Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No- P-3604-PH

REPORT AhND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNAIONAL BAo K FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTI - DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$102.0 MMLLION

TO THE

REPUBLIC OF THE PHILIPPINES

FOR A

FIFTH HIGHWAY PROJECT

April 30, 1984

This document bus a restricted distrbution and may be used by recipients only- in the performance uf|

their offici2t duties- Its eontents may- not othlerwise be disclosed wfithoDut Worid Bank autborization -

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CURRENCr EQUIVALENTS

Currency Unit = Pesos (C)

US$1.00 = P 14.00P 1.00 = US$0.07

FISCAL YEAR

January 1 to December 31

ABBREVIATIONS

AA - Advice of AllotmentADT - Average Daily TrafficADB - Asian Development BankCDC - Cash Disbursement CeilingClAP - Construction Industry Authority of the Philippinesco - City Office of MPIJHCOA - Commission on AuditDBCC - Development Budget Coordinating CommitteeDO - District OffLce of Y PWEKK - Equivalent Maintenance KilometerERR - Economic Rate of ReturnGRT - Gross Registered TonnageINLG - Ministry of Local GovernmentMOB - Ministry of BudgetMOTC - Ministry of Transport and Communications'MPH - Ministry of Public HighwaysMNP - Ministry of Public WorksbPwH - Ministry of Public Works and HighwaysNEDA - National Economic and Development AuthorityNTPP - National Transportation Planning ProjectPCA - Philippi-e Contractors AssociationP1O - Projects Management Office of IPWHPNR - Philippine National RailwaysPPA - Philippine Ports AuthorityPTS - Philippine Transport SurveyRO - Regional Office of MPWHSOE - Statements of ExpenditureTOR - Terms of ReferenceUSAID - United States Agency for International Developmentvpd - vehicles per day

FOR OMCAL USE ONLY

PHILIPPINES

FIFTH HIGHWAY PROJECT

Loan and Project Summary

Borrower: Republic of the Philippines

Beneficiaries: Ministry of Public Works and Highways (MPWH), Ministry ofTransport and Communications (MOTC) and the ConstructionIndustry Authority of the Philippines (CIAP).

Amount: US$102.0 million (including capitalized front-end fee).

Terms: 20 years, including five years of grace, at the standardvariable interest rate.

ProjectDescription: The project seeks to (a) improve the existing network of

national highways and bridges; (b) raise maintenance toadequate levels and remove the backlog of restorationworks; (c) improve highway management, particularly main-tenance, and thus further strengthen the MPWH institu-tional framework. The project also aims to assist inderegulating interisland shipping, developing the domesticconstruction industry, and improving the road transportindustry. To accomplish these aims, the project providesfor reconstruction of bridges, improvement and restorationof national highways, consulting and technicaL assistanceservices, and training. The project benefits are mainlysavings in vehicle operating costs and in highway mainte-nance costs. The main project risk is in higher construc-tion costs than estimated; this risk has been reduced by athorough preparation of the bridge reconstruction andhighway improvement programs. Two measures proposed underthe Special Action Program and included in this projectare a higher cost-sharing ratio and the establishment of aSpecial Account.

I This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. 1t contents may not otherwise be disclosed without World Bank authorization|

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Local Taxes Foreign TotalProject Costs: m(US$ million)

Reconstruction of bridges 13.0 3.7 20.4 37.1Improvement of national highway 6.3 1.8 9.8 17.9Restoration of national highways 24.1 6.2 31.5 61.8Consulting services 7.1 0.8 3.4 11.3Technical assistance 0.4 0.1 1.9 2.4Training - - 0.4 0.4Land acquisition 1.4 - - 1.4

Base Costs (Hay '84 prices) 52.3 12.6 67.4 132.3

Price ContingenciesPhysical 5.2 1.3 6.7 13.2Price 21.0 5.1 17.6 43.7

Total Project Cost 78.5 19.0 91.7 189.2

Front-end fee - - 0.3 0.3

Total Financing Required 78.5 19.0 92.0 189.5

Financing Plan: Local Taxes Foreign Total- C(USS million)

IBRD 10.0 - 92.0 102.0Government 68.5 19.0 - 87.5

Total 78.5 19.0 92.0 189.5

EstimatedDisbursements: Bank FY 1985 1986 1987 1988 1989 1990

(US$ million equivalent)

Annual 12.0 16.0 22.0 24.0 20.0 8.0Cumulative 12.0 28.0 50.0 74.0 94.0 102.0

Rate of Return: Weighted ERR on the project as a whole is over 40%

Staff AppraisalReport: No. 4535-PH dated May 1, 1984

Map: IBRD Map No. 17014R

REPORT AND RECOFMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANqK FOR

RECONSTRUCTION AND DEVELOPMENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN

TO THE REPUBLIC OF THE PHILIPPINESFOR A FIFTH HIGHWAY PROJECT

1. I submit the following report and recommendation on a proposed loanto the Republic of the Philippines for the equi--alent of $102.0 millionincluding the capitalized front-end fee of $0.3 million, to help finance theFifth Highway project. The loan would be repaid over 20 years, including 5years of grace, at the standard variable interest rate.

PART I - THE F-ONOMY

2. An economic report, entitled "The Thilippines: Selected Issues forthe 1983-1987 Plan Period" (No. 3861-PH) was distributed to the ExecutiveDirectors under Sec. M82-542, dated June 16, 1982. A special report, "Aspectsof Poverty in the Philippines: A Review and Assessment" (No 2984-PH), wasdistributed to the Executive Directors on December 1, 1980 under Sec. N80-919.Country data are given in Annex 1.

Performance in the 1970s

3. During the 1970s, the Philippines followed a much more dynamic,growth-oriented development strategy than in earlier decades. The growth rateof GDP rose from 5.1% in the 1960s to 6.3% in the 1970s, a rate well abovethat of lower middle-income oil importers (5.4%) but lower than that of com-parable Asian countries. Expansion of the agricultural sector was rapid atabout 4.5% p.a. during the decade. Manufacturing industry, growing at thesame rate as GNP, did not play a leading role in the Philippines' economicdevelopment. Although manufactured exports grew dramatically, the greaterpart of the sector remained oriented to the domestic market and was affectedby severe inefficiencies.

4. Although economic performance was relatively good in the 1970s,structural weaknesses in the economy held it back below its full potential.GDP growth was achieved at a high investment cost - the incrementalcapital/output ratio (ICOR) was about 35% higher than those of comparableAsian countries. Although inherently capital-intensive infrastructure invest-ments explain part of the high ICOR, inefficiency of industrial investment wasthe more important cause. Inappropriate trade, industrial, financial, andexchange rate policies designed to foster import substitution, provided highprotection for domestic manufacturers, and led to investments in activities inwhich the Philippines did not have a clear comparative advantage. Externalborrowing and imports expanded rapidly while traditional exports and domesticresource mobilization lagged. This resulted in a chronic shortage of foreignexchange and increasing external debt.

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5. Despite satisfactory aggregate growth during the 1970s, the inci-dence of poverty remained around 40Z, income distribution continued to beskewed, and regional disparities remained pronounced. The incidence ofpoverty reached 60-70X in the least developed regions. Large numbers ofpeople, especially in the rural areas, still suffer from malnutrition andlack safe water, basic education, and health facilities. An increasinglyunfavorable man/land ratio, the resulting expansion of cultivation intomarginal lands, limited employment opportunities in the industrial sector, andthe sharp deterioration in the external terms of trade put downward pressureon real incomes. Although the Government instituted several programs toimprove directly living conditions of the poor, most of these were implementedon any significant scale only during the last few years and will requireseveral years to achieve a marked impact.

6. Growth of productive employment, particularly in the industrialsector, has lagged behind the rapid expansion of the labor force, and consid-erable underemployment exists. During the 1970s, the agriculture and servicesectors had to absorb an excessively high proportion of new entrants to thelabor force. Manufacturing employment stagnated in the first half of thedecade, and picked up only slightly thereafter as labor-intensive export pro-duction grew. Overseas employment, especially in the Middle East, increasedrapidly, providing a temporary income opportunity.

7. Population growth in the Philippines was reduced from 3% in the3960s to 2.5Z in the early 1980s. There are indications, however, that it mayhave levelled off prematurely at that level. Thus, rapid population growthcontinues to strain available land resources, aggravate already seriousemployment and poverty problems, and burden the public budget with a highgrowth in demand for basic public services. The Philippines has a familyplanning program which expanded rapidly during the 1970s, however, participa-tion in the program is still low by East Asian standards.

Structural Problems and Adjustment

8. The structural weaknesses of the Philippine economy have become moreapparent in recent years as unfavorable world economic conditions have exacer-bated the balance of payments, debt, and resource mobilization problems. Inthe late 1970s, the country's terms of trade deteriorated sharply due to oilprice increases, accelerated international inflation, and depressed prices formajor export commodities. The continued heavy reliance on export earningsfrom a few primary products (coconuts, sugar, copper, and timber) kept thePhilippines extremely vulnerable to international commodity price fluctua-tions, while continued high dependence on imported oil further aggravated thebalance of payments problem.

9. Excessive protection and an artificially low cost of capital led tolow efficiency of investment and stagnant employment in industries producingfor the domestic market. The industrial sector remained a net burden on thebalance of payments; although manufactured exports grew rapidly, their netforeign exchange earnings were limited due to a high import content. Exportpromotion measures induced rapid growth in nontraditional manufacturedexports, e.g., garments. electronics and handicrafts, from $50 million in 1970

to $2.4 billion in 1982. However, export expansion was concentrated on a fewitems, and backward linkages were limited by high cost and low quality ofdomestic inputs. As part of an adjustment program supported by SAL lending,the Government has initiated major policy reforms designed to move towards anindustrial structure utilizing more effectively the country's comparativeadvantage with respect to labor cost and raw material availability and whichis internationally competitive. The program includes a major tariff reform, aliberalization of import controls, a realignment of industrial incentives andimproved export incentives. The implementation of the program has been good,despite the international recession, which has hampered the adjustment processin the manufacturing sector and slowed down the growth rate from around 42 in1980-81 to an estimated 1 in 1982-83.

