The World Bank · Document of The World Bank Report No.: ICR0000445 IMPLEMENTATION COMPLETION AND...

Document of The World Bank

Report No.: ICR0000445

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IBRD-70060)

ON A LOAN

IN THE AMOUNT OF US$150.0 MILLION

TO THE

REPUBLIC OF THE PHILIPPINES

FOR A

FIRST NATIONAL ROADS IMPROVEMENT AND MANAGEMENT PROJECT (APL)

(PHASE I)

June 27, 2008 Transport, Energy and Mining Unit Sustainable Development Department East Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective February 2007)

Currency Unit = Philippine Peso (PhP) PhP1 = US$0.02245 US$1 = PhP 44.55

FISCAL YEAR

January 1 to December 31

ABBREVIATIONS AND ACRONYMS

AASHTO American Association of State Highway and Transportation Officials JICA Japan International Cooperation Agency

ABC Approved Budget Contract LAPRAP Land Acquisition and Resettlement Action Plan ADB Asian Development Bank LTPBM Long-Term Performance-Based Maintenance AFCS2 Maputo - Southern Africa Two M&E Monitoring & Evaluation API(s) Annual Poverty Indicator(s) MIS Management Infrastructure System APL Adaptable Program Loan MTPDP Medium-Term Philippine Development Plan

BIIP(s) Business Improvement Implementation Project(s) MYPS Multi-Year Programming and Scheduling

BL Bantay Lansangan NCB National Competitive Bidding BoM Bureau of Maintenance NCR National Capital Region BRPS Better Roads Philippines Study NEDA National Economic Development Agency CAS Country Assistance Strategy NPV Net Present Value

COA Commission on Audit NRIMP National Roads Improvement and Management Project

DOF Department of Finance NRS National Roads System

DPWH Department of Public Works and Highways NZAID New Zealand Agency for International Development

EIA Environmental Impact Assessment OMB Office of Management and Budget IRR Internal Rate of Return PDO(s) Project Development Objective(s)

e-NGAS electronic New Government Accounting System PMP Preventive Maintenance Program

ERR Economic Rate of Return PMS Pavement Management System ExCOM Executive Committee PRM Physical Resource Management ExIS Executive Information System PROC Procurement FM Financial Management PRS Philippine Road Sector GDP Gross Domestic Product QAG Quality Assurance Group GoP Government of Philippines QEA Quality at Entry Assessment GPPB Government Procurement Policy Board QSA Quality of Supervision Assessment HMP Highway Maintenance/Management Project RAP Resettlement Action Plan ICB International Competitive Bidding RBIA Road and Bridge Information Authority

ILI Intensive Learning Implementation Completion and Results Report RIMSS Road Information Management Support System

IROW Infrastructure Right-of-Way RMA Road Maintenance Authority) JBIC Japan Bank for International Cooperation SEMS Social and Environmental Management System

Vice President: James W. Adams Country Director: Bert Hofman

Sector Manager: Junhui Wu Project Team Leader: Ben L.J. Eijbergen

ICR Team Leader: Ben L.J. Eijbergen

PHILIPPINES

First National Roads Improvement and Management Project (Phase 1)

CONTENTS Data Sheet

A. Basic Information....................................................................................................... i B. Key Dates ................................................................................................................... i C. Ratings Summary ....................................................................................................... i D. Sector and Theme Codes .......................................................................................... ii E. Bank Staff.................................................................................................................. ii F. Results Framework Analysis ..................................................................................... ii G. Ratings of Project Performance in ISRs ................................................................... v H. Restructuring (if any)................................................................................................ v I. Disbursement Profile ............................................................................................... vi

1. Project Context, Development Objectives and Design........................................... 1 2. Key Factors Affecting Implementation and Outcomes .......................................... 7 3. Assessment of Outcomes ...................................................................................... 13 4. Assessment of Risk to Development Outcome..................................................... 17 5. Assessment of Bank and Borrower Performance ................................................. 18 6. Lessons Learned.................................................................................................... 21 7. Comments on Issues Raised by Borrower/Implementing

Agencies/Partners ................................................................................................. 22

Annex 1 Project Costs and Financing...................................................................... 23 Annex 2a. Outputs by Component –Civil Works....................................................... 24 Annex 2b. Outputs by Component –Business Improvement

Implementation Planning (BIIP)............................................................... 25 Annex 2c. Project Cost by Component ...................................................................... 29 Annex 3. Economic and Financial Analysis............................................................. 30 Annex 4. Bank Lending and Implementation Support/Supervision Processes ........ 32 Annex 5. Beneficiary Survey Results....................................................................... 34 Annex 6. Stakeholder Workshop Report and Results .............................................. 35 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR................. 36 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders................... 38 Annex 9. List of Supporting Documents .................................................................. 39

MAP No. 30623R

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A. Basic Information Country: Philippines Project Name: First National Road Improvement

and Management Project Project ID: P039019 L/C/TF Number(s): IBRD-70060 ICR Date: 06/27/2008 ICR Type: Core ICR

Lending Instrument: APL Borrower: DEPARTMENT OF FINANCE (DOF)

Original Total Commitment: US$150.0M Disbursed Amount: US$138.2M Environmental Category: A Implementing Agencies: Department of Public Works and Highways (DPWH) Cofinanciers and Other External Partners: ADB (for RIMSS only) B. Key Dates

Process Date Process Original Date Revised / Actual Date(s) Concept Review: 09/23/1998 Effectiveness: 07/07/2000 07/07/2000 Appraisal: 10/12/1999 Restructuring(s): Approval: 02/15/2000 Mid-term Review: 07/19/2002 Closing: 06/30/2004 03/31/2007 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: High Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Moderately Unsatisfactory

Overall Bank Performance: Moderately Satisfactory Overall Borrower

Performance: Moderately Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators Quality Assurance Group (QAG)

Assessments (if any) Rating

Potential Problem Project at any time (Yes/No): No Quality at Entry Assessment (QEA): None

Problem Project at any time (Yes/No): Yes Quality of Supervision Assessment

(QSA): Satisfactory

DO rating before Closing/Inactive status: Moderately Satisfactory

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D. Sector and Theme Codes Original Actual

Sector Code (as percent of total Bank financing) Central government administration 18 16 Roads and highways 82 84 Theme Code (Primary/Secondary) Infrastructure services for private sector development Primary Primary Other financial and private sector development Secondary Secondary Pollution management and environmental health Secondary Secondary Technology diffusion Secondary Secondary E. Bank Staff

Positions At ICR At Approval Vice President: James W. Adams Jean-Michel Severino Country Director: Bert Hofman Vinay K. Bhargava Sector Manager: Junhui Wu Jitendra N. Bajpai Project Team Leader: Ben L.J. Eijbergen Denis Robitaille ICR Team Leader: Ben L.J. Eijbergen ICR Primary Author: Peter Ludwig F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The purpose of National Roads Improvement and Management Program (NRIMP) is to ensure the preservation of an improved national roads system (NRS) in an environmentally, socially and financially sustainable manner. NRIMP will include three phases: design (NRIMP-1), initiation (NRIMP-2) and operation (NRIMP-3). NRIMP-1 will: (a) prepare detailed designs and phased implementation plan for new organizational structures including an independent organization such as a road maintenance authority (RMA) or equivalent for the national road system (NRS), allowing them to be managed in a commercial fashion; (b) establish a sustainable financing mechanism, such as a road fund or equivalent, dedicated to preserving the national roads, to be funded from road user charges and based on actual level of maintenance needs and road usage; (c) undertake the development and establishment of key business processes and system renewals within the Department of Public Works and Highways (DPWH) and proposed RMA; and (d) upgrade and maintain sections of the NRS at good standards. Revised Project Development Objectives (as approved by original approving authority) No formal revisions.

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(a) PDO Indicator(s)

Indicator Baseline Value Original Target

Values (from approval documents)

Formally Revised Target

Values

Actual Value Achieved at Completion or Target Years

Indicator 1 : Policy, Planning and service delivery roles for managing NRS are defined and assigned to appropriate new/improved organizations, including Road Maintenance Authority

Value quantitative or qualitative)

Better Roads Philippines Study recommendations on reform

Independent Road Board, expanded Road Fund with fuel levy, dedicated road management organization ready to be established.

No revisions

Road Board established (but not independent); Road Fund established but no fuel levy; While National Road Authority was designed, it was not introduced for legislation. However, DPWH Rationalization Plan submitted to OMB.

Date achieved 01/21/2000 06/30/2004 3/31/2007

Comments (including percent achievement)

Even though Road Board and Road Fund have been established they lack independence, and their operations have to be strengthened, following more closely their Internal Rules and Regulations. As establishment of the Road Fund was substantial, achievement of this objective can be rated as about 60 percent

Indicator 2 : Funds for maintaining the NRS are available and fully recovered from road users by at least 60 percent Value quantitative or qualitative) 0% 60% (PhP 8.0 billion

available in 2006) No revisions 40% (PhP 7.0 billion available)

Date achieved 01/21/2000 06/30/2006 3/31/2007 Comments (including percent achievement)

While revenues from the road fund only cover 40% of needs, contributions for the GoP regular budget have brought available funds to 60% of needs in 2007.

Indicator 3: Business improvement targets are achieved

Value quantitative or qualitative)

Performance targets achieved on 8 business processes: investment planning, financial mgt, procurement, HR training, IT, agency performance monitoring, communications, environmental and social issues

Achieve all 8 targets No revisions Targets were largely achieved (see Annex 2.b)


While systems and software for the above 8 business processes have been put in place, there is still a need to make them fully operational by getting DPWH staff to use them in the intended manner. This will require extensive training.

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(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at Completion or Target Years

Indicator 1 : 280 km NRS rehabilitated/upgraded to paved status

Value (quantitative or qualitative)

0 km 280 km

No formal revisions, but target value questionable1

382 km (see Annex 2a)

Date achieved 01/21/2000 06/30/2004 3/31/2007


The original target made sense at the time of appraisal, when it was thought that all triggers for moving ahead with NRIMP-2 would be achieved by the end of 2003 at which time not all civil works could be completed. As it turned out, the triggers were not achieved 100% by the end of 2006 and NRIMP-2 was only appraised in March of 2007 and more realistic target values, matching the financing provided for road upgrading should have been used (about 330 km). The 16% overachievement in the Road Upgrading category was possible because of the Peso devaluation.

Indicator 2 : At least 900 km of paved national roads restored to good condition Value (quantitative or qualitative)

0 km 900 km No formal revisions 721 km (see Annex 2a)

Date achieved 01/21/2000 06/30/2004 3/31/2007


The GoP had to advance the payments to contractors and was only reimbursed once a technical audit was done for the completed preventive maintenance. During the fiscal crisis of 2003-2004, DPWH decided to suspend the Preventive Maintenance Program (PMP) once it had reached the full Peso value of the original project design, despite Bank encouragement to use the allocated contingencies and the foreign exchange savings. Later, when the crisis subsided, DPWH continued with a preventive maintenance program, financed by its own resources, without claiming reimbursement, demonstrating that the PMP program under the project had achieved the desired development impact of putting in place a self-sustaining preventive maintenance approach.

