Completion Report

Project Number: 29082 Loan Number: 1658 August 2006

Philippines: Clark Area Municipal Development Project

CURRENCY EQUIVALENTS

Currency Unit – peso(s) (P)

At Appraisal At Project Completion (31 October 1998) (8 November 2005) P1.00 = $0.0246 $0.0182 $1.00 = P40.60 P54.99

ABBREVIATIONS

ADB – Asian Development Bank BAC – Bids and Awards Committee BCDA – Bases Conversion Development Authority CAMDP – Clark Area Municipal Development Project CDC – Clark Development Corporation CRU – community relations unit CSEZ – Clark Special Economic Zone DENR – Department of Environment and Natural Resources DILG – Department of the Interior and Local Government DPWH – Department of Public Works and Highways DOF – Department of Finance EA – Executing Agency EIRR – economic internal rate of return FIRR – financial internal rate of return GFI – government financial institution IA – Implementing Agency ICC – investment coordinating committee IEE – initial environmental examination IRA – internal revenue allotment LBP – Land Bank of the Philippines LGU – local government unit MDFO – Municipal Development Fund Office NEDA – National Economic and Development Authority O&M – operation and maintenance PAG – project advisory group PIU – project implementation unit PMO – project management office PMS – project management support PPMS – project performance monitoring system PPTA – project preparatory technical assistance PSC – project supervisory committee RRP – report and recommendation of the President SLA – subloan agreement SLF – sanitary landfill SPA – subproject agreement SWM – solid waste management TWG – technical working group

NOTES

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

Vice President C. Lawrence Greenwood, Jr., Operations Group 2 Director General R. Nag, Southeast Asia Department (SERD) Director S. Lateef, Social Sectors Division, SERD

Team leader S. Durrani-Jamal, Project Specialist (Education), SERD Team member R. G. V. Alvarez, Assistant Project Analyst, SERD

CONTENTS

Page

BASIC DATA i MAP vii I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 4 C. Project Costs 5 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 7 G. Conditions and Covenants 8 H. Consultant Recruitment and Procurement 8 I. Performance of Consultants, Contractors, and Suppliers 9 J. Performance of the Borrower and the Executing Agency 9 K. Performance of the Asian Development Bank 10 III. EVALUATION OF PERFORMANCE 10 A. Relevance 10 B. Effectiveness in Achieving Outcome 10 C. Efficiency in Achieving Outcome and Outputs 11 D. Preliminary Assessment of Sustainability 12 E. Health, Safety, and Environment Impacts 13 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons Learned 13 C. Recommendations 15

APPENDIXES 1. Project Framework 16 2. Project Outputs 18 3. Cost Breakdown by Project Component 23 4. Revisions in Loan Allocations 24 5. Project Implementation Schedule 27 6. Chronology of Events 29 7. Institutional, Financial, and Operational Action Plan 35 8. Organization Chart for Project Implementation 38 9. Status of Compliance with Loan Covenants 39 10. Financial and Economic Evaluation 46 11. Reports on LGUs’ Revenues and Receipts 52 12. PCR Rating Criteria 55

BASIC DATA

A. Loan Identification

1. Country Philippines 2. Loan Number 1658 3. Project Title Clark Area Municipal Development Project 4. Borrower Republic of the Philippines 5. Executing Agency Department of the Interior and Local Government 6. Amount of Loan $24.3 million 7. Project Completion Report Number 29082

B. Loan Data 1. Appraisal – Date Started 6 July 1998 – Date Completed 24 July 1998

2. Loan Negotiations – Date Started 12 November 1998 – Date Completed 20 November 1998

3. Date of Board Approval 15 December 1998

4. Date of Loan Agreement 1 March 1999

5. Date of Loan Effectiveness – In Loan Agreement 28 June 1999 – Actual 28 June 1999 – Number of Extensions 0

6. Closing Date – In Loan Agreement 30 June 2005 – Actual 8 November 2005 – Number of Extensions none

7. Terms of Loan – Interest Rate variable – Maturity (number of years) 25 – Grace Period (number of years) 5

8. Terms of Relending (Municipal Development Fund Office) – Interest Rate 14% (later reduced to 9%) – Maturity (number of years) 12 – Grace Period (number of years) 3

9. Disbursements

a. Dates

Initial Disbursement Final Disbursement Time Interval

1 December 1999 8 November 2005 71 months

Effective Date Original Closing Date Time Interval

28 June 1999 30 June 2005 72 months

Effective Date Actual Closing Date Time Interval

28 June 1999 8 November 2005 76 months

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b. Amount ($) Last Net Original Revised Amount Amount Amount Undisbursed Category Allocation Allocation Canceled Available Disbursed Balance

01 Civil Works 01A DPWH 558,000 528,078 29,922 528,078 528,078 0 01B Angeles 4,624,000 0 4,624,000 0 0 01C Bamban 260,000 0 260,000 0 0 01D Capas 1,000,000 0 1,000,000 0 0 01E Concepcion 5,000 0 5,000 0 0 01F Mabalacat 7,000 0 7,000 0 0 01G Magalang 3,000 0 3,000 0 0 01H San Fernando 364,000 0 364,000 0 0 01I Tarlac 4,521,000 0 4,521,000 0 0

02 Equipment and Materials 02B Angeles 1,157,000 0 1,157,000 0 0 02C Bamban 57,000 179,612 116388 179,612 179,612 0 02D Capas 57,000 0 57,000 0 0 02E Concepcion 36,000 0 36,000 0 0 02F Mabalacat 108,000 455,377 32,622 455,377 453,182 2,195 02G Magalang 65,000 146,429 13,571 146,429 145,474 955 02H San Fernando 937,000 0 937,000 0 0 02I Tarlac 911,000 0 911,000 0 0

03 Consulting Services 1,903,000 1,099,742 803,258 1,099,742 1,068,644 31,098 04 Interest during Construction 3,784,000 1,017,000 2,767,000 1,017,000 956,897 60,103 05 Unallocated 3,943,000 0 3,943,000 0 0

Total 24,300,000 3,426,238 20,873,761 3,426,238 3,331,887 94,351 10. Local Costs (Financed) - Amount ($ million) 2.0 - Percentage of Local Costs 34% - Percentage of Total Cost 28%

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 15.6 1.3 Local Currency Cost 26.2 5.9 Total 41.8 7.2

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2. Financing Plan ($ million)

Cost Appraisal Estimate Actual Implementation Costs Borrower-Financed 17.5 3.8 ADB-Financed 24.3 2.4 Other External Financing 0.0 0.0 Total 41.8 6.2 IDC Costs Borrower-Financed 3.8 0.0 ADB Financed 0.0 0.9 Other External Financing - 0.0 Total 3.8 7.2 ADB = Asian Development Bank, IDC = interest during construction. Note: Numbers may not sum precisely because of rounding.

3. Cost Breakdown by Project Component ($ million)

Appraisal Estimate Actual Component Foreign Local Total Foreign Local Total A. Physical Infrastructure 1. Roads and Bridges a. San Felipe Bridge 0.1 0.4 0.4 b. Mabiga Bridge 0.0 0.2 0.2 c. Hensonville Bridge 0.0 0.7 0.7 d. Friendship Bridge 0.0 2.0 2.0 Subtotal (A1) 2.9 11.2 14.1 0.1 3.3 3.4

2. Drainage and Flood Control 2.0 4.6 6.6 0.0 0.0 0.0

3. Solid Waste Management a. Mabalacat 0.0 0.5 0.5 b. Magalang 0.0 0.1 0.1 c. Bamban 0.0 0.2 0.2 Subtotal (A3) 6.2 5.2 11.4 0.0 0.8 0.8

4. Incremental Administration 0.0 3.1 3.1 0.0 0.7 0.7 Subtotal (A) 11.1 24.1 35.2 0.1 4.8 4.9

B. Capacity Building 1. Institutional Development Program 0.0 0.6 0.6 0.0 0.1 0.1 2. Consulting Services 0.8 1.5 2.3 0.2 1.0 1.2 Subtotal (B) 0.8 2.1 2.9 0.2 1.1 1.3

C. Interest during Construction 3.7 0.0 3.7 0.9 0.0 0.9

Total 15.6 26.2 41.8 1.3 5.9 7.2

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4. Project Schedule Item Appraisal Estimate Actual Date of Contract with PMS Consultants March 1999 March 2002 Detailed Engineering Design Completion March 1999 November 2002 Civil Works Advertisement July 1999 July 2000 Contract Award October 1999 August 2003 Completion of Works March 2002 September 2004 Equipment Advertisement July 1999 December 2000 Contract Award October 1999 September 2002 Delivery June 2000 June 2005 Capacity Building January 1999– August 2003– Training December 2002 June 2005 January 1999– January 2003– Project Management Support December 2001 June 2005 Project Review Midterm June 2002 September 2003 Completion December 2005 April 2006 PMS = project management support. Note: Please refer to Appendix 5 for the detailed schedule of subproject implementation. 5. Project Performance Report Ratings Implementation Period Ratings Development Implementation Objectives Progress From 1 January 1999 to 30 November 2000 Satisfactory Satisfactory From 1 December 2000 to 28 February 2001 Satisfactory Partly Satisfactory From 1 March 2001 to 31 March 2003 Satisfactory Satisfactory From 1 April 2003 to 31 July 2003 Partly Satisfactory Satisfactory From 1 to 31 August 2003 Partly Satisfactory Highly Satisfactory From 1 September 2003 to 31 July 2004 Satisfactory Highly Satisfactory From 1 August 2004 to 8 November 2005 Satisfactory Satisfactory

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D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Datea Persons Person-Days of Membersb Loan Appraisal 6–21 July 1998 6 78 a, b, c, l, m, n Inception 9 August–3 September 2 26 a, k 1999 Loan Review 14–23 February 2000 4 32 a, d, k, l Loan Review 2–13 October 2000 3 26 d, e, l Loan Review 5 February–6 April 2001 3 19 d, f, g Loan Review 5 November– 3 25 d, k, o 14 December 2001 Midterm Review 16 September 2002– 3 43 h, k, o 28 February 2003 Loan Review 26 November– 2 12 h, k 22 December 2003 Loan Review 22 September– 2 10 g, k 8 October 2004 Loan Review 4–8 July 2005 2 10 i, k Project Completion Reviewc 28 April–15 June 2006 3 28 j, k, p Note: a Missions were fielded intermittently. b a - Project Economist, b - Senior Counsel, c - Programs Officer, d - Urban Development Specialist, e - Manager, Agriculture, East Water Supply and Urban Development Division, f - Senior Financial Management Specialist, g - Project Engineer, h - Urban Economist, i - Housing and Urban Development Specialist, j - Project Specialist (Education), k - Assistant Project Analyst, l - Financial Analyst (Staff Consultant), m - Municipal Engineer (Staff Consultant), n - Solid Waste Management Specialist (Staff Consultant), o - Financial/Institutional Specialist (Staff Consultant), p - Financial/Economic Analyst (Urban Development) (Staff Consultant).

o 118 00'E 126o 00'E 120 o 30'E

16 o 00'N 16 o 00'N PHILIPPINES LUZON Project Location CLARK AREA Manila MUNICIPAL DEVELOPMENT PROJECT (as completed)

VISAYAS N

8o 00'N 8o 00'N 0 5 10 15

Kilometers MINDANAO

118o 00'E 126o 00'E

Tarlac

La Paz

T A R L A C N U E V A O'Donnel E C I J A

Capas Concepcion

Bamban o o 15 15'N 15 15'N

Z A M B A L E S Mabalacat Magalang

Arayat Angeles City Mount Pinatubo

Project Municipality Santa Ana Clark Special Economic Zone Mexico Candaba National Capital Porac Provincial Capital P A M P A N G A City/Municipality San Luis San Fernando Expressway National Road Sta. Rita Bacolor San Simon Provincial Road Sto. Tomas River Floridablanca Minalin Municipal Boundary Guagua Provincial Boundary Boundaries are not necessarily authoritative.

120 o 30'E

06-2036 HR

I. PROJECT DESCRIPTION

1. In 1991, the Government of the Republic of the Philippines closed the United States Clark Air Force Base in the province of Pampanga, intending to convert the area into the Clark Special Economic Zone (CSEZ), to be developed and managed by the Clark Development Corporation (CDC). As a result of the increasing economic and industrial activities in CSEZ, the population in the surrounding urban areas grew rapidly, and at four percent growth rate was twice the national population growth rate, which began putting pressure on municipal infrastructure. Many municipalities in the area had already been adversely affected by the eruption of Mount Pinatubo in 1991, and most urban infrastructure was affected by lahar flows, which damaged roads, silted major river systems and caused floods in many areas1. As a consequence of both events, it was anticipated that municipalities in the area would have difficulties providing adequate urban services in terms of urban roads, solid waste management, flood control and drainage. Around the same time the Local Government Code (LGC) of 1991 was enacted into law. This, promoted decentralization and increased delegation of authority, responsibilities and resources for local development to the local government units (LGUs). Hence there was recognition by the municipalities to not only develop needed infrastructure but also to acquire skills needed to undertake their new functions, including those related to urban management.

2. In 1997, the Government of the Philippines requested the Asian Development Bank (ADB) for project preparatory technical assistance (PPTA) for the Clark Area Municipal Development Project (CAMDP).2 The PPTA was implemented by the Department of the Interior and Local Government (DILG), assisted by CDC, and was completed in 1998. Under the PPTA, a medium-term investment plan and a project for urban infrastructure improvement were formulated for eight LGUs adjacent to CSEZ: two cities (Angeles and Tarlac) and six municipalities (Bamban, Capas, Concepcion, Mabalacat, Magalang, and San Fernando).

3. The long-term and interrelated development objectives of the CAMDP were to (i) reduce poverty, (ii) develop skills, and (iii) increase institutional capacity in the eight LGUs. The immediate objectives were (i) to build, upgrade, and rehabilitate basic urban infrastructure facilities; and (ii) to assist the participating municipalities in implementing programs to develop human resources and improve productivity. The Project was designed to help the urban population of about 1.2 million living in the project area, including 240,000 urban poor living in low-lying fringe areas, who were expected to benefit the most from the flood control and drainage subprojects. In addition, about 2,000 new employment and livelihood opportunities were to be created by 2005, and 1,000 LGU staff were to be trained to manage and run the project facilities.

4. The Project, which was approved on 15 December 1998, had two main components with related outputs. Part A (physical infrastructure) comprised 24 subprojects in three subsectors: (i) solid waste management (SWM), (ii) drainage and flood control, and (iii) urban roads and bridges. Part B (capacity development) comprised (i) LGU institutional development planning, (ii) consulting services, and (iii) project management support (PMS). The project framework is in Appendix 1.

1 ADB. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Republic of the Philippines for the Clark Area Municipal Development Project. Manila. 2 ADB. 1997. Technical Assistance to the Republic of the Philippines for the Clark Area Municipal Development Project. Manila. (TA 2807-PHI, for $600,000, approved on 10 June).

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II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. ADB has made considerable investment in the urban development, water supply and sanitation sub sectors in the Philippines since 1974. At the time of project preparation, 28 technical assistance projects ($12.45 million in total) and 21 loans ($779.80 million) had been approved. The Project was thus designed to sustain ADB’s sectoral focus. In addition, the project design supported the implementation of the National Urban Development and Housing Framework (1999–2004),3 which would (i) create cities and urban areas that would become economic hubs; (ii) encourage the development of local governments that could address urbanization issues; and (iii) build socially and environmentally healthy urban centers that would provide a better quality of life, among others.

6. As designed, the $41.8 million project comprised (i) 24 infrastructure subprojects under part A (worth $35.2 million, or 84% of the total project cost), (ii) capacity building under part B ($2.90 million, or 7% of total project cost), and (iii) $3.78 million for interest during construction. At project completion, (i) only five infrastructure subprojects had been implemented, (ii) $3.33 million had been disbursed, and (iii) $20.97 million of the $24.30 million loan from ADB’s ordinary capital resources had been canceled. Key weaknesses in the project design are discussed below:

(i) Weak competitor analysis and lack of identification of alternate financing facilities. Five of the 20 projects originally to be financed under the Project through the Municipal Development Fund Office (MDFO) of the Department of Finance (DOF) were financed instead by the Land Bank of the Philippines (LBP), which offered lower (albeit variable) interest rates, as well as faster processing. However, neither the LBP nor the Development Bank of the Philippines, both well-established government financial institutions (GFIs), were identified in the PPTA or the report and recommendation of the President (RRP) as potential competitors to the MDFO financing4 and hence as a potential risk to the Project.

