Third Airports Development (Southern Philippines) · PDF fileAFTN/AIS – aeronautical ... (ICAO) January 1998 20 May 2001 ... 1. The objective of the Third Airports Development Project

Completion Report

Project Number: 28270 Loan Number: 1536 October 2007

Philippines: Third Airports Development Project (Southern Philippines)

CURRENCY EQUIVALENTS

Currency Unit – peso (P)

At Appraisal At Project Completion 15 August 1997 5 Sep 2005

P1.00 = $0.034 $0.018 $1.00 = P29.762 P56.230

ABBREVIATIONS

ADB – Asian Development Bank AFTN/AIS – aeronautical fixed telecommunication network and airport

information system ATO – Air Transportation Office BIMP–

EAGA – Brunei–Indonesia–Malaysia–Philippines–East ASEAN Growth

Area DND–AFP – Department of National Defense–Armed Forces of the

Philippines DOF – Department of Finance DOTC – Department of Transportation and Communications EIB – European Investment Bank ICAO – International Civil Aviation Organization LAR – land acquisition and resettlement LARP – land acquisition and resettlement plan LGU – local government unit NAIA – Ninoy Aquino International Airport PBAC – Prequalification Bidding and Awards Committee PCR – project completion report PIU – project implementation unit PQER – prequalification evaluation report VOPEC – variation orders and price escalation committee

WEIGHTS AND MEASURES

oC – degree Celsius ha – hectare m – meter

GLOSSARY

airside – Airside of an airport means all infrastructure except the terminal building and its facilities.

apron – The defined area of the airport used for refueling, parking, maintenance, and the loading and unloading of passengers, mail, and cargo.

barangay – The smallest political unit into which cities and municipalities in the Philippines are divided.

international airport – An airport with customs services available so that nonstop services to an airport in another country can be

authorized. landside – Landside of an airport means the terminal building,

parking area, and other related facilities like coolers, water tower, etc.

navaid – Navigational aid, for example, instrument landing system (ILS) or very high frequency omni (VOR).

terminal – A general term for an airport building used for passenger services.

tower – Air traffic control (ATC) communications facility located at an airport; usually the tallest structure with an unobstructed view of the entire airport.

NOTES

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

Vice President C. Greenwood, Jr., Operations 2 Director General A. Thapan, Southeast Asia Department (SERD) Director J. Cooney, Infrastructure Division, SERD Team leader S. Date, Transport Specialist, SERD Team member A. Samoza, Associate Project Analyst, SERD

CONTENTS

Page

BASIC DATA ii

MAP vi

I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1 B. Project Outputs 3 C. Project Costs 4 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Consultant Recruitment and Procurement 6 I. Performance of Consultants, Contractors, and Suppliers 7 J. Performance of the Borrower and the Executing Agency 7 K. Performance of the Asian Development Bank 7

III. EVALUATION OF PERFORMANCE 7 A. Relevance 7 B. Effectiveness in Achieving Outcome 8 C. Efficiency in Achieving Outcome and Outputs 8 D. Preliminary Assessment of Sustainability 8 E. Impact 8

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 8 A. Overall Assessment 8 B. Lessons Learned 8 C. Recommendations 8

APPENDIXES 1. Project Framework 10 2. Chronology of Events 16 3. Project Outputs: Planned and Actual 20 4. Appraisal and Actual Project Costs 21 5. Projected and Actual Disbursements 22 6. Project Implementation Schedule 23 7. Status of Compliance with Loan Covenants 24 8. Land Acquisition and Resettlement 34

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title

4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Republic of the Philippines 1536-PHI Third Airports Development Project (Southern Philippines) Republic of the Philippines Department of Transportation and Communications $93,000,000.00 (original) $12,157,965.00 (revised) PCR: PHI 999

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years) 8. Terms of Relending (if any) – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

21 April 1997 15 May 1997 18 August 1997 21 August 1997 16 September 1997 21 January 1998 21 April 1998 11 November 1998 4 31 May 2003 5 September 2005 2 London interbank offered rate-based (Floating) 25 5 Not applicable

iii

9. Disbursements a. Dates Initial Disbursement

01 March 1999

Final Disbursement

27 October 2004

Time Interval

68 months Effective Date

11 November 1998

Original Closing Date

31 May 2003

Time Interval

54 months

b. Amount ($) Categorya

Original

Allocation

Last Revised

Allocation

Amount

Canceledb

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance 01 28,382,000 0 28,382,000 0 0 002 29,757,000 0 29,757,000 0 0 003 9,820,000 7,963,920 1,856,080 7,963,921 7,963,921 004 12,682,000 4,194,045 8,487,955 4,194,045 4,194,045 005 12,359,000 0 12,359,000 0 0 0

Total 93,000,000 12,157,965 80,842,035 12,157,965 12,157,965 0a 01 = civil works, 02 = equipment and vehicles, 03 = consulting services, 04 = interest and commitment charges, 05 =

unallocated b 1st partial cancellation $73,000,000 (31 May 2003) and 2nd partial cancellation $7,842,034.96 (5 September 2005)

10. Local Costs (Financed) - Amount ($) 0.0 - Percent of Local Costs 0.0 - Percent of Total Cost 0.0 C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actuala

Foreign Exchange Cost 114.00 12.15 Local Currency Cost 53.00 13.53 Total 167.00 25.68 a As of loan closing date, includes total ADB disbursements for consulting services and interest and/or commitment

charges. 2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 41.00 13.53 ADB Financed 80.30 7.96 European Investment Bank Financing 29.00 0.00 Total 150.30 21.49 IDC Costs Borrower Financed 4.00 0.00 ADB Financed 12.70 4.19 European Investment Bank Financing 0.00 0.00 Total 16.70 4.19 ADB = Asian Development Bank, IDC = interest during construction.

iv

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual A. Base Cost 1. Parts I-IV: Airport Improvements 91.10 13.40a 2. Part VII: Communication and Navigation Equipment 12.20 0.00 3. Part VIII: Crash, Fire, and Rescue 12.30 0.00 4. Part IX: Consulting Services 11.30 8.09 Subtotal (A) 126.90 21.49 B. Contingencies 1. Physical 12.80 0.00 2. Price 10.60 0.00 Subtotal (B) 23.40 0.00 C. IDC and other Charges 16.70 4.19 Total 167.00 25.68 a Costs incurred by Borrower for site acquisition, project-affected families relocation, and Project administration 4. Project Schedule

Item Appraisal Estimate

Actual

Date of Contract with Consultants Detailed Design and Construction Supervision January 1998 15 December 1999 Project Monitoring (ICAO) January 1998 20 May 2001 Completion of Engineering Design January 1999 November 2000 Civil Works Contract Date of Award December 1999 No contracts awarded Completion of Work August 2002 No contracts awarded Equipment and Supplies Dates First Procurement January 1999 No contracts awarded Last Procurement February 2002 No contracts awarded Completion of Equipment Installation November 2002 No contracts awarded Start of Operations Completion of Tests and Commissioning November 2002 No contracts awarded Beginning of Start-Up December 2002 No contracts awarded Project Monitoring February 1998-

November 2001 June-October 2001

Sector Restructuring and HRD July 1998- February 1999

No contracts awarded

Training July 1998- December 1999

No contracts awarded

Other Milestones

17 December 2003: Approval of first extension of loan closing date to 31 May 2004, major change in scope, and partial loan cancellation of $73 million effective 31 May 2003

3 November 2004: Approval of second extension of loan closing date to 30 October 2004

5 September 2005: Closing of Loan Account HRD = human resource development, ICAO = International Civil Aviation Organization.