Indicator 3 : Two long-term performance-based contracts covering 231 km awarded in two pilot provinces and cost-benefit analyses completed by 2003


Three contracts bid in two provinces 231 km No revisions 254 km (see Annex 2a)


The project surpassed the appraisal target by 10%.

1 There is some ambiguity in the PAD about the number of km to be upgraded under NRIMP-1. The project description in the main text clearly specifies 528 km for NRIMP-1 out of 2,200 km for the whole program. The Loan Agreement says 530 km. A table in Annex 2 of the PAD (Project Description) shows 532 km. The Project Design Summary in Annex 1 gives as an output for road upgrading of “at least 280 km” to be achieved by 2003. This output target has been used in the PSRs and ISRs to measure project progress. Finally, table A.01 of Annex 6 of the PAD (Procurement and Disbursement Arrangements) shows financing for a number of road upgrading being rolled over into NRIMP-2. According to this table and the corresponding cost estimates, a total of about 330 km should be built under NRIMP-1. The reduced output target probably stems from the fact that the appraisal team had high hopes to accomplish all triggers for Phase 2 by the end of 2003, at which time the civil work contracts would still be ongoing.

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Indicator 4 : Priority Business Improvement Implementation Projects (BIIPs) implemented. Value (quantitative or qualitative)

0/6 process consultancies + 0/5 technology contracts

6/6 process BIIPs + 5/5 technology BIIPs Largely achieved


But see comment under (a) PDO Indicator(s) for indicator 3.

Indicator 5 : New/improved organizational structures and phased implementation plans, including Road Maintenance Authority, are designed and approved at executive level by 2002


Four reform actions required as trigger criterion for NRIMP-2: establishment of road fund; legislation submitted for: fuel levy; for Independent Road Board or similar independent body; for Road Maintenance Authority or similar independent body.

Establishment of Road Fund; legislation submitted for: fuel levy; for Independent Road Board or similar independent body; for Road Maintenance Authority or similar independent body.

Partly achieved


See above comments under Indicator 1 of PDO indicators.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP Actual Disbursements

(US$ millions) 1 05/26/2000 Satisfactory Satisfactory 0.00 2 06/16/2000 Satisfactory Satisfactory 0.00 3 12/15/2000 Satisfactory Satisfactory 6.50 4 06/10/2001 Satisfactory Satisfactory 9.24 5 12/12/2001 Satisfactory Satisfactory 18.55 6 04/05/2002 Satisfactory Satisfactory 22.12 7 09/04/2002 Satisfactory Satisfactory 26.96 8 11/20/2002 Satisfactory Satisfactory 32.62 9 05/05/2003 Satisfactory Satisfactory 50.18

10 12/23/2003 Satisfactory Unsatisfactory 65.82 11 06/30/2004 Satisfactory Unsatisfactory 71.48 12 12/27/2004 Satisfactory Satisfactory 78.85 13 12/29/2004 Satisfactory Satisfactory 78.85 14 06/22/2005 Moderately Satisfactory Moderately Satisfactory 85.20 15 06/29/2006 Moderately Satisfactory Moderately Satisfactory 117.52

H. Restructuring (if any) Not Applicable

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design 1.1 Context at Appraisal After the economic crisis that hit the region in 1997, the Philippine Government projected a steady recovery that would eventually result in an annual GDP growth of four to five percent by the year 2002. To support this target, the Bank’s May 1999 Country Assistance Strategy (CAS) had the overall objective to “restore stronger growth with more poverty reduction and greater equity.” The CAS proposed as main activities a combination of lending, policy advice and technical assistance over the medium-term plan period (1999-2004) to help the country:

a) Address the effects of the crisis and promote economic recovery; b) Enhance human development and social services for the poor; c) Accelerate environmentally sustainable rural development; d) Promote sustainable urban development and combat urban poverty; e) Develop infrastructure, particularly in the provinces; f) Enable expansion of the private sector; and g) Improve governance and transparency and fight corruption.

The National Road Improvement and Management Program (NRIMP) includes three of the above activities (a, e, f, and g) by commercializing the road sector and upgrading/maintaining the National Roads System (NRS). The CAS also stated that transport bottlenecks persist, despite Government support through the Highway Maintenance Project (HMP) and that the highway network, while adequate in size, is of poor quality and inadequately maintained. The main issues affecting the road sector at the time of appraisal can be summarized as follows:

External Pressure. The Department of Public Works and Highways (DPWH) could not follow its mandate to focus on national roads as it was frequently being asked to carry out activities on local roads. A long overdue reclassification of the NRS was being resisted by Congress as it would reduce funding for some of the (local) roads. Resettlement plans were often hampered and some inefficient contractors and consultants were being protected. Institutional Weakness. DPWH skill level had declined noticeably as some of the young bright professionals had moved to the private sector. The agency lacked modern analytical and information tools, which would have allowed the resources to be managed efficiently. As overall planning was inadequate, transport services were poorly integrated. Insufficient Funding. Due to the regional financial crises, the Government budget was reduced by 25 percent in FY98. The DPWH budget was mainly used for recurrent cost and counterpart funds for foreign-assisted projects. The backlog for preventive maintenance was increasing as budgets had covered only about 30 percent of needs.

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Legal Problems. The Government had difficulties in acquiring land for the right-of-way for infrastructure as procedures for resettling both squatters and legal residents were extremely cumbersome. Also, under the legal system, which gave contractors the right to place injunctions, it was difficult to cancel contracts of non-performing contractors and impossible to collect performance bonds. Technical Obstacles. Local consulting and contracting firms that work in the road sector did not have a good performance record, mainly because: (a) procurement activities were managed poorly, especially pre-qualification; (b) licensing was lax, as a result of which inefficient firms were allowed to operate; (c) unit costs were kept artificially low and contractors could not perform adequately; (d) payments were delayed; and (e) quality control, supervision, contract enforcement and financial management were ineffectual. Environment. Although substantial progress had been made in managing the environment, the regulations were not fully enforced, especially for locally funded projects, impeding sustainable development.

Government, through DPWH, had prepared a Long-Term Development Plan (1997-2026) and a Medium-Term Development Plan (1999-2004), during which the Government’s role would be limited to investing only in core infrastructure, establishing regulations and halting monopoly practices. It would also promote sustainability, commercialization, private sector investment in operations and infrastructure, competition in the transport markets, and responsiveness to users. The Medium-Term Development Plan aimed to:

• ensure that the national roads are maintained; • upgrade to all-weather standards the national arterial road network (on 6,000-8,000

km); • commercialize the road sector (creating a Road Authority and Highway Fund); • separate policy making and regulation from operations through institutional reforms;

and • complete the transfer of responsibility for provincial/local roads to local authorities.

As the following Project Development Objectives show, NRIMP, through its three phases, is trying to support the Government’s objectives and to address most of the above sector issues. An Operations Evaluation Department Country Assistance Review, carried out in 1998 concluded that the Bank, with its considerable experience, should remain active in the Philippines transport sector because the sector has strategic importance, and needs public investment and institutional support. Furthermore, as the Bank had participated in formulating the transport sector strategy, it was well prepared to help implement it. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The purpose of National Roads Improvement and Management Project (NRIMP) is to ensure the preservation of an improved national roads system (NRS) in an environmentally, socially and financially sustainable manner. NRIMP will include three phases: design (NRIMP-1),

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initiation (NRIMP-2) and operation (NRIMP-3). NRIMP-1 will (a) prepare detailed designs and phased implementation plan for new organizational structures including an independent organization such as a road maintenance authority (RMA) or equivalent for the national road system (NRS), allowing them to be managed in a commercial fashion; (b) establish a sustainable financing mechanism, such as a road fund or equivalent, dedicated to preserving the national roads, to be funded from road user charges and based on actual level of maintenance needs and road usage; (c) undertake the development and establishment of key business processes and system renewals within the Department of Public Works and Highways (DPWH) and proposed RMA; and (d) upgrade and maintain sections of the NRS at good standards. Key performance indicators for Phase one of the NRIMP as set out in the Project Appraisal Document (PAD) are as follows:

(a) Organizational improvements Policy, planning and service roles with respect to managing the NRS will be defined and assigned to appropriate new or improved organizations, including a road maintenance authority (RMA), which will be established under NRIMP-2 and -3.

(b) Business improvements

Planning road investments. By mid-2002, the economic value of the assessed part of the investment program will have a net present value (NPV) that is greater than 1.2 per unit cost. Managing finances. The time needed to pay contractors is reduced from six months to two months by 2003. Procuring works. By 2003, the time needed to procure foreign-assisted works will be reduced from 300 days to 225. Training staff. By 2003, central office personnel and one staff person from each region and district should be able to prepare training programs. Introducing information technology. By 2003, a satisfactory system supported by IT help desks is operating smoothly. Improving communications. By mid-2003, data within and between central, regional and pilot districts is transmitted in five minutes (instead of five days). Institutionalizing environmental and social concerns. People affected by the project will be compensated according to land acquisition, resettlement and rehabilitation policy satisfactory to the Bank. Also, measures to improve the environment are routinely carried out by contractors working on road maintenance and upgrading. There were also a number of performance triggers before moving to phase two of the Program:

1) A sustainable financing mechanism is designed and established, such as a road fund or

equivalent, dedicated to preserving the NRS; it will be funded by road user charges and based on the actual level of maintenance needs and road use.

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2) Legislation satisfactory to the Bank will be submitted to Congress that would (a) introduce a fuel levy as an added source of revenue to maintain the national roads and introduce adjustment mechanisms which will ensure full cost recovery from road users within five years; (b) establish an independent body, including representatives of road users, that would have spending authority and accountability, to strengthen the administration of the maintenance funds; and (c) establish improved and/or new organizational structures, including an independent body such as a road maintenance authority, to commercialize the management of national roads and separate policy and planning functions in government from service delivery that would be largely privatized. These structures would be introduced according to a staged transition plan.

3) A financial management system applied to DPWH key operations at the central, regional and district levels will be designed and operating.

4) The DPWH EIA-PO will be converted into a permanent office for environmental and social services.

5) 60 percent of the NRIMP-1 loan will be disbursed, according to the loan requirements. The key indicators for the overall program are as follows:

NRIMP Key Indicators End of NRIMP-1

End of NRIMP-2

End of NRIMP-3

Management Effectiveness Performance standards for key NRS management systems (the Business Improvement Implementation Projects, BIIPs) will be achieved at least by:

40% 75% 95%

Financial Sustainability Finances needed to maintain the NRS will be obtained through a sustainable mechanism, such as a road fund, raise through user charges, by at least:

60% 90% 100%

Physical Conditions NRS average road roughness (the International Roughness Index will be used as a measure of client satisfaction) is reduced by:

3% 8% 15%

Environmental and Social Conditions These issues will be integrated in all phases (preparation, implementation and operations) of road upgrading and maintenance projects. Percentage of regional EIA staff who can carry out such functions will be:

50% 80% 100%

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification While there were no formal changes in the PDO, the key indicators used during project implementation were substantially different as the tables under “F. Results Framework Analysis” show. In this respect a formal change in the PDO during implementation should have been considered.

