Local Government Unit Private Infrastructure Project Development by benbenzhou

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									Project Completion Report




PCR: PHI 32485




Local Government Unit Private
Infrastructure Project Development
Facility (Loan 1729-PHI) in the
Philippines




June 2005
                            CURRENCY EQUIVALENTS

                   Currency Unit      –     peso/s (P)

                                At Appraisal          At Project Completion
                              8 November 1999          14 September 2004
           P1.00        =         $0.0250                    $0.0178
           $1.00        =         P40.024                    P56.200


                                ABBREVIATIONS

       ADB          –       Asian Development Bank
       BOO          –       build-own-operate
       BOT          –       build-operate-transfer
       CCPSP        –       Coordinating Council for Private Sector Participation
       CRS          –       credit rating system
       DILG         –       Department of Interior and Local Government
       DMC          –       developing member country
       DOF          –       Department of Finance
       EA           –       Executing Agency
       GFI          –       government financial institution
       JBIC         –       Japan Bank for International Cooperation
       LBP          –       Land Bank of the Philippines
       LGFSD        –       Local Government Financial Services Department
       LGU          –       local government unit
       ODA          –       official development assistance
       PCR          –       project completion report
       PDF          –       project development facility
       PPA          –       Philippine Port Authority
       PSP          –       private sector participation
       PUD          –       Public Utilities Department
       TA           –       technical assistance
       TASF         –       Technical Assistance Special Fund
       TCR          –       technical assistance completion report




                                     NOTES

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


                                        CONTENTS

                                                                       Page

BASIC DATA                                                                    iii
I.     PROJECT DESCRIPTION                                                    1
II.    EVALUATION OF DESIGN AND IMPLEMENTATION                                1
       A.     Relevance of Design and Formulation                          1
       B.     Project Outputs                                              4
       C.     Project Cost                                                 5
       D.     Disbursements                                                5
       E.     Project Schedule                                             6
       F.     Implementation Arrangements                                  8
       G.     Conditions and Covenants                                     8
       H.     Consultant Recruitment and Procurement                       9
       I.     Performance of Consultants, Contractors, and Suppliers       9
       J.     Performance of the Borrower and Executing Agency            10
       K.     Performance of the Asian Development Bank                   10
III.   Evaluation of Performance                                          11
       A.     Relevance                                                   11
       B.     Efficacy in Achievement of Purpose                          11
       C.     Efficiency in Achievement of Outputs and Purpose            11
       D.     Preliminary Assessment of Sustainability                    12
       E.     Environmental, Sociocultural, and Other Impacts             12
IV.    OVERALL ASSESSMENT AND RECOMMENDATIONS                             12
       A.     Overall Assessment                                          12
       B.     Lessons Learned                                             12
       C.     Recommendations                                             14
APPENDIXES
1.     Project Framework                                                  16
2.     Project Outputs                                                    18
3.     Estimated and Actual Project Costs                                 22
4.     Chronology of Events                                               23
5.     Organization Chart during Project Implementation                   25
6.     Status of Compliance with Loan Covenants                           28
                                                                                           iii


                                      BASIC DATA

A. Loan Identification
   1.  Country                               Philippines
   2.  Loan Number                           1729
   3.  Project Title                         Local Government Unit (LGU) Private Infrastructure
                                             Project Development Facility
   4.   Borrower                             Land Bank of the Philippines
   5.   Executing Agency                     Land Bank of the Philippines
   6.   Amount of Loan                       Y314,745,000 ($3 million equivalent)
   7.   Amount of Grant                      $600,000
   8.   Project Completion Report Number     PCR: PHI 898

B. Loan Data
   1.  Appraisal
       – Date Started                        13 October 1998
       – Date Completed                      11 December 1998

   2.   Loan Negotiations
        – Date Started                       12 November 1999
        – Date Completed                     12 November 1999

   3.   Date of Board Approval               20 December 1999

   4.   Date of Loan Agreement               7 March 2000

   5.   Date of Loan Effectiveness
        – In Loan Agreement                  5 June 2000
        – Actual                             5 June 2000
        – Number of Extensions               None

   6.   Closing Date
        – In Loan Agreement                  6 June 2004
        – Actual                             14 September 2004
        – Number of Extensions               none

   7.   Terms of Loan
        – Interest Rate                      Floating interest rate, based on the Asian
                                             Development Bank's market-based loan facility for
                                             Japanese yen
        –   Maturity (number of years)       15 years
        –   Grace Period (number of years)   3 years

   8.   Terms of Relending
        – Interest Rate                      Variable interest rate based on prevailing
                                             commercial rate
        –   Maturity (number of years)       maximum 5 years
        –   Grace Period (number of years)   1 year
        –   Second-Step Borrower             Local government units with commercially viable
                                             project
iv



     9.    Disbursements
           a.   Dates
     Initial Disbursement                   Final Disbursement                            Time Interval
        30 October 2002                     14 September 2004                              22.5 months

          Effective Date                   Original Closing Date                          Time Interval
           5 June 2000                          6 June 2004                                 48 months



           b.     Amount ($ million)
Category                             Last                             Net
or                Original         Revised         Amount           Amount          Amount            Undisbursed
Subloan          Allocation       Allocation       Canceled         Available      Disbursed            Balance
Consulting           3                3               2.016            0.328           0.328             0
Services
   Total               3               3                2.016           0.328            0.328            0
Note: Y 314,745,000 ($3.0 million equivalent) at the time of loan appraisal. The difference between the $3.0 million and
      the total of $2.016 cancellation and $0.328 amount disbursed is due to exchange rate difference during the
      implementation.


   Category or Subloan                                           Amount                          Value Date
      (Application No.)                                         Disbursed
Consulting Services:
Application No. TA-001                                              79,117              30 October 2002
Application No. TA-002                                             118,830              24 April 2003
Application No. TA-003                                              26,834              7 May 2004
Application No. TA-004                                              36,473              28 June 2004
Application No. TA-005                                              40,552              2 September 2004
Application No. TA-006                                              26,501              14 September 2004
  Total                                                            328,307


C.        Project Data
          1.     Project Cost ($ million)
                Cost                        Appraisal Estimate                              Actual
                                        FX           LC            Total         FX           LC          Total
A.        Project Development          1.845         1.945        3.790         0.328        0.055        0.383
          Facility
B.        Capacity Building in         0.548         0.177        0.725         0.566        0.129        0.695
          LGU Financing
                   Total               2.393         2.122        4.515         0.894        0.184        1.078
FX = foreign exchange, LC = local currency, LGU = local government unit.
                                                                                                              v


       2.      Financing Plan ($ million)
                 Cost                           Appraisal Estimate                           Actual
                                               FX      LC       Total              FX         LC            Total
A.     Project Development Facility
       1.      ADB                           1.845        1.155      3.000       0.328       0.000          0.328
       2.      LBP/LGU/BOT                   0.000        0.790      0.790       0.000       0.055          0.055
               Subtotal                      1.845        1.945      3.790       0.328       0.055          0.383
B.     Capacity Building in LGU
       Financing
       1.      ADB                           0.548        0.052      0.600       0.566       0.004          0.570
       2.      LBP                           0.000        0.125      0.125       0.000       0.125          0.125
               Subtotal                      0.548        0.177      0.725       0.566       0.129          0.695
                      Total                  2.393        2.122      4.515       0.894       0.184          1.078
ADB = Asian Development Bank, BOT = build-operate-transfer, FX = foreign exchange, LBP = Land Bank of the
Philippines, LC = local currency, LGU =local government unit.


        3.      Project Performance Report Ratings
                                                                            Ratings

        Implementation Period                            Development                Implementation
                                                           Objectives                   Progress
From 1 Jan to 31 Dec 2000                           Satisfactory                 Satisfactory
From 1 Jan to 31 Aug 2001                           Satisfactory                 Satisfactory
From 1 Sep to 31 Oct 2001                           Satisfactory                 Partly Satisfactory
From 1 Nov to 31 Dec 2001                           Satisfactory                 Satisfactory
From 1 Jan to 28 Feb 2002                           Satisfactory                 Satisfactory
From 1 Mar to 31 Mar 2002                           Partly Satisfactory          Satisfactory
From 1 Apr to 31 May 2002                           Partly Satisfactory          Partly Satisfactory
From 1 Jun to 31 Dec 2002                           Satisfactory                 Partly Satisfactory
From 1 Jan to 31 Dec 2003                           Satisfactory                 Partly Satisfactory
From 1 Jan to 28 Feb 2004                           Satisfactory                 Partly Satisfactory
From 1 Mar to 31 Mar 2004                           Satisfactory                 Satisfactory
From 1 Apr to 14 Sep 2004                           Partly Satisfactory          Satisfactory


D.      Data on Asian Development Bank Missions
                                                                   No. of
                                                  No. of
 Name of Mission         Inclusive Dates                          Person-    Specialization of Members
                                                 Persons
                                                                   Days
                                                                     a
Reconnaissance          04–24 Mar 1997                4                      Investment officer
Mission                                                                      Senior financial analyst
                                                                             Programs officer
                                                                             Financial analyst
vi


                                                                      No. of
                                                       No. of
Name of Mission              Inclusive Dates                         Person-      Specialization of Members
                                                      Persons
                                                                      Days
                                                                          a
Follow-Up                   13 Oct–11 Dec                 4                       Private sector specialist
Mission 1                   1998                                                  Programs officer
                                                                                  Economist
                                                                                  Financial analyst
                                                                          a
Follow up                   24 May–30 Aug                 3                       Private sector specialist
Mission 2                   1999                                                  Counsel
                                                                                  Financial analyst

Loan Review                 24–30 Apr 2002                1              7        Governance specialist
Mission 1

Loan Review                 13 May 2002                   3              3        Senior financial
Mission 2                                                                         management specialist
                                                                                  Operations officer
                                                                                  Economics officer