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5. Project Performance Report Ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

31 December 1998 – 30 November 1999 Satisfactory Satisfactory 31 December 1999 – 30 November 2000 Satisfactory Partly Satisfactory 31 December 2000 – 31 May 2004 Partly Satisfactory Partly Satisfactory 30 June 2004 – 31 January 2006 Partly Satisfactory Satisfactory D. Data on Asian Development Bank Missions

Name of Missiona

Date

No. of Persons

No. of Person-Days

Specialization of Membersb

Fact-Finding 3-14 February 1997 4 40 2a, c, d Appraisal 21 April-15 May 1997 7 78 2a, c, d, e, j, k Special Loan Administration 15-16 July 1999 2 4 a, d Loan Review 7, 24 February 2000 2 4 a, b Loan Review 13-16 November 2000 1 4 a Loan Review 25-27 June 2001 4 8 c, e, h, i Special Project Administration 23-25 May 2002 2 6 c, e Special Project Administration 31 May 2002 2 2 c, e Special Project Administration 4-5 June 2002 2 4 c, e Loan Review 2-16 October 2002 2 14 c, e Project Completion Reportb 6 March 2007

30 April 2007 3 7 c, f, l

a a – engineer, b – financial analyst, c – transport/project specialist , d – economist, e – social

development/resettlement specialist, f – project analyst, g – operations officer, h – country portfolio manager, i – country director, j – counsel, k – programs officer, l – staff consultant of e above.

b The project completion report was prepared by Shihiru Date, Transport Specialist/Mission Leader; A. Samoza, Associate Project Analyst; and social development/resettlement specialist staff consultant

P A C I F I C O C E A N

S o u t h C h i n a S e a

S u l u S e a

Panay Gulf

LeyteGulf

C e l e b e s S e a

M o r o G u l f

Babuyan Channel

P h i l i p p i n e S e a

VisayanSea

Sibuyan Sea

Bohol Sea

Cagayan de Oro

Ozamis

Camiguin

Dipolog

Dumaguete

Zamboanga

Pagadian

Jolo

Sanga-Sanga

San JoseIloilo

BacolodJordan

KaliboRoxas

Romblon

BoacMamburao

Puerto Princesa

Cebu

Tagbilaran

Catarman

TaclobanOrmoc

Calbayog

Naval

Daet

NagaVirac

Legaspi

Manila

Angeles

Subic

Baguio

Ilagan

Laoag

Basco

Tuguegarao

Masbate

Surigao

Butuan

Bislig

Tandag

Gen. Santos

Cotabato

Tagum

Nabunturan

Davao

Basco

Itbayat

Sabtang

NCRARMM

CALABARZONCAR

CARAGA

MIMAROPASOCCSKSARGEN

- National Capital Region- Autonomous Region in Muslim Mindanao- Cavite, Laguna, Batangas, Rizal, and Quezon- Cordillera Administrative Region- Agusan del Norte, Agusan del Sur, Surigao del Norte, and Surigao del Sur- Mindoro, Marinduque, Romblon, and Palawan- South Cotabato, North Cotabato, Sultan Kudarat, Sarangani, and General Santos

AKLAN

CAPIZ

ILOILO

ANTIQUE

GUIMARAS

CEBU

PALAWAN BOHOL

SIQUIJOR

CAMIGUIN

MASBATE

MARINDUQUE

ROMBLON

ALBAY

SORSOGON

CATANDUANES

SURIGAO

DEL NORTE

SURIGAO DEL SUR

BUKIDNON DAVAO

DEL

NORTE

COMPOSTELA VALLEY

DAVAO ORIENTAL

DAVAO DEL SUR

SARANGANI

SOUTH

COTABATO

SULTAN KUDARAT

MAGUINDANAO

BASILAN

SULU

TAWI-TAWI

ZAMBOANGA

DEL NORTE

ZAMBOANGA

SIBUGAY

ZAMBOANGA

DEL SUR

NORTH COTABATO

KALINGA

APAYAO

CAGAYAN

ISABELAMT. PROVINCE

ABRA

ILOCOS SUR

ILOCOS NORTE

BENGUET

QUIRINO

AURORA

PANGASINAN

ZAMBALES

TARLAC

BATAAN

BULACANPAMPANGA

NUEVA

ECIJA

NUEVA

VIZCAYA

QUEZON

CAVITELAGUNA

BATANGAS

RIZAL

Polillo

LA UNION

IFUGAO

CAMARINES

NORTE

CAMARINES

SUR

AGUSAN

DEL SUR

AGUSAN

DEL NORTE

MISAMIS

OCC.

MISAMIS

ORIENTAL

LANAO

DEL SUR

LANAO

DEL NORTE

LEYTE

BILIRAN

SOURTHERN

LEYTE

WESTERN

SAMAR

EASTERN

SAMAR

NORTHERN SAMAR

NEGROS OCCIDENTAL

OCCIDENTAL

MINDORO ORIENTAL

MINDORO

NEGROS

ORIENTAL

Burias

Ticao

BATANES

BATANES

Project Location

National Capital

Main Airport

Air Route

Provincial Boundary

Boundaries are not necessarily authoritative.

PHILIPPINES

THIRD AIRPORTSDEVELOPMENT PROJECT(SOUTHERN PHILIPPINES)

Kilometers

0 50 100 150

N

07-1829 HR

125 00'Eo

125 00'Eo

119 00'Eo

119 00'Eo

8 00'No 8 00'No

16 00'No16 00'No

122 00'Eo

122 00'Eo

21 00'No

21 00'No

I. PROJECT DESCRIPTION

1. The objective of the Third Airports Development Project (Southern Philippines) was to upgrade two large airports (Puerto Princesa and Cotabato) and four smaller airports (Sanga-Sanga, Dipolog, Butuan, and Pagadian) on the southern Philippine islands of Mindanao and Palawan. Projected benefits of the Project included the following: i) removal of infrastructure constraints preventing the growth of international and regional air services; ii) more cost-effective movement of domestic and international freight and passengers; iii) more efficient utilization of the country's airline fleet through the introduction of larger aircraft, night-landing facilities, and all-weather facilities; iv) reduced congestion at Ninoy Aquino International Airport (NAIA), through the provision of alternate ports of entry and departure for international passengers and cargo; and v) improved regional economic development in these key areas of the Brunei–Indonesia–Malaysia–Philippines–East ASEAN Growth Area (BIMP–EAGA). In addition, the Project was to emphasize operational and safety improvements to meet International Civil Aviation Organization (ICAO) standards, and further assist the Philippine Government in transforming civil aviation from a government-run to a market-oriented subsector. 2. The Project comprised airside and landside civil works, provision of equipment and training, and consulting services. The scope of the Project covered the upgrading of the airport facilities to ICAO safety standards, extending runways to accommodate larger aircraft, providing new passenger and cargo terminals and new ancillary buildings, and training Air Transportation Office personnel. The Project was financed by the Government of the Philippines with loans from the Asian Development Bank (ADB) and the European Investment Bank (EIB). Under the adopted cofinancing structure, ADB would finance 55.7% and EIB would finance 17.4% of the project cost. The Philippine Government was to cover the remaining 26.9%. ADB administered the Project on behalf of EIB. Appendix 1 provides the project framework. Appendix 2 sets out the chronology of project events. 3. The Project was not successful. Of the approved ADB loan amount of $93 million, $81 million was ultimately cancelled. The EIB loan was not disbursed. None of the outputs included in the project description at appraisal were achieved. Specifically, no physical improvement works even commenced. The failures were mainly related to project design, procurement, and—most significantly—involuntary resettlement issues. These failures are outlined in this report, including an entire appendix (Appendix 8) devoted to the involuntary-resettlement issue.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The Philippines ranked 25th out of the 184 ICAO member states in terms of passenger and cargo kilometers in 1996. Between 1992 and 1996, total international passenger movements grew at an average annual rate of 8.8 percent, cargo volumes at 14.0 percent, and aircraft movements at 15.8 percent. NAIA in Manila handled 94 percent of all direct international traffic. While medium- to long-term growth rates of about 4 percent per annum were projected for passenger and cargo traffic in the Philippines, ICAO's growth projections for the Asian and Pacific Region were about 10 percent per annum. There was a high concern within the Government that the country would continue to lose market share in the region, in particular in the BIMP–EAGA, unless positive steps were taken to implement sector reforms while selectively upgrading the country's aviation infrastructure.

