Document of

The World Bank

FOR OFFICIAL USE ONLY fILE C0Py

Report No. 2920-PH

STAFF APPRAISAL REPORT

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

June 10, 1980

Projects DepartmentEast Asia and Pacific Regional Office[ This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit - Philippine Pesos (P )

P1 = US$0.135

US$1 = P 7.4

WEIGHTS AND MEASURES

1 ha = 2.47 acres

1 km 0.62 miles1 sq km = 0.386 sq mile

Im = 3.28 ft1 sqm = 10.76 sq ft

1 cum = 35.31 cu ft

1 M cum = 810.7 ac ft

1 mm = 0.039 in

1 kg = 2.2 lb

1 cavan = 50 kg

20 cavans = 1 m ton

ABBREVIATIONS

BAECON - Bureau of Agricultural EconomicsBFD - Bureau of Forest DevelopmentBOI - Board of InvestmentCOA - Commission on AuditDBP - Development Bank of the PhilippinesLOI - Letter of Instruction

LPG - Liquified propane gas

MNR - Ministry of Natural ResourcesNCSO - National Census and Statistics OfficeNEA - National Electrification AdministrationNEDA - National Economic Development AuthorityNIA - National Irrigation AdministrationPICDD - Public Information and Community Development DivisionPICOP - Paper Industries Corporation of the Philippines

GOVERNMENT OF THE PHILIPPINESFISCAL YEAR

January 1 - December 31

PHILIPPINES FOR OFFICIAL USE ONLY

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Table of Contents

Page No.

1* BACKGROUND . . . . . . . . . . . . . . . . . .. a . . . .. 1

GeneralshedManaemen ..... o - ........ .... a......... 1Watershed Management v . . . . . . . . . . . . . . . . 1Project Formulation . . . . . . . . . . . . . . . . . . . . . 3

2. THE PROJECT AREA . . . . . . . . . . . . . . . . . . . . . . . . 4

Pantabangan Watershed 4........ *****. **** 4General . * . . o * . . . . . . . .* .* o o 9 4Climate 4 . . . . . . . . . .. * .. o * * 4Topography, Drainage and Soils . . . . . . . . . . . . . . . 6Erosion . . * . . . . . o . . . . * . . . * * * . * * o . * 6Land Use . . . . * .o. * * . . . o . .* * * * . o . * . * o 6Population . . . . * . *. . . . . . . . . * . .o o . . . 8Existing Reforestation Activities . . . . . . .. . .. .. 8

Mapat Watershed 8 . o . . . . . . . . . . . . . . . . . . . . 8General 8 9 9 9 9 .. . . . . . a 9 9 . . . . . . 9 8Climate . . . . . . . 9. . . . . . . . . .9 . . . . . . . 9Topography, Drainage and Soils . . . . . . . . . . . . . . . 11Erosion . . o . . . . . o . .. .. . . .. . .. . 11Land Use . . . . o .. . ., .. . a . 9 . . .. . .. . . 11Population * . .. o . . . . . . .. . . . . . . .. . . . 12Existing Reforestation Activities . . o .. . .. . . 12Hagat Pilot Reforestation Area . . . . . . . . . . . . . . . 13

BFD Pilot Protection Area . . . . . . . . . . . . . . . . . . 13

3. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Project Description .............. . .. .. . . 13Reforestation . . . . . . .. . . .. . .. . . * . 14Forest Road Construction and Fire Protection . . . . . . . . . 17Administrative and Support Facilities . . . . . . . . . . . . 17Magat Feasibility Study and Pilot Programs . . . . . . . . . 17Forest Protection Pilot Component. . . . . . . . . . . . . . a 18Cost Estimates . . . . . . . . .. . .... . .. . . . .. . .. 19Financing . . . . . .. . . .. . a * . . * *. . . . * . .a 24Procurement . o . . . ............... . . . . . . ...... .. . 24Disbursements . . .. .. . . .... . . . ** *. . . . . . . 24Accounts and Audits . ... . . . . . . . . .. 25Environmental Effects ... .................... 25

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disckoed without World Bank authorization.

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Page No.

4. ORGANIZATION AND MANAGEMENT ... . . . . .... . . . . . . . 25

Consulting Services and Technical Assistance . . . . . . . . . 29

5. PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Present and Future Without Project . . . . . . . . . . . . . . 29Future with Project . . . . . . . . . . . . . . . . . . . . . 29Yields and Production . . . . . . . . . . . . . . . . . . . . 30

6. MARKET PROSPECTS AND PRICES . . . . . . . . . . . . . . . . . . 34

7. BENEFITS, JUSTIFICATION AND RISKS . . . . . . . . . . . . . . . 46

Production . . . . . . .................. . .. . . . . 46Employment and Incomes . . . . . . . . . . . . . . . . . . . . 47Financial Rate of Return . . . .. . . . . . . . . . . . . . . 48Economic Rate of Return . . . . . . . . . . . . . . . . 50Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

8. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . . . 54

ANNEXES

1. Plantation Schedules, Seedling Requirements, Schedule of ForestRoad Construction, Forest Road Specifications, Summary ofEquipment and Vehicles, Expected Price Increases, Schedule ofExpenditures, Proposed Allocation of Proceeds, EstimatedSchedule of Disbursements

2. Production Estimates, Labor Demand and Supply, Financial andEconomic Prices, Financial Costs and Revenues, Economic Costsand Benefits

3. Accounting Procedures for Force Account Work and Minor Contracts

4. Schedule of Early Events

5. Related Documents and Data Available in Project File

LIST OF TABLES IN MAIN TEXT

Table No.

2.1 General Statistics - Pantabangan2.2 Summary of Climatological Data - Pantabangan2.3 Land Use - Pantabangan2.4 Summary of Climatological Data - Magat2.5 Land Use - Magat

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3.1 Cost Estimates7.1 Per Capita Incomes - Pantabangan7.2 Financial Rate of Return and Sensitivity Analysis - Pantabangan7.3 Financial Rate of Return and Sensitivity Analysis - Magat7.4 Economic Costs and Benefits7.5 Economic Rate of Return and Sensitivity Analysis - Pantabangan7.6 Economic Rate of Return and Sensitivity Analysis - Magat

LIST OF FIGURES

3.1 Implementation Schedule - Pantabangan3.2 Implementation Schedule - Magat4.1 Watershed Management Project Organization5.1 Annual Agroforestry and Charcoal Production - Pantabangan5.2 Annual Timber Crop Production - Pantabangan7.1 Annual Labor Employment - Pantabangan

LIST OF MAPS

IBRD 14583 Pantabangan WatershedIBRD 14584 Magat WatershedIBRD 14631 Magat Watershed Subproject

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

1. BACKGROUND

General

1.01 The Government of the Philippines has requested Bank assistance infinancing a project which would reforest about 24,600 ha in the Pantabanganwatershed and about 7,500 ha in the Magat watershed on the island of Luzon.The project would include provision for the preparation of a feasibilitystudy to deal with the problems of the large and complex Magat watershed,implementation of range management and smallholder agro-forestry pilotprograms in that watershed, and initiation of an integrated forest protectionpilot program in two areas in Luzon. The project would be the first majorGovernment program to address the problems of the watersheds of the twolargest multipurpose dams in the country.

1.02 A feasibility study for the project was prepared under the pro-visions of Loan 1227-PH by the National Irrigation Administration (NIA) withassistance from Engineering Consultants Inc. of Denver, Colorado, andMandala Agricultural Development Corporation of Manila. This report isbased on the findings of an appraisal mission composed of Messrs. E.G.Giglioli and V.V. Talvadkar (Bank) and J. Chitty, A. Figueres and R. Strang(Consultants) which visited the Philippines in June 1979. The ForestProtection Pilot Component of the project was prepared by the Bureau ofForest Development (BFD) of the Ministry of Natural Resources (MNR) andappraised by Mr. C. Keil (Bank) in September 1979. Ma. Hill and Miss H.Towsey assisted in preparation of the report.

Watershed Management

1.03 Of the 12.0 million ha of forest land in the Philippines, almost5.0 million ha have already been denuded. Uncontrolled logging isaccompanied by the activities of shifting cultivators who frequently moveinto logged-over areas, cut existing vegetation, and plant subsistence cropsfor one to three seasons before moving on. Such areas are quickly coveredwith cogon grass (Imperata cylindrica) which represses regeneration of treegrowth and adds to fire hazards. Each year some 200,000 ha of forests arelogged over, reforestation by the BFD compensates for only 5% of the forestcut. Furthermore, much of the BFD reforestation effort has concentratedon restoring growth cover with little attention being given to planting ofspecies for ultimate commercial use. Also follow-up maintenance ofreforested areas is lacking which frequently results in destruction byweeds, animals or fire.

1.04 As population grows, the pressure on forest resources in thePhilippines will increase. Already imports of pulp, mainly long fiber, arealmost 100,000 tons annually. Bank projections indicate that by 1985 the

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Philippines' annual demand for paper and paperboard would double from thecurrent level of 400,000 tons to 700,000-800,000 tons. Demands forfuelwood are growing rapidly due to the rise in oil prices as well ascontinuous population pressure. Although much of the fuelwood comes fromnoncommercial forests, continuous fuelvood cutting is depleting resourcesand contributing to serious siltation and erosion problems.

1.05 The Government is aware of the problems of forest destruction andin 1975 Presidential Decree 705 was issued which provides for accelerationof land surveys and classification, protection and rehabilitation of forestlands, rationalization of the wood processing industry and strengthening offorestry research. The Government has recently established a PresidentialCouncil for Ecosystem Management, which includes representatives from themain Government agencies concerned, to provide policy leadership for a moreactive forestry development program and to stimulate popular awareness ofthe need to preserve forestry resources. The success of the Government'sprogram will depend on efforts to improve regulation of logging in existingforests, the implementation of well-planned reforestation efforts, andcommercial tree farming and woodlot development. The ability of theGovernment to implement these programs will in turn depend on substantialstrengthening of the Bureau of Forest Development and of other Governmentagencies concerned with forest development and rehabilitation.

1.06 A total of approximately 1.4 million ha of the denuded land islocated in watersheds or catchments which are sources of water to importantirrigation, power and water supply dams. The potential threat to theeconomic life of these facilities as a result of erosion and sedimentationhas caused considerable concern to the Government. The people living inthese watersheds have moved there due to population pressure and scarcity ofemployment in the lowlands. They are extremely poor and survive on shiftinghillside agriculture and occasional labor income from Government publicworks. Continuous degradation of the watersheds is reducing the productivecapacity of the land and its ability to provide a means of livelihood to thepeople. Protection of land resources in the watersheds and increasing theincomes of the disadvantaged resident population is an important Governmentobjective.

1.07 The very severe damage to denuded watersheds caused by typhoonDidang in 1976 focused public attention on the urgent need for watershedprotection. Tree planting campaigns were initiated throughout the countryand in 1977 a Presidential Decree was issued requiring every citizen toplant 12 trees annually. The MNR, through the BFD, is mainly responsiblefor implementation of these ambitious programs. Recognizing the magnitudeof the problem and the burden placed on the limited resources of BFD, theGovernment took another important step in 1978 declaring a number ofwatersheds serving multipurpose dams to be critical, banning all logging,and entrusting the immediate management of the catchments to a number ofdesignated lead agencies. Excellent legislation exists today to manage andcontrol logging and grazing and to undertake reforestation. However, thislegislation has rarely been enforced. Reforestation of watersheds is

presently being done by a number of Government agencies through a series ofsmall projects. Most of these efforts have concentrated on the short-termobjective of restoring ground cover, without any attention to the need todevelop a long-term, self-supporting system of land use for the watershed.The existing tree planting campaigns, by offering employment only for plantingare, in fact, providing the local population with an incentive to destroy theseedlings in order to get more employment. Any successful watershedmanagement program would have to give the local population a stake in thesurvival of the trees.

Project Formulation

1.08 An erosion control study of the Pantabangan and Magat watersheds wasincluded in Loan 1227-PH for the Chico River Irrigation Project in March 1976.The study was carried out by NIA with the help of consultants. The objectiveof the study was to prepare a watershed management and erosion control projectfor both watersheds. This study provided the basis for formulation of theproject. The proposed project envisages three main lines of approach to theproblems of denudation and degradation of the watersheds in the Philippines.In the compact, relatively small and well-defined Pantabangan watershed, theproject would utilize the existing capabilities of the NIA to establish aneconomically viable and technically sound system for preserving and enhancingthe productive capacity of the catchment, in association with the localinhabitants, firstly, as paid laborers and ultimately as shareholders in ajoint agro-forestry venture. In the much larger, more variegated and morecomplex Magat watershed the project would provide for a multidisciplinaryfeasibility study of the catchment under the aegis of the National EconomicDevelopment Authority (NEDA) to produce an area development plan for thewatershed. Concurrent with the study would be pilot range management andsmallholder agro-forestry programs, together with a NIA-operated agroforestryplantation immediately around the proposed Magat reservoir. The third line ofapproach would be provided by the BFD implemented forest protection pilotcomponent in which forestry occupancy management, forest guarding, forest firecontrol and watershed rehabilitation would be dealt with as an integratedwhole in two trial areas in Northern and Central Luzon.

1.09 This would be the first Bank-assisted watershed management projectin the Philippines and the third Bank-assisted project involving tree farmingand forestry. The first one was the Pilot Tree Farm Project (Loan 998-PH)which provided supervised credit for tree farming to smallholders through theDevelopment Bank of the Philippines (DBP) for the cultivation of a fastgrowing pine species (Albizzia falcataria) for pulpwood. Based on the successof the pilot project, the Smallholder Tree Farming and Forestry Project (Loan1506-PH) was initiated in 1978. Besides providing supervised credit for treefarming to smallholders in Mindanao, the Visayas and Northern Luzon, it pro-vided for the commercial reforestation of some areas by BFD in Abra province.While the pilot project was successfully completed in 1979, the latter projecthas lagged behind schedule. The main reason for this has been the slow rateof smallholder enrollment due to problems of obtaning land certificates forcollateral and farmer reluctance through lack of experience. However, DBPremains committed to the project and is working on ways to overcome theproblems and to stimulate progress. The BFD plantation component has been

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delayed through lack of Government funds, though the delay is expected to be

made up to a large extent during 1980.

2. THE PROJECT AREA

Pantabangan Watershed

2.01 General. The watershed is situated in the provinces of Nueva

Ecija, Nueva Vizcaya and Quezon on the island of Luzon, (Map No. 14583) and

has an area of about 82,900 ha, excluding the 8,000 ha of the Pantabangan

reservoir. The Pantabangan dam, built with Bank assistance (Loan 637-PH),

is in the southwest corner of the watershed, and is connected to the cities

of San Jose and Cabanatuan by all-weather gravel roads, with an onward

connection to lManila by the concrete surfaced Philippine-Japan Friendship

Highway. The terrain of the watershed is varied, consisting of flat areas

and rolling to rugged and steep mountainous landscape, dissected by narrow

flat-bottomed valleys. Population density in the watershed is substantially

below the national average and the per capita income is 12.5% of the national

per capita income. Summary statistical data are shown in Table 2.1.

Table 2.1: GENERAL STATISTICS PANTABANGAN

PantabanganPhilippines watershed

Total area (sq km) 300,000 829

Total population (1975) 42,070,700 25,370Population densityper sq km 140 31

per cultivated sq km 495 276

Total area cultivated (ha) 8,494,000 9,543

Average income (US$/capita) (1979) 600 75

2.02 Climate. The climate in the watershed, consists of a dry season

from December through April and a wet season from May through November. The

average annual precipitation varies from less than 2,000 mm in the lower

elevations to over 3,000 mm in the mountains east of the reservoir, with an

average of about 2,800 mm. The heaviest precipitation occurs in the months of

May through August, the heart of the southwest monsoon season, and accounts

for about 70% of the annual rainfall with about 22% of the annual precipi-tation occuring in July. The monthly temperature does not vary appreciably,with an average high of 35.50C in May and a low of 20.0°C in February. The

watershed experiences strong winds from the east and northeast during themonths of December through April and light and variable winds during the rest

of the year. The mean monthly wind speed, measured 10 m above ground, varies

from 3 to 11 km/hour. The watershed lies within the tropical typhoon belt and

averages about three typhoons per year. Climatological data are summarizedin Table 2.2.

Table 2.2: SUMMARY OF CLIMATOLOGICAL DATA, PANTABANGAN

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

Pantabangan Dam /aRainfallAverage (mm) 17 0 13 11 263 245 424 403 205 201 120 41 1,943Maximum (mm) 72 2 23 31 906 441 1,221 649 301 459 288 145 2,479Minimum (mm) 0 0 0 0 82 94 86 213 95 2 9 0 1,249

Cabanatuan City /bRelative humidity (%) 71 68 65 63 70 80 83 85 85 81 78 74TemperatureMean (IC) 25.9 26.3 27.8 29.3 29.7 28.6 28.1 27.5 27.6 27.6 26.8 26.2Mean maximum (OC) 31.6 32.6 34.1 35.5 35.5 33.3 32.4 31.5 31.7 32.5 31.6 31.5Mean minimum (IC) 20.1 20.0 21.4 22.9 23.8 23.7 23.5 23.6 23.4 22.8 21.9 20.9

Pantabangan Dam /cWind velocity (km/hr) 10 10 11 8 6 4 3 4 4 5 5 7

/a Period of observation 1971-77.

/b Period of observation 1946-71.

.c Period of observation 1973-76.

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2.03 Topography, Drainage and Soils. The topographic development of thewatershed is varied and complex. The upper reaches, which include theheadwaters of most of the principal streams draining the foothills of theSierra Madre mountains on the east and the Caraballo mountains on the northand northeast, are mountainous and rugged highlands with a skyline elevationof about 1,100 meters above sea level. These highlands have a youthfullandform development and are characterized by precipitous slopes andtowering sharp-crested ridges that are interspersed with V-shaped drainagevalleys. The topographic development of the lower relief areas ranges fromrecent to late mature and is characterized by broad ridges interspersedwith wider drainage valleys. The agricultural land is concentrated inalluvial valleys of the main river systems and the largest portion islocated in the northwestern part of the watershed along the Carranglanriver. The major rivers draining into the Pantabangan reservoir originatein the mountainous area and generally flow in a southerly direction andhave steep gradients until they reach the vicinity of the reservoir.

2.04 Four soil series have been identified and mapped in the projectarea: the Annam and Guimbalaon series in the higher reaches of thewatershed, the Mahipon series on the intermediate slopes, and the Bungaseries in the plains. Soils of Annam and Guimbalaon series are derived fromweathered igneous rocks, are 50 to 130 cms deep, clayey in texture, welldrained, acidic (pH 5.5), moderately high in organic matter and low inpotash and phosphate. These soils are suitable for tree and forest crops.Soils of the Mahipon series are derived from quaternary alluvial talusdeposits, are moderately deep, clayey in texture, well drained on thesurface but with restricted internal drainage, are slightly acidic (pH 5.8),reasonably high in organic matter, moderate in potash and low in phosphate.The soils are suitable for rainfed rice and upland crops. Soils of theBunga series are deep, moderately well drained externally but poorly drainedinternally, acidic (pH 5.5), relatively low in organic matter and deficientin potash and phosphate. The soils are best suited for lowland paddyproduction.

2.05 Erosion. Soil erosion in the watershed is a serious problem, buthow much erosion is taking place and how much sediment is being deposited inthe reservoir is presently unknown. About 46% of the watershed area hassevere erosion, mostly on steeply rolling and very hilly terrain where thesoil cover is grass, savannah and secondary forest. Slight erosion occurson about 45% of the drainage area where the dominant soil cover is primaryforest. No apparent erosion exists on the level to nearly level irrigatedand rainfed rice lands accounting for about 8% of the drainage area.

2.06 Land Use. The three major land uses are forests, grasses andcrops (Table 2.3). The forest area of 36,915 ha or 44% of the watershed,consists of about 23,740 ha of primary forest and about 13,175 ha ofsecondary forest. The primary forest area has undergone depletion inrecent years due to excessive logging. The loss of forest cover, coupledwith frequent fires, has resulted in severe erosion of former forest lands.

Grassland, which consists of mainly cogon grass (Imperata cylindrica),

comprises about 43% of the watershed and cropland about 12%. Land devotedto diversified farming is usually benched and used for vegetable growing.

