'"t{fTURN TO lo~fo () SfJ'14 IffJOJ.11 (j) UNClASSIFIED PI-MQ· t111- ." I . 177" DEPARl'KDrr 01 STATE NlENCY FOR IHTERNATIOHAL IEVELOPMDIT WalSh1J1ct,on. D.C. 20)23 CAPITAL ASSISTANCE PAPER Proposal and Recommendations For the Review of the Development Loan Comm1ttee PHILIPPINES ~ RURAL 'ROADS LOAN AID-DLC/P· 2059 UNClASSIFIED DEPARTMENT OF STATE AGENCY FOR INTERNATIONAL. DEVEL.OPMENT WASHINGTON. C.C. 20523 UNCLASSIFIED AID-DLC/P-20S9 November 20, 1974 MEM)RANDUM FOR TIffi DEVELOPMENT LOAN CXMw1I'ITEE SUBJECT: Philippines - Rural Roads Loan Attached for your review are recommendations for authorization of a loan to the Government of the Republic of the Philippines ("Borrower") of not to exceed Fifteen Million DJllars ($15,000,000). The proceeds of this loan will be used to reimburse the Borrower for up to seventy-five percent of the peso costs of a program of subprojects executed by participating Provinces to construct or improve approximately 750 kilometers of rural roads and 2400 linear meters of related bridges in provinical areas of the Philippines. This loan proposal is scheduled for consideration by the Development Loan Staff Conmittee WednesdJ.y, November 27, 1974. Also please note your concurrence or objection is due by close of business Tuesday, December 3, 1974. If you are a voting membe- a poll sheet has been enclosed for your response. Development Loan Committee Office of Development Program Review Attachments: Sumnary and Reconunendations Project Analysis ANNEXES - I -XIV UNCLASSIFIED UNCLASSIFIED - 11/21/74 'l'ABLI~ OF CONTENTS AID-DLC/P-20S9 PAGE SUMMARY AND RECOMMENDATIONS i SECTION I THE PROJECT 1 A. Project Description 1 1. Goals and Purpose 1 2. Size and Costs 1 3. Selection CTit~r~d 3 4. Eligi1:1e Provinces and Tentative Reimburseable Amounts 4 5. GoverrLment Contribution 7 B. ~oJect Background 8 1. USAID Involvement with PDAP Provinces and Origin of 8 the Project 2. Int~nsive Review Request 9 C. Project Justification 9 1. Place of the Project in the GOP Development Program 9 A Statement by the National Economic Development Authority 2. Relationship to Agrarian Reform 13 3. Place of the Project in the USAID Country Program 16 SECTION II PROJECT ANALYSIS A. Borrower and Ir::2IlementinG Agency 19 1. Borrower 19 2. Imp:ementing Agency 19 3. Sub-Project Administrative Procedures 19 B. Beneficiaries 20 C. Role of Women 24 D. Engineering Analysis 25 1. General Description of Project 25 2. Place of the Project in the Country Road Program 25 3. Preliminary Technical Consideration 27 4. Implementation Plan 28 - 2 - PAm: 5. Design Standards 29 6. Equipment 32 7. Maintenance ,"':apability and Funding 32 8. Appraisal of i'e')hnical Soundness 35" 9. Cost Estimates 37 lC. Labor Utilization 38 11. Environmental Aspects 44 E. Economic Analysis 47 1. Introduction 47 2. Economic Evaluation 48 F. Financial Plan 50 L Swnrnar~r Cost Estimate and Financial Plan )0 2. Financial Procedures 50 3. Special Letter of Credit Arrangement 51 )t. Dnpac t on U. S. Balance of Payments 51 5. Philippine Economic Situation and Debt Service Capacity 52 G. Evaluation Procedure 57 SECTION III LOAN ADMINIS7RATION 60 A. Target Dates 60 B. Disbursement Procedures 60 C. ~onitoring Responsibilities 60 D. Reports 61 E. Conditions and Covenants 61 ANNEXI~S I AuthorizaL:'on II 611 (e) Certification III PDAP Provinces Crop Value IV Definitions V Provinces Equi.pment List VI Plt1nn~d Equipment Requir~ments VII Pruvincial De'!elopment Staff VIn ?rovincial Development Organization IX DLGCD Organization Chart X Loan Application XI Economic Analysis - Discussion and Methodology XII Economic Model - Illustrative Case XIII Economic Mociel - Illustrative Case II XIV statutory Checklist IINCIASSI FIW AIII /lJ.C/JI·l()~,!) SUMMARY AND RECOMMENDATIONS Novemher 21, 1974 1. Borrower/Beneficiary - The Government of the Republic of the Philippines (GOP) will be the borrower. The executing agencies will be (a) the Department of Local Government and Conmunity Development (DLGCD)/Provincial Development Assist­ ance Project (PDAP) and (b) the fourteen to twenty-two prov­ inces in which the project will be implemented. 2. Amount of Loan - $15.0 Million. 3. Terms - Repa~uent within 40 years, including a ten year grace period; interest at 2% annually during the grace period, and 3% thereafter. 4. Purpose - To assist the GOP in its efforts to imprnvp the economic and social conditions in the rural areas hy provfdinK all-weather roads capable of transporting agriculturp inputs, products and other goods, and by providing a more effective means of conununications between the rural areas and access to medical,recreational and educational facilities. 5. Project Description - The project consist of the improve­ ment/construction of rural roads and bridges in the provinces. It is estimated that under this project not less than 750 kilo­ mete::s of rural roads and 21~OO linear meters of bridges will be improved/constructed in 14-22 participating provinces over a period of 3 years. 