2

5. In the southern Philippines, air transport is the fastest means of transport across the often long distances between neighboring islands. Thus, civil aviation plays a key role in the economic and social development of the widely dispersed regions of the Philippine archipelago. The Government has placed high priority on developing the southern Philippines, creating the Special Zone of Peace and Development (ZOPAD), which comprises the economically depressed provinces of western and central Mindanao, and the island of Palawan. These areas fall within the BIMP–EAGA, and as such have been the subject of intensive government initiatives to boost economic growth by improving cooperation with neighboring countries. The establishment of transport and civil aviation infrastructure links is a key strategy to encourage regional economic development in the BIMP–EAGA. 6. Major constraints to increased regional investment and development include inadequate domestic airport facilities and, consequently, limited direct internal and external trade links. Long distance land and sea transportation are not efficient between many regions of the country, given the distances involved, and sea transport is not viable for high-value perishable cargoes. The lack of infrastructure meeting minimum international standards for flight operations and safety is constraining regional economic development. 7. On the basis of accident records, air transport in the Philippines is relatively safe by world standards. However, many airports do not meet basic ICAO safety standards and recommended practices for scheduled passenger services. With air traffic increasing, the accident rate could potentially increase dramatically. Factors that compromise safety and result in the cancellation of scheduled flights include damaged runway surfaces; structures located dangerously close to runways; insufficient security; encroachment by squatters; movement of animals and unauthorized persons in primary operational areas; a lack of approach lighting and airstrip lighting, which limits night landings and thus restricts the efficient use of the airline fleet; and a paucity of communications and navaids at many airports, which restricts instrument flight procedures (aircraft landing and take-off and navigation that depends on instruments, not visual observation) during inclement weather. 8. These technical shortfalls prevent the airports from being used for regular domestic flights and, in the case of Cotabato and Puerto Princesa, international flights by the major regional carriers. As a result, virtually all international air traffic goes via Manila, which contributes to the congestion problem at NAIA and limits the ability of the BIMP–EAGA to develop trade links and markets with the southern Philippines. In addition, the lack of communications and navigation equipment, night lighting, and crash, fire, and rescue vehicles limits: (i) efforts to achieve minimum international civil aviation safety standards; (ii) balanced development of the air transport network, which would facilitate more cost-effective movement of both domestic and international freight and passengers; and (iii) efficient utilization of the country's airline fleet through the use of larger aircraft, night-landing facilities, and all-weather facilities. 9. With the exception of the government-owned airport corporations of Manila and Cebu, funds for investment, operation, and maintenance of civil aviation infrastructure are sourced from the national budget, and revenues from the sector are paid directly into the Government's general revenues. Given the competing demands for limited government funds from other sectors, it has been impossible to sustain a sufficient level of funding to develop the country's civil aviation infrastructure and meet operational and safety standards. Thus, the Department of Transportation and Communications (DOTC) and the Air Transportation Office have been faced with the challenge of ensuring safety and efficiency in a capital-intensive sector without access to the required capital. As a result, the development of a coherent long-term investment strategy

3

for civil aviation has not been possible. In addition, the financial framework of these aforementioned institutions, in which revenues and costs pass separately through the national budget, neither encourages accountability and efficiency in using resources nor provides incentives for improving performance. To effectively address these situations, there is an urgent need to transform civil-aviation from a government-run to a market-oriented subsector.

10. Given this scenario, ADB's operational strategy for the Philippines, with its emphasis on sustainable economic growth, recognized the importance of developing an extensive and well-integrated transport network in support of regional development. The provision of transport infrastructure is an important element in attaining balanced regional growth and improving social services throughout the archipelago, particularly in the less-developed areas of the southern Philippines. ADB's strategy for the civil aviation subsector during the mid-1990s focused on helping the Government establish a policy and regulatory environment conducive to economic development, improving the management and financial performance of the subsector, increasing competition and private sector involvement, expanding air services to remote and poorer areas, and bringing safety standards up to international levels. By improving market access and communications, the Project was expected to enhance economic prospects and foster the development of emerging national and regional economic linkages, especially within BIMP–EAGA, and to help meet safety requirements. 11. During the 1995 and 1996 country programming missions, the Government requested ADB assistance to upgrade infrastructure at key regional and domestic airports. A project preparatory technical assistance (PPTA)1 updated the 1992 Civil Aviation Master Plan and helped the Government in formulating the proposed Project by examining the adequacy of the environmental and social measures that will be implemented concurrently with the Project. Thus, by screening of 29 airports through the Civil Aviation Master Plan, the airports for 'major improvement' were selected. These were Puerto Princesa and Cotabato. The selection criteria included safety, traffic demand, relative importance of air transport in the service area, regional economic development, and potential tourism development. Through the same process, four airports for were selected for "basic improvement"—Sanga-Sanga, Dipolog, Butuan, and Pagadian. These were chosen primarily on the basis of improved safety requirements, efficient aircraft utilization, and relatively low cost. The Project would provide the minimum investment required to improve safety, serve existing and future traffic, and install ground-based facilities to accommodate new jet aircraft. Overall, the major objectives of the Government described above were to be achieved through the project components of infrastructure improvement, provision of new equipment and training, and sector reforms. B. Project Outputs

12. The Project was designed to cover major improvements to Puerto Princesa and Cotabato and minor improvements to the airports at Sanga-Sanga, Dipolog, Butuan, and Pagadian. Its scope consisted of nine main components: Components I-VI: airport improvements; Component VII: communications and navigation equipment; Component VIII: crash, fire, and rescue vehicles; and Component IX: consulting services. 13. Components I-VI were designed to cover improvements of the six airports, comprising (i) airside civil works, including upgrading runways; widening and grading landing strips; establishing object-free areas; installing airfield approach and runway lighting; installing perimeter security fences; relocating and recalibrating navaid; removing existing obstructions;

1 ADB. 1996. Technical Assistance to Philippines for Second Airports Development Project. Manila.

4

constructing crash, fire, and rescue centers and new control towers; constructing airfield perimeter roads; constructing taxiways to new terminal areas; constructing new airport access roads and parking areas; and constructing new cargo terminals; (ii) landside civil works including constructing new passenger terminal buildings and refurbishing existing ones, constructing new administration and operations and maintenance buildings, and supplying and installing passenger and cargo terminal equipment and utilities; (iii) providing and installing airfield maintenance equipment, additional communications equipment and navaids, meteorological equipment, emergency generators, and selected spare parts; and (iv) land acquisition and resettlement (LAR) of affected families.2 14. Part VII (communications and navigation equipment) was designed to improve the existing national communications and navigation system and to meet future satellite-based communications, navigation, surveillance, and air traffic management requirements; Part VIII (crash, fire, and rescue vehicles) was designed to help regional and domestic airports meet minimum ICAO safety standards; and Part IX (consulting services) was designed to assist with (i) supervision of detailed design and construction, (ii) review of provisions for airport security and safety enhancement by ICAO, (iii) sector restructuring and airport privatization, and (iv) training. 15. Appendix 3 provides details of the project outputs, planned and actual. Overall, the Project was unsuccessful; none of the originally planned outputs has been achieved, except for land acquisition and resettlement of affected families (completed substantially—99%) and provision of consulting services (completed partially—25%). The main causes of the Project's failure were the slow progress of the LAR activities, severe delays in recruitment of consultants (para. 18), and significant civil works and equipment procurement problems. In the only project output completed substantially (LAR), 99.83% of compensation payments for affected structures were made and 98.67% of payments for affected land were made. Also, informal settlers were compensated, including 27 families who agreed to move once the civil works commenced. The remaining LAR activities hindering civil works are the relocation and replacement of 83 military facilities and seven private schools. C. Project Costs

16. Project costs at appraisal and actual project costs are summarized in Appendix 4. At loan closure, the Project incurred total costs of $25.68 million, $12.16 million financed by ADB and $13.53 million financed by the Government. The EIB financing was not disbursed. The reason for this cost underrun is non-implementation of project activities other than detailed engineering design, land acquisition, and ICAO project monitoring. D. Disbursements

17. Total disbursement under the ADB loan was $12.16 million. Appendix 5 shows quarterly disbursements. E. Project Schedule

18. Appendix 6 shows the actual project implementation schedule compared with that at appraisal. At appraisal, it was planned to mobilize the design and construction supervision

2 This was funded by the Government. Completion of this activity had been defined as a prerequisite for signing the

contract for the airside civil works, and was thus a prerequisite for starting construction.