Shifting cultivation (kaingin) affects only 2,300 ha or 3% of the watershedand involves the clearing of sloping land by cutting and burning thevegetative cover for temporary cultivation. When the fertility of the soil

is exhausted or the soil eroded, the cultivators move to another site and

repeat the same cycle. Except for the lowland rice and residential areas,the land is owned by the Government.

Table 2.3: LAND USE - PANTABANGAN

Area

Land Use or Cover Ha %

ForestPrimary 23,740 29

Secondary 13,175 15

Subtotal 36,915 44

GrasslandOpen grassland 33,490 40Savannah 2,175 3

Subtotal 35,665 43

CroplandRice 6,600 8Diversified crops 620 1

Kaingin 2,325 3

Subtotal 9,545 12

OtherResidential 600 1Riverwash 175 -

Subtotal 775 1

Total 82,900 100

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2.07 Population. The 1975 population in the watershed was about 25,370or about 4,335 households. Between 1970 and 1975, the population grew at anannual rate of 4.1% compared to the annual national growth rate of 2.8% overthe same period. The higher growth rate was due to immigration into the areafrom the nearby densely populated region of Ilocos and from the province ofIfugao. According to surveys conducted by NIA in 1979, about 44% of thehouseholds obtain their income primarily from farming and fishing, about 35%from employment with Government agencies, mainly on NIA and BFD reforestationprograms, and the balance from seasonal work, cottage industry and servicejobs. The average per capita income in 1979 was US$75, with 77% of householdshaving average annual per capita incomes of less than US$140. The averagefarm size is 1.9 ha with no appreciable difference in average sizes betweenirrigated and rainfed farms. Except for a few small cattle ranches in thearea, livestock is of the backyard type and roam freely to forage. Theoverall livestock numbers are not large enough to cause severe overgrazing.

2.08 Existing Reforestation Activities. NIA has successfully plantedand maintained a number of different species on about 2,000 ha of thewatershed area over the past two years. The other major reforestationeffort is being conducted by BFD under the Philippines-Japan TechnicalCooperation Project which started in 1977. The project involves theconstruction of two nurseries, reforestation of about 8,100 ha andconstruction of about 125 km of forest roads over the period 1977-82. About2,600 ha of reforestation and 75 km of roads were due to be completed by theend of 1979. The project also involves the construction of a center for thetraining of forestry technical staff. The Government of Japan is expectedto provide vehicles, equipment, fertilizers, audio-visual aids and theservices of technical experts.

Magat Watershed

2.09 General. The Magat watershed, with an area of about 414,300 ha,not including the proposed reservoir of 4,900 ha, is much larger and morecomplex than the Pantabangan watershed. It is located in Northern Luzon andoccupies parts of the provinces of Nueva Vizcaya, Ifugao and Isabela. Thewatershed encompasses three principal mountain systems of Northern Luzon:the Mamparang mountains on the east, the Caraballo mountains on the south,and the Cordillera mountains on the west. The proposed Magat dam, beingconstructed with Bank assistance (Loan 1567-PH), is at the eastern fringe ofthe Cordillera range, in the province of Isabela, about 350 km northeast ofManila (Map No. 14585). The watershed is transversed by the concretesurfaced Philippine-Japan Friendship Highway and is connected by all weathergravel roads to the neighboring Benguet, Ifugao and Mountain provinces.The terrain in the watershed varies from broad flat cultivated plains alongthe main river valleys to high mountain ridges under primary forest andreaching elevations in excess of 1,000 m above sea level. At 70 people persq km, population density in the watershed is twice as high as atPantabangan, although only about half the national average.

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2.10 Climate. The climate of the Magat area has no pronounced maximumrainy season and only a slight dry period lasting from one to three months.Average annual precipitation varies from less than 2,000 mm in the lowestelevations of the watershed to over 4,000 mm in the Central Cordilleramountains on the western edge of the watershed. The estimated average annualrainfall for the watershed is 2,500 mm. The heaviest precipitation isrecorded in the months of June through November, accounting for 73% of theaverage annual rainfall. November is the wettest month with 18% of the yearlyprecipitation. Monthly variations in temperature are small, the average highin May is 36.40C and the average low in January is 19.40C. The watershed iswithin the tropical storm belt, and on average three typhoons per annumpass through the area. September is the month of greatest danger (Table 2.4).

Table 2.4: SUMMARY OF CLIMATOLOGICAL DATA MAGAT

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total

Ilagan, IsabelaRainfall /aAverage (mm) 65 41 44 63 123 160 184 191 222 309 356 188 1,946Maximum (mm) 262 157 147 218 350 359 493 790 486 922 916 504Minimum (mm) 3 0 0 - 0 8 34 21 41 55 58 52 43

TuRuegarao, CaRayanRelative humidity (Z)/b 80 76 72 68 69 75 77 79 81 81 84 84Temperature /cMean (OC) 23.8 24.7 26.6 27.7 29.3 29.1 28.5 28.1 27.7 27.3 25.4 24.1Mean maximum (OC) 29.1 31.1 33.2 35.6 36.4 35.6 34.7 33.1 33.5 31.8 29.9 28.8Mean minimum (OC) 19.4 19.7 21.0 22.9 23.8 24.2 23.7 23.0 23.6 22.7 21.8 20.5 4

Wind velocity (km/hr)/d 4 3 3 3 3 3 3 3 3 4 3 4 'la Period of observation 1926-1975.

/b Period of observation 1926-1975.

/b Period of observation 1949-1974.

/c Period of observation 1903-1939, 1947-1975.

/d Period of observation 1958-1970.

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2.11 Topography and Soils. The topography of the watershed can be clas-sified into four distinct types: (a) the flat to undulating lowlands; (b) theMamparang mountains and the Palali range; (c) the Central Cordillera mountainsystem; and (d) the Caraballo mountains. The lowlands, in the south-centralpart of the watershed, are oriented in a south-west to northeast direction andinclude some scattered low lying hills. The Mamparang mountains and thePalali range are in a late to mature stage of topographic development,characterized by moderate relief. The area is highly dissected and the ridgetops and mountain peaks are relatively broad and somewhat rounded with averageskyline elevations between 700 and 1,000 m. The Central Cordillera mountainsystem, whose ridges are oriented roughly north-south, constitutes the bulk ofthe watershed. In the Banaue area, the characteristic topography is rela-tively rugged and of high relief with peaks and ridges exceeding 1,000 mabove sea level. The valleys are deeply incised and V-shaped and cascades,gorges, and waterfalls are frequent. Areas west and north of Banaue close tothe drainage divide, show higher relief and extremely rugged topography.Valleys are sharply V-shaped and ridges and peaks reach elevations exceeding1,700 m above sea level. The Caraballo mountains form the southern andsouthwestern fringes of the watershed. Apparently in its early to middlestage of maturity, the landform development is rugged. High relief, coupledwith peaks reaching more than 1,400 m above sea level, are characteristic.Cascades and waterfalls are abundant, particularly in the upper reaches ofmost streams. Soils in the watershed are very diverse and highly weathered.Seventeen soil series, one soil complex and 33 soil types have beenidentified. Surface soils range from gravels to clay.

2.12 Erosion. Severe to excessive erosion has occurred on approximately83% of the watershed. The major causes are fire, over-grazing, uncontrolledlogging, shifting cultivation, and high intensity rainfall on unprotectedland. In 1977 uncontrolled fires occurred on about 130,000 ha or 30% of thetotal watershed area. In the planning studies for the Magat dam, the sedimentyield from the watershed at the damsite was estimated at 8.5 million tons/year(2,050 tons/sq km/year).

2.13 Land Use. The forest areas of the watershed have been subjectedto excessive logging, carried out with little attention to conservationprinciples. Ranchers operating on the extensive cogon grasslands of thewatershed practice uncontrolled stocking, continuous grazing and uncontrolledburning. In many cases land with sLopes in excess of 50% is being grazed. Onmuch of the grazing land most of the soil has been removed by erosion. Theirrigated and rainfed rice land is found on the alluvial flats bordering theMagat river, while the terraced rice land is located on the steep hillsides inthe northern part of the watershed around Banaue. Shifting cultivation isfound on the steep slopes along the southern, eastern and northern edges ofthe watershed. Kaingin farms are typically between 2 and 4 ha. After roughclearing and burning the land is cropped to upland rice, corn and sweet potatofor a period of two to three years. The land is then abandoned because ofloss of fertility and competition from cogon grass.

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Table 2.5: LAND USE - MAGAT

Land Use or Cover AreaHa %

ForestPrimary 50,600 12Secondary 123,000 30

Subtotal 1733600 42

GrasslandOpen grassland 150,900 36

Subtotal 150.900 36

CroplandKaingin 19,700 5Diversified crops 3,300 1Rainfed rice 12,900 3Irrigated rice terraces 20,100 5Irrigated rice 31,000 7

Subtotal 87,000 21

OtherRiverwash 2,800 1

Subtotal 2,800 1

Total 414,300 100

2.14 Population. The 1975 population of the watershed was about 293,000people or about 50,000 households. The annual rate of population growth overthe 1965-1975 decade was 2.2%; slightly below the national average. Thepopulation is predominantly rural and farming activities account for about 77%of the gainfully employed. People who speak Ilocano as a mother tonguepredominate in the more fertile southern half of the watershed, where theyaccount for 65% of the population. The less densely populated northern partof the watershed is wholly an Ifugao speaking area.

2.15 Existing Reforestation Activities. The Bureau of Forest Developmenthas been engaged over a long period in a significant tree planting program.A wide variety of species has been planted. Included are: giant ipil-ipil,benguet pine, large leaf mahogany, narra, yemane, albizzia and teak.According to BFD records there are about 11,000 ha of established plan-tations scattered throughout the watershed. This is a small area consideringthe rate of destruction of the forest cover of the watershed and that theprogram was started in 1938. It is estimated that only about 30% of thereported hectarage is an effective planted area because of the fire damage.

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2.16 Magat Pilot Reforestation Area. The area, comprising 7,500 ha ofsteep and open cogon grassland, lies immediately upstream of the Magat damsite on both banks of the proposed reservoir (Map No. 14631). The land isgenerally steep and rugged with most of it having slopes greater than 40%.Elevations range from 200 m at the reservoir waterline to 500 m at the highestpoint. The area has an eastfacing slope which is dissected deeply by V-shapedstreams and gullies that drain into the Magat and Alimit rivers. Soils in thearea are shallow (25-85 cm), with restricted internal drainage, and moderatelyacidic with pHs ranging from 5.3 to 6.3. The proposed pilot project area isnot inhabited, but there are settlements along its southern border engaged insubsistence farming of open patches of logged over forest land which wouldprovide the population to work on and benefit from the project. The 1975population in the area was about 7,300, comprising about 1,645 families.Between 1970 and 1975, the population grew at an annual growth rate of 3.1%,marginally above the annual national growth rate of 2.8% over the same period.According to NIA surveys in 1979, almost 95% of the people in the area gettheir primary source of income from farming and the rest from employment aslaborers with the government. The average per capita income in 1979 wasUS$100, with almost 85% of households having average annual per capita incomesless than US$155. The average farm size is about 2.4 ha.

2.17 BFD Pilot Protection Area. The pilot component would be carried outin two trial areas, Sta. Fe at the southern end of the Magat watershed inNueva Vizcaya province and Dona Remedios Trinidad in Bulacan province. Of theforest district area of Sta. Fe, almost one half, i.e. 72,000 ha would fallunder the project. Of this, approximately 50% is commercially forested, 23%is open land or grassland and the remaining 27% is land covered by non-commercial shrubs and trees. Living in small scattered villages within thisforest land are some 520 subsistence farmer families of whom more than 50%belong to cultural minorities (Igorots and Ilongots), the remainder beingFilipino ethnic settlers who have moved in from the lowlands. A largeproportion of the ethnic minority populace practices shifting cultivationwithin the forest areas. In places where potential agricultural land isscarce forest land is occupied and temporarily cultivated also by thesettlers. The forest district of Dona Remedios Trinidad, which covers some55,000 ha of rugged forest land, would fall under the project in its entirety.Most of the district used to be commercial forest but after logging in the1950s and 1960s it has ceased to be productive forest. Living in this forestland are some 260 families of which one-third are indigenous tribes (Dumagats)and two-thirds settlers. Both groups depend heavily on the cultivation oftheir kaingin areas. In 1976, a pilot forest occupancy management projectwas started in the area. The response of the people to the project has beenpositive but progress toward stabilization of agricultural plots and farmerhomes has been modest due to lack of adequate project funding.

3. THE PROJECT

Project Description

3.01 The project proposed for Bank financing would include:

(a) reforestation with agro-forestry and timber crops of about24,600 ha in the Pantabangan watershed and a pilot program ofabout 7,500 ha in the Magat watershed including the constructionof nurseries;

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(b) construction and maintenance of about 345 km of forest roads inPantabangan and about 65 km in Magat;

(c) construction of charcoal ovens for conversion of fuelwood tocharcoal in both watersheds;

(d) provision of equipment and vehicles for forest protection and fireprevention in both areas;

(e) provision of consulting services for assistance in installing asystem of commercial accounting, reforestation and marketingoperations, for establishment of revenue and profit sharingprocedures, and for study of the feasibility of spinning off theproject as a subsidiary of NIA;

(f) provision of consulting services to carry out a feasibilitystudy of integrated development of the Magat watershed;

(g) implementation of pilot programs in range management andsmallholder agroforestry in the Magat watershed; and

(h) initiation of integrated forest protection pilot programsin the Magat watershed and in Bulacan province in Central Luzon.

Reforestation

3.02 Grasslands and unbenched lands presently under agriculture, includ-ing hillside cultivation which are about 5% slope, would be planted to trees.About 24,600 ha of such lands in the Pantabangan watershed would be plantedwith a mix of forest and agro-forest species which would provide both a quickfinancial return three to ten years from planting, from products such asleafmeal, charcoal, fruits and nuts, and a long-term return, 20 to 40 yearsafter planting, from timber. After considering factors such as site suit-ability and adaptability, erosion control capability, marketability, magni-tude and timing of financial returns, employment generation, and fire risk,the following species were chosen:

Species Product Ha

Giant ipil-ipil leafmeal 3,000charcoal 5,000

Mango fruit 2,000Cashew nuts 3,000Yemane pulpwood, timber 4,400Benguet pine " " 6,500Narra timber 700Mahogany timber (interplanted with

giant ipil-ipil)

Total Physical Area 24.600

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About 1,600 ha would be planted in 1980 and about 3,500 ha annually thereafterfrom 1981 to 1987. The detailed plantation schedule by species is presentedin Annex 1, Table 1. The projected seedling requirement, includingallowances for cull and mortality, would average about 2.8 million seedlingsannually from 1980 to 1983, increasing to about 8.5 million seedlings in1985 and 1986 and dropping, thereafter, to about 2.5 million seedlingsannually (Annex 1, Table 3). At present there are two nurseries inthe Pantabangan watershed which could each produce between two to threemillion seedlings annually. However, an additional nursery with an annualcapacity of about 3 million seedlings would have to be built immediatelysince a part of the project area is at considerable distance from theexisting nurseries. In addition, temporary field sheds, each serving aplanting area between 350 to 600 ha, would be constructed to house men onfield work, store tools and materials, and ease logistics during planting.

3.03 The 7,500 ha of steep grassland in the Magat watershed would alsobe planted with a mix of agroforestry and timber species. The mainobjective would be to illustrate on a pilot scale, while gaining experiencein the process, the viability of a reforestation program in the Magatwatershed. The species mix would be as follows:

Species Product Ha

Giant ipil-ipil charcoal 1,000Agoho " 500Mimosa " 500Mango fruit 950Cashew nuts 1,500Yemane pulpwood and timber 600Benguet pine t" "i 1,450Narra timber 500Mahogany /a timber 500

Total Physical Area 7,500

/a In addition, Mahogany would be interplanted in stands ofGiant ipil-ipil, Agoho and Mimosa.

The detailed plantation schedule by species is shown in Annex 1, Table 2.Seedling requirements are expected to be about 2.0 million in 1980,increasing to about 3.5 million seedlings in 1984 and then falling to about1.8 million seedlings in 1986 (Annex 1, Table 4). A nursery would beconstructed under the project to meet these requirements. Field sheds wouldalso be constructed for every 350-600 ha of planting area.

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3.04 Nursery operations for the incoming season would start in Augustwith repairs, hauling of soil and sowing continuing through October.Potting of seedlings, seedling care and maintenance, including fertilizerapplication, would continue through January. Transportation of seedlings tothe seedling depots would start in April. Planting areas would be surveyedwell before the planting period. Stripbrushing would be done to minimizeearly weed competition and to facilitate hole digging, which would be doneat appropriately spaced points along cleared rows ahead of outplanting.Seedling transport from nursery to field sheds would be done by pick-up,while laborers would transport the seedlings from the sheds for outplanting.Tree planting operations would start in late May or early June when the soilwould be sufficiently moist, and would be completed by early August to allowenough time for the seedlings to get established before the onset of the dryseason. Kakawate, a fire and drought resistant species, would be planted toserve as a firebreak to augment the effects of fire lanes and roads. Due tothe low nutrient status of soils in the project area, the use of fertilizerwould be important to ensure seedling survival and the attainment ofexpected rates of growth. Fertilizer would be applied during outplanting,during weeding about three months later and at early and late parts of therainy season the following year.

3.05 Timber species would have a minimum of three weeding operationsduring the growing period. Ring weeding would be scheduled with fertilizingto minimize costs. Fruit species would be ring weeded twice a year untilthe crown cover would be sufficient to suppress weed growth. Problems withpests and diseases are not serious today but could become significant in thefuture. While use of insecticides and fungicides is not crucial for forestspecies, it is essential for fruit crops such as mango and cashew to preventcrop failure. In addition, flower induction by chemicals would be used toprolong the fruiting period of mangoes and to take advantage of highoff-season prices. To minimize fire damage in the early years when theoriginal grass vegetation would be present, 20 meter wide firebreaks wouldbe constructed.

3.06 Harvesting of the reforested area would be undertaken as part of theproject. The project would rely on the responsiveness and versatility of theprivate sector middlemen to transport and market the products of the projectareas. At some future date, when production has built up substantially,investment in processing, transport or marketing of the products would beevaluated and undertaken if found profitable. Harvested mangoes, unshelledcashews, sun dried ipil-ipil leaves and timber would be sold to middlemen andtraders at plantation site. The fuelwood would be converted to charcoal inthe project area and then sold to middlemen. The project would provide forcharcoal centers strategically located so as to reduce transport costs withinthe hilly and rough terrain of the project areas and to provide easy access towater to minimize fire risks. A charcoal center would consist of nine ovens,of the Brazilian beehive type each with a capacity of 50 cu m. There would be

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15 charcoal centers in Pantabangan and 6 in Magat. Wood would be air-driedfor three to four months to a moisture content of 30% to 40% prior to loadingin the ovens, where carbonization would be completed in about four days.

Forest Road Construction and Fire Protection

3.07 About 150 km of forest roads exist in the Pantabangan project areawhile there are none in Magat. About 95 km of primary forest roads and about250 km of secondary roads would be constructed in Pantabangan, and about 40 kmof primary forest roads and 25 km of secondary forest roads would be built inMagat (Annex 1, Table 5). The roads would provide access for workers andmaterials during establishment, maintenance, protection and harvestingoperations. All roads would be constructed with the minimum amount ofearthworks, and the alignment would follow ridges whenever possible to avoidheavy side cutting and thus minimize erosion. Particular attention would bepaid to drainage, drainage protection works and to the stabilization of sideslopes. The roads would be gravel surfaced, would be designed purely foraccess and would have a pavement width of 4 meters and no shoulders. Theproposed design standards for the roads are shown in Annex 1, Table 6.Sections of side drains, culvert outfalls, etc. would be protected againsterosion by lining with concrete blocks or grouted rip rap. Cross drainagewould be by concrete pipe culverts. Surveys have been completed for 42 km ofthe first year's program and detailed design is almost complete for thesesections. Sources of alluvial gravel suitable for extraction of material forpavement basecourse and concrete aggregates have been located in the projectareas. Provision would be made for equipment and workshop facilities for themaintenance of the roads. The project would also provide for a forestprotection and fire control system which would consist of mobile patrol andfire suppression crews, fire stations, look-out towers, communicationequipment, firefighting equipment and construction of fire lanes. In the caseof Pantabangan, the fire control system would be capable of dealing with thewhole watershed, including areas reforested under the Philippine-JapanTechnical Cooperation Project.

