second palawan integrated area development project (loans 1033-phi[sf] & 1034-phi)

7/31/2019 Second Palawan Integrated Area Development Project (Loans 1033-PHI[SF] & 1034-PHI)

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ASIAN DEVELOPMENT BANK PPA:PHI 21049

PROJECT PERFORMANCE AUDIT REPORT

ON THE

SECOND PALAWAN INTEGRATED AREADEVELOPMENT PROJECT

(Loans 1033-PHI[SF]/1034-PHI)

IN THE

PHILIPPINES

December 2002


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CURRENCY EQUIVALENTS

Currency Unit peso (P)

At Appraisal At Project Completion At Operations Evaluation

(March 1990) (December 1999) (August 2002)P1.00 = $0.041 $0.025 $0.020$1.00 = P24.20 P40.20 P51.00

ABBREVIATIONS

ADB Asian Development BankCIS communal irrigation systemDENR Department of Environment and Natural ResourcesDPWH Department of Public Works and HighwaysEA executive agency

EIRR

economic internal rate of returnEU European Unionha hectareIAD integrated area developmentkm kilometer NIA National Irrigation AdministrationO&M operation and maintenanceOEM operations evaluation missionPCR project completion reportPCSDS Palawan Council for Sustainable Development Staff PIADP Palawan Integrated Area Development ProjectPIADPO Palawan Integrated Area Development Project Office

PMO Project Management OfficePPAR project performance audit reportPPTA project preparatory technical assistancePTFPP Palawan Tropical Forestry Protection ProgramRAC rural agricultural center TA technical assistanceVHS village health station

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December.(ii) In this report, $ refers to US dollars.

Operations Evaluation Department, PE-611


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CONTENTS

PageBASIC DATA iiiEXECUTIVE SUMMARY ivMAP vii

I. BACKGROUND 1

A. Rationale 1B. Formulation 1C. Purpose and Outputs 1D. Cost, Financing, and Executing Arrangements 1E. Completion and Self-Evaluation 2F. Operations Evaluation 2

II. PLANNING AND IMPLEMENTATION PERFORMANCE 2

A. Formulation and Design 2B. Achievement of Outputs 3C. Cost and Scheduling 3D. Procurement and Construction 4E. Organization and Management 4

III. ACHIEVEMENT OF PROJECT PURPOSE 4

A. Operational Performance 4B. Economic Reevaluation 13C. Sustainability 13

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 13

A. Socioeconomic Impact 13B. Environmental Impact 14C. Impact on Institutions and Policy 14

V. OVERALL ASSESSMENT 14

A. Relevance 14B. Efficacy 15C. Efficiency 15D. Sustainability 15

E. Institutional Development and Other Impacts 15F. Overall Project Rating 15G. Assessment of ADB and Borrower Performance 16

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 16

A. Key Issues for the Future 16B. Lessons Identified 19C. Follow-Up Actions 20


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APPENDIXES

1. Project Cost: Appraisal Estimate versus Actual 212. Achievement of Project Targets 223. Cost of Road Construction 24

4. Communal Irrigation Systems and Water-Use Fees 255. Economic Reevaluation 296. Prevalence of Malaria, Tuberculosis, and Malnutrition 47

SUPPLEMENTARY APPENDIX (available upon request)

Major Findings of Village Survey


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BASIC DATA

Project Preparation/Institution BuildingTA No. TA Name Type Person-

Months

Amount

($)

Approval

Date1097 Palawan Integrated Area Development II PPTA 48 355,000 29 Dec 1988

1380 Agroprocessing and Rural Enterprise ADTA 16 295,000 27 Sep 1990

Key Project Data ($ million)As per ADB

Loan Documents Actual1

Total Project Cost 73.50 83.48Foreign Exchange Cost 20.00 20.74Local Currency Cost 53.50 64.35

ADB Loan Amount/Util ization2

58.00 58.36

Key Dates Expected Actual

Appraisal 1429 Mar 1990Loan Negotiations 2023 Aug 1990Board Approval 27 Sep 1990Loan Agreement 25 Oct 1990Loan Effectiveness 27 Dec 1990 2 Jan 1991First Disbursement Loan 1033(SF)First Disbursement Loan 1034

27 Sep 199115 Mar 1991

Project Completion 30 Dec 1996 30 Dec 1998Loan Closing Loan 1033(SF)Loan Closing Loan 1034

30 Jun 199730 Jun 1997

10 Sep 199913 Jul 1999

Months (effectiveness to completion) 72 96

Internal Rate of Return (%) Appraisal PCR PPAREconomic Internal Rate of Return 17.8 11.0 3.7

Borrower Republic of the Philippines

Executing Agencies Department of AgricultureDepartment of Environment and Natural ResourcesDepartment of HealthDepartment of Public Works and HighwaysDepartment of Social Welfare and DevelopmentNational Irrigation AdministrationPalawan Integrated Area Development Project Office

Type of Mission No. of Missions No. of Person-DaysAppraisal 1 128Inception 1 2Review 8 168Project Completion 1 68

Operations Evaluation3

1 42

__________________________

ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = project completion report,PPAR = project performance audit report, PPTA = project preparatory technical assistance, SF = special fund,TA = technical assistance.1

The actual project costs differ slightly from that given in ADBs PCR (see footnote 1 in Appendix 1).2 Approved loan amounts for Loans 1033(SF) and 1034 were SDR18,425,600, equivalent to $25.0 million and

$33.0 million, respectively.3

Comprising E. Q. Ye, Senior Evaluation Specialist (Mission Leader) and G. Bimbao (domestic consultant).


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EXECUTIVE SUMMARY

The Second Palawan Integrated Area Development Project (the Project) was designedas a follow-up to the Palawan Integrated Area Development Project, which was implementedfrom 1982 to 1990. By focusing on one of the poorest regions in the Philippines, the Project wasexpected to contribute to the dual objectives of poverty reduction and balanced regional

development. The Project aimed to develop land and water resources, increase agriculturalproduction and productivity, create employment, reduce poverty, improve the quality of life ofsubsistence farmers and fisherfolk, and arrest environmental degradation. Its numerouscomponents covered crops, livestock, fisheries, irrigation, land survey and titling, roads, port,health, water supply, and women in development.

At appraisal, the total project cost was estimated at $73.5 million, of which $58.0 millionwas to be financed by the Asian Development Bank (ADB) and $15.5 million by theGovernment. This proved to be unrealistic, and a significant cost overrun occurred duringimplementation, amounting to $25.5 million, or an increase of 35% over the appraisal estimate.The cost overrun made necessary a substantial reduction in project scope, including cutback ofthe roads component by 51% and in communal irrigation systems (CISs) by 35%. At

completion, the total project cost was $83.5 million, 14% higher than the appraisal estimate, witha 99% overrun in the CIS component and 133% overrun in roads and port. The ADB loansappreciated slightly to $58.3 million and the Governments financing increased by 63% to $25.2million equivalent. The Project was completed in December 1998, 2 years behind schedule. ADBsproject completion report rated the Project partly successful.

This project performance audit report examines the Projects design, implementation,outputs, and impacts, and identifies lessons learned for future operations. In terms of design,the objective of promoting development in a poor region was appropriate. The development ofroads and port improved the basic infrastructure in the province. The village health stationswere highly appreciated by local communities due to their tangible benefits to the poor. The landsurvey and titling strengthened land tenure and provided incentives for farmland investment.

The Project was designed at a time when beneficiary participation was not commonlyused. Instead of focusing on removing the key sector constraints, a top-down and supply-drivenapproach led to the inclusion of less relevant components, such as livestock procurement anddispersal. Since the Project was prepared while its predecessor was still ongoing, problemsencountered in the latter were not thoroughly studied; lessons learned during the first projectwere not fully incorporated into the design of the second one; and similar mistakes wererepeated, such as constructing a large number of water-supply systems without producingpotable water.

While most of the revised physical targets were achieved, many of the project objectiveswere not. Those related to developing land and water resources and increasing agricultural

production and productivity were met in farmlands where farmers received sufficient irrigationservices after CIS construction. Due to the small size of the CISs, however, the number of suchfarmers was limited to about 10% of the households in 13 villages that constructed them. Theobjectives of reducing poverty and improving the quality of life of subsistence farmers andfisherfolk were achieved on a limited scale, and this achievement was partly due to otherdevelopment efforts.