10. Financial Sector. Although well developed, the Philippine financialsector has not performed adequately in raising private sector savings and pro-viding investment financing. Among the main reasons have been the level andstructure of interest rates which were not geared to mobilize sufficient sav-ings and encourage longer maturities; their low level contributed to rela-tively inefficient and capital-intensive investment. Further, the CentralBank's rediscounting scheme frequently resulted in encouraging over investmentin some sectors while others were relatively neglected. In 1981, the Govern-ment introduced far-reaching financial policy changes. The banking system wasgiven greater flexibility, interest rates were deregulated, and the CentralBank was given a stronger position in its role as "lender-of-last-resort", allof which produced positive real interest rates (for the first time since 1978)and a significant increase in domestic savings. Government-owned lendinginstitutions have made less progress as a result of insufficient autonomy inthe selection of their portfolios plus a depressed domestic economy. loancollection rates continue to be very low and substantial government budgetarysupport is required. Rehabilitation-Gf several government-owned institutionsis necessary to reduce strains on the budget and to continue importantdevelopment banking operations.

11. Agriculture and Rural Development. While the performance of theagricultural sector was satisfactory during the 1970s, some policy problemsstill remain unresolved. The Philippines, once a major importer of rice,eliminated rice deficits in the late 1970s and expanded fish and meat produc-tion. There is, however, a need for further diversification and promotion ofcommercial crops to improve the balance of payments position either throughexpansion of agricultural exports or through efficient import substitution.Trade policies in the Philippines have discriminated against agriculture.Pricing and exchange rate policies have also had a negative impact on incomesin the agricultural sector. The institutional framework for agriculturalpolicy formulation and implementation suffers from serious fragmentation.Overall, there is a need to deal directly jith the problem of the rural poor,particularly farmers engaged in rainfed agriculture, coconut growers,municipal fishermen, and landless sugar workers. Increasingly, investmentprograms will have to be directed towards rainfed agriculture and includeinnovative approaches to reaching smallholder farmers.

12. Energy. Since the 1973-74 oil price increase, the Philippines hasmade a considerable effort to reduce its dependence on imported oil. Througha combination of pricing, taxation, and conservation measures, the governmentexerted downward pressure on commercial energy consumption. Steps to increaseand diversify domestic energy supply i.e., the development of hydroelectric,geothermal, nuclear and coal based power sources, have contributed to reducingimport dependence. Limited domestic petroleum production also began in1979. However, due to the long gestation period of energy projects, domesticenergy production still constituted only 32% of total commercial energy supplyin 1982. In response to the second oil crisis, the Government included in itsadjustment program policy measures for the energy sector which aim at furtherreducing the country's dependence on oil imports through improving the effi-ciency of energy use and increasing the share of domestic sources to nearly50% of commercial energy supply by 1987. Pricing policy will continue tosupport conservation and revenue objectives.

13. Public Sector Resource Management. The management of public sectorresources has been a chronic problem in the Philippines, which has been fur-ther aggravated by the current recession. The fiscal stress generated by thegrowing imbalance between public investment and public sector resourcemobilization has manifeAted itself in a number of ways. Government currentexpenditures (exclusive of interest payments) have been reduced to only 9% ofGNP, as compared to an average of 14% of GNP in middle-income developingcountries. Implementation of projects has been stretched over longer periodsof time than is economically efficient. The overall public sector deficit hasbecome excessively high and has threatened the stability of the economy,particularly in 1981-1982. A rapidly rising level of public investment and anunsatisfactory financial performance of public corporations contributedtowards increasing the fiscal deficit despite a reduction of recurrent expen-ditures. In 1982 the public sector deficit, which traditionally had beenrelatively small, increased to 5.5% of GNP.

14. As a short-term response, the Government is now implementing a fis--cal austerity program designed to reduce the national budgetary deficit tomanageable levels. The Government has reduced equity contributions andinvestment programs and enacted revenue measures which will improve the cur-rent imbalance. However, to improve the medium-term outlook for publicfinances, structural problems of the system need to be addressed.

The Current Economic Situation

15. The economic situation of the Philippines has deteriorated serious-ly in the last three years. The global recession, with low commodity prices,high interest races on external borrowing, and an increasingly unfavorabletrading climate has stifled economic growth, slowed down export growth,depressed domestic demand and private investment activity and aggravated thefiscal and balance of payments problems. Real GDP growth fell to 3.8% in 1981to an estimated 2.9% in 1982 and is estimated to have been only about 1% in1983.

16. During 1979-82, the terms of trade deteriorated, through a combina-tion of higher import prices, particularly for petroleum, and declining or

stable prices for many primary exports, such as sugar, copper and copraproducts. Since 1981, the volume of exports has leveled off, reflecting thestagnation in the world's economy and a serious drought which reduced agricul-tural exports. Despite the severe external situation, the Government launcheda major increase in its investment program in 1979, designed to make up fordeficiencies in domestic infrastructure, expand industry, and reduce thedependence on imported petroleum. As a result the public sector investmentprogram rose from less than 6% of GNP in 1979 to 9% by 1982. At the sametime, public sector resource mobilization declined, producing a large andgrowing government budgetary deficit. This deficit was covered in large partby foreign borrowings; in 1982, foreign borrowing financed 70% of the Govern-ment's deficit and over 50% of the deficit of the public corporations.

17. The impact of all these factors has been a growing balance ofpayments deficit arn" an increasingly difficult debt service burden. Thecurrent account deficit rosc from $2.1 billion in 1980, to $3.4 billion in1982 (8Z of GDP) and $2.7 billion in 1Ia3 The total debt service ratio,including interest on short-term debt, increased from 21Z in 1980 to 38Z in1982. During 1983, with growing economic problems, a mounting debt burden andmajor debt problems in other developing countries, foreign banks began reduc-ing their exposure in the Philippines. The Government increasingly was forcedto resort to increased short-term borrowings to finance the balance of pay-ments gap, which further exacerbated the debt service problem. While theterms of trade improved in 1983 a severe drought reduced agricultural exports,and overall export earnings fell. By the middle of 1983 it became clear thatthe Government would not be able to meet the target under the IMF Standby ofreducing the overall deficit in the balance of payments from $1.2 billion to$600 million. In fact, for the first three quarters of the year, the overalldeficit had already reached $1.3 billion. The situation was further exacer-bated by political disruptions, a flight of capital out of the country, and acessation of short-term lines of credit from che commercial banks. In October1983, the Government announced a 90-day moratorium on debt repayments, afurther 21% devaluation of the peso, and new controls over the allocation offoreign exchange for imports. Substantial reductions were made in the invest-ment program, and some new tax measures were announced. As a result of theseausterity measures, the national government deficit was reduced to 1.7% of GNPin 1983, compared with 4.2% in the previous year. However, because of thepoor performance of the public corporations, the overall public sector deficitremained large at 4.5% of GNP (compared to 5.1% in 1982).

18. Discussions with the IMF on a new standby agreement began in June1983, as were discussions with the commercial banks on a debt rescheduling.The agreement with tbe IMF has been delayed by problems involving the accuracyof some of the basic data, and a sudden increase in the money supply duringthe last quarter of the year, which threatened to undercut the agreed tar-gets. The rapid growth of the money supply reflected Government attempts toprovide assistance to several commercial banks which were facing financialdifficulties because of depressed economic conditions. As a result, moneysupply increased 32% between September and December of 1983, and the consumerprice index increased by 15%. Negotiations with the IMF are continuing, andit is expected that once a new program is finalized it will be followed bydebt reschedulings with the official and private creditors. In the meantime,private creditors have agreed to additional extensions of the debt moratorium.

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Medium-Term Prospects

19. The medium-term outlook for the Philippines remains difficult. Evenwith a successful completion of the IMF Standby Agreement and debt resche-duling, there will be a need to mdke further cuts in government spending andto reduce imports. Except for those new inflows like'ly to come as part of thedebt rescheduling exercise, the country is faced with little or no access tofresh private capital flows. As a consequence, the current account balancewill need to be reduced from $2.7 billion in 1983 to $1.5 billion in 1984.'Even if export volume growth of 6% can be attained, it will be necessary toreduce the real level of imports by 18%. To meet the fiscal targets agreedwith the IMF, the Government will have to either increase taxes or reducegovernment spending, or some combination of both. The overall result ofconstrained imports and government spending will be deflationary, resultingprobably in negative growth in output during 1984, and increased unemploy-ment. The unemployment problem is already severe, as several plants requiringsubstantial amounts of imported materials, such as automobile assembly, havehad to close. Increased unemployment will make the problem of a sustainedrecovery more difficult.

20. A period of low growth is likely to be sustained for several yearsafter 1984 as well, particularly as the impact of current reductions in theinvestment program begin to be felt. The length of this period of slowgrowth, stabilization and adjustment can be shortened somewhat if theGovernment can take the necessary measures to accelerate exports, increasepub lc and private savings, and use investment resources as efficiently aspossible. The present crisis has increased the Government's awareness of theseverity of the problems and increased it's willingness to adopt the policiesnecessary to correct the situation. 1u the longer term, the combination ofincreased external assistance and Government actions should permit aresumption of growth close to the historical average of 6-7%. The countryremains creditworthy, therefore, for new Bank borrowing on conventionalterms. Local cost financing for some projects continues to be justifiedparticularly in the aftermath of the current recession when the country facesan exceptionally tight resource position.

PART II - WORLD BANK OPERATIONS

21. As of March 31, 1984 the Philippines had received 93 Bank loans (ofwhich two were on Third Window terms) amounting to $3,908.3 million and sixIDA credits amounting to $122.2 million. IFC investments totalled $159.8 mil-lion. The share of the Bank Group in total debt disbursed and outstanding,excluding short-term debt, is currently about 14%, and its share in total debtservice is about 13%. These ratios are expected to be about 19% and 16%,

respectively, by 1988 2/ Annex II contains a summary of IDA credits, Bankloans, and IFC investments as of March 31, 1984.

22. Bank Group lendtig to the Philippines expanded from an average ofabout $90 million per year in FY71-75 to an average of $459 million inFY79-83. Although the Bank has financed projects in virtually all sectors ofthe economy, particular emphasis has been given to agriculture, which hasaccounted for alwrst one-third of total Bank/IDA lending. Lending forindustry, transportation, power, and social sectors followed in decliningorder of size.

