Document of

The World Bank

Report No. 15624-PH

STAFF APPRAISAL REPORT

PHILIPPINES

AGRARIAN REFORM COMMUNITIES DEVELOPMENT PROJECT

October 24, 1996

Agriculture and Environment Operations DivisionCountry Department IEast Asia and Pacific Regional Office

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CURRENCY EOUIVALENT(as of September 1996)

Currency Unit - Peso (P)

US$1 i26ii = US$0.038

WEIGHTS AND MEASURES

1 hectare (ha) = 2.47 acres

1 kilometer (km) = 0.62 miles

1 square kilometer (kmi2) = 0.3886 square miles1 meter (m) = 10.76 square feet

1 cubic meter (mi3) = 35.31 cubic feet1 million cubic meters (mcm) = 810.7 acre feet

1 millimeter (mm) = 0.039 inches

1 kilogram (km) = 2.2 pounds1 cavan = 50 kilogram

20 cavans = 1 metric ton

ABBREVIATIONS AND ACRONYMS

ARB - Agrarian Reform Beneficiaries

ARC - Agrarian Reform CommunitiesARF - Agrarian Reform Fund

BLGF - Bureau of Local Government Finance

CARL - Comprehensive Agrarian Reform Law

CARP - Comprehensive Agrarian Reform Program

CPO - Central Project Office

DA - Department of Agriculture

DAR - Department of Agrarian Reform

DENR - Department of Environment and Natural

ResourcesDOF - Department of Finance

DPWH - Department of Public Works and Highways

DOST - Department of Science and Technology

GFIs - Government Financial InstitutionsIRA - Internal Revenue Allotment

LBP - Land Bank of the PhilippinesLGU - Local Government Unit

MDF - Municipal Development Fund

NEDA - National Economic Development Authority

NIA - National Irrigation Administration

PARC - Presidential Agrarian Reform Council

PAROs - Provincial Agrarian Reform Officers

PCIT - Provincial CARP Implementing Team

PMB - Project Management Board

Pos - People Organizations

FISCAL YEARJanuary 1 - December 31

PHILIPPINES

AGRARIAN REFORM COMMUNITIES DEVELOPMENT PROJECT

LOAN AND PROJECT SUMMARY

Borrower : Republic of the Philippines.

ImplementinQ Agencv : The Department of Agrarian Reform (DAR)with the respective Local Government Unit(LGU), and the National IrrigationAdministration (NIA).

Beneficiaries : Rural Communities of which at least 50% oftheir members are Agrarian ReformBeneficiaries.

Poverty Categorv : Program of Targeted Interventions.

Amount : A USS Single Currency Loan of US$50million.

Terms : The Bank loan would be for 20 years,including five years of grace at the Bankstandard LIBOR-based variable interest ratefor US dollar.

Commitment Fee : 0.75% on undisbursed loan balances,beginning 60 days after signing, lesswaiver.

Onlendincr Terms : About US$27 million to finance theInfrastructure Component would betransferred by the Government of thePhilippines (GOP) to the respective LGUs inthe form of: (i) grants of up to 90% of theAgrarian Reform Communities (ARCs)'eligible investment which would representthe GOP portion in the cost-sharingarrangements with the local governments.The level of the grant element would varydepending on the type of investments; and(ii) subsidiary loans of about 10 of theARCs' eligible infrastructure investmentfor 15 years maturity including a 5 yeargrace period. Interest rate would be fixedfor several years and would be based onrelated market reference rates such as theprevailing weighted average of treasurybills rate for medium and long termmaturity plus a premium. The foreignexchange risk would be borne by GOP.

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Financincr Plan See para. 3.24

ERR : 22%

Map : IBRD No. 27553

ProlectIdentification No : 37079

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PHILIPPINES

AGRARIAN REFORM COMMUNITIES DEVELOPMENT PROJECT

TABLE OF CONTENTS

Page No.

LOAN AND PROJECT SUMMARY . . . . . . . . . . . . . . . . . . . . . ii

I. AGRICULTURE IN THE ECONOMY . . . . . . . . . . . . . . . . . . 1

II. AGRARIAN REFORM . . . . . . . . . . . . . . . . . . . . . . . . 2A. The Agrarian Reform Community (ARC) Strategy . . . . . . . 3

B. The Agrarian Reform Beneficiaries (ARBs) . . . . . . . . . 3

C. Credit for Farm Production .S... . . . . . . . . . . . . 5

D. Government Policy . . . . . . . . . . . . . . . . . . . . 6

E. Issues ....... .. ... ... .. ... .. .. . . 7F. Lessons Learned ..... . .. . . .. . . .. . . .. . 8

III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . 9

A. Project Formulation and Design . . . . . . . . . . . . . 9B. Rationale for Bank Involvement . . . . . . . . . . . . . 9

C. Project Scope and Objectives . . . . . . . . . . . . . . 10

D Project Description . . . . . . . . . . . . . . . . . . 11

E. Detailed Features ..... . . . . .. . . . . . .. . . 12

F. Estimated Project Costs and Financing . . . . . . . . . . 18

G. Procurement . . . . . . . . . . . . . . . . . . . . . . . 20

H. Disbursement ..... .. . .. . .. . .. . .. . . . 23

I. Accounts and Audit . . . . . . . . . . . . . . . . . . . 25

IV. PROJECT IMPLEMENTATION . . . . . . . . . . . . . . . . . . . 25A. Design Consideration . . . . . . . . . . . . . . . . . . . 25

B. Organization and Management . . . . . . . . . . . . . . . 26

C. Operations Manual . . . . . . . . . . . . . . . . . . . . 27D. Selection of Project Area . . ...... . 27E. Eligibility Criteria .... . . . . . . ....... . . . 28F. Details of Individual Component Implementation . . . . . . 28

G. Financing Arrangements .... . . . . . ...... . . . 32

H. Monitoring and Evaluation and Report Requirements . . . . 33I. Environmental Impact .... . . .. . ........ . . 35

This report is based on the findings of appraisal and preappraisalmissions comprising Messrs/Ms. A. Chupak (mission leader), P. Harrison, T.

Jackson, D. Lucks, J. Mercader, R. Montemayor and R. Ravanera(consultants), who visited the Philippines in October 1995, February 1996,

and June/July 1996. Task Manager: A. Chupak; Peer Reviewers: Messrs.

Jaime Roman, and Thomas Wiens. Documents clearance was provided byMessrs. Javad Khalilzadeh-Shirazi, Director, EAl and J. Gutman, Chief,

EA1AE. Assistance in preparing the documents was given by Ms. B.

Phillips.

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V. PROJECT IMPACT, BENEFITS. and RISKS . . . . . . . . . . . . . . 36

A. Economic Benefits ... . . . . . . . . . . . . . . . . . 36

B. Financial Impact of the Project on Participants . . . . . 38C. Risks ........................ 40

VI. AGREEMENTS AND RECOMMENDATION ... . . . . . . . . . . . . . 41

ANNEXES

1. The Comprehensive Agrarian Reform Program2. Detailed Cost Tables

3. Disbursement Schedule

4. Central Project Office

5. Sub-projects' Eligibility Criteria

(a) Community Development

(b) Partner NGOs Accreditation Criteria(c) Infrastructure investments

6. Community Development & Technical Assistance Program

7. Rural Infrastructure

8. Monitoring and Evaluation9. Supervision Plan

10. Economic and Financial Analyses

11. Documents in Project File

I. AGRICULTURE IN THE ECONOMY

Sector Structure and Performance

1.1 Agriculture continues to play a significant role in the economy, both interms of its direct contribution to production and employment and as a basis foractivities in the manufacturing and service sectors. During the first four yearsof the 1990s, agriculture's direct contribution amounted to about 22% of GDP,agri-based industry accounted for another 13*, while as much as one-third ofvalue added in the service sector was also linked to agriculture. Agricultureremains the most important source of employment directly providing income to 43%of the labor force. Although the sector's direct contribution to national outputand employment has dropped continuously over the past two decades, the pace ofchange has been remarkably slow compared to other countries in the region. Thisslow structural shift is a reflection of industry's failure to become the mainengine of growth and principal source of labor absorption over the last twodecades.

1.2 Following a decline in output during the crisis years of the earlyeighties, the agriculture sector recovered to grow at an average annual rate of3%, contributing about 16% to domestic growth between 1985 and 1990. The earlyl990s were characterized by stagnation in both agricultural output and valueadded in agro-processing. The sectoral growth rate during the period of economicrecovery was below both growth in the rest of the economy and the sector'scomparatively strong performance during the 1970s. Sectoral value added,agricultural exports, and food production per capita have lagged far behind thosein most other East and South Asian countries. Several factors account for thisslowdown, including the fact that the fruits of the green revolution had largelybeen exploited by the end of the 1980s, an overall downward trend ininternational commodity prices for the Philippines' traditional export crops,natural calamities, and a series of macro-economic and sector specificimpediments which have led to underinvestment in the sector. Among the lattertwo figure an exchange rate that became overvalued in the late 1970s, the absenceof long term credit, deterioration of intersectoral terms of trade, weak ruralinfrastructure and an inefficient transport system, feeble support services andslow implementation of agrarian reform in the early 1990s.

Rural Poverty

1.3 Persistent widespread rural poverty is the most disappointing aspect ofpast economic performance in the country. Over two-thirds of all poor householdslive in rural areas, where both the incidence and the severity of poverty remainhigh. The incomes of just under half of all rural households fall below therural poverty line (US$304 per capita in 1994) and the number of rural poorhouseholds has increased by over 52% from 2.3 million to 3.5 million between themid-1960s and the late 1980s and fallen to 3 million by 1994. Several factorsaccount for this, including a continuing high growth rate of population (whichin turn led to falling farm sizes despite a 60% increase in cultivated landbetween 1965 and 1990 and contributed to the stagnant real agricultural wages),inadequate growth of the agriculture sector and a failure of the economy as awhole to provide sufficient employment opportunities outside agriculture.Sustained sectoral growth, combined with increased employment opportunities

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outside the agriculture sector in rural areas will be indispensable to reducerural poverty in the years to come. The proposed project would assist inachieving these goals through the provision of needed term lending facilities forfinancing rural development activities.

1.4 Only 60 percent of total farm area is owned by the farmers themselves,large areas continue to be tenant farmed. An agrarian reform program has beenunderway for some 40 years in the country, however, it has only been a prioritysince 1988. With such a large number of tenant farmers, poverty remains a majorconcern in the rural areas. The latest estimate of the poverty incidence (1994)indicates that about 36% of families live below the poverty line. 1994 estimatesmade by the National Statistical Board indicate that about 47% of rural familiesand 24* of urban families live below the annual per capita poverty thresholds ofP8,035 and i9,910, respectively. Widespread poverty also has its impact on themarket for food, particularly on children. According to the Bureau ofAgricultural Statistics, approximately 18.2% of households in 1994 (10.6% in theurban areas and 25.7% in the rural areas) do not obtain sufficient food to avertmalnutrition, while child malnutrition, is estimated at up to third of children.

Government StrateqV

1.5 Aware of the critical role that agriculture plays in economic recovery andin spearheading the attack on rural poverty, the Government has implemented aseries of institutional reforms to strengthen sector management and policyreforms aimed at reducing government interventions in pricing and marketing andat eliminating discrimination against agriculture. It has also embarked on theComprehensive Agrarian Reform Program (CARP) to achieve better distribution ofcultivable lands and aims at increasing allocation of public resources toagricultural development. The Government's sectoral objectives as stated in theAgricultural Development Plan (1990) are: (i) to increase the productivity andreal incomes of small farming and fishing families; (ii) to attain self-sufficiency in rice and corn for food security; (iii) to help attain a favorablebalance of trade for the country; and (iv) to help ensure productivity of theagricultural resource base over the longer term. The focus of this broad planhas been refined under the Medium Term Agricultural Development Plan 1993-98,which has also been adopted as the country's action program for enhancingagricultural competitiveness following its ratification of the GATT-Uruguay roundin late 1994. During implementation of this, Government intends to concentrateits efforts on the development of Key Production Areas (KPAs) which it hasdefined for different crops. The KPA approach aims to achieve greater and morediverse aggregate production as a result of increased specialization and hencehigher yields. In 1994, GOP adopted the Social Reform Agenda (SRA) as it'soperational blueprint for the strategy to fight poverty. Under the SRA, AgrarianReform Communities (ARCs) were declared as convergence points for agriculturaldevelopment flagship programs

II. AGRARIAN REFORM

2.1 An important cause of poverty and under-development in the Philippines isthe way in which the nation's primary resource - land - is used and controlled.

Legislative efforts to change this situation trace back to 1936, with the mostrecent being the 1988 Comprehensive Agrarian Reform Law (CARL). However theimplementation of the law has been slow until 1992, when significant achievementshave been made by the Government. The present leadership in the Philippines iscommitted to pursue an even faster, fairer and more meaningful implementation ofland and agrarian reform through the Comprehensive Agrarian Reform Program(CARP), to empower the farmers and increase agricultural productivity. The keyimplementing strategy of the CARP is the Agrarian Reform Communities (ARCs)Development Program, which is basically an area-focused, resource-based,community-centered and impact-oriented approach to rural development. Detailson CARP's operation are given in Annex 1.

A. The Agrarian Reform Community (ARC) Strategy1

2.2 Faced with limited resources and the possibility of spreading them thinlyall over the country without visible effect, the Department of Agrarian Reform(DAR) had adopted the ARC strategy as provided for under Republic Act 7905 datedFebruary 23, 1995. This involves harnessing the efforts and resources ofgovernment agencies, NGOs, the private sector and to a certain extent specificcommunities where the greatest concentration of CARP lands and beneficiaries arelocated. Since 1993, over a thousand communities have been identified anddesignated as ARCs. ARCs are considered building blocks for ruralindustrialization of a larger area which may comprise a province. They are invarious levels of physical and organizational development. As such, investmentin these communities would require careful matching of resources and needs. TheARC strategy is in line with the decentralization effort of the government andhas elicited greater participation and involvement of NGOs and PeopleOrganizations (Pos) as well as the local government units. Also, under the SRA,the ARCs are designated as conduits for agricultural development, basicinfrastructure implementation and productivity improvement efforts.

B. The Agrarian Reform Beneficiaries (ARBs)

2.3 Agrarian Reform Beneficiaries (ARBs) are among some of the mostdisadvantaged communities in the Philippines. Almost all types of physicalinfrastructure are lacking, including: irrigation, roads, bridges, potable water,health and education facilities, and post-harvest handling and processingcenters. The CARP has focused on the land acquisition and distributionpriorities mandated by the government; however, the beneficiaries have beenwithout much needed support services to address community building, agricultural

1/ An ARC is a barangay or cluster of barangays which has been declared anARC by DAR within which at least 50% of the households are headed by ARBs;a barangay (village) is the smallest political unit. Under this project,the average ARC would comprise about three barangays. The number of peoplein each of the ARCs is varied from an average of about 700 (if the ARCcomprises one barangay) to several thousand, if it comprises morebarangays.

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extension, physical infrastructure, credit, and marketing support. Physicalinfrastructure is considered a priority amongst all ARBs. Basic infrastructure,particularly: irrigation systems, post harvest facilities, good rural roads,ports, and interland shipping, is essential to the development of the Philippineagricultural sector. The high cost of production and marketing of goods in manyof the rural areas places these farmers at a serious competitive disadvantage.Transport costs account for some 35 to 50 percent of the grain (rice, corn)marketing costs. Part of this high cost can be attributed to the limited numberof marketing centers and the widely dispersed growing area, however, poor accessinfrastructure and the high marketing cost for regional transport is theprinciple reason for such costs being approximately 25 percent higher than inneighboring countries.

2.4 The economic situation of many ARBs - whether they live in- or outside anARC - is a precarious one. Most of them were, until q-uite recently, share-croppers, landless farm workers, or "illegal" occupants of public lands. Oncethey receive land under the CARP, they have to become farmer-entrepreneurs intheir own right. Henceforth, they have to make all farm management decisionsthemselves, secure timely availability of inputs, and arrange for marketing theirproduce. In the years to come - with CARP maintaining its momentum - many morefarm households will have to go through this transition process. It is all themore difficult to make this transition, because many ARBs work under difficultcircumstances. By definition, this is the case in the ARCs, because these havebeen established in "depressed" barangays. Farms are small, with a maximum sizeof three hectare, set by law. But many farms are much smaller and many ARBs haveto till marginal lands.

2.5 Farm incomes of many ARBs are below the national poverty threshold forrural areas of P48,200 for a family of 6 per annum (P8035 per capita) . Mostcommonly, farm incomes range from 124,000 to 130,000 per family per year(excluding non-farm income and transfers.) Wages for farm labor range from 150(about US$2) plus food to P75 (about US$3) plus food per day, depending on theseason and type of work. Sometimes there are opportunities for off-farm work(for example, in masonry, carpentry, and tri-cycle driving) . But in other casesthe opportunities are limited, exacerbated by the lack of skills of the people.The combination of small farms, low farm incomes, and limited off-farmemployment, indicates a widespread prevalence of underemployment. This is alsoreflected in the shadow wage rate of unskilled labor, which has been set at 0.6times the market wage rate by the National Economic Development Authority (NEDA).

2.6 The low farm incomes would seem to be directly related to: (i) a lack ofbasic infrastructure and know-how of improved technologies and marketinginformation on the part of the farmers and their organizations; and (ii)inadequate credit to buy inputs, tools and equipment to increase yields andcropping intensity, to treat appropriately post-harvest crops, to engage inprocessing of farm produce, and to develop other livelihood activities. Theseissues would be dealt with under the project (paras. 3.2 to 3.25).

C. Credit for Farm Production

2.7 New ARBs at best have some working capital and farm tools. In a largenumber of cases they have neither. They also do not have access to formalcredit. Therefore, they have to resort to informal credit, at high interestrates. Production loans for a period of about 4 months, are reported to costbetween 20% and 30%. They are often linked to the marketing of produce,typically including a reduction of about 10% in the price paid by thetrader/money-lender. Informal credit for one month is reported to cost between10% and 20%2. The consequence of the high price of credit is that farmers limitthe use of inputs (e.g. certified HYV-seed) and the purchase of farm equipment(for example, a hand tractor) . Also, the high price of credit reduces the incomeof farm households, thus limiting their savings capacity and making it difficultto break out of the circle of continuously working with expensive credit. Andthis seems exactly to be the situation in a number of ARCs, where it was reportedthat 90%, or "almost everybody" makes use of informal production credit.

2.8 Savings and formal credit facilities are essential for ARBs development.Undercapitalization is a major problem in a number of cooperatives and ARBscommunities; credit is badly needed. But aggressive credit policies withoutprudent criteria and procedures can do more harm than good. Experience withcredit program for ARBs in particular and farmers in general, repeatedly providesjustification for placing agricultural credit in the hands of formal financialinstitutions, who will undertake the credit risk and give them maximum leeway inassessing the credit-worthiness of these borrowers. Most of funding programswhere a government line agency like DAR assumed control over loan approvals, orwhere lending conduits were fully freed from credit risks, ended up withinordinately poor collection rates, many failed projects, and eventually becameunsustainable. This lesson has been incorporated in the design of the proposedproject (para. 3.24).

2.9 Saving is being encouraged through the village-level DevelopmentFacilitators (DFs) of DAR, particularly in the early stages of the developmentof a community and by the Land Bank of the Philippines (LBP) through its fieldoffices. Presently, most formal credit in the ARCs, both for production purposesand for farm investments, originates from LBP. However, LBP, in order to reduceoperating costs and risks, only lends to registered cooperatives either foronlending to their members or for their own investments. The issue of acredit delivery mechanisms for non-members of cooperative groups, would seem to

2/ The formal credit is provided mainly by LBP and its current ratesare 14% for production loans and 16% for investments. LBP lendsonly to cooperatives for onlending to their members or refinancingagricultural loans made by rural banks. While the usual rate foron-lending by cooperatives to their members/farmers is about 24% (2%per month), the rates charged by the rural banks range from 25% to30% per annum. However, LBP's outreach, either through itsaccredited rural banks or through its client/cooperatives, ispresently limited to about 10% to 15% of total farm families in thecountry.

be problematic, particularly in light of the Cooperative Development Authority(CDA) policy of not allowing the registration of a new cooperative if a group ofthe same type already exists within its locality. This issue would be addressedby the project (paras. 3.23 and 3.24).

D. Government Policy

2.10 Economic growth is a platform underpinning the Government of thePhilippines (GOP) Medium Term Development Plan (MTDP), which emphasizes the needfor world competitiveness and people empowerment to achieve a per capita grossnational product of US$1,000 by the year 2000, and an annual GNP growth rate of6 to 8 percent. This plan also contains an unequivocal commitment to reducepoverty from 35.7 percent of families in 1994 to 30 percent by 1998. Economicgrowth and poverty reduction form the framework for all regional and sectoralpolicies, programs, and projects.

2.11 The Government of the Philippines has made agrarian reform, andparticularly CARP, a priority to achieve the goals of Philippine 2000 (to be aNewly Industrialized Country by the year 2000). The Department of AgrarianReform (DAR) has been given the lead role in the implementation of CARP, howevereight GOP line agencies play an active role in the delivery of CARP. Theseinclude: DAR, Department of Agriculture (DA), Department of Environment andNatural Resources (DENR), Department of Trade and Industry (DTI), Department ofLabor and Employment (DOLE), Department of Public Works and Highways (DPWH), LandBank of the Philippines (LBP), and National Irrigation Administration (NIA).

2.12 CARP has set out ambitious targets for land acquisition and delivery overthe ten year period 1988 to 1998. The overall target is 10.3 million hectares,with this being divided into 3.8 million ha for DAR and 6.5 million ha of publicalienable and disposable lands to be disposed under the supervision of DENR (theDENR scope was later reduced to 5.919 million ha). In 1995, CARP scope wasrevised from 10.3 million ha to 7.8 million ha. Of this revised scope, DAR wasmandated to distribute 4.3 million ha of agricultural lands while DENR wasassigned with 3.5 million ha. As of 1992 land distribution accelerated and byMarch 1996 about 2.2 million ha or 51% of DAR's revised mandated area wasacquired and distributed (based on preliminary PARC report). Similarly, DENRdistributed 1.6 million ha or 45t of its assigned area. Collective efforts andpolitical will of the current DAR management made it possible. This impressiveaccomplishment, however, is well behind CARP targets. Reasons for delays aremany, however, they can be summarized as: (i) inadequate institutional capabilityand capacity; and (ii) financial resource limitations. At the current time, CARPis moving ahead rapidly. The past two years have seen a considerable increasein accomplishments and this has brought about new questions about thesustainability of the program without more extensive support to thebeneficiaries.

2.13 The CARP, instituted by the Government, is mandated to: (a) distributepublic and private lands to farmer beneficiaries in an effort to increaseagricultural productivity, enhance income, and improve the standard of living ofAgrarian Reform Beneficiaries (ARBs) and their respective farmers' organizations,

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and (b) deliver support services. To maximize the impact of the availablelimited resources, the Department of Agrarian Reform (DAR) has identified theAgrarian Reform Communities (ARCs) as the focus of government (national andlocal) intervention in providing community development assistance, livelihoodsupport including agro-business activities, and basic infrastructure investments.

E. Issues

2.14 To advance the objectives of the CARP the following three main areas ofchallenges/problems have been identified: (a) farmer beneficiaries and theirrespective communities; (b) NGOs/ Peoples' Organizations (POs); and (c) CARP LineAgencies and Local Government Units (LGUs).

(a) Farmer beneficiaries and their communities are facing relativelypoor economic conditions due to inter-related technical, financial,and social constraints which include respectively: (i) low croppingintensity, low productivity, little use of improved inputs, limitedtechnical knowledge amongst ARBs, limited exposure to alternativecropping options and lack of marketing infrastructure; (ii)inadequate financial resources for post harvest and processingfacilities, limited access to formal credit, limited financialbase/indebtedness of POs, inadequate savings, lack of managementskills to plan and operate economic activities and lack of internalcontrol systems in POs; and (iii) weak organizational base of POs,weak leadership within the ARCs and POs, poor social infrastructure,and limited education amongst ARBs.

(b) Local NGOs and POs. The main constraints affecting the ability oflocal NGOs/POs to assist the ARCs development process are theinadequate or lack of qualified staff to provide the necessarytechnical support to ARCs, insufficient funds for wider deploymentof staff and delayed funding from DAR, inadequate or inappropriatetraining of staff, lack of prior relationship to ARCs and diversityof or non-complementary objectives of NGOs/POs leading to differingopinions on the required interventions for ARCs.

(c) CARP Line Agencies and LGUs: Budget restrictions which include theoverall funding availability; timing of budget allocation andreleases along with a cumbersome bureaucracy and internal controland audit systems are the main issues affecting CARP performance.These constraints are the main cause for relatively slow landsurveys (ie: inadequate equipment, communications facilities, anddata processing/ lack of computers), the slow pace of reducing legalchallenges (ie: lack of access to legal libraries, court references,mobility, communication and computerization), shortage of trainedARC development facilitators in some provinces, mobility andcommunication, and inadequate support and commitment from othergovernment line agencies. The main challenges affecting theperformance of the LGUs regarding the development of ARCs areadjustments to devolution, inadequate management experience,

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shortage of funds, mobility of staff, linkages with nationalgovernment support services such as agricultural research andextension (DA), irrigation (NIA), and infrastructure (DPWH).

F. Lessons Learned

2.15 The broad lessons that emerged from the review of Bank experience in ruraldevelopment projects3 are: (i) ownership is vital, not just by government, butby implementing agencies and the rural people directly affected; (ii) projectdesign must be flexible; (iii) goals must be realistic and precise; (iv) projectdesign must be simple, without a large number of unrelated components; (v) creditand farm inputs are often critical to success; (vi) beneficiaries participationis necessary; (vii) arrangement for infrastructure maintenance have to be inplace from the start; and (viii) community organization and build up shouldprecede infrastructure development.

2.16 Experience with projects in the Philippines have paralleled the broaderexperiences described above. The Bank has supported numerous projects inagricultural development, irrigation, and rural infrastructure with varyingdegree of success. The key issues/lessons which are relevant to this projectrelate to the planning, design, and implementation of rural infrastructureincluding roads, water supply, and small scale irrigation. The overriding findingis that centrally planned and executed investments in rural infrastructure tendto receive only secondary attention from the line ministries which are morefocussed on larger scale infrastructure investments. As a result delays areendemic, monitoring of quality is limited, and sustainability in terms ofmaintenance and operation is uncertain at best (reference Second Rural RoadsImprovement Project - Loan 2716-PH, and First Water Supply, Sewerage andSanitation Project - Loan 3242-PH) . The conclusion is that active localparticipation and responsibility from planning to design to implementation isessential. This approach is consistent with the Government's substantial fiscaldecentralization effort. The Central Visayas Regional Project (Loan 2360-PH)represented a more locally oriented approach and was considered very successfulexcept that the cost of administration per dollar invested was very high.Presently, the Environment and Natural Resources Adjustment Program (SECAL) Loan3360-PH and Credit 2277-PH, is pursuing a locally oriented approach and the useof NGOs in project implementation which is proceeding successfully.

2.17 These lessons have been incorporated in the design of the proposed project,by applying the following elements: (i) a community development plan would bedesigned and implemented by the community. This would allow adequate flexibilityto support Agrarian Reform Communities (ARCs) in different stages of developmentand needs thus enabling more ARCs to benefit from project activities; (ii)appropriate development targets for each ARC would be set by the community; (iii)cost sharing arrangements between beneficiaries and government (local and

3/ World Bank Experience with Rural Development, Report No. 6883; OED Lessonsand Practices (No. 3) Area Development Projects, September 1993; OEDPrecis No. 39 -Maintaining Rural Roads.

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national) concerning the implementation of the respective community developmentwould be the basis for project support; (iv) a minimum level of communitymaturity (determined by agreed criteria) would be a pre-requisite for projectsupport; and (v) credit and financial services would be provided by an existingfinancial institution with a wide network of branches and field offices in therural areas.

III. THE PROJECT

A. Prolect Formulation and Design

3.1 The need to support the Agrarian Reform Beneficiaries (ARBs) and theircommunities was discussed as early as 1991. The initial approach was to assistbeneficiaries in selected tree crop estates (particularly rubber) which havealready been offered for voluntary sale to Government, and the small farmersoutgrowers surrounding these estates, to organize into group farming arrangementsas a means to effectively use advanced production, processing, marketing, andmanagement expertise and facilities in order to sustain and possibly expandproduction levels. A Japanese grant fund was obtained and a consultant firmsubmitted in 1993 their project preparation report. The proposed project wasreviewed and found to be unjustifiable in terms of its potential positive impact.In 1994 the Government requested the Bank to review the possibility of supportingthe ARBs through their Agrarian Reform Communities (ARCs). Accordingly, a Bankmission identified the project in October 1994. The original Japanese grant fundwas used for project preparation which was completed in August 1995. The projectwas pre-appraised in October 1995 and February 1996, appraised in June/July,1996. Negotiations were held in October, 1996.

3.2 The main design alternatives considered for the project were a pre-determined area-based intervention or a demand driven fund concept. The latteralternative was chosen as it would allow adequate flexibility to support AgrarianReform Communities (ARCs) in different stages of development and needs thusallowing more ARCs to benefit from project activities. A demand driven approachwith cost sharing financing among project's beneficiaries, local and nationalgovernments, would positively respond to beneficiaries' self identified needs,maximize available local resources, and thus ensure ownership and sustainabilityof community sub-projects. This is also in line with Government policy to focusits intervention on the ARCs in providing community development assistance,agricultural and enterprise development support, and basic infrastructureinvestments.

B. Rationale for Bank Involvement

3.3 The proposed project is consistent with the Country Assistance Strategy(CAS) which was presented to the Board on April 4, 1996. The main objective ofBank assistance strategy in the Philippines, as defined in the CAS document, isto promote sustainable development and help achieve a more rapid reduction inpoverty. Within this framework, four specific objectives have been identified:(a) supporting the Government's efforts to convert the current economic recoveryinto a period of sustained growth, which is vital for poverty reduction;

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(b) strengthening the country's infrastructure to enable such growth;(c) assisting in the design and implementation of more effective and efficientmechanisms for poverty alleviation while upgrading the quality of social servicesavailable to the poor; and (d) supporting sustainable management of naturalresources and protecting the environment. The proposed project would contributeto these objectives. In particular, it would address the problems of ruralpoverty through support to: (i) rural infrastructure development including farm-to-market roads and post-harvest facilities; (ii) irrigation development andrehabilitation; (iii) intensification and diversification of farm production andother income-generating activities; and (iv) community development and self-helpapproach which are seen as essential to improve ARBs' standard of living. Thusthe project would have a direct impact on poverty alleviation through theincrease of ARBs farm production, productivity, and incomes.

C. Project Scope and Obiectives

3.4 The project would assist the Government in strengthening farmerorganizations in Agrarian Reform Communities (ARCs) to plan and undertakedevelopment activities which would raise farmers' incomes and provide furtheropportunities for sustainable growth. In particular, the project would:(i) assist Agrarian Reform Beneficiaries (ARBs) and other farm families in theselected ARCs4 to gain access to productive resources, social and physicalinfrastructure; and (ii) support CARP line agencies, Local Government Units(LGUs), NGOs, People Organizations (POs) and coordinate their activities.

3.5 Considering presently available financial resources, the project wouldsupport the development activities of up to 100 ARCs in ten suitable provinces,selected on the basis of several factors including: (i) land distribution hasalmost been completed; (ii) ARCs in the provinces are associated with, or willbe associated with the Key Production Area program; (iii) LGUs are capable andwilling to participate in the project; (iv) farmers organizations have reachedan acceptable level of maturity, and (v) presence of relevant support agencies.These criteria are consistent with existing national programs, including thetargets of Philippines 2000, DA's Medium Term Agriculture Development Plan(MTADP), and DAR's Strategic Operating Provinces (SOPs) . On this basis, thepreliminary list of selected provinces is as follows: Isabela, Leyte, Davao DelNorte, Albay, Ilocos Norte, Surigao Del Norte, Southern Leyte, Misamis Oriental,Davao Oriental, and Quezon. The project would finance viable economic activitiesin ARCs that either have been or will be identified by the communities and theirmembers. This would allow maximum flexibility in supporting ARCs that are atsignificantly different stages of development and needs. Project financing wouldbe based on cost sharing arrangements among project's beneficiaries, LGUs, andnational government.

4/ Under the project, 'beneficiaries' refers to the total population of theARC; this includes (i) the Agrarian Reform Beneficiaries of CARP andprevious land reform programs; and (ii) other people living in the area.

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D. Prolect Descrintion

3.6 The project would be implemented over six years, and would comprise thefollowing three components.

(a) Community Development and Technical Surport (US$7.6 million). Thiscomponent would enable ARCs to achieve community-determinedobjectives through more detailed and realistic planning, developmentof organizational capability and more effective management of human,physical and financial resources (especially in support ofinitiatives in the Agriculture and Enterprise Developmentcomponent) . The two sub-components would address these aims.Community Development would concentrate on (i) increasing communityparticipation in barangay planning processes, in implementation ofdevelopment activities, in addressing social issues such as the roleof women in the community, and in maximizing the sustainability ofproject interventions; and, (ii) organizational development whichwould strengthen the operations and activities of community groupswithin the ARCs, such as cooperatives, associations, farmers groups,women's groups, auto-savings groups and clubs. Support providedwould include cooperative management training, financial managementand enterprise development training and assistance in improvingcoordination with other agencies. Technical Assistance would focuson (i) technical advisory services of the beneficiaries and byproviding marketing support and technical consultancy services tothe ARC organizations; and (ii) providing the necessary staffdevelopment in terms of training and support for effective projectoperations.

(b) Rural Infrastructure (US$59.0 million). This component wouldsupport infrastructure requirements within selected ARCs, based onthe community's assessment of its needs during the above planningprocess. It would comprise three sub-components: (i) rural accesswould improve vehicle and pedestrian links from ARC barangays toexisting all-weather roads. Works would include reconstruction orrehabilitation of about 600-900 kms of existing roads, associatedbridges, causeways and culverts, and additional materials andtechnical assistance would be provided for spot improvements onabout 300-500 km of farm access tracks; (ii) irrigation wouldinclude rehabilitation or extension of existing irrigated areas and,to a lesser extent, construction of new schemes on a total area ofabout 10,000 - 15,000 ha. Irrigation would support diversificationinto non-traditional crops and activities would include headworks5,intake structures, water conveyance canals, drainage channels,access roads and flood protection measures. Support would berestricted to irrigation managed by farmers on a communal basiswhere beneficiaries would repay development costs and take

S/ Mainly run-of-river diversion weirs, but also Small Water ImpoundingProjects (SWIPs) in upland areas (small dams and reservoirs).

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responsibility for operation and maintenance of completed works; and(iii) community infrastructure would include rehabilitation orconstruction of drinking water supply schemes, both point sourcesand piped systems; and development of multi-purpose buildings forcommunity use, such as meeting halls. Investment priority would begiven to rural access and communal irrigation, with rehabilitationof existing facilities given preference over new construction. Allinvestments would be technically sound and environmentallyacceptable, with rural access and irrigation also being economicallyviable. Proven, labor-based technology would be adopted whereverpossible, through local employment.