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1.4 Main Beneficiaries Main beneficiaries of NRIMP will be the whole population: (i) road users will reduce the time and money they spend on transport; (ii) better roads will increase access to social services, reduce the cost of products and facilitate commercialization; (iii) efficiency gains (pursued with DPWH) and the new road fund should remove pressure on the budget and contribute to reducing general taxes; and (iv) better technology should increase DPWH staff satisfaction and credibility. There were no revisions to this “primary target group” throughout project implementation. Other financing agencies (ADB, JBIC and JICA), who were kept informed on project progress, are now adopting an approach to road maintenance financing that is similar to the one proposed under NRIMP, relying on the business processes and integrity framework established under the program. 1.5 Original Components (as approved) The project included the following components: A. Civil Works

a) Road Upgrading: about 528 km of national roads would be rehabilitated or upgraded, using international competitive bidding (ICB) at a cost of US$120.0 million. A total of nine contracts were to be awarded;2

b) Preventive Maintenance: about 900 km of the NRS would receive preventive maintenance in the form of asphalt concrete overlays at a cost of US$112.3 million. Procurement would be made under local competitive bidding; and

c) Long-Term Performance-Based Maintenance (LTPBM): Two contracts for 231 km would be let under ICB to test this form of maintenance in the Philippines. Costs were estimated at US$9.9 million. If successful, this would be replicated in phases two and three.

B. Institutional Strengthening

a) Business Improvement Implementation Projects (BIIPs): A total of 43 BIIPs were designed in order to improve DPWH business practices through a major business process re-engineering effort that would focus on customer needs, improved efficiency and effectiveness and the use of information technology. In the Program’s first phase, 16 BIIPs with the highest priority would be carried out. Costs were estimated at US$37 million for the first phase.

b) Policy and Institutional Reforms: the key elements of this component for phase one of the program would be to: (i) create a road fund from user charges to maintain the national roads; (ii) create a Road Board, which would relate revenues to maintenance

2 See footnote 1.

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needs and involve road users to oversee the NRS management and funding; and (iii) design and review an independent organization such as a road maintenance authority (RMA), taking into account DPWH’s regional structure, decentralization, scope of networks and other infrastructure obligations and leaving DPWH with policy making functions only.

c) Support to Commercialization: A Road Maintenance Authority, once created under phase two of the program would approach road rehabilitation and maintenance on a purely commercial basis, involving private local contractors and consultants – which NRIMP would assist to develop – to the greatest extent. Components Bb and Bc were estimated at US$1.5 million.

1.6 Revised Components None of the above project components was revised during project implementation. The mid-term review of July 2002 highlighted the delays in project implementation, but it did not propose any change in project size or composition. However, by the time the Loan was closed, there was some change in scope for the civil works and the institutional reform components. 1.7 Other Significant Changes Road Upgrading: While the PAD and the Loan Agreement show 528 km and 530 km respectively to be upgraded under NRIMP-1, this component is programmatic and table A.01 of the PAD’s Annex 6 shows that although the above length of road will be procured under NRIMP-1, completion will be rolled over into NRIMP-2. According to this table, the money available for road upgrading would finance about 330 km, including roll-over from the previous HMP project and excluding Phase two. The remainder (about 200 km) would be financed under NRIMP-2. The actual length of road upgrading completed at Loan closing was greater, at about 382 km. Of the eight original road sections to be procured, six were completed 100 percent (337 km), one (including three road sub-sections) was partially completed (45 km out of 142 km) with two of the three road sub-sections for the remaining 97 km being considered to be rolled over into NRIMP-2. However during the lengthy preparation of NRIMP-2 it was decided by the Government to use local financing for the above two NRIMP-2 road sub-sections. After the Bank had declared three successive biddings for the remaining two sub-sections as being failures (suspicion of contractors colluding to artificially inflate prices ), the Government decided to take the two subsections out of NRIMP-2 and to consider using local financing for upgrading these two road subsections. Preventive Maintenance: The total length of roads to which preventive maintenance was applied, was reduced from 900 km to 721 km. As the Bank would reimburse the Government only, once a technical audit was completed for the preventive maintenance work done by the contractor, DPWH decided during the 2002-2004 financial crisis to suspend the Preventive Maintenance Program (PMP) once it had reached the full Peso value of the original project design, despite Bank encouragement to use the allocated contingencies and the foreign exchange savings. Later, when the crisis subsided, DPWH continued with a preventive

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maintenance program, financed by its own resources, without claiming reimbursement, demonstrating that the PMP program under the project had achieved the desired development impact of putting in place a self-sustaining preventive maintenance approach. LTPBM: A total of 254 km were maintained instead of the 231 km envisaged at appraisal. Institutional Strengthening: Even though a Road Fund and a Road Board were created, little disbursement was made against this component (US$57,000). Consultants, who were to look into the feasibility of a Road Maintenance Authority, were financed by New Zealand Aid, but the wide-ranging and substantial recommendations contained in their report for implementing the reform agenda were not consistently followed up. A consultant, who was to strengthen the local construction and consulting industry, was hired. The consultant has completed the services and a final report was submitted to the Bank which includes a recommendation for a Development Plan to strengthen the capabilities of the road consulting and contracting sectors in the delivery of their services to improve the road network and to become more competitive in the local and international markets. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Strategic Relevance and Approach: The project’s objectives and its design are fully consistent with the objectives of the 1999 CAS. The selection of an Adaptable Program Loan for this operation was judicious. It afforded the Bank and the Government a long-term view of the development needs of the national road system and the needed institutional reforms. The program’s first phase includes the right project components to eventually meet these needs. While lessons from previous projects had been taken into account, some of the same mishaps occurred: slow procurement, slow disbursement and uneven progress on the institutional side. The Government was fully involved in the preparation of this project and adopted all of its objectives, but repeated changes in Government resulted in the loss of the project’s champions. Other than some sub-components of the Road Information Management Support System (RIMSS) financed by the Asian Development Bank (ADB), the program had no co-financing, despite its size. The question arises as to why there was no more effort by the Government and by the Bank to enlist other donors for the program/project. Such broader collaboration with ADB and the Japan Bank for International Cooperation (JBIC) could have helped to push the policy and institutional change agenda in a more systematic and structured manner.3 Technical, Financial and Economic Aspects: The program’s civil works components, (about 85 percent of total project cost), were conventional highway construction works, and did not present major problems, even though some of the road upgrading is in difficult terrain.

3 It now appears that ADB, JBIC and JICA use NRIMP as a guide for their own financing of the highway sector, although without the benefits of a common approach to promote policy and institutional change.

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The Business Improvements Implementation Projects (BIIPs) are state of the art computerized systems and the capacity of DPWH to implement and later on to use these systems effectively was not sufficiently assessed in the PAD. No alternative, simpler options were considered. A conventional highway cost-benefit analysis was applied to the road upgrading and maintenance components. For the BIIPs a combination of “break-even point” and benefit cost ratio methods was used. These elements cover a total of 96 percent of project cost. The project’s conditions of effectiveness and other credit covenants were realistic and fitting for achieving the project's objectives. The project’s financing plan was consistent with the Philippines economic outlook at the time of appraisal. Poverty, Gender and Social Development: While the project was not particularly focused on poverty and gender issues, the land acquisition, resettlement and rehabilitation policies proposed by the Government and applied under the project were exemplary and were later on adopted by other donors. In addition, Government has developed a policy for “Public Participation and Consultation” to ensure those affected are consulted effectively. Environmental Aspects: The project is contributing to institutionalizing concern for social and environmental issues in the highway sector by strengthening the Environment and Social unit within the DPWH and by promoting a closer relationship between the DPWH and the Department of Environment and Natural Resources. The two departments signed a Memorandum of Agreement (MoA), which defines the roles, procedures and criteria to be evaluated and the screening process to be applied for the highway sector. This MoA satisfies the World Bank guidelines. In addition, all civil works contracts contained clauses that define the environmental requirements to be met during road construction. Fiduciary Aspects: An operational financial management system for project operations satisfactory to the Bank was a condition of loan effectiveness. The procurement arrangements set out in the PAD were detailed and followed Bank guidelines. To strengthen DPWH’s procurement capacity the project included under the BIIPs several modules, which have had a direct impact on the quality of procurement processing. Policy and Institutional Aspects: The PAD contained a well formulated implementation plan that clearly defined the role of each of the Bureaus and services within DPWH for project implementation. Government’s commitment to the project was unambiguously expressed in the Letter of Development Program, signed by DPWH and by the Department of Finance. It is not clear, however, if, at the time, this letter had the broad political support of the Government. Implementation Arrangements: In hindsight, the time frame (of less than four years) for achieving both the implementation of civil works, and the institutional changes was very optimistic, even though the first year’s program was ready for implementation, with tender documents available from the Highway Management Project (HMP). This HMP project, which was similar in size and content took eight and a half years to implement and should

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have served as an example. The time frame may have been seen in the context of the whole program, with some of the project components slipping over into the next phases, but the need for three project extensions proves the point. Arrangements for monitoring and evaluation were satisfactory and both, outcome and output indicators were well covered in the PAD, together with their respective baseline. Risk Assessment: Risks were clearly defined and risk ratings were candid. Some of the risks identified as High or Substantial (Road Right of Way, Budget allocations, procurement) have materialized. Mitigating measures were well designed and well meaning, although the reality proved them to be not sufficiently effective to prevent the risks from occurring.

2.2 Implementation Civil Works Road Upgrading: Although detailed engineering for the project roads had been carried out under the earlier Highway Management Project and some of the civil works were carried over into NRIMP-1, project start-up was slow and by the time of the original Project closing date (6/2004), only 50 percent of the loan was disbursed. The lack of progress in the project’s road upgrading component is mainly due to a slow procurement process and the mis-procurement of several contracts for which the Bank asked the Government to repeat the bidding process. Three contracts were re-bid three times and when the Bank was still not satisfied with the bidding results, the Government decided to remove the three contracts from NRIMP, and to repackage and consider financing the contracts from its own resources. This repackaging led to an incomplete upgrading. A rollover of contracts into NRIMP-2 would have been opportune with the new Anti Corruption and Governance measures in place. In addition, two sections of the Surigao-Davao Coastal Road are only 40 percent and five percent completed respectively, and their financing was considered for NRIMP-2. However due to the lengthy preparation process of NRIMP-2, the Government decided to use local financing instead. For the total length of roads (532 km) to be constructed under the program (NRIMP-1/2), a 13 percent cost overrun is estimated (see Annex 2.c), mainly caused by the roads that are now being financed by the Government. While NRIMP-1 provided finance for only about 330 km, a total of 382 km were upgraded, and were mainly financed from foreign exchange savings and the reduced output of preventive maintenance. Preventive Maintenance: Implementation of the Preventive Maintenance Program was in line with appraisal expectations, even though there were a number of difficulties, in particular with respect to the payment of contractors. The Bank would reimburse the Government for payments made, only after the works had undergone an independent technical audit. During the 2002-2004 fiscal crises the Government had to stop the program, but resumed it later on, financing it from its own resources. Costs for the achieved road length (721 km) are about 15 percent less than estimated, but the road length treated is also about 23 percent less than estimated at appraisal (900 km). LTPBM: After start-up problems (the prequalification documents had to be adjusted and the contractor prequalification process had to be repeated) implementation was completed by November 2005 with per km costs more than double the appraisal estimates.