Administrative and Support Facilities

3.08 While the project would be able to make use of some of theexisting NIA facilities at Pantabangan and Magat, additional buildings wouldbe required. Provision would be made at Pantabangan for an administrationoffice, a workshop/motorpool, 25 detached staff cottages, 14 duplex staffcottages and three staff dormitories, each with a capacity of 150 beds. Aclinic and ambulance would be provided to meet the health needs of the largelabor force. At Magat provision would be made for temporary buildings asthe project would be able to utilize at a later date the excellentfacilities built at the damsite for construction of the dam.

Magat Feasibility StudV and Pilot Programs

3.09 Because of its size, variety of environments and large population,the Magat watershed presents problems of a far more complex nature thanPantabangan. The proposed project would therefore include provisions for afeasibility study of the catchment leading to a plan for the development of

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selected critical subcatchments of the watershed. The study would includebasic data gathering, in depth studies of hydrology and sediment monitoring,range management studies and development of land use systems to stabilizeshifting cultivators. The objective of the hydrology and sedimentmonitoring program would be to identify the critical subwatersheds whichwould be the priority areas for development. A striking difference betweenthe Magat and Pantabangan catchments is the heavy grazing of cattle inMagat. Commercial ranching and related grass fires are major sources ofsoil erosion. Range management studies would provide basic data on which todevelop a range management program adaptable to the characteristics andrestraints of the Magat catchment. The studies would include grass speciestrials, grazing trials on improved and natural ranges, rotational grazingtrials and a census of the animal population. The studies would alsoprovide for the implementation of range management and smallholderagroforestry pilot programs in the watershed. These would be implementedconcurrently with the studies and would assist in assessing the viability ofvarious approaches to solving the problems of the watershed. An area ofabout 2,000 ha of shifting cultivation has been identified forimplementation of the smallholder pilot program. The complex land ownershipand land use patterns in Magat are likely to require a management systeminvolving several Government agencies working closely together toward acommon objective. The studies would be expected to provide answers as tothe best means of obtaining'such an integrated approach to dealing withdevelopment of the Magat watershed. The project would provide forconsulting services, vehicles and equipment for the studies. Assuranceswere obtained that consultants satisfactory to the Bank would be engagedto assist with the studies under terms and conditions agreed with the Bank.The studies would begin in early 1981 and be completed at the end of 1983.

Forest Protection Pilot Component

3.10 This component has already been developed to a stage wherepreliminary plans are completed and the organization is well defined. Theproject would provide for the detailed planning and implementation by theBureau of Forest Development of a three-year pilot operation in which forestoccupancy (kaingin) management, forest guarding, forest fire control, andwatershed rehabilitation would be considered in an integrated effort. Thecomponent, which would take place in two trial areas in the Magat watershedand Bulacan province, would comprise the settling of 300 forest occupantfamilies including improvement of their farms and provision of socialservices; guarding of some 127,000 ha of forest land; fire control over27,000 ha of forest area prone to annual fires; vegetative rehabilitation ofabout 800 ha of denuded, erodable land and construction of soil erosioncontrol structures in critical locations; construction and maintenance of 20km of roads and a network of 220 km of access trails; and provisions forbuildings, vehicles and equipment for BFD staff implementing these works.Provision would be made for consultant assistance to help BFD plan andimplement the project and to develop and install an intensive monitoring andevaluation system for the duration of implementation. As part of the pilotcomponent farm models would be developed designed to uplift the socio-economic status of forest occupants and a forest protection mechanismcompatible with the models would be devised. Information on the costs andbenefits of this integrated forest protection program would be generated to

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demonstrate the economic justification for its replication on a larger scaleand in many locations. Provision would also be made for consultant assistanceto carry out special studies in the third year of the implementation of thepilot component aimed at synthesizing the collective experience from thecomponent. Assurances were obtained that consultants satisfactory to theBank would be engaged to assist BFD in the planning, implementation, monitor-ing and special studies aspects of the pilot component under terms and condi-tions to be agreed with the Bank. Preparation within six months of loansignature of a detailed plan of operations and implementation schedule wouldbe a condition of loan disbursement for the forest protection pilot componentof the project. If successful, the component would allow for preparation inits third year of larger follow-up projects of similar nature. Provisions forsuch preparatory work are included in the project.

Cost Estimates

3.11 Planting operations would proceed up to the eighth year ofoperation. However, in the latter years annual revenues from some of theproducts would cover a substantial part of the annual investment needs. Areasonable time-frame for the definition of the Bank project would be sixyears since (a) the bulk of plantation establishment would be accomplishedover this period, (b) such a period would provide an opportunity for theBank to review decisions regarding processing, profit sharing, and theultimate organizational format of the project implementation unit whichwould have to be taken by the Government towards the end of the six-yearperiod. Therefore, the project represents the initial six years of theprogram costing about US$75.0 million, of which US$27.0 million or 36% isforeign exchange. Cost estimates are based on actual costs for similarnursery and planting operations in the two watersheds, detailed surveys of42 km of roads in Pantabangan, equal to 10% of the proposed roads, andfeasibility grade estimates for the rest, adjusted to mid-1980 prices and toconditions prevailing in the project areas. Unit prices for equipment,materials and supplies are based on recent quotations received by NIA andBFD. The Government exempts NIA and BFD from paying taxes or duties forequipment, materials and services procured under foreign-assisted projects,so all costs exclude such taxes. A physical contingency of 15% was used forthe roads due to the difficult and hilly terrain while 10% was used for therest of the works. Costs due to expected price increases over theimplementation period amount to about 28% of the total base cost plusphysical contingencies, assuming the following annual inflation rates forcivil works, equipment and services:

ANNUAL INFLATION RATE (%)

1980 1981 1982 1983-85

Foreign exchange content 10.5 9.0 8.0 7.0Local content 16.0 10.0 7.0 7.0

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3.12 Details of cost estimates are presented in Table 3.1 and aresummarized below:

Local Foreign Total Local Foreign Total F.E.(P million) (US$ million) (%)

Plantationestablishment 116.4 56.9 173.3 15.7 7.7 23.4 33Forest roadsconstruction 24.6 28.0 52.6 3.3 3.8 7.1 53

Forest roadsmaintenance 3.6 5.7 9.3 0.5 0.8 1.3 61Forestprotectionand fireprevention 23.9 8.9 32.8 3.2 1.2 4.4 27Generaladministration 35.0 26.6 61.6 4.7 3.6 8.3 43NIA supportservices 8.3 - 8.3 1.1 - 1.1 -

Magat feas. study 5.6 8.4 14.0 0.8 1.1 1.9 58Magat pilotprograms 14.4 7.8 22.2 2.0 1.0 3.0 33Forest protectionpilot component 15.3 8.9 24.2 2.1 1.2 3.3 37

Base costestimate 247.1 151.2 398.3 33.4 20.4 53.8 38

Physical con-tingencies 23.0 11.9 34.9 3.1 1.6 4.7 34Expectedpriceincreases 85.0 36.8 121.8 11.5 5.0 16.5 30

Total ProjectCost 355.1 199.9 555.0 48.0 27.0 75.0 36

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Table 3.1: COST ESTIMATES

Local Foreign Total Local Foreign Total F.E.----------- P.000 -------- ----------- US$'000 ------ ()

A. Pantabanaan

1. Plantation EstablishmentCivil works 2,765 1,840 4,605 390 240 630 40Salaries & wages 69,965 - 69,965 9,455 - 9,455 -11aterials 6 supplies 15,855 29,470 45,325 2,140 3,980 6,120 65Physical contingencies (10%) 8,865 3,135 12,000 1,190 425 1,615 26Equipment & vehicles 500 9,480 9,980 65 1,285 1,350 95

Subtotal 97.950 43.925 141,875 13,240 5.930 19,170 31

2. Forest Roads ConstructionExcavation 5,385 8,080 13,465 725 1,095 1,820 60Compaction 2,350 3,530 5,880 315 430 795 60

Surfacing 4,255 7,895 12,150 575 1,065 1,640 65Drainage culverts 3,375 3,375 6,750 455 455 910 50

Mobilization 110 - 110 15 - 15 -Physical contingencies (10%) 2,340 3,455 5,795 320 465 785 60Engineering & supervision 4,605 - 4,605 625 - 625 -

Subtotal 22,420 26,335 48,755 3.030 3,560 6,590 54

3. Forest Roads MaintenanceSalaries & wages 2,635 - 2,635 355 - 355 -Materials & supplies 255 475 730 35 65 100 65Physical contingencies (10%) 295 45 340 40 5 45 14Equipment & vehicles - 3,750 3,750 - 505 505 100

Subtotal 3,185 4,270 7.455 430 575 1,005 57

4. Forest Protection & Fire PreventionCivil works 345 230 575 50 30 80 40Salaries & wages 15,400 - 15,400 2,080 - 2,080 -Materials & supplies 1,380 2,555 3,935 185 345 530 65Physical contingencies (10%) 1,710 280 1,990 230 40 270 14Equipment & vehicles 195 3,710 3,905 25 505 530 95

Subtotal 19,030 6,775 25,805 2,570 920 3,490 26

5. General AdministrationCivil works 3,785 2,525 6,310 515 340 855 40Salaries & wages 16,020 - 16,020 2,165 - 2,165 -Materials & supplies 3,760 6,980 10,740 510 940 1,450 65Physical contingencies (10%) 2,360 950 3,310 320 130 450 29Equipment & vehicles 620 11,820 12,440 80 1,600 1,680 95

Subtotal 26,545 22,275 48.820 3,590 3,010 6,600 46

Subtotal Item A 169.130 103,580 272.710 22,860 13,995 36.855 38

Table 3.1- 22 - Pa;e 2

Local Foreign Total Local Foreign Total F.E.___________ P0ooo _______ --- -- US' $000 (-)

B. MaRat

1. Plantation EstablishmentCivil works 1,165 790 1,955 155 110 265 40Salaries & wages 19,110 - 19,110 2,590 - 2,590 -Materials & supplies 6,850 12,725 19,575 925 1,710 2,635 65Physical contingencies (10%) 2,720 1,350 4,070 370 180 550 33Equipment & vehicles 145 2,595 2,740 10 360 370 95

Subtotal 29,990 17.460 47.450 4,050 2,360 6,410 37

2. Forest Roads ConstructionExcavation 1,210 1,815 3,025 165 245 410 60Compaction 500 750 1,250 65 100 165 60Surfacing 955 1,775 2,730 130 240 370 65Drainage culverts 805 805 1,610 110 110 220 50Mobilization 70 - 70 10 - 10 -Physical contingencies (15%) 530 775 1,305 70 105 175 59Engineering & supervision 1,015 - 1,015 135 - 135 -

Subtotal 5,085 5.920 11,005 685 800 1.485 54

3. Forest Roads MaintenanceSalaries & wages 615 - 615 85 - 85 -Materials & supplies 45 90 135 5 15 20 67Physical contingencies (10%) 65 10 75 10 - 10 13§quipment & vehicles - 1,385 1,385 - 185 185 100

Subtotal 725 1,485 2,210 100 200 300 67

4. Forest Protection & Fire PreventionCivil works 140 90 230 20 10 30 40Salaries & wages 5,880 - 5,880 795 - 795 -Materials & supplies 525 980 1,505 70 135 205 65Physical contingencies (10%) 660 105 765 90 15 105 14Equipment & vehicles 70 1,350 1,420 10 180 190 95

Subtotal 7.275 2.525 9,800 985 340 1,325 26

5. General AdministrationCivil works 900 600 1,500 120 80 200 40Salaries & wages 4,655 - 4,655 630 - 630 -Materials & supplies 660 1,230 1,890 90 165 255 65Physical contingencies (10%) 620 180 800 85 25 110 23Equipment & vehicles 185 3,480 3,665 25 470 495 95

Subtotal 7,020 5,490 12,510 950 740 1.690 44

Subtotal Item B 50,095 32,880 82.975 6.770 4.440 11.210 40

Table 3.1

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Local Foreign Total Local Foreign Total F.E.P000 …… ------- ----------- US$ 000 ------- (Z)

C. Consulting Services 4.845 - 4.845 655 _ 655 -

D. NIA Support Services 8,250 - 8250 1115 - 1,115 -

Subtotal Item A - D 232.320 136.460 368.780 31,400 18,435 49,835 37

E. Magat Feasibility StudyContractual services 3,885 7,400 11,285 525 1,000 1,525 65Local agency staff 1,480 - 1,480 200 - 200 -Materials & supplies 260 480 740 35 65 100 65Physical contingency (10%) 590 780 1,370 80 105 185 57Vehicles - 480 480 - 65 65 100

Subtotal 6,215 9,140 15,355 840 1,235 2,075 60

F. Magat Pilot ProgramsRange management 2,405 1,295 3,700 325 175 500 35Smallholder agroforestry 12,025 6,475 18,500 1,625 875 2,500 35

Subtotal 14.430 7,770 22,200 1,950 1,050 3,000 35

G. Forest Protection Pilot ComponentRoads and trails 1,950 2,920 4,870 265 395 660 60Buildings 1,500 1,000 2,500 200 135 335 40Watershed rehabilitation 2,910 730 3,640 390 100 490 20Materials, tools, and other equipment 1,475 1,805 3,280 200 245 445 55Salaries and wages 5,690 - 5,690 770 - 770 -Monitoring, studies, consultancy, etc. 1,805 605 2,410 245 80 325 25Physical contingencies (11%) 1,780 825 2,605 240 110 350 32Equipment & vehicles - 1,815 1,815 - 245 245 100

Subtotal 17.110 9.700 26.810 2.310 1,310 3,620 36

Subtotal Items A-G 270,075 163.070

433.145 36.500 22,030 58,530 38

Price contingencies 85,100 36,780 121,880 11,500 4,970 16,470 30

Total Cost 355.175 199.850 555.025 48.000 27,000 75,000 36

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Financing

3.13 The proposed Bank loan of US$38 million would cover 50% of the totalproject costs and finance the full foreign exchange cost of the project andabout 23% of the local project costs. The Government would provide theremaining P 273.8 million (US$37.0 million) to NIA and BFD and otherconcerned agencies from annual budget appropriations.

Procurement

3.14 Equipment, vehicles, and spare parts costing about US$9.1 million,would be procured after international competitive bidding in accordance withBank Group Guidelines. A preference limited to 15% of the c.i.f. price ofimported goods, or the customs duty, whichever is lower would be extended tolocal manufacturers in the evaluation of bids. Local procurement practicesare appropriate for off-the-shelf items costing less than US$20,000 eachbecause the advantages of international competitive bidding would be clearlyoutweighed by the administrative costs involved. The total cost of suchitems for all components of the project would not exceed US$500,000. Bankstaff have reviewed local procedures and they are acceptable. There isadequate competition and foreign firms can participate. A list of equipmentrequirements is given in Annex 1, Table 7.

3.15 Construction of about 160 km of forest roads totalling aboutUS$4.0 million, and civil works (offices, staff quarters, workshops)totalling US$2.3 million, are not suitable for international competitivebidding since the works are scattered and small in size. These would becarried out by contract under competitive bidding in accordance with localprocedures. Bank staff have reviewed the local procedures and they areacceptable. There is potentially adequate competition and foreign firms canparticipate. The construction over six years of implementation of about 250km of forest access roads in the more inaccessible parts of the Pantabanganwatershed, amounting to about US$2.5 million, would be carried out by forceaccount.

Disbursements

3.16 Disbursements would be made at a rate of 100% of the foreignexchange cost of directly imported equipment or 100% of the ex-factory priceof locally manufactured goods and 65% for imported goods procured locally.Disbursements for civil works, plantation establishment, road maintenanceand forest protection and fire control would be 45% of certified monthlyprogress payments or expenditures. Disbursements for force account workamounting to US$30.6 million would be made against certificates ofexpenditure, the documentation for works would show the quantities of majoritems of works accomplished, and the expenditure would be based on agreedunit rates. NIA and BFD would submit a detailed unit rate analysis withsupporting documents for Bank review before December 31, 1980, and wheneverany change in the unit rate is desired.

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For the NIA component, disbursement for minor contracts (less than P 1million) would also be made against certificates of expenditure based onactual payments made to the contractors. The borrower would make availableall documents related to the force account expenditure and expenditure underminor contracts for inspection by the Bank's supervision missions. Theproject offices of the implementing agencies have the staffing and institu-tional capability to provide such documentation in a satisfactory manner(Annex 3). For consulting services, disbursements would be at a rate of100% of total costs.

3.17 It is expected that disbursements would be completed by December 31,1987, approximately one year after completion of the project. An estimatedschedule of expenditure, a semiannual disbursement schedule, and a proposedallocation of loan proceeds are given in Annex 1, Tables 9-11.

Accounts and Audit

3.18 NIA and BFD are Government agencies and their accounts are auditedannually by the Government's Commission on Audit. Assurances were obtainedthat the implementing agencies would maintain separate accounts for theproject and that after audit by the Commission on Audit, the projectaccounts, together with the auditor's comments and opinion on the certifica-tion of expenditure for force account work and for minor contracts, would besent to the Bank within six months of the close of each financial year.

Environmental Effects

3.19 The project is expected to have wholly beneficial effects on theenvironment through limitation of uncontrolled burning, reduction of erosionof the watershed, minimization of flash floods, and enhancement of theproductive capacity of the land.

4. ORGANIZATION AND MANAGEMENT

4.01 By Letter of Instruction (LOI) No. 1002 of March 20, 1980, theNational Irrigation Administration was given the authority to manage, protectand rehabilitate the areas of the Pantabangan and Mfagat watersheds includedin the project (Maps No. 14583 and No. 14631). The LOI also gave NIA theauthority to harvest timber and agro-forestry products from the projectareas.

4.02 The National Irrigation Administration would be the implementingagency for the project in the Pantabangan watershed and for the pilotreforestation program in the Magat watershed. NIA was established under

Republic Act No. 3601 in 1964 to investigate, study, improve, construct andadminister all national irrigation systems. Presidential Decree No. 552 ofSeptember 11, 1974 further widened NIA's scope by giving it "broader powersand authority to undertake concomitant projects such as flood control,

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drainage, land reclamation, hydraulic power development, domestic watersupply, road or highway construction, reforestation and projects to maintainecological balance, in coordination with the agencies concerned". TheGovernment finances NIA through the sale of bonds or from appropriations. Theagency is presided over by a board of directors; the Administrator, who isappointed by the President of the Philippines, is responsible for operationsand management. NIA has gained very considerable experience in tree nurseryand planting operations over the last few years in both the Pantabangan andMagat catchments. The agency also has excellent engineering, design andconstruction capability for roads and civil works.

4.03 Responsibility for implementation of the project in the Pantabanganand Magat catchments would be with a Project Director who would report to theNIA Assistant Administrator for Project Development and Implementation (Figure4.1). Under the Project Director would be two Resident Managers, one atPantabangan and the other at Magat. The Project Director would be assisted bya small managerial and technical staff. The Resident Managers would haveunder them the Plantation, Maintenance and Transportation, and ProcessingDivisions. The appointment of a qualified and capable Project Director wouldbe essential for successful project implementation. The management of thelarge number of technical staff and labor, the wide range of projectactivities and the tight timetables would require a person with considerablemanagerial capability and experience. NIA has appointed a suitably qualifedsenior agricultural engineer as Project Director. Assurances were obtainedthat NIA would afford the Bank an opportunity to comment on any newappointment to the post during the period of project implementation.

4.04 Since the project would be profit oriented, it would be operatedon a commercial basis. A commercial accounting system would be installedand detailed records of assets, costs and revenues by product would bemaintained. The Assistant Administrator for Administration and the Head ofthe Accounting Department of NIA have indicated that there would be noproblems in the installation of a commercial system of accounting, and thatit would be consistent with NIA rules and regulations. Commission on Audit(COA) officials concurred with NIA and are of the opinion that introductionof a commercial system of accounting for the project would not be inconsist-ent with the Government's accounting and auditing rules and regulations.Assurances were obtained that NIA, in consultation with the COA, wouldinstitute a commercial accounting system for the project acceptable to theBank by December 31, 1980.

4.05 Field crop agriculture would be restricted to land of 5% or lessaverage slope, unless the land is bench terraced. Existing benched,vegetable producing areas in the Diayo and Canili watersheds would continueoperating but any expansion would be strictly controlled. Grazing of familylivestock belonging to local inhabitants would be permitted in designatedareas. The number of animals would be strictly controlled and stall feedingwould be encouraged. About 100,000 seedlings of mango, breadfruit,jackfruit, guava, etc. would be provided free for planting in house lots andaround the villages to the residents of the Pantabangan project area.