(c) Agriculture and Entervrise Development (US$33.6 million). Thiscomponent would be directed towards the promotion and development offarm production and other income generating activities of thebeneficiaries, their cooperatives, and the ARCs. Agricultural andenterprise development activities would be market-oriented and wouldinvolve government agencies and private enterprises for technologytransfer, input supply, and processing and marketing of farmproducts. It would consist of four sub-components: (i) technicaladvisory services to assist in the preparation of feasibilityreports and provide business consultancy services to beneficiariesas they undertake individual and community enterprises;(ii) marketing assistance to equip beneficiaries with accurate andtimely market information and help establish sustainable marketlinkages and viable outlets for their products and services;(iii) farm extension services to upgrade the technical skills oflocal farm extension workers and effectively disseminate modern andappropriate technology to beneficiaries; and (iv) credit services toco-finance production, processing, and marketing activities of thebeneficiaries and their cooperatives.

E. Detailed Features

3.7 The project would include the following three components: (i) CommunityDevelopment and Technical Support component (CD&TS); (ii) Rural Infrastructureand (iii) Agricultural and Enterprise Development.

Community Development and Technical Support

3.8 Scope and Obiectives. The objective of the component is to developeffective community participation, allowing the project to respond tobeneficiaries' self-identified needs, maximize available support and ensuresustainability of community sub-projects through developing the capabilities ofthe POs. To achieve this, beneficiaries require assistance to generatemeaningful participation, articulate their needs, develop detailed and realisticlong-term and short-term plans, and to organize and manage socio-economicactivities. Community development efforts would foster group cooperation anddiscipline, promote savings generation, and encourage the establishment of small-scale self-help ventures.

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3.9 ARC Pre-prolect Planning Process. The objective of the Pre-ProjectPlanning phase is to ensure that the activities implemented through the Projectare in line with the development priorities of both the communities and the LGUs.The approach followed would comprise of four steps (i) the most criticalcommunity needs are identified at a General Assembly meeting of each barangay;(ii) LGU support is sought and technical feasibility studies initiated; (iii) amore detailed farming systems development plan for the community, includingcollection of baseline data for project monitoring is undertaken and a detailedannual action plan prepared; and (iv) implementation of the action plan.Progress achieved in relation to the community plans would be reviewed by thecommunity as well as by DAR and the LGUs and would be up-dated on an annualbasis. For the first ten ARCs, project preparation would be undertaken utilizingJapanese Trust funds. Detailed proposals for this are set out as Annex 4.2

3.10 Capability Building of the ARCs. The assistance provided under the projectwould encompass community organizing, training, and facilitation at all levelsof project operation. Activities at the ARC level would cover assisting thecommunity to fulfil their action plan, strengthening community organizations andsupporting the economic activities of the Agricultural and Enterprise Developmentcomponent. At the municipal and provincial levels, the project would focus onstaff training and mobilizing available resources required by the ARC inrealization of their objectives. Strengthening of the ARCs would comprise fourcomplementary sub-components:

(a) Community Development would concentrate on improving communityparticipation in project activities and would aim to strengthen theARC's People Organizations (POs). Field staff of DAR and NGOs wouldstimulate local understanding of development potentials andopportunities through a more comprehensive ARC development planningprocess. Strategies employed to increase community participationwould be (i) self-generation and analysis of baseline data,(ii) skills development of beneficiaries in identifying resources,assessing feasibility and prioritizing; (iii) increase ininformation dissemination on proposed community plans to allbeneficiaries rather than only to barangay and cooperative leaders;(iv) encouragement of general assembly meetings to discuss localsocial, economic and environmental issues and to engage in jointcommunity self-help ventures (e.g. capital build-up, tree planting,ground clearing, road maintenance, etc.); and, (v) involvement ofelected community members in supervising the program-of-work forinfrastructure construction, in post-project maintenance of jointfacilities and in directly monitoring project activities.

(b) Organizational Development assistance would strengthen theoperations and activities of community groups within the ARCs. Thelevel of organizational development and economic activity throughoutthe ARCs is highly variable so project interventions would betailored to the specific needs of the organization. NGO CommunityDevelopment Workers (CDWs) and the Development Facilitators (DFs),with the assistance of the Municipal Agrarian Reform Officer (MARO),would be instrumental in identifying the needs of each PO. Where

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possible, training and other support would be provided through NGOpartners, the Bureau of Agrarian Reform Information and Education(BARIE), Beneficiary Development and Coordination Division (BDCD);other local resource organizations and the Provincial EconomicDevelopment Advisor (PEDA)6. Organizational development would beparticularly important for prospective ARCs which do not yet qualifyunder the selection criteria. These would be identified by the DARprovincial office and an organizational development program would bedesigned to overcome the specific weaknesses of each ARC.

(c) Technical Assistance would include technical advisory services whichwould concentrate on specific skills training for the PO members andprominent farmers, particularly where related to required supportfor the Agriculture and Enterprise component. Skills trainingcourses for beneficiaries are likely to be available at municipaland provincial levels and would include accountancy for co-operatives and business staff; financial and business management;maintenance of post-harvest equipment; infrastructure maintenance;Integrated Pest Management (IPM); garment making; livestock rearing,etc. A database on available courses would be compiled by BARIE fordissemination among the ARCs to enable members to more easily selectand apply for relevant courses. In addition to the existing courses,funding would be allocated for reactive learning throughapprenticeships, marketing initiatives and specific consultancyservices.

(d) Staff Development would particularly focus on improving CDW and DFcapabilities in community participatory planning and skillstransference techniques so that dependency on community organizersis avoided and ARC independence and autonomy is increased andsustained. Additional CD training for DFs may be required in areaswere there is no NGO presence. Included under this sub-componentwould be field monitoring and evaluation costs to ensure thatflexible, responsive and appropriate project operations aremaintained.

3.11 The coverage of the targeted ARCs by interested and capable NGOs isvariable with some ARCs being able to access support from several NGOs, whereasmany ARCs have no NGOs available in their area. Wherever possible, NGOs wouldbe involved in the implementation of the component on a continuation of the tri-partite agreement between the ARCs, DAR and CARP Implementing Agencies (CIAs) andNGOs. As defined by the project, NGOs could include development NGOs, people'sorganizations (POs), foundations, academic institutions and other non-profitdevelopment organizations. Profit-making organizations may also qualify if theorganization s objectives are oriented towards community development and profitsare shared by members or reinvested in the organization's development work.

6/ The recruitment of PEDAs is designed to minimize project risks dueto (i) the difficulties in mobilizing resources for the ARCs; and(ii) the lack of enterprise expertise in DAR at present.

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Partner NGOs would be selected according to their alliance with beneficiaries andrelevant skills capability (see para. 4.16 for more details regarding selectioncriteria). Due to the wide variance among provinces in terms of communitydevelopment needs and the availability and capabilities of NGOs, the selectionof NGOs would be the responsibility of the DAR provincial office. Qualified NGOswould be sought based on the specific needs of the province.

Rural Infrastructure

3.12 Scope and Obiectives. The main objectives of the component are to raisefarmers' incomes through increased crop production and improved access tomarkets, and enhance living conditions through provision of communityinfrastructure. The project would improve about 600-900 km of all-weather roadbarangay road connections to remove transport bottlenecks which presentlyconstrain social and economic development of ARCs. Assistance would also beprovided for spot improvements to 300-500 km of farm access tracks. The projectwould provide new irrigation to about 3,000-5,000 ha, and rehabilitatenon-functional irrigation on a further 7,000-10,000 ha in selected ARCs. Theproject would also support improvements in community infrastructure, includingrehabilitation or construction of drinking water supply schemes, and developmentof multi-purpose buildings for community use. Rehabilitation of existingfacilities would be given preference over new construction, with labor-basedmethods used wherever technically and economically feasible.

3.13 Planning and Selection. All project interventions at ARC level would beplanned and implemented as part of the community development plan, drawn upthrough an integrated and consultative process involving beneficiaries, LocalGovernment Units (LGUs) and concerned support agencies. This participatoryprocedure, described under the community development component, would identifyinfrastructure requirements. In this way, the project would adopt a flexible,demand-driven approach, responding to felt needs of beneficiaries. LGUs and ARCswould be required to comply with minimum standards to qualify for projectsupport. Proposed infrastructure requirements would also conform to specificeligibility criteria. LGUs would screen infrastructure proposals to determinethose worthy of further investigation. These eligibility criteria are presentedin Annex 4.2(c).

3.14 Designs would be undertaken by competent engineers and would conform toagreed technical standards, which would not fall below those of technical lineagencies. Improvements to barangay roads would include restoration of roadformation and width, and provision of a gravel-surfaced carriageway, drainagestructures, slope protection works and concrete pavements on steep sections.Materials and assistance would also be given for spot improvements to farm accesstracks which would be undertaken by farmers on a self-help basis. Irrigationimprovements would include headworks, intake structures, water conveyance canals,drainage channels, access roads and flood protection measures. Most irrigationdevelopment would benefit gravity schemes reliant on diversion of water fromperennial streams or rivers. However, small dams would also be considered forirrigation or rural water supply in upland areas without an alternative watersource. These small dams and associated reservoirs are referred to as SmallWater Impounding Projects (SWIPs).

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3.15 Support would be restricted to small irrigation schemes managed by farmerson a communal basis. Community infrastructure would include (i) rehabilitationor construction of drinking water supply schemes, both point sources and pipesystems; and (ii) development of multi-purpose buildings for community use. Theproject would give priority to rural access and communal irrigation, and tomaximize benefits, rehabilitation would take priority over new construction. Allinfrastructure investments would be technically sound and, with the exception ofcommunity infrastructure, would be economically viable. Proven labor-basedtechnology would be adopted wherever possible through local employment.

3.16 Operation and Maintenance. LGUs would be responsible for maintaining allbarangay roads improved under the project. A MOA between the Department ofAgrarian Reform (DAR) and LGUs (at provincial level) would ensure that adequateresources would be provided for ongoing road maintenance. LGUs in default ofmaintaining roads improved by the project would have to repay the grant or havethe grant converted into a loan to be repaid directly from their Internal RevenueAllotment (IRA) . For irrigation, the MOA between NIA and the IrrigationAssociation (IA) would require that the latter take full responsibility for theoperation and maintenance of completed irrigation facilities. However, majorrepairs, beyond the capability of IAs, would be carried out by LGUs with fullcost recovery. Drinking water supply schemes would adopt similar arrangementsbased on a MOA between LGUs and Waterworks and Sanitation Associations.

Agriculture and Enterprise Development

3.17 Scope and Obiectives. The objective of the Agriculture and EnterpriseDevelopment component of the project is to increase the family incomes ofbeneficiaries by providing economic support services and developing theindividual and collective capacities of the beneficiaries to undertakesustainable income-generating activities. It would build upon the increasedpotential commercial opportunities resulting from improved physicalinfrastructure.

3.18 Income-generating activities would be purposely market and private sector-oriented, with credit, farm inputs and technical support services directed atimproving productivity and ensuring ready access to viable outlets for theproducts of the beneficiaries and their cooperatives. An effort would also bemade to coordinate and integrate these activities with the overall agriculturaland economic thrusts of the Government, particularly with regard to ruraldevelopment, and with other programs for the development of ARCs.

3.19 The key agencies that would be involved in the component would be the LandBank of the Philippines (LBP), DA, Department of Science and Technology (DOST),Department of Trade and Industry (DTI), DAR and the NGOs/POs. Given thatagricultural enterprise programs are currently being provided by variousgovernment agencies, the main responsibility of the PEDA would be to ensure thatthese services are sufficiently and effectively channelled towards ARCs. Tomaximize the impact of this collaboration, the project would focus on theprovision of technical advisory services, farm extension, marketing assistance,and credit.

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3.20 Technical Advisory Services would initially focus on the refinement ofcommunity development plans of participating ARCs, as described in the CommunityDevelopment and Technical Support component. An evaluation would be made toidentify production, enterprise and other income-generating opportunities thatcan be feasibly undertaken by the beneficiaries and/or their cooperatives.Community development plans would include a time frame for the development ofincome generating activities, revised indicative budgets, and possible sourcesof funds. It would also account for possible integration of enterpriseactivities with other ARCs and cooperatives in nearby areas.

3.21 Technical advisory services would be directed at assisting cooperatives inevaluating commercial-scale business options, identifying market outlets, andpackaging proposals for external financing. This would involve opportunities forimproving farmers' incomes through improved primary farm production and otherincome generating activities such as processing, cottage industries, farmmachinery pooling, and other agribusiness concerns that exist within ARCs.

3.22 Farm extension would involve the dissemination of appropriate technologyand provision of technical assistance on the production of crops and otherproducts that have been incorporated in community development plans. Emphasiswould also be given to the promotion of post-harvest and processing technologiesthat would significantly improve the value added of raw farm products beforethese are sold in the market. Extension services would be provided by the LGUincluding technical training, on-farm demonstrations, printed and audio-visualmaterials, and radio programs. To the extent possible, private firms who enterinto marketing and other commercial ties with cooperatives would also beencouraged to provide extension services.

3.23 Marketing Assistance would be provided by the PEDA and DAR/FAO Investmentand Marketing Assistance Program (IMAP) and would include the identification ofmarkets for diversified crops and market outlets. Contract growing, marketingand/or joint venture arrangements between cooperatives and private investorswould be promoted through the conduct of investment fora and tours and thepackaging of investment proposals. An additional activity would be the provisionof accurate and timely markets. Efforts would also be undertaken to coordinatethe production and marketing activities within regional markets. Finally,dialogues and interaction among ARCs and other cooperatives would be undertakento ensure implementation and encourage business linkages aimed at achievingbetter economies of scale and maximizing credit usage among the groups.

3.24 Finance for expanded economic activities would be required for bothincremental real working capital and private investment in such items aslivestock, tree crop development, and buildings and equipment for agriculturalproduction, processing, marketing and other rural businesses. Availability offinance would be an essential ingredient of economic development; it would needto come from a combination of small farmers' equity, private investment by localentrepreneurs and credit. Formal Credit would mainly be provided by LBP undera prioritized program through its accredited local cooperatives. These wouldinclude adjustment of its eligibility criteria for newly accessing borrowers, andexpand the scope of its lending programs to accommodate long-gestating projects,NGOs and other non-traditional credit conduits, and non-ARB rural entrepreneurs

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and private investors. The credit program undertaken through the cooperativeswould incorporate both (i) a continuous savings generation and capital build-upcomponent among the farmers and their cooperatives, and (ii) a managementdevelopment program that would upgrade the capacities of the cooperatives inbusiness administration, project planning and evaluation, auditing, managementinformation systems, and internal control. In this connection, the CooperativeDevelopment Authority (CDA) policy of allowing only one cooperative per barangaywould have to be clarified and liberalized in case it hinders the formation anddevelopment of viable ARC cooperatives. DAR and LBP, and DAR and the CDA wouldenter into a MOA to these effects as provided for in the Operations Manual (para.4.7). At the same time, the DAR would encourage the utilization and mobilizationof existing cooperatives in or near the ARCs to accommodate the beneficiaries.

F. Estimated Proiect Costs and Financing

3.25 Total project cost over the six year development plan is estimated atUS$106 million or P3.3 billion, including a foreign exchange component ofUS$32 million or P1.0 billion (30%) . Taxes and duties (mainly VAT) estimated atUS$5 million are included in the total cost figure. Project costs include costsincurred by both GOP and by the beneficiaries themselves (including fundsreceived as credit for the economic development of the ARCs) . Within the projectcost table, training and support services costs for agriculture and enterprisedevelopment are included under Community Development and Technical Support.Project base costs were estimated using January 1996 prices obtained duringproject pre-appraisal mission. Physical contingencies equivalent to 10% havebeen added to the base costs for infrastructure works and agricultural andenterprise development; and 7% for community development and project management.Price contingencies were calculated on base costs plus physical contingencies andcompounded annually as follows: (a) for all local costs 11% for 1995, 8.5% for1996, 7% for 1997, and 6% for 1998 and 1999, and 5% thereafter7; and (b) for allforeign costs, the Bank's February 1996 estimates for the MEV index were usedviz: 2.4% for 1996 and thereafter. Total contingencies are equivalent to about36% of base costs in Peso terms, or 20% of total project costs in terms of USdollars. Estimates of project costs and the sources of financing are summarizedin Table 3.1 and detailed in Annex 2.

7/ The exchange rate used for base costs is P26 = US$1. Exchange rateis assumed to change over time to maintain purchasing power parity;consequently, price contingencies, initially calculated in localterms, have been converted to US$ using exchange rates that correctthe difference between the expected rate of domestic inflation andthe expected trend in world inflation.

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Table 3.1: Estimated Total Project Cost

... .US$ Million .... ... P Million...

Local FX Total Local FX Total

Community Development 5.1 1.3 6.4 133 33 166Infrastructure 31.3 16.9 48.2 815 439 1,254Agr/Enterprise 20.8 6.9 27.7 540 180 720Project Management 3.7 1.2 4.9 95 32 127

Base Costs 60.9 26.3 87.2 1,583 684 2,267

Physical Contingencies 5.8 2.5 8.3 150 66 216Price Contingencies 7.1 3.1 10.2 550 238 788

Total Costs 73.8 31.9 105.7 2,283 988 3,271

3.26 Proposed Bank financing would comprise US$50 million or 47% of projectcosts, US$46 million of which would be to finance part of the cost of ruralinfrastructure, and US$4 million for part of the project management cost.Project beneficiaries would provide about US$20.1 million (19%), including partof the cost of infrastructure as well as a significant proportion of theincremental investment in agricultural and enterprise activities, both directlyas individuals and through their cooperatives and other local basedorganizations. About US$20.4 million (19%) would be extended by the Land Bankof the Philippines (LBP) or other financing institutions such as QUEDANCOR, whowould channel funds to beneficiaries largely through ARC based cooperatives foragricultural and enterprise investments. LGUs would provide US$4.6 million (4%)from their own resources, and US$10.7 million (10%), which may be reduced bydonors' participation in community development costs, would be provided throughDAR. Estimates of project cost and sources of financing by component and yearare summarized in Tables 3.2 and 3.3 below.

Table 3.2: Financing By Component - With Contingencies (US$ Million)

ARCs LGU DAR LBP IBRD Total Percent

Community Devt & TS 1.5 - 6.0 - - 7.5 7.2%

Infrastructure 6.2 4.6 1.8 0.2 46.0 58.8 55.6%Agr/Enterprise Devt 12.4 - 1.0 20.2 - 33.6 31.7%Project Management - - 1.8 - 4.0 5.8 5.56

Total Costs 20.1 4.6 10.6 20.4 50.0 105.7 100.0%Percent Financing 19.0% 4.3% 10.1% 19.3% 47.3% 100.0%

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Table 3.3: Phased Project Cost and FinancingWith Contingencies (US$ Million)

Year 1 2 3 4 5 6 TOTALBy Component

Community Devt & TS 0.4 1.4 1.7 1.5 1.4 1.1 7.5Infrastructure 2.7 8.4 11.5 14.8 12.1 9.3 58.8Agr/Enterprise Devt 3.2 4.8 6.6 8.5 6.9 3.6 33.6Project Management 1.0 1.1 0.9 0.9 0.9 1.0 5.8

By Financing Source

ARCs 1.5 3.0 4.0 5.0 4.1 2.5 20.1LGU/GOP 0.2 0.7 0.9 1.2 1.0 0.6 4.6GOP/DAR 0.8 1.8 2.2 2.2 1.9 1.7 10.6LBP 2.0 2.8 4.0 5.1 4.2 2.3 20.4IBRD 2.8 7.4 9.6 12.2 10.1 7.9 50.0

Total By Year 7.3 15.7 20.7 25.7 21.3 15.0 105.7

3.27 The sharing of project cost between the participants is in line withcurrent practice in the Philippines for these types of activities. To permit theproject to be incorporated within the 1997 budget and each year thereafter, thewhole of the project cost contributed by or through GOP (including that drawndown under the World Bank loan) would be under DAR appropriation, but either usedby DAR directly, or allocated to MDF or NIA, as appropriate (for detail, seeparas. 4.28 and 4.29). Substantial cost recovery by project beneficiaries isprovided for irrigation, agricultural production, and enterprise developmentfinancing. Agrarian Reform Beneficiaries (ARBs) however, are among the poorestsegment in the rural areas and further expanding the cost recovery to otherproject activities seems to be inappropriate, particularly as ARBs would berequired, under the project, to participate either in the form of labor andmaterials or cash in financing the works related to road rehabilitation andreconstruction.

G. Procurement

3.28 Procurement of all goods, works, and services financed under the Bank loanwould be carried out in accordance with Bank procurement guidelines ("Guidelinesfor Procurement under IBRD Loans and IDA Credits" of January 1995 updated inJanuary 1996, and "Guidelines for the Use of Consultant by World Bank Borrowersand by the World Bank as Executing Agency" of August 1981). Procurementassociated with rural infrastructure would be undertaken by LGUs and supervisedby the Central Project Office (CPO) for roads and community infrastructure, andby NIA for irrigation. NIA has satisfactory experience of procurement under Bankfunded projects. DAR through the CPO would be the responsible agency forprocurement under the Community Development and Technical Support and ProjectManagement components, while for agriculture and enterprise development,procurement would be undertaken directly by project beneficiaries and their

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cooperatives, supervised in those cases where credit is involved by LBP. Foreignbidders are eligible to participate in National Competitive Bidding (NCB). Theproject expenditure items, their estimated costs, and proposed methods ofprocurement are summarized in Table 3.4 and discussed below.

3.29 Procurement arrangements are summarized as follows:

Table 3.4: Summary of Proposed Procurement Arrangements(US$ million equivalent)

Procurement Methods TotalProject Element NCB Others a/ NBF Cost

Civil Works 31.6 27.2 58.8(28.4) (17.6) (46.0)

Vehicles and equipment for CPO 0.5 - 0.5(0.4) - (0.4)

Consultancy/Prof. Staff (CPO) - 3.0 3.0(3.0) (3.0)

Other Costs (CPO) 2.3 2.3(0.6) (0.6)

Farm Inputs/Livestock/Equipment/Minor Works - 33.6 33.6& Working Capital Items

Community Development & TSTraining & Support Services - 3.7 3.7- Travel, Subsistence & Others - 3.8 3.8

Total 32.1 32.5 41.1 105.7(28.8) (21.2) (50.0)

a/ Includes force account, national shopping, simplified procurementprocedures for small works, and consulting services, training, and otherservices. It also includes commercial practices by beneficiaries.

Note: Figures in parentheses are the respective amounts financed by the BankLoan.N.B.F. Not Bank-financed

3.30 Civil Works. As no contract is likely to exceed US$2.5 million and ascontracts of lesser value are unlikely to attract international bidders,International Competitive Bidding (ICB) is not applicable under the project.Therefore other procurement procedures (see below) would be used. Foreigncontractors and in some areas local contractors are not likely to be interestedas most rural infrastructure activities would be small-scale, widely scatteredover the country, and, in several instances, located in remote areas, and would

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likely follow current practice of using labor intensive methods to generateemployment in local communities. NIA has considerable experience with this,using both force account and sub-contracted piecework arrangements with farmers.Activities which require a concentration of effort, such as drainage and slopeprotection structures, would be constructed under local contracts. More complexstructures such as bridges, causeways or irrigation headworks, estimated to costUS$31.6 million, would be awarded on the basis of NCB procedures acceptable tothe Bank. Construction materials would also be procured in this way. Overallabout US$31.6 million of civil works would be procured through NCB; about US$6.9million by force account (Force Account for all infrastructure work excludingirrigation, would require Bank's prior approval and would be used only if LGUcapacity to undertake this work were confirmed by the CPO and if localcontractors were more expensive or not interested, particularly in cases of smalland scattered works in remote locations for which qualified construction firmswould be unlikely to bid at reasonable prices); about US$15.2 million of verysmall value of contracts (less than US$100,000) which may only interestcontractors in their vicinity, would be awarded through simplified procurementprocedures similar to National Shopping applying Government procedures bycomparing at least three price quotations to be obtained from small contractorswithin the locality; and the balance of about US$5.2 million, which would becontributed by beneficiaries in the form of labor and local materials would beprocured by them under normal commercial practices. Beneficiaries contributionwould ensure sustainability through community ownership and therefore adequatemaintenance.

3.31 Goods. The estimated cost of goods (mainly vehicles, office equipment andcomputers) is US$0.5 million inclusive of contingencies, taxes and duties.Contracts of over US$200,000 equivalent would normally be procured through ICB.However, it is unlikely that any contract would exceed US$200,000. Purchases ofgoods valued at less than US$200,000 but above US$100,000 would be procuredthrough NCB procedures acceptable to the Bank. Whenever possible, purchaseswould be grouped into packages of at least US$100,000. Time phasing of project'sneeds suggest that about four such packages in the aggregate amount of aboutUS$0.5 million, would be expected under the project for vehicles and officeequipment in years one and two. However, goods valued less than $100,000 wouldbe procured through national shopping by comparing at least three pricequotations. A margin of preference of 15% of the c.i.f. bid price or actualcustom duties, whichever is less, would be allowed to domestic manufacturers.Agricultural inputs, and other items procured by project beneficiaries as partof the Agriculture and Enterprise Development component of the project, estimatedat US$32.6 million, would follow normal commercial practices. A small proportionof about US$1 million of incremental agricultural investment would be in the formof seeds, fertilizers, and other materials distributed by Government undervarious assistance programs, would be procured through National Shopping withprice quotations of at least three domestic suppliers.

3.32 Consultancy, Traininc and Other Services. Procurement of consultancyservices, training inputs and NGO support would be done in accordance with Bankguidelines for the selection of consultants and the contracting would follow BankStandard Form of Contract for Consultants' Services. About US$3 million wouldbe for individual consulting contracts to provide for those CPO positions not

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filled by secondment or internal reorganization, and US$3.7 million, administeredby the CPO, for contracting NGOs and other service providers to ARCs on aprovince by province basis.

3.33 Procurement of miscellaneous items including support staff, travel,lodging and subsistence, office supplies and utilities for both the CPO (US$2.3million) and the Community Development and Technical Support component (US$2.4million), would follow normal government procurement procedures, which havealready been used on many other Bank projects in the Philippines and found to besatisfactory. Beneficiary contributions to the Community Development andTechnical Support component amounting to about US$1.5 million would be self-supplied or be procured using normal commercial practices.

3.34 Procurement Review. Procurement packages for goods and works are valuedat a level below the experimental prior review threshold for the Philippines,which was set at US$1 million and US$5 million, respectively. However, the firstthree contracts for works, goods, and NGOs in amount below these thresholds, ineach implementing year of the project, would be subjected to Bank's prior review.Other contracts for goods and works would be reviewed by the Bank on a samplebasis, subsequent to their award. The sampling ratio to be used in such postreview would be 25% in the first year of the project, 20% in the second and thethird years, 15% in the fourth year, and 10% in next two years. All CPO'sconsultant selection arrangements and contracts that are estimated to cost morethan $100,000 for firms ($50,000 for individuals) would be subject to Bank'sprior review.

H. Disbursement

3.35 The proposed Bank loan would be disbursed over a period of six years,during Bank FY97 through 2003. The disbursement estimate is based on experienceand pattern of other agricultural projects in the Philippines and the Region.Disbursement schedule is presented in Annex 3. The Bank loan disbursement wouldbe at about 47% of total project expenditures. The expected Loan Closing Datewould be December 31, 2003, a year after project completion, to allow adequatelag time for releasing contractors' retention and processing withdrawalapplications. Disbursement of the loan proceeds would finance infrastructureinvestments, and project management activities. The Bank would finance (i) about90% of civil works and irrigation costs (excluding ARCs' contribution), whichwould cover the whole of the 'grant element', net of tax, and part of the LGU'scontribution for roads and community infrastructure; and (ii) 100% of someelements of: (a) project management costs, specifically the cost associated withcontracted professional staff (consultants), and the respective incrementaloperating costs, including CPO vehicles operating costs, CPO staff travel andsubsistence, and CPO office supply; and (b) cost of project management trainingand seminars.

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3.36 Reimbursement and disbursement applications for expenditures would beconsolidated by the CPO and forwarded to the Bank. Disbursement for NCB civilwork contracts would be through reimbursement to MDF on the basis of payments tocontractors and certification of completion. Disbursement for all expenditureswould be based on full documentation except for actual expenditures of: Ci) smallcivil works amounting to less than the equivalent of US$5 million; (ii) worksunder force account and training; (iii) purchases of goods duly batched and yetless than US$1 million equivalent; and (iv) operating or maintenance costs; and(v) expenditures under contracts for consulting firms below US$100,000 equivalentand contracts for individual consultants below US$50,000 equivalent, which wouldbe made on the basis of Statement of Expenditures (SOEs). All supportingdocuments for (i), (ii), (iii), (iv) and (v) above would be held by therespective LGU office and/or the Central Project Office (CPO) - All disbursementapplications for force account and piece-work through SOEs would be based onproper cost accounting, and would refer to physical progress of the related work.Retroactive financing of up to US$1 million equivalent is also proposed foreligible expenditures associated with the establishment of the CPO, to fund thecontracting of CPO's professional staff, training, and operating costs incurredafter August 1, 1996.

Table 3.5: Summarv of Disbursement Categories

Amount of the Loan % ofAllocated (US$ million Expenditures

Categorv Equivalent) to be Financed

1. Civil Worksla. Farm to market Road 90% of cost

and Other Comm. Infra. 22.4 excludinglb. Irrigation 15.3 beneficiaries'

contributionsTotal Civil Works 37.7

2. Vehicles, Equipment, and Office 100% of foreignfurniture 0.4 and office furniture

expenditures and100% of localexpenditures (ex-factory) and 90%of local expendi-tures for otheritems procuredlocally

3. CPO Operating Costs 0.5 100%

4. Consultants' Services 2.5 100%

5. Unallocated 8.9

Total 50.0

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Special Account

3.37 GOP would establish a Special Account in accordance with Bank guidelinesfor carrying out project activities and to facilitate rapid disbursement of theBank loan. An initial deposit of US$2.0 million would be made by the Bank intothe Special Account, representing about 25% of the expected first yeardisbursements. Withdrawal from the Special Account would be fully accounted forby expenditures eligible for Bank funding under the project terms and conditions.The borrower would open and maintain in US Dollars a Special Account in acommercial bank specifically authorized for this purpose by the Bangko Sentralng Pilipinas (BSP) and approved by the Bank. Applications for replenishment ofthe Special Account supported by appropriate documentation, would be submittedregularly (preferably monthly, but not less than quarterly) or when the amountswithdrawn equal 50% of the initial deposit.

I. Accounts and Audit

3.38 All Government (National and Local) agencies accounts are subject, by law,to an annual audit by the Government's Commission on Audit (COA) . Therefore, theproject's accounts including its Special Account would be audited annually byCOA. Separate project accounts indicating the various sources of funds receivedand expended (by project component and ARC) would be maintained by the CPO andthe respective LGU office (for its ARCs), ensuring that proper accounting andauditing procedures are followed. As part of the audit process, the projectannual financial statements, together with the related auditor's report andopinion, as well as the auditor's separate opinion on the project statement ofexpenditures would be sent to the Bank within six months of the close of eachfiscal year. Assurances to this effect were obtained during negotiationsconcerning the above accounting and auditing arrangements [para. 6.1(a)].

IV. PROJECT IMPLEMENTATION

A. Design Consideration

4.1 The organizational and management design of the project is based on theneed for effective coordination, efficient utilization of resources andperformance - oriented control to ensure its success. It is consistent with andsupportive of government policies on devolution and people empowerment and thus,recognizes that the barangay level community organizations and population are thecore of ARC operations. It maintains DAR's role as the key implementing agencyfor agrarian reform. It provides for effective collaboration of efforts andresources of government, non- government, peoples' organizations and theprivate sector. The design further recognizes that the project is complex dueto the involvement of several entities and the fragmentation of criticalactivities that need to be effectively orchestrated. Key considerations are themanagement system's institutionalization, sustainability, ease, and flexibilityin project operation. It therefore attempts to simplify, adopt and or adaptexisting systems and procedures within the existing legal framework.

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4.2 Given the project components, the design assumes the following: (a) theLGUs are the key direct implementors of the project with regard to the basicinfrastructure and agricultural extension; and (b) DAR remains the leadcoordinator for agrarian and related development efforts.

B. Organization and Management

4.3 Oversight responsibility for the project would rest with DAR. A highlevel Project Management Board (PMB) chaired by DAR would be established andwould comprise representatives of DOF, NEDA, DBM, DA, NIA and LBP; the CPOdirector would serve as the PMB secretary. The PMB would provide policy guidancefor the implementation of the project and approve the annual plan for the variouscomponents. It would be assisted by a Central Project Office (CPO) which wouldbe set up at DAR. The CPO, reporting directly to DAR through the PMB, wouldmanage, monitor, evaluate and coordinate all project activities and components.It would be responsible for sub-project approval and supervision, budgetpreparation, consolidation of accounts, procurement and disbursement. It wouldliaise with BLGF on MDF matters; LBP for credit operations; and with relevant GOPagencies such as DBM, DOF, DTI, NIA, DPWH, DA, BSWM, LGUs and others as required.More details regarding the CPO, its structure, terms of reference of the CPO'skey positions, and the project organizational chart are presented in Annex 4.The establishment of the PMB and the CPO with functions and responsibilitiesacceptable to the Bank would be a condition of loan effectiveness [para.6.2(a)J.

4.4 To effectively undertake its task, the CPO would maintain high levelprofessional staff with competence in sub-project investment appraisal, planning,budgeting and financial processing, monitoring and evaluation and ruralinfrastructure engineering. In all it would comprise about 45 staff: ten highlevel professional staff, ten Provincial Economic Development Advisors (PEDAs) -one for each participating province - and about 25 support staff. The appointmentof suitable persons with qualifications and experience acceptable to the Bankto fill the following positions: (a) project director; (b) chief of projectfinancial and administrative unit; (c) chief of the M&E unit; (d) chief economistto head the sub-project appraisal unit; and (e) chief rural infrastructureengineer would be a condition of loan effectiveness [para.6.2(b)].

4.5 The CPO would be responsible for the preparation and the implementationof the project training and technical assistance program with the objectives ofsupporting sustainable operations of the ARCs and the implementation and themaintenance of their development plans. The preparation of the training and TAprograms would be completed and updated annually. At negotiations assuranceswere obtained that the training and TA be carried out in accordance with aprogram satisfactory to the Bank and that the annual training programs would befurnished to the Bank for review by November 15 of each year Eparas. 6.1 (b)].

4.6 At the provincial level, an existing CARP Officer (CARPO) would bedesignated as the Provincial Project Coordinator, reporting directly to the CPO.Under the supervision of the CARPO, the municipal Agrarian Reform Officer (MARO)would supervise Development Facilitator (DFs) and coordinate with agencies at themunicipal and provincial level. At the ARC level, coordination of various

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project activities would rest with the DF who prior to project start-up, wouldhave been trained in effective project coordination and management. The DF wouldbe supported by an NGO community development worker, where available. They wouldfacilitate community participation by linking various interest groups to themunicipal LGU concerned for agricultural extension, social, infrastructure andother services; to the LBP field offices or branches for credit, and to otheragencies for other required services.

