Document of The World Bank FOR OFFICIAL USE ONLY Report No: 40764-PH PROJECT APPRAISAL DOCUMENT ON A PROPOSED L O A N IN THE AMOUNT OF US$232 MILLION TO THE REPUBLIC OF THE PHILIPPINES IN SUPPORT OF PHASE 2 OF THE NATIONAL ROADS IMPROVEMENT AND MANAGEMENT (APL) PROGRAM April 15,2008 Transport, Energy and Mining Unit Sustainable Development Department East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document o f The World Bank
FOR OFFICIAL USE ONLY
Report No: 40764-PH
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$232 MILLION
TO THE
REPUBLIC OF THE PHILIPPINES
IN SUPPORT OF PHASE 2
OF THE
NATIONAL ROADS IMPROVEMENT AND MANAGEMENT
(APL) PROGRAM
April 15,2008
Transport, Energy and Mining Unit Sustainable Development Department East Asia and Pacific Region
This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
ADB AusAID APL B A C BIIPs B O M CAS CES CFMS COA CPAR CQ CWR DA DBM DENR DE0 DOF DOTS DPWH DSS EL4 ESRO ESSO FM GAA GDP GOP GPPB IBRD
ICB IDAP IEE IPE ITA IPAP ISAP JBIC LAS
IBRD-PMO
(Exchange Rate Effective February 28,2007)
Currency Unit = Philippine Peso (PHP) PHP48.24 = U S $ l
FISCAL YEAR January 1 - December31
ABBREVIATIONS AND ACRONYMS Asian Development Bank Australian Agency for International Development Adaptable Program Loan Bid and Award Committee Business Improvement Implementation Projects Bureau o f Maintenance Country Assistance Strategy Cost Estimation System Controller and Financial Management Services Commission on Audit Country Procurement Assessment Report Consultants’ Qualifications Civ i l Works Registry Designated Accounts Department o f Budget and Management Department o f Environment and Natural Resource District Engineering Office, o f DPWH Department o f Finance Document Tracking System Department o f Public Works and Highways Decision Support System Environmental Impact Assessment Environment and Social Right o f Way Environmental and Social Safeguards Office Financial Management General Appropriations Act Gross Domestic Product Government o f Philippines Government Procurement Policy Board International Bank for Reconstruction and Development IBRD Project Management Office International Competitive Bidding Integrity Development Action Plan Initial Environmental Examination Independent Procurement Evaluator Independent Technical Audit (of Project) Indigenous Peoples Action Plan Integrity Strengthening Action Plan Japan Bank for International Cooperation Letting and Awards System
FOR OFFICIAL USE ONLY LEB LGU L T P B M MMT MOA MOU MTPDP M W C N C A N C B NCIP NEDA NGAS NRIMP NRS OPRC PAGC PAHRDF PBD PEGR PES PIP PMES P M O PMP PPIAF PSC QBS QCBS RA RAP RBM RIMSS RMA RO ROW RW/BL SARO SBD SEA SEMS SIA SRSuF sss TA TARAS
Lowest Evaluated Bid Local Government Uni t Long-Tenn Performance Based Maintenance Multipartite Monitoring Team Memorandum o f Agreement Memorandum o f Understanding Medium-Term Philippines Development Plan Motor Vehicle User Charge Notice o f Cash Allotment National Competitive Bidding National Commission on Indigenous Peoples National Economic Development Authority N e w Government Accounting System National Roads Improvement and Management Program National Roads System Output- and Performance-based Road Contracts Presidential Anti-Graft Commission Philippines-Australia Human Resource Development Facility Philippine Bidding Document Philippines Economic and Governance Reform Proposal Estimation System Project Implementation Plan Project Monitoring and Evaluation System Program Management Office Preventive Maintenance Program Public-Private Infrastructure Advisory Facility Project Steering Committee Quality-Based Selection Quality and Cost Based Selection Republic Act Resettlement Action Plan Results Based Management Road Information and Management Support System Road Management Authority Regional Office Right of Way Road Watch (Bantay Lansangan) civi l society alliance Sub-Allotment Release Orders Standard Bidding Documents Strategic Environmental Assessment Social and Environment Management Systems Social Impact Assessment Special Road Support Fund Single Source Selection Technical Assistance Traffic Accident Recording and Analysis System
Vice President: James W. Adams Country Director: Bert Hofman
Sector Manager: Junhui Wu Task Team Leaders: W i l l i am D. 0. Paterson and Ben L.J. Eijbergen
This document has a restricted distribution and may be used by recipients only in the performance of their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.
Philippines
National Roads Improvement and Management Program (Phase 2) Project
Contents
Page
I . STRATEGIC CONTEXT AND RATIONALE ..................................................................... 1
A . B . C .
I1 . A . B . C . D . E . F .
I11 . A . B . C . D . E . F .
I V . A . B . C . D . E . F . G .
Country and Sector Issues ................................................................................................... 1
Rationale for Bank Involvement ......................................................................................... 3
Higher Level Objectives to Which the Project Contributes ................................................ 4
Annex 14: Statement of Loans and Credits ............................................................................ 137
Annex 15: Country at a Glance ............................................................................................... 139
IBRD M a p No . 35476
PHILIPPINES
NATIONAL ROADS IMPROVEMENT AND MANAGEMENT (APL) PHASE 2
PROJECT APPRAISAL DOCUMENT
EAST ASIA AND PACIFIC
EASTE
Date: April 15,2008 Country Director: Bert Hofinan Sector ManagedDirector: Junhui W u
Team Leader: William D. 0. Paterson Sectors: Roads and highways (82Yo);Central government administration (1 8%) Themes: Rural services and infrastructure (P);Other financial and private sector development (S);Technology diffision (S);State enterprisehank restructuring and privatization (S) Environmental screening category: Partial Assessment
For Loans/Credits/Others: Total Bank financing (US$m.): 232.00 *
Borrower: Republic o f the Philippines Philippines
Responsible Agency: Department o f Public Works and Highways Bonifacio Drive, Port Area Philippines Tel: 304-3000 Fax: 304-3487 www.dpwh.gov.ph
FY 4nnual Zumulative
Expected effectiveness date: September 1,2008 Expected closing date: December 3 1 , 201 2 Does the project depart from the CAS in content or other significant respects? Re$ PAD I. C. Does the project require any exceptions from Bank policies? Re$ PAD I K G.
I s approval for any policy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”? Ref: PAD III. E.
[ ]Yes [XINO
[ ]Yes [XINO
[ ]Yes [XINO
[XIYes [ ] N o
Have these been approved by Bank management? [ ]Yes [ IN0
[XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Ref: PAD I K G.
.I
Project development objective Re$ PAD II. C., Technical Annex 3 The Program goal i s the establishment o f road management arrangements which ensure the upgrading and preservation o f the National Road System (NRS) in an environmentally, socially and financially sustainable manner.
The development objective for Phase 2 is : Improved operation, organizational effectiveness and fiduciary control in the management and financing o f the national road system, to enhance road user satisfaction in the project areas and efficiency and integrity in the use o f financial resources.
Project description [one-sentence summary of each component] Re$ P A D IXD., Technical Annex 4 Part A: Improvement and Preservation o f National Road Assets, including:
A. 1 - Improvement o f 450 km o f national arterial roads and related bridges, including
A.2 - Delivery o f a comprehensive road maintenance program through long-term upgrading o f 146 km and rehabilitation or widening o f 304 km;
performance-based contracts and preventive, routine and emergency maintenance;
Part B: Institutional and Capacity Development, including: B. 1 - Improved business processes for planning, communications and implementation made
B.2 - Improved organizational effectiveness and integrity o f public road management operational countrywide;
services in D P W H through reforms in corporate processes, partnerships, and service delivery;
framework for subsequent sector restructuring; and B.3 - Strategic sector reform, including strengthened operation o f the Road Fund and a
B. 4 - Training and Workshops Which safeguard policies are triggered, if any? Re$ PAD IVY., Annex 9 Environmental Assessment (OP/BP 4.01)
comments from road sector experts and the Road Partners, wi l l be approved no later than September 30,2009. D P W H shall: (i) carry out the Project in accordance wi th the Integrity Strengthening Action Plan and in a manner satisfactory to the Bank; and (ii) monitor the implementation o f said plan on an ongoing basis and to evaluate the achievement o f the plan’s objectives by June 30 and December 31 o f each year, starting December 31 , 2008. D P W H shall: (i) complete the implementation o f recommendations arising from i t s 2006 external audit report in accordance with a time-bound action plan satisfactory to the Bank; and (ii) for the duration o f the Project, within twelve (12) months from issuance o f subsequent external audit reports, complete implementation o f recommendations, if any, arising from such subsequent external audits, al l in a manner satisfactory to the Bank. DOF shall arrange annually a meeting with representatives o f DBM, DOF, NEDA, Road Board, Bank, Co-financier, and Road Watch to review progress on the pol icy aspects o f the Program. D P W H shall ensure that the Project is carried out in accordance with the provisions o f the Anti-Corruption Guidelines, 2006.
9.
10.
1 1.
12.
I. STRATEGIC CONTEXT AND RATIONALE
A. Country and Sector Issues
1. Recent reforms have started to deliver improved outcomes, but there are many challenges ahead. For some years, the Philippines’ per capita growth performance has lagged significantly behind other East Asian countries, and domestic and foreign investment flows have been well below the level reached by i t s neighbors. However recently, there have been some positive signals on growth and investment levels in the Philippines. For example, GDP expanded by 7.3 percent in 2007, the highest in decades. External imbalances remained robust, due mainly to rising remittances fi-om migrant workers and large capital flows. The country’s economy has the basis for a vibrant private sector, liberal domestic and foreign investment regimes, and good entrepreneurial capacity o f i t s human resources. The country has also benefited substantially fi-om strong intra-regional trade. In addition, i t has a very active c iv i l society which i s a potential agent for change. Yet, political and institutional hurdles have made a long term coherent reform agenda difficult to implement in the country.
2. Inadequate infrastructure, especially roads, is perceived as one of the serious constraints to investment and therefore to growth. ’ As an archipelago, transport i s critical to the national economy o f the Philippines. The country’s transport system i s based largely on roads and inter-island shipping - the two modes account for almost al l freight and passenger traffic. While some progress has been made in the past few years, the efficiency o f the road network in promoting growth and providing safe access has been l imited by high levels o f congestion, widespread poor condition o f roads and bridges, inadequate connectivity, and the lack o f a sustainable road safety strategy. As a result, for example, intercity freight rates in the Philippines are more than 50 percent higher than in Thailand or Vietnam.
3 . After a period of under-investment, investment in the national road network is picking up. Capital expenditures on the road networks were at a l o w o f P34 bi l l ion (0.9 percent o f GDP) in 2002, and rose little during a period o f fiscal constraint until 2005. Historically, private sector investment in the sector has been low due to an uncertain investment climate, poor legal environment and land acquisition problems. While h n d s allocated to road maintenance have risen since 2004, due to rising revenues fi-om road users in a Special Road Support Fund (SRSuF), these were only about one third o f the estimated needs in 2006 and cost recovery needs to rise further. With the recent resurgence in the economy, the capital budget and SRSuF for 2007 rose to P69 bi l l ion (1.8 percent o f GDP), which could restore the sector if well prioritized, spent efficiently and sustained. The Government has made infrastructure a priority, and the 2008 budget has an additional P 14.3 bi l l ion for infrastructure.
4. Government has moved on the road sector reform agenda but progress is variable. Road sector reform was initiated in 1997 and articulated in the Better Roads Philippines 2000 study (1999). The reform strategy focused on sustainable financing through road user cost recovery, and commercialization o f road sector operations through establishment o f a road management authority and increased private sector participation. At the institutional level, the
’ Philippines: Meeting Infastructure Challenges. World Bank and Public Private Infrastructure Advisory Facility (2005).
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road fund and Road Board were established in 2001 and became fully operational in 2004 and the road maintenance program was expanded. At the organizational level, the internal business processes in Department o f Public Works and Highways (DPWH) are being improved; however the organization i s s t i l l large and over-staffed. The proposed establishment o f a road management authority did not receive political backing in 2002-04, despite extensive consultations and study o f options. Given the difficulty o f mobilizing legislative support for a comprehensive institutional overhaul, attention has now shifted to incremental reform and improving the efficiency o f the current organizations. A Rationalization Plan was prepared for D P W H in 2006 under a national program which would move the agenda forward on this basis.
5. Operational performance has been mixed but the maintenance regime is improving. Many chronic contract performance problems relating to major c iv i l works that had been outsourced to the private sector for many years have been overcome, especially in avoidance o f disputes and in prompt and policy-compliant land acquisition. However, some operational difficulties persist, including cost over-runs, slow contract administration and, in some instances, weak quality and supervision. For road and bridge maintenance, funding has been rising but needs to be more effectively programmed and efficiently utilized - budget allocations are fragmented to District level, are not need-based, are drained by administration costs, and are exposed to r isks when used for employment-generation programs. Under NRIMP-1, progress was made through a centrally-programmed preventive maintenance program, and through pi lot ing long-term performance-based contracts which provide comprehensive management o f long sections o f road. Expanding and institutionalizing these approaches for the future calls for reforms in the programming and budgeting process, the control o f implementation and costs, the excessive staffing and high administrative budget, and other organizational or jurisdictional issues.
6. Corruption has been a major threat to the efJiciency and fairness of procurement process in the Road Sector but reforms are being introduced. There i s a widely held perception that national and international competitive procurement have often been affected by collusion and bid-rigging among contractors, with high payoff margins (see Box 1). T o counter the problem, Government has tightened rules, improved oversight, opened competition and reporting, and enforced bid ceilings in national procurement reform. Apart from bid ceilings, which the Bank’s procurement pol icy does not support, the other corrective measures mentioned above are being put in place to strengthen international procurement under NRIMP 2. Among the business process reforms in DPWH, computerization o f the contractor qualification process has improved the efficiency and transparency o f procurement, and other electronic support systems are ready to be implemented. The budgeting process i s also being improved at the national level to address perceptions o f manipulation, especially the allocation for general maintenance and project listing in capital budgets, and to reduce the opportunity for budget realignment and authorization which at times have been instruments o f cash diversion. Fighting corruption is a formidable challenge that cuts through sectors and levels o f bureaucracy. A Government framework for strengthening integrity i s now in place for D P W H that mitigates corruption risks through information sharing, independent monitoring involving beneficiaries, better use o f communication technologies, tighter financial controls, and the broader goal o f promoting integrity among staff (Annex 13).
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Box 1: Evidence of Collusion and Bid-rigging in Road Contracts
In 2003, the Bank’s supervision identified s igns o f bid-rigging in the procurement o f two roads contracts under NRJMP-1 and rejected award of the contracts. Two further rounds o f bidding in 2004 and 2006 revealed similar signs and were also rejected, The Bank’s task team referred the information to the Department o f Institutional Integrity (INT) in 2003, who concluded an investigation in 2007 and found that a cartel o f contractors had engaged in corrupt and collusive practices in all three rounds o f bidding, undermining competition in roads construction in the Philippines and inflating prices by up to 30%. These findings were disclosed to the Government o f the Phlippines in November 2007 for possible follow-up under Philippines law. In addition, INT has initiated the Bank’s internal process for determining whether the practices detected in the investigation merit the application of Bank Group sanctions. The investigative findings were also crucial in designing mitigating measures for the new project, described in Box 2.
B. Rationale for Bank Involvement
7. There is a compelling case to continue the Bank’s strong engagement in the Road Sector. Since the launch o f the road sector reforms in 1997-99, the Bank has been a key development partner in reshaping the sector. The Bank’s NRIMP-1 project has put in place a strong platform for further reforms in the sector and the Government has substantially met the triggers for the launch o f the Phase 2 Project. NRIMP was launched in 2000 as a three-phase 10- year adaptable program to support the Government’s sector reform goals and the sustainable development and operation o f the National Roads System (NRS). Under this program, the road fund was established and became operational, the critical financial management and environmental safeguards processes were established, and the physical targets were achieved, albeit with a delay o f two years. The Department achieved progress in developing and piloting an impressive set o f business process improvements and tools designed to modernize road management and business procedures. However, legislative support could not be mobilized for a road authority for the NRS due to frequent leadership changes and severe fiscal constraint in the period 2002-06. An independent progress review o f the A P L triggers o f Phase 1 concluded that (i) the triggers and timeframe o f NRIMP- 1 were over-optimistic, given the implementation capacity o f DPWH, and (ii) that continuation o f Bank engagement in the APL framework was fully justified, since the development objectives for NRIMP- 1 had been substantially met. Given the recommendations o f the independent review and the experience gained under the project on the degree o f difficulty in gaining legislative support for reforms, the Bank has decided to proceed with Phase 2 but shift its approach to focus on administrative reforms, and to reschedule the legislative reforms needing legislation to Phase 3. The Table below shows progress under the triggers for Phase 2 o f NRIMP.
8. Through its engagement, the Bank has the opportunity to act as a catalyst in promoting institutional integrity. Consistent with the Bank’s country assistance strategy o f building islands o f good governance, this Project takes a comprehensive approach in adopting an integrity strengthening strategy that focuses on both institutional capacity-building measures and specific project-protection measures. Given the risk o f leakage o f resources in public works to corruption, particularly in road works, the strengthening o f anti-corruption efforts and governance in the road sector and D P W H i s a high priority, for both the Government and the Bank. The project can have significant impact on the overall integrity development efforts and standards o f DPWH.
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The project design addresses these issues, builds on government integrity programs, develops new integrity measures for the sector, provides special measures for protecting public funds and Bank funds, and involves beneficiaries in external monitoring o f the effectiveness o f governance measures. These are fully consistent with the Bank’s own 2006 Governance and Anti- corruption strategy.
recommendations 200 1-03 but institutional and legislative action not adopted. DPWH 2006 Rationalization Plan i s partial alternative. Incremental approach and reconsideration o f targets recommended. * Complied. Achieved October 2005 at central level and pilot regional and district offices, as planned.
Complied. Environmental and Social Safeguards Office (ESSO) established 2004, highly effective and fully operational. Formal structural status awaits implementation o f proposed Rationalization Plan.
Complied. Achieved October 2005.
C. Higher L e v e l Objectives to W h i c h the Project Contributes
9. The Project contributes to the Bank’s development effectiveness in the Philippines by supporting its Country Assistance Strategy and promoting harmonization of donor efforts. The Philippines CAS embodies a two-pronged approach: f i rs t a “back-to basics” approach aimed at improving service delivery rather than sophisticated reform design, and second, a programmatic approach to plans for strengthening agency effectiveness and service delivery. D P W H i s regarded as a strong candidate to demonstrate the effectiveness o f this strategy, particularly in i t s ability to improve service delivery through better policy, planning and monitoring systems. The CAS also emphasizes interventions in procurement and financial management that can effectively combat corruption. One example i s the support for implementation o f the Philippines 2003 procurement law by the World Bank and other development partners. A t the March 2008 Philippines Development Forum, government and donors agreed to work together on the regulatory framework for procurement for all foreign- assisted projects. Among donors in the transport sector, ADB, JBIC (the dominant partner for the capital investment program) and JICA are all preparing programs that support the road maintenance program, and that would rely on the business processes and integrity framework. From all these perspectives, NRIMP i s a high value program because i t i s enabling D P W H to modernize i t s business model, to formulate and implement strategic sector reforms and to combat corruption. It also serves as a catalyst to generate coordinated support from other donors.
10. The Project serves to promote Philippines’ National Development Goals. The project investments and reforms are priorities in the Government’s 2005- 10 “Medium-term Philippines Development Program” (MTPDP) and i t s commitment to more efficient preservation o f
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infrastructure assets. The investments support the focus o f the President’s program on the Strong Republic Nautical Highway (SRNH) facilitating transport linkages between the Luzon, Mindoro, Panay, Negros and Mindanao islands. The project supports the GoP national effort to develop institutional integrity in the public sector, and provides a strong basis on which a joint anti- corruption and integrity development plan can become a model for other sectors in the future.
11. PROJECT DESCRIPTION
A. Lending Instrument
11. The National Roads Improvement and Management Program i s an Adaptable Program Loan (APL) comprising three phases with current and projected loan amounts o f US$150 mi l l ion (NRIMP-l), proposed US$232 mi l l ion (NRIMP-2), and about US$300 mi l l ion for NRIMP-3, for a total loan amount o f US$680 million. The Program was init ial ly designed as a nine year Program engagement with overlapping phases and a total loan amount o f US$950 million. However, NRIMP-1 experienced not only delays in implementation and cancellation o f some civ i l works (Box 1)’ but also foreign exchange savings, so that after a seven year implementation period, the project was closed and US$28 mi l l ion was cancelled. Based on the experience gained from NRIMP- 1 implementation, the recommendations o f the independent review and substantial achievement o f the triggers (para. 7), Phase 2 would proceed with more realistic size and scope and corresponding reduction in intermediate targets. NRIMP-2 i s designed to be completed within five years from 2008 through 2012, and the loan amount has been reduced by over 20 percent from US$300 mi l l ion to US$232 million.
B. Program Objective and Phases
12. The Program goal is the establishment of road management arrangements which ensure the upgrading and preservation of the National Road System (Nm) in an environmentally, socially and financially sustainable manner. This 3-phase Program i s designed to incrementally reform the sector structure to improve overall service delivery and effectiveness, and to improve the road network. Phase 1 established the user-based financing system, undertook a range o f business process improvements at the agency level to modernize the Department’s planning and technical decision making and business management processes, introduced asset preservation programs and established a feasible road improvement program. Phase 2 i s designed to build on Phase 1 by enabling the Department to institutionalize these new processes across al l offices o f the agency, to modernize the corporate structure and processes and reconsider the direction o f road management reforms, and to expand the road asset preservation and improvement programs. Phase 3 i s currently envisaged to scale up the improved road management model, including establishment o f a road authority if found appropriate. An overview o f the Program design i s given in Annex 4A.
C. Project Development Objective and Key Indicators
13. The project development objective for Phase 2 is consistent with the objectives of the longer term NRIM Program. I t i s to: Improve operation, organizational effectiveness and fiduciary control in the management and financing o f the national road system, to enhance road user satisfaction in the project areas and efficiency and integrity in the use o f financial resources.
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14. outcomes or results by the close of Phase 2 of the Program (details in Annex 3):
The achievement of this development objective will be evidenced by the following
Administrative efficiency improved - Project delivery time reduced (with: Improved road management organization implemented, new planning and business tools applied, processing times for procurement, payments and land acquisition reduced);
Sustainability o f financing for NRS asset management - Increased cost recovery from road users (with revenues to the Road Fund increased from 40 percent to at least 60 percent o f asset preservation needs);
Value for money improved - Medium-term average cost o f preserving national paved roads reduced (with economic prioritization of preservation program, contract cost and time over-runs reduced, long-term and preventive maintenance contracts implemented, bid price excess reduced, integrity strengthening plan targets met); and
Road user satisfaction with the National Road System improved - user survey results improved (with condition o f national roads improved, length o f paved roads increased).
The trigger criteria for appraisal o f Phase 3 o f the Program are as follows:
Substantive reorganization of D P W H based on a corporate audit and corporate plan consistent with the Program goals has been authorized and implemented; Engagement o f D P W H with a Road Partnership o f non-governmental and private entities for the purpose o f assessing road sector performance i s sustained for at least three years; Completion o f annual, independent third party technical and financial audits and D P W H timely compliance with key recommendations o f each audit report; Road sector reforms have been implemented satisfactorily including: (i) Updating o f Road Board mandate and regulations; (ii) Sustainable expansion o f road user cost recovery authorized; (iii) Plan for institutional reform o f road management i s authorized and submitted for legislation. Achievement o f results in institutional capacity development components B 1 and B2, including Integrity Strengthening Action Plan, reaches at least 60 percent o f Results Indicators o f each component; and Loan disbursement i s at least 60 percent in Category 2(c) and overall.
D. Project Components
16. The project will support: (a) improvement of 450 km o f national arterial roads and related bridges, including upgrading o f 146 km and rehabilitation or widening o f 304 km; (b) delivery o f a comprehensive road maintenance program through long-term performance-based contracts and preventive, routine and emergency maintenance; (c) improved organizational effectiveness and integrity o f public road management services in D P W H through reforms in corporate processes, partnerships, and improvements in service delivery structures; and (d) strengthened operation o f the Road Fund and a framework for subsequent sector restructuring.
Part A: National Road Improvement and Asset Preservation
17. Component A.l: National Road Improvement (estimated cost US$238.5 million, incl. US$123.9 million loan). Works and services for road upgrading, rehabilitation and
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widening, bridge replacement, and landslide rehabilitation, totaling approximately 450 km of roads and about 1,000 m bridges on the arterial National Road Network.
18. Component A.2: Road Asset Preservation (estimated cost US$280.8 million, incl. US$86.9 million loan). The coverage o f preservation works on the national road network wil l be expanded in partnership with the Road Board, including financing on a sector-wide basis, and comprehensive long-term performance-based maintenance, as follows:
A2.1 Long-term Maintenance (US$152.3 million, incl. US$52.1 million loan) - support for long-term performance-based contracts o f about five-year duration for comprehensive maintenance on about 1,000 km length o f the arterial road network including the Strong Republic Nautical Highway (5 percent coverage o f the paved length o f NRS); and
A2.2 Preventive Maintenance (US32.0 million loan) - finance for an 11 percent slice o f the national road maintenance program in partnership with the Road Board, supporting preventive maintenance o f about 1,200 km o f the national road network annually over four years, through a sector-wide approach and mechanism for reimbursement to the Road Fund.
A2.3 Maintenance Services (US$2.8 million loan) - advisory support for implementation o f the asset preservation program and for improving the service delivery o f routine/general maintenance under DPWH/SRSuF.
Part B: Institutional and Capacity Development
19. Component B.l: Business Process Improvements (estimated cost US$47.1 million, incl. US$l8.0 million loan and US$4.1 million grant). The modern business tools for planning, financial management and procurement that were designed and piloted under NRIMP- 1 will be institutionalized and implemented in al l regional and a majority o f district offices o f DP WHY including expansion o f the communications networks and computerization, conduct o f regular asset surveys, and strengthening internal controls and internal audit.
20. Component B.2: Corporate Effectiveness (estimated cost US$7.5 million, incl. US$1.1 million loan and US$6.4 million grant). This will upgrade and modernize the corporate structure, processes and operating codes o f D P W H to make i t a user responsive, transparent, and efficient public sector agency with high integrity standards, and wil l enable effective participation by road users and citizens, through four subcomponents, i.e. :
B.2.1: Organizational Effectiveness. Enhancement o f D P W H effectiveness through an institutional audit and organizational restructuring, including national initiatives on rationalization, corporate standards, integrity, performance management and leadership.
B.2.2: Road Partnerships. Support for a multi-stakeholder partnership o f road users and non-governmental organizations for improving responsiveness and transparency in the road sector, for communicating with DPWH, Road Board and various government agencies.
B.2.3: Road Management Service Delivery. Support for a pi lot trial o f options for commercializing the current operations o f district engineering offices to improve service delivery o f road maintenance and other functions.
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B2.4: Integrity Support. Support for strengthening the fiduciary integrity o f the project implementation, through independent technical audit, parallel procurement evaluation, and strengthening institutional integrity.
21. Component B.3: Strategic Sector Reform (estimated cost US$1.2 million, loan). Support to strengthen the operations o f the Road Board and update i t s mandate, review road cost recovery, and to revisit options for restructuring the management and delivery o f services in the sector.
22. Component B.4: Training and Workshops (estimated cost US$0.3 million, loan). Activities for facilitating achievement o f the Project objectives and related sk i l ls development.
E. Lessons Learned and Reflected in the Project Design
23. Cost and Time Over-runs need to be reduced through improved Procurement and Contract Management. In both the network upgrading and preventive maintenance components o f Phase 1, there were significant internal delays in the procurement process and completion which resulted in frequent quantity, time and cost increases. Contract administration improved over previous experience, but the application o f penalties was uneven. Payment processing improved but uneven release o f funds resulted in payment delays to some contractors, and poor cash f low contributed to delays in execution o f works. A lengthy approval process for variation orders and supplemental agreements, which was intended to tighten control over cost increases, instead contributed to the delays. Under NRIMP-2 the new business processes supporting procurement and contract administration, developed under NRIMP- 1 , will be applied, together with a series o f improved contract provisions (see Annex 6, 8).
24. Satisfactory Utilization of Funds is Critical to Confidence in Road Fund Mechanism and Sector Reform. Although the administration o f revenue collection was generally satisfactory, confidence in the Road Fund and Board - and more generally in sector reform - was weakened by the appearance o f political influence and entitlement in the allocation and utilization o f the funds. Operation o f the Board improved with sound technical advice but requires more discipline in the prioritization o f funds and also a more effective and better informed voice o f road users and citizens. The good experience with the pi lot long-term performance-based maintenance program and prioritized preventive maintenance program has led the Road Board and D P W H to extend these to ensure the efficient use o f maintenance resources. The Project wi l l partner with the Board to finance an expanded maintenance program, strengthen operational procedures, strengthen citizen voice, and review the direction o f reform.
25. Modernization of technical and business processes requires corresponding reforms at the organizational level in order to be sustainable. While the development o f improved planning, financial management and other processes was successful under NRIMP-1 , the new tools are not yet fully understood and utilized. The process has been a model o f participatory and consultative approach, with good management champions o f the reforms and new business processes. Nevertheless parts o f the organization, including parts o f management, are still bound by outmoded norms, methods and practices. Staffing issues are emerging since, despite extensive training inputs, the skilled staff are migrating to the private sector. The substantial operation and maintenance costs o f information technology are also emerging. The Department has undertaken several strategic reassessment exercises across the agency to identify the areas o f
8
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.
26. Restructuring at the sector level requires broad-based, strong client ownership and is an incremental process. The twin-pronged approach o f internal business process improvements within the agency, and parallel sector and institutional reforms, has been partially successful. The technical and business process reforms gathered momentum through the design and pi lot phases, and the reform o f financing through cost recovery became operational, but the reform for separating policy from operations did not gain traction. Despite the early support o f top management who set the original reform agenda, the scale o f restructuring the large department later at a time o f political uncertainty proved overwhelming. Under Phase 2, an incremental approach has been adopted based on consultations within and with DPWH. This w i l l build on the achievements to date but modify the reform goals to a realistic target and monitor the progress made in achieving the goals with the following f ive key elements, i.e.: 0 Continuation o f the road improvement program, with emphasis on stimulating large
domestic firm capacity and improving long-term durability and performance o f road pavements; Improving the coverage and management o f the road preservation program, through augmenting the Road Fund and partnering with the Road Board, consolidating road maintenance works into performance-based and larger contracts, and encouraging socially-responsive private sector participation; Fostering public accountability in the sector and enhancing the use o f funds through a strong citizen voice and a focus on the results and impacts achieved in both physical and institutional performance; Adopting a more incremental and calibrated approach to sector reform, which would improve business and corporate processes f irst, pi lot a more commercial approach to the entire sector, and use these to shape appropriate sector wide restructuring; and
0 Reducing corruption in the sector through a comprehensive approach based on prevention, deterrence, enforcement o f sanctions, education, and public-private partnerships.
0
0
0
27. Corruption is heavily influenced by both internal and external environments, so remedial measures need to be comprehensive and targets realistic. The Integrity Strengthening Action Plan for DPWH, which supports and runs in parallel with the project, draws on experience under Phase 1. This showed that while many improvements had been made in procurement processes internally and through project controls, vulnerabilities remained in the bid evaluation and approval processes and in external pressures that limit competition in the industry and result in prevalent over-pricing through collusion. Financial audit findings pointed to numerous internal control weaknesses, and project selection in the general capital budget reflected a fragmented and distorted approach to budget allocation under external influence. The project design has to face this wide range o f vulnerabilities with a choice between seeking sustainable systemic change and a narrower ring-fencing o f the project. The project adopts the systemic approach, but with specific protections for the project. The Integrity Strengthening Action Plan (ISAP) aims to control corruption in procurement for the project, based on the analysis o f r isks and the r i s k environment, and i s supported by the range o f measures
9
incorporated in the financial management controls implemented through the project (see Box 2). The plan extends also to cover institutional capacity building actions to strengthen the governance environment in the road sector and reduce corruption at the agency and transaction levels.
Box 2: Key Anti-Corruption Mitigation Measures in NRIMP-2
The NRIMP-2 project incorporates a comprehensive range o f measures designed to build institutional capacity and governance, to strengthen the fiduciary controls over the use o f loan proceeds, and to strengthen social accountability and the demand for good governance from civi l society. Many o f these measures have been strengthened due to the incorporation o f lessons learned from NRIMP1 and discussions with Government on appropriate measures to mitigate the systemic r isks identified in the NRlMP INT investigation. Key points follow, and details are given in Annexes 4B, 8 and 13.
a.
b.
C.
d.
e.
f.
g.
Use of an Independent Procurement Evaluator (IPE) to improve the transparency and integrity o f procurement processes, through independent monitoring o f key steps o f the procurement process. Further enhanced procurement controls to ensure the reliability o f contract cost estimates, detect over-pricing through bid analysis, enhance supervision control over contract variations and disseminate complaints mechanism in bid documents. Adoption by Government of the 2006 Guidelines for Procurement under IBRD Loans and Credits, which include enhanced provisions for combating fraud and corruption. Strengthening internal controls and internal audit capacity in DPWH in order to address key deficiencies revealed by official audits o f the agency. Two conditions o f project effectiveness cover: a) internal audit assistance and internal control systems; and b) qualifications and sufficiency o f proj ect financial management staff. Adoption of Enhanced Business Processes - With increased use o f computerized business systems and enhanced processes for procurement and financial management (developed by DPWH under NRIMP-l), the efficiency o f transaction processing would be improved and the opportunities for interference would be reduced. Independent Oversight by Civil Society - A coalition o f citizen and road user groups has been established, named “RoadWatch” (“Bantay Lansangan”), to strengthen the voice and influence o f citizens in ensuring transparency and proper use o f public funds for roads, and to counter corruption at high levels o f government and society. Partnership with the Road Board in Management of the Road Fund - Assistance to the Road Board and its Secretariat to apply strong transparent procedures for administering the special funds, and to produce more efficient, equitable and needs-based expenditure programs.
F. Alternatives Considered and Reasons for Rejection
28. Dropping Phase 2 of NRIMP based on failure to meet one of the triggers for Phase 1, or recasting it as a technical assistance project given the procurement lapses in Phase 1 were options considered but rejected. The failure to meet the Phase 1 trigger, specifically the establishment o f a road management authority and introduction o f a fuel levy, has to be seen in the context o f the solid foundation developed for internal business process reform under NRIMP- 1, the time required to institutionalize such changes, the need for continuity o f Bank support to optimize the returns, and the degree o f difficulty and unrealistic timeframe relating to the trigger identified by the independent reviewer as the critical reason for failure. This trigger has to be cast
10
in a more realistic timeframe and approached incrementally in Phase 2 in order to identify appropriate solutions and develop national support. Given that investment support for the roads program i s critical for sustainable growth in Philippines but also taking note o f lower trigger thresholds, the proposed loan amount o f US$300 mi l l ion has been reduced to US$232 mi l l ion for Phase 2. The risks o f procurement lapses have been addressed by strengthening integrity under the project, particularly in regard to procurement processes. Here, the option o f ring-fencing the project by employing an independent procurement agent was considered but rejected in favor o f building sustainable mechanisms instead. T h i s includes independent benchmarking through using a parallel procurement evaluator, enhanced internal controls systems, and strong civ i l society monitoring to strengthen transparency and integrity. The use o f bid ceilings in I C B procurement was requested by the Government, based on their experience o f i t s adoption for N C B procurement as an interim measure to counter bid-rigging. This would have required a waiver o f Bank pol icy which i s not now proposed, but alternative safeguards were introduced to deal with collusion and bid-rigging.
111. IMPLEMENTATION
A. Partnership Arrangements (if applicable)
29. The project would operate in a cojkancing partnership with the Government’s Road Board. It would finance a slice o f the Board’s annual program on road maintenance in a sector- wide approach over four years and provide capacity-building support. The terms o f the partnership are defined in a Memorandum of Understanding regarding the procedures and monitoring to be applied based on strengthened national systems. The program comprises: (i) the long-term performance-based maintenance program, costing US$152 mi l l ion and financed 64/36 percent by the SRSuF through counterpart funds o f about US$lOO mi l l ion and loan funds o f about US$52 mi l l ion disbursed on a transaction basis; (ii) a four-year slice o f the preventive maintenance program, in which about US$91 mi l l ion from the SRSuF i s supplemented by a contribution o f US$32 mi l l ion from the loan, on a reimbursement basis subject to disbursement conditions relating to the operational procedures; (iii) services to support BOM in supervision o f the maintenance program; and (iv) advisory services to enhance operations o f the Board, and review strategies for further road sector reform (both services financed by the loan).
