: It was instrumental in introducing vital “change processes” toward the institutional and operational decentralization and sustainability of vital agriculture services, and in enhancing core rural development skills of local government units. 4. MRDP1 introduced a workable institutional model for localhational government engagement (through the integration ofcommunity and LGU development plans into the Department of Agriculture’s Agriculture and Fisheries Modernization Plans). The Program reinforced existing local mechanisms for rural development planning and tested participatory community planning models that enabled community priorities to be integrated in the local governments’ investment programs. Strong linkages were forged between municipalities and their provincial offices in the common pursuit ofa rural development agenda. 5. As indicated in the Implementation Completion Report (ICR) thirty-two participating municipalities in five provinces now have a better understanding ofLGU rational planning and financial processes and the principles offund and resource allocation; practice good procurement and contract supervision skills; and value the importance ofOperations and Maintenance in sustaining investments. In addition, LGUs have acquired skills in social and environmental compliance monitoring, and monitoring and evaluation (albeit to a limited extent). 6. Further, participating municipalities established municipal multi-sectoral committees (MSCs) to ensure adequate representation ofthe different sectors and the deliberate inclusion ofthe Indigenous Peoples needs and priorities in the local investment plans. Lastly, a mechanism such as the Program Coordination Office gave the ultimate responsibilities for planning and implementation to LGUs 86 rather than the DA, which now assumed the coordination, facilitation and technical support roles which it is actually designed to play under the decentralized concept ofservices delivery. MRDP strengthened not only the decision-making knowledge and skills of LGUs, but also empowered communities and minority groups, instilling in them a strong sense of conJdence in planning for their communities. 7. Four years prior to MRDP, the budget allocated for agricultural and fisheries-related projects by the covered provincial and municipal local governments was at a level ofonly PhP 40.2 million. After MRDP1, expenditures of these LGUs on agriculture and fisheries rose to PhP 101.8 million. 8. A significant change was also noted in the area of decision-making by LGUs for developing their local investment plans. Currently, barangay priorities can only be considered at the municipal level if they went through the same rigorous participatory development planning processes which were demonstrated in the MRDP-covered barangays. 9. At the community level, external program evaluation findings showed that allowing access to Barangay decision-making has encouraged People’s Organizations (POs) to develop a stronger sense of accessibility, social inclusion and greater financial well-being. The 1,500 POs representing 17,000 people learned to expand their subprojects and apply the participatory planning, decision-making and problem-solving approaches acquired under the Program to other development initiatives in their localities. MRPD -APL I significantly improved food security among the targeted rural communities, brought by the introduction of integrated food security technologies, and the creation of livelihood opportunities which augmented income of the poorest families. Thesefamilies, prior to MRDP, were reported to be taking only one to two meals per day (as per the Social Assessment Report, 1999). 10. The ICR indicated that through the Community Fund for Agricultural Development (CFAD), MRDP 1 empowered vulnerable groups like women and indigenous people communities, by allowing them to express and develop higher levels ofawareness about their conditions, and actively and deliberately engaging them in planning, implementing and managing various subprojects. Approximately 1,5 83 income-generating and productivity- enhancing subprojects and small infrastructure subprojects benefited at least 37,000 households (for the food security and livelihood interventions) and 16,000 individuals (for the small infrastructure investments). Overall, the same report stated that CFAD was the “main driver for institutional development, skills transfer and capacity-building under MRDP 1”, 11. Positively influenced by Social Assessments and massive consultations with communities, CFAD subprojects deliberately targeted vulnerable groups like the women (representing 47% of beneficiaries, of whom IP women are included) and the Indigenous Peoples (22%). Independent ex- post household surveys which gauged beneficiary perceptions indicate that almost 70% consider themselves better-off, as compared to a mere 9% at mid-term. Proposed MRDPZ Enhancements 12. MRDP2, as proposed in the Feasibility Study Report, shall proceed to cover more Mindanao rural communities with poverty alleviation still as its overall goal, implementing the same core strategies of Integrated Rural Development Planning, Rural Infrastructure, and CFAD using Decentralized levels ofCoordinative Structures involving the DA as the institutional arrangement for Program delivery. For MRDP2, stronger emphasis on mainstreaming established integrated participatory processes for 87 planning will be made, and shall be vigorously pursued under the proposed IGR Component. This improvement is made based on the MRDP findings that Regional Field Units and other Technical Services Units ofthe DA at the field level were not fully engaged during the MRDP1 implementation. 13. Sustainable development, which requires, among others, facilitating the development ofpartnerships among various levels of stakeholders occupying and governing different types ofagro-ecological systems, will take prominence in the MRDP2's Natural Resources Management Component. The component will adopt the same participatory processes developed in MRDP1 in the development and implementation ofbiodiversity conservation plans across different ecosystems. 