Compared to its predecessor, efficiency in implementation was improved through theestablishment of project management offices at the provincial level. However, the project


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design, by expanding government programs without correcting their weaknesses, inducedinefficiencies, such as distributing animals to farmers free of charge but at high cost to theGovernment, and constructing various extension and training centers with high costs and lowbenefits. The wooden fish landings generated only short-term benefits at high investment andmaintenance costs. The Projects economic internal rate of return, which was estimated at17.8% at appraisal and 11.0% at project completion, is reestimated at 3.7%.

The project components with tangible benefits are likely to be sustained, such as mostroads, the port, two concrete fish-landing facilities, and the village health stations. The othershave either vanished or ceased operation, such as the wooden fish landings, most water-supplyschemes, most nurseries, and the majority of the extension and training centers. Thesustainability of the CISs is poor due to farmers lack of ownership and unwillingness to pay formaintenance.

The Project contributed to capacity building of national government agencies but not tothat of local governments and beneficiaries. Its impact on poverty was limited due to a lack ofmeasures to directly help the poor. Its environmental impact could have been significant if it hadendeavored to control destructive fishing or address other environmental issues. Overall, the

Project is rated partly successful, and the following issues are identified.

Communal Irrigation Systems. Farmers lack of ownership was a primary cause of thepoor performance of the CISs. As these were designed by consultants and local communitieswere only informed of the investment decisions, farmers considered the CIS investment to be agovernment project; consequently, they did not feel any ownership, authority, or responsibility tomonitor subproject design and construction. As a result, many CISs were overdesigned withhigh investment costs. The lack of monitoring by the beneficiaries led to constructiondeficiencies, incompleteness, and reduction in command areas. Command areas were furtherreduced when damage caused by typhoons was not repaired due to a lack of funds, leading topoor water supply and providing an excuse for not paying water-use fees. Finally, collection ofwater-use fees was low, leading to poor maintenance and deterioration of the CISs only a few

years after construction. Future design of similar projects should include measures to ensurebeneficiaries strong ownership, such as investment decisions made by communities and theirproportionate sharing of investment costs in cash.

Agricultural Extension System. Fourteen rural agricultural centers were established tostrengthen agricultural extension. They operated well when project funds were available totransport trainees to the centers, but ceased operation after project completion. The keyconstraint to agricultural extension is not a lack of buildings but shortage of extension staff andoperational funds. Due to budgetary constraints, municipal governments cannot finance asufficient number of extension staff; their mobility is severely restricted by shortage of vehiclesand travel allowance. As a result, agricultural extension in the project areas has so far reachedonly a few farmer associations, representing less than 10% of the households in their villages.

Future design of agricultural support services should include measures to ensure long-termoperation of such services after project completion.

Subproject Design. Subprojects were designed by consultants without full knowledgeof local conditions. Implementation of uniform components in vastly different subproject sitesrestricted the effectiveness of the investment. In fact, it is very difficult for consultants to designrural interventions that are suitable for all subproject sites. This is particularly true for povertyreduction interventions, as the causes of poverty and conditions/opportunities available forpoverty reduction vary considerably across villages. In contrast, local communities know who


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the poor are in their villages and what the key factors underlay the poverty, and have fairly goodjudgment of what measures will be workable. Future design of poverty-reduction projects shouldfocus on building up local capacity and letting local governments and communities determinesubproject interventions that are most suitable to their conditions.

Lessons Learned. Integrated area development projects had limited success and were

therefore discontinued. Nevertheless, the concept of focusing assistance on poor regions anddesigning multiple interventions to address various rural development needs continues to bewidely used in ADBs poverty reduction operations. The following lessons learned from theProject are therefore relevant to such operations:

(i) The top-down and supply-driven approach of consultants designing a subprojectwith beneficiaries being informed of the investment decision leads to weakownership and poor sustainability. A better alternative is to let beneficiariesdetermine subproject interventions with proportionate sharing of investment costsin cash.

(ii) Multiple interventions are needed for rural development and poverty reduction.To achieve real synergies, integration of project activities should be based on

client demand and conducted at the village level.(iii) Rural/area development projects are better implemented by local governments,

which are more attuned to the needs of their voters and the delivery of projectbenefits. National line agencies could participate as contractors to provideservices based on client demand.

(iv) Capacity building for local governments and social preparation for the poorshould be conducted prior to physical investment. Technical assistance from aidagencies could be used to build up local capacity prior to the design of loanprojects.

(v) Project monitoring should focus on project benefits rather than physical targets.Monitoring will be most effective and efficient if local governments andcommunities have strong incentives to perform this function.

(vi) Public investment in CISs tends to be overdesigned. This leads to inefficienciesand poor sustainability. Due to their small size, most CISs benefit the better-offgroups instead of the poor. A better alternative may be to encourage privateinvestment in CISs. With simple design and using local materials, privateinvestors can build CISs quicker, cheaper, and with better ownership andsustainability.

(vii) In areas frequently hit by typhoons, establishment of an emergency fund beforeconstruction of physical facilities (such as roads and CISs) is necessary toensure timely repair of damage. This approach will help screen out subprojectswith poor sustainability, as local governments or beneficiaries that are unable orunwilling to contribute to the emergency fund will likely be unable or unwilling totake care of the project facilities after construction.


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I. BACKGROUND

A. Rationale

1. The Second Palawan Integrated Area Development Project (the Project) was designedas a follow-up to the Palawan Integrated Area Development Project (PIADP).1 At the time of

project design, Palawan was one of the poorest provinces in the Philippines. By focusing onpoverty reduction in a less-developed region, the Project was expected to contribute to the dualobjectives of poverty reduction and balanced regional development, as stated in theGovernments Medium-Term Philippine Development Plan (19871992).

B. Formulation

2. A project preparatory technical assistance (PPTA)2 was completed in February 1990.The final report covered a wide range of topics in its country and sector analysis withoutthorough investigation of factors underlying the issues identified, such as persistent poverty andunequal income distribution. The report listed numerous investment proposals, some of whichwere included in the Project.

C. Purpose and Outputs

3. The Project aimed at developing land and water resources, increasing agriculturalproduction and productivity, creating employment, reducing poverty, improving the quality of lifeof subsistence farmers and fisherfolk, and arresting environmental degradation. The Projectcomprised seven components: (i) agricultural development, including crop intensification anddiversification, livestock development, and fishery support services; (ii) communal irrigationsystems (CISs); (iii) land survey and titling; (iv) infrastructure development, including roads andport; (v) social services, including an integrated health program, rural water supply, and womenin development; (vi) forestry and environmental stabilization; and (vii) project management.Components (ii), (v) and (vi) were to cover the entire mainland of Palawan Province, while the

rest covered mainly the northern part of the province (see Map).

D. Cost, Financing, and Executing Arrangements

4. Total project cost was estimated at $73.5 million at appraisal (Appendix 1), and financedby two loans from the Asian Development Bank (ADB): $25 million from the Asian DevelopmentFund and $33 million from ordinary capital resources, with the rest being financed by theGovernment. The Project involved seven executing agencies (EAs): the Department ofAgriculture, Department of Environment and Natural Resources (DENR), National IrrigationAdministration (NIA), Department of Health, Department of Public Works and Highways(DPWH), Department of Social Welfare and Development, and the Palawan Integrated AreaDevelopment Project Office (PIADPO). The latter was under the Office of the Provincial

Governor, acting as the focal point for project coordination and monitoring.

1

Loans 528/529-PHI(SF): Palawan Integrated Area Development Project, for $47.0 million, approved on19 September 1981.

2TA 1097-PHI: Palawan Integrated Area Development Project II, for an amount of $355,000, of which ADB financed$150,000 and the United Nations Development Programme financed $205,000, approved on 29 December 1988.