Loan Review                 25–26 Jun 2002                2              4        Governance specialist
Mission 3
                                                                                  Operations officer

Loan Review                 1–5 Sep 2003                  1              5        Governance specialist
Mission 4

Loan Review                 21 Jul–9 Aug                  2              9        Senior financial
Mission 5                   2004                                                  management specialist
                                                                                  Operations officer

Project Completion          16 Nov–10 Dec                 2              20       Senior financial
Review b                    2004                                                  management specialist
                                                                                  Operations officer

a
     The actual number of days for the mission cannot be computed because the mission was carried out intermittently
     and the corresponding mission authorization requests, if any, can no longer be traced.
b
     The project completion report was prepared by Emma Yang, senior financial management specialist, and Hermie
     Bustamante, operations officer.
                                   I.   PROJECT DESCRIPTION

1.      In December 1999, the Asian Development Bank (ADB) approved a technical assistance
(TA) loan of $3.0 million equivalent and a TA grant of $0.60 million to the Land Bank of the
Philippines (LBP). The Project comprised two components: (i) Part A – Project Development
Facility (PDF), and (ii) Part B – Capacity Building in Local Government Unit (LGU) Financing.
Under Part A, a revolving credit facility was to be established in LBP to finance consulting
assistance to help LGUs solicit private sector participation in local infrastructure for project
preparation. The consultants were to provide services comprised Phase 1 of project feasibility
preparation and Phase 2 of bidding, evaluation, negotiations with, and contract awarding to
private sector participants in revenue-generating infrastructure projects. As for Part B, LBP’s in-
house capabilities were to be strengthened to finance LGU infrastructure projects with private
sector involvement through (i) improvement of the credit rating system by incorporating
governance criteria, (ii) training in private sector modalities, (iii) development of new credit
products and enhancements to catalyze private finance, and (iv) preparation for a possible
future ADB credit line. The project was classified to have economic growth as primary objective,
and environmentally it is considered a Category C project.

2.      The rationale for establishing the project development facility was based on the
government plan to devolve responsibility for providing basic infrastructure services to the
LGUs. With passage of Republic Act 7160, otherwise known as the Local Government Code of
1991, the primary responsibility for providing basic infrastructure services was devolved to
LGUs. But traditional sources of LGU financing (e.g., official development assistance, internal
revenue allotments, and local taxes) have been insufficient to meet their infrastructure needs.
Thus the Government seeks to supplement these financing sources by helping credit-worthy
LGUs with viable infrastructure projects to tap private sector financial sources. This could be
through straight borrowing or any of the Government’s private sector participation schemes,
including build-operate-transfer (BOT) or build-own-operate (BOO).

3.       The project’s overall goal was to support decentralization process and regional
economic development through increasing private sector funding of infrastructure projects at the
LGU level. Specifically the TA aimed at promoting good governance and enhancing LGU
capacity to prepare and bid infrastructure projects for private sector participation. The project
comprised (i) project development facility (PDF), a revolving credit facility enhancing LGU
capacity to prepare and tender suitable infrastructure projects for private sector participation,
and (ii) capacity building assistance to enhance the capacity of government financial institutions
(GFIs) to evaluate LGU project proposals for financing. Appendix 1 gives the project framework.


                   II.     EVALUATION OF DESIGN AND IMPLEMENTATION

A.     Relevance of Design and Formulation

4.      The project design was relevant in terms of consistency with the country’s development
objectives and ADB’s Philippine country program and strategy. To encourage regional
development and decentralization, the Government passed the LGU Code of 1991, which
empowered LGUs to finance and manage their infrastructure projects. This created a significant
demand for financial resources that could not be sufficiently covered by traditionally available
public sector sources. To supplement the traditional sources, the Government passed Republic
Act 6957 (amended by Republic Act 7718), otherwise known as the BOT Law, which allows the
private sector to finance, operate, and maintain infrastructure projects of creditworthy LGUs.
2



5.      Private sector participation in LGU infrastructure has been constrained by the lack of
LGU (i) capacity to prepare and tender projects for private sector participation; (ii)
creditworthiness, mainly because of poor public sector governance structures and limited
financing sources; and (iii) accessibility to long-term funds, because of shortcomings in the
country’s capital market. Thus, the Government has worked toward a financing framework to
optimize and supplement the financing available to LGUs for infrastructure projects by tapping
private sector sources.

6.     The PDF, established under Part A, supported the Government’s financing framework.
It was the initial component of a larger national PDF initiative to provide project preparatory
assistance to all government implementing agencies, at both national and local levels. The
Government had planned to expand the PDF and get financial support from other donors.

7.     The project design was in line with ADB’s Philippine country strategy and program,
which aimed to (i) broaden LGU institutional and financial capabilities to undertake development
programs and projects, and encourage private sector participation; (ii) support human resource
development and investment in basic needs; (iii) help improve the efficiency and performance of
LGU infrastructure delivery; and (iv) improve self reliance and lessen LGU financial dependence
on the Government.

8.      The Project was not properly implemented as envisaged during conceptualization. Few
LGUs identified during project preparation and implementation were properly assessed of their
understanding of the PDF and BOT schemes. Most LGUs were keen to finance feasibility
studies for their respective projects through grants, not loans. Thus, only 2 of the 30 identified
LGUs (17 during project processing and 13 during implementation) took advantage of the PDF.
Unfortunately, the first subproject was partially implemented, then subsequently canceled,
because of institutional differences among participating LGUs. But implementation of the
second subproject is underway, and completion is expected in the first half of 2005. But
because of the decision to close the loan account in 2004, financing for this subproject was
limited to Phase 1. Phase 2 is now financed by the LGU from a separate LBP loan. During
implementation, six main weaknesses in project design and formulation were identified:

       (i)     Limited facility coverage. Demand for credit to finance infrastructure was high,
               and LGUs were increasingly willing to borrow and assume responsibility for
               repayment of the loans. But most LGUs were not enthusiastic about the facility
               offered under the Project because (a) the PDF supported only the preparation of
               feasibility studies and bidding processes, but not the ensuing projects; and (b)
               the facility was limited only to revenue-generating projects that were deemed
               suitable for private sector participation. If the PDF were broadened to allow LGUs
               to obtain loans and undertake the infrastructure projects themselves, the take-up
               would probably have been far higher. But the BOT Center maintained that
               extending the facility would detract from the unique purpose of the BOT Law to
               promote private sector participation (PSP). This conceptual conflict between the
               target beneficiary and BOT Center was not anticipated when the Project began.

       (ii)    Non-familiarity with the build-operate-transfer modality. LGUs were still
               unfamiliar with the BOT concept promoted through the PDF, and were reluctant
               to enter into such contracts, given the poor track record and high-profile failures
               at the national level. To overcome this resistance, the Project had intended as a
               matter of strategy to use the first one or two sub-loans as demonstration cases to
                                                                                           3


        encourage further LGU participation. Thus, the Project would have fulfilled two
        purposes: to provide financing for the preparatory works, and to support policy
        reform to encourage partnerships of the public and private sectors. But because
        of delay in project implementation and the closing of the loan account in
        September 2004, without extension, the implementation of one of the two
        approved purposes was not fully completed in time to serve as a demonstration
        case.

(iii)   Insufficient marketing efforts. The agencies involved in the Project––LBP and
        the Coordinating Council for Private Sector Participation (CCPSP), which was
        later renamed the BOT Center by Executive Order 144––have promoted PDF
        through different approaches. The BOT Center tended to be more proactive in
        producing marketing materials and conducting orientation seminars for local
        government officials. But it was constrained by its limited staff and offices that
        were only in Manila. In contrast, LBP had a far broader reach through its regional
        lending centers, which were the first ports-of-call for local governments seeking
        financial assistance. Although the LBP headquarters had trained its staff at
        regional lending centers, the level of interest and understanding at the regional
        level remained too low to enable effective marketing of the PDF to LGUs.

(iv)    Availability of other and cheaper financing assistance. LGUs were reluctant
        to borrow for feasibility study, but wanted only to finance largely from grants or
        their own resources. The PDF even faced competition from other ADB projects
        (e.g., the Mindanao Basic Urban Services Sector), which provided grants for the
        feasibility study. PDF was offered at the prevailing commercial rates––the fixed
        rate at 11%––while LGUs could tap cheaper sources. LGUs generally failed to
        appreciate the distinction between fixed and variable rates, and simply opted for
        the cheaper funds. The LGUs also argued that since ADB provided the funds, the
        funds should be lent at concessional rates. Although LBP had expressed
        willingness to lower the PDF rate to make it competitive, it was only willing to give
        a variable, not a fixed, rate.

(v)     Unacceptable processes for consultant selection. The consultants were
        selected by LBP in accordance with the ADB Guidelines, and the team of
        consultants included international experts. A fundamental reason to provide
        international consultancy assistance to the Borrower was to protect LGUs from
        unsolicited private bids, low-quality feasibility studies, and nonqualified
        contractors. But LGUs still questioned the consultant’s selection processes, and
        the relatively high costs of international consultants just for feasibility studies.
        Discussions with potential recipients indicated that LGUs would have liked more
        participation in selection, and would have preferred cheaper local consultants
        with comparable qualifications.

(vi)    High market risk. The loan required the LGUs to assume full cost of the
        feasibility study in case there was no successful bidder for the projects. Once the
        project was successfully awarded, the LGU could pass the cost of the feasibility
        study to the winning bidder. Few LGUs would take on an expensive feasibility
        study in which successful bidding process was not guaranteed.
4


9.     Capacity building for the LBP under Part B was considered essential for project
implementation. The PDF program was new to both LBP and the LGUs. Thus, it was necessary
that LBP familiarize with the PDF concept so it could more effectively market PDF to the LGUs.