30. The Australian Agency for International Development (AusAID) will provide grant cojkancing. It would support selected governance and human resource development elements o f the capacity development component (totaling US$10.5 mi l l ion equivalent). The funding would be provided through two Technical Assistance Facilities - the Philippines-Australia Partnership for Economic Governance Reforms (PEGR) o f March 2005 and the Philippines- Australia Human Resource Development Facility (PAHRDF) o f August 2004. The Facilities are managed joint ly by the Governments o f Australia and Philippines in Manila. Goods and services funded under the Facilities would be procured and administered b y the management team o f each Facility under Australian government procedures. The activities supported include: (i) B. 1 (a) Financial management and internal control systems; and building internal audit capacity; (ii) B.2.1 Organizational Effectiveness, including internal assessment and development o f a reorganization plan for DPWH; (iii) B.2.2 Road Partnerships, including operational support for the new road sector citizen group, Road Watch; and (iv) B2.4 Integrity Support, including independent procurement evaluation, and technical audits.
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B. Institutional and Implementation Arrangements
31. The Department of Public Works and Highways (DPWH) will be responsible for executing the project. Government oversight i s provided by DBM for budget execution, NEDA for development planning and authorization o f the project scope and cost, and DOF for execution o f the legal agreement. T o ensure achievement o f the Program goals and results, these agencies wi l l meet at least annually with the Bank and Cofinancier to review program performance and progress on policy matters. A Project Steering Committee (PSC), comprising Office, Bureau and Division heads in DPWH, wil l be responsible for general administration, coordinating and monitoring implementation o f the Project.
32. The project will be implemented by existing offices of D P W H under the management of a Program Management Office (PMO). The P M O will be responsible for procurement preparation, contract administration, and monitoring o f implementation and results, through three component managers, as follows:
(a) Road Improvement component manager will manage the implementation o f component A. 1, comprising works and services;
(b) The Asset Preservation component manager will coordinate component A.2 through the Road Program Office and Bureau o f Maintenance (BOM), and contracts will be implemented through the Regional and District Offices;
(c) The Institutional and Capacity Development component manager wil l manage and supervise the institutional capacity building component (B.1, B.2 and B.4), and wil l provide coordination for the services under the grant co-financing; and
(d) The Road Board Secretariat w i l l manage the procurement and implementation o f advisory services for the sector reform task (B.3).
33. Project financial management (FM) will be managed through the existing Controller and Financial Management Services (CFMS) and PMO Office. The main FM system (under CFMS) wil l be used to maintain the books o f accounts, monitor the Designated Account (DA) and prepare the Project Financial Reports required by the Bank. The subsystem under the P M O does initial screening o f transactions, prepares disbursement vouchers, SOEs and Withdrawal Applications for the DAY manages DA, and prepares other financial management reports. D P W H will appoint a qualified financial management head and a core o f financial management staff with an adequate number o f qualified accountants and supervisors for the Project FM. Internal controls and audits wi l l be strengthened for both the Project and Department by an independent internal audit firm. The project wil l be subjected to a semi-annual internal audit review with corresponding reports submitted no later than a month after the review period. An Annual Audit Report for the project wil l be required to be submitted by the Commission on Audit, the government’s auditor, no later than six months after the end o f the fiscal year to the Bank.
34. For procurement, technical aspects will be conducted by the implementing offices mentioned above, and commercial aspects including evaluation and award will be conducted by the Procurement Office. This office wi l l use national e-procurement procedures, which are approved by the World Bank, ADB and JIBC, and new RIMSS procurement systems. Award decisions wil l be made by the D P W H Bid and Award Committee (BAC). Under integrity
12
provisions, al l project procurement wi l l be subject to independent parallel evaluation by the Independent Procurement Evaluator (IPE), which wil l be made available for the B A C decisions and reported to the D P W H Management Committee, GPPB and the Bank. An independent project technical audit (ITA) wil l audit cost estimates and contract prices including amendments, implementation quality, and verification o f outputs, o n a hybrid targeted and sampling basis, with reporting similar to the IPE plus to the c iv i l society road partnership group.
C. Monitoring and Evaluation of OutcorneshXesults
35. The framework and targets for monitoring results are presented in Annex 3. Primary indicators wil l be measured and managed through D P W H procedures for road surveys and information. Additional results covering a wide spectrum o f agency performance and user opinions wil l be collected on a twice-yearly basis by the new broad-based citizen group, Road Watch, and published twice-yearly in a Road Sector Report Card. The involvement o f the citizen group i s expected to enable broader public dissemination and review o f results.
D. Sustainability
36. The government has conjirmed its support for the NRIMprogram through its request to proceed with the second phase. This support i s reinforced by the inclusion o f all physical and institutional activity investments planned for NRIMP-2 in i t s medium-term development plan (MTPDP) for 2005-2010. D P W H conducted an internal evaluation o f the two phases o f internal business process reforms which have now been completed (RIMSS-1 and -2), and decided, in view o f their l imited capacity, to consolidate the developments to date through full implementation and mainstreaming o f those processes and to minimize new process developments. Top management support for the new processes has varied during Phase 1 but middle management support has been strong and the development process has been highly participatory. The design o f Phase 2 therefore focuses on strengthening the sustainability o f the primary business processes.
37. D P W support for the maintenance program reforms has been demonstrated. D P W H has scaled up the preventive maintenance program in 2008 from general allocations, and the Road Board intends to partner with the Bank in strengthening the main preventive maintenance program. DP WH also has voluntarily scaled up the long-term performance-based maintenance concept four-fold and gained support from the Road Board for providing the counterpart funding. These programs, together with the reforms o f the general maintenance program and commercialization pilot, provide a practical incremental approach to achieving sector-wide reform in road management. An effective non-government multi-stakeholder partnership (Road Watch) has been established in 2007 which is expected to improve oversight and counter adverse influence.
38. At the sector level, support for the Road Fund concept has been steady but cautious. - Revenues rose, but DBM controlled releases from the fund at l o w levels during the period o f fiscal constraint 2003-2004. As there was little political or government commitment for major institutional change in the sector in the past four years, the proposed incremental approach to reform is considered more sustainable in the medium term. As the Board has not been fully effective in preventing political influence on the allocations and implementation o f the
13
maintenance program, i t s move to enter into a partnership agreement with the Bank for this Project to strengthen the management o f the funds i s a strong positive commitment
Potential Risks Proposed Mitigation Measures
E. Critical R i s k s and Possible Controversial Aspects
Risk Rating with
To Project Objectives Sector reform to the organization - o f road management lacks support and leadership from the executive and political levels.
Road fund revenue base not expanded to include fuel-based component
Fiduciary risk that project funds wi l l be mis-used due to corruption, over-pricing, weak internal controls and weak capacity
Application o f anti-corruption measures perceived to be externally driven undermines domestic momentum for reform T o Project Component Results Al l components Implementation delays due to lengthy domestic decision and approval processes Road Improvement works Land acquisition and resettlement delays
Asset Preservation component - External interference reduces economic efficiency o f maintenance program allocations by Road Board and implementation by DPWH. Al l components - Cost and time over-runs.
(i) Adopt incremental reform, through maintenance service models, road management pilot, internal reorganization, and business process enhancement; (ii) Consultation on revised reform alternatives under Road Board technical assistance; and (iii) Civi l society and road users organized to provide effective review and demand for change. (i) Options for fuel-based revenue to be evaluated by Road Board
-
TA for consultation with DOF and draft legislation; (ii) Fiduciary performance o f Road Board strengthened through Road Board TA. (i) Independent procurement evaluation and technical audit covering collusion and cost risks (B2.4); (ii) Strengthening o f internal controls, accounting and audit (B 1.2), and procurement (B 1.3); (iii) Strengthening o f corporate and functional accountability, including integrity development plan (B2.1) and external road partnership (B 2.2). (i) Anti-corruption measures built on DPWH’s IDAP plan; (ii) Active country dialog seeking joint action and consensus; (iii) Support for broad-based multi-stakeholder participation in sector oversight through road partnership.
Corporate effectiveness measures (B.2) and business process enhancements (B. 1) to speed up authorizations.
(i) RAP procedures established and managed by ESSO, and strengthened capacity in Regional and District offices; (ii) Notice to proceed only issued when RAP compensation completed and verified by EMA.
(i) Covenants with Road Board on operational, fiduciary and reporting requirements for the management o f road funds: (ii) Review o f regulations to strengthen controls over management o f Road Funds by Road Board (B.3); (iii) Suspension o f disbursement o f next annual tranche. (i) Independent technical audit reviews cost estimates, bid prices, contract amendments and time extensions; (ii) In-house technical advisors strengthen DPWH technical review o f contract cost, time and legal issues; (iii) Supervision consultants’ performance evaluation includes results o f cost and time control.
S
S
S
M
S
M
M
S
14
Rationalization plan i s not
DPWH does not reduce operational and staffing
(ii) Road management pilot in District office (B2.3) provides
(iii) Corporate effectiveness task w i l l implement key organizational restructuring activities, re PMOS, procurement,
(i) Extensive training programs, and incentive rewards program for
Note: H igh Risk - H, Substantial Risk - S, Modest Risk - M, L o w or Negligible Risk - N.
F. Loadcred i t Conditions and Covenants
Effectiveness conditions: 1. Establishment o f the Program Steering Committee and the Program Management Office. 2. Engagement o f an independent audit firm with qualifications and terms o f reference
acceptable to the Bank to assist in strengthening DPWH’s internal audit capacity. 3. Appointment o f qualified financial management staff to be responsible for the financial
management o f the Project; and 4. Adoption o f Project Implementation Plan incorporating policies specified for the Project.
Financial Covenants:
1. Standard provisions in respect o f financial management system, quarterly reports and annual financial statements and external audits.
1.
2.
3.
Implementation Covenants:
D P W H shall facilitate the work o f the firm employed to provide integrity support services under task B2.4 and act promptly upon the findings and recommendations from i t s work in the areas o f technical audits and procurement evaluations. D P W H shall with the assistance o f an independent firm engaged under effectiveness condition 2: (i) conduct a baseline assessment o f i t s internal controls within two months o f the f i rm ’s engagement; and (ii) undertake semi-annual internal audits, by June 30 and December 31 each year, starting December 2008 and ending June 2010. D P W H shall undertake semi-annual internal audits for DPWH’s operations and Project accounts for the duration o f the Project. D P W H shall in regard to task B2.1: (i) implement i t s reorganization plan as approved by DBM and in accordance with the Executive Order No. 366; and (ii) in the event that the plan i s not approved, shall develop an alternative plan for improving D P W H effectiveness, all with assistance o f the firm employed by the Co-financer.
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4.
5.
6.
7.
8.
9.
D P W H shall: (i) assist Road Watch to prepare road sector report cards every two years; and (ii) post such report cards on i t s website by November 30, 2009, and biannually o n November 30 thereafter, in a manner satisfactory to the Bank. D P W H shall, within one month o f approval o f i t s budget, starting FY 2008 and annually thereafter, publish a business plan comprising i t s proposed annual program (including budgets and expected outputs) for the budget year, and the expenditure incurred and outputs delivered in the previous year. D P W H shall furnish to the Road Partners, annually by April 30 each year, starting April 30, 2009, a road assets preservation plan for the national road networks covering routine and preventive maintenance and rehabilitation works, and its past and projected performance against agreed results targets. D P W H shall: (i) by March 3 1, 2009, develop a framework and plan acceptable to the Bank for piloting delivery o f road management services on a commercial basis by DPWH’s district engineering offices, and (ii) by September 30, 2009, adopt and thereafter implement the said plan. Amendments to the Regulations for R.A. 8794 on Motor Vehicle User Charges in respect o f operations and responsibilities o f the Road Board, reflecting recommendations and comments from road sector experts and the Road Partners, w i l l be approved no later than September 30,2009. D P W H shall: (i) carry out the Project in accordance with the Integrity Strengthening Action Plan and in a manner satisfactory to the Bank; and (ii) monitor the implementation o f said plan on an ongoing basis and to evaluate the achievement o f the plan’s objectives by June 30 and December 3 1 o f each year, starting December 3 1,2008.
10. D P W H shall: (i) complete the implementation o f recommendations arising from i t s 2006 external audit report in accordance with a time-bound action plan satisfactory to the Bank; and (ii) for the duration o f the Project, within twelve (12) months from issuance o f subsequent external audit reports, complete implementation o f recommendations, if any, arising from such subsequent external audits, all in a manner satisfactory to the Bank.
11. DOF shall arrange annually a meeting with representatives o f DBM, DOF, NEDA, Road Board, Bank, Co-financier, and Road Watch to review progress on the policy aspects o f the Program.
12. D P W H shall ensure that the Project i s carried out in accordance with the provisions o f the Anti-Corruption Guidelines.
IV. APPRAISAL SUMMARY
A. Economic and Financial Analyses
39. The average internal economic rate of return (ZEM) on the project is 33 percent. The road improvement component (A. 1) has been evaluated using life-cycle cost benefit analysis through the H D M - 4 model, as installed in the D P W H planning systems. All sections have ERR between 15 percent and 61 percent (average 33 percent) and the overall N P V per unit cost o f the component i s 3.22 (see Annex 10).
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40. The economic benefits of assetpreservation are estimated to be 123 times thejlnancial cost. The road asset preservation component (A.2) has been evaluated on a life-cycle cost benefit analysis through the installed planning systems, on the sample o f sections identified for the first year preventive maintenance program, and an estimation o f the feasibility o f the long-term performance-based maintenance sections. The 2007 proposed preventive maintenance program has a present value o f economic benefits in the range o f 2.6 to 55 times the capital cost. The L T P B M program has a long-term target o f about P0.7 m i l l i o d u n (US$14,000/km) long-run average cost, which would keep the road sections in optimal condition. The current program, which includes an estimated 51 percent o f the length in rehabilitation and restoration, has an average estimated cost about ten times this level, US$144,000/km.
41. The institutional component has been evaluated on the basis of switching values and cost effectiveness, in a similar manner to that for NMMP-1 and the results are positive. The benefits o f the business process improvements typically have to pass a l o w switching value in the range o f only 0.12 to 1.3 percent o f process cost to cover the project costs, and have high benefit to cost ratios o f 4 to 22 based on very conservative estimates o f benefit.
B. Technical
42. Road improvement works proposed for the Project have been subjected to feasibility study during Phase 1 and to detailed engineering design by international consultants. The Project follows the current national geometric design standards for national roads, comprising a baseline o f 6.7 m carriageway width plus 2.5 m shoulders, varying by traffic levels. Structural design standards for pavements are being upgraded from AASHTO 1982 to AASHTO 2004 and the design periods have been extended from 15 and 20 years to 20 and 30 years for asphalt and concrete pavements respectively (financial analysis showed that an additional construction cost o f 4 percent would give a return o f an additional 50 percent in pavement l i fe and a reduction o f 30 percent in long-run average cost). Road safety requirements are assessed through safety audits conducted during design and after construction. Quality assurance techniques are being applied through recently installed systems which wil l be further upgraded during the project. Landslide risk mitigation works were subject to feasibility study and detailed design under Phase 1 by international consultants. Long-term performance-based maintenance contracts were prepared based on road condition information from the enhanced agency systems, detailed engineering by international consultants, and the special standard bidding documents developed by the Bank. Preventive maintenance works are designed and surveyed by agency procedures, under review and guidance by an international consultant assigned under the project.
43. The internal communications technology installed under Phase 1 comprised a file- server local area network model, with wide-area networks based on leased telephone lines. Under the Project, the systems wil l be migrated progressively to a data hosting model and will potentially utilize internet-based communications in place o f the leased lines, with substantial operating cost savings. Proprietary systems for database management, mapping, and project/ procurement management require regular licensing fees which are under review. After the project audit i s completed, the draft ICT plans will be reviewed by Bank specialists before clearance.
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C. Fiduciary
44. The Bank’s assessment indicates that the Financial Management (FM) system of DPWH has improved accounting capacity but the control environment has weaknesses. Significant deficiencies in its internal controls on cash, inventory, property, advances and sub- allotment to regions, payables, and certain expenditures; and in the internal audit function, resulted in an adverse Audit Opinion on i t s 2006 financial statement. There were also significant delays in the agency and previous project audit reporting. In both the general program and projects, there have been allegations o f collusion and misuse o f funds. These weaknesses in the agency’s FM system and control environment make the risk o f funds not being used for the intended purpose High, unless the r isks are effectively mitigated. The mitigating measures include the implementation o f an Integrity Strengthening Action Plan (ISAP), appointment o f qualified Project FM staff, upgrading o f internal controls, semi-annual internal auditing o f the agency and concurrent strengthening o f internal audit capacity, discontinuance o f the use o f Sub Allotment advice for Project counterpart funds, and agreements ensuring the timely submission o f Audited Financial Statements for the Project. The FM risk o f the Project would be mitigated to a manageable level when these measures are implemented and have shown effective impact.
45. A procurement capacity assessment of the implementing agency, carried out prior to appraisal, rated the overall risk of the procurement process as High. The main r isks concern weak support and control systems, lack o f attention to procurement milestones and procurement plan, a multi-layered approval process, a weak general procurement environment, apparent political interference in the procurement process, and the corruption allegations investigated by the Bank in respect o f certain NRIMP-1 transactions. An adequately staffed and operational P M O familiar with Bank procurement practices has long been established, and a new procurement office is to be established in the agency. The capacity o f the agency, which has benefited from the procurement and implementation reforms initiated under previous Bank- financed activities and the on-going government procurement reform, has been assessed as acceptable for procurement under national procurement systems, and acceptable for Bank- financed procurement subject to certain conditions. A comprehensive plan to mitigate procurement risks and strengthen implementation capacity has now been agreed upon, including: (i) independent parallel evaluation; (ii) enhanced transparency and process improvements; and (iii) external citizen monitoring. This and the broader approach to enhancing institutional integrity are detailed in Annex 13. The GoP opted for procurement under the project to be carried out in accordance with the latest World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits ” dated M a y 2004, revised October 2006; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers ” dated M a y 2004, revised October 2006, and the provisions stipulated in the Loan Agreement. General arrangements o f the project procurement, Procurement Plan and Bank review are discussed in Annex 8.
D. Social
46. The D P W H has prepared a comprehensive land acquisition, reseftlement and rehabilitation policy, satisfactory to the Bank. The Land Acquisition, Resettlement Rehabilitation, and Indigenous Peoples Policy fi-amework (LARRIPP) will apply to all activities related to land acquisition, compensation, rehabilitation and resettlement o f affected persons and vulnerable communities. World Bank review and approval and full implementation o f the RAPS
18
will be required before any civ i l works can begin. D P W H has developed a framework for public participation and consultation, satisfactory to the Bank. I t covers a separate social impact assessment (SIA) that has been undertaken and the preparation o f an Indigenous Peoples Policy Framework (per WB Operational Policy 4.10). The D P W H through i t s safeguards office (ESSO) has developed and cascaded operational sk i l ls to regional and district offices for addressing social safeguard issues that promote the enhancement o f positive impacts and minimize the negative ones. Under the project, the information management systems for processing land acquisition and title documents will be further enhanced. The RAP and IPAP requirements have been satisfied for the f i rs t year program, as detailed in Annex 9.
E. Environment
47. The project is classified as Category B under OP.4.01 Environmental Assessment, because the impacts caused by road works are manageable. A programmatic approach i s appropriate, and a Strategic Environment Monitoring System (SEMS), defining the roles, procedures, evaluation criteria and screening processes, was signed by D P W H and the Department o f Environment and Natural Resources (DENR) under NRIMP-I , and updated for NRIMP-2. The SEMS i s consistent with the criteria and procedures in Bank’s OP/BP 4.01, including the provisions applicable to Bank sector loans. D P W H authorized the methods and processes defined within the SEMS to be applied to all sub-projects under NRIMP-2. The SEMS and LARRIPP were disclosed locally and in the Bank’s Infoshop on 19 February 2007. ESSO plans to conduct a Strategic Environmental Assessment (SEA) for the road sector during the project. The environmental evaluation and management plan requirements for project implementation have al l been satisfied and disclosed, as detailed in Annex 9.
F. Safeguard Policies
Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP 4.01) [ X I [I Natural Habitats (OP/BP 4.04) [I [ X I
Pest Management (OP 4.09) E l [ X I Cultural Property (OPN 1 1.03, being revised as OP 4.11) [ X I
Involuntary Resettlement (,OP/BP 4.12) [ X I [I Indigenous Peoples (OP/BP 4.10) [ X I [I Forests (OP/BP 4.36) [I [ X I
Safety o f Dams (OP/BP 4.37) [I [ X I
Projects in Disputed Areas (OP/BP 7.60) ” [I [ X I
Projects on International Waterways (OP/BP 7.50) [I [ X I
[I
Note: l i By supporting the proposed project, the Bank does not intend to prejudice the f inal determination o f the parties’ claims on the disputed areas.
G. Policy Exceptions and Readiness
48. There are no pol icy exceptions in this project. The project meets the readiness filters for the EAP region: Rollover projects from Phase 1 provide continuity in the Program in regard to certain items o f c iv i l works and consultancies. All international procurement for the f i rs t year program i s ready for bidding. Safeguard requirements have been met for the f i rst year program (Annex 9, Table 9.1).
19
20
Annex 1: Sector Background
Philippines: Second National Roads Improvement and Management Project
A. Introduction
Over the past decade, the Government o f the Philippines has developed several reform initiatives to enhance efficiency and transparency in managing the road sector and to improve the physical quality o f the road network. As a result, the road sector has made progress toward a network that can help promote sustainable economic growth and competitiveness as wel l as provide adequate all-year reliable and safe access throughout the country. Many o f these initiatives have been supported by the country’s various development partners including the ADB, JBIC, the Saudi Fund for Development, and the World Bank.
The Bank’s recently completed NRIMP-I , the first project in the 3 phase NRIM Program, has supported the design and introduction o f a comprehensive program to increase efficiency o f business processes in the road sector and to help commercialize it. Among the notable achievements under NRIMP-1, was establishing a Road Board and Road Fund with road user revenues from a Motor Vehicle User Charge (MVUC) to help institutionalize sustainable maintenance practices for the road network. The business process reforms conceived and implemented under the Road Information and Management Support System (RIMSS) program, supported by the WB and the ADB, have established modern business systems for key planning, safeguards, financial management and procurement processes and electronic communications. Some o f the reforms are ready for institutionalization after pi lot projects in a few regions, and full implementation i s planned under the new project. Efforts to commercialize the sector, in particular, have lagged the original schedule.
This annex provides a brief description and assessment o f the national road network in the Philippines. The f i rst three sections provide some background on the sector, while the fourth section focuses on meeting the financial needs o f the sector. Specifically, Section B presents the national roads in the context o f the overall road network, and summarizes the sector’s institutional framework. Section C further elaborates on the sector’s performance including the efficiency o f budgetary allocations among regions. Section D uses some o f the systems developed under N R I M P - I to estimate the financial needs for the adequate maintenance o f the national road network, the available resources from the GAA and the MVUC, the resulting gap and potential financing sources. This section also provides an estimate o f the financial needs for the expansion o f the network over the next decade.
B. The National Road Network
The total length o f the non-toll road network i s estimated at 201,000 km, with national roads accounting for 14 percent o f the total, provincial roads 14 percent, and city and municipal roads 1 1 percent (Table AI. I).* The balance o f about 60 percent i s classified as barangay roads, which
In addition to the public road network, there are about 1,820 km o f private roads in Metro Manila and 165 km o f toll roads.
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are mostly unpaved village-access roads. Barangay roads were mostly built and funded by DPWH, with the Department o f Agrarian Reform and the Department o f Agriculture financing a few farm-to-market roads. These roads were later devolved to LGUs. With the exception o f barangay roads, the above road classification system is based primarily on administrative responsibilities, i.e. which level o f government built and funded the roads. There are ongoing efforts by D P W H to reclassify roads by function. Under the proposed reclassification, the length o f the national road network would be about 18,000 km. The balance o f 11,000 km would be reclassified as local roads. I t is worth noting that the initial national road network fol lowing R.A. 917 o f 1953 was 18,000 km but has increased over time due mainly to the reclassification o f local roads into national roads. Table A1.2 shows the regional distribution o f national roads.
Table Al.1: Classification of Existing Road Network, 2006
Length Classification (‘000 km) Share (YO)
National 28.7 14 Provincial 27.1 13 City Roads 7.1 4 Municipal Roads 15.8 8 Barangay Roads 122.0 61
Total 200.7 100
Table A1.2 - Regional Distribution of National Roads, Population and Vehicles--update
Road Density (Space) in ktn Per National R w d Area Population Motor
Tot./Av. 29,071 299,584 88,706 5,059,753 0.10 328 5.7 Notes: N/A: not available. Sources: 1. National road lengths as o f 2006 from DPWH website.
2. Motor Vehicles data, from LTO; web address: http:/lwww.lto.gov.ph/stats2005annual.html#MVR 3. Land area and population data, from the National Statistical Office o f the Philippines, 2007; web address: http://www.citypopulation.de/Philippines.html#Land
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Legal and institutional framework, Three main laws govern the road sector in the Philippines: the Philippine Highway Act o f 1953, Republic Act (RA) 917; the Land Transportation and Traffic Code o f 1964 (RA 4136), the Law on Motor Vehicle User’s Charge, RA 8794 o f 2000. RA 91 7 defines four classes o f roads (national, provincial, city/ municipal, and national aid) with their respective administration and funding. Executive Order 1 13 (1 9-55), as modified by Presidential Decree 702 in 1975, added a category called barangay road and in 1992 deleted the national aid road category. RA 4136 sets the rules for road use. RA 8794 imposes motor vehicle user charges (MVUC) for road maintenance, local roads, safety, and air pollution control. Collected funds are allotted into four special accounts by a formula established under the IRR o f R.A.8794 administered by the Department o f Finance for program allocations managed by the newly established Road Board under the same law, as follows:
0
e
0
0
80 percent in the Special Road Support Fund (SRSuF) administered by DPWH; 5 percent in the Special Local Road Fund, administered by DPWH; 7.5 percent in the Special Road Safety Fund, administered by DPWH; and 7.5 percent in the Special Vehicle Pollution Control Fund, administered by DOTC.
In addition to these three laws, the Government Procurement Reform Act (RA 9184 o f 2002) was enacted to govern the procurement processes across all national line agencies and LGUs. I t aims to modernize prequalification and award, enhance transparency, and encourage electronic bidding.
D P W H is responsible for the planning, design, construction, and maintenance o f the national road network. Maintenance o f national roads i s carried out by the district offices o f D P W H in these provinces. D P W H sets technical standards for the construction o f al l road and bridge classes, and establishes regulations regarding vehicle weights and axle loading. The Road Board, attached to DPWH, i s responsible for managing the four M V U C accounts.
C. Sector Performance
Reform Progress
While some progress has been made in implementing the road sector reforms, implementation has been generally slow. Much o f the progress has been in developing technical and financial information systems for reforming internal business processes o f D P W H under the RIMSS Project. Agency performance indicators have been developed and some are already in use by DPWH. Most o f the road infrastructure surveys have been completed and road and bridge information applications have been developed, including infrastructure performance indicators, which generate reliable data for decision-making. Land acquisition procedures have been developed with implementation and staff training ongoing. New contractor billing systems reduced the average time to pay contractors from 69 days to 30 days and a modern accounting system i s being used in the central office and several regions and will be rolled out to the other regions. A traffic accident recording and analysis system (TARAS) i s currently under implementation and human resource capacity is being strengthened in parallel to be able to handle the new systems.
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There have, however, been extensions and delays o f up to three years on certain reform components. While the development o f a multi-year network planning and programming system was to be in operation by July 2004, the system can be fully operational only after the collection o f traffic data, a process that was significantly delayed due to technical and administrative reasons. Another setback has been the delay in the preparation o f streamlined contract and procurement documents. A plan for the financial and technical sustainability o f the new systems, which i s yet to be developed, i s critical for these reforms to succeed. Long term performance maintenance contracts were also successfully introduced for the f i rs t time under NRIMP- 1,
On the institutional side, while the SRSuF was established in 2000 with funds from the M V U C now regularly flowing through it, the releases have been controlled by DBM with no release until 2003. Subsequently i t s administration has been subjected to external pressures that have resulted in delays and diversion in the release o f funds, so that i t has not been as effective as expected in improving the road maintenance program. Moreover, there has been little action in introducing a fuel levy as an additional source o f revenue for the SRSuF. A government plan to establish a commercially oriented National Roads authority has not progressed. Alternatives to commercialize the sector are under consideration in conjunction with an ongoing government wide ‘rationalization program. ’
Governance
Results from the June 2006 Social Weather Stations Enterprise Survey revealed that the public’s perception o f DPWH’s efforts to combat corruption in five main regions i s one o f the worst with regard to public agencies, and that i t had further worsened over the previous two years.3 Speculations vary widely as to the level o f leakage from DPWH-implemented projects, and are all difficult to verify. Governance issues also include the selection o f project locations or allocation o f funds. A strong governance framework in the sector is needed to help ensure competitive procurement practices, improve the quality o f road construction, and in turn enhance efficiency and reduce the cost o f road provision. Consequently, one o f the core components o f NRIMP-2 is to elevate the level o f support to D P W H in developing an effective governance framework.
Quality of National Roads4
Condition data for most o f the national road network were obtained through visual surveys in 2005 and 2006 and a visual condition index (VCI) was developed under NRIMP-1, According to the data, slightly more than hal f o f the national road network (53 percent) i s in fair to good condition (see Figure Al.1). Table A1.3 shows the condition o f the national road network broken down by functional classification. Data on roughness, available for about eleven thousand km o f the network, are consistent with the visual condition data.
The survey, the sixth o f a series o f panel-type surveys which started in 2000, was based on face-to-face interviews, February-April 2006, with managers o f 700 enterprises in Metro Manila, Metro Cebu, Metro Davao, Cavite-Laguna- Batangas, and Cagayan de Oro-Iligan, o f whom 499 companies had also been represented in 2005.
A key indicator o f road quality is the share o f national roads that is paved. However, this indication could be misleading in the Philippines as road classification is administrative rather than functional. Whi le only slightly over 70 percent o f the national road network is paved, D P W H has prepared a proposal to reclassify roads according to function. Based on such a reclassification, the national road network would be 18,000 hi, most o f which i s paved.
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In order to aid the identification o f damaged sections and overall incidence o f road damage, D P W H developed straight l ine diagrams during NRIMP-1 that graphically show the surface type, volume o f traffic and road condition along any national road section. Traffic accidents wil l also be reported in the diagram. These should provide useful information for non-DPWH people also, such as citizen groups and the Road Watch partnership, as they are easily understood. Figure A l .2 provides a demonstration for a 63 km section o f Calapan South in Mindoro Oriental District.
Figure A1.1: Condition of the National Road Network, 2007
35% 50 0%
30% 25% 40 0%
20%
15%
10%
Bad 30 0% 0 Poor
sl Fair 20 0% n Good
5% 10 0%
Good Fair Poor Bad 0 0% 0%
Asphalt Concrete Unsealed
Source: DPWH, “Key Performance Indicators, Procedures and Results 2006,” January 2007 * Based on 26,711 km out o f a total o f about 29,000 km.
Table A1.3 Condition of the National Road Network for the Four M a i n Road Functions, 2007(km)
National Road Good Fair Poor Bad Total Classification
East-West lateral 889 1,172 1,740 1,040 4,840
555 94 1 575 669 2,741 North South Backbone Other strategic roads 1,428 2,152 1,575 1,767 6,923
2,575 4,428 2,805 2,219 12,207 Secondary national roads
Total* 5,447 8,693 6,695 5,695 26,711
Source: DPWH, “Key Performance Indicators, Procedures and Results 2006,” January 2007 * Based on 26,711 km out o f a total o f about 29,000 km.
Road accidents
The incidence o f road accidents is another manifestation o f the quality o f the road system. Based on official statistics, which show about 2.9 fatalities per 10,000 vehicles, the Philippines compares favorably with other countries in the region. I t is however widely believed that statistics severely understate the problem in road safety. The under-reporting varies according to the severity o f the injury. A study by Sigua (2004) estimates that fatalities are 5.5 times the reported figures, and serious and minor injuries are respectively over 50 and 100 times the
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reported figure^.^ The same study estimates that road accidents cost the economy as much as P49,173 mi l l ion (US$894 million) in 2002, slightly over 1 percent o f GDP. An information management system to report and track road accidents, TARAS has been developed under RIMSS but implementation has been slow and recorded accident data s t i l l appears to be low. TARAS i s also used for identifyrng sites with high traffic accident rates or severity. These are then included in the Road Accident Prevention Program.
Dislanae Fm] 0 6 12 18 24 30 36 42 43 54 60
LR P KO 3
Usual Road Condition LO06
Surlace Type
Traffic
ll@il Ya$ls Symbol
Figure A1.2 Line Diagram for Calapan South Road, Mindoro Oriental Engineering District
Line Diaeram for section SOOOOlMR I Length [km]: 63.29 Road Calapan South Rd Engineering District. Mindora Oriental District Engineering Office
66
b
Resource utilization: Preventive maintenance program costs showed significant savings under competitive procurement between 2000 and 2002 (about P40 mi l l ion per kilometer) but costs have subsequently risen. Investment costs, covering rehabilitation and new construction, have been lowered in real terms since the 1990s through stricter procurement and contract
Ricardo G. Sigua, “Scale, Characteristics and Costs o f Road Accidents in the Philippines.” Presentation at the 12‘h Annual Transport Science Society o f the Philippines Conference, July, 23-24. University o f the Philippines, Dilman.
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management, but significant increases in costs are again becoming evident. Funds from the SRF were sometimes used in the past to finance labor intensive employment-generation programs.6
Inter-regional resource allocation: Figure A l . 3 shows the average annual expenditures on national roads including bridges per region (except N C R and ARMM) between 2004 and 2006, against the number o f km in poor or bad condition as defined by the Visual Condition Index. The correlation between the two variables i s quite low at 0.38. This assessment o f interregional resource allocation, although somewhat crude, indicates that that there i s potential for improvement in resource allocation. Once the Multi Year Programming and Scheduling (MYPS) module i s operationalized, an improvement in the regional allocation o f resources i s expected.
Figure A1.3 Road Expenditures versus Condition
1 EZZY Length of Roads in Poor/Bad condition -+-Expenditures on National Roads
Congestion: The number o f vehicles relative to road length (excluding barangay roads) increased from 20 per kilometer in 1990 to nearly 63 per kilometer in 2005. As a consequence, and despite some minor traffic demand management schemes, major arterial roads, particularly the north-south backbone roads, are experiencing traffic congestion particularly at sections around major urban centers where through traffic mixes with local traffic. A study prepared by the National Center for Transportation Studies for NEDA and the Legislative-Executive Development Advisory Council in 2000 indicated that losses due to congestion in Metro Manila alone were around PlOO bi l l ion a year in 1996 prices, or 4.6 percent o f GDP. Congestion i s further exacerbated by an increasing need for roads bypassing towns, to overcome significant reductions in travel speeds and to reduce the rates o f traffic accidents and casualties in these towns. D P W H has identified 60 urban sections where a bypass i s already justified.
Expressways: The overall efficiency o f the road network depends on a hnctional hierarchy and the presence o f sufficient kilometers o f expressway to provide unimpeded and swift connectivity and access. The first expressways in the Philippines were inaugurated in 1977 with a total length o f 126 km. This figure remained unchanged until the late 1990s when expressway length increased to 165 km. Other countries in the region such as Thailand and Indonesia have more
In 200516, about P2 b i l l ion (about 50 percent) o f the amount released f rom the S R F was used to finance employment-generation programs (such as the Kalsada Na t in and Alagaan Na t in programs), which were significantly more expensive than competitive procurement o f the required services by contract.
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extensive expressway systems, both in absolute terms and as a percentage o f national roads. In addition, the benefits o f the Philippine system are not fully realized due to missing l i n k s and lack of interconnections o f some sections. Recently, the Government has been devoting more attention to the resolution o f this issue and to leveraging private resources to expand the expressway system.
Productivity o f road administration: D P W H employs about 35,000 workers, o f whom about 60 percent are deployed to manage the national road network o f 29 thousand km. I t i s a level that has not changed much despite the reduction in the road program in recent years and in particular after the devolution o f barangay roads. This translates to a ratio o f one employee for every 1.3 km o f national roads. In comparison, Indonesia employs 2,726 workers under the Directorate General o f Regional Infrastructure to manage about 26,300 km o f national roads-or a ratio o f one employee for every 10 km o f roads. The government o f the Philippines has recently embarked on a large program o f rationalization which i s expected to increase the productivity o f the road administration.
D. Financial Planning for the Sector
Expenditure Trends
Between 1996 and 2005, the average level o f expenditures on national roads was equivalent to 0.8 percent o f GDP. Figure A l . 4 shows a declining trend during the period f iom a high o f 1.2 percent in 1996 and again in 1999 to a low o f 0.4 percent in 2004. These expenditure levels are l ow by both regional and international standards. Moreover, the absolute level o f real expenditures on national roads declined between 1996 and 2005. The large decrease in funding o f the national road network during this period was due in large part to an almost seven-fold increase in government deficit from 0.8 percent o f GDP in 1997 to 5.3 percent in 2002 which adversely affected expenditures in al l sectors. Nevertheless, Figure A l . 4 clearly shows that expenditure levels on national roads as a percentage o f total national government expenditures declined by about 50 percent between 1996 and 2005 indicating a decreasing priority for investment in national roads by the government during this period. I t appears, however, that the downward trend i s being reversed as real expenditure levels on the national road network have increased in 2005 and 2006 in absolute terms and when measured as share o f GDP or national government expenditures,
Table A1.4 and Figure A1.5 respectively show nominal and real expenditures on the maintenance and capacity expansion o f the national road network from 2001 to 2006. Real expenditures on capacity expansion (almost entirely upgrading) were stagnant showing no growth during the period, while maintenance grew at an average annual rate o f 3 percent. Real expenditures on bridges, flyovers, etc. (the category “others”) showed the largest increase growing at an annual rate o f 11 percent. Given that the expenditure level on this category tends to be as high as expenditure levels for either expansion or maintenance and in 2006 accounted for over 40 percent o f expenditures on national roads, a breakdown o f this category i s necessary to enable better analysis.