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4.06 Influx of population into the watershed would have to be regulated

so that the total population does not exceed the capacity of the project toprovide an adequate livelihood. With uncontrolled migration, people would

overuse the land and defeat the purpose of the project. NIA would control theinflux of people into the project area by a system of registration which wouldgive priority for employment to the existing residents. A 100l socioeconomiccensus is currently being uandertaken and is expected to be finished by

mid-1980. The forest protection staff would be responsible for preventing theclearing of land for hillside agriculture or uncontrolled grazing of cattle.The control of population influx, of land use, and of fires would be extremely

difficult and prohibitively expensive to implement without the activecooperation of the local population. The project would attempt to ensure such

cooperation by giving the people of the watershed a permanent and betterlivelihood. Existing tree planting campaigns, by offering employment only forplanting are, in fact, providing the local population with an incentive todestroy the seedlings in order to get more employment. To avoid a viciouscircle of plant-burn-plant, the resident population must have a stake in thesurvival of the planted seedlings. This would be accomplished by providingthe people of Pantabangan not only with a labor income, but by associating

them with the financial profits of the project. Initially, a revenue sharingscheme would be adopted since the project is not expected to generate a profittill the eighth year of operation. A certain percentage or a fixed amount ofgross revenues would be distributed to the employees starting in the thirdyear of operation. Such an early distribution of revenues is important to

gain the confidence of the people in the area and to impress on them thepersonal advantages to be derived by making the project successful. Anassurance was obtained that NIA would submit for Bank review by December 31,1982, a plan for sharing revenues in the Pantabangan project area andimplement it by June 30, 1983. One year before project completion date NIAwould prepare a profit sharing scheme to take the place of the revenuesharing scheme. The profit sharing scheme would take into consideration afair share for the employees and a fair return on the capital investment ofNIA. An assurance was obtained that NIA would prepare such a profit sharingscheme for Bank review by June 30, 1985, and implement it by December 31,1985. In addition to the individual incentive schemes outlined above,communal incentives would be provided by assigning a portion of the revenuesor profits to the villages for projects such as scholarships, communal watersupplies, playgrounds, etc. to be chosen by the communities in consultationwith NIA. The size of communal Lncentives would depend on the forestprotection and fire prevention performances of the various communities.

4.07 In view of the importance of informing and involving thePantabangan population in the project, provision would be made for a strong

Public Information and Community Development Division (PICDD) reportingdirectly to the Project Director,, The Division would keep the local peoplefully informed about the project, especially the aspects of employment,profit sharing, the need to protect the reforested areas, and the

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substantial benefits to be derived from the project for individuals andcommunities. People displaced by the Pantabangan reservoir have becomeaccustomed to receiving help from the Government without much effort ontheir own. The Division would make clear to the residents that the projectwas not just another welfare program but an opportunity for gainful employmentleading to a substantial stake in the future in partnership with NIA. TheDivision would include trained sociologists to establish meaningful channelsof communication between the local communities and the Project Director.The Division would also help the communities define the type of projectswhich they would wish to carry out with the portion of profits assigned tocommunal benefits.

4.08 A reforestation program and construction of a training facility arebeing undertaken by BFD in one section of the Pantabangan watershed under theprovisions of the Philippines-Japan Technical Cooperation Project. Anassurance was obtained that by December 31, 1980, NIA and BFD would sign amemo of understanding defining their respective roles in the Pantabanganwatershed. The memo would pay particular attention to setting out: (a)BFD's role in terms of providing technical services for nursery and plantingoperations, (b) NIA's access to the training facilities and programs carriedout by BFD in the watershed, and (c) NIA's role in providing a joint fireprotection service for both the proposed project and the BFD project.

4.09 The National Economic Development Authority (NEDA) would be respon-sible for coordinating the preparation of the Magat Watershed FeasibilityStudy and the implementation of the range management and smallholderagroforestry pilot projects. Under the supervision of NEDA, the relevantGovernment agencies and ministries would prepare the report to deal with theproblems of the watershed. NEDA would also designate the appropriate agenciesto prepare plans for and to implement the two pilot projects.

4.10 The Forest Protection and Infrastructure Division (FPID) of BFDwould be responsible for the detailed planning and implementation of theForest Protection Pilot Component. It would be carried out within theframework of BFD's existing district, regional and central organization.The Chief of FPID would oversee project implementation with the assistanceof a small project monitoring and evaluation group, which would have to beestablished. Day to day implementation would be the responsibility of thetwo District Foresters concerned, with the respective Regional Directorsfulfilling administrative roles. In its third year the component wouldemploy 25 professionals, mostly foresters, about 80 technician level staffand about 150 permanently employed labor. Most of the required pro-fessionals and technicians are already employed by BFD in the regionalor district offices and would only need to be reassigned, although somenew recruitment would be necessary. About 16 specialists from otherGovernment agencies, including possibly the Development Bank of thePhilippines (DBP), would be called upon to make their services available tothe settled forest occupants.

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Consulting Services and Technical Assistance

4.11 The project would provide for about 170 man-months of local consult-ing services to assist NIA in (1) the installation of a commercial, managementinformation and accounting system; (2) the design and installation of arevenue-sharing scheme initially, and a profit-sharing scheme later; (3) thespinning off of the project unit as a commercial subsidiary of NIA and thedesign of an equity-sharing scheme which would allow the employees to ownshares in it; and (4) nursery, planting and marketing operations for bothwatersheds. For the preparation of the Magat Watershed Feasibility Study andtwo pilot projects, it is estimated that about 150 man-months of local andabout 100 man-months of expatriate consulting services would be required.Consulting services would also be provided to assist BFD in (1) detailedplanning of the Forest Protection Pilot Component; (2) monitoring of theimplementation of the component; and (3) special evaluation studies to preparea follow-on project. It is estimated that about 53 man-months of local and 7man-months of expatriate consulting services would be required. The localconsulting service. are expected to cost about US$3,500 per man-month andexpatriate services about US$10,000 per man-month. The latter overall costper man-month would consist of a billing rate (including home office overhead)of US$8,000 per man-month, international travel expenses of US$500 perman-month, and local expenses of US$1,500 per man-month. Assurances wereobtained that all consultants engaged under the project would be employedunder terms of reference and under conditions acceptable to the Bank.

5. PRODUCTION

Present and Future Without Project

5.01 The areas to be reforeated under the project are open Imperatagrasslands, of very little Value and subject to frequent fires. The ensuingerosion is rapidly reducing the productivity of the land. Without theproject, the land would continue to erode and to deteriorate and ultimatelybecome incapable of sustaining any vegetation. The end result would be theincrease of sediment in the reservoirs and the permanent loss of the produc-tive capacity of the land.

Future With Project

5.02 The 24,600 ha in the Pantabangan watershed and the 7,500 ha in theMagat watershed would be reforested with a mix of the following species:

Giant Ipil-ipil [Leucaena leucocephala (Lam) de Wit]

Agoho (Casuarina equisitifolia)

Mimosa (Acacia auricolaeformis)

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Mango (Mangifera indica, L.)

Cashew (Anacardium occidentale L.)

Yemane (Gmelina arborea Roxb.)

Benguet Pine (Pinus kesiva Royle)

Narra (Pterocarpus philippinenis)

Mahogany (Swietenia macrophylla King)

The hectarages and planting schedules are shown in Annex 1, Tables 1 and 2and annual productions are shown in Annex 2, Tables 1 and 2.

Yields and Production

5.03 Leafmeal from Giant Ipil-ipil. The varieties of Giant Ipil-ipilthat would be grown in the Pantabangan watershed for the production of leaf-meal would be the Peruvian, Peruvian/Salvador cross and Hawaiian K 41types. The varieties are adaptable to a wide range of soils and e?evations.They do not tolerate soils of pH less than 5.0 and grow well up to elevationsof about 460 m. They are drought-resistant, but not adaptive to waterloggedsoils. Leaf yields range between 9 and 36 tons of dry matter per hectare inthe Philippines. Considering soil conditions and the climatic environmentof the watersheds, the following leaf yields are expected:

Year 1 2 3 4 5 onwards

Yield (ton/ha dry matter) - 6.0 11.0 13.0 15.0

Based on these yields and the proposed plantation schedule, annual leafmealproduction is expected to increase from 3,600 tons in 1981 to about 45,000tons in 1988, to stabilize at that level up to 1999 and to decreasesubsequently.

5.04 Charcoal from Giant Ipil-ipil, Agoho and Mimosa. Charcoal wouldbe produced in Pantabangan from fuelwood obtained from Giant Ipil-ipil. Inthe case of Magat, charcoal would be produced from fuelwood obtained from amix of Giant Ipil-ipil, Agoho and Mimosa. The varieties of Giant Ipil-ipilwould be the Hawaiian Giants R8 and K28. Agoho grows extremely fast onrich, alluvial and well-drained soils. Early plantings and subsequent trialsin the Philippines indicate that it grows well in lower and dry sites, but

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not on sites with elevations of 800 m above sea level. Mimosa is a recentlyintroduced species in the Philippines from Indonesia and Papua New Guinea.It has performed extremely well in most parts of the country, especially ondry, rocky and shallow soils. It grows well in grasslands and is a good soilbuilder. An evaluation of existing Ipil-ipil plantations shows that underconditions in Pantabangan and Magat, the average projected height would beabout 11 meters at age 5. Based on this site quality indication and relevantspacing, the following fuelwood yield would be expected:

Year: 4 5 6 7 8 9 10

Yield (cu m/ha) 89 134 176 213 246 275 301

Based on trials in Magat, Mimosa is expected to have the same yield as GiantIpil-ipil. However, Agoho is expected to grow more slowly, to about 9 m inheight in 5 years. At this growth rate, the fuelwood yield from Agohois expected to be as follows:

Year: 4 5 6 7 8 9 10

Yield (cu m/ha) 59 86 112 134 154 171 186

5.05 The fuelwood plantations would produce enough fuelwood for theoperation of 15 charcoal centers in Pantabangan and 6 in Magat. The annualamount of fuelwood produced in Pantabangan would increase from 27,000 cu min 1984 to 135,000 cu m in 1988. This would be equivalent to an annualproduction of 4,320 tons of charcoal in 1984 and 21,600 tons in 1988.In Magat, annual charcoal production would increase from 4,320 tons in 1985to 8,640 tons in 1988.

5.06 Mango. The variety grown would be the "Carabao" mango which ishighly regarded in the domestic market and in Hong Kong and Japan. It growsin a wide range of soil types and pH (5.5 to 8.0) but well-drained, loamysoils give the best results. Half of the seedlings would be grown from seedsand the rest would be propagated by grafting. The variety responds well tofertilization; chemical spraying would be used to induce early flowering, andappropriate insecticides and fungicides would be used for pest and diseasecontrol. The average yield for the country is about 9.0 ton/ha, but small,well-managed plantations on good soils yield up to 40 ton/ha. Based on soilconditions in Pantabangan and Magat, the following mango fruit yields areexpected:

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Year: 6-7 8-9 10-14 15 onwards

Yield (ton/ha) 6.7 10.0 16.7 20.0

On the basis of these yields and the planting schedule, annual production inPantabangan is expected to increase from 2,670 tons in 1986 to about 40,000tons in 1999. In the case of Magat, annual mango production is estimated torise from 4,160 tons in 1987 to about 18,715 tons in 1997.

5.07 Cashew. The tree is native to Northwestern Brazil where theclimate has a distinct wet and dry season. It grows well in regions withan annual rainfall as low as 50 mm but also thrives under conditions of muchhigher precipitation if the soils are well drained. A climate with distinctwet and dry periods is favored for production. Cashew does well on soilswhich are too poor or too dry for other crops and it has been known torespond profitably to fertilization in India. It is a hardy tree and survivesthe attack of diseases, pests and animals and attacks from anthracnose funguscan be controlled by fungicide sprays. On the basis of conditions inPantabangan and Magat, the following yields of raw nuts are expected:

Year: 1-3 4-6 7-9 10-14 15 onwards

Yield (ton/ha) - 0.9 2.0 2.2 2.5

Based on these yields and the planting schedule, annual raw nut productionin Pantabangan is estimated to increase from 540 tons in 1984 to about 7,500tons in 1999. At Magat, annual production is expected to rise from 445 tonsin 1984 to 3,750 tons in 1996.

5.08 Pulpwood and Timber from Yemane. Yemane, a species introducedfrom the Sudan and Fiji, grows extremely fast on rich, alluvial, well-drainedsoils. Early plantings and subsequent trials have indicated that it growswell in low and dry sites, but not on very dry ridges with shallow soil.It does not grow at elevations above 800 m. Due to poor soil conditions inPantabangan and Magat, plantings of Yemane are expected to have lower yieldsthan in other parts of the country such as Cebu. The anticipated yield is asfollows:

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Year: 7 8 9 10 11 12 13 14 15

Yield (cu m/ha)Short-fiber pulpwood 43 48 53 58 61 63 65 66 67Timber 9 11 13 15 17 20 23 26 29

Total 52 59 66 73 78 83 88 92 96

Based on these yields, the planting schedule, and the harvesting of about440 ha annually in Pantabangan, starting in 1989, the production of short-fiber pulpwood would range between 20,120 cu m and 26,840 cu m annually overthe period 1989 to 1998. Production of timber would range between 4,440 cu mto 7,480 cu m annually over the same period. At Magat, about 85 ha would beharvested annually starting in 1990, yielding short-fiber pulpwood productionranging from 3,655 cu m to 5,525 cu m annually over the period 1990-96.Production of timber would range betwen 765 cu m and 1,955 cu m annually overthe same period.

5.09 Pulpwood and Timber from Benguet Pine. Benguet Pine is indigenousto the Philippines and is used for reforestation of grassland. It grows ina wide range of soil types and on elevations above 1,000 m. Although itsnatural range goes below 400 m, the form and rate of growth falls off consi-derably at elevations below 1,000 m. Under Pantabangan and Magat conditions,the following yields are expected:

Year: 13 14 15 16 17 18 19 20 21 22 23 24 25

Yield (cu m/ha)Long-fiber pulpwood 55 55 55 55 55 55 55 57 57 57 56 56 56Timber 14 17 20 23 26 29 32 34 37 40 44 47 50

Total 64 72 75 78 81 84 87 91 94 97 100 103 106

Based on these yields, the planting schedule, and the harvesting of about325 ha annually in Pantabangan starting in 1992, production of long-fiberpulpwood would range between 17,875 tons to 18,525 tons annually between 1992to 2011. Production of timber would range between 4,500 cu m and 17,225 cu mover the same period. In Magat, about 115 ha would be harvested annually

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starting in 1998, yielding long-fiber pulpwood production ranging between6,325 cu m to 6,555 cu m annually over the period 1998 to 2010. Productionof timber would range between 1,610 cu m to 5,750 cu m annually over the

same period.

5.10 Timber from Narra and Mahogany. Narra, one of the premium hard-woods in the Philippines, grows on a wide range of soil types. It doeswell on open grasslands of Pantabangan and Magat. Large-leaf Mahoganyis one of the most successful broadleaved plantation species in the country.It grows on shallow as well as deep alluvial soils, thrives under rainfallof 1,500-5,000 mm and a dry season up to 5 months. In its native habitat,it is found mostly in lower elevations and occasionally at elevations of1,000 m. Both species are expected to yield as follows in Pantabangan andMagat:

Year: 20 25 30 35 40

Yield (cu m/ha) 58 106 160 213 250

Based on these yields, about 137,900 cu m of Narra would be available in 2019in Pantabangan and 106,500 cu m in Magat. About 1,261,500 cu m of Mahoganywould be available in the same year in Pantabangan and about 498,500 cu m inMagat.

6. MARKET PROSPECTS AND PRICES

6.01 Ipil-ipil Leafmeal. The meal is obtained by drying leaves ofIpil-ipil and grinding them to a texture suitable for mixing into animalfeeds. Leafieal is a valuable source of crude protein, vitamins, and mineralsin hog and poultry feed. For poultry feeding, Ipil-ipil leafmeal is a verygood source of yellow pigment for egg yolk, and shanks and breasts ofbroilers. About 5% leafmeal is usually recommended in rations for poultry andswine diets. Feeds composed of up to 5% leafmeal have not produced any illeffects from the mimosine content in the leaves. The whole leaf contains bothnutrients and roughage and makes a ruminant feed comparable to alfalfa forage.The Ipil-ipil protein level is high and is of good nutritional quality, withamino acids present in well balanced proportions, much like alfalfa. The mealis also a rich source of carotene, riboflavin and Vitamin K.

6.02 The main area of domestic commercial production of Ipil-ipilleafmeal is the Central Visayas. It is a smallholder crop with leaves beingharvested, sun-dried, and sold to middlemen. The middlemen further dry and

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grind the leaves before selling them to processors in Cebu. Processedleafmeal is then shipped to mixed feed manufacturers in Manila where about80% of the operating capacity of registered feedmillers is located. Manilaand its surroundings are the most important market for meat and poultryproducts and hence almost 60% of commercial livestock raisers are locatedwithin a 50 km radius of Manila. While commercial production of Ipil-ipilleafmeal is not as widespread in Luzon, a number of livestock growers plantand harvest their own Ipil-ipil and feed the leaves directly to animals. Theadvantage of the Pantabangan project site for Ipil-ipil leaf production is itsproximity and easy access to the market center of Manila. While no extensivenetwork of leafmeal traders and middlemen exist in Luzon, the private sectoris enterprising, competitive, and capable of building up an efficientmarketing system for the sun-dried leaves.

6.03 Another source of demand for Ipil-ipil leafmeal in pelletized formis the Japanese feed milling industry, where it is used as a substitute foralfalfa. Major distributors exported about 10,000 tons annually to Japanuntil 1977. Subsequently, Government policy required the satisfying oflocal demand before exports were permitted. In 1978, due to increaseddemand and lower production as a result of bad weather, there were noexports and some alfalfa meal was imported. Supply and demand for Ipil-ipilleafmeal seemed to be reasonably in balance in 1979.

6.04 Over the period 1974-1978, commercial feed production grew from539,800 tons to 858,600 tons, an annual growth rate of about 12%. Incomparison, between 1976-78, the only period for which reliable data areavailable, the hog and chicken population also increased annually at about12%. Assuming that about 4% of the total feed production was Ipil-ipilleafmeal, the commercial production of Ipil-ipil leafmeal in 1978 was about34,300 tons. Over the period 1974-78, the price of Ipil-ipil leafmeal,delivered in Manila, has risen from P 0.6/kg to P 0.84/kg, an annualgrowth of about 9% in current terms but almost constant in real terms. Thedemand for Ipil-ipil leafmeal is determined by its price relative to otherprotein ingredients and sources of yellow pigment, and the growth oflivestock population. Based on current prices of other feed ingredients anda least cost analysis of feed mix formulations performed by feedmillers,Ipil-ipil leafmeal is favored over other ingredients if the price does notto go beyond P 0.8/kg in 1978 terms. At this price level, about 5% of hogfeeds and 4% of poultry feeds contain Ipil-ipil leafmeal. The Ministry ofAgriculture, estimates that the consumer demand for pork and chicken wouldgrow at about 5% annually over the period 1978-1985, based on a real percapita income growth of 3.0%. Assuming that the hog and chicken populationwould grow at the same annual rate of 5%, the estimated domestic demand forIpil-ipil leafmeal would be as follows:

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Year Demand (tons)

1978 34,3001985 48,3001990 61,600

6.05 Based on an average yield of 15 tons/ha of Ipil-ipil dry matter,about 1,000 ha of additional production area would be needed by 1985 andabout 2,000 ha by 1990. Although it is difficult to precisely estimatefuture Ipil-ipil production in the country, other than from the project, itis expected to satisfy domestic demand. Therefore, the incremental productionfrom the project area would have to be exported. The largest export marketfor pelletized Ipil-ipil leafmeal is Japan. In the past few years, Japan hasimported between 400,000 and 500,000 tons of pelletized alfalfa meal annually.This demand is expected to increase at about 10% to 12% annually in the futuredue to the country's desire to increase domestic meat production viz-a-vizdirect importation. It is projected that such imports would amount to about600,000 tons in 1980 and 900,000 tons in 1985. Due to the price competitive-ness of Ipil-ipil leafmeal pellets (which historically have sold at a price20% lower than alfalfa pellets), they could substitute for about 20% ofJapan's alfalfa pellet imports. This would mean an annual export demand forIpil-ipil leafmeal pellets of about 120,000 tons in 1980 and about 180,000tons in 1990. Thus the 45,000 tons of dry matter produced under the projectwould be readily absorbed by the export market. Today, pelletizationfacilities do not exist near the project area or near Manila. However, theinvestment needed is only about US$650,000 to pelletize the project output for

export. Since the feedmilling industry is well developed and enterprising, itis expected that the private sector would make that investment. PelletizedIpil-ipil leafmeal is presently selling at about US$110 per ton f.o.b.Manila. After deducting pelletization, drying, grinding and transportationcost, the project-site price would be about US$54 per ton or P 0.4/kg of drymatter in 1979. In the future, the price of the product, in real terms, isexpected to remain constant. For the economic analysis, the price has beenexpressed, in terms of mid-1980 values, at about P 440/ton.