5

consultants in early 1998. However, they were not mobilized until early 2000. Also, land acquisition and resettlement plans (LARPs), implementation of which was a prerequisite for the start of construction according to the Loan Agreement, were to be completed by March 1999, after which prequalification of civil works contracts was to proceed. In reality, LARPs were finally completed, approved, and implemented only in late 2004—a 5-year delay. 19. To mitigate the effects of this delay, DOTC, the Executing Agency for the Project, initiated pre-construction activities for civil works such as procurement for the award of the contracts for the six airports, in mid-2000. This process took 3 years, yet there was no result, as explained below. Similarly, consulting services for project monitoring by ICAO were to begin in early 1998. However, because of the 3-year delay in recruitment, ICAO was mobilized only in 2001. This work was only partially completed, ending in late 2001. Furthermore, for the communications and navaid equipment component, DOTC initiated the procurement of the aeronautical fixed telecommunication network and airport information system (AFTN/AIS) in 2002—3 years later than planned. This was again unsuccessful (see paragraphs 21 and 24). 20. Two major reasons contributed to these severe delays. First, the awarding of civil works contracts was contingent on the completion of LAR. No LARPs were prepared before appraisal. Also, the extent of LAR significantly increased over time, from 65 hectares (ha) at appraisal in 1997 to 96 ha during the assessment conducted in 1998 jointly by DOTC and the concerned local government units of the area. It then almost doubled to 174 ha during detailed design in 2001, indicating that the feasibility study during project preparation had not accurately captured the scope of LAR. Inadequate project preparation triggered the delay in LAR, which was subsequently aggravated by its slow implementation. 21. Second, delays in consultant recruitment and civil works and equipment procurement activities were due to the protracted approval procedures of DOTC’s Prequalification Bidding and Awards Committee (PBAC), with many complaints from bidders needing to be addressed. This severely delayed the process, finally causing procurement cancellations. Also, significant delays in contract management procedures, particularly concerning approval of variation orders, resulted in delays in consultant payments.

22. By the original loan closing date, 31 May 2003, the Project’s civil works implementation had not commenced. In August 2003, ADB and the Government agreed to; (i) cancel the civil works and equipment components for the six airports as well as the crash, fire, and rescue equipment component under the loan; (ii) extend the loan closing date to implement the AFTN/AIS equipment and training components; (iii) conduct a reappraisal of the six project airports with the assistance of the detailed design and construction supervision consultants under the loan; and (iv) prepare for approval in 2004 of a Southern Philippines Airport Development Project that would involve those airports that were still economically viable3 and prepared for the Project. On 23 December 2003, ADB approved the partial cancellation of $73 million (for the Project’s civil works and equipment components) and the extension of the loan closing date from 31 May 2003 to 31 May 2004.

3 Since the loan was approved in 1997, major developments have occurred. External events include the Asian

economic and financial crisis as well as a deterioration of the peace and order situation in Mindanao, which resulted in a downturn in traffic at most of the project airports. Budget constraints severely limited the resources available for infrastructure development. The air transport industry has also evolved significantly since 1997, with new carriers entering the market. These developments impacted the viability of the original project design. Ultimately, the proposed replacement project did not proceed, and the project loan closed on 5 September 2004.

6

F. Implementation Arrangements

23. The Borrower was the Government of the Philippines, represented by the Department of Finance. DOTC was the Executing Agency. A project implementation unit (PIU) was set up in the DOTC in Manila and staffed with a project manager, a civil engineer, an electronics engineer and four supporting staff. The Air Transportation Office provided further technical and support staff. In addition, a project steering committee, chaired by an undersecretary of transportation, was set up to: (i) review the design plans for the Project, which were prepared by the PIU; (ii) oversee and coordinate all activities and liaise with agencies involved in project implementation; (iii) review implementation status; and (iv) monitor progress and resolve difficulties encountered. 24. Two other DOTC entities concerned with project implementation arrangements were PBAC and the Variation Orders and Price Escalation Committee (VOPEC). As mentioned in paragraph 21 above, severe delays in procurement activities occurred during project implementation. In the case of PBAC, delays were common at each stage of procurement. In several instances, internal information on the procurement process reached bidders. This resulted in complaints that needed to be addressed, severely delaying the process and, ultimately, procurement cancellations. Furthermore, there were several cases where PBAC and ADB’s procurement committee had significant differences of opinion on bid evaluation and contract award recommendations. These factors resulted in no civil works contract or the AFTN/AIS equipment contract being awarded. 25. For VOPEC, it took several months to process a variation order since its members were assigned to other full-time priority duties all over the country. Just convening VOPEC to review and approve a variation order generally took at least 2 months. If there were corrections and clarifications, the approval process took even longer and caused further delays. These two major institutional constraints could not be resolved by PIU or DOTC management during the project period. G. Conditions and Covenants

26. The status of compliance with loan covenants is given in Appendix 7. Of the 21 loan covenants, 11 were complied with (one after a 6-year delay), four were partly complied with, four were not complied with, and two were not applicable. The delayed covenant was related to LAR activities, while the covenants partly complied with, not complied with, or not applicable related to civil works, which did not commence. 27. For the sector reform and tariff covenants, the Government approved a substantial increase in tariffs in 1998, and was further complying with the tariff covenant by considering an additional increase to bring tariffs in line with ICAO recommendations. Although DOTC complied with the requirement to propose institutional reforms for the civil aviation subsector, the reforms were not implemented, making the related covenant only partly complied with. The reforms were to be introduced through congressional amendment of the Civil Aeronautics Act of June 1952. This did not occur. H. Consultant Recruitment and Procurement

28. All civil works and goods procurement were to be carried out according to ADB's Guidelines on Procurement. Six civil works contracts for the airports were partially processed but no contracts were awarded nor was the contract for the AFTN/AIS equipment. The Project’s consultants were selected according to ADB’s Guidelines on the Use of Consultants. Two

7

contracts for international consulting services were awarded, for (i) detailed design and construction supervision, and (ii) project monitoring and review and airport security enhancement services. Given the unique nature of the services to be provided under the latter, it was awarded through direct recruitment to ICAO. I. Performance of Consultants, Contractors, and Suppliers

29. No problems were noted with respect to the consulting services. Since there were no civil works or supply contracts awarded, the performance of suppliers and contractors could not be assessed. J. Performance of the Borrower and the Executing Agency

30. DOTC established the PIU and PSC promptly after loan approval. As the initial project activity, PIU delegated all LAR activities to the local government units, which had different priorities from those of DOTC and/or PIU. Had PIU maintained full control over the resettlement process, it might have been completed sooner. The LAR process could also have been expedited if DOTC and/or PIU had a clearer and more systematic project planning and implementation process. This LAR activity ultimately became one major cause of delay. 31. Also, as explained in paragraphs 24 and 25, two DOTC entities, PBAC and VOPEC, contributed to severe delays in procurement activities during project implementation. Moreover, PBAC’s internal information on the procurement process reaching bidders indicated serious governance failings. As for VOPEC, its approval process of variation orders was inordinately long. This caused severe implementation delays. 32. To expedite implementation, the PIU should have been given more autonomy to make decisions instead of always having to obtain PBAC and VOPEC approval. The involvement of PBAC and VOPEC caused severe procurement delays and cancellations. Overall, the performance of the Borrower and Executing Agency was unsatisfactory. K. Performance of the Asian Development Bank

33. Since ADB failed to complete LARPs before Project appraisal, the Project was approved by ADB without LARPs. It is likely that the feasibility study conducted during project preparation did not accurately capture the scope of LAR. This inadequate project preparation triggered the delay in LAR, a delay that was eventually exacerbated by the slow implementation of LAR. Also, it caused Project delay and subsequent cancellation as well. Although during the implementation stage ADB generally attended to LAR and other matters promptly, the delays were not recovered. Between July 1999 and April 2007, ADB fielded nine missions, of which eight were for project review and one for project completion report (PCR) preparation. The PCR mission included document review of project activities, including LAR completion. Overall, the performance of ADB is rated only partly satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

34. The Project as planned was in line with ADB’s country strategy and program and the Government’s main objectives to remove existing infrastructure constraints on the growth of international and regional air services; promote balanced development of the air transport

8

network by facilitating more cost-effective movement of both domestic and international freight and passengers; improve the utilization of the country's airline fleet through the use of larger aircraft, night-landing facilities, and all-weather facilities; help decongest NAIA by providing alternate ports of entry and departure for international passengers and cargo; and facilitate regional economic development in the BIMP–EAGA. The Project was also to achieve operational and safety improvements of ICAO standards and further assist the Government in transforming civil aviation from a government-run to a market-oriented subsector. 35. Thus, overall, the Project, as intended, was highly relevant. Given this, the fact that it achieved none of its intended objectives is particularly unfortunate. B. Effectiveness in Achieving Outcome

36. Since the Project produced none of its intended outputs, it will be rated ineffective. C. Efficiency in Achieving Outcome and Outputs

37. There were no outputs, thus efficiency is irrelevant. D. Preliminary Assessment of Sustainability

38. The question of sustainability does not arise since the Project did not produce any outputs. E. Impact

39. There has been no impact, as defined in the project design.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

40. Overall, the Project was unsuccessful. B. Lessons Learned

41. Better Project preparation. ADB should ensure that all LARPs have been completed and that the accuracy of the feasibility study has been carefully examined before project appraisal. This would avoid negative social impacts and also increase of Project scope in detailed design to mitigate such impacts, during Project implementation. C. Recommendations

1. Project Related

42. Future Monitoring. This is not applicable, since components requiring future monitoring did not materialize. 43. Covenants. All the covenants under the loan were relevant and valid. Almost all project-related covenants were not complied with since relevant project components were not implemented.