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Figure A1.4: Expenditures on National Roads
7.0% - 5.0% Government expendilures
as a oh ofNational
4.0% 4
as a % of GOP - 4..
- - - - - 4 W ~ 4 - ~ L
Sources: Expenditures on national roads from Planning Services Department, D P W H , National government expenditures and GDP figures f rom NSCB o f the Philippines (http://www.nscb.nov.Dhlsecstatld accounts.aso; http:l/www.nscb.nov.Dh/secstat/d finance.asp)
Table A1.4 Current Expenditures on the Maintenance and Capacity Expansion Billions of Nominal Pesos
Figure A l . 6 shows that real expenditure levels on the different categories o f maintenance have fluctuated considerably between 2001 and 2006. The declining overall maintenance expenditure trend o f the early 2000’s i s being reversed with real expenditures on the rise since 2004. Figure A1.6 also shows a large fluctuation in expenditure on the different levels o f maintenance categories. From a planning perspective, i t i s typical to have a more stable level o f expenditures on routine maintenance. Expenditure levels on preventive maintenance would be expected to be the second most stable over time with expenditure levels on rehabilitation showing the highest rate o f fluctuation varying largely with changes in budgetary allocations.
Financial Requirements for the Sector
The financial needs o f the national road sector can be summarized in four main categories:
(a) Asset preservation: preventive, rehabilitation and routine (b) Network capacity expansiodextension: upgrading, widening, new construction (c) Management o f planning, information and management support systems: data collection,
(d) General administration and support (current operating expenditures) license fees, system upgrades and training
Many o f the Category (c) expenditures wil l be classified as current operating expenditures and could have been included in Category (d). However, in light o f DPWH’s large investment in new planning, management and information systems, and the importance o f ensuring the financial sustainability o f these systems, these expenditures have been classified for the sake o f this analysis as a separate category. Whi le an assessment o f other current operating expenditures i s clearly necessary for overall financial planning, the focus o f this section i s the f i rs t three categories only.
The financial needs for network preservation and development (Categories a and b) are to be identified using the Multi Year Programming and Scheduling Application (MYPS) once the system i s fully operational. MYPS uses outputs from HDM4, and other models that optimize the expenditure strategies on paved and unpaved and bridges to develop mult i year maintenance and investment plans. Optimization i s based on a multi-criteria a p p r ~ a c h . ~ MYPS would also enable policymakers to focus on particular road classifications (arterial vs secondary, the core 18,000
DPWH, “Multi-Year Programming and Scheduling Application” Manual, 2004.
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km, east-west arterial vs north-south backbone) and identify maintenance and expansion needs accordingly. Given that MYPS i s expected to be fully operational only within the next year, indicative values o f the sector’s need for financial resources are estimated below to help assess the gap in financing, and how it can be closed.
Asset preservation: Maintenance requirements for the road network were estimated on the basis o f the D P W H road condition class data. The type and cost o f the necessary intervention for each road were based on surface type and condition. These costs were then used to determine the overall financial needs for maintenance (routine, preventive and rehabilitation) over the next six years. These costs were close to earlier estimates published in a World Bank study in 2005 after adjusting for inflation.8 Based on this estimation, P20 bi l l ion are required for maintaining the road network in 2007. This figure was held constant in real terms in projecting the needs through 2012 under the assumption that the length o f newly constructed roads between 2007 and 2012 would not be large and that they would not require much maintenance.
Network expansion/extension: An empirical analysis carried out by the World Bank to provide orders o f magnitude o f typical investment needs in road development indicates that an investment o f about 0.25 percent o f projected GDP growth i s necessary to support such growth. The financial resources needed for road development in the Philippines for 2007 were estimated at P65 billion, about 1 percent o f GDP.
System support: Supporting the new planning and management information systems requires regular surveys, upgrading hardware and software (including license renewals), and associated training. Hardware and software upgradingheplacement typically occur every 3-5 years (at an average annual rate o f 25 percent). I t was assumed that the replacementhpgrading rate at D P W H would be 15 percent per year. In general, annualized software license fees were used to reflect the cost o f software use and upgrades. The annualized cost o f supporting the newly implemented systems i s estimated below (in mi l l ion Pesos);
Workstations, communications network and leased lines: 170 Planning surveys 160 Software license fees and upgrades 67
Total P419 m Training 22
Table A1.5 shows a summary o f the financial resources needed for the maintenance and development o f the national road network including resources required for maintenance o f the newly installed systems.
Sources of Finance
There are two main sources o f public finance for the national road network: The General Appropriations Act -GAA (or the Budget) and the Special Road Support Fund (SRSuF) financed by the Motor Vehicle User Charge (MVUC). Figure A1.7 shows that the overall resources
World Bank, “Philippines: Meeting Infrastructure Challenges,” 2005.
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devoted to the national road sector (from both the GAA and SRSuF) have shown considerable increase from 2004 to 2006 in current terms.
Table Al.5: Annual Resource Requirement for National Roads* (Millions o f 2007 Pesos)
*Estimates do not include current operating expenditures other than those required for sumeys, software upgrades and associated training.
Figure A1.7:
Sources of Finance for the National Road Sector fn 0 8 50
c 40
30
n S
S
0
0
: 20
= o - 10
1 2000 2001 2002 2003 2004 2005 2006 2007
90 80
t 60 n
2 40 2 30
10 0
8 70
+ 50 0
z 20
Figure Al.7 also shows that while annual financing from the SRSuF increased between 2002 and 2004, the allotted resources from the GAA during these years were reduced by an almost equal amount resulting in no net increase in the overall Figure A1.8: The Financing Gap, 2007 financial resources allocated to the national road sector. Over the past couple o f years, the budgetary allocations to the sector have increased considerably with the financing from the SRSuF growing gradually.
Despite the large increase Base Case Low Case (75% of base case)
over the past couple o f years, Figure A1.8 shows a E3 Sector Needs Projected Resource Allocation L3 Financing Gap
considerable gap o f P30
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bi l l ion between the sector’s need (Table A1.5) and the projected resource allocation for 2007 (the Base Case Scenario). A reduced (low) case scenario was also considered where only 75 percent o f the sector’s needs for asset preservation and network expansion will be met due in the short and medium term. Under the reduced case scenario, the overall gap i s P9 billion, about 16 percent o f the proposed allocations.
As the SRSuF i s used to finance the maintenance o f the national road network, a br ief analysis o f the annual level o f collections for the M V U C against annual maintenance needs is carried out below. Following the M V U C law (RA 8794), user charges per vehicle were doubled between 2000 and 2004. From 2005 on, the increase in annual allocations from the M W C was due to the growth in the number o f registered motor vehicles. Between the 2004 and 2006, annual M V U C collections grew at an annual rate o f 6 percent, which i s slightly less than the average inflation rate for the two years (6.9 percent). In other words, M W C collections declined a l i t t le in real terms over the past two years.
Figure A1.9 shows an annual shortfall between the asset preservation needs and SRSuF allotment under both the Base Case and Reduced Case scenarios for 2007. The financing gap is considerable: more than double the allocations in the base case and about 130 percent o f the allocations under the Reduced Case scenario. The annual deficit i s unlikely to change significantly over the next few years as the increase in SRSuF revenue wil l be largely offset by the increase in the general price level. Similarly asset preservation needs have been projected to remain constant in real terms over the next few years (see Table A1 .S).
While the SRSuF currently has a balance o f around P13 bi l l ion which can be used to finance a proportion o f the gap over the next few years, sustainable asset preservation practices require reliable annual sources o f finance. I t is clear that budgetary allocations from the GAA will to support asset preservation in
0 Asset Preservation Needs Annual SRF inflows 0 Gap the short to medium term.
Base Case Low Case (75% of base case)
However to meet the overall needs o f the sector and reduce the existing gap, a combination o f three sources could be considered. The f i rs t source i s increased government budgetary allocations for the sector. The second source reflects the utilization o f private sector resources for network expansion when such roads involve expressways that could be subject to tolling arrangements. The third source o f revenue i s to increase the flows into the SRSuF. It i s clear that the growth in annual M V U C revenues over time wil l not catch up with the needs. Consequently, consideration needs to be given to augmenting the SRSuF through raising current revenues, wi th indexing to the general price level as well as introduction o f a fuel levy.
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Annex 2: Major or Related Projects Financed by the Bank and/or Other Agencies
Philippines: Second National Roads Improvement and Management Project
Bank-Financed Projects
Project Sector Issue Supervision
Ratings
IP* DOT
Metro Manila Urban Transport Improve the operational efficiency and safety o f the transport S S Integration Project (ongoing) system o f Metro Manila, traffic management and utilization o f
public and non motorized transport
First National Roads Improvement Improve national roads system in an environmentally, socially Project (closed) and financially sustainable manner
S = Satisfactory; MS- Moderately Satisfactory; L=Likely; SB = Substantial; M = Modest; NR = Not Rated *-Implementation progress; - Development objective
MS M S
Other Development Agencies
Agency Project Status Durat ion
JBIC
Arterial Road Links Development Project I V
Arterial Road Bypass Project Phase I (Plaridel and Cabanatuan)
Arterial Road Links Development Project V
Arterial Road Links Development Project V I
Central Mindanao Road Project
Cordillera Road Improvement Project
Metro Manila Interchange Construction Project V
Rural Road Network Development Project I11
Second Magsaysay Bridge and Butuan City Bypass Road Project
Subic-Clark-Tarlac Expressway Project
Urgent Bridges Construction for Rural Development Project
Rehabilitation and Maintenance of Bridges along Arterial Roads I V
Completed
Ongoing
Ongoing
Ongoing
Ongoing
Completed
Completed
Ongoing
Completed
Ongoing
Ongoing
Completed
2000 to 2007
2004 to 2012
2001 to 2009
2002 to 2008
2004 to 2010
2000 to 2007
2001 to 2006 2001 to 2009
2000 to 2008
200 1 to 2009
2002 to 2009
2000 to 2007
Sixth Road Project Completed 1997 to 2006
Completed 1998 to 2006 Metro Manila Air Quality Improvement (Investment Loan)
ADB
UK-Tulay ng Pangulo sa Kaunlaran (Bridge for Progress) - Nationwide Installation o f Rapidly- erected Permanent Urban Flyover System (repufs) and Long-span Bridges
2005 to 2010 Ongoing UK
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Annex 3: Results Framework and Monitoring
Philippines: Second National Roads Improvement and Management Project
Results Framework
Overall Development Objective of the 3-phase NRIM Program
Effective functioning o f road management systems that contribute to the preservation and maintenance o f the national road network in an environnaentally, economically, and socially sustainable manner.
Improved operation, organizational effectiveness and fiduciary control in the management and financing o f the national road system, with resulting improvements to road user satisfaction in the project areas and efficiency in the use o f financial resources.
t Intermediate I--+==- Com onent A 1 National roads are upgraded to paved roads at acceptable standards
Component A2 National arterial paved roads are maintained in good condition
Component B 1 Improved asset management and stewardship o f the NRS by D P W H
Project Outcome Indicators
Overall Program Impact w i l l be assessed on: (a) Administrative efficiency - Project
delivery time reduced (b) Sustainability o f financing for N R S asset
(c) Value for money - Medium-term average cost o f preserving national paved roads reduced
(d) Road user satisfaction wi th the National Road System
Intermediate Outcome Indicators
By December 2012, for the national road system (NRS): (a) A t least 140 km added by project to N R S paved road length
By December 2012, for the national road system (NRS):
a) A t least 75 percent o f N R S paved length in fair condition or better;
b) At least 1,000 km committed under Dreventive maintenance annuallv
:a) A t least 80 percent o f the annual road program o f DPWH i s evaluated by technical and economic criteria through the use o f DPWH planning applications by 2012
[b) Procurement processing standards achieved in 80% o f cases by 20 10: NCB workslgoods within 6 months.
tc) Financial audits timely and adverse opinions reduced by 50% by 2010
:d) Cost and time over-runs reduced to less than 30% o f contract terms in 70% o f
Use of Project Outcome Infor m a tion
Long term Impact Assessment to assess measures o f road transport efficiency and poverty reduction overall, and particularly in high impact regions
Use of Intermediate Outicome Monitoring
DPWH monitoring and reports on completion progress o f N R S upgrading programs - to Congress and Road Partners
Annual statistics and periodic Sector Report to stakeholders. Road Board and BOM for adjustment o f budgets and programs to achieve N R S targets
Assess extent o f and satisfaction wi th uptake o f R I M S S business processes, and adjustment o f implementation plan and arrangements to achieve Program results
Annual review o f DWPH institutional reform progress by NRLM Program Review Panel. Periodic Sector Report Card to stakeholders. Semi-annual NRIMP2 progress
37
Component B 2 Streamlined and effective corporate structure and processes in place to improve service delivery, accountability and integrity
Component B3 Road Funds performance improved; and Strategic sector reform plan i s developed and adopted ready for implementation in NRIMP3
Component B 4 Project implementation quality enhanced.
Project works by 2010. (e) Road, bridge and traffic data in RBIA kept
current on at least 90% paved N R S network through 20 12
(a) Functional and structural reorganization o f DPWH operational by June 20 10
(b) Improved compliance with document processing time standards
(c) Road user appreciation o f D P W H performance improved by at least 10 percent by 20 12
(d) Average margin o f bid award over official estimate less than 10% by June 2010
(e) Independent integrity rating o f DPWH improved by 10% by 20 12
(a) Updated IRR and Operating Procedures . , Manual o f Road Board adopted by June 2009
(b) Expanded revenue base for Road Funds adopted by December 2009
(c) Road Sector Reform Plan and new Road Management Model adopted by Road Board and DPWH by June 2012
(a) Workshops and training on project management conducted by 20 10
reports
Assess progress on improving organizational effectiveness, and identify adjustments, through
Annual review o f DWPH institutional reform progress Periodic Sector Report Card to stakeholders.
0 Semi-annual NRIMP2 progress reports
Assess progress on sector and institutional reform, and facilitate legislative action, through:
Annual review o f DWPH institutional reform progress wi th DOF, DBM and NEDA.
Assess effectiveness o f project implementation capacity.
Arrangements for results monitoring
Project level issues: At the project level, each component wil l be monitored by the D P W H Technical Affairs staff with specific monitoring and reporting responsibilities stipulated in the Project Implementation Plan (PIP). For components A.1, A.2 and B.1, D P W H will follow the same M&E system as was used under NRIMP1. Indicators such as B.2(c) wil l be derived through the preparation o f the Philippine Road Sector (PRS) Report Card on a 2- yearly basis, beginning November 2009, by D P W H in partnership with Bantay Lansangan. Under B2.4, an independent technical audit will examine ex-post a sample projects which may verify the findings o f D P W H monitoring reports.
Agency level issues; As most o f Component B, especially B.2 and B.3, involve elements o f institutional reform, the results would be monitored by a regular high-level review, which would include external agencies (NEDA, DBM, DOF, PAGC) in addition to the D P W H Executive Committee. Sub-component B.2.1 .Corporate Modernization wil l result in (1) Staff Performance Monitoring mechanism that i s results-based and incentive driven, and (2) improvements to the existing M&E system o f DPWH. Results Based Management (RBM) will form the basis o f upgrading the Department’s current M&E system and together these will encourage a long term, sustainable and effective monitoring and evaluation.
Data collection: The collection and reporting o f road asset and traffic data will be conducted using the new business practices and should not require additional Project-specific collection. For the B.2. targets, there i s a significant lack o f baseline data thus data collection should be included in the terms o f reference for each sub-component.
38
s h
n s h h -0
h n h e v E
2 0 N -
3
39
0 0- e
I
N a,
3 [A
g m
40
Annex 4A: Program Description and Evaluation
Philippines: Second National Roads Improvement and Management Project
A. Conceptual and Operational Overview of the NRIM Program.
1. Broader reform goals spanning all three phases of the Program. The overarching goal o f the NRIM Program remains as originally defined - Improved road management systems that ensure the preservation o f the national road network in an environmentally, socially, and financially sustainable manner. The goal highlights that the focus o f the program i s both on improved road management systems and on preservation o f assets, rather than on investment. The strong institutional focus o f the NRIM Program, including business modernization, corporate re-engineering and sector reform, was conceived as the foundation o f transforming the financing and management o f the sector from a public expenditure program heavily dependent on foreign aid onto a nationally sustainable and streamlined basis. The emphasis on financial sustainability and sector reform marks an important shift - f i rs t from considering roads as a public good with dependence on public expenditures to managing them as public assets with full cost recovery from road users, and second with the public agency becoming the asset manager instead o f the service provider and project implementer. The second focus on asset preservation marks the important shift from the strongly project-based capital investment focus o f the national budget to a systematic and prioritized program o f preserving existing road assets in the most economical and sustainable manner.
2. The Twin-pronged Approach to Institutional Reform. The NRIM Program was designed to support a twin-pronged approach to institutional capacity building. In the short- to medium-term, the focus would be organizational? on internal business process improvements within the public agency which would achieve early returns through better operational performance and better use o f funds. Investments in business systems and road system information were needed to support a network-wide program o f asset preservation and improvement, and it was considered that they would transfer to any successor organization under typical sector reform options so the investments would not be wasted. The business process improvements had already been identified under a previous project, categorized into core and support processes in relation to the corporate vision and mandate o f DPWH. Thus NRIMP-1 supported the implementation o f the highest priority processes - named Business Improvement Implementation Projects (BIIPs) - and the remaining processes were planned to be implemented under the second and third phases. A highly participatory and consultative approach to the original visioning and to the implementation o f the BIIPs would ensure that the results would be appropriate and this process would be demand-driven by the Department rather than supply-led by donors.
3. Staged Sector Reform. In parallel, and with a medium- to long-term focus, sector and institutional reforms would introduce the shift to financial sustainability based on cost recovery from road users and also the larger management shift from service provider to asset manager. The latter shift implies a substantial shift to private sector provision and the related major transfer o f human resources from the public to the private sectors, with all the social and political sensitivity that implies. The reform objectives were shaped by the Better Roads Philippines
41
2000 program that emerged from a national workshop in 1998. As there were fiscal constraints, and public expenditures on road and bridge preservation were minimal and barely meeting 10 percent o f the PHP13 bi l l ion needs on the National Road System (NRS), cost recovery and financial sustainability became the f i rst priority. The sector reforms were therefore phased, with the Road Fund and Road Board being established early under Phase I, added to current legislation on motor vehicle user charges (R.A. 9784) and building the concept o f cost recovery in place o f the original intent o f generating entitlement funds. The second stage o f establishing a road management authority was to be prepared under Phase 1 and implemented under Phase 2 as i t required time for more widespread consultation, identification o f a suitable model, and legislative action. The third stage o f consolidating and integrating all the business reforms and the sector reforms in the new institutions and helping them function effectively, was envisaged for Phase 3 o f the Program.
4. Focus on Preservation of Road System Assets. A major objective o f NRIMP was to establish sustainable preservation programs for the national road assets, both in the systems to program and manage the maintenance and rehabilitation o f existing road and bridge assets, and also in establishing more effective service delivery with better value for money. The preventive maintenance program launched in NRIMP-1 f i l led a serious gap in previous programs, by providing timely intervention at moderate cost in place o f the many times more expensive rehabilitation or reconstruction required when roads deteriorated to poor and bad condition (typically 3-4 times more expensive than preventive maintenance). A still bolder model was the long-term performance-based maintenance in which a private firm was given the responsibility for the comprehensive maintenance o f a substantial length o f road to specified standards for an extended period, involving routine, preventive and rehabilitation works. Ultimately this model would place all the operational responsibility on the contractors, and the agency would simply manage the contracts as an asset manager. In NRIMP-1 the preventive maintenance program was piloted in the f i rst year and scaled up over another two years, and the long-term maintenance concept was piloted in three contracts on 250 km for three years.
B. Incorporating Results o f Phase 1 into the Design of Phase 2
5. Stocktaking of Results and Operational and Political Realities of Phase 1. In terms o f institutional reforms, Phase 1 was largely successful in formulating business processes to upgrade the road management systems o f the Department o f Public Works and Highways (DPWH). These included planning and project selection, procurement, financial management, safeguard compliance and related information technology processes, applications and tools that were mostly custom-designed for the D P W H and piloted in Phase 1. The implementation o f the various business modernization processes was largely successfully designed and piloted. Whi le Phase 1 was also successful in the establishment and financing o f Road Fund through motor vehicle user charges, the actual functioning o f the Road Board that administers the Fund has been less than optimal. Although the next stage o f reform relating to road management organization was prepared, it was not endorsed for legislative action as envisaged under the original Program, due to a number o f largely external and internal political factors. The progress o f high-level sector reform lost traction, largely due to changes in the political establishment and Departmental leadership away from a reform orientation, As noted in Annex 1 above, the national political pressures coupled with sector budgetary and operational challenges made the
42
dialogue on sector reform as wel l as the prospect o f a fuel l e v y impractical from the government’s point o f view. The Bank chose to continue supporting those reforms that were gaining ground - mainly business process improvements and some strategic dialogue on organizational structure as wel l as long term performance based pilots. Bank strategy in this regard has been to approach fundamental sector reform more gradually than originally planned.
6. Preliminary Report Card of Reforms in Phase 1: (a) What Worked. NRIMP-1 built upon a thorough organizational assessment that D P W H undertook in 1997-99 to identify areas for improvement o f business processes. T h i s stakeholder and staff assessment identified over 100 business process areas which were then combined and prioritized by business need. Under the financing plan developed, NRIMP-1 supported implementation o f 16 high priority Business Improvement Implementation Projects (BIIPs) which each combined a number o f process areas and targeted improvements in technical and support processes affecting the agency’s core business o f road network development and maintenance. Three other BIIPs were financed by ADB, and all were managed under a single coordinating and integration consultancy (see Table 4B.4). The preventive maintenance program and the long-term performance-based maintenance pi lot program were also successful in firmly establishing asset preservation as a major budgeted program, and the models are being adopted by the Road Board and supported by other development agencies.
7. Preliminary Report Card of Reforms in Phase 1: (b) What Did Not Work Two reform areas that were not undertaken in Phase 1 include the institution o f a fuel levy and the introduction o f legislation to establish a Road Management Authority (RMA) that would manage the road system on a corporate basis. Both were considered politically inopportune, largely as an issue o f timing. The development o f some fuel-based revenue (which i s the most efficient and progressive form o f cost recovery-based road user charge because it increases with increasing travel and use or ‘consumption’ o f 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 o f a RMA i s included in the official MTPDP - however, broader concerns are emerging on the performance o f government-owned corporations and on the suitability o f this model in the current governance environment.
8. Strategic reassessment exercises and staff surveys within D P W H have shown that the new business processes and the benefits they were designed to deliver were often not known or properly understood by non-users. At the same time, users o f the new technology fel t that the management’s understanding o f and support for these business process enhancements was minimal, and that these micro-process changes needed support and ownership from management. In other words, some corresponding corporate changes were in order to both support the technical process changes as well as to reshape the agency to better fit the demands o f a changing workplace. Around the same time, the national government’s focus on combating graft and corruption gained momentum and DPWH, along with several government agencies, undertook for the f i rs t time, integrity development planning.
Concept for Design of Phase 2.
9. Design Elements of NRTMp2 Concept. Based on the results o f Phase 1, the overall Program design wil l benefit from an adjustment in terms o f progression o f reforms in the second and third phases. The new design takes a more gradual approach. Where Phase 1 i s seen as
43
focusing on business - core technical and support - process development, Phase 2 will build on the success o f Phase 1 and institutionalize the new business processes, while initiating corporate process and structure reforms to both support the new business process improvements and provide much needed organizational reforms for institutional integrity. In this new design, the third and last phase wil l deepen both business and corporate process reforms o f the first two phases while undertaking a restructuring o f the sector for greater sector sustainability and integrity. It i s expected, as discussed below, that this incremental approach to fundamental reforms i s more sustainable than the original schedule as it i s enables the Department to adapt and absorb the consequences o f reforms in each phase and learn f rom them.
10. The learning fkom the f i rst phase and accounting for the political and operational realities o f the Philippines road sector are reflected in the design o f NRIMP-2. The development objective o f NRIMP-2 i s to improve national road management through appropriate process reforms and to initiate changes in sector structure for more efficient service delivery. Diagram 1 below provides a snapshot o f the institutional and capacity development Component - B. 1. provides the continuity with NRIMP-1 and i s designed to institutionalize the business process applications that were designed and piloted; B.2. comprises a cluster o f corporate reforms addressing weaknesses in the capacity and service delivery structure o f D P W H as a corporate entity; and B.3 reinforces the f i rs t stage reform, the Road Fund, and provides the basis for further sector reforms that can be implemented in NRIMP-3. This modular and incremental approach enables the Department to consolidate gains from the f i rs t phase while strengthening i t s organization and preparing for a more fundamental sector restructuring in Phase 3. This approach takes a more pragmatic view o f the political uncertainties surrounding sector restructuring, ensuring that even if proposed reforms do not take place, substantial benefits would have been achieved.
Diagram 1: Component B of NRIMP-2
44
C. Review of APL Triggers for Phase 2 and New Triggers for Phase 3
11. An independent progress review o f the A P L triggers o f Phase 1 was completed in M a y 2006, and concluded that despite the partial achievement o f the triggers - particularly in terms o f broad sector restructuring - it i s important to continue to Phase 2, for a variety o f economic, sector impact and strategic reasons. The overall assessment was that - despite current risks, given the high economic returns o f the investments, the sunk cost o f the business process investments and their success so far, as well as strategically for the Philippine road sector - it was recommended that the long term sector reform goals be pursued into the second phase. In terms o f formulating triggers for Phase 3, a more pragmatic approach was taken in light o f the lessons from Phase 1. The logic in formulating triggers for Phase 3 focuses on progress in implementing the incremental reforms. The impact o f Road Partnerships, Institutional Integrity Plan, and the Corporate Modernization Plans should be assessed over a period o f eight to ten years to be meaningful, once measures are formulated and baselines established.
12. The trigger criteria for appraisal o f Phase 3 o f the Program (NRIMP3) are:
(a) Substantive reorganization o f DPWH, based on a corporate audit and corporate plan consistent with the Program goals, has been authorized and implemented;
(b) Engagement o f D P W H with a Road Partnership o f non-governmental and private entities for the purpose o f assessing road sector performance i s sustained for at least three years;
(e) Completion o f annual, independent third party technical and financial audits and D P W H timely compliance with key recommendations o f each audit report;
(d) Road sector reforms have been implemented satisfactorily including: (i) Updating o f Road Board mandate and regulations; (ii) Sustainable expansion o f road user cost recovery authorized; and (iii) Plan for institutional reform o f road management i s authorized and submitted for legislation.
(e) Achievement o f results in institutional capacity development components B 1 and B2, including Integrity Strengthening Action Plan, reaches at least 60 percent o f Results Indicators o f each component; and
(0 Loan disbursement i s at least 60 percent in Category 2(c) and overall.
45
Annex 4B: Detailed Project Description
Philippines: Second National Roads Improvement and Management Project
1. The Project purpose i s to improve the operation, organizational effectiveness and fiduciary control in the management and financing o f the national road system, and to enhance road user satisfaction in the project areas and the efficient use o f financial resources.
Part A: Road Improvement and Asset Preservation
2. Part A components comprise a slice o f the national capital and preservation expenditure programs under the Medium-term Philippine Development Program (MTPDP), with a blend o f transaction-based financing and sector-wide financing, as follows:
0 A.l: bridges, including roll-over from NRIMP-1 program; new investments from the 2006- 201 0 MTPDP comprising road capacity expansion, upgrading, rehabilitation, and bridge rehabilitation works; landslide risk mitigation works; and associated consultant services for design and supervision;
A.2: Road Asset Preservation program covering about 2,500 km annually, comprising (i) Long-term performance-based maintenance covering about 1,000 km on key portions o f the main arterial network; (ii) A part o f the national preventive maintenance program on national highways, operating in partnership with the Road Board on a sector-wide approach; and (iii) Advisory consultant services supporting the procurement and implementation o f the maintenance programs, and improvements to the delivery o f routine maintenance services.
The total estimated cost o f this Part over four years is about US$519 million, o f which US$211 mi l l ion would be Bank financing. The implementing agency for this component wil l be DPWH.
Road Improvement investments covering about 450 km o f roads and 1,000 m o f
3. Component A.l: National Road Improvement (estimated cost US$238.5 million, incl. USU23.9 million loan). The component supports capital investments on portions o f the existing national road network which are un-maintainable and warrant upgrading, rehabilitation, widening or landslide risk mitigation. The sub-projects have been selected from the MTPDP and new sub-projects have been prepared under the previous phase o f NRIMP, as part o f a rol l ing program. As for NRIMP-1, the Project wi l l finance a portion o f the roll-over contracts from Phase 1, and some o f the new contracts wil l ro l l over into Phase 3. The net length o f improvement output from the Project i s estimated to be 450 km. The works will be implemented by contractors procured under I C B procedures and supervised by independent consultants who wil l act as the independent engineer under the works contracts. The overall coordination for this upgrading component initially wi l l be through IBRD P M O office o f the DPWH, and subsequently by i t s successor office if the proposed reorganization proceeds. Quality assurance and assistance to the P M O IBRD wil l be provided through in-sourced consultant services that will help in coordinating the contract management and any design variations which wil l happen during the implementation. The sub-components include:
46
Table 4B.1: National Road Improvement Works under NRIMP Phase 2
Bridge Base lackage Road Same (Section) l-ength (line Description of Improvements Cost" Name (W* nr.) (US% mil)
Phase X (Roll-over) - Year 1-2
U-1'4A Claver), Mindanao sections. (Re-bid portion o f original contract)
tI-1.4C Road (Manay-Mati),
Surigao-Davao Coastal Upgrading o f 22.0 km gravel road to 2-lane P661 Road (Jct. Bacuag- 22.0 0 concrete pavement, incl. re-blocking existing $13.7
P 695 $6.4
Surigao-Davao Coastal
Mindanao
Rehabilitation o f intermittent concrete road and upgrading 30 km gravel to concrete pavement. (3 1% remaining portion from NRIMP-1)
59,6 (18)
0
Year 2-6 Magapit-Sta Ana
(Magapit-Mission), Luzon
Phase I 1 I
RI-2.1
RI-2.2
RI-2.3
33.3 (29.3)
Secondary NR, upgrading o f 29.2 !un gravel road section to 2-lane concrete pavement, 6.7m width, gravel shoulders o f 1 Sm. k m 553+700-km 596+200. EIRR 18.8%. Abbrev. RAP Rehabilitation and local realignment o f 29.3 km concrete Provincial road to 2-lane concrete pavement 6.7 m gravel shoulders 1 Sm, plus upgrading 13.6 km from gravel to concrete.
P55 1 $1 1.4
P660 $13.7
P93 $1.9
P44 1 $9.2
P1525 $3 1.6 2 Pkg
P603 $12.5
P2,130 $44.2 3 Pkg
P425 $8.8
P978 $20.3
0
Mindoro East Coast (Bongabon- Jct . Roxas
PR), Mindoro
294 Im (7)
42.9
Replacement o f temporary and old permanent bndges. EIRR 20%. Full RAP. Replacement o f three 2-lane bridges, and rehabilitation of 3 2-lane bridges, located within area o f contract CP-LM-2.3. Abbr. RAP Widening 9.0 km existing 2-lane sections of concrete pavements to 4 lanes with asphalt pavement & overlay; rehabilitation and widening 6 bridges. EIRR 36.2%. Abbrev. RAP. Rehabilitation o f 35.0 km concrete road and
M alalag-M alita- J.A.Santos (Malita-Don Marcelino), Mindanao
upgrading o f 35.1 km gravel road to 6.1 m concrete pavement in hil ly sections o f remaining 140 km link to Marihatag, including replacement of 10 bridges. EIRR 21.8%. Abbrev. RAP Upgrading o f 28.4 km gravel and 3.5 km concrete section o f arterial N R to 6.1 m wide concrete pavement, with reduced gradient standards. EIRR
169 Im (10)
70.1 RI-2.5
RI-2.6 31.9 0
24.9%. Abbrev. RAP. Rehabilitation of 81 km and replacement o f 80.3 km o f existing 2-lane concrete pavement (excl. asphalt overlay) on 6.7 m width 2.5 m gravel shoulders on EW Lateral Arterial NR. EIRR
161.3
48,601 [pkg 54,
Digos-Cotabato City, Mindanao 0 RI-2.7
RI-2.8
RI-2.9
45.8%. Abbrev. RAP. Rehabilitation o f existing 2-lane concrete pavement 6.1 m width, on inter-regional arterial NR, without improvement o f sub-standard geometry. EIRR
Reconstruction/ rehabilitation 4.7 km 8-lane urban 15.2%. Full RAP.
Cotabato City- Marawi City (Parang-Malabang),
Mindanao
128.9 (65.1) 0
Marcos Highway, Manila
arterial highway, and flood risk mgt construction o f 6 km box culvert drainage. EIRR 27.2%. No RAP. [Transferred from MMURTRIP] Slope stabilization retaining walls and drainage treatments: Digos-Gen. Santos City Road, 39 sites; and Davao-Calinan-Buda Road, 4 sites. EIRR
ine contingencies. construction suuervision and contract management. 1. Estimated cost i s base cost, excli 2. Total package length in NRIM Progrim, witiestimated length financed by NRMP2 Project in parentheses (centerline km).
47
A.1.1. Phase 1 Road Improvement Projects - The roll-over contracts from NRIMP-1 include only two packages on the Surigao-Davao Coastal Road, after three other packages were transferred to local financing in late 2006. Details are shown in Table 4B. 1. For package 1.4A, the original contract was terminated and the completion o f the package has been rebid. For package 1.4C, about 30 percent o f the works remain for implementation under a current contract. These will be implemented under local financing.
A.1.2. Phase 2 Road Improvement Projects - The new sub-projects to be implemented fully or partially under Phase 2 comprise eight road links, one each in Luzon, Mindoro, Panay, and Negros and four in Mindanao, as detailed in Table 4B.1. The l i n k s were selected from feasibility studies conducted under NRIMP-1 and by DPWH, and detailed engineering design was begun under NRIMP-I . One sub-project, Marcos Highway in Manila is included after transfer from the MMURTRIP project. The works comprise predominantly upgrading from gravel road or rehabilitation o f deteriorated concrete pavement to full concrete pavement to the national standard width o f 6.7 m and 2.5 m gravel shoulders. Based on a study in the latter stages o f Phase 1, the use o f concrete pavement construction was found to be economically preferred in many instances, provided that adequate finished quality was achieved and a design l i fe o f 30 years was adopted. Two sections involve congestion rel ief through widening to 4-lane undivided carriageway width, namely in Panay and Negros. As a result o f experience under Phase 1 and government policy to improve the domestic construction industry, the c iv i l works wil l be procured and implemented in package sizes o f about US$12-18 mi l l ion through international competitive bidding, using a slice and package basis attractive to large international f i r m s .
A.1.3 Landslide Risk Mitigation - Two landslide hazard areas w i l l be treated with major slope stabilization and rehabilitation works covering about 3 8 landslide sites in Mindanao on road sections which have been supported under previous projects (HMP and NRIMP-1). Feasibility studies and detailed engineering were conducted on five areas, in Mindanao and the Cebu Transcentral Road, under NRIMP-1. Two areas were selected as priority for treatment under the Project, based on the severity o f risk resulting in road closures, the technical interventions required, the economic viability, and environmental and social impact considerations. The two areas would be covered by a single works package (Table 4.1).
A. 1.4 Engineering Services for Road Improvements - Engineering consultants for detailed design, supervision, engineering support, and environmental monitoring o f works implemented under component A. 1, procured in six packages. e CS-DE-2.1 - Detailed Engineering Ph2 Luzon: completion o f engineering
design services for the Phase 2 road improvement component in Luzon, Visayas; e CS-DE-2.2 - Detailed Engineering Ph 2 Mindanao: completion o f engineering
design services for the Phase 2 road improvement component in Mindanao;
rehabilitation works wil l be supervised by independent consultants procured a CS-RI-01, 02 - Road Improvement Supervision: The road improvement and
48
through two packages - RI-01 Luzon and Visayas; and RI-02 Mindanao - responsible for supervision o f a l l component A. 1 works in the respective region. CS-RI-03 - External Monitoring Agent: An individual consultant wi l l be employed to provide independent monitoring and final review o f the implementation o f Resettlement Action Plans and compensation on all road improvement works.