6.06 Ipil-ipil Charcoal. Processing of fuelwood into charcoal has beenincluded in the project since the procedure is simple, inexpensive andsubstantially increases the value of the fuelwood input. Charcoal is utilizedlocally for domestic cooking and industrial purposes such as the chemicalindustries, steel mills, paper mills and sugar refineries. The increasingcosts and uncertainty of supplies of substitutes for charcoal, particularlybunker oil, has caused the demand for and price of charcoal to rise rapidly.Restrictions on the use of fuelwood in urban areas has heightened the demandfor charcoal. Domestic demand for charcoal is influenced by the number ofurban households as well as by the price of substitute fuels. In addition,increased industrial use of carbon-based products for the production of PVCresins, acetylene, vinyls and other carbide products, is also expected to

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increase the demand for charcoal. However, the relatively high transportationcosts for charcoal render it unattractive for sale in markets more than 100 kmaway from the production site.

6.07 The project's charcoal production would be sold at the project siteto middlemen, who would then sell it in the household markets of the nearbyprovinces of Nueva Ecija, Nueva Vizcaya, Isabela, Bulacan and Pampanga.According to National Census and Statistics Office (NCSO) data about 87,000families or 29% of urban households in these provinces use charcoal forcooking purposes, about 130,000 families (43%) use kerosene or liquifiedpropane gas (LPG) and about 86,000 families (28%) use wood for cookingpurposes. Due to a ban on the use of firewood for cooking in urban areas inorder to reduce smoke pollution, and the scarcity of good quality firewood,there has been a gradual change to charcoal by households presently usingfirewood. Since the cooking is generally done outdoors, the change requiresno extra money or effort. In addition, due to the increasing price andproblems in the availability of kerosene and LPG, households using thesefuels are also increasing the use of charcoal for their heavier cookingneeds, generally done outdoors with rudimentary facilities. New householdsare also facing problems in securing LPG supplies and paying for the initialinvestment of the stove, etc. For example, the minimum cash outlay requiredfor bottled LPG would be P 40, whereas a bundle of charcoal can bepurchased for about P 5.

6.08 For comparison, the heating value of Ipil-ipil wood charcoal isabout 6,539 calories/kg and that of LPG about 11,404 calories/kg. The cost ofcharcoal is about P 1.0/kg and LPG about P 3.3/kg. Assuming a relativeefficiency of 70% for the use of charcoal for cooking as compared to LPG, theuse of charcoal is about 25% cheaper. With increasing price and decreasingavailability of LPG, the use of charcoal will become even more attractive.Since reliable data on prices for firewood are not available, a comparison isdifficult to make, though it is believed that costs of using charcoal andfirewood are comparable. The project is expected to produce about 30,000 tonsof charcoal annually by 1990, enough for use by about 60,000 families. Atpresent about 85,000 families (30%) in the project provinces use charcoal forcooking and about 216,000 families (70%) use LPG or firewood. With a 2.5%annual population growth rate in the future, about 107,000 more families areexpected to be created by 1990. No problems are anticipated in marketing theproject's charcoal production at full development, as it would be completelyabsorbed by a changeover of less than 10% of the households historicallyusing LPG and firewood. Charcoal retailed in the neighbouring urban areasat about P 1,000/ton in 1979. Deducting the retailer's margin, transportand handling cost, the price at both project sites, would be P 700/ton.It is expected that the price of charcoal would remain at this level, inreal terms, in the future. For the economic analysis, the price has beenexpressed, in mid-1980 terms, at about P 840/ton.

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6.09 Mangoes. Mangoes are grown by smallholders as a backyard crop andplantation growing of the fruit is not significant. According to BAECONstatistics, the area grown to the crop has decreased from about 45,000 ha in1968 to about 35,000 ha in 1978 through land-use conversion and scrapping ofold areas. However, production has increased over the same period fromabout 126,460 tons in 1968 to about 328,680 tons in 1978, an annual growthrate of about 10%, due to increased yields. The island of Luzon is thelargest mango growing area, accounting for 60% of the area and 51% of thenational mango production. Shown below is the 1978 area and productiondistribution by major regions of the country:

Area ProductionRegion Ha % ton %

Luzon

Ilocos 7,540 22 52,840 16Cagayan Valley 1,380 4 12,860 4Central Luzon 7,360 21 74,900 23Manila & Southern Tagalog 4,520 13 26,340 8Bicol 80 - 190 -

Subtotal 20.880 60 167.130 51

VisayasWestern Visayas 4,340 12 87,260 27Central Visayas 3,240 9 11,350 3Eastern Visayas 60 - 230 -

Subtotal 7.640 22 98.840 30

MindanaoWestern Mindanao 1,990 6 15,510 5Northern Mindanao 880 3 9,550 3Southern Mindanao 2,700 8 35,960 11Central Mindanao 940 3 1,690 1

Subtotal 6,510 18 62.710 19

Total 35,030 100 328.680 100

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6.10 Mango trees fruit once a year but the fruiting season varies fromregion to region. The northern regions such as Luzon produce earlier(January and February) and the southern regions later (August). A fewareas, such as Cebu in the Central Visayas, produce mangoes throughout theyear through artificially induced flowering. Mangoes from the southernregions are sold in Manila in the off-season for the affluent and touristmarket. However, inter-island trade of mangoes is small and for practicalpurposes, each of the aggregated areas, Luzon, Visayas and Mindanao can beconsidered independent in mango production and consumption. Within Luzon,where the project is located, the major growing areas are Ilocos and CentralLuzon which produce surpluses, which are sent to deficit areas much asManila and Southern Tagalog. Most of the fruit is sold for the table marketand a small proportion, less than 5%, is processed or exported. Mangoexports, about 90% to Hongkong and 7% to Japan, have fluctuated between5,000 and 7,700 tons over the period 1970-77 and averaged about 6,900 tonsannually.

6.11 Production in Luzon has grown at an annual rate of about 3% overthe past five years 1973-78. Over the same period prices received byfarmers have increased annually about 15% in current terms and about 2% inreal terms. Over the past two years, production and prices seem to havestabilized at about 166,000 tons and P 2,000/ton. Export prices formangoes in 1977 averaged about US$290/ton or P 2,145/ton. The majorexpansion of mango production areas has come through the financing programsof DBP. Over the period 1974-78, DBP has provided financing for a total ofabout 4,540 ha, with the peak of 1,940 ha in 1976 and then tapering down toabout 350 ha in 1978. It is estimated that about 65% of the areas financedare in Luzon and that about 300 ha would be financed annually over theperiod 1979-85. Based on the DBP supported areas and those of the project,mango production in Luzon is expected to reach about 215,000 tons by 1990,equivalent to an annual growth rate of about 4% over the period 1978-90.Assuming a 3.0% annual real per capita income growth in the future, acoefficient of income elasticity of 0.61, and a 2.5% annual population growth,consumption in Luzon is expected to increase at an annual rate of about 4.5%and reach 225,800 tons by 1985, 280,000 tons by 1990 and 347,200 tons by 1995.The shortfall in production in 1985 and 1990 is expected to be met byproduction from areas outside Luzon, and the shortfall in 1995 would come fromadditional areas financed in Luzon after 1985. Therefore, an adequate marketexists for the mango production from the project area. Should the actualannual growth in consumption fall to 3.0% annually, the historic growth ratefor the past five years, there would still be a domestic market in Luzon forthe project's production.

6.12 The province of Pangasinan, adjacent to the project area, is oneof the important mango growing provinces, accounting for about 24,300 tonsin 1978 or 15% of Luzon's production. It has a well developed system formarketing which is dominated by contract buyers and the buying agents ofManila wholesalers. In 1979, there were about 200 mango dealers operating

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in Pangasinan, and contract buyers accounted for about 25% of the volumebought from farmers, and agents about 52%. In 1978, the average price paidto farmers in this area was about P 1,640/ton by contract buyers, aboutP 1,980/ton by agents and P 2,185/ton by retailers. The price paid bycontract buyers was lower because of their particular method of operation.Some contract buyers pay all costs (chemicals and labor) and share the netsale with farmers on a 50-50 basis. Others estimate the production andquality of the fruit and negotiate a price per tree, then harvest and haul thefruit away. Excluding the volume bought by contract buyers because of theirspecial relationship with the farmers, the weighted average prices paid to thefarmer was P 2,050/ton in 1978. Since the province of Pangasinan and theproject area are about the same distance from and connected by a good roadsystem to Manila, the price at the Pantabangan project site for mangoes in1978 would be the same at about P 2,050/ton, while that for Magat would beat about P 1,800/ton. These prices are expected to remain constant in thefuture in real terms. For the economic analysis, prices have been expressedin mid-1980 terms, at about P 2,460/ton at Pantabangan and P 2,210/ton atMagat.

6.13 Cashew. According to Bureau of Agricultural Economics (BAECON)statistics, production of raw cashew nuts in the Philippines was about 4,235tons in 1978, grown over an area of about 3,690 ha. Almost 88% of theproduction is grown in Palawan, Guimares and in Ilocos. Production ofcashew nut has been essentially constant over the past ten years except forfluctuations due to weather conditions. Cashew trees are grown in thePhilippines in semi-wild and wild conditions as a smallholder crop. Thelack of proper tree maintenance, sparse distribution of trees resulting inpollination problems, and improper harvest and post-harvest handling accountfor the generally low yields. There is no organized marketing system forcashew and there are no middlemen specializing in the trading of cashewnuts. Wholesalers and traders, who deal with a number of other products,buy nuts from farmers and sell them to retailers who contract out the nutsfor processing. The processing is done in small cottage industries, whereroasting and cracking of nuts is done under primitive conditions. The lackof large volumes of production and unreliability of supply have not favoredthe development of an efficient and viable processing industry. Most of thecashew production for the Southern Tagalog and Central Luzon areas isconsumed in Manila. Cashews are consumed primarily as roasted and saltednuts and secondarily in confectionary products. The local consumerpreference for cashew nuts is not strong and local demand is not expected toincrease significantly except for high-income families in Manila. Suchinreases in demand would not be significant in terms of the 6,000 to 8,000tons of cashew nuts expected to be produced annually by the project over theperiod 1990 to 1995. Therefore, the production from the project could bedisposed of in two ways: (a) the nuts could be processed locally and thenexported to Japan or the US or (b) the nuts could be exported to India. Thedecision of which alternative to choose would have to be taken in the early

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1990s when production from the project area would start. Though the firstalternative would retain the value added from processing within the country,and increase foreign exchange earnings, it would involve the initiation of(a) a grading system for cashew kernels, (b) an efficient processing industryand (c) marketing of kernels abroad, almost from scratch. Unless there is avery substantial increase in cashew production in the country, which presentlydoes not appear likely outside the project area, the second alternativeof exporting the raw nuts to India may appear more attractive as an initialstep. For purposes of analysis, it has been assumed that production of cashewnuts in the project area would be sold for export to India.

6.14 The regional distribution of world imports of cashew nut kernelshas remained fairly constant over the years. North America's share of totalimports has ranged between 55-60%; Eastern Europe, including the USSR, importsabout 25%; Western Europe about 10%; the remainder of imports being dividedamong a large number of countries. The combined imports of the US and Canadahave increased at a rate of about 4.0% per annum between 1960 and 1975. TheSoviet Union increased its imports at a rate of about 13.7% per annum duringthe same period. In Asia, Japan showed a fast growth rate in imports, and inthe Pacific, Australia and New Zealand have continued to increase theirimports at a rate of about 7.0% per annum. Demand for cashew kernels appearsto be strong. Prices of cashewnut kernels,/1 in current terms, have more thandoubled in the past 13 years from about US$0.45/lb in 1963 (c.i.f. New York)to US$1.82/lb in 1976 and to an exceptional high price of US$2.40/lb in 1977due to supply shortages. The price of kernels 300-320 wholes c.i.f. New Yorkhas averaged US$2,800/ton in 1976, US$5,020 in 1977, and has maintained the1977 levels in 1978. Due to the acute supply situation, present levels ofcashew kernels prices are high and it is expected that in the early 1990s andbeyond, the price would stabilize to 1976 levels, equivalent to US$4,200/tonexpressed in mid-1980 values. This price has been used for the economicanalysis to determine the price for raw cashew nut in the project area.

6.15 Trade in raw cashewnuts has been virtually confined to imports byIndia of East African raw nuts. India's cashew processing industry, with anannual shelling capacity of 450,000 tons, is currently afflicted by an acuteshortage of raw nuts. With domestic production supplying only a third ofthe industry's needs, India is vitally dependent on raw nut imports to keepits plants operating. While local production has remained steady at 150,000tons, imports of raw cashew have declined sharply in recent years from about135,000 tons in 1975 to 10,000 tons in 1978 due to a shrinking availabilityfrom its two traditional suppliers, Mozambique and Tanzania. In 1976 theGovernment of India initiated a program to put about 145,000 ha undercashew over the next six years, 60,000 ha under Government plantations and85,000 ha under private plantations. Though the production from these

/ Grade 300-320 whole kernels in 25 pound tin c.i.f. New York.

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plantations is expected to increase the capacity utilization of the process-ing industry, there would still be a significant shortfall which would haveto be met by imports of raw cashew nuts. The relatively modest productionfrom the project area, about 9,000 tons of raw nuts annually, could easily besold to India.

6.16 Although price parity formulas between raw nut and kernel priceswould depend on the negotiations between the Philippines and India, it hasbeen assumed that the future margin /1 for India would be about 110% withrespect to raw nuts bought from the Philippines (the margin has variedbetween 90% and 125% over the period 1973 to 1976 for raw nuts imported fromAfrica). This would imply a price for raw nuts of about US$405/ton orP 3,000/ton, f.o.b. Manila in terms of mid-1980 values. Taking intoaccount port handling and transportation costs, the price at the Pantabanganproject site would be about P 2,720/ton, and at Magat about P 2,470/ton.

6.17 Pulpwood. In 1978, there were 23 firms in the domestic pulp andpaper industry with a combined production potential of about 370,000tons/yr /2 of paper and paperboard. The potential falls short of currentdomestic consumption by an estimated 60,000 tons/year. Eight companies haveintegrated pulp and paper/paperboard manufacture, twelve are unintegratedpaper/paperboard mills, and three are unintegrated special pulp producers.Pulp supply potential is around 215,000 tons/year or about 60% of the mills'requirement. About 50% of the paper/paperboard production capacity and only23% of the pulp mill capacity is located in Luzon. In the past, productionhas been substantially below supply potential, mainly because of the lack ofraw materials. Except for the largest producer, Paper IndustriesCorporation of the Philippines (PICOP), the pulp mills have suffered fromscarcity of pulpwood. Paper mills have suffered from the non-availabilityof local pulp and at times, high prices of imported pulp and waste paper.On the basis of Board of Investment (BOI) data, the estimated supply anddemand for paper and paperboard is as follows.

/1 Assuming a kernel to raw nut outturn of 23%. The margin would covertransporation and processing costs and profits. Margin (%) = 100 x(Kernel price x 0.23 - Raw nut price)/Raw nut price.

/2 Estimated at about 80% of rated capacity.

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Supply Potential /a Demand Gap--- '000 tons/yr of paper and paperboard ---

1980 420 475 551985 420 640 2201990 420 860/b 440

/a Existing mills plus known expansion plans.

/b Mission estimate.

6.18 The expected shortfalls in supply have to be balanced by imports andincreased capacities. Imports are now approaching 100,000 tons/annumconsiderably more than Indicated above, because of underutilization ofexisting capacities. In the long run, imports can be replaced by domesticproduction, with the exception of a few special grades. The shortfalls inpulp are even greater because domestic pulp production currently lags behindthe paper industry's requirements by roughly 100,000 tons/annum, about 65% ofwhich consists of long-fiber woodpulp which has to be imported. Assuming thatthe use of secondary fiber is maximized and that of long-fiber is minimized,and ignoring the possible additional use of nonwood pulps, about 1.9 milioncu m of additional pulpwood would be needed annually by 1990, of which about0.8 million cu m would be long-f'iber pulpwood. Assuming that one third of theshort-fiber deficiency could be met from natural wood, logging waste andmilling residues, and an equivalent of up to 200,000 cu m of long-fiber woodfrom natural pine and other long-fiber raw materials, plantations would beneeded to produce about 750,000 cu m/annum of short-fiber pulpwood and about600,000 cu m/annum of long-fiber pulpwood by 1990. These are aggregatefigures and refer only to projected demands of the pulp and paper industry fordomestic supplies. If the demand of possible export-oriented mills wereconsidered, the volumes required would have to be raised significantly. Theaggregate of current annual pulpwood plantings do not exceed the level neededto sustain available mill capacities.

6.19 The harvesting of short-fiber pulpwood in the project area isexpected to begin in 1990, averaging about 27,000 cu m annually, consistingof about 22,300 cu m in Pantabangan and 4,700 cu m in Magat. The project'stotal annual production would represent only 3.6% of the projected gap in thecountry's short-fiber pulpwood requirements in 1990. Long-fiber pulpwood isexpected to be harvested beginning in 1993, averaging about 32,500 cu mannually, consisting of about 24,000 cu m in Pantabangan and 8,500 cu m inMagat. The project's long-fiber pulpwood production would amount to only 5.4%of the projected deficiency in the country's requirement in 1990. Nodifficulties therefore, are expected in marketing of the pulpwood. The Bataan

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Pulp and Paper Hill in Samaal, Bataan, about 200 km from the Pantabangan

project area, has a rated pulping capacity of about 100 tons/day. It has

been operating at 60-70% of capacity due to problems in supply of pulpwood.

It does not have its own pulpwood production areas and depends on imports of

woodpulp and pulpwood supplies (primarily logging wastes) from Cagayan,

Kalinga-Apayao and even Mindanao. Prospects for supply of pulpwood are

becoming worse both from the quantity and cost point of view. The mill

could easily buy an additional 25,000 cu m of short-fiber pulpwood, and

about 22,000 cu m of long-fiber pulpwood if the supply was locallyavailable. This would mean that the production from Pantabangan could be

sold in Bataan and be competitive with supplies from more distant areas such

as Cagayan and Mindanao. A new pulp and paper mill with capacity of 200

tons/day is expected to be put up in the 1980s in KalingaApayao, withinabout 100 km from the Magat project area. Though there are no firm plans or

commitments, Kalinga-Apayao would be an advantageous site for such a plant

because of the availability of pulpwood supply from logging wastes and

available areas for plantations. Such a mill would require roughly 280,000

cu m of short and long-fiber pulpwood to operate at 85% of capacity.

6.20 In 1978, imported short-fiber wood pulp cost about US$295/ton,

c.i.f. Manila. Including a 50% custom duty and transport charges to Bataan,

it cost about US$458/ton at mill-site. Deducting the cost of pulp production,

estimated at about US$200/ton, the equilibrium price of short-fiber pulpwood

would be about US$65/cu m or P 470/cu m mill-site (without the customs duty,

the equilibrium price would be about US$27/cu m or P 205/cu m mill-site).However, short-fiber pulpwood, mostly in the form of logging wastes from

Cagayan, is presently being sold in Bataan for about P 230/cu m. Deducting

the cost of local transport, the price of short-fiber pulpwood would be

equivalent to about P 150/cu m in 1978 at the Pantabangan project site.It is expected that a paper and pulp mill would be built in the Kalinga-Apaya6

region in the late eighties, because of the relatively easy availability of

logging wastes, areas for reforestation, and availability of hydro-power. The

short-fiber pulpwood from the project area could sell at Magat for about thesame price as in Pantabangar., about P 150/cu m in 1978. In mid-1980 terms,these prices work out to P 180/cu m at both sites.