14. CFAD shall remain focused on responding to the needs and priorities ofvulnerable groups in high- poverty incidence communities, targeting 30% ofprojected beneficiaries to comprise ofwomen and Indigenous Peoples at the end ofMRDP2. A proposed enhancement is the financial and technical assistance to be provided to successful POs of MRDP1 and other small farmers and fisheries groups, which involves marketing advisory services and other value-adding technologies to further enhance 'beneficiary incomes and productivity. Social and Institutional Analysis 15. The DA Institutional Environment. The Agriculture Fisheries and Modernization Act (AFMA) seeks to modernize the agriculture and fisheries sector by transforming these sectors from a resource- based to a technology-based industry. Extension services as mandated by AFMA cover the provision by the DA oftraining services, farm and business advisory services, demonstration services, and information and communication services through multi-media. AFMA has also mandated that the delivery ofextension service shall be multi-disciplinary and shall involve the farmers, fisher folks and their organizations and those engaged in food and non-food production, processing, including the private and public sector. This is a major shift in roles for the DA, and poses as a big institutional challenge to the Program as it expands to the remaining 20 provinces and 3 regions ofMindanao. 16. The ICR indicated that MRDP1 did not satisfactorily involve the DA Regional Field Units (RFUs) and other Research and Technical Units at the field level in the integrated planning process during the first half ofimplementation. Though late however, the RFUs actively pushedspearheaded the preparation and integration ofAFMPs up to the regional level for two consecutive planning periods. However, the allocation and disbursement of local funds by the DA for the other non-MRDP-covered LGU-identified priorities has yet to be tested. 17. The DA seeks to address this through the clear development ofresponsibility and authority sets for coordinating the different components ofthe Program among its various levels ofProgram Management. In various meetings during preparation, the DA Management recognizes that the presence ofcompetent management leadership (from the central office down to the RFUs) who value systems integration will spell the difference between Program success or failure. LGUs equally accept that competent and strong Program Management Leadership is essential as various disciplines and cross traditional organizational boundaries are integrated. 18. Another MRDP2 response is the inclusion of various integrated planning and on-the-job team development programs, involving not only the DA RFUs but also the LGUs, the Research, Development and Extension Units ofthe DA Field Offices, and the communities as well. This is reflected in the Institutional Strengthening Component ofthe Project. Other key problem areas noted in MRDP1 shall also be addressed, such as the following: 88 a. The need to establish and institutionalize social participation technologies and communication for social action. An improvement on the planning model used in MRDP1 for the Rural Development Planning for Agricultural Development Planning (RDPAP), which was fragmented and not integrated is envisioned. Under the multi-level planning in MRDP2, stakeholders’ outputs are harmonized vertically and horizontally. Community-friendly tools and processes for planning will be manualized for wider dissemination and encourage uniformity in the outputs of the planning exercise will be encouraged. b. The need to institutionalize the regional research, development and extension system. Institutionalizing the Network will help promote a closer collaboration between the researchers ofthe DA and the LGU extension workers. It will also facilitate allocation by LGUs of additional resources to support research and extension programs. Moreover, it will encourage convergence of the different support institutions, including the LGUs, Department of Science and Technology, and State Universities and Colleges. The Vulnerable Groups: Women and the Indigenous Peoples 19. Profile of Indigenous Peoples in Mindanao; Indigenous communities comprise a substantial segment of the country’s population. As of 1998,32there were about 15 million indigenous people in the country, making up approximately 20% ofthe total population. The National Commission on Indigenous Peoples or NCIP, the government’s main policy-making and implementing agency on indigenous communities, located more than half (61%) ofthe indigenous peoples in Mindanao. In an Asian Development Bank (or ADB) three ofthe five regions where indigenous peoples comprise at least 40% of the total regional population are in Mindanao. Region 10, which cover the provinces ofMisamis Occidental, Misamis Oriental, Bukidnon, and Camiguin, is home to an estimated 1,470,000 indigenous peoples, nearly 60% ofthe regional population. Around 4546% of the total population of Region 1134 and the Caraga are indigenous peoples. (Region 11 and Caraga region have 4,604,158 and 1,942,667 population, respectively.) 20. In more remote, interior areas of Zamboanga live the Subanen; the Higaonon in Bukidnon uplands. The Bagobo, Manuvu, Mandaya, Matigsalug, and Ata comprise the indigenous populations in the provinces ofBukidnon, Cotabato, Davao, and those ofSoutheastern Mindanao. They live mostly in mountainous ranges and in remote coastal areas. 2 1. Marginalizationof Indigenous Peoples: Economically and politically, indigenous peoples are one ofthe country’s disadvantaged groups. They usually live in areas where poverty is most severe. Marginalization ofthe indigenous could be traced to the country’s colonization. Communal ownership ofresources, including land, thrived among tribal communities. However, Spanish settlers enforced on the islands encomienda, a policy which expropriated the lands fkom the indio and, transferring all rights to the monarch’s control. Americans retained the encomienda system but also introduced market economy, where lands could also be private property. The spread and dominance ofChristianity, imposition and.institutiona1ization of the Regalian doctrine, encroachment of lowlanders and those coming from other towns, and pressures ofcorporate interests further relegated indigenous peoples to the margins. 