C. Operations Manual

4.7 Project implementation would be governed by an operations manual coveringeligibility criteria, cost sharing arrangements, approval procedures, fund flows,and organizational arrangements, reflected in Memorandum of Agreements (MOAs)between DAR and the various participating agencies such as DOF for MDF, DA forNIA, LBP and LGUs. A draft of this manual has been reviewed by Bank mission andGovernment officials (representing various agencies) and a revised draft wasprepared. The final manual would he jointly approved by the PMB and the Bank, andits adoption and implementation would be a condition of loan effectiveness {para.6.2(c)]. During negotiations, agreements were reached on (a) the inclusion ofthe key policy and procedural issues in the manual and (ii) that the OperationalManual would not be revised without prior consultation with and approval of theBank [para. 6.1 (c)]. Subject to agreement by DAR and the Bank, the manual wouldbe periodically updated to reflect necessary policy and operational changes.

D. Selection of Proiect Area

4.8 The project would finance about 100 ARCs in about ten provinces (para.3.3) over a period of six years. Provinces which are funded under the AgrarianReform Support Project (ARSP), the Belgium Agrarian Reform Support Project(BARSP), and those with three or more sites funded under the Agrarian ReformInfrastructure Support Project (ARISP) are excluded. Further, provinces whichhave related projects funded by the European Union (EU), Dutch Government, AsianDevelopment Bank (ADB), US Agency for International Development (USAID) andothers are also eliminated. The selection of participating provinces would bebased on their land distribution accomplishment (minimum of 70% of the totalprovincial scope and at least 20,000 hectares of land distributed). The finalselection of around ten provinces was dependant on the LGU's willingness andfinancial capability to participate in the project given the Local GovernmentCode's (LGC) provision that debt service of LGUs should not exceed 20% of theirInternal Revenue Allotment (IRA) and their commitment to provide adequateagricultural extension services to the ARCs in their area, and the numbers ofpotential ARCs in their province.

4.9 From the participating ten provinces, about ten ARCs have been selectedfor project implementation in the first year. This approach is intended to gaina more in-depth insight into ARC's operations to minimize costly mistakes inhandling a larger number of ARCs at the project's initial stage. Prior toproject implementation, preparatory activities to upgrade their plan would beundertaken by DAR and the concerned LGUs, with the support from FAO-TSARRD. This

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arrangement is expected to considerably improve the capability and absorptivecapacity of the selected ARCs.

E. Eligibility Criteria

4.10 Preliminary eligibility criteria for the selection and assessment ofprovinces, ARCs, LGUs, NGOs and infrastructure requirements are presented inAnnex 5. These criteria are based on the following considerations: (i) criteriafor ARCs selection which include: (a) LGUs capacity and willingness to adequatelysupport the participating ARCs in their jurisdiction areas (para. 4.8); (b)organizational maturity of the respective ARC; (c) potential of project impactin terms of economic and financial benefits to the respective ARC's members asa result of project intervention (mainly rural infrastructure sub-projects suchas irrigation systems and access roads); and (d) availability of technicalsupport in the area who can provide support to ARCs such as NGOs, academicinstitutions, and other technical agencies; (ii) criteria for accrediting partnerNGOs which would concentrate on their stability and capacity to manage andimplement the proposed project activities, including community training, fundmanagement, supervision, and monitoring and reporting; (iii) criteria for sub-project (mainly infrastructure investment) approval would focus on technical,economic, and financial viability (paras. 4.21 and 4.22) . To ensure sufficientflexibility during implementation, these criteria would be subject to periodicreview, and modified to reflect operational experience. Significant changeswould require approval of both DAR and the Bank.

F. Details of Individual Component Implementation

Community Development and Technical Support

4.11 For the community development sub-component to be effective, it mustaddress the constraints faced by the beneficiaries (described in para 2.14) tothe fullest extent possible. A high degree of input in all categories isrequired in order to bolster the impact and sustainability of the othercomponents and the work of other agencies within the targeted communities. Theimprovement of community participation in planning, implementation, andmaintenance would be critical to the success of the project. Therefore, fullcommunity support and cooperation for project activities would be generated. Asa demand-driven project design, it is imperative to identify the communitydemands. These are currently expressed in generalized terms by a five-yearcommunity development plan. Whilst the plans provide an indication of communityneeds, there is little detail on community priorities and specific requirements.The community participation interventions would strive to increase the number ofbeneficiaries involved in the planning process, conduct pre-feasibility exerciseson priority activities, produce resource profiles, and would assist the communityto develop an annual action plan.

4.12 The component would mainly draw on available resources from DAR, NGOs, andother resource organizations but would also provide additional training to bothDAR and NGO field staff where necessary. This support would be supplemented by

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a community development specialist in the CPO and the Provincial EconomicDevelopment Advisors (PEDAs), who would be the technical counterpart to the CARPOat provincial level. The PEDA would be responsible for facilitating the supplyof technical and extension services from LGU, and the respective CARPimplementing agencies; coordination between NGOs, DAR, LBP and other projectsresources in the province; assisting with project training programs andworkshops; and providing direct business management advice to ARC organizations.

4.13 As government planning functions have been devolved to the LGUs with theinstitution of the Local Government Code, community development plans would beforwarded to the LGU to be incorporated into barangay, municipal and provincialplans, thus increasing the voice of the ARCs at LGU level, allowing maximumcoordination on the use of scarce resources, avoiding duplication and providinga basis for monitoring and evaluation.

4.14 The LGUs would play a pivotal role in the project. Community developmentplans would be channelled through the Municipal and Provincial CARP ImplementingTeams (MCIT & PCIT, respectively) and the local development councils (barangay,municipal, province and the region) . Project implementation would be coordinatedthrough these bodies. The LGUs' support is also critical for obtaining fundingfor the ARCs as their commitment to financial contribution would be a requirementfor ARC selection. The Municipal Development Officer (MDO) would also workclosely with the Municipal Agrarian Reform Officer (MAROs) to coordinatedevelopment activities in the municipality.

4.15 The project is designed to maximize effective cooperation between NGOs,ARCs and DAR. Operating Memoranda of Agreement (MOAs) would be drawn up betweenDAR and NGOs at provincial level according to a mutually agreed program of workbased on provincial priorities. More details regarding this component ispresented in Annex 6.

4.16 Selection of Partner NGOs. Partner NGOs for the project would operate atprovincial and/or local level. The selection process would be concentrated atthe provincial level but DAR central office and the CPO would also be consultedbefore final selection. For the project, NGOs would be required to fulfillselection criteria as detailed in Annex 5(b).

Rural Infrastructure

4.17 At central level (CPO), a Rural Infrastructure Engineer, assisted by twoother engineers, one for irrigation, and one for roads would be responsible forcoordination and management of the rural infrastructure component. At provinciallevel, responsibility for implementation would be with: (i) LGUs for rural accessand community infrastructure; and (ii) the National Irrigation Administration(NIA) for irrigation development. At provincial level, each agency woulddesignate an engineer to take responsibility for project infrastructureactivities. MOAs between DAR, LGUs and NIA would detail the individualresponsibilities of each agency, as provided for in the Operations Manual.Arrangements concerning rights of way for roads, irrigation schemes and otherinfrastructure would be handled within the ARCs at a community level. Therewould be no acquisition of land by either the National or Local Government under

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the project. Compensation to persons affected by rural infrastructure sub-project would be settled internally by the community in accordance withprinciples acceptable to the Bank which would be reflected in the project'sOperations Manual; and assurances to these effects were obtained at negotiations[para. 6.1(d)). Initial investment proposals would be screened at the provinciallevel, with support from the CPO as required prior to detailed preparation.

4.18 Rural Access and Community Infrastructure would be implemented by LGUsthrough their engineering offices at provincial and municipal levels. If needed,support services would be contracted from the private sector or technicalagencies such as the Department of Public Works and Highways (DPWH) . LGUs wouldprepare costed designs for submission to CPO for technical evaluation andapproval. Rural access would also be subject to economic justification. Wherefeasible, the project would require the use of competent local contractors. Inthe absence of contractors, LGUs would undertake works directly under forceaccount through contracts, negotiated with CPO. Maintenance of barangay roadsis important, and would be included in the MOA between DAR and LGUs. LGUs indefault of maintaining roads improved by the project would have to repay thegrant or have the grant converted into a loan, to be repaid directly from theirIRA. This would be covered in a provision of the grant agreement. For drinkingwater supply, LGUs would follow a participatory approach to ensuresustainability.

4.19 Irrigation would be implemented by NIA through their provincial offices.NIA would prepare costed, and economically justified proposals for submission toCPO for evaluation and approval. The project would require the use of localcontractors for irrigation headworks and other large structures. Remaining workswould be undertaken directly by NIA, through contracts negotiated directly withCPO. An Irrigators' Association (IA) would be formed to ensure the participationof beneficiaries from the outset.

4.20 LGU Capability. As rural access and community infrastructure activitieswould be the responsibility of LGUs, they would be required to comply withminimum standards to qualify for project support. The CPO would conduct athorough evaluation of relevant LGUs to determine their technical, administrativeand financial capacity to undertake the proposed activities and takeresponsibility for subsequent maintenance.

4.21 Approval Process for Rural Infrastructure Activities. A two-stage processwould be adopted for selection and approval of infrastructure proposals eligiblefor project support. First, following the participatory planning process,proposed infrastructure requirements would be submitted by the MARO and ARCrepresentatives to the Municipal Development Council for technical consideration.After preliminary investigation by LGUs or NIA, further surveys and detaileddesign would then be carried out by technicians from the respective agencies orthe private sector, if required. Second, completed designs, costs and estimatedbenefits would be reconfirmed at the field level, and then submitted to the CPOfor appraisal and approval of the technical, environmental, financial, economicand administrative feasibility of proposals. Bank concurrence would be requiredfor all sub-projects' infrastructure investment above US$300,000 equivalent.

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4.22 The criteria for selection of rural access works would include linkage ofat least one ARC barangay to an existing all-weather road, and/or linkages toother barangays. Road-works would concentrate on improvements to existing roads,technical specifications would conform to agreed standards and benefits wouldgenerate an acceptable economic rate of return. The preparatory cycle wouldnormally require about eight months. For irrigation, selection criteria wouldrequire that at least 80% of the irrigated service area would fall within theselected ARC, an 80% probability of sufficient water and, an acceptable economicand financial rate of return. For new irrigation, this preparatory work wouldrequire about 24 months, including confirmation of water resources. Forrehabilitation, about eight months would normally suffice. More details relatedto the component is presented in Annex 7.

Agriculture and Enterprise Development

4.23 The component would utilize the existing resources and implementationstructure of DA, LBP, LGUs and other support institutions. The CPO would beresponsible for coordinating all activities related to this component at thenational level, including the finalization of MOAs and similar agreements withrespect to allocation of funds, personnel, roles and responsibilities among co-operating agencies at the national and local levels. At the Provincial level,the PEDA and the CARPO would act as coordinators between the ARC, LBP and thesupporting organizations.

4.24 Support for agriculture production and related activities would beobtained through the DA's Key Production Area (KPA) program and the agriculturedevelopment offices of participating LGUs. Farmer training and support needs foreach ARC would be identified through the FAO-TSARRD Farming Systems DevelopmentProgram. DAR field staff and LGU extension workers would also participate in theFarm System Development (FSD) program which will in turn result in improvedagricultural services to the ARC. The DA's research and training programs andnetwork would be utilized to provide more specialized training for LGU extensionworkers. Other services accessed through DAR, DA and DENR would be provision ofimproved seeds and planting materials, agricultural inputs and assistance withlivestock breeding and health.

4.25 Investment and marketing assistance would be augmented by the PEDA and theprovincial-level of the Investment and Marketing Assistance Program (IMAP) unitsbeing developed by DAR, LEP and FAO-TSARRD. Services would include businesslinking opportunities, financial assistance for product research and development,and sponsorship of visits to potential market outlets, such as fairs or majordistributors. The PEDA and CARPO would assist the ARCs in accessing marketinformation from ongoing programs of the Bureau of Agricultural Statistics (BAS).

4.26 Enterprise development support would primarily be the responsibility ofthe PEDA in conjunction with LBP and other existing support organizations suchas DTI and NGOs. During the ARC planning process advice would be provided on theenterprise proposals of the POs. Where required, the PEDA would conduct detailedfeasibility studies or arrange for studies to be conducted by suitably qualifiedinstitutions/individuals. Training would be provided on book-keeping and other

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aspects of enterprise development through the community development and technicalsupport component.

4.27 For credit services, the LBP would prioritize lending to target ARCs,adjust eligibility criteria for newly accessing borrowers, and expand the scopeof its lending programs to accommodate long-gestating projects, NGOs and othernon-traditional credit conduits, and non-ARB rural entrepreneurs and privateinvestors. The PEDA, DAR staff and LGUs would be instrumental in introducingpotential borrowers to the financing institutions but all lending would besubject to the terms and conditions required by the relevant institutions.

G. Financing Arrangements

4.28 Arrangements for cost sharing between project's participants and flow offunds under the project would adopt the current practice in the Philippines, andnormal government, MDF and LBP systems for disbursements and reimbursements,respectively. Systems of financing and cost sharing by component are set outbelow:

Community Development would be financed directly from DARbudget, with ARC beneficiaries bearing part of the cost oftraining courses through contributions to travel and foodcosts.

Irrigation would be implemented by NIA, following theirstandard practice for communal schemes. MDF would releasefunds to NIA against an agreed work schedule using fundswhich would be initially sourced from ARF. Statements ofexpenditure (SOEs) would be issued by NIA to DAR as a basisfor the subsequent stage payments on any individual scheme.The non tax elements of these expenditures would be covered100% from the Bank Loan, being disbursed against the SOEs.On completion of individual contract(s), the ARF funds, whichwould have been used essentially to pre-finance NIA'soperations would be recycled into a Trust Account heldwithin LBP. Irrigation beneficiaries, who would be formedinto lAs, would contribute 10% of the scheme constructioncost initially, and would pay the remainder back to NIA over50 years (without interest).

Access Roads and Community Infrastructure would beimplemented by LGUs and standard financing conditions forless developed areas would apply. Under the presentarrangements, access roads would receive 80% - 906 grant,depending on LGU status, while the grant element forcommunity infrastructure would be 70% for rural watersupplies and 30% for multipurpose buildings. The amounts notcovered by the grant would be financed partly by ARCbeneficiaries' contribution and partly by the LGU, eitherusing its own budget resources, or borrowing from the MDF

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under standard MDF terms. The loan/equity mix would dependon the availability of the LGU's own resources. Repaymentsof the sub-loan element by the LGU to MDF would be retainedand revolved by MDF for similar purposes. The grant elementwould be administered by either MDF or DAR. The Bank Loanwould finance 100% of the non tax element of both the grantsand the loans to LGUs, with disbursements mainly againstSOEs.

Agriculture and Enterprise Development would be financedpartly by beneficiaries themselves, partly through LBP loans,via the cooperatives and partly through ongoing GOP agencyprograms such as the 5-25-70 program. The Bank Loan wouldnot be disbursed against this component.

- Proiect Management This would be financed by DAR and theBank. The Bank Loan would cover the cost of professionalservices (including contract staff for the CPO), equipment,vehicles, and associated operating costs and TA (net of anytaxes or duties). The balance would be financed through GOPvia DAR's budget (seconded CPO staff, office space andutilities, field staff supporting the ARCs in the regionaland provincial offices, municipal staff travel andsubsistence).

4.29 Funds for project management which consist of loans proceeds and ARFallocations would be channelled to the CPO through the MDF. The funds flow wouldrequire careful coordination by the CPO to ensure that funds from various sourcesare available at the time, place and quantity required by the ARCs' sub-projects.Effective coordination would minimize costly project delays and commitment feesaccumulation.

H. Monitoring and Evaluation and Report Recauirements

4.30 To monitor project implementation, and evaluate its performance, amonitoring system would be set up under the detailed guidance of the Monitoringand Evaluation (M&E) specialist in the CPO (A chart indicating major items ofinformation to be monitored is given in Annex 8). Field data for the ARCDPmonitoring and evaluation system would be channelled through four differentsources (see below) . In addition, Bank supervision would be carried out on aregular basis and would include periodic reviews with DAR and other nationalimplementing agencies on all project activities (a project supervision plan ispresented in Annex 9). Progress reports would be produced every six months by theCPO and discussed at workshops in order to evaluate and disseminate lessonslearned and institute corrective measures. The CPO would also be responsible forthe preparation of an annual review of all project components and the preparationand submission of an Implementation Completion Report to the Bank within sixmonths of the closing date of loan disbursement. Assurances to these effects wereobtained at negotiations [paras. 6.1(a) and 6.1(e)].

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(a) DAR network would provide on a monthly basis, basic statistics onprogress according to the ARC action plans and of NGO support inrelation to the project MOAs. Information collected by the DF wouldbe channelled via the MARO to the CARPO-BDCD and then to the CPO.

(b) FAO-TSARRD would generate baseline surveys during the FSD program.The survey would be repeated as part of the mid-term and finalevaluations. FAO-TSARRD also, as standard procedure, producesratings of the ARC organizations every six months. Data gatheredby FAO-TSARRD would be forwarded directly to the CPO with a copy toDAR central office.

(c) Physical progress of the infrastructure works and credit would beavailable from the LGUs and DAR's Provincial office or theimplementing agencies, such as MDF, NIA & LBP. LBP would providethe CPO with quarterly reports on credit extended to thebeneficiaries, amounts outstanding, repayment performance andportfolio quality (aging of past dues) . Similarly, MDF wouldprovide quarterly reports on the disbursements of loans and grantsto the LGUs, NIA, and the CPO. Physical progress data would beprovided directly to the CPO on a monthly basis and would bemeasured according to the MOA governing each separate sub-component.

(d) CPO staff field reports and special interest studies initiated bythe CPO/DAR would serve to substantiate/identify discrepancies andgaps with data collected through other sources

4.31 Key Performance Indicators would be centered around trying to measure (i)the increase in beneficiary household income attributable to the project; and(ii) sustainability. Sustainability would include (a) increased capability andindependence of POs, (b) increased support for the ARCs from the LGU andcorresponding improvement in the civic responsibility shouldered by thebeneficiaries, and (c) continuing maintenance of infrastructure and enterprisesassisted under the project. Some of these items are difficult to measuredirectly, or cannot be easily assessed as part of a regular reporting system andso proxy indicators need to be tracked. Key performance indicators proposed(detailed in Annex 8) are as follows:

Indicators which would be maintained and updated on a regular basis:

(a) Number of participating ARCs (an indication of project coverage);

(b) length and cost of roads rehabilitated and reconstructed (a proxyfor decrease in transportation costs and improved access);

(c) area and cost of new and rehabilitated irrigation (a proxy forimprovement in the agricultural resource base);

(d) change in OMA Ratings of Organizations within participating ARCs (aproxy for strengthening of ARCs and sustained impact); and

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Indicators to be assessed annually:

(e) Change in cropping intensity on irrigated areas (a proxy forincreased agricultural production); and

(f) quality of road and irrigation maintenance and their financing(indicator of sustainability of rural infrastructure).

Indicators to be assessed from baseline and subsecuent surveys:

(g) Level of business assets in ARCs - livestock, machines, permanentcrops, business premises (this would provide an ex post assessmentof the level of investment in agriculture and other enterprises andgive an indication of the potential sustainability of businessactivity); and

(h) household income by source (on a sample basis - but potentially themost critical indicator of direct project impact).

I. Environmental Impact

4.32 Rural infrastructure activities would not be expected to have anysignificant adverse environmental impact as works would be small-scale in natureand not require forest clearing. Road improvements would largely follow existingalignments, and irrigation works would usually benefit areas where rice isalready grown. Water rights would be observed and pollution minimized throughenvironmentally sound management practices. In the case of new roads andirrigation sites (on a sub-project basis), an environmental impact assessmentwith mitigation plans would be submitted for review and clearance by theDepartment of Environment and Natural Resources (DENR). The responsibility ofensuring that no sub-projects with undesirable environmental and social impactwould be financed by the project would rest with the CPO and the respective LGUs.Each sub-project would be appraised, approved, and supervised by the CPO. Thisprocess would ensure, among other things (para. 4.21), that adequateenvironmental screening, mitigation measures, if required, and monitoringcompliance would be in place. Agreements were reached at negotiations that: (i)the CPO would specify that LGUs for sub-projects carried out in theirjurisdiction areas would be responsible for compliance with all laws andregulations of the Philippines related to environmental protection; (ii) theresponsibility for the preparation of environmental impact assessment, if needed,and the related mitigation planning and activities would be rest with the LGU whowould initiate the sub-project preparation and the contractor who would implementit; and (iii) that the CPO would be in charge of supervising compliance and (iv)that (i), (ii), and (iii) above would be incorporated in the Operations Manual(para. 6.1(f)J.

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V. PROJECT IMPACT, BENEFITS, and RISKS

A. Economic Benefits

5.1 The project would benefit about 100 ARCs, comprising about 80,000households, with a total number of beneficiaries of about 0.5 million. It isanticipated that indirect benefits of infrastructure works would benefit anadditional 40,000 households (approximately 250,000 people). The effect ofbetter access roads and social infrastructure would be to both raise the qualityof rural life and improve linkages/reduce costs with local and regional markets,allowing ARCs to move from a subsistence-based economy to a semi-commercial orcommercial operating base. Agricultural productivity and farm levelprofitability would rise due to: (a) enhancing the resource base throughadditional irrigation; (b) facilitation of the use of inputs resulting fromimproved access, hence lower transport costs, relevant extension and trainingsupport, and better access to credit; and (c) the introduction of higher valuecrops and livestock enterprises to add value. The lower transport costs andshorter journey times which make marketing easier together with better access tocredit and technical and management support for non agricultural businessinvestments would also contribute towards income diversification and employmentcreation. Another major benefit of the project would be the enhancement ofdevolution of planning, operation and maintenance responsibilities to LGUs andcommunity organizations (i.e. POs), both with respect to infrastructurefacilities and economic activities.

5.2 It is estimated that the Project would yield an overall economic rate ofreturn of between 20% - 25%, depending on the detailed sub-component mix. Thedetails of model ERR calculations for the rural roads and irrigation componentsare shown in Annex 10. In making these estimates, the evaluation has been doneat early 1996 prices. Financial prices have been converted to economic pricesin order to take out the effects of taxes, subsidies, and other distortions byusing economic conversion factors (ECFs), except in the case of rice, where adetailed calculation of the border price has been made.

5.3 A summary of the economic analysis for each component is as follows:

(a) Roads: (i) for barancTay access, about 70% of roads are assumed tobe rehabilitated and 30% reconstructed. Benefits result fromvehicle operating cost savings, time savings and generated trafficbenefits. The rural access model used to estimate the base ERR of20* assumes a 5 km road costing an average of P748,000 (US$29,000)per km, including bridges, accessing 3,000 people (500 families).Traffic volumes are derived from DPWH standard generators for ruralroads. (ii) Farm access tracks supported under the project wouldbe designed to allow access by wheeled trailers, rather than sledsto the production areas. In the base case, a 2km access trackcosting US$5,300 per km for spot improvement, would provide accessto 900 tons/year of produce. The ERR as a result of transport costsaving is estimated at 24%. Additional benefits would accrue if asa result of improved access cropping intensity increased or farmersswitched to higher output crops.

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(b) Irrigation: based on 70% rehabilitation and 30% new irrigation, theaverage cost per ha, including EVAT, is estimated as P72,000(US$2,800) for new irrigation, and P39,000 (US$1,500) forrehabilitation. As a result of introducing irrigation, wet seasonyields would improve, in line with the national average, by about1.2 tons of paddy per ha; furthermore an estimated 50% of the areawould sustain a dry season crop. Although higher returns wouldprobably be obtained by growing other crops, the analysis has beenconservatively based on rice production in the dry season. The basecase ERR is estimated at 25% for this component.

(c) No model has been developed for Agriculture and EnterpriseDevelopment. However experience of rural investment in thePhilippines indicates that such investments would only be made ifthe entrepreneur decision makers and the banks financing them,believe they will achieve real financial rates of return of well inexcess of 15%. A reasonable assumption therefore might be that suchinvestments would show FRRs in real terms of 151-30%, with similarERRs.

(d) Benefits from community development and skills and business trainingwould be partly realized through specific irrigation andagriculture/enterprise investments. They would also partly bereflected through better performance and higher incomes of the vastmajority of ARC members who are not involved in specific project-supported investments. Before the project, about 80,000 familiesof average family income P25,000 per year would have been living inthe ARC areas supported by the project. If, as a result of improvedmanagement and organization, the project were to be able to increasefamily incomes by 1% in year three, rising to 4% in years sixthrough 20 (over and above the increases which would come directlyfrom investment in irrigation, improved roads, or agriculturalenterprises), then there would be an economic rate of return ofabout 20% on the $11 million spent on the Project Management andCommunity Development and Technical Support components. Clearly,provided a modest uplift in incomes can be achieved as a result ofthe project, it would be well worthwhile in economic terms.

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5.4 A summary of project Investment Costs and ERRs for the different projectcomponents, are shown below.

Investment BaseNominal ERRUS$M

Rural Access Roads 24.5 20%Farm Access Tracks 2.1 24%Irrigation 18.6 25%Social Infrastructure 4.0 n.aAgriculture/Enterprise 27.7 15-30% (say 22%)Community DevelopmentProject Management 11.3 n.a.

Total/Wtd Average a/ 72.9 22%

a/ Excludes Community Infrastructure, Community Development and ProjectManagement Costs.

5.5 Because this is a demand-led project, the actual ERR achieved ex-postcould vary considerably from the indicative 22% shown above. Indeed, if theproject is to significantly raise real incomes, a high ERR is essential. As abroad brush cross check, overall investment per family amounts to about P28,600(US$1,100) in base cost terms. If by the end of the project period real incomeswould have risen on average from P25,000 to P35,000 per family, as a result ofthe project, and would then be sustained at that level, the ERR, taking accountof all project costs would be 27%. Even at this level, average income would bewell below (only 73% of) the official rural poverty level of P8,000 per capita,P48,000 for a family of six.

B. Financial Impact of the Prolect on Participants

Beneficiaries

5.6 ARBs and other families living in the project area would generally benefitfrom the project through improved training, better organization, greater linkageswith the outside world, and more productive agricultural resources. Somebeneficiaries, those getting irrigation, would find the project has a substantialimpact on their family incomes - a two hectare farmer would more than double hisincome under the project - but for most (probably more than three quarters of allbeneficiaries would not receive irrigation), the impact would be largely indirectin that as transport becomes cheaper and easier and community enterprises arestrengthened, opportunities for developing other skills and doing more productivework would also improve. For these people, incremental increases in incomeresulting from the project might average 20%-30* by Project Year 6.

5.7 Beneficiaries would be required to contribute towards the infrastructure(US$6.3 million) and training costs (US$1.5 million) of the project, as well asmaking equity investments estimated at US$12.4 million in their own farms and

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enterprises. These levels of contribution would be manageable given the expectedbenefits.

Contributions towards infrastructure would be highest for thedirect beneficiaries of irrigation, who would need to put up10% of the irrigation cost. For a two hectare beneficiary,this would amount to a nominal figure of about 110,000. Sucha sum could be provided partly as materials (sand and gravel)and partly as labor. With a wage rate of 170 per day, thisfigure is the equivalent of about 140 days labor, providedthere are 2-3 family members of employable age, it should bepossible to contribute this work to the scheme withoutreducing other income. That is, farmers contribution cansimply involve harnessing some of the underemployment in theARC. Contributions towards the cost of barangay access roadsby beneficiaries would be subject to site specific agreementswith the LGU concerned. The main element of these, which areestimated to total 5% of road costs would be expected to bematerials, although some labor might also be provided. Thistoo would be unlikely to cause any reduction in overallfamily income.

Contributions to training costs would largely comprise theprovision of food to meeting participants. Its cost wouldaverage 190 (US$3) per family per year with contingencies.

-Equity investment in agriculture and enterprise developmentwould generally be harder to secure. Part would be in kind -the labor element of incremental real working capital orinvestment such as planting trees or constructing buildings,or else livestock retained which would otherwise have beensold. But a significant proportion would need to be as becash. Some of this would result from small farmers' savingsand some from entrepreneurial investment from wealthierpeople, such as rice millers, who respond to the improvedpotential for investment in the area. The peak requirementfor equity is estimated at US$3.7 million in project year 3.This is equivalent to about 4% of family income for the wholeproject of which perhaps one third would be small farmers'cash contribution.

Local Government Units

5.8 As a result of the project, local government units would be generallystrengthened through their involvement with the project in the ARC planningprocess. However, the project would make some demands on their finances.Depending upon the status of the municipality 10% to 20% of the capital cost ofroad improvement and up to 30% of the cost of community infrastructure is likelyto need to be met by the LGU. On average, the contribution towards roads andcommunity infrastructure by LGUs would be about 11.4 million (US$50,000) per ARC,including contingencies, part of which is likely to be borrowed under the

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project. Additionally, municipalities would also bear the cost of roadmaintenance, likely to amount to about PO.4 million (US$15,000) annually per ARC.Incremental income resulting from improved roads would be indirect. It wouldcome from improved trade within the municipal area and, therefore, increasedrevenues from licenses, together with increased revenues from higher real estatetaxes.

National Government

5.9 The project would impose additional costs on the national government.These would include: (i) part of the incremental costs of the DAR projectmanagement; (ii) the incremental costs of the community development aspects ofthe project to the extent they are not able to find donor funding for these; and(iii) servicing borrowing from the World Bank in order to finance part of theinfrastructure and project management costs. Incremental direct income wouldresult from collections from lAs by NIA. On aggregate the project would imposea net direct budgetary cost on Government, estimated to average about US$3million per year, including both their own contribution and loan interest duringthe implementation phase, and about US$5 million per year in debt servicethereafter. To partly offset this, Government would receive indirect incomethrough higher taxation on those businesses within the project area which makeadditional profit and pay tax.

C. Risks

5.10 Based on past experience, potential risks associated with theimplementation and realization of the Project's objectives include (i)difficulties in GOP making available timely counterpart funding; (ii) possibleinadequate capacity within NIA, LGUs, NGOs and POs to (a) successfully undertakethe required feasibility studies for infrastructure facilities and economicactivities, (b) resist political pressure to support marginal or uneconomicinfrastructure investments, and (c) adhere to technical and environmentalstandards during construction of physical infrastructure; and (iii) lack ofcommitment by LGUs and local community organizations to operate and maintaininfrastructure after Project completion.

5.11 By using DAR, which has access to the Agrarian Reform Fund as the leadagency, and ensuring that adequate budget provision is made for the project, thefirst of these risks would be minimized. Careful selection by the CPO of ARCsto be supported and project implementing staff, in line with the OperationalManual to be agreed upon as a condition of effectiveness, would help insure thatprograms are properly designed. Community Development, although a relativelysmall project component in financial terms, would be crucial for sustainabilityof the project. For certain types of investment, e.g. irrigation schemes orcommunity warehouses, successful development of appropriately funded communityorganizations would be a precondition for the investment itself, therebymitigating the risk of lack of future commitment. For roads, the MOA between theCPO, MDF and the LGU to be signed as a condition of grant would provide forsignificant penalties should LGUs fail in their maintenance provision, therebysubstantially lowering, but not eliminating the risk of poor road maintenance.

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VI. AGREEMENTS AND RECOMMENDATION

6.1 During negotiations agreement was reached with the Government of thePhilippines on the following:

(a) the CPO would submit to the Bank: Ci) quarterly progress report;(ii) audited accounts along with auditors' report on project'saccounts, the project Special Account, and the Statement ofExpenditures related to project activities within six months afterthe end of each of project's fiscal year; and (iii) part two of theProject Implementation Completion Report within six months after theloan closing date (paras. 3.38 and 4.30);

(b) the project training and TA would be carried out in accordance witha program satisfactory to the Bank and the project annual trainingprogram would be submitted for Bank review by November 15 of eachyear (para. 4.5);

(c) ARC financing under the project would be governed by an OperationsManual to be agreed between GOP and the Bank. Changes in the manualwould require prior agreement between both parties (para. 4.7). TheOperations Manual would address the following main subjects:

Ci) investment financing package includingbeneficiaries' participation, LGUs undertaking,and National Government contributions (paras.3.26, 4.29, and 4.30);

(ii) credit provision to project beneficiaries foragricultural and enterprise development activities(paras. 3.19 and 4.28);

(iii) sub-project eligibility criteria regarding communitydevelopment accomplishment; environmental soundnessas well as technical, financial, and economicviability and sustainability of infrastructure,agricultural and enterprise investments (paras. 4.10and 4.32);

(iv) community development activities, accreditation andselection of partner NGOs and POs (paras. 4.12 to4.17);

(v) obligations and functions of LGUs regarding theimplementation of the ARCs development program,including extension services, technical andoperational support, and main features of the MOAsto be signed by DAR, the CPO, and the respective LGU(para 4.14 to 4.19, 4.21, and 4.25);

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(vi) infrastructure implementation arrangements,particularly for road construction orrehabilitation, and irrigation investments (paras.4.19, 4.20, 4.22, and 4.23); and

(vii) approval process and fund flow for all sub-projects(paras. 4.21, 4.22, 4.29, and 4.30);

(d) Arrangements concerning rights of way for rural roads, irrigationschemes and other infrastructure would be handled within ARCs at acommunity level. Compensation to persons affected by ruralinfrastructure sub-project would be settled internally by thecommunity in accordance with principles acceptable to the Bank andreflected in the project Operations Manual (para. 4.17);

(e) an annual review of all project components would be undertaken, toassess progress and ensure adjustment to prevailing conditions andpolicy (para. 4.30) and

(f) the CPO and LGUs would diligently follow existing guidelines andprocedures for environmental protection as stated in para. 4.32.

6.2 Conditions of loan effectiveness would be as follows:

(a) the PMB and the CPO have been established with functions andresponsibilities acceptable to the World Bank (para. 4.3);

(b) the appointment of suitable persons with experience andqualifications acceptable to the Bank (i) to fill the followingpositions: (a) project director; (b) chief of project financial andadministrative unit; (c) chief of M&E unit; (d) chief economist tohead the sub-project appraisal unit; and (e) chief ruralinfrastructure engineer (para. 4.4); and

(c) the Operations Manual acceptable to the Bank has been approved andput into effect by the PMB and the umbrella MOAs between DAR and theagencies implementing the project (DOF for MDF, DA for NIA, LBP)signed as required under the Operations Manual (para. 4.7).

6.3 With the above agreement and assurances, the proposed project is suitablefor Bank loan of US$50 million equivalent (a US$ Single Currency Loan) to theRepublic of the Philippines. The loan would have a term of 20 years includinga five year grace period on repayment of principal, and carry the prevailingBank's standard Libor-based variable interest rate for US dollar.

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Annex 1Page 1 of 4

PHILIPPINES

AGRARIAN REFORM COMMUNITIES DEVELOPMENT PROJECT

THE COMPREHENSIVE AGRARIAN REFORM PROGRAM

BACKGROUND

1. Republic Act 6657, the Comprehensive Agrarian Reform Law (CARL) was enactedin June 1988 to promote justice and industrialization in the rural areas. The lawenvisioned a massive restructuring of the agrarian tenurial landscape of thecountry. The law also provided for a mechanism for implementation through theComprehensive Agrarian Reform Program (CARP).