23. In agriculture, lending initially focussed on expanding the irriga-tion system, credit programs, and other services to support rice production.More recently, efforts have been made to diversify agricultural productionthrough loans for tree-crops, livestock, fisheries, and integrated ruraldevelopment projects. Agriculture and rural development will continue toaccount for the largest share of lending, with emphasis on food production,poverty alleviation, policy reform and institutional building.

24. In the industrial and financial sectors, lending has supportedpolicy reforms under the Government's structural adjustment program.Structural adjustment lending in 1980 and 1983 ($502.3 million, total) hassupported a series of reforms of the tariff structure, the system of indus-trial incentives, energy pricing, and other important measures. An IndustrialFinance Loan sought to bring about improvements in financial sector policiesand introduced a new institutional concept to broaden the reach of Banklending by channelling loans through an "apex" unit in the Central Bank. Inaddition, the Bank has continued to provide financial support and technicalassistance to small and medium industries.

25. In the energy sector, sector work and the structural adjustment pro-gram initiated under SAL II provide the basis for future lending operations.While previous Bank lending focussed on the power subsector, the Bank nowseeks to support a broader range of activities; in addition to recent energyexploration loans, the Bank plans to continue assisting the accelerateddeffelopment of geothermal and coal, power generation and transmission, energyconservation, and rural electrification.

26. By and large implementation of Bank-financed projects in thePhilippines has been satisfactory. Disbursements, however, have been slowerthan anticipated, particularly in the last three years. The disbursementratio (amount disbursed during the fiscal year as compared to the total undis-bursed at the b7ginning of the fiscal year) declined from 18.7Z in FY79 to14.2% in FY83. The East Asia Regional average was 20.0% and the Bank-wide

2/ These projections are subject to revision following a debt reschedulingwhich is anticipated to take place later this year.

3/ Excludes disbursements under the first and second Structural AdjustmentLoan. If included, the ratio increases to 21.6%.

average was 20.8% in FY83,4/ the comparable ratios for ThaO and and Moroccowere 16.9% and 13.7% respectively in the same fiscal year._ Implementationproblems increased in the last few years, reflecting in part problems causedby inflation, tight budget constraints, and changes in the scope of the Bank'slending operations (a substantial increase in the number of projects, newareas of lending, emphasis on institution-building, and efforts to reach spe-cific target groups and deprived regions). In recognition of growing imple-mentation problems, the Government and the Bank have instituted a process ofjoint Country Implementation Reviews. Five reviews have been held since May1980 and will be continued on a regular basis. A Special Action Program (SAP)for the Philippines was designed to assist the Government in implementing highpriority projects which have been affected by the current shortage of counter-part funds. Under the Bank's SAP, selected projects have benefitted fromincreased cost sharing and disbursement ratios, the establishment of specialaccounts and in some cases, supplementary financing. These actions havefacilitated project implementation and resulted in substantial improvements indisbursement performance.

27. This will be the fourth loan, including two supplemental loans, tothe Philippines to be presented to the Executive Directors this fiscal year.A municipal development project, an export development fund project and anagriculture sector inputs loan have been appraised and are scheduled for Boardpresentation in the coming months.

PART III - THE TRANSPORT SECTOR

The Transport System

28. The Philippines economy grew at 6% a year between 1970 and 1980,thereby generating a strong and growing demand for transport services. Tomeet this demand, the Government undertook investments totalling about P 20billion (US$1.4 billion) principally in highways. With the majority of thenational highways improved, the Government has now turned its attention toimproving maintenance, while limiting investments to strengthening bridges andhigh priority highway sections. During the 1980s, the transport sector isexpected to continue to grow but at a somewhat reduced pace in line with theslower growth rate of the economy. For the period 1983-87, the 'overument hastentatively allocated P 40 billion (US$2.9 billion) for ongoing and newprojects in the sector.

29. The Philippines transport system is a predominantly bimodal system,with road and water transport generally complementing, rather than competing

4/ Regional and Bank-wide figures also exclude disbursements under SALs.

5/ Thailand and Morocco are useful as comparators as they have similar percapita income levels and Bank Group lending programs. Figures alsoexclude SALs.

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with each other. Road transport handles 80X of the country's passengermovements and 60Z of freight movements, but the Philippines depends to a greatextent on interisland shipping services. The railways and air transporthandle only relatively small volumes of passenger and freight traffic.

Policy Planning and Coordination

30. The Ministry of Transport and Communications (MOTC) is responsiblefor transport policy, regulation and adminastratioa. Planning for thetransport sector is, however, the joint re-sponsibility of MOTC (for all modesother than highways), and the Ministry of Public Works and Highways (MPWI) forhighways, with the National Economic and Development Authority (NEDA) having acoordinating role. MOTC undertakes overall sectoral planning through theNational Transportation Plawinng Project (NTPP), which completed a five yearinvestment plan for the transport sector in July 1982.

Sector Issues

31. The most important issue facing the transport sector is inadequatemaintenance. The second is institutional weaknesses, particularly in MOTC andMPWH -h.:re the major problem is attracting staff of adequate caliber andexperience. A third issue concerns Government regulations relating to routelicensing and tariff setting, particularly in iaterisland shipping and roadtransport. The fourth issue relates to the distinction between truckslicensed for hire (TH) and trucks licensed for owner use CT), but with many Ttrucks operating illegally for hire and thus depriving the Government ofsubstantial revenues. The final iss-ue cuncerns the future of the PhilippinesNational Railway (PNR).

32. Government is aware of these problems and is dealing with most ofthem. Governrment now gives the highest priority to highway maintenance. Thetroblem of attracting government staff is, however, more intractable becauseof low government salaries, and the techntcal agencies may have to continueusing consultants (local and expatriate) for some years to come. On the thirdissue, MOTC has requested technical assistance to help in deregulation ofinterisland shipping (para. 61); and the Government intends to begin a similareffort later in road transport. On the fourth, MOTC has indicated that it hastighter'ed up procedures for the issue and renewal of licenses for T trucks.As regards PNR, the Government has decided against closure of the railway andto retain it for other than economic reasons, but has taken steps tostrengthen the management in order to improve operations.

Bank Involvement in the Transport Sector

33. The Bank Group has assisted the transport sector through four high-way projects, one rural road project, three port projects and one shippingproject. The Bank has been involved in the road sector since the First High-way Project (Loan 731-PH). Three larger Highway Projects (Loans 950-PH, 1353-PR and 1661-PH) and one Rural Roads Improvement Project (Loan 1860-PH) follow-ed, The total lending for these projects has been US$333 million. Two of thehighway projects have been satisfactorily completed. The Project PerformanceAudit Report (No. 2449, of April 4, 1979) for the First Highway Project found

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that problems during implementation were largely caused by civil disturbancesin the project area. The project' reestimated economic return, however, wassatisfactory. The Project Performance Audit Report (No. 4757, October 25,1983) for the Second Highway Project noted that significant difficulties anddelays on one road construction contract coincided with variations from theBank's procurement procedures. This was corrected in subsequent projects.The report estimates that the project's economic return will be satisfactorydespite some loss in benefits caused by imposition of tolls and ban on trucktraffic on one of the project roads.

34. Implementation of the ongoing Third and Fourth Highway Projects hasbeen seriously delayed because of slow procurement, poor performance of con-tractors, and inadequate budgetary planning. To improve project implementa-tion, MPWH agreed with the Bank on action programs in 1981 and 1982, and hasadhered to these programs. As a result, project implementation has improvedsignificantly over the last two years, and is now satisfactory. It is expec-ted that the Third Highway Project would be completed by August 1984 and theFourth Highway Project by March 1985.

35. The Bank has also supported the Government's effort to improve ruralroads (Loan 1860-PH) and ports (Loans 290-PH, 939-PH and 1855-PH) and shippingsubsectors (Loans 1048-PH). Two port projects have been completed and theThird Ports Project is ongoing. The Bank's first shipping project assistedthe Government in modernizing the interisland fleet of vessels. The projectwas completed in 1981 with a two-year delay.

36. A principal objective of the Bank with regard to transport sectorlending in the Philippines has been to strengthen the institutions dealingwith the sector and to help in the establishment of an appropriate frameworkfor planning and policy development. As a result, a major component in recentlending has been technical assistance for national transport planning, a taskcompleted in July 1982. Assistance in the future will be for policyformulation and implementation, with a gradual phasing out of foreign experts.

Highways Subsector

37. The Philippines has an extensive road network of some 154,800 km(1982), of which 24,000 km are national, 30,000 km provincial, 15,600 city andmunicipal, and 85,200 barangay roads. The network is, in general, quiteadequate in location and extent, but suffers from many deficiencies. Onlyabout 13% of the total network is paved. The condition of many roads is poorbecause of lack of maintenance and damage from overloaded vehicles. Missingor weak bridges diminish the usefulness of existing roads, and in some remoteareas access roads are scarce. Road classification is often arbitrary as itis not always based on function. The proposed project would include anoverall road classification study (para. 59).

38. Major road improvement activities began in 1969 following completionof the Philippine Transport Survey (PTS). Most of the priority roadsidentified in the PTS have been improved with local resources, supplemented byassistance from Japan, USAID, ADB and the Bank. Some 10,400 km of nationalhighways are paved, but the rate of road improvement work has not been

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sufficient to keep up with the need for repairing or replacing deterioratingbridges. The National Transport Planning Project study has concluded that thedeteriorating condition of the national highway network is a critical issue,and that inadequate maintenance is the main reason.

39. In 1980, there were some 942,000 motor vehicles in the Philip-pines. Between 1970 and 1980, the fleet grew by 6.8% per year, but there hasbeen very little change in its composition, with cars and trucks constituting50% and 30% of the fleet, respectively. Heavy overloading of trucks is quitecommon and is thus a cause of concern. The Government is carrying out a studyof the existing regulations on vehicle weights and dimensions, with Bankfinancing under the Fourth Highway Project.