B.     Project Outputs

       1.     Part A. Project Development Facility

10.     At loan approval in December 1999, 17 potential projects were in the pipeline; another
13 subprojects had been identified during implementation. The loan was anticipated to finance
as many as 10 subprojects. But only two subprojects have been approved: the Davao del Norte
Integrated Water Resource Development Project, and the Modernization of Olongapo City’s
Public Utilities Department (PUD). The PDF funded only Phase 1 of both subprojects; their
status is discussed in the following paragraphs. Appendix 2 compares project outputs at
appraisal and completion, including a list of subprojects that did not materialize.

       (i)    Davao del Norte Integrated Water Resource Development Subproject. The
              consultant’s feasibility study was submitted to key officials of the six LGUs and
              the Davao provincial government for review and deliberation. But some
              stakeholders did not accept the feasibility study and recommendations.
              Concerned officials from two of the six water districts (Tagum and Panabo)
              rejected the institutional recommendation to discontinue the existing six water
              districts and combine them in a single provincial water district. Because of this,
              Davao del Norte and the six participating LGUs jointly agreed to pre-terminate
              their agreement with the consultants for implementation of Phase 2 of the
              subproject. Due to the termination of the feasibility study, the four water districts
              that accepted the consultant’s recommendation had turned to local water utilities
              administrations for financing support and received loans from their local water
              utilities administrations to rehabilitate their water distribution facilities.

       (ii)   Modenization of Olongapo City’s PUD Subproject. Olongapo City accepted
              the consultant’s report, including the recommendation for the employees’
              separation program for those employees affected by the PUD modernization, and
              those who want to voluntarily leave their government positions. To make the
              program effective, a premium over the legal separation pay will be offered to
              departing employees, based on their number of government service years.
              Departing employees will also be paid the monetary value for their leave credits.
              The separation program will become effective when the distribution system is
              turned over to the winning bidder. The city government will absorb employees
              that the private operator does not employ. In consultation with LBP, the
              consultants’ services under Phase 2 of the project will no longer be financed
              under the ADB loan. Instead, those services will be financed by the LBP-
              approved loan to Olongapo. Implementation of Phase 2 will be completed in the
              first half of 2005.

       2.     Part B. Capacity Building in Financing of Local Government Units

11.   Capacity building was supported by TA 3349-PHI: Capacity Building in Local
Government Unit Financing. The consultant’s final report was rated satisfactory, and the overall
                                                                                                                 5


rating of the TA was also successful since TCR focused on the delivery of outputs.1 It
summarized the work undertaken and the main finding, and proposed an innovative way to
catalyze LGU financing through a multifaceted, market-oriented approach. Recommendations
for improving LGU loan processing and administration were accepted, and LBP appreciated the
regional training provided. LBP considered the credit rating system developed under the TA an
excellent tool. A seminar on LGU financing and credit rating was well-attended by both the
public and private banking community, and was a key mechanism for promoting the TA findings.
Capacity building and training were accomplished through three 2-day regional seminars.
However by reviewing the TA outcomes at the time of completion of the loan, there are
concerns on the sustainability of the impacts of the TA.

C.         Project Cost

12.   At appraisal, the project cost was estimated at $4.515 million, but the actual project cost
was only $1.078 million (Table 1).

                                             Table 1: Project Cost

                                                      Appraisal                             Actual
                                                      Estimate                               Cost
Source                                        FX         LC           Total       FX          LC         Total

Part A: Project Development                 1.845        1.945       3.790      0.328        0.055       0.383
Facility
Part B: LBP Capacity Building               0.548        0.177       0.725      0.566        0.129       0.695
         Total                              2.393        2.122       4.515      0.894        0.184       1.078

FX = foreign exchange, LBP = Land Bank of the Philippines, LC = local currency.
Source: Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance
Loan and Grant to the Philippines and the Land Bank of the Philippines for the LGU Private Infrastructure Project
Development Facility.

13.    Of the total estimated project costs of $4.515 million for Parts A and B, ADB was to
provide $3.0 million equivalent as a TA loan for Part A and $0.6 million as a TA grant for Part B.
LBP was to provide $0.335 million; the BOT Center, $0.250; million; and LGUs, $0.330 million.

14.    Under Part A, the actual loan utilization was significantly lower than the appraisal cost
estimate. The significant disparity in cost is attributed to the lesser number of approved
subprojects. Only two out of the ten expected subprojects materialized, and ADB financing for
both subprojects was limited to phase 1 only. On the other hand, the activities of Part B were
implemented according to its schedule. The actual costs are within the estimated costs
projected during appraisal. A comparison of detailed cost estimates at appraisal and actual
expenditures are shown in Appendix 3.

D.         Disbursements

15.     The arrangement for disbursement of loan proceeds is appropriate. Consultants are paid
directly, based on approved billings. Such disbursements are booked to the relevant LGUs as
subloan disbursement under LBP’s PDF credit facility. No extension of loan closing date was
made in view of ADB’s decision to close the loan account on or before the Project’s original loan

1
    TCR was circulated to the Board on 25 July 2002. Document No. IN.176-02.
6


closing date of 6 June 2004, due to slow project implementation and the anticipation that there
would be no additional subprojects to be approved or implemented under the Project. LBP was
advised, and concurred with ADB’s decision. LBP was given a 3-month grace period to
complete the payment for the consultant’s remaining claims for the Olongapo City subproject.
The TA loan account was closed on 14 September 2004, with a total disbursement of $0.328
million and cancelation of an unutilized loan amount of $2.518 million.

E.     Project Schedule

16.      The Loan Agreement stipulated that both TA components were expected to commence
in the first quarter of 2000. The TA loan for Part A was expected to be committed over 3 years
with disbursement continuing as long as 12 months. Thereafter LBP’s PDF would continue
operating, financed by reflows of funds. Part B would be implemented over 18 months.
Appendix 4 chronologically lists major project milestones.

17.       The loan was anticipated to finance as many as 10 subprojects over 4.5 years, ending
in June 2004. But the Project has experienced significant delays in implementation due to
difficulties encountered by LBP and the BOT Center in getting the LGUs’ confirmation to avail of
the TA loan facility. The latter in turn is due to the LGUs’ (i) lack of appreciation of the BOT/PSP
policies; (ii) reluctance to access loans for pre-investment studies, especially with the availability
of grants for such studies from other financing facilities; and (iii) reluctance to pursue
infrastructure projects whose implementation usually goes beyond the 3-year terms of local
executives.

18.      Thus, the feasibility study for the first subloan to Davao del Norte was approved only in
June 2002, and was completed in January 2003. Phase 2 of the consultancy assistance related
to the preparation of tender documents. Evaluation and awarding were subsequently canceled
because the LGUs involved in the subproject failed to agree on the amalgamation of the water
districts under them. The second subloan agreement was signed by LBP and Olongapo City on
27 January 2004 for the rehabilitation and upgrading of the city’s system of electrical power
distribution. The feasibility study was completed and accepted by the City of Olongapo. The
bidding process began in December 2004 and is expected to be completed during the first half
of 2005.

19.      Under Part B, the target was to have at least five LGUs subprojects appraised for
possible financing by LBP, and recommendations for terms and conditions for a possible ADB
credit line to LBP to finance implementation of such subprojects. The key objectives of the credit
line were to (i) pioneer project financing approaches for LGU infrastructure, (ii) provide private
sector developers and project proponents with long-term peso-denominated debt, (iii) serve as a
catalyst for mobilizing commercial debt and equity, (iv) help develop more mature capital
markets through several successful project financing operations, and (v) create a credible
bridge to future use of municipal bonds and similar instruments for LGU infrastructure
development.

20.     Compared with the targeted five subprojects for possible ADB credit lines to LBP for
financing, no subprojects were actually financed by LBP to a private developer under this
program. The reasons behind it can be attributed to the following two main constraints:
                                                                                     7


1.   Organizational constraints. These were:
     a.    Actual implementation was constrained by the fact that some LGUs
           lacked the capacity to identify and submit subprojects. Such LGUs require
           effort and time to develop subproject proposals.
     b.    The TA component was a misnomer. Some LGUs initially expressed
           interest in Private Infrastructure Project Development Facility, thinking
           that it was a direct financial grant rather than a loan.
     c.    The onlending interest rate to LGUs on the PDF was higher than the
           internal LBP interest rate to LGUs to finance their projects.
     d.    The LGUs’ perceived that official development assistance (ODA) loans
           entail long and tedious processing procedures and requirements. Some
           LGUs stated that the targeted completion time of a project would never be
           accomplished if financing were from ODA loans.
     e.    Project implementation normally goes beyond the 3-year term of the local
           executives. Thus, previous marketing efforts were useless if newly
           elected executives did not support the Project. Re-marketing to create
           awareness of the PDF was necessary.
     f.    LGUs were not keen on accepting international consultants imposed on
           them. LGUs wanted a free hand in choosing consultants because they
           bear the burden of paying the loans.
     g.    Prudent private investors would not just bid on an LGU project, putting full
           trust on a feasibility study done by a third party unknown to them.
     h.    The consultant for the capacity building component recommended
           adoption of a revised computerized credit rating system (CRS) for LGUs.
           But CRS was found limiting because the proposed system classifies
           LGUs in only two categories: good and bad. In the present LBP system,
           LGUs are classified as prime, high-grade, medium-grade, and poor.
           Furthermore, the LBPs’ raw data on LGUs were not in a form that can be
           readily used by the system. Hence, there was a need for conversion. The
           data needed relies heavily on a number of updated inputs to be provided
           by the LBP field units, the LGUs, Department of Finance (DOF),
           Commission on Audit, Department of National Defense, and the National
           Economic and Development Authority. Without updated data from those
           agencies, the system will be ineffective. With consistency of the present
           CRS to existing LBP credit policies, LBP found no urgency to adopt the
           recommended revised CRS. However, with limitations, the present LBP
           CRSs for LGUs have been sufficient to address ADB’s current
           requirements.
     i.    The credit line proposal was considered innovative but LBP could not
           immediately implement it because: (i) there was no champion in DOF to
           implement it, due to changes in the Government; (ii) it was too early to
           implement the proposal because no project had yet been prepared under
           the PDF; (iii) economic conditions were not conducive to its
           implementation; (iv) the proposal was, in some ways, too innovative; and
           (v) LGUs had a negative perception of BOT projects.