2. The Philippine Agrarian structure is complex and for decades has been thesubject of various political agenda. Until mid-1980's, 83% of agricultural landwas controlled and owned by 9% of families in the country. Land ownership washighly skewed, that of the estimated 10 million agricultural workers, 50% werelandless. Of the remaining 5 million workers, 2 million were tenants and 3million were either owners, cultivators or squatters on public land.

3. Until early 1990's, not much progress has been made in changing thecountry's agrarian structure. Efforts during the first six decades of the centurywere focused on the conversion of sharecropping to leasehold tenancies. In the1970's Presidential Decree #27 (Operation Land Transfer) was enacted and effectednominal transfer of rice and corn lands to few tenants. CARL extended thecoverage of agrarian reform to all agricultural lands with provision forsubstantial agricultural support services to beneficiaries. This enabled greaterparticipation of farmers and NGOs in policy formulation, local communityplanning, and implementation. Under CARL, individual ownership is limited to 5hectares of agricultural land with additional provision of 3 hectares for eachfamily member, 15 years and above, up to a maximum of 3 children per family. Suchprovision requires that the beneficiary children are actively involved in farmingor managing the land. Land owners are compensated based on a formula consistingof three criteria: a) productive value of land; the value as declared in taxreturns; and the value of the land as indicated by comparable sales in the area.Agrarian Reform Beneficiaries (ARBs) amortize the land in 30 years at aninterest rate of six percent.

4. The Comprehensive Agrarian Reform Program (CARP) covers an area of 7.8million hectares of which 4.3 million are private lands and 3.5 million hectaresare public or government owned. The program envisaged the distribution of theselands over a period of ten years beginning 1988. Distribution would be undertakenby phases as follows:

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Annex 1

Page 2 of 4

A. Phase I (Year 1 to 4)

i. remaining rice and corn land under PD 27ii. idle and abandoned land

iii. private lands voluntarily offered for sale to theDepartment of Agrarian Reform (DAR)

iv. lands foreclosed by government-owned financialinstitutions

v. lands acquired by the Presidential Commission on Good

Government

B. Phase II (Year 1 to 4)

i. public agricultural landii. private lands greater than 50 hectares per parcel

C. Phase III

i. private lands 24 to 50 hectares (Year 4 to 7)ii. private lands in holding less than 24 hectares (on Year

6 to 10)

5. CARL provided for the creation of the Support Services Office within theDAR. Further, Executive Order 406 mandated certain departments and agencies to"align their respective programs and projects with CARP'. Under the PhilippineConstitution, "appropriate technology and research and adequate financial,production, marketing and other support services' are to be provided to formerlaborers and tenant farmers.

INSTITUTIONS INVOLVED IN CARP

6. The core institutions involved in CARP are the Presidential Agrarian ReformCouncil (PARC), the Department of Agrarian Reform (DAR), the Department ofEnvironment and Natural Resources (DENR), the Department of Agriculture (DA),Land Bank of the Philippines (LBP), Department of Public Works and Highways(DPWH), Land Registration Authority (LRA), National Irrigation Administration(NIA), Department of Trade and Industry (DTI), Department of Labor and Employment(DOLE), and Local Government Units (LGUs). NGOs, peoples organizations andresearch and training institutions actively participate in the implementation

of the CARP.

7. The PARC which administers the Agrarian Reform Fund (ARF), provides policyguidance and coordination to the program. It is chaired by the President of thePhilippines with the DAR Secretary as the Vice Chairman. A more detaileddiscussion on PARC is shown in Appendix A.

8. DAR is the lead implementing/coordinating agency for CARP implementation.Headed by a Secretary, it consists of several offices as shown in Appendix B.

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Annex 1Page 3 of 4

9. Under CARP, DENR is mandated to conduct surveys and classification offorest lands, distribution of alienable and disposable (A and D) lands,allocation of lands to agroforestry and assists forest occupants. DA which wasoriginally mandated to provide extension services to ARBs had devolved itsextension function to LGUs and has little participation in CARP. LBP is thefinancial arm of CARP and is primarily responsible for processing compensationfor lands under the program; providing financial assistance to ARBs and thecollection of land amortization. The Land Registration Authority undertakes theregistration and titling of Emancipation Patents (EPs); Certificate of LandOwnership Awards (CLOAs) and Free Patents (FPs) to the beneficiaries. DOLE ismandated to provide and protect the welfare of rural workers. The LocalGovernment Code widened the scope of responsibility of LGUs and the latter hasbecome instrumental in CARP implementation. They now provide agriculturalextension services, undertake public works and social services.

10. The other agencies are focused on the provision of direct support servicesto ARBs. The DPWH provides for the rural infrastructure needs of the programexcept irrigation which is being undertaken by the NIA. DTI provides technicalassistance related to farm enterprises such as management, investment andfinancial counseling, marketing assistance and others.

11. Various NGOs and peoples organizations (POs) are involved in various levelsof CARP operations. They are primarily involved in organizational and cooperativedevelopment. The major network NGOs involved are the Philippine Agrarian ReformFoundation for National Development (PARFUND), the Philippine Business for SocialProgress (PBSP) and the National Confederation of Cooperatives (NATCCO). TheseNGOs are discussed in greater detail under the community development component.

CURRENT STATUS OF CARP

12. Land distribution, the key measure of success of CARP had been extremelyslow during the first four years of the program. DAR distributed only 16% of the3.8 million hectares it was mandated to distribute under the program. And theseconsisted largely of government and private lands under PD 27. In 1995, CARPscope was reduced from 10.3 million ha to 7.8 million ha. Of this reduced scope,DAR was mandated to distribute 4.3 million ha of private agricultural lands whileDENR was assigned 3.5 million ha. As of early 1990's, land distributionaccelerated and by March 1996 about 2.2 million ha or 51% of DAR's mandated areawas acquired and distributed (based on preliminary PARC report). Similarly, DENRdistributed 1.6 million haor 45% of its assigned area. Collective efforts andpolitical will of DAR and DENR current managements made this possible. Limitedsurvey capability, however, has taken its toll on the speed of land distribution.

13. An equally important component of CARP is the provision of support servicesto the ARBs which is mandated by the Philippine Constitution. DAR has taken anaggressive stance in the delivery of support services, largely, through the ARFand foreign assistance, notably, from the European Union, JICA, CIDA and theDutch Government. Support services provided under the program coversinstitutional development, provision of physical and social infrastructure suchas irrigation facilities, roads and bridges, power and water supply and supportto various livelihood/enterprise development schemes. Since 1987, DAR had

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Annex 1Page 4 of 4

conducted 49,662 training sessions in various subjects for 2.2 million ARBs.Rural roads with an aggregate length of 4,320 kilometers have been put in place.100 small irrigation schemes with a command area of 19,020 hectares have beenmade operational and 312 common service facilities that provided incomeopportunities for 17,087 ARBs have been set up.

,

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Appendix APage 1 of 8

Core Agencies Associated With Agrarian Reform Council

1. The core institutions involved in CARP implementation are the PresidentialAgrarian Reform Council (PARC), Department of Agrarian Reform (DAR) andcooperating agencies. Non-government organizations, people's organizations, andresearch and training institutes, however, also play a critical role in theoverall agrarian reform process.

A. Presidential Agrarian Reform Council (PARC)

2. PARC is the highest policy-making and coordinating body on all mattersrelated to CARP. Its functions include the formulation and/or implementation ofpolicies, rules and regulations necessary to implement each component of theCARP. It may authorize its members to formulate rules and regulations concerningaspects of agrarian reform falling within their particular areas ofresponsibility.

3. It administers the Agrarian Reform Fund (ARF) and has the sole authorityover the programming and/or allocation of ARF resources among the components andvarious activities of CARP. This authority is exercised through its approvalof the annual budget ceilings of the implementing governmental agencies based onpolicies and guidelines set by it, which may include, among others, thepercentage distribution and/or allocation of ARF resources between landacquisition and distribution (LAD) and supporting services.

4. The PARC is chaired by the President of the Republic of the Philippineswith the DAR Secretary as Vice Chairman. Its members are the Secretaries/ Headsof the Department of Agriculture, Department of Environment and NaturalResources, Department of Budget and Management, Department of Finance, Departmentof Labor and Employment, Department of Interior and Local Government, Departmentof Public Works and Highways, Department of Trade and Industry, National Economicand Development Authority, Land Bank of the Philippines, six representatives ofthe agrarian reform beneficiaries (ARBs); and three representatives of affectedlandowners.

5. The PARC convenes at least once every three months or as frequently as isnecessary to discharge its responsibilities. Assisting the PARC in theperformance of its tasks are the PARC Executive Committee, PARC TechnicalCommittee, Provincial Agrarian Reform Coordinating Committee, and BarangayAgrarian Reform Council.

PARC Executive Committee (EXCOM)

6. The PARC EXCOM reviews and/or recommends policies, rules and regulationsnecessary in the implementation of CARP as well as the program of implementationcovering physical targets, implementation approaches, schedules and supportrequirements. It also oversees and coordinates the implementation of policiesformulated by the PARC. Relative to ARF, it is authorized by the PARC to approve

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Appendix APage 2 of 8

fund allocation/programming among the agencies based on policies issued by thePARC.

7. The EXCOM is headed by the DAR Secretary as Chairman and has as members,the Executive Secretary of the Office of the President, Secretaries or Heads ofDA, DENR, DPWH, DTI, DBM, DOF, NEDA, LBP, and the Department of Transportationand Communications (DOTC), Department of National Defense (DND), NationalIrrigation Administration (NIA), Land Registration Authority (LRA), PhilippineCommission for Good Government (PCGG), Asset Privatization Trust (APT), National

Statistics Office (NSO), and representative of farmer beneficiaries andlandowners may also be invited to attend meeting as may be deemed necessary. Itmeets at least once a month or as frequently as necessary.

PARC Technical Committee (TECHCOM)

8. The PARC TECHCOM was created through an EXCOM Resolution in 1989. It iscomposed of the duly designated representatives of the PARC EXCOM members tostudy and deliberate on important policy-related matters prior to presentationto the EXCOM. The TECHCOM is chaired by the Council Secretary who is also theUndersecretary for Policy and Planning of the DAR and meets on a monthly basisprior to the meetings of the EXCOM. The TECHCOM has no decision-making

authority.

PARC Secretariat (SEC)

9. The PARC Secretariat provides general support and coordinative servicessuch as inter-agency linkages, program and project appraisal and evaluation, andgeneral operations monitoring for the PARC. It is headed by the Director-Generalwho is also the DAR Secretary and is organized along two major functional areas:Planning, Policy and Coordination Division and the Finance and ManagementDivision.

10. While the PARC SEC exercises recommendatory functions to higherauthorities, it plays a key role in the administration of ARF through its reviewof annual agency budget proposals. The results of the review provide the basisfor determining the CARP budget allocation among the agencies. Its subsequentreview of Work and Financial Plan (WFP) of each agency is also vital since thisserves as the basis for the release of the Advice of Allotment (AA) and theNotices of Cash Allocation (NCA) by the DBM. The WFP is no longer subject toCouncil or EXCOM endorsement/approval prior to its submission to DBM. The PARCSEC also exercises a certain degree of control on the flow of funds during thebudget implementation phase through its review of the agencies' request for therelease of their respective allotments as well as requests for reprogramming andrealignments.

11. The PARC SEC also has a monitoring function which is vital since it is themain source of the information used in formulating appropriate policies,guidelines, rules and regulations for the effective and efficient implementation

of CARP.

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Appendix APage 3 of 8

Provincial Agrarian Reform Coordinating Committee (PARCCOM)

12. The PARCCOM coordinates and monitors the implementation of CARP in theprovince; and provides information on CARP guidelines issued by PARC and otherexisting and applicable agrarian laws, including the progress of CARP in theprovince. The PARCCOM does not play any role in the budget preparation andutilization of ARF, nor does it have any control over the funds allocated for theprovince.

13. The Chairman of the PARCCOM is appointed by the President based on therecommendation of the EXCOM. Members consist of the Provincial Agrarian ReformOfficer (PARO) as Executive Officer and one representative each from the DA,DENR, and the LBP; one representative each from existing farmers organizations,agricultural cooperatives and non-governmental organizations in the province; tworepresentatives from landowners, at least one of whom is a producer representingthe principal crop of the province; and, two representatives from farmer and farmworker beneficiaries, at least one of whom is a farmer or farm workerrepresenting the principal crop of the province. In areas where there arecultural communities, each has one representative.

14. In some provinces, the PARCCOM assumes an active role in the implementationprocess at the provincial level. A generalization regarding its overalleffectiveness however, cannot as yet be made as its operation is still undergoingmodifications. In one province for example, the members deemed it necessary toappoint the Governor as honorary chairman to gain the support (includingresources) from the local government.

Functions of Barancjav Agrarian Reform Council (BARC)

1S. The main functions of the BARC are as follows:

(a) Mediate and conciliate between parties involved in an agrariandispute including matters related to tenurial and financialarrangements;

(b) Assist in the identification of qualified beneficiaries andlandowners within the barangay;

(c) Attest to the accuracy of the initial mapping of the beneficiary'stillage;

(d) Assist qualified beneficiaries in obtaining credit from lendinginstitutions;

(e) Assist in the initial determination of the value of the land;

(f) Assist the DAR representative in the preparation of periodic reportson the CARP implementation for submission to the DAR;

(g) Coordinate the delivery of support services to beneficiaries;

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Appendix APage 4 of 8

(h) Perform such other functions as may be assigned by the DARSecretary or the PARC.

The BARC has been found most effective in the performance of the first threefunctions:

16. BARC is composed of the following:

(a) Representative of farmer and farmworker beneficiaries(b) Representative of farmer/farmworker non-beneficiaries(c) Representative of agricultural cooperatives(d) Representative of other farmer organizations(e) Representative of the Barangay Council(f) Representative of NGO(g) Representative of Landowners(h) DA official assigned in the barangayCi) DENR official assigned in the barangay(j) Representative of the LBP(k) DAR Agrarian Reform Technologist(s) assigned in the barangay who

shall act as the Secretary of the BARC.

B. The Department of AQrarian Reform

1. The Department of Agrarian Reform (DAR) is the lead agency responsible forimplementing the CARP and is mandated to improve the land tenure system in thecountry and the socio-economic status of program beneficiaries by coordinatingand ensuring the timely provision of support services. It is headed by aDepartment Secretary whose main responsibilities are to: Ci) establish andpromulgate operational policies, rules and regulations and priorities foragrarian reform implementation; (ii) formulate policies, guidelines, rules andregulations for the operation of the Department pursuant to the President' sprogram of government; (iii) issue orders, directives, rules and regulationsnecessary to carry out Department objectives policies and functions; (iv)provide direction, supervision and control over all bureaus and other officesunder the Department; and (v) devise workable strategies for obtainingcooperation and participation of government agencies.

2. Under the current leadership, significant changes of the DAR'sorganizational structure have been introduced in compliance with the memorandumon streamlining of the government bureaucracy.

Policy and PlanninQ Office (PPO)

3. PPO has the primary responsibility of providing advice and assistance tothe Secretary in the development, integration and prioritizing of plans, programsand projects of the Department, as well as in the coordination of policy andplanning-related activities of the different offices, bureaus and attachedagencies of the Department. The Office consists of three service units which areas follows:

- 51 -Annex 1

Appendix APage 5 of 8

(a) Policy Staff: This is mainly responsible for spearheading andinstitutionalizing mechanisms for policy formulation, reform, andadvocacy, and conceptualizing and operationalizing the DAR'sResearch and Development (R & D) agenda. The Policy staff iscomprised of three divisions: (i) Policy Analysis and CoordinationDivision; (ii) Policy advocacy Group; and, (iii) Economic and Socio-Cultural Research Division. The Group has the task of processingand translating research findings into concrete implementable policyrecommendations.

(b) Planning Staff: The Planning and Programming Division and theProgram Monitoring and Evaluation Division constitute the PlanningService. It formulates plans in coordination with the differentoffices of the DAR consistent with the Philippine Development Planand PARC and DAR's policies. It also provides guidelines andassists in the development of DAR's Central, bureaus, regional andprovincial plans and programs. The development and implementationof a system for monitoring and evaluating the implementation ofDAR' s plans and programs is also its responsibility. The Planningstaff prepares DAR's quarterly and yearly accomplishment reportsand closely liaise with the policy staff regarding impact ofagrarian reform programs on beneficiaries and rural communities forplanning and decision-making purposes.

(c) Management Information Service: The Service is composed of twodivisions namely: Systems Development Division and Data Managementand Technical Support Division. Its main functions are theprovision of technical inputs for information requirements anddeveloping the corresponding system; recommendation ofchanges/revisions in existing systems and procedures with the endin view of expediting the flow of accurate information;administration of databases; preparation of reports and statisticalinformation; and provision of technical assistance to users insystem maintenance.

Field Operations and Support Services (FOSS)

4. This office is headed by an Undersecretary assisted by an AssistantSecretary for Land Tenure Improvement. The office assumes general responsibilityfor five bureaus, and the field offices of DAR. In effect, the office is DAR'sdirect channel to the barangay level. The main tasks of the office are to adviseand assist the Secretary in implementing policies, guidelines, rules andregulations for field operations and support services to attain the DAR targets;assist the Secretary in providing over-all direction on field operations;establish and maintain an effective working relationship with DAR's cooperatingagencies; establish linkages with foreign funding institutions; evaluate fieldoperations, programs and projects, accomplishments, linkages with line agencies,local government units (LGUs), non-governmental organizations (NGOs) andpeople' s organizations (POs) in line with field operations work; and moreimportantly, oversee the operations of the Regional, Provincial and Municipaloffices of the Department. The attached offices and bureaus under FOSS and theirspecific functions are as follows:

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Appendix APage 6 of 8

(a) Project Development and Management Service (PDMS): This unit wasformerly with the Policy and Planning Office. With thestreamlining, this falls now directly under the office of theUndersecretary for Operations and Support Services. This is inview of its vital role in generating projects and sourcing of fundsin support of specific activities/components of the CARP. Functionsof the former Support Services Office (SSO) and other project-related activities being undertaken by other units are now lodgedwith the PDMS, as follows: (i) programming ofeconomic/infrastructure projects such as irrigation, roads,pavements, post-harvest facilities, credit assistance, etc.; (ii)monitoring of projects financed under the Development Bank of thePhilippines-Window III which was done by the former Special ProjectsOffice; and (iii) monitoring of projects under CARP-BarangayMarketing Centre. The PDMS provides support for project developmentto the Department bureaus, attached agencies, and regional officesin accordance with the approved priority areas for local and foreignfunding. It initiates project identification, development,appraisal and packaging; monitors and evaluates foreign and locally-funded projects; and undertakes negotiations with foreign and localfunding institutions. These tasks are performed by the threeDivisions within PDMS which are the Project Development Division;the Project Monitoring and Evaluation Division; and the ResourceMobilization Division.

(b) Bureau of AQrarian Reform Information and Education (BARIE) TheBureau develops and conducts continuing training and educationprograms for the acquisition of knowledge, value formation, anddevelopment of skills and favorable attitudes among beneficiariesand personnel of DAR and other agencies. It also disseminateinformation and communication materials on the aforesaid tasks whichare accomplished through the Bureau' s three Divisions namely:Beneficiaries Education Division; Personnel Education Division; and,Education Programs, Research and Development Division.

(c) Bureau of Agrarian Reform Beneficiaries Development (BARBD): TheBureau' s mission is to assist DAR field implementors in theestablishment of mechanisms and structures that effect theempowerment of the agrarian reform beneficiaries (ARB). The Bureauaims to: (i) promote the organization of ARB and all forms of farmcooperation in all CARP areas and (ii) assist in the creation ofan environment conducive to beneficiaries' greater productivity andhigher farm income. The Bureau consists of three divisions whosefunctions may be similar but have clear area focus. TheInstitutional Development Division is primarily concerned with OLT,VLT, VOS and CA areas. The Community Services Development Divisionfocuses on DAR administered settlements, CARP areas with noamortization scheme, and non-land transfer scheme. The Livelihoodand Enterprise Development Division concentrates on the achievementof the second objective.

- 53 - Annex 1Appendix APage 7 of 8

(d) Bureau of Land Development (BLD): The Bureau consists of the LandSurvey and the Land Capability and Development Division. The LandSurveys Division formulates guidelines to facilitate the conduct ofsurvey activities in CARP areas; provides technical assistance inthe resolution of survey bottlenecks at the field level; coordinateswith other agencies to synchronize survey targets and resolution ofsurvey problems; monitors and evaluates performance on land surveys;and assists in the execution of surveys in CARP areas when deemednecessary. The Land Capability and Development Division preparesplans, detailed work programs including technical specification forland use, slope, hydrology, soil and socio-economic survey ofselected agrarian reform communities; provides staff support in theprocessing of land use applications including design for landdevelopment and conservation and preservation of prime lands foragricultural purposes; draws up work plans, guidelines, proceduresas to maintenance of photo maps, programs and designs foragricultural development under the land consolidation scheme; andcompiles and maintains basic land data records/documents.

(e) Bureau of Land Acquisition and Distribution (BLAD): BLAD consistsof Land Acquisition and Distribution Division and the Land TenureImprovement and Documentation Division. The Land Accuisition andDistribution Division's main concern is the formulation anddissemination of procedures in the acquisition and distribution ofprivate and government-owned lands. It coordinates with other CARPimplementing agencies in the area of land valuation, landownercompensation, title registration and distribution. It alsoidentifies and resolves bottlenecks on acquisition and distribution,and monitors performance and maintains records on all LADactivities, The Land Tenure Improvement and Documentation Divisionis primarily concerned with the formulation of procedures andguidelines on various non-land transfer schemes under CARP.Complementary activities are the formulation of monitoring andevaluation schemes for all non-land transfer activities;development of plans, programs, policies, guidelines and proceduresrelative to land tenure documentation of landholdings covered byCARP; and the establishment of an information system on land tenuredevelopment and land transfer actions.

(f) DAR ReQional, Provincial and Municipal Offices: These officesimplements the laws, policies, rules and regulations, and programs/projects in relation to the agrarian reform program of theDepartment. Likewise, they facilitate land acquisition anddistribution and promote the development of program beneficiariesinto viable agrarian reform communities. Under the new set up,there is greater flexibility in the deployment of personnel at thefield level with the criteria formulated in classifying provinces bythe DAR according to scope of work. Within the provinces, there islikewise flexibility in clustering municipalities depending on theworkload.

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Appendix APage 8 of 8

Legal Affairs (LA)

S. This office provides advice to the Secretary on all legal matterspertaining to agrarian reform and its implementation; resolves agrarian conflictsand land tenure-related problems including cases arising from the administrativeimplementation of the agrarian reform program; resolves cases affecting DARpersonnel; evaluates and review contracts, policy matters and the legal aspectsof guidelines and issuances of the Department. The Bureau of Agrarian LegallAssistance (BALA) and the Legal Affairs Staff (LAS) fall directly under thesupervision of an Undersecretary.

6. BALA performs its functions through its three divisions, namely: theLitigation Division, Claims and Conflicts Division, and the Information,Mediation and Counseling Division. The Bureau' s primary concern is the extensionof legal services to agrarian reform beneficiaries and related activities.

7. LAS performs its functions through its own three divisions: the LegislativeResearch and Statistics Division, the Investigation Division, and theAdministrative Cases Resolution Division. The two latter divisions are concernedmainly with the extension of legal services to DAR personnel as the need arisesor conversely it may file charges against erring DAR personnel.

Financial and Administrative Affairs (FAA)

8. This office advises the Secretary in implementing policies, guidelines,rules and regulations for efficient and effective financial and administrativeoperations; and establishes and maintains contact with the Commission on Audit(COA), DBM, Bureau of Treasury, Land Bank of the Philippines and other concernedoffices. The Assistant Secretary, Administrative Service Staff, and the GeneralServices Staff.

- 55 -

PHILIPPINES Annex 2AGRARIAN REFORM COMMUNITIES DEVELOPMENT PROJECT Page 1 of 8

Table 1. PROJECT BASE COST (Jan 1996 Currency Tenns)

Unit No Unit Project Project AV FE % FECost Cost Cost AMOUNT

P'000 Pesos M USS MCOMMUNITY DEV AND TECH SUPPORTCommunity Development ........ see Table 4 ........ 64.3 2.47Organizational Development ........ see Table 4 ........ 57.0 2.19Technical Support ........ see Table 4 ........ 32.7 1.26Staff Development ........ see Table 4 ........ 11.8 0.45

TOTAL COMMUNITY DEV AND TECH SUPPORT 165.9 6.38 20% 1.28

INFRASTRUCTUREROADSReconstruction Km 250 819 204.8 7.88Rehabilitation Km 560 491 275.2 10.58Bridges M 810 161 130.0 5.00Farm-Market Tracks - Spot Improvement Km 400 137 54.6 2.10

Sub-total Roads 664.5 25.56IRRIGATIONRehabilitation ha 7,000 39 269.5 10.37New/Extension ha 3,000 72 214.5 8.25

Sub-total Irrigation 484.0 18.62

OTHER INFRASTRUCTUREWater Supply ARC 100 630 63.0 2.42Multi-Purpose Halls unit 80 263 21.0 0.81Other ARC 100 210 21.0 0.81

Sub-total Other Infrastructure 105.0 4.04

TOTAL INFRASTRUCTURE 1253.5 48.21 35% 16.87

AGRICULTUREIENTERPRISECrops (incremental WC) ha 160,000 2 320.0 12.31Livestock ARC 100 2,000 200.0 7.69Processing/Trading ARC 100 2,000 200.0 7.69

TOTAL AGRICULTURE & ENTERPRISE DEVT 720.0 27.69 25% 6.92

PROJECT MANAGEMENTEquipment & Vehicles ........ see Table 5 ........ 10.7 0.41Professional Staff ........ see Table 5 ........ 66.3 2.55Other Costs ........ see Table 5 ........ 49.8 1.91

TOTAL PROJECT MANAGEMENT 126.7 4.87 25% 1.22

TOTAL BASE COSTS 2266.2 87.16 30% 26.29

- Physical Contingencies 217.8 8.38 2.53- Price Continingencies 787.5 10.16 3.07

TOTAL PROJECT COSTS 3271.5 105.70 31.89

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Annex 2Page 2 of 8

Table 2. PHASING AND CONTINGENCIES - Underlying Parameters

Year 1995 1996 1997 1998 1999 2000 2001 2002

InflationLocal within yr 11.0% 8.5% 7.0% 6.0% 6.0% 5.0% 5.0% 5.0%Local yr-yr 7.8% 6.5% 6.0% 5.5% 5.0% 5.0%Foreign within yr 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4%Foreign yr-yr 2.4% 2.4% 2.4% 2.4% 2.4% 2.4%FX Rate Start of Year 26.00 27.55 28.79 29.80 30.85 31.63 32.43FX Rate Mid Yr 26.77 28.17 29.29 30.32 31.24 32.03 32.84

Local Index Start of Year 100.0 108.5 116.1 123.1 130.4 137.0 143.8Foreign Index Start of Year 100.0 102.4 104.9 107.4 110.0 112.6 115.3

Project Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6Mid Point Jun/Jul Jun/Jut Jun/Jul Jun/Jul Jun/Jul Jun/Jul

1997 1998 1999 2000 2001 2002

Index based onStart 1996=100Local 112.3 119.6 126.8 133.7 140.4 147.4Foreign 103.6 106.1 108.7 111.3 113.9 116.7

Exchange Rate Av for Project Year 28.17 29.30 30.33 31.24 32.04 32.85

PHASING OF COMPONENT REAL COSTSCommunity Development & Tech Support 5.5% 19.3% 23.3% 21.6% 16.0% 14.3%Infrastructure 5.0% 15.0% 20.0% 25.0% 20.0% 15.0%Agriculture/Enterprise Devt. 10.0% 15.0% 20.0% 25.0% 20.0% 10.0%Project Management 16.2% 19.9% 16.2% 16.1% 15.8% 15.8%

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Table 3. PHASING AND CONTINGENCIES - Detailed Calculations Page 3 of 8

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 TOTAL

Base Costs (USSM) FE %Community Devt & Tech Spt 20% 0.35 1.23 1.48 1.38 1.02 0.92 6.38Infrastructure 35% 2.41 7.23 9.64 12.05 9.64 7.23 48.21Agriculture/Enterprise Devt. 25% 2.77 4.15 5.54 6.92 5.54 2.77 27.69Project Management 25% 0.79 0.97 0.79 0.78 0.77 0.77 4.87

62 13.59 17.46 21.U4 16.9 11.69 87.1

Physical Continuencies (USSM) Conts %Community Devt & Tech Spt 7% 0.02 0.09 0.10 0.10 0.07 0.06 0.45Infrastructure 10% 0.24 0.72 0.96 1.21 0.96 0.72 4.82Agriculture/Enterprise Devt. 10% 0.28 0.42 0.55 0.69 0.55 0.28 2.77Project Management 7% 0.06 0.07 0.06 0.05 0.05 0.05 0.34

0.0 t122 t68 2Q 114 1.2 IA

Price Contingencies (USSM)Community Development & Tech Support 0.01 0.08 0.14 0.17 0.15 0.16 0.71Infrastructure 0.10 0.49 0.92 1.49 1.48 1.33 5.80Agriculture/Enterprise Devt. 0.11 0.28 0.53 0.86 0.85 0.51 3.13Project Management 0.03 0.06 0.07 0.09 0.11 0.14 0.51

0.25 0 91 t66 2.1 2 59 na.

TOTALS COSTS including Continoencies (USSM)Community Development & Tech Support 0.39 1.40 1.73 1.64 1.24 1.14 7.54Infrastructure 2.75 8.44 11.53 14.75 12.09 9.28 58.84Agriculture/Enterprise Devt. 3.16 4.85 6.62 8.47 6.94 3.55 33.59Project Management 0.88 1.10 0.92 0.93 0.94 0.96 5.73

TOTALS 7.17 15.79 20.79 25.80 21.21 14.94 105.70

Base Costs (Pesos M) FE %Community Devt & Tech Spt 20% 9.1 32.1 38.6 35.9 26.5 23.8 165.9Infrastructure 35% 62.7 188.0 250.7 313.4 250.7 188.0 1,253.5Agriculture/Enterprise Devt. 25% 72.0 108.0 144.0 180.0 144.0 72.0 720.0Project Management 25% 20.5 25.2 20.6 20.4 20.0 20.0 126.7

1641 3 5A 4532 549.6 4412 3. 2.266.2

Physical Contingencies (Pesos Ml Conts %Community Devt & Tech Spt 7% 0.6 2.2 2.7 2.5 1.9 1.7 11.6Infrastructure 10% 6.3 18.8 25.1 31.3 25.1 18.8 125.4Agriculture/Enterprise Devt. 10% 7.2 10.8 14.4 18.0 14.4 7.2 72.0Project Management 7% 1.4 1.8 1.4 1.4 1.4 1.4 8.9

15.5 33.6 43.8 12 42.7 29.1 217.

