ASIAN DEVELOPMENT BANK

PPA:PHI 21049

PROJECT PERFORMANCE AUDIT REPORT

ON THE

SECOND PALAWAN INTEGRATED AREA DEVELOPMENT PROJECT (Loans 1033- PHI[SF]/1034-PHI)

IN THE

PHILIPPINES

December 2002

CURRENCY EQUIVALENTS Currency Unit peso (P) At Appraisal (March 1990) $0.041 P24.20 At Project Completion (December 1999) $0.025 P40.20 ABBREVIATIONS ADB CIS DENR DPWH EA EIRR EU ha IAD km NIA O&M OEM PCR PCSDS PIADP PIADPO PMO PPAR PPTA PTFPP RAC TA VHS Asian Development Bank communal irrigation system Department of Environment and Natural Resources Department of Public Works and Highways executive agency economic internal rate of return European Union hectare integrated area development kilometer National Irrigation Administration operation and maintenance operations evaluation mission project completion report Palawan Council for Sustainable Development Staff Palawan Integrated Area Development Project Palawan Integrated Area Development Project Office Project Management Office project performance audit report project preparatory technical assistance Palawan Tropical Forestry Protection Program rural agricultural center technical assistance village health station NOTES (i) (ii) The fiscal year (FY) of the Government ends on 31 December. In this report, $ refers to US dollars. At Operations Evaluation (August 2002) $0.020 P51.00

P1.00 $1.00

= =

Operations Evaluation Department, PE-611

CONTENTS BASIC DATA EXECUTIVE SUMMARY MAP I. BACKGROUND A. B. C. D. E. F. II. Rationale Formulation Purpose and Outputs Cost, Financing, and Executing Arrangements Completion and Self-Evaluation Operations Evaluation Page iii iv vii 1 1 1 1 1 2 2 2 2 3 3 4 4 4 4 13 13 13 13 14 14 14 14 15 15 15 15 15 16 16 16 19 20

PLANNING AND IMPLEMENTATION PERFORMANCE A. B. C. D. E. Formulation and Design Achievement of Outputs Cost and Scheduling Procurement and Construction Organization and Management

III.

ACHIEVEMENT OF PROJECT PURPOSE A. B. C. Operational Performance Economic Reevaluation Sustainability

IV.

ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. B. C. Socioeconomic Impact Environmental Impact Impact on Institutions and Policy

V.

OVERALL ASSESSMENT A. B. C. D. E. F. G. Relevance Efficacy Efficiency Sustainability Institutional Development and Other Impacts Overall Project Rating Assessment of ADB and Borrower Performance

VI.

ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. B. C. Key Issues for the Future Lessons Identified Follow-Up Actions

ii

APPENDIXES 1. 2. 3. 4. 5. 6. Project Cost: Appraisal Estimate versus Actual Achievement of Project Targets Cost of Road Construction Communal Irrigation Systems and Water-Use Fees Economic Reevaluation Prevalence of Malaria, Tuberculosis, and Malnutrition 21 22 24 25 29 47

SUPPLEMENTARY APPENDIX (available upon request) Major Findings of Village Survey

BASIC DATA
Project Preparation/Institution Building TA No. TA Name 1097 1380 Palawan Integrated Area Development II Agroprocessing and Rural Enterprise Type PPTA ADTA PersonMonths 48 16 Amount ($) 355,000 295,000 Approval Date 29 Dec 1988 27 Sep 1990
1

Key Project Data ($ million) Total Project Cost Foreign Exchange Cost Local Currency Cost 2 ADB Loan Amount/Utilization Key Dates Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Loan 1033(SF) First Disbursement Loan 1034 Project Completion Loan Closing Loan 1033(SF) Loan Closing Loan 1034 Months (effectiveness to completion) Internal Rate of Return (%) Economic Internal Rate of Return Borrower Executing Agencies

As per ADB Loan Documents 73.50 20.00 53.50 58.00 Expected

Actual 83.48 20.74 64.35 58.36 Actual 1429 Mar 1990 2023 Aug 1990 27 Sep 1990 25 Oct 1990 2 Jan 1991 27 Sep 1991 15 Mar 1991 30 Dec 1998 10 Sep 1999 13 Jul 1999 96 PCR 11.0

27 Dec 1990

30 Dec 1996 30 Jun 1997 30 Jun 1997 72 Appraisal 17.8 Republic of the Philippines

PPAR 3.7

Department of Agriculture Department of Environment and Natural Resources Department of Health Department of Public Works and Highways Department of Social Welfare and Development National Irrigation Administration Palawan Integrated Area Development Project Office No. of Missions 1 1 8 1 1 No. of Person-Days 128 2 168 68 42

Type of Mission Appraisal Inception Review Project Completion 3 Operations Evaluation

__________________________ ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = project completion report, PPAR = project performance audit report, PPTA = project preparatory technical assistance, SF = special fund, TA = technical assistance. 1 The actual project costs differ slightly from that given in ADBs PCR (see footnote 1 in Appendix 1). 2 Approved loan amounts for Loans 1033(SF) and 1034 were SDR18,425,600, equivalent to $25.0 million and $33.0 million, respectively. 3 Comprising E. Q. Ye, Senior Evaluation Specialist (Mission Leader) and G. Bimbao (domestic consultant).

EXECUTIVE SUMMARY The Second Palawan Integrated Area Development Project (the Project) was designed as a follow-up to the Palawan Integrated Area Development Project, which was implemented from 1982 to 1990. By focusing on one of the poorest regions in the Philippines, the Project was expected to contribute to the dual objectives of poverty reduction and balanced regional development. The Project aimed to develop land and water resources, increase agricultural production and productivity, create employment, reduce poverty, improve the quality of life of subsistence farmers and fisherfolk, and arrest environmental degradation. Its numerous components covered crops, livestock, fisheries, irrigation, land survey and titling, roads, port, health, water supply, and women in development. At appraisal, the total project cost was estimated at $73.5 million, of which $58.0 million was to be financed by the Asian Development Bank (ADB) and $15.5 million by the Government. This proved to be unrealistic, and a significant cost overrun occurred during implementation, amounting to $25.5 million, or an increase of 35% over the appraisal estimate. The cost overrun made necessary a substantial reduction in project scope, including cutback of the roads component by 51% and in communal irrigation systems (CISs) by 35%. At completion, the total project cost was $83.5 million, 14% higher than the appraisal estimate, with a 99% overrun in the CIS component and 133% overrun in roads and port. The ADB loans appreciated slightly to $58.3 million and the Governments financing increased by 63% to $25.2 million equivalent. The Project was completed in December 1998, 2 years behind schedule. ADBs project completion report rated the Project partly successful. This project performance audit report examines the Projects design, implementation, outputs, and impacts, and identifies lessons learned for future operations. In terms of design, the objective of promoting development in a poor region was appropriate. The development of roads and port improved the basic infrastructure in the province. The village health stations were highly appreciated by local communities due to their tangible benefits to the poor. The land survey and titling strengthened land tenure and provided incentives for farmland investment. The Project was designed at a time when beneficiary participation was not commonly used. Instead of focusing on removing the key sector constraints, a top-down and supply-driven approach led to the inclusion of less relevant components, such as livestock procurement and dispersal. Since the Project was prepared while its predecessor was still ongoing, problems encountered in the latter were not thoroughly studied; lessons learned during the first project were not fully incorporated into the design of the second one; and similar mistakes were repeated, such as constructing a large number of water-supply systems without producing potable water. While most of the revised physical targets were achieved, many of the project objectives were not. Those related to developing land and water resources and increasing agricultural production and productivity were met in farmlands where farmers received sufficient irrigation services after CIS construction. Due to the small size of the CISs, however, the number of such farmers was limited to about 10% of the households in 13 villages that constructed them. The objectives of reducing poverty and improving the quality of life of subsistence farmers and fisherfolk were achieved on a limited scale, and this achievement was partly due to other development efforts. Compared to its predecessor, efficiency in implementation was improved through the establishment of project management offices at the provincial level. However, the project

v design, by expanding government programs without correcting their weaknesses, induced inefficiencies, such as distributing animals to farmers free of charge but at high cost to the Government, and constructing various extension and training centers with high costs and low benefits. The wooden fish landings generated only short-term benefits at high investment and maintenance costs. The Projects economic internal rate of return, which was estimated at 17.8% at appraisal and 11.0% at project completion, is reestimated at 3.7%. The project components with tangible benefits are likely to be sustained, such as most roads, the port, two concrete fish-landing facilities, and the village health stations. The others have either vanished or ceased operation, such as the wooden fish landings, most water-supply schemes, most nurseries, and the majority of the extension and training centers. The sustainability of the CISs is poor due to farmers lack of ownership and unwillingness to pay for maintenance. The Project contributed to capacity building of national government agencies but not to that of local governments and beneficiaries. Its impact on poverty was limited due to a lack of measures to directly help the poor. Its environmental impact could have been significant if it had endeavored to control destructive fishing or address other environmental issues. Overall, the Project is rated partly successful, and the following issues are identified. Communal Irrigation Systems. Farmers lack of ownership was a primary cause of the poor performance of the CISs. As these were designed by consultants and local communities were only informed of the investment decisions, farmers considered the CIS investment to be a government project; consequently, they did not feel any ownership, authority, or responsibility to monitor subproject design and construction. As a result, many CISs were overdesigned with high investment costs. The lack of monitoring by the beneficiaries led to construction deficiencies, incompleteness, and reduction in command areas. Command areas were further reduced when damage caused by typhoons was not repaired due to a lack of funds, leading to poor water supply and providing an excuse for not paying water-use fees. Finally, collection of water-use fees was low, leading to poor maintenance and deterioration of the CISs only a few years after construction. Future design of similar projects should include measures to ensure beneficiaries strong ownership, such as investment decisions made by communities and their proportionate sharing of investment costs in cash. Agricultural Extension System. Fourteen rural agricultural centers were established to strengthen agricultural extension. They operated well when project funds were available to transport trainees to the centers, but ceased operation after project completion. The key constraint to agricultural extension is not a lack of buildings but shortage of extension staff and operational funds. Due to budgetary constraints, municipal governments cannot finance a sufficient number of extension staff; their mobility is severely restricted by shortage of vehicles and travel allowance. As a result, agricultural extension in the project areas has so far reached only a few farmer associations, representing less than 10% of the households in their villages. Future design of agricultural support services should include measures to ensure long-term operation of such services after project completion. Subproject Design. Subprojects were designed by consultants without full knowledge of local conditions. Implementation of uniform components in vastly different subproject sites restricted the effectiveness of the investment. In fact, it is very difficult for consultants to design rural interventions that are suitable for all subproject sites. This is particularly true for poverty reduction interventions, as the causes of poverty and conditions/opportunities available for poverty reduction vary considerably across villages. In contrast, local communities know who

vi the poor are in their villages and what the key factors underlay the poverty, and have fairly good judgment of what measures will be workable. Future design of poverty-reduction projects should focus on building up local capacity and letting local governments and communities determine subproject interventions that are most suitable to their conditions. Lessons Learned. Integrated area development projects had limited success and were therefore discontinued. Nevertheless, the concept of focusing assistance on poor regions and designing multiple interventions to address various rural development needs continues to be widely used in ADBs poverty reduction operations. The following lessons learned from the Project are therefore relevant to such operations: (i) The top-down and supply-driven approach of consultants designing a subproject with beneficiaries being informed of the investment decision leads to weak ownership and poor sustainability. A better alternative is to let beneficiaries determine subproject interventions with proportionate sharing of investment costs in cash. Multiple interventions are needed for rural development and poverty reduction. To achieve real synergies, integration of project activities should be based on client demand and conducted at the village level. Rural/area development projects are better implemented by local governments, which are more attuned to the needs of their voters and the delivery of project benefits. National line agencies could participate as contractors to provide services based on client demand. Capacity building for local governments and social preparation for the poor should be conducted prior to physical investment. Technical assistance from aid agencies could be used to build up local capacity prior to the design of loan projects. Project monitoring should focus on project benefits rather than physical targets. Monitoring will be most effective and efficient if local governments and communities have strong incentives to perform this function. Public investment in CISs tends to be overdesigned. This leads to inefficiencies and poor sustainability. Due to their small size, most CISs benefit the better-off groups instead of the poor. A better alternative may be to encourage private investment in CISs. With simple design and using local materials, private investors can build CISs quicker, cheaper, and with better ownership and sustainability. In areas frequently hit by typhoons, establishment of an emergency fund before construction of physical facilities (such as roads and CISs) is necessary to ensure timely repair of damage. This approach will help screen out subprojects with poor sustainability, as local governments or beneficiaries that are unable or unwilling to contribute to the emergency fund will likely be unable or unwilling to take care of the project facilities after construction.