0 CS-RI-04 - Road Advisory Services: Individual engineering specialists would be in-sourced to support the P M O with the technical review o f engineering design and contract administration issues throughout implementation o f Component A. 1.
would be identified through the planning system and processed through feasibility studies and detailed design by consultants, in preparation for implementation under Phase 3.
0
0 CS-RI-05 - Preparation Phase 3: the road improvement works for Phase 3
A.2.1: Long-term Maintenance (US$152.3 million, incL US$52.1 million loan). Following the satisfactory performance o f the long-term performance-based maintenance (LTPBM) contracts under NRIMP- 1 , performance-based contracting wil l be extended in NRIMP-2 to cover about 1,080 km in six packages in a five-year period. The packages are located on the Strong Republic Nautical Highway (SRNH) and on the North-South backbone corridor, stretching from northern Luzon to Mindanao, on road links within a D P W H region. This will help support strong road access with the nautical ro l l -odrol l -of f l i n k s for freight transport reducing the costs and time o f travel. As in Phase 1, the contracts wil l be predominantly o f the hybrid type including rehabilitatiodstructural overlays with the standard routine and preventive maintenance (both backlog and performance-based) interventions. Shoulder re-grading, side-slope maintenance, side and cross drainage structure cleaning and maintenance, and maintenance o f road marking and roadside signs wil l be part o f the performance-based phase. The rehabilitatiodstructural overlays and other backlog maintenance items to be undertaken in the first year o f the contract wil l be paid on an item-rate basis, and the performance-based component wil l be paid on a periodic lump-sum basis in relation to specified performance standards and rectification.
A.2.2: Preventive Maintenance (US$32.0 million, loan). The component will finance a slice o f the national Preventive Maintenance Program (PMP) on the national road network over a period o f four years through a direct budget approach. Funds will be disbursed for use with the Special Road Support Fund (SRSuF) under the Road Board in equal annual tranches o f approximately P0.38 bi l l ion (US$S.O million) and applied to supplement their preventive maintenance program o f about P2.5 billiodyear. Separately under general budget, D P W H is planning to allocate a further P4 b i l l iodyr to preventive maintenance, making a total program o f about P7 b i l l iodyr which would cover nearly 1,400 M y r - this i s equivalent to 7 percent o f the NRS paved roads annually which addresses a substantial portion o f the needs. Works wil l be programmed, designed, procured and implemented under national procedures, following the requirements o f the
49
Road Board Operational Manual. The procedures would use the new D P W H RIMSS systems, specifically the MYPS and PMS, for preparing the annual programs, but would also have a needs and results focus by reviewing survey data and project budget execution data, and would use the consultation process developed with the Road Board (under B.3) to address specific local concerns. Procurement would follow N C B procedures applicable to foreign-assisted projects. The annual disbursement would be made in a lump s u m to a designated account when three sets o f performance criteria are satisfied, as summarized in Table 4B.3 and detailed in Annex 7, section IV.4.
LM-2.6
LM-2.7
LM-2.8
Table 4B.2: Long-Term Maintenance and Preventive Maintenance Programs on National Roads under NRIMP-2
2009 - 2013 (Escalante- 119
Vallehmoso) Mindanao Island
(Davao City- 68 DigosRoad)
Mindanao Island (Tagum-Mati Road)
2008 - 2012
2008 - 2012 133
Base Cost* (S mil)
Implement ation
Period Existing Status Length
(W* Road Name (Section) Name
Long-term Performance-based Maintenance North Luzon
(Manila North Road: 2008 - Monumento- I 230 I 2012
LM-2.1 1 AgooIAringay Bdy)
South Luzon (Pagsanj an-Lucena, Tiaong-Lucena Jct, Pagbilao-Camarines
Norte, Lucena Diversion)
Mindoro East Coast
Bongabon Jct.) Panay Island
Kalibo-Capiz bdy.)
2008 - 2012 206 LM-2'2
2008 - 2012
2008 - 2012
LM-2.3 (Calapan-Socorro- 102
LM-2.4 (Pr. Bdy-Caticlan- 135
Panay Island 2008 -
P 1002 m $20.8
Heavily-trafficked existing asphalt pavement, with 62% good/fair condition in 2006
Continuation parts o f packages LTPBMC-I, -2a and 2b from NRIMP- 1, plus Lucena Diversion road. Asphalt pavement or asphalt on concrete pavement, with 57% goodfair condition in 2006. Strong Republic Nautical Highway, moderate traffic, asphalt pavement with 39% good condition 2006 Strong Republic Nautical Highway, moderate traffic, asphalt pavement with 64% goodifair condition 2006 Strong Republic Nautical Highway, moderate traffic, asphalt pavement with 45% zoodfair condition 2006
P 838 m $17.4 m
P 666 m $13.8 m
P 787 m $16.3 m
P 672 m $13.9 m
P 893 m $18.5 m
P 446 m $9.3 m
P 778 m $16.1 m
P 6,082 rn
Asphalt pavement constructed under IBRD in 1990?, moderate traffic, with 32% good condition in 2006 Asphalt & concrete pavement, moderate traffic, with 18% good condition in 2006. Asphalt & concrete pavement, moderate traffic, with 41% good condition in 2006.
1 $126.1 m 1,083 Long-term Performance-based Maintenance Program
Total, National Roads I 1,403 1 I Estimated cost i s bdse cos, cxcludins contingencies, construction supen ision contract inanagcmcnt o f Proiect ponion I - ~.
2. Total package length, with estimatedlength financed by Project in parentheses. 3. Annual SRSuF preventive maintenance program expected to be P2.4-4 billion, Le. Project share 10-14%.
50
Table 4B.3: Preventive Maintenance Component - Performance Conditions for Disbursement
2010
S (PMP&
GM)
S (PMP)
75
75 (PMP)
75 (PMP)
Nr. - - 1.
- 2.
2011 2012
S (PMP&
GM)
S (PMP &
GM)
90
90 (PMP)
90 (PMP)
3.
3 (i)
- 3 (ii)
- 3(iii)
- Note
Agency Respon-
sible
RB
R B S
DPWH
DPWH
D P W H
N2P = Prevent
Disbursement Condition
RB has, based on NRS-wide needs analysis and prioritization using D P W H planning systems and survey information: i) allocated sufficient funds for preventive
maintenance o f NRS. ii) approved related program. R B S has implemented its operations in accordance with Road Board Operations Manual, in compliance with RA 8794 and i t s IRR. Implementing offices (DEO, RO) verified to comply h l l y with operating procedures re: i) Disclosure o f information on DPWH
website and PhilGEPS re: a) Allocation and actual expenditures
b) Contract bid, award & completion o f al l M W C funds
results (cost & output) ii) Procurement o f contracts under P M
program o f SRSuF conducted in accordance with procedures applicable to FAP set forth in GPPB Generic Procurement Manual using PBD.
iii) All funds from SRSuF have been accounted through the DPWH e- NGAS or NGAS.
E maintenance uroeram allocated to NRIMP2 (snecifie
Compliance Coverage (% of DE0 & RO with SRSuF Allocation)
2008
S (Nm
90 (NW
sections)
60
. ” \ . PMP = Preventive maintenance program approved and funded by SRSuF GM = General maintenance program approved and funded by SRSuF. RE3 = Road Board; RE3S = Road Board Secretariat.
Consultant services provided for the performance-based contracting (A.3) wil l also support the PMP in an advisory capacity covering al l phases o f the PMP preparation and implementation. Program selection and program oversight wi l l be managed centrally by BOM in conjunction with Planning Services. Design, procurement and supervision wil l be managed directly by the D P W H Regional Offices (RO), utilizing DE0 staff for field work. The consultant services wil l enhance the quality o f the overall process and support the application o f results-based monitoring. The works would comprise mainly asphalt overlays and bituminous sealinghesealing including essential structural spot improvements where necessary. This works will also involve re-grading o f the gravel/earth shoulders, cleaning o f drains and culverts and ensuring proper surface drainage through surface camberhuper-elevation, lane marking and traffic signs.
The contracts would be implemented and monitored by the BOM through contractors and independent quality assessment consultant/engineers. Each contract wil l be managed by a
51
Regional Office o f DPWH, involving RO and DE0 staff for inspection and administrative functions. The periodic jo int inspections o f the quality and performance o f the road section wil l be carried out involving R O and consultant staff. Reporting o f road conditions wil l include among others the straight l ine diagram o f road conditions. The contracts will be financed on a transaction basis, with the counterpart funding derived from the SRSuF.
A2.3: Maintenance Engineering Services (US$2.8 million, in loan). Consultant services wil l be provided over 4 years to guide and support the implementation o f the NRIMP2 Long-term Maintenance program, to moni torhppor t the implementation o f the DPWHBRSuF preventive maintenance program, and to provide advisory support for improving the service delivery o f routine/general maintenance under DPWH/SRSuF.
(a) Long-term Maintenance - Advisory support during the procurement and implementation o f the LM contracts, to optimize quality, resolve issues and guide D P W H staff supervising the contracts;
(b) Preventive Maintenance - Guidance and advisory support to BOM and RO staff for implementation o f the SRSuF and D P W H funded programs; and
(c) Routine Maintenance - Assist BOM and DEOs nationwide to package and deliver routine maintenance services in more efficient ways through: (i) improved procedures for budget allocation for routine maintenance and periodic maintenance, relating to condition and performance-based standards; (ii) improved efficiency in packaging, procurement and implementation o f routine and periodic maintenance at District and regional levels, including area and performance-based contracting and migration from maintenance by administration; (iii) monitoring and evaluation procedures for managing maintenance outcomes on a results basis; and (iv) Production o f a set o f policy and operational Guidelines on Maintenance Service Delivery that wil l become official pol icy o f the Department.
Part B: Institutional and Capacity Development
5. The Institutional and Capacity Development program comprises four components:
(i) B.l. Business Process Improvements: will enhance the efficiency o f D P W H through making modern business tools operational, institutionalizing the core business process improvements (BIIPs) introduced during Phase 1, and developing some o f the next priority business process improvements in accordance with the updated program.
(i i) B.2. Corporate Effectiveness and Integrity: wil l improve the effectiveness and integrity o f service delivery by D P W H through improving the organization and human resource capacity, testing models for commercialization o f services, strengthening public participation, and enhancing transparency.
52
(iii)B.3. Strategic Sector Reform: will strengthen the operations o f the Road Fund and the Road Board, review and update their mandate, and identify a new roadmap for sector and ins ti tutional reform.
(iv) B.4. Training and Workshops: will facilitate project implementation and achievement o f the project development objectives.
6. The overall focus o f institutional and capacity development under Part B i s to consolidate the technical and business process improvements o f Phase 1, to modernize the organization and corporate effectiveness o f DPWH, and to support the gradual extension o f sector reform. Reforms in each Program phase build on the gains o f the former phase, while allowing for learning and course correction through robust staff and management consensus. They are also designed to build capacity at al l levels and to be modular so that capacity and efficiency gains in each phase have significant stand alone value. Each o f these components i s described below and the detailed costs are provided in the PIP.
7. Component B.l: Optimization of Business Process Improvements (estimated cost US47.1 million, of which US$18.0 million loan and US$4.1 million grant). The sixteen high priority business processes designed and developed under NRIMP1 wil l be put into full operation, expanded to cover all offices, and updated in response to field experience. Only three new processes are introduced, out o f many that were scheduled to be developed under Phase 2 - Design (upgrading to include risk management and value engineering), Quality Assurance (improving field testing services), and Land (records management). Table 4B.4 below outlines the status o f the priority Business Processes and the activities and results that wil l be financed. Most activities wil l be undertaken by D P W H staff, and consultancies are limited to individual technical coaches and minor levels o f support, in order to enhance ownership. The following sub-components are numbered as outputs, however for implementation the activities wil l be clustered around inputs to facilitate procurement and supervision, as detailed in the Procurement Plan, under the coordinator,
B1.I PZanning Processes. The new planning processes will strengthen the process o f medium-term planning, multi-year and annual programming, and budget preparation for the development and preservation o f the national road system throughout the country. Project inputs wil l include consultancy services o f a planning coach and associated support personnel; software licenses and support agreements; survey and inspection equipment; training; and surveys o f roads, bridges and traffic. The costing includes the associated direct operating costs o f D P W H amounting to 65 percent o f the component (most o f which are road and traffic survey costs). The loan supports the ongoing computer software costs for the applications (8 percent) and specialized surveys and equipment. The activities wi l l include the following:
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Table 4B.4: Institutionalization of Business Process Improvements under NRIMP-2
BUSINESS PROCESSES AND SUB-SYSTEMS PLANNING
Multi-Year Programming and Scheduling (MYPS): Planning tool that generates the multi-year program and results estimates on which the Medium-term Plan and annual programs are based. Analyzes and prioritizes road and bridge preservation projects from PMS, BMS, and network development projects, using Multi-Criteria Analysis (MCA).
Pavement Management System (PMS): Used to prepare annual pavement maintenance and asset preservation programs, based on long-term network needs, which w i l l outimize benefits given the budget constraints using proprietary sbftware “HDM4”. 0 Bridge Manapement System (BMS): Requires and maintains specified records o f bridges, enables monitoring of bridge conditions and programming o f maintenance and development works.
Routine Maintenance Management System CRMMSL Tool for estimating and managing routine maintenance resources for roads and bridges to meet specified results targets.
Road Safety Management (TARAS): Processes accident records to identify accident blackspots and prioritize road segments for remedial treatments.
Traffic Information Application (RTIA): Stores and manages all NR traffic and axle load data; used for traffic demand projection and project analyses.
Road and Bridge Information Application (RBIA). Stores all road network data which i s used for the planning and programming process (uses proprietary software “Confirm” under annual license).
FINANCIAL MANAGEMENT Accounting System (e-NGAS): National Gov’t Accounting System installed and used to process all DPWH financial transactions, working on local and wide area network communications, and in manual mode (NGAS) in some Districts.
0 Internal Controls and Audits: Currently inadequate and weak, leading to repeated adverse audit opinions (e.g., on cash liquidation, budget transfers, cash allocations).
PROCUREMENT Cost Estimation System (CES): For use as basis for cost estimation o f c iv i l works for local and foreign-assisted project procurement, Supported by historical data through proposed Decision Support System (DSS) to assist monitoring o f b id data and prices, to enhance cost estimation, assist b id analysis and assessment o f bids for works. Bid and Award Support: Customized applications Proposal Estimation System (PES) and Letting and Award System (LAS) used for preparat ionhue o f b id documents and for b id evaluation and award under N C B and ICB. Document Tracking System (DOTS): Tracks document f low and processing performance standards for internal processing o f
PROJECT TARGETS & ACTIVITIES Results Planning systems - refined and operating smoothly in central and regional offices, utilized for production and support o f annual work programs and budgets (for preventive maintenance, routine maintenance and safety treatments on National roads and bridges), and for MTPDP (including road upgrading and development projects). Inputs: Planning advisory services - Coach to assist in fine-tuning and operating all planning applications at Central Office; conducting training at regional and selected District offices; managing collection surveys and processing o f road, bridge and safety data; operating MYPS, PMS, BMS, R M M S and TARAS; and production o f annual National Road program, budget and output (MFO) results. Road Network Surveys - Two full coverages of paved NR network (22,000 km over 3 yrs) for roughness and imaging under output-based contract; Periodic inspections o f road and bridge condition by D P W H offices; Periodic surveys o f traffic volume, classification, and axle loading by DPWH; Compilation o f accident data from police records by DPWH. Computer Software Upgrades and Licences - to maintain and enhance operation o f all applications; and purchase o f geo-based mapping application. Survey Equipment and Maintenance - Purchase bridge inspection devices and other equipment. Training - Conducted annually in all regional and District offices to enhance quality and sustainability. Results: National Accounting System - operational for 100% o f transactions in all DPWH offices, with 90% o f transactions by value handled electronically in e-NGAS; Internal controls - procedures and capacity enhanced, and number o f adverse audit opinions reduced. I n puts : Advisory Services - technical coach & support; System development - COA, DPWH resources; Technical Assistance - Specialist advisors on Internal Controls and Audits (under grant). Results Processing Performance - reduced processing and transaction time, leading to quicker awards. Processing Quality - improved transparency, consistency and compliance o f procurement processes and decisions. Inputs: Advisory services - technical coach and support (1
Systems development - consultancy for upgrading o f CWR; Computer Software - software, licences and support for 3 y r s for customized proprietary system
Yr) ;
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BUSINESS PROCESSES AND SUB-SYSTEMS documents (especially procurement and financial). Civil Works Registry (CWR): Database o f c iv i l works contractors used for processing qualification evaluations in b id evaluation or pre-qualification. Philippine Bidding Document (PBD) and Procurement Law RA 9184: The basis for National Competitive Bidding procedures, with modifications acceptable to the Bank (see Annex 8, Box 8.1) and publication on DPWH and PhilGEPS (electronic procurement) websites. Integrity Strengthening Action Plan (ISAP): Additional provisions on procurement procedures, both project-specific and potentially institutional (see Annex 13).
ENGINEERING DESIGN (new) Design Guidelines, Criteria and Specifications: D P W H standard code for engineering design o f civil works (1982, needs updating to current comparators, inclusion o f natural hazard risk management (flood and landslide hazards), value engineering (to improve cost effectiveness); Design Tools: computer hardware and software, survey equipment, etc. (not addressed)
SOCIAL SAFEGUARDS Land Acauisition (ROW): D P W H guidelines, compliant wi th national laws and provisions for World Bank procedures, are under implementation. Processing time from RAP to Payment and Issuance o f Possession o f Site i s often lengthy, and process improvements have been piloted in Region 111 and NCR.
INFORVATION & CO31\IL1NIC.I\TIONS TECHNOLOGY Enterprise Platform: A 3-tier client-server architecture o f database servers, application servers, administrative servers and client workstations has been implemented in central, most regional offices and some District offices. Performance, staff capacity, and capitalioperating cost issues are emerging. Communications: Leased landline communications operating between central, 5 regional offices and 20 District offices.
RESEARCH & QUALITY ASSURANCE Bureau of Research & Standards (BRS): Responsible for quality assurance guidelines, quality and technical audits, and technical research. Q A procedures upgraded and need full implementation. Key testing equipment outdated or inoperable. Regional & Sub-regional Testinv Laboratories: Need upgrade o f key material testing equipment, implementation o f new QA and QC procedures.
PROCESS INTEGRATION & COORDINATION Road Information and Management Support System JRIMSS): Managed by a Project Office with D P W H Director and core support team, including participation by designated core staff o f each main business function. Responsible for strategic guidance o f business process reform and development of enterprise systems. Managed implementation o f all RIMSS
PROJECT TARGETS & ACTIVITIES “Transp*rt”. Specialist services - for independent procurement evaluation and advice, both project-specific and institutional (grant-funded).
Results Design Standards - Assets constructed to more efficient and safer standards. Performance in Design Review - Design reviews quicker, and focused on substantive quality issues affecting long-term performance and hazard resilience o f road assets.
Results RAP Implementation - Enhanced comuliance, reduced processing time and reduced complaints.
Training - expanded training o f regional offices by DPWH; System Development - Develop and implement land title information management system. Results Communications - All Regional and Class A District offices connected, and all core applications supported. Inputs Advisory services - review o f performance, coverage and costs (under B2.1 corporate audit); technical coach. Computer hardware & software - hardware & office software for new and replacement use, database management software license and maintenance support (3 yr). Communications - Transfer to internet-based communication, some lease-line expansion,
Inputs
Results Quality Assurance - improved capacity for Q N Q C at 16 sub-regional laboratories; improved management o f quality in all DPWH program. Inputs Equipment - Key materials testing equipment for 16 laboratories & BRS. Technical Assistance - Study support in applied research on pavement performance, alternative materials and network performance. Results Management Support - Senior management o f D P W H use and require core R I M S S systems for primary information, basis o f budget preparation and submissions, and program implementation. System Performance - Performance and reliability o f system enhanced and no longer constraint on
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BUSINESS PROCESSES AND SUB-SYSTEMS system development to date over 8 years, with support o f specialist advisors and analysts. Management Information Support (MIS): DPWH Division responsible for maintenance and operation o f computer systems and ICT, basic system development and ICT training. Faced by mounting skilled staff shortages.
PROJECT TARGETS & ACTIVITIES usage for core functions. Inputs Advisory services - Technical coach and support team to assist operations, systems performance enhancement and capacity building; coordination o f BIIP activities to ensure seamless results.
Table 4B.5: Expected Results of Business Process Improvements under NRIMPZ
Business Process Result Indicators
B1.l Planning Network Upgrading programmed through RIMSS Asset Preservation programmed through RIMSS B 1.2 Financial Management Accounting Module
Budget Module
B 1.3 Procurement Consultancies (90% o f awards) Works NCB (90% o f awards) Works ICB (90% o f awards) B 1.4 Design Processes for Quality Assurance, Value Engrg, Hazard Risk Mgt., Revised Design Guidelines, etc. B 1.5 Information & Communications Technology Communication Network Equipment and Installation (Phase 111).
Computer Equipment, Software Database Management System B 1.6 Oualitv Management Network Development (quality o f work delivered)
Asset Preservation (average roughness after treatment) B 1.7 Safeguards Management RAP implementation, approval Compensation completed B 1.8 Integration & Coordination B 1 component business processes.
Baseline 2007
70% o f the total investment
0% o f work value
Implemented in Central Off ice and Regional Offices. Implemented in Central Off ice and pi lo t DEOs
16 months 8 months 16 months Nil
CO, 5 ROs & 20 DEOs connected by internet . Mos t core business processes supported
94 % (62% Mino r 32% N o Defect)
8 m/kmIRI
12 months (90%) 24 months (90%)
Phase 1 B I I P business systems partly operational
EO NRIMP 2
85%
50%
100% transactions in NGAS, 90% transact- ions value in e-NGAS Implemented in Central Off ice and Regional Offices.
9 months 6 months 12 months All processes and procedures developed and in operation.
Class A Districts connected to net.
All core business Drocesses sumorted
96 % (48% Mino r 48% N o Defect)
<6 d k m IRI
8 months (90%) 12 months (90Y0)
All Phase 1 systems fully operational, Phase 2 systems operating.
EO Program
100%
100%
Bo th modules implemented and operational in al l offices.
6 months 4 months 10 months Processes and procedures institutionalized and sustainable.
All justif ied districts connected to network. All core business processes supported
100 YO ( 20% Minor 80% nil Defect)
< 4 m / k m I R I
6 months (90%) 12 month (90%)
D P W H wel l supported by reliable modern business systems
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0 Planning advisory services - consultant services will be provided over a period o f about 36 months to assist in operating and fine-tuning all the planning applications at the central office, and conducting training for use o f selected applications at all Regional and some District Engineering Offices. This wil l include the management and updating o f road, traffic, bridge and safety data, and assisting with the operation o f the general maintenance (RMMS), preventive maintenance and rehabilitation (PMS), bridge maintenance (BMS), road improvements (MYPS) and road safety (TARAS) applications in the preparation o f the annual budget and work programs.
Road network surveys - two full coverages o f the paved road network wil l be made with specialized surveys for road roughness and centerline geometry/video-imaging o f the roadway (22,000 km every three years) under output-based services - total 86,000 survey-km at average US$23/survey-km (US$2.0 million). Additionally, the D P WH will conduct road condition surveys annually, collect traffic volume, classification and loading data on an established periodical schedule, conduct bridge inventory and condition surveys, and compile accident information, under local budget - total 88,000 survey-km over 4 years at average US$127/survey-km (P556 m or US$11.1 m). An objective o f the surveys will be to obtain almost full coverage o f the network.
Computer software - software upgrades and licenses for the planning applications and database management wil l be financed by the loan over four years. Additionally, geographic information system (GIS) software wil l be purchased to support the production o f road maps and charts in central and selected regional offices.
Survey equipment and maintenance - purchase o f 56 traffic counters and weigh- scales, 32 bridge inspection devices (BID), and GPS survey equipment (US$l.OS million). Maintenance o f existing traffic counting and weighing equipment (US$0.56 million).
Training - will be conducted in al l regional and district offices annually to ensure full uptake.
0
B1.2 Financial Management. The efficiency and integrity o f financial management in the Department i s being enhanced through the agency-wide implementation o f the national accounting system (NGAS) and related controls, developed by the Commission on Audit (COA) and for which D P W H was a pi lot agency. The task will support further roll-out o f the electronic version (e-NGAS): the Accounting module i s fully operational in the central office and pi lot regional offices, and DPWH will implement the new Budget module and seven additional modules currently under development as they become available. These include: Accounts Receivable, Accounts Payable, Cashiering, Project Monitoring, Personnel Information, Payroll, and Leave and Attendance. Specialist technical assistance wil l be provided on internal audit procedures and controls, as a means o f strengthening internal controls (a regular weakness in audit opinions) and the monitoring o f the whole financial management system (funded by grant). NRIMP-2 outputs include: (1) roll-out o f the Budget module to Central Office and all 16 regional offices, (2) roll-out o f the Accounting module to five regional offices, (3) roll-out o f
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Accounting and Budget modules to al l district offices o f 4 regional offices that are network-connected; and (4) piloting o f new modules at Central Office. Performance goals include prompt processing o f al l transactions and payment o f billings for works and services, with significant reductions from present periods (see Table 4B.5). Most o f the work wil l be undertaken by staff. Project inputs wi l l include: (i) Consultant services for Financial Management (a technical coach and associated specialist support personnel under direct technical assistance) (grant); (ii) Consultant services for internal audit capacity building (specialists provided under direct technical assistance) (grant); (iii) computer hardware and software (loan); and training (loan).
B1.3 Procurement Process and Systems. The efficiency and transparency o f the procurement process wil l be enhanced through the implementation o f key computerized applications for cost estimation, the preparation and evaluation o f bidding documents, and bid analysis which were adapted from a commercial suite o f software under NRIMP- 1. In addition, a range o f improvements will be made to current procedures to meet the requirements o f national procurement policy, the adoption o f harmonized procurement procedures, special integrity provisions in the IDAP, and special provisions in the Project procurement action plan. The performance goal i s “fair, timely and streamlined procurement from initial advertisement through to commencement o f services or works,” with result targets as detailed in Table 4B.5. Project inputs will include consultancy services o f a technical coach and associated support staff for one year; consultancy services for enhancement o f the Civ i l Works Registry; procurement o f software, licenses and support agreements for three years for the adopted system (Transp*rt); and related training. The system modules, which wil l require related training and technical support, include: (i) Cost Estimation System (CES); (ii) Bid and Award (Proposal Estimation System (PES) and Letting and Awards System (LAS)); Decision Support System (DSS) for Cost Estimation (for the analysis and assessment o f bids for works by reference to historical data); and (iv) Document Tracking System (DOTS) (for tracking document f low and monitoring performance standards for internal processing o f documents).
Bl. 4 Engineering Design. This task wil l re-engineer the management and processes employed in the D P W H for project implementation, limited at this stage to engineering design (construction supervision and project monitoring were deferred for cost reasons). For engineering design, the outputs wi l l include: (i) revision o f the 1982 D P W H Design Guidelines, Criteria and Specifications to conform to current design codes that are appropriate to Philippine conditions; (ii) inclusion o f hazard risk management into road and bridge design (for flood and landslide hazards); (iii) inclusion o f value engineering into project design; and (iv) a review o f the capacity and appropriate organization for design and design review in DPWH. The outcomes o f the task wi l l include: (i) technically competent, safe and cost-effective designs o f infrastructure projects, as noted in Table 4B.5. Project inputs wil l include consultancy services; computer hardware and software; and training in the Central, Regional & District Engineering Offices.
Bl. 5 Information and Communications Technology. NRIMP-2 will support further expansion and upgrading o f technology infrastructure for data communications in DPWH, which will allow the cost-effective and efficient implementation o f the business
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process computer applications in all offices, together with the use o f electronic mai l and internet availability. Due to rising capital costs (for expansion and replacement) and operating costs (for licenses and maintenance support) o f the system, and to various system performance and staff resource issues, an independent review o f the existing system and proposed expansion wil l be made under the institutional audit (B2.1), including performance, usage, and coverage, in order to minimize costs. In order to expand i t s enterprise-wide platform o f database servers, application servers, administrative servers, and client workstations, the Department will implement a three- tier client-server architecture running a number o f enterprise applications Department- wide. In order to reduce the capital and operating costs o f the network communications, a transfer to internet-based operation wil l be considered during the project, and the technology wil l be focused at the core central and regional offices, with limited expansion to District offices. The expected outcome results are shown in Table 4B.5. Inputs include procurement o f computer hardware and office software for new and replacement use, database management software license and maintenance support fees for three years, and possibly local area networks and lease-lines for 45 District offices (depending on review findings).
Bl. 6 Research and Quality Assurance. In order to improve the quality and durability o f road investments, the task w i l l enhance capacity for managing construction quality, and also support applied research for evaluating performance and cost effectiveness in road works. For quality management, the coverage o f control testing, the reliability o f test results, and the quality assurance o f road works would be improved through upgrading the capacity for materials testing in 16 sub-regional laboratories. For applied research, study activities in the areas o f pavement performance investigation, the use o f recycled, secondary and indigenous materials, the durability o f asphalt and concrete materials, and road network performance w i l l be supported. The outcomes wil l be measured through improved compliance of construction with the Department’s quality standards, as detailed in Table 4B.5. Inputs wil l include advisory consultant services for two years, and light materials testing equipment for 16 sub-regional laboratories.
Bl. 7 Strengthening of Safeguards Support The goal o f this sub-component, dealing with the social and environmental aspects o f the Acquisition o f Right o f Way (ROW) process, i s to significantly reduce the time for implementing land acquisition and resettlement (from approval o f Resettlement Action Plan (RAP) to Payment and Issuance o f Possession o f Site), in f i l l compliance with the D P W H guidelines. The land process improvements, as wel l as the specifications for a right o f way management system, developed under NRIMP-1, are being piloted in Region I11 and the NCR. An information system for managing all land t i t le documents associated with R O W would also be developed. Following the pilot training and the completion o f the pi lot period on the new procedures, NRIMP-2 would support the full implementation and roll-out o f the procedures to all regional offices. The expected outcome i s that the environmental and social assessment processes are robust and streamlined, with timely delivery o f R O W by professional agents, as indicated by the results targets in Table 4B.5.
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Bl. 8 Business Process Integration and Coordination. The goal o f project integration and coordination i s to ensure that al l new processes and systems perform wel l and are used by staff. Delivery o f B1 Components would be in accordance with a defined integration plan, which sets out priorities and describes the interfaces with other components and how those interfaces are to be established, configured and managed. Specifically, the consultant would liaise among all B. 1 activities to ensure timely delivery o f all packages, undertake trouble shooting, prepare and update a comprehensive business process integration plan, and monitor progress in all components against key performance indicators. In this regard, the inputs will include an integration coach and a small support team whose objective in all tasks wil l be to build capacity within the Department to take over integration and coordination functions as early in NRIMP-2 as possible.
8. Component B.2: Corporate Effectiveness and Integrity (estimated cost US$7.5 million, incl. US$1.1 million loan and US$6.4 million grant). In order to improve the overall effectiveness and efficiency o f the Department, this component wi l l review and enhance the overall organizational structure, including the functional l ines such as administration, legal, communications, financial and auditing services, and the business lines, in respect to fulfilling its mandate. The overarching objective i s to reform the organizational culture and practices, both internally and with external stakeholders, towards a more transparent, user responsive, accountable and efficient agency. The core objectives are: (1) To enhance the corporate processes and culture o f D P W H to support higher levels o f professional excellence and integrity among staff and management; (2) To enable D P W H to test and learn from commercial structures and approaches for more efficient service delivery; (3) To partner with stakeholders in the road sector to improve the overall quality and reliability o f services; and (4) to introduce special independent measures for enhancing the integrity o f the procurement and implementation process as a means for addressing reputational risk.
B.2.1. Organizational Effectiveness (US$2.9 million, including US$2.2 million grant): The purpose o f this subcomponent i s to modernize the organization o f D P W H and to improve the performance and management o f its staff, in order to be more effective. The initial focus wil l be a corporate audit o f DPWH, which will be used as the basis for developing a corporate plan, and a business plan for all units. I t is expected that the corporate plan wil l include the design and implementation plan o f a new organizational structure and staffing plan, which would be used to update the D P W H Rationalization Plan.’ A common thread running through the sub-component will be the role that incentives o f various kinds may play in encouraging excellence in performance and how such incentives may be structured, financed and monitored.
(a) Corporate Modernization. A strategic reassessment and organizational assessment wi l l be undertaken in relation to the mission and mandate o f DPWH, including the
The GOP initiated a wide ranging Rationalization Plan through Executive Order 366 in 2005 to address issue o f overstaffing and redundancies in a l l government agencies. D P W H submitted their Plan to DBM o n October 30, 2006, however implementation i s not expected to be authorized until late 2007. The Department has indicated i t s interest in merging the proposed corporate audit exercise under B.2.1 .with the implementation o f i ts Rationalization Plan. The Plan as submitted would result in a new organizational structure and moderate numeric reductions, but does not go as far as envisaged by the NRIMP sector reforms. The corporate audit would re-engineer the corporate structure to be more streamlined, user responsive and efficient. Thus the scope o f these two exercises is aligned.
60
2006 Rationalization Plan, in order to assess the need for a new corporate structure. This strategic exercise wi l l address issues o f organization, staffing, processing time for a range o f tasks (including approvals from the Legal Department, Bid and Awards Committee, payments processing, overall responsiveness as a corporate entity), human resource incentives and issues, functional l ine objectives, rationalization and streamlining o f functional lines, overall corporate structure at central, regional, and district levels, among other areas. Through internal consultation, strategic reassessment exercises, and recommendations the task wi l l produce plans for an enhanced organizational structure, streamlined management, and a comprehensive human resource and leadership development plan. Fol lowing adoption o f the plan by D P W H and approval from DBM, the plan would be implemented as a second stage under the mandate o f the Rationalization Plan for DPWH.
(b) Human Resource and Leadership Development. A comprehensive HR and Leadership Development Plan wil l be formulated and implemented in order to support and empower staff sk i l ls development as wel l as to enable staff to align with the changing needs and directions o f an effective corporate culture. A key goal i s to develop leadership skills and potential among younger and mid-level professional staff in order to attract and retain high caliber professionals. A second goal will be to streamline and modernize recruitment, incentive and professional mobil i ty processes across DPWH, including merit-based performance management, corporate standards and an internal communication strategy, in an interactive manner, including through assistance with coaching and mentoring.
(c) Integr ig Development. Support would be provided for D P W H to implement its Integrity Development Action Plan (IDAP) (see Annex 13), monitor progress and to focus specific efforts on priority areas.
B.2.2 Road Partnerships. (US$l.l million, in grant): T h i s activity i s expected to improve responsiveness and transparency in the road sector by building a constructive basis for public participation through a multi-stakeholder partnership o f road users and non-governmental organizations, for communicating and working with DPWH, Road Board and various government agencies. The roles o f the stakeholder partnership include: to monitor and advocate improvements in the performance o f the road system, to monitor performance o f the Department and develop support for sector reforms, and to enhance transparency and efficiency in the management o f sector resources. The goal o f the partnership, as developed by road stakeholders during project preparation, i s the active participation o f road stakeholders in the monitoring o f - and advocacy for - improved management o f national roads and improved road user satisfaction. The project will provide (through the grant) initial operating and advisory support for the newly established non-government association o f road user, citizen and non-government stakeholders (named Bantay Lansangan or Road Watch (BL/RW)) to: (1) achieve active participation o f various user and stakeholder groups in an effective and constructive manner that helps achieve optimal value for money in the road sector; and (2) enable the effective participation o f road stakeholders in the monitoring and advocacy for better resource allocation, service delivery, and pol icy reforms in the road sector. The grant w i l l support the following activities o f the Partnership (BL/RW):
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(a) Road Partnership Advisory Support. A Partnership advisor will be available to support and coach BL/RW operations, including: liaison among members o f the Partnership including D P W H and the Road Board; specialized studies to populate the road status indicators database; communications and media specialists to disseminate information through appropriate media outlets; and development o f sustainable independent budget for Partnership operations.
(b) Road Sector Status Report Card. A regular report card on the road sector would be produced twice-yearly by BL/RW to inform citizens and road users on the status and performance o f the road sector. The “card” would be based on a combination o f information fi-om D P W H and independent reviews and surveys, including national expenditure review/s, project implementation tracking, indicators o f agency performance and value for money in road services, status o f business process modernization and related corporate level reforms. The project will equip BL/RW with technical, advisory, and media and communications support for about 4 years in order to provide sustainable development and dissemination o f data and information.
(c) Road Partnership Monitoring Activities. Develop sk i l ls and capacity in the Partnership for sector monitoring, including: (1) the training and accreditation o f volunteers in procurement, construction and budget allocation; (2) information dissemination and media events to facilitate knowledge sharing with road users and citizens and communication with DPWH, Road Board and Government agencies, including workshops, conferences, and other consultative events involving road users, journalists, media, among others.