Price Contingencies (Pesos M)Community Development & Tech Support 1.2 6.7 11.0 12.9 11.4 12.1 55.4Infrastructure 8.5 40.5 73.8 116.2 111.4 98.1 448.4Agriculture/Enterprise Devt. 9.7 23.3 42.4 66.7 64.0 37.5 243.6Project Management 2.7 5.3 5.9 7.3 8.6 10.2 40.0

221 133 1 A 2Q2 191.1 1572 787.5

TOTALS COSTS Indudina Continaencies (Pesos MtCommunity Development & Tech Support 10.9 41.1 52.3 51.3 39.8 37.5 232.9Infrastructure 77.4 247.3 349.6 460.9 387.2 304.9 1,827.3Agriculture/Enterprise Devt. 88.9 142.1 200.8 264.7 222.4 118.7 1,035.6Project Management 24.7 32.3 27.9 29.1 30.1 31.6 175.6

TOTALS 201.9 462.7 630.5 808.1 679Z4 4.8 3.271.5

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Page 4 of 8

Table 4. COMMUNITY DEVELOPMENT & TECHNICAL SUPPORT COMPONENT (Pesos '000)

Year 1 Year 2 Year 3 Year 4 Year 5 Year S TOTAL -Financed by-COST DAR/NG ARCs

No. of ARCs (cumulatve) 10 80 90 100 100 100Community Development Workers (NGO) No. 30 45 50 50 20 20

Community DevelopmentCommunity Development Workers Costs

- Salary: P8,000/ month 2,340 3,510 3,900 3,900 1.560 1,560 16,770 16,770- Travel Expenses: P1,000/month 360 540 600 600 240 240 2,580 2,580- Bonus: P 1,000/yr 30 45 50 50 20 20 215 215- Overhead60%ofCDWcost 1.638 2,457 2,730 2,730 1,092 1,092 11,739 11,739

On-site Group Meetings(Meals P50/pax50 pax; 12 meetings/year/ARC) 300 1,800 2,700 3,000 3,000 3,000 13,800 13,800

Coimnunity Planning(P10.000 for Yr 1/bgy) 300 1,800 2,700 300 600 600 6,300 6,300

FSD module(P1000,001/ARC) 1,000 5,000 3,000 1,000 1,000 1,000 12,000 12,000

Offsite meetings (1 day)(P250/meeting. 8/rARC for 3 consecutive yrs) 20 120 180 180 200 200 900 540 360

Sub-total Community Development 5,988 15,272 15,860 11,760 7,712 7,712 64,304 50,144 14,160

Organleatlonal DevelopmentCoop Development (On-site)(P22,500/3daysession 3conseculiveyrs/ARC) 225 1,350 2,025 2,025 2,250 2,250 10,125 6,750 3,375

Leadership Training(P22,500/3daysession 3consecutiveyrs/ARC) 225 1,350 2,025 2,025 2,250 2,250 10,125 6,750 3,375Decision-making Training(P22.5DO/3 daysessioni2inyrs 1&3IARC) 225 1,125 900 1,350 675 675 4,950 3,450 1,500Introductbon to Financial mngt &

enterprise development(P22,500/3daysession*3consecutiveyrs/ARC) 225 1,350 2,025 2,025 1,125 675 7,425 4,950 2,475

Issue-based seminars(P10,000/2 days'2 in Yrsl &3 /bgy) 300 1,500 1,200 1,800 900 300 6,000 3,000 3,000

Cross-visits(P40,000: 10 persons/yr/ARC) 400 2,400 3,600 4,000 4,000 4,000 18,400 16,100 2,300

Sub-total Organisatonal Development 1,500 9,075 11,775 13,225 11,200 10,150 57,025 41,000 16,025

Technical Support (Training & Business Advice)Business Management Training(P2ODO/paxx*5pax/ARC 3) 105 630 945 945 525 315 3,485 3,300 185

Financial Management Training(P2,000/pax'Spax/ARC-3) 105 630 945 945 525 315 3,465 3,300 185

Basic Accounting Course(P2,000/pax ' 10 paxlARC ' 2 for 75% of ARCs) 158 945 1,260 788 473 3,824 3,452 173

Advanced Accounbng Course(P3,000/pax'5pax/ARC 2for75%ofARCs) 136 136 698 930 582 349 2,830 2,703 128

IPM/Farming Systems/Sustainable Agriculture(PlO,O0O/training:4trainings/ARC) 100 600 1,800 2,000 800 400 5,700 3,990 1,710

Apprentceship Sponsorship(P20,000'2paxl30%ofARCs) 120 800 360 360 360 360 2,180 2,180

Marketing Support & Assistance(P25.000/ARC for 3 yrs) 250 1,500 2,250 2,500 2,500 2,500 11,500 10,600 900

Sub-total Technical Support 974 5,041 8,258 8.488 5,785 4,239 32,744 29,504 3,240

Staff DeveopmentAdvanced Community Development(P1100001 pax(DF)/ARCInYr.1) 100 500 300 200 200 100 1,400 1,400

Business Management(P5,000/pax: 2 pa/ARC) 100 500 300 100 200 200 1,400 1,400

FinancIal Management(P5,000ipax :2 pax/ARC) 100 500 300 100 200 200 1,400 1,400

Technical Training(P5,000/pax: 2 pcx/ ARC' 5) 100 600 900 1,000 200 200 3,000 3,000

Field Monitoring & Evaluation(P10,0001AC/r) 100 600 900 1,000 1,000 1.000 4,600 4,600

Sub-towl Staff Development 500 2,700 2,700 2,400 1,800 1,700 11,800 11,800

TOTALS 90tL 32ORR 'AR193 35P3 28477 23.80n1 I AZa7 1,37448 33,42

100.0% 79.8% 20.2%

- 59 - Annex 2Page 5 of 8

Table 5. PROJECT MANAGEMENT COSTS (Pesos '000)

Unit No. of Unit Cost TOTAL Financed By:Unie P 000 YearI Year2 Yasr3 Year4 Year6 Year6 COST WB DAR

Capital EquipmentCentral Prolect Office

Computer and PrinterDesk Top Computers & Printem Unit 8 S0 480 480 437 43Laptop Computem Unit 4 75 300 300 273 27Laser Printers Unit 2 S0 100 100 91 9SupportPowerSupply Unit 4 25 100 100 91 9Computer Software Value 1 250 2S0 250 228 23

Office EaulamenPhoto Copier Unit 2 160 320 320 291 21Fax Machine Unft 1 25 25 25 23 2AirCondiUoner Unit 3 40 120 120 109 11Office Fumiture Set 1 300 300 300 273 27

Vehicles

Passenger Vehicle Unit 2 450 S00 900 819 81Four-whsil Drive Pick-up Unit 1 750 750 750 6S3 183

Provincial OfficesComoutem and Printers

Desk Top Computer & Printer Unit 20 S0 360 840 1,200 1,092 103Support Power Supply Unit 10 25 75 17S 250 228 23ComputerSoftware Value 1 250 75 175 250 228 23

Ofltc hulmanPhoto Copier Unit 10 80 240 860 800 728 72Fax Machines Unit 10 26 75 175 250 228 23Office Fumiture Set 10 130 390 110 1,300 1,183 117

Vehicles125 cc Motorcycles Unit 50 so 900 2,100 3,000 2,400 600

Sub-total Capital Equipment 5,760 4,935 10,698 9,282 1,413

Professional Staff/ServicesCentral Prolect Offce

CPO Director Manmth 72 94 1,123 1,128 1,128 1,128 1,128 1,128 8,768 6,788 0Chief Rural Infrastructure Eng. Manmth 72 56 672 672 672 672 672 672 4,032 4,032 0M&E Speciallst Manmth 72 40 480 480 480 480 480 480 2,880 2,880 0Senior Economiat Manmth 72 43 516 816 516 516 518 816 3,096 3,096 0Chief FinancialAdmin. Officer Manmth 72 40 480 480 480 480 480 480 2,880 2,880 0Administrative Officer Manmth 72 40 480 480 480 480 480 480 2,880 2,880 0OtherEnginers Manmth 144 30 720 720 720 720 720 720 4,320 4,320 0Economists/FInancial Analyst Manmth 144 30 720 720 720 720 720 720 4,320 4,320 0Community Development Spec. Manmth 72 26 300 300 300 300 300 300 1,800 1,800 0Agribusiness Specialist Manmth 72 40 480 480 480 480 480 480 2,880 2,880 0ConsultancySupport(lnclAgBus) Manmth 72 78 936 336 936 936 936 936 5,616 5,616 0

Provincal OfficesProvincial Econ. Dev. Advisors Manmth 636 39 1,404 4,860 4,880 4,580 4,680 4,650 24,804 24,804 0

Sub-total Professional StaflfServices 8,316 11,862 11,892 11,192 11,592 11,892 68,276 66,278 0

Support Staff/Other CostsCPO Supoort Staff Costa b Other Services Manmth 2,376 2 792 792 792 792 792 792 4,752 0 4,752PMBIHonorarla 1 1,300 300 300 300 300 300 300 1,800 0 1,800CPO Runnin CostVehicle Repsir & Maintenance Value 1 600 70 70 90 100 120 150 600 600 0Vehicle Fuel & Oil Value 1 Boo 100 100 100 100 100 100 600 600 0OMce Supplies Value 1 1,130 150 186 200 200 200 200 1,130 1,130 0Staff Tral v Subsistence Value 1 8,0S0 1,000 1,800 1,500 1,500 1,500 1,500 8,500 3,500 0,Office Rental Month 100 72 1,200 1,200 1,200 1,200 1,200 1,200 7,200 0 7,200Power&Wster Month 25 72 300 300 300 300 300 300 1,800 0 1,800Communicadons Month 15 72 180 180 180 180 180 180 1,080 0 1,080Other Servkes (JanitorlaiRepalr) Value 1 2,100 300 S0 S00 S00 500 500 2,800 0 2,300

ARC Related Provincial & Field Staff CosbTravalandSubsbtence MsnYr 700 11 700 1,40 1,400 1,400 1,400 1,400 7,700 0 7,700MICycle Running Costa Mclyr 265 12 150 600 600 600 S00 600 3,180 0 3,180Support Staff A Other Services Manmth 6,768 1 628 1,223 1,226 1,228 1,228 1,228 6,768 0 6,786

Staff Trminino A SeminamMonitoring A Evaluaton Coumre Coume 2 1S0 180 180 380 360 0Project Management Coumes Course 2 210 210 210 420 420 0Rura Development Coumes Coumr 2 130 180 10 360 360 0Agriculture Courses Course 2 180 1S 180 360 360 0Community Development Coumes Course 2 1S0 180 10 360 350 0

Sub-total Support StaffS Other Costs 6,470 3,710 8,00 8,760 8,420 8AN 4S,770 12,0!0 37,080

TOTALS 20,54S 25,237 20,852 20,382 20,012 20,042 126,741 88,248 38,493

100.0% 69.8% 30.4%

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Page 6 of 8

Table 6. PROJECT FINANCING BY COMPONENT & YEAR

Financing -Average RatiosARA LQU DARING L&E W Toa

Community Development & Tech Support 20.2% 79.8% 100.0%Infrastructure 10.6% 7.9% 3.1% 0.3% 78.1% 100.0%AgriculturelEnterprise Devt. 37.0% 3.0% 60.0% 100.0%Project Management 30.4% 69.6% 100.0%

Financing -With Contingencies by Agency (Pesos M)ARCs L5iU DARING LEE WB Iobl Percent

Community Development & Tech Support 47 0 186 0 0 233 7.1%Infrastructure 193 144 56 6 1,427 1,827 55.9%AgrculturelEnterprise Devt. 383 0 31 621 0 1,036 31.7%Project Management 0 0 53 0 122 176 5.4%

Total Costs gm 144 32z 628 5 3271 100.0%

Financing -With Contingencies by Agency (US$M)ARCs LS _ LUE yD ITobl Percent

Community Development & Tech Support 1.5 6.0 0.0 0.0 7.5 7.1%Infrastructure 6.2 4.6 1.8 0.2 46.0 58.8 55.7%Agriculture/Enterprise Devt. 12.4 1.0 20.2 0.0 33.6 31.8%Project Management 1.7 0.0 4.0 5.7 5.4%

Total Costs 2Q.Z4 2MA 50.0 1Z 100.0%

Percent 19.1% 4.4% 10.0% 19.3% 47.3% 100.0%

Financing by Year - With Contingencies (USSM)Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

By AgencyARCs 1.5 3.0 4.0 5.0 4.1 2.5 20.2LGU 0.2 0.7 0.9 1.2 1.0 0.7 4.6DAR 0.8 1.9 2.2 2.3 1.9 1.6 10.6LBP 1.9 2.9 4.0 5.1 4.2 2.2 20.4World Bank 2.8 7.4 9.6 12.2 10.1 7.9 50.0

Total Financing L.2 1g.f 2Q ZLfl 21.2 14.9 1057

By ComponentCommunity Development & Tech Support 0.4 1.4 1.7 1.6 1.2 1.1 7.5Infrastructure 2.7 8.4 11.5 14.8 12.1 9.3 58.8Agriculture/Enterprise Devt. 3.2 4.8 6.6 8.5 6.9 3.6 33.6Project Management 0.9 1.1 0.9 0.9 0.9 1.0 5.7

Total Costs 12 15 2Q.A Z5. 212 14. 10.;

Table 7. PROJECT FINANCING BY SUB-COMPONENT (Pesos M)

-inancing Proportions by Asency AMOUNTS FINANCED BY AGENCY YProject W LGU NGIDAR LBP ARCs WB LGU NG/DAR LBP ARCs

CostPesos M

COMMUNI DEV MAND TECH SUPPORTCommuwniyDevlopment 64.3 - 78.0% - 22.0% - - 50.1 - 14.2

Orgmizantional Devslopmmt 57.0 7- 1.9% - 28.1% - - 41.0 - 18.0

Tedmical Support 32.7 - 90.1% - 9.9% - - 29.5 - 3.2

Staff Developmeit 11.8 - 100.0% - - - - 11.8

TOTAL COMMUNITY DEVANO TECH SUPPORT 165.9 - 79.8% 20.2% 132.4 - 33.4

INFRASTRUCTUREROADSR.conatrution 204.8 81.0% 150% - - 4.0% 165.8 30.7 - - 8.2

RelhbWlitaiori 275.2 80.0% 15.0% - - 5.0% 220.1 41.3 13.8

Briks 130.0 80.0% 15.0% - - 5.0% 104.0 19.5 6.5

Fom-Me" Aua 54.6 50.0% 10.0% - - 40.0% 27.3 5.5 - - 21.8

Sub-total Roads 664.5 77.8% 14.6% - - 7.6% 517.3 97.0 - - 50.3

IRRIGATIONRuhdbitaon 269.5 82.0% 8.0% 10.0% 221.0 - 21.6 - 27.0

Ngw/ExlMuion 214.5 82.0% 8.0% 10.0% 175.9 17.2 - 21.5

Sub-totel Irrigation 484.0 82.0% - 8.0% - 10.0% 396.9 - 38.7 - 48.4

OTHER INFRASTRUCTUREef.rSLA*I 63.0 70.0% 30.0% 44.1 - 18.9

MuJU.PsaposNf 21.0 30.0% 20.0% 50.0% 6.3 - - 4.2 10.5

O0w 21.0 70.0% 10.0% 20.0% 14.7 21 - - 4.2

Sub-otal Ohw Irfrasbcue 105.0 65.1 2.1 4,2 33.6

TOTAL INFRASTRUCTURE 1,253.5 78.1% 7.9% 3.1% 0.3% 10.6% 979.3 99.1 38.7 4.2 132.3

AG88CULTUIREIENTERPRISECmps (wtowuntl VWC) 320.0Livaodc 200.0PtolaGTrads 200.0

TOTAL AGRICULTURE & ENTERPRISE DEVT 720.0 - - % 6.% 37.0% - - 21.6 432.0 266.4

PROJECT MANAGEMENTEwmwt&Vehicles 10.7 86.8% - 13.2% - - 9.3 - 1.4 - -

Profnuuoral Staf 63.3 100.0% - - 66.3 - - - -

Oer Costa 49.8 25.5% 74.5% - - 12.7 37.1

TOTAL PROJECT MANAGEMENT 126.7 69.8% - 30.4% - - 88.2 - 38.5 - -

TOTAL BASE COSTS 2,266.2 47.1% 4.4% 10.2% 19.2% 19.1% 1,067.5 99.1 231.3 436.2 432.1 ID

-Phyalal Corencs 217.8- Prib Cork*orciea 787.5 0 X

TOTAL PROJECT COSTS 3,271.5 47.4% 4.4% 10.0% 19.2% 19.0% 1,649.8 144.4 326.8 627.5 623.0 CO ta

Table 7(a). PROJECT FINANCING BY SUB-COMPONENT (US$ '000)

-Rw-----Fnancing Pmportins by Agency AMOUNTS FINANCED BY AGENCYProded WB LGU NGIDAR LAP ARCs WB LGU NGIDAR LBP ARCs

CostPeos M

COUMUNITY DEV AND TECH SUPPORTCommuity Dopnert 2.5 - - 78.0% - 22.0% - - 1.9 - 0.5O 0grkationsl Develpment 2.2 - - 71.9% - 28.1% - - 1.6 - 0.8TeodvtcsSupport 1.3 - - 90.1% - 9.9% - - 1.1 - 0.1StUffDvsiopnM 0.5 - - 100.0% - - - - 0.5 - -

TOTAL COMMUNIfY DEV AND TECH SUPPORT 6.4 - - 79.8% - 20.2% - - 5.1 - 1.3

IIIRASIRUCTUREROADSRFe -tiion 7.9 81.0% 15.0% - - 4.0% 6.4 1.2 - - 0.3R I It" n 10.6 80.0% 15.0% - - 5.0% 8.5 1.e - - 0.5Bridgp 5.0 80.0% 15.0% - - 5.0% 4.0 0.8 - - 0.3Fwm-MUrkAcoS 2.1 50.0% 10.0% - - 40.0% 1.1 0.2 - - 0.8

S-loW Roads 25.6 77.8% 14.6% - - 7.6% 19.9 3.7 - - 1.9

IRIWGATIONRs h_cn 10.4 82.0% 8.0% 10.0% 8.5 - 0.8 - 1.0N _eEfluuion 8.3 82.0% 8.0% 10.0% 6.8 - 0.7 - 0.8

Sat.kgdEl. gipn 18.6 82.0% - 8.0% - 10.0% 15.3 - 1.5 - 1.9

OTHER WdFRASTRUCTURE.sr StWp 2.4 70.0% 30.0% 1.7 - - - 0.7

SU-Pupo_ HNd. 0.8 30.0% 20.0% 50.0% 0.2 - - 0.2 0.4OW 0.8 70.0% 10.0% 20.0% 0.6 0.1 - - 0.2

S'l4-to Otter ItrAssaxe 4.0 2.5 0.1 0.2 1.3 1

TOTAL INFRASTRUCTURE 48.2 78.1% 7.9% 31% 0.3% 10.6% 37.7 3.8 1.5 0.2 51

AGRICULTUREI_TERPSECrps (icrsmua WC) 12.3LlnWO 7.7P. gN*WclTrd 7.7

TOTAL AGRICULTURE & ENTERPRISE DEVT 27.7 - - % 60.0% 37.0% - - 0.8 16.6 10.2

PROJECT MANAGEMENTEqA*xnrB&Vhi*S 0.4 8B.8% - 13.2% - - 04 0.1 - -P.eorml SWl 2.5 100.0% - - - - 2.5 - - - -

OerCosts 1.9 25.5% 74.5% - - 0.5 1.4

TOTAL PROJECT MANAGEMENT 4.9 69.6% - 30.4% - - 3.4 - 1.5 -

TOTALBASECOSTS 87.2 47.1% 4.4% 10.2% 19.2% 19.1% 41.1 3.8 8.9 16.8 16.6

* Ptfl Co ot.nci 8.4- Prkm Corrl*ie 10.2

TOTALPROJECTCOSTS 106.7 47.3% 4.4% 10.0% 19.3% 19.1% 50.0 4.6 10.i 20.4 20.2 0P

0 M

OD ,X

- 63 -

Annex 3

PHILIPPINES

AGRARIAN REFORM COMMUNITIES DEVELOPMNNT PROJECT

Disbursement Schedule 1/

(US$ million)

Cumulative CumulativeBank Fiscal Cumulative Disb. as % % of StandardYear/Semester Disbursement Disbursement of the Loan Disb. Profile 2/

FY 97Second 0.9 0.9 1.8 0.0

FY 98First 1.1 2.0 4.0 6.0Second 2.6 4.6 9.2 10.0

FY 99First 3.6 8.2 16.4 14.0Second 5.1 13.3 26.6 22.0

FY 2000First 5.4 18.7 37.4 30.0Second 5.4 24.1 48.2 42.0

FY 2001

First 5.4 29.5 59.0 50.0Second 4.5 34.0 68.0 58.0

FY 2002

First 4.3 38.3 76.6 66.0Second 3.0 41.3 82.6 78.0

FY 2003

First 3.0 44.3 88.6 86.0Second 3.0 47.3 94.6 94.0

FY 2004First 2.7 50.0 100.0 98.0Second 100.0

1/ Loan effectiveness and closing dates are assumed to be on November 30, 1996and April 30, 2003, respectively.

2/ For all regions agricultural projects as of June 30, 1995.

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Page 1 of 2

PHILIPPINES

AGRARIAN REFORM COMMUNITIES DEVELOPMENT PROJECT

THE CENTRAL PROJECT OFFICE

1. The Central Project Office (CPO) would be responsible for managing,monitoring and evaluating, and coordinating all project activities. It wouldliaise with the Bureau of Local Government Funding (BLGF) on the MunicipalDevelopment Fund (MDF) matters, Land Bank of the Philippines (LBP) for creditoperations, and relevant Government of the Philippines (GOP) agencies such asDepartment of Budget and Management (DBM), Department of Finance (DOF),Department of Trade and Industry (DTI), National Irrigation Administration (NIA),Department of Public Work and Highways (DPWH), Department of Agriculture (DA),Department of Environment and Natural Resources (DENR), Bureau of Soil and WaterManagement (BSWM), Local Government Units (LGUs), NGOs, and People Organizations(POs). The CPO would report to the Department of Agrarian Reform (DAR) throughthe Project Management Board (PMB), which would be chaired by DAR and wouldcomprise representatives of DOF, DBM, DA, NIA, LBP, and the National EconomicDevelopment Authority (NEDA). The CPO Director would serve as the PMB Secretary.The CPO would prepare the annual project work program and the respective budgetfor PMB's approval. The PMB would also formulate policy guidelines for theimplementation of the project. Terms of reference for various key positions ofthe CPO are presented in Appendix A.

CPO Composition

2. To effectively undertake its tasks, the CPO would maintain high levelprofessional staff with competence in sub-project investment appraisal, planning,budgeting and financial processing, monitoring and evaluation, and ruralinfrastructure engineering. The CPO would consist of the following four units:

(a) Sub-project Investment;(b) Technical Support;(c) Administration and Finance; and(d) Monitoring and Evaluation.

3. The Sub-orolect Planning and Appraisal Unit would provide assistance in thepreparation and review of development plans proposed by the ARCs. It wouldappraise ARCs' infrastructure sub-projects and submit its recommendations forproject financing, through the MDF, either in the form of loans and/or grants.The unit would be headed by a qualified and experienced person (senior ruralinfrastructure engineer or economist/financial analyst), and would be assistedby 3 engineers, agriculturist, and economist/financial analyst.

4. The Technical Support Unit would provide assistance to the ARCs in theareas of agriculture and enterprise development, as well as in communitydevelopment activities. The unit would be staffed by two specialists: the

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Page 2 of 2

agribusiness specialist, and the community development specialist. Theagribusiness specialist would assist, supervise, and provide guidance to the tenProvincial Economic Development Advisers (PEDAs) assigns to the projectparticipating provinces. He/she would be responsible for the implementation ofthe agriculture and enterprise development component including the coordinationwith the DA, DTI, and LBP. The community development specialist would beresponsible for developing system for the selection and deployment of NGOs aswell as providing assistance in the implementation of the community developmentand technical assistance component.

5. The Administration and Finance. Unit would be responsible for budgeting,accounting, bookkeeping, Bank loan disbursement (reimbursement and/or the use ofthe project Special Account), and provision of general administrative support tothe project, particularly to the CPO and its units. Headed by the projectfinancial controller, he would be assisted by accountants, bookkeepers, propertycustodian and other support staff.

6. The Monitoring and Evaluation (M&E) Unit would be responsible for thedesign and implementation of the project monitoring system. The unit wouldassist, through the provision of timely progress reports and the identificationof outstanding issues, in the conduct of project evaluation and review. The unitwould be staffed by technical staff with adequate experience in M&E work, as wellas support staff, and would be headed by a M&E specialist.

7. It is envisioned that the CPO would comprise about 45 staff including theCPO manager. At full operation, the CPO would have about 10 high levelprofessional staff, 10 PEDAs, and about 25 technical and support staff. It isexpected that, most of the CPO staff would be seconded from DAR or otherGovernment agencies. However, provision would be made, under the project, forhiring professional services on a need basis. The project organization chart isshown in the Project's Operations Manual.

8. Facilities and Technical Assistance. The project would provide funds forthe procurement of office equipment and furniture, basic transport, developmentof a computerized local area network to enable the CPO to function efficiently.Technical assistance would also be provided for the design and installation ofthe supplemental monitoring systems, conduct of baseline surveys and projectperformance evaluation. The above facilities and funds would be additional tothose already available within DAR.

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Annex 4Appendix APage 1 of 7

TERMS OF REFERENCE FOR CPO'S KEY POSITIONS

A. Proiect Director

1. The project director will be responsible for the day to day operation ofthe Agrarian Reform Community Development Project (ARCDP) and will have a directresponsibility of the efficient and effective functioning of the Central ProjectOffice (CPO). With policy guidelines from the Project Management Board (PMB) towhich he/she will be accountable to, he/she will implement the project followingthe provisions of loan and project agreements (with the World Bank) and theproject's Operations Manual approved by the PMB and the World Bank.

2. Specifically he/she would:

(a) Set up the central project office and with the assistance of his/herstaff will develop and implement the following: (i) sub-projectapproval system covering technical, financial, economic, social, andenvironment aspects; (ii) M&E systems; (iii) administrative andfinancial systems, including internal control program; and (iv)NGOs' selection and deployment mechanisms.

(b) Promote the project and ensure its successful implementation.

(c) Maintain effective working relations with and among project partnerssuch as LGUs, MDF, other related Government agencies, LBP, NGOs, andPOs.

(d) Provide directions in the day to day activities of the CPO units.

(e) Ensure the preparation and the submission to the PMB and the WorldBank a periodic project progress reports highlighting theoutstanding operational issues.

(f) Liaise with the World Bank, DBM, and other entities related to theapproval of budget, disbursement, and replenishment of projectfunds.

(g) Assist the PMB in deliberations on all project related subjectsincluding sub-project proposal evaluations.

(h) Ensure that funds are made available for all project components inadequate amount and at the right time.

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Annex 4Appendix APage 2 of 7

(i) Ensure that contracts or agreements related to the project aredrafted adequately and are executed in accordance with the terms ofsuch contracts/agreements.

(j) Other duties as the PMB may assign.

3. Oualification Recquirements. The position would require a minimum of 10years experience in management, of which 5 years would represent directmanagement experience of relatively large scale rural development project. Asidefrom general management capacity, he/she would be well versed in projectplanning, appraisal, and evaluation. A mix of successful management experiencein community development, rural infrastructure, and agricultural development iscrucial. Graduate certificate (Bachelors degree, Masters preferred) inmanagement and bachelors degree either in engineering, economic, agriculture orrural development fields comprise part of minimum entry requirements.

B. Chief Rural Infrastructure Engineer (CRIE)

1. The CRIE would be locally contracted or seconded from another governmentagency and would be based in the CPO. He/she would manage in accordance with theproject's Operations Manual the rural infrastructure component of the project andbe responsible for all matters related to the implementation of this component.Specifically, the CRIE would:

- conduct a thorough evaluation of relevant LGUs to determine theireligibility for project support in relation to their technical,administrative and financial capacity to implement proposed ruralinfrastructure activities;

- review specifications for rural infrastructure works (rural access,irrigation and community infrastructure) and prepare and agree onstandard designs and specifications for use by LGUs' and the NationalIrrigation Administration (NIA);

- define the scope and purpose of the standard work items to beundertaken by LGUs and NIA;

- carry out inspection of selected sites, advise LGUs and NIA on thesurveys needed, procedures for drawing up the bills of quantities forforce account work based on standard work items, advise and explain thework standards required by the project;

- establish mechanisms and standard costs to be used in determining thework item unit costs that would be used as the means to release funds

1/ In this context, the term LGUs refers to provincial and municipalengineering offices and/or their implementing agencies.

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Annex 4Appendix A

Page 3 of 7

to LGUs for completed work and establish procedures for approvingvariations in planned work and for resolving claims for extra payments;

- review contractors claims for additional payments, extension of time orother such claims and make recommendations on appropriate actions to betaken; and

- propose revision (where necessary) to procedures, standards,specifications and work item unit cost calculations.

2. The CRIE would work closely with LGUs and NIA and implementing agencies inall aspects of the project, and ensure that competitive bidding and othercontractual procedures conform with the requirements of the Bank and theGovernment (Tenders Board) . He/she would report directly to the Project Managerof the CPO. The CRIE would hold a professional qualification in civilengineering, and be a member of the Philippine Institution of Civil Engineers,or equivalent organization recognized by this institution.

3. Oualification Recuirements. The CRIE would have at least five yearsexperience of implementing rural infrastructure in the Philippines includingdesign, construction and maintenance of all-weather gravel roads, irrigationworks and rural water supplies. He/she should have also adequate knowledge andexperience in carrying out these works without adversely affect the environment.The RIE would have technical and administrative experience of civil worksundertaken on force account and using contractors. The CRIE would haveexperience in preparation of contract tender documents, evaluation of contractbids and, the use of labor intensive methods. The CRIE would be engaged on afull-time basis for the six year period of the project.

C. Community Development Coordinator (CDC)

1. The CDC would be locally contracted or seconded from another governmentagency and would be located at the CPO. The CDC would manage and be responsiblefor all matters related to the Community Development and Technical Support(CD&TS) Component of the project, and in particular, for the implementation ofthis component in accordance with the project's Operations Manual. Specificallythe CDC would:

(a) coordinate with the FAO-TSARRD its input regarding the communityplanning process, monitoring and improving the effectiveness of theprocess and ensuring that community priorities are followed up;

(b) coordinate with the CPO's M&E specialist and the FAO-TSARRD theproduction and analysis of the baseline data collected through theFarming System Development Program and subsequent evaluation;

(c) coordinate with DAR Provincial Office the accreditation and selectionprocess of NGOs including the related MOAs, particularly to ensure

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Annex 4Appendix APage 4 of 7

that the NGOs are fully conversant with and endorse the specificobjectives and strategies of the project;

(d) assist NGOs in the implementation of the community organizingactivities, monitoring feedbacks on these support activities at theARC level through DAR's Development Facilitators (DFs), LGUs, and thedirectly from the ARCs' organizations and members;

(e) verify the training needs of the community and identify suitableresource organizations to conduct the training program, ensure theadequacy of the training syllabus and advise the selected trainersof its content, and facilitate in the carrying out of these trainingcourses.

2. The CDC would work closely with the Provincial Economic DevelopmentAdvisors (PEDAs), DAR central and field offices, LGUs, NGOs, and FAO-TSARRD toensure that all aspects of the CD&TS component is implemented effectively and inaccordance with the priorities stated by the communities. The CDC would reportdirectly to the Project Manager of the CPO and would closely coordinate withother professional staff of the CPO.

3. Qualification Recruirements. The CDC would have at least five yearsexperience in economic-oriented community development, with a minimum of twoyears at managerial level. Experience of working with NGOs and ruralcooperatives would be an advantage. The CDC must be ready to spend at least 40%of his/her time visiting ARCs and their sub-projects.

D. Monitoring and Evaluation Specialist (MES)

1. The MES would be locally contracted (or seconded from another governmentagency) and would be located in the CPO. He/She would coordinate and manage theMonitoring and Evaluation (M&E) unit of the CPO. More specifically, the MESwould:

(a) design and install effective M&E system for the project, detailingrequired indicators in line with project objectives and itsOperations Manual, data flow, responsible agencies for collecting ofdata and methods of analysis and reporting;

(b) ensure that all agencies and personnel involved in data collectionfully understand the M&E system and submit the required data in atimely, complete and accurate manner;

(c) coordinate with FAO-TSARRD and the CPO CD Specialist in productionand analysis of the baseline data collected through the FarmingSystem Development (FSD) Program and through subsequent evaluations;

(d) be responsible for the preparation of monthly progress reports basedon information submitted to the CPO and collected by CPO staff, DAR

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Annex 4Appendix APage 5 of 7

and other implementing agencies; ensuring that the report format isappropriate as a basis for managerial decisions by the CPO and thePMB;

(e) be responsible for designing and preparing the mid-term and end ofproject evaluations and analyses, and any other targeted studies ofcertain aspects of project operation deemed necessary by the ProjectManager and the PMB.

2. The MES would report directly to the Project Manager and would work closelywith other staff of the CPO, DAR central office and its field staff, LGUs. FAO-TSARRD and other agencies involved in project implementation to ensure that allaspects of the project are effectively monitored.

3. Qualification Reauirements. The MES would have at least five yearsexperience in project management at executive level, with a minimum of one yearof specific experience in managing a monitoring and evaluation system. A provenrecord of designing M&E systems and the familiarity with the appropriate computersystem would be desirable.

E. Provincial Economic Development Advisor (PEDA)

1. A PEDA would be deployed for each province of project operation. The PEDAwould be locally contracted or seconded from another government agency, would belocated in DAR provincial office and would be reporting to the CPO. The PEDAwould facilitate the implementation of the project in accordance with theproject's Operations Manual and within the designated province, coordinate amongARCs, LGUs, DAR, NIA, LBP, and other support organizations, particularly in thepromotion, preparation, and the operation of income generating activities withinthe respective ARCs. Specifically, the PEDA would:

(a) oversee all aspects of project implementation at the provincial andmunicipal levels on a day-to-day basis, acting as a projectrepresentative during project activities in the absence of relatedCPO professionals;

(b) be actively involved in the ARC planning process, in particularacting as a resource person to explain the economic focus of theproject and to organize/provide basic training to the members andleaders of the ARCs on matters related to the potential feasibilityof their priority activities, including assessment of communitycapability for contribution to project activities;

(c) provide direct business advice to ARCs and their POs on theopportunities available to them on the findings of the FSD course,their proposed and current economic activities, conductingfeasibility estimates on medium-scale enterprises, assisting the POs

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Annex 4Appendix APage 6 of 7

in obtaining LBP's credit facilities through the preparation ofdetailed technical and financial feasibility studies where required;

(d) assist the Community Development Specialist and DAR staff inidentifying suitable resource organization, assessing training needsfor cooperative members and their leaders, agriculture and businessdevelopment, and organizing training courses;

(e) investigate marketing linkages within the province for the ARC primecommodities and other potential products, effecting market linkagesamong potential buyers and the ARCs where possible, but withoutbecoming directly involved in commercial negotiations.

2. The PEDA would act as a CPO counterpart to the DAR CARPO designated to beresponsible for the project within the province, advising on project policy andimplementation methodology. The PEDA would report directly to the CPO Agri-business Specialist and work closely with other CPO staff, DAR provincial officeand field staff, LGUs, FAO-TSARRD, and support agencies to ensure that allaspects of the project are effectively implemented.

3. Oualification Reauirements. A PEDA would have at least five yearsexperience in the agri-business field, preferably in private sector management;college education in agriculture or business. Additional experience of workingwith cooperatives would be an advantage. As the position would require workingclosely with the POs and also with Provincial Officials, the PEDA should be ofsufficient maturity and sensitivity to operate at each level.

F. Chief Economist/Head of Sub-orolects Apnraisal Unit

1. The head of the Sub-project Appraisal Unit (SAU) would be locallycontracted or seconded from another government agency and would be located at theCPO. He/she would be responsible for effectively and efficiently carrying out theapproval process of all sub-component investments funded by the project andensure that final approval would be obtained, based on the agreed criteria, ina timely manner. Specifically the Head of the SAU would:

(a) manage the sub-projects' appraisal process, and take responsibilityfor ensuring that the CPO has the appropriate skills to focus onreviewing each individual sub-project proposal;

(b) set up investment benchmarks to be used in initial sub-projectscreening for different types of investment and establish detailedmodels and working procedures so that LGUs and other agencies suchas NIA are clearly aware of the methodology used in sub-componentevaluation;

(c) establish and disseminate a set of procedures (in line with theOperations Manual) to ensure an orderly and timely flow of componentinvestment proposals;

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Appendix APage 7 of 7

(d) together with the Project Manager agree on a series of time-boundprocessing targets for sub-projects' appraisal process;

(e) together with the M&E specialist, establish a system of recording andmonitoring the appraisal process, to allow the evaluation of the SAUperformance;

(f) arrange seminars and training for the PEDAs, NIA and LGUs relatedstaff in sub-component preparations.

2. The Head of the SAU would work closely with all CPO professional staff andvarious specialist consultants, contracted to participate in individual sub-projects' preparation. He/she would also maintain contact with both public andprivate sector agencies involved in rural economic and development activities andensure the flow of up-to-date information which would be necessary to guaranteethe quality of the appraisal process. Most appraisals would be conducted byteams of 2-3 persons, including both technical and analytical skills. Animportant part of the Head of the SAU's job would be the selection, motivation,and supervision of these teams. Initially he/she would be expected to undertakeand actively participate in sub-projects appraisals. While the position wouldbe head office based, a considerable amount of travel, including site visitswould be required.

3. Qualification Reauirements. The SAU Head would either be an economist witha strong background in rural infrastructure and environment operations, or anengineer with training and experience in economics and environment. He/she wouldbe a university graduate, preferably to at least master degree level and wouldhave at least ten years professional experience including a minimum of two yearsat managerial level. At least three years of the professional experience wouldhave been 'hands on' in investment project preparation and appraisal.

I

-73 - Annex 5Page 1 of 5

PHILIPPINES

AGRARIAN REFORM CORMUNITIES DELOPMZNT PROJECT

SUB-PROJECT ELIGIBILITY CRITERIA

A. Community Development Eligibility Criteria

Selection Criteria of Priority Provinces:

1. These criteria are based on DAR proposals and discussions with BARBD andPDMS.

(a) CARP LTI Program has almost been completed (minimum of 70%accomplishment/scope ratio)

(b) Relatively big land distribution accomplishment in absolutehectarage (minimum of 20,000 has)

(c) LGU willingness and capability to participate in the Project(Provincial level)

(d) Overall maturity level of farmer organizations

(e) Presence of reputable NGO/potential partner in the area

2. Provinces with other large programs are disqualified from the project, asare provinces with an unstable peace and order situation. SRA provinces whichfulfil the above priority would be given preference.