22. IP Communities Perceptions of Development Projects: Over the years, indigenous peoples have been displaced by the entry ofmigrants, logging and mining activities, and reforestation projects. l2httu://adb.ore/Docunients/Reportsllndi~enous Peonles/I’HI/Chautel. 3.udf. l3httu:Nadb.orW‘Doctinients/Reuorts/Indiecnoua Pcoulcs/PHI/Chauter 3.udf. 34 Region 11 consists of the provinces of Saranggani, South Cotabato, Davao Del Norte, Davao Oriental, and Davao del Sur 89 Continuing loss of their lands appears as a primary concern among indigenous peoples, as development is being pursued in their areas. Natural Resource Management programs have disregarded them in most cases, at times even cutting them from the forests which is their main source ofsubsistence. And for those who do own their lands, a sense ofanxiety is commonly felt. In the case ofthe Higaonon in Bukidon, they reported that in the 1970s, many oftheir community members, because of grinding poverty, were forced to sell their lands to migrants for a few pieces of clothing, canned goods, or alcoholic beverages. Indigenous peoples also have to contend with destruction ofcrops by natural disasters and pests, recurring military and insurgent operations, erosion ofindigenous practices and beliefs, and introduction oftechnologies unfamiliar to them. Indigenous peoples also cited certain government development and reforestation projects that were carried out without their approval. Some indigenous communities recalled having been consulted only during the project proposal and that discussions were not followed through at the other stages of the project. 23. Indigenous peoples, however, usually say that they do not regard themselves “poor” in the sense non- indigenous societies would use. According to the IPSin Northwestern Mindanao, they cannot be poor if they can regain access to and control offorests, acquire knowledge on forest use and management, in lieu of formal schooling, and revive indigenous systems. In a series ofdiscussions with indigenous communities about their situation, they identified the following development needs and aspirations: I Full implementation of the Indigenous Peoples ’ Rights Act. Dispossession ofland, through legal and extralegal means, is one ofthe main sources ofhopelessness among the indigenous peoples about their plight. 1 Educationfor their future generation. Indigenous peoples are willing to sell their land or a piece ofheirloom to be able to send their children to school. 1 Rural Infrastructure. Indigenous peoples recognized the need for more roads and bridges for increased productivity. In addition to roads, the IPSwant the local government to help them build “tribal halls,” where community members can meet regularly and discuss their communities’ development. 1 Self-governance, Indigenous peoples have expressed strong interest in being involved in community development. They want to be engaged in planning and carrying out agricultural projects, provided that the activities do not compromise their indigenous cultures and traditional systems. Management and protection of forests. Indigenous peoples gave accounts ofgovernment-led conservation projects that were implemented without their consent and restricted them access from forests. They want to be directly engaged in forest and resource conservation and management. 1 Organization structures that will protect indigenous peoples from outside forces. IP leaders want to protect their traditions and other cultural practices from the corrosive influence ofschool and the media, and the entry ofcorporate projects. 1 Culture-sensitive interventions. Many development facilitators went into indigenous communities implementing subprojects, with limited knowledge oflocal practices. Findings from stakeholder-workshops for APL 2 show that some community organizers, municipal, and barangay facilitators were ill-equipped with adaptive skills to respond to needs ofdifferent IP communities. They expected the IP communities to grow at the same rate oflearning as their non-IP counterparts. There were few instances ofstereotyping ofindigenous peoples by local implementers ofprojects. 90 Safeguards 24. The following safeguards policies apply to MRDP2: a. Indigenous Peoples Policy (OP/BP 4.10). Indigenous communities are known to inhabit in areas covered by the Project. They will be mostly beneficiaries ofthe Project. b. Involuntary Resettlement Policy (OP/BP 4.12). Resettlement is not expected to occur in the Project. However, there may be minor land acquisition for the right-of-way ofaccess roads and in lands where some ofthe subprojects will be constructed. c. Environmental Assessment Policy (OP/BP 4.01). The Project will finance mostly rehabilitation and a number ofnew constructions ofrural infrastructure, which will have localized environmental impacts during construction. d. Pest Management (OP4.09). NRM interventions and community subprojects may support agricultural andor technological demonstration farms that may entail limited or prudent use ofchemical pesticides, within the context ofIntegrated Pest Management (IPM), which is being actively promoted by the DA. The Screening mechanism for subproject selection will include provisions for pest management consistent with the operational policy. These are stated in the Environmental Guidelines and operations manuals. 25. Frameworks and operations guidelines have been developed for these safeguards policies under MRDP1. In MRDP2, these were enhanced based on the lessons ofMRDP 1 and on the recent social and environmental assessments conducted. The improved guidelines are mainstreamed in the manual of operations ofall Program components. Indigenous Peoples Policy 26. MRDP1 developed an IP Policy Framework and Operations Guidelines to direct the Program’s activities in so far as Indigenous People are concerned. The IP Operations Guidelines have been further improved based on the results ofan IP assessment conducted in 12 IP-inhabited communities across five MRDP1 provinces (please see Project Files). 