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E. Completion and Self-Evaluation

5. The Project was completed in December 1998. A project completion report (PCR), whichwas prepared by ADBs Agricultural and Social Sectors Department (East) and circulated in May2001, rated the Project partly successful. Although the objectives of poverty reduction andbalanced regional development were highly relevant and revised physical targets were largely

met, the anticipated outcomes were not fully achieved. The Project suffered significantimplementation delays, resulting in a reduced economic internal rate of return (EIRR) of 11.0%as against the appraisal estimate of 17.8%. The Projects sustainability was assessed as lesslikely due to insufficient funds for operation and maintenance (O&M). The Project had amoderate institutional impact on the national agencies and little impact on local governments.

6. The PCR identified a number of problems: (i) little demand for hillside farming, (ii) up to40% cattle mortality due to diseases and stress in transporting the animals to the project areas,(iii) underutilization of fish markets and quick deterioration in six out of nine fish-landing facilities,(iv) deletion of 7 out of 20 CISs due to technical problems and shortage of funds, (v) substantialincrease in cost of roads due to unrealistic cost estimation at appraisal, (vi) damage to roadsections because of poor drainage maintenance, (vii) repetition of the same mistakes as under

PIADP such as shortage of water in water-supply schemes, and (viii) poor O&M due to lack ofownership and funding.

F. Operations Evaluation

7. This project performance audit report (PPAR) assesses the Projects design,implementation, outputs, and impacts, and draws lessons learned for future operations. ThePPAR presents the findings of the Operations Evaluation Mission (OEM), which visited Palawanin July-August 2002. The OEM conducted (i) a desk review of project documents and records;(ii) discussions with relevant governmental officials, field staff, and local governments; and(iii) focus group discussions and interviews with beneficiaries and nonbeneficiaries in the projectareas.3 Copies of the draft PPAR were submitted for review to the National Economic

Development Authority and EAs as well as to ADB staff concerned. Comments received wereconsidered in finalizing the PPAR.

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

8. The Projects goals of poverty reduction and balanced regional development wereconsistent with the Governments development strategy and with ADBs operational strategy forthe Philippines. Its design was built on the experiences of PIADP, and incorporated some (butnot all) lessons learned from that project, such as setting up project management offices(PMOs) at the EAs provincial offices to speed up decision-making at the field level.

9. The design, however, had the following weaknesses. First, the Project was formulated in1989-1990 when PIADP was still ongoing. Although an assessment of the implementation ofPIADP was conducted at appraisal, the assessment was overly optimistic and not all problemswere reported. Consequently, many mistakes of PIADP were repeated under the Project, such

3

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


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as underutilization and poor sustainability of various extension centers, low survival rates ofanimals and crops introduced, and construction of water-supply schemes without producingadequate quantities of potable water.

10. Second, although the Projects goals were highly relevant, many of its components andactivities were not. Instead of addressing the key constraints in the project areas, the Project

expanded existing government programs such as animal dispersal without analyzing theirbenefits and problems, and repeated the same mistakes of these programs (para. 24).

11. Finally, the project cost was seriously underestimated at appraisal, leading to asignificant cost overrun that, in turn, made necessary a substantial reduction in project scope.As the project design did not call for a midterm review or include a mechanism for timelyreporting of problems, the cost overrun was reported in ADB only 1 year before the scheduledproject completion, forcing the Government and ADB to scale down some of the most valuablecomponents such as roads. This led to a significant reduction in benefits and social impacts.4

B. Achievement of Outputs

12. Because of the cost overrun and insufficient funds, the Projects physical targets wererevised substantially in 19951996. While the targets for some low-cost items were increased,5

those for capital-intensive items were reduced. For example, there was a 51% reduction in thelength of roads planned (from 579 kilometers [km] to 286 km), and a 35% reduction in thenumber of CISs (from 20 to 13). At completion, most of the revised physical targets were largelyor fully achieved (Appendix 2). In particular, the length of newly constructed and rehabilitatedprovincial roads was higher by 14% and 12%, respectively. Since roads were most important toPalawan, the Government used its own funds to complete 31 km that had been dropped due tothe cost overrun.

C. Cost and Scheduling

13. The cost overrun, first reported in ADB in September 1995, was estimated at $25.5million, or 35% over the appraisal estimate. The overrun was attributable to an unrealistic costestimation at the PPTA stage (footnote 2), when a unit cost of roads was assumed that wassubstantially below the actual cost experienced under PIADP (Appendix 3). 6 According toDPWH staff interviewed by the OEM, the issue of cost underestimation had been raised bythem during project preparation but was not taken into account in the project design. The OEMwas also told that, due to the mountainous terrain, many more bridges were required thanprovided for in the appraisal estimate. Consequently, the actual unit cost for roads was 34times higher in foreign currency and 57 times higher in local currency (because of the pesodepreciation).

14. To bring the costs into line with the appraisal plan, the ADB mission suggested a

substantial reduction in the physical targets (para.12). The revised scope was approved inNovember 1996, and the cost overrun on the Project was reduced to 14% at its completion,

4

When detailed engineering design, contract awards, and construction of the first set of roads and CISs werecompleted in 1992, the problem of insufficient budget provision was raised by PIADPO staff. However, the issue ofcost overrun was not reported by ADBs review missions until September 1995. As a result, there was no choicebut to complete subprojects that were ongoing or had been contracted without reprioritizing investment.

5Such as coffee, cashew, and mixed orchard, for which the Project provided only tree seedlings.

6Neither the PPTA report nor the appraisal report discussed the actual cost of road construction under PIADP orused that cost as a basis for the Project.


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including a 99% overrun in CISs and 133% overrun in roads and port development. The actualtotal project cost was thus $83.5 million, as against the appraisal estimate of $73.5 million(Appendix 1).

15. The Project was to be implemented over 6 years from 1991 to 1996. While there waspractically no delay in loan effectiveness, implementation suffered delays at all stages in all

components, resulting in a 2-year delay in overall completion. Major causes of the delaysincluded the protracted approval of project documents by the Government, slow release offunds in the first 3 years, a ban on hiring of new staff, a delay in the Governments approval ofthe change of project scope,7 and weak supervision by ADB staff.8

D. Procurement and Construction

16. All procurement was conducted in accordance with ADBs Guidelines for Procurement.Local competitive bidding was used for all major civil works with the exception of CISs, whereforce account was used due to a lack of interest by contractors. Procurement of vehicles waspooled together using international shopping, whereas procurement of other goods was handledby the concerned EAs. While the EAs rated the performance of contractors generally

satisfactory, deficiencies and incompleteness were reported by users of CISs (para. 31).Beneficiaries of water-supply schemes also expressed dissatisfaction with their quality(para. 45).

E. Organization and Management

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

III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

1. Agricultural Development

a. Crop Intensification and Diversification

18. Accounting for 11% of the actual project cost, crop intensification and diversification wasthe third largest component. It consisted of (i) planting cashew, coffee, and cacao andrehabilitating existing cashew as intercrops for coconut or mixed orchards (such as mango and

calamansi); and (ii) hillside farming with mixed orchards. To support these activities, 14 rural

7

The substantial reduction in project scope required the approval of the Cabinets Investment CoordinationCommittee, which was delayed by 9 months. Furthermore, it took time for the Government to search for additionalfunds to cope with the cost overrun as its financing share increased from $15.5 million to $25.2 million.

8For example, the back-to-office reports of ADBs review missions mainly updated physical progress withoutreporting issues. Discussions in these reports were almost the same in the first 4-5 years with the same conclusionthat there was no issue for higher-level attention. There was no midterm review, and the major cost overrun andthe consequent need to change the project scope were reported only in the fifth year of implementation.


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agricultural centers (RACs) were established with nurseries to provide tree seedlings. Asreported by the PCR, all physical targets of the revised plan were met or exceeded.

19. In spite of the good performance in meeting the physical targets, the overall results ofthis subcomponent were discouraging. First, since the soil/climate conditions and labor costvaried across subproject sites, the promotion of the same crops in all project areas did not work

well. In particular, the new cashew variety imported from Thailand had a low germination rate.The hillside farming was not attractive to farmers due to the high labor cost required. Somefarmers planted tree crops but did not spend time on maintenance and therefore had littleharvest 810 years after planting. Finally, the El Nino drought in 1998 destroyed many newlyestablished coffee, cacao, and cashew crops, while the native varieties and mixed orchardssurvived.