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Cost of Civil Works: Both DPWH and the Bank have been criticized in particular by the National Economic Development Authority (NEDA) for the cost overruns incurred during implementation of the project’s civil works. Some of the criticism is justified, e.g. the number and size of variation orders, mainly caused by the excessive delays in the bidding process, during which the condition of the roads continued to deteriorate and therefore needed an adjustment in the detailed engineering. Other variation orders were necessary to repair damage done by inclement weather (typhoons Igme, Horurot on Halsema Highway) for which DPWH cannot be held accountable. Foreign Currency Adjustments are likewise outside the purview of DPWH. Also, the ABC (Approved Budget for Contract) does not include the cost of consultancy services to supervise construction and should not be added to the civil works contract to show cost overruns. Actually, as compared to the appraisal estimates, including contingencies, the project shows no total cost overruns at loan closing, with the qualification, however, that preventive maintenance was performed on 180 km less, counterbalanced by an increase of about 52 km for road upgrading and 23 km for LTPBM. (see Annex 1, Project Cost). Institutional Strengthening Business Improvement Implementation Projects (BIIPs): The completion ratio for the 16 BIIPs included in NRIMP-1 is close to 80 percent. The more important business areas such as Planning, Financial Management and Information Management are completed, are operational and are being used. What is still needed is a full integration of the different modules. Also, the application of some of the other support systems has to be institutionalized and put into operation before their impact can be realized. There is still quite some work to be done under NRIMP-2 and NRIMP-3 to implement the applications in all regional and a majority of district offices of DPWH, including the expansion of the communications networks and computerization, to bring the Road Information and Management Support Systems to full fruition. Total costs are about seven percent higher than appraisal estimates. Policy and Institutional Reform: Early on in the project (February 2001), the Road Fund was enacted. An executive Director to the Road Board was appointed in December 2003, but in October 2004 replaced by an appointee of the President. With the three private sector representatives nominated by the Secretaries of Department of Transport and DPWH and needing approval by the President, the Road Board is clearly not independent. The Road Board is subject to political pressures, resulting for example in the use of the Road Fund to finance employment generation programs, which were significantly more expensive than competitive procurement of the required services by contract. Two major TAs which would have improved performance of the Road Board and advanced the organizational reform were delayed and finally not procured, due to World Bank concerns over distortion and possible collusion in the bidding process, which were not resolved by DPWH. The Road Fund’s revenues from motor vehicle user charges were supposed to be in addition to the regular budget resources allocated for road maintenance, however due to budgetary constraints no regular budget funds were released. Therefore, expenditures for road maintenance over the last years were only about 40 percent of actual needs.

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Little progress has been made in the creation of a Road Management Authority (RMA),4 which, although fully designed was never introduced for legislation. Two reform areas that were not undertaken in Phase 1 include the institution of a fuel levy and the introduction of legislation to establish a RMA that would manage the road system on a corporate basis. Both were considered politically inopportune, largely as an issue of timing. The development of some fuel-based revenue (which is the most efficient and progressive form of cost recovery-based road user change because it increases with increasing travel and use or ‘consumption’ of the network assets and energy resources) is again under consideration and will be supported under NRIMP-2. The RMA preparation was completed satisfactorily and establishment of an RMA is included in the official Medium Term Philippine Development Plan (MTPDP) – however broader concerns are emerging on the performance of government-owned corporations and on the suitability of this model in the current governance environment. As an alternative to the RMA, DPWH prepared a Rationalization Plan together with a draft executive order for “Rationalizing the Department of Public Works and Highways, and for other Purposes.” Once enacted, this could be considered as a first small step in the direction of an independent RMA. Little use was made of the funds (US$1.5 million) allocated to this category. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization At the time the Project Appraisal Document was written, results frameworks and M&E were at an early stage of development in Bank projects. Nevertheless, the PAD in its Project Design Summary (Annex 1) included a useful list of project objectives (program purpose) and key performance indicators, providing output and outcome-oriented information for management decision-making and program improvement purposes. The Project Status Reports (PSRs) use some 32 outcome and output indicators to report progress against stated targets, albeit in a rather mechanistic way. With the arrival of the ISR in 2005, the table of agreed outcome indicators was simplified, using a total of 3 PDO indicators and five intermediate outcome indicators and presented in a more meaningful format (see F. Results Framework Analysis). The table of key indicators (PAD-Table 1), which would have measured progress for the overall program, was unfortunately not used during project implementation and never mentioned again, probably because of difficulties in quantifying the outcome.

4 During project implementation the name of the Road Maintenance Authority was changed to Road Management Authority. It should be mentioned that some progress was made in two consultancies – first on institutional and organizational options, and the second (funded in the end by NZAID) in detailing the preferred option and holding consultations to help finalize and implement it.

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Quarterly progress reports prepared by DPWH were thorough, comprehensive and on time, using project management techniques to track progress of various civil works and IT activities. Each component included a statement of target outcome and output indicators (where relevant) and a description of progress towards deliverables, implementation of management improvement systems and recommendations for improving each component. 2.4 Safeguard and Fiduciary Compliance The Bank’s proactive approach in handling corruption issues in the procurement process is commendable (scrutinizing carefully all contract awards, rejecting award of contract three times on three bids where there was suspicion of contractor collusion, and preparing a note on governance issues in the Philippines). The project’s financial management aspects have a somewhat uneven past with ratings going from satisfactory to unsatisfactory and back, mainly due to staffing problems causing accounting errors and delayed submission of audit reports. The final supervision report (ISR-15) gives financial management a moderately satisfactory rating. However, during the NRIMP-2 processing, the Financial management systems in the Department are still being rated as High risk. Therefore NRIMP-1 did not address fully the FM weaknesses in the Department. With respect to legal aspects, the Government has adhered well to the project conditionality, with the exception of the maintenance budget, which by this time was supposed to cover at least 60 percent of routine, periodic and preventive maintenance. For 2006 only about 40 percent were covered. For 2007 the Government has added PhP4 billion from the regular budget to the PhP7 billion available in the Road Fund, bringing the total maintenance budget to about 60 percent of maintenance needs. The Environment and Social Unit within DPWH is working well and has received a satisfactory rating throughout project implementation.

2.5 Post-completion Operation/Next Phase The second phase of the National Road Improvement and Management Program builds further on the achievements and mitigates the shortcomings of its first phase. NRIMP-2 continues to finance road upgrading, preventive maintenance and long-term performance based maintenance, and gives sustained attention to institutional and capacity development. While civil works, with a total cost of US$519 million, make the bulk of the project, the US$54 million the project proposes to spend on institutional and capacity development will be particularly useful to consolidate the achievements of the BIIPs. It will do so by institutionalizing and implementing in regional and district offices the planning tools and financial management applications designed and piloted under NRIMP-1. Phase 2 will also help in upgrading and modernizing the corporate structure of DPWH through (i) the restructuring of corporate processes; (ii) the development of multi-stakeholder partnerships of road users and non-governmental organizations for oversight of the road sector; (iii) a pilot trial of options for commercializing the current operations of district engineering offices; and (iv) the support to strengthen the fiduciary integrity of project implementation. Finally, further efforts will be made to strengthen the Road Board, updating its mandate, to review road cost recovery and to revisit options for restructuring the management and delivery of services in the sector.

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A positive outcome of NRIMP-1 implementation; and the preparation of NRIMP-2 is the cooperation of the NGO Bantay Lansangan (BL – Road Watch) and DPWH, who are now working together to produce a Philippine Road Sector (PRS) Report Card. The structure, format, and specific indicators to be used for the Road Sector Report Card will be developed jointly by BL and DPWH. They will also closely monitor and evaluate the process and outputs of the consultancy in producing the Report Card thereby shedding light on gaps and inconsistencies in the Department’s data, where needed. This could be an important step towards making DPWH a transparent, user responsive, and efficient public sector agency. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The main objective of the National Roads Improvement and Management Program is “to ensure the preservation of an improved national roads system in an environmentally, socially and financially sustainable manner.” This objective is still highly relevant to the current country and Bank assistance strategy. With a four to six percent annual traffic growth, congestion of major arteries, widespread poor condition of roads and bridges, and the lack of a sustainable road safety strategy, the need for an improved national road system remains unabated. Inadequate infrastructure, especially roads, is perceived as one of the major constraints to investment and subsequently to economic growth, as indicated in the Bank’s 2005 infrastructure policy study for the Philippines. As an archipelago, transport is critical to the national economy of the Philippines. The country’s transport system is based on roads and inter-island shipping – the two modes account for almost all freight and passenger traffic. Giving DPWH the tools (BIIPs) to become a more cost effective and efficient agency in fulfilling its mandate also continues to be of the utmost importance.

3.2 Achievement of Project Development Objectives The project provided the framework for the “preservation of an improved national road system” through road upgrading, preventive maintenance and long-term performance based maintenance. While this was done in an “environmentally and socially sustainable manner,” the financial sustainability was off the target at the end of the project as, with the exception of 2007 when additional budget resources were made available, maintenance funds covered only 40 percent of maintenance needs. If one goes back to the PAD’s original key performance indicators, the following picture arises:

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NRIMP Key Indicators End of NRIMP-1 Target

End of NRIMP-1 Actual5

Management Effectiveness Performance standards for key NRS management systems (the Business Improvement Implementation Projects, BIIPs) will be achieved at least by:

40% 30%

Financial Sustainability Finances needed to maintain the NRS will be obtained through a sustainable mechanism, such as a road fund, raised through user charges, by at least:

60% 40%

Physical Conditions NRS average road roughness (the International Roughness Index will be used as a measure of client satisfaction) is reduced by:

3% 2%

Environmental and Social Conditions These issues will be integrated in all phases (preparation, implementation and operations) of road upgrading and maintenance projects. Percentage of regional EIA staff who can carry out such functions will be:

50% 40%

Management effectiveness: This indicator does not address the institutional reforms but only the Business Improvement Implementation Projects. Cost and time overruns were systemic in NRIMP-1 and have to reduced through improved procurement and contract management. Also within the NRIMP-1 implementation serious weaknesses in procurement and financial management/internal control were identified. Addressing these weaknesses will be the core of the reform program under NRIMP-2. Financial Sustainability: With the budget situation having improved over the last year, there is a reasonably good chance that this target will be met in 2008. However decisions over the utilization of funds are still being questioned due to the lack of independence of the Road Board. Satisfactory utilization of funds is critical to establishing confidence in Road Fund Mechanism and Sector Reform, which was not achieved in NRIMP-1. Physical Conditions: While there has been some improvement of the physical condition of the national road network, other road sections may have deteriorated because of the lack of maintenance caused by the budget shortfall. Environmental and Social Conditions: Not enough training has taken place to increase the capacity of regional EIA staff to deal with environmental and social issues in all phases of road upgrading and maintenance. By now the Environmental and Social Service Office (ESSO) has 19 staff at headquarters and 16 regional staff, and it is expected that once the rationalization plan of DPWH gives this office the appropriate importance and status, it will be possible for ESSO (or Environmental, Social and Right-of-Way Office [ESRO], as it will be called after the DPWH rationalization) to meet this target and those of the following phases.