40. Traffic accidents constitute a growing and recognized socioeconomicproblem in the Philippines. However, accidents are noc accurately recordedand effective measures to prevent them are not being tak.eu. Speeding is quitecommon, driving behavior is often not in conformity with the traffic laws, anddriver education is unsatisfactory. At the Government's request, the proposedproject would include a traffic safety study to review traffic laws and regu-lations, accident reporting procedures, and highway police activities andrecommend improvements (para. 59).

Road Transport Industry

41. The intercity passenger transport industry consists of a small groupof large firms with fleets of 150-450 vehicles offering a range of efficientlong-distance services, and a large number of small operators. In additionthere are a vast number of jeepney operators offering short-distance urban andinterurban services, mostly owner-operated. Both truck and bus operationssuffers from a lack of conmon terminal faciliti-s in the main towns. Toreview and help improve the efficiency of road transport operations, the pro-posed project would include technical assistance to MOTC to revies rhe trans-port industry (para. 60).

Road User Charges and Highway Expenditure

42. Highway expenditures in the Philippines have increased from P 573million in 1970 to P 4.5 billion in 1981. During this period, maintenanceexpenditures increased elevenfold to P 1.2 billion. During the same periodrevenues from road user charges (fuel taxes and motor vehicle fees) rose fromunder P 300 million to over P 5.1 billion. Currently, road user chargesgenerate more revenues than all highway outlays - maintenance, administrationand new construction - which is a satisfactory situation. Despite this,highway maintenance is still inadequate principally because of poor planning,diversion of resources, and insufficient monitoring of maintenance (para. 49).

43. There are also minor problems with the structure of road usercharges. The first is the lower taxes on diesel fuel compared with petrol(P 0.59 vs. P 1.80 per liter). The Government has agreed to eliminate thisdifferential gradually by raising the tax on diesel fuel (as part of the SALoperation, Loan 2266-PH). The second is the inadequate license fees charged

- 12 -

for three-axle trucks. This would be reviewed as part of the vehicle dimen-sions and weights study financed under the Fourth Highway Project (para. 39).

Administration Staff and Training

44. Responsibility for the public road network in the Philippines isdivided, with some overlap, between the national government and local govern-ment agencies. In the national governmenC., MPIH is responsible for nationalhighways. At the local government level, provincial governments and cities,municipalities and barangay councils, under the overall supervision of theMinistry of Local Government (MLG), are respectively responsible for theprovincial, city, municipal and barangay roads in their area. MPWE is headedby a Minister who is assisted by three Deputy Ministers. Its field organiza-tion consists of 14 Regional Offices (ROs), '4 District Offices (DOs) and 55City Offices (COs).

45. There is a shortage of experienced middle-level technical staff atMPWH. headquarters and in the field, particularly in the maintenance organiza-tion. To handle its staffing problems and help improve implementation, MPWHengaged in 1981 a local management and engineering consulting firm to providea team of some 20 "in-house" consultants. However, despite the priority MPWHhas given to maintenance over the last two years, its maintenance organizationremains weak. Raising MPWH maintenance capabilities to a satisfactory levelmay take several years, and the proposed project, therefore, provides forcontinuation of foreign technical assistance services in highway mainte-nance. MPWH should be able to phase out foreign technical assistance inhighway management after 1986.

46. MPWH has conducted training programs for technical and administra-tive staff for many years: it has a number of internal training programs andexternal training opportunities are also available for its staff. Bank sup-port has been provided for advanced technical training overseas for NPWH/MLGstaff, this program has been quite successful, and the present project wouldcontinue this assistance.

Planning, Design and Construction

47. Planning for national highways is initiated in MPWH, and the designand supervision of their construction are also carried out by MPWH, eitherdirectly or through consultants. The role and responsibilities of localconsultants for both highway design and construction supervision haveincreased considerably over the last ten years vis-a-vis foreign consultants;and the Bank assisted this development particularly under the Second HighwayProject.

48. Most of the construction work for national and provincial roads iscarried out by contract. Some minor projects, particularly for barangay roads,are executed by force account, in many cases utilizing village labor. Localcontractors are quite competitive with foreign contractors and have succeededin getting most of the contracts under ICB. The Government has recognizedthat the present contract documents favor it unduly, for example in contractconditions, administrative procedures, and contract implementation rules, and

- 13 -

that its relationship with contractors should be placed on a more equitablefooting. Therefore, in 1980 it established the Construction IndustryAuthority of the Phlilippines (CIAP) which represents both Government andprivate sector interests to evolve an overall strategy for the development ofthe construction industry. Initial Bank assistance for measures to improvethe Government/contractor relationship was provided under the Second UrbanDevelopment Project (Ln. 1647-PH). The Bank is also providing technicalassistance to CIAP under the Fourth Highway Project and this would becontinued under the proposed project.

Maintenance

49. The greatest weakness in the Philippine highway sector has beeninadequate maintenance. Since the Bank's involvement in the highway sector inthe early 1970s, it has observed a serious lack of attention to roadmaintenance in the field. The reasons were many, ranging from inadequateorganizational setup to shortages of funds and equipment. Years of neglectedroad maintenance have thus resulted in the deterioration of a large part ofthe network to a point where it cannot be maintained by normal methods;restoration works are needed to put the roads in a maintainable condition.

50. The Bank has provided assistance to strengthen the maintenance inprevious road projects with some success. In general, routine maintenanceoperations on national highways are now usually being carried out to areasonable extent, but periodic maintenance is neglected in most regions.Over the last two years, MPWH has emphasized the importance of efficientmaintenance operations. In 1982, it began implementing highway maintenanceprograms in four pilot regions which established physical targets and resourcerequirements. MPWH is now introducing this system in all 14 regions. Thesechanges, however, will take several years to produce results in the form ofimproved maintenance operations.

51. In 1971, MPWH developed a system for the allocation of maintenancefunds for national highways based on the concept of an equivalent maintenancekilometer (EMK), and has been using this formula since. However, the basicEMK norm was last increased for price escalation in 1976. Based on itsexperience with implementing the 1982 waintenance programs in the four pilotregions, MPWH has tentatively concluded that the present EMK allocation may beapproximately sufficient to cover routine maintenance expenditures, but littlefunds would remain for periodic maintenance. Consequently, MPWH has prepared

* a proposal for a revised EMK formula which would increase the basic EMK normand would thus provide adequate funds for both routine and periodic mainte-nance; MPWH submitted this proposal for Bank review in March 1984. Duringnegotiations the Bank reached agreement with the Government on a revised ENKformula and its biannual review in consultation with the Bank (Section 4.03(a) and (b) of the draft Loan Agreement). Government would make specificamounts (from P 435 million in 1984 to P 650 million in 1988) availableannually for maintenance activities on national highways and bridges. Twentypercent of these funds would be earmarked for periodic maintenance in 1984 and25% would be earmarked from 1985 onwards. The share of funds allocated formaintenance out of total expenditures for national highways would increasefrom i1Z in 1983 to 18% in 1988.

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Accounts and Audit

52. MPWH's accounting and auditing procedures are satisfactory. Accoun-ting and auditing staff are well qualified, and MPWH has had no problemsrecruicing qualified accountants. Several accounting functions are fully oralmost fully computerized. The Government's Commission on Audit (COA)conducts a continuous external audit.

PART IV - THE PROJECT

53. The proposed project was identified in January 1981 and was origi-nally intended to assist both national and rural roads. However, after acareful assessment of the implementation capacity of both MPWH and MLG, it wasagreed with Government that the proposed program would be split into separatehighways and rural roads projects. The national highway component would befurther split into two stages, with the proposed project assisting the firststage of the upgrading program. Appraisal took pVace in February/March 1983,and negotiations were completed on April 6, 1984.- The Philippine delegationwas led by NEDA Deputy Director General A. Locsin. The Staff Appraisal ReportNo. 4535-PH, dated May 1, 1984 is being distributed separately to theExecutive Directors. Annex III of the report provides supplementary projectdata.

Project Objectives and Description

54. The main objectives of the proposed project, which is consistentwith the Government's objectives for the highways subsector stated in theDevelopment Plan (1983-87), are to: -(a) improve the existing network ofnational highways and bridges; (b) raise maintenance to adequate levels and inthe process remove the backlog of restoration works on national highways;(c) improve general highway management, particularly execution of maintenance,and thus further strengthen the institutional framework of MPWK and its fieldorganization. This project would also assist in formulating a proposal forderegulation of interisland shipping, in developing the domestic constructionindustry and in preparing a future road transport industry project which wouldintroduce some of the much needed measures to improve the road transportindustry.

55. Specifically, the project would include the following components: L

(a) reconstruction program for some 435 bridges and culverts on nationalhighways with an estimated total sran length of 9,282 m;

(b) improvement of a national highway section totalling about 83 km;

6/ Processing was delayed a few months at the Government's request becauseof financial constraints.

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(c) restoration program for some 1,223 km of national highways;

(d) consulting services for: Ci) detailed engineering and constructionsupervision; (ii) preparation of future projects; and (iii) studiesrelated to highway management, traffic safety, and the domesticconstruction industry;

(e) technical assistance to: (i) strengthen MPWH highway maintenancecapabilities; (ii) help MOTC in carrying out a review of the roadt'ensport industry in order to improve its operations and develop aplar for the deregulation of road transport and interislandsbipping; and (iii) help CIAP develop further the domesticconstruction industry; and

(f) training of MPWH and CIAP staff.

The links on national highways on which bridges would be reconstructed, andthe national highway to be improved under the project are shown in IBRD MapNo. 17014R.

Reconstruction Program for Bridges on National Highways

56. The project would include the first four-year phase (1985-88) of theMPWH's eight-year bridge reconstruction program. This phase would includeabout 435 structures on some 40 national highway links with a total length ofabout 9,282 linear meters. Most of the bridges to be reconstructed areexisting single lane timber or Bailey bridges which will be upgraded to a two-lane standard in reinforced concrete. Some of the bridges will be widened andstrengthened and only bridges with an ERR of 15Z and higher would be includedin the program. During appraisal, agreement was reached with MPWH on thefirst year (1985) program. During negotiations, the Government agreed to sub-mit for Bank review and approval before February 1, 1985, February 1, 1986,and February 1, 1987, its proposed list of bridges for reconstruction in thefollowing fiscal year and an update of their economic evaluation.(Section 3.06 (a)(i) of the draft Loan Agreement).

