Validation Report Reference Number: PCV: PHI 2011-25 Project Number: 30551 Loan Number: 1843 September 2011 Philippines: Mindanao Basic Urban Services Sector Project Independent Evaluation Department ABBREVIATIONS ADB – Asian Development Bank DILG – Department of Interior and Local Government EA – executing agency EIRR – economic internal rate of return FIRR – financial internal rate of return IED – Independent Evaluation Department LBP – Land Bank of the Philippines LGU – local government unit NDF – Nordic Development Fund OCR – ordinary capital resources PCR – project completion report PSC – project steering committee RRP – report and recommendation of the president TA – technical assistance NOTE In this report “$” refers to US dollars. Key Words adb, asian development bank, dilg, lbp, mindanao, urban, sector, water supply, philippines Director General H. Hettige, Officer-in-Charge, Independent Evaluation Department (IED) Director H. Hettige, Independent Evaluation Division 2, IED Team leader K. Mohit, Evaluation Specialist, IED Team members O. Nuestro, Evaluation Officer, IED E. Li-Mancenido, Associate Evaluation Analyst, IED C. Roldan, Associate Evaluation Analyst, IED The guidelines formally adopted by IED on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of the management of IED, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, the Independent Evaluation Department does not intend to make any judgments as to the legal or other status of any territory or area. PROJECT COMPLETION REPORT VALIDATION REPORT PROJECT BASIC DATA Project Number: 30551 PCR Circulation Date: 26 November 2010 Loan Number: 1843 PCR Validation Date: September 2011 Project Name: Mindanao Basic Urban Services Sector Project Country: Philippines Approved Actual Sector: Water and other Total Project Costs 60.00 40.33 municipal infrastructure ($ million): and services ADB Financing ADF: 0.00 Loan ($ million): 30.00 19.53 ($ million) OCR: 30.00 Borrower ($ million): Land Bank of the 9.40 6.60 Philippines Beneficiaries ($ million): National Government 7.30 3.30 LGUs 7.30 4.90 Cofinancier: NDF Others ($ million) 6.00 6.00 Total Cofinancing 30.00 20.80 ($ million): Approval Date: 27 Sep 2001 Effectiveness Date: 15 Aug 2002 13 Sep 2002 Signing Date: 15 May 2002 Completion Date: 31 Dec 2007 30 Jun 2009 Closing Date: 30 Jun 2008 18 Nov 2009 Project Officers: Name: Location: From To A. Weitz ADB headquarters 2002 2004 M. Senapaty ADB headquarters 2004 2005 F. Steinberg ADB headquarters 2005 2009 Validator: O. Nuestro, Evaluation Team Leader: K. Mohit, Evaluation Officer, IED2 Specialist, IED2 Quality N. Bestari, Advisor, Director: H. Hettige, IED2 Reviewers: IEOD ADB = Asian Development Bank, ADF = Asian Development Fund, IED2 = Independent Evaluation Department (Division 2), IEOD = Independent Evaluation Department (Office of the Director General), LGU = local government unit, NDF = Nordic Development Fund, OCR = ordinary capital resources, PCR = project completion report. I. PROJECT DESCRIPTION1 A. Rationale 1. Mindanao experienced high rates of urban growth in recent years with inadequate local investment in basic urban infrastructure and municipal services, remaining among the poorest regions of the Philippines despite abundant natural resources. High urbanization and low institutional capacity, affected local government units’ (LGUs’) ability to meet the demand for basic urban services. Consequently, there was an urgent need to improve urban service delivery by upgrading and expanding infrastructure, and improving the capability and capacity of LGUs to provide and manage services. Improved basic urban services would help reduce poverty and raise living standards, strengthen links between urban and rural areas, and support the peace process. 1 ADB. 2001. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Republic of the Philippines for the Mindanao Basic Urban Services Sector Project. Manila. 2 B. Expected Impact 2. The project was expected to improve the quality of life of urban residents in Mindanao, supported by balanced and equitable regional development in the urban sector. It was expected to benefit more than 1 million urban residents by improving access to municipal services and supporting higher environmental standards. C. Objectives or Expected Outcomes 3. The project had three primary objectives: (i) improve access to basic urban services through provision, upgrading, and rehabilitation of basic infrastructure and services; (ii) increase urban poor communities’ access to basic municipal services; and (iii) improve the institutional capacity and capability of LGUs to