Criteria for ARC Selection:

(a) LGU Support (Municipal level). This criterion may be assessed bythe willingness of LGU to shoulder its counterpart, throughallocation of its available resources, especially to deploy thenecessary technical field personnel. As the LGUs would have acounterpart in infrastructure projects, account should be taken of:a) IRA of the LGU and b) Outstanding loans of LGU. Considerationshould also be given to the capability of LGU to undertake ruralinfrastructure projects (farm-to-market roads) particularly on theavailability of technically-qualified personnel and the necessaryequipment for road maintenance.

(b) Organizational Maturity. The lead organization should be registeredwith the Government and should have an OMA rating of 2.0 and above.Organizations with an OMA rating below 2.0 may be considered on aprobationary basis but must have reached a rating of 2.0 within oneyear to qualify for the project. ARCs with OMA rating below 2.0would be provided assistance in community development, potable watersystem, and agricultural extension.

(c) Potential for Prolect Impact. ARCs which would greatly increasetheir productivity and income through project intervention (mainlyrural infrastructure projects such as irrigation system and accessroads) would be given priority. Larger ARCs with a large number ofARBs would be given preference.

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Page 2 of 5

(d) Availability of Technical SuDDort. Presence of POs, NGOs, academicinstitutions and technical agencies in the area who can providesupport to ARCs will be taken into consideration. Preferences willbe given to ARCs which have been selected by LGU and CIAs as apriority/convergence area (e.g. KPA) as this would ensurecomplementation of services.

B. Partner NGO Selection Criteria

3. Partner NGOs for the project would operate at national, provincial and/orlocal level. The selection process would be concentrated at the provincial levelwhere the specific requirements of the ARCs in the province are best known. BARBDat DARCO would also be consulted before final selection. For the Project, NGOswould be required to fulfil the following :

(a) Should have a juridicial or legal personality registered with any ofthe following institutions : (i) Securities and Exchange Commission;(ii) Bureau of Rural Workers of the Department of Labor andEmployment; and/or (iii) the Cooperatives Development Authority.

(b) Should have a bank account in the name of the organization and beable to produce audited balance sheets for the last three years.

(c) Should operate according to objectives which are compatible with theproject.

(d) Should be acceptable to the community, its organizations, the LGU,DAR and other institutions in the area.

(e) Should have a minimum of two years field experience of communityorganizing and development work relevant to the ARCDP. (i.e.preferably with economic or agricultural focus)

(f) Should demonstrate the capability to manage and implement theproposed Project activities including community training, staffsupervision, funds management, monitoring and reporting.

C. Eligibility Criteria for Financincr Infrastructure Activities

LGU CaDability

4. Rural access and community infrastructure would be the responsibility ofLGUs, either directly, or using technical services from the private sector ortechnical agencies. The success of the sub-components would therefore depend,in large part, on the capability of LGUs. Due to the limited resources atmunicipal level, it is envisaged that most engineering support for the projectactivities would be provided from the Provincial Engineering Office (PEO) withthe Municipal Engineering Office (MEO) providing assistance with supervision andsubsequent maintenance. The assessment of LGUs would be undertaken by CPOthrough the Rural Infrastructure Engineer.

2. The factors to be considered in evaluating LGUs would include thefollowing: (i) the technical and administrative capacity of LGUs and/or their

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implementing partners to undertake the proposed rural infrastructure activitieseither on force account, or through contractors; (ii) LGUs commitment to takefull responsibility for subsequent maintenance of barangay roads improved underthe project; and (iii) provision by LGUs of counterpart funding (equity) for atleast 10-20% of total costs for access infrastructure, and at least 30% of totalcosts for community infrastructure.

3. Additional qualified staff may need to be hired, or local consultantsengaged to strengthen the capacity of LGUs to implement sub-component activities.In terms of engineering capability, LGUs would be required to appoint a qualifiedcivil engineer to take responsibility for project infrastructure activities.Supporting staff would include at least one field surveyor, one draughtsman andone site supervisor for each project site. There would be adequate officefacilities, survey equipment and access to suitable transport for field mobility.

Selection of Sub-Component Activities

6. Each sub-component activity would be evaluated based on its technical,financial, economic and administrative feasibility. The following points wouldbe taken into consideration:

- design and cost estimates would be based on sound engineering andtechnical practices;

- the least-cost solution would be selected;

- for irrigation and community infrastructure, rents, fees or othercharges would be set to recover operation and maintenance costs anddebt service liabilities; and

- investments in rural access and irrigation improvements would needto have an internal economic rate of return of at least 15%;

7. The following rural infrastructure activities would be considered eligiblefor project support:

- reconstruction and/or rehabilitation of existing baranQav roadsincluding associated bridges causeways and culverts;

rehabilitation and/or extension of existing irriaation schemes andconstruction of new schemes, to include headworks (diversiondam/weir or small dam1), intake structure, water conveyance canals,drainage channels, access/service roads and flood protectionmeasures;

spot improvements to farm access tracks with the aim of upgrading toallow transit by animal or small tractor drawn wheeled trailersrather than sleds.

1/ Small dams built across valleys to impound rainfall runoff during therainy season, known as Small Water Impounding Projects (SWIPs).

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rehabilitation and/or construction of drinking water supply schemes,to include point sources (wells, springs or small dams) and piped,gravity-flow distribution systems (to communal water points);

chemical water treatment plants and pumped systems would beexcluded;

- rehabilitation and/or construction of multi-purpose buildingsprimarily for community use;

- commercial facilities (markets, warehouses, solar driers, etc.)would only be supported through credit; and

- education, health and energy (electrification) facilities would beexcluded as ongoing programmes are supporting these sectors, and tominimise institutional complexity.

8. The above activities would receive routine consideration for projectsupport. However, in special circumstances, applications for other activitieswould be considered on an individual basis.

Rural Access

9. The criteria for selection of rural access activities in the project are:

- any road (other than a farm access track) selected for improvementwould link at least one ARC barangay to an existing all-weatherroad;

- on the basis of standardised models, proposed rural accessimprovements (both barangay roads and farm access tracks) wouldgenerate an economic rate of return of at least 15%;

- beneficiaries would be actively involved in, and concur with,planned improvements;

- feasibility studies would demonstrate that any negativeenvironmental impact can be mitigated;

- roadworks would concentrate on improvements to existing roads; onlyin exceptional circumstances would entirely new construction beconsidered;

- road gradients would not exceed 12%, except for short sections (tobe paved with concrete);

- major bridge construction would be minimised, with low-coststructures such as spillways and low-level causeways where possible;

- confirmation of suitable foundation conditions for bridge andcauseway structures;

- provision of side drains, cross drainage and slope protectionmeasures to minimise erosion damage;

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definition of geometric design standards, technical specifications,road cross section and minor structure designs as specified byProvincial Engineering Offices; and

generally to exclude any road with a per kilometre cost exceedingP1.5 million (US$57,000), to avoid roads with unduly high costs2.Exceptions would require approval from DAR and the Bank.

Irrigation3

10. The criteria for selection of irrigation activities in the project are:

- limits on scheme size: Ci) the smallest scheme would serve at least20 farmers; and there would be no upper limit on scheme size;

- at least 801 of the irrigated area would fall within the selectedARC;

- there would be no quarrying within one kilometre upstream ordownstream from the diversion site;

- the water source would be free from salinity and mine tailingproblems;

- there would be an 80%- probability that adequate water would beavailable for the planned command area (based on dry season flowmeasurements over at least three years);

- farmer beneficiaries would be members of an IA and actively involvedin, and concur with planned improvements; IAs would be required tocommit themselves to equity participation and amortization of thechargeable costs;

average irrigated holding size would be less than two hectares;

the feasibility study would demonstrate that: (i) using astandardised model, the economic internal rate of return is not lessthat 15%; (ii) any negative environmental impact can be mitigated;and (iii) offtake of water to meet irrigation requirements wouldcomply with water rights, and not adversely affect downstream users;

to avoid unduly high costs4, the per hectare development cost for:(i) new irrigation development would not exceed P105, 000 (US$4,000);and (ii) rehabilitation of existing irrigation would not exceedP55,000 (US$2,100); Exceptions would require approval from DAR andthe Bank.

2/ Based on 1995 prices.

3/ Derived from requirements set by NIA for communal irrigation works.

4/ Consistent the Bank-funded irrigation project: Communal IrrigationDevelopment Project (CIDP II).

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PHILIPPINES

AGRARIAN REFORM COIWUNITIIS DEVELOPMeNT PROJECT

COMMUNITY DEVELOPMENT AND TECHNICAL SUPPORT

1. The Community Development and Technical Support component of the projectis not a stand-alone set of activities but has been designed as an central andintegral methodology in achieving the project's main objectives. The output ofthe component will be organized and skilled communities which are capable of ahigh degree of participation in the other project components and of achievingcontinuing development after the end of project interventions.

2. The CPO would field a Community Development Specialist who would beresponsible for the component with assistance from the PEDAs and FAO-TSARRD, butDAR, government support agencies and NGOs (see Appendix A) would be theimplementors. At the ARC level, the DF and NGO community development workers (CDW)would provide regular contact with the beneficiaries, ensuring that componentactivities are responsive to the needs of the community.

3. The component would concentrate on assisting the POs to identify andharness their available resources, giving them a collective strength andsufficient equity to increase participation in economic development within thecommunity. Further, it would aim to strengthen the exposure and impact of the POswithin the ARCs, thus drawing in new members, increasing the investment capacityof the PO and ensuring that project benefits reach the maximum number ofbeneficiaries.

4. Since the ARCs and POs targeted are relatively advanced and have alreadyundergone basic social mobilization and cooperative formation trainings, toachieve a stronger PO base for the project, emphasis would be given to moreadvanced and specific interventions based on an intensive planning supportprogram (see Appendix B) and thereafter on the specific weaknesses of theindividual organizations.

5. Some indication of the skills gap for each PO would be generated throughthe FAO-TSARRD OMA data (see Appendix C). In addition, training requests wouldbe sought from the PO itself and the supporting DF/CDWs. Commonly requiredassistance is expected to be in the realm of advanced cooperative management andeconomic development, i.e. in feasibility assessment, financial management,savings generation and enterprise development.

6. The general policy towards training and technical input would be to provideas much assistance as possible at the ARC level (i.e. on-site). This is for threereasons, (i) to keep the costs within reasonable parameters; (ii) to tailor the

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training to the community environment; and, (iii) to make the assistance aswidely available to community members as possible.

7. Support for organizational development would not only focus on formaltraining but would also be geared more towards "learning by doing" throughsupported collective activities such as fund raising fairs, one-off tradingactivities, "bayanihan'"1, production of a barangay newsletter, etc. POs wouldalso be expected to actively contribute to the Project through providing cateringfor local based training courses, paying a contribution for off-site trainingcourses, hosting other cooperatives on cross-visits and by encouraging memberswho have undergone training to share their new knowledge with other AREs.

8. Credit and financial management training has been identified as a criticalarea for the advancement of leaders and cooperative managers within thecommunity. A lack of understanding of the financial structure of the communityis evident in most communities. Formal credit has been unsuccessful in manycommunities due to a lack of understanding of bank procedures and of the need tocontinue amortization for continuing credit and of selecting the most beneficialfinancing channel. Similarly, some cooperatives retain a high savings depositwhich is not invested to provide the community with a return on investment.Others have no strong savings policy or invest their savings on high riskenterprises. The ARCs need to develop a deeper understanding of their optionsand the implications of various courses of action, so that the beneficiaries canimprove their decision-making capacity.

9. Similarly, the quality of business management seen within the ARCs has beenvariable but lacking in most respects. Before agrarian reform, many of the ARBswere tenant farmers with little experience of commercial practices. To build thisexpertise within the ARCs requires a continuous and progressive input throughoutthe period of the project. Project training would need to be levelled accordingto the particular stages of the potential trainees.

10. For accountancy, improving technical skills are critical to maintaining anddeveloping the financial health of the organizations yet the experience to dateshows that whilst the mechanisms of accounting have already been covered byprevious training, the potential of financial figures for management informationhas not yet been fully realized. The calculation of profit also is not yetsufficiently advanced to allow the organizations to have an accurate picture oftheir true financial situation.

11. Training for all of the above would be expected to occur on several levels.A general concientization session for all the PO members would be covered underthe organizational development sub-component. This would allow the members tolearn how to interpret a basic balance sheet and profit/loss account.Organizational control would also be covered so that accounting procedures willbe transparent. More advanced training would be offered to cooperative officialsand barangay leaders. As many participants as possible from one ARC would beincluded to ensure that if one official leaves the organization, all theknowledge is not lost. The training would be intensive, conducted by a mixtureof professional trainers, bankers and commercial figures so that the knowledgeimparted would cover the theoretical, procedural and operational aspects of eachsubject.

1/ Collective contribution of labor for community welfare, eg. clearingground for a children's playground, clearing a waterway, etc.

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12. It is expected that other training needs for specific subjects would emergeduring the course of the project. These may cover training on specific types ofbusinesses such as rice mill operation, or may be funded to provide training toindividual members where there would be an impact on the community (e.g. modelfarming or farm machinery repair and maintenance).

13. In the main, most of the training courses envisaged would already beavailable within the Line Agencies e.g. DA, DTI, DSWD or through NGOs, academicinstitutions or professional training institutions. The BARIE and BDCD of DARwould coordinate these activities, on occasions incorporating resource personnelfrom more than one source to ensure adequate coverage of the subject area. Useof local resource institutions would be continued wherever possible. This wouldnot only reduce the costs but would also enhance the capacity of institutionswhich the ARCs would continue to tap beyond the project duration.

14. For specific training requirements, not covered by available courses, asuitable trainer would be contracted to provide services either directly to anARC or ARC representatives with similar needs. The trainer would be assigned towork with a community designated counterpart(s) and would contract, not only tofulfil the designated task, but also to work with the counterparts to transferskills to the community for continuation of the activity as far as is possible.Such flexibility for on-the-spot support to ARC is liable to be as valuable asthe more formal trainings and contribute significantly to sustainability oftraining impact.

15. Staff development would particularly focus on improving DF, CDW and P0capabilities in participatory planning, economic development and skillstransference techniques. This is necessary to avoid dependency relationshipsbeing developed which cannot be sustained after the end of the Project.Additional training for DFs and P0 leaders may be required in areas where thereis no NGO presence. The municipal and provincial DAR personnel would also requireadditional training in supporting the initiatives of the increased ARCdevelopment activity. Specifically, there is a need for improving management andcommunication techniques. FA0-TSARRD has already identified this need and hasbeen developing a management development program for MAROs. The CPO would liaiseclosely with TSARRD staff on the staff development activities.

16. To maximize investments on human resources, P0 leaders which havesuccessfully undertaken Project activities may be tapped as consultants for otherARCs. Cooperatives which have been successful in business activities could besponsored to offer apprenticeships to business managers of emerging POs.Similarly, CDWs would be recruited for four years, spending two yearsconsecutively with two ARC. This halves the need for CDW training, capitalizeson accumulated field experience and encourages a phase-out approach by the CDWs.

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Partner NGOs

1. NGos have been officially recognized by the GOP as partners in nationaldevelopment in the 1987 constitution. The line agencies, including DAR, haveinstituted the necessary policies and mechanisms to concretize this partnership.DAR's framework of CARP implementation is based on a tripartite partnershipbetween government NGOs and POs, with the ARC as the focus.

2. NGOs have the capability to work closely with poor rural communities. Theyare organizationally flexible and relatively free of bureaucratic red tapeenabling them to respond efficiently to the various communities that they workwith. They also have the capacity to mobilize not only the beneficiaries but alsocoordinate with other institutions including government agencies to facilitatetimely delivery of social and basic services.

3. The NGO sector, however, is not a monolithic entity. In the PhilippinesNGOs are relatively small and numerous in number. While there are networks andumbrella organizations, each NGO functions independently according to its avowedobjectives and programs. To maximize their resources, they operate only inselected areas where their services can have greater impact. Over the years, NGOshave either expanded their operations across a wide variety of concerns or havedeveloped an area of specialization. Profiles of possible partners whichillustrates their different characteristics are included below. Consequently,NGOs have varying capacities, scope and fields of expertise. They also differ inthe focus of their work. Some concentrate on policy advocacy, some emphasizesocial development, whilst others stress economic development whilst others havegained reputation as project implementors. Only a few can combine these functionsin one organization.

4. Consequently, selection of partner NGOs and definition of their input tothe project would be the joint responsibility of the ARC, LGU, DAR and the CPO.Selection of NGOs at the provincial level has been experienced by DAR and theNGOs as being the most successful selection method. First, a province-wideconsultation of NGOs and POs would be held to present the Project and the waysby which NGOs can participate. Secondly, interested NGOs/POs would be requestedto submit proposals based on the project selection criteria (see Annex 4.3) anda specified TOR. DAR provincial office, in consultation with the CPO would selectthe NGOs based on the approved proposals.

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5. The role of NGOs in the project would be seen as catalytic in strengtheningthe POs to be able to independently continue development activities within a twoyear time frame. As the ARCs selected would already have relatively strongorganizations, this is not an unrealistic objective but both POs and NGOs wouldrequire strong orientation towards this procedure from the commencement of theproject. Direct NGO field support (ie. CDW placement) would be expected to occurin approximately half of the ARCs. In the other ARCs, NGO support would be soughtfor specific training input as desired by the community.

Profiles of Possible ARCDP Partners

1. PHILDHRRA - National. The Philippine Partnership for the Development ofHuman Resources in Rural Areas (PHILDHRRA) is a well-established national networkof 66 social development organizations. The members themselves cover a widevariety of activities ranging through community organizing, leadership training,education, primary health care, issue advocacy, agriculture extension,appropriate technology development, income generation and cooperativedevelopment. PHILDHRRA acts as a senior resource agency for its members, mainlyin the areas of training, consultancy and sourcing of funds. The members continueto operate autonomously according to their own priorities, often with multiplefunding sources but in addition to relying on PHILDHRRA as a major source oftechnical support, they collaborate the network on major NGO consultations andlarge joint NGO-government development programs such as the TripartitePartnership for Agrarian Reform and Rural Development(TRIPARRD), UplandDevelopment Program, Fisheries Development Program, Alternative Tourism, andPolitics and Governance. Through TRIPARRD, PHILDHRRA has implemented socialdevelopment programs for DAR, especially in social mobiliszation, communityorganizing and local NGO management. Whilst PHILDHRRA acting as a funds managerfor DAR did simplify the national project management and lessen theadministrative burden on DAR staff, during implementation the disparity of focusand modus operandi between the PHILDHRRA partners made effective coordination atprovincial level problematic.

2. NATCCO - National. NATCCO is a tertiary level organization comprising fivesecondary cooperative federations. Initially focussing on education and trainingfor cooperatives, NATCCO has now widened its scope of activities to includeauditing and consultancy services, research and publications, a mutual benefitassociation and a farmers' marketing federation. They do, however, specialize inregistered or pre- cooperative development, providing a specific input to thefinancially oriented realm of the NGO sector. Servicing over one thousandprimary cooperatives, NATCCO has a wide network of affiliates nationwide. NATCCOand DAR have already successfully acted as partners, with NATCCO acting as thefunds and operations manager for the cooperative development component of the DARFarmers Exchange Cooperative Project.

3. MASSPEC - Regional. MASSPEC is the regional arm of NATCCO in Mindanao. Ithas been operating closely with FAO-TSARRD on its cooperative organizationaldevelopment programs as a resource institution. They have provided trainingcourses on (i) participatory planning (community level), (ii) participatory

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planning courses for DFs & CDWs (iii) capability building for cooperativeleaders, (iv) savings mobilization, and (v) enterprise development.

4. PARFUND - National. The Philippine Agrarian Reform Foundation for NationalDevelopment (PARFUND) is a recently founded private funding and advisorymechanism for NGO initiatives in resource tenure and productivity improvement inrural areas. It plans to act as a catalyst in (i) accelerating land transferoperations, (ii) community organizing, (iii) capability building ofbeneficiaries, implementors and institutions, (iv) productivity systemsdevelopment, and (iv) model building, resource development and policy advocacy.Whilst PARFUND itself has no field network, the Board of Trustees are mainlydrawn from other NGO networks. Whilst this organization appears to have theclosest correlation in objectives and implementation strategy to the ARCDP andis staffed by well qualified and experienced staff, it has no independent trackrecord.

5. PLAN INTERNATIONAL - International. PLAN INTERNATIONAL is a prominentinternational NGO which raises funds internationally for specific developmentprojects. In early operations it focussed on supporting educational opportunitiesfor children by "Adopt a Child" campaigns in donor countries. Within the last tenyears, their focus has changed towards integrated community development,including community mobilization, health and education, rural infrastructure,advocacy and income generation, thereby providing a healthier growth environmentfor the most disadvantaged children. PLAN International works on an areaconcentration strategy, targeting severely impoverished communities which haveminimal external assistance. They have coordinated successfully with DAR becausethey have well qualified community organizers who work closely with the DFs, andtheir own source of funds which supplements DAR financial inputs. Thisopportunity for partnership however is limited according to where the ARCscoincide with PLAN's area of operation.

6. PROCESS INC.- Provincial. The Participatory Research Organization ofCommunities and Education towards Struggle for Self-reliance (PROCESS) commencedin Iloilo but has extended its activities to other surrounding provinces in theVisayas and in N. Luzon. It focuses on community empowerment through intensivesocial mobilization (family planning, womens' development, paralegal services),training (leadership, resource identification. forestry development) andcommunity organization. Their speciality is social mobilization in the earlystages of community organization through a barangay-based community organizer,contracting in other expertise once the community reaches higher levels oforganizational maturity. It has enjoyed a long association with DAR both throughDAR/PHILDHRRA projects as a network member and through direct DAR/PROCESSpartnerships.

7. TAITAU - Provincial. TAITAU, signifying a "bridge towards progress" in thelocal dialect, provides assistance to the poorest of the poor in remote areas ofthree provinces. They focus on economic development, using micro-credit as anentry point to the community. Most of the assistance is provided to micro-vendorsto develop their activities. They have a strong focus on capital build-up andcredit discipline and encourage formation of small homogenous groups within the

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community. They have been selected by DAR to act as a provincial partner onOperation Sugarland.

8. HIMAKAS FOUNDATION INC.- local. The HIMAKAS foundation was established in1990 to assist several marginalised communities. This NGO maintains a staff ofeight development officers and four support staff. Within the five years ofexistence the organization has acquired a sound reputation for communityorganization, networking with other agencies, issue advocacy and developmentconsultancy. Although their field implementation activities remain centered ontheir originally targeted communities, they have expanded their reach by workingas consultants for other NGOs on community feasibility studies and in financialmanagement. They have worked with DAR on Operation Sugarlands and in livelihooddevelopment training on a contract basis.

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Pre-Proiect Planning Process

1. The objective of pre-project planning is to ensure that the activitiesimplemented through the project are according to the priority needs of the ARCs,in line with the development priorities of both the communities and the LGUs. Theapproach followed will comprise of four steps as follows:

a. Plan Validation. Existing ARC development plans will be re-validatedand prioritized by the community to identify the most critical needs.This will be achieved by a half-day barangay level planning workshop,which will be facilitated by the DFs, Municipal Development Officers(MDO) and a FAO-TSARRD trainer. The DFs and MDOs would receive priortraining in workshop organization at a one-day provincial-level seminarcovering conducted by FAO-TSARRD.

b. LGU Approval. Barangay representatives will then be assisted by theDF and MARO to present their plans to the Local Government Council,local engineers, a representative from LBP and other concernedagencies. This will enable the LGU to ensure that the proposedactivities are in accordance with the overall Municipal DevelopmentPlan and that the technical feasibility of the proposed activities areworth further investigation. Once infrastructure proposals areapproved, the relevant agencies (LGUs or NIA) will be requested tocarry out further investigation.

c. Farming Systems Development. A team consisting of two to three farmerleaders from the ARC, LGU, NGO and DAR repesentatives will be selectedto participate in the FAO-TSARRD Farming Systems Development (FSD)course which would include: Phase 1. is a pre-training conference toorientate the participants; Phase 2. involves collection of secondarydata; Phase 3. will provide the farmers with an introduction to theoryof the FSD approach; Phase 4. consists of data collection within thecommunity which will provide benchmark data and will form the basis fordevelopment of a farm development plan; Phase 5. involves a weekresidential session for the participants to consolidate and analyze thedata, then produce a realistic and detailed farming systems approachto the plans of the community. This phase will include a review of theOMA results for the organizations to identify the priority trainingneeds of the community; Phase 6. covers the presentation of findingsof the survey to the entire ARC at a further General Assembly forinformation, re-affirmation or re-direction of community priorities andfor finalization of an annual action plan by the community.

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d. Implementation. This stage will cover implementation of the plans,encompassing training, agricultural and enterprise activities andinfrastructure development. Supported by the MARO and DF, GeneralAssembly meetings will be convened as needed, but at least oncemonthly, to review the progress of implementation at intervals decidedby the community.

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Organizational Maturity Assessment

1. The Organizational Maturity Assessment (OMA) is an operational and managementtool which has been designed by FAO-TSARRD. The objective of the OMA is to providea method of quantifying the strength of ARC organizations, consolidating informationregarding the organizations and assessing the weakest areas of organizationaloperation in order to design effective development programs.

2. The OMA is carried out at the ARC level by the Development facilitator (DF)who was trained by FAO-TSARRD in the OMA methodology. The procedure is based on adetailed questionnaire during which the DF rates the answers and activities of theorganization. The questionnaire covers three major considerations, namelySocial/organizational aspects, Technical/financial aspects and Institutionalaspects. Within each categories there are detailed indicators by which theperformance of the organization is assessed. These indicate the strength of theleadership, the commitment of the PO members in terms of membership attendance, howactive the organization is, the savings and credit position, and the relationshipof the PO to other institutions within the area.

3. The average score for each category is recorded in a score sheet and theoverall score for the organization is based on a weighted average over the threeaspects. Although the overall score gives a quick method of assessing the strengthof the organization, the most beneficial output from the exercise is the computationof where the lowest scores occur. It is on this information that DAR trainingprograms for both staff and the organizations are currently based.

4. For the project it is a potentially useful tool as it pinpoints theconcentration of the strongest organizations thereby aiding in the selectionprocess. The OMA also provides management information to the CPO and PMB as to whichareas should be prioritized for project operations. Most usefully, it allowsanalysis of what type of organizational and technical input is required, in whatquantum in each province. Finally, if the procedure is repeated throughout theproject period, trend analysis would also become possible which would add to themonitoring data and provide a basis for future project planning.

5. FAO-TSARRD is presently developing a similar tool for analysis of the humanresources within DAR so that staff training needs can be identified and better humanresource management would be possible. It is expected that this tool would alsocontribute to the value of management information available to DAR and the CPO.Consequently the CPO and FAO-TSARRD would work closely together. Other activitiesconducted by the project include the farming systems development program (FSD) andmarket linkage development (IMAP) which have been described under the Pre-projectplanning process and in the Agriculture and Enterprise Development component.

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PHILIPPINES

AGRARIAN REFORM COMAUNITIES DBVZLOPMENT PROJECT

RURAL INFRASTRUCTURE

I. DESIGN CONSIDERATIONS

A. Technical

1.1 For improvements to rural access, the following guidelines would be takeninto consideration:

(a) rehabilitation and improvements to existing roads would takepreference over new construction;

(b) labour-based methods would be used wherever technically andeconomically feasible;

(c) detailed design of barangay roads would follow existing technicalguidelines for flat, rolling and mountainous terrain;

(d) existing roads would be improved by restoring the formation to thespecified width, compaction of the subgradel, and provision of agravel running surface; and

(e) new alignments would depend on geotechnic conditions, public safetyand economic viability.

1.2 The improvements to barangay roads would normally facilitate all-weatheraccess to traffic levels of up to 50 vehicles per day (vpd) and not exceedingaxle loads of five tons. Two levels of improvement are envisaged:(i) reconstruction of existing roads, which are seasonal due to their poorcondition2; and (ii) rehabilitation of existing roads which had adequatespecifications in the past, but have deteriorated due to lack of maintenance.Most improvements would therefore following existing alignments, thoughreconstruction would require similar works to new construction. Overallspecifications are given in Table 1, and dimensions for the proposed crosssection in Figure 1.

1.3 Run-of-river irrigation improvements would normally comprise the followingrequirements: diversion dam/weir (headworks), intake structure, water conveyancecanals, drainage channels, access/service roads and flood protection measures.The project would also support SWIPs where alternative water sources are notavailable.

1/ California Bearing Ratio (CBR) of at least 7%.

2/ Seasonal tracks with minimal formation and inadequate provision ofdrainage structures.

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1.4 Small gravity water supply systems would use either a spring water sourceor a perennial stream. In the latter case, sand filters would remove suspendedsolids, but chemical treatment would not be provided. Works would include springprotection, construction of storage reservoirs and piped distribution to communalstandpipes and ablution facilities. The construction or improvement of hand-dugwells would also be supported.

B. Environmental

1.5 The project's rural infrastructure component is not expected to have anyserious adverse environmental effects since construction works would besmall-scale and not require forest clearing or affect ecologically sensitiveareas. As most road improvements would follow existing alignments, only limitedproblems are anticipated, with minor requirements for additional land anddisturbance to property. Works would include bridge and drainage improvements,raising embankments, wider road shoulders and some alignment improvements, whichwould improve both environmental conditions and road safety.

1.6 The environmental effects of irrigation works are also likely to be small,as most areas are already growing rice, either rainfed or irrigated. Moreover,no significant social conflicts and/or problems over land acquisition or rightsof way are anticipated. All irrigation works would observe water rights,avoiding possible conflict with downstream consumers. Pollution of water sourcesthrough increased use of agricultural chemicals would be minimised throughenvironmentally sound management practices such as: integrated pest management,soil conservation, rotation cropping and agro-forestry systems for hill-slopecultivation. In the case of new irrigation sites, an environmental impactassessment and mitigation plans would be submitted for review by the Departmentof Environment and Natural Resources (DENR).

C. Cost SharinQ and Recovery

1.7 Access roads would be implemented by LGUs, with 80% - 90% grant(administered by MDF), depending on LGU status. The 10% - 20% not covered by thegrant would be financed partly by ARC beneficiaries contribution and partly bythe LGU, either using its own budget resources, or borrowing from the MDF understandard MDF terms. To cover these grant and loan expenditures, made usingstandard MDF procedures, MDF would draw down funds from the WB Loan. Repaymentsof the sub-loan element by the LGU to MDF would be retained and revolved by MDFfor similar purposes.

1.8 Irrigation would be implemented by NIA, following their standard practicefor communal schemes, but with DAR releasing funds to them against statements ofexpenditure. The non tax elements of these expenditures would be covered 100%from the WB Loan. Irrigation beneficiaries, who would be formed into IAs, wouldcontribute 10 of the scheme construction cost initially, and would pay theremainder back to NIA over 50 years (without interest).

1.9 Community infrastructure would also be handled by LGUs with grants andpossible loans from MDF. However, the equity portion provided by ARCs wouldvary. For farm access roads, LGUs would provide only materials and equipment andtechnical advice for spot improvements with beneficiaries providing labor and

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local materials. For community infrastructure (water etc.), the grant elementwould be 70%. In the case of multipurpose buildings, the grant would be 30%,with the balance financed by the community.

II. DEVELOPMENT PROPOSALS

A. DescriDtion

2.1 Project support for rural infrastructure would comprise threesub-components:

(b) rural access would improve vehicle and pedestrian links from ARCbarangays to existing all-weather roads. Works would includereconstruction or rehabilitation of about 600-900 kms of existingroads, associated bridges, causeways and culverts, and additionalmaterials and technical assistance would be provided for spotimprovements to about 300-500 kms of farm access tracks;

(b) irrigation would include rehabilitation or extension of existingirrigated areas and, to a lesser extent, construction of new schemeson a total area of about 10,000-15,000 ha. Irrigation would includediversification into non-traditional crops and activities wouldinclude headworks3, intake structures, water conveyance canals,drainage channels, access roads and flood protection measures.Support would be restricted to irrigation managed by farmers on acommunal basis where beneficiaries would repay development costs andtake responsibility for operation and maintenance of completedworks4; and

(c) community infrastructure would include rehabilitation or constructionof drinking water supply schemes, both point sources and pipedsystems (levels 1 and 2 ); and development of multi-purpose buildingsfor community use, such as meeting halls.

2.2 Investment priority would be given to rural access and communal irrigation,with rehabilitation of existing facilities given preference over newconstruction. All investments would be technically sound and environmentallyacceptable, with rural access and irrigation also being economically viable.Proven, labor-based technology would be adopted wherever possible, through localemployment.

3/ Mainly run-of-river diversion weirs, but also Small Water ImpoundingProjects (SWIPs) in upland areas (small dams and reservoirs).

4/ Defined by NIA as Communal Irrigation Schemes (CISs), normally under1,000 ha.

5/ Level 1 systems serve about 15-30 households from a point source (well orspring); level 2 systems serve about 50 households from a piped systemwith communal standpipes; (level 3 systems provide individual houseconnections).

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B. Processing

Selection

2.3 A two-stage process would be adopted for selection and approval ofinfrastructure proposals eligible for project support:

(a) following the participatory planning process, proposed infrastructurerequirements would be submitted by the MARO and ARC representativesto the Municipal Development Council for technical consideration.After preliminary investigation by LGUs or NIA. Further surveys anddetailed design would then be carried out by technicians from therespective agencies or the private sector, if required; and

(b) completed designs, costs and estimated benefits would be reconfirmedat the field level, and then submitted to the CPO for appraisal ofthe technical, environmental, financial, economic and administrativefeasibility of proposals.

2.4 The criteria for selection of rural access works would include linkage ofat least one ARC barangay to an existing all-weather road, and/or linkages toother barangays. Road-works would concentrate on improvements to existing roads,technical specifications would conform to agreed standards and, benefits wouldgenerate an acceptable economic rate of return. The preparatory cycle wouldnormally require about eight months. For irrigation, selection criteria wouldrequire that at least 80% of the irrigated service area would fall within theselected ARC, an 80% probability of sufficient water and, and an acceptableeconomic and financial rate of return. For new irrigation, this preparatory workwould require about 24 months, including confirmation of water resources. Forrehabilitation, about eight months would normally suffice.

Desian

2.5 Designs would be undertaken by competent engineers and conform to agreedtechnical standards, which would not fall below those of technical line agencies.Improvements to barangay roads would include restoration of road formation andwidth, and provision of a gravel-surfaced carriageway, drainage structures, slopeprotection works and concrete pavements on steep sections. Materials andassistance would also be given for spot improvements to farm access tracks whichwould be undertaken by farmers on a self-help basis. Irrigation improvementswould include headworks, intake structures, water conveyance canals, drainagechannels, access roads and flood protection measures. Most irrigationdevelopment would benefit gravity schemes reliant on diversion of water fromperennial streams or rivers. However, small dams would also be considered forirrigation or rural water supply in upland areas without an alternative watersource. These small dams and associated reservoirs are referred to as SmallWater Impounding Projects (SWIPs).