Improvement of National Highway Baguio - Mt. Data

57. The national highway, Baguio (Acop)- Mt. Data, (83 km) in CentralLuzon, would be improved to Class 1 of the NPWH design standards for nationalhighways and would include a 6.0 m wide cement concrete pavement. This willbe adequate to accommodate the projected traffic for the next 20 years. Theimproved highway would generally follow the existing alignment and landacquisition requirements will thus be limited to short sections which need tobe realigned.

Restoration Program of National Highways

58. The restoration program includes the balance of the restorationworks on national highways started under the Third Highway Project. Over thefour year period, it would complete the restoration works needed to bring thenational road network to a maintainable condition. The restoration works

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would include road regravelling, bituminous sealing and asphalt concrete over-lays, shaping of shoulders and improving of drainage. At appraisal, HPWH hadidentified the national highway sections to be restored in the first year(1985) of this program. During negotiations, the Government agreed to submitfor Bank review and approval, before July 1, 1985, July 1, 1986, and July 1,1987, its proposed list of national highway sections to be restored in thefollowing year's program (Section 3.06 (a)(ii) of the draft Loan Agreement).

Consulting Services and Technical Assistance

59. The project would provide consulting services required for theimplementation of the project (detailed engineering and construction super-vision). In addition, about 1,990 man-months is provided for studies and '-hepreparation of future projects. Of the total, only 5% of the services wouldbe provided by foreign consultants. Terms of reference for all the consultingservices have been agreed with tne Government. These services include:(i) Detailed Engineering and Constriction Supervision for the BridgeReconstruction Program. Detailed engineering of bridges and culverts for the1985-88 programs would be carried out by ten local consulting firms, eachcovering design work for about 40 structures. Standard bridge designs satis-factory to the Bank would be used to the maximum possible extent. The work iscoordinated by one expatriate expert from Lyon Associates, the firm whichcarried out the bridge reconstruction feasibility study and detailed engineer-ing of ten typical bridges, representative of the entire range of bridgedesigns to be used in the program. The same firms, local as well as foreign,would be responsible for construction supervision. Some 1,600 man-months ofconsultant services for detailed engineering of bridges and culverts for the1989-92 nr gram is also included in the project. (ii) Construction Super-vision ior Improvement of National Highway Baguio-Mt. Data. For the improve-ment of the national highway Baguio-Mt. Data, construction supervision wouldbe undertaken by the same local consultants who carried out detailed engineer-ing of this road. To strengthen their supervision staff, the local firms willengage experienced expatriate experts for key positions (Chief ResidentEngineer, Chief Materials/Soil Engineer) if experienced local sta.Zf are notavailable. (iii) Studies. The project would provide for the followingstudies: (i) feasibility studies and detailed engineering for future nationalhighway projects (250 man-months); (ii) road classification study (18 man-months); (iii) traffic safety study (50 man-months); and (iv) constructionindustry studies (72 man-months).

60. The project also provides, in total, about 242 man-months of techni-cal assistance services, of which about 72 man-months would be by local andabout 170 man-months by foreign consultants. The technical assistanceincludes: (i) Technical Assistance to MPWH. As continuing shortages oflocal staff experienced in modern highway management impede its efforts toimprove highway maintenance, the project would include continuation of theforeign technical assistance (72 man-months) provided in this field under theongoing Fourth Highway Project. (ii) Technical Assistance to MOTC. To reviewthe transport industry and to help make a start in gradually eliminatingregulations governing entry and route licensing, freight rates and passengerfares in the transport industry (para. 31), the project would continue tofinance the ongoing technical assistance services to MOTC (98 man-months).

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The technical assistance team would review the road transport industry andmake proposals for deregulation of the road transport industry, assist inpreparation of a plan for the deregulation of interisland shipping, anddetermine the feasibility of freight and passenger terminals throughout thecountry (iii) Technical Assistance to the Constru,tion Industry Authority of thePhilippines (CLAP). To assist the Government in its long-term objective offurther developing the domestic construction industry, the project wouldprovide 72 -an-months of local technical asristance services to CIAP in orderto continue the ongoing services financed under the Fourth Highway Project.

Advanced Technical Training to MPWH and CIAP Staff

61. MPWH staff requiring advanced technical training in specialized sub-jects, including highway maintenance and construction and contract management,are usually sent overseas to educational institutions or on study tours, andsuch a program is now underway under the Fourth Highway Project. This projectwould provide for continuation of the MPWR overseas training program. Altoge-ther, about 30 permanent MPWH staff members would benefit from the proposedprogram. MPWH has regulations which ensure that staff receiving overseastraining would return to work for at least three years upon return. In CIAP,short study tours have been provided for two permanent staff members under theFourth Highway Project. Under this project, two CIAP staff members would undertake8 to 12 weeks study tours covering financial management and building research.

Project Cost and Financing

62. The total project cost, including contingency allowances, aboutUS$19.0 million of taxes and the US$0.3 million capitalized front-end fee onthe Bank loan, is ectimated at about P 2,652.5 million or US$189.5 million.The foreign exchange component is estimated at US$92.0 million. The totalcost includes: (a) physical contingencies of 10% of base costs on all items;and (b) price contingencies amounting to about 30% of base costs on all items,including physical contingencies, (estimated for foreign costs at 3.5% for1984, 8.0% for 1985, and 9.0% for 1986, 1987, and 1988, and for local costs at20.0% for 1984, 12% for 1985, 10.0% for 1986, and 7.0% for 1987 and 1988.Cost estimates are based on May 1984 prices.

63. The proposed Bank loan of US$102.0 million would finance the pro-ject's full 75oreign exchange cost (US$92.0 million) and US$10.0 million oflocal cost 7 or 60% of the total estimated project cost without taxes. Theloan includes US$0.3 million for the capitalized front-end fee on the Bankloan and will be for 20 years with five years grace at the standard variableinterest rate. The Government would finance the remaining US$87.5 millionequivalent, through annual budgetary allocations to MPWH. Retroactivefinancing of US$500,000 is recommended for expenditures incurred after October31, 1933 for the detailed engineering for the first year bridge reconstructionprogram undertaken by MPWH through consultants (Lyon Assoc./USA, Transasia,Phil. Int. Cons., Certeza Dev. Corp., Techniks, A. Lazaro, Philnor Cons.,Technosphere, F.F. Cruz, R.C. Gaite, and DCCD/all Philippines) (Schedule 1,para. 3 of the draft Loan Agreement).

7/ For justification of local cost financing see para. 20.

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64. For the bridge reconstruction program, the base cost for a rein-forced concrete bridge averages about US$4,000 per linear meter. For theimprovement of the national highway, Baguio-Mt. Data, the base costs perkilometer amounts to US$215,000. For the national highway restorationprogram, the base costs per kilometer range from US$20,000 to US$70,000. Allthese cost estimates are reasonable.

Status of Preparation

65. Detailed engineering for ten bridges, representative of the entirerange of bridge designs has been completed. Final detailed engineering forthe first year program would be completed by May 31, 1984. Land acquisitionfor the first year would begin in July 1984. The feasibility study anddetailed engineering for the Baguio--Mt. Data highway are completed and landacquisition has started. Engineering for the first year of the restorationprogram has begun and is scheduled for completion by July 1984. No landacquisition is required for restoration activities.

Implementation

66. MPWH, assisted by qualified consultants, will be responsible forimplementation of the project. MOTC will be responsible for execution of itstechnical assistance, and CIAP will be responsible for execution of theconstruction industry studies and its technical assistance. In view of theexperience gained in implementing the Third and Fourth Highway Projects theimplementation capacity of MPWH and its Regional Offices was carefully assess-ed at appraisal, and the scope and size of this project has been designedaccordingly. The project would be implemented over a four-year period andshould be completed by December 31, 1988.

Procurement

67. Civil works (totalling US$68.33 million) for the improvement of theBaguio-Mt. Data highway and for larger contract packages for the bridge recon-struction program and of the restoration program asphalt concrete overlays ofnational highways would be awarded under international competitive bidding(ICB) in accordance with the Bank's Guidelines for Procurement (July 1980).Civil works (totalling US$100.52 million) for smaller contract packages forreconstruction of bridges on national highways and for restoration of nationalhighways would be awarded through local competitive bidding (LCB) proceduressatisfactory to the Bank (value of each package not exceeding US$2.5 millionfor bridge works and US$1.0 million for restoration works). During the reviewof each year's program (para. 56), agreement would be reached concerning thespecific packages to be used for bridge reconstruction contracts. Inter-national contractors represented in the country will be allowed to participatein all LCB for Bank-financed projects.

68. All bidding packages for civil works estimated to cost US$1.0 mil-lion equivalent or more (50Z of the total civil works financed under the pro-ject) would be subject to the Bank's prior review of procurement documenta-tion. The bidding packages for civil works estimated to cost less thanUS$1.0 million equivalent would not be reviewed routinely by the Bank but MPWH

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would maintain copies of the bid evaluation and send final contracts to theBank prior to submission of the first withdrawal application. Consultantservices for detailed engineering/construction supervision, studies and tech-nical assistance would be obtained in accordance with the relevant Bank Guide-lines (August 1981). It was agreed during negotiations that the Governmentwould take action to make available the right-of-way on each highway sectionor bridge site before awarding the contract for its improvement or reconstruc-tion. During negotiations it was also agreed that the Government would con-sult with the Bank prior to award of contracts in cases where other considera-tions make it desirable to begin work before all right-of-way has beenacquired (Sections 3.05 (a) and (b) of the draft Loan Agreement).

Disbursements

69. Disbursements would be made for: (a) 50% of total expenditures forcivil works; and (b) 100% of total expenditures for consulting and technicalassistance services, whether expatriate or local, and for training. Allexpenditures would be fully documented except expenditures (a) under civilworks contracts whose value is less than US$100,000; (b) under consultant'sservices contracts whose value is less than US$50,000, and under trainingprograms. Disbursements for these expenditures will be made on the basis ofstatements of expenditure (SOE) certified by the Deputy Minister of MPWH.Supporting documentation would be retained by MPWH and made available forreview by Bank staff. During negotiations it was agreed that MPWH wouldsubmit detailed audit reports of SOE to the Bank within a reasonable time.