5 These are by no means precise figures, but give a rather subjective judgment on present achievements.

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3.3 Efficiency The combined and weighted economic rate of return for civil works completed under NRIMP-1 is in the order of 47 percent. If all project roads, completed, under construction or not even started are taken into account, with estimates for the final cost, the ERR is closer to 40 percent. The following table shows the breakdown for the different project components, using post construction evaluations made by DPWH and NEDA and comparing them to the appraisal estimates: Weighted ERR (%) Component Appraisal DPWH NEDA

Year 2000 2005 2006 Road Upgrading As appraised (532 km) Actual (392 km)

23.2 25.3

25.8 27.8

23.4 26.5

Preventive Maintenance >126 >80 LTPBM >12 >15 All three evaluations for the road upgrading were based on conventional cost-benefit analysis that quantifies benefits mainly from savings in vehicle operating and road maintenance cost. The results are very close to the appraisal estimate. Any increase in construction costs was more than compensated for by higher than estimated traffic growth. Variations in the rate of return among the different evaluations mainly stem from a difference in final cost estimates. For the preventive maintenance the evaluation was established through a simplified way of calculating the rate of return for a specified surface treatment using the number of vehicles per day (2006 traffic counts) as the main parameter. The rate of return for the LTPBM was also based on a conventional cost benefit analysis. A more detailed breakdown for the road upgrading is given in Annex 3. For the Business Improvement Implementation Project it is too early to carry out an economic evaluation, using a combination of break-even points and benefit-cost ratio as proposed in the PAD, because many of the modules are not yet fully operational and used according to their purpose. This is in itself a major shortcoming, however, the fact that the actual cost came in close to the appraisal estimates makes the assumptions made at appraisal still valid, provided the BIIPs are being fully used within DPWH.

3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory

Despite a three-year extension of the loan closing date, the project did not fully achieve all project development objectives. However, it exceeded two of the three physical targets it had

6 For preventive maintenance and the LTPBM, the Project Appraisal Document only sets the minimum threshold traffic for which an economic rate of return of >12 percent can be achieved.

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set itself for the end of NRIMP-1. Successfully completed project elements yielded a high rate of return, but the lack of progress made on the policy and institutional front and the slow pace of implementation of physical works lead to the moderately satisfactory rating. The project’s main merit is that it laid a solid foundation for the remaining NRIM Program to further improve the Philippines’ national road network, its sector policy and its sector institutions. However the major shortcoming and lessons of phase 1 need to be addressed effectively and need to combined with a strong commitment from the Government: (i) Cost and time overruns need to be reduced through improved procurement and contract management, (ii) Confidence in Road Fund Mechanism and Sector reform needs to be built through demonstrated satisfactory utilization of funds and corresponding reforms at the organizational level in order to be sustainable, (iii) Modernization of technical and business processes requires corresponding reforms at the organizational level in order to be sustainable (iv). Restructuring at the sector level requires broad-based, strong client ownership, and (v) Corruption is heavily influenced by both internal and external environments, and thus remedial measures need to be comprehensive and targets must be realistic. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The project was not designed explicitly to cover poverty impact, gender aspects or social development. However, because of its wide target population, the project’s outcome will benefit the poor by reducing time and money they spend on transport, by lowering the cost of products and by providing better access to social services. (b) Institutional Change/Strengthening The project’s RIMSS and the various business processes have many elements that will have a significant impact on the longer-term capacity of DPWH. Some of the areas of improvement are:

• Procurement; • Financial Management; • Communications and Staff Quality; • Standardization of Contract Documents; • Efficiency of Maintenance Operations; • Planning Procedures; • Pavement and Bridge Management; and • Improved Quality and Extended Pavement Life.

The RIMSS and the various business processes are a complex undertaking and DPWH has been overwhelmed by the different modules and new systems, leading the Secretary of DPWH to comment that “we are literally biting more than we can chew.” It will be a steep learning process for DPWH staff, but once mastered, the benefits and impact will be substantial. This is clearly demonstrated by the modules for Financial Management and Planning, which are already being fully used. The continued attention to the BIIP under

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NRIMP-2 will help to consolidate and institutionalize the achievements made so far. However, the modernization of technical and business processes will require corresponding reforms at the organizational level (e.g., rationalization of DPWH) in order to be sustainable. The sustainability of the introduced business systems and applications is at this point still questionable . The proposed rationalization of DPWH – if carried through – could have a positive impact on institutional development, in particular, if it is seen as a first step towards an autonomous Road Management Authority. (c) Other Unintended Outcomes and Impacts (positive or negative) Not applicable.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops There was no stakeholder workshop or beneficiary survey, but an interview with the Presidents of the Trucker and Jeepneys Associations revealed, that they and most of their members did not think that the national road network has much improved over the last seven years, which is not surprising as it would be rather difficult to feel a two or three percent reduction in road roughness. They appreciate the efforts made under the project, but felt that in the meantime other roads had deteriorated because of lack of maintenance, caused by the lack of funds available.

4. Assessment of Risk to Development Outcome Rating: High The risk to development outcome for the first phase of this program can be rated as High. First, the government’s chronic under-spending for road maintenance has the potential to undercut the gains made through the upgrading of the national road network. In particular roads, such as the Halsema Highway, which are in difficult and unstable terrain, might rapidly deteriorate if they do not receive continual attention. The lack of preventive maintenance would also lead to an increase in road roughness in the network. However the budgets for FY 07 and 08 include substantial increases in allocations in Road Maintenance. It is becoming clear that the Government has become aware of the importance of maintaining the roads on a continuous basis. Second, the systems and programs installed for the BIIPs might become obsolete if staff training and system maintenance are scaled back and full institutionalization does not materialize. The continuous dialogue between the Bank and Government through this Adaptable Program Loan on all matters pertaining to road maintenance and road maintenance financing and the uninterrupted involvement of Bank and Government in the BIIPs could mitigate the above

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risks and reduce them from a High to a Substantial level, which would be consistent with the risk assessment made for NRIMP-2. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory As described under 2.1, the Bank did a fair job in designing the program. However it can be said that the Bank should have been more aware during the design phase that the program was overoptimistic with respect to the scope of achievable policy and institutional changes and the timeframe to implement them. However, at the time of appraisal the conditions seemed to be right to bring about rapid change. The Government’s Letter of Development Program confirmed the goals of the project and an enthusiastic project champion appeared to guarantee a rapid project implementation. When the champion moved on, the pace of project implementation slowed down to the speed of its predecessor, the Highway Management Project, which took eight years to completion. The choice of an Adaptable Program Loan for this operation was judicious, giving the Bank and the Government the possibility to adapt project execution to changing conditions, while retaining their engagement and the longer term goals of the program. (b) Quality of Supervision Rating: Satisfactory A full Quality of Supervision Assessment (QSA) was carried out by QAG in October of 2002 (QSA5), shortly after the project’s mid-term review. It concluded that the Bank’s supervision activities were overall satisfactory (2). If an assessment were carried out today it would come to a similar conclusion except for the lack of progress in policy and institutional development. The October 2002 QSA had already pointed out that: “If there continues to be slow progress in the reform of road management and if problems in the operation as envisaged of the Road Fund continue, it will be necessary to eventually convey a strong message that the Bank’s ability to continue to provide support to the sector is being placed in jeopardy.” In the meantime progress in the reform of road management continued to be slow and problems in the operation of the Road Fund to persist. Government’s diminished commitment to policy reform at the political level has caused the Bank to design a more incremental approach in NRIMP-2, keeping the creation of an independent Road Management Authority and the introduction of a fuel levy as a long-term objective. The question arises, whether the Bank could have exerted more pressure at high government levels during the early stages of the project, when there was still some receptivity for policy and institutional change. The supervision process can be questioned for not responding adequately to the emerging situation. A more pro-active supervision could have made a difference and could have drawn high level attention to this major shortcoming.

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Staff continuity, skill mix and involvement of the country office were exemplary. The main team members have been with the project since its inception, the supervision staff covered all project aspects (perhaps with the exception of transport economics) and three part-time resident staff supported project supervision. There was thorough supervision of the project with sensible intervals between the missions, with clear Aide memoirs and management letters, which highlight the key issues and actions to be taken. The supervision team deserves to be commended for the attention paid to procurement matters. In 2003, the Bank’s supervision identified signs of bid-rigging in the procurement of two road contracts and rejected award of the contracts. Two further rounds of bidding in 2004 and 2006 revealed similar signs, and were also rejected and referred to the Department of Institutional Integrity (INT) in 2003. INT concluded an investigation in 2007 and found that a cartel of contractors had engaged in corrupt and collusive practices in all three rounds of bidding, undermining competition in road construction and inflating prices by up to 30 percent. These findings were disclosed to the Government in November 2007. The INT findings were crucial in designing mitigating measures for Phase 2. The relationship with the Borrower was excellent on the working level, but could have been better with the leadership of DPWH, the Road Board7 and the political level of Government. The 2002 QSA had already recommended that key issues should be elevated to the level of the Country Director. In addition, the supervision reports should have been shared with higher levels in Governments and having not done so effectively proved to be a missed opportunity. The Bank budget for this complex project was on the low side (on average about US$80,000), but the supervision team used the available resources well and was able to stay within budget most of the years. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory The moderately satisfactory rating is mainly based on the premise that the Bank was too optimistic in setting the time-frame for the implementation of civil works and policy and institutional changes. Furthermore, it did not follow through on the proposed trigger targets for NRIMP-1, which was confirmed by the Government in its Letter of Development Program, and it did not exert sufficient pressure to bring about policy and institutional changes. It is somewhat reassuring that both, the Government and the Bank still have the creation of the Road Management Authority and the introduction of a fuel levy on the policy agenda, albeit as a long-term objective.