(ii) Inclusion of nonviable SWM subprojects in the project design. The city of Angeles was to build an 18-hectare sanitary landfill (SLF) for its own use and that of three other LGUs (Magalang, Mabalacat, and San Fernando), while the city of Tarlac was to develop a 7-hectare SLF site, for the use of Bamban, Capas, and Concepcion, as well as Tarlac itself. These subprojects were included in the design despite the knowledge during the PPTA of CDC’s plan to build a 100- hectare SLF for the province of Pampanga in Kalangitan under a build-operate- transfer (BOT) contract. While uncertainties in the timing of the Kalangitan SLF may have led to the inclusion of the two intermunicipal SLFs in the Project, the Kalangitan SLF should have been considered in the Project design and viable alternatives identified. As it turned out, Tarlac withdrew its landfill subproject soon after the inception mission, while Angeles also canceled its subproject, with both cities citing the construction of the Kalangitan SLF and its use by the project LGUs as the reason for the cancellation.

3 Housing and Urban Development Council, Office of the President, Republic of the Philippines. 2000. National Urban Development and Housing Framework 1994–2004. Manila. 4 At the time of project appraisal, MDFO was offering loans at 14% interest per year for 15 years, including a 3-year grace period for the repayment of interest. The interest rate was later reduced to 9%.

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(iii) Weak appraisal of subprojects’ land acquisition and relocation issues. The selection of subprojects for the RRP appears to have been indicative and made from a long list of potential subprojects for which only feasibility studies had been prepared during the PPTA. Although the PPTA reports identified the need for land acquisition in some cases, this issue was not explored in detail. The RRP (para. 64 under Land Acquisition) stated that

…each participating LGU has commenced steps for land acquisition and will complete all necessary land acquisition, including right-of-way, before awarding any construction contract related to the development of such land. The LGUs have given assurance that there will be no difficulty in acquiring the necessary land. The type of land being purchased is community land, which will be purchased voluntarily and based on market prices. Most of the land required is covered by lahar. The land acquisition does not entail any resettlement or relocation of people in the Project area.

Therefore, no loan covenants addressing land acquisition or relocation issues were included in the loan documents. The result was long and fractious interaction between one LGU and ADB on land acquisition and relocation issues, which remained unresolved during implementation and led to the cancellation of three major subprojects.

(iv) Simplification of complex government procedures. The approval of the (a) subproject agreements (SPAs) by LGUs and between DILG and the LGUs and (b) the subloan agreements (SLAs) between MDFO and LGUs was complex and lengthy (see paras. 28–29). In addition, the Borrower, the Executing Agency (EA), and the Implementing Agencies (IAs) could not agree on the criteria for SLA approval. 5 Yet the project design did not allow time for delays caused by negotiations on this matter. The issue was eventually resolved when land acquisition was made a condition for the release of the loan from MDFO, rather than a precondition for the SLA.

(v) No provision in the design for the mitigation of financial and political risks that were clearly identified during project preparation. During project preparation there was clear and correct identification of the political and financial risks that the project would be subject to and yet there was little discussion in the project design on how these risks could be mitigated. For instance, there was clear recognition that municipalities had been unable to provide timely and sufficient budgetary allocations mainly as a result of the cutbacks in the internal revenue allotment (IRA). Yet the project design was optimistic about adequate budget support and the timely establishment and functioning of PMO and project implementation units (PIUs). More critically, the PPTA clearly outlined the risk that municipalities may not borrow to finance the subprojects as there was little experience of borrowing by LGUs in the years preceding the PPTA. Subproject selection was also subject to the priorities of changing political leadership during the 3 elections held in 1998, 2001 and 2004.

7. The design of part B (capacity building) and its two subcomponents was satisfactory in that the aim was to develop the capacity of the Executing and Implementing Agencies to (i)

5 DOF requires LGUs to own the land for the proposed facilities before SLAs can be signed. However, none of the participating LGUs had bought the required land for their subprojects at the time of project appraisal or approval.

4 carry out the functions outlined in the Local Government Code, (ii) complete the Project efficiently, and (iii) sustain activities beyond ADB’s assistance. To help achieve this objective, consultancies in financial management, revenue enhancement, management information systems, credit awareness and privatization were to be undertaken, along with the provision of basic office equipment.

B. Project Outputs

1. Part A: Physical Infrastructure

8. At appraisal, CAMDP comprised 24 subprojects in four subsectors. Table 1 compares the intended outputs at appraisal with those delivered at project completion. The project outputs for parts A and B are listed in detail in Appendix 2.

Table 1: Summary of Project Outputs (Part A) Implementeda ------Subsector Appraisal Target Project Funds Other Fundsb Canceled National and subnational bridges 5 bridges 2 2 1

Solid waste management 2 sanitary landfills 0 0 2 8 SWM equipment 3 2 3

Local urban roads 6 urban roads 0 2 4

Flood control 3 drainage channels 0 0 3 and drainage

Total 24 subprojects 5 6 13 a Some subprojects were reduced in scope when implemented. b Other sources of funds were Bases Conversion Development Authority, Department of Public Works and Highways, the Local Government Unit’s budget, and loans from Government Financial Institutions. Sources: Local Government Units and the Department of Interior and Local Government.

9. As shown in Table 1, only two of the five bridge subprojects were completed with ADB loan funds. These involved the widening of the Mabiga and San Felipe bridges in Mabalacat. The rehabilitation of the Hensonville bridge in Angeles City was canceled because, in view of its urgency, the Department of Public Works and Highways (DPWH) undertook to complete the rehabilitation in April 2001 with its own funds. The Friendship bridge was cancelled under the Project, due to lack of resolution on the terms for land acquisition and relocation issues arising from the re-appraisal of the subproject due to the need for its construction rather than rehabilitation. The construction of the Friendship bridge is currently being undertaken by DPWH and has entered into its third and final phase.

10. Under the SWM subcomponent, the Kalangitan SLF rendered unviable the proposed intermunicipal landfill subprojects of the cities of Angeles and Tarlac and led to the cancellation of these subprojects. A number of LGUs therefore requested additional SWM equipment and changed their SWM strategies to include the identification of interim dump sites, to be used while the Kalangitan dump site was not yet in operation. If no initial environmental examination (IEE) had been conducted for these interim dump sites, the LGUs were required to carry these

5 out. Angeles City had completed an IEE for its dump site, but the purchase of SWM equipment was canceled because the city did not own the dump site and, hence, could not upgrade it to a controlled dump site, as required by the Department of Environment and Natural Resources (DENR). The city later acquired the SWM equipment with a loan from LBP, as did Concepcion, which had withdrawn early on from CAMDP.

11. All urban road subprojects that required detailed design were canceled by the LGUs due to weak in-house capacity and lack of timely consultant support. Tarlac City constructed the South Eastern and Southern Bypass Road with a loan from LBP. Angeles City canceled the east circumferential road subproject due to realignment and land acquisition issues. Therefore, of the 24 subprojects planned under part A, only five, or 21%, were implemented through the use of the loan proceeds while six others used other sources of funds (see Appendix 2).

12. The substantial cancellation of subprojects prompted the investment coordinating committee (ICC) of the Government of the Philippines to reevaluate the technical, financial, and economic viability of the Project in August 2002. ICC established the viability of the remaining subprojects but recommended the partial cancellation of loan proceeds and the revision of the loan requirements of each LGU. ADB approved the ICC recommendations and processed the first partial cancellation of $7.37 million on 30 August 2002.

2. Part B: Capacity Building

13. CAMDP aimed to build capacity, in both the LGUs and DILG. The LGU institutional development plan for 1,000 persons consisted of 20 different courses in municipal finance, financial management systems, management information systems, credit awareness, labor data systems, and other areas. The PMS component involved providing consulting services and equipment to the PMO of DILG and to the PIUs of the LGUs.

14. During implementation, however, consultants were hired rather late to provide project management and capacity building support, as the DILG had no budget for the Project. In the meantime, the PMO undertook 11 training courses on its own, using training materials developed under the Subic Bay Area Development Project and the Regional Municipal Development Project. During the Project, capacity-building activities were undertaken and action plans developed in five areas: (i) SWM, (ii) gender sensitivity, (iii) financial management and development of financial management systems, (iv) strategic planning, and (v) community participation. In all, about 898 persons from four LGUs,DILG, and Barangays—attended 20 training courses.

C. Project Costs

15. Detailed cost estimates of the project at appraisal and the actual costs incurred are listed in Appendix 3. At appraisal, the estimated project cost was $41.80 million equivalent, comprising $15.60 million in foreign exchange costs and $26.20 million in local currency costs. Of ADB’s Ordinary Capital Resources loan of $24.30 million (58% of the project cost), $18.30 million was intended for part A, $2.30 million for part B, and $3.7 million for interest during construction. The Government was to contribute $12.10 million—$11.50 million for part A and $0.60 million (through DILG) for part B. The Government’s contribution for part A would come from the following sources: $9.20 million in LGU counterpart funds, $0.30 from DPWH for national roads, and $2.00 million from DILG for administration. In addition, the two semigovernmental agencies Bases Conversion Development Authority and Clark Development Corporation were to contribute $4.30 million and $1.10 million, respectively, for part A.

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16. At project completion, the actual expenditures for part A, amounting to $3.33 million, were significantly lower than the cost estimates at appraisal, mainly because of the cancellation of 19 of the 24 subprojects (see Appendix 4). For part B, the actual expenditures of $1.07 million were only 37% of the appraisal cost estimate of $2.90 million because of the late recruitment of consultants and the slight decrease in costs during contract negotiations. Some of the underutilization of project costs can also be attributed to the depreciation of the peso by 35% between appraisal and completion, from $1:P40.60 in July 1998 to $1:P54.99 in November 2005.

D. Disbursements

17. The imprest account was established at the LBP only on 2 January 2002 (2.5 years after the loan took effect) with the transfer of $1.84 million in loan proceeds. This amount was based on estimated expenditures following subproject agreements between MDFO and three LGUs— Mabalacat, Magalang, and Tarlac.

18. At loan closing on 30 June 2005, the disbursements (the final loan amount) totaled $3.33 million, or 14% of the original loan amount of $24.30 million. Of the total disbursements, (i) $528,078 went to civil works, (ii) $778,268 to equipment and materials, (iii) $1.069 million to consulting services, and (iv) $956,897 to interest during construction and commitment charges. The balance of $19,754 in the imprest account was refunded to ADB on 26 September 2005, within the mandatory 3-month period after physical completion. After that, to allow DILG to assess the performance of the consultants before making the final payment, the loan account was kept open until 8 November 2005, when the unused loan amount of $94,351.03 was canceled.

E. Project Schedule

19. Appendix 5 compares the actual project implementation schedule with the estimates made during the Inception Mission in August 1999. The Project was approved on 15 December 1998, an interim PMO was established on 6 March 1999, and the loan was declared effective on 28 June 1999. To expect, as the Inception Mission did, that the project activities would begin in December 1999 and be completed by December 2004 was to be overly optimistic, given the lack of budget allocation for the Project in 1999. Major milestones are recorded in chronological order in Appendix 6.

1. Part A: Infrastructure Development

20. The detailed engineering designs and supervision of construction by each LGU were to be undertaken by local engineering consultants to be hired by the LGUs. The consultants at the PMO were to (i) provide overall guidance in the preparation of the designs, (ii) undertake technical evaluations, and (iii) assist with implementation.

21. Delays in the project schedule were due mainly to the fact that the Project was not included in the budget of both the DILG (the EA) and the LGUs (the IAs), albeit for different reasons. The lack of a project budget until late 20006 left the PMO short-staffed and meant that (i) the PMO could not be an effective secretariat to the project supervisory committee (PSC); and (ii) with the lack of consultants, the PMO could not provide the support needed by the PIUs for effective project implementation. At the LGU level, the lack of sufficient and timely

6 The loan was declared effective on 28 June 1999 although there was no allocation for the PMO in the 1999 budget; the budget for the PMO was approved on 18 September 2000, and the office was fully established with a staff of 26 on 10 November 2000.

7 counterpart funds arose due to lack of agreement between DOF, DILG and LGUs on when the cost of the land purchase and equity for civil works and equipment was to be appropriated in the LGU’s budget as counterpart funds. DOF required this before the SLA was signed, while the EA and IAs argued for making adequate counterpart funds a condition for loan release. This meant there were no counterpart funds in LGU budgets until December 2000.

22. Other delays in project implementation were due to requirements for the reappraisal of certain subprojects, the conduct of IEE, and the preparation of resettlement action plans. 7 Procurement was also delayed by the difficulties faced by LGUs in opening lines of credit with the Philippine National Bank. The LGUs eventually had to make direct payments to contractors. The first SWM equipment was delivered to Bamban in December 2003, while other SWM equipment was delivered only in February 2005, 4 months before loan closing. Major milestones are listed in chronological order in Appendix 6.

2. Part B: Capacity Development

23. At appraisal, the consultants for both the management support to the PMO and capacity building were expected to be mobilized in the first quarter of 1999. However, consultant recruitment was delayed significantly. Seven consulting firms were short-listed in April 2000, but hiring was delayed by a change in DILG’s management, followed by a change in the composition of the bids and awards committee (BAC), and the reevaluation of proposals. Consultants were finally fielded in October 2002 (2.5 years after the consulting firms had been short-listed). Some capacity-building activities were delayed by changes in consultants.

F. Implementation Arrangements

24. The Project was designed to be implemented by the national Government in cooperation with the LGUs. Appendix 7 lists the specific institutional, financial and operational arrangements that were agreed on with the Government at the time of appraisal.

25. DILG, as the EA for the Project, was responsible for overall project management. The three IAs were DILG (for the capacity-building component), DPWH (for the national road subprojects), and the eight LGUs (for their local infrastructure subprojects).

26. The PSC was established with DILG as chair, to supervise and coordinate the work of the LGUs and national agencies. The PMO, within DILG, was to be a secretariat to the PSC and to provide overall project management support, implement component B, and monitor the national and LGU subprojects. The PMO was to be supported in turn by an international consulting team. This structure was replicated at the LGU level with the establishment of a project advisory group (PAG), which had nongovernmental organizations and community representatives as members and was supported by a PIU. Appendix 8 shows the organization chart as implemented.

27. Project implementation suffered greatly from systemic weaknesses in institutional arrangements and government processes. The PSC met for the first time in December 2000, 18 months after the loan took effect. DILG also underwent three changes in leadership during the

7 For Angeles City, the realignment of the East Circumferential Road would have involved the relocation of 27 households, and the reconstruction of the Friendship Bridge instead of its renovation (according to appraisal) would have affected 30 households. Both subprojects were canceled because ADB and the LGU could not agree on the terms for land acquisition and a relocation action plan that would meet ADB’s criteria for the approval of subprojects.

8

Project, and this may explain, at least in part, its ineffectiveness as chair of the PSC. There were no special PAG meetings with the full participation of local communities, as the LGU executive discussed project-related issues at regular meetings. The reasons for the PMO’s ineffectiveness as secretariat are discussed in para. 30.

28. The approval of SPAs and SLAs and the actual release of funds to the LGU were also not carefully worked out at appraisal. For instance, even for a technically feasible subproject, DILG would enter into an SPA with the LGU only if the latter had a “certificate of borrowing capacity” from MDFO. The draft SPA then had to be approved by a technical working group (TWG) within DILG before it was sent to PSC for approval. After that, it had to be approved by the policy governing board of the MDFO. It took the MDFO until June 2003, 4 years after loan effectiveness, to approve and sign three SLAs.

29. Even after the SLAs were approved by MDFO, the funds were not released directly to the LGU but had to go through the budget process, i.e., through the Department of Budget and Management, which authorized the MDFO, through a special allotment release order, to issue a “certificate of availability of funds” to the LGU at its request. Once the certificate was available, the LGU could ask MDFO for the initial release, and the withdrawal application could then be made to ADB. Clearly, the process of channeling the ADB loan funds to the LGUs through MDFO was very long and cumbersome.

G. Conditions and Covenants

30. The three main conditions for loan effectiveness were (i) the establishment of the PSC, (ii) the establishment of the PMO, and (iii) the appointment of a project manager. Although the loan was declared effective on 28 June 1999, there was no allocation for the PMO in the 1999 budget; an interim PMO functioned with a part-time project manager from March 1999 until the budget for the PMO was approved on 18 September 2000. The PMO was fully established with a staff of 26 on 10 November 2000. Consultant support to the PMO was also delayed until March 2003, adversely affecting project implementation.

31. Other major loan covenants—such as (i) submission of audited project accounts and related financial statements, (ii) submission of SPAs, (ii) submission of semiannual progress reports, and (iii) submission of PPMS reports—were generally complied with except for delays in the submission of progress reports. A major change in scope in April 2003, where ADB agreed to finance the purchase of additional SWM equipment not listed in the RRP, led to the inclusion of a new loan covenant providing for the submission of IEEs for subprojects that required the procurement of SWM equipment. The Government complied with this covenant (see Appendix 9).

H. Consultant Recruitment and Procurement

32. At appraisal, the participation of consultants was estimated at 173 person-months, comprising 16 person-months of international and 157 person-months of local consulting services. In view of the delayed implementation, DILG hired a local consulting firm in March 2003 for 145 person-months. Only one international consultant was hired, for 10 person- months, to develop the SWM plans for the four LGUs.