9

44. Further Action or Follow-Up. Not applicable, since those components related to implementation, initial operation, benefits, or sustainability did not materialize. 45. Additional Assistance. No assistance is deemed required since the project did not materialize. 46. Timing of the Project Performance Evaluation Report (PPER). Since no works were implemented, PPER may be undertaken immediately.

2. General

47. Advanced LAR Actions. The recently approved expenditure eligibility requirements, whereby the ADB Innovation and Efficiency Initiative4 allows financing of LAR under ADB loans, should be considered in the LAR process. When the LAR process is complex and time-consuming, advance action should be taken to ensure adequate timing of land acquisition, possibly under a technical assistance loan. 48. Furthermore, in order to adhere to the existing involuntary resettlement policy requirements, it is necessary to prepare satisfactory resettlement plans prior to project appraisal. 49. Executing Agency’s Institutional Capacity. The Executing Agency’s major institutional constraints related to procurement should be resolved or remedied with some external assistance before future interventions are initiated.

4 A new initiative of ADB since 2005 that allows financing LAR, which was not allowed during this Project

preparation.

10 Appendix 1

PROJECT FRAMEWORK

Design Summary

Performance Indicators/Targets

Monitoring Mechanisms

Status, Assumptions and Risks

Goal To promote economic growth primarily in the relatively undeveloped southern provinces of the Philippines, and to facilitate participation of project hinterlands in the BIMP–EAGA

Help achieve economic growth targets in the southern provinces by decreasing bottlenecks in the throughput of passengers and air cargo.

• Project midterm review (MTR)

• Project completion report (PCR)

• Government statistics

• Not conducted since no civil works were implemented

Purpose 1. Improve cost effectiveness, scope, and safety of air transport operations in the project areas.

2. Support further policy and institutional reform in the civil aviation subsector. 3. Improve cost recovery in the civil aviation subsector, and achieve financial self-sufficiency for a corporatized ATO.

1.1 Met International Civil Aviation Organization (ICAO) safety and operational standards at project airports. 1.2 Removed infrastructure constraints on the growth of international and regional air services. 1.3 Improved cost effectiveness through the use of larger aircraft, night-landing facilities, and all-weather facilities at Puerto Princesa. 2.1 Continued implementation of the Sector Reform Action Plan with a view to achieving the target dates. 2.2 Prepared legislation for the corporatization of ATO, and submitted to Congress by 1 January 1998. 3.1 Implemented an increase of tariffs (passenger and freight) in the range of 100–250 percent by 1 January 1998. 3.2 Implemented further tariff increases in January 2000 and 2002 as specified in the

• Consultants'

(ICAO experts) reports.

• Benefit Monitoring

and Evaluation (BME) surveys

• MTR and PCR • Airport statistics

• BME surveys • PCR • Airport statistics

• BME surveys • Review missions

• Condition for

contract awards for civil works and equipment.

• BME surveys • MTR and PCR

1.1 Not applicable since planned improvements did not happen. 1.2 Construction did not commence. 1.3 Not applicable since planned improvements did not happen. 2. Bilateral air service agreements in BIMP–EAGA were achieved. However, sector reforms were not implemented pending legislative approval of enabling law. 3.1 In late 1998, the Government put in place a 300% tariff increase. 3.2 Action Plan for Tariff Reforms implemented successfully.

Appendix 1 11

Design Summary




4. Promote capacity building and human resource development in the civil aviation subsector.

Action Plan for Tariff Reform (see Appendix 9). 3.3. Achieved performance indicators set for the corporatized ATO: - Return on net fixed

assets in service of 3 percent for 2001, 5

- percent for 2002, and 7 percent thereafter;

- Operating ratio of 80 percent for 2001, 75 percent for 2002, and 70 percent thereafter;

- Accounts receivable equivalent to or less than 120 days of operating revenues through 2001 and 90 days of operating revenues thereafter.

4.1 Improved and institutionalized procedures, processes, and management concepts utilized in a corporate environment in ATO. 4.2 Provided training opportunities for DOTC, Civil Aeronautics Board and ATO staff to prepare for new roles under the institutional and organizational changes (see item C.3.4 below).

• Financial

statements of a corporatized ATO

• review missions • PCR

• Review missions • Project progress

reports • MTR and PCR

3.3 • Corporatization of

ATO did not happen since the relevant bill did not pass the Congress.

• Successful implementation of the Action Plan for Tariff Reforms.

4.1 Not implemented 4.2 Not implemented

Outputs 1. Civil Works 1.1 Major upgrading and improvements to airport infrastructure at Puerto Princesa and Cotabato to support Airbus A320 operations.

1. Construction completed by mid-2002.

• Review missions • Project progress

reports • Consultants' reports • MTR and PCR • Bank approval of

bidding documents and contract

1. • Design and

construction supervision consultants were recruited with a 2-year delay.

• Adequate budget for counterpart

12 Appendix 1

Design Summary




1.2 Basic upgrading and improvements to airport infrastructure at Sanga-Sanga, Dipolog, Butuan, and Pagadian airports to support Boeing B737 and A320 operations. 2. Equipment 2.1 Airfield maintenance, and communications and navaid equipment for project airports. 2.2 Communication and navaid equipment to improve the existing national system and meet future requirements. 2.3 Crash, fire, and rescue vehicles for regional and local airports to meet minimum ICAO safety standards. 3. Consulting Services 3.1 Detailed design and construction supervision.

2.1 An integral part of the civil works, airfield equipment supply, and installation done concurrently with the civil works. 2.2 Delivery and installation completed by mid-2001. 2.3 Delivery and commissioning completed by mid-2000. 3.1 Smooth and timely implementation of the Project within budget.

awards • ICAO review of

designs • Review missions • Project progress

reports • Consultants' reports • MTR and PCR

• Review mission • Consultants' reports • MTR • Project progress

reports

funds was available.

• Project was closed with no physical implementation progress of civil works, mainly because of severe delays in land acquisition and resettlement and procurement of consulting services and civil works.

2. • Design and


• Adequate budget for counterpart funds was available. However, at the time of preparation of Southern Philippines Airport Development Project, future budget issues were envisaged.

• Project was closed with no physical implementation progress of civil works, mainly because of severe delays in land acquisition and resettlement and procurement of consulting services and civil works.

3.1 • Design and


Appendix 1 13

Design Summary




3.2 Review of provisions for airport safety and security enhancement by ICAO experts. 3.3 Sector restructuring and privatization and/or devolution of airports. 3.4 Training

3.2 Minimum ICAO safety standards met through upgraded facilities at Project airports. 3.3 Successful corporatization of ATO, and privatization and/or devolution of airports to local Government. ATO's enhanced capabilities for financial management and accountability for its performance. Davao airport corporatized by 31 December 1998. 3.4 About 80 staff from ATO, Civil Aeronautics Board, and DOTC to be trained in planning and commercial management. About 12 staff of ATO to be trained in operational procedures for the global navigational satellite system.

• ICAO review of

designs and field surveys • New legislation and

establishment of a new corporate body and privatization and/or devolution of airports.

• Improved

performance of corporatized ATO

• New approach

procedures for designated regional airports

• Government approval procedures caused these delays.

3.2 Review of airport safety and security was partially implemented by ICAO. 3.3 Sector restructuring and privatization did not happen. 3.4 Training also did not happen since it was contingent on civil works.

Activities 1. Provision of adequate counterpart funds 2. Establishment of the project implementation unit (PIU) and the project steering committee (PSC) 3. Systems for recording data and collecting statistics.

1. • Counterpart funding

approved in principle by the House Budget Committee

• Government made arrangements to cover any shortfall of funds

2. PIU and PSC established within 1 month of the effectiveness date of the loan. 3. A benchmark survey for subsequent monitoring and

1. Government budget estimate 2. Project progress reports 3. Project progress reports

1. Counterpart funds were adequately available. 2. PIU and PSC were established. 3. Reliable statistical data were available.