5.2 Borrower Performance (a) Government Performance Rating: Moderately Unsatisfactory

7 Lately, the relationship with DPWH leadership and the Road Board has significantly improved.

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The Government did not adhere to the proposals it had set out in its Letter of Development Program in particular with respect to the policy and institutional aspects. On the budgetary front, the Government did not consistently release the necessary funds to DPWH, delaying payments to contractors for up to 12 months. (It has to be acknowledged though, that the Government went through a fiscal crisis during project implementation, making it difficult to provide the necessary counterpart funds). The politically motivated personnel changes that occurred at the top level of DPWH were detrimental to project implementation, as was political interference at the central and provincial level which delayed procurement decisions and project execution. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The targets for civil works proposed for NRIMP-1 were partly achieved, in particular with respect to timeliness. Reasons for partial achievement were the excessive delays between the start of the procurement process (procurement notice) and the award of contract, often taking more than two years. These delays in turn caused project cost overruns, as the condition of the project roads had further deteriorated and the detailed engineering was no longer up to date and valid. For consultancies, excessive delays were caused by the introduction of a pre-clearance process, which doubled the time for approvals. Also, the two TAs crucial to the support of the Policy and Institutional reform were never selected (the Bank rejected the evaluations due to evidence of collusion and distortion which were not resolved), compounding the drop in dialog and progress on the crucial reform objectives. Financial management had to be rated unsatisfactory for some time during project implementation, mainly due to weak internal controls that affected accountability, weak support for the proper performance of the Internal Audit function, and the delayed submission of financial statements for audit which resulted in delayed audit reports. In addition to slow processing of payments to contractors, there was slow submission of reimbursement requests to the Bank. The rating for financial management returned to moderately satisfactory at the end of the project, once DPWH had improved its performance. Although the audit report of 2006 has indicated that the Financial Management systems and Internal Audit function of DPWH remain weak and vulnerable, in phase 2 of NRIMP the leadership of DPWH is committed to correct the deficiencies and address the weaknesses in Financial Management and the Internal Audit function in the next phase of NRIMP; which has led to the Moderately Satisfactory rating. The handling of the project’s social and environmental aspects has been satisfactory throughout project implementation. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory More weight was given to the Government performance, resulting in the Moderately Unsatisfactory rating. The failure of the Government to adhere to the proposals in its Letter of

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Development Program, in particular with respect to the policy and institutional reforms, is a significant shortcoming and leads to the less favorable overall rating. 6. Lessons Learned

i. Cost and time overruns need to be reduced through improved procurement and contract management: In the project’s civil works components there were significant internal delays in the procurement process and completion which resulted in frequent quantity, time and cost increases. The pre-qualification process for major civil works should be tightened to prevent substandard contractors from being selected. While contract administration has improved lately, the application of penalties remains uneven. Payment processing improved but untimely release of funds resulted in payment delays to some contractors, and poor cash flow contributed to delays in execution of works. A lengthy approval process for variation orders and supplemental agreements, which was intended to tighten control over cost increases, contributed to the delays. The more checks and balances that are introduced, the greater the chance for irregularities and diffusion of accountability.

ii. The Public’s Acceptance of Road User Charges and confidence in the Road Fund must be earned by the satisfactory utilization of Funds applied in a consistent and transparent manner: Political influence and entitlement in the allocation and utilization of funds is detrimental to the public’s perception of the Fund’s usefulness. Utilization must adhere to the core principles and thus costly employment generation programs have no place in Road Fund financing. Distribution of funds for road maintenance should be on strictly technical criteria, to be worked out between DPWH and the Road Board with appropriate review and oversight.

iii. Modernization of technical and business processes requires corresponding reforms at the organizational level in order to be sustainable: While the development of improved planning, financial management and other processes was successful under the project, the new tools are not yet fully understood and utilized across the agency. The substantial operation and maintenance costs of information technology are also emerging. The Department has undertaken several strategic reassessment exercises across the agency to identify the areas of disconnect between the new business processes and the existing corporate culture. The findings point to the need for a corporate audit, to reexamine the core functions, the organization, capacity and staffing, given the new business systems and processes in place.

iv. Policy change and restructuring at the sector level requires broad-based, strong client ownership at all levels of Government: Despite the early support of top management, who set the original reform agenda, the subsequent leadership lacked effective champions of reform and the original targets of the proposed policy and institutional changes were put on hold. These targets (fuel levy and Road Management Authority) are still valid, and both the Bank and the Government should continue to aim at their attainment.

v. Governance issues and corruption are heavily influenced by both internal and external environments, so remedial measures need to be comprehensive and targets realistic: Corruption is a major issue in the sector, ranking as one of the worst in the country. Experience under the project shows that, while many improvements had been made in

22

procurement processes internally and through project controls, vulnerabilities remained in the evaluation and approval processes. External pressures limited competition in the industry and resulted in prevalent over-pricing. Resistance to reforms and weak decision-making were often found to be linked with external and political influences. Financial audit findings pointed to numerous internal control weaknesses. Design of a successor Project has to face this wide range of vulnerabilities and strike a workable balance between seeking sustainable systemic change and a narrower ring-fencing of the project.

vi. Project design needs to minimize opportunities/incentives for collusion/corruption: It may be useful to institute ad hoc technical audits by internationally accredited consultants, who would verify quantities, sub-base and base compaction ratios and their thickness, as well as the thickness and quality of pavements for selected projects.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies (b) Cofinanciers (c) Other partners and stakeholders

23

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$ million equivalent)

Components Appraisal Estimate (US$ millions)8

Actual/Latest Estimate

(US$ millions)9

Percentage of Appraisal

ROAD UPGRADING 143.26 145.32 101.45 PREVENTIVE MAINTENANCE 112.29 99.53 88.59 LONG-TERM PERFORMANCE BASED MAINTENANCE 9.96 20.65 207.33

BUSINESS IMPROVEMENT IMPLEMENTATION PROJECTS (BIIP)

36.95 39.50 106.90

POLICY AND INSTITUTIONAL REFORMS 1.47 0.06 4.08

Total Project Costs 303.93 305.06 100.37

Project Preparation Fund 0.00 0.00 .00 Front-end fee IBRD 1.50 1.50 100.00

Total Financing Required 305.43 306.56 100.37

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(US$ millions)

Actual/Latest Estimate

(US$ millions)

Percentage of Appraisal

Borrower 155.42 172.8 111.13

International Bank for Reconstruction and Development 150.00 133.310 88.87

8 Including contingencies. 9 At the time of loan closing (3/31/2007) and at appraisal exchange rate of US$1.00 = PhP40.00, including

contingencies, consultant services, land acquisition and implementing agency expenses. 10 As of May 31, 2007: US$133.3 million disbursed. It is not clear from the documents, why there is this

shortfall of disbursements, when disbursement rates have been raised from 50 and 45 percent for Categories one and two of civil works respectively to 80 percent for civil works in June of 2005 and total project cost are close to the appraisal estimate (under investigation by Government).

24

Annex 2a. Outputs by Component –Civil Works

Component Description Output Comments

Appraisal km

Actual at Loan Closing

km

1) Halsema Highway (La Trinidad-

Mt.Data) 85 84.8 100% complete

2) Zamboanga-Pagadian Road (Buug-

Kabasalan) 43 48.3 100% complete

3) Davao-Bukidnon Road (Calinan-Buda) 46 46.2 100% complete

4) Surigao-Davao Coastal Road 142

a) Jct. Bacuag-Claver Section 5.2 27% complete, rest will be rolled over into NRIMP-2

b) Marihatag-Barobo & Hinatuan Bislig Section 0 To be financed by GoP

because of bidding-failure

c) Manay-Mati Section 40.0

67% complete, rest will be rolled over into NRIMP-2

5) Malalag-Malita Road

46 52.6 100% complete

6a) Kabankalan-Basay Road (Hinobaan Basay) 39 0 To be financed by GoP

because of bidding failure 6b) San Enrique-Vallehermoso Road (La

Castellana-Negros O.)

26 0 To be financed by GoP because of bidding failure

7) Maramag-Kibawe-Kabacan Road (Pinamaloy-Damulog Section) 46 46.1 100% complete

8) Davao-Bukidnon Road (Buda-Maramag

Section) 59 59.1 100% complete

Road Upgrading

Total 532 382.3

CY 2000 Program 99.8 CY 2001 Program 310.0 CY 2002 Program 308.0 CY 2003 Program

900

3.5 Preventive

Maintenance

Total 900 721.3

100% complete

Long-Term Performance

Based Maintenance

Total 231 254 100% complete

25

Annex 2b. Outputs by Component –Business Improvement Implementation Planning (BIIP)

Activity Completion

Status (%)11 Comments

B.1 Improve Planning Capacity B.1.1 Establish Network Planning and Multi-Year Programming (MYPS) 90

Program established, covering about 70% of investments. Although the contract (C01) is completed, DPWH is still working to fully institutionalize the MYPS for Multi-Year Programming and Scheduling. In the meantime DPWH is using the Pavement Management System (PMS/HDM4) for planning purposes.

B.1.2 Establish System to collect Road and Bridge Information

90

The Road and Bridge Information System (Contract C02a for RBIA and C02b/c for specialized data collection) have been implemented and the regular data collection is still being institutionalized in the DPWH. The system still has to be optimized and “fully institutionalized for updates” and part of this (software performance improvements) is contingent upon the DPWH finalizing the software maintenance agreement with the software supplier. Specialized surveys and operational expenses for in-house data collection for road and bridges are included in NRIMP-2.

B.1.3 Improve Traffic information Collection and Analysis System

90

The Traffic Information and Analysis System was implemented (Contract C01) and traffic counting devices were purchased and installed (Contract C02c/d). Institutionalization of the traffic counts and application are on-going. Assistance with funds for data collection is planned for NRIMP-2.

B.2 Improve Building Process B.2.1 Develop Project and Contract Management System 0

Cancelled. Originally part of the C03 project with AASHTO but subsequently deleted from scope during a contract amendment related to an extension of time.

B.2.2 Strengthen Environmental and Social Management Capacity and Improve Land Acquisition Process

100

To further reduce RAP implementation and compensation approval from 24 months to 12 months. System piloted in Region III and the NCR. Furthermore, a Social and Environmental Management System (SEMS) manual was prepared, as well as the Land Acquisition and Resettlement Action Plan (LAPRAP) procedures manual. All Regions were trained. A new Infrastructure Right of Way (IROW) procedures manual was also prepared. (Part of Contact C05). A computerized application for IROW was developed (part of C04 contract and MIS).

11 While in many cases the software and the systems have been installed and are functional, this does not mean that the modules are fully operational and used by DPWH staff. For many modules additional training and institutionalization is needed during the implementation of the remainder of the program (NRIMP-2 and NRIMP-3).

26

B.3 Improve Financial Management B.3.1 Develop and Establish Financial Management System

90

e-NGAS developed by Commission on Audit (COA) with DPWH taking the lead. So far implemented in Central Office and Regional Offices. All modules are not yet developed and should be implemented as COA completes them, e.g. Project Monitoring Module. Implementation of e-Budget has also started in the Central Office. Anticipated to be continued in NRIMP-2.

B.3.2 Streamline Contractor and Billing Process 80 Needs institutionalization

B.3.3 Eliminate Outstanding Account Balances and Enhance Internal Audit Procedures

90 Needs institutionalization

B.4 Improve Human Resource Management 40 Apparently not further pursued.

B.5 Improve Information Management B.5.1 Establish Automated Information System 80 CO, all ROs & 53 of about 170 District Engineering Offices

are connected through a wide area network intranet. B.5.2 Provide Information Technology Equipment 80

Most core business processes are supported, but there are still some gaps, as for example, construction and design and internal audit were not covered.

B.5.3 Establish Information Technology Support System 80

The IT department has about 135 staff. However about 70 percent of staff is not up to the job, because of new technology. Department needs full complement of competent staff.

B.6 Improve Procurement Management B.6.1 Streamline Contract Preparation and Complete Standardization of Procurement Documents

70

Needs further work under NRIMP-2. An update to the contract preparation system prepared under HMP was included in Contract C03 AASHTO. The Department, through GPPB, has a Department Specific Procurement Manual for Civil Works, which has been harmonized between WB, ADB, and JICA. Originally, this was to include Civil Works, Supplies/Materials, and Consultants. However, there was a failed bid before negotiating a sole source with AASHTO, which only included Civil Works.