20. Second, the Project promoted the tree crops without careful market planning. Becauseof the mountainous and isolated geography of many subproject sites, transportation is veryexpensive. The low population density restricts the size of local markets, making marketing amajor constraint to agricultural development. Furthermore, the volume of coffee harvested in theproject areas is too small to attract traders. As a result, the price for fresh coffee beans is as low

as P16 per kilogram, which is insufficient to pay the labor for harvesting. For cacao, farmers arefurther restricted by limited knowledge of processing and a complete absence of local demand.

21. The 14 RACs were all constructed as planned; the construction quality was good. TheRACs were used as offices for field staff during implementation; training was conducted whenproject funds were used to transport trainees to the RACs. Since project completion, the RACshave been transferred to local governments. Although three RACs are currently used byagricultural staff as offices, the rest have discontinued operation due to local governments lackof funds. As none of the RACs receives regular budget support for O&M, many buildings aredeteriorating. Since their location depended on land donation, some RACs are located far awayfrom towns, making them expensive and impractical to use for training and demonstrationpurposes.

22. Farmer associations were organized to facilitate agricultural extension, with membersranging from 25 to 50 per group. Few of them, however, continued operation after projectcompletion. While the farmer associations received sufficient attention from extension workers,the nonmembers (who were the majority in a village) had little access to extension services.Restricted by limited staff, vehicles, and travel allowance, most extension workers seldomvisited farmers who were not association members.

b. Livestock Development

23. Livestock development accounted for 5% of the actual project cost. With an aim toimprove local breeds of livestock and provide draft animals for farming, this subcomponent

included construction of many livestock centers including a carabao (buffalo) breeding anddevelopment center, a swine breeding and development center, and a swine dispersalsubstation. Moreover, an animal diagnostic laboratory was established to strengthen theDepartment of Agricultures veterinary department, and a dairy pilot and demonstration farmwas set up to promote dairy production. A large budget was provided to procure cattle, swine,and poultry and distribute them to farmers free of charge. In return, beneficiaries were requiredto repay by offspring, which would be redistributed to other farmers.


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24. The physical targets were fulfilled. Together with the Governments past and ongoingprograms of animal dispersal, the Project contributed to a replacement of local livestock byimported or mixed breeds.9 The OEM, however, observed inefficiencies and other problems.First, the PCR reported a high cattle mortality rate (up to 40% in some areas) from stress duringsea and road transportation as well as due to diseases. Second, a low calving rate wasobserved due to a complete reliance on natural breeding as well as insufficient nutrition of

heifers; it took 35 years for most cattle to have their first offspring. 10 Third, many of thelivestock centers operated at high costs, and their performance deteriorated sharply after projectcompletion due to local governments inability to finance them. In particular, the swine breedingcenter was abandoned in 2001 due to insufficient funding. The dairy farm currently employsnine staff with only nine cows and nine yearlings, supported by a budget of P0.9 million from theDepartment of Agriculture. The farm produced milk products valued at less than P0.3 million in2001. The buffalo center occupies 120 hectares (ha) of land with only 77 buffaloes,underutilizing its land resources as well as the buffalo stock. Finally, due to the low calving rateand farmers reluctance to repay by offspring, the repayment rate under the cattle dispersalprogram was low, and the program benefited only 12% of households in the villages thatreceived animals. The OEM found that a major portion of the cattle recipients were local elitessuch as municipal officials, village captains, and presidents of farmer associations.

25. Livestock development is very important in Palawan, which is one of the few regions inthe Philippines that enjoys freedom from foot and mouth disease. However, it is more efficient topromote livestock development through private sector competition. Instead of governmentagencies directly engaging in the importing business and managing production entities,incentive schemes such as tax exemption could have been used to encourage privateimportation of livestock. To reduce the budgetary burden on the Government and to improveefficiency, the remaining livestock center and the dairy farm should be commercialized orprivatized.

c. Fishery Support Services

26. The fishery support subcomponent, which accounted for 2% of the actual project cost,aimed to reduce fish losses due to high spoilage by constructing nine fish-landing facilities andimproving/constructing nine fish markets. A diagnostic fish laboratory was established to detectfish caught by using explosives and poisonous chemicals.

27. The physical targets were fully met. However, six of the nine fish-landing facilitiesdeteriorated quickly after construction, as the timber used could not resist strong wavemotions.11 The OEM observed sustained fish landings in only two cases, namely themunicipalities of Coron and Busuanga, where local governments contributed additional fundsand constructed concrete fish landings. In San Vicente Municipality, the wooden fish landing isno longer usable in spite of a yearly budget of P0.2 million for maintenance and repair. Thatmunicipality has recently constructed a concrete fish landing, and the wooden one will soon be

wiped out by waves.

28. The OEM noted that most of the fish markets were underused due to their distance fromlocal markets. The diagnostic fish laboratory was constructed as planned. While the findings of

9 In San Vicente Municipality, it was estimated that about 50% of native cattle and 90% of native swine were

replaced by imported or mixed breeds. The achievement, however, could not be exclusively attributed to theProject as the Government had implemented animal-dispersal programs since the 1970s.

10In retrospect, the Projects design should have promoted artificial insemination to speed up breeding.

11 The normal lifespan for timber fish landing is 3-5 years.


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the laboratory were used as evidence for filing cases in court for apprehended violators, theProject did not include other activities such as motivating beneficiaries to monitor and reportillegal fishing activities.

29. Overall, the actual benefits of this subcomponent were limited. The OEMs discussionswith fisherfolk found that the key issues in the fisheries sector were destructive fishing and

widespread poverty among the poor who did not have basic fishing gear such as a paddleboat.In retrospect, the Project could have included more activities to control destructive fishing, 12 orprovided alternative livelihood activities, such as seaweed production, for poor fisherfolk.

2. Irrigation Development

30. With a share of 25% in the actual project cost, irrigation development was the secondlargest component. It was planned to construct 15 new CISs and rehabilitate five existing oneswith a total command area of 6,460 ha and an expectation of benefiting 6,460 farmers. Duringimplementation, seven CISs (four new and three existing) were dropped due to lack of technicalfeasibility or insufficient funds. Consequently, benefits had reached only 4,966 ha and 1,425farmers by project completion. As planned, irrigators associations were organized for the CISs

constructed.

31. The OEM visited the 13 CISs that had been constructed, and heard complaints fromfarmers about various deficiencies.13 Some irrigators associations refused to take over the CISsin view of their incompleteness. Most CISs suffered damage from typhoons, which was notrepaired due to lack of funds; command areas were further reduced, and farmers refused to paywater-use fees in view of the poor water supply.

32. Farmers were to pay 10% of the direct investment costs in kind (labor or materials) andrepay the remaining cost thorough amortization over 50 years. They were also to assumeresponsibility for the full cost of O&M after the CISs were turned over to them. During actualimplementation, farmers paid 10% of their wages when they were hired for CIS construction;

that contribution amounted to 23% of the direct investment cost. After completion, farmers paida water-use fee, half of which was used for O&M and half for amortization repayments. In spiteof the relatively low charges (less than 10% of the incremental rice production), the collectionrate ranged from 0 to 33%, with 10 of the 13 CISs collecting less than 10% of the required fees(Appendix 4). Since there were no measures to sanction those who did not pay, there was noincentive to encourage others to pay. Poor collection led to poor O&M and poor water supply,forming a vicious cycle of no payments and no water services.

33. In sharp contrast to that gloomy picture, the OEM observed an interesting case of privateinvestment in CIS. The Taberna CIS in El Nido Municipality had been included under the Projectbut was later dropped due to shortage of funds. At the request of farmers in that village, aprivate investor built the CIS in the midst of the El Nino drought in 1998. The CIS was

completed in only 2 months at a cost of P0.2 million, irrigating 70 ha at an average cost ofP3,000 per ha. This was in sharp contrast to the high investment cost of the CISs constructedunder the Project, which ranged from P9.8 million to P76.5 million per CIS, with an average cost

12

The OEM noted that recent initiatives by some local governments in controlling destructive fishing yielded anoticeable impact on improving fish catch by small fisherfolks within about 1 year.