B.2.3 Road Management Service Delivery (USS0.4 million, plus proposed grants): This component will support improvements in the delivery o f road management services at District level through a pi lot trial o f options for commercializing the current agency- led operations. D P W H will test options in selected Districts for operating the District- level programs on a commercial basis with the office operating as a separate commercial entity. During preparation, various models were considered including the operation o f separate functions such as maintenance and construction - the operation o f the whole office as service enterprise was recommended on consideration o f financial viability. About three Districts would participate in the pi lot for a period o f about three years, on a voluntary basis with the Districts satisfylng certain criteria. In the initial phase, experts on small and medium enterprises wil l work with the selected district offices to help them prepare to hnct ion as a commercial enterprise and to prepare cost effective business plans for the maintenance and construction programs at the district level. In the operational phase, the selected offices would each operate as a commercial enterprise, undertaking guaranteed contracts covering all the maintenance and construction work that would previously have been managed by the District office, without additional financial support. After three years, the pi lot would be evaluated to determine whether the enterprises would be fully privatized or would return to their original status. The project wi l l finance the implementation o f the pilot exercise (possibly through a PPIAF grant to be confirmed), including selected business costs to be identified (excluding the works to
62
be financed through regular budget sources), evaluation o f the pilot, and the formulation o f recommendations for scaling up the model to other district offices, if successful.
B2.4 Integrity Support (US$3.1 million, in grant): In order to complement the internal efforts on integrity development within DPWH, this component supports the establishment and operation o f independent audit and integrity mechanism for the duration o f the Project. The purpose o f the mechanism i s to encourage improved integrity and transparency in road sector operations, and to provide timely warnings o f integrity issues that may arise and a basis for actions to address them. Init ial ly i t is proposed that the integrity mechanism would apply to World Bank financed projects and the Road Board programs, but it i s anticipated that this could be extended in the future if appropriate. The mechanism includes three elements. First, an integrated audit o f the use o f public funds would combine a technical audit with the financial audit, operating in a passive, ex-post capacity but actively covering al l stages o f implementation with progressive and interim findings. Second, project-related procurement would include an independent evaluation made in parallel to the formal procedures. However, the full responsibility and accountability for conducting procurement and managing the implementation o f works, goods and services under foreign and local funding would remain with D P W H - in accordance with national laws, the official guidelines including the 2006 D P W H Procurement Manual and harmonized national procurement procedures, and applicable procurement guidelines o f the financing institution. Third, the performance and effectiveness o f the integrity and anti-corruption measures adopted under the Project would be reviewed on a regular basis. Lastly, the oversight o f the integrity mechanism would be vested in both the government and the financing agency. Under the Project, an Integrity Support Services team would be employed through technical assistance under AusAID grant funding for the following activities:
(a) Independent Procurement Evaluator (IPE): An individual experienced procurement specialist would participate in key procurement procedures with D P W H officials, conducting parallel independent evaluations for all international procurement tasks. The independent procurement evaluations would be disclosed to the D P W H procurement committee without obligation, and to the Joint Oversight members, under agreed guidelines, and the independent findings would need to be addressed satisfactorily before clearance o f a decision would be made by either D P W H or the Bank. Procurement decisions would remain the responsibility o f the relevant D P W H authorities.
(b) Independent Technical Audit: A consultant team would conduct independent review or inspection at various stages during the preparation and implementation o f works and services on a sample basis, including but not limited to: appropriateness o f design, cost estimate, specifications and procurement o f works, quality o f supervision and finished works, selection o f consultants and performance o f consultant services, and contract variations and amendments. Reporting would be made to the Joint Oversight members, financial stakeholders and DPWH, under agreed guidelines. D P W H would provide access to all relevant information, and the Project would finance all IPTA activities and services.
63
(c) Review of Integrity Development Progress. The team would review regularly the D P W H performance in respect to the actions in the agreed I D A P and the NRIMP-2 Anti-Corruption Action Plan, and report to the Joint Oversight members on a quarterly basis for the f i rst year and thereafter semi-annually.
(d) Joint Oversight Arrangements: Oversight o f the integrity provisions would be arranged jo int ly between the D P W H senior management, the PAGC Transparency Board, and the financing agency. Primary oversight o f the integrity framework will be vested in the senior management committee (ManCom) o f the DPWH, which wil l have the collective responsibility for reviewing and taking action on the findings o f the integrity services team. The findings o f the Integrity Services team (IST) would be disclosed also to the financing agency (World Bank, AusAID, or Road Board); and the D P W H ManCom would likewise copy these organizations on the related actions. The effectiveness o f this function would be evaluated no later than the mid-term review o f the Project, reserving the option for restructuring this oversight arrangement if needed.
9. Component B.3: Strategic Road Sector Reform (estimated cost US$1.2 million, in loan). The component would build on the Phase 1 pol icy reforms which established a sustainable financing mechanism for road management, based on cost recovery through annual motor vehicle registration revenues with oversight by a Road Board. The main focus will be on strengthening the operation o f the Road Board and Funds, reviewing the legislative mandate and regulations, and considering options for expanding the revenue base and utilization o f the funds. The second focus will identify a strategy and medium-term plan for further reform in the road sector, taking account o f the previous deferment o f proposals for establishing a road management authority. The advisory consultant services would be the primary support provided to the Road Board and Secretariat under a Partnership Agreement made as part o f the Project to support improved utilization o f funds in the M V U C funds. The services would assist with the following objectives:
(a) Strengthen the operation of the Road Board and utilization of the four-part road funds under the Motor Vehicle User Charges Act RA 8794: including (i) improved allocation o f resources, combining use o f the D P W H programming systems and stakeholder consultation, (ii) improved administration o f funds with focus on cost efficiency, transparency and results-oriented monitoring; (iii) improved capacity and clarified roles o f the Board, Secretariat and D P W H offices; (iv) improved transparency and communication with road users and citizens, such as annual charter and reporting, and interaction with the Road Partnership program; and (v) support o f program expansion using pooled funds from development partners, including performance-based contracting and expanded preventive maintenance coverage.
(b) Review and update the mandate and implementing rules and regulations (IRR) of the Board and the MWC funds: including (i) possible support for full asset preservation o f roads and bridges including rehabilitation needs; (ii) subsidy options for financing support o f local road maintenance; (iii) appointment and composition o f Road Board and Secretariat; and (iv) basis for revenue allocation to four sub-funds.
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(c) Support appropriate expansion of the revenue base of road user cost recovery to a sustainable level: including (i) review o f target level o f revenues for sustainability in relation to road management needs and to efficient and transparent service delivery; (ii) recommendation o f appropriate revenue instruments including possible conversion o f fuel excise tax and other options; and (iii) issues o f cross-subsidization between national and local levels.
(d) Support continuing identiJication and development of an appropriate road management model for the sector: building on the extensive consultation and design made under Phase 1, an evaluation o f the lessons from that and the Rationalization Plan, the pi lot model for District-level road management commercialization (B2.3), and international experience: (i) develop consensus on the road management model to be adopted; (ii) prepare an implementation and transition plan; and (iii) draft relevant legislation to support i t s introduction.
10. Component B.4: Training and Workshops (estimated cost US$0.25 million, in loan). This would support training courses and workshops for facilitating achievement o f the Program objectives and expediting implementation o f the N R I M P Program. I t would be managed through a training plan to be prepared by D P W H with concurrence o f the Bank.
65
66
Annex 5: Project Costs
Philippines: Second National Roads Improvement and Management Project
Table 5.1: Summary Project Costs and Financing (US$ million)
Project Cost B y Component Local Foreign Total
A. Road Improvement and Preservation A. 1. Road Network Improvement A.2 Road Asset Preservation
B. Institutional Capacity Development B. 1. Business Process Improvements B.2. Corporate Effectiveness B.3. Road sector policy reforms
B.4. Training and Workshops
Total Baseline Cost Physical Contingencies Price Contingencies Front-end Fee
B.l Business Process Improvements BP-0 1 Business Process Implementation BP-02 Financial Management and Controls BP-03 Information Technology BP-04 Quality Assurance technology
Transition: IDAP and Integration
B.2 Corporate Effectiveness B2.1 Organizational Effectiveness B2.2 Sustainable Road Partnership B2.3 Road Management Service Delivery B2.4 Integrity Support
B.3 Road Sector Reform
B.4 Training and Workshops
210.83
123.92 0.00
97.69 6.21
20.02
86.91 52.14 32.00
2.77
20.59
17.96 11.17 0.37 4.59 1.76 0.07
1.14 0.73
0.41
1.24
0.25
121.53
114.58 22.66 84.98
6.64 0.29
6.95 4.48 2.47
25.01
25.01 14.15 0.67 9.40 0.31 0.48
0.00
0.00
0.00
186.98
0.00
186.98 95.69 9 1.29
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
10.50
4.10
4.10
6.40 2.15 1.11 0.00 3.14
0.00
0.00
519.34
238.50 22.66
182.67 12.85 20.3 1
280.84 152.32 125.75
2.77
56.10
47.07 25.32
5.14 13.99 2.07 0.55
7.54 2.88 1.11 0.41 3.14
1.24
0.25
Total
Front-End Fee
231.42 146.54 186.98 10.50 575.44
0.58 0.58
TOTAL FINANCING 232.00 146.54 186.98 10.00 576.02
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Annex 6: Implementation Arrangements
Philippines: Second National Roads Improvement and Management Project
1. The Department o f Public Works and Highways (DPWH) will be the Implementing Agency (IA) for the Project. The Road Board, an executive agency reporting to the Secretary, Public Works and Highways, wil l be responsible for implementing component B.3. The D P W H will have overall responsibility for overseeing the implementation o f the project, reporting to the Government of the Philippines (GOP) and fulfilling the requirements o f the World Bank. The responsibilities are outlined in Figure 6.1.
Organizations Responsible for Project Implementation.
2. Overall Direction and Leadership. Overall direction and leadership for implementing the NRIM Program in Phase 2 wil l be exercised by the Executive Committee o f D P W H (ExCom) under the chairmanship o f the Secretary and comprising the Undersecretaries and Assistant Secretaries o f the Department. Two project-specific oversight groups wil l be established through a D P W H Department Order, i.e.:
(a) Project Steering Committee (PSC): The PSC, comprising Office, Bureau and Division heads from various offices o f the DPWH, will be responsible for overall management, monitoring, coordination o f the whole Project, reporting to the EXCOM. The Project Implementation Plan, the Results Framework and associated Performance Monitoring Framework, wil l be used as the vehicles for program management, monitoring and reporting o f achievement.
(b) Program Management Office (PMO): A special P M O wil l be established on the model o f the consolidated P M O planned under the Rationalization Plan. The NRIMP P M O will be responsible for direct management o f the Project and coordination with implementing divisions and units in DPWH. The P M O will comprise a Project Director, Assistant Director, and three Project Component Managers for components A. 1 (Road Improvement), A.2 (Asset Preservation), and B (Institutional and Capacity Development) respectively.
(c) Policy Review: In addition, there wi l l be an annual review o f the progress on policy and sector-level aspects o f the Program, in a joint meeting o f DBM, NEDA, DOF, DPWH, Road Board Secretariat and the Road Watch alliance, with the Bank and Cofinancier, chaired by DOF. The meeting would review the pol icy and development effectiveness o f the NRIM Program, annually by March each year, including pol icy aspects such as the sector budget, Road Board financial, operational and legal issues, sector reform, integrity and governance issues, and coordination with related foreign- assisted programs.
3. Project Steering Committee. The PSC shall report through the Under-Secretary for Technical Affairs (or equivalent) to the Executive Committee o f D P W H and be responsible for:
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Coordination o f the respective implementing units o f DPWH, i.e.: PMU, RPO, BOM, Planning Services, respective units and Task Forces for B.2.activities; as well as the external entities, i.e. Road Board, and Bantay Lansangan. Reviewing and directing project performance against Performance benchmarks for the implementing units to expedite Project implementation and ensure effective monitoring Enabling communication among the Project implementing units to joint ly assess progress, issues, and discuss solutions and approaches Preparing NRIMP-3 concepts and objectives, based on NRIMP-2 results and Program goals; Review and facilitate progress on the sector and pol icy aspects o f the Program
4. Program Management Office. The P M O will report to the PSC and be responsible for: Coordination o f al l implementation tasks by the respective implementing units o f DPWH, i.e.: RPO, BOM, Planning Services, respective units and Task Forces for B.2 activities; as wel l as the external entities, i.e. Road Board, and Bantay Lansangan. Streamlining and coordinating reporting o f al l activities on a standardized basis - monthly, quarterly and annually, as the case may be; Establishing a monitoring and evaluation system specifically for NRIMP-2, including finalization o f all indicators, collection or compilation o f baseline and monitoring data, and aligning reporting and monitoring systems with D P W H systems and decision-making; Establishing performance benchmarks for the implementing units to expedite Project implementation and ensure effective monitoring Establishing systems to detect and mitigate cost and time over-runs Undertake related sector analysis on road management pol icy in the Philippines as it relates to NRIMP, including but not limited to o Road asset management and expenditure statistics (annually) o Road policy issues, legislation and issues in Congress o Road sector financing needs, allocations, and performance efficiency, etc.
5. Implementation Arrangements Component A. The works and services under component A will be implemented by the respective existing units within DPWH, or as may be revised by restructuring, as follows:
e A. I Road Improvement, comprising c iv i l works, and consultancies for construction supervision, feasibility study, design and safeguards: A unit o f the Program Management Office (PMO) would be designated full-time to manage, procure and implement the subprojects and services. Civ i l works will be procured predominantly under I C B procedures, supported by the proposed Bureau o f Procurement. Construction supervision would be provided through two internationalhational consultancy services, one for Mindanao region and one for Luzon and Visayas, with the consultants acting as the Engineer and D P W H as Employer. An External Monitoring Agency (EMA) consultant would be appointed to review completion o f safeguard requirements, following the successfbl model o f NRIMP- 1.
70
Internationalhational consultants would be appointed to undertakehpdate the feasibility studies and undertake detailed design for road projects to be implemented under NRIMP-3 , including the preparation o f safeguards requirements.
e A.2 Asset Presewation, comprising sub-programs o f long-term performance-based maintenance contracts and o f annual preventive maintenance programs, will be financed through the Road Board who will provide all counterpart funding to the loan on this component. The Road Program Office (RPO) wil l exercise a planning, coordinating and reporting role for the entire Asset Preservation component, aligning i t as much as possible with regular program operations. Project aspects wi l l be coordinated by the P M O Component Manager for Asset Preservation.
o The long-term performance-based maintenance (LM) contracts would be managed and monitored by the Bureau of Maintenance and implemented under the foreign-assisted capital program. The LM civi l works wil l be procured in eight packages through I C B procedures. The LM works wil l be supervised by the responsible DPWH Regional Office (RO) for each contract, assisted by the District Engineering Offices (DEO). A firm o f internationalhational consultants wi l l be employed to provide guidance and training in LM procedures to the RO and DE0 staff, to monitor and evaluate the program, and to guide and assess the performance o f RO’s in supervising the national preventive maintenance program.
o The preventive maintenance programs (PMP) wil l be prepared annually by the Road Program Office, with support from the Planning Services and BOM. Projects wi l l be designed, procured and managed by RO’s, when the package size i s about P50 mi l l ion (which exceeds the authority o f the DEOs) or by DEOs. The annual P M program to be financed by the SRSuF w i l l be authorized by the Road Board, based on the RPO program. NRIMP-2 funds for the P M program wil l be released each year in a lump sum amount, subject to three disbursement conditions related to the achievement o f business process objectives, as described in Table 4B.3. All contract payments wi l l be made by D P W H through their SRSuF account, drawing on the additional loan funds through reimbursement on an SOE basis.
6. The many tasks under this component wi l l be managed and coordinated by the P M O Component Manager for Institutional Development. Individual tasks and activities will be assigned to the relevant divisions, bureau or office in the DPWH.
Implementation Arrangements for Component B.
e Component B. 1 Business Process Improvements: wil l be coordinated through the RIMSS-Project Office (RIMSS-PO). The RIMSS-PO wil l be supported by a Technical Coach, and the tasks would be managed by a coordinating consultant, who wil l be responsible to: (a) coordinate the implementation o f the Business Process implementation tasks (BIIPs); (b) ensure the processes and computerized applications are integrated; (c) ensure compliance with the data and applications’ procedures, and overall conceptual design; and (d) ensure that the hardware/software i s consistent with the computer technology purchased under the program. Each BIIP will be managed
71
and sponsored by the director from the associated business area (such as planning, finance, etc.), who wil l be accountable for delivery and performance. A staff member from the associated business area wil l be assigned full time by the director to manage implementation. Task B1.2 Financial Management and Audit will be supported by direct technical assistance employed and funded by the Cofinancier in two consultancies: (i) Financial Management and Internal Control Systems; (ii) Capacity Building for Internal Audit. Loan funds are available for training and other activities not supported by the Grant.
Component B2. Corporate Effectiveness: wil l be managed by the Assistant Secretary o f Technical Affairs aided by a B2 Task Force comprising staff members from RIMSS-PO, Planning, BOM, CFMS, MIS, Legal Department, Internal Affairs, Communications Department, Human Resources, Internal Audit, selected Regional Directors and District Engineers, and one senior staff member from the Secretary’s Office. The B 2 Task Force wil l be an umbrella task force that wil l champion, manage, spearhead and lead the corporate reform process, and may include thematic task teams assigned to each activity.
o B.2.1 Organizational Effectiveness - activities wil l be implemented under the overall guidance o f the Assistant Secretary o f Technical Affairs and the B 2 C M Team, and wil l be assisted by the B 2 C M team comprising staff from MIS, Human Resources, and Legal and Communications departments.
o B2.2 Road Partnership - wil l be implemented by Bantay Lansangan, in accordance with the M O U with D P W H (14 March 2007) and subsequent Road Partnership Charter. Bantay Lansangan wil l be directly responsible to each o f its members for timely delivery o f i t s outputs. Support for operating expenses and technical guidance wil l be provided through direct technical assistance by the Cofinancier, independent o f DPWH. D P W H will provide relevant sector information, access to facilities, and such assistance for conducting surveys as may be required.
o B.2.3 Road Management Service Delivery. The advisory services on Road Management Service Delivery wi l l be implemented by BOM and report to the Assistant Secretary o f Technical Affairs and the Director, Bureau o f Maintenance. A Task Force for Road Management pi lot (RMTF) wil l be established by DPWH, headed by the Assistant Secretary o f Technical Affairs and comprising representatives o f Regional Directors, District Engineers, and members from the legal and communications divisions o f DPWH.
o B.2.4 Integrity Support Services. The D P W H Executive Committee wil l exercise general oversight o f the ISS team, with parallel oversight from Bank and Cofinancier. For management purposes, the I S S team wil l be under the direction and responsibility o f the Chair o f the PSC. The reporting o f technical findings o f the I S S for: (i) Technical audits wil l be made to the PSC chairperson; and (ii) Procurement findings to the B A C chairperson; all with due consideration to confidentiality and due process. For administrative purposes, the P M O will provide the necessary facilitation o f facilities and daily operations, and field testing required by the technical auditor wil l be conducted and paid by DPWH; other field
72
and operating costs wi l l be paid under the TA. The services wil l be provided directly as consultant technical assistance, procured and administered by the cofinancier AusAID, and D P W H will participate in the selection arrangements.
e Component B.3. Strategic Sector Reform: T h i s sub-component wil l be implemented by the Road Board Secretariat. O n the policy and sector reform aspects o f the task, the consultant team should engage in discussions with relevant stakeholders such as DBM, DOF, industry representatives and D P W H leadership. Workshops should be convened to develop feedback and consensus on the strategy recommendations. International consultants wil l be selected through QCBS procedures with assistance f i om D P W H procurement staff.
the P M O Component Manager for Institutional Development, based on a training plan developed in consultation with the PSC. Disbursements wi l l be on SOE basis.
e Component B.4 Training and Workshops: The sub-component will be managed by
7. Implementation of AusAID Grant Cofinancing. For the tasks funded by AusAID, procurement and administration o f the consultants wi l l be handled by the PEGR management team, a firm administered by the Cofinancier under the direction o f the PEGR Board, comprising representatives o f DBM, DOF, NEDA and AusAID. The activities o f each package will be managed jo int ly by D P W H under the Assistant Secretary Technical Affairs and the PEGR management team. The Bank task team will be included in the procurement evaluation, supervision and coordination activities by mutual arrangement with AusAID. Likewise, AusAID wil l be included in Bank supervision and coordination activities by mutual arrangement. The Grant cofinancing will be administered through six packages, as follows:
e RA-007-01 Financial Management and Internal Control (FMIC): A firm will provide support to CFMS across the range o f activities strengthening financial management and internal control systems in the Department, and wil l coordinate with the Internal Audit services.
Internal Audit Services o f D P W H in upgrading internal audit procedures to international standards and assisting in the conduct o f semi-annual internal audits across DPWH.
procurement specialist supported by local consultants wi l l undertake the IPE role, working alongside the PMO, Procurement Bureau and BACs. Procurement reporting wi l l be made to the Secretary, Management Committee, and B A C Chairpersons, and final reports on a procurement transaction will also be made to the Bank Task Team Leader and a designated officer in GPPB - all these reports will be subject to the due confidentiality o f the procurement process. The team wil l work closely with the ITA RA-007-05 Independent Technical Audit (ITA): A firm will undertake independent technical audits o f the Project activities periodically at least annually, including audits o f contracts as implemented, cost control f iom estimation to completion, performance o f f i rms, quality and quantity o f project outputs, achievement o f project results, etc.
e RA-007-06 Internal Audit Capacity Building (IACB): A firm will support the
e RA-007-02 Independent Procurement Evaluator (IPE): A team o f an individual
e
73
RA-007-03 Organizational Effectiveness Advisors: A firm will conduct an organizational analysis and develop restructuring plans in consultation with senior D P W H management. RA-007-04 Road Partnership Support: An advisor will provide support and advice to the citizen group Roadwatch formed as an alliance o f transport-related NGOs to operate as an effective independent and external monitor for the Road Sector, with constructive communication with DPWH. Grants wil l also be made for operating costs o f the organization.
8. Implementation Schedule, The implementation schedule and procurement plan for the project are outlined in Figure 6.2. This provides for the majority o f the c iv i l works to be implemented in 2009-201 0, with four years o f the long-term maintenance projects (2009- 2012) covered by the NRIMP-2 loan. I t i s anticipated that NRIMP-3 would begin implementation at the start o f 201 1 in order to continue the road improvement program and complete the financing o f the Long-term Maintenance program.
Figure 6.1 : NRIMP2 Implementation Framework
..................... .L.
Reform
I Preservation Improvement
8.2 Corporate Business Effectiveness
I : 1 3
B.2.2.Road Sector Monitoring
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Annex 7: Financial Management
Philippines: Second National Roads Improvement and Management Project
I. Executive Summary
A Financial Management (FM) assessment o f the Department o f Public Works and Highways (DPWH) was undertaken with the objective o f ensuring that there i s in place an adequate financial management system that satisfies the Bank’s OP/BP 10.02 requirements for the Proposed National Road Improvement and Management Program, Second Phase (NRIMP-2). According to the requirements o f OP/BP 10.02, the borrower and the project implementing entities should maintain financial management systems - including accounting, financial reporting, and auditing systems - adequate to ensure that they can provide accurate and timely information regarding project resources and expenditures. The review was carried out in accordance with the Bank’s guidelines under Financial Management Practices in World Bank- Financed Investment Operations dated November 3, 2005. I t focused on the assessment o f the Agency’s FM systems, including that for Foreign-Assisted Projects and considered the inherent FM r isks in the country.
The proposed loan o f US$232 mi l l ion for the NRIMP-2 has the objective o f improving the Borrower’s national road management and financing systems and institutional arrangements countrywide to improve road user travel and use o f public resources. This i s the Phase 2 o f a 3 Phased project. Phase 1 closed on March 3 1,2007.
The financial management system o f D P W H i s guided by the internal control policies and procedures o f the government, which are contained in several documents, mainly in the NGAS (developed and issued by COA) and GAAM (Government Accounting and Auditing Manual).
The FM system o f D P W H consists o f a mainstream FM system, which i s handled by the CFMS (Controllership and Financial Management Service) and supported by a sub-system for foreign-assisted projects (e.g. NRIMP-1 and 2). The main FM system (CFMS) is used to maintain the books o f accounts, monitor the Designated Account (DA) and prepare the Project Financial Reports required by the Bank. The sub-system under the P M O does initial screening o f transactions, prepares disbursement vouchers, SOEs and Withdrawal Applications for the DA, and manages DA and prepares other financial management reports.
The review results indicate that the mainstream FM system o f DPWH, overall, does not comply with the Bank’s requirements due to significant deficiencies in i t s internal controls on cash, inventory, property, advances and sub-allotment to Regions, payables, and certain expenditures; and to a weak internal audit function. These resulted in an adverse audit opinion for several years, including the D P W H 2006 financial statements, due to inadequate compliance with government’s established internal controls, and significantly delayed both the agency and Project audit reports.
Further, there are control environment matters that are pervasive and increase significantly the risk that funds will not be used for their intended purposes. At a program and office level, there are perceptions o f misuse o f funds and, on a project level, there have been allegations o f
77
collusion and payment o f kickbacks to individuals. These indicate that there are weaknesses in the control environment.
These weaknesses in the Agency’s FM system and the control environment for the Project makes the risk o f funds not being used for i t s intended purposes to be rated as High, before mitigation.
The mitigating measures that the Agency has committed to undertake to reduce the risks for the FM under the Project include:
(1) Implementation o f an Integrity Strengthening Action Plan (ISAP) that addresses the internal control weaknesses and audit exceptions, acceptable to the Bank during Project life.
(2) Appointment o f a qualified financial management head and a core o f financial management staff with an adequate number o f qualified accountants and supervisors for the Project FM.
(3) Engagement o f an independent reputable internal audit firm for strengthening o f the internal audit function o f the Agency. T h i s includes training, twinning hands-on arrangements through a semi-annual Internal Audit Review o f D P W H and the Project for at least two years, and the establishment o f a baseline on internal control and internal audit. The TOR o f the internal audit firm shall be acceptable to the Bank.
(4) Submission o f quarterly Interim unaudited Financial Report to the Bank and Auditor to enable it to do progressive audit to help in the timely completion o f audits.
(5) Counterpart funds will be paid by the Central Office in the same manner that Loan funds are disbursed centrally. Use o f a Sub Allotment Advice or i t s equivalent for the Project counterpart funds wil l be discontinued.
(6) Regarding the delayed audit reports, COA has assigned a new Auditor to the agency who appears committed to improve the auditing o f the Agency as well as its Projects. Thus, the Agency will be closely coordinating with COA on a timely submission o f the audit reports plus, a letter wi l l be sent to C O A stating the deadline for the Project and their past experience o f delayed submission o f audit reports. Further, the Bank wil l enforce stricter compliance with requirements such as timely delivery o f audit reports.
The FM r i s k o f the Project would be mitigated to a manageable level (Substantial) when the foregoing measures are effectively implemented and have shown the expected impact.
The funds f low from the Bank to the Bureau o f Treasury’s account at the Bangko Sentral ng Pilipinas (Central Bank o f the Philippines). Then after approval by the Department o f Budget and Management, through the issuance o f a Notice o f Cash Allotment (NCA), funds f low to the DPWH’s Designated Account (DA) maintained in an acceptable depository government commercial bank. These funds are then used to pay for eligible Project expenditures.
The Project shall be preparing quarterly Interim unaudited Financial Reports (IFRs). These would be used for disbursement purposes after 6 months from effectiveness or when the borrower and Bank staff are confident that the IFRs are satisfactory and acceptable basis for
78
this purpose. In the meantime, the traditional basis for disbursement (SOE or full documentation) will be used.
11. Financial Management Assessment
Country Issues
The Country issues are identified as follows:
(a) Perceived corruption in the country - The country’s corruption rating by international institutions monitoring corruption i s high. W h i l e the rating i s a perception, there i s a related risk involved in the country.
(b) Weak internal controls and internal audit capacity- Internal auditing in government agencies i s not wel l developed mainly due to budget constraints. This weakens the Internal Controls in the said agency.
Risk Assessment & Mitigation
The FM risk for the Project i s rated High. The Risk assessment table below gives the details and i t s mitigating measures.
Risk Category 1 Risk Main FM Risk Rating
Risk mitigating Measures
Condition of Negotiations,
Board or Effectiveness
Residual Risk
Inherent Risk H H 1 .Country :
H a. Perceived corruption in the country
b. Weak Internal H Audit function.
2. Entity (DPWH): H a. Perception of
corruption in the Agency.
The Bank i s currently working with government on H N Integrity Development Action Plans under its anti corruption efforts. This i s yet on i t s early stages. In the mean time, the Project w i l l be ring fenced as detailed in the Project’s Integrity Development Action Plan (IDAP) and the FM arrangements for the Project.
The Bank has initiated addressing this through i t s Grant H on Strengthening the Internal Audit (IA) with the Philippine Anti Graft Commission as i t s implementing entity. This i s s t i l l in i ts early stages. Please see IA arrangement for the Project.
The Project includes an Anti corruption strategy for the S
Agency and the Project called the Integrity Development Action Plan (IDAP). The IDAP will need to include certain suggestion o f the Bank in the FM area mainly on controls re: Sub Allotments, liquidation of advances, Due to National Government Agencies and other discretionary items, Change Orders; and strengthening o f Internal Audit
Y
Y
b. Institutional and _ _ The Rationalization Plan o f the Agency includes the S N H organizational
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aspects: Weak FM organization staffing. (see “Weaknesses”)
integration o f the P M O FM function into the Comptrollership& Financial Management Service (CFMS) o f the Agency and the absorption o f selected contractual employees as regular staff, However, as the Plan has not yet been approved, the Agency shall appoint a qualified financial management head and a core o f financial management staff wi th an adequate number o f qualified accountants and supervisors for the Project FM.
c. Weak internal H Agency to address these weaknesses as part o f the control including its ISAP. effect on funds f low and financial reporting.
3. Project Level a. Allegation received
o f corruption on Bank financed Projects
b. The Project is large in size, with US$232
H To be mitigated b y the implementation o f the ISAP incorporating the Bank’s suggestion on FM.
S
S
Y
Y
m loan. Control Risk H S N I. Budget M Remarks: Agency has a formal budgeting process M N
consistent with the Government’s requirements.
2. Accounting
eNGAS a. Use o f NGAS &
b. Project Accounting software records obligation o f accounts as disbursed then manually reconciled and adjusted to actuals based on the regulatory accounts o f the Agency which i s on actual basis. (see “Weaknesses”)
3. Internal controls
Audit Reports on the Agency expressed an Adverse audit opinion mainly on key accounts reflecting weaknesses in Internal Control. (see “Weaknesses”)
a) The previous years
b) Weak Internal Audit (see Weaknesses)
M M Remarks: Use o f NGAS & eNGAS has improved the
Project accounting software shall be revised to reflect M N
N accounting o f the Agency significantly.
actual disbursements.
Include in ISAP Internal Control measures on Sub Allotments, Advances, Due f r o d t o National Government Agencies and other Discretionary funds, Change Orders & Internal Audit strengthening and coverage o f projects. Project will address the 2006 Audit recommendations in accordance with an agreed time bound action plan..
S S
S Strengthening o f IA be included in NRIMP2. T h i s would entail training on the latest International IA standards & practices. I t w i l l also include a twinning hands-on arrangement for at least two years with a reputable firm. The TOR o f the Consultant shall be
Y Y
Y
rehewed by the Bank.
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4. Funds Flow H S Y - Weak control on
Sub-allotment Advices, Due from National Government Agencies and other advances.
Addressed by I S M . In addition, Use o f Sub Allotment Advice shall not be allowed for N N M P 2 so that counterpart funds are disbursed in the same way as the DA, which i s at the center.
5. Financial Reporting H See item 3 above. - Weakness o f
S Y
controls in the accounts affected the fairness o f presentation o f accounts
6. Auditing H S Y - Significantly delayed Quarterly IFRs w i l l be required to be submitted to COA
so they could do progressive audit o f the accounts and a documented agreement with COA on the Detailed timetable for the audit o f the Project w i l l be required. Bank w i l l be stricter in the enforcement o f i t s sanctions on delayed audit report.
audit reports. During implementation
Note: H - High S --Substantial M - Moderate N - Negligible or L o w
Strengths and Weaknesses
The strengths o f the Financial Management system for the project are:
1.
2.
3.
4.
The NGAS i s more than an accounting system as i t also contains relevant accounting standards. NGAS prescribes Accounting Policies and procedures with embedded key Internal Controls, presentation o f financial statements, accounting for government transactions, property and inventory accounting, methods o f accounting for income, budgeting standards, required books o f accounts, budget registries, records, forms and reports including instructions on i t s preparation or maintenance. I t also defines i t s Chart o f Accounts and provides pro forma entries and more. This provides the foundation for good Internal Control, Accounting and financial reporting. eNGAS on the other hand i s a bookkeeping software that i s consistent with the bookkeeping part o f the NGAS. The Agency intends to expand the use o f the NGAS for i t s standards and eNGAS for its computerized bookkeeping and the project wil l finance this (B1.2).
The Agency has adequate budget process with adequate coordination with the Department o f Budget and Management.
Its disbursement has additional outside entity control from the Department o f Budget and Management (DBM). DBM screens and releases payments to contractors and suppliers after these are processed and approved by DPWH.
Prioritization o f payments to contractors i s posted on the web such that when funds are available, contractors are paid based on chronological submission o f bills.
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The weaknesses o f the Financial Management system indicated in the risk tables are summarized below:
1. Weak internal control including i t s effect on funds f low and financial reporting - For several years including 2006, the annual Audit report on the Agency has expressed an adverse audit opinion on D P W H Financial Statements, mainly due to weaknesses in Internal Control. The main areas o f weakness in D P W H Internal Controls include:
a. Cash such as unreconciled bank balances, unrecorded transactions, bank accounts with no cash, mispostings and double recording o f disbursements, and improper write o f f o f account balance.
Cash advances, Receivables, Due from National Government Agencies or Inter-Agency Receivables, Sub Allotments to Regions and Agencies, Inter- Agency Receivables, Inventory, Property & Equipment, Accounts Payable, and Expenditures
b.
c. Reconciliation o f General ledger and i t s Subsidiary ledgers.
The NRIMP- 1 Project Accounts audit contained lesser exceptions which mainly concerned the controls on Sub-Allotments and improvements needed in the software for Projects which record transactions based on obligation (even when reconciled with the regulatory accounts for the Project which are o n an actual basis).
2. Weak Internal Audit function - Internal Audit lacks management support and has few staff with inadequate coverage o f the entity and projects. IA has no training program, little budget and i t s staff needs capacity strengthening. IA management comprises mostly Engineers with no formal training on Internal Audit or Internal Controls, and have skills acquired on the job.
3 . Weak FA4 organization stafJing - There are not enough regular employees in the FM function including those for Projects. Thus, the Agency resorts to hiring o f contractual Employees.
4. Project Accounting software records obligation o f transactions as disbursed. The software being used for Bank Project financial reporting purposes treats obligated transactions as disbursed. However, reconciliation i s being documented between the NGAS o f the main Agency books o f Accounts (which records transactions as they are disbursed) and the Project software reports and the report i s manually adjusted. .
5. SigniJicantly Delayed Audit Reports - There have been significant delays in completion and submission o f audit reports for both entity and the project during the last several years. This indicates certain weaknesses in timely completion and consolidation o f financial statements, as well as the timely conduct o f audit and prioritization o f audit timetables by the national auditor. The government auditor i s now committed to address this issue to ensure more timely audits.
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111. Financial Management Arrangements
1. Budgeting
The Project wil l be using the Agency’s budgeting system which i s being used government wide. Under this system, Budgets are prepared based o n the budget call o f the DBM with indicative ceilings. Regions, Services, Bureaus and PMOS are required to submit their detailed plans for the year. A work and Financial Plan i s required to support budget submissions with corresponding computations or assumptions. These are then reviewed by the respective Directors for discussion and adjustment by Management. Such budget i s checked as to its relevance with the mandate, programs and priorities o f the Agency. The Secretary would then have the final say on the Budget and this i s endorsed to the DBM for W h e r screening. After DBM approves o f the Budget, i t transmits this to the office o f the president who in turn would transmit i t to Congress for i t s deliberation. After the budget i s approved by Congress, this i s sent to the President for final approval and issuance as the General Appropriations Act (GAA). The GAA then becomes the basis o f the quarterly release o f funds (through the use o f the Notice o f Cash Allotment or NCA) to the Agency or Projects. Adequate budget registers to control budget implementation and reporting i s maintained through the NGAS.
2. Accounting
The CFMS is currently using NGAS as well as the eNGAS for its Agency books (regulatory accounts). This wil l be applied for the regulatory accounts o f the Project. For Project financial reporting purposes, off-the-shelve software shall be used with revision such that transactions are recorded when disbursed and not when obligated. All Project transactions are recorded f i rs t in the regulatory accounts using the NGAS (Including i t s Internal Control policies and procedures) and eNGAS and then these are likewise entered into the project software for the Project. Experience in the current Bank project being implemented by the Agency indicates that the accounting, reporting and bank reconciliation statements, and reconciliation o f General and subsidiary ledgers are timely. The eNGAS will continue to be reconciled with the project software and documented. The CFMS, WB Unit under the supervision o f the CFMS Accounting Division maintains the books o f accounts, monitors the Designated Account (DA), and prepares the Project Financial Reports required by the Bank. The IBRD-PMO does the initial screening o f transactions, prepares disbursement vouchers, SOEs and Withdrawal Applications for the DA, and prepares operating or ad hoc reports required by technical staff.