6.21 The Bataan mill imported long-fiber woodpulp in 1978 at a cost ofabout US$330/ton, c.i.f. Manila. Including a 20% custom duty and transport

charges to Bataan, the cost would be about US$408/ton mill-site. Deductingthe cost of pulp production estimated at about US$200/ton, the equilibriumprice would be about US$412/cu m or P 310/cu m mill-site. Taking into

account the cost of local transport, the price of long-fiber pulpwood would be

equivalent to about P 230/cu m at Pantabangan. In the case of Magat, the

price at project site is expected to be about the same. In terms of mid-1980

values, these would work out to P 275/cu m at both sites. Presently, mostof the short-fiber pulpwood is supplied as a by-product of logging operations.

However, in the nineties, a considerable supply would have to come fromplantations geared to pulpwood production and/or imports of short-fiber

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pulpwood. Similarly, long-fiber pulpwood would have to be supplied in thefuture, either from plantations growing pines and/or importation of long-fiberwood pulp. It is extremely difficult to predict the local supply and pricesof these pulpwoods in the nineties. It has been assumed that in the futurethe price levels will remain constant, in real terms.

6.22 Timber. The project is expected to sell logs of Yemane, BenguetPine, Narra and Mahogany at plant-site. Yemane would be used in the localmarket for cabinet making, light construction and for wood carvings. BenguetPine, Narra and Mahogany are used in high-quality furniture, interiorpanelling, flooring and general construcion. Benguet Pine poles are used bythe NEA for electricity distribution lines. Due to the relative scarcity ofthe three latter species, they sell at a considerable premium to Lauan, theprincipal timber species in the domestic and export market. The project isexpected to produce an average of about 6,670 cu m of Yemane logs annuallybetween the years 1990 and 2000, and about 15,000 cu m of pine logs annuallybetween 1999 and 2019. In addition, around the year 2019 the project wouldhave standing timber of about 1.76 million cu m of Mahogany and 0.24 millioncu m of Narra. With the strong demand for wood, both locally and for exports,and the dwindling forest resources, the production from the project wouldeasily be sold in log-form at the project sites. There exists a cadre offinancially strong and enterprising middlemen in the lumber trading sector whowould then sell the logs for processing locally or for exports.

6.23 After a strong recovery from a price drop related to the worldwiderecession of 1974-75, production and consumption of tropical hardwood logsand their derived products have returned to their peak levels of 1973.Moreover, the long term outlook for the international market appears highlyfavorable. The rising costs of securing sufficient exportable supplies in theface of growing demand indicates that the international price of tropicalhardwoods would rise substantially in real terms in the future. The price oflogs is expected to rise at a rate of approximately 5% per annum, over theperiod 1978 to 1990. The average wholesale price in Manila of Lauan and Narralogs in 1978 was P 560/cu m and P 975/cu m respectively. Due to therecent ban on the harvesting of Narra, prices for Narra have increasedconsiderably commanding a premium over Lauan of about 75% in 1978 and over100% in 1979. Historically, before the ban, Narra traded at a lower premiumof about 50% over the price of Lauan. Mahogany sells at about the same priceas Narra, and for the analysis it has been assumed that the price of logs ofboth species would have a long-term premium of about 50% over Lauan logs, atabout P 1,000/cu m (mid-1980 values) in Manila. It is expected that theprice would increase at about 5% annually in real terms to aboutP 1,700/cu m in the year 1990 and P 2,800 in the year 2000. Deductingthe cost of transport of about P 160/cu m for Pantabangan and P 380/cu mfor Magat, the road-side price for Narra and Mahogany would be equivalent toabout P 2,640/cu m in Pantabangan and P 2,420/cu m in Magat in theyear 2000.

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6.24 Though good market price data do not exist for Benguet pine andYemane, some estimates have been made. Benguet pine poles have been boughtby the NEA for about F 1,165/cu m, f.o.b. Manila, in 1979. Pine logs foruse in the panelling market were reportedly being sold in Manila at a 20%premium over the price of Lauan logs, about P 810/cu m (mid-1980 values).Though sources of pine wood are relatively more remote and hence costlierfor extraction, the demand for pine logs is small and is not expected togrow as fast as that for Lauan. On balance, it is expected that in thefuture pine logs will maintain the present 20% premium over Lauan logs.Incorporating a 5% real annual increase in price and deducting the cost oftransport, the price at the project site for Benguet pine logs is expectedto be P 2,155/cu m at Pantabangan and P 2,015/cu m at Magat in the year2000. At present Yemane and similar types sell at about a 20% discount fromthe price of Lauan, or P 540/cu m in log form (mid-1980 values). It isexpected that Yemane logs will maintain the 20% discount from Lauan logs inthe future. Incorporating a 5% real annual increase in price and deductingthe cost of transport, the price works out to be P 1,405/cu m, Pantabanganand P 1,265/cu m, Magat in the year 2000.

7. BENEFITS, JUSTIFICATION AND RISKS

7.01 The project would be the first major Government attempt to managethe watersheds of the two largest multipurpose dams in the country. In thecase of the Pantabangan watershed, the project would establish an economicallyviable and technically sound system for preserving and enhancing the produc-tive capacity of the catchment and for providing a permanent and improvedlivelihood for the local population. It would also demonstrate a system ofwatershed management which could be replicated in other watersheds requiringurgent attention. The program would also stop the presently rapid rate ofdestruction of the land resources in the Pantabangan catchment. In the caseof the large and complex Magat watershed the additional studies and pilotprojects would examine the viability of reforestation, range management andsmallholder agroforestry approaches to solving the watershed's problems. Thereforestation program of a steep area immediately adjacent to the proposedMagat dam site would also reduce the rate of erosion and sedimentation in thereservoir. The forest protection pilot component would cover an area of about127,000 ha and help BFD in the development of a comprehensive forestprotection system which could be replicated on a larger scale in other areas.

Production

7.02 At full development, the project would provide an average annualproduction of about 45,000 tons of leafmeal, 30,200 tons of charcoal, 58,700tons of mango, 11,250 tons of cashew, 27,100 tons of short-fiber pulpwood and24,500 tons of long-fiber pulpwood. In addition, the project would produce

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about 6,670 cu m of Yemane timber and about 13,800 cu m of pine timberannually, and at the end of 40 years, the hardwood species would yield about2.0 million cu m. The charcoal and pulpwood production would represent anannual import savings of about US$7.3 million. Leafmeal and cashew would havean annual export value of US$10.0 million, and the hardwoods would have anexport value of about US$755 million.

Employment and Incomes

7.03 Based on an employment of 240 man-days per year per person, thePantabangan project area would provide sustained full-time work for about4,710 people or 1,570 families by 1985, increasing to 5,685 people or 1,895families by 1990 and peaking to 6,780 people or 2,260 families by 1995. Themonthly labor demands and availabilities in the watershed in 1980, 1985 and1990 are shown in Annex 2, Table 3. Labor supply projections are based on along-term annual growth of 3.0%, the national rate, and are net of otheremployment in the watershed. Based on these projections, labor demand wouldsignificantly outstrip supply in the months of December and January in 1995.However, considering the traditional mobility of labor in the Philippinesand taking into account the fact that families from Ilocos and Ifugao arealready migrating into the watershed, it is likely that the population wouldgrow faster than the 3.0% annually and that labor shortages would not arise.In addition to employment for laborers, the project would provide work forabout 400 salaried personnel.

7.04 The people in the watershed have moved there due to populationpressures and scarcity of employment in the lowlands. Others were resettledthere after their towns were inundated by the Pantabangan reservoir. They areextremely poor, with incomes below the absolute poverty level of US$200 percapita and survive on subsistence agriculture and occasional income fromGovernment public works. Their average per capita income in 1979 was US$75,with 77% of the households with incomes of less than US$140 per capita. Theaverage income today is about 37.5% of the absolute poverty level and 12.5% ofthe per capita GNP of US$600. With the project, labor employment wouldincrease the per capita incomes of these families to US$300. Through revenueor profit sharing the people would increase their incomes further. Assumingthat a minimum, fair return on NIA's investment would be 10%, about 20% of theannual revenues could be passed on to the employees. The additional incomefrom sharing 20% of the revenues would increase incomes of the employed laborto US$375 per capita by 1985, which would be over the absolute poverty leveland 49% of the 1985 projected per capita GNP of US$765. In 1990, theirincomes would increase to US$565, about 58% of the 1990 per capita GNP ofUS$975. The comparisons indicate that the project would help narrow theincome gap between the project area and other parts of the country, andbetween urban and rural areas. Shown below is a summary of the employment andincome figures for the Pantabangan watershed.

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Table 7.1: PER CAPITA INCOMES - PANTABANGAN

Income as % ofEmployment Per Capita Income Absolute

Year People Families Labor Revenue share Total poverty level GNP---------- Us$-

1985 4,710 1,570 300 75 375 187 491990 5,685 1,895 300 265 565 282 58

1995 6,780 2,260 300 340 640 320 51

In the Magat project area, the project would provide fulltime employment toabout 1,200 people or 600 families by 1985 and about 1,990 people or 995families in 1992. The people in areas adjacent to the project area who would

be employed by the project are poor, with average per capita incomes of aboutUS$100 and with 85% of the households with incomes of less than US$155 per

capita. The project would increase the per capita income to about US$275from steady employment. The forest protection pilot component would

permanently improve the lives of about 300 forest occupant families.

7.05 Cash available to NIA, after deduction of employee's revenue sharingand annual investment needs, could be used for other watershed managementprojects and for contributing to the maintenance of many of the small andscattered irrigation systems. Revenues are expected to start in 1981,increasing to about US$3.5 million in 1985 and rising to about US$23.1 millionin 1995. After deducting about 20% of revenues for employee sharing and theannual investment needs, the first year of excess cash generation would be in1989, rising to about US$5.7 million in 1995.

Financial Rate of Return

7.06 The overall discounted cash flow rate of return for the project is14%. The rate of return for the Pantabangan watershed subproject is about14%. In order to obtain rates of return for individual products, theoverhead costs for road construction and maintenance, forest protection,consulting services and NIA support services were allocated on the basis ofhectarage and the costs of general administration and community developmenton the basis of labor employment. While the rate of return for Yemane islow, it is an acceptable investment because the species does well on verypoor soils, has good erosion prevention characteristics, is fire resistant,and is important from the point of view of keeping up a biological diversityin the watersheds. The low return is due to its relatively poor quality asa timber.

7.07 The individual product rates of return and their sensitivity towage rates, cost overruns and drops in revenues are shown below:

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Table 7.2: FINANCIAL RATE OF RETURN AND SENSITIVITY ANALYSIS - PANTABANGAN

10% 10% de-increase crease in

Base Wage rate in costs revenuescase P 10/man-day (a) (b) (a)+(b)

Products ------------------------ % ----- …----------------

Leafmeal interplantedwith mahogany 11 16 10 9 8

Charcoal interplantedwith mahogany 18 20 16 16 15Mango 19 21 17 16 14Cashew 13 14 11 11 9Yemane 7 9 6 6 4Benguet Pine 11 11 10 10 9Narra 12 12 11 11 11

Total 14 16 12 12 11

The minimum wage rate stipulated by law is P 10/man-day and is the goingwage rate in the area. However, NIA has a policy of employing labor atP 16/man-day, the rate used for the cost estimates for the project. As canbe seen, the rate of return for leafmeal is most sensitive to the wage rateincreasing from 11% to 16%, due to the labor intensive nature of the work. Onthe whole, the use of the wage rate of P 10/man-day would increase the rateof return by 2%. A 10% increase in costs and a 10% decrease in revenuesindividually decrease the rate of return by 2%. For the overall Pantabanganproject, the rate of return would drop to 10% if either the wages were toincrease by 90%, or the costs were to rise by 30%, or Mango yields orrevenues were decreased by 50%, or overall revenues were decreased by 20%.

7.08 The discounted cash flow rate of return for the Magat subprojectis about 14%. The individual product rates of return and their sensitivityto wage rates, cost overruns and drops in revenues are shown below:

- 50 -

Table 7.3: FINANCIAL RATE OF RETURN AND SENSITIVITY ANALYSIS - MAGAT

10% 10% de-increase crease in

Base Wage rate in costs revenuescase P 10/man-day (a) (b) (a)+(b)

Products ------------------------ % -------------------------

Charcoal interplantedwith mahogany 14 15 13 13 12

Mango 19 21 16 16 12Cashew 11 12 9 9 7Yemane 10 11 8 8 7Benguet Pine 12 13 11 11 11Narra 11 12 11 11 11Mahogany 11 11 10 10 10

Total 14 16 13 12 11

On the average, a wage rate of P 10/man-day increases the rate of return by2%. A 10% increase in costs decreases the rate of return by 1% while a 10%decrease in revenues decreases it by 2%. For the return to drop to 10%, thewage rate would have to increase by 120%, or the costs by 30% or therevenues to decrease by 25%, or mango yields or revenues to decrease by 40%.

Economic Rate of Return

7.09 The economic costs were calculated excluding price contingencies butincluding physical contingencies. Local content of both costs and revenueswere multiplied by the standard conversion factor of 0.82 to convert them toborder prices. Labor was shadow priced at the going market rate of P10/man-day. Since the project lands have few alternative uses, no value wasassessed for them. Output prices were adjusted to reflect import parityprices for substitutes (Annex 2).

7.10 The overall economic rate of return for the project is 18%(Table 7.4). At a discount rate of 10%, the estimated opportunity cost ofcapital in the Philippines, the economic net present value of the project in1980 is US$56.3 million. The rate of return for the Pantabangan watershedsubproject is 18%. An allocation of the overheads as done for the financialrate of return is a good substitute for estimation of incremental overheadcosts needed if a single product was produced. Using that basis, theeconomic rates of return for the various products and the results of thesensitivity analysis are shown below:

- 51 -

Table 7.4: ECONOMIC COSTS AND BENEFITS(US$ million)

Pantabangan Magat Total ProjectNet Net Net

Year Costs Benefits benefits Costs Benefits benefits Costs Benefits benefits

1 5.6 - (5.6) 1.0 - (1.0) 6.6 - (6.6)2 3.7 0.2 (3.5) 1.1 - (1.1) 4.8 0.2 (4.6)3 4.1 0.7 (3.4) 1.4 - (1.4) 5.5 0.7 (4.8)4 4.5 1.2 (3.3) 1.4 - (1.4) 5.9 1.2 (4.7)5 4.8 2.6 (2.2) 1.4 0.1 (1.3) 6.2 2.7 (3-5)6 6.7 3.9 (2.8) 2.0 1.0 (1.0) 8.7 4.9 (3.8)7 6.1 5.8 (0.3) 1.6 1.0 (0.6) 7.7 6.8 (0.9)8 5.9 7.7 1.8 1.8 2.2 0.4 7.7 9.9 2.29 6.2 9.9 3.7 2.1 3.7 1.6 8.3 13.6 5.310 7.0 12.2 5.2 2.1 4.2 2.1 9.1 16.4 7.311 8.4 14.5 6.1 2.7 4.7 2.0 11.1 19.2 8.112 7.7 15.8 8.1 2.6 5.8 3.2 10.3 21.6 11.313 8.3 18.5 10.2 2.9 6.4 3.5 11.2 24.9 13.714 8.6 19.4 10.8 3.1 6.4 3.3 11.7 25.8 14.115 8.4 20.4 12.0 2.8 6.4 3.6 11.2 26.8 15.616 9.6 21.0 11.4 3.2 6.5 3.3 12.8 27.5 14.717 8.5 21.6 13.1 2.9 7.2 4.3 11.4 28.8 17.418 8.6 22.2 13.6 3.0 7.0 4.0 11.6 29.2 17.619 8.7 22.9 14.2 3.1 7.5 4.4 11.8 30.4 18.620 8.7 21.8 13.1 2.9 7.0 4.1 11.6 28.8 17.221 9.6 20.8 11.2 3.4 6.5 3.1 13.0 27.3 14.322 8.0 19.9 11.9 2.9 6.6 3.7 10.9 26.5 15.623 7.5 18.9 11.4 2.9 6.6 3.7 10.4 25.5 15.124 7.2 17.9 10.7 2.9 6.7 3.8 10.1 24.6 14.525 6.7 16.8 10.1 2.9 6.8 3.9 9.6 23.6 14.026 7.4 16.9 9.5 3.2 6.8 3.6 10.6 23.7 13.127 6.6 17.8 11.2 2.9 6.9 4.0 9.5 24.7 15.228 7.1 17.5 10.4 3.1 7.0 3.9 10.2 24.5 14.329 6.6 17.7 11.1 2.9 7.1 4.2 9.5 24.8 15.330 6.6 17.9 11.3 2.9 7.2 4.3 9.5 25.1 15.631 7.5 18.0 10.5 3.2 7.3 4.1 10.7 25.3 14.632 6.6 18.2 11.6 2.8 5.8 3.0 9.4 24.0 14.633 6.4 13.7 7.3 2.8 5.8 3.0 9.2 19.5 10.334 6.4 13.7 7.3 2.8 5.8 3.0 9.2 19.5 10.335 6.6 13.7 7.1 2.9 5.8 2.9 9.5 19.5 10.036 7.1 13.7 6.6 3.1 5.8 2.7 10.2 19.5 9.337 6.4 13.7 7.3 2.8 5.8 3.0 9.2 19.5 10.338 6.4 13.7 7.3 2.8 5.8 3.0 9.2 19.5 10.339 6.4 13.7 7.3 2.8 5.8 3.0 9.2 19.5 10.340 6.4 512.9 506.5 2.8 203.7 200.9 9.2 716.6 707.4

Net present value 41.5 14.8 56.3Economic rate of

return 18% 19% 18%

- 52 -

Table 7.5: ECONOMIC RATE OF RETURN AND SENSITIVITY ANALYSIS - PANTABANGAN

10% 10% de-Wage rate increase crease in

Base P 16/ P 5/ in costs revenuescase man-day man-day (a) (b) (a)+(b)

Products ------------------------- %------------------------

Leafmeal inter plantedwith mahogany 26 16 38 21 21 17

Charcoal interplantedwith mahogany 28 25 31 26 25 23

Mango 33 32 34 31 31 29

Cashew 18 16 26 16 16 14

Yemane 8 6 10 7 7 5

Benguet Pine 11 10 12 10 10 9Narra 13 12 13 12 12 12

Total 18 16 21 17 16 15

The economic rate of return for leafmeal is particularly sensitive to theshadow wage rate. Based on irrigation projects in the Philippines, the

shadow wage rate in rural areas works out to about P 5/man-day. At thiswage rate, the overall economic rate of return increases by 3%. For theeconomic rate of return to drop to 10%, the wage rate would have to increase

by 250%, or costs increase by 65%, or revenues would have to decrease by40%. If there were no revenues from mangoes, the rate of return would notfall below 10%.

7.11 The overall economic rate of return for the Magat subproject is

19%. The individual product rates of return and their sensitivity to wage

rates, cost overruns and drops in revenue are shown below:

- 53 -

Table 7.6: ECONOMIC RATE OF RETURN AND SENSITIVITY ANALYSIS - MAGAT

10% 10% de-Wage rate increase crease in

Base P 16/ P 5/ in costs revenuescase man-day man-day (a) (b) (a)+(b)

Products ------------------------- % ------------------------

Leafmeal interplantedwith mahogany 20 18 22 19 19 17Mango 26 23 29 23 23 20Cashew 16 15 18 14 14 12Yemane 12 10 13 10 10 9Benguet Pine 12 11 13 11 11 11Narra 12 12 13 12 12 12Mahogany 13 12 13 13 12 12

Total 19 17 21 17 17 15

On the average, the wage rate of P 5/man-day increases the rate of return by2%. For the economic rate of return to drop to 10%, the wage rate would haveto increase by 370%, or costs would have to increase by 65%, or revenues wouldhave to decrease by 40%, or mango yields or revenues would have to decline by80%.