(ii) (iii)

(iv)

(v) (vi)

(vii)

I. A. Rationale

BACKGROUND

1. The Second Palawan Integrated Area Development Project (the Project) was designed as a follow-up to the Palawan Integrated Area Development Project (PIADP).1 At the time of project design, Palawan was one of the poorest provinces in the Philippines. By focusing on poverty reduction in a less-developed region, the Project was expected to contribute to the dual objectives of poverty reduction and balanced regional development, as stated in the Governments Medium-Term Philippine Development Plan (19871992). B. Formulation

2. A project preparatory technical assistance (PPTA) 2 was completed in February 1990. The final report covered a wide range of topics in its country and sector analysis without thorough investigation of factors underlying the issues identified, such as persistent poverty and unequal income distribution. The report listed numerous investment proposals, some of which were included in the Project. C. Purpose and Outputs

3. The Project aimed at developing land and water resources, increasing agricultural production and productivity, creating employment, reducing poverty, improving the quality of life of subsistence farmers and fisherfolk, and arresting environmental degradation. The Project comprised seven components: ( agricultural development, including crop intensification and i) diversification, livestock development, and fishery support services; (ii) communal irrigation systems (CISs); (iii) land survey and titling; (iv) infrastructure development, including roads and port; (v) social services, including an integrated health program, rural water supply, and women in development; (vi) forestry and environmental stabilization; and (vii) project management. Components (ii), (v) and (vi) were to cover the entire mainland of Palawan Province, while the rest covered mainly the northern part of the province (see Map). D. Cost, Financing, and Executing Arrangements

4. Total project cost was estimated at $73.5 million at appraisal (Appendix 1), and financed by two loans from the Asian Development Bank (ADB): $25 million from the Asian Development Fund and $33 million from ordinary capital resources, with the rest being financed by the Government. The Project involved seven executing agencies (EAs): the Department of Agriculture, Department of Environment and Natural Resources (DENR), National Irrigation Administration (NIA), Department of Health, Department of Public Works and Highways (DPWH), Department of Social Welfare and Development, and the Palawan Integrated Area Development Project Office (PIADPO). The latter was under the Office of the Provincial Governor, acting as the focal point for project coordination and monitoring.

1 2

Loans 528/529-PHI(SF): Palawan Integrated Area Development Project, for $47.0 million, approved on 19 September 1981. TA 1097-PHI: Palawan Integrated Area Development Project II, for an amount of $355,000, of which ADB financed $150,000 and the United Nations Development Programme financed $205,000, approved on 29 December 1988.

2 E. Completion and Self-Evaluation

5. The Project was completed in December 1998. A project completion report (PCR), which was prepared by ADBs Agricultural and Social Sectors Department (East) and circulated in May 2001, rated the Project partly successful. Although the objectives of poverty reduction and balanced regional development were highly relevant and revised physical targets were largely met, the anticipated outcomes were not fully achieved. The Project suffered significant implementation delays, resulting in a reduced economic internal rate of return (EIRR) of 11.0% as against the appraisal estimate of 17.8%. The Projects sustainability was assessed as less likely due to insufficient funds for operation and maintenance (O&M). The Project had a moderate institutional impact on the national agencies and little impact on local governments. 6. The PCR identified a number of problems: (i) little demand for hillside farming, (ii) up to 40% cattle mortality due to diseases and stress in transporting the animals to the project areas, (iii) underutilization of fish markets and quick deterioration in six out of nine fish-landing facilities, (iv) deletion of 7 out of 20 CISs due to technical problems and shortage of funds, (v) substantial increase in cost of roads due to unrealistic cost estimation at appraisal, (vi) damage to road sections because of poor drainage maintenance, (vii) repetition of the same mistakes as under PIADP such as shortage of water in water-supply schemes, and (viii) poor O&M due to lack of ownership and funding. F. Operations Evaluation

7. This project performance audit report (PPAR) assesses the Projects design, implementation, outputs, and impacts, and draws lessons learned for future operations. The PPAR presents the findings of the Operations Evaluation Mission (OEM), which visited Palawan in July-August 2002. The OEM conducted (i) a desk review of project documents and records; (ii) discussions with relevant governmental officials, field staff, and local governments; and (iii) focus group discussions and interviews with beneficiaries and nonbeneficiaries in the project areas.3 Copies of the draft PPAR were submitted for review to the National Economic Development Authority and EAs as well as to ADB staff concerned. Comments received were considered in finalizing the PPAR. II. A. PLANNING AND IMPLEMENTATION PERFORMANCE

Formulation and Design

8. The Projects goals of poverty reduction and balanced regional development were consistent with the Governments development strategy and with ADBs operational strategy for the Philippines. Its design was built on the experiences of PIADP, and incorporated some (but not all) lessons learned from that project, such as setting up project management offices (PMOs) at the EAs provincial offices to speed up decision-making at the field level. 9. The design, however, had the following weaknesses. First, the Project was formulated in 1989-1990 when PIADP was still ongoing. Although an assessment of the implementation of PIADP was conducted at appraisal, the assessment was overly optimistic and not all problems were reported. Consequently, many mistakes of PIADP were repeated under the Project, such
3

The OEM visited 45 villages in 14 municipalities in the project areas to inspect project facilities and hold discussions with farmers, fisherfolk, local governments, and field staff. The OEM also conducted a survey of 34 villages to assess the Projects social impacts.

3 as underutilization and poor sustainability of various extension centers, low survival rates of animals and crops introduced, and construction of water-supply schemes without producing adequate quantities of potable water. 10. Second, although the Projects goals were highly relevant, many of its components and activities were not. Instead of addressing the key constraints in the project areas, the Project expanded existing government programs such as animal dispersal without analyzing their benefits and problems, and repeated the same mistakes of these programs (para. 24). 11. Finally, the project cost was seriously underestimated at appraisal, leading to a significant cost overrun that, in turn, made necessary a substantial reduction in project scope. As the project design did not call for a midterm review or include a mechanism for timely reporting of problems, the cost overrun was reported in ADB only 1 year before the scheduled project completion, forcing the Government and ADB to scale down some of the most valuable components such as roads. This led to a significant reduction in benefits and social impacts.4 B. Achievement of Outputs

12. Because of the cost overrun and insufficient funds, the Projects physical targets were revised substantially in 19951996. While the targets for some low-cost items were increased,5 those for capital-intensive items were reduced. For example, there was a 51% reduction in the length of roads planned (from 579 kilometers [km] to 286 km), and a 35% reduction in the number of CISs (from 20 to 13). At completion, most of the revised physical targets were largely or fully achieved (Appendix 2). In particular, the length of newly constructed and rehabilitated provincial roads was higher by 14% and 12%, respectively. Since roads were most important to Palawan, the Government used its own funds to complete 31 km that had been dropped due to the cost overrun. C. Cost and Scheduling

13. The cost overrun, first reported in ADB in September 1995, was estimated at $25.5 million, or 35% over the appraisal estimate. The overrun was attributable to an unrealistic cost estimation at the PPTA stage (footnote 2), when a unit cost of roads was assumed that was substantially below the actual cost experienced under PIADP (Appendix 3). 6 According to DPWH staff interviewed by the OEM, the issue of cost underestimation had been raised by them during project preparation but was not taken into account in the project design. The OEM was also told that, due to the mountainous terrain, many more bridges were required than provided for in the appraisal estimate. Consequently, the actual unit cost for roads was 34 times higher in foreign currency and 57 times higher in local currency (because of the peso depreciation). 14. To bring the costs into line with the appraisal plan, the ADB mission suggested a substantial reduction in the physical targets (para.12). The revised scope was approved in November 1996, and the cost overrun on the Project was reduced to 14% at its completion,
4

5 6

When detailed engineering design, contract awards, and construction of the first set of roads and CISs were completed in 1992, the problem of insufficient budget provision was raised by PIADPO staff. However, the issue of cost overrun was not reported by ADBs review missions until September 1995. As a result, there was no choice but to complete subprojects that were ongoing or had been contracted without reprioritizing investment. Such as coffee, cashew, and mixed orchard, for which the Project provided only tree seedlings. Neither the PPTA report nor the appraisal report discussed the actual cost of road construction under PIADP or used that cost as a basis for the Project.

4 including a 99% overrun in CISs and 133% overrun in roads and port development. The actual total project cost was thus $83.5 million, as against the appraisal estimate of $73.5 million (Appendix 1). 15. The Project was to be implemented over 6 years from 1991 to 1996. While there was practically no delay in loan effectiveness, implementation suffered delays at all stages in all components, resulting in a 2-year delay in overall completion. Major causes of the delays included the protracted approval of project documents by the Government, slow release of funds in the first 3 years, a ban on hiring of new staff, a delay in the Governments approval of the change of project scope,7 and weak supervision by ADB staff.8 D. Procurement and Construction

16. All procurement was conducted in accordance with ADBs Guidelines for Procurement. Local competitive bidding was used for all major civil works with the exception of CISs, where force account was used due to a lack of interest by contractors. Procurement of vehicles was pooled together using international shopping, whereas procurement of other goods was handled by the concerned EAs. While the EAs rated the performance of contractors generally satisfactory, deficiencies and incompleteness were reported by users of CISs (para. 31). Beneficiaries of water-supply schemes also expressed dissatisfaction with their quality (para. 45). E. Organization and Management

17. PIADPO established under PIADP continued to serve as a focal point for overall implementation and coordination of the Project. Incorporating a lesson learned from PIADP, PMOs were set up in the EAs provincial offices. A three-level management system was established, consisting of a national liaison office in Manila, PIADPO and PMOs at the provincial level, and district management offices in four municipalities. Overall, the management and coordination systems worked smoothly. III. A. ACHIEVEMENT OF PROJECT PURPOSE

Operational Performance 1. Agricultural Development a. Crop Intensification and Diversification

18. Accounting for 11% of the actual project cost, crop intensification and diversification was the third largest component. It consisted of (i) planting cashew, coffee, and cacao and rehabilitating existing cashew as intercrops for coconut or mixed orchards (such as mango and calamansi); and (ii) hillside farming with mixed orchards. To support these activities, 14 rural

The substantial reduction in project scope required the approval of the Cabinets Investment Coordination Committee, which was delayed by 9 months. Furthermore, it took time for the Government to search for additional funds to cope with the cost overrun as its financing share increased from $15.5 million to $25.2 million. For example, the back-to-office reports of ADBs review missions mainly updated physical progress without reporting issues. Discussions in these reports were almost the same in the first 4-5 years with the same conclusion that there was no issue for higher-level attention. There was no midterm review, and the major cost overrun and the consequent need to change the project scope were reported only in the fifth year of implementation.

5 agricultural centers (RACs) were established with nurseries to provide tree seedlings. As reported by the PCR, all physical targets of the revised plan were met or exceeded. 19. In spite of the good performance in meeting the physical targets, the overall results of this subcomponent were discouraging. First, since the soil/climate conditions and labor cost varied across subproject sites, the promotion of the same crops in all project areas did not work well. In particular, the new cashew variety imported from Thailand had a low germination rate. The hillside farming was not attractive to farmers due to the high labor cost required. Some farmers planted tree crops but did not spend time on maintenance and therefore had little harvest 810 years after planting. Finally, the El Nino drought in 1998 destroyed many newly established coffee, cacao, and cashew crops, while the native varieties and mixed orchards survived. 20. Second, the Project promoted the tree crops without careful market planning. Because of the mountainous and isolated geography of many subproject sites, transportation is very expensive. The low population density restricts the size of local markets, making marketing a major constraint to agricultural development. Furthermore, the volume of coffee harvested in the project areas is too small to attract traders. As a result, the price for fresh coffee beans is as low as P16 per kilogram, which is insufficient to pay the labor for harvesting. For cacao, farmers are further restricted by limited knowledge of processing and a complete absence of local demand. 21. The 14 RACs were all constructed as planned; the construction quality was good. The RACs were used as offices for field staff during implementation; training was conducted when project funds were used to transport trainees to the RACs. Since project completion, the RACs have been transferred to local governments. Although three RACs are currently used by agricultural staff as offices, the rest have discontinued operation due to local governments lack of funds. As none of the RACs receives regular budget support for O&M, many buildings are deteriorating. Since their location depended on land donation, some RACs are located far away from towns, making them expensive and impractical to use for training and demonstration purposes. 22. Farmer associations were organized to facilitate agricultural extension, with members ranging from 25 to 50 per group. Few of them, however, continued operation after project completion. While the farmer associations received sufficient attention from extension workers, the nonmembers (who were the majority in a village) had little access to extension services. Restricted by limited staff, vehicles, and travel allowance, most extension workers seldom visited farmers who were not association members. b. Livestock Development

23. Livestock development accounted for 5% of the actual project cost. With an aim to improve local breeds of livestock and provide draft animals for farming, this subcomponent included construction of many livestock centers including a carabao (buffalo) breeding and development center, a swine breeding and development center, and a swine dispersal substation. Moreover, an animal diagnostic laboratory was established to strengthen the Department of Agricultures veterinary department, and a dairy pilot and demonstration farm was set up to promote dairy production. A large budget was provided to procure cattle, swine, and poultry and distribute them to farmers free of charge. In return, beneficiaries were required to repay by offspring, which would be redistributed to other farmers.