13For example, the command area of the San Nicolas CIS in Coron Municipality was reduced from 80 ha asdesigned to 30 ha at completion as about 1 km of the canal was not lined by cement, which substantially reducedwater available for downstream users. In the Pinavamatan CIS in Coron Municipality, only 5 ha of additional landreceived water after the rehabilitation due largely to deficiencies in the CIS design and implementation.


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of P75,000 per ha.14 Although the private investor had agreed with farmers on a repayment feebefore construction, he could not enforce the agreement as NIA did not issue him a license tolegally operate the CIS.15 Some farmers took advantage of the situation and did not pay the feeas agreed. Later, damage caused by a typhoon reduced the water supply; the damage was notrepaired and thereafter the water supply benefited only 15 households compared with theoriginal 30.

3. Land Survey and Titling

34. To halt encroachment of forest areas and facilitate issuance of land titles under theGovernments agrarian reform program, PIADP supported the Governments cadastral surveyand land-titling program. To complete tasks left from PIADP, the Project included cadastralsurvey of 3,345 lots, isolated survey16 of 10,000 lots, and issuance of 20,000 titles. The target ofcadastral survey was revised to 1,679 lots during implementation.

35. The physical targets of this component, which accounted for 3% of the actual projectcost, were achieved, and the process of cadastral survey and land titling was accelerated. Thecompletion of the surveys provided a solid foundation for land planning and development in

Palawan, including the development of a comprehensive land use and water plan by eachmunicipality. Land title issuance also increased government revenue, as titleholders wererequired to pay past land taxes, registration fees, and a portion of the survey cost. The OEMconcurred with the PCRs finding that farmers appreciated very much the land titles, whichsecured their land ownership and could be used for loan collateral. DENR reported, however,that registration was pending for 3,046 land titles, as some farmers were unable (or unwilling) topay for the back land taxes. The OEM suggested that, to fulfill the objective of strengtheningland tenure, land titles could be issued to applicants without requiring immediate payment ofback taxes, with a note being attached to the issued land titles specifying the amount of taxliability of the titleholders.

4. Infrastructure Development

a. Roads

36. The roads subcomponent aimed to rehabilitate/construct 579 km of roads. The targetwas cut by half in 1996 due to the cost overrun and a shortage of funding. Later, theGovernment increased its financing to reinstate some of the roads that had been dropped(para.12). Nevertheless, at 32% of the actual project cost, roads development was the largestcomponent.

37. The OEM inspected 9 of the 13 roads completed under the Project. In general, theconstruction quality was acceptable; most roads appeared to have been well maintained,especially the national roads maintained by DPWH. However, the OEM observed some road

14 The OEM noted that the private CIS and the CISs constructed under the Project were not technically comparable

as the former used simple design with local materials (such as wooden boards) and the latter usually included apermanent diversion dam with steel gates. While the latter had better quality, duration, and higher standard ofsafety against floods, the former was more cost effective and easy to maintain and repair by farmers.

15 Although private investment on irrigation is allowed, applying for a license is difficult. In this case, NIA told theprivate investor that it would be easier if a cooperative instead of a private individual were applying for the license.

16Isolated survey is a small-scale survey for the purpose of original registration or subdivision of titled propertiesinitiated by individual claimants.


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sections that had been damaged by heavy rains, which had created big potholes. It appearedthat the drainage system in these sections was insufficient to cope with the large water flows.Poor maintenance of the drainage system was another cause reported by the PCR. The OEMalso found that some potholes were not repaired, leading to further deterioration.

38. The OEM was told that the budget for road maintenance was insufficient and had

declined since project completion when the roads were transferred to the province. Currently,the provincial government is transferring the budget and responsibility of maintaining provincialroads to selected municipalities on a pilot basis, as municipal governments are believed to havea stronger incentive to maintain roads due to pressure from voters. Furthermore, the cost ofroad maintenance is lower at the municipal than at the provincial level. Beneficiaries interviewedby the OEM welcomed this transfer as they considered it easier to communicate with municipalgovernments on road maintenance problems than with provincial agencies. There was,however, a concern that O&M funds might be diverted after devolution. Transparent measuresare needed to enable public monitoring of the use of the road maintenance budget.

b. Port

39. This subcomponent accounted for 6% of the actual project cost. Its purpose was toconstruct a breakwater and ancillary facilities to the port of Brookers Point, which was providedwith a concrete wharf under PIADP. Some parts of the wharf were damaged by a typhoon in1988, and the Project included the breakwater to protect the port from future typhoons. Whilethe construction works were completed satisfactorily, the cost increased from $0.9 millionestimated at appraisal to $4.7 million at project completion, due primarily to modification ofconstruction materials from boulders to concrete tripod as well as the provision of additionalfacilities such as a ramp, water supply, and an electricity system.

5. Social Services

a. Integrated Health Program

40. The integrated health subcomponent, which accounted for 5% of the actual project cost,was to (i) support the Governments ongoing malaria and tuberculosis-control programs;(ii) establish barangay (village) health stations (VHSs); and (iii) carry out nutrition and healtheducation programs. For malaria control, the PCR reported substantial reduction in the annualparasite index from 29/1,000 in 19841988 to 11/1,000 in 1998. This ratio, however, hasincreased again to 1418/1,000 in recent years, as many activities (such as house spraying andstream clearing) sharply declined since project completion due to insufficient financing.

41. The cost overrun and a shortage of funding led to a reduction of VHSs from 78 to 66.The OEM found that the VHSs benefited all households including the poor, and were highlyappreciated by beneficiaries and local governments; the latter provided resources to maintain

the stations. The major problem facing the VHSs was an insufficient supply of medicines, whichwere free to all who visited them. Very often, the monthly supply was only sufficient for 2 weeks;visitors who came late received prescriptions instead of medicines. As the very poor could notpay for medicines, they reverted to using traditional herb medicines. In retrospect, a policy couldhave been set to charge for medicines for all except for the very poor, who could have beenissued with an identification card for free medicine.

42. This subcomponent also supported an ongoing nutrition program, under which childrenof up to 7 years old were weighed and underweight children were identified. For children


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suffering from serious malnutrition, a feeding program was implemented in 19 villagesreportedly for 12 months. The OEM found, however, that due to insufficient budget, some of thetargeted children are currently fed under this program only 23 times a year, each time with onepack of compact food good for one meal for one child. The impact of such a feeding program istherefore difficult to discern. Nevertheless, the PCR reported a significant reduction inmalnutrition in Palawan from 31% in 1991 to 5% in 1998; such a trend was confirmed by OEMs

village survey findings. Since the major cause of malnutrition among children was poverty,health education programs and reduction in rural poverty in the past decade, albeit slow,probably contributed to the improved nutrition status.

b. Rural Water Supply

43. The water supply subcomponent accounted only for 2% of the actual project cost. Itaimed to rehabilitate one Level III and 81 Level I water-supply systems, and to construct537 new Level I schemes.17 Water user associations were to be organized to take care of O&Mof the systems after construction. At appraisal, this subcomponent was expected to benefit11,300 rural households.

44. The physical targets were met. The Level III system in San Vicente functions well and ismaintained by fees collected from beneficiaries. The OEM inspected a large number of Level Isystems and found only two wells being maintained adequately: as these wells produced good-quality water, beneficiaries contributed a monthly fee for maintenance. The OEM was also toldthat in one municipality (Araceli), the municipal government contributed counterpart funds andmonitored the construction of Level I systems, which worked satisfactorily.

45. Most of the other Level I systems, however, did not generate the anticipated benefits.The PCR reported that 37% of the new Level I systems were nonfunctional. Of the functionalsystems, about 70% produced water that was not potable due to high levels of iron andmanganese. The OEM estimates that only 3% of the Level I systems remain functional. Themajor cause of the failure was the target-driven approach of the contractors engaged by DPWH,

who focused entirely on fulfilling physical targets without sufficient attention to water availabilityand quality. According to the beneficiaries interviewed by the OEM, many of the wells yieldedwater that was not drinkable. As construction was carried out in the rainy season, many wellswere not deep enough to produce water in the dry season, and functioned for only a fewmonths.