6. Project Costs and Financing Arrangement - TIle project will originRlly be financed by the provinces themselves by means of se~f-generated or local bank loan..dfunds. Upon completion of the ide'ntifiable segments of road to agreed upon plans (sub-projects) the DLGCD will reimburse the provinces an amount not to exceed 75% of the previously agreed project cost estimate from funds provided by the Central Government from Presidential Discretion­ ary Funds which will be generated from a percentage of the· annual Bureau of Internal Revenue collections. The U.S. will in turn reimburse the GOP (not to exceed 75% of the original project cost estimate) by ~eans of a dollar credit in a Special Letter of Credit (SLC) in a U.S. bank. The GOP may utilize the SLC for U.S. purchases. u Based upon the estimates provided by the proposed 14 participating provinces, this project permits qualified prov­ inces to execute four times as much local road and bridge work as they could perform with their own resources. And it is a net add-on to road work otherwise possible as it does not drbin off pesos from the fixed stock of national budget resuurces allocated for Department of Public Highways project. 7. Ocher Source of Financiua - While other donors are con­ tributing to various road projects in the Philippines (IBRD, ADB, Japanese, Australian), they are directing their efforts primarily to major national highway projects. The total length or amount of rural roads in need of improvement/cOI.struc­ tiGn greatly ne~ds the t~tal funds currently avallablp for this purpose, and in particular exceeds the local cost financing ability of the Philip~ine Treasury. 8. Export-Import Bank Clearance - Received. 9. Country Team Views - The Country Team recommends approval of this loan. 10. Issues - None. 11. StlltutOL-Y ChecklJ.U - All statutory criteria have been satisfied. 12. RC'conunendation - Authorization of II loan to the Repui.>1ic of the Philippines to reimburse the GOP for not to exceed 7S of the cost of the project set forth in the draft authorization attached. Capital Assistance Committee ~: Chairman Richard Dangler Loan Officer Arthur Thivierge Engineer Royal Cline Provincial Development Officer William Fuller USAID Staff Economist Rene Ruivivar Consultant-Transportation Economist Charles Joyce AID/I.J: Chairman - Alexander R. Love Loan Officer - Laurance ~. Bond Engineer - C. H. Groceman Attorney - Stephen Tiss Desk Officer - Dennis Chnndlcr Technical Dewelopment - Donald YeaNn 1 AJD-DLC/P-20S9 SECTION I - THE PROJECT N:>vember 21, 1974 A. Project Description: 1. Goal and Purposes The goal of this project is to stimulate development uf the rural areas of the Philippines which have the self-help capacity to administer rural road construction.. Improved roads will achieve this goal by improving all public and private services dependent upon transportation and in parti­ cular by stimulating agricultural production by reducing transportation cost facilitating the movement of agricul­ ture outputs to the market place. The areas chosen fol.· impleaeatation of the project are essentially agricultural areas. The first fourteen provinces in this project produce 37 and 26 percent of the total Philippine rice and corn output respectively. (See Annex III). The specific purpose of the project is to increase the income of small farmers by increasing his agricultural out­ puts and to improve his living conditions by making him more accessible to governmental and private sector institutions and facilities, particularly health, education, recreation and ~ocial agencies. The Project selection criteria des­ cribed in Sections I A 3 (latetl precludes the possibility of this project financing rural roads for the benefit of large farms, such as sugar cane plantations. 2. Size and Costs It is estimated that a $15 million loan (U.S. $- P6.66 therefore $15 million = PlOO million) will be sufficient to re~nburse the GOP for up to but nct more than 75% of total cost for the improvement/construction of approximately 750 kilometers of roads and 2400 linear meters of bridges. De­ tailo of what items constitute the total project cost alld which items are designated as eligible for loan reimbursement are ~iven in Section II 0, Disbursement Procedures. Depending upon the design standard, as justified by the technical soundness appraisal and economic analYSiS, it is estimated that the cost per kilometer of road predominantly will be in the range of ~O,OOO to ~70,OOO. Hard surfacing may be justified for a few high density (heavily travelled) roads at a cost of up to '250,OOO/kilometer. The total cost per linear meter of bridge construction will be in the range of '3000 to P15,OOO depending upon the design and type 2 of material (timber or concrete) used in construction. While the mix of road to bridges may vary as sub-projects are accepted for project implementation, funds will be tentatively allocated to each province as 'shown in Table III.