70. In order to facilitate implementation of the project, the Bank wouldmake advance payments into a Special Account to cover the estimated Bank shareof expenditures. The Special Account would be in US dollars in the CentralBank of the Philippines. The amount of the Special Account on deposit wouldat no time exceed US$7.0 million which is the estimated quarterly share ofBank expenditures including a margin of 20%. Replenishment of the account bythe Bank would be subject to review and approval of withdrawal applicationsjustifying expenditures from the account (Section 2.02 (b) and Schedule 5 ofthe draft Loan Agreement).

Benefits and Risks

71. The bridge program involves the construction or reconstruction ofsome 435 structures that have outlived their useful economic and, in manyinstances, technical lives. The average daily traffic (ADT) on these is over300, with a low of 30 and a high of over 6,000. Cars and jeepneys compriseabout 50% of the traffic and truck and buses 50% on the average. The benefitsof this component are reductions in vehicle operating costs, the eliminationof the need for diversions (up to 50 km) in the event of failure or floods,and improving truck load factors and reducing trucking costs by removing lowload limits on weak bridges. For the bridge program as a whole the ERR isestimated at 23%. The principal benefits of the project from the improvementof the national highway Baguio-Mt. Data are savings in vehicle operating costsand road maintenance costs. The ERR on this component is 30%. The proposedroad restoration program will cover 1,223 km of badly deteriorated nationalhighways. As a result of the project, vehicle operating costs are expected to

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be reduced between 15% to 35% for different types of vehicles on the differentcategories of roads. Assuming a projected growth in traffic of 6% p.a., theERR for gravel and bituminous roads is estimated to be 32% and the ERR forasphalt overlaid roads included in the project is estimateA to be over 100%.The weighted ERR on the project as a whole is estimated at over 40%.

72. The population served by the project works will be the main bene-ficiaries of the investments. Because of the de facto free market in thetrucking industry and the intense competition for freight among truckers,reductions in truck operating costs will be reflected in reductions in freightcharges. This will also apply to a substantial extent for passenger transportby jeepneys and, to a lesser extent, by buses. Private car-owners will reapthe full benefit of all savings in vehicle operating costs resulting from theproject. The construction activities that the project would generate willgive direct employment to some 1,500 workers over a period of four years.Moreover, the domestic construction industry would benefit from the project inboth work availability and construction experience.

73. The principal project risk is that the construction cost of theproject components would be higher than estimated. However, several factorsminimize the possibility and consequences of such a risk. With respect to thebridge reconstruction program, nearly all of the new structures will replaceexisting structures, soil conditions at all sites will, nevertheless, bethoroughly investigated and standard designs employed for superstructures. Onthe national highway Baguio-Mt..Data, improvement works are relativelysimple. On the highways restoration program, the works proposed arerelatively small-scale and their costs are based on experience in implementingprevious restoration work. Another major risk is that improvement workcarried out under the project may not be adequately maintained after comple-tion. Some measures for improving highway maintenance have already beeninitiated by MPWH. This is to be further dealt with through the provision oftechnical assistance to strengthen MPWH's maintenance capabilities.

74. Sensitivity tests carried out to assess the impact of a 10% increasein costs found that this would reduce the return on the project only margin-ally. The returns were also tested to assess their sensitivity to smallerbenefits caused by slower traffic growth than those assumed. For a 10% dropin traffic, the returns would also decline only marginally, and the projectwould still be acceptable.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

75. The draft Loan Agreement between the Republic of the Philippines andthe Bank and the Report of the Committee provided for in Article III, Section4(iii) of the Articles of Agreement, are being distributed to the ExecutiveDirectors separately. Special conditions are listed in Section III ofAnnex III.

76. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

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PART VI - RECOMMENDATION

77. I recommend the Executive Directors approve the proposed loan.

A. W. ClausenPresident

By Ernest SternAttachments

April 30, 1984Washington, D.C.

q.

ANNEX I- 22 - Page 1 of 5

T A B L C 3A

PHIL IP?7NES - SOCIAl. INIIICATORE DATA SImETPHLXPXK KrRtFt,K aRvps (w.lilTi.I- hVykCN -

MOST (03ST RIECrT EPTINATP) /h'bz lb EeERNT NIlDOLE INCOMP IOLDDLE INeCIH.

I 080h1S,, 1970- ESTTNATHI!! ASTA & PACIFIC LAT. AMREICA A CARNIAREA (TUOUSAI SQ. KM)

TOTAL. 0 nn.0 100.0 300.0AGRICULTURAL 9R.R 104.0 109.2

GNP PER CAPITA (USS) 16n.0 260.0 790.0 1028.6 20h8.2

lmEC? COISUUNPION PEE CAPITA(EILOGHANS OF COAL EQUIVALENT) 1s5.n 333.0 380.0 792.8 1407.6

IoPULATION AND ITAL STATISTICSPOPULATlnOH.MD-YEAR (THOUSANtJI) 27394.0 31684.0 49535.0URBAN POPUILATION Ct OP TOTAL) 30.3 32.9 36.7 32.9 65.9

P'OPULATION PROWECTIONSPOPULATION IN YEAR 2nnO (MILL) 7h.4STATIONARY POPIULATION (MTLL) 137.2YEAR STATIONARY POP. REACIIEID 213D

POPULATION VERNITYPFR SQ. KM. 91.3 122.8 16l.0 260.7 35.6PER SO. KM. ACRI. LAND 277.3 354.3 442.3 1696.5 93.2

POPULATION ACE STRIICTUEr CZ)0-14 YRS 44.6 45.5 46.6 39.6 40.1

1s66 YRS 52.4 51.6 51.3 57.2 55.R65 AND AIOW. 3.0 2.9 3.1 3.3 4.1

POPULATION CROwrf RATE (2)TOTAL. 3.0 3.0 2.7 2.3 2.1UIRBAN 4.1 3.8 3.7 3.9 3.7

CRUDE BIRTH RATE (PER THOUS) 46.7 44.0 33.9 31.3 31.SCRUDE DFATH RATE (PER THOUS) 14.6 9.5 7.3 9.6 8.LGROSS REPROOUCTIONL RATE 3.4 3.1 2.3 2.0 2.0

FAMILY PLANNINGACCEPTORS, ANNUAL (THOUS) .. 191.7 375.0USERS (: OF HARRIED WOMEN) .. 2.0 68.0 46.6

FOOD AND NDnulTILONINDEX OF FOOD PROD. PER CAPITA(1969-71-100) 102.0 101.0 124.0 12z.2 113.0

PER CAPITA SUPPLY OFCALORIES (2 OF REDUIRFMENrS) 99.0 99.0 116.0 114.2 111.3PROTEINS (GRAMS PER DAY) 46.0 r8.0 53.0 57.9 67.9

OF WHNICH ANLMAL AND PULSE 17.0 19.0 21.0/c 14.1 34.1

CHILD (ACES 1-4) DEATH RATE 13.8 7.9 4.3 7.6 5.3

HALTtLtFE EXPECT. AT SIRTH (YEARS) 52.8 59.0 63.2 60.2 64.6INFANT MORT. RATE (PER THOUS) 105.8 75.0 53.0 68.1 62.6

ACCESS TO SAFE WATER (rDrP)TOTAL .. 36.0 43.0/d 37.1 64.5UREAN .. .. 66.07 54.8 77.5RURAL .. .. 33.075 26.4 66.

CCESS TO EXCRETA DISPOSAL(Z OF POPULATION)

TOTAL *- 57.0 56.0/d 41.4 54.6URBAN .. .. 76.07i 47.5 69.8 )RURAL .. .. 44.07i 33.4 29.8

POPULATION PER PHYSICIAN 6940.0 9100.0 7970.0 777l.9 1776.0POP. PER NtURSING PERSON .. 5390.0 6000.0 2462.6 1012.2POP. PER HOSPITAL BED

TOTAL 1210.0 820.0 560.0/e 1047.2 477.0URAIL 560.0 390.0 . 651.1 667.5RURAL .. .. .. 2591.9 1921.6

ADMIS/ONS PER HOSPIrAL BED . 30.0 .. 27.0 27.2

StW85 TNCAVERAGE SIZE OF HOUSENHD

TOTAL 5.8 5.9UinAN .. 6.2RURAL . 5.8

AVERACE NO. OF PERSONS/ROONTOTAL .. 2.3URBAN .. 2.1RURAL 2.4

ACCESS TO ELECT. (Z OF DWELLINCS)TOTAL 16.5 22.7 36.0URBAN .. 59.9 82.6RURA .. 6.7 10.0

ANNEX I- 23- Page 2 of 5

T A JL E 3A

ml.Pplh5 -SOCIA! ISrATORS DATA S,RRYpINLIPprrES REFEREICE GROrPS (EIGrED AVERAtZS) I

!5ST (19ST RECEST ESTl4AITE) lbRECE5T , rmD iCGMa MrDtLE IIC!EE

196tl I97ffl iSblTE z ASIA & PACIFIC LAT_ A'RaCA & CARIB

ADfJSTED ESRU.LEgr RATIOSPRLtJff: TUIAL 95.0 108I0 110.0 101_2 105_0

MMLE 98.0 115_0 111_0 106.0 106_3FEWALE 93.0 113.0 IO8O 97-5 103.6

SECONDARY: TO17AL 26.0 46.0 63_0 44.9 40.0UtPLE 28.0 520n 580 50_0 38.6FELALE 25.0 49.0 68S0 44.6 41.2

VOCATIONADL ( OF SECOSDARY) 15.3 8.9/f 33.9/c L8.5 34.0

POPIL-TEACHER RATIOPR LARY 36.0 29.0 30.0 32.7 30.7SECORCDARY 2

7._Of& 33.0 34.0 23.4 16.7

ADMLT LITERACY RATE CZ) 71.9 S2.6 75.0 72.9 79.5

?ASSENMP CARSITHOUISASD POP 3.Z 7.6 10.2le 9.7 4556RADIO RCEIVERS1THOUSASD POP 21.9 40.7 43_5 113.7 2ZS.2TV IMCELVERS1TAISAPD Pop 1.4 10.9 20.7 50.1 108.3SEwSPAPElt CDAry GEERmL