C. Procurement

2.6 Most rural infrastructure activities would be small-scale and followingcurrent practise would normally carried out under force account using labor

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intensive methods to generate employment in local communities. Activities whichrequire a concentration of effort, such as drainage and slope protectionstructures, would be constructed under local contracts. More complex structuressuch as bridges, causeways or irrigation headworks would be awarded topre-qualified contractors on the basis of national competitive bidding proceduresacceptable to the Bank6. Construction materials would also be procured in thisway. Implementation through the private sector would be preferred, wherecompetent local contractors are available. Purchases valued at less than US$0.2million but above US$100,000 would be procured through National CompetitiveBidding (NCB). Purchases for group of items valued at less than US$250,000 wouldbe procured through international or direct competitive shopping on the basis ofat least 3 quotations.

D. Operation and Maintenance

2.7 Maintenance of rural roads has been seriously neglected in the past,largely due to inadequate funding from the DPWH, formerly responsible for theseroads until 1991. Under the Local Government Code (LGC), funds for roadmaintenance are now channelled direct to LGUs7. Therefore, unlike the past,LGUs now have better control over available funds for road maintenance. LGUswould be responsible for maintaining all barangay roads improved under theproject. A MOA between the Department of Agrarian Reform (DAR) and LGUs (atprovincial level) would ensure that adequate resources would be provided forongoing road maintenance. LGUs in default of maintaining roads improved by theproject would have to repay the grant or have the grant converted into a loan tobe repaid directly from their Internal Revenue Allotment (IRA).

2.8 For irrigation, the MOA between LGUs and the Irrigation Association (IA)would require that the latter take full responsibility for the operation andmaintenance of completed irrigation facilities. However, major repairs, beyondthe capability of IAs, would be carried out by LGUs with full cost recovery.Drinking water supply schemes would adopt similar arrangements based on a MOAbetween LGUs and Waterworks and Sanitation Associations8.

III. IMPLEMENTATION

A. Organisation and Manaaement

3.1 Within the CPO, a Rural Infrastructure Engineer, assisted by two otherengineers, one for irrigation, and one for roads would be responsible forcoordination and management of the rural infrastructure component. At provincial

6/ No civil works contracts are likely to exceed US$2.5 million, thethreshold for international competitive bidding.

7/ By law, at least 20% of the Internal Revenue Allotment (IRA) from centralgovernment to LGUs must be used for development purposes, including theconstruction and maintenance of roads.

8/ Cost recovery and O&M arrangements would follow those detailed in theproposed Rural Water Supply and Sanitation Sector Project, to be financedby the Asian Development Bank (ADB).

- 93 - Annex 7Page 6 of 15

level, responsibility for implementation would be with: (i) LGUs for rural accessand community infrastructure; and (ii) the National Irrigation Administration(NIA) for irrigation development. At provincial level, each agency woulddesignate an engineer to take responsibility for project infrastructureactivities. MOAs between, DAR, LGUs and NIA would detail the individualresponsibilities of each agency, included in the Operations Manual. Arrangementsconcerning rights of way for roads, irrigation schemes and other infrastructurewould be handled within the ARCs at a community level. There would be noacquisition of land by either the National or Local Government under the project.Any ownership adjustment for compensation would be settled internally by thecommunity which would retain ownership of the property. Initial investmentproposals would be screened at the provincial level, with support from the CPOas required prior to detailed preparation.

B. Rural Access and Community Infrastructure

3.2 These sub-components would be implemented by LGUs through their engineeringoffices at provincial and municipal levels. If needed, support services wouldbe contracted from the private sector or technical agencies such as theDepartment of Public Works and Highways (DPWH). LGUs would prepare costeddesigns for submission to CPO for technical evaluation and approval. Ruralaccess would also be subject to economic justification. Where feasible, theproject would require the use of competent local contractors. In the absence ofcontractors, LGUs would undertake works directly under force account throughcontracts, negotiated with CPO. Maintenance of barangay roads is important, andwould be included in the MOA between DAR and LGUs. LGUs in default ofmaintaining roads improved by the project would have to repay the grant or havethe grant converted into a loan, to be repaid directly from their IRA. Thiswould be covered in a provision of the grant agreement. For drinking watersupply, LGUs would follow a participatory approach to ensure sustainability.

C. Irrigation

3.3 Irrigation would be implemented by NIA through their provincial offices.NIA would prepare costed, and economically justified proposals for submission toCPO for evaluation and approval. The project would require the use of localcontractors for irrigation headworks and other large structures. Remaining workswould be undertaken directly by NIA, through contracts negotiated directly withCPO. An Irrigators' Association (IA) would be formed to ensure the participationof beneficiaries from the outset.

D. LGU Catabilitv

3.4 As rural access and community infrastructure activities would be theresponsibility of LGUs, they would be required to comply with minimum standardsto qualify for project support. The CPO would conduct a thorough evaluation ofrelevant LGUs to determine their technical, administrative and financial capacityto undertake the proposed activities and take responsibility for subsequentmaintenance.

E. Monitoring and Evaluation

3.5 DAR, as the executing agency, would continuously monitor the physicalprogress of implementation, and the economic, financial, social and environmental

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impacts of project activities. This would be carried out by the CPO through thefield-level offices of DAR. Physical progress of the component would beavailable from the LGUs and DAR's Provincial office or the implementing agencies,such as MDF and NIA. MDF would provide quarterly reports on the disbursementsof loans and grants to the LGUs. Physical progress information would be provideddirectly to the CPO on a monthly basis and would be measured according to the MOAgoverning each separate sub-component.

IV. PHASING AND COSTS

4.1 Rural infrastructure would be phased in relation to ARC development plans.Ten ARCs would be planned9 prior to project implementation, which would enableactivities to commence during the first year of the project. However, newirrigation would not commence until year two, due to the long period required(24 months) for feasibility and design. The tentative phasing of ruralinfrastructure activities is shown in Table 2.

4.2 Total base costs for the rural infrastructure component are estimated atUS$48 million. These have been derived from requirements in existing ARCdevelopment plans. As actual requirements would evolve during implementation,they are only indicative. Unit costs for individual sub-components are given inTable 3. The project would benefit an estimated 100 ARCs during the six yearproject period, resulting in the following rural infrastructure and investmentcosts:

9/ This would be carried out in the provinces of Isabela, Leyte and Davao delNorte with technical assistance from an ongoing project: FAO-TechnicalSupport for Agrarian Reform and Rural Development (FAO-TSARRD).

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US$ARC 'Model' US$ Project Total (100 ARCs) million

Rural Access

9kms of barangay roadimprovements, including 900km of barangay roaddrainage works and 272,700 improvements: 27.2bridges:

(90,000) - 300km of reconstruction (9.0)- 3km for reconstruction;(108,000) - 600km of (10.8)- 6km for rehabilitation (52,200) rehabilitation; (5.2)- 9 metres of bridge (22,500) - goom of bridges (2.3)- 4.5km of spot - 450km of spotimprovements improvements

Irrigation

lOOha of irrigationimprovements', including l0,OOOha of irrigationaccess roads: 169,500 improvements: 16.9

- 30ha as new irrigation; (75,000) - 3,000ha as new (7.5)- 70ha of rehabilitation irrigation;of existing irrigation (94,500) - 7,000ha as (9.4)

rehabilitation ofexisting irrigation

Community Infrastructure: 38,400 3.8

- rural water supply; (23,000) - rural water supply (2.3)- multi-purpose (7,700) - multi-purpose (0.7)buildings; (7,700) buildings; (0.8)

- other - other

Total (one ARC): 480,000 Project Total: 48.0

a/ A typical Communal Irrigation Scheme (CIS) would service about200-300ha; it has been assumed that only one third of the selected ARCswould include irrigation.

V. BENEFITS

5.1 The project would benefit about 100 ARCs, comprising about 80,000households, with a total number of beneficiaries of about 0.5 million. It isanticipated that indirect benefits of infrastructure works may benefit anadditional 40,000 households (approximately 250,000 people). The main benefitsfrom improvements in rural access would be lower transport times and costs,reduced vehicle operating costs, improved access during the rainy season, andincreased traffic. Secondary benefits would include enhanced marketingopportunities, reduced transport damage, timely supply of inputs and services(agricultural extension), improved access to social services, and employmentopportunities during construction.

5.2 The main benefits would be derived from increased rice productionattributable to a sufficient and reliable supply of irrigation water. Theproject would increase the area under effective irrigation by about l0,OOOha,

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Page 9 of 15

benefitting some 10-15,000 farm households"'. Net incomes on newly irrigatedland are expected to more than double, with sufficient savings to cover operationand maintenance costs and repayment of investment costs. The main benefitsinclude increased cropping intensity and yields, increased household incomes,crop diversification, and employment opportunities during and after construction.

5.3 The main benefits from community infrastructure would include improvedsupply of drinking water, relieving human resources for more productiveactivities, particularly women (and children), and improved community hygiene andpublic health.

VI. RISKS

6.1 The main risks associated with the rural infrastructure component includethe timely availability of counterpart funding, the capability within LGUs andimplementing agencies to implement project sub-components, the adherence totechnical and environmental standards during construction, and the capacity ofLGUs and beneficiaries to operate and maintain investments after projectcompletion.

6.2 The bulk of infrastructure funds (about 90%) would be provided through MDF,and their availability would depend on efficient administration of processingprocedures. The balance of funds would depend on the availability of resourcesfrom LGUs, and their willingness to borrow for any additional requirements. Themission concluded that LGUs would be capable of producing the necessarycounterpart funding, subject to screening and assurances during implementation.Project design has incorporated specific measures to address the remaining risks.

lo/ Existing irrigated holdings range in size from 0.5-3.Oha; the averageholding is 1.7ha; new irrigated holdings would probably be smaller.

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TABLE 1 : Barancrav Road SDecifications

Terrain Conditions

Specifications Unit Normal a/ Severe b/

design speed km/hr 30-50 15-30

single axle loading tons 5 5

formation width m 6 6

carriageway (surfaced) m 4 4

shoulder width m 1 1

surfacetype selected local materials

(rock/gravel)

thickness cm 15 15

cross slope % 2-4 4-6

minimum curve radius m 30 10-15

maximum gradient % 12 12-18

bridge width m 3.5 3.5

turnouts (3m x 20m) per km 1 2

a/ FLat or rolling topography with general slopes below 12Zb/ HilLy or mountainous topography with general sLopes over 20X

TABLE 2 : Tentative Phasing of Rural Infrastructure

Unit Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Total---------------------------------------------------------

Rural Access

- (re)construction of barangay roads km 15 60 75 90 45 15 300- rehabilitation of existing barangay roads km 30 120 150 180 90 30 600- 'spot' improvements to farm access tracks km 23 90 113 135 68 23 450

Irrigation

- new irrigation or extension of existing schemes ha 150 600 750 900 450 150 3,000- rehabilitation of existing irrigation ha 350 1,400 1,750 2,100 1,050 350 7,000

Casuaity Infrastructure

- drinking water supply a/ h/holds 1,150 4,600 5,750 6,900 3,450 1,150 23,000- multi-purpose buildings b/ 100 m2 3 11 14 17 8 3 55

o0

Notes:

The project would be led by demands from ARCs; therefore the rate of progress, and distribution of activities is notional,based on previous ARC plans and field experience

Phasing assumes completion of sub-component activities: Year 1 (5%); Year 2 (20%); Year 3 (25%); Year 4 (30%); Year 5 (15%); Year 6 (5

a/ based on budget estimate of S100 pre household served (level 1 and 2)b/ based on budget estimate of $140 per m2 (a typical barangay hall is 70-80 m2)

C'OQ

0(

MiX

Lns

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Annex 7Page 12 of 15

TABLE 3 : Unit Costs (page 1)

1. RURAL ACCESS (Costs per kilometre)

A. ReconstructionTotalCost

Description P '000

1. General Site Clearance 70

2. Earthworks Formation 270

3. Gravelling 200

4. Drainage Structures 140

5. Surveys and Design 30

6. Supervision 70

7. Total Reconstruction Costs (rounded 780 per kilometreUS$ 30,000

B. Maintenance per km/year a/ 45,000 per kilometreUS$ 1,700

C. Rehabilitation

1. General Site Clearance 20

2. Earthworks Formation 100

3. Gravelling 200

4. Drainage Structures 80

6. Surveys and Design 20

7. Supervision 40

S. Total Rehabilitation Costs (rounded 468 per kilometreUS$ 18,000

Notes: a/ Economic Maintenance Kilometrage (EMK), 1995 vatue = P62,400Barangay Road < 5m = P62,400x0.9x0.8 r P45,000 per year

Source: Department of PubLic Works and Highways, ManiLaAgrarian Reform Infrastructure Support Project, Project Study, June 1994Action Plan for the GATT-Uruguay Round, Agricultural Sector, Decanber 1994

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Annex 7Page 13 of 15

TABLE 3 : Unit Costs (page 2)

2. IRRIGATION (Costs per hectare)

A. New IrrigationTotalCost

Description P

1. Site Preparation 2,700

2. Diversion Works 21,700

3. Conveyance Structures/Canals 24,400

4. On-Farm Terminal Facilities 5,400

5. Feasibility Surveys and Design 5,400

6. Supervision 5,400

7. Total New Irrigation (rounded) 65,000 per hectareUS$ 2,500

B. Maintenance per hectare/year 550 per hectareUS$ 20

C. Rehabilitation

1. Site Preparation 1,500

2. Diversion Works 11,700

3. Conveyance Structures/Canals 13,100

4. On-Farm Terminal Facilities 2,900

5. Feasibility Surveys and Design 2,900

6. Supervision 2,900

7. Total Irrigation Rehabilitation 35,000 per hectare(rounded) US$ 1,350

Source: Department of Agrarian Reform, Manila, October 1995Agrarian Reform Infrastructure Support Project, Project Study, June 1994

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TABLE 3 : Unit Costs (page 3)

2. IRRIGATION

D. Small Water Impounding Project (SWIP) a/TotalCost

Description P------------------------------------------------

1. Access and Site Preparation 260,000

2. Embankment Construction 455,000

3. Spillway 520,000

4. Irrigation Facilities 65,000

5. Feasibility Surveys and Design 130,000

6. Supervision 130,000

7. SWIP (rounded) 1,560,000 per SWIPUS$ 60,000

37,100 per hectareUS$ 1,400

E. SWIP Maintenance per year 39,000 per SWIPUS$ 1,500

Note: a/ Add 30% to construction costs for works on contractTypicaL SWIP: embankment height 10m, Length 68mreservoir volume (fuLL) 195,000m3, irrigation command area 42ha

Source: Department of Soil and Water Management, Manila, October 1995

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TABLE 3 : Unit Costs (page 4)

3. COMKUNITY INFRASTRUCTURE

A. Rural Water SuppliesTotalCost

Description P

1. Small Gravity System

- spring protection 17,000- distribution pipes 282,600- storage tanks 113,000- pressure relief valves 17,000- taps and fittings 45,200- installation materials 84,800- skilled labour 5,700- survey and design 28,300- supervision 56,500

sub total: Gravity System 650,000 per 250 householdsUS$ 25,000 or $100 per household

2. New Hand-Dug Well (with handpump)

- materials 9,300- tools and equipment 5,600- skilled labour 22,300- supervision 1,900

39,000 per 10 householdsUS$ 1,500 or $150 per household

B. Multi-Purpose Building a/

- materials 375,000- tools and equipment 50,000- skilled labour 75,000- supervision 25,000

525,000 eachUS$ 20,200

Notes: a/ 15mxlOm (150m2) a P3,500 per m2

Source: Department of Agrarian Reform, ManiLa, October 1995

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Annex 8Page 1 of 4

PHILIPPINES

AGRARIAN REFORM COMMUNITIES DEVELOPMENT PROJECT

MONITORING AND EVALUATION

1. The Agrarian Reform Communities Development Project has three operationalcomponents and a range of implementors covering DAR, other government agencies,education/training establishments, NGOs, POs and the beneficiaries themselves.Isolation and quantification of project impact is likely to involve considerablecoordination in order to produce accurate and verifiable monitoring data withoutoverburdening field staff with data collection activities.

2. The impact of the project is likely to be a function of a number ofcontributory and inter-related factors. To reduce the risks involved ineffectively assessing project performance, the Monitoring and Evaluation Systemwould be based on not only simple measurable proxy indicators but also onqualitative analysis at national, provincial and ARC levels. For qualitativeanalysis a strong feedback loop of consolidated data is required to obtain therequired judgmental analysis from the relevant skilled personnel at the abovelevels. Triangulation from the various information sources would provideverification of performance to the fullest extent possible.

3. During project implementation, progress would be measured in line with halfyearly progress targets, as produced by the CPO. Targets would be based mainlyon quantitative data generated at field level. Discrepancies in targetachievement would be analyzed to enable the CPO to use management by exceptiontools' for more in-depth qualitative analysis where necessary. The combinationof information produced by the Monitoring and Evaluation System will provide thefullest information possible for future planning and policy direction, producemore realistic targeting for the next period of assessment and provide averifiable base of information for the project supervision missions.

4. For these reasons, the CPO would include a Monitoring and EvaluationSpecialist (see TOR in Annex 4) whose responsibilities would include finalizationof performance indicators and design of an appropriate monitoring system showingresponsible agencies, information flows, data required and methods of collectionand analysis. The M&E Specialist would report to the Project Manager on theprogress of each component, highlighting outstanding issues.

5. The project system would, as far as possible be coordinated with existingsystems of DAR and other participating agencies to avoid repetition of data

i.e. identification of data anomalies for deeper research into areas ofprogress which do not correspond to expectations.

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Annex 8Page 2 of 4

generation but the system of analysis would include cross-reference where datasources do overlap.Field data for the M&E system would be channelled through fourdifferent sources (see SAR Paras 4.30) In addition there would be supervisionmissions by the World Bank at regular intervals and periodic reviews by DAR andother national implementing agencies.

6. DAR has a comprehensive monitoring and recording system which includesthe following activities (i) manual and computerized database management; and,(ii) preparation and submission of reports. It covers both Agrarian ReformCommunity (ARC) and non-ARC areas. This system can not only provide muchinformation to the CPO but can provide control information from non-ARC and non-project ARC areas.

7. The information gathered on the nationwide Beneficiaries DevelopmentProgram would be of most relevance to this project. This covers (i) informationand education; (ii) education and training programs for ARBs; and, (iii)community media. DAR also gathers data on physical infrastructure projects,economic support services, networking and linkages. The method used forgenerating the data for these activities is through the normal reportingstructure by the field staff of DAR. At national level, DAR also maintainsrecords on education and training programs for DAR personnel, communicationsdevelopment support and other specific problems issues and concerns.

8. Data handling within DAR is the responsibility of the ManagementInformation Section of the PMEU which until recently consolidated all datareceived, forwarding summaries to the Regional and Central Offices disalloweddetailed national analysis. This system is currently under review to reduce thevolume of data flow, to generate disaggregated data and increase the specificityof information gathered.

9. Under the programs of FAO-TSARRD and the Farming Systems DevelopmentProgram (FSD), there is a strong emphasis on accurate data gathering andanalysis. This would also provide a valuable source of information. The FSDcourse trains the participants to generate socio-economic baseline data on thecommunity and to produce a researched area resource profile (includingdemographic details such as household size, ages and schooling, to agriculturaldetails such as landholding, crops cultivated yields and investment levels. Italso includes a household income by source estimate).

10. Although income levels are notoriously difficult to assess, the FSDapproach does allow for cross-verification of income data with investment andproduction figures. As the results of the survey are also made known to thecommunity, there is also a peer cross-check built into the system.

11. As all project ARCs would be required to undergo the FSD training programin the pre-project stage, the information generated through the exercise wouldform the basis of the project baseline information and similar surveys would berepeated at mid-term and final evaluation to give a measure of project impact.

12. The Organizational Maturity Assessment (OMA) rating of FAO-TSARRD has nowbecome an entrenched management system within DAR for assessing the progress of

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Annex 8Page 3 of 4

the POs within the ARCs. The tool involves a six monthly assessment oforganizational progress against a comprehensive list of 33 indicators which aregrouped under the headings of (i) social/organization - measuring attendance,organizational structure, leadership qualities and effectiveness of theoperational policies/ by-laws; (ii) technical/financial - recording progress ofon-going activities, participation of members, methods and quantum of incomegeneration and capital build-up, repayment rates for credit, standards of recordkeeping and training attendance; and (iii) institutional - quantifying linkagesand support services accessed by the PO in terms of technical assistance, credit,grants, increase in marketing linkages and other types of alliances with supportorganizations.

13. Other participating Line Agencies, NGOs, research organizations and DARspecial projects would be tapped for additional information as required to coverthe range of activities under the project. In addition, special studies on keyissues identified under the management by exception practice would becommissioned to suitable research bodies to investigate areas of project progresswhich show complexities which cannot be clarified by the normal M&E system.

Performance Indicators

14. Key performance indicators would be centered around trying to measure (i)the increase in beneficiary household income attributable to the project; and(ii) sustainability. Sustainability would include (a) increased capability andindependence of POs, (b) increased support for the ARCs from the LGU andcorresponding improvement in the civic responsibility shouldered by the ARBs, and(c) continuing maintenance of infrastructure and enterprises assisted under theproject. Some of these items are difficult to measure directly, or cannot beeasily assessed as part of a regular reporting system and so proxy indicatorsneed to be tracked. Key Performance Indicators are summarized in Appendix A andare as follows:

Indicators which would be maintained and updated on a reQular basis:

a. No of participating ARCs (an indication of project coverage).b. Length and cost of roads rehabilitated and reconstructed (a proxy

for decrease in transportation costs).c. Area and cost of new and rehabilitated irrigation (a proxy for

improvement in the agricultural resource base).d. Change in OMA Ratings of Organizations within participating ARCs (a

proxy for strengthening the ARCs and sustainability of impact).

Indicators to be assessed annually:

e. Change in cropping intensity on irrigated areas (a proxy forincreased agricultural production).

f. Budgetary provision and utilization of funds for infrastructuremaintenance (indicator of sustainability of rural infrastructure).

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Annex 8Page 4 of 4

Indicators to be assessed from baseline and subsecruent surveys:

g. Level of business assets in ARCs - livestock, machines, permanentcrops, business premises (this would provide an ex post assessmentof the level of investment in agriculture and enterprises and givean indication of the potential sustainability of business activity).

h. Household income by source (on a sample basis - but potentially themost critical indicator of direct project impact).

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Attachment A

KEY PERFORMANCE INDICATORS

PHILIPPINES: AGRARIAN REFORM COMMUNITIES DKVELOPMENT PROJECT

objectives Key Performance Unit CY97 CY98 CY99 CY00 CYOl CY02

Increase in a. Change in net _ 20 _ 40Household real income'income

b. Cropping % _ 25 - 50Intensification2 increase

Incremental a. Farm to market km cum 20 100 240 420 600 800Physical roadsInfrastructure

b. Irrigated areaha cum 250 1,50 3,750 6,500 8,750 9,750

0

Sustainability a. Budgetary Grade - A _ A - A

provision and level3

utilization offunds forinfrastructuremaintenance

b. Incremental US$000 100 200business assetsin the ARCs(weightedaverage)

c. Number of cum. 10 40 60 80 100 _participatingARCs

d. Average _ - 5 - 10 - 20

increase in OMA4

1/ Subject to data collected under the FSD process (paras. 8 & 9 of Annex 8).

2/ Crop intensification is a ratio calculated on the basis of irrigated area whichmeasures area cropped by year over cropable area. This measure covered the areaprovided with irrigation under the project. Cropping intensity is expected toincrease by 25% two years after construction and by 50% in the third year.

3/ Two grade levels: Adequate (A) and Inadequate (In) in accordance with standardsestablished by the Department of Public Works and Highways.

4/ For details see para. 12 of Annex B.

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Annex 9Page 1 of 2

PHILIPPINES

AGRARIAN REFORM COMMUNITIES DEVELOPMENT PROJECT

SUPERVISION PLAN

1. Bank supervision input: staff inputs indicated in the table below areadditional to regular supervision needs for the review of progress reports, sub-projects above the free limit, correspondence etc., estimated at 38 staff weeksin the field, as follows: 12/sw during the first project year, 6/sw during thethree following years, and 4/sw per year thereafter. Supervision missions wouldconcentrate on reviewing progress, identifying outstanding issues, and as muchas possible resolving them. About two missions per annum are planned and wouldinclude the Task Manager and, as required, a Rural Engineer; a CommunityDevelopment (CD) specialist; an agriculturist; and/or other professional, asnecessary. Each mission would focus on different component and concentrate onthe resolving of the main issues. An indicative supervision plan for the firstthree years (it is assumed that the coming missions would follow more or less thesame pattern in terms of their composition and objectives) is provided below.

Approximate Skill StaffDates Activitv Reauirements Weeks

February 1997 Sunervision Mission Task Manager 6- Expedite start-up Rural engineer, and- Review: implementation of CD specialist.organizational arrangements;functioning of the CPO andthe PMB; procurement matters;and ARCs CD and infrastructureinvestment programs.

June 1997 Sunervision Mission Task Manager, 6Review progress in CD and Rural Engineer,training, infrastructure inv. agriculturist,agricultural and livelihood and CD specialist.development, flow of funds,and CPO operations.

January 1998 Supervision Mission Task Manager, 3Review progress in all project Rural Engineer,components, focussing on CPO, and CD specialist.CD, and procurement.

July 1998 Supervision Mission Task Manager, 3Review progress and identify Agriculturist,issues, focussing on agriculture and Rural Engineer.and infrastructure.

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Annex 9

Page 2 of 2

Anoroximate Skill Staff

Dates Activity Recuirements Weeks

March 1999 Supervision MissionReview progress and identify Task Manager, 3

issues, concentrating on CD Rural Engineer,

infrastructure and procurement. and CD specialist.

September 1999 Supervision MissionReview progress and identify Agriculturist 3

issues, concentrating on Rural Engineer

agriculture and infrastructure.

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Page 1 of 17

PHILIPPINFS

AGRARIAN REFORM COMMUNITIES DEVELOPDNT PROJECT

ECONOMIC AND FINANCIAL ANALYSIS

I. OVERVIEW

1. The economic impact of the project will result directly from projectactivities; improvement of barangay roads; rehabilitation and investment in newirrigation systems; and community and commercial development of ARC basedorganizations. The likely economic impact of both the rural road improvement andthe irrigation sub-components can be assessed directly on a model basis.Benefits from diverse investments and improvements in agricultural and otherbusinesses which result from (i) skills training, (ii) organizationalstrengthening, (iii) the advent of lower cost transportation (as a result ofimproved roads), (iv) increased productive potential (caused by improvedirrigation and further availability of inputs) and (iv) consequential improvedaccess to credit are more difficult to assess accurately.

II. RURAL ROADS

Baranqav Roads

2. The main road construction under the project is likely to be barangayroads, which link the barangay center to the provincial or national road system.In most cases investment in these roads will comprise upgrading and improvingexisting road alignments which generally are not all weather and which, at leastfor part of the year, cannot be used by normal motor vehicles. The benefits fromimproving such roads include the following:

i. Reduction in vehicle operation costs resulting from (a) lower cost per km;and (b) the possibility to switch to more cost effective modes (e.g. fromcarabao to truck). These reductions in vehicle operating costs apply to:

transport of people;transport of non-agricultural goods;transport of agricultural production.

ii. Benefits resulting from time savinQ both of passengers and vehicleoperators.

iii. Generated Benefits. As a result of reduced vehicle operating costs,incremental traffic is generated resulting in benefits for each type oftransport outlined above.

3. In order to assess rural road development projects, DPWH has adeveloped and regularly updates a set of standard vehicle operating costs brokendown between (i) distance related costs; and (ii) time related costs.Furthermore it has also developed a series of traffic generators which relate

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volume of non-agricultural traffic and passenger traffic to population and roadquality.

4. Under the project it is intended that individual road developmentswill be subject to specific analysis, partly based on information obtained fromthe project site and partly using standard data from DPWH. The attached "RuralRoad Model" indicates the likely costs and benefits from reconstructing a typicalproject road. This is based on some 5km of road serving a total population of4,000 people of whom 80% are the families of ARBs and other farm families havingan average farm size of 2.0 ha. Road costs are likely to vary considerably,depending upon whether the works involve reconstruction i.e. essentially buildinga new road along an existing alignment or whether the road can be brought up tostandard by 'rehabilitation'. Additionally, the need for bridges would also havea substantial bearing on average cost per km. Estimates of average costs, at1996 prices are P0.82 million/km, including design costs for reconstruction andP0.49 million/km for rehabilitation. In addition, bridges, which are expectedto average about 1 meter span per km of access road would cost a furtherP161,000/m. These figures all take account of the newly introduced EVAT. On thebasis that about 70% of roads can be rehabilitated, but 30% need reconstructionaverage financial cost per kilometer would be P0.75 million/km (US$29,000/km).Maintenance costs, with project, are estimated to be P45,000 km/year comparedwith P30,000 km/year without project. The average travel journey along the roadis estimated at 3km and the impact of the project in terms of road quality is toupgrade a gravel/dirt road from "very bad gravel" to "good quality gravel" (seesection A of model). These costs are converted from financial to economic pricesusing a standard conversion factor (SCF) of 0.81.

5. As a result of road improvement, the average vehicle composition andmix is assumed to change for freight from 20% carabao sled2 and 80% jeepneywithout project (WOP) to 70% jeepney and 30% trucks with project (WIP); while forpassengers it would change from 70% tricycles; 30% jeepneys to 30% tricycles and70% jeepneys (Bl and 2).

6. Freight transported along the road comprises (i) agricultural freight- WOP 40% of agricultural produce is assumed to be shipped to outside the areawhile WIP, as a result of both better roads and improved yields stemming fromother project factors, this would increase to 60%) (B3); and (ii) non-agricultural freight, the volume of which is assumed to be dependent on roadcondition. The freight generating factors for non-agricultural traffic in themodel used are the standard factors for the Philippines developed by DPWH (B4).These indicate an increase in non-agricultural freight per head of populationfrom 0.6kg/day on very bad gravel roads to 2.0kg/day on good gravel roads.

7. Passenger traffic with and without project is also generated basedon (i) assumed growth in population; and (ii) the change in road conditions which

/ This new SCF of 0.8 is based on the SCF used in recent Bank analysis inthe Philippines of 0.833, adjusted downwards to reflect the newlyintroduced EVAT.

2/ Carabao sled is the means of freight transport generally used when roadsare impassable to wheeled traffic. It is particularly relevant in the wetseason.

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would result in the number of trips per day per capita increasing from 0.08 to0.12 (Philippines standard data - B5).

8. Average vehicle operating costs (VOCs) are based on the DPWH standardfigures. These figures are at economic prices, being in effect long run economicmarginal costs. They allow for the fact that (i) not all vehicles arecommercially operated; and (ii) savings in operating costs do not necessarilyalways transfer into fleet cost reductions. The time cost element only takesaccount of the likely proportion of passengers who are travelling during workperiods or to and from work, valuing this time at 100% and 50% respectively ofthe appropriate wage rates. It does not include the value of leisure time saved.

9. The operating cost for carabao sled transport has been developed bythe mission based on information from the Philippines Carabao Center. Averagedaily hire costs for a carabao plus driver vary between P180 and P250 - anaverage of P210 has been taken; the average daily hours worked are assumed to be6 and the average travel speed 4 km per hour. Because carabaos would be almostentirely handling agricultural traffic, they would only operate at a 50%efficiency level (i.e. without back loads) (B6). This factor has been reflectedin the operating costs per km rather than in the average amount of freightcarried. Taken together, these figures give a financial cost of carabao haulageof P17.5 per effective km travelled. Some of the carabao transport would be atpeak times, when the opportunity cost of the carabao and driver is high i.e. thefinancial price only needs adjusting by the standard (or consumption) conversionfactor to give an economic price, while during other times of the year theopportunity cost of man and carabao is quite low. Overall, a conversion factorof 0.6 is used, resulting in an economic cost per km of P10.5.

10. On the basis of the likely population growth and the freightgenerators, the average daily freight and passengers with and without project canbe generated (C in model). These figures, together with the average economicunit VOCs for freight and passengers (D) are used to estimate the project's costsand benefits (E) taking account of the following:

i. investment costs - road investment is seen to take slightly over one yearwith 10% of project investment (largely design costs) in year minus oneand the remainder in year 0;

ii. O&M costs with project start in year 1;

iii. VOC savings for freight are based on the without project freight volume,i.e. the average saving per ton/km multiplied by the total numbers ofton/km shipped without project;

iv. VOC savings for passengers are calculated similarly, i.e. the volume ofpassenger traffic without project multiplied by the average saving perpassenger/km;

v. Generated benefits for both freight and passengers - as can be seen fromthe diagram - is the area between the transport demand curve and the withproject VOC over the range from the WOP volume to the WIP volume.

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VOC WOP \Transport Demand

Saving SAVINGS Tno

v ATWOP

0 VOC WIP VOLUME GENERATEDBENEFITS

8C1

Volume VolumeWOP WIP

Quantity of Traffic

with a 'straight line' demand curve, this area is a triangle with an areaof 50% of the incremental volume multiplied by the unit price reduction;this approximation is used to estimate Generated Benefits for bothpassenger and freight traffic.

vi. Finally the operation and maintenance cost for the WOP situation (which issaved), is also counted as a project benefit.

11. Based on these assumptions and calculations, the model shows aneconomic internal rate of return of 27%. This is considered to be the mostlikely level, and is the one used in the base case economic analysis of theproject as a whole.

12. It is clear that there will be considerable variation betweendifferent ARC road investments, due to factors such as terrain. Manipulation ofthe model clearly shows that population influenced by the road is a key factorin the road' s likely viability. This is evidenced by the table below which showsthe sensitivity of the ERR to variations in both total population affected inyear -2 and the level of investment per km (but using base case parameters forother items).

Sensitivity to Unit Investment and Population Served(figures shown are ERR percentages)

Population ------------------Investment per km (PM)---------------Served 0.4 0.6 0.8 1.0 1.2 1.4

1,000 9 5 2 0 -ve -ve2,000 24 16 12 9 7 53,000 36 25 19 15 12 104,000 48 33 25 21 17 155,000 59 41 32 26 22 196,000 70 49 37 31 26 23

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13. The bold figures in the table indicate combinations of investment andpopulation under which satisfactory ERRs would be achieved. It is clear thatwhile low cost roads e.g. those costing below P600,000 per km can be viable withrelatively small populations (anything over 2,000), more expensive roads, costingsay P1.4 million/km would need to serve at least 4,000 people. An average costrehabilitated road (P491,000/km without bridges) would yield at least the cut offERR of 15% provided population exceeded 1,600.

14. Other important factors affecting sub-component viability areconcerned with the WOP situation. Generally, good rates of return are obtainedwhen, in the without project case, a significant amount of freight comes out fromthe project area using non-vehicular means e.g. carabao or other animal cartage,which is very expensive per ton km. This situation particularly applies withroads which are subject to seasonal impassability. Changing the base case from20% carabao sled freight to 50% WOP would raise the ERR to 34%, while loweringit to zero would cause it to fall to 22%.