46. A similar problem had been encountered under PIADP. The PCR mission of that projectreported in March 1991 that about 50% of the 456 wells constructed did not function or did notgenerate potable water. According to PIADPO staff interviewed by the OEM, this issue hadbeen pointed out to the appraisal and loan review missions of this Project, yet no adjustmentwas made to modify its design such as shifting to Level II water systems using spring watersources. Since the investment decision on the Level I systems had been made before

beneficiary consultation, the consultation served as information sharing rather than lettingbeneficiaries select their preferred investment. As the budget was directly allocated to DPWHbased on physical targets and contractors were hired by DPWH, local governments andbeneficiaries had no authority to monitor the quality of the construction work.

17

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


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c. Women-in-Development

47. The women-in-development subcomponent was to (i) identify and organize marginalizedwomen; (ii) build capacity through training; (iii) construct three centers for training women; and(iv) develop income-generating activities including seed capital for womens groups. Thissubcomponent was to benefit about 6,400 women in four municipalities and one city, and

accounted for 2% of the actual project cost.

48. The PCR reported that about 5,500 women were organized into 195 womenassociations, and P5.5 million seed capital was awarded to 1,190 women for livelihood projects.The repayment rate was as low as 31% in the initial years (19921995) but improved to 90% in19951997 after the adoption of a group-lending approach that used peer pressure from groupmembers to ensure repayment. The OEM interviewed a number of women beneficiaries, whoappreciated the financial assistance from the Project. The OEM found, however, that thesewomen received only a one-time loan repayable over 1 year, and most of them were womenwith existing businesses (albeit with low incomes) instead of marginalized women. Such amodification of project design was probably practical. The one-time loan was good for peoplewith existing businesses but not suitable for the poor, as it would be very difficult for a poor

woman to establish a new business with only a one-time loan. In retrospect, the Project couldhave focused on building up local institutions capable of providing long-term microfinanceservices, and nonpoor women could have received repeated loans on the condition that theywould help poor women by coaching them to establish livelihood projects.18

49. Three womens training centers were established as planned. The PCR reported that1,055 women were trained in food processing and other activities. While one center located inPuerto Princesa City has functioned well with strong support from the city government, the othercenters were seldom used due to their remote location as well as the womens lack of interest inthe training offered. Due to the high cost of training, including transportation costs to bring thetrainees to the centers, these centers were used only 23 times a year during implementation,and ceased to function after project completion. In retrospect, the project funds could have been

used to help more women in livelihood projects instead of building the centers, as training couldhave been conducted in existing venues instead of new centers.

6. Forestry and Environment Stabilization

50. This component was expected to be cofinanced by the European Union (EU) but wasdelayed by 5 years due to the EUs decision to wait for the formal adoption of the StrategicEnvironmental Plan for Palawan. That plan was adopted in 1992 and the component became astand-alone project of the Palawan Tropical Forestry Protection Program (PTFPP) financed byan EU fund of 17.0 million and implemented between 1995 and 2002. While the Project andPTFPP shared the same EA, namely the Palawan Council for Sustainable Development Staff(PCSDS), there was little cooperation between the two: the Project focused on Northern

Palawan and PTFPP focused on Southern Palawan. Even though the Project set up a numberof CISs in Southern Palawan, there was no effort to link the CIS construction to catchmentmanagement under PTFPP due to delays in PTFPP commencement.

18

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


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7. Project Management

51. The project management component, with a share of 4% in the actual project cost, wasto procure vehicles and office equipment for PIADPO, construct four district managementoffices, and provide consulting services to improve the management information systemdeveloped under PIADP. Each of the EAs was expected to conduct a benchmark survey on

their respective components.

52. These activities were implemented as planned. PIADPO was converted to PCSDS in1992. The conversion provided job security to the project staff and sustained the operation ofPCSDS after project completion with a regular budget from the Office of the President, butdiverted the attention of PCSDS from project implementation, as only 39 of the originallyplanned 118 staff worked exclusively for the Project, and the others were given otherresponsibilities such as assisting local governments in implementing the StrategicEnvironmental Plan for Palawan, a major government program in Palawan.

53. The management information system was modified from a budget and cost-basedsystem under PIADP to an activity and target-based one. Better results could have been

achieved if the system had focused more on results and benefits instead of physical targets. Forexample, rather than focusing on the number of wells constructed, the number of householdswith access to safe water before and after the Project could have been monitored. Such anapproach might have directed the attention of DPWH and its contractors to the quality of waterproduced.

54. The benchmark survey was conducted by the EAs with serious delays due primarily totheir lack of staff capable of conducting it. As the survey was completed in 1996only 2 yearsbefore project completionits results were of limited usefulness for comparing the before- andafter-project scenarios.

8. Technical Assistance on Agroprocessing and Rural Enterprises

55. A technical assistance (TA) grant was attached to the Project,19 with a view to attractingprivate sector investment in agriculture-based industries. The TA purposes were to (i) identifyagro-based industrial opportunities and prepare commercially viable investment projects in anumber of commodity categories including cashew, coffee, cacao, coconut, mango, fish and fishproducts, seaweed, feed and feed grains, livestock byproducts, and byproducts of rice milling;and (ii) recommend measures for the Government to improve the commercial attractiveness ofthe proposed investment projects.

56. The TA was implemented from July to December 1991. Profiles for typical enterprises innine commodity categories were prepared. In spite of PCSDS effort to disseminate thefeasibility reports through seminars, none of the proposed investments were taken up by the

private sector. The OEMs discussions with private producers and processors found that anumber of constraints had so far restricted agroprocessing in Palawan, such as the high cost ofelectricity, high transportation costs, small size of local markets, and small volume of the newlyintroduced crops like coffee that failed to attract buyers. Without addressing these issues, thefeasibility studies had limited usefulness to private investors. As the TA fulfilled its tasks but notits objective, it is rated partly successful by the OEM.

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


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B. Economic Reevaluation

57. The OEM has reestimated the EIRR for the entire Project and the crop, livestock,fishery, CIS, and road components (Appendix 5). The overall EIRR, which was estimated at17.8% at appraisal and 11.0% at project completion, is reestimated at only 3.7%. The EIRRs ofthe individual components range from negative for fisheries to 14.0% for roads. Several factors

have contributed to the sharp variances. First, the cost overrun forced a substantial reduction inphysical targets, including a cutback of 51% in roads and 35% in CISs. Second, low survivalrates in crops and animals reduced the anticipated benefits. Third, deficiencies andincompleteness in CIS construction and poor maintenance reduced command areas; insufficientwater supply restricted the realization of the anticipated increases in rice yields and cropintensity. Fourth, six of the nine fish-landing facilities have vanished completely while another isno longer usable.

C. Sustainability

58. The Projects sustainability varies by component: good prospects for most roads, theVHSs, and the concrete fish-landing facilities in Coron and Busuanga, for which the municipal

governments contributed a major portion of the investment. In contrast, the wooden fish-landingfacilities have vanished; most Level I water schemes ceased operation; many centers (RACs,womens training centers, and various livestock centers) are deteriorating; and all CISs sufferfrom inadequate maintenance and damage caused by typhoons.

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impact

59. The promotion of mixed orchard and hillside farming generated employment duringimplementation as unskilled labor was needed to clear the land and plant the trees. The positiveimpact, however, was only short term as many of the newly established cacao, coffee, and

cashew crops were damaged by the El Nino drought in 1998. The livestock component, bydistributing cattle, swine, and poultry to farmers, benefited 12% of the households in thevillages that received the animals. The poverty impact of that component was negligible as mostof the animals (especially cattle) were given to the better-off groups in the recipient villages. Theroad component not only generated employment during construction, but also opened up jobopportunities in outside areas. By reducing travel time and costs, the roads contributed toimproved marketing of agricultural and fishery products, provided better incentives for farmlanddevelopment, and improved access to social services. The national road rehabilitationcontributed to tourist development. In remote villages where sea travel was the only means oftransportation before the Project, local communities appreciated the road development most, assea travel was dangerous in times of bad weather. These benefits, however, were substantiallyreduced due to the cost overrun that reduced road targets by half (para.12). The port

component contributed to interisland transport within the province and between it and otherregions of the country.