27. CFAD operationalized the policy through its deliberate inclusion ofIP communities in its targeted beneficiaries. In addition, IP consultation meetings were held consistently to ensure that subprojects affecting ancestral domains or IP communities were presented and meaningfully explained to IP communities, prior to their approval. 28. There are, however, reported cases (though very negligible) ofpowerful interests undermining the IP development processes, and have taken over the management ofagri-based livelihood interventions from the IPS. 29. In response, MRDP2 will continue to enforce the same IP policy, but enhancements to the delivery structure for the Project’s components - especially CFAD Implementation in IP communities - will be added, to avoid migrants from taking over development assistance provided to IP communities. Measures will include the following: (a) Technical Working Groups comprising the National Commission on Indigenous Peoples and Federations ofIP Tribal Groups will be established at the Provincial LGU level to facilitate planning and consultation processes; . 91 (b) Indigenous Peoples Ancestral Domain Sustainable Development and Protection Plans (ADSDPP) will be integrated in the LGU development plans; (c) NGOs with track records in working with IP communities shall be tasked to deliver appropriate culture-responsive capability-building interventions in IP communities; (d) IP Facilitators selected by their respective Tribal Councils will be trained to facilitate IP community mobilization processes and delivery ofextension services; and (e) IP women selected by the Tribal Councils shall be organized to take leadership for Food Security interventions and as trainers for extension services. 30. These operational strategies are reflected in the Operations Manuals, and are further described as a special Chapter for IP Communities Engagement in the Manual ofOperations. While CFAD will not be able to respond to the concerns over titling ancestral domains, these initiatives will further bring development of IP communities to the frontlines. Involuntary Resettlement 3 1. MRDP2 has updated the Land Acquisition, Resettlement and Rehabilitation Policy Framework based on the new OP 4.12 on involuntary resettlement. To ensure that key stakeholders, especially project displaced persons, are meaningfully involved in key Project decision making, the Project has developed a social participation framework that cuts across project components and across levels and phases ofproject management. The framework provides avenues for beneficiary groups to develop their individual capacities as well as their institutional capacities to become effective development partners ofthe Project. 32. Given the nature of the local and community subprojects, land acquisition and demolition of houses/structures and displacement ofpersons is not anticipated in MRDP2. All farm-to-market- roads will follow current alignments, thus minimizing potential environmental impacts and land acquisition. Should these be necessary, e.g., in rehabilitation of infrastructure (including any minor right ofway adjustments for roads or irrigation canals), they would be kept to a minimum; for new communal irrigation projects, the lands required for the canal system will be acquired in consultation with the benefiting communities and will be consistent with existing practice under MRDP1. 33. The DA has demonstrated capabilities for training LGUs to comply with the Policy Guidelines, and has exercised due diligence in monitoring and evaluating compliance by implementing units to the safeguard policy. The only improvement in MRDP2 is the development ofan Operations Manual for the LARR Policy, to guide the DA RFUs in training, monitoring and evaluating the LGUs’ adoption and strict observation of the safeguard policy. Staff ofthe MRDP1 Planning Unit, who took leadership for the implementation and monitoring ofthe LARR, shall twin with their RFU Counterparts during the first two years ofsubproject implementation, to ensure that RFUs acquire the knowledge and skills to observe faithfully the requirements ofthe LARR. Environment (Category B) 34. The project will support mostly rehabilitation and few new construction ofrural infrastructure, such as farm-to-market roads, levels Iand I1water supply systems, communal irrigation systems, multi- purpose centers and solar dryers. It will also support community subprojects, NRM interventions and sustainable income generating activities. The environmental impacts for these types ofsubprojects and activities are assessed to be minor, localized and reversible. For these reasons, the project is classified as Environment Category B. 92 35. Environmental Impacts. A Mindanao-wide environmental assessment (EA) was conducted by the Department ofAgriculture (DA) as part ofproject preparation. The EA took into account the types and scale of subprojects and activities to be supported under MRDP2, and the experience and lessons learned in implementing subprojects under MRDP1. The results of the EA indicated that environmental impacts ofsubprojects and activities to be supported under MRDP2 are insignificant, localized and highly reversible. Impacts are mostly related to civil works. a. Civil works impacts: The rehabilitation and/or construction ofrural infrastructure may contribute to the short term degradation ofthe environmental quality in the immediate vicinity ofthe construction site. It may increase the noise and dust levels that could affect the health of construction workers and nearby settlements, degrade the quality ofnearby water bodies if earth spoils and solid wastes are not properly disposed of and if sanitary facilities are not provided. It could also endanger the lives ofthe workers if occupational health and safety standards are not practiced at the construction site. These impacts, however, are short-term and limited only during the construction phase and can be easily mitigated by adopting proper construction site management, practicing good housekeeping measures and properly adopting occupational and health safety standards. b. Impacts on vegetation and natural habitats: Construction and/or rehabilitation ofrural infrastructure, if not properly sited and designed, may damage existing vegetation and ecologically-sensitive natural habitats. 