7.12 Risks. No major technical risks are anticipated as a wide range oftree crops and end products are included in the project to minimize thedependence of the project on any single product. NIA has already demonstratedsubstantial capabilities in the development of nurseries, tree planting opera-tions and protection of the seedlings from fire in both project watersheds.Success of the project would depend mainly on two factors: the ability of theNIA project management to adapt to a commercial viewpoint and the fullinvolvement of the local population in project implementation. In order toreduce the management risk provision is made for substantial consultantassistance to strengthen the commercial and production aspects of theproject. Increased motivation of the resident population would be providedfor by strengthening NIA's already good public information services and byintroducing a series of personal and communal incentives to participation inthe project, additional to very significant employment benefits. The ForestProtection Pilot Component is subject to a certain risk that existingweaknesses in BFD's administrative capacity could delay its timelyimplementation. However, the component is small in size, it stretches onlyover three years and would be carried out by a single division of BFD in twotrial areas only. Besides a detailed operation plan and an intensivemonitoring and evaluation mechanism would be established from the outsetwith substantial consultant assistance. These features should reduce theadministrative risk to manageable proportions.

- 54 -

8. AGREEMENTS REACHED AND RECOMMENDATION

8.01 During negotiations agreement with the Government was reached onthe following principal points:

(a) NIA would afford the Bank an opportunity to comment on any newappointment to the post of Project Director during the period ofproject implementation (para. 4.03);

(b) NIA, in consultation with the Commission on Audit, would institutefor the project a commercial accounting system acceptable to theBank, by December 31, 1980 (para. 4.04);

(c) NIA would submit for Bank review by December 31, 1982a plan for sharing project revenues with employees of thePantabangan project area and then implement such a revenuesharing scheme by June 30, 1983 (para. 4.06);

(d) NIA would submit for Bank review by June 30, 1985 a profit sharingscheme, taking into consideration a fair share for employees and afair return on the capital investment of NIA, and that NIA wouldimplement such a profit sharing scheme by December 31, 1985 (para.4.06); and

(e) NIA and BFD would sign a memo of understanding by December 31, 1980defining:

(i) BFD's role in terms of providing technical services for nurseryand planting operations.

(ii) NIA's access to the training facilities and programs carriedout by BFD in the watershed; and

(iii) NIA's role in providing a joint fire protection service forboth the proposed project and the BFD project (para. 4.08).

8.02 A condition of disbursement for the forest protection pilotcomponent would be that a detailed plan of operations and an implementationschedule had been prepared for that component (para. 3.10).

8.03 With the above assurances, the proposed project would be suitablefor a Bank loan of US$38.0 million for a period of 20 years including 5years of grace. The borrower would be the Republic of the Philippines.

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Plantation Schedule - Pantabangan

Species 1980 1981 1982 1983 1984 1985 1986 1987 1988-91 1992-93 Total

Leafmeal 600 600 600 600 600 3,000

Fuelwood 1,000 1,000 1,000 1,000 1,000 5,000Cn

Mango 400 400 400 400 400 2,000

Cashew 600 600 600 600 600 3,000

Yemane 400 400 400 400 400 1,200 1,200 4,400

Benguet pine 500 500 500 500 2,000 2,000 500 6,500

Narra 350 350 700

Mahogany /a 1,500 1,000 8,000

Total 1,600 3,500 3,500 3,500 3,500 3,400 3,550 2,050 1,500 1,000 32,600/b

/a Interplanted in Ipil-ipil stands.

/b Physical area is lower, about 24,600 ha. t

- 56 -

ANNEX 1Table 2

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Plantation Schedule - Magat

Species 1980 1981 1982 1983 1984 1985 1986 1987 Total

FuelwoodGiant Ipil-ipil 500 500 1,000

Agoho 250 250 500

Mimosa 250 250 500

Mango 600 300 900

Cashew 500 1,000 1,500

Yemane 600 600

Benguet pine 1,500 1,500

Narra 500 500

Mahogany 500 1,000 a 1,000/a 2,500

Total 1,500 1,600 1.400 1,500 1,500 1.000 1.000 9,500/b

/a Interplanted in fuelwood plantations.

/b Physical area is lower, about 7,500 ha.

57 ANNEX 1Table 3

PHILIPPINES

WATERSHED MANAGEMENT AND EROSV)N CONTROL PROJECT

/a, /bSeedling Requirements - Pantabangan

('000)

1987- 1991-Species 1980 1981 1982 1983 1984 1985 1986 1990 1992

Mango 200 200 200 200 200 - - - -Cashew 470 470 470 470 470 - - - -Yemane 955 955 955 955 955 2,860 2,860 - -Benguet Pine 1,190 1,190 1,190 1,190 4,765 4,765 1,190 - -Narra - - - - - 835 835 - -Mahogany - - - - - - - 2,680 1,785

Total 2,815 2,815 2,815 2,815 6,390 8,460 4,885 2,680 1,785

/a Using allowances for cull and mortality of 20% for mango and cashew, and 30%for the rest.

lb Using the following spacings:

Mango - 5 m x 5 mCashew - 4 m x 4 mYemane - 2 m x 3 mBenguet Pine - 2 m x 3 mNarra - 2 m x 3 mMahogany - 2 m x 4 m

ANNEX 1- 58 - Table 4

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Seedling Requirements - Magat /a /b('000)

Species 1980 1981 1982 1983 1984 1985 1986

FuelwoodAgoho 895 895Mimosa 895 895

Mango 300 150

Cashew 390 780

Yemane 1,430

Benguet pine 3,575

Narra 1,190

Mahogany 1,190 1,785 1,785

Total 2,180 1,080 2,770 2.980 3,575 1,785 1,785

/a Using allowances for cull and mortality of 20% for Mango and Cashew, and30% for the rest.

/b Using the following spacings:

Agoho and Mimosa - 2 m x 2 mMango - 5 m x 5mCashew - 4 m x 4 mYemane - 2 m x 3mBenguet pine - 2 m x 3mNarra - 2 m x 3mMahogany - pure - 2 m x 3m

- interplanted - 2 m x 4 m

- 59ANNEX 1Table 5

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Schedule of Forest Road Construction(km)

1 2 3 4 5 6 Total(1980)

PantabanganPrimary access 15 30 30 20 95

Secondary access 20 50 50 50 50 30 250

MagatPrimary access 5 15 15 5 40

Secondary access 5 51 5 5 5 25

- 60 -

ANNEX 1Table 6

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Forest Road Design Standards

Primary Secondaryaccess access

Pavement width (m) 4 4

Minimum curve radius (m) 20 15

Maximum gradient (%) 5 8

Pavement gravel thickness (cm) 20 15

Pavement crossfall (%) 2.5 2.5

Side slope 1:1.5 1:1.5

- 61 -

ANNEX ITable 7

°w. rggregr gg IIIINIIIIrggIggI Ig I i,°f I rS I rg IIln I I eg, | O I

0 -8e 3 I- ago Rlg gone g>afI||rgggo ,-ion f-c 01 gwoc 01°

............. . 0......I~ ~

00~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~l

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S~~~~~~~~~~~~~~~~~~~ 3

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5o oO0 .

000S...n0001400000 000.Ca.o 401400000 00 o .. 40 t'|f A 0 0

co t@>t t 5 -- NN oRrlo~~~~~~~~~~~~~~x Ari t0w wZm I ¢xs°

000 o M 0. ; 00 "- 0.. 0.0.., SgS g

*3 g*.. g * .o a ° g eo sO o lg led g S g g gi gog grg egg *i 10 g geb

I igl g 5 ;rg Y *g ' L g g gil gja g Ig Xi g jgeg g * li j ;g

S >xa>0:wos>o^=i "°° a><:a3°f

- 62 -ANNEX 1

Table 8

PHILIPPINES

WATERSHED MANAGEiDENT AND EROSION CONTROL PROJECT

Expected Price Increase Estimate /a('000 pesos)

Calendar yearItem 1980 1981 1982 1983 1984 1985 Total

Foreign Exchange Content

Plantation establishment 6,980 5,840 7,265 9,115 13,415 18,770 61,385Forest roads construction 13,375 6,155 6,155 5,095 1,045 430 32,255Forest roads maintenance 5,170 70 95 120 145 155 5,755Forest protection & fire prevention 3,265 685 695 705 710 3,240 9,300General administration 11,465 2,135 1,610 1,635 1,635 9,285 27,765Magat feasibility study 2,210 3,465 3,465 - - - 9,140Magat pilot programs - - 1,080 3,175 2,575 940 7,770Forest protection pilot component 1,300 4,830 2,865 705 - - 9,700

Subtotal 43.765 23.180 23.230 20.550 19.525 32,820 163,070

Annual inflation rate (%) 10.5 9.0 8.0 7.0 7.0 7.0Expected price increases 1,165 2,340 4,535 5,865 7,345 15,530 36,780

Local ContentPlantation establishment 6,035 12,285 18,390 23,205 30,820 37,205 127,940Forest roads construction 3,005 7,155 7,160 6,255 2,800 1,130 27,505Forest roads maintenance 245 540 650 750 835 890 3,910Forest protection & fire prevention 2,435 4,330 4,540 4,955 5,090 4,955 26,305General administration 7,100 5,440 4,935 5,065 5,255 5,770 33,565Consulting services 890 925 665 1,110 960 295 4,845NIA support services 750 1,500 1,500 1,500 1,500 1,500 8,250Magat feasibility study 1,245 2,485 2,485 - - - 6,215Magat pilot programs - - 2,010 5,895 4,780 1,745 14,430Forest protection pilot component 2,430 6,125 6,015 2,540 - - 17,110

Subtotal 24.135 407 185 48,350 51,275 52,040 53,490 270,075

Annual inflation rate (%) 16.0 10.0 7.0 7.0 7.0 7.0Expected price increases 1,000 5,675 11,495 16,795 22,025 28,110 85,100

Total Without Price Increases 67.900 63,965 71,580 71.825 71,565 86,310 433,145

Expected price increases 2,165 8,015 16,030 22,660 29,370 43,640 121,880

Total With Price Increases 70,065 71,980 87.610 94,485 100.935 129,950 555,025

/a Calculated by compounding the estimated rate of price increases in prior years and one halfof the rate of increase in the year concerned.

-63 - ANNEX 1Table 9

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Estimated Schedule of Expenditures /a(US$'000)

TotalItem cost FY81 FY82 FY83 FY84 FY85 FY86

Plantation establishment 25,585 2,985 2,960 3,915 5,175 6,770 3,780

Forest roads construction 8,075 3,110 1,800 1,665 1,025 365 110

Forest roads maintenance 1,305 770 90 110 125 135 75

Forest protection & fire prevention 4,810 1,110 695 735 775 945 550

General administration 8,290 3,020 955 895 920 1,485 1,015

CQnsulting services 655 185 105 120 140 85 20

NIA support services 1,115 200 200 200 200 200 115

Magat feasibility study 2,075 870 805 400 - - -

Magat pilot programs 3,000 - 210 820 1,110 680 180

Forest protection pilot component 3,620 1,240 1,340 820 220 - -

Subtotal 58,530 13,490 9.160 9.680 9.690 10,665 5,845

Expected price increases 16,470 810 1,640 2,620 3,510 4,935 2,955

Total Project Cast 75.000 14.300 10,800 12,300 13,200 15,600 8,800

/a For Bank fiscal year.

ANNEX 1- 64 - Table 10

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

/aEstimated Schedule of Disbursements

Bank fiscal year Accumulated disbursementsand semester (US$'000 equivalent)

FY81First 500Second 2,000

FY82First 3,400Second 5,900

FY83First 9,300Second 12,500

FY84First 16,800Second 21,000

FY85First 24,500Second 27,800

FY86First 30,400Second 33,000

FY87First 35,600Second 38,000

/a For Bank fiscal year.

ANNEX 1- 65 - Table 11

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Proposed Allocation of Proceeds of Loan(US$ million)

Costs ProposedTotal Foreign loan

1. Civil Works 5.0Pantabangan reforestation 7.13 2.56Magat reforestation 2.28 1.14Forest protection pilot component 2.03 0.85

Subtotal 11.44 4.55

Disbursement would be 45% of total expenditure.

2. Materials and Labor 15.0

Pantabangan reforestation 24.56 6.53Magat reforestation 7.90 2.10Magat feasibility study 0.14 0.04Forest protection pilot component 0.61 0.61

Subtotal 33.21 8.83

Disbursement would be 45% of total expenditure.

3. Equipment & Vehicles 9.0Pantabangan reforestation 7.44 7.07Magat reforestation 1.57 1.49Magat feasibility study 0.08 0.08Forest protection pilot component 0.33 0.31

Subtotal 9.42 8.95

Disbursement would be 100% of foreign expenditures for directly importedequipment; 100% of expenditure (ex-factory) for local manfactured equip-ment and 65% of total expenditure for imported equipment procured locally.

4. Consulting Services 3.7Pantabangan reforestation 0.89 -Magat feasibility study 2.35 1.53Forest protection pilot component 0.44 0.11

Subtotal 3.68 1.64

Disbursement would be 100% of total expenditure.

5. Pilot Program 2.0Range management 0.68 0.24Smallholder agroforestry 3.41 1.19

Subtotal 4.09 1.43

Disbursement would be 45% of total expenditure.

6. Unallocated 3.3Physical contingencies 4.65 1.60(Administration & Project Personnel) (8.51) -

Total 75.00 27.00 38.0

ANNEX 2

- 66- Table 1

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Production Estimates - Pantabangan

Yemane Benguet pineShort-fiber Long-fiber

Product: Leafmeal Charcoal Mango Cashew pulpwood Timber pulpwood Timber Narra MahoganyYear -----_____ (ton) -------------- --- … -------------- (cu m) --------------------------

1 (1980)2 3,6003 10,2004 18,0005 27,000 4,320 5406 36,000 8,640 1,0707 41,400 12,960 2,670 1,6008 43,800 17,280 5,330 2,7709 45,000 21,600 9,330 3,93010 45,000 21,600 13,330 4,570 20,920 4,76011 45,000 21,600 20,000 5,370 20,720 4,68012 45,000 21,600 23,750 6,170 20,520 4,60013 45,000 21,600 28,000 6,330 20,320 4,520 17,875 4,55014 45,000 21,600 30,665 6,500 20,120 4,440 17,875 5,07515 45,000 21,600 33,335 6,670 21,120 4,840 17,875 5,52516 45,000 21,600 34,665 6,830 23,320 5,720 17,875 5,60017 45,000 21,600 36,000 7,000 23,920 5,960 17,875 6,12518 45,000 21,600 37,335 7,170 25,520 6,600 17,875 6,50019 45,000 21,600 38,665 7,330 26,840 7,480 17,875 6,65020 45,000 21,600 40,000 7,500 17,875 7,47521 36,000 17,280 40,000 7,500 17,875 8,45022 27,000 12,960 40,000 7,500 17,875 9,42523 18,000 8,640 40,000 7,500 17,875 10,40024 9,000 4,320 40,000 7,500 18,525 11,05025 40,000 7,500 18,525 11,35026 40,000 7,500 18,525 12,02527 40,000 7,500 18,525 13,00028 40,000 7,500 18,200 14,30029 40,000 7,500 18,200 15,27530 40,000 7,500 18,200 16,25031 40,000 7,500 18,200 16,70032 40,000 7,500 18,200 17,22533 40,000 7,50034 40,000 7,50035 40,000 7,50036 40,000 7,50037 40,000 7,50038 40,000 * 7,50039 40,000 .7,50040 40,000 7,500 137,900 1,261,500

(stumpage)

ANNEX 2-.67 - Table 2

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Production Estimates - Magat

Yemane Benguet pineShort-fiber Long-fiber

Product: Charcoal Mango Cashew pulpwood Timber pulpwood Timber Narra MahoganyYear -------- (ton) --------- ------------------------- (cu m) -------------------------

1 (1980)2345 4456 4,320 1,3307 4,320 1,3308 4,320 4,160 1,8559 8,640 6,240 2,91510 8,640 8,315 2,91511 8,640 9,360 3,055 3,655 76512 8,640 13,515 3,340 4,080 93513 8,640 15,600 3,340 4,505 1,10514 8,640 15,600 3,340 4,930 1,27515 8,640 15,600 3,340 5,185 1,44516 8,640 15,600 3,475 5,355 1,70017 8,640 17,685 3,750 5,525 1,95518 8,640 18,715 3,75019 8,640 18,715 3,750 6,325 1,61020 4,320 18,715 3,750 6,325 1,95521 18,715 3,750 6,325 2,30022 18,715 3,750 6,325 2,64523 18,715 3,750 6,325 2,99024 18,715 3,750 6,325 3,33525 18,715 3,750 6,325 3,68026 18,715 3,750 6,555 3,91027 18,715 3,750 6,555 4,25528 18,715 3,750 6,555 4,60029 18,715 3,750 6,555 5,06030 18,715 3,750 6,440 5,40531 18,715 3,750 6,440 5,75032 18,715 3,75033 18,715 3,75034 18,715 3,75035 18,715 3,75036 18,715 3,75037 18,715 3,75038 18,715 3,75039 18,715 3,75040 18,715 3,750 106,500 498,500

(stumpage)

ANNEX 2

- 68 - Table 3

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Labor Demand and Supply - Pantabangan

1980 1985 1990 1995

JanuaryDemand ('000 man-days) - 72 201 337Supply ('000 man-days) 170 190 214 243Utilization (%) - 38 94 139

FebruaryDemand ('000 man-days) - 71 164 223Supply ('000 man-days) 170 190 214 243Utilization (%) - 37 77 92

MarchDemand ('000 man-days) - 70 147 155Supply ('000 man-days) 170 190 214 243Utilization (x) - 37 69 64

AprilDemand ('000 man-days) - 77 68 150Supply ('000 man-days) 184 207 233 264Utilization (Z) - 37 29 57

MayDemand ('000 man-days) - 62 82 80Supply ('000 man-days) 184 207 233 264Utilization (%) - 30 35 30

JuneDemand ('000 man-days) 17 77 49 33Supply ('000 man-days) 155 174 195 221Utilization (%) 11 44 25 15

JulyDemand ('000 man-days) 17 73 48 33Supply ('000 man-days) 155 174 195 221Utilization (x) 11 42 25 15

AugustDemand ('000 man-days) 22 118 49 36Supply ('000 man-days) 155 174 195 221Utilization (%) 14 68 25 16

SeptemberDemand ('000 man-days) 23 104 50 36Supply ('000 man-days) 155 174 195 221Utilization (%) 15 60 26 16

OctoberDemand ('000 man-days) 26 182 147 103Supply ('000 man-days) 155 174 195 221Utilization (%) 17 105 75 47

NovemberDemand ('000 man-days) 12 113 158 164Supply ('000 man-days) 155 174 195 221Utilization (%) 8 65 81 74

DecemberDemand ('000 man-days) 13 111 201 277Supply ('000 man-days) 170 190 214 243Utilization (Z) 8 58 94 114

TotalDemand ('000 man-days) 130 1,130 1.364 1,627Supply ('000 man-days) 1,978 2,218 2.492 2,826Utilization (x) 7 51 55 58

ANNEX 2

- 69 - Table 4

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Financial and Economic Prices

Pantabangan Magat

Product Financial Economic Financial Economic

Leafmeal (F/ton) 440 480 - -

Charcoal (P/ton) 840 1,030 840 1,030

Mango (P/ton) 2,460 2,015 2,210 1,810

Cashew (P/ton) 2,720 2,720 2,470 2,470

Short-fiber pulpwood (P/cu m) 180 155 180 155

Lont-fiber pulpwood (P/cu m) 275 160 275 160

Yemane timber (P/cu m) 1,405 1,150 1,265 1,035

Benguet pine timber (P/cu m) 2,155 1,765 2,015 1,655

Narra (P/cu m) 2,640 2,640 2,420 2,420

Mahogany (P/cu m) 2,640 2,640 2,420 2,420

ANNEX 2

- 70 - Table 5

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Financial Costs and Revenues - Pantabangan(P '000)

Year Costs Revenues

1 (1980) 48,235 -2 35,785 1,5853 39,915 4,4904 46,430 7,9205 49,485 16,9756 63,080 28,0007 60,645 40,0258 60,485 54,4259 63,420 71,580

10 68,670 92,36511 84,080 112,05012 78,345 123,28513 83,275 148,77514 87,310 156,77515 85,575 165,51016 94,430 171,02517 86,670 176,34018 87,710 182,07019 88,915 187,59020 89,455 177,77021 94,330 172,29022 81,560 166,80023 76,510 161,31024 72,625 155,29025 67,595 148,35026 73,030 149,80027 71,055 151,91028 70,710 154,62029 67,260 156,72030 67,285 158,82031 73,535 159,79032 67,320 160,92033 64,625 118,80034 64,625 118,80035 66,390 118,80036 69,815 118,80037 64,625 118,80038 64,825 118,80039 64,625 118,80040 64,625 3,813,220

Financial rate of return = 14%.