2.   Implementation constraints. These were:
     a.    The onlending interest rate to LGUs on the PDF was higher than the
           internal LBP interest rate to LGUs to finance their projects.
     b.    Most LGUs sought only infrastructure financing. Local executives
           sometimes had difficulty justifying million-peso loans to their constituents
8


                      just to finance the feasibility studies, especially with no assurance that
                      private investors would participate in the BOT.
               c.     Project implementation normally goes beyond the 3-year terms of local
                      executives. Thus, previous marketing efforts were useless if newly
                      elected executives did not support the Project. Re-marketing to create
                      awareness of the PDF was necessary.
               d.     LGUs were not keen on accepting international consultants selected by
                      LBP and imposed on them. LGUs wanted a free hand in choosing
                      consultants because they bear the burden of paying the loans.
               e.     Prudent private investors would not just bid on an LGU project, putting full
                      trust on a feasibility study done by a third party unknown to them.
               f.     LBP considered the enhanced CRS an excellent tool, but did not adopt it,
                      mainly because it was inconsistent with ADB’s new priorities, caused by
                      reorganization and corresponding changes in management. LBP found it
                      unnecessary to follow the consultant’s recommendation, considering that
                      its portfolio with LGUs had done well and its lending centers’ personnel
                      were immersed with the LGUs. LBP felt that no enhanced CRS could
                      perform better than the frequent and physical interactions of ADB and the
                      LGU executives and staff.
               g.     The credit line proposal was considered innovative but LBP could not
                      immediately implement it because: (i) there was no champion in DOF to
                      implement it, due to changes in the Government; (ii) it was too early to
                      implement the proposal because no project had yet been prepared under
                      the PDF; (iii) economic conditions were not conducive to its
                      implementation; (iv) the proposal was, in some ways, too innovative; and
                      (v) LGUs had a negative perception of BOT projects.

F.     Implementation Arrangements

21.     The project implementation arrangements remained essentially as envisaged during
appraisal. For Part A, LBP, under its Local Government Financial Services Department
(LGFSD), established a PDF desk to be responsible for PDF relending operations, including
coordination with LGUs through LBPs’ regional centers and close coordination with the BOT
Center. But LBP reorganization, which resulted in transfer of original project officers and
personnel, greatly hampered PDF implementation. LGFSD was dissolved and its personnel
handling the PDF were transferred to other LBP branches or units. The LGUs’ loan-related files
were transferred to the area lending centers. The BOT Center, under its LGU and Project
Preparation Division, provided technical support for LBPs’ PDF operations. LGUs established a
project unit and assigned counterpart staff and facilities for project implementation. Appendix 6
gives the organization chart for project implementation.

22.    The consulting firm engaged under Part B, provided 28.6 person-months of consultancy
assistance, comprising 15.6 person-months for foreign and 13.0 person-months for domestic
consultants. The contract period was appropriate for the consultants to carry out their terms of
reference, which were designed to provide support for the accompanying TA loan.

G.     Conditions and Covenants

23.     The Executing Agency’s (EA) compliance with the loan covenants was partly
satisfactory. LBP could not effectively market the PDF because (i) LBP officers originally
involved in the Project were transferred to other branches or units; and (ii) concerned officers in
                                                                                                 9


some LBP branches were not aware of the PDF to be offered to LGUs. LBP also failed to
submit the quarterly progress report within the time specified in the Loan Agreement. Appendix
7 gives detailed compliance of the EAs with the loan covenants.

H.     Consultant Recruitment and Procurement

24.     Under Part A, an estimated 55 person-months of international and 220 person-months of
domestic consulting services would be required over the 3-year implementation period. An
international consulting firm would undertake the first year’s PDF activities, and consultants
might be engaged for the duration of project implementation.

25.    In February 2001, LBP engaged an international consulting firm to help the LGU
undertake the feasibility study of the identified subproject and all phases of tendering,
negotiation, and awarding of contracts. The consultancy agreement covers about 18 person-
months of international and 70 person-months of domestic consulting services. The consultants
were recruited in accordance with ADB’s Guidelines on the Use of Consultants.

26.      The total contract period for the consultants for the Davao del Norte project was 7
months. But the contract period was reduced to about 3 months because the stakeholders
terminated the consultants’ services because they could not agree with the consultants’
recommendation to close their respective water districts and create a new provincial water
district. For the Olongapo project, the consultants utilized a total of 3 calendar months for Phase
1, as envisaged in the contract agreement between LBP and the LGUs.

27.     Under Part B, an international consulting firm was engaged to provide 15 person-months
of services to LBP, to be supported by 15 person-months of domestic consulting services in the
areas of LGU finance, banking, law, and information technology. The total actual inputs of the
consultants were consistent with the appraisal estimate except for the domestic consultants,
where the actual inputs were short by 2 person-months. The consultants procured computers
and accessories with ADB’s approval. The consultants turned over the equipment to LBP on
completion of project implementation.

I.     Performance of Consultants, Contractors, and Suppliers

28.    The services provided by the consulting firm engaged under Part A of the project cannot
easily be measured because of the event that took place during implementation of the two
subprojects. In Davao del Norte, the consultants could complete only the feasibility study, but
not the second phase of the project, which involved bidding and contract award. Non-
implementation of the second phase is attributed to the refusal of two of the six LGUs to accept
the consultants’ recommendation to consolidate the six municipal water districts into one
provincial district. Because of this, the consultancy contract for Phase 2 was terminated
prematurely.

29.      For the second subproject, in Olongapo, the city accepted the consultants’ feasibility
report, including its recommendations. But because implementation of Phase 2 of the project
has slipped to 2005, subproject financing was limited only to Phase 1.

30.     The contract for Part B––LBP Capacity Building in LGU Financing––was not well
negotiated. The negotiations took more than a week because local representatives had no real
authority to negotiate and the team leader was not involved. Thus at inception, many problems
affected project implementation. The consultant team leadership and performance were not well
10


managed. There was no obvious support from a head office for review of work or support of
general implementation. The consultants’ performance is rated as satisfactory, overall, but there
was a problem. The affiliated consultant of the lead firm was rated marginal due to lapses in
coordinating with the BOT Center and late submission of revisions for the final report, which
significantly delayed submission of the final report. Overall, the consultant’s inputs were
appropriate in terms of design, quality, and quantity.

J.     Performance of the Borrower and Executing Agency

31.       LBP’s performance was considered partly satisfactory. In line with the Loan Agreement,
LBP was responsible for marketing the facility, with BOT assistance. But LBP’s marketing effort
was insufficient, particularly at the regional level. In fact, LBP had little incentive to market the
facility independently of other products that it offers. LBP mainly relied on the list of LGUs and
possible projects that the BOT Center provided.

32.     Both the LBP–LGFSD and the BOT Center should have been provided sufficient and
qualified staff and adequate resources to support the LBP–PDF credit facility during TA
implementation. But frequent staffing changes during implementation negated the knowledge
and experience gained by those earlier assigned to the Project.

33.     Before loan approval, the BOT Center assured LBP and ADB that a number of worthy
projects were in the pipeline. But most projects initially identified were canceled because the
sponsoring LGUs had either lost interest or could secure grant assistance from other funding
agencies. The 2001 election further hampered project marketing and implementation. Thus,
only two subprojects were approved before the TA loan was closed.

K.     Performance of the Asian Development Bank

34.     ADB’s overall performance is rated as partly satisfactory. ADB should have addressed
deficiencies in project design and formulation immediately when they became apparent, but did
not. ADB should have changed the project scope when none of the initial and subsequent
subprojects materialized in 2001, and no disbursements from the loan accounts were made.

35.     During early project implementation, ADB met with representatives of LBP and the
consultants to discuss issues and report requirements. Five review missions were subsequently
conducted. In 2001–02, ADB called tripartite monthly meetings of ADB, LBP, and the BOT
Center to share information, monitor progress, and deal with current issues. The possibility of
loan cancelation was discussed in country portfolio review meetings in November 2002 and
April 2003. Both LBP and the BOT Center reiterated the Project’s importance, and requested
more time to improve project performance, which ADB approved. ADB also approved LBP's
request to extend the consultants’ services––but only until May 2004, rather than August 2004,
as originally planned. Approval for contract extension was based on ADB's decision to close the
loan account on or before 6 June 2004, after completing payment for consultants’ services for
phase 1 of the Olongapo City subproject. Constant reminders to LBP were made relative to
submission of quarterly progress reports.
                                                                                                    11


                           III.    EVALUATION OF PERFORMANCE

A.     Relevance

36.     The overall Project is rated partly relevant. The Project’s objectives and scope, as
formulated at appraisal, were consistent with the Government’s framework for LGU financing
and ADB’s sector strategy for public governance and urban development. But the Project
suffered from a lack of EA ownership, and a lack of LGU interest. Deficiencies in project design
and formulation contributed to the limited achievement of project targets. Thus, Part A is rated
as partly relevant. As to the relevance of Part B, its design assumed successful implementation
of Part A. As the implementation of Part A was limited to the financing of only two subprojects,
in retrospect, Part B could not be most relevant.