14 Appendix 1

Design Summary




4. Recruitment of design and construction supervision consultants. 5. Carrying out survey and design 6. Awarding contracts 7. Supervising the construction and installation. 8. Land acquisition and relocation 9. Capacity building and privatization and devolution of airports

evaluation completed by ATO by no later than 30 June 1998. 4. Recruitment of consultants completed by February 1998. 5. Survey and detailed design completed by February 1999. 6. Contracts awarded from January to December 2000. 7. Construction supervision completed by December 2002. 8. • ATO established a

land acquisition and resettlement committee with representatives from ATO, local governments, and the affected people by 30 September 1997.

• Cost of land acquisition and resettlement activities included in the annual development budgets of DOTC–ATO and local governments for fiscal years 1998 and 1999.

9. About 36 person-months of international consultants and 24

4. Contract documents 5. Survey and design reports 6. Project progress reports 7. • Project progress

reports • Consultants’ reports

8. Acquisition of all land required to implement the Project, and resettlement of all residents affected by the Project are conditions for contract awards. 9. • Consultants’ reports

4. Design and construction supervision consultants were recruited with a 2-year delay. This delay was because of the Government's lengthy approval procedures. 5. Consultants were found competent and completed the survey and design. 6. Government approval procedures were not streamlined and caused severe delays and, finally, failure in contract awards of civil works and equipment. 7. Not applicable as construction and installation did not happen. 8. This activity was substantially completed although severely delayed. This delay partly caused civil works to be derailed and, finally, not implemented within loan period. 9. Capacity building and privatization and devolution of airports did

Appendix 1 15

Design Summary




10. Training

person-months of domestic consultants 10. About 32 weeks of classroom tuition for management development, and 1 month tuition in theory and 3 months on-the-job training in the global navigational satellite system.

• Project progress reports

10. • Consultants’ reports • Project progress

reports

not happen as they were contingent on civil works at airports. 10. Training was also not implemented because of the reason in #9 above.

Inputs Project Cost ($ million) 1. Civil works 79.5 2. Equipment 8.4 3. Land acquisition 3.3 4. Comm/Navaid equipment 12.2 5. CFR vehicles 12.3 6. Consulting services 11.3 7. Physical contingency 12.7 8. Price contingency 10.6 9. Interest during construction 16.7 Total 167.0

ATO = Air Transportation Office, BIMP–EAGA = Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area, CFR = crash and fire rescue, DOTC = Department of Transportation and Communications.

16 Appendix 2

CHRONOLOGY OF EVENTS Project Processing

21 April–15 May 1997 – Appraisal Mission 18–21 August 1997 – Loan Negotiations 16 September 1997 – Loan Approval 21 January 1998 – Loan Signing 11 November 1998 – Loan Effectiveness

Implementation 1999

5 November 1999 – Asian Development Bank (ADB) approves consultancy services contract for detailed design and construction supervision.

10 December 1999 – The Department of Transport and Communication (DOTC)

and COWI-Netherlands Airport Consultants Joint Venture (COWI-NACO J.V.) sign consultancy agreement for detailed design and construction supervision.

2000 4 February 2000 – DOTC issues notice to commence works to COWI-NACO

J.V. 16 February 2000 – COWI-NACO J.V. commences consultancy services. 15 August 2000 – ADB approves invitation for prequalification of contractors

for five airports in Mindanao 17 August 2000 – Invitation for prequalification of contractors for five airports

in Mindanao is published in ADB Business Opportunities and local press

17 November 2000 – Deadline for submission of prequalification documents for

five airports 2001 24 May 2001 – DOTC and the International Civil Aviation Organization

(ICAO) sign contract for consulting services for monitoring and review (direct selection)

26 July 2001 – DOTC submits the prequalification evaluation report

(PQER) for five airports to ADB. 7 August 2001 – ADB acknowledges receipt of PQER and requests a copy

of Prequalification Bidding and Awards Committee (PBAC)

Appendix 2 17

Resolution No. 2001–02, which relate to above prequalification as well.

20 August 2001 – DOTC submits a copy of PBAC Resolution No. 2001–02 24 August 2001 – ADB acknowledges receipt of PBAC resolution and

requests additional documents. Note: Exchanges in communications between ADB and DOTC on the PQER ensued during the period August 2001 to May 2003, resulting in the submission of a fourth revision to the PQER for five airports.

2002 12 July 2002 – ADB approves bidding documents for the aeronautical

fixed telecommunication network and automatic identification system (AFTN/AIS) component.

15 & 19 August 2002 – Publication and posting of invitation for bids for AFTN/AIS

component 11 December 2002 – Deadline for submission of bids for AFTN/AIS component 2003 28 April 2003 – DOTC submits bid evaluation report for AFTN/AIS

component to ADB. 5 May 2003 – DOTC submits the fourth revision to the PQER for five

airports. 8 May 2003 – ADB acknowledges receipt of the revised PQER (fourth

revision) and advises DOTC that ADB is no longer in a position to approve the implementation of the external works and buildings component of the Project because the loan closing date was 20 May 2003.

29 May 2003 – ADB is informed, through the Department of Finance

(DOF), of DOTC’s request for a loan extension from 1 June 2003 to 31 May 2004 with no cancellation in the original loan amount of $93 million. Conditions for approving this extension were: (a) the 1-year extension will cover the implementation of the AFTN/AIS component, and (b) satisfactory performance on preparatory activities as a condition for further extension of the loan to cover major components such as civil works.

31 May 2003 – First partial cancellation of $73 million

18 Appendix 2

14 July 2003 – ADB informs DOF that it agrees to process a 1-year loan extension with reduced scope that will cover only AFTN/AIS, ICAO training and consulting services. The approval of the extension is conditional on the signing of the contract for the AFTN/AIS component and Government’s confirmation of the 1-year extension. Otherwise, ADB will close the loan by 31 August 2003.

18 August 2003 – DOTC, through DOF, confirms its agreement to the

proposed 1-year loan extension. 9 September 2003 – ADB's Procurement Committee informs DOTC that the

joint venture of Questronix Corporation (QC) and Global Weather Dynamics, Inc. (GWDI) meets the financial qualification requirements for AFTN/AIS and is qualified for award of the contract, contrary to DOTC’s recommendation to award the contract to Thales. Note: A series of communications between ADB and DOTC were exchanged regarding issues and clarifications on the bid evaluation report.

26 September 2003 – DOTC awards the contract for AFTN/AIS to the joint

venture of QC and GWDI. Note: The joint venture of QC and GWDI failed to post the required performance security. DOTC nullifies the award of the contract.

23 December 2003 – ADB informs DOTC of the approval of a 1-year extension

of the loan from 31 May 2003 to 31 May 2004 and partial cancellation of $73 million. As a result of the lengthy dialog between the Government and ADB indicated in the above events since May 2003, this loan extension took 7 months for ADB’s approval.

2004 2 April 2004 – ADB concurs with DOTC’s proposal to award the contract

for AFTN/AIS to Thales Information Systems. However, the award of the contract was not pursued because of continuous complaints by bidders at the highest level of anti-corruption investigation authorities in the Philippines (usually, if complaints reach this level, the Government does not pursue any further action until the investigations are completed).

3 November 2004 – ADB extends the loan to 30 October 2004 to include

consultancy services incurred for the preparation of the feasibility study for the proposed Southern Philippines Airports Development Project (restructured Third Airports Development Project).