33. The physical infrastructure component of the Project included the construction of simple civil works. Sixteen civil works contracts, costing less than $3 million each, were to be procured through national competitive bidding, according to ADB’s Procurement Guidelines. International shopping procedures were to be used for the procurement of equipment and materials costing

9 between $100,000 and $500,000, and items valued at less than $100,000 were to be purchased directly. Of the eight SWM equipment contracts, one was to be procured through national competitive bidding and the others through international shopping.

34. At completion, none of the LGU civil works contracts had been awarded, as the DPWH had undertaken the construction of the two bridges. SWM equipment was procured through national competitive bidding and direct payment to suppliers, because the LGUs found it difficult to open letters of credit (see para. 22).

I. Performance of Consultants, Contractors, and Suppliers

35. Under the physical infrastructure component, two local consultants (a civil engineer and a procurement specialist) were hired to prepare the bid qualification documents, update the procedures for construction supervision, and assist in the preparation of the procurement documents. The performance of these consultants was satisfactory.

36. Under the capacity-building component, all consultants performed satisfactorily. They strengthened the corporate planning and financial management functions of the LGUs and provided valuable professional advice to the latter on issues related to the feasibility of the privatization of SWM, as well as revenue enhancement.

J. Performance of the Borrower and the Executing Agency

37. The performance of the borrower, DOF, and the key agencies representing the PSC such as the National Economic and Development Authority (NEDA), Department of Budget and Management, BCDA, and CDC was only partly satisfactory. The PSC did not meet until 18 months after loan effectiveness and was reorganized four times. The PSC could have lobbied harder for adequate budget support and counterpart funds for the Project.

38. The performance of DILG as the EA was also partly satisfactory, although issues related to the late release of the budget were outside its control. The DILG needs to be more stringent in the choice of LGUs it supports and the level of commitment to time-bound decisions and actions it seeks from LGUs in a loan-financed project. It was recognized during appraisal that the PMO would need support to function effectively, but, without an active PSC, the PMO was left without the leadership and the technical expertise needed to win the trust and the business of LGUs.

39. The performance of the project LGUs was partly satisfactory. Two LGUs withdrew early on from the Project without any penalties, after considerable resources had been invested in assessing the feasibility of their subprojects. None of the six remaining LGUs had operational action plans by December 2000, as required in the Loan Agreement. To their credit, the LGUs did respond positively to the requirements for sub-appraisal of projects and preparation of IEE reports and resettlement action plans, and the aforementioned weaknesses can be attributed in part to the need to strengthen capacity.

40. While no role was identified for DILG’s Regional Office III at appraisal, the office could have provided support to the interim PMO, especially in capacity building and monitoring and evaluation, given the considerable delay in the establishment of the project performance monitoring system.

10

K. Performance of the Asian Development Bank

41. The performance of the ADB was partly satisfactory. Although the project officers invested considerable time and energy to salvage the Project and to ensure compliance with government and ADB policies (such as borrowing limits, environmental safeguards, and land acquisition guidelines), the weak project design and the delay in implementation doomed the Project from the start. In view of the sharp reduction in project scope due to the loan cancellation of $7.32 million in November 2002 and $10.82 million in May 2003, the Project should have been flagged as “at risk” instead of receiving a satisfactory, and even highly satisfactory, rating for the implementation of the reduced scope of the Project. (See Basic Data, C.5.)

42. ADB fielded nine review missions, including inception and midterm review missions. According to the EA, these review missions were useful and contributed to the early resolution of implementation issues. ADB also initiated biweekly coordination meetings in 2001, to accelerate implementation, and attended PSC meetings to speed up the resolution of key issues. However, there were no review missions from April 2001 until September 2002, when an intermittent midterm review of the Project began.

III. EVALUATION OF PERFORMANCE

A. Relevance

43. The design and scope of the Project were consistent with the Government’s urban development strategy (see paras. 5–7). However, in terms of adequacy of project formulation, there was clearly weak ownership of the subprojects by the LGUs’ Sangguniang Bayan (local legislative councils) and little support from the PSC in getting the Project (both parts A and B) going. The Project is therefore assessed as partly relevant.

B. Effectiveness in Achieving Outcome

44. The Project was designed to (i) improve urban services by upgrading, rehabilitating, and constructing the necessary basic infrastructure; (ii) reduce poverty by improving basic urban services; and (iii) strengthen the managerial capacity of eight LGUS to provide, manage, and maintain urban service facilities.

45. The first two objectives were not achieved. At appraisal, it was expected that 1.2 million people living in the project area (20% of whom were below the urban poverty threshold) would benefit from the improvements in basic urban services and 2,000 would benefit from employment opportunities. However, as of 25 July 2005, only three LGUs remained in the Project and an estimated 194,743 persons were benefiting from more frequent garbage collection made possible by the provision of the SWM equipment. The widening of the San Felipe and Mabiga bridges however did contribute to reduced traffic congestion.

46. The third objective was only partly achieved. DILG trained about 898 persons in eight areas (see para. 14), and the LGUs reported administrative and planning improvements as a result of the training. The LGUs placed great value on the customized reports on SWM and revenue enhancement that were prepared for them, the provision of office equipment, and the training in financial management. From the above analysis, the Project is assessed as ineffective overall.

11

C. Efficiency in Achieving Outcome and Outputs

47. Financial and economic analyses were conducted for the five completed subprojects in part A. The recalculated financial internal rates of return (FIRRs) and economic internal rates of return (EIRRs) are in Table 2. (For details, see Appendix 10.)

Table 2: Internal Rates of Return at Appraisal and Project Completion (%)

Subproject Appraisal Project Completion FIRR EIRR FIRR EIRR

SWM Subprojectsa - Bamban SWM N.C. N.C. (14.7) (22.9) - Mabalacat SWM N.C. N.C. (42.7) (32.5) - Magalang SWM N.C. N.C. (21.5) (25.0) Bridge Subprojectsb - Mabiga Bridge – 22.9 – 12.7 - San Felipe Bridge – 43.2 – 29.7

( ) = negative, EIRR = economic internal rate of return, FIRR = financial internal rate of return, N.C. = not computed, SWM = solid waste management. Sources: Local Government Unit reports. Asian Development Bank estimates.

48. For the three SWM subprojects, the FIRRs are lower than the weighted average cost of capital of 12% of the MDFO loan. Likewise, the EIRRs of these subprojects are lower than the economic opportunity cost of capital of 12%. Both financial and economic returns are, in fact, negative for all three subprojects, mainly because of the non-collection of household fees and the insufficiency of the low fees to cover the cost of operations. All these point to the economic and financial non-viability of the SWM subprojects.

49. For the two bridge subprojects, the EIRRs are positive and higher than the economic opportunity cost of capital of 12%, rendering these projects economically viable even though the EIRRs are lower than those estimated at appraisal. The recalculation of EIRRs at project completion assumed a much lower volume of traffic than that assumed in the PPTA. Only 347,091 vehicles were registered with the Land Transportation Office for the entire Region III in 1997; in comparison, the assumed volume of traffic was 2,419,950 vehicles.

50. Another measure of efficiency that was applied was the amount spent on project overhead (project management, interest payments, commitment fees), vis-à-vis the loan funds used. Interest during construction and commitment fees amounted to $0.96 million, while DILG spent $0.70 million on administration. Collectively these overheads amounted to $1.66 million or 50% of the loan disbursements of $3.33 million, making loan utilization inefficient. Overall, the Project is assessed as inefficient.

12

D. Preliminary Assessment of Sustainability

51. The Project was assessed in terms of the institutional and operational capacity and availability of financial resources to sustain intended project outputs over the economic life of the project.

1. Part A: Physical infrastructure

a. SWM Subprojects

52. With regard to the ability to sustain SWM equipment, the LGUs operationally and institutionally capable of making regular loan payments to MDFO and meeting the operation and maintenance (O&M) costs from their budget. However, with regard to the financial sustainability of the solid waste management system (which was considered financially viable at the appraisal stage because of assumed efficiencies in garbage fee collection and regular fee increases), little or no garbage fees are currently being collected, despite the supporting LGU tax ordinances. Even with 100% collection of garbage fees at the household level, it is unlikely that all the recurrent costs of garbage collection and disposal system would be met, given the costs associated with hauling garbage to the Kalangitan SLF.

53. The collection of garbage fees from households is less a matter of willingness to pay than an issue of direct and indirect service delivery, which affects how fees should be structured and collected. Given the narrow streets in most barangays, the garbage is collected from households for a fee by private entrepreneurs, who then dump it at collection points, from where it is collected by large trucks, such as those provided under the Project. However, this collection of fees at the barangay level 8 does not translate into revenues for the LGU to meet the expenditures of garbage disposal. The nuances of the garbage collection (direct) and disposal (indirect) services were overlooked at appraisal. The simplistic assumption was that the issue at hand was making households more aware of the need to pay for the services and collecting fees from households. Since households already pay fees for garbage collection, some LGUs are considering introducing fees for garbage disposal in utility bills. The collection of fees from registered commercial establishments is less problematic, as fees are paid monthly at the LGU office for more “direct” garbage collection services. These nuances need to be fully examined and their implications for financial sustainability fully considered in future project designs.

b. Bridge Subprojects

54. The construction of the bridges by DPWH proceeded smoothly and the agency has funds for the O&M of these two subprojects.

2. Part B: Capacity Building

55. The LGUs are committed to institutional strengthening, both operational and managerial. They have reported positive benefits from the capacity-building component, especially with the production of six customized reports. These reports served as basis for local revenue ordinances, which if fully implemented can lead to financial sustainability of the LGUs. However, not enough capacity has been built in the LGUs to continue understanding this type of revenue enhancement analysis. Although LGU revenues have been increasing steadily, these are still quite below the annual projections e.g. 50% for Bamban, 55% for Mabalacat, and 83% for Magalang. The LGUs also depend heavily on the IRA (see Appendix 11). An LGU pool of trainers has been created to sustain the human resources development activities of the LGUs.

8 Some innovative barangays in Mabalacat have “licensed” private garbage collectors, who pay P1,000 per month to the barangay for the right to operate in the area.

13

From an O&M point of view, the capacity of the LGUs has been enhanced, as has their financial management capacity.

56. While the five subprojects in part A and the capacity-building activities in part B are being sustained through the budgetary process, the scope of the overall project had to be reduced drastically because of the weak technical capability of the LGUs, their limited borrowing capacity, and changing priorities. As most of the Project’s intended outputs (that are being assessed for sustainability) were not delivered, the Project is assessed as unsustainable.

E. Health, Safety, and Environment Impacts

57. The Project has produced some health benefits from a cleaner environment for approximately 41,425 households served by the SWM equipment in Bamban, Mabalacat and Magalang.In addition, the widening of the two bridges on a major road in Mabalacat has reduced traffic congestion and increased the safety of passengers. The cutting of trees within the road right-of-way for the San Felipe bridge, an issue raised by a nongovernmental organization, was resolved through the Regional Development Council. It was agreed that every tree cut would be replaced by 10 new ones. This would have a positive effect on the environment in the area. Overall, the Project had limited benefits (For details, see Appendix 10).

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment 9

58. Most of the weaknesses of the Project arose from its weak design, despite the clear identification of both fiduciary and political risks during the PPTA. Systemic weaknesses adversely affected the Project at both national and local government levels. Alternative and more attractive financing was also available to the LGUs. Moreover, the complexity and length of government processes were not taken into account in the project design and implementation. The resulting loan cancellations totaling $20.87 million cost the Government $0.96 million in interest and commitment fees, although it used only $3.33 million of the loan proceeds. Part A used $1.31 million (39% of the loan amount, versus the appraisal target of 77% of the loan proceeds), while part B used $1.07 million (32%, versus 7% at appraisal). According to ADB’s criteria for the overall assessment of a project (Appendix 12), the Project is rated unsuccessful. No overall project rating is provided in the Government’s project completion report.

59. It is acknowledged that the Project was implemented in a period of political, institutional and policy changes and has yielded some important lessons, which are discussed below.

B. Lessons Learned

60. Thoroughly Assess the Adequacy and Timeliness of Budget Support. One of the principal reasons for the project’s poor performance is that the design process did not include a through assessment of likely budget support. At the time of loan approval in Dec 1998, Philippines was still recovering from the effects of the Asian Financial crisis, and in response the IRA had been cut by 10% in 1998; both clear signs that the fiscal position of the government was under stress. In addition, the government’s budgetary policy then was such that budget allocations would only be made for approved loans thus delaying the availability of funds to the year after approval. While the project design recognized that timely and adequate budget support might not be forthcoming, the mitigating measure i.e. a thorough assessment of the borrowing capacity of the LGUs (see RRP para 82), did little to address the issue of delayed

9 This PCR is part of a sample of PCRs independently reviewed by the Operations Evaluation Department. The review has validated the methodology used and the rating given.

14 budget support which was necessary for timely mobilization of PMS consultants, thus slowing implementation. In fact, CAMDP was clearly a low priority project during times of fiscal tightening and was placed in the “unprogrammed “category of the Budget, along with other projects with funding being contingent on the government meeting certain revenue targets.

61. Build In Time for Potential Delays. According to the original project implementation schedule, project activities would start in the first quarter of 1999. This schedule did not allow time for potential delays in loan effectiveness and for delays arising from the lack of budget cover.

62. Provide a Choice of Financing Modalities and Improve Fundflow Processes. Although financing from both the MDFO and GFIs is accessible to all LGUs, MDFO is more attractive to fifth- and sixth-class LGUs, which can receive up to 70% concessional financing from MDFO.10 Limiting the financing window under the Project to MDFO, when six of the eight LGUs were classified as first-class and clearly had alternatives available turned out to be a flaw in project design. Three first-class LGUs out of the eight LGUs dropped from the Project and availed GFI financing, due to the faster processing time, albeit they too received funds through the budget. Moreover, an important aspect of loans seems to be the creation of processes for making timely payments to credit worthy LGUs (without having to route small loans through the lengthy budgetary process,). More efficient fundflow processes need not compromise fiduciary safeguards or avoid accountability mechanisms.

63. Provide Supplementary Loans with TA for Consulting Services. Project implementation could have been strengthened with the timely provision of consultant support at both the PMO and PIU level through a grant TA from ADB..

64. Resolve Land Acquisition Issues before Signing Subloan Agreements. The failure of the Government and ADB to agree on the terms of land acquisition for a bridge and a landfill led to the cancellation of these subprojects, after considerable resources had been invested in preparing resettlement action plans and assessing the costs of land acquisition.

65. Develop mechanisms that encourage LGUs to follow through with commitments. Despite extensive participatory processes undertaken in the design and selection of sub- projects, these proved to be at risk of being cancelled and or changed due to a change in the LGU’s political leadership. Part of capacity building is to have LGUs think hard before they commit to borrowing for certain sub-projects. If they withdraw due to a change in priorities (which in itself is ironic) they should do so considering the negative implications this would entail, such as financial or reputational, or a downgrading of credit worthiness. New NEDA policies now require the local Legislative Councils to approve subprojects on the basis of a medium-term LGU investment plan.

66. It Is All Right to Fail—If You Learn. At the time of project approval, there was little experience of borrowing by smaller LGUs, and hence the project provided a good means of testing the system. Financing from the MDFO and GFIs are good alternatives to direct budget support for LGUs and support the government’s objective of reducing fiscal pressure by encouraging LGUs to raise revenue, improve financial management and invest in priority ventures through borrowing and equity11. The government and ADB’s investment in promising but high risk interventions is acceptable as long as the risks and associated costs are clearly identified for worst case scenarios and decision points to terminate the project, once valuable

10 Of the eight LGUs in the CAMDP, six were ranked as first-class (Angeles City, Tarlac City, Capas, Concepcion, Mabalacat, and San Fernando), while Magalang was ranked as a second-class LGU and Bamban as a third-class LGU. 11 However, ironically LGUs default on loans from GFIs’ is also guaranteed 100% by the IRA.

15 lessons have emerged , are clear to all parties. This can then form the basis for improvements in service delivery and strengthen the rationale for future investments.

C. Recommendations

1. Project-Related

67. Further action or follow-up is needed in the following areas.

(i) There are very few project-related recommendations for follow-up, as the scope of the Project was drastically reduced. However, to improve the financial sustainability of the SWM equipment, the LGUs must institute the collection of garbage collection and disposal fees. These are most likely to be made part of the utility bills for households, and need to be monitored under future ADB interventions.

(ii) DILG can make greater use of its regional office in monitoring the progress of activities initiated under such projects. While DILG currently collects considerable information through the local government progress monitoring system, the focus seems to be on inputs, i.e., whether required plans have been prepared and whether or not certain codes exist in local-government legislation. DILG needs to begin building the capacity of LGUs to link these inputs to the expected results. For instance, has better planning at the LGUs led to better service (whether or not revenue collection has improved), and why (changes in tax rates, collection efficiencies, or better financial management)? Have increased revenues been invested in improving the delivery of service to citizens?

