Angat Water Transmission Improvement Project (RRP PHI 46362-002)

RISK ASSESSMENT AND RISK MANAGEMENT PLAN

Risk Description Risk

Assessment Mitigation Measures or Risk Management Plan

Financial and corporate management

Financial sustainability and loan repayment

Low

The financial capacity of MWSS is primarily based on the ability of Metropolitan Waterworks and Sewerage System (MWSS) to collect concession fees from the service concessionaires, which include debt service obligations and payments of MWSS. At start of each year, MWSS provides the two concessionaires the schedule of anticipated amounts due for concession fees in the year. This includes the total amount due for any scheduled payment of principal, interest, fees or other amount under existing MWSS loans. In the event a concessionaire fails to pay, MWSS can draw from the performance bond as provided for in the concession agreement.

Human capacity

Medium

MWSS has implemented several projects financed by foreign institutions like ADB, IBRD, China Eximbank, JBIC, and Banque Nationale de Paris. Under the new MWSS organization, management recognizes its human capacity as a weakness. The project loan supports the recruitment of construction supervision and contract management consultants.

Accounting Policies and Procedures

Low MWSS follows the basic policies and procedures outlined by the New Government Accounting System (NGAS) as required by COA. MWSS uses the electronic NGAS and the Government Auditing and Accounting Manual which allows for the proper recording of project financial transactions, including the allocation of expenditures in accordance with the respective components, disbursement categories and sources of funds. MWSS has prepared a comprehensive well-documented MWSS Accounting and Internal Audit Manual to comply with the basic objectives of financial reporting and the objectives of the prescribed NGAS. The manual covers the basic transaction cycles involved in MWSS and the related internal audit guidelines related to these transaction cycles. In line with the NGAS policies, MWSS follows the modified accrual accounting method.

Audits

Low

The Commission on Audit (COA) undertakes an audit on MWSS financial statements in accordance with the Philippine Standards of Auditing including audit on project accounts. Audit reports are issued annually. For the last

2

Risk Description Risk

Assessment Mitigation Measures or Risk Management Plan

three (3) years, no major accountability issues were brought out in the audit reports. On project accounts, aside from COA, MWSS needs to seek National Economic and Development Authority approval for any cost variation of more than 10%. MWSS is also expected to submit monthly report on drawdown and utilization of external funding to the Department of Finance and Central Bank of the Philippines.

Management support

Medium Current MWSS administration has developed and adopted their Water Security Legacy Plan to which this project contributes. With the upcoming elections in 2016 it is unclear if the new administration will continue its support. ADB will enforce its support of the program, through continued consultations with MWSS.

Climate

High Climate risks to the project are assessed by AWARE as “high” due to potential increases in risks from flooding, landslides, and on-shore category 1 storms. Although these risks exist in principle due to the geographic location of the project, no alteration in location or design is required. The intake structure is submerged under normal operating conditions and is unlikely to be affected by flooding or landslides occurring upstream in either Angat or Ipo reservoirs.

Procurement

Legal and regulatory framework

Low The country has a single procurement law with implementing rules and regulations that are updated from time to time by the Government Procurement Policy Board. Contract awards, though not advertised in national newspapers are posted in the website of Philippine Government Electronic Procurement System.

Institutional framework

Low The Government Procurement Policy Board (GPPB) is the principal body responsible for procurement policy formulation and the implementation and monitoring of effective public procurement reform, and is an inter-agency body chaired by the Secretary of the Department of Budget and Management. The GPPB is supported by a technical support office. Although there have been experiences where delay in release of funds hampered procurement, executing agencies are mandated to prepare annual procurement plans tied with their annual budget with the view of minimizing procurement delays. Information on procurement opportunities and contract awards are available at the web site.

Organizational and Staff Capacity

Medium The members of MWSS’s Bids and Awards Committee (BAC) and the technical working groups (TWG) are seconded from different units. The Secretariat is full time.

3

Risk Description Risk

Assessment Mitigation Measures or Risk Management Plan

The BAC is chaired by a Senior Deputy Administrator. The BAC and TWG members have limited experience and training on procurement through international competitive bidding, particularly on design-build contracts. The procurement officers have undergone training on procurement using government procurement rules and regulations undertaken by the Technical Services Office of the GPPB. ADB has recruited an individual consultant to assist the executing agency in bidding process.

Procurement Practices

Medium There is limited experience of the executing agency’s existing BAC in large procurement for goods and civil works. However, the members of the BAC and TWGs have recently undergone procurement training undertaken by the Technical Services Office of the GPPB. ADB has recruited an individual consultant to assist executing agency in bidding process.

Accountability Measures

Low The existing procurement law and its implementing rules and regulations recognize that procurement rules of ADB prevail in case of conflict between ADB and the government rules. The generic bid documents provide suggestions to handle specific conflicting provisions, the product of harmonization efforts with ADB and other international financing institutions.

Corruption

Project design Low In preparing the project, ADB has ensured that relevant provisions of ADB’s Anticorruption Policy are included in the bidding documents. ADB has discussed ADB’s Anticorruption Policy and Integrity Principles and Guidelines with the borrower. Medium risk activities have been identified and agreement was reached on the support to be provided to mitigate these risks, notably recruitment of consultants to assist with procurement and project implementation.

Overall Low

BAC = Bids and Awards Committee, COA = Commission on Audit, ENGAS = Electronic New Government Accounting System, GAAM = Government Auditing and Accounting Manual, GPPB = Government Procurement Policy Board, MWSS = Metropolitan Waterworks and Sewerage System, NEDA = National Economic and Development Authority, NGAS = New Government Accounting System, TWG = Technical Working Group. Sources: ADB Consultants; ADB. Philippines: Country Partnership Strategy (2011-2016). October 2011. Manila