B.     Efficacy in Achievement of Purpose

37.     The Project aimed to support regional development and decentralization by facilitating
private sector financing of infrastructure projects at the LGU level. Specific objectives were to
promote good governance and enhance LGU capacity to prepare and bid infrastructure projects
for private sector participation. To achieve the objectives, the Project was to (i) establish a
project preparatory financing mechanism for LGU-level infrastructure projects, (ii) enhance
GFI’s LGU financing capacity, and (iii) build capacity in LGU credit/governance rating.

38.    The first target was achieved to a limited extent. Although a project development facility
was established and consultants were engaged, LBP approved only two LGU infrastructure
subprojects.

39.     Most of the Part B objectives, for capacity building, were achieved. But the Project failed
to productively apply what had been learned to market the product because LBP had its own
funds to offer to potential borrowers, in competition with those that the Facility offered. Thus,
Part B, and the overall project is less efficacious.

C.     Efficiency in Achievement of Outputs and Purpose

40.      The Project was inefficient in achieving its targeted outputs, which were to (i) complete
feasibility studies and tender of at least 10 LGU-level infrastructure projects; (ii) train at least 10
LGUs and involve them in preparing and managing private sector projects; (iii) development of
LBP’s and other GFI capacity to appraise and finance projects, including expertise in credit
ratings; (iv) computerize and enhance LBP’s LGU financial information and credit rating
systems; (v) incorporate governance rating criteria in LBP’s credit rating system; and (vi) define
the proposed credit line to finance implementation of the LGU private sector project, and
appraise five projects. The target outputs for (i) and (ii) were marginally met, but LBP did not
properly address or implement the others, as the TA consultant recommended.

41.     Although LBP had undergone capacity building under Part B, that knowledge seemed to
have been used to evaluate LGU projects for financing with its own funds––not to market the
Project. No LGUs visited at project closing were aware of the PDF. Interviews revealed that no
one from LBP approached and promoted the Facility to them. Furthermore, LBPs believed that,
even if they had been aware of PDF, they still would not have used it because grant funds were
available to finance the feasibility study. Nor were the LGUs convinced of the privatization
concept. Most still perceived that local government––not the private sector––should undertake
public infrastructure projects.
12



D.     Preliminary Assessment of Sustainability

42.    Based on the small number of LGUs that used the loan facility, and the limited interest of
other LGUs, the sustainability of the PDF, in its current form, seems unlikely. Furthermore,
lending competition was not only from the other donor agencies but also from LBP, which was
entrusted with project implementation.

E.     Environmental, Sociocultural, and Other Impacts

43.      The Project, which only provides funding for the preliminary costs of conducting
feasibility studies, has had no direct environmental, sociocultural, or other impacts. The two
subprojects entailed no land acquisition or resettlement, or environmental issues, since ADB
funded only Phase 1 of the feasibility study.

44.    The two LGUs assured that the feasibility studies financed under the Project complied
with ADB’s environmental and social guidelines, including the policy on involuntary resettlement.

                 IV.     OVERALL ASSESSMENT AND RECOMMENDATIONS

A.     Overall Assessment

45.     Neither Part A nor Part B of the Project was properly implemented. In Part A, the Project
did not take off effectively because the LGUs’ were unwilling to borrow for feasibility studies.
Competition arose from other donor agencies, and from LBP itself, in several ways. First, a
number of donor agencies offered grants to finance feasibility studies. Second, LBP offered
financing for feasibility studies as part of its loan processing activities. In contrast, the fund that
the Project offered was a loan. Furthermore, the loan charged interest equivalent to prevailing
commercial rates, which was higher than the interest that LBP charged to its customers for
loans from its own funds.

46.     Part B was not successful. Although the grant was fully utilized to provide LBP staff
some degree of familiarity with the processing and evaluation of LGU projects with private
sector participation, LBP’s subsequent marketing of the Project was not effective. ADB’s closing
review of the prospective projects showed that few LGUs had been aware of the PDF.
Furthermore, in lieu of promoting the use of ADB funds, LBP used its own funds to finance
viable projects. Although it was implemented satisfactorily, output of Part B was not sustained
and it was not relevant to the development outcomes at the LGU level.

47.    Part A is rated unsuccessful, while Part B is partly successful. Overall, the Project is
rated unsuccessful.

B.     Lessons Learned

48.    The Project had valid objectives, but several essential factors were overlooked during its
conceptualization stage. Project implementation yielded the following major lessons learned that
should impact on design and implementation of similar loans in the future:

       (i)     Demand analysis of local government units. A thorough demand analysis of
               LGUs should have been conducted to ascertain target LGUs’ willingness to
               participate in the Project. To strengthen commitment, participatory approach
                                                                                               13


        during the design of such projects is absolutely necessary. The financial capacity
        of the identified LGUs to enter into loan agreements of several million pesos for
        preparation of feasibility studies and tender documents, which might or might not
        transform into actual LGU infrastructure, should have been examined first.

(ii)    Simpler implementation arrangements. Coordination between the LBP and the
        BOT Center during project implementation left much to be desired. Although the
        BOT Center was quite proactive in producing marketing materials and conducting
        orientation seminars for local government officials, its activities had limited impact
        as its staff and offices are located only in Manila. In contrast, although LBP has a
        far broader reach through its regional lending centers, which had been provided
        training, the level of interest and understanding at the LBP regional level
        remained low. The LBP regional representatives could have enhanced their
        capacities to market the product to LGUs by attending the training conducted by
        the BOT Center.

(iii)   Loan coverage and terms. The facility had limited focus in terms of activity and
        project eligibility. First, the facility offered loans only to finance feasibility studies
        and tender documents; it gave no funding for the ensuing project. Second,
        financing was restricted only for private sector projects and LGUs were not fully
        keen nor familiar or comfortable with bidding projects out. The interest of LGUs
        would probably have been higher if the facility had allowed financing for LGUs to
        develop local government infrastructure. There were also problems with the
        terms of lending in terms of higher interest rate and the lack of understanding of
        the advantages of fixed-rate borrowing.

(iv)    Mitigating political influence. The project design should have reflected a basic
        understanding of the dynamics of political cycles. Local leadership changed
        every 3 years, and the project selection process lay in the hands of the
        incumbent or newly elected local executives. More often than not, newly elected
        officials shelved projects that the former local executives initiated, especially if
        the officials belonged to different parties. Mitigating measures to alleviate the
        effects of political changes could have been included in the project design. For
        example, the project design could have minimized the risk of political interference
        by following the established division of work among government agencies, which
        designates the Department of Interior and local governments to assist in LGU
        infrastructure development. Furthermore, measures to alleviate negative effects
        of political changes could have been built into the design by adjusting the project
        schedule to mayoral terms.

(v)     Financial channels for LGUs. Local LBP branches were usually the first
        agencies that the LGUs approached when seeking funds for development
        projects. LBP loans include the cost of a feasibility study, so LGUs prefer to use
        GFIs. Thus, LBP’s role as a financial conduit should be carefully reviewed to
        minimize conflicts of interest.

(vi)    Earlier project termination. ADB could have insisted that the Project close in
        late 2002, when implementation progress was low and few potential subprojects
        had materialized.
14


C.     Recommendations

49.     The sector analysis and the basic rationale for the loan, as presented in the report and
recommendation of the President, remain valid. The framework for local government financing,
and particularly the ability of LGUs to access long-term financing for development projects, has
not changed since loan preparation. But LGUs do not appreciate the facility of providing loan
funds for feasibility studies on LGUs’ revenue infrastructure projects for private sector
participation. Furthermore, with cancelation of Phase 2 of the two PDF-funded subprojects, no
further follow up can be scheduled for the Project.

50.   Based on the key lessons learned from review of the Project, the following general
recommendations are made for future ADB projects:

       (i)     Thorough risk analysis. A risk analysis should be done during appraisal to
               assess risk that LGUs’ demand would not be available, analyzing the facility’s
               competitiveness, and other relevant factors.

       (ii)    Consistency in development plans for local government units. Many LGUs
               do not have comprehensive development plans, and changing political
               considerations influence their development priorities considerably. Newly elected
               mayors rarely follow their predecessors’ development plans. The average time
               from planning to operation of infrastructure projects usually exceeded a mayor’s
               3-year term. To ensure that loan funds are used efficiently and effectively, each
               LGU should establish a comprehensive development plan at participatory basis
               and linked to provincial and national development plans and integrated in the
               regional development plan. The LGU’s comprehensive development plan should
               be followed consistently, regardless of who is in charge of the administration.
               Furthermore, the Department of Interior and Local Government (DILG) may be
               used to monitor implementation of long-term projects.

       (iii)   Broader loan coverage. Discussions with stakeholders should continue, to
               develop a concept for local government finance facilities with broader coverage
               that can facilitate, but not be restricted to, BOT projects. In line with that, water
               districts and electrical cooperatives are suggested to be considered as eligible
               borrowers, subject to clearances from national regulators. Furthermore, the
               facility could be made more attractive if it allowed LGUs to access financing for
               infrastructure projects, not just for feasibility studies, although feasibility study
               preparation should always be a loan conditionality. Last, the facility could provide
               an element of risk-sharing for BOT projects if the feasibility study is sound to
               attract private sector.

       (iv)    Meet the needs of local government units. The financing facility for LGUs
               should not be complex. Similarly, the financing facility should support the
               immediate needs of LGUs. The terms and conditions, and procedural
               requirements, of LGU lending should be practical, without sacrificing control and
               other safeguard measures.