6 24. The physical targets were fulfilled. Together with the Governments past and ongoing programs of animal dispersal, the Project contributed to a replacement of local livestock by imported or mixed breeds.9 The OEM, however, observed inefficiencies and other problems. First, the PCR reported a high cattle mortality rate (up to 40% in some areas) from stress during sea and road transportation as well as due to diseases. Second, a low calving rate was observed due to a complete reliance on natural breeding as well as insufficient nutrition of heifers; it took 35 years for most cattle to have their first offspring. 10 Third, many of the livestock centers operated at high costs, and their performance deteriorated sharply after project completion due to local governments inability to finance them. In particular, the swine breeding center was abandoned in 2001 due to insufficient funding. The dairy farm currently employs nine staff with only nine cows and nine yearlings, supported by a budget of P0.9 million from the Department of Agriculture. The farm produced milk products valued at less than P0.3 million in 2001. The buffalo center occupies 120 hectares (ha) of land with only 77 buffaloes, underutilizing its land resources as well as the buffalo stock. Finally, due to the low calving rate and farmers reluctance to repay by offspring, the repayment rate under the cattle dispersal program was low, and the program benefited only 12% of households in the villages that received animals. The OEM found that a major portion of the cattle recipients were local elites such as municipal officials, village captains, and presidents of farmer associations. 25. Livestock development is very important in Palawan, which is one of the few regions in the Philippines that enjoys freedom from foot and mouth disease. However, it is more efficient to promote livestock development through private sector competition. Instead of government agencies directly engaging in the importing business and managing production entities, incentive schemes such as tax exemption could have been used to encourage private importation of livestock. To reduce the budgetary burden on the Government and to improve efficiency, the remaining livestock center and the dairy farm should be commercialized or privatized. c. Fishery Support Services

26. The fishery support subcomponent, which accounted for 2% of the actual project cost, aimed to reduce fish losses due to high spoilage by constructing nine fish-landing facilities and improving/constructing nine fish markets. A diagnostic fish laboratory was established to detect fish caught by using explosives and poisonous chemicals. 27. The physical targets were fully met. However, six of the nine fish-landing facilities deteriorated quickly after construction, as the timber used could not resist strong wave motions.11 The OEM observed sustained fish landings in only two cases, namely the municipalities of Coron and Busuanga, where local governments contributed additional funds and constructed concrete fish landings. In San Vicente Municipality, the wooden fish landing is no longer usable in spite of a yearly budget of P0.2 million for maintenance and repair. That municipality has recently constructed a concrete fish landing, and the wooden one will soon be wiped out by waves. 28. The OEM noted that most of the fish markets were underused due to their distance from local markets. The diagnostic fish laboratory was constructed as planned. While the findings of
9

In San Vicente Municipality, it was estimated that about 50% of native cattle and 90% of native swine were replaced by imported or mixed breeds. The achievement, however, could not be exclusively attributed to the Project as the Government had implemented animal-dispersal programs since the 1970s. 10 In retrospect, the Projects design should have promoted artificial insemination to speed up breeding. 11 The normal lifespan for timber fish landing is 3-5 years.

7 the laboratory were used as evidence for filing cases in court for apprehended violators, the Project did not include other activities such as motivating beneficiaries to monitor and report illegal fishing activities. 29. Overall, the actual benefits of this subcomponent were limited. The OEMs discussions with fisherfolk found that the key issues in the fisheries sector were destructive fishing and widespread poverty among the poor who did not have basic fishing gear such as a paddleboat. In retrospect, the Project could have included more activities to control destructive fishing,12 or provided alternative livelihood activities, such as seaweed production, for poor fisherfolk. 2. Irrigation Development

30. With a share of 25% in the actual project cost, irrigation development was the second largest component. It was planned to construct 15 new CISs and rehabilitate five existing ones with a total command area of 6,460 ha and an expectation of benefiting 6,460 farmers. During implementation, seven CISs (four new and three existing) were dropped due to lack of technical feasibility or insufficient funds. Consequently, benefits had reached only 4,966 ha and 1,425 farmers by project completion. As planned, irrigators associations were organized for the CISs constructed. 31. The OEM visited the 13 CISs that had been constructed, and heard complaints from farmers about various deficiencies.13 Some irrigators associations refused to take over the CISs in view of their incompleteness. Most CISs suffered damage from typhoons, which was not repaired due to lack of funds; command areas were further reduced, and farmers refused to pay water-use fees in view of the poor water supply. 32. Farmers were to pay 10% of the direct investment costs in kind (labor or materials) and repay the remaining cost thorough amortization over 50 years. They were also to assume responsibility for the full cost of O&M after the CISs were turned over to them. During actual implementation, farmers paid 10% of their wages when they were hired for CIS construction; that contribution amounted to 23% of the direct investment cost. After completion, farmers paid a water-use fee, half of which was used for O&M and half for amortization repayments. In spite of the relatively low charges (less than 10% of the incremental rice production), the collection rate ranged from 0 to 33%, with 10 of the 13 CISs collecting less than 10% of the required fees (Appendix 4). Since there were no measures to sanction those who did not pay, there was no incentive to encourage others to pay. Poor collection led to poor O&M and poor water supply, forming a vicious cycle of no payments and no water services. 33. In sharp contrast to that gloomy picture, the OEM observed an interesting case of private investment in CIS. The Taberna CIS in El Nido Municipality had been included under the Project but was later dropped due to shortage of funds. At the request of farmers in that village, a private investor built the CIS in the midst of the El Nino drought in 1998. The CIS was completed in only 2 months at a cost of P0.2 million, irrigating 70 ha at an average cost of P3,000 per ha. This was in sharp contrast to the high investment cost of the CISs constructed under the Project, which ranged from P9.8 million to P76.5 million per CIS, with an average cost
12

The OEM noted that recent initiatives by some local governments in controlling destructive fishing yielded a noticeable impact on improving fish catch by small fisherfolks within about 1 year. 13 For example, the command area of the San Nicolas CIS in Coron Municipality was reduced from 80 ha as designed to 30 ha at completion as about 1 km of the canal was not lined by cement, which substantially reduced water available for downstream users. In the Pinavamatan CIS in Coron Municipality, only 5 ha of additional land received water after the rehabilitation due largely to deficiencies in the CIS design and implementation.

8 of P75,000 per ha. 14 Although the private investor had agreed with farmers on a repayment fee before construction, he could not enforce the agreement as NIA did not issue him a license to legally operate the CIS. 15 Some farmers took advantage of the situation and did not pay the fee as agreed. Later, damage caused by a typhoon reduced the water supply; the damage was not repaired and thereafter the water supply benefited only 15 households compared with the original 30. 3. Land Survey and Titling

34. To halt encroachment of forest areas and facilitate issuance of land titles under the Governments agrarian reform program, PIADP supported the Governments cadastral survey and land-titling program. To complete tasks left from PIADP, the Project included cadastral survey of 3,345 lots, isolated survey 16 of 10,000 lots, and issuance of 20,000 titles. The target of cadastral survey was revised to 1,679 lots during implementation. 35. The physical targets of this component, which accounted for 3% of the actual project cost, were achieved, and the process of cadastral survey and land titling was accelerated. The completion of the surveys provided a solid foundation for land planning and development in Palawan, including the development of a comprehensive land use and water plan by each municipality. Land title issuance also increased government revenue, as titleholders were required to pay past land taxes, registration fees, and a portion of the survey cost. The OEM concurred with the PCRs finding that farmers appreciated very much the land titles, which secured their land ownership and could be used for loan collateral. DENR reported, however, that registration was pending for 3,046 land titles, as some farmers were unable (or unwilling) to pay for the back land taxes. The OEM suggested that, to fulfill the objective of strengthening land tenure, land titles could be issued to applicants without requiring immediate payment of back taxes, with a note being attached to the issued land titles specifying the amount of tax liability of the titleholders. 4. Infrastructure Development a. Roads

36. The roads subcomponent aimed to rehabilitate/construct 579 km of roads. The target was cut by half in 1996 due to the cost overrun and a shortage of funding. Later, the Government increased its financing to reinstate some of the roads that had been dropped (para.12). Nevertheless, at 32% of the actual project cost, roads development was the largest component. 37. The OEM inspected 9 of the 13 roads completed under the Project. In general, the construction quality was acceptable; most roads appeared to have been well maintained, especially the national roads maintained by DPWH. However, the OEM observed some road
14

The OEM noted that the private CIS and the CISs constructed under the Project were not technically comparable as the former used simple design with local materials (such as wooden boards) and the latter usually included a permanent diversion dam with steel gates. While the latter had better quality, duration, and higher standard of safety against floods, the former was more cost effective and easy to maintain and repair by farmers. 15 Although private investment on irrigation is allowed, applying for a license is difficult. In this case, NIA told the private investor that it would be easier if a cooperative instead of a private individual were applying for the license. 16 Isolated survey is a small-scale survey for the purpose of original registration or subdivision of titled properties initiated by individual claimants.

9 sections that had been damaged by heavy rains, which had created big potholes. It appeared that the drainage system in these sections was insufficient to cope with the large water flows. Poor maintenance of the drainage system was another cause reported by the PCR. The OEM also found that some potholes were not repaired, leading to further deterioration. 38. The OEM was told that the budget for road maintenance was insufficient and had declined since project completion when the roads were transferred to the province. Currently, the provincial government is transferring the budget and responsibility of maintaining provincial roads to selected municipalities on a pilot basis, as municipal governments are believed to have a stronger incentive to maintain roads due to pressure from voters. Furthermore, the cost of road maintenance is lower at the municipal than at the provincial level. Beneficiaries interviewed by the OEM welcomed this transfer as they considered it easier to communicate with municipal governments on road maintenance problems than with provincial agencies. There was, however, a concern that O&M funds might be diverted after devolution. Transparent measures are needed to enable public monitoring of the use of the road maintenance budget. b. Port

39. This subcomponent accounted for 6% of the actual project cost. Its purpose was to construct a breakwater and ancillary facilities to the port of Brookers Point, which was provided with a concrete wharf under PIADP. Some parts of the wharf were damaged by a typhoon in 1988, and the Project included the breakwater to protect the port from future typhoons. While the construction works were completed satisfactorily, the cost increased from $0.9 million estimated at appraisal to $4.7 million at project completion, due primarily to modification of construction materials from boulders to concrete tripod as well as the provision of additional facilities such as a ramp, water supply, and an electricity system. 5. Social Services a. Integrated Health Program

40. The integrated health subcomponent, which accounted for 5% of the actual project cost, was to (i) support the Governments ongoing malaria and tuberculosis-control programs; (ii) establish barangay (village) health stations (VHSs); and (iii) carry out nutrition and health education programs. For malaria control, the PCR reported substantial reduction in the annual parasite index from 29/1,000 in 19841988 to 11/1,000 in 1998. This ratio, however, has increased again to 1418/1,000 in recent years, as many activities (such as house spraying and stream clearing) sharply declined since project completion due to insufficient financing. 41. The cost overrun and a shortage of funding led to a reduction of VHSs from 78 to 66. The OEM found that the VHSs benefited all households including the poor, and were highly appreciated by beneficiaries and local governments; the latter provided resources to maintain the stations. The major problem facing the VHSs was an insufficient supply of medicines, which were free to all who visited them. Very often, the monthly supply was only sufficient for 2 weeks; visitors who came late received prescriptions instead of medicines. As the very poor could not pay for medicines, they reverted to using traditional herb medicines. In retrospect, a policy could have been set to charge for medicines for all except for the very poor, who could have been issued with an identification card for free medicine. 42. This subcomponent also supported an ongoing nutrition program, under which children of up to 7 years old were weighed and underweight children were identified. For children

10 suffering from serious malnutrition, a feeding program was implemented in 19 villages reportedly for 12 months. The OEM found, however, that due to insufficient budget, some of the targeted children are currently fed under this program only 23 times a year, each time with one pack of compact food good for one meal for one child. The impact of such a feeding program is therefore difficult to discern. Nevertheless, the PCR reported a significant reduction in malnutrition in Palawan from 31% in 1991 to 5% in 1998; such a trend was confirmed by OEMs village survey findings. Since the major cause of malnutrition among children was poverty, health education programs and reduction in rural poverty in the past decade, albeit slow, probably contributed to the improved nutrition status. b. Rural Water Supply

43. The water supply subcomponent accounted only for 2% of the actual project cost. It aimed to rehabilitate one Level III and 81 Level I water-supply systems, and to construct 537 new Level I schemes.17 Water user associations were to be organized to take care of O&M of the systems after construction. At appraisal, this subcomponent was expected to benefit 11,300 rural households. 44. The physical targets were met. The Level III system in San Vicente functions well and is maintained by fees collected from beneficiaries. The OEM inspected a large number of Level I systems and found only two wells being maintained adequately: as these wells produced goodquality water, beneficiaries contributed a monthly fee for maintenance. The OEM was also told that in one municipality (Araceli), the municipal government contributed counterpart funds and monitored the construction of Level I systems, which worked satisfactorily. 45. Most of the other Level I systems, however, did not generate the anticipated benefits. The PCR reported that 37% of the new Level I systems were nonfunctional. Of the functional systems, about 70% produced water that was not potable due to high levels of iron and manganese. The OEM estimates that only 3% of the Level I systems remain functional. The major cause of the failure was the target-driven approach of the contractors engaged by DPWH, who focused entirely on fulfilling physical targets without sufficient attention to water availability and quality. According to the beneficiaries interviewed by the OEM, many of the wells yielded water that was not drinkable. As construction was carried out in the rainy season, many wells were not deep enough to produce water in the dry season, and functioned for only a few months. 46. A similar problem had been encountered under PIADP. The PCR mission of that project reported in March 1991 that about 50% of the 456 wells constructed did not function or did not generate potable water. According to PIADPO staff interviewed by the OEM, this issue had been pointed out to the appraisal and loan review missions of this Project, yet no adjustment was made to modify its design such as shifting to Level II water systems using spring water sources. Since the investment decision on the Level I systems had been made before beneficiary consultation, the consultation served as information sharing rather than letting beneficiaries select their preferred investment. As the budget was directly allocated to DPWH based on physical targets and contractors were hired by DPWH, local governments and beneficiaries had no authority to monitor the quality of the construction work.

17

Level I was individual domestic deep or shallow tubewells; Level II, tubewells or springs with piping and communal faucets; and Level III, water supply to individual households through pipe networks.