(iii) LGUs continue to need assistance in assessing the cost of borrowing and in undertaking debt management.

68. Additional Assistance. Future ADB financing of LGU projects through the GFIs must ensure that the lending rates are competitive, that there are well-defined and agreed-upon criteria for sub-loan approval, and that crucial consultant support is provided through a grant TA.

2. General

69. Future ADB projects can build on the lessons learned from the Project, as well as the continuing positive changes in government policies for both planning and financing urban development.

70. ADB’s management could have come to an agreement with NEDA and DOF to terminate the Project after the midterm review, i.e., in May 2003, when 75% of the loan had been canceled and only five subprojects remained. Failing to do so meant spending considerable government and ADB resources on negligible project outcomes. Even with an early project closure, the SWM equipment could have been procured with MDFO’s own finances, and the widening of the two small bridges could have been undertaken by DPWH with its own funds. The overall transaction costs of the Project are very high compared with the limited outputs and outcomes.

71. It is clear that the LGUs capacity development needs are still considerable. These can be met through a combination of approaches. National government agencies could provide regular training to LGU staff, or LGUs could hire consultants to meet specific needs. These approaches have different financial and technical implications for the Government and for the way in which ADB structures and delivers capacity-building assistance to LGUs in the future.

16 Appendix 1

PROJECT FRAMEWORK

Performance Monitoring Assumptions (A) and Design Summary Indicators/Targets Mechanisms Risks ® 1. Goal Human development, By 2005, about 1.2 million PCR A: Project is completed poverty reduction, and people (including 240,000 on time, as planned institutional capacity urban poor) in the project PPAR and in accordance with development in eight local area will receive direct the project design. government units (LGUs) benefits from the improved Project around CSEZ, i.e., urban infrastructure and their performance A: Institutional, Angeles City, Bamban, living conditions will improve. monitoring financial, and Capas, Concepcion, Urban management capacity system (PPMS) operational action plan Mabalacat, Magalang, San of the eight LGUs will also be is implemented as Fernando, and Tarlac. strengthened. All project agreed. facilities will be operational and in good working condition. 2. Purpose Improve urban services by Twenty-four subprojects will upgrading, rehabilitating, be implemented in three Quarterly A: Project is and constructing the subsectors. progress reports implemented as necessary basic scheduled. infrastructure. About 2,000 new employment Review missions and livelihood opportunities Reduce poverty by will be created by 2005. The Midterm reviews providing improved basic average annual per capita urban services. income of the urban poor PPMS (currently P12,660) will increase by at least 30%. Strengthen the managerial Training in urban A: Project facilities are capacity of the eight LGUs management is implemented. adequately run and to provide, manage, and managed by LGUs. maintain urban service facilities. 3. Outputs Part A: Physical

Infrastructure Two new intermunicipal Project progress A: Adequate Solid Waste Management landfill sites are installed. reports counterpart funds are provided in time.

Equipment is provided in all Project review A: The required land is eight LGUs. missions acquired in time.

PPMS A: Project is implemented as scheduled. Flood Control and Bamban, Capas, and Tarlac Quarterly Drainage are provided with 14 km progress reports drainage canals. Project review missions

Appendix 1 17

Performance Monitoring Assumptions and Design Summary Indicators/Targets Mechanisms Risks Urban Roads and Bridges Road improvements of about 7 km are implemented.

Two bridges are widened, a bridge is rehabilitated, and a new bridge is built. Part B: Capacity Building Institutional Development Urban management staff of the Program eight LGUs are trained in urban management.

Office facilities are upgraded through computerization and the establishment of a communication network. 4. Activities Part A: Physical

Infrastructure

Preparation of detailed Total investment of $35.0 Quarterly Adequate local engineering designs and million progress counterpart funds are contract documents reports allocated in time.

Bid evaluation and -$11.0 million in foreign Municipal contract awarding currency Project review Development Fund missions operates smoothly. Procurement of equipment -$24.0 million in local currency and construction of PCR facilities 173 person-months of Overall project consulting services implementation and coordination Part B: Capacity Building

Training of LGU staff About $0.5 million for training of Quarterly Department of the 1,000 staff progress Interior and Local reports Government provides Purchase and installation About $0.3 million for office needed support. of upgraded office equipment Project review equipment including missions computerization and communication network

Consulting services and About $2.0 million for consulting project management services, project management support and LGU support, and LGU management management skills upgrading skills upgrading Inputs $35.20 million for Part A $ 2.90 million for Part B $ 3.70 milliion for IDC Total Project Cost = $41.80 million CSEZ = Clark Special Economic Zone, IDC = interest during construction, LGU = local government unit, PCR = project completion report, PPAR = project performance audit report. Source: ADB. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Republic of the Philippines for the Clark Area Municipal Development Project. Manila.

18 Appendix 2

PROJECT OUTPUTS

Appraisal Project Completion Part A: Physical Infrastructure A. Angeles City 1. Roads and Traffic Management (i) Hensonville Bridge • Construction of the Hensonville Bridge with a • Construction of the new Hensonville Bridge with span length of 201.8 linear meters by DPWH a span length of 233 meters by BCDA using non-project resources • Width of bridge to be 7.3 m single carriageway • Six-span steel bridge resting on bored piles • The bridge site is currently the location of a • 33.50 linear meters per span causeway river crossing (ii) Rehabilitation of Friendship Bridge • Foundation rehabilitation and strengthening of • Canceled under the Project because of bridge capacity disagreement between ADB and LGU on land • Bridge extension of 50 m on the northern side acquisition and relocation issues • Carriageway widening by 4.5 m to 14.8 m • Rehabilitation by DPWH using non-project resources • Steel girder resting on bored piles • Length of 240 linear meters • No. of spans: 8 • No. of lanes: 2 • Width: 7.22 meters (iii) Apo Road (West) Bridge and Extension of Canceled. Less of a priority for the LGU. Apo Road • Construction of a short bridge (80 m) to connect the western end of the Apo road to the proposed Apo road extension • Construction of 215 m length of 7.3 m-wide single-carriageway road from Apo bridge (iv) East Circumferential Road Canceled because of realignment and land acquisition • 2.88 km length of 7.3 m-wide new road issues. construction with lateral and transverse drainage • Widening and improvement of 1.7 kilometers (km) of existing subdivision roads (v) Pampanga Intermunicipal Sanitary Landfill Canceled. Kalangitan landfill constructed under a • Construction of an 18-hectare landfill to meet BOT contract granted by the Clark Development disposal requirements up to year 2015 Corporation • Provision of sanitary landfill equipment (compactor, bulldozer, loader, dump truck, water truck) 2. Solid Waste Management 1. Procurement of five dump trucks and four Canceled under the Project because of land acquisition compactors issues, but procured under a loan from LBP

Appendix 2 19

Appraisal Project Completion B. Mabalacat 1. Roads and Traffic Management (i) Widening of San Felipe Bridge • Increase in width of this bridge from 1 m x 7.3 m • Works completed by DPWH, as agreed during to 2 m x 7.3 m, with 1 m central margin, and a 1 appraisal m footpath on each side • RCDG on pile footing • 1 span: 40.60 linear meters • Travel width: 12 meters • Sidewalk: 0.85 meter both sides • Approach A: 148.2 l.m. • Approach B: 111.2 l.m. (ii) Widening of Mabiga Bridge • Increase in width of this bridge from 1 m x 7.3 m • Works completed by DPWH, as agreed during to 2 m x 7.3 m, with 1 m central margin and a 1 m appraisal footpath on each side • RCDG on pile footing • 1 span: 15.60 linear meters • Travel width: 14.64 meters • Sidewalk: 0.76 meter both sides • Approach A: 129.2 l.m. • Approach B: 1115.2 l.m. 2. Solid Waste Management (i) Two dump trucks Procured: 1. One dump truck 2. One bulldozer 3. One pay loader C. Magalang

1. Solid Waste Management (i) For final disposal, Magalang will be using a joint Procured: disposal facility 1. One mini dump truck (ii) Closure and covering of existing site 2. One wheel excavator (iii) Procurement of one dump truck, one pickup 3. One wheel loader truck

D. San Fernando 1. Roads and Traffic Management (i) Extension of the MacArthur Highway Traffic Canceled. LGU withdrew from the Project because of Signal Scheme a change in priorities. • Installation of coordinated traffic signals • Geometric improvements to include channelization at the intersections • Pavement markings and traffic management measures

20 Appendix 2

Appraisal Project Completion 2. Solid Waste Management (i) Closure and covering of existing dump site Canceled. LGU withdrew from the Project because of (ii) San Fernando will be linked to the joint disposal a change in priorities. facility in Angeles City (iii) Procurement of four dump trucks, two compactor vehicles E. Bamban 1. Roads and Traffic Management (i) Realignment of southern town center road Canceled because of change in LGU priority • The construction of 800 m length of 7.3 m-wide road linking the main street to MacArthur Highway immediately north of the lahar control dike, complete with cross and longitudinal drainage (ii) Bankal Creek drainage channel Canceled because of limited borrowing capacity of • Construction of 4 km of realigned drainage LGU channel from the creek termination to the Wonderland Bridge, requiring three drainage structures under MacArthur Highway • Concrete lined and covered canal 2. Solid Waste Management (i) Procurement of one solid waste collection Procured: vehicle 1. One dump truck (ii) Bamban will eventually be connected to a joint 2. One motor grader disposal facility for the Tarlac municipalities and the existing site will be closed and covered F. Capas 1. Roads And Traffic Management (i) MacArthur Highway drainage channels Canceled. LGU withdrew from the Project. • Construction of continuous drainage channels along MacArthur Highway with outfalls to the Cutcut River in the south • Construction of 6,400 linear meters of rectangular concrete channels 2. Solid Waste Management (i) Provision of one solid waste collection truck for Canceled. LGU withdrew from the Project. Poblacion and one truck for O’Donnell Resettlement (ii) Capas will be linked to a joint disposal facility for Tarlac (iii) Closure and covering of existing site

Appendix 2 21

Appraisal Project Completion H. Concepcion

1. Solid Waste Management 1. Provision of solid waste collection truck Canceled. LGU withdrew from the Project. Obtained 2. The eventual use by Concepcion of the proposed loan from LBP to buy one solid waste collection truck. joint disposal facility for Tarlac has been recommended. 3. Covering and closure of existing site I. Tarlac 1. Roads and Traffic Management (i) Southern/Eastern Bypass Road Canceled. LGU withdrew from the Project. Subproject • Construction of 800 km road linking Brgy. was implemented with a loan from LBP having a Maliwalo to Brgy. Binauganan variable interest rate and 10-year payback period. • Roadway of 7.3 m carriageway width with 2 m x 1 m shoulders and 2 m x 1 m drainage channels • Right-of-way • Twin box culvert (ii) Town Center Traffic Management Canceled. LGU withdrew from the Project. • Improved channelization and traffic signal coordination • Realignment of junctions • Road signs • Improved jeepney and bus parking (iii) Southern Bypass Canceled. LGU withdrew from the Project. • Construction of 0.7 km of 7.3 m-wide carriageway Subproject was implemented with a loan from LBP with verges and drainage channels having a variable interest rate and 10-year payback • Acquisition of right-of-way period. (iv) MacArthur Highway to Masalasa Creek Canceled. LGU withdrew from the Project, but the Drainage Channels channels are being constructed (piecemeal) with city • 4.2 km of covered and open drainage channels funds. adjacent to main roads • Provision of riprap protection for critical sections of Masalasa Creek 2. Solid Waste Management (i) Tarlac Intermunicipal Sanitary Landfill Canceled because of the construction of Kalangitan • Provision of sanitary landfill equipment landfill in Pampanga • One compactor, one loader • Construction of a secure sanitary landfill covering 7 ha, which will meet disposal requirements up to year 2015 for the four Tarlac municipalities in the subregion

(ii) Procurement of four tipping collection trucks Cancelled. LGU withdrew from the Project. LGU (iii)Tarlac’s existing disposal site could be upgraded obtained a loan from Land Bank of the Philippines for to serve also Capas, Bamban, and Concepcion. the purchase of solid waste management equipment.

22 Appendix 2

Appraisal Project Completion Part B: Capacity Building A. LGU Institutional Development Support Workshops/Training Conducted: • Training in planning, execution, operation, and • Team-Building Programs and Planning Workshop maintenance of infrastructure facilities such as • Training in Training Needs Assessment solid waste management, flood control, traffic • Project Management Consultative Conference management Workshop • Project orientation and other project-related • Enhancing LGU Performance Seminar Workshop training (Concepcion, Bamban, and Magalang) • Study tours • Technology of Participation: Basic Facilitation Methods • Project Financial Management Workshop (DPWH, Bamban and Angeles) • Training of Trainers Workshop for LGUs • LGU Strategic Planning Workshop (Bamban and Angeles) • Hands-On Training in Basic Computer Applications (Magalang) • Community Participation Workshop for CAMDP LGUs • Seminar on Documentation of Government Procurement Reform Act (R. A. 9184) • Visioning for Leadership Excellence Seminar Workshop (Magalang) • Hands-On Training in Project Financial Management (Mabalacat) • DILG PMO Training-of-Trainers Workshop • Training in LGPPMS • Gender Sensitivity Training and GAD Planning/Mainstreaming Workshop • SWM Training Program • Training Workshop on RME • Barangay SWM Committee IEC Training and Planning Workshop

Report Produced: • SWM prepared for Bamban, Magalang, Angeles, and Mabalacat B. Project Management Support • Supervision and management of all detailed design subprojects, contract preparation, construction supervision, and total project management • Advice and assistance to LGUs in all aspects of project management and reporting • Preparation of environmental impact statement/environmental impact assess-ment for the landfills in Angeles and Tarlac BCDA = Bases Conversion Development Authority; DPWH = Department of Public Works and Highways; GAD = Gender and Development; ha = hectares; LBP = Land Bank of the Philippines; LGU = local government unit; LGPMS = local government progress monitoring system; m = meters; SWM = solid waste management. Sources: Asian Development Bank estimates; EA quarterly progress reports.

COST BREAKDOWN BY PROJECT COMPONENT ($ million)

Appraisal Actual ADB GoP Total Item Foreign Local Total Foreign Local Total BCDA LGUs DPWH CDC DILG A. Physical Infrastructure 1. Roads and Bridges 2.90 11.20 14.10 a. San Felipe Bridge 0.08 0.27 0.36 0.17 0.52 b. Mabiga Bridge 0.04 0.13 0.17 0.08 0.26 c. Hensonville Bridge 0.65 0.65 d. Friendship Bridge 1.07 0.36 0.42 0.13 1.98 Subtotal (A1) 0.12 0.41 0.53 1.07 0.36 1.33 0.13 3.41

2. Drainage and Flood Control 2.00 4.60 6.60 0.00

3. Solid Waste Management 6.20 5.20 11.40 a. Mabalacat 0.00 0.45 0.45 0.00 0.46 b. Magalang 0.00 0.15 0.15 0.15 c. Bamban 0.00 0.18 0.18 0.01 0.19 Subtotal (A3) 0.00 0.78 0.78 0.01 0.79

4. Incremental Administration 3.10 3.10 0.71 0.71 Subtotal (A) 11.10 24.10 35.20 0.12 1.19 1.31 1.07 0.37 1.33 0.13 0.71 4.91

B. Capacity Building 1. Institutional Development Program 0.60 0.60 0.00 0.00 0.00 0.13 0.13 2. Consulting Services 0.80 1.50 2.30 0.24 0.83 1.07 0.14 1.21 Subtotal (B) 0.80 2.10 2.90 0.24 0.83 1.07 0.26 1.33 Appendix 3 Appendix C. Interest During Construction 3.70 3.70 0.96 0.00 0.96 0.96

Total 15.60 26.20 41.80 1.32 2.02 3.33 1.07 0.37 1.33 0.13 0.97 7.19 23 BCDA = Bases Conversion Development Authority; CDC = Clark Development Corporation; DILG = Department of the Interior and Local Government DPWH = Department of Public Works and Highways; LGU = local government unit. Source: Asian Development Bank estimates

24 Appendix 4

REVISIONS IN LOAN ALLOCATIONS

1. The amount of the Asian Development Bank (ADB) loan was reduced five times, by a total of $20.87 million. From the original $24.3 million, the loan amount was eventually reduced to $3.4 million. The first two cancellations were made in August 2002 and April 2003 following the withdrawal of four of the eight targeted local government units (LGUs) because of changed priorities after local elections. The scope of work was also cut back to reflect the reduction in the overall project scope.

2. With the withdrawal of four LGUs, the scope of work of the consultants was substantially reduced. The subprojects that were implemented were also smaller than anticipated, and were completed early. Because of the reduction in the scope of work of consultants and the early completion of the subprojects, a third partial cancellation amounting to $2.6 million was made in July 2005.