       (v)     Monitoring and coordination. The progress of project implementation should
               be closely monitored through regular meetings and reporting. The first loan
               review for this project was more than 2 years after loan approval. There were
               neither LGU interest nor disbursements, so ADB should have been more vigilant
                                                                            15


about the project implementation. There should be closer and more frequent
review of the project during implementation. Continuous dialogue and
communication is essential in a project with multiple stakeholders. A full-time
manager should be appointed to ensure project continuity and successful
operation.
                                                        PROJECT FRAMEWORK




                                                                                                                                                          16
           Design Summary                          Performance Indicators/Targets                      Monitoring              Assumptions and
                                                                                                       Mechanisms                  Risks




                                                                                                                                                          Appendix 1
Goals
• Support decentralization processes   • Increase private infrastructure investment and financing   • National statistics   • Continued government
  and regional economic development      at the LGU level                                           • Build-operate-          support for effective
• Increase private sector funding of   • Improve LGU governance                                       transfer (BOT)          LGU autonomy
  infrastructure projects at the LGU   • Improve efficiency of infrastructure provision               Center’s records      • Early recovery from
  level                                                                                               on private sector       the Asian currency
                                                                                                      participation           crisis
                                                                                                                            • Maintenance of
                                                                                                                              conducive
                                                                                                                              macroeconomic
                                                                                                                              environment
Objectives
• Enhance LGU capacity to prepare      • Establish a project preparatory financing mechanism for    • Technical             • Effective
  and tender suitable infrastructure     LGU-level infrastructure projects                            Assistance (TA)         implementation of the
  projects for private sector          • Enhance GFIS financing capacity                              progress reports,       TA
  participation                        • Build capacity of GFISs.in LGU credit/governance rating      review missions       • Long-term funds are
                                                                                                    • Project                 available for LGU
                                                                                                      Completion              infrastructure
                                                                                                      Report/TA             • LGUs build up
                                                                                                      Completion              capacity for
                                                                                                      Report                  infrastructure planning,
                                                                                                      (PCR/TCR)               project preparation
                                                                                                                              and tendering, and
                                                                                                                              negotiation with the
                                                                                                                              private sector
Outputs
• LGU project development facility     • Complete feasibility and tender of at least 10 LGU-level   • TA review             • LGUs utilize the facility
                                         infrastructure projects                                      missions and          • Costs can be
                                       • Train at least 10 LGUs, and involve them in preparing        progress reports        recovered
                                         and managing a private sector project                      • PCR/TCR
                                       • Develop LBP’s and other GFI capacity for appraising and
• Capacity building for Land Bank of     providing project financing, including credit rating
  the Philippines (LBP) and other        expertise
  GFIs, and a credit line facility     • Computerize and enhance LBP’s financial information
                                         and credit rating systems on LGUs
                                                      PROJECT FRAMEWORK—Continued.

            Design Summary                              Performance Indicators/Targets                          Monitoring             Assumptions and
                                                                                                                Mechanisms                 Risks

                                           • Incorporate governance rating criteria into LBP’s credit
                                             rating system
                                           • Define proposed credit line to finance LGU private sector
                                             project implementation, and appraise five projects
Activities                                 Inputs
• Project development facility             • TA loan for $3.79 million to cover 55 months of                • TA review             • Availability and timely
• Capacity building in LGU financing         international + 220 months of local consulting services          missions and            recruitment of qualified
                                           • TA grant for $0.73 million to cover 15 months                    progress reports        consultants
                                             international + 15 months domestic consulting services         • PCR/TCR               • Adequate counterpart
                                           • Total of $4.52 million                                                                   contributions by BOT
                                                                                                                                      Center, LGUs, and
                                                                                                                                      LBP
BOT= build-operate-transfer, GFI= government financial institution, LBP= Land Bank of the Philippines, LGU = local government unit, PCR= project completion
report, TA= technical assistance, TCR= technical assistance completion report,
Source: Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance Loan and Grant to the Philippines and the
Land Bank of the Philippines for the LGU Private Infrastructure Project Development Facility.




                                                                                                                                                                 Appendix 1
                                                                                                                                                                 17
18        Appendix 2



                                           PROJECT OUTPUTS

                       Table A2.1: Project Outputs at Appraisal and Completion

                    Appraisal                                            Project Completion

Part A: Project Development Facility
1. A revolving credit facility is established in      Subloans were made for the implementation of the two
   LBP                                                subprojects, but they did not become a “revolving”
                                                      credit facility.

2. Completed feasibility study and tender of at       Feasibility studies for only two subprojects completed
   least 10 LGU-level infrastructure projects         – the Davao del Norte Integrated Water Resource
                                                      Management Project and the Modernization of the
                                                      Public Utilities Department of Olongapo City

3. Train at least 10 LGUs and involve them in         At project closing, the two LGUs with approved
   preparing and managing private sector              subprojects had been involved only in overseeing
   projects                                           preparation of feasibility studies for their respective
                                                      projects. The PDF project had not been extended to
                                                      cover training of LGUs to manage their own
                                                      infrastructure projects.

Part B: Capacity Building in Financing of
Local Government Units
4. Develop the capacity of LBPs and other             The training and seminars on project appraisal were
   GFIs to appraise and provide project               completed on schedule, including the study tour to the
   financing, including credit rating expertise       United States.

5. Computerize and enhance the financial              The LGU financial information and credit rating
   information and credit rating systems of the       systems, designed by the LBP consultants, were
   LGUs of the LBP                                    completed. But LBP did not adopt the system,
                                                      preferring to continue to use its existing and well-
                                                      tested system that did not require LBP staff to undergo
                                                      familiarization processes.

6. Incorporate governance rating criteria in          Although “governance” rating criteria had been
   LBP’s credit rating system                         integrated into the credit rating system designed by
                                                      the consultants, the new system had not been used by
                                                      LBP for reasons given in item 5 (above).

7. Define proposed credit line to finance LGU         As in the rating system, the consultants had also
   private sector project implementation and          formulated the terms and conditions for a subsequent
   appraise five projects                             credit line from ADB to LBP and GFIs to the LGUs.
                                                      But because the Project had not been brought to the
                                                      point of financing, the proposed credit line facility had
                                                      not been established, nor used at all.

ADB = Asian Development Bank, GFI = government financial institution, LBP = Land Bank of the Philippines, LGU =
local government unit
                                                                                        Appendix 2          19



 Table A2.2: Current Status of Some of the Envisaged Subprojects Anticipated to be
              Supported under the Project at the Time of Project Design
                    Project                      Province/City                        Status


A. Luzon
1. Modernization of the Public Utilities        Olongapo City    The Regional Development Council approved
   Department                                                    the project on 24 November 2004. Bidding
                                                                 process in December 2004 while the
                                                                 evaluation of technical proposals tentatively
                                                                 scheduled for March 2005.
2.   Curimao First Port Project                 Ilocos Norte     Nothing happened on the project after its
                                                                 submission to the BOT Center. The current
                                                                 administration does not want to make a loan
                                                                 because of its limited resources. Thus, it
                                                                 prefers that the feasibility study be carried out
                                                                 through the grant.

3.   Public Market and Commercial Complex       Tarlac           The project is still on hold. Because of the
                                                                 stallholders’ nonacceptance of the
                                                                 recommendations in the feasibility study
                                                                 conducted by ITHIEL Corporation, the city
                                                                 council, through the recommendation of the
                                                                 city’s legal officer, revoked its contract with
                                                                 ITHIEL Corporation for construction of the
                                                                 public market. Contract revocation is now
                                                                 being reviewed by the proper court for
                                                                 resolution.

4.   Solid Waste Disposal                       Angeles City     The LGU is not aware of inclusion of the
                                                                 project under the loan facility. The feasibility
                                                                 study for the proposed project was already
                                                                 completed by NEDA and DILG. The head of
                                                                 CPDO were of the opinion that the project
                                                                 might have been included in the Clark Area
                                                                 Municipal Development Project.

5.   Bus Terminal                               Baguio City      The project is still on hold. The city
                                                                 administration cannot eject or demolish the
                                                                 existing structures in the proposed project site
                                                                 because of legal problems, including
                                                                 enormous costs that the city government
                                                                 would incur for ejecting the current tenants
                                                                 and for relocation.

6.   Provincial Administrative and Commercial   La Union         The LGU is not aware of the project inclusion
     Building                                                    under the loan facility. The proposed site has
                                                                 yet to be titled in favor of the provincial
                                                                 government. Financing of the feasibility study
                                                                 should be through a grant and the project
                                                                 could be implemented through BOT with minor
                                                                 variations.

B. Visayas
7. Capiz Inter-Municipality Water Supply        Capiz            The project did not push through because the
   System                                                        LGUs concerned do not have the resources to
                                                                 finance the initial estimated project cost. A pre-
                                                                 feasibility study, financed from other sources,
                                                                 was completed. The LGU would now like the
                                                                 full feasibility study to be carried out through a
                                                                 grant.

8.   Bacolod City Sanitary Landfill             Negros           The project is on hold. The current mayor does
20         Appendix 2


                         Project                   Province/City                        Status

                                                  Occidental       not have the city council’s full support to
                                                                   implement the project. The LGU was not
                                                                   aware of the facility, and would like for the
                                                                   project feasibility study to be carried out
                                                                   through a grant.

     9.   Cebu City Fast Ferry Terminal Project   Cebu City        The feasibility study was prepared through
                                                                   USAID. Project implementation did not push
                                                                   through because of changes in administration,
                                                                   and the abolition of the Cebu City Waterfront
                                                                   Commission.

                                                                   The LGU plans to build a ferry terminal, with
                                                                   private sector participation, under the build-
                                                                   operate-own scheme.

     10. Public Market and Slaughter House        Talisay City,    Implementation of Phase 1 of the project is
                                                  Cebu             ongoing, using the LGU’s own resources,
                                                                   while the national government has already
                                                                   earmarked P80 million to implement Phase 2.
                                                                   The LGU does not want to carry out the
                                                                   project through a loan.