36. Environmental Guidelines. As a result of the EA, environmental guidelines were formulated both at the Project and the subproject levels, which would guide both the Department ofAgriculture and the subproject proponents on what environmental and sustainability considerations are to be taken into account when preparing, designing and implementing subprojects. The guidelines are mainstreamed into the Operations Manual ofeach component. In general, the project will have the following guidelines: a. Construction works will not be located in protected areas and other sensitive areas: Civil works activities will not be in environmentally-, culturally- and socially-sensitive areas. Any construction works that will pose significant environmental risk and/or those that encroach protected areas will not be funded by the project. b. Contracts to include environmental measures: The contracts for civil works activities will include clauses on proper construction site management, good housekeeping measures, provisions oftemporary sanitary facilities such as portalets, proper waste disposal, adherence to dust and noise standards and adoption ofoccupational health and safety standards. c. Huge civil works with adverse environmental impacts will not be funded: The project will not support huge civil works activities, land conversion, resource extraction, industrial production or any activity that could adversely affect the environment. d. Purchase and massive use ofpesticides will not be funded/supported: The project will not finance purchase of chemical pesticides nor will it support massive use ofpesticides. Instead, the project will encourage adoption ofintegrated pest management (IF'M), which is also being advocated by DA. e. Mitigating measures: Subprojects and activities that may cause negative impacts on the environment, based on the screening, will be required to prepare and implement relevant mitigating measures. For subprojects covered under the Philippine environmental impact 93 statement (EIS) system, proponents will be required to prepare the Initial Environmental Examination (IEE) for submission to and review by the Department ofEnvironment and Natural Resources (DENR) and the subsequent issuance ofenvironmental compliance certificate (ECC). Implementation Arrangements 37. Subproject Proponents are the municipal local government units and communities. They will be responsible for ensuring that their subprojects and activities comply with the environmental guidelines and the social safeguards frameworks (IF and LARR) set forth in the Project’s Operations Manuals. Should their subprojects be covered by the Philippine EIS system, they will also be responsible for preparing the relevant IEE checklist or report for application and issuance of ECC by the DENR. They will also monitor compliance ofcontractors on the environmental provisions ofthe contract and impose penalties should there be violations in the contract. 3 8. DA-Regional Field Units/Project Coordination Office will be responsible for screening subproject proposals for environmental and social safeguards issues, coverage and non-coverage with the Philippine EL4 and compliance with environmental guidelines and social safeguards frameworks. They will also monitor subproject proponents’ compliance on environmental management plans, mitigating measures and social safeguards frameworks agreed during subproject preparation and appraisal. In addition, the DA-RFUsPCO in coordination with the PSO and the DENR will provide trainings and capacity building programs on safeguards for the subproject proponents. 39. Project Support Office (PSO) will, during the first year ofProject implementation, take the lead in subproject screening for environmental and social impacts and, with the DENR, train the Regional PCO until capacity has been built up. The PSO will also oversee and monitor the Project’s overall compliance to environmental guidelines and social safeguards frameworks. 40. Department of Environment and Natural Resources (DENR). Regional Offices of the Environmental Management Bureau (EMB) ofthe DENR, as part oftheir mandates, will ensure that subprojects, especially those covered will comply with the Philippine EIA. DENR-EMB may also monitor compliance ofsubproject proponents. They may be tapped by DA-RFUs to provide training to subproject proponents and DA-RFUs on environmental assessment and related matters. 94 Annex 11: Project Preparation and Supervision PHILIPPINES: Mindanao Rural Development Project - Phase 2 Planned Actual PCN review July 26,2005 June 14,2005 Initial PID to PIC August 9,2005 August 8,2005 Initial ISDS to PIC August 9,2005 August 8,2005 Appraisal October 2,2006 August 29,2006 Negotiations December 18 to 20,2006 February 13 to 14,2007 BoardRVP approval March 30,2007 March 29, 2007 Planned date of effectiveness April 30, 2007 June 30,2007 Planned date ofmid-term review September 30,2009 March 20 10 Planned closing date September 30, 2012 December 31,2012 Key institution responsible for preparation of the project: Philippine Department of Agriculture Bank staff and consultants who worked on the project included: Name 'Title Unit Carolina V. Figueroa-Geron Senior Operations Officer (Task EASRE Team Leader) Mary Judd Senior Anthropologist EASSO Ronald Zweig Senior Agricultural Ecologist EASRE Samuel Wedderburn Senior Operations Officer ENVGC Josefo Tuyor Environmental Specialist EASRE Roberto Tordecilla Social Safeguards Specialist EASSO Gilbert Braganza Operations Officer EASRE Dominic Aumentado Procurement Specialist EAPCO Joseph G. Reyes Financial Management Specialist EAPCO Cordula Rastogi Engineer, Young Professional EASRE Idah Pswarayi-Riddihough Lead NRM Specialist EASRE Guzman Garcia-Rivero Operations Adviser EASRE Mei Wang Senior Counsel LEGEA Edward Daoud Senior Finance Officer LOAG 1 Cyprian Fisiy Sector Manager (Peer Reviewer) EASSO Marie-Helene Collion Lead Agriculture Services Specialist MNSRE (Peer Reviewer) Sally Burningham Senior Transport Specialist (Peer EASTE Reviewer) Esperanza Sadiua Program Assistant EACPF Andrew Mendoza Team Assistant EACPF Cynthia Dharmajaya Program