3. Internal Control & Internal Auditing
The following are the key Internal Control arrangements: a. Will follow the Internal Control applicable in the NGAS. The Agency shall be
asked for their action plans with timetables for the accountability issues indicated in the 2006 audit reports o f the Agency and the Project. These 2006 audit exceptions shall be addressed per the dated covenant, section 8, para.2. A Project quarterly status report shall be required to be submitted to the Bank.
b. Approval o f transactions i s done by the CFMS and Management o f D P W H and,an outside entity screens and disburses this directly to the contractor/supplier.
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C.
d.
e. f. g.
h.
i.
Separate books o f accounts and subsidiary ledgers shall be used for the Project to be maintained by CFMS (WB Unit) using the improved project software. e-NGAS and the project software shall be reconciled with adequate documentation and proper signature on the reconciliation report. A Designated Account shall be separately created for the Project. Cash Advances shall not be allowed since a Designated Account will be set up. Monthly Bank Reconciliation Statements shall be prepared to be submitted no later than the end o f the following month. A Financial Plan shall be prepared for the whole term o f the Project with details per month for the current year and submitted to the Bank and Project Management. Properties and Inventories under the Project shall be required to have a physical inventory taking annually with a report to be submitted to Management on the results and including reconciliation with recorded accountabilities and the action on the differences.
The Project shall be required to be covered by an Internal Audit (IA) twice a year with reports submitted to the Bank within one month after the review. This will be done while the IA capacity strengthening through training and hands on experience i s being addressed by the project such that the IA i s utilized in certain review o f the Project while they are being trained.
4. Funds Flow and Disbursement arrangements.
The funds from the loan proceeds wil l f low from the World Bank to the Philippine Treasury. After issuance o f a Notice o f Cash Allotment (NCA) issued by DBM, they will f low to the Designated Account (DA) o f the project maintained by the Agency Payments o f eligible expenses shall be made out o f the DA (or by direct payment). Contractors, Suppliers and Consultants are paid centrally at the Central Office through the DA. Then these are liquidated to the Bank together with an application for replenishment o f the DA. Funds from Category 2(c) below for preventive maintenance wil l be applied on a reimbursement (SOE) basis, either from the DA or by direct payment, to the D P W H account for SRSuF preventive maintenance funds (from the Road Board), and contractors will be paid by D P W H from that account.
The following table specifies the categories o f Eligible Expenditures that may be financed out o f the proceeds o f the Loan (“Category”), the allocation o f the amounts o f the Loan to each Category, and the percentage o f expenditures to be financed for Eligible Expenditures in each Category.
Withdrawal Conditions and Withdrawal Period:
(a) allowed for eligible expenditures under Category (1) above.
Retroactive financing from July 1, 2007, for maximum amount o f US$6 mi l l ion w i l l be
(b) Payments under Category 2(c)(i) in the table, when (i) the Road Board has met Conditions 1 and 2 with respect to the Borrower’s NRIMP-2 FY 2008 preventive maintenance program to be financed by the SRSuF allocation for NRIMP-2, and (ii) D P W H has met
84
Condition 3 with respect to at least sixty percent (60 percent) o f its district and regional offices implementing funds under the SRSuF allocation for NRIMP-2 for preventive maintenance;
Category
(1) Goods, consultants’ service, training, and workshops
(2) Civ i l Works (a) under Part A . l o f the Project (b) under Part A.2(a) o f the Project (c) under Part A.2(b) o f the Project:
(1) (2) (3 1 (4)
(3) Premia for Interest Rate Caps and Interest Rate Collars (4) Front-end fee
(c) For payments under Category 2(c)(ii) in the table, when (i) Road Board has met Conditions 1 and 2 with respect to the Borrower’s national FY 2009 preventive maintenance program to be financed by the SRSuF and (ii) D P W H has met Condition 3 wi th respect to at least sixty percent (60 percent) o f i t s district and regional offices that have received funding from the SRSuF for preventive maintenance;
0 Amount due under Section 2.08 (c) o f this Agreement
580,000 Amount payable pursuant to Section 2.04 o f this Agreement in accordance with Section 2.07 (b) o f the General
(d) For payments under Category 2(c)(iii) in the table, when (i) Road Board has met Conditions 1 and 2 with respect to the Borrower’s national FY 2010 preventive maintenance program to be financed by the SRSuF and (ii) D P W H has met Condition 3 with respect to eighty percent (80 percent) o f i t s district and regional offices that have received funding from the SRSuF for preventive maintenance;
TOTAL AMOUNT
(e) For payments under Category 2(c)(iv) in the table, when (i) Road Board has met Conditions 1 and 2 with respect to the Borrower’s national FY 201 1 preventive maintenance program to be financed by the SRSuF; and (ii) D P W H has met Condition 3 with respect to ninety percent (90 percent) o f its district and regional offices that have received funding from the SRSuF for preventive maintenance.
232,000,000
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Conditions for Disbursement of Funds under Category 2(c) 1. For the fiscal year, the Road Board has allocated sufficient funds for preventive maintenance
o f the National Road System, and approved a related program o f projkcts, based on a system- wide needs analysis and prioritization conducted using DPWH planning systems and survey information;
2. The Road Board Secretariat has implemented i t s operations in accordance with the Road Board Operations Manual, in compliance with R.A.8794 and its Implementing Rules and Regulations.
3. Implementing Offices o f DPWH verified to comply fully with operating procedures regarding: (i) Disclosure o f information on the DPWH website and o n the Philippines Government
Electronic Procurement System in regard to the allocation and expenditure o f a l l MVUC funds, and the bidding and award results, and completion reports, o f a l l contracts o f the preventive maintenance program;
accordance with the procedures applicable to foreign assisted projects set forth in the Borrower’s Generic Procurement Manual as used together with harmonized Philippines Bidding Documents; and
maintenance have been accounted for through the DPWH e-NGAS or N G A S accounting system.
(ii) Procurement o f contracts under the preventive maintenance program conducted in
(iii) All funds from the SRSuF for preventive road maintenance and general road
Designated Accounts (DA) shall be maintained at the Central Office o f the D P W H with the Land Bank o f the Philippines (LBP). The DA ceiling shall be US$6 million. Should the DA become insufficient for the operations o f the Project, a request for an increase with justification or supports may be done. Direct payments shall be allowed.
Disbursement for the Project shall be through the use o f a summary report in the form o f a Statement o f Expenditure (SOE) with option to convert to a summary report in the form o f IFRs with concurrence of the Bank. In any case, IFRs shall be required to be submitted by the Project, the format for which shall be agreed with the Bank.
The SOE threshold i s as follows: For (a) goods contracts costing US$250,000 equivalent or less each; (b) works contracts costing US$500,000 equivalent or less each; (c) consultancy services contacts for f i r m s costing U S $ 1 00,000 equivalent or less each; (d) consultancy services contracts for individuals costing US$50,000 equivalent or less each; and (e) all works under Part A 2 (b) categories 2(c)l-4.
5. Financial Reporting
The Project shall submit a quarterly Interim unaudited Financial Report (IFR) to the Bank consisting o f the following:
Balance Sheet - A statement o f resources (Assets and liabilities including government contribution) o f the project.
a.
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b. Statement o f Sources and Uses o f Funds - A report o n the receipt and uses o f f inds by project components by categories.
A customized off-the shelf project software should be used to generate these reports on the basis o f actual disbursements and reconciled with the Agency’s e-NGAS regulatory accounts. The NGAS standards shall be used.
The Project shall submit a format o f the report to be agreed with the Bank prior to Loan negotiation.
6. Auditing
The External Audit arrangements shall be in accordance with the Bank’s policies on audits o f Projects, and based on terms of reference acceptable to the Bank. The External Auditor for the Project would be the Commission on Audit (COA). Audited Financial Statements shall be required to be submitted no later than 6 months after the Fiscal Year end, including a Management Letter which would contain the auditors’ comments on the Project’s Financial Management including i t s Internal Controls. The audited Financial Statements shall comprise:
1. Balance Sheet; 2. Sources and Uses o f Funds; 3. Other useful schedules and tables.
Quarterly IFRs wil l be required to be submitted to C O A so they could do progressive audit o f the accounts. A documented agreement with C O A on the detailed timetable for the audit of the Project wil l be required.
Use o f Sub Allotment Advice or its equivalent shall not be allowed for the Project, so that counterpart funds wil l be disbursed in the same way as the DA, which i s at the center.
7. Road Board FM arrangement
The partnership o f the Project with the Road Board under Component A2.2 on Preventive Maintenance entails a co-financing o f the latter’s Preventive Maintenance Program. The arrangement consists o f a contribution from the Project o f about US$32 mi l l ion from the loan by reimbursement to complement amounts estimated to be about US$92 mi l l ion from the SRSuF (Special Road Support Fund) for a total amount o f about US$124 million, to support the Preventive Maintenance Program o f the Road Board for 4 years.
The Road Board administers revenues from road users to the Road Fund and the allocation o f funds to eligible programs. The Board allocates and approves funds for road preservation programs, based on programs prepared and submitted by DPWH. D P W H also conducts the procurement, FM and supervision for i t s projects.
The US$32 mi l l ion fund wil l be administered by DPWH through i t s FM system for the project. The funds wil l be paid to D P W H on a reimbursement basis as indicated under item “4. Funds Flow and Disbursement arrangements” section.
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The FM reporting and auditing shall cover the whole PMP financed by the SRSuF and loan in the FY. The contracts w i l l be procured under NCB procedures as applicable to the project, which includes technical audits of the design and costs. The risks on the robustness o f technical design and reliability of cost estimates are mitigated by measures included in the D P W H Integrity Development Action Plan for the Project.
8. Loan Conditions
Effectiveness Conditions:
1. An independent audit firm with qualifications and under terms o f reference acceptable to the Bank has been engaged to assist the Borrower in strengthening DPWH’s internal audit capacity; and
2. D P W H has appointed a financial management manager, supported by financial management staff in adequate numbers, each with qualifications and experience and under terms o f reference acceptable to the Bank, to be responsible for the financial management o f the Project.
Dated Covenant on implementation:
1. For task B 1.2, D P W H with the assistance o f the independent audit firm engaged under effectiveness condition 1 above shall: (i) not later than two (2) months after the engagement o f firm, complete a preliminary baseline assessment o f DPWH’s internal control system; (ii) by June 30 and December 31 each year, commencing December 3 1,2008 and ending June 30, 201 0, undertake semi-annual internal audits for DPWH’s operations and Project accounts.
2. D P W H shall: (i) complete the implementation o f recommendations arising from i t s 2006 external audit report in accordance with a tiine-bound action plan satisfactory to the Bank; and (ii) for the duration o f the Project, within twelve (12) months from issuance o f subsequent external audit reports, complete implementation o f recommendations, if any, arising from such subsequent external audits, all in a manner satisfactory to the Bank.
Financial Covenants:
1. That the project maintains an adequate financial management system with appropriate books o f accounts and in accordance with generally accepted accounting principles.
2. The IFRs shall be submitted to the Bank on a quarterly basis as wel l as to COA to facilitate their audit and timely submission o f audit reports as required below.
3. The external auditor wi l l be COA to undertake the annual audit based on TOR acceptable to the Bank. The following shall be the required audit submissions:
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Type of Financial Audit Opinion Statements 1. Project Financial Composed o f : June 30 o f the following To cover the whole Statements 1. Consolidated Project calendar year. Project on a
Balance Sheet consolidated basis. 2. Consolidated Project Sources & Uses o f Funds with audit certificate using Bank’s pro forma adapted to their audit findings.
Description Deadline coverage
2. Au Letter
it lanagement Detailed audit findings June I o f the following To cover the whole and recommendations calendar year. Project on a
consolidated basis
9. Supervision Plan
The FM supervision o f the project shall be made periodically to ensure that loan proceeds are used only for the purposes for which they are granted, with due regard to economy, efficiency, the achievement o f the project’s objectives and the FM risk rating o f the project. The FM supervision should address the total project financial arrangements including those on the counterpart funds o f the Government consistent with the financing and funds f low for the Project.
The project should be supervised periodically with a budgeted supervision time o f 6 weeks per year for the f i rs t two years, consistent with the High risk rating o f the project. Supervision should be more intensive in the first six months. The supervision should be done by at least one qualified Bank staff FMS, and should involve a senior FM staff person.
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Annex 8: Procurement Arrangements
Philippines: Second National Roads Improvement and Management Project
A. General
1. Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” published by the Bank in M a y 2004 and revised in October 2006, and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” published by the Bank in M a y 2004 and revised in October 2006, and the provisions stipulated in the Legal Agreement. While the new Philippine Procurement Law (RA 91 84) i s sufficiently in harmony with the Guidelines at the National Competitive Bidding (NCB) level, the Procurement Schedule o f the Loan Agreement will include an annex detailing the procedures under the national law that are not acceptable to the Bank. Other than that, N C B procurement wil l be carried out in accordance with the country’s law using the Philippine Bidding Documents as harmonized with the Bank. The general description o f various items under different expenditure categories for the f i rst 18 months are described below and summarized in the Attachment 1 to this Annex. For each contract to be financed by the Loan, the different procurement methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank task team in the Procurement Plan. The Procurement Plan wil l be a rol l ing plan that will be updated at least annually or as required to reflect the actual project implementation needs and improvements in the institutional capacity o f the implementing units.
2. Procurement of Works (US493 million): Works procured and financed under this project would include rehabilitation and upgrading o f about 450 km o f national roads under the Road Network Improvement (RNI) component; resurfacing and strengthening works o f about 400 km o f national roads under the Preventive Maintenance (PM) component; and performing multi-year routine, periodic and maintenance works on about 1,000 km o f national roads under the Long-Term Performance-Based Maintenance (LM) component. Except for one bridge component and the SRSuF preventive maintenance annual programs, al l the procurement for the RNI and LM works (US$367 million) w i l l be done though International Competitive Bidding (ICB) procedures using the Bank’s Standard Bidding Documents (SBD) for Works, and Output- and Performance-Based Road Contracts (OPRC), respectively. Procurement for the one bridge component under RNI, and for all P M works (US$129 million), will be done following the Philippines Generic Procurement Manual (January 2007) applicable to foreign-assisted projects using the Philippine Bidding Document (PBD), as harmonized with the Bank (appraised as National Competitive Bidding (NCB) procedures acceptable to the Bank, see Box 8.1 for details o f N C B provisions). The advertisement for all contracts wil l include publication in at least one newspaper o f national circulation, the D P W H website and the government’s electronic procurement system website (PhilGEPS). In addition, all I C B contracts wi l l be published in the dgMarket and UNDB online.
3. Procurement of Goods (US$16 million): Goods procured and financed under this project would include various equipment and computer hardware and software related to the implementation o f the Institutional and Capacity Development (ICD) Component. The procurement for contracts costing US$500,000 or more wil l be done through I C B using the Bank’s Standard Bidding Documents (SBD), and for contracts estimated to cost US$50,000 up
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to less than US$500,000 wil l be done fol lowing national competitive bidding (NCB) procedures using the Philippine Bidding Document (PBD) as harmonized with the Bank. The advertisement would include publication in at least one newspaper o f national circulation, the D P W H website and the government’s electronic procurement system website (PhilGEPS); and in dgMarket and UNDB online for all I C B contracts. Procurement for off-the-shelf goods and small value contracts costing below US$50,000 wil l be awarded based on shopping procedures, by comparing price quotations obtained from several suppliers, usually at least three, as defined in para. 3.5 o f the Guidelines.
Box 8.1: Provisions for National Competitive Bidding (NCB) and Application of the
A. National Competitive Biddine acceptable to the Bank (Requirements in addition to Philippines Bidding Approved Budget for the Contract (ABC)
Documents, PBD):
1.
2.
3.
4.
5. 6.
7.
8.
B.
1.
2.
3 . 4.
E l ig ib i l i ty screening shall not be applied. However, bids that do not contain any o f the fol lowing documents will not pass the documentary compliance check: (a) evidence o f the required financial, technical o r production capability; (b) audited financial statements; (c) credit line, or cash deposit certificate; (d) bid security; and (e) authority o f the bid signatory. In the case o f prequalification, if any bidder is denied access to the bidding process for reasons unrelated to its financial and technical qualifications to perform the contract, prior concurrence o f the Bank shall be sought. A ceil ing may be applied to bid prices, with pr ior concurrence o f the Bank in advance o f bidding. However, the Approved Budget Estimate may be disclosed in the advertisement o r in the bidding documents. Domestic or regional preferences will not b e applied in the evaluation o f bids, and other preferences in effect in the Philippines will not be used except with the pr ior concurrence o f the Bank. Suppliers and contractors wil l not be required to purchase only local goods o r supplies or materials. In case o f contracts for prior review, modifications exceeding fifteen percent (15 percent) o f contract amount and material changes in the conditions during implementation require pr ior Bank concurrence. Foreign suppliers and contractors shall be allowed to participate, if interested, without f irst being required to associate with, or enter into jo in t venture with, local firms. Moreover, foreign bidders shall be allowed to bid, even without registration, licensing, and other government authorizations, leaving these requirements for after award and before signing o f contract. Fo r works contract, the experience qualification requirement shall be: (a) at least one (1) previous contract at eighty percent (80 percent) o f the estimated cost o f the contract being procured; and (b) an annual turnover f rom a l l works averaged over the last three (3) years equal to one hundred percent (100 percent) o f the estimated cost o f the contract being procured. Conditions for the Application of the ABC (Approved Budget for the Contract) as Contract Ceiling under Bank Loan Financing.
Bidding Documents are obtainable free of charge on a freely accessible website. If payment o f Bidding Documents i s required by law, payment could be made upon the submission o f Bids. Failure to pay for the Bidding Documents pr ior o r upon submission o f the Bids should not lead to the automatic rejection o f the Bids. The implementing agency has procedures in place to ensure that the ABC i s based o n the Engineer’s Estimate and that the Estimate reflects the quality, supervision and r isk factors associated with the type o f j ob proposed. The implementing agency has trained cost estimators o n estimating prices and analyzing Bid variances. The implementing agency has established a system to monitor and report Bid prices relative to the ABC and
Engineer’s Estimate.
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4. Selection of Consultants (US$53 million): Consultancy services to support implementation and operations o f the project will be financed under the program. Quality and cost based selection (QCBS) and quality-based selection (QBS) procedures wil l be followed in the hiring o f consulting f i r m s with contracts estimated to cost the equivalent o f US$200,000 or more. Contracts estimated to cost less than US$200,000 equivalent may be procured through selection based on consultants’ qualifications (CQ); and contracts estimated to cost less than US$lOO,OOO equivalent may be procured through single source selection (SSS), with the Bank’s prior Agreement, in accordance with the provisions o f the Consultant Guidelines. Individual Consultants necessary to support the program, and meeting the requirements set forth in Section 5 o f the Consultant Guidelines, wil l be selected under contracts awarded on the basis o f competition in accordance with the provisions o f the Consultant Guidelines. In addition, SSS method would also be used for the following contract:
Consultancy Services for Procurement and Contract Management Systems (about US$]. 5 million) (CS-IC-02) - The services would support implementation and related training for the suite o f computer applications developed by the same firm under NRIMP-1, including the provision o f software licences, software updates, software adjustments and user assistance. The firm was the sub-consultant o f the software owner in NRIMP-1 who will not serve in a contractual capacity in NRIMP-2. The Consultant was selected under NRIMP-1 through SSS as this was the sole suite o f applications meeting the agency requirements following two failed invitations in open competition. The original contract value was US$3.2 million.
5. Training and Workshops (US$0.25 million): Training and workshops, including related expenditures for travel and accommodation, fees and materials, related to the project operations wil l be procured in accordance with existing government prescribed procedures and limits which are acceptable to the Bank.
6. Operating Costs: Activities relating to managing the project, including staff travel, office utilities and supporting the project operations wil l be provided in accordance with existing government prescribed limits and procedures acceptable to the Bank. Related expenditures wil l be financed 100 percent by GOP.
7. Retroactive Financing: Retroactive financing wil l be provided under the project for up to US$6 mi l l ion o f the Bank loan to finance eligible expenditures under Category 1 for project activities (ie., contracts procured under NRIMP- 1 and advance contracting for NRIMP-2) incurred from July 1, 2007 until loan signing. These include parts o f two consultancies for detailed engineering begun under NRIMP-1 ($3.2 m and $4.6 m original contract costs), early consultancies o f NRIMP-2 (such as the EMA) and any urgent advance procurement o f IT goods under NRIMP-2. The goods and consultancy services to be eligible for retroactive financing should be contracted following the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated M a y 2004 revised October 2006, and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers,” dated M a y 2004 and revised October 2006 (existing consultancy contracts are under the version M a y 2004).
8. Land Acquisition: Land w i l l be acquired and paid in accordance with the relevant Resettlement Action Plan satisfactory to the Bank. Related expenditures wil l be financed at 100 percent by GOP.
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B. Assessment of the agency’s capacity to implement procurement
1. Procurement activities wil l be carried out centrally by the Department o f Public Works and Highways through their Bids and Awards Committees (BAC), supported by the proposed Bureau o f Procurement, with assistance coming from the specific Project Management Offices (PMO) responsible for a particular component, namely: IBRD-PMO for the Road Network Improvement; Bureau o f Maintenance/Road Program Office for Long-Term Maintenance contracts; Regional Offices for the Preventive Maintenance contracts; and an ad hoc management team under the chairmanship o f the Undersecretary for Technical Affairs for the Institutional and Capacity Development component.
2. The capacity o f the implementing agency to undertake procurement activities for the project was assessed by the Bank in October 2006, including review o f the organizational structure for implementing the project and the interaction among the project’s staff responsible for procurement. The assessment took into consideration various studies, including: (i) the Country Procurement Assessment Report (CPAR) and i t s update o f March 2005; (ii) the baseline indicator system independent assessment which determined that the country, in general, was substantially achieving the desirable standards for reliance on i t s public procurement system at a macro level; and (iii) the Agency Performance Indicators (developed by the Bank in Manila, customized from the DAC/OECD indicators) which assessed D P W H capacity as generally acceptable for procurement under the country systems. On a procedural level, D P W H has greatly benefited from the procurement and implementation reforms initiated under previous Bank-financed activities, and the on-going government procurement reform. Appropriate training has been provided to the D P W H in relation to the new procurement law (RA 9184), and i t s implementing rules and regulations, and the use o f Philippine Bidding Documents.
3. The D P W H has implemented a total o f seven (7) Bank financed highway projects over the last 35 years, and at the time o f appraisal for this project i s implementing the First National Roads Improvement and Management Project (Loan No. 7006-PH). In general, the capacity o f D P W H to implement procurement based on Bank Guidelines is fair to satisfactory. The D P W H staff working on procurement are familiar with both the requirements o f the country’s law and the Bank’s guidelines, and are able to implement them, but other factors l ike the following risks, limit the overall effectiveness o f their capacity to do Bank-financed procurement. The main risks concern the weak support and control systems, the lack o f attention to procurement milestones and procurement plan, the multiple levels and excessive duration o f the approval process, a weak general procurement environment, apparent external interference in the procurement process, and the public’s perception o f the D P W H as a corrupt agency. A Bank study in 2005 revealed a pattern o f excessive bid prices o f more than 30 percent above the cost estimates in I C B and N C B procurement. Bank procurement reviews observed a pattern o f apparent collusion and bid rigging, which led to the rejection o f two I C B packages worth $33 mi l l ion under NRIMP-1 in 2003 to 2006. The related investigation was completed in 2007 and substantiated these observations. The results o f the investigation are currently under evaluation for possible sanctions. In addition, the Bank has referred information related to this investigation to relevant national authorities, so they can determine, as a result o f their own investigations, whether any o f their domestic laws have been violated.
4. To mitigate these risks, a number o f institutional integrity efforts have been discussed and agreed with the D P W H in line wi th the government’s own efforts to improve integrity in
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the Department. Several anti-corruption measures wil l be embedded in the various project components, as follows:
Process Improvements: A series o f procurement-related process improvements are incorporated in the Institutional component, including: (i) Computerization and harmonization o f procurement and contract management systems (B. 1 (BP-01 c)); (ii) Upgrading o f the c iv i l works registry for processing o f qualification information (BIIP C04 Extension); and (iii) Institutional audit and reform o f the organization and staffing o f DPWH, including procurement (B2.1).
Parallel Independent Procurement Evaluation: In order to strengthen the detection and evaluation processes under the Project - especially for collusion, bid-rigging, delays and other concerns with the current performance - an Independent Procurement Evaluator (IPE) (B2.4 Integrity Support Services) will conduct a parallel procurement evaluation on all Project procurement actions and provide advice as needed to expedite DP WH procurement procedures and implementation o f the NRIMP-2 Procurement Plan. The independent evaluation will be non-binding but must be taken into account satisfactorily before clearances wil l be given by the D P W H Management Committee or the Bank. All decisions and authorization o f procurement will be made by D P W H under current mandates. For I C B procurement, the Independent Procurement Evaluator (IPE) wil l report findings to the B A C chairperson prior to B A C decisions, and to the D P W H Management Committee, the Bank and the Cofinancier after B A C decisions. The IPE will also provide advice to DPWH on process and other issues for the purpose o f improving the overall performance and integrity o f procurement. For N C B procurement, the IPE wil l monitor al l N C B procurement performance and conduct ex- post reviews on a sample o f contracts under the technical audit process. The consultant will be selected and employed under technical assistance by the Cofinancier.
SpeciJic Measures to Limit Bid-Rigging and Kickbacks: As a measure to limit the level o f excessive bid pricing which has resulted from the prevalent collusion and bid- rigging, the Project will employ additional bid analysis referenced to data on market prices o f key pay items in order to detect bid-rigging and provide a basis for possible rejection o f over-priced bids. This measure - when matched with upstream detailed verification o f the cost estimates by the Technical Auditor (using quantity surveying techniques), and downstream detailed validation o f change orders and the imposition o f strict discipline to restrict the size o f contract change orders - i s expected to be effective in containing prices within a small margin o f the cost estimate, while at the same time preserving the opportunity for competitiveness within a fair price range.
Specific Procurement Process Requirements: A number o f specific enhancements to the current D P W H procurement processes will be required and monitored, including: (i) enhanced disclosure o f information; (ii) improved oversight o f procurement and implementation activities; (iii) mitigation o f fraud and collusion risks; (iv) enhanced audits; (v) enhanced complaint handling mechanisms; and (vi) defined procedures related to sanctions and remedies. Many o f these are included also in the Integrity Strengthening Action Plan for the Project, which i s detailed in Annex 13 o f the PAD.
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(e) External Monitoring: The transparency o f procurement transactions and the provision and effectiveness o f external monitoring wil l be enhanced through the establishment o f a non-governmental alliance under the B2.2 Road Partnerships activity. The alliance wil l facilitate and strengthen the role o f c iv i l society and road users in providing independent monitoring o f procurement and related sanctions, among other aspects, in the road sector, as wel l as reporting periodically on the performance o f D P W H as the road managing agency and on the road sector.
5. Overall, the project risk for procurement by D P W H i s High, and the residual risk after application o f the mitigating measures i s l ikely to be Substantial.
6. As agreed with the Department, a single Procurement Unit will coordinate and undertake the bidding process for al l project components, including a single Technical Working Group (TWG) who will be doing the evaluations o f bids and technical proposals submitted. In addition, members o f the Bids and Awards Committee (BAC) and the TWG will undergo a seminarkraining on Bank’s procurement guidelines, including a special course on bid and proposal evaluations. Details o f the capacity building efforts for the project are given in the Procurement Plan.
C. Procurement Plan
1. The D P W H developed a Procurement Plan for the f i rst 18 months o f project implementation, which provides the basis for the procurement methods. The Plan has been updated due to the extension o f the project preparation period, and the Borrower and the Bank agreed upon this updated plan in March 2008. It includes provision that bidding on I C B works should not begin before August 1, 2008, or such date as the Bank may advise, as indicated by the Loan Agreement. A summary i s provided in Figure 6.2, and Attachment 1 Annex 8, and details are available at the IBRD-PMO o f DPWH. I t wil l also be available through the Project’s database, and on the external websites o f the D P W H and the Bank. The Procurement Plan will be updated in agreement with the Project Team annually, and as required to reflect the actual project implementation needs and improvements in institutional capacity.
D. Frequency of Procurement Supervision
1. Based on the overall risk assessment, twice a year field supervision missions, including post review o f procurement action, i s to be implemented in addition to the prior review supervision to be carried out from the Bank’s Manila office. With respect to each contract not subject to prior review, the procedures set forth in paragraph 4 o f Appendix 1 to the Procurement and Consultant Guidelines will apply at an initial ratio o f not less than one (1) in five (5) contracts. This ratio may be adjusted based on the performance o f the implementing units.
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Annex 8, Attachment 1
Details of the Procurement Arrangements
The procurement plan, agreed upon by D P W H and the Bank, covers the f i rs t 18 months o f the activities that wil l be financed under the project.
1. Goods and Works
(a) The l i s t o f contract packages which wil l be procured under the Project i s given in Attachment 1 - 1.
(b) All I C B contracts, regardless o f contract amount, wil l be subject to prior review by the Bank.
(c) The first goods contract, procured under N C B procedures and under Shopping procedures, regardless o f contract amount, and each contract estimated to cost the equivalent o f $250,000 or more, wil l be subject to prior review by the Bank.
(d) Civ i l works contracts for Preventive Maintenance, which include the entire national program financed through the SRSuF, to be procured under N C B procedures, wil l be subject to post review annually on a sample equivalent to the value o f finance provided through the Loan (about 12-15%). An independent Technical Auditor (under the B2.4 Integrity Support Services) wil l assist in the post review o f each sampled contract to ensure that the procurements are done in accordance with the agreed procedures. The results o f the post- review wil l be taken into account in the annual disbursement o f funds under Category 2(c) (see Annex 7, section IV.4).
2. Consulting Services
(a) The l i s t o f consulting assignments which wil l be procured under the Project i s given in Attachment 1-2.
(b) The first contract to be awarded following a particular selection method, and subsequent contracts estimated to cost US$lOO,OOO and above for firms, and US$50,000 and above for individual consultants, per contract wi l l be subject to prior review by the Bank.
(c) Each contract for consulting firms procured on single-source selection basis and individual consultants procured on a sole-source basis, regardless o f the contract value, wi l l be subject to prior review o f the Bank.
(d) Shortlists o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.
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Annex 8, Attachment 1-1
RI-2 7C Rl-2 8 Ri-2 9
LIST OF GOODS AND WORKS CONTRACT PACKAGES TO BE PROCURED UNDER THE PROJECT
Digos. Cotabato City Road (PagaiunganJct Cotabato Section) 60 0 17 4 ICB No Nu Prior OE2W8 ISBD Works Cotabato City - Marawi City Road (ParangMalabang Section) 65 1 8 8 ICB No No Prior lORW8 ISBDWorks Marcos Highway (Evangelista I Masinag Section) 4 7 203 ICB No No Prior 09RM38 ISBDWorks
A.1.2 iaritlsiide Rel~aitiliri~ftoii 225.0 11.2 RI-2 10 IDigos-(;en Santos City Road & Davao-CalinawBuda Road I 22501 11 21 ICE I No No I Prior I 09R1308 ISBDWorks b.2 Assset Preservation A.2.1 LorrcJ.Teror ferfoffrh?tica.&scid ~ i f ~ ~ e f t ~ i t c e 1083.0 I2B.I LM-2 1 Nodh Luzon (MNR ~ O n u m e ~ ~ t o ~ A g ~ ~ ~ A r i n g a y Bdy] 2 3 O f l M 6 ICB No No Prior 1 0912008 SBD OPRC LM.2 2 South Luzon (Various Sites) 20623 179 tCB No No Pnor 09R008 SBD-OPRC LM-2 3 Mindoro East Coast fCalapan-Socorro-Bonirabon 3ct ) 1020 138 ICB No No Prior OEW9 SBD-OPRC LM-2 4 Panay Island [Prov Bdy-Clrticlan.KaltboCapiz Rdy] 1350 “163 ICE No No Pnor 02RW SBDOPRC LM.2 5 Panay Island (Zarraga-lvisan) 900 139 ICB No No Ptior 02RaCW SRPOPRC LhI-2 6 Negro8 Island (Escalante VaI~ehe~o60) 1190 185 ICE No No Pnor 116/2[109 SBDOPRC LM 2 7 Mtndanao @avrro City-Digos Road) 680 9 3 IC8 N o No Pnor 09EIX8 SBD-OPRC LM-2 6 Mtndanao (Tagum-Mati Road) 1330 16 1 ICR ~ No, No ~ Poor 09LXlU8 -S8D.OPRC A,!.? Preveirrive M;tinrettoncr” 320.5 32.0 PM.08 Part of2008 Preventive ~ a i ~ t e n ~ n c e Program (unspecified multipld 80 0 8 01 NCB* No No Post 0912008 IPBD Works PM-09 Part ofMfl9 Preventive Maintenance Program (unspecified multipi~ 80 0 8 01 NCB* No 2- Pojm 1uRo08 lPBD!orks PMlO Part of 21120 Preventive Maintenance Program (unspecified multipld 80 0 B 01 NCB” No No Post 12lfOflS /PBD Works PM.11 Part of2011 Preventive Main t~na~ce Program (unspecified multipld 80 0 6 01 NCW No No Post UZnOlO /PBD Works
6 Itistitiitioiial aiid Capacity Developinelit
Note
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I * Preventive Maintenance program comprises lump sum payments for reimbursement to SRSuF, subject to conditions specified Annex 7, Sec IV4 * NCB procurement following PBD and national procedures acceptable to the Bank per Annex 8, Box 8 1 Contracts typically 4 1 m each
Annex 8, Attachment 1-2
Ref. No.
LIST OF CONSULTING ASSIGNMENTS TO BE PROCURED UNDER THE PROJECT
Assignment Est. Cost Selection Review Planned Proposal Comments (Description) (US$m) Method by Bank Submission date
I 1 I 2 1 3 1 4 1 5 1 6 I 7 I
A.l National Road Improvement 22.2 CS-RI-DE2 1 DE for Road Improvement in LusonNrsayas 3 2 SSS Roll-over CS-RI-DE2 2 DE for Road Improvement in Mindanao 4 6 SSS Roli-over CS-RI-01 Const Spn for Road Improvements in LuzonNisayas 5 1 QCBS 80/20 Prior 06J2006 WB Loan CS-RI-02 Const Spn for Road Improvements in Mindanao 5 1 QCBS 80120 Prior 07/2006 WB Loan CS-RI-03 External Monitoring Agent 0.4 IC Prior 0712006 WBLoan . CS-RI-04 AdViSOv SeNiCeS 1.8 QCBS 80120 Prior 07/2008 W0 Loan CS-RI-05 FS & DE for Road Improvements in Phase 3 2.0 QCBS 60120 Prior 01/2009 WB Loan A.2 Asset Preservation 2.4 CS-AP-01 ]Asset PreservaQon Support 2.41 QCBS 80120 I Prior I 0812008 I WB Loan
B Institutional and Capacity Development 9.1 CS-IC-01 ICD Project Support 5.0 QCBS 80/20 Prior 06/2008 WB Loan CS-IC-02 Procurement & Cost Estimation Services 1.5 SSS Prior 09/2006 WBLoan .
/CS-IC-O3 CS-IC-04
Road Management Pilot Advisory Services ,Sactor Reform & Road Board Support
NOTE: NBF - Nan-Bank-Financed All AusAid funded services are co-financed (parallel financing), procured using AusAid procurement procedures
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Annex 9: Safeguard Arrangements
Philippines: Second National Roads Improvement and Management Project
Social and Environmental Management Systems and Initiatives
NRIMP- 2 wil l address environmental and social concerns in several ways. First, i t will consolidate the progress achieved so far under the NRIMP 1 to strengthen the Environment and Social unit called the Environment and Social Services Office (ESSO) within the Department o f Public Works and Highways (DPWH). Second, i t wil l promote a closer relationship between the D P W H and the Department o f Environment and Natural Resource (DENR). Third, it has already created clear procedures for sub-project review and clearance, involving the ESSO, the DENR and local and national stakeholders. Fourth, policies for acquiring land, resettlement and rehabilitation as well as for public participation and consultation have been prepared by D P W H to apply where necessary in connection with the road rehabilitation.
Memorandum of agreement between DPWH and DENR. The project will be implemented according to DENR Departmental Administrative Order 2003 -30 and other relevant D P W H administrative policies. To ensure that domestic environmental procedures are followed, D P W H and DENR signed a memorandum o f agreement (MOA) committing them to screen al l D P W H road initiatives. Signed at the Secretary levels, the M O A became effective in M a y 1999 and i s s t i l l effective to date. The basic principles and guidelines in the MOA, now in the Social and Environment Management Systems (SEMS) Operations Manual adopted by DPWH, describes the procedures to be followed, criteria to be evaluated and how these are to be ranked during the screening process; i t also defines the DENR and D P W H roles and indicates when consultations, technical reviews and clearances are required. During preparation, D P W H and the Bank agreed that the same SEMS methods and processes would apply for al l sub-projects.
