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Philippines: Second Rural Roads Improvement Project (Loan 2716-PH)

The Implementation Completion Report (ICR) on the Philippines Second Rural Roads Improvement Project (Loan 2716- PH, approved in FY86) was prepared by the East Asia and Pacific Regional Office and reviewed by the Operations Evaluation Department (OED). The loan in the amount of US$82 million was approved on June 10, 1986, and closed on December 31, 1995, three and a half years behind schedule. An undisbursed balance of about US$0.1 million was canceled. The Borrower's two implementing agencies contributed appendices to the ICR.

The project's main objective was to continue efforts, begun under an earlier project, to alleviate poverty in rural areas by improving farmers' and rural populations' access to markets and employment opportunities. Related objectives were to support land development and strengthen road sector institutions. To this end, the project comprised the following components: (i) upgrading to gravel standard of about 590 km of rural roads in three development areas; (ii) rehabilitation, upgrading and spot improvement of some 750 km of high priority inter-city roads in 14 provinces; and, (iii) the provision of maintenance equipment for the Ministry of Local Government (MLG) and for the Ministry of Public Works and Highways (MPWH). These components also included technical assistance, designed mainly to assist MLG with project implementation, and training.

The physical objectives were substantially achieved, although road works located in areas of civil unrest were only partially completed. Under part (i), the road investments were executed as originally designed, but several of the roads were completed after extensive delays and with completion times reaching up to five years from the date of the construction contracts. Delays were caused by inclement weather, shortage of funds, as well as periods of civil unrest. Some of the smaller project roads were located in hostile locations, often difficult to access, which reduced competition at the bid stage and led to acceptance of less competent contractors who ordinarily would not have been prequalified. Under part (ii), only about two thirds of the road length estimated at appraisal was improved. The shortfall was mainly due to frequent civil disturbances in the project areas, which led to unit construction costs 60 percent higher than originally estimated and to a high rate of contract terminations. Under part (iii), equipment was procured as foreseen at project appraisal and helped to improve the MLG's and the MPWH's capabilities for implementing the road maintenance program. The technical assistance, in addition to advising on project implementation, helped amend guidelines and manuals on the management of road maintenance and of equipment management which are in use nationwide. The training program was carried out as originally intended.

At project completion the Borrower carried out an economic analysis of road investments in four provinces under part (ii) of the project. The reestimated economic rate of returns range between 11 and 19 percent. By comparison, at appraisal, the overall economic rate of return for all three parts of the project was estimated to be 20 percent, with individual road investments in the various project areas having similar returns. The economic analysis at completion included an impact study which found that expected benefits concerning agricultural production, improved accessibility to services and reduction in transport costs had been substantially achieved.

OED rates the project's outcome as satisfactory and its institutional development impact as moderate, in line with the ICR ratings. OED agrees with the ICR in rating sustainability as uncertain, since there is no evidence of an institutional mechanism being in place that would guarantee that the required funding for maintenance will be available throughout the project life. OED downgrades Bank performance to unsatisfactory, since the risks of conducting parts of the projects in hostile areas were not properly assessed at appraisal and because, during implementation, the Bank was slow in giving clearances and many implementation delays could have been avoided had the Bank conducted more frequent field supervision missions during the project's start-up phase.

The main lessons from this project are the need (i) to design projects to minimize components exposed to security risks, and (ii) to plan and carry out more intensive supervision, particularly during the initial stages of project implementation.

The ICR is of satisfactory quality and contains a good discussion of the issues involved in the project's future operation. No audit is planned.

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