Assistant EASRD Ajay Markanday Economist/M&E Specialist FAO-WB Cooperation Programme Liu Xueming Economist FAO-WB Cooperation Programme Ines Bagadion Institutional Development/ Consultant Participation Specialist Salvador Jiao Rural Infrastructure Engineer Consultant Cesar Umali Rural Development Planning Consultant Luningning Bondoc Project Development Analyst Consultant 95 Bank funds expended to date on project preparation: 1. Bank resources: US$193,078.37 (LEN-BB); US$89,100 (LEN-BB-FAO) 2. Trust funds: US$687,796.48 (PHRD Preparation Grant, Recipient-Executed) 3. Total: US$282,178.37 (Bank-Executed); US$687,796.48 (PHRD Preparation Grant, Recipient-Executed) Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$30,000 (LEN-BB) 2. Estimated annual supervision cost: US$75,000 96 Annex 12: Documents in the Project File PHILIPPINES: Mindanao Rural Development Project - Phase 2 1. Detailed Project Feasibility Proposal Submitted by the DA to the ICC 2. Detailed Financial Management Assessment conducted by Joseph Reyes, FM Specialist 3. Project Preparation Reports prepared by the DA 4. Operations Manuals Endorsed by the DA 5. Detailed Economic and Financial Analysis, including economic models 6. Detailed Project Costs 7. Regional Environmental Assessment for Mindanao 8. Social Assessment Report on Indigenous Peoples 9. LARR Framework 10. Indigenous Peoples Development Framework 11. Working Paper on Detailed Design and Activities under the IGR Component 12. Geographical Coverage and LGU Selection Criteria 13. DOF - MDFO Letter for the Mechanism and Guidelines for Performance-Based Grants dated February 12,2007. 97 Annex 13: Statement of Loans and Credits PHILIPPINES: Mindanao Rural Development Project - Phase 2 Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO75464 2006 PH-NP Support for HNP 110.00 0.00 0.00 0.00 0.00 110.00 0.00 0.00 PO64925 2006 PH-SUPPORT FOR STRATETIC LOCAL 100.00 0.00 0.00 0.00 0.00 100.73 0.00 0.00 DEV & INV PO94063 2006 PH-National Program Support for Basic Ed 200.00 0.00 0.00 0.00 0.00 200.00 0.00 0.00 PO79661 2005 PH-MANILA SEWERAGE 3 64.00 0.00 0.00 0.00 0.00 54.73 0.00 0.00 PO79628 2005 PH-2ND WOMEN'S HEALTH & SAFE 16.00 0.00 0.00 0.00 0.00 15.62 0.12 0.00 MOTHERHOOD PO73206 2005 PH LAND ADMINISTRATION AND 19.00 0.00 0.00 0.00 0.00 18.10 0.45 0.00 MANAGEMENT I1 PO751 84 2004 PH: Diversified Farm Income & Mkt. 60.00 0.00 0.00 0.00 0.00 56.40 11.40 0.00 Devt PO72096 2004 PH-GEF-Rural Power Project 0.00 0.00 0.00 9.00 0.00 8.07 I.57 0.00 PO70899 2004 PH LAGUNA DE BAY 5.00 0.00 0.00 0.00 0.00 4.80 2.30 0.00 INSTITUTIONAL STRENGTHE PO66076 2004 JUDICIAL REFORM SUPPORT 21.90 0.00 0.00 0.00 0.00 19.43 10.98 0.00 PROJECT PO66397 2004 PH-Rural Power Project 10.00 0.00 0.00 0.00 0.00 8.40 0.50 0.00 PO66532 2004 PH-GEF-Electric Cooprtv System Loss 0.00 0.00 0.00 12.00 0.00 6.77 5.90 0.00 Redu PO77012 2003 PH KALAHI-CIDSS PROJECT 100.00 0.00 0.00 0.00 0.00 68.65 51.50 0.00 PO73488 2003 PH - ARMM Social Fund 33.60 0.00 0.00 0.00 0.00 21.70 15.20 0.00 PO71007 2003 Second Agrarian Reform Communities 50.00 0.00 0.00 0.00 0.00 37.83 27.09 0.00 Dev PO69491 2002 PH-LGU URBAN WATER APL2 30.00 0.00 0.00 0.00 17.28 12.54 23.41 0.62 PO69916 2002 PH-2nd Social Expenditure Management 100.00 0.00 0.00 0.00 0.00 14.46 14.46 0.00 PO66509 2001 PH-GEF-MMURTRIP-Bicycle Nwk 0.00 0.00 0.00 1.30 0.00 0.32 1.06 0.00 PO57731 2001 PH-MMURTRIP 60.00 0.00 0.00 0.00 0.00 39.26 39.26 0.00 PO39019 2000 PH-NAT'L ROADS IMPROVMT APLl 150.00 0.00 0.00 0.00 0.00 3 1.08 31.08 -1.40 PO57598 1999 PH-RURAL FINANCE I11 150.00 0.00 0.00 0.00 0.00 18.67 18.67 0.00 PO48588 1999 PH-LGU FINANCE & DEV. 100.00 0.00 0.00 0.00 40.00 35.25 75.25 -0.37 PO04595 1998 PH - COMMUNITY BASED RES0 50.00 0.00 0.00 0.00 12.00 8.01 20.01 8.01 PO04576 1998 PH-WATER DISTRICTS DEV. 56.80 0.00 0.00 0.00 15.73 6.36 22.09 2.61 Total: 1,486.30 0.00 0.00 22.30 85.01 897.18 372.30 9.47 98 PHILIPPINES STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2001 AEI 0.91 0.00 0.00 0.00 0.91 0.00 0.00 0.00 2002 APW Trade 0.00 0.00 0.60 0.00 0.00 0.00 0.60 0.00 Alaska Milk 0.00 0.62 0.00 0.00 0.00 0.62 0.00 0.00 2000 Asian Hospital 3.30 0.00 I.oo 0.00 3.30 0.00 1.oo 0.00 Bahay Financial 0.00 0.16 0.00 0.00 0.00 0.16 0.00 0.00 2005 Balikatan HF 0.00 1.89 33.21 0.00 0.00 1.89 3 1.05 0.00 2002 Banco de Oro 0.00 6.38 10.00 0.00 0.00 6.38 10.00 0.00 2005 Cepalco 15.65 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 Drysdale Food 5.31 0.00 0.00 2.60 5.31 0.00 0.00 2.60 2002 Eastwood 14.76 0.00 0.00 0.00 14.76 0.00 0.00 0.00 2005 Eastwood 12.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Filinvest 17.73 0.00 0.00 0.00 17.73 0.00 0.00 0.00 2005 Filinvest Lan... 43.34 0.00 0.00 0.00 21.67 0.00 0.00 0.00 2004 Globe Telecom 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 H&Q PV 111 0.00 0.94 0.00 0.00 0.00 0.94 0.00 0.00 1989 H&QPV-I 0.00 0.15 0.00 0.00 0.00 0.15 0.00 0.00 1993 H&QPV-II 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 1992 Holcim Phil 0.00 1.97 0.00 0.00 0.00 1.97 0.00 0.00 2004 LARES 22.00 2.70 0.00 0.00 0.00 0.00 0.00 0.00 2000 MFI MEP 0.00 0.1 1 0.00 0.00 0.00 0.1 I 0.00 0.00 2001 MNTC 38.60 0.00 0.00 0.00 38.60 0.00 0.00 0.00 2003 MWC 31.16 0.00 0.00 0.00 31.16 0.00 0.00 0.00 2004 MWC 30.00 14.96 0.00 0.00 0.00 14.96 0.00 0.00 2000 Mariwasa 10.91 0.00 3.52 0.00 10.91 0.00 3.52 0.00 1993 Mindanao Power 0.00 2.22 0.00 0.00 0.00 2.22 0.00 0.00 1993 Mirant Pagbilao 6.00 10.00 0.00 0.00 6.00 10.00 0.00 0.00 2001 PEDF 1.50 0.00 0.00 0.00 0.75 0.00 0.00 0.00 2005 PLGIC 0.00 0.00 1.50 0.00 0.00 0.00 1.50 0.00 1992 Pilipinas Shell 0.00 1.56 0.00 0.00 0.00 1.56 0.00 0.00 2000 PlantersBank 0.00 0.00 2.32 0.00 0.00 0.00 2.32 0.00 I998 Pryce Gases 13.34 0.00 1.70 5.82 13.34 0.00 1.70 5.82 2000 STRADCOM 7.30 0.00 0.00 0.00 7.30 0.00 0.00 0.00 2003 SVI 0.