ANNEX 2- 71 - Table 6

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Financial Costs and Revenues - Magat(P '000)

Year Costs Revenues

1 (1980) 12,610 -

2 11,275 -

3 13,755 _

4 13,945 _5 15,065 1,100

6 19,965 6,9207 16,400 6,9208 18,645 17,410

9 21,500 28,25010 21,795 32,84011 25,935 37,13012 27,570 47,27013 30,310 52,19014 32,025 52,49015 30,135 52,74016 32,440 53,44017 31,310 59,04518 32,330 57,885

19 32,285 62,86520 31,665 59,93521 34,230 56,99522 30,635 57,69523 30,800 58,38524 30,640 59,08525 30,555 59,78526 32,975 60,31527 30,650 61,005

28 32,100 61,705

29 30,660 62,635

30 30,580 63,29031 32,995 63,99032 30,185 50,625

33 30,350 50,62534 30,185 50,62535 31,105 50,62536 32,340 50,625

37 30,185 50,62538 30,215 50,62539 30,095 50,62540 30,095 1,514,725

Financial rate of return = 14%.

ANNEX 2

- 72 - Table 7

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Economic Costs and Benefits - Pantabangan(P '000)

Year Costs Benefits

1 (1980) 41,480 -2 27,590 1,7303 30,290 4,9004 33,135 8,6405 35,215 18,8756 49,235 29,0807 44,835 42,9658 43,790 57,1009 46,180 73,35010 51,525 90,63511 62,115 107,39012 56,680 116,99513 61,075 136,79014 63,850 143,43015 61,865 150,68516 70,725 155,31017 62,755 159,78518 63,510 164,34519 64,435 169,16020 64,095 160,95521 71,010 153,95522 59,525 146,91023 55,665 139,86024 52,960 132,33525 49,300 124,09526 54,780 125,28527 48,975 132,06028 52,460 129,26529 49,030 130,98530 49,050 132,70531 55,240 133,50032 49,075 134,43033 47,070 101,09034 47,070 101,09035 48,570 101,09036 52,220 101,09037 47,070 101,09038 47,070 101,09039 47,070 101,09040 47,070 3,795,510

Economic rate of return = 18%.

Net present value =P307,032. Present values in 1980 discountedat 10% p.a. over project life.

ANNEX 2- 73 - Table 8

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Economic Costs and Benefits - Magat(P '000)

Year Costs Benefits

1 (1980) 7,480 -2 8,090 -3 10,225 _4 10,365 _5 10,145 1,1006 14,765 7,7407 11,880 7,7408 13,160 16,5759 15,425 27,41010 15,700 31,17011 19,680 34,78012 19,410 43,22513 21,150 47,26014 22,825 47,51015 20,965 47,71516 23,450 48,35517 21,720 53,08518 22,480 52,08019 22,910 55,74520 21,780 51,87021 24,830 47,92522 21,370 48,56023 21,420 49,12524 21,305 49,70025 21,600 50,27526 23,580 50,69027 21,255 51,26028 22,805 51,83029 21,265 52,59530 21,180 53,14031 23,590 53,71532 20,865 43,18033 21,035 43,18034 20,870 43,18035 21,770 43,18036 23,025 43,18037 20,865 43,18038 20,900 43,18039 20,780 43,18040 20,780 1,507,280

Economic rate of return = 19.0%.

Net present value =P109,921. Present values in 1980 discountedat 10% p.a. over project life.

ANNEX 3- 74- Page 1

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Accounting Procedures for Force Account Work and Minor Contracts

1. Construction of secondary roads in Pantabangan, and the establish-

ment of plantations, forest protection and fire prevention, and the mainte-

nance of roads in both watersheds would be undertaken by force account. This

work is estimated to cost about US$30 million, which is about 40% of the

total project cost. This work would be carried out by NIA and not by contrac-

tors because of the complex nature of work which utilizes large numbers of

labor and materials and does not attract contractors. Disbursements for force

account work would be based on the statements of expenditure using unit rates

to be agreed by the Bank and NIA. The unit rates would be established by an

analysis of each work item which NIA would submit for Bank review before

December 31, 1980. The detailed accounts maintained by NIA would permit

periodic revision of the unit rates as necessary. Documentation to support

disbursements would identify the location of the completed works and super-

vision missions would verify that the work had been completed.

2. A Bank mission visited the Manila office of NIA and examined the

relevant budgeting and accounting procedures NIA has instituted for force

account work in the field. The project office would submit to the Manila

office an annual program of activities for each cost center which would

include the nature of work, estimated material and labor requirements, with

prices for these items, and an implementation schedule. The annual program

would be reviewed by the Manila office and by an auditor attached to the

project by the Commission on Audit (COA). After relevant modifications, the

program would be sanctioned for implementation, with each activity being

provided a code. During implementation, the cost centers would submit

weekly reports to the Project Director, and the project office would submit

to the Manila NIA office a monthly progress report for each cost center,

providing information on implementation and costs with comparisons to

targets. On completion of each activity, a summary would be prepared

providing information on actual and originally estimated inputs and costs of

materials and labor for future planning and budgeting purposes and for

revision, where necessary, of the agreed unit rates.

3. Based on NIA's performance on other Bank-assisted projects and the

experience it has accumulated, it is expected that the requisition and issue

of materials and recording of labor and supervisory time would be properly

organized and that NIA would be adequately staffed to perform these

functions. Under normal procedures, the procurement of materials would be

undertaken by the project office and copies of payments sent to the COA

- 75 -

ANNEX 3Page 2

auditor attached to the project. The auditor and, periodically, technicalpersonnel of the COA would inspect such delivered materials. The issuing ofmaterials to the different cost centers would be properly recorded anddebited against the appropriate cost center. Manila staff of NIA and,periodically, regional-level auditors of COA would make field inspections tocheck on usage of materials. When issuing payment to suppliers for materialsdelivered, the disbursing officer would match the documents sent by theproject office and those sent by the supplier, and debit the amount.Similarly, recording of labor time and cost would be undertaken in anorderly manner. A time sheet would be prepared for every day, with theweekly time sheet for the cost centers submitted to the Project Director,and the monthly time sheets submitted to NIA in Manila providing names ofpersonnel, their duties, time spent and cost. This would be the basis forissuing of wages. All accounts would be maintained and audited by the COA.

4. Reimbursement for expenditures for minor civil works contracts(less than P 1 million, or US$140,000) would be based on the statementsof expenditure procedure. NIA would retain copies of contracts, progressreports or invoices and evidence of payments made to contractors forperiodic review by Bank staff.

- 76 - ANNEX 4Table 1

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Schedule of Early Events

Administration and Planning

1. Signing of memo of understanding by NIA and BFDdefining their respective roles in the Pantabanganwatershed December 31, 1980

2. Engagement of consultants for:

(a) Mtagat feasibility study and pilot program (NEDA) December 1980

(b) Design and implementation of a commercialaccounting system July 1980

3. Submit detailed unit rate analysis for constructionof secondary roads, establishment of plantations,forest protection and fire prevention, andmaintenance of roads December 31, 1980

Contract Administration

4. Equipment procurement:

(a) Contract award October 1, 1980

(b) Delivery of equipment January 31, 1981

5. Civil works contracts: award and startconstruction of forest roads Sept. 30, 1980

Force Account Construction of Forest Roads

6. Complete detailed engineering design forinitial year's construction Sept. 1980

7. Start construction October 1980

- 77 -

ANNEX 4Table 2

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

FOREST PROTECTION PILOT COMPONENT

Schedule of Early Events

Preproject Activities

1. Engagement of consultants, and designation of BFDcounterparts for preparation of detailed Plan ofOperation May 1980

Early Project Activities

2. Designation of District Foresters as Project Managers June 1980

3. Appointment of key project staff concluded by: September 1980

4. Engagement of consultants, and recruitment of aqualified specialist by BFD, for preparation ofdetailed Monitoring and Evaluation Plan July 1980

5. Finalization of Plan of Operation September 1980

6. Procurement of micro-computer system forMonitoring and Evaluation System September 1980

7. Finalization of Monitoring and Evaluation Plan October 1980

8. Testing of, and training of BFD staff for using theMonitoring and Evaluation System, concluded by: December 31, 1980

9. Appointment of most of the project staff concluded by December 31, 1980

10. Retention of consultant on part-time basis for routinemonitoring and evaluation services January 1, 1981

-78 - ANNEX 5

Page 1

PHILIPPINES

WATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

Related Documents and Data Available in the Project File

I. General reports and studies:

Al World Bank, "The Philippines Priorities and Prospects for Develop-ment, Basic Economic Report," Report No. 1045a-PH, May 5, 1976.

II. General reports and studies related to the project:

Bi NIA/Mandala Agricultural Development Corporation, "FeasibilityReport - Pantanbangan and Magat Watersheds Management and ErosionControl Projects," Manila, May 1979.

B2 Working Paper, "Forest Protection Pilot Project", December 1979.

III. Selected working tables.

Cl Staff Requirements for PantabanganC2 Staff Requirements for MagatC3 Leafmeal Plantation Costs - PantabanganC4 Charcoal Plantation and Processing Costs - PantabanganC5 Mango Plantation Costs - PantabanganC6 Cashew Plantation Costs - PantabanganC7 Yemane Plantation Costs - PantabanganC8 Benguet Pine Plantation Costs - PantabanganC9 Narra Plantation Costs - PantabanganCIO Mahogany Plantation Costs - PantabanganCll Nursery Fixed Costs - PantabanganC12 Variable Costs of Seedling Production - Pantabangan and MagatC13 Variable Costs of Seedlings - PantabanganC14 Road Maintenance Costs - PantabanganC15 Forest Protection and Fire Prevention Costs - PantabanganC16 Administrative and General Services Costs - PantabanganC17 Community Development and Information CostsC18 Charcoal Production and Processing Costs - MagatC19 Mango Plantation' Costs - MagatC20 Cashew Plantation Costs - MagatC21 Yemane Plantation Costs - MagatC22 Benquet Pine Plantation - MagatC23 Narra Plantation Costs - MagatC24 Mahogany Plantation Costs - MagatC25 Nursery Fixed Costs - Magat

- 79 -

ANNEX 5Page 2

C26 Variable Costs of Seedlings - MagatC27 Road Maintenance Costs - MagatC28 Forest Protection and Fire Prevention Costs - MagatC29 Administrative and General Services Costs - PantabanganC30 Estimated Cost/km of Primary Forest Roads by Contract -

Pantabangan and MagatC31 Consolidated Project Cost Estimates

PHI LIPPINESWATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

IMPLEMENTATION SCHEDULE - PANTABANGAN

1980 1981 1982 1983 1984 1985 1986 1987ACTIVITIES

ACTI V I T I ES _ 2 3 ~~~~4 1 2 3 4 1 2_ 2 3 4 _ 2 3_ 1 2 3 4 2T - 3]- 41 _ 43

7 - Tr xr 1~~~~~- T T 1T II II II 1T1T 1T I r I I I rr 1T I 1T 1T 11 1 r 1 r Tr 1 1 T 1 1T 11 11 1 Il I I -l INURSERIES

CONSTRUJCTION

SEED PROCUREMENT

RAISING OF SEEDLINGS

CARE AND MAINTENANCFSEEDLING DEPOTS

CONSTRUCTION

SEEDLING T RANSPORTATION

CARF AND MAINTENANCE

PLANTATION ESTABLISHIMENT

SLIRVF YS

SITE PREPARATION _

OUTPLANTING/SEEDING

WEEDING/FERTILIZATION

FRUIT TREE SPRAYING _

HARVESTING AND PROCESSING

LEAFMEAL HARVESTING

CHARCOAL OVEN CONSI RUCTION 7FIREWOOD HARVESTING

CHARCOAL PRODUCTION on

CASHEW HARVESTING w

MANGO HARVESTING

FOREST ROADS

BY CONTRACT

CONTRACT DOCUMENTS PRFPARATIONBIDDING AND CONTRACT AWARD

CONSTRUCTION ii_i _ _ _ __ . _

BY FORCE ACCOUNT

CONSTRUCTION _ mmEQUIPMENT PRIOCUREMENT

CONTRACT DOCUlMENTS PREPARATION _ I a In

BIDDING AND CONTRACT AWARD

DELIVERY OF EQUIPMENT _ _ _

09

e

World Ba.k -- 20789

PHILIPPINESWATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

IMPLEMENTATION SCHEDULE - MAGAT

1980 19Y1 I662 1663 1984 1985 1966 1967

ACTIVITIES -ACTIVITIES~ ~ ~ 1 3 4 1 2 3 4 1 2 3 4 1 2 4 1 2 3 4 2 4 3 4 1 2|3|4

I~ ~ ~ ~~ ~1 I TT r7 T T II II II II 1T 1T II 1T 11 1T 1T 1T II 11 1 1 11 If 1T 11 7 I T I TIr

NURSERIES

CONSTRUCTION

SEED PROCUREMENT a

RAISING OF SEEDLINGS _ _ _ _ _ _

CARE AND MAINTENANCE

CONSTRUCTION

SEEDLING TRANSPORT

CARE AND MAINTENANCE

PLANTATION ESTABLISHMENT

SURVEYSSITE PREPARATION

OtJTPLANTtNG/SEEDING m a _

WEEDING/FERTILIZATIONFRUIT TREE SPRAYING

HARVESTING AND PROCESSING I_

CHARCOAL OVEN CONSTRUCTION

FUELWOOD HARVESTING

CHARCOAL PRODUCTION

CASHEW HARVESTING a a

FOREST ROAD$

CONTRACT DOCUMENTS PREPARATION

BIDDING AND CONTRACT AWARD

CONSTRUCTION I

BY FORCE ACCOUNT

CONSTRUCTION iiiiiiin

EQUIPMENT PRO0CUREMENT

CONTRACT DOCUMENTS PREPARATION

BIDDING AND CONTRACT AWARD

DELIVERY OF EQUIPMENT a a a

PHASE t1 PREPARATION

MAGAT BASIN FEASIBILITY STUDY

PILOT INVESTIGATIONS __

WorldjBa.,k - 2090

82 -

PHILIPPINESWATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

PROJECT ORGANIZATION Figure 4.1

E NIA BOARD

ADMINISTRATOR l

IZLZ| ASST. ADMINISTATOR

DEVELOPMENT ANDIMPLEMENTATION

IZLZf PROJECT DIRECTOR

|§TACONSULTANTS

MU 'Ty ~ ~ ~ ~ ~ -OTHER'DEVELOPMENT AND STAFF I IINFORMATION DIV. I SERVICES I

RESIDENT MANAGER RESIDENT MANAGERPANTABANGAN MAGAT

ADMINISTRATIVE [ GENERAL ] OPERATIONS OPERATIONSSERVICES SERVICES DIVISION DIVISIONDIVISION DIVISION

ACCOUNTING MAINTENANCE l NURSERY IONSECTION l SECTION l SECTION l

PERSONNEL 1WORKSHOP TIMBER CROPS 1FOREST PROTETOSECTION l SECTION l SECTION

PAYROLL 1 TRANSPORT POOL 1 AGRO-FORESTRY SERVICESSECTION 3 SECTION 3 ETO

FOREST PROTECTION GENERAL SERVICESSECTION SECTION

'Personnel, legal, procurement and central accounting services provided by NIA divisions under the Assistant Administrator,

Administration and PersonnelWorld Bank - 20788

PHILIPPINESWATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

ANNUAL AGROFORESTRY AND CHARCOAL PRODUCTION - PANTABANGAN

50,000l

LEAFMEAL

MANGO

40,000- ----------------------------------

4 0,000 // /\ \

PR 0D

T .

I

O CHARCOAL

Ns~~~~~~/ I

10,000- / CSHEi i CASHEW~~.. .......................

(1980)1 t3 5 7 9 11 13 16 1 19 2123 2627 2931 33 3637 3a

YEARSWorld Bank - 21241

PHILIPPINESWATERSHED MANAGEMENT AND EROSION PROJECT

ANNUAL TIMBER CROP PRODUCTION - PANTABANGAN

pR0DU CT

IN SHORT-FIBER PULP

T 20,000-O LONG-FIBER PULPWOOD - - - _ - - - - - -_-

NS

. BENGUET PINE TIMBER

10,000- ,,,~~~~~~~~~~~~~.---

YEMANE TIMBER _

0-~~ X E. I I I I I I 1 I I I I I I I -1- 1 1 1 1 1 I. I 1 I I l I I I I I I p.

(1980) 1 3 5 7 9 11 13 t5 t7 19 21 23 25 27 29 31 33 35 37 39 1

YEARS

World Bank -21239

PHILIPPINESWATERSHED MANAGEMENT AND EROSION CONTROL PROJECT

ANNUAL LABOR EMPLOYMENT - PANTABANGAN

7 ,000-Ea /

L /iI./

L E..000_

ENT

L 0L

-30- 00 , , I , | I.f

TIM

0B

80 82 64 s6 88 90 92 94 -

YEARS

World Bank - 21240

- - - ~~~~~~~~~~~~~~~~~~~~ ~~PHILIPPINES- . + Watershed Management and Erosion Control Project

PANTABANGAN WATERSHED

-Watershed boundiar,es

I Rivers, creeks

at Damns, rese-voirs

E.isting roods

Proposed roads

I A En9 sEting proect nurseres

A Proposed project nurseryU Proposed charcoal centers

- A EyExistirig feA

4 ;P_-_teroposdcnrnl lo whchit frn/grzn zzar.ed __os

Proposed reforestation areas.

~~~~evtJ~~~~~~~~~~~~~~~~ Puv~~~~~~~~~~~lwoodMango

Cashew

Yemane

Beng.et pinie

SLeafmeal

. sR.P Japupn project areas

7- ---- 4-.

Ap.,h~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.

-P~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~' .0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5-

12re ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~ /1e , : ( Apri MA~ V~' ~

~~Svr Fmvvrdu )U 4%~~~~~X

2l CO-

.prt,.pas beg,prp.sag6<gg1h, Ag0 x,f - vp ,> <

od40e, _ ,s, is a' gtIi 17C e' LUZON

,.ag-eO,avCe,ggs,cggOos&Ca,., /, .0 f 9 i~-~\8 ,S0

d-' * X_ I, Ih, _

121P 30

Epr-~~~~~~~~~~~~~:

1630 1216017100'

- F~~ItMAO,A yg~~, LIF ,'PIgLIPPNE

/ MAGAT AWATERSHED

N Watershed Management~~~~B aD r ef rostaion Cronetros rjc

- EistinD reoaestainpoe

Paddy rice, irrigated 3 1,000 ha

Paddy rice, irrigated terraces 20,100 ha

Paddy rice, .- rigated 12,900 ha

Diversified crops 3,300 ha

Primary forests 50,600 ha

Secondary forests 123,000 haLOME'EFS _____K_ing_n 19,700 ha

Mlt ES c 5 1~~~~~~~ Opet grassland 150,900 ha

121 00 121V30 0

IBRD 14631

tet- TZk: Th : b-r b OCTOBER 1979

f < r2 ~~~~~~wOrle d6 ko sta-ff eettoo,oel, ftt) A part StEe ooonv0eaee of toe tesoeto ofb I o v~~~~~~~~~~0 therpOot St wS'lC0 Of SJ etteofed

(~~~~~~o t ohde Oeoshow rPoo te ap

LUZON o tOptv o n te pattof te

2t atttopt>, oreOttnCOotttOSOttoOoOo,to

t~~~~~~~~~~~~~fetto rf Sonot,otge

Proposed

PHILIPPINESWatershed Management ond Erosion Control Project

MAGAT WATERSHED SUBPROJECT

< ) --- Watershed bounda,dyRi

2r-. ers,p creeks

r) 0wE:stntg roadsProposed roads

A Proposed project nuattery¾ * ! .Proposed charcoal centers

A. Proposed lookout torets_ A f )and dusese:

o~~~~~ ) ~~~~~Fuel.oodMango

Cosheve

Yemane

Benguoet pineNa,rr

/77 Mahogany

Gtassla nd

'oj \ ~~~~~~~~~~~~~~~Proposed snrallholder pilot areasKLOMEyTERS P 3 ~4 5 t 7 8

,00 MIESO 5 2 3 4 M5LES