     11. Babatngon Seaport Project                Leyte            A pre-feasibility study conducted by the
                                                                   Philippine Port Authority shows that the
                                                                   proposed project site, Babatngon’s municipal
                                                                   port, is not viable for development because the
                                                                   water along the project site is too shallow. An
                                                                   alternative site with deep water has been
                                                                   identified. But the location is open, and unsafe
                                                                   in bad weather. Also, the area is inaccessible,
                                                                   and the rugged terrain would make
                                                                   construction of an access road too costly to be
                                                                   feasible.

     C. Mindanao
     12. Lake Maugham: Mt. Parker Water System    Koronadal,       Neither the provincial nor city governments
                                                  Sarangani, and   were aware of the facility. A pre-feasibility
                                                  South            study was conducted and submitted to NEDA
                                                  Cotabato         for consideration in 2000, but no response has
                                                                   been received. The proposed project is no
                                                                   longer included in the pipeline of the provincial
                                                                   government.

     13. General Santos City Public Market and    General Santos   In lieu of the proposed project, the LGU is now
         Commercial Complex                       Ciry, South      undertaking construction of the integrated bus
                                                  Cotobato         terminal and commercial complex, using its
                                                                   own resources. A foreign consulting firm
                                                                   (Quimonix) conducted the feasibility study.

     14. Sta. Ana Port                            Davao City       Modernization of the Sta. Ana Port is on hold
                                                                   because the same is currently under PPA
                                                                   jurisdiction. To rehabilitate the port, the Davao
                                                                   City government is considering three options:
                                                                   (i) to enter into agreement with the PPA for the
                                                                   city government to administer the port for 25
                                                                   years, with an option for renewal; (ii) the PPA
                                                                   will return the port to the city government;; or
                                                                   (iii) the national government will be requested
                                                                   to issue a presidential decree putting the Sta.
                                                                   Ana port as part of the economic and industrial
                                                                   zone.
                                                                                               Appendix 2        21



                      Project                          Province/City                         Status

    15. Integrated Water Resource Development         Davao del Norte    Project implementation did not push through
        Project                                                          due to strong objections from current boards of
                                                                         the Tagum and Panabo water districts about
                                                                         the consultants’ recommendation to abolish
                                                                         the local water districts and create a new
                                                                         national water district.

                                                                      Considering the above, each of the four LGUs
                                                                      that participated in the proposed project
                                                                      obtained a loan from Local Water Utilities
                                                                      Administration for rehabilitation of their water
                                                                      districts.
BOT = build-operate-transfer, CPDO = City Planning Development Office, DILG = Department of Interior and Local
Government, LGU = local government unit, NEDA = National Economic and Development Authority, USAID = United
States Agency for International Development
Source: Back-to-office report of PCR Mission for Loan 1729-PHI: LGU Private Infrastructure Project Development
Facility.
22       Appendix 3


                          ESTIMATED AND ACTUAL PROJECT COSTS
                                         ($'000)

                                                         Appraisal Estimate             Actual
Component                                        FX        LC       Total      FX       LC         Total

A. Part A: Project Development Facility
        1. Financed by ADB
            i. Consultants                       1.430     0.990     2.420     0.328    0.000     0.328
            ii. Computer and Office Equipment    0.060     0.000     0.060     0.000    0.000     0.000
            iii. Reports and Communications      0.115     0.000     0.115     0.000    0.000     0.000
            iv. Contingencies                    0.240     0.165     0.405     0.000    0.000     0.000
                                 Subtotal (1)    1.845     1.155     3.000     0.328    0.000     0.328
        2. Financed by LGU/BOT/LBP
            i. Counterpart Staff                 0.000     0.381     0.381    0.000     0.055     0.055
            ii. Office Space                     0.000     0.192     0.192    0.000     0.000     0.000
            iii. Local Transport                 0.000     0.114     0.114    0.000     0.000     0.000
            iv. Contingencies                    0.000     0.103     0.103    0.000     0.000     0.000
                                 Subtotal (2)    0.000     0.790     0.790    0.000     0.055     0.055
                                 Subtotal (A)    1.845     1.945     3.790    0.328     0.055     0.383

B. Part B: Capacity Building in LGU Financing
        1. Financed by ADB
           i. Consultants                     0.399        0.045     0.444     0.518    0.004     0.522
           ii. Computer and Office Equipment 0.025         0.000     0.025     0.015    0.000     0.015
           iii. Overseas Study Tour/Seminar   0.040        0.000     0.040     0.033    0.000     0.033
           iv. Reports and Communications     0.010        0.000     0.010     0.000    0.000     0.000
           v. Contingencies                   0.074        0.007     0.081     0.000    0.000     0.000
                                Subtotal (1)  0.548        0.052     0.600     0.566    0.004     0.570
        B. Financed by LBP
           i. Counterpart Staff               0.000        0.065     0.065     0.000    0.084     0.084
           ii. Office Space                   0.000        0.023     0.023     0.000    0.038     0.038
           iii. Seminar Expenses              0.000        0.020     0.020     0.000    0.003     0.003
           iv. Contingencies                  0.000        0.017     0.017     0.000    0.000     0.000
                                Subtotal (2)  0.000        0.125     0.125     0.000    0.125     0.125
                                Subtotal (B)  0.548        0.177     0.725     0.566    0.129     0.695
                                Total         2.393        2.122     4.515     0.894    0.184     1.078
ADB = Asian Development Bank, BOT = build-operate-transfer, FX = foreign exchange, LBP = Land Bank of the
Philippines, LC = local currency, LGU = local government unit,
Source: Asian Development Bank estimates.
                                                                                     Appendix 4      23



                                 CHRONOLOGY OF EVENTS


        Dates                                           Events
1996
   16–18 May          – Reconnaissance mission
   6 September        – Project brief discussion
   13 September       – Concept clearance and approval of small–scale PPTA

1997
   4–24 March         – Follow-up reconnaissance mission
   25 June            – Project brief forwarded to LBP
   25 July            – Informal interdepartmental meeting to discuss the revised project
                        concept
   13 August          – Circulation of draft RRP for interdepartmental comments
   02 September       – Receipt of addendum on the consultant’s report for PPTA
   12 September       – Receipt of LBP’s comments on project brief
   8 October          – Receipt from the LGU BOT financial adviser of the list of LGU projects
                        that might be eligible for financing under the proposed project
   12 December        – ADB provided DBP with SSTA to (i) provide initial training for DBP
                        staff in limited recourse finance concepts, (ii) assist DBP in identifying
                        suitable pipeline projects for financing under the proposed LGUIF, (iii)
                        advise DBP on financing of at least two pipeline projects, and (iv)
                        assess the regulatory framework for private sector participation in
                        water projects at the LGU level

        1998
   13 October–        – Follow-up reconnaissance mission carried out intermittently
   11 December

1999
   22 January         –   Request to publish the project in ADBBO
   20 April           –   Circulation of first draft of the RRP for interdepartmental comments
   24 May–30 August   –   Follow-up reconnaissance mission carried out intermittently
   14 October         –   Staff review committee meeting
   25 October         –   Submitted draft RRP for editing
   3–04 November      –   Loan negotiations
   23 November        –   Circulation of Board documents
   20 December        –   Loan approval

2000
   7 March            –   Loan signing
   21 March           –   Submission of draft legal opinion by LBP
   6 April            –   LBP submission of short list of consultants
   12 April           –   CSC meeting was held to review the proposed short list of
                          consultants and invitation documents
   31 May             –   LBP was advised about the extension of the date of loan
                          effectiveness until 5 Jun 2000
   1 June             –   Submission of final legal opinion
   5 June             –   Loan effectivity
   1 August           –   Submission of the quarterly progress report for April– June 2000
   8 August           –   Submission of the evaluation of technical proposals and ranking of
                          short-listed firms
   16 August          –   ADB conveyed its approval on the evaluation of technical proposals
24        Appendix 4



          Dates                                                Events
                                 and ranking of firms
     7 September             –   Submission of draft consultancy agreement for ADB’s review
     12 September            –   ADB forwarded its comments on the draft consultancy agreement
     7 November              –   LBP submitted the results of contract negotiations with the first-
                                 ranked firm
     11 December             –   LBP was advised to finalize the contract with the first-ranked firm


2001
   6 February                – Submission of consultancy agreement
   19 April                  – Submission of the quarterly progress reports for July–September
                               2000, October–December 2000, and January–March 2001
     16 October              – Submission of the TA agreement between the Davao del Norte
                               Province and CCPSP for the Integrated Water Resource
                               Development Project

2002
   28 February               – Submission of the quarterly progress reports for April– June 2001,
                               July–September 2001, and October–December 2001
     24 April–13 May         – Review mission carried out intermittently
     25–27 June              – Special loan administration mission
     14 August               – Issuance of notice to proceed to consultants
     24 September            – Submission of the quarterly progress reports for January–March 2002
                               and April–June 2002
     9 December              – Submission of the quarterly progress report for July–September 2002


2003
   20 January                – Submission of the quarterly progress report covering October–
                               December 2002
     10 February             – Special loan administration mission
     23 March                – Submission of the quarterly progress report covering January–March
                               2003
     1–5 September           – Review mission

2004
   26 July                   – Submission of the quarterly progress reports for January–March 2004
                               and April–June 2004
     21 July–9 August        – Review mission carried out intermittently
     14 September            – Closing of loan account
     16 November–            – PCR mission carried out intermittently
     10 December
ADB = Asian Development Bank, ADBBO = Asian Development Bank Business Opportunities, BOT = build-operate-
transfer, CCPSP = Coordinating Council for Private Sector Participation, CSC = Consultants Selection Committee,
DBP = Development Bank of the Philippines, LBP = Land Bank of the Philippines, LGU = local government unit,
LGUIF = Local Government Unit Infrastructure Facility, PCR = Project Completion Report, PPTA = project
preparatory technical assistance, RRP = report and recommendation of the President, TA = technical assistance
                                                                                               Appendix 5      25