IrEREsT) CIRCULATIOSFEZ THOUSAND POPtXATIOR 17.7 13.6 20.7 54.0 65.1

CIPMIA A.NSUAL ATTESDA.CEICAPITA 0.6/h __ 7-4fd 3.4 2.9

LABOR ?ORCETOTAL LABOR FORCE (TReS) 10915.0 13577.0 17667.0

FEMALE (PERCEST) 3452 33.1 32.3 33.6 24.8ACEICCLTERE (PERCEST) 61.0 53.0 46.0 50.9 31.3ISOVSTRY (PERCEST) 15.0 16.0 17.0 19.2 23.9

PARTICIPATION RATE (PERCEST)TOTAL 39-8 36.6 35.6 18.6 31.3"ALE 52.1 48.6 *7.8 50.7 59.8MALE 27.4 2LC4 23.2 26.6 14_8

EC5OOT1C ,EPrEDESCY RATIO 1.2 1.3 t.3 1.1 1_4

3Niz DISTRIBUrIOlPERCEEr OF PRIVATE INCWIERECEIVED BY

RIOIEST 5 OF HOUSEHOLDS 30.1 23.1 __ 22.2WICREST 20- OF HOUSEIDLDS 56.3 54. 0 ._ 48.0LOWEST 20: OF liOUSEHOLDS 4.2 5.2 __ 6.4LOWEST 4r OF ROUSEIIOLDS 12.0 14.2 *- 15.5

PVERT TA ET QOUSEST-IATED ABSQUTE POVERTY ISCOQELEVEL (CUSS PER CAPITA)

URBAY 260.0 194.5 289.8RURAL 195.0 155.0 1t4.5

ESTIMATED RELATIVE POVERTT IICOMELEVEL. USS PER CAPITA)

URBAX *- * 266.0 178.0 519.8RURAL .. .. 200.0 164.8 372.1

ESTIMATED POP. BEL.rL ABS4LUTEPOVERTY ICOFE LEVEL CZ)

LRBAN .. 32.0 24.6RUIRAL . 41.0 41.1

SOT AVAILAa.E'MT APPLICAPLE

/a The group -rerges for each Indicator are popitation-elghted arlthmetic emus- Coverre of con,tries anon theIndicators depends on aailability of data and Is not nniforu.

/b Unle-n otherwxse noted. Data for 1960- refer to any year betwen 1959 and 1961; D-ta for 1970 beteeen 1969 and1971; and data for -lout Recent Estite betwen 1979 and 1981.

/e 1977: /d 1975; /e 1978; Jf 1972; LI 1962: Jh 1958.

way 1983

BEST COPY AVAILABLE24 - ANNEX IPage 3 of 5

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ANNEX I- 25 -P 4 of 5

PHILIPPINES - ECONOMIC INDICATORS

Aauunt(milion US5$ at Annual growth rates (:) Cconstant price)curren- prices) Actual Est. Projected

Indicator 1981 1979 1980 191 1982 183 1984 1985 1986 1987 1988

NATLONAL ACCOUNTSGross domestic product 3V.876 5.9 4.9 3.8 3.0 1.0 -Z.Z 0.8 Z.Z '%.5 4.5

Agriculture 14.765 5.3. 5.0 3.6 3.1 -2.1 2.0 2.0 3.0 3.5 3.5industry l..481 6.7 3.5 4.7 2.4 0.7 -5.0 -2.0 1.0 3.5 4.5Services 15.630 5.5 6.3 3.0 3.5 3.5 -2.0 2.5 2.7 3.5 5.0

Consumption 29.032 4.8 4.8 4.0 3.5 2.6 -4.7 -0.3 0.6 0.7 Z.5Cross investment 1'.806 7.4 1.0 2.3 -2.9 -4.4 -16.0 1.1 4.2 9.1 7.6Exports of R-FS J,411 7.4 16.0 1.6 -2.6 1.7 4.9 5.1 6.0 6.3 6.7Imports of CNFS 9.373 10.3 3.7 -_9 3.5 -2.0 -24.0 0.2 1.5 2.1 2.6

Gross national savings .884 7.7 3.4 3.1 -11.2

PRICESCDP deflator (197Z - lO) Z49.4 266.9 317.3 343.5 380.4Exchange rate (US$1 - ) 7.4 7.5 7.9 8.5 11.1Export price index (1980 - 100) 98.9 100-0 99.4 87.9 9Z.0 98 103 113 123 134Icport price index (1980 - 100) 81.6 100.0 112.7 101.6 95.0 99 105 114 IZ5 136Terms of trade Index (1980 - IO) 121.2 100.0 88.2 86.5 97.0 101 98 99 98 99

Share of CDP at market prices () Averge annual tncrease ()(at current prices) in (constant prices)

1960 1970 1975 1980- 1985 1990- 1960-70 i970-75 1975-80 1980-85 1985-90

Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 5.1 6.1 5.9 1.3 4.0Agriculture 28.1 27.8 29.0 23.2 24.3 22.0 4.3 4.3 4.8 2.3 3.5Industry 25.8 29.6 33.5 36.9 36.1 38.9 6.0 8.6 7.6 0.7 4.5Servlces 46.1 42.6 37.5 39.9 39.6 39.1 5.2 5.4 5.7 2.7 4.0

Consumption 85.3 79.2 75.8 73.8 79.0 76.0 4.8 5.5 5.2 1.0 1.9Cross investment 16.3 21.5 31.0 30.5 21.0 Z2.0 8.Z 11.5 6.5 -3.2 6.5Exports of GNFS 10.8 19.4 18.5 20.1 23.0 Z5.0 5.8 3.2 10.0 4.7 6.7Imports of ONES 10.6 19.7 25.3 26.4 Z1.0 22.0 6.8 6.8 8.0 -1.7 2.6

Gross national savrings 16.2 20.5 25.3 2.1 18.0 19.0 7.4 9.7 5.8 - -

As : of GDp1960 1970 1975 1980 Labor force In 1978 Millions (2)

PUBLIC FINANCE Agriculture 7.4 44.4Current revenue 9.8 9.5 15.0 13.6 Industry 2.7 16.2Current expenditures 9.6 1O.9 13.2 10.0 Services 5.6 33.0Surplus (4) or deficit C-) 0.2 -1.4 1.8 3.6 Unemployed 1.1 6.4Capital expenditure 2.3 1.9 3.2 7.8Foreign financing - 0.1 0.3 2.3 Total Labor Force 16.8 100.0

1960-70 1970-75 1975-80 1980-85 1985-90

OTHER EXPENDITURESAnnual GCNP growth rate (2) 5.1 6.1 5.9 1.3 4.0Annual GNP per capita growth rate (:) 2.0 2.7 3.2 1.1 1.7Annual energr consumption growth rate CI) 7.4 6.2 4.2 N.A. N.A.

ICOR 3.7 4.3 5.2 N.A. 1l.A.INarginal savings rate 0.29 0.33 0.26 N.A. N.A.Import elasticity 1.33 1.12 1.20 N.A. N.A_

/a Projected years at constant prices.East Asia and Pacific Region

March, 1984

ANNU I- 26- Page 5 of 5 pages

BALANCE OF PAMENTS AND EmRNAL CAPITAL AND DEST(S .L±mon. at current prices)

Actual Est. Projected1979 1980 1981 1982 1983 1984 1985 i986 1987 1988

Summary of Balance of Payments

Exports of goodS and servIces 6,177 7,863 8,624 7,837 8,072 8,280 8.891 10,101 11,572 13,336of which: exports of goods 4.602 5,788 5,722 5.021 5,005 5.510 6,097 7,059 8.212 9.565

Imports of goods and services 8.108 10,348 11,389 11.683 11,170 10.310 10,490 11,535 12,658 13,922of which: imports of goods 6.142 7,727 7,946 7.667 7,469 5,990 6,236 6,919 7,738 8,709

Transfers (net) 355 434 472 498 399 490 450 480 500 550

Current Account Balance -1,576 -2.051 -2,293 -3.348 -2,699 -1.540 -1,149 -954 -586 -36

Direct investment (net) 99 45 407 292 4

MLT loans (net) 1.091 1.032 1.382 1,721 1,427OfficLal-source loans (net) 449 375 691 434 1,177Private-soutce loans (net) 642 657 691 1.287 250

Other capital (net) /a -193 593 -56 146 -1,196

overall Balance /b -579 -381 -560 -1.189 -2Z464

Internatinal reserves (end-year) Ic 2,423 3.155 2.707 2.543 903Reserves as months of imports 3.6 3.7 2.9 2.6 1.0

External Capital and Debt

Cross disbursements 2,134 1.887 2.136 2.693Concessional Loans 185 168 212 176Bilateral 113 107 198 159IDA 3 2 7 8other multiLateral 69 59 7 9

Sonconcessional Loans 1.949 1.719 1.924 2.518Official export credIts 152 8 58 66IBfl 210 229 b41 251

Other multilateral 81 83 119 125Private sources 1.506 1,399 1,306 2,076

External DebtDebt outstanding and disbursed 7,204 8,415 10,148 1Z.145official-source 2.286 2.730 3,355 3,971Private-source 4,918 5,685 6,793 8,174

Undisbursed debt /d 3.645 4.086 4.546 3.999

Debt ServiceTotal service payments le 1,480 1,013 1,560 2.048

Of which: interest 488 568 806 1,076Pavments as Z of exports of goods

and services Fe 24.0 1.9 18.1 Zo.1

Average Interest rate on new loans )OffIcial-source 5.5 7.4 7.7 rPrivate-source 10.5 14.3 15.5 ( 14.4

Average maturity of new loansOfficLal-source 23.4 20.2 20.9Private-source 11.1 10.1 10.0 9.0

/a Nonmonetary short-term capital, monetization of gold. allocation of SDRs, and errors and omisslons./b Equals change in net international reserves, plus arrears./c Cross reserves of the Central Bank ('lnternational reserves." IFS).7F Public and publicly guaranteed only.Ie Includes prepayments of 5401 million in 1978, S492 millLon in 1979 and $92 million in 1980.