11 c. Women-in-Development

47. The women-in-development subcomponent was to (i) identify and organize marginalized women; (ii) build capacity through training; (iii) construct three centers for training women; and (iv) develop income-generating activities including seed capital for womens groups. This subcomponent was to benefit about 6,400 women in four municipalities and one city, and accounted for 2% of the actual project cost. 48. The PCR reported that about 5,500 women were organized into 195 women associations, and P5.5 million seed capital was awarded to 1,190 women for livelihood projects. The repayment rate was as low as 31% in the initial years (19921995) but improved to 90% in 19951997 after the adoption of a group-lending approach that used peer pressure from group members to ensure repayment. The OEM interviewed a number of women beneficiaries, who appreciated the financial assistance from the Project. The OEM found, however, that these women received only a one-time loan repayable over 1 year, and most of them were women with existing businesses (albeit with low incomes) instead of marginalized women. Such a modification of project design was probably practical. The one-time loan was good for people with existing businesses but not suitable for the poor, as it would be very difficult for a poor woman to establish a new business with only a one-time loan. In retrospect, the Project could have focused on building up local institutions capable of providing long-term microfinance services, and nonpoor women could have received repeated loans on the condition that they would help poor women by coaching them to establish livelihood projects.18 49. Three womens training centers were established as planned. The PCR reported that 1,055 women were trained in food processing and other activities. While one center located in Puerto Princesa City has functioned well with strong support from the city government, the other centers were seldom used due to their remote location as well as the womens lack of interest in the training offered. Due to the high cost of training, including transportation costs to bring the trainees to the centers, these centers were used only 23 times a year during implementation, and ceased to function after project completion. In retrospect, the project funds could have been used to help more women in livelihood projects instead of building the centers, as training could have been conducted in existing venues instead of new centers. 6. Forestry and Environment Stabilization

50. This component was expected to be cofinanced by the European Union (EU) but was delayed by 5 years due to the EUs decision to wait for the formal adoption of the Strategic Environmental Plan for Palawan. That plan was adopted in 1992 and the component became a stand-alone project of the Palawan Tropical Forestry Protection Program (PTFPP) financed by an EU fund of 17.0 million and implemented between 1995 and 2002. While the Project and PTFPP shared the same EA, namely the Palawan Council for Sustainable Development Staff (PCSDS), there was little cooperation between the two: the Project focused on Northern Palawan and PTFPP focused on Southern Palawan. Even though the Project set up a number of CISs in Southern Palawan, there was no effort to link the CIS construction to catchment management under PTFPP due to delays in PTFPP commencement.

18

OEMs interviews with female business owners found that many of them were willing and able to provide such coaching.

12 7. Project Management

51. The project management component, with a share of 4% in the actual project cost, was to procure vehicles and office equipment for PIADPO, construct four district management offices, and provide consulting services to improve the management information system developed under PIADP. Each of the EAs was expected to conduct a benchmark survey on their respective components. 52. These activities were implemented as planned. PIADPO was converted to PCSDS in 1992. The conversion provided job security to the project staff and sustained the operation of PCSDS after project completion with a regular budget from the Office of the President, but diverted the attention of PCSDS from project implementation, as only 39 of the originally planned 118 staff worked exclusively for the Project, and the others were given other responsibilities such as assisting local governments in implementing the Strategic Environmental Plan for Palawan, a major government program in Palawan. 53. The management information system was modified from a budget and cost-based system under PIADP to an activity and target-based one. Better results could have been achieved if the system had focused more on results and benefits instead of physical targets. For example, rather than focusing on the number of wells constructed, the number of households with access to safe water before and after the Project could have been monitored. Such an approach might have directed the attention of DPWH and its contractors to the quality of water produced. 54. The benchmark survey was conducted by the EAs with serious delays due primarily to their lack of staff capable of conducting it. As the survey was completed in 1996only 2 years before project completionits results were of limited usefulness for comparing the before- and after-project scenarios. 8. Technical Assistance on Agroprocessing and Rural Enterprises

55. A technical assistance (TA) grant was attached to the Project,19 with a view to attracting private sector investment in agriculture-based industries. The TA purposes were to (i) identify agro-based industrial opportunities and prepare commercially viable investment projects in a number of commodity categories including cashew, coffee, cacao, coconut, mango, fish and fish products, seaweed, feed and feed grains, livestock byproducts, and byproducts of rice milling; and (ii) recommend measures for the Government to improve the commercial attractiveness of the proposed investment projects. 56. The TA was implemented from July to December 1991. Profiles for typical enterprises in nine commodity categories were prepared. In spite of PCSDS effort to disseminate the feasibility reports through seminars, none of the proposed investments were taken up by the private sector. The OEMs discussions with private producers and processors found that a number of constraints had so far restricted agroprocessing in Palawan, such as the high cost of electricity, high transportation costs, small size of local markets, and small volume of the newly introduced crops like coffee that failed to attract buyers. Without addressing these issues, the feasibility studies had limited usefulness to private investors. As the TA fulfilled its tasks but not its objective, it is rated partly successful by the OEM.

19

TA 1380-PHI: Agro-processing and Rural Enterprises, for $295,000, approved on 27 September 1990.

13 B. Economic Reevaluation

57. The OEM has reestimated the EIRR for the entire Project and the crop, livestock, fishery, CIS, and road components (Appendix 5). The overall EIRR, which was estimated at 17.8% at appraisal and 11.0% at project completion, is reestimated at only 3.7%. The EIRRs of the individual components range from negative for fisheries to 14.0% for roads. Several factors have contributed to the sharp variances. First, the cost overrun forced a substantial reduction in physical targets, including a cutback of 51% in roads and 35% in CISs. Second, low survival rates in crops and animals reduced the anticipated benefits. Third, deficiencies and incompleteness in CIS construction and poor maintenance reduced command areas; insufficient water supply restricted the realization of the anticipated increases in rice yields and crop intensity. Fourth, six of the nine fish-landing facilities have vanished completely while another is no longer usable. C. Sustainability

58. The Projects sustainability varies by component: good prospects for most roads, the VHSs, and the concrete fish-landing facilities in Coron and Busuanga, for which the municipal governments contributed a major portion of the investment. In contrast, the wooden fish-landing facilities have vanished; most Level I water schemes ceased operation; many centers (RACs, womens training centers, and various livestock centers) are deteriorating; and all CISs suffer from inadequate maintenance and damage caused by typhoons. IV. A. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

Socioeconomic Impact

59. The promotion of mixed orchard and hillside farming generated employment during implementation as unskilled labor was needed to clear the land and plant the trees. The positive impact, however, was only short term as many of the newly established cacao, coffee, and cashew crops were damaged by the El Nino drought in 1998. The livestock component, by distributing cattle, swine, and poultry to farmers, benefited 12% of the households in the villages that received the animals. The poverty impact of that component was negligible as most of the animals (especially cattle) were given to the better-off groups in the recipient villages. The road component not only generated employment during construction, but also opened up job opportunities in outside areas. By reducing travel time and costs, the roads contributed to improved marketing of agricultural and fishery products, provided better incentives for farmland development, and improved access to social services. The national road rehabilitation contributed to tourist development. In remote villages where sea travel was the only means of transportation before the Project, local communities appreciated the road development most, as sea travel was dangerous in times of bad weather. These benefits, however, were substantially reduced due to the cost overrun that reduced road targets by half (para.12). The port component contributed to interisland transport within the province and between it and other regions of the country. 60. The CISs substantially increased rice yields for farmers who received sufficient water during the dry season: they doubled rice outputs by planting two crops a year with higher yields in each crop. Due to the small size of the CISs and poor maintenance, however, the number of such farmers was limited to about 10% households in the 13 villages that constructed them.

14 61. The VHSs benefited all households including the poor in 66 villages, and facilitated implementation of the Governments health programs such as an educational campaign for sanitation, which, in turn, improved the health conditions of the poor. The support for the Governments regular programs on malaria and tuberculosis control achieved impressive results (Appendix 6); without the Project these programs might have suffered insufficient financing. The women in development component benefited some low-income women in four municipalities and one city; the component could have generated better long-term impact if it had focused on providing long-term microfinance services. The cadastral survey and land titling strengthened land tenure for titleholders, and therefore provided better incentives for agricultural investment. 62. Although the Project did not include direct measures to target the poor, the OEMs village survey found reduced poverty in the project areas, albeit insignificant. The achievement was probably due to the indirect impact of various project interventions, especially the increased employment opportunities brought about by the roads development, as well as other efforts by the Government and aid communities, as Palawan has received numerous projects financed by external sources in the past decades. B. Environmental Impact

63. While most project activities were of small scale and did not generate negative environmental impacts, some roads constructed along the mountainous coastline caused siltation and soil erosion. Provision for slope protection should have been included in the subproject design to mitigate the environmental impact. In addition to the fish laboratory, the Project could have included active measures to control destructive fishing to maximize positive environmental impacts. The CIS component could have included watershed management in the upstream areas. C. Impact on Institutions and Policy

64. The staff capacity of PCSDS was strengthened through numerous training seminars as well as learning-by-doing during the 8 years of project implementation. The Project also trained a large number of field staff from line agencies. While the majority of them were contractual personnel and left government services after project completion, a small portion of the best staff was absorbed by national or local governments. The Projects impact on local governments was insignificant due to the lack of their participation in subproject design and implementation. Finally, the Project organized many beneficiary groups. Although the majority of them ceased operation after project completion due to a lack of continued support and interest, the capacity for organizing groups remained and could be used for future projects when needed. V. A. Relevance OVERALL ASSESSMENT

65. The Projects objective of promoting development in a poor region was highly relevant. The project design, however, adopted a top-down and supply-driven approach without beneficiary participation in subproject decisions and included less-relevant components such as livestock procurement and dispersal. On balance, the Project is assessed as partly relevant.

15 B. Efficacy

66. Most of the reduced physical targets were achieved. The objectives of developing land and water resources and increasing agricultural production and productivity were met in small areas of farmlands where farmers received sufficient water supply from CISs. The objectives of reducing poverty and improving the quality of life of subsistence farmers and fisherfolk were achieved on a limited scale, and the achievement was due partly to other development efforts. The objective of arresting environmental degradation was achieved through PTFPP financed by the EU. Overall, the Project is assessed as less efficacious. C. Efficiency

67. As compared to PIADP, efficiency in implementation was improved by establishing PMOs at the provincial level. However, the Project expanded government programs without correcting their weaknesses and induced inefficiencies, such as distributing animals to farmers free of charge, but at a high cost to the Government. The various centers had high costs and low benefits; most of them ceased operation after completion with buildings remaining idle and deteriorating. The wooden fish landings generated short-term benefits at high investment and maintenance costs. The CISs could have been built at a much lower cost if beneficiaries had strong ownership and actively participated in subproject decisions to select the least-cost solutions. The Projects EIRR, which was estimated at 17.8% at appraisal and 11.0% at the PCR stage, has been reestimated at 3.7%. Overall, the Project is assessed as less efficient. D. Sustainability

68. The project components with tangible benefits are likely to be sustained, such as most roads, the port, the two concrete fish-landing facilities, and the VHSs that have been well maintained by local governments. The others have either vanished or ceased operation, such as the wooden fish landings, most Level I water schemes, most nurseries, and the majority of the extension and training centers. The sustainability of CISs is poor due to farmers lack of ownership and willingness to pay for O&M. Overall, the Projects sustainability is assessed as less likely. E. Institutional Development and Other Impacts

69. The Project contributed to capacity building for participating national agencies. Its impact on local governments and communities could have been large if a bottom-up approach had been adopted to encourage local governments and communities to participate in subproject design and implementation. The Projects impact on poverty was limited due to the lack of direct measures to help the poor. Its environmental impact could have been large if it had focused on controlling destructive fishing or other environmental issues. Overall, the Projects institutional development and other impacts are assessed as modest. F. Overall Project Rating

70. Based on the considerations described in paras. 6569 and taking into account the satisfactory outcome of the components related to roads and port development, integrated health program, survey and land titling, and project management that accounted for more than half of the total project cost, the project is rated is partly successful.

16 G. Assessment of ADB and Borrower Performance

71. The Government and ADB formulated the Project with a view to reducing poverty and promoting balanced regional development. As the Project was designed at a time when the topdown approach was prevalent, beneficiary consultation was limited to information sharing without participation in subproject decisions. In retrospect, the project design should have conducted a more rigorous evaluation of PIADP to avoid repeating similar mistakes; cost estimates should have been realistic; loan review missions should have reported important issues such as cost overrun in a timely manner; and a midterm review should have been conducted to enable timely adjustments to the project design. ADBs supervision improved substantially in the last year of implementation, but this was too late to significantly alter the outcome of the Project. ADBs performance is, therefore, rated unsatisfactory.20 72. The Government implemented the Project largely as planned and subsequently revised, although in retrospect, the EAs should have more proactively participated in the project design to avoid problems experienced under PIADP. Significant delays in implementation were experienced especially in the initial years due to protracted approval procedures, budgetary constraints, and slow release of funds, although improvements were made by 1993 in terms of funds release. PCSDS coordinated with the EAs and monitored implementation with progress reports and PCRs submitted to ADB largely on time. Due to weaknesses in the project design, however, the monitoring overly emphasized physical targets without focusing on project benefits, and contributed to the less than satisfactory project outcomes. On balance, the Governments performance is rated partly satisfactory, VI. A. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

Key Issues for the Future 1. Communal Irrigation Systems

73. As the CISs were designed by consultants and contractors without farmers participation in decision making or sharing of cash investment costs, farmers considered them a government project without feeling any ownership, authority, or responsibility to monitor design and construction. As a result, many CISs were overdesigned with high investment costs. The lack of monitoring by beneficiaries led to construction deficiencies, incompleteness, and reduction in command areas. The command areas were further reduced when damage caused by typhoons was not repaired due to a lack of funds, leading to poor water supply and providing an excuse for not paying water-use fees. The leadership of most irrigators associations was weak; a lack of public monitoring of the use of water-use fees left room for misuse of the fees by association leaders. Fee collection was low, leading to poor O&M and deterioration of the CISs only a few years after construction. 74. Future design of similar projects needs to develop measures to ensure farmers strong ownership, which is key to success. One alternative is to make farmers treat the investment funds like their own money by requiring them to contribute a portion of the investment cost in

20

The problems of the top-down approach have been recognized by ADB, and a new approach of community-based rural development has been used in a number of recently approved projects with encouraging initial results. ADB will conduct a special evaluation study on the new approach in 2003 to draw on lessons learned relating to better design of rural development projects in poor regions.