provide, manage, and maintain adequate municipal services and basic urban infrastructure. The project was expected to provide better access for (i) water for 250,000 persons; (ii) drainage and flood control for 120,000 persons; (iii) bus terminals and public markets for 550,000 persons; (iv) solid waste management for 280,000 persons; (v) urban roads and bridges for 470,000 persons; and (vi) other public facilities for 350,000 persons. D. Components and/or Outputs 4. The chief components and related outputs were (i) part A: infrastructure investment: water supply, drainage and flood control, bus terminals and public markets, solid waste management, urban roads and bridges, public markets, and other public facilities; (ii) part B: institutional capacity building program: project management and implementation support, subproject preparation and implementation support, LGU capacity building program, and Department of Interior and Local Government (DILG) institutional strengthening program. Under part A, a total of 39 subprojects were approved and implemented, with 36 subprojects completed as of November 2010. Part B supported about 68 LGUs through various training modules, depending on the needs and requirements of the LGU. Each LGU was able to avail of technical skills training or attend workshops and relevant training and coaching sessions. E. Provision of Inputs 5. Activities undertaken under part A included (i) identification of subprojects; (ii) preparation of feasibility studies, detailed design, and contract documents; (iii) bid evaluation, contract award, and procurement; (iv) construction of facilities; and (v) overall project implementation and coordination. Part B activities included project management support, subproject preparation and implementation support, capacity building for LGUs, and a DILG institutional strengthening program. F. Implementation Arrangements 6. The Land Bank of the Philippines (LBP) was the executing agency for part A, and the DILG was the executing agency for part B. To undertake its responsibilities, the LBP designated its program management department to administer the project lending facility, while the DILG established the project development office to provide capacity building support to the LGUs. The national project steering committee (PSC) chaired by DILG comprised representatives from the Department of Budget and Management, the Department of Environment and Natural Resources, the Department of Finance, the Department of Public Works and Highways, the Housing and Urban Development Coordinating Council, the LBP, and the National Economic and Development Authority. At the regional level, the project established a technical review and coordinating committee chaired by LBP’s executive vice-president for Mindanao. The committee 3 comprised members from the DILG and other government agencies. Neither the PSC nor the technical review coordination committee met frequently. The project implementation units under the aegis of the LGUs coordinated with local bids and awards committees on procurement matters. The performance of LGUs varied considerably depending on local leadership and motivation. There was one case of misprocurement (project completion report [PCR], para. 29) 2 and implementation of most subprojects took longer than planned. II. EVALUATION OF PERFORMANCE AND RATING A. Relevance of Design and Formulation 7. The PCR concluded that the project remains relevant given its support to the Medium- Term Philippine Development Plan, 2004–2010. The report appropriately points out that the sector loan modality was flexible enough to accommodate the changing demands of the LGUs, including the financing mechanisms. The design of parts A and B was innovative, and their synergy improved LGUs’ access to urban infrastructure and services and strengthened their capacity to deliver services. However, the project failed to deliver on drainage, flood control, and solid waste management components (footnote 2, para. 40) as the LGUs did not want to borrow for drainage and flood control, reflecting a weakness of project design. Given the substantial accomplishments of parts A and B, built-in design flexibility, and appropriateness of the lending modality (sector lending) in view of project complexity (with 30–40 LGUs and 39 subprojects), this validation concurs with the PCR that overall the project was relevant. B. Effectiveness in Achieving Project Outcomes 8. Appendix 1 of the PCR provided a complete picture of accomplishments compared with targets at the output and outcome level. Para. 3 describes the outcome performance indicators. Seventy-three