Appendix 2 19

2005 5 September 2005 – Loan closing and second partial cancellation of $7.84 million

2006 28 January 2006 – ADB informs DOTC that the loan was closed. 2007 6 March–30 April 2007 – Project Completion Review Mission

20 Appendix 3

PROJECT OUTPUTS: PLANNED AND ACTUAL

Project Component Planned Output Actual Output Percentage Completed

Major upgrading and improvements to airport infrastructure at Puerto Princesa and Cotabato to support Airbus A320 operations

Cancelled 0% Parts I–VI: airside, landside civil works and visual aids, airfield maintenance equipment, and airfield communication and Navaid equipment for project airports

Basic upgrading and improvement of airport infrastructure at Sanga-Sanga, Dipolog, Butuan, and Pagadian airports to support A320 and Boeing B737 operations

Cancelled 0%

Part VII: Communications and Navaid equipment to improve existing national system and meet future requirements

Delivery and installation completed by mid-2001

Cancelled 0%

Part VIII: Crash, fire, and rescue vehicles for regional and local airports to meet minimum International Civil Aviation Organization (ICAO) safety standards

Delivery and installation completed by mid-2000

Cancelled 0%

Part IX: Consulting services Design and project supervision Project monitoring by ICAO Sector restructuring and human resource development (HRD) Training

Detailed design Construction supervision Minimum ICAO safety standards met through upgraded facilities at project airports Successful corporatization of ATO, and privatization and devolution of airports to local government. ATO’s enhanced capabilities for financial management and accountability for its performance. Davao airport corporatized by 31 December 1998. About 80 staff members from ATO, Civil Aeronautics Board, and DOTC are trained in planning and commercial management About 12 staff members of ATO are trained in operational procedures for the global navigational satellite system.

Completed

Cancelled

Partial monitoring undertaken

Cancelled

Cancelled

100%

0%

25%

0%

0%

ATO = Air Transportation Office, DOTC = Department of Transportation and Communications. Source: Asian Development Bank.

Appendix 4 21

APPRAISAL AND ACTUAL PROJECT COSTS ($ million)

Appraisal Estimate Actual Component Foreign Local Total Foreign Locala Total A. Base Cost 1. Parts I–IV: Airport Improvements 51.50 39.60 91.10 0.00 13.40 13.40 2. Part VII: Communication and 11.00 1.20 12.20 0.00 0.00 0.00 Navigation Equipment 3. Part VIII: Crash, Fire, and Rescue 11.20 1.10 12.30 0.00 0.00 0.00 Vehicles 4. Part IX: Consulting Services 9.80 1.50 11.30 7.96 0.13 8.09 Subtotal (A) 83.50 43.40 126.90 7.96 13.53 21.49 B. Contingencies 1. Physical 8.40 4.40 12.80 0.00 0.00 0.00 2. Price 6.90 3.70 10.60 0.00 0.00 0.00 Subtotal (B) 15.30 8.10 23.40 0.00 0.00 0.00 C. Interest During Construction and

other Charges 15.20 1.50 16.70 4.19 0.00 4.19

Total 114.00 53.00 167.00 12.15 13.53 25.68a Costs incurred by the Borrower for site acquisition, project-affected families relocation, project administration, and

counterpart’s funding for consulting services. Sources: Asian Development Bank and Department of Transportation and Communications.

22 Appendix 5

PROJECTED AND ACTUAL DISBURSEMENTS ($ million)

Year Quarter Projected

Annually Actual

(quarterly) Actual

(cumulative) Annual

1998 Fourth 1.00 0.00 0.00 0.00 1999 First 0.00 0.10 0.10 Second 0.00 0.00 0.10 Third 0.00 0.15 0.25 Fourth 0.50 0.00 0.25 0.25 2000 First 2.00 2.24 2.49 Second 0.40 0.00 2.49 Third 0.30 1.65 4.14 Fourth 0.30 0.59 4.73 4.48 2001 First 0.80 1.26 5.99 Second 0.70 0.67 6.66 Third 0.50 1.04 7.70 Fourth 2.00 0.46 8.16 3.43 2002 First 0.10 0.94 9.10 Second 0.12 0.04 9.14 Third 0.13 1.00 10.14 Fourth 0.13 0.04 10.18 2.02 2003 First 0.50 0.69 10.87 Second 0.40 0.30 11.17 Third 0.00 0.78 11.95 Fourth 0.00 0.00 11.95 1.77 2004 First 1.00 0.08 12.03 Second 1.00 0.04 12.07 Third 0.50 0.00 12.07 Fourth 0.50 0.11 12.18 0.23 2005 First 0.00 0.00 12.18 Second 0.00 (0.02) 12.16 Third 0.00 0.00 12.16 (0.02) ( ) = negative. Source: Asian Development Bank.

Appendix 6 23

PROJECT IMPLEMENTATION SCHEDULE Item

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IVA. Parts I–VI:

1. Land Acquisition

PQ Ten BE CA Mob Con Cal2. Airside Civil Works

and Visual Aids

PQ Ten BE CA Mob Con Cal3. Landside Civil Works

Ten BE CA MS Del/Com4. Airfield Maintenance

Equipment

Ten BE CA MS Ins Com5. Airfield Communications

and Navaid Equipmentfor Six Airports

Ten BE CA MS/Del ComB. Part VII Communications Ten and BE (AFTN/AIS only)

and Navaid Equipment

C. Part IX Consulting Services Survey/Testing/Final Planning/Preliminary

Recruitment Design Detailed Design Preconstruction Construction Supervision1. Design and Construction

SupervisionRecruitment Preconstruction

Recruitment Monitoring Monitoring2. Project Monitoring

by ICAORecruitment Monitoring

Recruitment Implementation3. Sector Restructuring

and HRDRecruitment Implementation

4. Training

1997 1998 1999 2000 2001 2002 2003 2004

Legend:

AFTN = Aeronautical Fixed Telecommunication Network, AIS = Automatic Identification System, BE = bid evaluation, CA = contract award, Cal = calibrating, Com = commissioning, Con = construction, Del = delivery, ICAO = International Civil Aviation Organization, Ins = installation, Mob = mobilization, MS = manufacturing and shipping, PQ = prequalification, Ten = tendering. Sources: Asian Development Bank and Department of Transportation and Communications.

Appraisal Actual

24 Appendix 7

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in Loan

Agreement

Status of Compliance I. General Implementation Arrangements 1. DOTC, acting through ATO, shall be the Executing Agency and shall be responsible for the planning, implementation, management, supervision and coordination of the Project 2. Project Steering Committee (PSC). ATO will establish a PSC within one month after the Effective Date. The PSC will review the designs for the Project to be prepared by the PIU; (ii) including ensuring appropriate liaison among agencies involved in Project implementation; (iii) review the status of Project implementation (iv) monitor the progress achieved and resolve any difficulties encountered; (v) serve as a forum for discussions on, and review of, the Project’s impact on regional development; and (vi) coordinate the implementation of the Sector Reform Action Plan agreed upon between the borrower and the Bank. 3. Project Implementation Unit (PIU). ATO shall establish a PIU in ATO and sub-PIUs at locations to be determined by ATO within one month after the Effective Date. The PIU shall be headed by a full-time Project Manager acceptable to ADB who shall be also responsible for the management of the sub-PIUs. PIU and sub-PIUs shall ensure the cost effective and timely implementation of the Project and provide the necessary liaison with ATO, contractors, consultants, suppliers, ADB and EIB. The Project Manager shall have authority delegated by the construction designs and verify progress reports and invoices for payment.

Schedule 6, para. 1

Schedule 6, paras. 2 and 3

Schedule 6, paras. 4 and 5

Complied with. The leadership and decision taking progress being with DOTC. Complied with. PSC established through Special Order (SO No. 98-1767 of 14 October 1998). Complied with. PIU established through SO No. 98-1767 of 14 October 1998. Sub-PIUs at each airport in July 1999.

Appendix 7 25

Covenant

Reference in Loan Agreement

Status of Compliance

II. Specific Information Arrangements Design Parameter Review 4. Within two months after the fielding of the consultants for detailed design and construction supervision, a review of the conceptual design parameters for the Project shall be carried out by the PSC and ADB.

Detailed Design Review 5. Within two months after the completion of the preliminary designs for the Project, a review of the proposed detailed design parameters of the runways, passenger terminal buildings, parking aprons, related infrastructure works, and communications and navigation equipment, shall be undertaken by the PSC, PIU, consultant from ICAO, ADB and in case Puerto Princesa, EIB, to determine the appropriate final configuration of these facilities.