A. Building institutional capacity
The Environment and Social Safeguards Office was established under E.O. 291 (1996) as a small, core group within the Department o f Public Works and Highways (DPWH) that underwent training to handle the environmental and social aspects o f infrastructure projects implemented by the agency, organized as part o f the World-Bank-assisted Highways Maintenance Project (1 996-2000). In 2000, under the National Roads Improvement Management Project (NRMP-l), the group was formalized as the Environmental Impact Assessment Project Office (EIAPO). The name was changed to ESSO (Environmental and Social Safeguards Office) in the middle o f NRIMP-1 in an effort to comply with one o f the triggers for proceeding to NRIMP-2. The change also reflected the growing recognition within the agency o f the impact that social issues have on a project's acceptability, viability, and timeliness, and conversely, how infrastructure projects can positively or negatively impact the lives o f those living in i t s vicinity. Formal establishment o f ESSO as an organic office in D P W H i s required to wait for inclusion with the major D P W H reorganization planned for 2008.
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To date, ESSO has nine (9) full-time D P W H staff at the central level with two to three counterparts in each 16 regional offices. At the District Engineering Offices, the ESSO has caused the designation o f one to two persons under the planning division to serve as Resettlement Action Planning (RAP) coordinators. These RAP coordinators assist ESSO staff in preparing Resettlement Action Plans (RAP) and in ensuring that Project Affected Persons (PAPS) are duly compensated and those displaced, resettled. ESSO has supported more than 100 projects with environmental assessments, RAPs and public consultations. Further, about 80 percent o f the 16 regional counterpart staff can now perform the delegated tasks on EIA and RAP. Consequently, the implementation o f both EMPs and RAPs for the on-going contracts under phase 1 o f the program has been satisfactory and there are no outstanding issues.
The capacity building programs have further built their competence in the use o f tools and streamlining processes that has led to the institutionalization o f a Social and environmental management system (SEMS) Manual, Infrastructure Right-of-way (IROW) Manual, IROW Management System, and the EIA computer-based mathematical modeling. The EIA tools used in the preparation and monitoring o f projects include air and noise pollution computer- based models which are directly available for the staff through the ESSO web page.
ESSO has had much to do with gradually re-shaping attitudes and mind-set within the Department. Proof o f ESSO's growing indispensability i s the expanded scope o f i t s responsibilities. From WB-assisted projects, the office i s now handling the environmental and social aspects o f all foreign-assisted (ADB, JBIC, Korean-funded) and all locally funded projects. To keep pace, the office i s continually building the capacity o f fi-ontline Regional and District Engineering staff to undertake Resettlement Action Planning, social assessment, and environmental impact studies. Despite the availability o f EIA tools, i t s widespread application in the agency remains low, thus the need is for increasing the capacity o f not only the ESSO staff but also the Regional and District staffs.
According to the complexity and environmental impact o f the project, the ESSO has transferred some o f the work to the regional offices. To the two to four permanent personnel called the Regional Environmental Impact Officers i s given the task o f doing the Init ial Environmental Examination (IEE). ESSO now confines itself to doing full-blown Environmental Impact Assessments (EIA) and reviewing the TOR for Environmental Impact Assessments that the D P W H outsources to external consulting f i rms.
The goal o f the institutional and capacity building component i s to integrate into the social and environmental safeguards management system the acquisition o f right o f way process (fi-om the conduct o f the environmental impact assessment (EIA) and the social impact assessment (SIA) to the preparation o f the Resettlement Action Plan (RAP) and the Payment and Issuance o f Possession o f Site) to significantly reduce the time fi-om the EIA to the RAP preparation to payment o f compensation and issuance o f possession o f site in full compliance with the relevant guidelines. To achieve this goal, the current Environment and Social Safeguards Office (ESSO) wil l be merged with the existing Right o f Way office and wil l be called the Environment and Social Right o f Way (ESRO) office which i s in consonance with the rationalization plan o f the DPWH.
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The Department began i t s improvement efforts o n infrastructure road right o f way under the Road Information and Management Support System (RIMSS) reform efforts. During the As-Is analysis, i t was determined that there i s a critical need to improve the processes to ensure that right o f way i s acquired prior to construction and to ensure that the process o f acquiring right o f way adhered to RA 8974, considering also potential improvements to this law as necessary. The training o f the Environment and Social Safeguards Office (ESSO), regional and district offices will cover the theoretical and field conduct o f strategic environmental assessment, risk assessment, social impact assessment and right o f way acquisition to ensure the mainstreaming in plans, programs and objectives o f the Road Transport Sector the pertinent right o f way, environmental and social aspects o f the various projects. The process improvements, as well as the specifications for a right o f way management system were included in the Business Improvement Implementation Project (BIIP) for Strengthening Environmental, Socio- Economic and Land Acquisition Capabilities. As a result o f these interventions in NRIMP 1, new processes and procedures have been defined and are being piloted in Region I11 and the NCR. Following the pi lot training and the completion o f the pi lot period on the new procedures, full implementation will proceed. As a result o f NRIMP2 support to the Department, i t is expected that environmental and social assessment processes are robust and streamlined in l ine with the timely delivery o f R O W by professional agents.
Under NRIMP2, the ESSO will be further strengthened, to include training in technical sk i l ls to address social and indigenous peoples issues. The strengthening wil l also forge a stronger link between EA teams and those preparing resettlement action plans (RAPS) at the D P W H Central Office and i t s 15 Regional offices. During project preparation, the D P W H proposed creating a new administrative entity to address these issues. The unit ’s initiatives to create a more systematic approach to i t s social and environmental management systems (SEMS) and wil l be further developed under NRIMP-2. Over time, the Office will be more closely integrated with DPWH’s overall strategic planning initiatives; thus, social and environmental concerns wil l be included earlier in project selection and priority setting exercises. I t i s planned during project implementation that a Strategic Environmental Assessment (SEA) be conducted for the National Road Sector Policy o f DPWH.
NRIMP2 wil l support a close working relationship between the D P W H and the Department o f Environment and Natural Resources (DENR), the lead agency overseeing the domestic EIA process as well as the National Commission on Indigenous Peoples (NCIP).
B. Social and Environmental Management Systems
1. Environmental Impact Assessment
For programmatic initiatives such as NRIMP, sub-projects need to be screened to identify environmental impacts. Under NRIMP1 which i s s t i l l valid for NRIMP2, DPWH and the Department o f Environment and Natural Resources (DENR) signed a MOA defining roles, procedures, criteria to be evaluated and screening processes. The MOA is consistent with the criteria and procedures in Bank’s OP/BP 4.01 including the provisions applicable to Bank sector loans. I t i s agreed with the World Bank that all sub-projects under NRIMP- 2 wi l l also apply the methods and processes defined within the MOA. All the basic principles and
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guidelines in the MOA and in the Environment and Social Safeguards Policy Framework have been incorporated by D P W H in i t s Social and Environmental Management Systems (SEMS) Operational Manual. The SEMS Operational Manual requires that an init ial environmental examination (IEE) be carried out for all sub-projects. Based on the findings o f the IEE, a full EA is required where projects are located in environmentally critical areas and or where the projects are expected to have significant impact (rated 5 or above in accordance with the methods developed collaboratively and described in the SEMS).
All the road improvement subprojects to be financed under NRIMP-2 have already been identified. All NRIMP-2 sub-projects will follow SEMS terms and conditions with respect to environmental and social reviews. Each EA, RAP, IPDP wil l meet national and World Bank requirements.
Identified impacts are for upgrading o f existing roads and are incremental in nature. The impacts have to do with the construction, and specific guidelines were developed to deal with these impacts.
Environmental protection in construction contracts. Contractors building the roads shoulder the main responsibility for protecting the environment. Unfortunately, Philippine contractors have done poorly in this area. Thus, the project wil l require all construction contracts to contain clauses defining the responsibilities.
Environmental guidelines for preventive maintenance. Guidelines for environmental assessment o f preventive maintenance were also prepared and wil l be followed by D P W H during implementation. They provide the procedural steps and methods to be followed for screening projects, calculating environmentally critical area (ECA) values, determining if a project is considered environmentally critical, defining the assessment process. They also provide an outline for an EMP and recommendations for mitigation measures for preventive maintenance works. ESSO has secured ECCs for the Long-Term Performance Based Maintenance Projects identified.
Public consultation and disclosure requirements. Social acceptability i s one o f the most important criteria identified by the government. Thus, all sub-projects wil l hold public consultations to ascertain concerns o f local communities, NGOs and other stakeholders. The D P W H agreed to submit the EA and Resettlement Action Plan (RAP) documents for public review and prepared a policy for public participation and consultation satisfactory to the Bank. Based on this policy, copies o f the EA and RAP wil l be sent to all affected barangay offices, the Community Environment and Natural Resource Offices (CENRO), provincial environmental and natural resource offices (PENRO), and D P W H regional offices, which will make them available to the public. This will be announced in at least one local and one national newspaper, and the notice will invite written comments from stakeholders including local governments, NGOs and other community representatives. At least two public meetings wil l be held for each sub-project. D P W H and the Bank agreed that the EA and RAP consultation processes could be carried out simultaneously. The documents (EA, EIA, EMP, RAP, IPDP) wi l l be disclosed in accordance with applicable Bank's disclosure policies.
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Analysis of alternatives. All sub-projects under NRIMP- 2 that involve upgrading follow existing road alignments. The analysis o f alternatives thus far for each has considered the no- project option, which i s essentially rehabilitating or doing nothing. In al l circumstances, the no-project option would eliminate concerns about resettlement and construction, such as the impact o f erosion, noise and waste. However, existing road sections are in poor condition although they are part o f the national road network. Drainage and erosion problems are common and continually affect the local environment. If the roads are not resurfaced, they wil l continue to deteriorate - which would exacerbate the environmental problems even more.
Because the roads already exist, upgrading them will have l i t t le effect on the access to forests, protected areas or other environmentally sensitive areas. The D P W H ESSO has analyzed alternatives for each sub-project, which are presented in the final environmental reports.
2. Social Impact Assessment
Rapid social impact assessments have been done in eleven target sites for road improvement and this revealed the need for the following social safeguards documents: six abbreviated Resettlement Action Plans (RAP), three full RAPs and two Indigenous Peoples (IP) Action Plans. The RAP has been implemented in two carry-over sites from Phase One, except for some persons who were provisionally exempted but who might be affected due to changes in alignment during construction. The anticipated impact would be on improvements, peripheral structures such as fences, and perennials. Relocation i s unlikely. ESSO i s confident that al l these can be completed in time with the Project timetable. Detailed engineering i s expected to commence in M a y 2007 and so RAPs shall be done right after this. The payment o f compensation i s targeted in the last Quarter o f 2007 till first quarter o f 2008. Initial coordination with LGUs was also done for relocation and resettlement assistance in concerned provinces and cities.
Field-based Investigations have been done by the National Commission on Indigenous Peoples (NCIP) in the two Surigao Projects init ial ly suspected to have IPS among the displaced persons and these established that there are no IPS affected in RehabilitatiodImprovement o f the SurigaoDavao Coastal Road (Jct.Bacuag-Claver) and Surigao- -Davao Coastal Road in Manay-Mati, Mindanao.
For the Long-term Performance Based Maintenance Projects, the projects identified have ECCs, and al l have complied with the social acceptability requirement o f the Philippine EIA law. As Long Term Performance Based Maintenance projects operate within the existing carriageway and require no expansion, resettlement impacts are non-existent.
Land acquisition, resettlement and rehabilitation. The D P W H has prepared a comprehensive land acquisition, resettlement, rehabilitation and indigenous peoples’ policy (LARRIPP) framework, which i s consistent with WB Operational Policy 4.12 Involuntary Resettlement and WB Operational Policy 4.10 Indigenous Peoples, and i s satisfactory to the Bank. It applies to all activities related to land acquisition, compensation, rehabilitation and resettlement o f affected persons and vulnerable communities including indigenous peoples. The goal i s to ensure that those affected share the project benefits, that adverse social impacts are mitigated
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and all displaced persons are provided with enough compensation for lost assets so they can improve or at least maintain their pre-project living standards, income earning capacity and production levels (consistent with WB Operational Policy 4.12 Involuntary Resettlement).
As the aim under NRIMP-2 i s to finance a significant portion o f the D P W H road improvement program, D P W H has started applying this pol icy to al l i t s roads projects. World Bank review and approval and full implementation o f the RAPS wil l be required before any civ i l works can begin. Also, D P W H has developed a framework for public participation and consultation, satisfactory to the Bank. I t i s also worth noting that from the NRIMP 1 operations, the D P W H under i t s ESSO has developed and cascaded operational sk i l ls to regional and district offices in addressing social safeguard issues that promotes the enhancement o f positive impacts and minimizing the negative ones.
Indigenous Peoples. The LARRIPP defines the circumstances under which a separate SIA has been undertaken including the preparation o f an Indigenous Peoples Action Plan (according to WB Operational Policy 4.10). The LARRIPP framework and procedural guidelines for NRIMP-2 aims to ensure that Indigenous Peoples that wi l l be affected by the civ i l works component and linked activities, e.g. quarrying, incidental works, waste disposal during and post-construction, bioengineering o f NRIMP-2 are meaningfully informed, consulted, and mobilized to participate in the identification, planning, implementation, monitoring and evaluation o f measures to avoid, minimize, or mitigate any potentially adverse effects that the c iv i l works and linked activities component o f NRIMP-2 may have on them. It further gives guidance on the necessity o f getting the Free and Prior Informed Consent (FPIC) o f IPS whose ancestral domains are affected by road rehabilitation! construction using the NCIP Safeguards System. On the other hand, IPs/ICCs residing or working in rights o f way not covered by ancestral domains wil l be engaged using the LARRIPP guidelines for IPS which also prescribes culturally appropriate relocation /compensation. For Road Improvement, four (4) o f the contract packages would most l ikely affect IPS. These are Agtas for the Magapit-Sta. Ana Road; Mangyans on the Mindoro East Coast Road; the Manobos and Bilaan on the Malita- Jose Abad Santos-Davao del Sur Saranggani Road; the Manobos o f the Landslide Risk Mitigation subproject (RI-2-10) in Mindanao. The Landslide Risk Mitigation subproject wil l pass through ancestral domains. An IPAP has been developed and the process o f securing the necessary permit i s ongoing. Since the rehabilitation wi l l cover existing roads, resettlement effects are expected to be minimal. Depending on the outcome o f the peace negotiations between the Mor0 Islamic Liberation Front and the Government o f the Republic o f the Philippines, the areas traversed by two (2) other contract packages, the Digos-Cotabato Road and the Cotabato-Marawi Road, may be declared ancestral domains. However, at present, the Muslims living in the area generally do not consider themselves IPS. Additionally, the IP Policy Framework i s robust enough to address this possibility. In the event o f conflicts, these wil l be addressed within the context o f customary dispute resolution process and mechanism in the presence o f the NCIP office with jurisdiction over the area and if so invited, concerned stakeholder(s). Issues unresolved in local communities may, at the choice o f the affected IPS, be elevated to NCIP which wil l then use the FPIC Guidelines o f 2006 issued by them for resolution.
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Status o f Safeguard Implementation
The status o f preparation, approval, disclosure, implementation and compensation o f the EMP, RAP and IPP for each o f the packages under components A.l and A.2.1 is summarized below and in Table 9.1 , and details are on f i le (Integrated Safeguards Data Sheet).
a EA approval: The IEEs and EMPs for all 12 Road Improvement packages and al l 8 Long-term Maintenance contracts (LM) have been approved and disclosed. The EMPs for the two rollover projects have been implemented satisfactorily.
RAP Implementation: (i) For Road Improvement, in Year 1 o f 4 packages, 2 RAPs have been implemented satisfactorily with no outstanding issues, 1 RAP i s under implementation, 1 requires no RAP as no involuntary resettlement impact i s anticipated, and the only IPAP w i l l be implemented before contract award (RI-2.10); and for Year 2, 2 RAPs have been submitted for approval, and 6 RAPs and 2 IPAPs are under preparation; and (ii) For Long-term Maintenance o f 8 LM packages, no RAP i s required in Years 1 or 2 as no involuntary resettlement i s anticipated; and 1 IPAP i s required in Year 2 and is under preparation (LM-2.3).
a
Table 9.1: Safeguards Requirements for Civil Works Packages - Status February 2008
F Fully Approved, Disclosed, Implemented EMP Environmental Mgt Plan A Approved, Disclosed, under implementation RAP Resettlement Action Plan S Submitted to WB for approval, disclosure IPAP Indigenous People's Plan P Under preparation PAH Project-Affected Household 0 Required, not yet started Impacts # severe, M=moderate, L=Light. - Not required, not applicable
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Annex 10: Economic and Financial Analysis
Philippines: Second National Roads Improvement and Management Project
1 Introduction
The economic analysis covers three major components: (i) Road improvement; (ii) Asset Preservation and (iii) Business Process Improvements (BIIPs). The road improvement component i s mostly upgrading but also includes a small sub-component on hazard management and landslide risk mitigation. Asset Preservation covers Long-Term Performance-Based Maintenance (LTPBM) programs for certain roads as wel l as the financing o f a proportion o f the national Preventive Maintenance Program (PMP) on the national road network over a four-year period. Component (iii) focuses on the enhancement and institutionalization o f existing core business process improvements and the development o f a few new ones. Some o f the sub components o f the Project’s Corporate Effectiveness component have a direct bearing on the successful implementation o f the BIIPs and are consequently included in their analysis. These three components together constitute about 98 percent o f the total project costs.
2 National Road Network Improvement
2.1 Methodology: The economic evaluation o f the national road upgrading sub projects i s based on conventional road cost-benefit analysis methodology that quantifies road benefits mainly from savings in vehicle operating costs (VOC), travel time costs and agency maintenance costs. To carry out the economic analysis, (i) traffic volumes used as a basis for determining time and vehicle operating costs and savings and capacity were estimated based on recent traffic counts; (ii) user and agency recurrent costs were estimated using the Highway Development and Management (HDM4) model, (iii) capital costs were estimated as per D P W H designs and standards; and (iv) environmental and resettlement costs were estimated following the Bank’s procedures. Economic prices were used in the evaluation. These were estimated by eliminating taxes and other transfer payments from financial prices. In identifying the sub projects that would be upgraded under NRIMP2, a larger group o f sub projects selected on the basis o f certain criteria specified in NRIMP1 was analyzed and only those with a positive Economic Net Present Value (ENPV) were selected.
In the case o f the landslide and road slip risk mitigation sub projects, the benefits were estimated conservatively to capture the avoided vehicle operating and time costs resulting from diversions and detours associated with closing certain sections o f the road. Benefits did not take into account avoided traffic casualties resulting from road failure.
2.2 Trafjc Projections: Traffic projections for individual sub-projects are based on recent traffic counts by vehicle type. When necessary, traffic counts were further verified through site visits. Projected traffic was divided into three main categories: (i) normal traffic which would continue to grow even without improving the transport network; (ii) diverted traffic from competing roads as a result o f the project’s improvements; and (iii) generated traffic, which may occur as a result o f network improvement. Normal traffic growth rates are estimated based on projections o f population growth and per capita income growth in the
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project affected area. Diverted traffic was considered in the case o f two road sections (Magapit-St Ana Road and Parang-Malabang). Improvements to these two roads are expected to divert 12 percent and 14 percent o f the traffic from competing routes as wel l as generate new traffic estimated at about 7.5 percent and 10 percent o f the normal traffic respectively. In the case o f Surigao-Davao coastal road, generated traffic was estimated to vary between 25 percent and 30 percent o f normal traffic flows. Traffic growth rates were estimated for each region and these rates were in turn used to project future traffic. For the projects under consideration, the composition o f average annual daily traffic (AADT) and projected regional traffic growth rates are on fi le.
Vehicleoperatingcost Time cost Total
2.3 User andAgency Costs: The H D M 4 model was used to estimate road user and agency costs for the national road upgrading and remedial works projects. Costs were estimated for a do-minimum scenario and for the project scenario; and the differences were reflected as costshenefits in the economic analysis. Vehicle operating costs (VOC) for the various vehicle types are estimated based on the empirical relationships between road roughness and VOC/km. All financial costs are converted into economic costs by excluding taxes and tariffs applied to each item o f labor and material inputs. The assumptions underlying the estimation o f vehicle operating and time costs are on file, and Table A10.1 shows these costs for a paved road in good condition and an operating speed o f 80 km/h.
Rigid Rigid Semi- Semi- Motor- Pass. Public Goods Small Large Truck Truck Trailer Trailer Tricycle Car Util i ty Util i ty Bus Bus 2-axle 3-axle 4 axle 5 axle
Road agency costs are estimated by the Project Management Office for Feasibility Studies (PMO-FS) which maintains a spreadsheet-based stand alone computer system run on a laptop. A number o f algorithms have been developed for estimating quantities based on various geometric dimensions o f different surface types and layer thicknesses. These are typically expressed in square meter, cubic meter or per km. The Development Planning Division (DPD) o f the Planning Services Department and the Bureau o f Construction o f D P W H are responsible for updating prices. Table A10.2 shows the unit costs for different types o f interventions.
2.4 Economic Parameters and Prices: The economic cost o f capital for the Philippines estimated by the National Economic Development Authority (NEDA) i s 15 percent. This was the discount rate used for the project. Table A10.2 shows both the economic and financial prices for the different interventions. In some instances, the difference between the financial and economic costs is as much as 25 percent. This i s primarily a result o f the Value Added Tax (12%) which i s paid on the price o f service charged. Other economic distortions in the form o f import duties and taxes contribute the difference.
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Table A I 0 2 Work Unit Costs - September 2006 Prices"
Notes: - Costs of new construction and widening exclude ROW costs, but include km posts, guardrails, reflective signs, pavement markings, and sodding (+12%). Truck hauling distance is 30 km on average for aggregates plus 5 nautical miles sailing distance on average between islands.
-All work activities, except new construction and widening, include leveling, patching, removing cracked slabs, etc. of the existing surface, and reflective signs and pavement markings (+3%).
a Includes 4% for detailed engineering, 8% for supervision, and 3.5% for project administration costs. Reshaping and compaction at 100,000 vehicle units cumulated; minimum once a year. Gravel replacement: 10 mm annually due to climatic factors + 50 mm when reaching 200,000 vehicle units: minimum 0.5 times a year.
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Table A10.3a: Summary of the Results of the Economic Analysis for the Projects under consideration for Upgrading
2.5 Results: Various design standards were considered for each o f the road sections to ensure that the Economic Net Present Value (ENPV) was not only positive but the highest that could be achieved for the road section. For example, upgrading a road f i om gravel to Portland cement concrete (PCP) o f 230 mm thickness and a carriageway of6.7 m often yielded positive ENPV. However a design standard o f 200 mm and a carriageway width o f 6.1 m proved to have higher economic returns in several cases. Tables A10.3 (a) and (b) show the results o f
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economic analysis for the different road improvement sub-components. The total ENPV i s estimated at P10.5 billion. A number o f sections which had negative (or marginally positive) economic returns were dropped in favor o f better projects.
Project/ Intervention
Davao-Calinan-Buda Road
Table A10.3b: Summary o f the Results of the Economic Analysis for the Projects under consideration for Remedial Works
AADT (2006) % gravel Ec. Cost* ENPVs Million ElRR P Million (”/)
234 324 45 392 0
* Cost includes detailed design, supervision, and a 10% physical contingency.
3. Asset Preservation
3.1 The asset preservation component o f the project includes Long-Term Performance-Based Maintenance (LTPBM) programs for certain roads as well as the financing o f a portion o f the national Preventive Maintenance Program (PMP) on the national road network over a 4-year period. Table A10.4 presents the business rules assumed to represent the maintenance interventions for the L T P B M program. These are used to (1) help establish a cost range for the L T P B M contract, and (2) carry out an economic analysis o f the proposed intervention. Five types o f preventive maintenance interventions have been defined based on road condition and traffic. These were used to identify the annual work programs. The analysis o f the national road asset preservation components (both the L T P B M and annual preventive maintenance programs) was carried out using HDM4-based cost-benefit analysis. While in the case o f the L T P B M contracts, the objective was to ensure positive economic returns; in the case o f preventive maintenance program, the objective was to identify the subprojects that maximize the ENPV o f the national program. The Project wil l finance a portion o f the national program. The benefits o f the project’s interventions are compared to those o f a “do-minimum-maintenance” scenario limited to routine maintenance and reconstruction/ rehabilitation when the roughness o f the road reaches an IRI o f 10.
Methodology and Assumptions:
Data on average Annual Dai ly Traffic and road condition have been obtained through surveys and a road condition index has been developed for the national road network. Average traffic growth rates have been estimated by region. Vehicle characteristics, road user and agency financial and economic costs are the same as those presented above in the discussion o f road improvement.
3.2 projects and an annual preventive maintenance work program respectively. preventive maintenance program i s not for 2007 but for 2006, it could be considered
Results: Tables A10.5a and A10.5b show the results o f the analysis for the L T P B M While the
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Table A10.4 Business Rules Assumed for Economic Analysis of LTPBM Interventions
P M P M PM RH
Five types of interventions 1.
2. 3. 4.
5.
Routine Maintenance (RM) which includes minor patching and edge repairs, vegetation control i s carried out annually. Performance Based Maintenance (PBM) i s carried out annually for carriageway works. Back-log Maintenance (BL) i s carried out annually mostly for drainage works. Preventive Maintenance (PM) w i l l be carried once for each road during the 5-year contract period unless traffic warrants otherwise. Rehabilitation w i l l be carried out for Bad sections once during the 5-year contract period typically during the beginning o f the planning period.
Road ConditiodTraffic L M H VH Good Fair 5 3 o r 4 3 o r 4 1 and 5 Poor 1 1 1 and5 1 and5 Bad 1 1 1 1
I Escalante- Vallehermoso Road 1 119 1 1 S O
Table A10.5a: Economic Analysis o f Proposed Long-term Maintenance program
PROPOSED PROJECTS
893 I 92,605
I Davao-Cotabato Road (Davao City Jct.-Digos Section) I 68 1.31 446 I 158,375
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TOTAL/ AVERAGE 1,101 1.10 6,082 715,230
Table A10.5b Results o f the Economic Appraisal of the 2006 Preventive Maintenance Program
I Region I Work NPV, Fin Description 1 Cap I Cost I
IP’rnil) Class Section Name
- 1 6 I Bacolod-Murcia-DS Bencdicto-Sn I E-WLateral I 1 1 94 I 4756 I Con I 3 6 I 8 7 8 I
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representative in terms o f overall coverage and economic returns. The Project wil l contribute about Pesos 1.6 bi l l ion towards the annual preventive maintenance programs over the l i fe o f the project. About 873 km wil l be treated during the f i rs t year o f the project at a total financial cost o f about 6.1 bi l l ion Pesos. The project is expected to contribute 5-7 percent to the maintenance program.
4. Business Process Improvement
4.1 Following the same methodology used in NRIMP1, the economic viability o f this component is assessed through an examination o f break-even points (BEP) and benefit/cost ratios (R) where explicit benefits can be identified and quantified. Individual business improvement tasks (BIIPs) have been categorized into seven business improvement areas: six o f which where costs and benefits can be specifically assigned, and one joint cost which i s distributed proportionally to the other six business improvement areas. In addition, the successful implementation o f two o f the subcomponents o f component B 2 on Corporate Effectiveness (B2.1: Organizational Effectiveness and B2.2: Road Partnerships) will enhance the effective implementation o f the BIIPs and are hence included in the joint costs. For the assessment o f benefits, the business improvement areas have been further separated into: (i) core processes (planning, design and quality assurance) which directly affect the value o f infrastructure assets and external costs such as road user costs: and (ii) operation support processes (financial management, information management, and procurement management) which affect D P W H operations primarily through the efficiency and cost o f service delivery. Both break even points and benefit-cost ratios are based on annualized costs in order to assess administrative costs and asset value improvements in a consistent framework.
The BEP i s defined as the ratio o f BI IP costs for a specific improvement area over the initial base o f benefits. For example, if the current annual total value o f contracted projects (V) i s known, then the ratio o f annualized BI IP costs (C) for the improved procurement management over V wil l give a breakeven benchmark. If the benefits from improved procurement management measured as a percentage o f V are judged highly l ikely to be greater than C/V and sustainable, then the relevant BIIPs are economically justified. Where possible, the l ikely size o f benefits i s also estimated, and benefit-cost ratios were calculated. A cost annualization factor o f 0.3 i s used reflecting a five year time period and a 15 percent discount rate. W h i l e the benefits are expected to continue to grow well beyond the five year period, new investments in upgrading software and hardware would be necessary. So the five year horizon was taken to ensure consistency between costs and benefits.
Methodology Overview:
4.2 The purpose o f the business improvement subcomponent on “institutional and capacity building integration and coordination” i s to ensure that the six other BIIPs are delivered according to a defined integration plan. In addition, the costs o f the subcomponents on Organizational Effectiveness and Road Partnerships will increase the efficiency and effectiveness o f business operations. Consequently, the cost o f these sub components i s treated as a joint cost designed as a general foundation to support the six business improvement areas. Joint cost i s the cost needed for the joint production o f two or more products. Typically, joint cost is difficult to avoid even if some o f the products are not produced. As a result, the share o f joint cost for each o f the products cannot be clearly
Joint Cost Allocation;
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identified, and simple rules may be used to allocate jo int costs to individual specific products. The ru le used for this case i s specified below:
Total joint cost, X; 0
0
0
0
The costs o f the relevant BIIPs for the ith business improvement area, Yi, (i = 1, 2, . . .,
The costs o f all BIIPs for all business improvement areas, Y = Y 1 + Y 2 + . . . Yk; Share o f joint cost allocated to the ith business improvement area: Yi / Y; Amount o f joint cost allocated to the ith business improvement area: (Yi / Y) X; Total costs o f the ith business improvement area: Yi + (Yi / Y) X.
k) ;
The cost o f the specific BIIPs was estimated at PHP 2,072 million, and that o f the joint cost at PHP 242 million. The ratio o f joint costs to BIIPs costs was estimated to be 0.12. All BIIP o f specific (non-joint) processes were therefore increased by 12 percent to distribute the joint cost proportionally.
4.3 All tasks involving the delivery o f services as they affect the cost o f doing business are included in the category o f D P W H operations. The assumption i s that cost savings in the delivery o f the services will result in reduced budget requirements or can be applied to increasing the program size or delivery processes. These are exclusively support processes.
Benefts Associated with DPWH Operations:
4.3. I Improved Procurement. The procurement management sub-component i s designed for a tighter pre-qualification, tougher competition, and more rigorous implementation o f procurement guidelines and procedures. With this sub-component, the bid prices may not be lower and may even be higher. But it i s likely that the completion costs will be reduced. Through improved supervision and enforcement o f contract provisions, litigation costs would be dramatically reduced, though this may take some years to realize.
Some progress was made during NRIMP 1 in developing procurement enhancing processes and systems for c iv i l works. These included the development o f a c iv i l works registry, the redesign and automation o f the prequalification process, developing systems for contract preparation and the post qualification for the lowest cost bidder. Several o f the reforms in this area are s t i l l ongoing and wil l be completed and institutionalized under NRIMP2. These include establishing management procurement processes for consultant services and goods and mechanisms for tracking bidding irregularities, electronic bidding and developing performance tracking applications. Despite some progress under NRIMP 1 in improving procurement practices, little benefit has been gained so far as the completed reforms have not been yet institutionalized. Consequently, the marginal benefits o f the project from increasing the efficiency o f procurement practices by completing ongoing reforms, targeting a few others and institutionalizing them i s expected to be high. The total cost o f this component i s estimated to be about Pesos 170 million. Slightly over 70 percent o f the cost o f this component i s accounted for by (a) the D S S application that helps monitor prices, cost estimation and bidding patterns; and (b) the software application license fees.
The annualized costs o f the BIIPs for procurement improvement, including the allocated fixed costs, are estimated to be P 57 million.
0
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0
0
The value o f D P W H contract subprojects in 2006 is estimated to be about P42 bi l l ion o f which P3 8 bi l l ion i s expected to be contracted The BEP i s 0.13 percent.implying that only 0.13 percent savings in the annual work program are needed for the cost recovery.
According to available international experiences, savings in works costs due to improved procurement and competition are in the range 5-15 percent, that is, in the order o f 40-1 15 times greater than the BEP estimated above. However, the fact that the savings reported from the international experiences would result from a combination o f improvements (not merely improved procurement process) and given some progress under NRIMP1, a much smaller benefit was considered in this case. Even at ha l f o f the lowest level o f savings experienced internationally (Le., 2.5 percent savings), the benefit cost ratio for the improved procurement under this business improvement would be 13.
4.3.2. Improved Financial Management. Upgrading and wider automation o f the accounting system wil l help avoid duplication o f records handling, allowing transactions to be entered once then carried electronically, reducing steps in the verification process and accelerating the approval process. The result i s l ikely to be reflected in lower bid prices for goods works and services if the payment time for payables is reduced, since implici t interest charges and cash f low problems will be reduced. This would in turn allow D P W H to expand its program to some extent. Another important benefit i s the additional financial control and transparency which would help provide more reliable information and enhance overall efficiency o f DPWH’s financial management.
The current average delay in payment to contractors i s about one month down from 2-3 months as a result o f improvements under NRIMP1. The benefits o f a 10-day further reduction in the payment cycle would lead to an increased productivity o f capital. This benefit can be estimated as the economic returns to the increase in DPWH’s program which would result from lower bid prices. Considering a program size o f P 42 billion, and an economic opportunity cost o f 15 percent, the annual gain to the economy would be about P 172 mi l l ion (10/365 * 50 bi l l ion * 15 percent). Automation would also save time, reduce errors and increase reliability in decision making. Representing these benefits conservatively as a 10 percent savings in the time o f staff associated with financial management would add another P 27 mi l l ion in annual benefits.
0
0
0
0
The annualized cost o f BIIPs for financial management improvement i s P 50 million. The annual value o f payables by D P W H in 2006 is estimated to be about P 42 billion. The BEP i s 0.12 percent. If delay i s reduced by ten days, net annual savings to the economy including savings in staff time cost would be about P 200 million, and the benefit-cost ratio would be 4.
4.3.3 Improved Communications and Information Systems. The Project wil l support further expansion and upgrading o f technology infrastructure for data communications in DPWH, which wil l allow the cost-effective and efficient implementation o f the business process computer applications in all offices, together with the use o f electronic mai l and internet availability. This w i l l speed up communications, reduced delays in processing o f actions and decisions and improve overall information dissemination and management.
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0
0
0
The annualized costs o f BIIPs for improvements in communications and information systems are P 188 million. The annual value o f DPWH’s current operating expenditures for 2006 i s estimated to be about P 6 billion. The BEP i s 1.2 percent, which implies the gain in productivity would be sufficient to recover the cost o f the investment in this subcomponent
4.4 Benefits Associated with Asset Improvement: The core processes generate benefits primarily through their impact on the value o f the infrastructure asset. The benefits o f asset improvement derive from three sources: (a) reduction in the l i fe cycle annualized cost o f maintenance due to the achievement o f longer l i fe in the maintenance works; (b) economic savings in l i f e cycle road user costs derived from improved road conditions and (c) better capital planning and programming that ensure that the assets are maintained or upgraded so as to maximize the economic returns to the road network further reinforcing the f i rst two sources o f benefits. Three subcomponents wil l contribute significantly to the realization o f these benefits: (Bl -1) Institutionalization and use o f improved planning processes, (B1.4) Updating engineering design standards, and (B1.6) Enhanced quality control. These benefits are best captured by the ENPV (Economic Net Present Value) o f total road costs and benefits (road agency infrastructure costs, road user costs and externalities). Improvements in the selection o f projects are thus reflected in the achievement o f higher N P V per unit expenditure in a program.
Improved planning processes through the implementation and institutionalization o f MYPS wil l result in better capital planning, annual programming and selection o f projects. Updating the design standards to modern codes appropriate to Philippine conditions, inclusion o f hazard risk management in design codes and the application o f value engineering to project design would further enhance the efficiency o f resource utilization. Finally, without a strong quality assurance system in place, the benefits o f sound planning and modern design standards will be greatly reduced. The impact o f three subcomponents would ultimately be captured in a higher net present value for the entire road improvement and asset preservation programs.
The annualized costs o f the core processes are estimated to be P 362 million. Previous analyses o f road segment development projects indicate that on average, a peso o f capital outlay would yield an ENPV o f P 1.01 (equivalent to benefit-cost ratio
The 2006 D P W H capital outlays for national roads are estimated to be P 39 billion, which would yield a total N P V o f P 28.2 billion. The BEP for these subcomponents i s 1.3 percent which implies that only a 0.9 percent improvement in the average NPV/cost ratio i s needed to recover the costs o f BIIPs for these subcomponents. If a 20 percent increase in NPV/cost ratio (Le., an increase o f N P V per peso capital outlay by P 0.20) can be achieved through the improved in these subcomponents, the benefit-cost ratio would amount to 22.
o f 2.01).