60. The CISs substantially increased rice yields for farmers who received sufficient waterduring the dry season: they doubled rice outputs by planting two crops a year with higher yieldsin each crop. Due to the small size of the CISs and poor maintenance, however, the number ofsuch farmers was limited to about 10% households in the 13 villages that constructed them.


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61. The VHSs benefited all households including the poor in 66 villages, and facilitatedimplementation of the Governments health programs such as an educational campaign forsanitation, which, in turn, improved the health conditions of the poor. The support for theGovernments regular programs on malaria and tuberculosis control achieved impressive results(Appendix 6); without the Project these programs might have suffered insufficient financing. Thewomen in development component benefited some low-income women in four municipalities

and one city; the component could have generated better long-term impact if it had focused onproviding long-term microfinance services. The cadastral survey and land titling strengthenedland tenure for titleholders, and therefore provided better incentives for agricultural investment.

62. Although the Project did not include direct measures to target the poor, the OEMsvillage survey found reduced poverty in the project areas, albeit insignificant. The achievementwas probably due to the indirect impact of various project interventions, especially the increasedemployment opportunities brought about by the roads development, as well as other efforts bythe Government and aid communities, as Palawan has received numerous projects financed byexternal sources in the past decades.

B. Environmental Impact

63. While most project activities were of small scale and did not generate negativeenvironmental impacts, some roads constructed along the mountainous coastline causedsiltation and soil erosion. Provision for slope protection should have been included in thesubproject design to mitigate the environmental impact. In addition to the fish laboratory, theProject could have included active measures to control destructive fishing to maximize positiveenvironmental impacts. The CIS component could have included watershed management in theupstream areas.

C. Impact on Institutions and Policy

64. The staff capacity of PCSDS was strengthened through numerous training seminars as

well as learning-by-doing during the 8 years of project implementation. The Project also traineda large number of field staff from line agencies. While the majority of them were contractualpersonnel and left government services after project completion, a small portion of the best staffwas absorbed by national or local governments. The Projects impact on local governments wasinsignificant due to the lack of their participation in subproject design and implementation.Finally, the Project organized many beneficiary groups. Although the majority of them ceasedoperation after project completion due to a lack of continued support and interest, the capacityfor organizing groups remained and could be used for future projects when needed.

V. OVERALL ASSESSMENT

A. Relevance

65. The Projects objective of promoting development in a poor region was highly relevant.The project design, however, adopted a top-down and supply-driven approach withoutbeneficiary participation in subproject decisions and included less-relevant components such aslivestock procurement and dispersal. On balance, the Project is assessed as partly relevant.


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B. Efficacy

66. Most of the reduced physical targets were achieved. The objectives of developing landand water resources and increasing agricultural production and productivity were met in smallareas of farmlands where farmers received sufficient water supply from CISs. The objectives ofreducing poverty and improving the quality of life of subsistence farmers and fisherfolk were

achieved on a limited scale, and the achievement was due partly to other development efforts.The objective of arresting environmental degradation was achieved through PTFPP financed bythe EU. Overall, the Project is assessed as less efficacious.

C. Efficiency

67. As compared to PIADP, efficiency in implementation was improved by establishingPMOs at the provincial level. However, the Project expanded government programs withoutcorrecting their weaknesses and induced inefficiencies, such as distributing animals to farmersfree of charge, but at a high cost to the Government. The various centers had high costs andlow benefits; most of them ceased operation after completion with buildings remaining idle anddeteriorating. The wooden fish landings generated short-term benefits at high investment and

maintenance costs. The CISs could have been built at a much lower cost if beneficiaries hadstrong ownership and actively participated in subproject decisions to select the least-costsolutions. The Projects EIRR, which was estimated at 17.8% at appraisal and 11.0% at thePCR stage, has been reestimated at 3.7%. Overall, the Project is assessed as less efficient.

D. Sustainability

68. The project components with tangible benefits are likely to be sustained, such as mostroads, the port, the two concrete fish-landing facilities, and the VHSs that have been wellmaintained by local governments. The others have either vanished or ceased operation, suchas the wooden fish landings, most Level I water schemes, most nurseries, and the majority ofthe extension and training centers. The sustainability of CISs is poor due to farmers lack of

ownership and willingness to pay for O&M. Overall, the Projects sustainability is assessed asless likely.

E. Institutional Development and Other Impacts

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

F. Overall Project Rating

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


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G. Assessment of ADB and Borrower Performance

71. The Government and ADB formulated the Project with a view to reducing poverty andpromoting balanced regional development. As the Project was designed at a time when the top-down approach was prevalent, beneficiary consultation was limited to information sharingwithout participation in subproject decisions. In retrospect, the project design should have

conducted a more rigorous evaluation of PIADP to avoid repeating similar mistakes; costestimates should have been realistic; loan review missions should have reported importantissues such as cost overrun in a timely manner; and a midterm review should have beenconducted to enable timely adjustments to the project design. ADBs supervision improvedsubstantially in the last year of implementation, but this was too late to significantly alter theoutcome of the Project. ADBs performance is, therefore, rated unsatisfactory.20

72. The Government implemented the Project largely as planned and subsequently revised,although in retrospect, the EAs should have more proactively participated in the project designto avoid problems experienced under PIADP. Significant delays in implementation wereexperienced especially in the initial years due to protracted approval procedures, budgetaryconstraints, and slow release of funds, although improvements were made by 1993 in terms of

funds release. PCSDS coordinated with the EAs and monitored implementation with progressreports and PCRs submitted to ADB largely on time. Due to weaknesses in the project design,however, the monitoring overly emphasized physical targets without focusing on projectbenefits, and contributed to the less than satisfactory project outcomes. On balance, theGovernments performance is rated partly satisfactory,

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

1. Communal Irrigation Systems

73. As the CISs were designed by consultants and contractors without farmers participationin decision making or sharing of cash investment costs, farmers considered them a governmentproject without feeling any ownership, authority, or responsibility to monitor design andconstruction. As a result, many CISs were overdesigned with high investment costs. The lack ofmonitoring by beneficiaries led to construction deficiencies, incompleteness, and reduction incommand areas. The command areas were further reduced when damage caused by typhoonswas not repaired due to a lack of funds, leading to poor water supply and providing an excusefor not paying water-use fees. The leadership of most irrigators associations was weak; a lackof public monitoring of the use of water-use fees left room for misuse of the fees by associationleaders. Fee collection was low, leading to poor O&M and deterioration of the CISs only a fewyears after construction.

74. Future design of similar projects needs to develop measures to ensure farmers strongownership, which is key to success. One alternative is to make farmers treat the investmentfunds like their own money by requiring them to contribute a portion of the investment cost in

20

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


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cash (instead of in-kind or by labor) before construction.21 Proportionate sharing of cash costswill provide farmers with a strong incentive to select the least-cost solution and the authority toclosely monitor the CIS design and construction. A portion of farmers cash contribution couldbe set aside to establish an emergency fund to be used exclusively for timely repair of damageso that no one will have an excuse for nonpayment of water-use fees. Before construction,detailed O&M arrangements including such fees should be agreed upon and signed by every

beneficiary (instead of by irrigators association leaders only). A bank account should beestablished and collection of fees should start during construction (instead of after) so as tobuild up farmers discipline to pay, and to screen out those who do not pay. The funds collectedduring construction could be added to the emergency fund. Transparent procedures need to bedeveloped to enable public monitoring of fee collection and usage, such as regular publicationof the status of fee payments made by each beneficiary and the use of the fees collected.