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 1995 Sua1 Power 19.49 0.00 0.00 25.51 19.49 0.00 0.00 25.51 1994 Walden Mgmt 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 1994 Walden Ventures 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 Total portfolio: 313.80 45.80 53.85 33.93 191.23 41.10 51.69 33.93 99 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. ~~ 2001 PEDF 0.00 0.00 0.00 0.00 2002 Eastwood 0.00 0.00 0.00 0.00 Total pending commitment: 0.00 0.00 0.00 0.00 100 Annex 14: Country at a Glance PHILIPPINES: Mindanao Rural Development Project - Phase 2 East Lower. POVERTY and SOCIAL Asla B mlddle. P hlllpplnes Pacific Income Development dlamond' 2004 Population, m id-year (miliio ns) 63.0 1,870 2,430 GNI per capita (Atlas method, US$) I50 1260 1580 Life expectancy GNI(Atlasmethod, US$ billions) 95.1 2,369 3.847 Average annual growth, 1998.04 Population (Yd 2.1 0.9 10 Laborforce (%) 2.6 11 0.7 GNI , Gross per mary Most recent estlmate (latest year avallable, 1998-04) capita ,& enrollment Poverty (%of population belo wnationalpo verty line) /a 3062 Urban population (%of tote1population) 41 49 Life expectancyat birth (pars) 70 70 70 L Infant mortality(per lOOOlive birlhs) 27 32 33 Child malnutrition (%ofchildren under5) 32 15 11 Access to improvedwatersource Access to an improved wdter source (%ofpopulation) 65 76 61 Literacy(%ofpopulationage $59 93 90 90 Gross primaryenrollment oof school-agepopulation) it? 10 114 -Philippines Male 10 10 It5 Lo wer-middieinco me gm up Female it? 1P 10 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1984 1994 2003 2004 Eco no m lc rat lo s* GDP (US$ billions) 314 64 1 77.7 64.6 Gross capital formation1GDP 203 241 7.0 7.4 Exports of goods and serviceslGDP 240 336 50.5 515 Trade Gross domestic savings/GDP 133 76 14.9 8.0 Gross national savings/GDP 86 218 33.3 36.5 T Current account balance/GDP -41 -46 18 2.5 Interest payments/GDP 62 33 3.7 4.1 Total debt/GDP 775 626 60.7 72.2 Total debt sewicelexports 335 130 20.4 20.2 Present value of debt/GDP 64.2 Present value of debt/exports 00.4 Indebtedness 1984.94 1994-04 2003 2004 2004.08 (average annual gm Mh) GDP 2.6 37 3.6 8.1 5.1 -Philippines GDP per capita 0.5 15 16 4.2 3.1 Lower-middle-income O~UD Exports of goods and sewices 7.1 4.0 4.1 14.1 5.8 101 STRUCTURE of the ECONOMY 1884 1884 2003 2004 Growth of capltal and GDP ('4 (%of GDP) Agnculture 248 220 UO U7 40 T Industry 379 325 32 6 32 4 M anufactunng 248 233 23 8 23 5 Services 373 455 544 53 9 Household final consumption expenditure 737 714 73 7 716 General gov't final consumption expenditure 70 08 113 04 Imports of goods and sewices 251 401 52 8 50 9 1 -GCF -GDP 1884-84 1884-04 2003 2004 Growth of exports and imports ('4 (average annualgrodh) Agnculture 20 22 -18 51 20 Industry 22 31 38 52 10 Manufactunng 27 34 42 51 0 Services 38 49 58 71 -10 Household final consumption expenditure 3 5 4.2 77 15 .20 Genera gov't final consumption expenditure 3.9 16 25 00 Gross capital formation 6.9 18 23 95 -Expons -0-iWOrtS Imports of goods and services 112 35 98 59 I3O1 I Note 2004 data are preliminaryestimates a Family Income and Expenditure Survey2003 *Thediamonds showfour keyindicatom in thecountry(in bold)comparedwthitsincome-groupaverage lfdata are missing,thediamondvnll be incomplete Philippines PRICES andGOVERNMENT FINANCE 1884 1984 2003 2004 Inflation (%) Domestic prices (%change) 15 Consumer prices 5.2 15.8 2.9 5.5 10 Implicit GDP deflator 53.3 n.0 2.7 6.1 5 Government finance (%of GDP, includes current grants) Current revenue 08 89 14.9 14.8 99 W 01 02 03 04 Current budget balance 26 4.0 -2.0 -14 Overall surplusldeficit -19 10 4.7 -3.9 TRADE 2003 2004 1884 1884 Export and import levels (US$ mill.) (US$ millions) Totalexports (fob) 5,391 0,483 35,342 38.728 50,000 T Electronics 4.984 24,989 27.787 40,000 Garments 2,375 2,265 2,172 Manufactures 2,775 0.615 32,022 35,444 30,000 Total imports (cif) 6,070 21,333 40,797 45,09 20,000 Food 82 953 1,340 1603 Fuel and energy 1,649 2,040 3,761 4,714 10,WO Capital goods 1,U3 6,888 15,023 8.742 0 88 89 00 01 02 03 04 Export price index (2000=WO) Import pnce index(2000=WO) BExports olmports Terms of trade (2000=X)O) I 102 BALANCE of PAYMENTS 1984 1994 2003 2004 Current account balance to GDP (Oh) (US$ miiiions) Egorts of goods and services 7,033 20251 38,641 42,829 Imports of goods and services 7.238 26,000 45,821 50,492 Resource balance -205 -5,749 -7.80 -7,663 Net income -1475 1863 -226 147 Net current transfers 386 936 8,802 9,596 Current account balance -1294 -2,950 1,396 2,080 Financing items (net) 846 4,752 -1511 -1800 Changes in net reserves 448 -1,802 115 -280 QS 88 00 01 02 03 W I Memo: Reserves including gold (US$ miilions) 6,995 7,063 6.228 Conversion rate (DEC,iocal/US$) 87 26.4 542 56.0 EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2003 2004 Comporltlonof 2004 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 24,357 40,257 62,724 61042 IBRD 1865 4.855 3,445 337 IDA 71 74 215 214 c 756 Total debt service 2,703 4,645 D231 It58 D 3,538 IBRD 262 77 478 494 IDA 1 3 8 9 Composition of net resource flows : 13.971 Official grants 739 284 593 68 Official creditors 748 182 52 -653 Pnvate creditors 209 870 599 732 Foreign direct investment (net inflows) 9 1,591 150 57 Portfolio equity(net inflows) 0 0 -1,305 -1434 World Bank program Commitments 333 578 116 65 A - IBRD E-Bilsterd Disbursements 301 305 202 145 6.IDA D. Other mltilaterd F - Private Pnncipal repayments 93 360 345 379 C.IMF G - Short-term Net flows 209 -55 -143 -233 interest payments 70 360 142 Q3 Net transfers 38 45 -285 -357 Develooment Economics 9/8/05 103 IBRD 35269 I Ilocos X Northern Mindanao PHILIPPINES 1 Ilocos Norte 58 Bukidnon Batan 2 Ilocos Sur 59 Camiguin Islands MINDANAO RURAL 3 La Union 60 Lanao del Norte BascoBasco 4 Pangasinan 61 Misamis Occidental 62 Misamis Oriental 1111 DEVELOPMENT PROJECT CAR Cordillera Admin. Reg. 20ºN 5 Abra XI Davao Reg. Luzon Strait PHASE 2 6 Apayao 63 Compostela Valley 7 Benguet 64 Davao del Norte SELECTED CITIES 8 Ifugao 65 Davao del Sur 9 Kalinga 66 Davao Oriental PROVINCE CAPITALS 10 Mountain Province Babuyan XII SOCCSKSARGEN Islands REGION CAPITALS II Cagayan Valley 67 North Cotabato 11 Batanes 68 Sarangani Babuyan Channel NATIONAL CAPITAL 12 Cagayan 69 South Cotabato 13 Isabela 70 Sultan Kudarat 14 Nueva Vizcaya RIVERS 15 LaoagLaoag CityCity 1 Quirino XIII Caraga 6 1212 71 Agusan del Norte KabugaoKabugao MAIN ROADS III Central Luzon 72 Agusan del Sur 16 Aurora 73 Dinagat Islands BanguedBangued TuguegaraoTuguegarao RAILROADS 17 Bataan 74 Surigao del Norte ViganVigan 5 9 18 Bulacan 75 Surigao del Sur PROVINCE BOUNDARIES 19 Nueva Ecija