15. In addition to the economic benefits shown in the model, there arealso substantial costs, in the without project situation, which are not fullyaccounted for within the DPWH averaging of WOP vehicle operating costs. Inparticular, there are significant costs associated with vehicles becoming stuckand damaged when being extricated from "stuck situations" (the WOP cost of thesewould be a project benefit, as the project would eliminate them). Furthermore,the DPWH policy of not including as an economic benefit increased non-worktraffic, appears quite conservative. Within the transport studies on which theDPWH data are based, an argument has been put forward that "only productivesavings with an impact on domestic product should be given ..... leisure tripsare thus regarded as having a social value rather than an economic." Includingall non-commercial time saving as a project benefit and valuing it at 60% of thewage rate would increase the ERR in the model by about three percentage points.Lastly, the model took account of freight and passenger growth based on expectedincreases in population, but it was conservative in that no provision has beenmade for increased per capita income, other than increased agriculturalproduction. This too would be likely to generate further incremental traffic,hence benefits.

16. It is proposed under the ARCDP only to finance rural road sub-projects which show ERRs of at least 15%. Given the lack of development in manyof the potential project areas, the relatively high population density and thepoor condition of the barangay roads, the ERR of this sub-component is likely tobe well above this cut off level, as indicated by the range of positive resultsin the model.

Farm Access Roads

17. Improving the means of getting produce from the area where it isgrown to the barangay (local market) would also be supported under the project,through the provision of advice and materials. All labor for these tracks wouldbe provided by the beneficiaries. In general, the types of intervention wouldbe spot improvements e.g. installation of culverts which would allow access tothe production zone by wheeled trailers, either animal or hand tractor drawn,rather than by carabao sled. This would allow the typical load per journey tobe increased from about 3 sacks to 15 (150kg - 750 kg). Such investments areparticularly worthwhile in areas where bulky crops e.g. banana, pineapple,

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vegetables or sugar are grown because the transport requirement per ha is muchhigher than with rice or corn.

18. The 'farm road model', presented on page 14 considers a typical 2 kmroad, (with a 'catchment area' of about 500 m either side), serving 180 ha ofland cropped, with a mixture of bulk crops and grain crops, yielding a total of5 tons per ha per year of output. On the basis of cost saving alone, an ERR of30W would result from an estimated total investment of P274,000 (US$11,000). Indoing this analysis, financial costs were converted to economic costs, using thestandard conversion factor for investment and VOCs3 , but a lower figure of 0.75,

to reflect the labor content for O&M. Because of the big differences in spotimprovement costs, areas accessed, length of road needed and average yield, eachindividual proposal would need to be assessed using the simple model - and onlyaccess investments with ex ante ERRs in excess of 15% would be supported.

19. An indication of the sensitivity to tonnage transported (which is theproduct of yield and area impacted) and road cost per km for a 2km road is givenin the table below, which considers both tonnages and investments at half anddouble the base figures.

Sensitivity of Farm Access Roads to Unit Investment and Tonnage Shipped(figures shown in table are ERR percentages)

Tonnage -------Investment per km (Pl000)---------------Handled 68.5 137 274Per Year

450 23 10 1900 60 30 14

1,800 134 67 33

20. Improving agricultural access would be likely to have additionalbenefits, over and above the VOC savings based on existing cropping, which areprovided for in the model. In particular, better access to fields would belikely to result in both greater cropping intensity and also a switch to highervalue bulkier crops.

III. IRRIGATION IMPROVEMENT

21. Irrigation improvement under the project is to be geared towardsrehabilitating existing gravity schemes which are no longer functional orextending the amount of irrigated land from existing water sources. Virtuallyall of the irrigation water would be for rice (paddy) in the wet season and inthe dry season could be used for rice or other crops. While the financialreturns from irrigation will vary considerably depending upon which other cropsare grown in the dry season, it is prudent to undertake the economic analysis

3/ Because cartage of produce has to be done as soon as the crop is ready, inany location, this will be at about the same time for most farmers,thereby causing a strong demand for local transport facilities, inconsequence, the SCF of 0.8 is used rather than 0.6 for Carabao sledtransport on barangay roads which is not so time critical.

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based on paddy. This is because paddy is the main tradable crop produced in thecountry and if, as a result of irrigation, production of higher value cropsincreases in the sub-project area, the likelihood is that it will becorrespondingly reduced in other areas because the domestic market is probablythe limiting factor; other land previously used for higher value crops would asa result revert to paddy. It is appropriate to do a marginal analysis using theactual crops grown in the sub-project areas only when the crops are tradablesi.e. incremental production will either increase exports or reduce imports.

22. The impact of irrigation is assessed through a simple model set outon pages 15-17. This model looks at the incremental impact of increasing thearea of land under irrigation. It considers situations where land which is notirrigated without project (either due to no system being present, or that partof the system under consideration being inoperative) becomes irrigated as aresult of the project. WIP there would be 100% cropping in the wet season andsome cropping in the dry season (average 50%), whilst WoP there would beunirrigated wet season cropping only. Implicitly, this assumes that theconstraint to dry season production is water for rice and markets for uplandcrops. Thus even if some of the areas to be irrigated under the project werepartially cropped with upland crops, WOP, this production would simply be shiftedto other areas with no input or output reduction, consequently, the dry seasonrice grown and associated costs would be incremental.

23. Within the model, current financial output values and costs areadjusted by economic conversion factors (ECFs) to give the economic value ofoutputs and cost of inputs. The conversion factor for paddy of 0.71 is used torelate the domestic price (P7.5/kg) to the freight and milling adjustedinternational price (see Table on Page 17) . The same conversion factor is usedfor seed. For fertilizers, chemicals, animal traction for cultivation andharvest time transport the standard conversion factor of 0.8 is used (see para4), while for labor the ECF is 0.6. A conversion factor of zero is applied tothe irrigation fees as these are simply transfer payments and the cost ofirrigation is included within the overall project costs. The conversion factorused on loan interest and insurance payment of 0.5 is designed to eliminate theinterest charge but leave the insurance fee as a true cost of production.Threshing charges are basically labor costs and so the same ECF (0.6) is used forthese as for labor.

24. The average financial costs for new irrigation are estimated atP72,000 including project design, while for rehabilitation the per hectare costis estimated at P39,000. (These figures are in line with indexed up figures, toend 1995 for the Second Communal Irrigation Project, modified by an adjustmentfor EVAT). Annual O&M costs are estimated to average P550 per year or P370 percrop on a 150% average cropping basis. For irrigation construction the standardconversion factor of 0.8 is used. While the figure for O&M which has a higherlabor content is 0.75.

25. The economic rates of return assuming the proportion of dry seasoncropping is 50% are 17% for new irrigation and 31% for rehabilitation, giving anaverage of 25% (based on 70% rehabilitation, 30% new construction). These ERRsare calculated taking account of additional working capital by consideringincremental costs to be incurred on average three months ahead of receivingincremental benefits.

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26. The investment costs of schemes and the proportion of dry seasoncropping will vary considerably from sub-project to sub-project. These are thekey parameters in determining the economic viability of investment in irrigationand a careful review would need to be made of each scheme proposed, takingaccount of these two critical variables. A sensitivity analysis, holding otherfactors constant, for a range of investment costs and a range of dry seasoncropping intensities is shown in the table below. The bold figures of over 15%indicate combinations of investment costs and potential dry season cropping whichwould be likely to be economically viable. On the basis of this analysis, themaximum investment to be justified in irrigation for rice having 50% dry seasoncropping would be about P80,000 per hectare. But on specific schemes where thereis a strong reason to believe higher cropping intensities are achievable, greaterinvestment would be justified up to perhaps P105,000/ha. (gives 15% ERR at 85%dry season cropping).

Sensitivity of ERR to Per ha Investment and Cropping Intensity(figures shown in table are ERR percentages)

Investment Cost(P'000/ha) ----Proportion Dry Season Area Cropped----

25% 50% 759 100%

25 37 47 57 6650 18 25 30 3675 11 16 20 24

100 7 11 15 18

27. The viability of irrigation development is also quite sensitive torice prices. The base analysis has been done using WB estimates of world riceprices for the year 2000 (US$287/ton in constant 1996 prices for Thai 5% brokensex Bangkok). However, within the WB projected range for rice prices at the 70%confidence level, economic returns (at average investment cost, and 50% croppingintensity) would vary as follows.

Sensitivity of ERR to World Rice Prices

World Rice4

Price $/ton ERR Basis of Economic Price

187 12% A. Bottom of WB's 70% confidence interval for 2000287 25% B. WB Forecast Year 2000 (Base Case)330 31% C. WB Forecast 1996416 41% D. Top of WB's 70% confidence interval for 2000

28. Financial viability to farmers. Because the level of paddy pricesin financial terms are well above economic prices (the current farmgate financialprice of P7.5/kg relates to a world price of about US$436/ton), yet the chargesmade to farmers for irrigation are well below the economic cost of irrigation,investment in new irrigation or irrigation rehabilitation is very attractive atthe farm level. The financial model indicates that in the base case situation

4/ Indicator Price for Thai 5% brokens ex Bangkok (Feb 6, 1996 estimates).

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of 0S dry season cropping, improvements in farm income, after taking account ofthe cost of the farmers' own labor, would amount to some P13,000 per hectare.The incremental financial benefit:cost ratio to the farmer would be over 3:1 inthe wet season, and about 2:1 in the dry season. It is likely that moreprogressive farmers who move from a non-irrigated situation to an irrigatedsituation, would take advantage of the opportunity to grow a wider diversity ofcrops than paddy alone and so considerably improve their income by growing highervalue products such as vegetables - particularly in situations when the newirrigation and the associated network of field roads makes cartage between thefarm and market simpler and cheaper.

IV. OTHER DIRECT INVESTMENT

29. The third main area of investment under the project is investment byARC level businesses, farmers, cooperatives and private traders in commercialactivities which are catalyzed by improved rural infrastructure, communitydevelopment and business training. These investments would be made on acommercial basis either using farmers', traders' or other business enterprises'equity, or else using money borrowed from various commercial sources includingLBP. Types of development likely to take place within the project ARCs wouldinclude:

- livestock development (poultry, pigs, cattle fattening);- fruit tree crops;

- incremental inputs for the production of annual crops (e.g. morefertilizer, chemicals etc. for rice);

- grain drying facilities;

- grain storage facilities;

- processing facilities, particularly rice milling; and- transportation (tricycles, jeepneys, etc.).

30. Financial and economic returns from this range of investments wouldclearly vary depending on the local market, the skills of the entrepreneur, etc.However, experience elsewhere in the Philippines indicates that once areas becomeaccessible, the types of investment outlined above follow and, given the generaleconomic climate within the country, such investments would only be made if theentrepreneur decision makers and the banks financing them, believe they willachieve financial rates of return of well in excess of 20%. Under this projecta significant proportion of the costs of these investments would be born by theentrepreneurs themselves. Consequently, they would only be undertaken in theexpectation that they would be profitable. It is only in the case of storagebuildings that there are likely to be subsidy elements (around 25%) which mightresult in decisions being made without the expectation of the sub-project beingfully commercially viable. Preliminary estimates are that within the projectARCs, total direct investment amounting to some P7 million per ARC (in base costterms) would be made over a six year period. A reasonable assumption might bethat such investments would show an FRR of 25%, with a similar ERR (overall, thedownwards adjustment from FRR to ERR resulting from agricultural goods withprotected prices is assumed to be offset by the shadow prices of labor and thetaxes on imported inputs and transport).

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V. POSSIBLE BENEFITS FROM COMMUNITY DEVELOPMENT AND TRAINING

31. The estimated overall cost of project management and the provisionof community and business support services amounts to about P290 million at baseprices. Before the project, about 80,000 families of average family income325,000 per year would be living in the ARC areas supported by the project. If,as a result of improved management and organization, the project is able toincrease family incomes by 1% in year three, rising to 4%5in years six through 20 (over and above the increases which come directly frominvestment in irrigation, improved roads, or agricultural enterprises), then thetraining/management component of the project would show an economic rate ofreturn of about 20%. Clearly, provided a modest uplift in incomes can beachieved as a result of the project, it would be well worthwhile in economicterms.

5/ e.g. if family incomes would have remained at P25,000 in real terms WOP,they would need to reach P26,000 in real terms WIP from years 6-20.

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Rural Road Model

A. KEY BASIC PARAMETERS

TOTAL POPULATION SERVED 4,000POPULATION GROWTH RATE (p.a.) 2.5%PROPORTION OF FARMERS IN POPULATION 80.0%ARB & OTHER AGRICULTURAL POPULATION 3,200AGRICULTURAL FAMILY SIZE (nutber) 6.0LAND/AGRICULTURAL FAMILY (ha) 2.0

Fin Pr ECF Ec CostAVERAGE ECONOMIC ROAD COST/KM (P'000) 748 0.80 598ANNUAL ECON MAINT/KM WOP (P'000) 30 0.75 23ANNUAL ECON MAINT/KM WIP (P'000) 45 0.75 34

ROAD LENGTH (Km) 5.0AVERAGE JOURNEY LENGTH (km) 3.0

B. ESTIMATES OF TRAFFIC VOLUME & MIX

1. VEHICLE COMPOSITION - PROPORTION FREIGHT CARRIED

WITHOUT PROJECT: WITH PROJECT:CARABAO 20% JEEPNEY 70%JEEPNEY 80% TRUCK 30%

2. VEHICLE COMPOSITION - PASSENGER TRAFFIC

WITHOUT PROJECT: WITH PROJECT:TRICYCLE 70% TRICYCLE 30%JEEPNEY 30% JEEPNEY 70%

3. AGRICULTURAL TRAFFIC ESTIMATESWOP WIP

TOTAL NUMBER OF FARMERS 533 533AGRICULTURAL AREA (ha) 1,067 1,067AGRICULTURAL OUTPUT (t/ha/yr) 4 5PURCHASED INPUTS (t/ha/yr) 0.2 0.3% OUTPUT SHIPPED 40% 60%

4. TRIP GENERATING FACTORS FOR NON-AGRI TRAFFIC (Philippine Standard Data)

AVE. NON-AGRICOMMODITIES/DAY

ROAD CONDITION IN KG PER POPULATION

GOOD-FAIR/BAD (WIP) 2.0BAD-BAD/VERY BAD 1.6VERY BAD (WOP) 0.6EARTH 0.5IMPASSABLE 0.4

5. TRIP GENERATING FACTORS FOR PASSENGERS (Philippine Standard Data)

TRIP RATE PERROAD CONDITION CAPITA PER DAY

GOOD-FAIR/BAD (WIP) 0.12BAD-BAD/VERY BAD 0.10VERY BAD (WOP) 0.08EARTH 0.03IMPASSABLE 0.01

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6. AVERAGE LOADING & ECONOMIC VOC per KM TON KM & PASSENGER KM (Philippine Standard Data)

FREIGHT PASSENGERS ---- VOCIKM ---- ---- VOC/TKH---(ton) (number) WOP WIP WOP WIP

CARABAO 0.15 10.500 70.000 n.a.JEEPNEY (FR) 1 6.896 3.094 6.896 3.094TRUCK 8 7.012 0.877

--- -VOC/PKM---TRICYCLE 3 5.250 1.663 1.750 0.554JEEPNEY (PAX) 11 9.195 3.822 0.836 0.347

C. AVERAGE DAILY TONNAGE OF FREIGHT & NUMBER OF PASSENGER TRIPS

--------WITHOUT PROJECT -------- ----------WITH PROJECT--------- ---INCREMENTAL--YEAR POP AGRI NON AGR TOTAL PAX AGRI NON AGR TOTAL PAX TOTAL PAX

FREIGHT FREIGHT FREIGHT FREIGHT FREIGHT FREIGHT FREIGHT

-2 4,000 5.3 2.4 7.7 320 0.0 0-1 4,100 5.3 2.5 7.7 328 0.0 00 4,203 5.3 2.5 7.8 336 0.0 01 4,308 5.3 2.6 7.8 345 1.9 8.6 10.5 517 2.7 1722 4,415 5.3 2.6 7.9 353 3.9 8.8 12.7 530 4.8 1773 4,526 5.3 2.7 8.0 362 5.8 9.1 14.8 543 6.9 1814 4,639 5.3 2.8 8.0 371 7.7 9.3 17.0 557 8.9 1865 4,755 5.3 2.9 8.1 380 9.6 9.5 19.2 571 11.0 1906 4,874 5.3 2.9 8.2 390 9.6 9.7 19.4 585 11.2 1957 4,995 5.3 3.0 8.3 400 9.6 10.0 19.6 599 11.4 2008 5,120 5.3 3.1 8.3 410 9.6 10.2 19.9 614 11.6 2059 5,248 5.3 3.1 8.4 420 9.6 10.5 20.1 630 11.7 21010 5,380 5.3 3.2 8.5 430 9.6 10.8 20.4 646 11.9 21511 5,514 5.3 3.3 8.6 441 9.6 11.0 20.7 662 12.1 22112 5,652 5.3 3.4 8.7 452 9.6 11.3 20.9 678 12.3 22613 5,793 5.3 3.5 8.7 463 9.6 11.6 21.2 695 12.5 23214 5,938 5.3 3.6 8.8 475 9.6 11.9 21.5 713 12.7 23815 6,086 5.3 3.7 8.9 487 9.6 12.2 21.8 730 12.9 24316 6,239 5.3 3.7 9.0 499 9.6 12.5 22.1 749 13.1 25017 6,395 5.3 3.8 9.1 512 9.6 12.8 22.4 767 13.3 25618 6,554 5.3 3.9 9.2 524 9.6 13.1 22.8 787 13.6 26219 6,718 5.3 4.0 9.3 537 9.6 13.4 23.1 806 13.8 26920 6,886 5.3 4.1 9.4 551 9.6 13.8 23.4 826 14.0 275

D. AVERAGE VEHICLE OPERATING COSTS PER TON KM OR PASSENGER KM

---- P - ----WIP--- SAVINGFREIGHT (per tkm)

% VOC/tkm % VOC/tkm VOC/tkmCARABAO 20% 70.00JEEPNEY 80% 6.90 70% 3.09TRUCK 30% 0.88

WEIGHTED AVERAGE 19.52 2.43 17.09

PASSENGERS (per pkm),- % VOC/pkm % VOC/pkm VOC/pkmTRICYCLE 70% 1.75 30% 0.55JEEPNEY 30% 0.84 70% 0.35

WEIGHTED AVERAGE 1.48 0.41 1.07

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E. ECONOMIC COST & BENEFIT FLOW (P/000)

VOC VOC0 & M TOTAL SAVINGS SAVINGS -GEN BENEFITS- 0 & M TOTAL NET

YEAR INVEST COST OUTFLOW FREIGHT PSGR FREIGHT PAX COST INFLOW FLOWCOST WIP WOP VOL WOP VOL WOP

-1 299 299 0 (299)0 2,693 2,693 0 (2,693)1 169 169 147 402 25 201 113 888 7192 169 169 148 412 45 206 113 924 7553 169 169 149 423 64 211 113 960 7914 169 169 151 433 84 217 113 997 8285 169 169 152 444 103 222 113 1,034 8656 169 169 153 455 105 228 113 1,053 8857 169 169 155 467 106 233 113 1,073 9058 169 169 156 478 108 239 113 1,094 9259 169 169 157 490 110 245 113 1,115 94610 169 169 159 502 111 251 113 1,136 96811 169 169 160 515 113 258 113 1,159 99012 169 169 162 528 115 264 113 1,181 1,01313 169 169 163 541 117 271 113 1,205 1,03614 169 169 165 555 119 277 113 1,228 1,06015 169 169 167 569 121 284 113 1,253 1,08416 169 169 168 583 123 291 113 1,278 1,10917 169 169 170 597 125 299 113 1,303 1,13518 169 169 172 612 127 306 113 1,330 1,16119 169 169 174 628 129 314 113 1,357 1,18820 169 169 176 643 131 322 113 1,384 1,216

ECONOMIC RATE OF RETURN 27%

F. AVERAGE DAILY VEHICLE USE (NUMBERS OF VEHICLE TRIPS)

--------WITHOWT PROJECT --------- ----------WITH PROJECT--------- --- INCREMENTAL VEHICLE USE---YEAR . .FREIGHT .... ... PASSENGER ... . .FREIGHT .... ... PASSENGER....

CARABAO J'NY TRICYCLE JINY J'NY TRUCK TRICYCLE J'NY CARABAO TRICYCLE J'NY TRUCK

-2 10.2 6.1 74.7 8.7-1 10.3 6.2 76.5 8.90 10.4 6.2 78.4 9.21 10.5 6.3 80.4 9.4 7.4 0.4 51.7 32.9 (10.5) (28.7) 24.6 0.42 10.5 6.3 82.4 9.6 8.9 0.5 53.0 33.7 (10.5) (29.4) 26.6 0.53 10.6 6.4 84.5 9.9 10.4 0.6 54.3 34.6 (10.6) (30.2) 28.7 0.64 10.7 6.4 86.6 10.1 11.9 0.6 55.7 35.4 (10.7) (30.9) 30.8 0.65 10.8 6.5 88.8 10.4 13.4 0.7 57.1 36.3 (10.8) (31.7) 32.9 0.76 10.9 6.5 91.0 10.6 13.6 0.7 58.5 37.2 (10.9) (32.5) 33.6 0.77 11.0 6.6 93.2 10.9 13.7 0.7 59.9 38.1 (11.0) (33.3) 34.4 0.78 11.1 6.7 95.6 11.2 13.9 0.7 61.4 39.1 (11.1) (34.1) 35.2 0.79 11.2 6.7 98.0 11.5 14.1 0.8 63.0 40.1 (11.2) (35.0) 36.0 0.810 11.3 6.8 100.4 11.7 14.3 0.8 64.6 41.1 (11.3) (35.9) 36.8 0.811 11.4 6.9 102.9 12.0 14.5 0.8 66.2 42.1 (11.4) (36.8) 37.7 0.812 11.5 6.9 105.5 12.3 14.7 0.8 67.8 43.2 (11.5) (37.7) 38.6 0.813 11.6 7.0 108.1 12.6 14.9 0.8 69.5 44.2 (11.6) (38.6) 39.5 0.814 11.8 7.1 110.8 13.0 15.1 0.8 71.3 45.3 (11.8) (39.6) 40.4 0.815 11.9 7.1 113.6 13.3 15.3 0.8 73.0 46.5 (11.9) (40.6) 41.3 0.816 12.0 7.2 116.5 13.6 15.5 0.8 74.9 47.6 (12.0) (41.6) 42.3 0.817 12.1 7.3 119.4 14.0 15.7 0.8 76.7 48.8 (12.1) (42.6) 43.3 0.818 12.3 7.4 122.4 14.3 15.9 0.9 78.7 50.1 (12.3) (43.7) 44.3 0.919 12.4 7.4 125.4 14.7 16.2 0.9 80.6 51.3 (12.4) (44.8) 45.4 0.920 12.5 7.5 128.5 15.0 16.4 0.9 82.6 52.6 (12.5) (45.9) 46.4 0.9

- 123 - Annex 10Page 14 of 17

Farm Road Model

Basic ParametersFinancial ECF Economic

A. Road Cost per Km (P'000) 137 0.80 109.6B. Maintenance Cost/km/yr 1 0.75 7.5

C. Length (km) 2

D. Area Served (ha) 180

E. Average journey (km) 1.25

F. Yield/ha/year 5.00

G. Total Produce Hauled (tons) 900

H. Total Tonkms of transport 1,125

Transport CostsCost/km Av Load Unit Cost ECF Econ CostPeso Tons P/tkm _ P/tkm

I. Carabou Sled (WOP) 17.5 0.15 116.7 0.80 93.3J. Carabou Cart (WIP) 20 0.75 26.7 0.80 21.3

K. Savings per tonkm (l-J] 90.0 72.0

L AnnuaL Savings (P'000) [H*KJ/1000 101.2 81.0

Calculation of ERR (P'000)

year Capital O&M Total Total Net Econ[A*CJ [B*C] Cost Benefits Benefit

0 219 219 -2191 15 15 81 662 15 15 81 663 15 15 81 664 15 15 81 665 15 15 81 666 15 15 81 667 15 15 81 668 15 15 81 669 15 15 81 66

10 15 15 81 6611 15 15 81 6612 15 15 81 6613 15 15 81 6614 15 15 81 6615 15 15 81 6616 15 15 81 6617 15 15 81 6618 15 15 81 6619 15 15 81 6620 15 15 81 66

ECONOMIC RATE OF RETURN 27X

- 124 -Annex 1 0

Page 15 of 17

Irrigation Model (oer ha)

WITH PROJECT (WIP)Financial Economic

Unit VoLume Price Value ECF VaLue(WET SEASON CROP - IRRIGATED)Paddy Sales kg 3,300 7.5 24,750 0.71 17,628

CostsSeed kg 100 9 900 0.71 641Fertilizer kg as 100 18 1,800 0.80 1,440Chemicals Peso 800 1 800 0.80 640Labor (incl family) md 55 70 3,850 0.60 2,310Animal Power ad 10 140 1,400 0.80 1,120Irrigation Fee ha 1 925 925 0.00 0Loan Int/Ins Pmt Peso 8,000 20% 1,600 0.50 800Threshing Charge cavan 66 15 990 0.60 594Cartage to Barangay cavan 66 4 264 0.80 211

Costs 12,529 7,756

Margin 12,221 9,872

(DRY SEASON CROP - IRRIGATED)Paddy Sales kg 3,500 7.5 26,250 0.71 18,696

CostsSeed kg 100 9 900 0.71 641Fertilizer kg as 100 18 1,800 0.80 1,440Chemicals Peso 700 1 700 0.80 560Labor (incl family) md 70 70 4,900 0.60 2,940AnimaL Power ad 10 140 1,400 0.80 1,120Irrigation Fee ha 1 925 925 0.00 0Loan Int/Ins Pmt Peso 8,000 20% 1,600 0.50 800Threshing Charge cavan 70 15 1,050 0.60 630Cartage to Barangay cavan 70 4 280 0.80 224

Dry Season Costs 13,555 8,355

Margin for Crop 12,695 10,341

AnnuaL Margin (100% Dry Season Cropping) 24,916 20,213

AnnuaL Margin (50% Dry Season Cropping - Base Case) 18,568 15,042

WITHOWT PROJECT (WOP)

(WET SEASON CROP ONLY - UNIRRIGATED)Paddy Sales kg 2,100 7.5 15,750 0.71 11,218

CostsSeed kg 100 9 900 0.71 641Fertilizer kg as 75 18 1,350 0.80 1,080Chemicals Peso 550 1 550 0.80 440Labor (incl family) md 70 70 4,900 0.60 2,940AnimaL Power ad 10 140 1,400 0.80 1,120Loan Int/Ins Pmt Peso 0 20% 0 0.50 0Threshing Charge cavan 42 15 630 0.60 378Cartage to Barangay cavan 42 10 420 0.80 336

Costs 10,150 6,935

Annual Margin 5,600 4,283

Wet Season Improvement 6,621 5,589

Dry Season Improvement (100% Cropped) 12,695 10,341

Potential Improvement (100% Dry Season Crop WIP) 19,316 15,930

Average Improvement (50% Dry Season Crop WIP - Base Case) 12,969 10,760

-125- Annex 10

Page 16 of 17

Base Case Irrigation Cost/ha (P'OO0)

Financial ECF EconNew 72,000 0.80 57,600Rehab 39,000 0.80 31,200Average 48,400 0.80 38,720

O&M 550 0.75 413

X Dry Season Cropping 50X

Economic Rate of Return CalcuLation (Average)

ADJ a/YEAR INVESTMENT O&M COSTS - INCR COSTS---- ---INCR BENEFITS--- NET ECON NET ECON

COST U SEASON D SEASON W SEASON D SEASON FLOW FLOW

-1 (3,872) (3,872) (3,872)0 (34,848) (34,848) (35,939)1 (413) (821) (4,178) 6,410 9,348 10,347 10,3472 (413) (821) (4,178) 6,410 9,348 10,347 10,3473 (413) (821) (4,178) 6,410 9,348 10,347 10,3474 (413) (821) (4,178) 6,410 9,348 10,347 10,3475 (413) (821) (4,178) 6,410 9,348 10,347 10,3476 (413) (821) (4,178) 6,410 9,348 10,347 10,3477 (413) (821) (4,178) 6,410 9,348 10,347 10,3478 (413) (821) (4,178) 6,410 9,348 10,347 10,3479 (413) (821) (4,178) 6,410 9,348 10,347 10,34710 (413) (821) (4,178) 6,410 9,348 10,347 10,34711 (413) (821) (4,178) 6,410 9,348 10,347 10,34712 (413) (821) (4,178) 6,410 9,348 10,347 10,34713 (413) (821) (4,178) 6,410 9,348 10,347 10,34714 (413) (821) (4,178) 6,410 9,348 10,347 10,34715 (413) (821) (4,178) 6,410 9,348 10,347 10,34716 (413) (821) (4,178) 6,410 9,348 10,347 10,34717 (413) (821) (4,178) 6,410 9,348 10,347 10,34718 (413) (821) (4,178) 6,410 9,348 10,347 10,34719 (413) (821) (4,178) 6,410 9,348 10,347 10,34720 (413) (821) (4,178) 5,876 9,348 10,347 11,597

Average ERR for Project (as above) 25%

ERR for New Construction 17X

ERR For RehabiLitation 31X

a/ Incremental Costs are incurred on average 3 months ahead of IncrementaL Benefits.

- 126 - Annex 10

Page 17 of 17

Estimate of Economic Price of Paddy at Barangay and the ECF for Paddy

FinanciaL -------Economic-----Pesos/ton ECF Pesos/ton USS/ton

Rice Rice

World Price (forecast for 2000 in '96 terms) a/ 287.0Quality Adj (5% broken - 25% broken) b/ 20.0Freight to Philippines 40.0

307.0

Landed Cost Manila (@Peso 26/US$) 7.982

Port Handling 150 0.80 120 4.6Importers Margin (7.5%) 599 1.00 599 23.0Transport to Wholesale Center 200 0.80 160 6.2Wholesalers Margin (3%) 268 1.00 268 10.3

Rice at Philippines Wholesale Market 9.129 351.1

LessRural Mill to Market (incl sacks, shrinkage transport) 610 0.80 488 18.8

Free at Rural Mill 8.641 332.3

- Milling Cost 480 0.80 384 14.8+ Bran Value (P5/kg - 10 kg bran/65kg rice) 769 0.75 577 22.2

Value to Trader/Miller in Rice Terms 8.833 339.7

Paddy Paddy

Convert to Paddy (65%) 5,742 220.8

Less Paddy Traders Cost & Margin 500 0.80 400 15.4

Ex Barangay Value DryPaddy Basis 5,342 205.5

Domestic Price Paddy (P/ton) 7,500

ECF For Paddy (Economic/Domestic [5,342/7,500J) 0.71

Memo:

Economic Retail Price of Rice based on WB 2000 estimate.

Wholesale Price 9,129 351.1Transport to Shop P300/ton 300 7.8Retail Margin + 10% 943 24.5

Retail Price 10,371 398.9

a/ WB Indicator price for year 2000 in 1996 currency terms (Feb '96 estimate)

b/ Based on 1995 differential of USS30 per ton between indicator prices for 5% and 35% brokens i.e.differential between 5% and 25% brokens is 2/3 X US$30 = US$20/ton.

- 127 -

Annex 11

PHILIPPINES

AGRARIAN REFORM COMMUNITIES DEVELOPMENT PROJECT

DOCUMENTS IN PROJECT FILE

1. Identification Mission' Reports

(a) Agricultural Report (D'arcy Gibbs, November 1994)

(b) Potential for NGOs' Involvement (Alan Smith, December 1994)(c) Challenges for ARCs (Patricia Ruby, November 1994)(d) Cooperatives and ARCs (Raul Montemayor, November 1994)

(e) Problems and Prospects of Community Organizations (Alvin Ulrich,

November 1994)

2. Prolect Preparation Reports

(a) Economic and Financial Aspects (Jan Vingerhoets, June 1995)(b) Agriculture Development and Livelihood Support Program for ARCs

(Raul Montemayor, June 1995)

(c) Community Development and NGO Participation (Roel Ravanera, June 1995)(d) Project Implementation and Financing Arrangements [Johnson (Ton)

Mercader, November 1995)

(e) Rural Infrastrcutre, rural roads and irrigation (Israel Noar, June

1995)

3. Working Papers

(a) Rural Infrastructure (Timothy Jackson, March 1996)(b) Community Development and Technical Assistance (Dorothy Lucks and Roel

Ravanera, November 1995)

4. Project's Operations Manual

IBRD 27553

6- 12'1~~~ 144- 1;

CLASSIFICATION OF PROVINCESBY ADMINISThATIV! REGIONS

I ILOCOS VI WESTERN VSAYAS PHILIPPINES-20- 1 hc ah38 Aklon _W

2 loeo SNOw 39 Cap83 La Union 40 Ahiaque BATAJES

4 Pangainon 41 lao a 6 NATIONAL CAPITACORDILLERA ADMINISTRATWE 42 Negro Oclddwt QREGION (CAM 43 Gninx _ t_ NaBOUN_ES

5 Afr Vii CENTRALVISAYAS O6 * uain P 44 _ Co _iw REGION BOUNDARIES

8 ahgo, 46 Ua"ol9 Bnngud 47 Sqqr 1 INTERNATIONAL BOUNDARIES

11 CAGAYAN VALLEY VIII NSMVISAYAS10 Solon.. 48 Norlbem So.w 6 * ~~~~~~~~~~~~~NOE- hemw Awa~ olbgonsw mid Provning eiwo on #Aop

1 1 Cogaan 49 Waem tSamw12 2kablo 50 Ea" SnS w t R d.ini/n aswoa b,loH.f I13 Nu.a VIa 51 L1 .14 Quin 52 Suwwttn 2 1y2-

III CENTtALWZON 53 Wwiron l 2 11 SNL Edja IX WESIERN MNDOANA16 c S4

6Twl 5 ZonNboong,d Nt. .:17 nbooninl 55 ZWnboa dSwr18 kPnpongo 56 BwianI

P 20 Bn ~~~~~X N0frIHE N MINDKA KLOM wv)2;*&TM1 20 Bolkor, 57 Suio elNroNA&TIONAL CAPrrALREGION (NCR) 58 Com4gn ; 4 .- o

IV SOL1TH1EN' TAGALOG 59Au15dlNf21 Aurora ~~~60 Noo,*itOriened 6

23 Aurorm 61 _m _i O/dwdol L U Z 0 ,N

23 Ri- 62 &hbdnon 17 19- 24 C.,il e~~~~3 Ahumn d W X\\g.PIlPN Sur .24V Cnisg

6 3Augon. 1,

25 Wgunc, Xi SOUTHERN MJNOANWO25 Sang 64 Surigoo,del Sw23ILP NE A 27 Morlnd 66 70 tnoo d Norl

28 Cd6n AUONMOSRSOO ow 1-4. I p ,. -K6

28 Min,doro Orignio 67 Do1oo del Sw '29 R~nombioddno 68 SouhI Colobaft 33MA

69< Umnar 31J4 g.t -; Xilwt I 5q+tALg+9ND < A

V BICOI. 70 Loa de No'3 2ComdosIn Node 70Lnode ot33 Cmn.wdeSur 7 T sub.. Ku*

34 Conkondunon AUTOVNOMOUS REGION OF35 Ajbo1 MWUSt MINDANAO ~AW4 2

36 Suloun 72 Lanoo delSu w37 m_osbo. 73 Mog> ulndo6

75 WuIu4123 76 Tmwi,ow 1

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