B.6.2 Enhance Bidding and Award Process

80

Contract awards for ICB and Consultancies still take 16 months on average. For NCB 8 months. EO Program target would be 10 months for ICB, 6 months for consultancies, and 4 months for NCB. Same as B.6.1. This was to cover everything, but then there was a failed bid and C03 scope only included Civil Works.

B.7 Support Institutional Development B.7.1 Develop Performance Indicators

90

Completed (Contract C04 with each BIIP expanding process indicators for their respective areas). A Department Order has been issued and these are available (where electronic form exists) in the Executive Information System for monitoring by the ExCOM. ExIS should be expanded as further KPIs come on-line.

B.7.2 Coordinate Development and Implementation of BIIPs 90 Contract completed, but effort will be continued under

NRIMP-2

27

Annex 2b. (continued) Reconciliation of BIIP activities as Appraised with Actual

Activity BIIP ID Contract Package Comments

B.1 Improve Planning Capacity B.1.1 Establish Network Planning and Multi-Year Programming (MYPS) PLAN1 C01

B.1.2 Establish System to collect Road and Bridge Information PLAN6 C07 Moved from NRIMP-1 to ADB 6th Roads as C07

B.1.3 Improve Traffic information Collection and Analysis System PLAN7 C01

B.2 Improve Building Process B.2.1 Develop Project and Contract Management System MGMT1 C03 Deleted from C03 in 2006

B.2.2 Strengthen Environmental and Social Management Capacity and Improve Land Acquisition Process

ROW1 C05 (C04/MIS)

Originally Computer application not included. Subsequently added for C04/MIS.

B.3 Improve Financial Management B.3.1 Develop and Establish Financial Management System FM1 E05

(C04/COA) Procurement cancelled by COA. Application developed by COA with assistance provided by C04.

B.3.2 Streamline Contractor and Billing Process FM5 E05

(C04) Procurement cancelled by COA. Application developed by COA with assistance provided by C04.

B.3.3 Eliminate Outstanding Account Balances and Enhance Internal Audit Procedures FM4 E05

Deleted from scope of E05 during procurement because of concerns expressed by bidders. Procurement subsequently cancelled by COA. Assistance provided by C04.

B.4 Improve Human Resource Management HR4 C04

B.5 Improve Information Management B.5.1 Establish Automated Information System IM3 E01 Regions and pilot Districts with some other offices

added. B.5.2 Provide Information Technology Equipment IM9 C02a-d/DPWH Split into various contracts with some data being carried

out by DPWH B.5.3 Establish Information Technology Support System IM2 E02, E03, E04

B.6 Improve Procurement Management B.6.1 Streamline Contract Preparation and Complete Standardization of Procurement Documents

PROC1 C03 Civil Works only, Goods and Consultancy pending.

B.6.2 Enhance Bidding and Award Process PROC3 C03 Civil Works only, Goods and Consultancy pending.

B.7 Support Institutional Development B.7.1 Develop Performance Indicators PI1 C04 (overall) Overall under C04, with each individual consultancy

developing their associated KPIs/APIs B.7.2 Coordinate Development and Implementation of BIIPs IIT1

Other Activities Road Funding FM2 Under separate component as part of NRIMP-1 and therefore not counted as

part of 16 BIIPs. Physical Resource Management

PRM1/2/3 MIS Subsequently put on hold pending COA, who had indicated they would be developing the module as part of e-NGAS

Pavement and Bridge Management PLAN5 C07 Originally included under NRIMP-1 but passed on to ADB 6th Roads.

Maintenance Management MNT3 C06 This was for a pilot only and BOM/MIS to fully implement.

Road Safety PLAN4 C08 Included Traffic accident application etc.

28

Other activities added during packaging/TOR scoping and as NRIMP-1 was extended

Activities BIIP ID Contract Package Comments

Organizational Structure OS1 C04 Cost Estimation DSGN5 C03 Originally in NRIMP-2 Strategic Planning SP1 C04 Policies & Procedures PP1 C04 Assistance for DPWH Data Administration IM4 C04 Assistance for MIS Information Management Planning IM1 C04 Assistance for MIS

Vehicle Overloading MNT4 (partial) C01 Subsequently with updates in C04 by Planning Coach

Budget FM3 E05 Procurement cancelled by COA. Assistance provided by C04.

Information Technology Training IM8 C04

Initial assistance to MIS regarding training room (C04) with some training under HMP. Training being carried out by MIS.

Human Resource Management HR1 (partial) MIS

Portion associated with Personnel Information System being developed and implemented by MIS.

29

Annex 2c. Project Cost by Component Description Cost

Component Subcomponent

Appraisal including

Contingencies NRIMP

Appraisal including

Contingencies NRIMP-1 only,

without rollover to NRIMP-2

Latest Estimates for Completion,

including rollover to NRIMP-2

Actual at Loan Closing

PhP million PhP million PhP million PhP million Halsema Highway (La Trinidad-Mt.Data) 1690 1347 1038 1038 Zamboanga-Pagadian Road (Buug-Kabasalan) 724 715 1000 1000 Davao-Bukidnon Road (Calinan-Buda) 477 477 364 364

Surigao-Davao Coastal Road: 1777 526

Junction Bacuag-Tandag Section 685 135 Marihatag –Barobo & Hinatuan Bislig Section 1170 0

Manay-Mati Section 555 366 Malalag-Jose Abad Santos Road (Sulop-Malita) 396 135 534 534 Kabankalan-Basay Road (Hinobaan-Basay) 444 134 641 0 San Enrique-Vallehermoso Road (La Castellana-Kanlaon) 560 122 682 0

Maramag-Kibawe Road 241 241 412 412 Davao-Bukidnon Road (Buda-Maramag) 610 610 766 766

Road Upgrading

Total 6919 4308 7847 4615 CY 2000 Program 470 470

CY 2001 Program 1598 1598 CY 2002 Program 1574 1574 CY 2003 Program

4217 4217

35 35

Preventive Maintenance

Total 4217 4217 3677 3677

LTPBM Total 350 350 758 758

Detailed Engineering 560 413 210 210 Construction Supervision 572 550 800 606 Quality Assurance 72 72 100 89

Consultant Services for Civil

Works Technical Audit 26 26 36 36

Total 1230 1061 1146 941

Civ

il W

orks

Land Acquisition 318 318 300 264

Total Civil Works 13034 10244 13328 10255

1478 1478 1580 1580

Consultant Services 790 790

Business Improvement

Implementation Plan

Goods 790 790 Policy and Institutional Reform Various Services 71 71 3 3

Inst

itutio

nal S

tren

gthe

ning

Implementing Agency and Bureaus Expenses Various Services 355 355 365 365

Front End Fee 60 60 60 60

Total Project/Program 14998 12240 15736 12263

30

Annex 3. Economic and Financial Analysis

Project Component Appraisal12

IRR% Jan-00

DPWH13 IRR% May-05

NEDA14 IRR% Sep-06

Halsema Highway (La Trinidad-Mt.Data) 23.1 28.9 17.1

Zamboanga-Pagadian Road (Buug-Kabasalan) Davao-Bukidnon Road (Calinan-Buda) 25.6 34.2 37.6 Surigao-Davao Coastal Road: 21.2 Jct Bacuag-Claver Section 24.5 21.8 Marihatag -Barobo&Hinatuan Bislig Section 21.6 19.1 Manay-Mati Section 26.7 18.9 Malalag-Malita Road (Sulop-Malita) Kabankalan-Basay Road (Hinobaan-Basay) 19.1 20.1 16.2 San Enrique-Vallehermoso Road (La Castellana-Kanlaon.) Maramag-Kibawe Road 31 44.6 55.1 Davao-Bukidnon Road (Buda-Maramag) 21.8 30 32

Preventive Maintenance IRR ranging between 12% and 200% with a weighted average of >80%

Long-term Performance Based Maintenance B/C ratio at 15% discount ranging between 6 and 260

Business Improvement Implementation Plan

B/C ratio ranging between 1 to 150 for the different improvement areas with a weighted average of 38 according to the PAD. As costs have remained the same as appraised, the PAD's assumptions are still valid, once the BIIPs are fully institutionalized.

12 From the Project Appraisal Document (PAD), January 2000. 13 From the IBRD NRIMP-1 Economic Evaluation Update, May 2005. 14 From the NEDA memorandum on: “Proposed Extension and Adjustment in Project Scope for the National

Roads Improvement and Management Program, Phase One (NRIMP-1)” September 13, 2006.

31

All three economic evaluations (Appraisal, DPWH and NEDA) for the road upgrading used the computer program developed by DPWH (ECOVAL), taking into account: (i) estimated or actual final completion cost; (ii) latest traffic data; (iii) latest vehicle operating cost; (iv) travel time savings and (v) maintenance savings. Variations in the rate of return between the different evaluations mainly stem from a difference in final cost estimates. The economic evaluation for the preventive maintenance program used two steps to calculate the rate of return:

1. Evaluation sheets established the proposed thickness of the overlay by using a simplified roughness calculation and visual inspection of the road section proposed for maintenance. Where the existing road had an Asphalt Concrete surface, sample deflection surveys were made; and

2. Thereafter, the Internal Rate of Return for a specified surface treatment (cost) for a road or road section was calculated on the basis of tables, using the number of vehicles per day as the parameter (vehicle operating cost savings).

These calculations are contained in: DPWH-BOM, Preventive Maintenance Projects, and Economic Evaluation/Justification CY 2000-2003 Programs. For the Long-Term Performance Based Maintenance a conventional Benefit/Cost analysis was carried out using the benefits from vehicle operating cost savings over a six-year period at a discount rate of 15 percent. Details of the calculation are contained in an Excel Spreadsheet: ECONOMIC INVESTMENT AND ROAD USER COST STREAMS FOR NRIMP-Pilot, May 2007.