Note: Since the Philippines is In the process of rescheduling its debt, It ls not possible to project capital inflow Eiguresin detail.

East Asia and Pacific RegionMarch, 1984

-27 - AENf I IPage 1 of 2

THE STATUS OF SANK CROUP OPERATIONS IN THE PRILIPPIHES

A_ STATEJOT OF BANIC LOA9S AND IDA CREDITS /aAs of March 31. 1984

Loan orcredit Amount (less cancellations)number FT Borrower Purpose Bank IDA Undisbursed

Thirty-nine loans and three credits fully disbursed 1,192.02 32.ZZ -

1080-PH 1975 Rep. of the Philippines Tarlac Irrtgation 17.00 - 0.011102-PH 1975 Rural Development 25.00 - 0.091Z27-PH 1976 "Chco Irrigation 50.00 - 4.90127Z-T-PH 1976 Manila Urban 10.00 - 0.361282-PH 1976 n Manila Urban 22.00 - 0.801353-PH 1977 Third Highways 95.00 - 18.751367-PH 1977 Jalaur Irrigaetin 15.00 - 0.581376-PH 1977 Fourth Education 25.00 - 2.321399-PH 1977 Central Bank of the Phil. Fourth Rural Credit 36.50 - 0.C61414-PH 1977 Rep. of the Philippines Sat. Irrig. System Improvement 50.00 - 21.951421-PH 1977 Rural Dev. Land Settlement II 15.00 - 2.811460-PH 1978 National Power Corp. Seventh Power 58.00 - 11.441506-PH 1978 Rep. of the Philippines S=aliholder Tree Farming 8.00 - 4.461514-PH 1978 Philippine National Bank PDCP V 30.00 - 0.751526-PH 1978 Rep. of the Philippines Nat. Irrig. Systems Improvement II 65.00 - 35.4Z790-PH 1978 Rural Infrastructure - 28.00 13.84

1555-PH 1978 Philippine Natlonal Bank PIS0 15.00 - 0.011567-PH 1978 Rep. of the Philippines Magat II 150.00 - 5.871572-PH 1978 Industrial Investment III 80.00 - 1-.561615-PR 1979 Manila Water Supply II 88.00 - 34.891626-PH 1979 Rational Extension 35.00 - 21.471639-PH 1979 Magat River Multipurpose 21.00 - 1.061646-PH 1979 Sall Farer Dev. (Land Rank) 16.50 - 3.941647-PH 1979 Second Urban Development 32.00 - 7.281661-PH 1979 Highways IV 100.00 - 47.841710-PH 1979 Water Supply II 16.00 - 16.00920-PH 1979 Water Supply II - 22.00 11.88923-PH 1979 Population II - 40.00 31.20

1772-PH 1980 Sear Island Rural Development 27.00 - 18.831786-PH 1980 "Fiseries Training (Educ. VI) 38.00/c - 29.081809-PH 1980 Medium-Scale Irrigation 71.00 - 55.831814-PH 1980 - Manila Sewerage & Sanitation 63.00 - 38.271815-PH 1980 Rainfed Agric.-Dew. (Iloilo) 12.00 - 7.481821-PH 1980 Third Urban 72.00 - 42.791855-PH 1980 Third Ports 67.00 - 40.261860-PH 1980 Rural Roads Improvement 62.00 - 39.241890-PH 1981 Watershed Manageoent 38.00 - 2S.101894-PH 1981 " Third Livestock & Fisheries 45.00 - 25.631903-PH 1981 Structural Adjustment 200.00 - 0.851984-PH 1981 Central Bank of the Phil. Industrial Finance (Apex) 150.00 - 137.212030-PH 1981 Rep. of the Philippines Elementary educ. Sector Loan 100.00 - 94.562040-PH 1982 " Agric. Support Services 45.00 - 44.302067-PH 1982 Urban Engineering 8.00 - 2.742127-PH 1982 - Textile Sector Restructure 157.40 - 114.172156-PH 1982 N National Fisheries Development ZZ.40 - ZZ.072169-PH 1982 - Stil III 132.00 - 120.72Z173-PH 1982 " Cosmal Irrigation 71.10 - 62.64Z181-PH 1982 National Power Corp. Coal Exploration 17.00 - 14.832200-PH 1983 Rep. of the Philippines Education VItl 24.40 - 21.692201-PH 1983 Philippines Nat. Oil Co. Petroleum Exploration Promotion 13.50 - 9.722202-PH 1983 Petroleum Exploration Promotion 24.00 - 20.712zo3-PH 1983 " Ceotherals Exploration 36.00 - 31.332206-PH 1983 Rep. of the Philippines Water Supply and Senitation 35.50 - 29.012257-PH 1983 Regional Cities Development 67.00 - 66.472360-PH/b 1984 Central Visayas Regional Development 25.60 - 25.601282-I/b 1984 M anila Urban Development Supplement 10.50 - 10.501639-1/b 1984 Magat River Multipurpose Supplement 5.10 - 5.10

Total 3,906.01 122.22 1.468.Z7of which has been repaid(Bank and third parties) 382.75 0.39

Total now uctstanding 3,523.26 121.83Aount sold 31.94

Of which has been repaid(third parties) 25.98 5.96 -

Total now held by Bank and IDA(prior to exchange rate adjtstments) 3,517.30 121.83

Total undisbursed 1,411.35 56.92 1b468.27

/a The status of the projects listed In Part A is described in a separate report on all Bank/IDA-financed projectsin execution, which is updated twice yearly and circulated to the Executive Directors on April 30 andOctober 31.

/b Not yet effective./c Includes $7.6 million NORAD funds.

ANNEX II- 28 - Page 2 of 2

B. STATEMENT OF IFC INVESTMENTSAs of March 31, 1984

Fiscalyear Company Loan Equity Total

1963 & 1973 Private Dev. Corp. of the Philippines 15.0 4.4 19.41967 Manila Electric Company 8.0 - 8.01967 Meralco Securities Corporation - 4.0 4.01970 Philippine Long Distance Telephone Co. 3.7 0.8 4.51970 & 1972 Mariwasa Manufacturing, Inc. 0.8 0.4 1.21970 Paper Industries Corp. of the Phil. - 2.2 2.21971 & 1977 Philippine Petroleum Corporation 6.2 2.1 8.31972 Marinduque Mining and Industrial Corp. 15.0 - 15.01973 Victorias Chemical Corporation 1.9 0.3 2.21974 Filipinas Synthetic Fiber Corporation 1.5 - 1.51974/1979 Maria Christina Chemical Industries, Inc. 1.6 0.6 2.21974 Republic Flour Mills Corporation 1.2 - 1.21975 Philippine Polyamide Industrial Corp. 7.0 - 7.01976/1980 Philagro Edible Oils, Inc. 2.6 0.2 2.81977 Acoje Mining Company, Inc. 2.3 1.2 3.51977 Sarmiento Industries, Inc. 3.5 - 3.51978 Cebu Shipyard and Engineering Works, Inc. 2.1 - 2.11979 General Milling Corporation 4.0 1.1 5.11980 PISO Leasing Corporation 10.0 0.2 10.21980 Ventures in Industry and Business - 0.3 0.3

Enterprises, Inc.1980 Consolidated Industrial Gases, Inc. 4.5 - 4.51981 Loans to Seven Corp. for SMSE 18.5 0.6 19.11981 Philippine Assoc. Smelting & Refining Corp. - 5.0 5.01981 Davao Union Cement Corp. 16.0 - 16.01982 NDC-Guthrie Plantations 11.0 - 11.0

Total Gross Commitments 136.4 23.4 159.8

Less sold, acquired by others, 86.1 14.5 100.6repaid or cancelled

Total Commitments Now Held by IFC 50.3 8.9 59.2

Total Undisbursed 17.62 0.02 17.64

- 29 -

ANNEX III

PHILIPPINES

FIFTH HIGHWAY PROJECT

Supplementary Data Sheet

Section 1: Timetable of Key Events

(a) Time taken by the country to preparethe project :Two years

(b) Project prepared by :MPWH, MOTC and CIAP(c) First Bank mission to consider

the project :March 1981(d) Departure of appraisal mission :February 15, 1983Ce) Completion of negotiations :April 6, 1984(f) Planned date of effectiveness :September 10, 1984

Section II: Special Bank Implementatiou Actions

None

Section III: Special Conditions

(a) the Government would cause the funds for the maintenance of itsnational highways to be allocated in accordance with the revisedEquivalent Maintenance Kilometer (EMK) formula and would review theformula on a biannual basis in consultation with the Bank(para. 51);

(b) the Government would submit before February 1, in 1985, 1986 and1987, for Bank review and approval, its proposed list of bridges tobe reconstructed in the following year's program (para. 56); and

(c) the Government would submit before July 1, in 1985, 1986 and 1987,for Bank review and approval, its proposed list of national highwaysections to be restored in the following year's program (para. 58).

116. 1o2' ITI- 1I4' 42.

Ti. . mp i.Us ln gOpitOed PHILIPPINES

1wad rcs *dis v6ctwO kV I FIFTH HIGHWAY PROJECTarIaf,ui use VI re AWI i DBa,am rrw rJfrU"'hwIa Fe"I Project ComponentsC', W'r ft dflOfIdUb¢"r- e.l his ordo M ro*. on P PROPOSED PROJECTPslol VI rhw t abrEA md VW - IMFROVEMEHT OF NATIONAL HlGrAMEVE,nJmbS,I Few'tIM CcIporabm arlenr sol ¢ ------- ; 5 . RElCONSTRUCRION PROOIRAMO FOR BRIDGE5ifly jepCEl 1151 ON ITIONALI. IGHWAYSof an lefwn ft ainyevnserev,Iw eor pIrnc e ol 1 l,.wch 6o*dOHFs - NATICYAL HIGHWAYS

; a 1 \ 2 - , .RAILWAYSrs. wot¢^ r,n $ INTIRNATIONAL AIRPORTS

* AIRPORTSPORTSFERRIES

- r * ( - REGIONAL EOUNDARIESll rIN- -Ih TERNATIONAL EOUNOARIES

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