3. The fourth partial cancellation of $0.138 million was made in January 2005, when the Project was nearing completion and the final subproject costs and consultancy cost requirements had been identified.

4. The following tables give detailed information on loan allocations resulting from the partial cancellations.

Appendix 4 25

Table A4.1: Loan Allocation ($) Original Cancellation Final Loan Partial Cancellation at Loan Total Loan Category Amount First Second Third Fourth Closing Cancellation Amount

01 Civil Works 11,342,000 5,326,420 5,450,580 36,922 10,813,922 528,078 01A DPWH 558,000 29,922 29,922 528,078 01B LGUs 10,784,000 5,326,420 5,450,580 7,000 10,784,000 0 a. Angeles 4,624,000 3,110,000 1,514,000 4,624,000 0 b. Bamban 260,000 260,000 260,000 0 c. Capas 1,000,000 1,000,000 1,000,000 0 d. Concepcion 5,000 5,000 5,000 0 e. Mabalacat 7,000 7,000 7,000 0 f. Magalang 3,000 3,000 3,000 0 g. San Fernando 364,000 364,000 364,000 0 h. Tarlac 4,521,000 584,420 3,936,580 4,521,000 0

02 Equipment and Materials 3,328,000 1,681,000 1,074,000 524,000 38,581 3,150 3,263,732 778,268 a. Angeles 1,157,000 630,000 127,000 400,000 1,157,000 0 b. Bambana 57,000 57,000 115,000 1,388 116,388 179,612 c. Capas 57,000 57,000 57,000 0 d. Concepcion 36,000 36,000 36,000 0 e. Mabalacatb 108,000 32,622 2,196 34,818 453,182 f. Magalanga 65,000 9,000 4,571 955 14,526 145,474 g. San Fernando 937,000 937,000 937,000 0 h. Tarlac 911,000 911,000 911,000 0

03 Consulting Services 1,903,000 77,304 625,954 100,000 31,098 834,356 1,068,644

04 Interest and 3,784,000 151,360 1,821,027 794,613 60,103 2,827,103 956,897 Commitment Charges

05 Unallocated 3,943,000 138,294 2,470,586 620,120 3,943,000 0

Total 24,300,000 7,374,378 10,816,193 2,601,609 138,581 94,351 20,968,112 3,331,887

DPWH = Department of Public Works and Highways, LGU = local government unit. Source: Asian Development Bank Loan Financial Information System.

Table A4.2: Dates of Reduction in Loan Amount ($ million) Date of Loan Reduction Amount of Reduction New Loan Amount

30 August 2002a 7.317 16.982 23 April 2003 10.816 6.166 20 January 2005 2.602 3.564 26 July 2005 0.138 3.426 8 November 2005 $0.094 3.331 Source: Asian Development Bank Loan Financial Information System.

26 Appendix 4

5. With the passage of the Ecological Solid Waste Management Act of 2000 (R. A. 9003), which required LGUs to convert their open dump sites into controlled dump sites, three LGUs requested funds for additional solid waste management equipment. Table A4.3 gives details of the reallocation of the loan proceeds.

Table A4.3: Dates of Reallocation of Loan Proceeds ($)

Date of Category Original Increase/ Revised Reallocation Allocation (Decrease) Allocation

25 September 2001 Equipment and Materials - Mabalacat 108,000 380,000 488,000 Unallocated 3,943,000 (380,000) 3,563,000 11 May 2004 Equipment and Materials - Bamban 57,000 239,000 296,000 - Magalang 65,000 95,000 160,000 Unallocated 3,563,000 (334,000) 3,229,000 Source: Asian Development Bank Loan Financial Information System.

PROJECT IMPLEMENTATION SCHEDULE

Implementing PROJECT/ACTIVITIES Agency 1999 2000 2001 2002 2003 2004 2005 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV A. Infrastructure/Equipment 1. Angeles City a. Hensonville Bridge over the Abacan River DPWH

b. Friendship Bridge (Phase 1 & 2) Angeles

c. Apo Road (West) Bridge and Apo Road Extension Angeles

d. East Circumferential Road Angeles CANCELLED ` e. Solid Waste Management Angeles CANCELLED

f. Sanitary Landfill Angeles CANCELLED

2. Mabalacat a. San Felipe Bridge DPW H

b. Mabiga Bridge DPWH

c. Mabalacat Solid Waste Management Equipment Mabalacat

3. Magalang a. Magalang Procurement of Solid Waste Management Equipment Magalang

4. San Fernando a. Extension of the Mc Arthur Highway Traffic Signal Scheme San Fernando CANCELLED

b. San Fernando Solid Waste Management San Fernando CANCELLED

5. Bamban 5 Appendix a. Realignment of Southern Town Center Road Bamban CANCELLED

b. Bankal Creek Drainage Channel Bamban CANCELLED

c. Bamban Solid Waste Management Bamban 27

6. Capas a. Mc Arthur Highway Drainage Channel Capas CANCELLED

Implementing 28 PROJECT/ACTIVITIES 1999 2000 2001 2002 2003 2004 2005 Agency Appendix 5 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

b. Capas Solid Waste Management Capas CANCELLED

7. Concepcion a. Concepcion Solid Waste Management Concepcion CANCELLED

8. Tarlac a. Southern/Eastern Bypass Road Tarlac CANCELLED

b. Tarlac Solid Waste Management Tarlac CANCELLED

c. MacArthur Highway to Masalasa Creek Drainage Channels Tarlac CANCELLED

d. Town Center Traffic Management Tarlac CANCELLED

e. Southern Bypass Tarlac CANCELLED

f. Sanitary Landfill Tarlac CANCELLED

B. CAPACITY BUILDING 1. Training ( Interest during construction) DILG

2. Project Management Support DILG

Sources: Asian Development Bank estimates; EA progress reports.

Legend: - As appraised

- Actual

Appendix 6 29

CHRONOLOGY OF EVENTS

Table A6.1: Project Implementation

Dates Events 1997

10 June PPTA 2807-PHI: Clark Area Municipal Development Project approved 1998

6–29 July Appraisal Mission fielded

15 December Loan approved by ADB’s Board of Directors 1999

1 March Loan Agreement signed 6 March Interim PMO established 28 June Loan 1658-PHI declared effective 9 August–3 September Inception Mission fielded 22–30 October / Advertisement for prequalification of PMS consultant issued 31 October–2 November 2000

5–14 January Prequalification statement for PMS contract evaluated 23 January Shortlist of PMS consultants approved by PBAC 14–23 February Loan Review Mission fielded 11 April Short list of PMS consultants submitted to ADB 5 May ADB requests revision of short list in view of its policy of limiting it to 2 firms per member country 26 May Revised short list submitted to ADB 31 August ADB approves revised short list 25 September Letter of invitation to submit proposals issued to short-listed firms 2–13 October Loan Review Mission fielded November Full PMO established December 15 Proposals for the PMS contract opened 2001

26 January Ecological Solid Waste Management Act of 2000 (R. A. 2003), requiring LGUs to convert their open dump sites into controlled dump sites, enacted 5 February–6 April Loan Review Mission fielded 13 February PBAC reconstituted by DILG after resignation of DILG secretary 26 April Ranking order of PMS consultants submitted to ADB for concurrence 22 May ADB raises point of clarification on the results of the ranking of PMS consultants 14 June DILG provides clarification to ADB’s query 3 August ADB approves ranking of PMS consultants 7 August Draft PMS contract submitted to ADB 20 August ADB issues no-objection to proceed with financial negotiation 25 September ADB approves reallocation of loan proceeds. The amount of $380,000 was taken from the Unallocated category and added to Mabalacat’s allocation for the procurement of additional solid waste management equipment to meet its increasing volume of garbage.

30 Appendix 6

Dates Events 5 November–14 December Loan Review Mission fielded 16 November PBAC approves financial evaluation report for the PMS consultancy contract 26 November PBAC submits resolution to ADB 2002

8 January ADB approves financial evaluation report for the PMS consultancy contract 16 January Notice of Award for the PMS consultancy contract issued 11 March PMS consultancy contract signed and forwarded to NEDA for board approval 11 March NEDA requests DILG to submit the revised project scope for ICC approval 8 April Signed PMS consultancy contract submitted to ADB 10 April DILG requests NEDA to consider immediate review of the PMS consultancy contract, given the reduced project scope 22 April DILG receives letter from NEDA about the need for ICC approval of the Project, including partial loan cancellation 29 August ICC cabinet approves the revised project scope 30 August 1st partial cancellation of $7,317,378 made in the loan amount because of (i) withdrawal of Capas and San Fernando from the Project and (ii) devaluation of the peso. The withdrawal of the two LGUs reduced the number of subprojects from 24 to 15. The amount canceled represented 30% of the original loan amount. These changes constituted a major change in scope: the loan amount and the number of subprojects were reduced. A minor change in scope was also made to reflect the procurement of additional solid waste management equipment. 16 September 2002– Midterm Review Mission fielded 28 February 2003 September 30 Notice to proceed issued to PMS consultants October 14 PMS consultants mobilized 2003 2nd partial cancellation of $10,816,193.24 made in the loan amount because of (i) withdrawal of Tarlac and Concepcion 23 April from the Project and (ii) withdrawal of Angeles City from two subprojects because it could not agree with ADB on resettlement procedures. The number of subprojects was further reduced to seven. These changes constituted a major change in loan amount and project scope. August 2003–June 2005 Training and workshops conducted by DILG for participating LGUs in (i) training needs assessment, results processing, and feedback; (ii) cost recovery analysis and cost accounting; (iii) project financial management; (iv) equipment procurement; (v) strategic planning; (vi) finalization of the municipal solid waste management plan; and (vii) community participation. Community participation training focused on solid waste management, revenue enhancement, and privatization.

Hands-on training in basic computer applications provided to beneficiary LGUs 26 November–22 December Loan Review Mission fielded

Appendix 6 31

Dates Events 2004 ADB approves reallocation of loan proceeds. The amount of $334,000 was taken from the Unallocated category of the 11 May Loan to fund procurement of solid waste management equipment for Bamban (additional $239,000) and Magalang (additional $95,000), to comply with the requirements of R. A. 9003. 22 September–8 October Loan Review Mission fielded 2005

20 January 3rd partial cancellation of $2,601,608.80 made in loan amount because of (i) withdrawal of Angeles City and Municipality of Bamban from the Project; (ii) cost reductions for Mabalacat, Magalang, and DPWH; (iii) reduced consultancy services requirements following the reduction in the scope of work, and (iv) reduction in allocations for Interest During Construction and Unallocated categories of the Loan. 4–8 July Loan Review Mission fielded 26 July 4th partial cancellation of $138,581.39 made in loan amount. The Project was nearing completion and the final subproject costs and consultancy cost requirements had been identified. The amount canceled represented loan savings, which would no longer be used for the remaining life of the Project. 8 November Final cancellation of $94,351 unused portion of loan. Loan account is financially closed. 2006

19 January DILG submits Government’s project completion report 28 April–5 May Project Completion Review Mission fielded BAC = Bids and Awards Committee; DILG = Department of the Interior and Local Government; DPWH = Department of Public Works and Highways; ICC = Investment Coordinating Committee; LGU = local government unit; NEDA – National Economic Development Authority; PMO = project management office; PMS = project management support. Source: Asian Development Bank estimates; EA progress reports.

32 Appendix 6

Table A6.2: Subproject Implementation

Dates Events San Fernando 27 October 1999 Sangguniang Bayan of San Fernando passes a resolution declaring the withdrawal of San Fernando from the Project 30 August 2002 LGU allocation canceled. LGU withdrew from the Project before implementation (part of 1st partial cancellation). Capas 1 March 1999 Sangguniang Bayan of Capas passed a resolution withdrawing from the Project. 30 October 2002 LGU allocation canceled. LGU withdrew from the Project before implementation (part of 1st partial cancellation). Tarlac 1999

29 January PAG established 1 February PIU established 2000 PSC and TWG approve the following subprojects: (i) SWM 1 December equipment, (ii) town traffic center management, (iii) MacArthur Highway Drainage, (iv) Southern/Eastern Bypass Road, and (v) Southern Bypass Road. 2003 SB of Tarlac City adopts a resolution withdrawing from the 22 January Project 23 April The LGU has limited borrowing capacity and is faced with public opposition. It decides to avail itself of a loan from Land Bank, which offers more favorable loan terms. LGU allocation canceled (part of 2nd partial cancellation). Concepcion 3 February 2000 PIU and PAG established

1 December 2000 PSC and TWG approve subproject to procure solid waste management equipment

23 April 2003 LGU withdraws from the Project because of financial constraints and inability to provide a site for garbage disposal. LGU allocation canceled (part of 2nd partial cancellation) Mabalacat 30 August 1999 PIU and PAG established 2000

1 December PSC and TWG approve subprojects 2001

1 March SPA approves subprojects 14 May ADB approves bidding documents for procurement of SWM equipment 11 June SLA approves subprojects 18-19 July Advertisement for procurement of SWM equipment issued 24 August Pre-bidding conference held for procurement of SWM equipment

Appendix 6 33

Dates Events 23 November Bids opened

26 November Failure of bidding declared for procurement of SWM equipment 2002

5 and 7 January Procurement of SWM equipment re-advertised 29 January Pre-bidding conference held for SWM equipment 22 February Bids for SWM equipment opened 31 July Bid evaluation report on procurement of SWM equipment submitted to ADB 15 August ADB issues no-objection to bid evaluation report on SWM equipment 30 August Contract for procurement of SWM equipment awarded 2003

11 March Mabiga Bridge undergoes post-evaluation 23 April Bidding held for Mabiga and San Felipe bridges 20 May San Felipe Bridge undergoes post-evaluation 22 May Award of Mabiga and San Felipe bridge contracts decided 26 May Notice of award issued for Mabiga and San Felipe bridges 15 July Civil works contracts for Mabiga and San Felipe bridges signed 18 September Construction of Mabiga and San Felipe bridges starts 30 October Packages I and II delivered 2004

5 March Mabiga Bridge completed 27 April San Felipe Bridge completed 27 October Spare parts for Packages I and II delivered 2005

24 May Package II delivered Magalang

17 September 1999 PIU and PAG established 1 December 2000 PSC and TWG approve subproject 26 April 2002 SPA approves subproject 2003

30 January 2003 ADB approves bidding documents for procurement of SWM equipment 17 February SLA approves subproject 30 August/6 September Advertisement issued 14 November Prebid conference held 25 November Bids for Packages I, II, and III opened 2004

19 March Bid evaluation report submitted to ADB 5 April ADB approves bid evaluation report 6 April Contracts for Packages I and III signed 22 April Contract for Package II signed 2005

21 January Package II equipment delivered 22 March Package III equipment delivered 30 May Package I equipment delivered

34 Appendix 6

Dates Events Angeles City 2000

March 2000 PIU and PAG established 28 December Hensonville Bridge completed (implemented by DPWH) 2002

18 September SPA approves subprojects 2003

23 May East Circumferential Road subproject is withdrawn from the Project and will be implemented with Angeles City’s own funds because the city cannot agree with ADB on resettlement. 20 June SLA approves subprojects 29 July Bidding takes place for Phase I of Friendship Bridge 13 August Award of contract for Friendship Bridge decided, notice of award issued, and contract signed 15 August Construction of Friendship Bridge starts 2004

23 January Bidding starts for Phase II of Friendship Bridge 4 February Notice of award issued for Friendship Bridge 10 February Civil works contract for Friendship Bridge signed 13 February Construction of Friendship Bridge starts 11 August Phase I of Friendship Bridge completed 15 October Phase II of Friendship Bridge completed Bamban 2002

5 February PIU established 29 April PAG established 25 July SPA approves subproject 2003

27 January Advertisement issued for procurement of SWM equipment 5 February SLA approves subproject 17 February Pre-bid conference held for Package I 11 March Bids for Package I opened 12 September Pre-bid conference held for Packages II and III 21 October Bid evaluation report for Package I submitted to ADB 11 December ADB approves bid evaluation report for Package I 11 December Contract for Package I signed 11 December Package I delivered 2004

27 April Bid evaluation report for Package II submitted to ADB 25 May ADB approves bid evaluation report for Package II 28 May Contract for Package II signed 24 September Bids for Packages II and III opened 27 October Package II delivered LGU = local government unit; PAG = project advisory group; PIU = project implementation unit; PSC = project supervisory committee; SLA = subloan agreement; SPA = subproject agreement; SWM = solid waste management; TWG = technical working group. Source: Asian Development Bank estimates; EA progress reports.