17 cash (instead of in-kind or by labor) before construction.21 Proportionate sharing of cash costs will provide farmers with a strong incentive to select the least-cost solution and the authority to closely monitor the CIS design and construction. A portion of farmers cash contribution could be set aside to establish an emergency fund to be used exclusively for timely repair of damage so that no one will have an excuse for nonpayment of water-use fees. Before construction, detailed O&M arrangements including such fees should be agreed upon and signed by every beneficiary (instead of by irrigators association leaders only). A bank account should be established and collection of fees should start during construction (instead of after) so as to build up farmers discipline to pay, and to screen out those who do not pay. The funds collected during construction could be added to the emergency fund. Transparent procedures need to be developed to enable public monitoring of fee collection and usage, such as regular publication of the status of fee payments made by each beneficiary and the use of the fees collected. 2. Agricultural Extension Systems

75. The Project constructed 14 RACs to strengthen agricultural extension. The OEM found, however, that the RACs operated well only when project funds were available to transport trainees to the centers. After project completion, most centers ceased operation due to local governments lack of funds. In fact, the key constraint to agricultural extension was not a lack of buildings but shortage of extension staff. Due to limited budgetary resources, municipal governments could not finance a sufficient number of extension staff; their mobility was severely restricted by a shortage of vehicles and travel allowance. As a result, agricultural extension in the project areas has so far reached only a few farmers associations, representing less than 10% of the households in their villages. The majority of farmers, especially the poor, had little access to technical advice in a timely manner. Future design of agricultural support services needs to consider their long-term operation after project completion when no more project funds will be available. Alternative measures to promote private sector participation and self-financed extension services could be explored. 22

21

OEMs discussions with rice farmers found that they were willing to pay 15% cash contribution for CIS investment if the investment cost was reasonable (which, in turn, depended on close monitoring of CIS design and construction by beneficiaries). The OEM also found that affordability was not an issue for CIS beneficiaries as they were the better-off groups in their villages. The benefits from public investment on CISs will greatly exceed their 15% cash contribution, as rice production will be doubled with sufficient water supply. 22 One alternative that may deserve consideration is to establish village-level extension units operated by private input suppliers. The investment cost of establishing such units could be provided under a project, but their longterm operation should be self-financed by the unit operators. This approach may include several steps. First, village-based candidates should be selected for training based on a strong commitment to staying in their villages after the training. Local communities should be motivated to select the best candidates. After the initial training, the best trainees will be selected for intensive training on how to provide extension services to farmers. After the training, the project will provide a small amount of initial capital (grant or loan as appropriate) to the trainees to help them establish small village units for extension services in conjunction with small businesses of input supply or output marketing. Revenues from the small businesses will be used to finance the long-term operation of the extension units. An affordable amount of fees will be charged for the extension services provided. The village units will be completely self-financing without budget support from national or local governments. The unit operators will, however, be provided with refresher training periodically to upgrade their knowledge and skills. Efforts will be made to link them to government extension agencies, universities, research institutes, as well as input suppliers and traders in cities. Finally, proper selection of the unit operators is key to success. Manipulation of the selection by the local elite should be avoided; measures need to be developed to ensure that the operators will serve all farmers including the very poor on a long-term basis. Due to a lack of proven experience, this proposal needs to be pilot tested before large-scale implementation.

18 3. Subprojects Designed by Local Communities

76. Under the Project, subprojects were designed by consultants or contractors who did not have full knowledge of local conditions. Implementation of a uniform component in vastly different subproject sites restricted the effectiveness of the investment. In fact, it is very difficult for consultants to design rural interventions that are suitable for all subproject sites. This is particularly true for poverty reduction operations, as the causes of poverty and conditions/opportunities available for poverty reduction vary considerably across villages. In contrast, the OEM found that local communities knew who the poor were in their villages and what key factors underlay the poverty, and had fairly good judgment of what measures were workable. The OEM also found that there were dynamic individuals among even the poorest, who could be trained and used for social mobilization of their peers. There were also nonpoor individuals (such as owners of small businesses) who were willing and able to help the poor in their villages in exchange for accessing project assistance such as microcredit. However, local communities were restricted by a shortage of capital and ideas; local governments capacity in subproject design, implementation, and monitoring was also weak. 77. Instead of a top-down approach, subproject design should focus on building up local capacity and letting local governments and communities determine subproject interventions that are most suitable to their conditions. This approach may start from motivating various social groups in a village and letting them identify their key constraints and determine investment priorities. Study tours to the best-performing subprojects could be organized to provide exposure to new ideas and exchange of experiences. Education campaigns may be conducted to inform the social groups of opportunities (such as available project funds in their villages), options, and responsibilities (such as ensuring project sustainability and reducing poverty in their villages). To mobilize local resources and ensure ownership, matching funds from local governments and beneficiaries may be required as preconditions to accessing project funds. Nonpoor beneficiaries could be required to help poor households in exchange for accessing project assistance. While funds will largely come from external resources, local communities should be directly involved in reducing poverty in their villages. 4. Implementation Arrangements

78. In spite of the large number of agencies involved, project coordination was largely smooth because PMOs were established at the provincial level and PCSDS was experienced in interagency coordination. However, since the EAs received their budgets directly from the Project based on physical targets, local governments and communities did not have any authority to monitor the EAs services. As a result, some EAs focused on physical targets without sufficient attention to benefits generated; such an attitude contributed to poor results and inefficiency of some components. 79. Future design of rural development projects in the Philippines may consider alternative measures. In conjunction with the Governments devolution policy, one alternative is to use provincial government as the overarching EA with municipal governments as its field offices. Project funds could be allocated to local governments in accordance with their matching funds, investment proposals, and implementation capacity. Based on investment priorities identified by local communities, a local government could use its allocated project budget and matching funds to buy services from national line agencies (e.g., from DPWH for road construction). This approach will make line agencies more responsible to client needs while providing authority to local governments and communities to monitor services provided by the line agencies.

19 B. Lessons Identified

80. Integrated area development (IAD) projects were widely used in the 1970s and 1980s for poverty reduction and balanced regional development. The initial success of some projects encouraged rapid replication of a standard IAD model that simultaneously invested in rural infrastructure, agricultural production, and social services. However, quick processing of consecutive IAD projects in a poor region without careful study of the problems encountered led to poor performance in many follow-up projects. Although IAD projects have been discontinued, the concept of focusing assistance on poor regions and designing multiple interventions to address the various needs in rural development continues to be widely used in ADBs poverty reduction operations today. The following lessons are therefore relevant to current project design and implementation: (i) The top-down approach of designing a subproject by consultants with beneficiaries being informed of the investment decision leads to weak ownership of the subproject and poor sustainability. A better alternative is to let beneficiaries participate in subproject decisions, and share a proportionate cash investment. Their strong ownership will ensure the quality, cost effectiveness, and sustainability of the subproject. Multiple interventions are needed for rural development and poverty reduction. To achieve real synergies, integration of project activities should be based on client demand and conducted at the village level instead of letting different line agencies independently implement different project components. In line with decentralization, IAD projects are better implemented by local governments, which are more attuned to the needs of their voters and the delivery of project benefits. National line agencies could participate as contractors to provide services based on client demand. Capacity building for local governments and social preparation for the poor should be conducted prior to physical investment. Since these activities are time consuming, technical assistance from aid agencies could be used to build up local capacity prior to the design of loan projects. Project monitoring should focus on project benefits rather than physical targets so as to draw the attention of project staff to the purpose of public investment. The newly introduced results-oriented monitoring is a step in the right direction. The design and implementation of an overly comprehensive benchmark survey is time consuming; its value is often limited due to late completion. A better alternative is to focus on only a few indicators that are easy to collect and critical to measuring project impacts, such as the actual number of beneficiaries and level of benefits. A village-level benchmark survey could be combined with community mobilization in a village at the commencement of a subproject. Project benefit monitoring will be most effective and efficient if local governments and communities are provided with strong incentives to monitor. Proportionate sharing of cash investment cost and allocation of project budget to local governments may be useful for this purpose. Public investment in CISs tends to be overdesigned. This leads to inefficiencies and poor sustainability. Due to their small size, most CISs benefit a small number of the better-off groups instead of the poor. A better alternative may be to encourage private investment in CISs. With simple design and using local materials, private investors can build CISs quicker, cheaper, and with better ownership and sustainability.

(ii)

(iii)

(iv)

(v) (vi)

(vii)

(viii)

20 (ix) In areas frequently hit by typhoons, the establishment of an emergency fund before construction of physical facilities (such as roads and CISs) is necessary to ensure timely repair of damage. Local governments and beneficiaries should be required to contribute cash to the emergency fund. Regulations need to be developed to ensure exclusive use of the fund for emergency purposes. This measure will help screen out subprojects with poor sustainability, as local governments and beneficiaries that are unable or unwilling to contribute to the fund will likely be unable or unwilling to take care of the facilities after construction. Investment in extension or training centers needs to consider the real value of such centers as well as factors that may reduce the expected outcome such as shortage of staff and operational budgets after project completion. In most cases, the key constraint to agricultural extension is not a lack of buildings or training venues but shortage of staff and travel budget. Construction of unnecessary buildings may add O&M burdens to local governments without improving farmers access to extension services. When expanding a regular government program, its strengths and weaknesses need to be carefully studied. Under the Project, the livestock program distributed animals to farmers free of charge in the name of helping the poor, but ended up benefiting a small number of the better-off groups at a high cost to the Government. As subsidies attracted influential people, the poor could not compete with them in accessing project benefits.

(x)

(xi)

C.

Follow-Up Actions

81. NIA in cooperation with other concerned agencies such as the National Economic Development Authority, DENR, and the National Water Resources Board should, by June 2003, develop policies and plans to encourage private investment in small-scale irrigation projects, including simplified procedures for water permit, license, and other requirements.

PROJECT COST: APPRAISAL ESTIMATE VERSUS ACTUAL Appraisal Estimate ($'000) Foreign Local Total Actual1 ($'000) Local Actual as % of Appraisal Estimate Foreign Local Total

Item A. Agricultural Development 1. Crops Intensification and Diversification 2. Livestock Development 3. Fishery Support Services Subtotal (A) B. Irrigation Development C. Survey and Land Titling D. Infrastructure Development 1. National Roads 2. Provincial Roads 3. Port Subtotal (D) E. Social Services 1. Integrated Health Program 2. Rural Water Supply 3. Women in Development Subtotal (E) F. Project Management G. Interest during Construction H. Physical and Price Contingency Total
= not calculated.
1

Foreign

Total

1755 579 192 2,526 4,328 76

4,135 2,421 908 7,464 6,132 1,204

5,890 3,000 1,100 9,990 10,460 1,280

1,790 615 236 2,641 5,296 88

6,975 3,522 1,378 11,875 15,530 2,334

8,765 4,137 1,614 14,516 20,826 2,422

102 106 123 105 122 116

169 145 152 159 253 194

149 138 147 145 199 189

547 3,125 318 3,990

1,343 7,555 572 9,470

1,890 10,680 890 13,460

992 4,761 686 6,439

3,042 17,870 3,979 24,891

4,034 22,631 4,665 31,330

181 152 216 161

227 237 696 263

213 212 524 233

870 500 358 1,728 814 3,300 3,238 20,000

1,760 1,240 532 3,532 3,666 0 22,032 53,500

2,630 1,740 890 5,260 4,480 3,300 25,270 73,500

1,179 684 369 2,232 720 3,320 0 20,736

3,077 1,270 954 5,301 2,809 0 0 62,740

4,256 1,954 1,323 7,533 3,529 3,320 0 83,476

136 137 103 129 88 101 104

175 102 179 150 77 117

162 112 149 143 79

Appendix 1

101 114

The figures of actual project cost provided here differ from those given in ADB's project completion report, which included $6.5 million of physical and price contingency, a mistake that could not be reconciled by available data. Consequently, the actual cost figures provided in the project completion report prepared by the Government are used in this Appendix. Source: Asian Development Bank appraisal report; Government's project completion report.