CAR TabukTabuk II 20 Pampanga ARMM Autonomous Reg. in IlaganIlagan 21 Tarlac I BontocBontoc 1010 REGION BOUNDARIES Muslim Mindanao 2 22 Zambales 76 Basilan LagaweLagawe 1313 77 Lanao del Sur 8 Luzon INTERNATIONAL BOUNDARIES NCR National Capital Reg. 78 Maguindanao** SanSan FernandoFernando 3 LaLa TrinidadTrinidad CabarroguisCabarroguis 79 Shariff Kabunsuan BaguioBaguio BayombongBayombong IV-A CALABARZON 80 Sulu 7 1414 1515 125ºE 23 Batangas 81 Tawi-Tawi LingayenLingayen 24 Cavite 1616 25 Laguna 4 26 Quezon **Shariff Aguak (Maganoy) and BalerBaler III Sultan Kudarat serve as co-capitals 27 Rizal of the province. PalayanPalayan TarlacTarlac 1919 IbaIba 2121 IV-B MIMAROPA 2222 28 Marinduque SanSan FernandoFernando IV-A 1818 Polillo 29 Mindoro Occidental 2020 30 Mindoro Oriental MalolosMalolos Islands 31 Palawan BalangaBalanga QuezonQuezon * 1717 PasigPasig 32 Romblon NCR MANILAMANILA AntipoloAntipolo V Bicol TreceTrece MMartiresartires 2727 3434 2424 SantaSanta CruzCruz DaetDaet V 33 Albay 2525 CalambaCalamba 2626 PHILIPPINES 34 Camarines Norte 2323 LucenaLucena 3636 35 Camarines Sur Lubang 3535 36 Catanduanes BatangasBatangas Catanduanes Islands PiliPili ViracVirac 37 Masbate CalapanCalapan BoacBoac 38 Sorsogon 2828 MamburaoMamburao 3030 Marinduque LegaspiLegaspi VI Western Visayas 3333 Sibuyan SorsogonSorsogon 39 Aklan Mindoro Burias 40 Antique 2929 Sea 3838 41 Capiz Mindoro Strait RomblonRomblon 42 Guimaras Ticao CatarmanCatarman Tablas MasbateMasbate 43 Iloilo 3232 Sibuyan 5252 Samar 44 Negros Occidental Busuanga 3737 Masbate 5353 VII Central Visayas Semirara Visayan 45 Bohol Culion Islands KaliboKalibo CatbaloganCatbalogan VIII 46 Cebu RoxasRoxas CityCity Linapacah Sea NavalNaval 4949 BoronganBorongan 47 Negros Oriental 3939 5050 48 Siquijor 4141 Panay TaclobanTacloban Philippine Cuyo VIII Eastern Visayas 4040 Islands 4343 5151 Leyte Sea 49 Biliran Leyte 50 Eastern Samar SanSan JoseJose dede IloiloIloilo JordanJordan Cebu Gulf 51 Leyte BuenavistaBuenavista BacolodBacolod 4242 52 Northern Samar Project Area 4646 53 Samar CebuCebu 5454 For detail, see MaasinMaasin Dinagat 54 Southern Leyte IV-B VI Negros VII 7373 IBRD 35270 SanSan JoseJose Siargao 10ºN IX Zamboanga Peninsula 4444 4545 Bohol 55 Zamboanga del Norte PuertoPuerto PPrincesarincesa TagbilaranTagbilaran SurigaoSurigao 7474 56 Zamboanga del Sur 3131 4747 57 Zamboanga Sibugay Mindanao Sea MambajaoMambajao Palawan DumagueteDumaguete SiquijorSiquijor 7171 XIII *Executive Order 429, May 23, 2005, 4848 Siquijor 5959 provides for the transfer of Palawan Camiguin TandagTandag province (#31) from Region IV to 7575 Region VI; Administrative Order 129 X ButuanButuan holds EO429 in abeyance until an CagayanCagayan IX ProsperidadProsperidad implementation plan is approved Sulu Sea DipologDipolog OroquietaOroquieta dede OroOro by the President. 6262 7272 6161 Bugsuk 5555 IliganIligan MalaybalayMalaybalay 5858 6060 MarawiMarawi Balabac PagadianPagadian TubodTubod IpilIpil 7777 Mindanao 6363 5656 6464 5757 NabunturanNabunturan TagumTagum CotabatoCotabato 6767 6666 Cagayan DavaoDavao ZamboangaZamboanga KabuntalanKabuntalan MatiMati XI Sulu 7979 7878 KidapawanKidapawan Moro SultanSultan KudaratKudarat IsabelaIsabela ShariffShariff AguakAguak DigosDigos Gulf (Maganoy)(Maganoy) CityCity ARMM Davao Basilan 7676 IsulanIsulan 7070 KoronadalKoronadal Gulf This map was produced by 6969 6565 the Map Design Unit of The JoloJolo Sulu AlabelAlabel World Bank. The boundaries, colors, denominations and MALAYSIA XII 6868 any other information shown 8080 on this map do not imply, on the part of The World Bank 0 50 100 150 Kilometers Tawi-Tawi Sarangani Group, any judgment on the 8181 Celebes Sea legal status of any territory, PanglimaPanglima or any endorsement or 5ºN SugalaSugala 0 50 100 Miles 125ºE acceptance of such 120ºE boundaries. MARCH 2007 IBRD 35270 120° 122° 124° Leyte 126° Cebu Regions andProvinces Dinagat DinagatDinagat IslandsIslands IX Zamboanga Peninsula 10° 10° 1 Zamboanga del Norte Siargao 2 Zamboanga del Sur 3 Zamboanga Sibugay Negros Bohol X Northern Mindanao PHILIPPINES SurigaoSurigao 4 Bukidnon DelDel NorteNorte 5 Camiguin MINDANAO RURAL 6 Lanao del Norte Mindanao 7 Misamis Occidental DEVELOPMENT PROJECT 8 Misamis Oriental AgusanAgusan Siquijor PHASE 2 Sea DelDel NorteNorte XI Davao Reg. 9 Compostela Valley 10 Davao del Norte Butuan 11 PROJECT AREAS SurigaoSurigao Davao del Sur X CamiguinCamiguin Agusa 12 Davao Oriental DelDel SurSur XIII PAN-PHILIPPINE HIGHWAY Sulu Sea Cagayan n XII SOCCSKSARGEN OTHER MAIN ROADS 13 North Cotabato R. de Oro 14 Sarangani MAJOR PORTS MisamisMisamis 15 South Cotabato OrientalOriental RIVERS IX MisamisMisamis 16 Sultan Kudarat OccidentalOccidental AgusanAgusan REGION CAPITALS DelDel SurSur XIII Caraga ZamboangaZamboanga 17 Agusan del Norte PROVINCE BOUNDARIES BukidnonBukidnon 18 Agusan del Sur DelDel NorteNorte 8° 19 Dinagat Islands 8° REGION BOUNDARIES LanaoLanao 20 Surigao del Norte Pagadian DelDel NorteNorte 21 Surigao del Sur LanaoLanao DelDel SurSur Mindanao ARMM Autonomous Reg. in Muslim Mindanao ZamboangaZamboanga CompostelaCompostela 22 Basilan ZamboangaZamboanga DelDel SurSur DavaoDavao ValleyValley SibugaySibugay 23 Lanao del Sur DelDel NorteNorte 24 Maguindanao DavaoDavao NorthNorth 25 Shariff Kabunsuan Cotabato OrientalOriental 26 Sulu CotabatoCotabato 27 Tawi-Tawi ShariffShariff Davao KabunsuanKabunsuan XII Moro MaguindanaoMaguindanao XI 100° 110° 120° Gulf SultanSultan NORTH PACIFIC Basilan KudaratKudarat Davao CHINA OCEAN DavaoDavao BasilanBasilan Koronadal LAO 20° DelDel SurSur Gulf 20° P.D.R. ARMM SouthSouth CotabatoCotabato Philippine THAILAND Manila Sea 6° SuluSulu 6° VIETNAM Sulu CAMBODIA SaranganiSarangani PHILIPPINES 10° Project Area. 10° See main map. PALAU BRUNEI Tawi-Tawi Celebes Sea Sarangani MALAYSIA SINGAPORE Tawi-tawiTawi-tawi 0° 0° Java Sea P.N.G. 0 50 100 150 This map was produced by the Map Design Unit of The World Bank. INDONESIA The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank KILOMETERS Arafura Sea Group, any judgment on the legal status of any territory, or any TIMOR-LESTE endorsement or acceptance of such boundaries. 10° 10° INDIAN OCEAN Timor 120° 122° 124° 126° 100° 110° 120° Sea AUSTRALIA 140° MARCH 2007