Appendix 7 35

INSTITUTIONAL, FINANCIAL, AND OPERATIONAL ACTION PLAN

Action Agency Target Date Results A. Institutional

1. PMO DILG Loan Full PMO established on 10 November - Establish the project effectivity 2000. management office (actual: 28 (PMO) June 1999)

2. PMS Consultants DILG March 1999 PMS consultants hired on 22 March 2002 - Appoint project and mobilized on 14 October 2002. management support (PMS) consultants

3. PIUs All LGUs PIUs established in Mabalacat in August - Establish project 1999, Magalang in September 1999, implementation units Angeles in March 2000, and Bamban in (PIUs) February 2002.

4. Solid Waste Angeles, 31 January Sanitary landfill subprojects canceled. Management Unit Tarlac 2000 However, all four LGUs (including Angeles Establish and make City) procured SWM equipment and operational the solid established SWM units through an executive waste management unit order for the operation of controlled dump to be responsible for sites, collection, etc., with assigned staff collection, disposal, and trained in SWM, specifically waste management of the segregation, composting, recycling, and landfill sites. Assign staff, materials recovery facility (MRF) operations. allocate budget, and Barangay leaders and council were likewise make the unit operational, trained and action plans formulated to guide ensuring it performs the the monitoring of SWM-related activities. solid waste collection and SWM plans for Bamban, Magalang, disposal service. Mabalacat, and Angeles City were completed and presented to the SWM board. Pilot barangays in Bamban and Magalang initiated waste segregation.

5. Traffic Management Angeles, 31 January Traffic management subprojects canceled. Unit Tarlac, 2000 Establish and make Mabalacat, operational the traffic and management unit to San operate and manage the Fernando traffic management system. Prepare and implement a program for the progressive introduction and collection of parking fees by the year 2000.

Consider franchising the parking fee collection to the private sector.

36 Appendix 7

Action Agency Target Date Results

6. Training All LGUs 31 January Training program implemented as a result of Improve institutional 2000 the training needs assessment done in capacity through staffing 2002. LGU trainers pool (LTP) created; any and training. Approve learning from CAMDP would be applied to participation of LGU staff human resources development activities of in the training program. LGU. The LTP underwent skill-building Prepare and approve activities such as workshops in training of budget for staff training. trainers, training needs assessment, and curriculum development. Separate training packages were prepared for the municipal officials and employees and a separate program was drawn up for the barangay officials and committee members. LTP members had opportunity for hands-on application of learning through active participation in barangay training workshops as resource persons, facilitators, or managers, and documentation of training activities. B. Financial 1. Resource Mobilization All LGUs 31 July 2000 Revised Local Revenue Code (LRC) of Strengthen LGU resource Bamban and Magalang was partially mobilization by setting implemented effective January 2005, while economic fees and Revised LRC of Mabalacat and Angeles was charges for municipal presented to the municipal council for enterprises and improving deliberation. The cost accounting system the collection efficiency introduced by CAMDP in Bamban and for all city revenues, Magalang has been initially implemented. including real property tax Likewise, separate training in barangay and business tax. revenue enhancement has been conducted Prepare and implement for barangay officials and committee plans for the progressive members to enable barangay officials to privatization of municipal increase their local revenues through enterprises by 2000. efficient collection and effective information strategies. Specific action plans were formulated to increase local revenues and garbage fee collection in accordance with the Solid Waste Management Act of 2000 (R. A. 9003).

2. Solid Waste All LGUs 31 January Considering the recently approved garbage Management Fees 2000 fees for households and the constraints of Prepare and implement the fee collection system, garbage collection progressive program for privatization seemed not to be financially applying and collecting feasible for private investors. solid waste management collection fees from Mabalacat has signed an ordinance for the commercial and domestic collection of garbage fees. SWM units users. Prepare and conduct continuous information and implement plans for education campaigns in cooperation with privatization of solid community relations units. waste collection services by the year 2000.

Appendix 7 37

Action Agency Target Date Results

3. Corporate Planning All LGUs 31 July 2000 Technical assistance from CAMDP was Introduce corporate needed in various phases starting with an planning approach to assessment of the financial management improve financial practices of the LGUs, training, and management, including formulation and implementation of action multiyear strategic plans by various offices to improve the planning and the system of records management, development of a strong coordination, revenue generation, annual financial planning accounting, internal control, community and budgeting capability. involvement, and sanitation (in economic enterprise facilities). A corporate planning task group (CPTG) from the municipal treasurer’s office, assessor’s office, licensing office, accounting office, economic enterprise office, budget office, and planning office was created to implement the task. C. Operational

1. Land Acquisition All LGUs 31 December All urban road subprojects involving right-of- - Complete all project- 1999 way issues were canceled. related land acquisition

2. Detailed Engineering All LGUs 31 March All urban road subprojects that needed DED Design (DED) 1999 were canceled. Engineering design for the - Appoint detailed four bridges was undertaken by DPWH. engineering design consultants

3. Vehicle Workshops All LGUs 31 December Bamban issued a resolution to include the - Improve the 1999 heavy equipment procured through the organization, staffing, and Project as part of the economic enterprise of operational procedures of the LGU. the vehicle and equipment maintenance Bamban, Magalang, and Mabalacat workshops formulated plans to reorganize and strengthen their general services offices for the maintenance management of their heavy equipment.

In October 2004 all LGU operators were trained under CAMDP and by the supplier to operate and maintain heavy equipment.

CAMDP = Clark Area Municipal Development Project; DPWH = Department of Public Works and Highways; LGU = local government unit; PIU = project implementation unit; PMO = project management office; PMS = project management support; SWM = solid waste management. Source: Asian Development Bank estimates.

38 Appendix 8

ORGANIZATION CHART FOR PROJECT IMPLEMENTATION (as implemented)

PROJECT STEERING COMMITTEE

BCDA DPWH DBM NEDA DILG DENR DOF LGUs

Technical Working Group

DILG Project Regional Management Office Office (at DILG)

Engineering Training/ Planning Administration Division HR Group

LGUs

Executive Committee

Project Implementation Unit

Community Corporate Planning LGU PPMS SWM unit Participation Task Group Trainors Unit Unit Pool Source: Clark Area Municipal Development Project, Office of Project Development Services

Appendix 9 39

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in Loan Status of Compliance Agreement Environmental Covenant 1 1. Local government units (LGUs) have new National Complied with. Economic and Development Authority (NEDA)– IEEs for Magalang and Bamban approved solid waste equipment subprojects for were reviewed and approved by use in existing and newly identified dump sites. ADB in August 2003. Submission of Initial Environmental Examination (IEE) report is required for Magalang and Bamban Functional SWM units were prior to ADB approval of additional solid waste established in the four LGUs and management (SWM) equipment.a were involved in training with barangay leaders. SWM plans were completed for Bamban, Magalang, and Mabalacat. Training in SWM was conducted at the barangay level with the LGU trainers pool. Operators of the procured SWM equipment in the three LGUs were also trained by suppliers to operate and maintain the procured equipment. Social Covenant 2. LGUs, assisted by the Project Management Office Schedule 6, Complied with. (PMO), shall prepare and implement community para. 7 Training in community participation relations program to ensure a high degree of for Mabalacat, Magalang, Bamban, community participation in Project design, and Angeles City was conducted Implementation and operation. LGUs shall establish from July to December 2004. within the project implementation units (PIUs) Community participation community relations units (CRUs) to oversee the (COMPART) action plans were community relations program. finalized.

The community participation training enabled participants to prepare action plans for community participation focused on solid waste management, revenue enhancement, and privatization. The practicum served as on-the-job training for LGU participants to immediately practice the techniques, skills, and approaches during consultations with barangay leaders and other sectors.

1 Covenant was not originally included in the Loan Agreement, but was the result of a minor change in scope approved by the Asian Development Bank on 5 November 2002.

40 Appendix 9

Covenant Reference in Loan Status of Compliance Agreement The CRUs of the LGUs focused on the activities of the SWM units, and worked closely on the orientation and coordination with the waste segregation pilot barangays of Bamban and Magalang. The CRU of Mabalacat also worked closely with the LGU trainers pool (LTP). Financial Covenants 3. The Borrower shall maintain, or cause the Article IV, Complied with. Department of the Interior and Local Government Section 4.06(a) (DILG), the Department of Public Works and Highways (DPWH), and the LGUs to maintain records and accounts for their respective components of the Project adequate to identify the goods and services and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in their respective components of the Project, to record the progress of their respective components of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, the operations and financial condition of DILG, DPWH, the LGUs and other agencies of the Borrower responsible for the carrying out of the Project and operation of the Project facilities, or any part thereof. 4. Borrower shall (i) cause the DILG, DPWH and Article IV, Complied with. LGUs to maintain separate accounts for their Section 4.06(b) Audit certificate and consolidated respective components of the Project; (ii) have such financial reports / consolidated accounts-related financial statements audited sources and application of funds annually according to appropriate auditing were regularly submitted yearly. standards; (iii) consolidate and furnish to ADB, as soon as available but not later than twelve (12) months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors on the consolidated Project accounts and the financial statements relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the covenants of this Loan Agreement, and the provision of counterpart funds), all in English language; and (iv) furnish to the Bank such other information concerning such accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request. In addition, DILG shall furnish to the Bank unaudited financial statements within three (3) months after the end of each related fiscal year.

Appendix 9 41

Covenant Reference in Loan Status of Compliance Agreement 5. (a) The Borrower, acting through DILG, shall enter into Article III Complied with. Section 3.01(a) a Subproject Agreement with each of the LGUs for and (b) SLAs between MDFO and the carrying out of their respective components of Mabalacat, Bamban, and Magalang the Project on terms and conditions satisfactory to were approved in 2001, and 2003, the Bank. respectively. (b) The Borrower, acting through the Department of Finance (DOF) and using the Municipal Development Fund Office (MDFO) as a conduit, shall relend to the LGUs a portion of the proceeds of the Loan up to an aggregate amount equivalent to seventeen million six hundred thousand dollars ($17,600,000) under Subloan Agreements (SLAs) on terms and conditions acceptable to the Bank, including those set forth in paragraph 11 of Schedule 6 of this Loan Agreement, for the implementation of Part A.3 of the Project. 6. The Subproject Agreements shall require, inter alia, Schedule 6, Complied with. that the LGUs shall provide counterpart funds from para. 12(a) Angeles City, Tarlac City, Capas, their own resources in the form of cash and Concepcion, and San Fernando payments in kind to cover the cost of land withdrew from the Project because acquisition, incremental administration, and civil they failed to comply with the works. It is estimated that amounts equivalent to the requirements of the Subproject follo wing will be required: (i) Angeles Cit y, $4,793,000; Agreement. (ii) Tarlac City, $3,307,000; (iii) Bamban, $179,000); (iv) Capas, $474,000; (v) Concepcion, $6,000; (vi) Mabalacat, $6,000; (vii) Magalang, $11,000; and (viii) San Fernando, $420,000. 7. Counterpart funds required at the national level Schedule 6, Complied with. shall be reflected in the budgets of DILG and para. 12(b) Counterpart funds for DPWH DPWH over the implementation period of the satisfactorily complied with. Initially, Project. budgets were under the Government’s Unprogrammed appropriation category, but were sufficiently sustained in 2004 and 2005. 8. Imprest Account; Statement of Expenditures (SOE). Schedule 3, Complied with. The Borrower shall establish, immediately after the para. 8 (a), (b) The imprest account was opened Effective Date, an imprest account, managed, on 26 November 2001 with an replenished and liquidated in accordance with the amount of $1,844,140. The unused Bank’s Loan Disbursement Handbook dated June balance was refunded to ADB. 1996, amended from time to time, and detailed arrangements agreed between the Borrower and the Bank. The initial amount to be deposited in the imprest account shall be based on estimated expenditures for the first six months of Project implementation but not exceed $3,000,000. T he SOE procedure may be used for reimbursement of eligible expenditures and liquidate advances provided in the imprest account. Any individual payment reimbursed or liquidated under the SOE procedure shall not exceed $50,000.

42 Appendix 9

Covenant Reference in Loan Status of Compliance Agreement Other Covenants 9. As the Project Executing Agency, DILG shall be Schedule 6, Complied with. responsible for overall supervision and execution of para. 1 the Project.

10. Schedule 6, (a) DPWH shall be the Project Implementing Agency for para. 2(a), (b), (c), and (d) Part A.1 of the Project, and shall be responsible for the physical implementation of this part of the Project through its Region III office in San Fernando.

(b) The Bases Conversion Development Authority (BCDA) shall be the Project Implementing Agency for Part A.2 of the Project, and as such shall be responsible for the physical implementation of all BCDA Subprojects.

(c) The LGUs shall be the Project Implementing Agencies for their respective components under Part A.3 of the Project and shall be responsible for the physical implementation of such components in accordance with the provisions of this Loan Agreement and the applicable Subproject Agreement and Subloan Agreement.

(d) DILG shall be responsible for the physical implementation of Part B of the Project. Through the PMO, DILG shall facilitate and coordinate the implementation of all training development and delivery under this Part of the Project. 11. Established, Staffed, and Operating PMO Schedule 6, Complied with. para. 4 Full PMO was established on Prior to the Effective Date, DILG shall establish a 10 November 2000. PIUs were Project Management Office (PMO) within DILG for established in: Mabalacat the Project. DILG shall designate a Project Manager (30 August 1999), Magalang with qualifications and experience satisfactory to the (17 September 1999), Tarlac Bank. The PMO shall be responsible for Project (1 February 1999), and Concepcion management implementation, monitoring and (3 February 2000).

coordination among agencies of the Borrower and the LGUs. The PMO shall at all times be staffed with an adequate number of qualified professional technical and administrative personnel. The PMO shall serve as the secretariat for the PSC and shall have overall responsibility to ensure coordination between and among the Project Implementing Agencies.

Appendix 9 43

Covenant Reference in Loan Status of Compliance Agreement 12. Project Implementation Units Schedule 6, para. 5(a) and (b) PIUs were established in: (a) Prior to the withdrawal of any Loan proceeds under Mabalacat (30 August 1999), their respective Subloan Agreements, each LGU Magalang (17 September 1999), shall establish a Project Implementation Unit (PIU) Tarlac (1 February 1999), and to be responsible for the implementation of the Concepcion (3 February 2000). LGUs’ components under the Project. Each PIU shall be headed by an adequate number of qualified

counterpart staff assigned to the PIU from the

various offices and departments of the LGU concerned. In addition, each PIU shall be assisted by a team of national consultants who shall be responsible for detailed engineering design, contractors, evaluation of bids, award of construction and procurement contracts, contract

supervision, and quality control.

(b) Prior to the withdrawal of any Loan proceeds under Part A.1 of the Project, DPWH shall provide to its DPWH implemented the Mabiga regional office in the Project area all necessary and San Felipe bridges. It also assistance to ensure timely implementation of the provided technical and financial assistance for the construction of national road Subprojects. the Friendship Bridge. 13. Promptly after the Effective Date, each LGU shall Schedule 6, Complied with. establish a project advisory group (PAG) to ensure para. 6 PAGs were established in that local policy guidelines and priorities are Mabalacat (30 August 1999), incorporated into the design and implementation of Magalang (17 September 1999), the Project. The PAGs shall be chaired by the Tarlac (29 January 1999), and mayors concerned and shall consist of the heads of Concepcion (3 February 2000). key departments, municipal council members, and NGO and community representatives. To enable the PAGs to function as intended, the PIUs shall assist the mayors concerned in convening meetings regularly to discuss the progress made in Project implementation, an issues and problems identified. The results of the PAGs’ meetings shall be consolidated into the quarterly reports, to be submitted to the Bank for review. 14. In the carrying out of the Project, the Borrower shall Article IV, Complied with late. cause competent and qualified consultants and Section 4.03(a) Project management support contractors, acceptable to the Borrower and the consultants were mobilized in Bank, to be employed by DILG, DPWH and the October 2002, after a delay of more LGUs to an extent and upon terms and conditions than 3 years. satisfactory to the Borrower and the Bank. 15. Submission of reports and information concerning Article IV, Complied with. (i) Loan and Expenditures; (ii) the goods and Section 4.07(a) and (b) Reports were submitted regularly. services; (iii) the project; (iv) the administration,

operations and management of the project facilities. Submission of semiannual reports by DILG and proposed program of activities and expected progress during the six months.

44 Appendix 9

Covenant Reference in Loan Status of Compliance Agreement 16. Each LGU shall develop and introduce specific, Schedule 6, Complied with. time-bound, financial, institutional and operational para. 9 LGUs prepared action plans for action plans to improve revenue generation, revenue enhancement. Training in collection efficiency and O&M performance. revenue enhancement was conducted. The PMO and PMS consultants monitored the implementation of the plans, particularly the increased efforts on the ax information campaign. Each LGU developed implementation plans with the assistance of the PMO and PMS consultants.

Training and workshops were conducted in training needs assessment and results processing and feedback, cost recovery analysis and cost accounting, project financial management, hands-on training in basic computer applications, strategic planning, and finalization of the municipal solid waste management plan.