32

Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members

Names Title Unit Lending Denis Robitaille Highway Engineer, Task Team Leader EASTR William D. O. Paterson Principal Highway Engineer EASTR Glenn S. Morgan Senior Environmental Specialist EASES Mary P. Judd Senior Anthropologist EASES Zhi Liu Transport Economist TWUTD Karen Alexandra Hudes Senior Counsel LEGEA Hung Kim Phung Senior Disbursement Officer LOAAS Joseph Reyes Financial Management Specialist EACPF Rene S.D. Manuel Procurement Officer EACPF Alla Weinstein Highway Engineer EASTR Eva Monteblanco Team Assistant EASTR Guang Zhe Chen Transport Economist, Peer Reviewer SASIN Yitzhak Kamhi Senior Highway Engineer, Peer Reviewer AFTTI Supervision/ICR William D. O. Paterson Lead Infrastructure Specialist EASTE Ben L.J. Eijbergen Senior Infrastructure Specialist EASTE A. K. Swaminathan Senior Transport Specialist SASDT Susan Hume Senior Operations Officer AFCS2 Victoria Florian S. Lazaro Operations Officer EASSO Rene SD. Manuel Procurement Specialist EAPCO Jose Tiburcio Nicolas Operations Officer EASSO Christopher T. Pablo Operations Officer EASUR Joseph G. Reyes Financial Management Specialist EAPCO Maya Gabriela Q. Villaluz Operations Officer EASRE Victor Dato Infrastructure Specialist EASTE

(b) Staff Time and Cost

Staff Time and Cost (Bank Budget Only) Stage of Project Cycle

No. of staff weeks US$ Thousands (including travel and consultant costs)

Lending FY95 6.65 FY96 6.41 FY97 9.05 FY98 30.72 FY99 173.24 FY00 51 149.08

Total: 51 375.15

33

Supervision/ICR

FY00 22 33.86 FY01 30 97.62 FY02 28 90.38 FY03 18 93.62 FY04 12 66.44 FY05 14 47.40 FY06 23 108.89 FY07 10 45.73

Total: 157 583.94

34

Annex 5. Beneficiary Survey Results

Not applicable

35

Annex 6. Stakeholder Workshop Report and Results

Not applicable

36

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Over-all Project Assessment provided by the Secretary of DPWH In the Road Upgrading component of NRIMP, Phase 1, 90 percent of the planned 528 km of national roads has been upgraded rehabilitated. The cancellation of the three (3) contract packages from the program and the segments, previously done by Regional and District Offices and considered as exemptions, contributed to the significant slow down in the accomplishment of NRIMP-1. Nonetheless, the cancelled projects are being implemented using local funds in the Department’s thrust to improve the road network and increase its performance. The Government through the Department of Public Works and Highways set forth the much needed efforts to deliver the goals and objectives of NRIMP-1. Apparently, program targets could only be attained substantially, given the constraints that had to contend with social, environmental, financial and political issues and concerns during the regular and extended period of the NRIMP-1. Socially, numerous issues with the project affected persons identified during the detailed engineering and during the implementation period, impede the progress of the construction works. Environmentally, the multifaceted nature of some of the project locations considering the topographical, geological and geotechnical features slowed down the timely completion of the projects and seriously affected the financial condition of the Government, which at one time or another had met funding/budgetary difficulties. Financially, numerous projects incurred cost overruns, from the original cost submitted to the National Economic Development Authority (NEDA) up to the project completion. Also, there were interest claims, price escalations and foreign currency adjustments filed with the Department. Politically, the untimely completion of the road projects and the unavoidable supplemental project costs as consequences from typhoon damages, unfavorable weather conditions, design modifications and as staked quantities and allegations of misdemeanor of contractors drew attention of politicians to carry out investigation. In general, the tremendous cost that resulted from delay in project completion is attributable to the administrations' lack of strength in managing the program, as evidenced by feebleness in dealing with social, environmental, financial and political issues. Nevertheless, the Government and the Department were able to realize and learn lessons, and eventually delivered the requirements of the first phase of the program to proceed to the second phase of the NRIMP. It could be noted that the DPWH has made significant progress and contribution in the implementation of the infrastructure development of the Government with around 382 km of existing unpaved and deteriorated road sections rehabilitated and improved, while around 721 km of existing paved roads have been maintained in good condition. Policy and institutional reforms have been initiated and likewise, the Department made a great progress with most of the

37

required business improvement, implementation technologies have been acquired and support equipment and hardware have been installed and some systems are now fully operational. The implementation of the Program had incurred cost overruns. This means that some items have been overlooked during project design, preparation and implementation, which would suggest some inefficiency in cost projection and utilization. In terms of the project's extent of compliance with the Project Appraisal Document, the level of achievement of the expected physical outcome could be assessed as having been satisfactorily met as evidenced by the program base indicators. This gained the acceptance of the World Bank for the program to proceed to the next level, though compliance with the PAD was attained only because NRlMP Phase I implementation was extended by more than two (2) years, giving enough time and opportunity for the DPWH to catch up on its accomplishment and deliver the requirements of the program. The Government is continuously pursuing reforms that would improve its management and governance, however, this effort is rather constrained by political issues, funding limitations and misappropriations, traditional bureaucratic practices and protocols. The aggressive participation of cause oriented groups such as “The Civil Society” and other non-government organizations with similar aspiration have been noted and would greatly help in sustaining the initial reforms that have been established. The Department has initiated the implementation of social impact assessment but would further require technical assistance to strengthen capacity of the concerned staff. It was observed that more training would be needed, since not all of the Department's staff has formal educational background on the matter. The overall impact would include changes in the transportation environment along the project areas with good paved roads. Travel time has been greatly reduced while traffic convenience and safety have been enhanced. Economically, the huge investment provided by the government for the implementation of the program has benefited the construction and consulting industry as well as the information and telecommunication industries in the country and has sustained the livelihood and revenue generating capacity of the workers both in the public and private sectors during the more than five (5) years of the program's first phase implementation. Adverse social impacts have been mitigated through proper compensation of project affected families and/or persons. Traffic hazards to both motorists and pedestrians were minimized with the installation of adequate traffic safety devices. The impact on real estate or “real estate play” could not be appreciated in the early stages of the project completion since the process is initiated in the local administrative level or unless the real estate market would dictate otherwise. Furthermore, since some sections of the road projects traverse mountainous areas, which lands could not be developed commercially and land value would hardly appreciate, the impact would be insignificant. The benefits could be sustained through proper monitoring and maintenance of the physical conditions within the project road right of way. In some road projects, it was observed that illegal dwellers have occupied the road right of way after the completion of the road project.

38

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable

39

Annex 9. List of Supporting Documents 1. Country Assistance Strategy 1999, 2002, 2005.

2. Project Appraisal Document Report No.: 19754.

3. Loan Agreement.

4. Project Completion Report for Highway Management Project.

5. PSR Sequence No. 1-13 and ISR Sequence No. 14-15.

6. Mission Aide Memoirs and Management Letters.

7. DPWH Quarterly Progress Reports.

8. DPWH Proposed Rationalization Plan, October 2006.

9. DPWH Economic Evaluation/Justification for CY 2000-2003 Preventive Maintenance Program..

10. DPWH Economic Evaluation Update for Road Upgrading Component, May 2005.

11. National Economic and Development Authority, Proposed Extension and Adjustment in Project Scope for NRIMP-1.

12. DPWH-Bureau of Maintenance, CY 2006 Summary Traffic Data.

13. Road Board, Operating Procedures Manual.

14. DPWH, NRIMP-1 Reassessment and NRIMP-2 Framework Plan, Workshop Proceedings, April 27-28, 2006.

15. Republic of the Philippines, Republic Act No. 8794, imposing a Vehicles User Charge.

16. DPWH-Bureau of Maintenance, Economic Investment and Road User Cost Streams for NRIMP-Pilot (LTPBM), May 2007.

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Babuyan Channel

Luzon Strai t

G u l fD a v a o

G u l f

MALAYSIA

BatanIslands

BabuyanIslands

PolilloIslands

LubangIslands

Catanduanes

TicaoSibuyanTablas

Busuanga

SemiraraIslands

CuyoIslands

Culion

Linapacah

Dumaran

Bugsuk

Balabac

Cagayan Sulu

Tawi-Tawi

Sulu

Basilan

M i n d a n a o

CamiguinSiquijor

Negros

Panay

Bohol

Cebu

Leyte

SamarMasbate

Marinduque

BuriasMindoro

Pa

l aw

an

L u z o n

Dinagat

Siargao

Sarangani

118° 120° 122°

14°

12°

10°

8°

6°

120° 122° 124° 126°

20°

18°

16°

14°

12°

10°

8°

6°

16°

20°

18°

124° 126°

118°

P H I L I P P I N E SNATIONAL ROADS IMPROVEMENT AND

MANAGEMENT PROGRAMPHASE I (NRIMP-1)

PAN-PHILIPPINE HIGHWAY

OTHER MAIN ROADS

FERRIES

INTERNATIONAL AIRPORTS

MAJOR PORTS

RIVERS

PROVINCE CAPITALS

REGION CAPITALS

PROVINCE BOUNDARIES

REGION BOUNDARIES

CIVIL WORKS: ROAD UPGRADING CONTRACTS (CPs)

PREVENTIVE MAINTENANCE WORKS (NATIONWIDE, not shown on map)

CP-1

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

0 100 200 300 KILOMETERS

P.N.G

.

AUSTRALIA

20°�

10°

0°

10°

100° 110° 120° 140°

VIETNAMTHAILAND

CAMBODIA

LAOP.D.R.

BRUNEI

M A L A Y S I A

I N D O N E S I A

PALAU

Manila

PHILIPPINES

N O R T H PA C I F I C

O C E A N

INDIAN OCEAN

Java Sea

Timor Sea

Arafura Sea

P h i l i p p i n e

S e a

SINGAPORE0°

10°

20°

100° 110° 120°

10°

CHINA

Area of map

TIMOR-LESTE

IBRD 30623R

JULY 2008

IlocosIlocos NorteIlocos SurLa UnionPangasinan

Cordillera Admin. Reg.AbraApayaoBenguetIfugaoKalingaMountain Province

Cagayan ValleyBatanesCagayanIsabelaNueva VizcayaQuirino

Central LuzonAuroraBataanBulacanNueva EcijaPampangaTarlacZambales

National Capital Reg.

CALABARZONBatangasCaviteLagunaQuezonRizal

MIMAROPAMarinduqueMindoro OccidentalMindoro OrientalPalawan*Romblon

BicolAlbayCamarines NorteCamarines SurCatanduanesMasbateSorsogon

Western VisayasAklanAntiqueCapizGuimarasIloiloNegros Occidental

Central VisayasBoholCebuNegros OrientalSiquijor

I1234

CAR56789

10

II1112131415

III16171819202122

NCR

IV-A2324252627

IV-B2829303132

V333435363738

VI394041424344

VII45464748

Eastern VisayasBiliranEastern SamarLeyteNorthern SamarSamarSouthern Leyte

Zamboanga PeninsulaZamboanga del NorteZamboanga del SurZamboanga SibugayZamboanga City

VIII495051525354

IX555657---

Northern MindanaoBukidnonCamiguinLanao del NorteMisamis OccidentalMisamis Oriental

Davao Reg.Compostela ValleyDavao del NorteDavao del SurDavao Oriental

SOCCSKSARGENNorth CotabatoSaranganiSouth CotabatoSultan Kudarat

CaragaAgusan del NorteAgusan del SurDinagat IslandsSurigao del NorteSurigao del Sur

Autonomous Reg. inMuslim MindanaoBasilanLanao del SurMaguindanao**Shariff KabunsuanSuluTawi-Tawi

X5859606162

XI63646566

XII67686970

XIII7172737475

ARMM

767778798081

**Shariff Aguak (Maganoy) andSultan Kudarat serve as co-capitalsof the province.

*Executive Order 429, May 23, 2005,provides for the transfer of Palawanprovince (#31) from Region IV toRegion VI; Administrative Order 129holds EO429 in abeyance until animplementation plan is approvedby the President.

REGIONS AND PROVINCES:

The World Bank · Document of The World Bank Report No.: ICR0000445 IMPLEMENTATION COMPLETION AND...

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