21

22

Appendix 2

ACHIEVEMENT OF PROJECT TARGETS

At Appraisal As Reviseda Revised/ Appraisal (%) Actual/ Revised (%)

Item A. Agricultural Development 1. Crop Intensification and Diversification New Planting of Cashew New Planting of Coffee New Planting of Cacao Rehabilitation of Existing Cashew Mixed Orchard Hillside Farming Construction of Rural Agricultural Center On-Farm Demonstration Farm 2. Livestock Development Buffalo Breeding Center (San Vicente) Swine Breeding Center (Dumaran) Swine Disposal Substation (Cuyo) Diagnostic Laboratory (Puerto Princesa) Dairy Demonstration Farm (Puerto Princesa) Procurement of Heifer Bull Poultry Breeder Cara-Heifer Cara-Bull Boar Sow 3. Fishery Support Services Fish Landing Facility Fish Market Diagnostic Fish Laboratory (Puerto Princesa) B. Irrigation Development Total CISs Rehabilitation of Existing CISs Construction of New CISs Total Command Area Survey and Land Titling Cadastral Survey Isolated Survey Issuance of Patents and Permit

Unit

Actual

ha ha ha ha ha ha no. no.

3,500 350 301 3,000 1,100 1,100 14 139

3,480 437 120 4,069 1,630 901 14 130

3,377 437 120 4,069 1,630 901 14 130

99 125 40 136 148 82 100 94

97 100 100 100 100 100 100 100

no. no. no. no. no. head head head head head head head

1 1 1 1 1 1,457 75 9,100 80 8 5 50

1 1 1 1 1 1,192 79 8,003 120 8 6 52

1 1 1 1 1 1,192 79 8,003 120 8 6 52

100 100 100 100 100 82 105 88 150 100 120 104

100 100 100 100 100 100 100 100 100 100 100 100

no. no. no.

9 9 1

9 9 1

9 9 1

100 100 100

100 100 100

no. no. no. ha

20 5 15 6,460

13 2 11 5,300

13 2 11 4,966

65 40 73 82

100 100 100 94

C.

lot lot no.

3,345 10,000 20,000

1,679 10,000 20,000

1,679 10,000 20,000

50 100 100

100 100 100

Appendix 2

23

Item D. Infrastructure Development Total Roads of which: Rehabilitation of National Roads Rehabilitaiton of Provincial Roads Construction of New Provincial Roads Port: Breakwater Social Services 1. Integrated Health Program Village Health Station
b 2. Rural Water Supply Construction of New Level I Water System Rehabilitation of Level I Water System Rehabilitation of Level III Water System

Unit

At Appraisal

As Reviseda

Actual

Revised/ Appraisal (%)

Actual/ Revised (%)

km km km km no.

579 78 230 271 1

286 38 115 133 1

314 33 129 152 1

49 49 50 49 100

110 87 112 114 100

E.

no.

78

66

66

85

100

no. no. no.

537 81 1

521 81 1

517 81 1

97 100 100

99 100 100

3. Women-in-Development Women Training Center F. Project Management Field Management Office

no.

100

100

no.

100

100

CIS = communal irrigation system, ha = hectare, km = kilometer, no. = number. a The targets were revised in September 1995 and approved in November 1996. b Level I = individual domestic deep or shallow tubewells; Level III = water supply to individual households through pipe networks. Source: Asian Development Bank project completion report and appraisal report.

24

Appendix 3

COST OF ROAD CONSTRUCTION

Item PIADP National Roads Rehabilitation New Construction Provincial Roads Rehabilitation New Construction PPTA Final Report National Roads Rehabilitation New Construction Provincial Roads Rehabilitation New Construction RRP National Roads Rehabilitation New Construction Provincial Roads Rehabilitation New Construction PCR National Roads Rehabilitation New Construction Provincial Roads Rehabilitation New Construction Comparison (%) RRP vs PPTA National Roads Provincial Roads PCR vs RRP National Roads Provincial Roads 23 105 42 52 39 92 265 397 35 83 160 239 168 88 627 763 150 80 379 455 Exchange Rate (P/$) 28.0 Length Targeted or Completed (km) 319.0 159.0 160.0 336.1 173.5 162.6 515.8 265.8 250.0 78.0 74.0 4.0 539.2 240.2 299.0 33.0 33.0 0.0 281.0 129.0 152.0 Total Cost P'000 $'000 469,560 117,160 281,690 45,738 258,456 121,203 121,203 0 1,026,828 16,770 5,325 12,804 1,890 10,680 3,015 3,015 0 25,543 Unit Costa P'000/km $'000/km 1,472 349 546 271 527 586 479 3,673 3,673 0 3,654 53 16 25 24 20 91 91 0 91

22.0

22.0

b b

24.2

24.2

40.2

40.2

= not available, km = kilometer, P = peso, PCR = project completion report, PIADP = Palawan Integrated Area Development Project, PPTA = project preparatory technical assistance, RRP = report and recommendation of the President. a Calculated by dividing the total cost by the length targeted or completed. b Estimated unit cost provided in the PPTA report. Sources: Asian Development Bank's project completion report of the Palawan Integrated Area Development Project, Final Report of project preparatory technical assistance for the Palawan Integrated Area Development Project, report and recommendation of the President, and project completion report of the Second Palawan Integrated Area Development Project.

COMMUNAL IRRIGATION SYSTEMS AND WATER-USE FEES

Command Area Name of System/ Municipality 1. Sabsaban Communal Irrigation System (CIS), Brookes Point (rehabilitation) Date Construction Started/ Completed 01-Aug-94 30-Jun-97 Investment Cost (P million) 19.2 As Designed (ha) 300 Actual Completion (ha) 220 Actual at Postevaluation (ha) 100 Required Water-Use Fees (ricea, kg/ha/crop) 60.0 Actual Collection Rate (%)b 33.3

Status Poorly maintained with heavy siltation upstream and deterioration of canals downstream; proliferation of illegal turnouts especially in downstream section. Considerable damage likely in the next 23 years if poor operation and maintenance (O&M) continues. Poor maintenance with diversion dam heavily silted. Project Implementation Office reported the system as nonfunctional as of 31 December 2001. At the time of site visit by the Operations Evaluation Mission, irrigators' association leaders and members were clearing heavily silted diversion dam. The association stopped payment of amortization.

2. Iraan CIS, Rizal (new construction)

16-May-93 30-Jul-95

41.5

300

250

90

60.0

30.0

Appendix 4

ha = hectare, kg = kilogram. a Water use fees were paid by rice instead of cash. b Collection rate is computed as the percentage of actual collection to the expected collection based on water-use fees and command areas. Source: Project Management Office; field inspection by Operations Evaluation Mission, JulyAugust 2002.

25

26

Command Area Name of System/ Municipality 3. Talakaigan CIS, Aborlan (new construction) Date Construction Started/ Completed 01-Jul-93 31-Oct-96 Investment Cost (P million) 39.4 As Designed (ha) 540 Actual Completion (ha) 350 Actual at Postevaluation (ha) 200 Required Water-Use Fees (ricea, kg/ha/crop) 75.0 Actual Collection Rate (%)b 13.3
Appendix 4

Status Poorly maintained: no regular O&M; lateral canals deteriorating. Poor O&M may lead to considerable damage in the system in the next 23 years. Poorly maintained: silted earth canals; damaged lateral and drainage canals. Main canal urgently needs concreting to avoid collapse. Poor maintenance: earth canals heavily silted; canal lining of Lateral B needed. Main canal needs immediate repair, otherwise command area reduced by 50% in 1 year. Poor maintenance: damaged siphon reducing service area by 80 hectares even prior to CIS was turned over to the irrigators association. The siphon needs urgent repair to avoid permanent damage to structure.
Continued on next page

4. Candawaga CIS, Rizal (new construction) 5. Marangas CIS, Bataraza (new construction)

01-Jun-93 20-Jul-96

34.8

400

400

230

60.0

0.7

12-Apr-93 15-Jul-95

37.1

500

400

300

112.5

2.5

6. Lamikan CIS, Quezon (new construction)

04-Nov-91 16-Nov-94

38.3

400

320

260

145.0

7.3

Command Area Name of System/ Municipality 7. Tagbuaya CIS, Quezon (new construction) Date Construction Started/ Completed 01-Nov-91 31-Oct-93 Investment Cost (P million) 16.9 As Designed (ha) 250 Actual Completion (ha) 250 Actual at Postevaluation (ha) 128 Required Water-Use Fees (ricea, kg/ha/crop) 112.5 Actual Collection Rate (%)b 4.0

Status Poor maintenance: damages in main canal and drainage. If no repair conducted, command area reduced by 20% in 1 year. Poor maintenance and damaged canals. About 2 kilometers of earth canals need repair and concrete lining. Without repair, system will become nonfunctional in 3 years. Poor maintenance: main canal lacked concrete lining; turnouts needed to increase system efficiency. Without regular O&M, more canal damage expected in the next 23 years. Access road not constructed along main canal, leading to difficulty in undertaking O&M. Poor maintenance and rapid deterioration of canals. With current O&M status, CIS will become nonfunctional in 23 years.
Continued on next page

8. Quinlogan CIS, Quezon (new construction)

12-Nov-91 22-Oct-93

11.4

250

250

200

60.0

8.0

9.

Tamlang CIS, Brookes Point (new construction)

16-Feb-95 30-Jun-97

76.5

800

500

300

87.5

4.2

10. Maasin CIS, Brookes Point (rehabilitation)

01-Aug-94 30-Jun-97

46.1

1,016

1,016

250

60.0

0.3

Appendix 4

27

28

Command Area Name of System/ Municipality 11. Pinamaratan, CIS, Coron (new construction) Date Construction Started/ Completed 01-Jul-94 28-Feb-97 Investment Cost (P million) 9.8 As Designed (ha) 80 Actual Completion (ha) 10 Actual at Postevaluation (ha) 5 Required Water-Use Fees (ricea, kg/ha/crop) 154.0 Actual Collection Rate (%)b 0
Appendix 4

Status Premature turnover of the CIS to irrigators' association as construction of infrastructure incomplete. Heavy siltation of main canal observed. Surrounding farmland not fully developed for irrigation. Considerable reinvestment needed to make CIS functional as designed. Poor maintenance; main canal needs concrete lining; additional turnouts needed to improve water efficiency. Premature turnover of system as in the case of CIS Pinamaratan. Status similar to CIS Pinamaratan and CIS San Nicolas.

12. San Nicolas CIS, Coron (new construction)

01-Jul-94 31-Dec-96

13.1

80

40

40

162.5

0.7

13. Sto. Nino CIS, Busuanga (new construction)

01-Jul-94 31-Oct-98

10.9

80

30

20

250

Appendix 5

29

ECONOMIC REEVALUATION A. Methodology and Assumptions

1. The methodology used in the economic reevaluation in this project performance audit report follows the Guidelines for the Economic Analysis of Projects of the Asian Development Bank (ADB). The economic internal rates of return (EIRRs) are calculated for the entire Project as well as for each of the following major components: (i) crop intensification and diversification, (ii) livestock development, (iii) fishery support services, (iv) communal irrigation systems (CISs), and (v) road development. Major assumptions underlying the EIRR calculation are as follows: (i) The economic analysis covers a period of 30 years (19912020) wherein the investment period extends over 8 years (19911998). However, economic benefits for CISs are measured for a period of 25 years (19912015) due to inadequate maintenance of the systems. All economic benefits and costs are expressed in constant 2002 prices. Project investments are adjusted using the World Banks February 2002 manufacturers unit value index for foreign exchange items. Local benefits and costs are adjusted to reflect the 2002 prices using gross domestic product deflator (Table A5.1). Economic prices of internationally traded commodities such as rice and urea are derived from the World Banks February 2002 commodity prices and price projections. The calculations of farmgate economic prices are given in Table A5.2. The financial and economic prices of major farm outputs and inputs are presented in Table A5.3. The quantifiable benefits for the crop and CIS components are derived through farm budget analyses for crops that received direct support from the Project. Calculation of net returns for major crops is given in Table A5.4. A standard conversion factor of 0.86 is used to adjust locally traded commodities and local costs to economic benefits and costs. Although there is a shortage of labor during peak seasons, a shadow wage conversion of 0.86 is used since family labor is the primary source of farm labor in the project areas. Investment costs used in the economic analysis include the actual costs of civil works construction of roads and CISs, project facilities, consulting services, and training; and exclude transfer payments such as duties and taxes.

(ii)

(iii)

(iv)

(v)

(vi)

B.

Estimation of Project Benefits

2. Only direct economic benefits are included in the EIRR estimation, derived from a comparison between the with and without project scenarios. Benefits are derived from incremental tree crops, irrigated rice, livestock, fisheries, and road development under the Project.

30

Appendix 5

1.