Manuals were completed on the following: project financial management, revenue enhancement, community participation, and equipment procurement. 17. Development of comprehensive Project Schedule 6, Complied with. Performance Monitoring System (PPMS) para. 13 PPMS was developed by the procedures and plans. PPMS activities, including consultant and introduced to the the establishment of a benchmark, collection of LGUs. information, monitoring of benefits and evaluation of social impact, shall be undertaken by each LGU. A training workshop in results monitoring and evaluation was conducted. It was attended by the LGU planning office, DILG, DENR, BLGF, and DBM. 18. DPWH shall be responsible for O&M of the Schedule 6, Complied with. Hensonville Bridge and those parts of the para. 8 (a) A budget for maintenance was MacArthur Highway upgraded under Part A.1 of the included in the yearly maintenance Project. budget of DPWH. 19. Establishment of Project Supervisory Committee Schedule 6, Complied with. (PSC) under the chairmanship of the secretary of para. 3 PSC was established in the DILG with members drawn from DPWH, NEDA, March 1999 and conducted regular DOF, the Department of Budget and Management meetings. (DBM), the Bases Conversion Development Authority (BCDA), and the Department of Environment and Natural Resources (DENR) including representatives of LGUs.

Appendix 9 45

Covenant Reference in Loan Status of Compliance Agreement 20. Upon completion of the SWM component of the Schedule 6, Complied with. project, the LGUs concerned shall explore para. 10 Results of a feasibility study show possibilities for the privatization of SWM operations, privatization of garbage collection taking into account the findings and and public market not feasible recommendations of the study on private sector because market vendors’ participation in the provision of urban services being associations in the areas object to conducted under Part B of the Project. it. 21. Midterm review. A midterm review of the Project Schedule 6, Complied with. shall be carried out about three years after the para. 14

Effective Date to enable the Borrower and the Bank Midterm review mission fielded to make appropriate adjustment to the project from 16 September 2002 to design. The Review shall focus on the status of 28 February 2003 (intermittent). Project Implementation and the sustainability of Eight review missions were fielded. project benefits, including social impact, local

resource mobilization, environment impact, and O&M. 22. Promptly after physical completion of the Project, Article IV, Complied with. but in any event not later than three (3) months Section 4.07(c) thereafter or such later date as may be agreed for this purpose between the Borrower and the Bank, the borrower shall, through DILG, prepare and furnish to the Bank a consolidated report, in such form and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by the Borrower of its obligations and the accomplishment of the purposes of the Loan.

46 Appendix 10

FINANCIAL AND ECONOMIC EVALUATION

A. Introduction

1. This appendix presents the results of financial and economic analyses of the five implemented subprojects—procurement of solid waste management (SWM) equipment by the municipalities of Bamban, Mabalacat, and Magalang, and the two bridge construction subprojects along the MacArthur Highway within the municipality of Mabalacat as implemented by the Department of Public Works and Highways of the Government of the Philippines.

2. The analysis assessed the efficiency of the investments by estimating the financial internal rate of return (FIRR) of each of the three SWM subprojects and economic internal rates of return (EIRRs) of the three SWM and two bridge subprojects.

3. For the SWM subprojects, the analysis was undertaken on the entire operation of the solid waste management system of each local government unit (LGU). Incremental benefits/costs due to the Project were computed by deducting benefits and costs for the previous year.

4. The efficiency in attaining the objectives of the subprojects was measured by comparing the recalculated FIRRs with the weighted average cost of capital for the SWM subprojects, and the recalculated EIRRs with the 12% social discount rate of the Asian Development Bank (ADB). The evaluation conducted for the two bridge subprojects, however, was limited to an economic analysis.

B. Financial Analysis

1. Solid Waste Management Equipment

a. Assumptions

5. Forecast Period. The financial projections for the SWM subprojects were based on the initial operation of the procured equipment. The equipment was assumed to have an operational life of 15 years, as typically assumed in the Philippines.

6. Commencement of Cost and Revenue Streams. The assessment of operation and maintenance (O&M) cost streams starts immediately on the year the equipment is delivered— 2004 for Bamban, and 2005 for both Mabalacat and Magalang municipalities. The estimation of revenue streams begins on the succeeding year after the date of delivery.

7. Base Year: 1997 Price Level. The financial and economic evaluation of each subproject was carried out in real terms. The financial costs and revenues were converted to real terms for the analysis, using the December 1997 consumer price index (CPI) as the base year. Real 1997 prices were derived by applying price conversion factors obtained from actual inflation rates from 1998 to 2005 (see Table A10.1).

Appendix 10 47

Table A10.1: Actual Annual Inflation Rates1 and Conversion Factors Used Reference Consumer Price Inflation Rate Conversion Factor Date Index (CPI) (%) to 1997

December 1997 100.00 – 1.00 December 1998 106.08 6.08 0.94 December 1999 112.75 6.28 0.89 December 2000 121.40 7.68 0.82 December 2001 126.32 4.05 0.79 December 2002 129.82 2.78 0.77 December 2003 134.50 3.60 0.74 December 2004 146.08 8.61 0.68 December 2005 155.44 6.41 0.64 1 CPI and inflation rates are for all areas outside the national capital region. Source: http://w.w.w.census.gov.ph/index.html

8. Solid Waste Management Fees. Bamban, Mabalacat, and Magalang municipalities have tax ordinances on solid waste management fees to be collected from households and business establishments. The schedule of SWM fees is in Table A10.2 below.

Table A10.2: SWM Fees per Municipality

Municipality Household Fees As Part of Business License Fee Income Level Fee per Month Commercial/Industrial/Institutional

Bamban1 Below 60,000 5.00 Not less than 60,000 10.00 From P20.00 Not less than 150,000 25.00 to P100.00 Not less than 200,000 30.00 per month2 250,00 and above 35.00 Mabalacat3 P30.00 per month4 P30 to P300 per month5 Magalang6 None P30 to P50 per month7 1 According to article C (service charge for garbage collection) of the 2005 Revenue Code of the municipality. 2 The applicable fee depends on the type or classification of business activity. 3 According to Municipal Ordinance No. 86 series of 2006. 4 The Revenue Code of 2005 mentions only a single uniform fee for all households. 5 The applicable fee depends on the level of generated revenue. 6 According to article B (service charge for garbage collection) of the 2005 Revenue Code of the municipality. 7 The applicable fee depends on the type or classification of business activity. SWM = solid waste management. Source: Municipal ordinances ofBamban, Mabalacat and Magalang.

9. However, the LGUs have deferred indefinitely the collection of the garbage fees from households and collect only from business establishments as part of their annual licensing and permitting process for private business and commercial establishments.

48 Appendix 10

10. The calculation of SWM fees collected from commercial/industrial and other types of establishments assumes 100% efficiency of collection from the projected number of establishments registered in each municipality.

11. Capital Costs and Depreciation. The actual procurement costs of the SWM equipment were used in this analysis. The residual value of the equipment at the end of the forecast period was assumed to be 10% of the purchase price.

12. Operation and Maintenance Costs. O&M costs consist of salaries of personnel, fuel and oil, maintenance and repair, cost of solid waste disposal, tipping fees (for Mabalacat and Bamban), dump site O&M cost (for Magalang), and miscellaneous and other operating expenses.

(i) Personnel costs. Personnel costs include salary and social payments for all staff directly hired for the SWM operation of each municipality.

(ii) Cost of fuel and oil. The cost of fuel is estimated by taking into consideration the number of trips each collection truck makes daily in the service area of each municipality. It includes fuel expense for the dump trucks going to and from the disposal sites of the three municipalities—Kalangitan SLF for both Bamban and Mabalacat, and the controlled dump site of Magalang.

(iii) Repair and maintenance cost. The cost of minor repair and maintenance is estimated at 10% of the annual depreciation cost of the vehicles.

(iv) Cost of solid waste disposal. This includes payment of tipping fees to Kalangitan Sanitary Landfill by the municipalities of Bamban and Mabalacat. Tipping fee per ton is P400 for the first 50 metric tons and P450 in excess of the first 50 metric tons for Mabalacat. Bamban, however, enjoys free disposal at the landfill for a maximum of 10 metric tons a day as a concession for being the host municipality. In excess of 10 tons, the municipality has to pay tipping fees at the regular rate of P2,400 per metric ton.

(v) Miscellaneous and other operating expenses. These include insurance premiums for the newly acquired equipment, utility expenses, office expendables, and other miscellaneous incidentals. All these are assumed to amount to 5% of total salaries and wages. However, in Mabalacat municipality, an additional P65,000 is added to cover the monthly rental fee for a dump truck stationed at the materials recovery facility cum transfer station.

13. Interest Expense and Loan Repayment. The Municipal Development Fund Office (MDFO) relent ADB loan proceeds to the LGUs at an interest rate of 12% per year and a maturity period of 15 years, including a 3-year grace period.

14. Weighted Average Cost of Capital. The WACC for the SWM equipment is estimated to be equivalent to the MDFO relending rate of 12%.

15. Results of Financial Analysis. The recalculated FIRRs for all three municipalities are way below the WACC of 12%. In fact, negative FIRRs were computed, as shown in Table A10.3. The recalculated FIRRs emphasize the considerable impact household fees have in sustaining SWM operation. The results indicate that the sustainable and efficient operation of SWM in these municipalities is doubtful.

Appendix 10 49

Table A10.3: Financial Internal Rate of Return (FIRR)

WACC FIRR FIRR Subproject (%) At Appraisal Recalculated - Bamban 12 N.C. (14.7) - Mabalacat 12 N.C. (42.7) - Magalang 12 N.C. (21.5) ( ) = negative, N.C. = not computed, WACC = weighted average cost of capital. Source: Asian Development Bank estimates

16. Sensitivity Test Scenarios. Three scenarios were tested to evaluate the implications of uncertainty for the financial viability of the SWM equipment subprojects: (i) 20% increase in fuel costs, (ii) 30% increase in revenues from SWM fees, and (iii) combination of 20% increase in fuel costs and 30% increase in revenues from SWM fees.

17. Results of Sensitivity Tests. As shown in Table A10.4, the FIRRs are highly susceptible to changes in costs and revenues. Any increase in pumped fuel prices substantially affects Mabalacat, given its 14 kilometer distance to the Kalangitan SLF compared with the 8 kilometer distance in the case of Bamban. The outcome for the second scenario emphasizes the significant effect of the current level of SWM fees in the municipalities, which is unrealistically low.

Table A10.4: Recalculated FIRR Sensitivity Analysis

Scenario Bamban Mabalacat Magalang Assessment

Case 1: 10% Increase in Fuel Cost (16.5) (47.9) (25.0) Significant effect Case 2: 20% Increase in Revenues from (13.4) (26.0) (14.0) Significant SWM Fees effect Case 3: 20% Increase in O&M and 30% (13.7) (29.2) (16.3) Significant Increase in Revenues from SWM Fees effect ( ) = negative, FIRR = financial internal date of return, O&M = operation and maintenance, SWM = solid waste management. Source: Asian Development Bank estimates

C. Economic Analysis

1. Solid Waste Management

18. The economic analysis of the subproject was undertaken on the basis of available data, and in accordance with the ADB’s Guidelines for the Economic Analysis of Projects (1997).

19. Commencement of Cost and Revenue Streams. The assessment of cost and revenue streams followed that for the financial analysis.

20. Economic Costs. The financial project cost was disaggregated into foreign and local cost components. Taxes assumed at 30% were deducted for both components. Unskilled labor was assumed at 20% of the local component. These items were converted into economic cost

50 Appendix 10 by applying a shadow exchange rate factor of 1.11 for the foreign component and 0.6 for unskilled labor.

21. O&M Costs. The operating and maintenance costs estimated in the financial analysis were converted into economic costs with the use of the same methodology and conversion factors applied to arrive at the economic project cost. The foreign cost component is limited, however, to the cost of fuels and oil. Low-skilled labor was estimated to be equivalent to the sum of all salaries and allowances of garbage collectors and helpers.

22. Benefits Considered. The sole benefit considered in the computation was the consumer’s willingness to pay, which was measured through the aggregated amount of SWM fees collected from households, commercial and industrial establishments, and other institutions. 1 However, the project preparatory technical assistance and report and recommendation of the president conducted the economic analysis only for the two sanitary landfills that were eventually dropped from the project and excluded an evaluation of each municipality. As in the PPTA and RRP, health benefits were excluded, as these are difficult to measure or to attribute directly to project improvements.

23. Results of the Economic Analysis. As expected, the recalculated EIRRs shown in Table A10.5 confirm the negative findings in the financial analysis. The results validate the findings of the financial analysis that current levels of SWM fees are insufficient for full cost recovery of SWM operation in these municipalities.

24. Sensitivity Analysis. Three scenarios were tested: (i) 20% increase in cost of fuel and oil, (ii) 30% increase in SWM fees, and (iii) combined effect of scenarios one and two. The results of the sensitivity tests, as shown in Table A10.5, show significant impact on the EIRR. As in the financial analysis, the same variables—cost of fuels and oils and the level of SWM fees— considerably affect the sustainability of SWM operations in these municipalities.

Table A10.5: Economic Internal Rate of Return (EIRR) (%) Base Case Sensitivity Analysis Subprojects This Case 1: Fuel Case 2: SWM Case 3: Cases 1 and Appraisal PCR Cost + 20% Fees + 30% 2 Combined - Bamban N.C. (22.9) (24.9) (18.7) (20.6) - Mabalacat N.C. (32.5) (34.0) (18.3) (19.2) - Magalang N.C. (25.0) (29.3) (17.0) (19.5) ( ) = negative, N.C. = not computed, PCR = project completion report, SWM = solid waste management Source: Asian Development Bank estimates

2. Widening of Bridges

25. The economic analysis of the bridge subprojects was based on available data, and conformed to ADB’s Guidelines for the Economic Analysis of Projects (1997).

26. Economic Costs. The financial project cost was disaggregated into foreign and local cost components. Taxes assumed at 30% were deducted for both components. Unskilled labor

1 Health and environment benefits were not quantified because there was not enough information to make plausible estimates of these benefits.

Appendix 10 51 was assumed at 20% of the local component. These items were converted into economic cost by applying a shadow exchange rate factor of 1.11 (1/.9) for the foreign component and 0.6 for unskilled labor.

27. O&M Costs. These were estimated at 3% of the total financial project cost, with the cost components assumed to be 20% foreign and 80% local. The O&M costs were converted into economic costs using the same methodology and conversion factors applied in the computation of the economic project cost.

28. Benefits Considered. The benefits considered were (i) savings in vehicle operating costs, and (ii) savings in travel time. Note, however, that actual traffic volume in the two subprojects is much lower than those assumed during the PPTA and RRP. Only 347,091 vehicles for the entire region were registered with the Land Transportation Office, compared with the 2,491,950 vehicle traffic volume assumed in the PPTA and RRP.

29. Results of the Economic Analysis. The recalculated EIRRs shown in Table A10.6 are higher than ADB’s 12% opportunity cost of capital, showing a respectable economic impact for the subprojects. Despite their small size in terms of length2 and cost, the newly widened bridges have eased traffic bottlenecks on MacArthur Highway, particularly during rush-hour traffic.

30. Sensitivity Analysis. Three scenarios were tested: (i) 10% increase in O&M, (ii) 10% decrease in benefits, and (iii) combination of 10% increase in O&M and 10% decrease in benefits. The results of the sensitivity tests, as presented in Table A10.6, show significant impact on EIRR in case 2 and more so in case 3.