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Annex 11: Project Preparation and Supervision
Philippines Second National Roads Improvement and Management Project
Preparation Activi ty P 1 anned Actual PCN review 0311 612006 03/16/2006 Initial PID to PIC Initial I S D S to PIC Appraisal Negotiations Board/RVP approval Planned date o f effectiveness Planned date o f mid-term review Planned closing date
Key institutions responsible for preparation o f the project:
Department o f Public Works and Highways
Bank staff and consultants who worked on the project included:
Wi l l iam D. 0. Paterson Ben L. J. Eijbergen Moustafa Baher El-Hefhawy A. K. Swaminathan Christopher Pablo Victor Dato Rene Manuel Joseph Reyes Agnes Albert-Loth Maya Villaluz Victoria Florian Lazaro Jose Edgardo L. Campos Susan Hume Pinki Chaudhuri Rodrigo Archondo-Calla0 M e i Wang Edward Daoud Jo Ann Galimpin Simon Gregorio Hope Gerochi Christopher J. de Serio Galina Menchikova Gia Mendoza
Senior Infrastructure Specialist Senior Transport Economist Senior Transport Specialist Operations Officer Infrastructure Specialist Procurement Specialist Financial Management Specialist Financial Management Specialist Operations Officer Operations Officer Lead Public Sector Specialist Country Program Coordinator Institutional Specialist - Transport Highway Engineer Senior Counsel Senior Finance Officer Finance Analyst Social Safeguards Specialist Project Analyst Senior Program Assistant Program Assistant
EASTE EASTE SASE1 EASUR EASTE EAPCO EAPCO EAPCO EASRE EASSO SASPR EACPQ
Consultant ETWTR LEGEA L O A G l L O A G l WBISD PPIAF EASTE EASTE
Probam Assistant EACPF
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Bank funds expended to date on project preparation: 1. Bank resources: US$633,391 2. Trust funds: 3. Total: US$633,391
Estimated Approval and Supervision costs: 1. Remaining costs to approval: 2. Estimated annual supervision cost: US$120,000 (of which US$30,000 for fiduciary
supervision). Additional funding is anticipated from the cofinancier. If this does not emerge, US$50,000 wil l be made available from regional funds for the initial two years o f implementation.
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Annex 12: Documents in the Project File
Philippines: Second National Roads Improvement and Management Project
Road Board: Board Resolution No. 07-09 (meeting March 28,2007) Memorandum o f Understanding on Budget Mechanism for Partnered Funds (signed) D P W H Planning’s Budget Presentation 2007, dated April 16,2007 DPWH, “Multi-Year Programming and Scheduling Application” Manual, 2004. Road Board, Breakdown o f releases - motor vehicles users charge (FY2002-05) Proceedings from Civ i l Society Workshops, September 12,2006
Constructing an Effective Road Partnership, Wor ld Bank presentation Group reports and plenary notes
“Bantay Lansangan,” The People’s Road Watch, presentation, March 28, 2007 Assessment o f Corruption Risk in the Philippines Road Sector (Annex 15 / Attachment 1 from Decision Meeting PAD, full text) Pilot Application o f Bid Ceiling for Improving I C B Procurement - Rationale and Methodology (Input to initial P A D September 2007). NRIMP2 Design Concept, Amended January 2007, D P W H presentation to NEDA: M a i n Volume, V01.2 Road Improvement and Asset Preservation, Vol . 3 Institutional Capacity Building. Project Implementation Plan, dated June 4, 2007 Procurement P1 an Project Cost Breakdown ICC Project Evaluation Report on NRIMP2 Feasibility Studies conducted by various consultants o f D P W H PHRD Trust Fund progress / reports Expenditures on national roads from Planning Services Department, DP WH DPWH, “Key Performance Indicators, Procedures and Results 2006,” January 2007 D P W H Planning Services: Straight Line Diagrams o f road condition for Long-term Maintenance program, 2006. DPWH, Investment Levels for National Roads (FY2001- 10) by Region. National government expenditures and GDP figures from NSCB o f the Philippines June 2006 Social Weather Stations Enterprise Survey Project Appraisal Document -Phase 2 o f the National Roads Improvement and Management (APL) Program, September 14,2007 (Initial submission) SRSuF funding allocation for FY2007 and FY2008. BOM memo March 2008.
Philippines: Second Nat ional Roads Improvement and Management Project
1. The Philippines has generally ranked in the lower quartile o f countries in international surveys o f perception o f corruption. A detailed assessment o f corruption risks in the country and sector found a pattern o f corruption, collusion, fraud and coercion affecting the execution o f much public expenditure in the road sector, often with l i n k s to special interest groups or elected officials outside the sector. Current Bank projects in the sector have experienced some significant procurement irregularities that led to excessive bid prices, bidding failures, detailed investigations and the probable imposition o f sanctions. The risk o f corruption affecting the Project i s therefore High. However, the country i s making progress in curtailing corruption at the state level and the road sector has also been implementing control measures within a national integrity development framework. Consistent with the Bank’s country assistance strategy o f building islands o f good governance, this Project takes a comprehensive approach in adopting an integrity strengthening strategy that focuses on both institutional capacity- building measures and specific project-protection measures.
2. This section identifies the key corruption risks in the sector, outlines the strategy for mitigating the risks, and then presents a specific action plan to support implementation o f the Project. The specific Project action plan i s identified to control corruption in procurement for the project, based on the analysis o f r isks and the risk environment, and i s supported by the range o f measures incorporated in the financial management controls implemented through the project. The plan extends also to cover a number o f institutional capacity building actions to strengthen the governance environment in the road sector and reduce corruption at the agency and transaction levels. It supports and runs in parallel with the D P W H Integrity Development Action Plan (IDAP).
K e y Corruption R i s k s .
3. The key corruption r i sks identified and addressed by the Project anti-corruption strategy are listed in Table 13.1. These draw on results from the extensive surveys made o f people involved in the procurement or provision o f goods and services in the road sector and o f other observers in the Philippines (on file). In addition, during the implementation o f Phase 1, the following specific issues arose in which the identification o f irregularities led to disruption or failure o f bidding for works and consultant selection - these are seen as typical cases for which the strategy and action plan need to be effective.
4. For ICB civ i l works, an apparent presence o f strong cartel behavior has resulted in the failure o f three rounds o f bidding on two large road improvement packages worth $33 mi l l ion - despite strengthened fiduciary procedures - through high prices, evident patterns o f collusion in the structure o f the bids and firms involved, and complaints lodged. The high prices o f the lowest bids were init ial ly more than 36 percent above the estimates, and reduced successively to 15 percent in the third round. The prequalification process, which was fraught with manipulation in the f i rs t round, was improved and expedited by the use o f the computerized CWR in the second round, but the process did not effectively address the operation o f the cartel. In addition, for local N C B works procured centrally for the preventive maintenance program, after a f i rs t round o f competitive prices and timely award, a pattern emerged o f
125
excessive prices some more than 30 percent above the estimate, and exceptionally long evaluation and award periods increasing h o m 120 days to wel l over 200-400 days. This was accompanied by several contract terminations and other unsatisfactory performance o f some contracts. The lessons drawn horn this were that strong interventions would be necessary to discourage cartel behavior and fraud in qualifications, that a bid ceiling (formal or informal) could be effective in ensuring fair award prices, that industry and citizens were effective and willing in providing complaints and information on irregularities, and that technical quality could suffer through ineffective joint ventures.
Table 13.1: Key corruption risks identified and addressed by the Project
Risk
Procurement Collusion -
Bid-rigging -
Misrepresentation o f Bidder Qualifications
Fraud Bid evaluation
Bid process -
Contract processing
Preferred Suppliers
Contract Variations
Implementation Quality
Risk Description and Examples
Bidders are manipulated by an ‘arranger’ under the direction o f a patron, who for large national or I C B bids is typically a senior pol i t ic ian o r elite, and who for regional or District level bids is typically a local politician; Bid prices are established by the arranger, with a sufficient margin above the cost estimate to pay kickbacks to the patrons, cartel participants and some officials. The margin i s often high, e.g., 15-36 percent, but appears subject to controls: as the Bank began rejecting high bids in 2003 the margin evident in the bids decreased first to <30 percent and recently to <15 percent. The Patron often requires payment at the time o f award recommendation, other payments are usually made f rom the advance payment. - Falsification o f work history, productivity or financial records. Mos t elements were eliminated through introduction o f computerized C iv i l Works Registry in 2002, but its effectiveness has been l imi ted since by waivers and misuse. - Falsif ication o f documents - Manipulation o f bid evaluation is relatively rare o r minor under recent internal controls, but could re-emerge; for consulting services, manipulation seems common and high. Interference with bid submission, substitution o f documents or mis-reading o f bid prices relatively rare in foreign-assisted projects (FAP) due to observer controls, but may occur in locally-assisted projects (LAP) & could re-emerge. Bribes to facilitate processing o f contract award and subsequent payments are highly probable. The approval process has mult iple layers and extended delays occur in key offices, e.g., legal services, construction, executive, PMO. - Nomination o f preferred agents for key contract services such as bank guarantee, security, indemnity insurance, who provide kickback to project- level officials is common. - The size o f some variations is inflated through estimates o f quantities for pay items which are dif f icult to confirm o r audit, such as repairs, excavation, landslide removal, etc. Usually results f rom collusion o f contractor with officials, but may involve collusion o f supervising consultant also. - Falsification o f quality control test results, defect o r repair inspections, etc. through collusion between contractor and supervising officials or consultant. Incidence very dependent o n particular individuals and firms, ranging f rom negligible to modest in most FAP, but minor to serious in LAP
Inherent Risk
H
H
S
S S
S
H
H
H
S
126
I Financial Mgt Internal cont rks
Payment Processing
Fund f l ow Note: H = High; S =
Internal control environment generally weak, e.g. cash advances not liquidated, false invoicing, double-billing, etc. Certification o f invoices for payment may involve delays and bribes to project officials o r supervising consultants, but this appears minor and has not been reported to be a major problem in FAP. Once submitted, the invoices are processed electronically in the computerized e-NGAS accounting system, and processing status i s queued and published o n the agency web-sites o f both implementing agency (DPWH) and disbursement agency (DBM). Weak controls o n fund transfers, sub-allotment advices, etc.
Substantial; M = Moderate; N= Negligible.
S
M
H
5. For consultancies, the patterns centered on a domination o f the market by a few encumbent f i rms, inconsistent technical evaluations o f experience, evidence o f attempts to use lowball pricing to win, and a pattern o f very high subsequent cost increases through contract amendments and extensions.
6. D P W H has faced perceptions o f corruption from both the media and social surveys.” While such perceptions can obscure the inherently substantial capacity o f D P W H to successfully implement projects, there are many staff who are working to improve the integrity o f all operations and processes in the Department. The Office o f the Ombudsman in 2003 formally adopted the government’s Lifestyle Checks Program, which allows it to undertake life-style checks on government employees and, if warranted, remove them from their positions and initiate prosecution. The budget for the Office o f the Ombudsman will double over the next two years, allowing for the hiring and training o f a significant number o f new investigators and prosecutors. The World Bank has assisted the Office with fi-aud detection training, case tracking systems, and computerized database o f Statement o f Assets, Liabilities and Net Worth.
7. Under the Presidential Anti-Graft Commission (PAGC), Integrity Development Action Plans are being rolled out in 30 government agencies, including for DPWH. The Integrity Development Action Plans outline 22 anti-corruption measures - investigation, prevention, education and strategic partnership measures - in such areas as strengthening o f internal control mechanisms through the establishment o f internal audit units, improvements in the integrity systems related to hiring and promotions, and strengthening o f complaints and investigative mechanisms. As part o f the national procurement reform that began with the government Procurement Reform Act (R.A. 9184) in January 2003, the government’s Procurement Policy Board was formed with the mandate to: establish and monitor procurement performance benchmarks; provide for protest mechanisms; coordinate training within the government and also o f c iv i l society organizations who are observers on bid and evaluation committees; and to issue generic and department-specific procurement manuals and related bidding documents.” The Government has further intensified its efforts to improve
See annual surveys conducted by the Social Weather Station. Also see 1999 survey by Transparent Accountable Governance which cited the top three forms o f corruption in D P W H as “diverting money away from projects, asking for bribes, and no transparency in bidding and overpricing.” The specific procurement manual for D P W H was approved in January 2007 by the GPPB and D P W H management.
10
127
governance in the procurement process through Administrative Order 2 10, dated November 22, 2007, which harnesses government, c iv i l society, and sectoral groups for transparency in the procurement process. Concurrent with procurement reform, the government has also instituted financial management improvements through the implementation o f the e-NGAS accounting systems and the strengthening o f internal and external audit functions. The World Bank has assisted with harmonization o f bid documents, strengthened implementation and monitoring procedures, and training.
8. Reflecting the extensive range and depth o f non-government organizations and other groups present in the Philippines, several activities have been initiated by c iv i l society groups to combat corruption. For instance, Government Watch (G-Watch) has conducted reviews o f D P W H projects - D P W H responded positively to the findings and the findings also prompted the Office o f the Ombudsman to initiate investigations o f two cases. Other groups have adopted similar approaches to preventing corruption, such as Concerned Citizens o f Abra for Good Governance and Procurement Watch. There i s a legislative agenda on anti-corruption, including protecting and rewarding whistleblowers; criminalizing ill-gotten wealth; encouraging private lawyers to assist on corruption prosecution; and ratification o f the United Nations Convention on Anti- Corruption. But the passage o f these laws has been slow in coming. In March 2006 the National Anti-Corruption Plan o f Action (or NACPA) was formed to integrate existing and planned anti-corruption strategies o f the government, the business sector and civ i l society.
9. Building on the government’s own long-term efforts to strengthen the planning and budgeting process, the Bank has worked with D P W H in developing a plan to improve expenditure management. The Bank is also strengthening Government’s country systems for procurement, financial management and audit, including harmonizing the procedures used by various government agencies and development partners. To overcome entrenched problems identified in some areas o f public procurement, the Bank i s supporting the Government Procurement Policy Board for fraud detection training and systems. A baseline indicators system to monitor and evaluate the actual performance o f the procurement system in D P W H has been initiated. Based on this exercise, numerous specific and general recommendations were made to strengthen procurement in DPWH, including the establishment o f a regular procurement monitoring system, measures to increase the number o f bidders, and better utilization o f the computerized Documents Tracking System. In terms o f financial management, D P W H has been a pi lot agency for the adoption o f the electronic New Government Accounting System (e-NGAS). The Bank has also provided support to the government on institutionalizing internal audit functions to take the lead in monitoring and enforcing anti-corruption programs.
10. Bank support i s also being provided to the Office o f the Ombudsman to improve and expand investigations, which will enhance the ability to detect corruption in DPWH. Reflecting the importance o f this topic, a working group comprised o f development partners, government, business, and civ i l society meet regularly to coordinate their efforts that range from procurement training, support for lifestyle checks, and participatory audit involving c iv i l society groups, to case f low management software for the Ombudsman prosecutors. For 2008, the Government has doubled the Ombudsman’s budget, which i s another positive sign o f the government’s commitment to sustain governance reforms.
128
Integrity Strengthening Strategy
11. The strategy proposed for addressing and mitigating the high corruption risk in both the sector and the Project i s based on five primary elements, fol lowing good practice guidelines for the transport sector'*. These emphasize the power o f information to focus on results to ensure value for money, the power o f independent monitoring to ensure transparency, and the use o f communications technology to reduce opportunities for discretionary influence and to facilitate access to information. The fourth element i s a series o f tight controls to counteract what i s essentially a dysfunctional market, to enhance detection o f corruption, and to apply deterrents. The fifth element embraces the broader goal o f rebuilding integrity at the sector and institutional level. This i s detailed in Table 13.2.
Table 13.2: Integrity Strengthening Strategy for NRIMP-2 Project
Strategic Focus 1. Use information and results-based focus
2. Use and empower independent, third-party monitoring
3. Expand application o f I C T in a l l DPWH business processes
4. Combined control, detection and deterrence approach on collusion in procurement:
Combine audits and controls to reduce gap between bids and cost estimates;
during bid evaluation;
sanctions.
Enhance detection
Announce and apply
5. Reinforce and support national anti-corruption and integrity development Drocedures in road sector
Create strong, collective and informed voice o f citizens and road users to counter control o f vested interests and colluding parties, including corrupt officials and politicians. Provide independent observation o f transactions and use o f public funds and position, so as to enhance transparency. Reduce opportunities for discretionary influence and manipulation o f results, enhance transparency, and enhance efficiency o f business processes.
Reduce payments o f kickbacks and bribes (misuse o f GoP and project funds); Strengthen detection and handling o f collusion and fraud in bid and proposal evaluations Increase reporting o f collusive activity and complaints Reduce incentives for f irms to participate in collusion and cartel activity
Partnership with GoP to achieve sustainable progress in reducing corruption in a highly vulnerable sector.
Project Actions Improve and expand D P W H co&unications network (B 1.5); Report Card published regularly (B2.2); Expand web publishing; Publish procurement and supervision results Formalize establishment o f Road Watch / Bantay Lansangan (BL) NGO, support development o f i t s operational procedures, and facilitate its operation (B2.2); Improve complaints handling mechanism; Employ integrity services team for Project (B2.4)
Finance expansion o f accounting system (B 1.2), procurement applications (B 1.3), and I C T networks (B 1.5), and related corporate effectiveness (B2)
1. Employ independent procurement Evaluator in parallel to agency process 2. Require specified tightening o f relevant procurement conditions 3. Consider application o f bid price ceil ing in ICB, similar to GoP N C B (not granted). 4. Tra in D P W H B A C in collusion detection 5. Publicize local and international complaints lines and recent results 6. Expedite conclusion o f sanctions investigations 1, Require D P W H formally adopt IDAP and implementation p lan 2. Expedite implementation o f Integrity Services for Project
Paterson and Chaudhuri, Making Inroads on Corruption in the Transport Sector. Many Faces o f Corruption, ed. J. E. Campos, April 2007.
129
12. To mitigate these risks, a number o f institutional integrity efforts have been discussed and agreed with the D P W H in l ine with the Government’s own efforts to improve integrity in the Department. Several anti-corruption measures are reflected in the various project components, e.g.:
(a) Process Improvements: A series o f procurement-related process improvements are incorporated in the Institutional component, including: (i) Computerization and harmonization o f procurement and contract management systems (B. 1.3); (ii) Upgrading o f the civ i l works registry for processing o f qualification information (B1.3); and (iii) Institutional audit and reform o f the organization and staffing o f DPWH, including procurement (B2.1).
(b) Parallel Independent Procurement Evaluation: In order to strengthen the detection and evaluation processes under the Project - especially for collusion, bid-rigging, delays and other concerns with the current performance - a parallel review and evaluation w i l l be conducted on al l Project procurement actions by an Independent Procurement Evaluator (IPE) (B2.4 Integrity Support Services). The evaluation wil l be non-binding but must be taken into account satisfactorily in decision clearances. All decisions and authorization o f procurement will be made by D P W H under current mandates, in keeping with a focus on country systems. For I C B procurement, the Independent Procurement Evaluator (IPE) will report findings to the B A C chairperson prior to B A C decisions, and to the D P W H Management Committee, the Bank and the Cofinancier after B A C decisions. The IPE will also provide advice to D P W H on process and other issues for the purpose o f improving the overall performance and integrity o f procurement. For N C B procurement, the IPE will monitor all N C B procurement performance and conduct ex-post reviews on a sample o f contracts under the technical audit process. The consultant wi l l be selected and employed under technical assistance by the Cofinancier.
(c) Specific Measures to Limit Bid-Rigging and Kickbacks: As a short-term measure to limit the level o f excessive bid pricing which has resulted from the prevalent collusion and bid-rigging, D P W H had requested use o f a bid ceiling in I C B procurement, in view o f the apparent success o f a bid ceiling allowed under local procedures for NCB. Whi le the potential effect o f this as an interim measure was recognized, the Bank’s procurement pol icy did not support use o f a bid ceiling (ref. Clause 2.53 o f the Procurement Guidelines). Instead, the Project will employ additional bid analysis referenced to data on market prices o f key pay items in order to detect bid-rigging and provide a basis for rejection o f over-priced bids. This measure - when matched with upstream detailed verification o f the cost estimates by the Technical Auditor (using quantity surveying techniques), and downstream detailed validation o f change orders and the imposition o f strict discipline to restrict the size o f contract change orders - i s expected to be effective in containing prices within a small margin o f the cost estimate, while at the same time preserving the opportunity for competitiveness within a fair price range.
A number o f specific enhancements to the current D P W H procurement processes wil l be undertaken and monitored,
(d) Specific Procurement Process Requirements:
130
including: i) enhanced disclosure o f information; ii) improved oversight o f procurement and implementation activities; iii) mitigation o f fraud and collusion risks; iv) enhanced audits; v) enhanced complaint handling mechanisms; and vi) defined procedures related to sanctions and remedies. A general list o f actions is given in Annex 8, Attachment 3. The project-specific requirements are detailed in the Integrity Strengthening Action Plan presented in this Annex, which wil l be mandatory for al l procurement under the Project.
As external audits have repeatedly identified weaknesses in the internal controls o f DPWH, special technical assistance wil l be provided to strengthen internal audit capacity and the conduct o f semi-annual internal audits, strengthen the quality o f financial management staff for the Project, and to expand the electronic national accounting system to nearly all D P W H offices.
(f) External Monitoring: The transparency o f procurement transactions and the provision and effectiveness o f external monitoring wil l be enhanced through the establishment o f a non-governmental alliance under the B2.2 Road Partnerships subcomponent. The alliance wil l facilitate and strengthen the role o f c iv i l society and road users in providing independent monitoring o f procurement and related sanctions, as wel l as reporting periodically on the performance o f D P W H as the road managing agency and the road sector as a whole.
(e) Financial Management and Audits:
Project Integrity Strengthening Action Plan
13. The following Integrity Strengthening Action Plan, in Table 13.3, details the specific actions agreed with D P W H for addressing the various risks identified by the risk assessment, and the responsibility and schedule for achieving those actions. The plan i s intended to guide project supervision and monitoring o f actions. The actions are referenced to the Project components where they form part o f the broader institutional capacity building objective, The formal adoption o f the ISAP plan i s a condition o f loan effectiveness, within adoption o f the PIP.
14. The project supports the ISAP through the subcomponents B.l Optimization o f Business Process Improvements, and B .2 Corporate Effectiveness and Integrity, as detailed in Annex 4B.
15. Supervision by the Bank and Cofinancier would be enhanced through: (i) Monitoring o f procurement performance and exceptions reported by the Technical Auditor o f the Fiduciary Integrity services; (ii) Review o f procurement transaction issues raised by the independent Procurement Evaluator; (iii) Additional information provided by the independent Technical Auditor relevant to the procurement post-review supervision; and (iv) Annual review meeting with DOF and other GoP agencies at an executive level to address NRIMP Program results, including systemic or chronic integrity matters.
131
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Annex 14: Statement of Loans and Credits
Philippines: Second National Roads Improvement and Management Project
Project 1D FY Purpose
_ _ _ _ ~ ~ ~ ~ ~~
Difference between expected and actual
disbursements Onginal Amount LII US% Millions
IBRD IDA SF GEF Cancel Undisb Ong Frm Rev'd
PI06262 2008
P101964 2007 PO84967 2007
PO96174 2007
PO94063 2006
PO75464 2006 PO64925 2006
PO73206 2005
PO79628 2005
PO79661 2005
PO75184 2004
PO70899 2004
PO66397 2004 PO66076 2004
PO77012 2003
PO73488 2003
PO71007 2003
PO69491 2002
PO57731 2001 PO48588 1999
PH- Bicol Power Restoration Project
Support for Tax administration Reform Mindanao Rural Dev. Project - Phase 2
PH-Nat'l Prog Supt for ENV & NRMP
PH-NP Support for Basic Ed PH-NP Support for HNP
LOCAL DEV & INV PH LAND ADMINISTRATION AND MANAGEMENT I1
PH-SUPPORT FOR STRATEGIC
PH-2ND WOMEN'S HEALTH & SAFE MOTHERHOOD PH-MANILA SEWERAGE 3 PH: Diversified Farm Income & Mkt. Devt PH LAGUNA DE BAY INSTITUTIONAL STRENGTHE PH-Rural Power Project
JUDICIAL REFORM SUPPORT PROJECT PH KALAHI-ClDSS PROJECT
PH - ARMM Social Fund
PHSecond Agrarian Refonn Communities Dev PH-LGU URBAN WATER APL2
Philippines: Second National Roads Improvement and Management Project POVERTY a n d SOCIAL
Phi l ipp ines 2006 Po pulalio n mid-yeai (millioiis) 84 6 GNIpercapita (Atlas mefltod, US$) $420 GNI (Arias method US$ billions) no 1
Average annual growth, 2000.06
Population (W 18 Laborforce (?6) 3 7
M o s t recent es t ima te ( l a tes t year avai lable, 2000.06)
Po vert y (%of population belo w nabo nal PO verily line) Urban population (%of totalpopulation) 63 Life expectancyat birth (flsrs) 71 Infant mortaliry(pei IOOO/ive births) 25
28 Child malnutrition (%of children under 5) Accessto an improvedwdtei source(%ofpopulabon) 85 Literacy (SSofpopuIdtion dge 1.59 93 Gross primary enrollmenl (%o f schooi-age papulalion) m
Male m Female m
KEY ECONOMIC RATIOS and LONG-TERM TRENDS
1986 1996
GDP (US$ bi//ions) 299 828 Gross capital formation/GDP 152 240 Exporls of goods and servicesiGDP 263 405 Gross domestic savingsiGDP 192 152 Gross national savingsiGUP v3 200
Current account baiaficeiGDP 3 2 4 8 Interest payments/GDP 3 8 2 0 Total debtiGUP 944 531 Total debt serviceiexports 337 0 4 Present valueof debtiGDP Present value of debtiexports
1986.96 1996-06 2005 (average annuaigrouth) GDP 3 1 4 1 4 9 GDP percapita 0 8 2 2 3 1 Exports of goods and services 8 6 4 3 4 0
E a s t Lower- A s i a 8 midd le - Pac i f i c i n c o m e
1,900 1863 3 539
0 9 13
42 71 26 15
79 91 114 15 10
2005
98 I 146 47 6 134 302
20 3.2
62 3 % 7 66 4 113 3
2,276 2,037 4,635
0.9 14
47 71 31 0 81 89 10 117 ZU
2006 117.6 14.3
46.4 0,1
33.2
4.3
2006 2006-10
5.4 6.4 3.5 4 6 n.2 5,0
Deve lopmen t diamond,
Life expectancy
T 1
GNI Gross per w' + primary capita enrollment
1 1
Access to imorovedwatersource
----Philippines Lower-middle-income group
.. ... .. . .. .. . ... Economic rat ios '
Trade
.i Domestic , ,I,,?; I Capital savings ' \ t 3 formation
1
Indebtedness
Philippines Lo wer-middle-mcome g row
STRUCTURE o f t h e ECONOMY
(%of GDP) Agriculture Industry
Services
Household final consumption expenditure General gov't final consumption eqenditure Imports of goods and services
Manufacturing
(average annual growth) Agriculture Industry
Services
Househa Id final consumption expenditure General gov't final consumption eqenditure Gross capital formation Imports of goods and services
M anufacturing
1986
23.9 34.6 24.6 415
72.9 8.0
22.4
1996
20 6 32 1 22 8 47 3
72 8 11 9
49 3
1986-96 1996-06
18 3.3 3.2 3.1 3.1 3.7 3.8 5.3
3.8 4.5 4.2 11 7.2 0.4 128 3.0
2005
14.3 31.9 23.3 53.7
80.0 9.6
518
2005
2.0 3.8 5.3 6.8
6.9 1.6
-8.8 2.4
2006
14.2 316 22.9 54.2
77.2 9.7
47.6
2006
3.8 4.5 4.6 6.7
0.4 6.1 2.7 19
o f expor ts and i m p o r t s (Oh) -7
-------Exports -imports
Note 2006 data are preliminatyestimates This table was produced from the Development Economics LDB database 'Thediamonds showfourkeyindicators in thecountty(in bo1d)comparedwith its income-groupaverage K data aremissing,thediamond\nnll
be incomplete
139
Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$)
1986 1996
0.8 7.5 3.0 7.7
0.0 18.9 2.0 3.7 -5.1 0.3
1986 IS96
4,842 20,543 9 8 9.988 751 2,423
2,672 7,095 5,044 31,885
184 1578 869 3.008 839 W.472
1986 1996
7,702 33,490 5,868 41.314 1,834 -7,824
-1,321 3,282 441 541
954 -4,001
288 8,x)8 -1,242 -+I27
2,459 11773 20.4 26.2
1996
44,001 4,666
8 3
5,371 766
3
247 -55
2.86 157 2.101
528 457 426
31 343 -3 Tz
PRICES andGOVERNMENT F INANCE
Domestic prices (%change) Consumer prices Implicit GDP deflator
Government finance (%of GDP, includes current grants) Current revenue Current budget balance Overall surplusideficit
T R A D E
(US$ rniilions) Totalexports (fob)
ElectronicsiTelecom Garments Manufactures
Totalimports (cif) Food Fuel and energy Capital goods
Export price index (2000=00) Import price index (2000=00) Terms of trade (2000=00)
BALANCE of P A Y M E N T S
(US$ millions) Exports of goods and services Imports of goods and services Resource balance
Net income Net current transfers
Current account balance
Financing items (net) Changes in net reserves
EXTERNAL DEBT and RESOURCE FLOWS 1986
(US$ millions) Totaldebt outstanding and disbursed 28,204
IBRD 3.07 IDA 92
Total debt service 2,961 l8RD 406 IDA 1
Compositionof net resourcefiow Official grants 40 1 Official creditors 196 Private creditors 295
P 7 Foreign direct investment (net inflows) Portfolio equity(net inflows) 0
Commitments 151 Disbursements 297 Principal repayments 7 0 Net flows 27 Interest payments 238 Net transfers -2 I2
World Bank program
2005
7.6 6.4
15.0 -0.3 -2.7
2005
40,263 28,476 2,309
36,945 48.036
1,876 6,281 8,928
2005
44,788 53,901 -9.m
-294 11391
1.984
426 -2.4W
18,494 55.1
2005
61,527 2.885
8 7
9,893 499
8
143 -603 1 3 7 1.02 1461
99 r29 383
-253 P5
-379
2006
6.2 5 2
16.2 13 -11
2006
46,158 31,144 2,626 41,081 53,lU 1934 8,Tzl
9,078
2006
51,561 59,185 -7,624
-543 0,189
5,022
-1253 -3,769
22,967 513
2006
2,690 296
524 8
0
390 -258
142 -400
132
Inflation (%) 10 T
2 03 04 05
p o r t and import levels (US$ mill.)
160 000 T
O6 I 1 00 01 02 03 04 05
Current account balance to GDP (Oh)
I S T
Philippines
sr- - Note:This tablewas producedfrom the Development Economics LDB database. 9/28/07
~~
/Composit ion o f 2005 debt (US$ mill.)
A 2,865 I ~
A - IBRD E - Bilatfrd B - IDA D - Other mrltilatwd F - Private C - I M F G- Sbri-terr
140
RI - 1.4A
Marcos Hwy. RI - 2.9Marcos Hwy. RI - 2.9Marcos Hwy. RI - 2.9
Phase 2 RoadImprovements
I
CAR
II
III
IV-A
IV
V
VI VII
VIII
IX
X
XI
XIII
ARMM XII
1
2
3
4
5 9
6
10
87
11
12
13
14 15
17
18
19
20
21
22
16
23
24 25
28
29
30
26
27
31
32
33
34
3536
37
38
39
40
41
42
43
444546
47
48
49 50
51
52
53
54
76
55
56
57
58
59
6162
64
65
66
68
69
70
60
67
71
72
74
73
75
77
7879
80
81
IV-B
63
LucenaCity
CatananuanVirac
Sabang
TiwiTabaco
Batangas City
BoacCalapan
Mamburao
RomblonBongabon
Calintaan
Lipa
Jose PanganibanSanta Cruz
San Jose Baler
Palayan CityCabanatuanTarlac
Iba Gapan
AngelesSan Fernando
Olongapo
Moron
Malolos
Quezon CityBalanga
Pasig
Trece Martires LosBanos
Nasugbu
MANILA
DugoLaoag City
Piat
Tuguegarao
Santiago
Vigan Bangued
TabukLabuagan
Ilagan
Cabarroguis
Bontoc
Lagawe
BayombongBaguio City
La Trinidad
San FernandoBauang
Dagupan
LingayenSta. Barbara
Kabugao
S. Vicente
Aparri
Basco
Roxas
Puerto Princesa City
Aboaba
Brooks Point
Santa Teresa
PiliNaga
Pasacao
Ligao Legaspi CitySorsogon
MatnogBulen
Daet
MasbateAroroy
Milagros
Placer
SanIsidro
Catarman
Palapag
Oras
Taft
Borongan
Calbayog
Catbalogan
Naval
Villaba
Ormoc
IsabelAbuyog
BaybaySilago
Liloan
Pintuyan
Maasin
CarigaraTacloban CityPalo Guiuan
S. RemigioLawaan
CarmenDanaoLahugLiloan
MandaueCebu CityNaga
TalisaySanFernando Buena-
vista
TalibonUbay
LutopanToledo
SanCarlos
Cadiz
SilayBacolod City
SumagBagoLa Carlota
CanloanPontevedra
Kabaukalan
Bais
DumagueteCity
Basay Santander
Siquijor
Tagbilaran City
Mambajao
Surigao
San Jose
Tandag
ButuanCity
Prosperidao
Hinatuan
Tagum
Nabunturan
MatiDavao City
Kidapawan
Digos
Koronodal
Kabacon
Kibawe
DangcaganMaramag
Isulan
Gen. Santos
Datu Piang
MidsayapCotabato
City
MalabangLumbatan
Marawi CityMalaybalay
AgusanCagayan de Oro
CityIligan City
TangubTubod
Oroquieta City
DapitanDipolog City
Sindangan
Pagadian City
Liloy
ZamboangaIsabella
de Basilan
Jolo
NabasKalibo
Roxas CitySigma
DaoDumalag
BarotacPassiCalinog
DuenasJanuay
San Jose deBuenavista Jaro
Iloilo City Jordan
DinglePototan Barotac Nuevo
Zarraga
Alabel
Shariff Aguak(Maganoy)Shariff Kudarat
PanglimaSugala
Caga
yan
R.
Chico
R.
Agus
an
R.
Agusan
R.
Hinoba-an
KabasalanBuug
Malita
Malalag
Manay
Marihatag
Barobo
Bacuag
Quezon
MountData
Ipil
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.
118° 120° 122°
14°
12°
10°
8°
6°
120° 122° 124° 126°
20°
18°
16°
14°
12°
10°
8°
6°
BatanIslands
BabuyanIslands
PolilloIslands
LubangIslands
Catanduanes
TicaoSibuyanTablas
Busuanga
SemiraraIslands
CuyoIslands
Culion
Linapacah
Dumaran
Bugsuk
Balabac
Cagayan Sulu
MALAYSIA Tawi-Tawi
Sulu
Basilan
M i n d a n a o
Camiguin
Siquijor
Negros
Panay
Bohol
CebuLeyte
SamarMasbate
Marinduque
BuriasMindoro
Pa
l aw
an
L u z o n
Dinagat
Siargao
SaranganiC e l e b e s
S e a
M o r o
S u l u S e a M i n d a n a o
S e a
Leyte Gulf
VisayanSea
Mindoro Strait
S ibuyanSea
P h i l i p p i n e
S e a
Babuyan Channel
Luzon Strait
G u l fDavao
Gu l f
0 100 200 300 KILOMETERS
16°
20°
18°
124° 126°
CIVIL WORKS:
ROAD IMPROVEMENTS
ASSET PRESERVATION / LONGTERM MAINTENANCE
CARRYOVER FROM NRIMP1
NRIMP1/HMP COMPLETED
RI - 1.4A
118°
RIVERS
PROVINCE CAPITALS
REGION CAPITALS
PROVINCE BOUNDARIES
REGION BOUNDARIES
P H I L I P P I N E SNATIONAL ROADS IMPROVEMENT AND
Davao Reg.Compostela ValleyDavao del NorteDavao del SurDavao Oriental
63.64.65.66.
North CotabatoSaranganiSouth CotabatoSultan Kudarat
67.68.69.70.
Soccsksargen
CaragaAgusan del NorteAgusan del SurDinagat IslandsSurigao del NorteSurigao del Sur
71.72.73.74.75.
Autonomous Region of Muslim Mindanao
BasilanLanao del SurMaguindanao**Shariff KabunsuanSuluTawi-Tawi
76.77.78.79.80.81.
XI
XII
XIII
ARMM
Zamboanga PeninsulaZamboanga del NorteZamboanga del SurZamboanga SibugaZamboanga City
55.56.57.—
Northern MindanaoBukidnonCamiguinLanao del NorteMisamis OccidentalMisamis Oriental
58.59.60.61.62.
IX
X
**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.