              ORGANIZATION CHARTS DURING PROJECT IMPLEMENTATION

                                 Figure A6.1: Land Bank of the Philippines

                                                 Board of Directors



                                        President & Chief Executive Officer



                    Legal Service Group                                        Internal Audit Group



                        Strategic Planning                                   Risk Management Group
                              Group


                  Technical Management
                         Group                                                 Trust Banking Group




Institutional Banking           Agrarian & Domestic                 Operations Sector/              Corporate Services &
        Sector                    Banking Sector                     Executive Sector                Subsidiaries Sector




                                   Program Management
                                       Department


                               Assistant Vice President




                                Project Manager for the
                                Asian Development Bank



  Notes:
  1. Figure A6.1 presents only the sectors and groups comprising the units of the Land Bank of the Philippines and
      the specific personnel involved in the LGU Private Infrastructure Project Development Facility.
  2. From 2000 to 2002, the Project Management Department was known as Local Government Financial Services
      Department, and the project manager was Alvie Marantan.
  3. In June 2004, Gene David replaced Elsa Lim as project manager. For the project duration, the project managers
      technically had no assistants directly involved in the project implementation.
 26      Appendix 5



                            FIGURE A6.2: BOT CENTER (FORMERLY CCPSP)

                                                CCPSP Chairman                               CCPSP Council Members


                                               Executive Director                            PDF Steering Committee
                                                                                          Oversight & Implementing Agencies



Deputy Executive Director                    Deputy Executive Director                         Project Development
Technical Services Group                     Program Support Group                                   Officers




                                             Marketing & Resource
                                              Mobilization Group

                                                    BOT Center
                                                    OIC-Director




                          Project Assistant                            Project Assistant




 Notes:
 1. Figure A6.2 presents only the major groups comprising the units of the BOT Center (formerly Coordinating
     Council for Private Sector Participation) and the specific personnel involved in the LGU Private Infrastructure
     Project Development Facility at the time of project closing review.
 2. During project implementation, several major changes affected the unit directly involved in the project, including
     the change in unit name, personnel involved, and the transfer from the Technical Services Group (formerly the
     Project Development Division) to the Program Support Group. But, in all instances at least two staff, in addition
     to the supervisor, were assigned to the Project.
 3. From 2000 to 2001, the Project Development Facility (PDF), under the Project Development Division (later
     renamed the Technical Services Group), handled the Project. In November 2002, the unit was moved to the
     Administrative & Other Service Group (which was later renamed Program Support Group) and was renamed the
     Marketing & Resource Mobilization Group and the CCPSP was called BOT Center. Its task included
     implementation of PDF projects funded by the US Agency for International Development (USAID) and the Asian
     Development Bank (ADB). Staff changes are shown below.
                                                                                                Appendix 5      27

     1999                2000               2001               2002                2003                 2004
  PDF Group           PDF Group          PDF Group          Marketing &        Marketing &          Marketing &
   – CCPSP             – CCPSP            – CCPSP            Resource           Resource             Resource
                                                            Mobilization       Mobilization         Mobilization
                                                           Group – BOT        Group – BOT           Group – BOT
                                                              Center             Center                Center
Sylvia Clemente     Maria Clarissa      Maria Clarissa     Maria Cristina       Lilia Arce           Eli Ricote
 Head, Project         Tuazon              Tuazon              Avila           OIC-Deputy             Director
    Devt Div           Director            Director           Director           Director
 Maria Clarissa     Evelyn Martin       Evelyn Martin      Aida Mendoza      Rafael Ledesma        Rafael Ledesma
    Tuazon         Planning Officer    Planning Officer   Planning Officer   Planning Officer      Planning Officer
  Head –PDF
     Group
 Evelyn Martin      Mayla Moran         Mayla Moran        Ma. Corazon        Hazel Flores          Hazel Flores
Planning Officer   Planning Officer    Planning Officer        Batol
                                                          Planning Officer   Planning Officer      Planning Officer
  Mayla Moran      Melquides Gaite     Melquides Gaite                       Laiden Perdiña
Planning Officer   Planning Officer    Planning Officer                      Planning Officer
Source: Land Bank of the Philippines and BOT Center.
28        Appendix 6


                       STATUS OF COMPLIANCE WITH LOAN COVENANTS

                                                                   Reference
                          Covenant                                  in Loan         Status of Compliance
                                                                   Agreement
A. General

1. The Borrower shall perform all the obligations set forth in    Section 5.01,   Partially complied with. Status of
   Schedule 5 of the Loan Agreement.                              para. (b)       compliance with some of the
                                                                                  obligations is shown below.

2. The Borrower shall not make a subloan to any qualified         Section 5.04    Complied with
   enterprise unless such qualified enterprise has made
   appropriate arrangements to obtain all funds, including
   adequate working capital, that are required to carry out
   the qualified project.

3. The Borrower shall have its account and financial              Section. 5.07   Complied with. The Borrower
   statements audited annually, in accordance with                                submitted to ADB a copy of its
   appropriate auditing standards consistently applied by                         annual audited financial
   independent auditors.                                                          statements.

4. The concerned qualified enterprise shall ensure that the       Schedule 5,     Complied with. Bidding
   bidding documentation finalized for the LGU infrastructure     para. 7         documents prepared by the
   project shall contain an undertaking that the successful                       consultants include this.
   bidder for such LGU infrastructure project shall reimburse
   the qualified enterprise for the costs of the feasibility
   study.


B. Specific

5. The Borrower is responsible for carrying out the Project       Schedule 5,     Partly complied with. Some
   and shall (i) undertake marketing and promotion of the         para. 1         branches of the Borrower were
   PDF; (ii) undertake credit reviews of proposed qualified                       not aware of the PDF to be
   projects and qualified enterprises; (iii) process and, as                      offered to LGUs because of
   applicable, approve or recommend approval of subloans;                         insufficient effort by the Borrower
   (iv) with the assistance of CCPSP and the BOT Center,                          to market the facility, particularly
   select, engage, manage, administer, and arrange                                at the regional level. It mainly
   payment for consultants financed under the Project; and                        relied on the list of LGUs and
   (v) supervise, manage, and administer each subloan.                            possible projects that the BOT
                                                                                  Center provided.
     The PDF Desk of the Local Government Financial
     Services Department of the Borrower, in close                                Partly complied with. The LBP
     coordination with CCPSP/BOT Center, shall be                                 reorganization resulted in the
     responsible for implementation of lending of subloans to                     transfer of officers and personnel
     qualified enterprises for qualified projects, and shall                      originally involved in the Project.
     coordinate with LGUs concerned through the Borrower’s                        The LGFSD was dissolved and
     regional centers.                                                            personnel who handled the
                                                                                  Project were transferred to
                                                                                  different ADB units.

6. The CCPSP/BOT Center shall assist the Borrower in (i)          Schedule 5,     Partly complied with. Some LGUs
   marketing and promoting PDF operations and activities;         para. 2(v)      for projects identified during the
   (ii) pre-screening proposals for eligibility as qualified                      processing and administration of
   projects; (iii) assisting LGUs concerned with preparation of                   the Project were not keen to avail
   relevant subloan applications; (iv) helping qualified                          of the PDF. Although the BOT
   enterprises in negotiation and management of consultant                        Center was quite proactive in
   services under qualified projects financed by subloans;                        producing marketing materials,
   and (v) provide sufficient and appropriate qualified staff                     its activities were constrained by
                                                                                                    Appendix 6            29

                     STATUS OF COMPLIANCE WITH LOAN COVENANTS

                                                                    Reference
                         Covenant                                    in Loan            Status of Compliance
                                                                    Agreement
   and adequate resources to support PDF during project                               inadequate resources and the
   implementation.                                                                    location of its staff and offices
                                                                                      only in Manila.

7. The Borrower shall ensure that the qualified enterprise will    Schedule 5,        Complied with. LGUs concerned
   provide counterpart support for implementation of the           para. 5            for the two approved projects
   qualified project, including necessary logical and transport                       assigning a number of staff for
   arrangements, office space and facilities, and assignment                          project implementation.
   of at least one full-time qualified LGU staff.

8. The Borrower shall furnish to ADB quarterly progress            Article V,         Complied with, but late. Most
   reports on project execution.                                   Section 5.06 (b)   quarterly progress reports were
                                                                                      submitted late, and covered more
                                                                                      than one quarterly period. A total
                                                                                      of 14 quarterly progress reports
                                                                                      were submitted during project
                                                                                      implementation.

9. Promptly after the closing of the loan account, the             Article V,         Complied with, but late. The
   Borrower shall furnish to ADB a report on loan utilization      Section 5.06 (c)   Borrower submitted its own PCR
   and execution of the qualified projects, their costs, and the                      in January 2005.
   Borrower’s performance.

10. The Borrower shall enable ADB’s representatives to             Article V,         Complied with. Staff from LBP
    inspect any qualified enterprise or project.                   Section 5.08       and the BOT Center participated
                                                                                      in some review missions.

11. The Borrower shall maintain the following financial ratios     Article V,         Complied with for project
     •  A capital: adequacy ratio of no less than 10% as           Sec. 5.10          duration.
        determined by Bangko Sentral ng Pilipinas;
     •  A minimum return on assets of 0.55% for FY2000,                               Complied with for the project
        and 0.60% for FY2001; and                                                     period, except in 2000. Not
     •  A loan: deposit ratio not exceeding 100%.                                     complied with for the entire
                                                                                      project period.




ADB= Asian Development Bank, BOT= build-operate-transfer, CCPSP= Coordinating Council for Private Sector
Participation, PCR = project completion report, PDF = Project Development Facility,

Source: Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance
Loan and Grant to the Philippines and the Land Bank of the Philippines for the LGU Private Infrastructure Project
Development Facility.

								
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