Crop Intensification and Diversification

3. The benefit stream of the crop intensification and diversification component is based on incremental production of tree crops including cashew, cacao, coffee, and mixed orchard such as mango, calamansi, and jackfruit. Calculation of benefits is based on the actual achievement of tree planting and rehabilitation, including new planting of cashew on 3,377 hectares (ha), cacao on 120 ha, and coffee on 437 ha; rehabilitation of cashew on 4,069 ha; establishment of mixed orchard on 1,630 ha under coconut trees; and hillside farming of 901 ha. Major crops under mixed orchard and hillside farming are mango, jackfruit, calamansi, banana, guava, and pineapple. Estimation of crop yields is based on data from the provincial office of the Bureau of Agricultural Statistics and adjusted by information from discussions with farmers in the project areas. Downward adjustments are made reflecting the impact of the El Nino drought in 1998 on tree crops, which brought a high mortality (up to 80% in some cases) of the newly established cacao and imported cashew, although the native varieties of cashew and mixed orchards such as mango and calamansi survived with good performance. The benefit estimation also takes into account the different stages of the trees from planting to maturity, as well as the decline in harvest in their late years. Based on discussions with farmers, replanting of trees is estimated at every 10 years for cacao, coffee, and calamansi; every 20 years for cashew; and no replanting for mango. Based on these assumptions, the EIRR for this component is reestimated at 2.4%, substantially below the EIRR of 24.9% estimated at appraisal and 18.0% at project completion. 2. Livestock Development

4. Animal disposal programs under the livestock development component imported a large number of cattle, carabao (buffalo), swine, and poultry and dispersed them to farmers. The increased number and incremental value of animals are calculated as direct economic benefits. Mortality rates as high as 40% in some cases occurred during the process of importing and transporting the animals to project areas. Consequently, an average of 20% mortality is used in the EIRR calculation. A further 10% mortality is assumed based on information from discussions with recipients of the animals to reflect animal losses at the farm households level due to diseases. The benefit estimation also takes into account the low calving rate, as most cattle took 35 years to have their first offspring. In conjunction with a long delay in project implementation, these factors substantially reduced the benefits anticipated at appraisal. The EIRR of this component is recalculated at 1.0%, significantly below the 9.1% estimated at appraisal and 6.0% recalculated at project completion. 3. Fishery Support Services

5. The fishery component constructed nine fish-landing facilities and nine fish markets, with a view to supporting fishery production and reducing fish losses after harvest. Increased fish production and reduced fish spoilage are calculated as direct project benefits. Only two of the nine fish-landing facilities are still operational. Based on discussions with fisherfolk in the subproject sites, the weekly average fish landing in each of the landing facilities is estimated at 8 tons (t) during the peak season (February to May), 4 t during intermediate season (September to January), and 1.5 t during the lean period (June to August), with a total of 731 t of fish each year. It is further estimated that about 10% of the fish was first class, 50% second class, and 40% third class. Since seven of the nine fish-landing facilities operated only a few years, and most fish markets are underused, the reestimated EIRR is negative 1.6%, substantially below the EIRR of 23.8% estimated at appraisal, but similar to the project completion report estimation of negative 2.0%.

Appendix 5

31

4.

Communal Irrigation Systems

6. Incremental rice production due to access to irrigation is calculated as direct economic benefits under this component. At appraisal, 20 CISs were expected to be constructed or rehabilitated with a total command area of 6,460 ha. The target was reduced to 13 CIS and 5,300 ha during implementation due to cost overruns, and the actual command area was 4,966 ha at project completion. At the time of postevaluation, the command area was further reduced to 4,126 ha due to poor maintenance and damages caused by typhoons; the damages were not repaired due to a lack of funds. At appraisal, it was anticipated that the wet season rice yield would increase from 2.6 tons per ha (t/h) to 4.25 t/h; a new rice crop would be planted in the dry season with a yield of 4.5 t/h; and the yearly rice production would increase from 2.6 t/h to 8.75 t/h. This assumption proved to be overly optimistic. At postevaluation, rice yield in the subproject areas varied from 2.5 t/h to 4.0 t/h, and crop intensity ranged from 100% to 150%, as some farmlands in the command area had not been fully developed, and some were without sufficient water supply in the dry season. Based on discussions with farmers in the subproject areas, an average rice yield of 3.75 t/h and a cropping intensity of 130% are used in the EIRR calculation. Due to the reduced command area, rice yields, and cropping intensity, the EIRR of this component has dropped from 21.6% estimated at appraisal to 10.0% estimated at completion and 0.3% at postevaluation. 5. Road Development

7. The road component was designed to construct or rehabilitate 579 kilometers (km) of roads. This target was cut by half during implementation due to cost overruns and shortage of funds, and the actual completion was 314 km at project completion. Direct economic benefits under this component include reduction in transportation costs for farm products and inputs, as well as incremental farm production in areas affected by the roads. Based on data from the provincial office of the Bureau of Agricultural Statistics, it is estimated that about 180,000 ha of crop areas are within the zone of influence of the roads. Discussions with farmers in the project areas leads to the assumption that about 10% of the incremental production (both project and nonproject-related production) is induced by improved access to markets. Reduction in transport costs for the incremental production is excluded in the EIRR calculation since this impact is implicit in the assumed farmgate value of the crops. Based on these assumptions, the EIRR of this component is reestimated at 14.0%, lower than the 21.2% estimated at appraisal and 16.0% at completion. In addition, this component generated a significant amount of unquantified benefits, including improved access to social services and convenience in communicating with other regions, especially in areas where sea travel had been the only means of transportation before the Project. C. Economic Internal Rate of Return for the Entire Project 1. Base Case

8. Tables A5.5a- A5.5f present the results of the EIRR calculation for the entire Project and the various components. The overall EIRR is reestimated at 3.7%, substantially below the EIRR estimated at appraisal (17.8%) and at completion (11.0%). Several factors have contributed to the sharp variance. First, cost overruns forced a substantial reduction in project targets, including a 51% reduction in roads and 35% reduction in CISs. Second, high mortalities occurred in crops and animals, including up to 40% cattle mortality in transporting the animals to the project areas and up to 80% mortality of newly established cacao and imported cashew due to the El Nino drought in 1998. Third, deficiencies and incompleteness in CIS construction and

32

Appendix 5

their poor maintenance reduced command areas. Insufficient irrigation services restricted the realization of the anticipated increase in rice yields and crop intensity. Fourth, six of the nine fish-landing facilities vanished completely and another one exists but is no longer usable. Of the five components, only the roads are generating significant benefits. 2. Sensitivity Analysis

9. Sensitivity analysis is conducted for the entire Project based on two scenarios: a 10% decrease in total benefits and a 10% increase in operation and maintenance costs. The results (Table A5.6) suggest that a 10% increase in operation and maintenance costs would reduce the EIRR from 3.7% to 2.8%, while a 10% decrease in benefits would reduce the EIRR to 2.7%. A combination of these two changes would reduce the project EIRR to 1.7%.

Table A5.1: Assumptions Used in Calculating Project Costs

Official Exchange Rate (P/$1) 27.48 25.51 27.12 26.42 25.71 26.22 29.47 40.89 39.09 41.00 44.19 51.80 a GDP Implicit Price Index (2002 = 100) 49.41 52.69 56.29 61.40 65.91 70.04 74.18 81.38 87.92 92.99 98.55 100.00

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

GDP (P million) 1,248,011 1,351,559 1,474,458 1,692,932 1,905,951 2,171,922 2,421,306 2.667,108 2,989,065 3,138,518 3,639,920 3,767,317b

MUV Index (1990 = 100) 100.6 101.2 101.8 102.5 103.1 103.7 104.3 104.2 103.6 97.4 93.0 96.7

GDP = gross domestic production, MUV = manufacturers' unit value. a Average for the month of August 2002. b Projection as of August 2002. Source: Central Bank of the Philippines; National Statistical Coordination Board (August 2002); and World Bank Commodity Price Projection (February 2002).

Appendix 5

33

Table A5.2: Computation of Economic Prices of Internationally Traded Commodities Item

A. At Import Parity ($/t) Projected 1990/95 Value FOB Sourcea Quality Factor (%) Adjusted FOB Value Freight/Insuranceb Value CIF Manila Port Port Dues/Handling B. At Import Parity (P/t) Value CIF Puerto Princesa ($1=P51.80) Handling/Transport/Storagec Value Ex-Store/Market Transport/Handlingd Processing Ratio Farmgate Price Farmgate Price (per kg)

Paddy
224 10 202 20 222 5 11,769 753 11,007 110 0.62 6,892 6.89

Corn
106 10 95 19 114 5 6,178 753 5,425 110 0.90 4,981 4.98

Urea
113 113 23 136 5 7,292 753 6,539 110 6,649 6.65

TSP
150 150 22 172 5 9,167 753 8,414 110 8,524 8.52

kg = kilogram; km = kilometer; t = metric ton; CIF = cost, insurance, and freight; FOB = free on board; TSP = triple sulphur phosphate. a Based on the World Banks commodity price projections (February 2002). Averages of 1995 and 2000 projections in 1990 constant dollars inflated to 2002 values using the increase in manufacturers' unit value (MUV) as an index of international inflation. Price bases were as follows: rice: Thai, milled, 5% broken, FOB Bangkok; corn: Canadian No.1 Western Redspring, Thunder Bay; urea: FOB Chittagong/Chaina; triple sulphur phospate: FOB US Gulf. b Between Puerto Princesa and source of destination. c Average of 350 km at P2.50 t/km converted to border values using a standard conversion factor of 0.86. e Average of 15 km at P8.50 t/km converted to border values using a standard conversion factor of 0.86. Source: Asian Development Bank estimates.

34

Appendix 5

Table A5.3: Financial and Economic Prices of Crop Inputs and Outputs Item Inputs Seed/Planting Material Paddy Corn Mango Jackfruit Calamansi Cashew Cacao Coffee Coconut Fertilizer Urea Complete Triple Sulphur Phosphate Farmyard Manure Draught Animals Labor Outputs Paddy Corn Mango Jackfruit Calamansi Cashew Cacao Coffee Copra Meat (Live weight) Unit Financial Prices (P) Economic Prices (P)

kilogram kilogram number plant plant plant plant plant plant kilogram kilogram kilogram ton person-day person-day Kilogram Kilogram Kilogram Kilogram Kilogram Kilogram Kilogram Kilogram Kilogram Kilogram

15.0 8.0 20.0 20.0 10.0 15.0 15.0 15.0 10.0 9.3 9.2 11.9 200.0 200.0 110.0 7.5 6.0 10.0 8.0 15.0 10.0 8.5 12.5 8.0 65.0

12.9 7.0 17.2 17.2 8.6 12.9 12.9 12.9 8.6 6.7 6.6 8.5 172.0 172.0 94.6 6.9 5.0 8.7 6.9 12.9 8.6 7.3 12.9 6.9 55.9

Source: Bureau of Agricultural Statistics and Asian Development Bank estimates.

Appendix 5

35

Table A5.4: Costs and Returns of Crop Production (One-hectare Model) A. Irrigated Rice
Item A. With Project 1. Gross returns 2. Cost of material inputs a. Seeds b. Fertilizer Urea Ammonium phosphate c. Agrochemicals d. Water fee e. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Land preparation Manual labor Tractor labor b. Fertilizer application c. Pulling of seedlings/transplanting d. Weeding e. Harvesting and threshing/postharvest 4. Net Returns B. Without Project 1. Gross returns 2. Cost of material inputs a. Seeds b. Fertilizer Urea Ammonium phosphate c. Agrochemicals d. Water fee e. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Land preparation Manual labor Tractor labor b. Fertilizer application c. Pulling of seedlings/transplanting d. Weeding e. Harvesting and threshing 4. Net returns
kg = kilogram, p-d = person-day, t-d = tractor-day. Source: Operations Evaluation Mission estimates.

Quantity 3,750 kg kg kg kg

Value (P) Financial Economic

50 100 100

27,938 5,383 750 930 894 750 559 1,500 8,120 550 2,400 220 2,200 550 2,200 14,435

25,845 4,422 645 665 697 645 481 1,290 6,983 473 2,064 189 1,892 473 1,892 14,440

5 2 2 20 5 20

p-d t-d p-d p-d p-d p-d

2,500

kg kg kg kg 18,625 4,785 675 930 780 600 300 1,500 8,120 550 2,400 220 2,200 550 2,200 5,720 17,230 4,006 581 665 697 516 258 1,290 6,983 473 2,064 189 1,892 473 1,892 6,241

45 100 100

5 2 2 20 5 20

p-d p-d p-d p-d p-d p-d

36

Appendix 5

B. Mango
Item A. With Project 1. Gross returns 2. Cost of material inputs a. Fertilizer Urea Ammonium phosphate Triple sulphur phosphate b. Agrochemicals c. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Cultivation/ring weeding and pruning b. Fertilizer/Agrochemicals application c. Wages for overseer d. Harvesting and hauling 4. Net Returns B. Without Project 1. Gross returns (yield x price) 2. Cost of material inputs a. Fertilizer Urea Ammonium phosphate Triple sulphur phosphate b. Agrochemicals c. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Cultivation/ring weeding and pruning b. Fertilizer application c. Harvesting and hauling 4. Net returns
kg = kilogram, p-d = person-day, t = ton.

Value (P) Quantity Financial Economic 8,000 kg 80,000 15,486 1,860 1,341 1,785 8,000 2,500 18,150 6,600 2,200 6,600 2,750 46,364 68,800 12,791 1,330 1,153 1,278 6,880 2,150 15,609 5,676 1,892 5,676 2,365 40,400

200 kg 150 kg 150 kg

60 20 60 25

p-d p-d p-d p-d

4,000 kg

40,000

34,400

50 kg 50 kg 50 t

15 p-d 10 p-d 15 p-d

465 447 594 2,500 2,000 2,200 1,650 1,100 1,650 31,793

333 384 426 2,150 1,720 3,784 1,419 946 1,419 25,603

Appendix 5

37

C. Cashew
Item A. With Project 1. Gross returns 2. Cost of material inputs a. Fertilizer b. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Fertilizer/Agrochemicals application b. Harvesting and hauling 4. Net Returns B. Without Project 1. Gross returns 2. Cost of material inputs a. Fertilizer b. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Fertilizer/Agrochemicals application b. Harvesting and hauling 4. Net returns
kg = kilogram, p-d = person-day.