Table A10.6: Economic Internal Rate of Return (EIRR) (%)

Base Case Sensitivity Analysis Subprojects Case 1: Case 3: O&M + O&M + Case 2: 10% and Benefits Appraisal Recalculated 10% Benefits -10% - 10% Bridges Mabiga 22.9 12.7 12.4 12.1 10.6 San Felipe 43.2 29.7 29.4 28.2 25.7 O&M = operations and management. Source: Asian Development Bank estimates

2 Mabiga bridge is 300 meters long while San Felipe bridge is 250 meters long, both inclusive of approaches.

REPORTS ON LGU'S REVENUES AND RECEIPTS 52 Table A11.1: Municipality of Bamban (P'000) Year Revenue Source 1998 2005 11 Appendix Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual 1999 2000 2001 2002 2003 2004 A. LOCAL REVENUE

1. RPT Real Property Tax-Current Year 600.00 63.66 600.00 70.38 600.00 73.48 600.00 76.33 600.00 623.54 600.00 600.00 1,073.99

Real Property Tax-Previous Year 300.00 52.25 300.00 55.81 500.00 42.88 500.00 59.75 500.00 500.00 434.88 500.00 Real Property Tax Penalties 100.00 37.42 100.00 31.07 100.00 23.08 100.00 26.85 100.00 100.00 42.62 100.00 81.45 Fines and Penalties 5.00 10.74 5.00 10.69 Subtotal (A1) 1,000.00 153.33 1,000.00 157.26 1,205.00 150.18 1,205.00 173.62 1,200.00 623.54 1,200.00 477.50 1,200.00 1,155.44 364.49

2. Tax in Goods & Services Municpal Business Licence 650.00 415.41 900.00 552.35 1,000.00 590.00 1,000.00 733.48 2,000.00 913.29 2,480.00 979.61 2,400.00 1,016.18 1,192.03 Amusement Tax 68.58 49.29 - 30.20 - 8.50 - 21.56 26.49 20.00 29.00 50.00 44.28 23.05 Community Tax 201.00 228.64 200.00 224.27 300.00 208.17 301.00 216.83 500.00 283.99 500.00 321.80 500.00 310.28 321.30 Gravel and Sand 200.00 152.47 300.00 386.87 300.00 244.55 300.00 15.74 500.00 309.57 500.00 109.86 500.00 136.15 Franchise Tax 37.60 24.96 Weight and Measures 3.50 1.23 3.00 0.68 5.00 0.78 5.00 1.00 5.00 0.75 5.00 1.48 5.00 1.18 Fines and Penalties 5.00 6.57 5.00 5.51 102.59 26.52 1/2 Subtotal (A2) 1,128.08 853.60 1,408.00 1,199.87 1,605.00 1,051.99 1,606.00 988.61 3,005.00 1,636.68 3,505.00 1,505.87 3,455.00 1,397.37 - 1,672.53

3. Fees and Charges Secretary's Fee 50.00 52.44 75.00 48.62 100.00 42.11 100.00 41.70 100.00 125.00 66.00 200.00 1,228.76 Bldg. Permit Fee 100.00 30.66 100.00 34.75 100.00 56.86 100.00 72.29 100.00 200.00 156.00 200.00 25.55 130.97 Mayor's Permit 490.00 750.00 1,665.00 665.18 1,854.00 708.81 1,473.39 Cattle Reg. Fee 5.00 0.60 5.00 2.10 5.00 0.10 5.00 0.41 Marriage License Fee 45.00 53.31 65.00 57.76 80.00 55.54 80.00 54.03 Burial Permit 0.40 2.90 50.00 3.02 5.00 3.62 5.00 2.68 175.44 Police Clearance 10.00 9.94 15.00 14.46 20.00 19.97 20.00 14.40 Fire Inspection Fee - 31.05 Registration/Clearances 100.60 41.29 Zonal Clearance 200.00 137.14 200.00 99.00 Fines and Penalties - 53.72 18.47 Subtotal (A3) 210.40 149.84 310.00 160.70 310.00 178.19 310.00 185.50 690.00 803.72 2,190.00 1,124.92 2,454.00 1,099.61 - 2,833.13

4. Economic Enterprise Receipt from Market 500.00 367.21 500.00 353.58 600.00 407.17 600.00 600.00 600.00 544.72 600.00 494.63 600.00 576.63 836.08 Receipt from Slaughterhouse 40.00 22.10 40.00 27.82 50.00 23.82 50.00 50.00 50.00 7.67 50.00 15.70 50.00 14.10 25.17 Receipt from Cemetery 3.00 0.60 Others 3.00 0.48 3.00 8.63 3.00 6.05 3.00 3.00 3.00 3.00 34.71 190.00 255.54 569.28 Subtotal (A4) 543.00 389.79 543.00 390.03 653.00 437.03 653.00 653.00 653.00 552.39 653.00 545.05 843.00 846.87 - 1,430.52

5. Miscelleneous Share from Economic Zone 402.84 800.00 1,713.28 1,694.00 Sale of Astray Animal 200.00 241.45 Other Incidental Revenue 70.00 53.51 420.00 343.99 360.30 360.30 630.00 970.24 3,000.00 1,781.72 1.51 249.56 49.75 936.85 Rentals 30.80 Subtotal (A5) 270.00 294.96 420.00 343.99 360.30 360.30 630.00 1,001.04 3,000.00 1,781.72 1.51 652.39 800.00 1,763.03 - 2,630.85 Subtotal (A) 3,151.48 1,841.52 3,681.00 2,251.86 4,133.30 2,177.70 4,404.00 3,001.77 8,548.00 5,398.06 7,549.51 4,305.72 8,752.00 6,262.32 - 8,931.52 Internal Revenue Allotment 20,530.00 19,510.00 24,480.00 24,260.00 30,000.00 30,010.00 32,700.00 29,050.00 38,000.00 37,420.00 39,880.00 40,574.09 39,882.99 39,865.70 43,150.00 TOTAL 23,681.48 21,351.52 28,161.00 26,511.86 34,133.30 32,187.70 37,104.00 32,051.77 46,548.00 42,818.06 47,429.51 44,879.81 48,634.99 46,128.02 - 52,081.52 IRA as % of Grant total budget 86.69 91.38 86.93 91.51 87.89 93.23 88.13 90.63 81.64 87.39 84.08 90.41 82.00 86.42 82.85

Source: Local Government Unit's Financial Statements and Budget Documents

Table A11.2: Municipality of Mabalacat (P'000) Year Revenue Source 1998 1999 2000 2001 2002 2003 2004 2005 Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual

A. LOCAL REVENUE

1. RPT Real Property Tax-Current Year 5,340.00 4,692.50 2,900.00 2,202.99 1,950.31 3,961.57 2,500.00 4,160.03 2,925.00 5,159.12 4,970.00 5,362.53 6,345.72 9,378.22 Real Property Tax-Previous Year 535.00 525.96 517.50 378.52 429.85 503.34 453.70 479.55 550.00 Real Property Tax Penalties 475.00 468.46 460.00 304.19 392.21 423.84 495.11 319.97 460.00 708.15 Fines and Penalties 4.74 98.45 Subtotal (A1) 6,350.00 5,686.92 3,877.50 2,885.70 2,772.38 4,888.75 3,453.55 5,058.00 3,935.00 5,867.27 4,970.00 5,362.53 6,345.72 9,378.22

2. Tax in Goods & Services Municipal Business Licence 7,000.00 9,967.21 7,000.00 10,182.69 10,181.51 11,208.96 14,285.80 13,458.46 14,300.00 14,275.64 15,000.00 19,098.81 17,559.03 19,463.95 Amusement Tax 359.69 500.00 367.42 105.56 35.00 679.25 100.00 211.32 835.48 353.13 Community Tax 900.00 598.76 700.00 685.79 700.00 806.88 888.20 770.66 890.00 1,080.01 1,156.00 1,077.79 1,174.95 1,171.79

Gravel and Sand 5,000.00 1,638.87 4,500.00 425.23 3,500.50 10,681.08 11,800.00 12,073.03 2,000.00 13,187.50 12,840.00 10,143.23 16,220.62 3,386.76 Professional/Occupation Tax 73.42 112.30 90.30 94.87 Franchise Tax 51.35 63.16 180.86 Weight and Measures 100.00 3.25 1.00 1.14 3.00 Fines and Penalties 1.16 12.00 61.55 957.35 3,482.36 50.00 77.50 85.02 149.21 Subtotal (A2) 12,900.00 12,564.53 12,800.00 11,298.11 14,762.43 22,759.61 27,934.35 29,890.07 17,225.00 29,347.15 29,146.00 30,720.94 36,028.57 24,800.56 -

3. Fees and Charges Permit Fee 2,855.55 (Burial, Occupancy, Building) 801.00 376.73 311.15 469.43 358.19 883.97 527.40 770.63 987.15 1,508.38 336.30 1,855.31 1,627.25 Registration (Civil, Marriage, Birth) 20.00 562.45 441.37 691.81 748.89 Clearance/Certification (Zoning/Local Clearance) 119.92 147.51 189.77 Inspection Fee (Ante-mortem & Past-mortem) 1.50 5.90 6.00 1,200.00 1,527.22 Cattele Registration 6.00 Subtotal (A3) 821.00 376.73 312.65 469.43 358.19 883.97 527.40 776.53 987.15 2,190.75 783.67 2,855.55 3,900.63 4,093.13 - -

4. Economic Enterprise Receipt from Market 100.00 205.38 115.00 228.03 209.80 213.81 245.40 164.72 250.00 616.36 165.00 410.11 758.13 420.20 Receipt from Slaughterhouse 70.00 184.69 80.50 164.38 188.67 120.46 220.70 189.35 200.00 65.76 200.00 234.66 80.88 215.73 Receipt from Bus Terminal 4,000.00 2,735.10 6,000.00 11,661.12 6,300.00 8,042.90 3,929.00 7,073.05 5,200.00 6,096.38 7,850.00 13,108.95 7,498.55 4,813.99 Receipt from Cemetery 6.00 15.92 6.90 19.73 16.26 34.95 20.00 34.85 Subtotal (A4) 4,176.00 3,141.10 6,202.40 12,073.25 6,714.73 8,412.12 4,415.10 7,461.98 5,650.00 6,778.50 8,215.00 13,753.72 8,337.56 5,449.91 - -

5. Miscelleneous Share from Economic Zone 500.00 Clean and Green 7,000.00 8,557.81 5,500.00 6,195.44 10,650.45 5,303.83 3,600.00 996.18 12,840.00 14,307.77 795.01 1,281.71 Other Service Income 2.64 11 Appendix Miscellaneous (Sanitary, Environment, Stickers, Liquor) 1,754.63 2,000.00 2,158.20 5,864.38 Subtotal (A5) 7,000.00 8,557.81 5,500.00 6,195.44 10,650.45 5,303.83 3,600.00 996.18 12,840.00 16,062.40 2,000.00 795.01 2,660.84 7,146.09 - Total Local Revenue Subtotal (A) 31,247.00 30,327.09 28,692.55 32,921.93 35,258.17 42,248.27 39,930.40 44,182.76 40,637.15 60,246.07 45,114.67 53,487.74 57,273.31 50,867.91 - Internal Revenue Allotment 14,160.00 38,440.00 49,200.00 47,680.00 69,230.00 57,060.00 70,230.00 53,710.00 76,900.00 90,170.00 88,150.03 92,787.05 92,800.61 92,895.48 TOTAL 45,407.00 68,767.09 77,892.55 80,601.93 104,488.17 99,308.27 110,160.40 97,892.76 117,537.15 150,416.07 133,264.70 146,274.79 150,073.93 143,763.40 - IRA as % of total budget 31.18 55.90 63.16 59.15 66.26 57.46 63.75 54.87 65.43 59.95 66.15 63.43 61.84 64.62

Sources: Local Government Unit's financial statements and budget documents. 53

Table A11.3: Municipality of Magalang 54

(P'000) Appendix 11 Year Revenue Source 2000 2001 2002 2003 2004 2005 Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual A. LOCAL REVENUE 1. RPT Real Property Tax-Current Year 450.00 442.97 650.00 485.96 700.00 690.56 750.00 847.35 750.00 1,110.98 Real Property Tax-Previous Year 250.00 210.25 350.00 251.11 350.00 343.53 400.00 350.00

Real Property Tax Penalties 120.00 101.61 210.00 112.96 210.00 93.10 210.00 242.24 95.00 Subtotal (A1) 820.00 754.84 1,210.00 850.04 1,260.00 1,127.19 1,360.00 1,089.59 1,195.00 1,110.98 - 1,480.71 2. Tax in Goods & Services Municipal Business Licence 2,750.00 2,294.40 3,000.00 2,570.84 3,150.00 2,897.63 3,200.00 3,236.47 3,200.00 3,046.61 3,820.62 Amusement Tax 10.00 3.88 10.00 3.00 12.00 38.60 12.00 22.34 38.00 75.52 81.33 Community Tax 350.00 354.46 450.00 353.13 450.00 361.82 500.00 450.33 620.26 909.49 Gravel & Sand 20.00 22.78 20.00 32.86 40.00 40.56 50.00 - 40.00 - Weight and Measures 5.00 2.79 5.00 2.95 5.00 2.50 5.00 2.81 5.00 11.40 - Motor Vehicle User Charge 3.25 - Fines and Penalties 90.00 49.53 60.00 61.80 60.00 55.72 70.00 77.21 56.00 62.16 127.35 Subtotal (A2) 3,225.00 2,727.83 3,545.00 3,024.57 3,717.00 3,396.83 3,837.00 3,789.16 3,339.00 3,819.19 - 4,938.78 3. Fees and Charges - Secretary's Fee 50.00 28.54 60.00 29.62 60.00 36.80 60.00 68.20 38.00 49.21 1,184.98 Permit Fee 459.00 7.55 6.58 8.32 14.00 37.00 484.40 - Bldg. Permit Fee 300.00 125.21 350.00 146.25 350.00 142.56 350.00 251.89 230.00 234.76 - Inspection Fee/Registration Fee 50.00 54.99 150.00 70.85 150.00 148.27 175.00 - 150.00 114.80 1,144.12 Police Clearance 10.00 4.64 15.00 5.26 15.00 4.95 15.00 30.00 631.16 - Occupational/Professional 39.66 - Garbage and Sanitation Fee - 313.09 250.00 115.40 - Cattle Registration Fee 150.00 455.64 400.00 391.00 450.00 400.00 400.00 5.00 0.26 Fines and Penalties 3.00 17.82 40.00 22.27 40.00 24.28 40.00 25.00 13.58 - Subtotal (A3) 1,022.00 694.39 1,015.00 671.84 1,065.00 765.18 1,054.00 633.18 765.00 1,683.23 - 2,329.10

4. Economic Enterprise Receipt from Market 1,500.00 1,491.44 1,958.59 2,512.72 2,000.00 2,323.15 2,800.00 2,733.51 2,800.00 2,975.28 3,048.90 Receipt from Slaughterhouse 300.00 276.22 350.00 366.01 370.00 555.58 400.00 424.99 450.00 446.06 403.50 Receipt from Waterworls - 200.00 Receipt from Cemetery 25.00 12.80 25.00 12.80 25.00 13.00 25.00 12.60 15.00 10.60 7.40 Subtotal (A4) 1,825.00 1,780.46 2,333.59 2,891.53 2,395.00 2,891.73 3,225.00 3,171.09 3,265.00 3,631.93 - 3,459.80 - 1.5 Miscelleneous - Other Incidental Revenue 35.40 365.33 535.00 401.12 535.00 467.06 500.00 322.17 518.00 144.39 368.48 Share from National Wealth 548.49 - Rentals & Other Rentals 50.00 141.37 50.00 5.57 150.00 114.82 150.00 131.03 15.00 96.14 764.24 Subtotal (A5) 85.40 506.70 585.00 406.69 685.00 581.88 650.00 1,001.68 533.00 240.53 - 1,132.72 Total Local Revenue Subtotal (A) 6,977.40 6,464.22 8,688.59 7,844.66 9,122.00 8,762.80 10,126.00 9,684.70 9,097.00 10,485.85 - 13,341.10 Internal Revenue Allotment 31,846.14 31,727.25 35,826.91 32,004.90 41,190.95 46,750.69 46,023.92 49,824.79 48,050.49 49,117.36 53,246.17 TOTAL 38,823.54 38,191.47 44,515.49 39,849.56 50,312.95 55,513.49 56,149.92 59,509.49 57,147.49 59,603.21 - 66,587.27 IRA as % of total budget 82.03 83.07 80.48 80.31 81.87 84.22 81.97 83.73 84.08 82.41 79.96

Source: Local Government Unit's Financial Statements and Budget Documents

PCR RATING CRITERIA

PCR Weight Rating Description PCR Rating Criterion (%) Definition and Value Rating Weighted Relevance (20%) 0.2 The consistency of the Project’s goals, Highly Relevant (3) 1 0.2 purposes, and outputs with the Relevant (2) Government’s development strategy, ADB’s Partly Relevant (1) lending strategy for the country, and ADB’s Irrelevant (0) strategic objectives at the time of approval and evaluation. Effectiveness (30%) 0.3 The achievement of purpose as specified in Highly Effective (3) 0 0.0 the policy goals and the physical, financial Effective (2) and institutional objectives adopted at Less Effective (1) project approval, or as formally modified Ineffective (0) during implementation. Efficiency (30%) 0.3 Comparison of the achievement of project Highly Efficient (3) 0 0.0 purpose with use of inputs, based on Efficient (2) implementation performance with Less Efficient (1) consideration of the EIRR or cost- Inefficient (0) effectiveness of the investment. Sustainability (20%) 0.2 Likelihood that human, institutional, and Most Likely (3) 0 0.0 financial resources are sufficient to support Likely (2) achievement of results and benefits over Less Likely (1) the economic life of the project. Unlikely (0) Overall Assessment 1.0 The overall weighted average of the four Highly Successful (OWA > 2.7) 0.2 (weighted average of criteria. Successful (1.6 < OWA < 2.7) above criteria) If one of the criteria has a score of 0, the Partly Successful (0.8 < OWA < rating to be downgraded to Partly 1.6) Successful. Unsuccessful (OWA is < 0.8) ADB = Asian Development Bank, EIRR = economic internal rate of return, OWA = overall weighted average, PCR = project completion report. Source: ADB. 2006. Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila.

12 Appendix

55