2. Agricultural Extension Systems

75. The Project constructed 14 RACs to strengthen agricultural extension. The OEM found,however, that the RACs operated well only when project funds were available to transporttrainees to the centers. After project completion, most centers ceased operation due to local

governments lack of funds. In fact, the key constraint to agricultural extension was not a lack ofbuildings but shortage of extension staff. Due to limited budgetary resources, municipalgovernments could not finance a sufficient number of extension staff; their mobility was severelyrestricted by a shortage of vehicles and travel allowance. As a result, agricultural extension inthe project areas has so far reached only a few farmers associations, representing less than10% of the households in their villages. The majority of farmers, especially the poor, had littleaccess to technical advice in a timely manner. Future design of agricultural support servicesneeds to consider their long-term operation after project completion when no more project fundswill be available. Alternative measures to promote private sector participation and self-financedextension services could be explored.22

21

OEMs discussions with rice farmers found that they were willing to pay 15% cash contribution for CIS investment ifthe investment cost was reasonable (which, in turn, depended on close monitoring of CIS design and constructionby beneficiaries). The OEM also found that affordability was not an issue for CIS beneficiaries as they were thebetter-off groups in their villages. The benefits from public investment on CISs will greatly exceed their 15% cashcontribution, as rice production will be doubled with sufficient water supply.

22One alternative that may deserve consideration is to establish village-level extension units operated by privateinput suppliers. The investment cost of establishing such units could be provided under a project, but their long-term operation should be self-financed by the unit operators. This approach may include several steps. First,village-based candidates should be selected for training based on a strong commitment to staying in their villagesafter the training. Local communities should be motivated to select the best candidates. After the initial training, thebest trainees will be selected for intensive training on how to provide extension services to farmers. After the

training, the project will provide a small amount of initial capital (grant or loan as appropriate) to the trainees to helpthem establish small village units for extension services in conjunction with small businesses of input supply oroutput marketing. Revenues from the small businesses will be used to finance the long-term operation of theextension units. An affordable amount of fees will be charged for the extension services provided. The village unitswill be completely self-financing without budget support from national or local governments. The unit operators will,however, be provided with refresher training periodically to upgrade their knowledge and skills. Efforts will be madeto link them to government extension agencies, universities, research institutes, as well as input suppliers andtraders in cities. Finally, proper selection of the unit operators is key to success. Manipulation of the selection bythe local elite should be avoided; measures need to be developed to ensure that the operators will serve allfarmers including the very poor on a long-term basis. Due to a lack of proven experience, this proposal needs to bepilot tested before large-scale implementation.


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3. Subprojects Designed by Local Communities

76. Under the Project, subprojects were designed by consultants or contractors who did nothave full knowledge of local conditions. Implementation of a uniform component in vastlydifferent subproject sites restricted the effectiveness of the investment. In fact, it is very difficultfor consultants to design rural interventions that are suitable for all subproject sites. This is

particularly true for poverty reduction operations, as the causes of poverty andconditions/opportunities available for poverty reduction vary considerably across villages. Incontrast, the OEM found that local communities knew who the poor were in their villages andwhat key factors underlay the poverty, and had fairly good judgment of what measures wereworkable. The OEM also found that there were dynamic individuals among even the poorest,who could be trained and used for social mobilization of their peers. There were also nonpoorindividuals (such as owners of small businesses) who were willing and able to help the poor intheir villages in exchange for accessing project assistance such as microcredit. However, localcommunities were restricted by a shortage of capital and ideas; local governments capacity insubproject design, implementation, and monitoring was also weak.

77. Instead of a top-down approach, subproject design should focus on building up local

capacity and letting local governments and communities determine subproject interventions thatare most suitable to their conditions. This approach may start from motivating various socialgroups in a village and letting them identify their key constraints and determine investmentpriorities. Study tours to the best-performing subprojects could be organized to provideexposure to new ideas and exchange of experiences. Education campaigns may be conductedto inform the social groups of opportunities (such as available project funds in their villages),options, and responsibilities (such as ensuring project sustainability and reducing poverty intheir villages). To mobilize local resources and ensure ownership, matching funds from localgovernments and beneficiaries may be required as preconditions to accessing project funds.Nonpoor beneficiaries could be required to help poor households in exchange for accessingproject assistance. While funds will largely come from external resources, local communitiesshould be directly involved in reducing poverty in their villages.

4. Implementation Arrangements

78. In spite of the large number of agencies involved, project coordination was largelysmooth because PMOs were established at the provincial level and PCSDS was experienced ininteragency coordination. However, since the EAs received their budgets directly from theProject based on physical targets, local governments and communities did not have anyauthority to monitor the EAs services. As a result, some EAs focused on physical targetswithout sufficient attention to benefits generated; such an attitude contributed to poor resultsand inefficiency of some components.

79. Future design of rural development projects in the Philippines may consider alternative

measures. In conjunction with the Governments devolution policy, one alternative is to useprovincial government as the overarching EA with municipal governments as its field offices.Project funds could be allocated to local governments in accordance with their matching funds,investment proposals, and implementation capacity. Based on investment priorities identified bylocal communities, a local government could use its allocated project budget and matchingfunds to buy services from national line agencies (e.g., from DPWH for road construction).This approach will make line agencies more responsible to client needs while providing authorityto local governments and communities to monitor services provided by the line agencies.


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(ix) In areas frequently hit by typhoons, the establishment of an emergency fundbefore construction of physical facilities (such as roads and CISs) is necessary toensure timely repair of damage. Local governments and beneficiaries should berequired to contribute cash to the emergency fund. Regulations need to bedeveloped to ensure exclusive use of the fund for emergency purposes. Thismeasure will help screen out subprojects with poor sustainability, as local

governments and beneficiaries that are unable or unwilling to contribute to thefund will likely be unable or unwilling to take care of the facilities afterconstruction.

(x) Investment in extension or training centers needs to consider the real value ofsuch centers as well as factors that may reduce the expected outcome such asshortage of staff and operational budgets after project completion. In most cases,the key constraint to agricultural extension is not a lack of buildings or trainingvenues but shortage of staff and travel budget. Construction of unnecessarybuildings may add O&M burdens to local governments without improving farmersaccess to extension services.

(xi) When expanding a regular government program, its strengths and weaknessesneed to be carefully studied. Under the Project, the livestock program distributed

animals to farmers free of charge in the name of helping the poor, but ended upbenefiting a small number of the better-off groups at a high cost to theGovernment. As subsidies attracted influential people, the poor could notcompete with them in accessing project benefits.

C. Follow-Up Actions

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


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22 Appendix 2

Revised/ Actual/

Unit

At

Appraisal

As

Reviseda

Actual

Appraisal

(%)

Revised

(%)

A. Agricultural Development1. Crop Intensification and Diversification

New Planting of Cashew ha 3,500 3,480 3,377 99 97

New Planting of Coffee ha 350 437 437 125 100

New Planting of Cacao ha 301 120 120 40 100

Rehabilitation of Existing Cashew ha 3,000 4,069 4,069 136 100

Mixed Orchard ha 1,100 1,630 1,630 148 100

Hillside Farming ha 1,100 901 901 82 100

Construction of Rural Agricultural Center no. 14 14 14 100 100

On-Farm Demonstration Farm no. 139 130 130 94 100

2. Livestock Development

Buffalo Breeding Center (San Vicente) no. 1 1 1 100 100

Swine Breeding Center (Dumaran) no. 1 1 1 100 100Swine Disposal Substation (Cuyo) no. 1 1 1 100 100

Diagnostic Laboratory (Puerto Princesa) no. 1 1 1 100 100

Dairy Demonstration Farm (Puerto Princesa) no. 1 1 1 100 100

Procurement of

Heifer head 1,457 1,192 1,192 82 100

Bull head 75 79 79 105 100

Poultry Breeder head 9,100 8,003 8,003 88 100

Cara-Heifer head 80 120 120 150 100

Cara-Bull head 8 8 8 100 100

Boar head 5 6 6 120 100

Sow head 50 52 52 104 100

3. Fishery Support Services

Fish Landing Facility no. 9 9 9 100 100

Fish Market no. 9 9 9 100 100

Diagnostic Fish Laboratory (Puerto Princesa) no. 1 1 1 100 100

B. Irrigation Development

Total CISs no. 20 13 13 65 100

Rehabilitation of Existing CISs no. 5 2 2 40 100

Construction of New CISs no. 15 11 11 73 100

Total Command Area ha 6,460 5,300 4,966 82 94

C. Survey and Land Titling

Cadastral Survey lot 3,345 1,679 1,679 50 100

Isolated Survey lo