Quantity 600 100 kg kg

Value (P) Financial Economic 6,000 1,420 920 500 770 550 220 3,810 5,160 1,088 658 430 662 473 189 3,410

5 p-d 2 p-d

350 50

kg kg

3 p-d 2 p-d

3,500 765 465 300 550 330 220 2,185

3,010 591 333 258 473 284 189 1,947

38

Appendix 5

D. Calamansi
Item A. With Project 1. Gross returns 2. Cost of material inputs a. Fertilizer Urea Ammonium phosphate Manure b. Agrochemicals c. Water fee d. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Cultivation/ring weeding and pruning b. Fertilizer application c. Watering the plants d. Harvesting and hauling 4. Net Returns B. Without Project 1. Gross returns 2. Cost of material inputs a. Fertilizer Urea Ammonium phosphate Manure b. Agrochemicals c. Water fee c. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Cultivation/ring weeding and pruning b. Fertilizer application c. Watering the plants d. Harvesting and hauling 4. Net returns
kg = kilogram, p-d = person-day, t = ton.

Quantity 5,000 kg

Value (P) Financial Economic 75,000 29,932 4,650 2,682 100 6,000 1,500 15,000 26,950 8,250 2,200 5,500 11,000 18,118 64,500 25,068 3,325 2,307 86 5,160 1,290 12,900 23,177 7,095 1,892 4,730 9,460 16,255

500 300 1

kg kg t

75 20 50 100

p-d p-d p-d p-d

2,500

kg

37,500 17,354 1,860 894 100 3,000 1,500 1,000 9,350 2,750 1,100 2,750 2,750 10,796

32,250 14,655 1,330 769 86 2,580 1,290 8,600 8,041 2,365 946 2,365 2,365 9,554

200 100 1

kg kg t

25 10 25 25

p-d p-d p-d p-d

Appendix 5

39

E. Coffee
Item A. With Project 1. Gross returns 2. Cost of material inputs a. Fertilizer Urea Ammonium phosphate Manure b. Agrochemicals c. Water fee d. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Cultivation/ring weeding and pruning b. Fertilizer application c. Watering the plants d. Harvesting and hauling 4. Net Returns B. Without Project 1. Gross returns 2. Cost of material inputs a. Fertilizer Urea Ammonium phosphate Manure b. Agrochemicals c. Water fee c. Others (fuel, oil, food expenses, etc.) 3. Cost of labor a. Cultivation/ring weeding and pruning b. Fertilizer application c. Watering the plants d. Harvesting and hauling 4. Net returns
kg = kilogram, p-d = person-day, t = ton.

Value (P) Quantity Financial Economic 1,200 kg 15,000 3,624 100 kg 100 kg t 1 930 894 100 500 200 1,000 6,600 2,200 550 2,200 1,650 4,776 12,900 2,982 665 769 86 430 172 860 5,676 1,892 473 1,892 1,419 4,242

20 5 20 15

p-d p-d p-d p-d

650 kg

8,105 2,712 465 447 100 500 200 1,000 3,850 1,100 550 1,100 1,100 1,563

6,988 2,265 333 384 86 430 172 860 3,311 946 473 946 946 1,412

50 kg 50 kg 1 t

10 5 10 10

p-d p-d p-d p-d

40

Appendix 5

Table A5.5a: Economic Internal Rate of Return Estimation for Crop Component (P000, at constant 2002 prices)

Year Investment 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1,807 10,754 23,959 23,520 11,907 11,981 19,655

Project Incremental Mgt. Production Annual Admin. Cost Operations 4,639 25,999 10,296 8,663 7,715 7,672 24,241 30,317

Total Cost

Total Benefits

Net Benefits (11,913) (51,954) (54,634) (73,604) (70,008) (74,755) (72,429) (34,870) 11,041 25,864 33,971 35,032 34,031 33,221 32,155 31,598 32,209 31,514 30,309 29,080 27,710 26,156 24,940 23,297 22,295 21,860 22,494 25,676 29,505 33,698 2.4% (175,228)

0 5,468 11,913 0 1,615 13,587 51,954 0 8,874 11,505 54,634 0 14,498 26,986 73,667 64 18,282 32,965 70,869 861 26,320 32,506 78,478 3,723 28,366 10,367 82,629 10,200 19,117 5,313 54,747 19,877 15,609 2,482 18,091 29,132 13,012 1,200 14,212 40,076 11,761 1,200 12,961 46,932 11,903 1,200 13,103 48,135 11,945 1,200 13,145 47,176 11,943 1,200 13,143 46,364 12,173 1,200 13,373 45,528 12,127 1,200 13,327 44,926 11,552 1,200 12,752 44,961 11,332 1,200 12,532 44,046 11,195 1,200 12,395 42,705 11,202 1,200 12,402 41,483 11,508 1,200 12,708 40,418 11,852 1,200 13,052 39,208 12,125 1,200 13,325 38,265 12,637 1,200 13,837 37,134 12,959 1,200 14,159 36,454 12,967 1,200 14,167 36,027 12,781 1,200 13,981 36,475 11,722 1,200 12,922 38,598 11,280 1,200 12,480 41,985 10,998 1,200 12,198 45,896 Economic Internal Rate of Return = Net Present Value, 12% =

Admin. = administration, mgt. = management. Source: Operations Evaluation Mission estimates.

Appendix 5

41

Table A5.5b: Economic Internal Rate of Return Estimation for Livestock Component (P000, at constant 2002 prices)
Project Mgt. Admin. 1,596 8,854 4,003 7,422 5,456 12,485 6,824 Incremental Annual Production Cost Operations 0 0 4 5 367 1,382 2,570 754 9,570 9,813 9,449 9,231 8,960 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767 8,767

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Investment 1,617 5,081 4,588 1,728 2,149 1,625 5,810

Total Cost

Total Benefits

Net Benefit (5,822) (19,540) (11,324) (13,001) (16,705) (21,982) (12,849) (7,903) 7,393 7,726 6,714 6,424 5,744 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 5,415 1.0% (47,833)

2,609 5,822 0 5,604 19,540 0 2,755 11,352 28 3,879 13,034 34 9,287 17,258 553 8,562 24,054 2,072 1,764 16,967 4,118 9,739 10,493 2,591 1,500 11,070 18,463 2,000 11,813 19,540 2,000 11,449 18,163 2,000 11,231 17,655 2,000 10,960 16,704 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 2,000 10,767 16,182 Economic Internal Rate of Return = Net Present Value, 12% =

Admin. = administration, mgt. = management.

42

Appendix 5

Table A5.5c: Economic Internal Rate of Return Estimation for Fishery Component (P000, at constant 2002 prices)

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Investment 786 3,662 1,185 1,126 683 497 2,352

Project Mgt. Admin. 506 5,640 1,283 2,081 2,447 3,116 3,732

Annual Operations

Total Cost

Total Benefits

Net Benefits (1,759) (13,213) (1,990) (5,070) (7,551) (8,617) (5,005) 1,680 1,227 1,227 1,277 824 824 824 824 824 824 824 824 824 824 824 824 824 824 824 824 824 824 824 (1.6%) (24,029)

467 1,759 0 3,911 13,213 0 1,352 3,820 1,830 3,693 6,900 1,830 6,251 9,382 1,830 6,834 10,447 1,830 751 6,835 1,830 150 150 1,830 150 150 1,377 150 150 1,377 100 100 1,377 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 100 100 924 Economic Internal Rate of Return = Net Present Value, 12% =

Admin. = administration, mgt. = management.

Appendix 5

43

Table A5.5d: Economic Internal Rate of Return Estimation for Irrigation Component (P000, at constant 2002 prices)
Project Mgt. Admin. 9,200 15,832 23,054 25,247 11,520 20,202 3,164 Annual Operations Total Cost Total Benefits Net Benefit (48,391) (57,924) (180,148) (152,666) (153,116) (143,198) 30,068 29,165 29,590 32,739 28,931 43,827 43,827 43,827 43,827 43,827 43,827 43,827 43,827 43,827 43,827 43,827 43,827 43,827 43,827 0.3% (335,643)

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Investment 34,883 33,973 135,331 115,537 125,834 147,132 223

4,308 48,391 0 8,119 57,924 0 21,762 180,148 0 20,080 160,865 8,199 38,718 176,073 22,957 8,659 175,993 32,795 160 3,547 33,615 203 203 29,368 179 179 29,770 163 163 32,902 150 150 29,081 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 150 150 43,977 Economic Internal Rate of Return = Net Present Value, 12% =

Admin. = administration, mgt. = management.

44

Appendix 5

Table A5.5e: Economic Internal Rate of Return Estimation for Road Component (P000, at constant 2002 prices)
Project Mgt. Admin. 10,059 5,870 11,951 7,078 5,199 4,989 2,647

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Investment 0 66,611 135,167 142,130 195,826 233,111 189,437

Annual Operations

Total Cost

Total Benefits

Net Benefits (10,059) (82,160) (157,947) (115,834) (190,857) (184,017) (98,281) 132,675 181,157 180,257 180,057 180,057 179,197 179,197 179,197 178,251 178,251 178,251 177,210 177,210 177,210 176,065 176,065 176,065 174,410 174,410 174,410 172,985 172,985 172,985 14.0% 98,692

0 10,059 0 9,679 82,160 0 19,264 166,382 8,435 17,528 166,736 50,902 40,734 241,759 50,902 14,968 253,069 69,052 7,942 200,026 101,746 7,000 7,000 139,675 7,500 7,500 188,657 8,400 8,400 188,657 8,600 8,600 188,657 8,600 8,600 188,657 9,460 9,460 188,657 9,460 9,460 188,657 9,460 9,460 188,657 10,406 10,406 188,657 10,406 10,406 188,657 10,406 10,406 188,657 11,447 11,447 188,657 11,447 11,447 188,657 11,447 11,447 188,657 12,592 12,592 188,657 12,592 12,592 188,657 12,592 12,592 188,657 14,247 14,247 188,657 14,247 14,247 188,657 14,247 14,247 188,657 15,672 15,672 188,657 15,672 15,672 188,657 15,672 15,672 188,657 Economic Internal Rate of Return = Net Present Value, 12%=

Admin. = administration, mgt. = management.

Appendix 5

45

Table A5.5f: Economic Internal Rate of Return Estimation for Entire Project (P000, at constant 2002 prices)
Project Mgt. Admin. 39,254 60,555 64,041 27,055 12,409 28,545 29,112 8,714 Incremental Production Costs 0 1,615 8,878 14,503 18,648 27,702 30,936 19,871 25,178 22,826 21,210 21,134 20,905 20,710 20,940 20,894 20,319 20,099 19,962 19,969 20,275 20,619 20,892 21,404 21,726 21,734 21,548 20,489 20,047 19,765

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Investment 112,355 346,629 341,338 514,585 565,670 616,063 591,087

Annual Operations

Total Cost

Total Benefits

Net Benefit

9,029 160,638 0 (160,638) 27,034 435,833 0 (435,833) 31,338 445,595 10,293 (435,302) 53,910 610,052 61,029 (549,024) 57,133 653,861 77,103 (576,758) 64,125 736,436 109,473 (626,963) 59,821 710,956 151,509 (559,447) 22,405 50,990 193,342 142,352 11,811 36,990 267,399 230,409 11,913 34,739 282,552 247,814 12,050 33,260 284,211 250,951 12,050 33,184 299,348 266,164 12,910 33,815 297,438 263,623 12,910 33,620 296,104 262,484 12,910 33,850 295,268 261,418 13,856 34,750 294,665 259,915 13,856 34,175 294,700 260,525 13,856 33,955 293,785 259,830 14,897 34,859 292,444 257,585 14,897 34,866 291,222 256,356 14,897 35,172 290,157 254,985 16,042 36,661 288,947 252,286 16,042 36,934 288,005 251,071 16,042 37,446 286,874 249,427 17,697 39,423 286,194 246,771 17,547 39,281 241,790 202,509 17,547 39,095 242,238 203,143 18,972 39,461 244,360 204,900 18,972 39,019 247,748 208,729 18,972 38,737 251,659 212,922 Economic Internal Rate of Return = 3.7% Net Present Value,12% = (1,216,690)

Admin. = administration, mgt. = management.

46

Appendix 5

Table A5.6: Comparison of Rate of Return Estimates Over Time Economic Internal Rate of Return (%) At Postevaluation At Appraisal At Completion 24.9 9.1 23.8 21.6 21.2 17.8 18.0 6.0 (2.0) 10.0 16.0 11.0 2.4 1.0 (1.6) 0.3 14.0 3.7

Item Crop Livestock Fishery Irrigation Roads Entire Project

Sources: Project completion report and report and recommendation of Second Palawan Integrated Area Development Project; and Operation Evaluation Mission estimates.

Appendix 6

47

PREVALENCE OF MALARIA, TUBERCULOSIS, AND MALNUTRITION

No. of Reported Cases Malaria Tuberculosis Malnutrition per 1,000 persons per 1,000 persons per 1,000 childrena 1991 2001 Change 1991 2001 Change 1991 2001 Change 100 20 70 110 80 65 75 55 70 30 6 52 55 40 52 55 24 50 (70) (14) (18) (55) (40) (13) (20) (31) (20) 15 10 18 10 14 12 10 16 10 5 2 5 8 6 7 6 8 5 (10) (8) (13) (2) (8) (5) (4) (8) (5) 16 6 5 20 45 20 52 35 21 11 1 2 15 35 8 40 23 15 (5) (5) (3) (5) (10) (12) (12) (12) (6)

Village/Municipality Isaub, Aborlan Sandoval, Narra Bunog, Rizal Maasin, Quezon Panitian, S. Espanola Calasaguen, Brooke's Point Maasin, Brooke's Point Oring-oring, Brooke's Point Inogbong, Bataraza
a

Of up to 7 years of age. Source: Focus group discussions and interviews with key informants by Operations Evaluation Mission, JulyAugust 2002.