Environmental Considerations 6. The Borrower, through ATO, shall ensure the following environmental mitigation measures are incorporated during detailed design construction: (i) providing for, or adding capacity to sewage disposal, (ii) controlling siltation during construction; and (iii) installing simple oil separators for removing oil waste from drainage water in work areas and from storm water run-off from areas such as aprons. Land Acquisition and Resettlement 7. The Borrower shall cause the ATO to take the necessary measures to mitigate possible adverse impacts associated with the Project. Any land acquisition and resettlement shall be in accordance with the Borrower’s law and regulations and ADB’s

Schedule 6, para. 6

Schedule 6, para. 7

Schedule 6, para. 8

Schedule 6, para. 9

Complied with. ICAO experts on Airport Planning and Engineering and Navigational Aids reviewed the documents on August 20-24 and Sep 3-7, 2001, respectively. Complied with. ICAO experts on Airport Planning and Engineering and Navigational Aids reviewed the documents on August 20-24 and Sep 3-7, 2001, respectively. Complied with. Adequate mitigation measures incorporated into the Design. Complied with late. Land Acquisition and Resettlement Committee established for each airport in July 1999. Land Acquisition

26 Appendix 7

Covenant



Policy on Involuntary Resettlement. Promptly after the Effective Date, ATO shall establish a Land Acquisition and Resettlement Committee with representatives from ATO, the government of the cities and provinces where the Project airports are located and affected people. ATO shall provide quarterly reports to ADB on the implementation of land acquisition and resettlement to ensure all requirements are met.

Operation and Maintenance

8. Without limiting the generality of Section 4.09 of the Loan Agreement, the Borrower, shall upon completion of the Project, ensure that the Project Facilities are operated and maintained in such a manner that full and continuous compliance with the appropriate ICAO standards is achieved for (i) airport operations; and (ii) all airport services, such as air traffic services, fire and crash and rescue, and airport security. Aviation Security 9. Except as the Borrower and the bank may otherwise agree, the Borrower shall, no later than 30 June 1998, ensure that the cities of Puerto Princesa, Cotabato, Butuan and Pagadian and the municipality of Sanga-Sanga pass zoning ordinances prohibit the erection of any structure, and provide for the removal of any existing structure, that, within the meaning of ICAO’s International Standards and Recommended Practices, Aerodromes Annex 14 to the Convention on International Civil Aviation, constitutes a hazard air navigation.

Schedule 6, para. 10


and Resettlement Plan (LARP) approved by ADB and adopted for the acquisition of affected properties and resettlement of affected families. Likewise, compensation was based on market value as determined by a private appraisal company engaged by DOTC for the purpose. Not applicable since civil works did not commence. Partly complied with. During the First ICAO Review and Monitoring Mission, a copy of the Zoning Ordinance for Puerto Princesa City was provided for review. Stipulations that prohibit erection of structures within the limit set by ICAO were to be incorporated in the mentioned zoning ordinance. On the second visit, an ICAO expert visited Puerto Princesa City and met with local government unit officials and

Appendix 7 27

Covenant



Counterpart Funds 10. Without limiting the generality of Section 4.02 of this Loan Agreement, the Borrower shall ensure adequate budgetary allocations are made for the Project, including the provision of funds for land acquisition and resettlement, in addition to the loan proceeds and co-financing funds provided under the Project, for the timely and effective implementation of the Project.


discussed proposals on the revision of the Zoning Ordinance. No further discussions nor the proposed revision materialized due to the closing of the loan. Complied with. Adequate funds were provided for 2001, 2002, 2003 and 2004. However these funds were only for land acquisition since no civil works or equipment supply was implemented.

III. Financial Matters 11. (a) Except as ADB may otherwise agree, the Borrower shall take all necessary action to ensure that ATO or any successor thereto achieves an annual return of not less than three percent (3%) for 2001, five percent (5%) for 2002, and seven percent (7%) thereafter on its average net valuated fixed assets in service.

(b) Except as ADB may other wise agree, the Borrower shall cause ATO or any successor thereto to maintain an operating ratio or not more than eighty percent (80%) for 2001, seventy-five percent (75%) for 2002, and seventy percent (70%) thereafter.

(c) Except as ADB may otherwise agree, the Borrower shall take all necessary action to ensure that the total amount of ATO’s accounts receivable on account of operations is maintained at or below a level equivalent to 120 days of its annual operating revenue for each of the years through 2002 and 90 days of its operating revenue for each of the year thereafter.




Not applicable since civil works did not commence. Not applicable since civil works did not commence. Not applicable since civil works did not commence.

28 Appendix 7

Covenant



IV. Other Matters Benefit Monitoring Evaluation 12. ATO shall continuously monitor and assess the physical, financial, economic and social aspects of the project implementation and include such matters in the quarterly reports submitted to ADB pursuant to Section 4.07(b) of the Loan Agreement. Systems for recording data and collecting statistics for such monitoring (including, but not limited to, the number and type of flights, number of passengers and cargo volumes) shall be established as part of the project implementation management. ATO shall carry out, or cause to carry out, by not later than 30 June 1998, a benchmark survey to establish baseline data for the Project.

Midterm Review

13. ADB, the Borrower and, in case of Puerto Princesa Airport, EIB, shall carry out during the second quarter of 2000 a midterm review of project implementation and its benefits. The representatives of ICAO shall also be invited to participate in the midterm review

Schedule 6. para. 14


Partly complied with. Only the scope assessment and operational guidelines report was given to ADB during the June 2001 Loan Review Mission. The baseline survey however did not materialize due to the closure of the loan. No quality assurance reports were submitted. Not complied with. Due to implementation delays, the midterm review was rescheduled and ultimately not carried out.

V. Sector and Institutional Reforms 14. The Borrower shall continue implementation of the reform measures described in the Aviation Sector Policy Statement (ASPS) prepared under Bank Technical Assistance (T.A. 2559-PHI) and agreed upon between the Borrower and the Bank.

15. By 1 January 1998, and taking into account of the recommendations on the consultants under Bank Technical Assistance No. 2207-PHI, the Borrower shall submit for the consideration of the congress, legislation concerning the creation of a corporatized civil aviation authority.



Complied with. Partly complied with. House Bill No. 1630 was filed in the Congress (1998-1999), but did not pass. DOTC was planning to reintroduce it in 2002 but did not do so.

Appendix 7 29

Covenant



16. Upon the creation of a civil aviation authority, the Borrower shall relend the proceeds of this loan and the EIB loan to such authority under terms and conditions acceptable to the Bank and EIB, respectively. 17. Within twelve months after the enactment of the legislation referred to in paragraph 18 of this Schedule, and taking into account of the recommendations of the consultants under ADB Technical Assistance No. 2207-PHI, the Borrower shall implement a program for further institutional reform and liberalization of the civil aviation sector. Moreover, the Borrower shall take, or cause to be taken, all such action as may be necessary to (i) separate the regulatory functions of the CAA from its service functions, and (ii) ensure that the service functions are properly regulated and self-financing and that there is full accountability for their performance. 18. Without limiting the generality of paragraph 17 above, the Borrower will commence, by no later than six months after the completion of the Project, the implementation of a program concerning the devolution to the private sector of the operation of the passenger and cargo terminals at all Project airports.




Not complied with. Not complied with. Not complied with.

VI. Conditions of Loan Disbursement 19. Notwithstanding any other provision of this Loan Agreement, no contract shall be awarded:

(a) under Part A (civil works) or Part B (equipment) of the Project airports until the Borrower shall have caused ATO to implement such increases in the rates prescribed in the DOTC Department Orders for air navigation, overflights, landing and passenger charges as shall be agreed upon between the Borrower and the ADB;

Schedule 4, para. 7

Complied with. ATO is implementing a tariff policy based on ICAO Standards. As a result of tariff and charges increase and improved revenues collection, over 1996-2000 air navigation and airport charges collected by ATO increased at an average of about 40 percent from P500 million to about

30 Appendix 7

Covenant



(b) Under Part A or Part B of the Project for the Project facilities at any Project airport until the Borrower shall have provided ADB with the evidence of satisfactory to ADB that for the facilities at such airport (i) all land, rights in land and other rights and privileges for the Project have been acquired, and the acquired land is free of any encumbrance, and (ii) any necessary resettlement activities have been carried out in accordance with the Borrower’s laws and regulations and the Bank’s Policy on Involuntary Resettlement; and

(c) Under Part A of the Project at Puerto

Princesa Airport until the EIB Loan Agreement shall have been executed and all conditions precedent to its effectiveness (other than condition requiring the effectiveness of this Loan Agreement) shall have been fulfilled, or other arrangements satisfactory to the Bank shall have been made for the provision of all necessary funds for the civil works at Puerto Princesa Airport.

P1,900 million. Complied with late. Not applicable due to loan closure.

VII. Accounting 20.

(a) The Borrower shall maintain, or cause to be maintained, records and accounts adequate to identify the goods and. services and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, the operations and

Article IV, Section 4.06

Complied with.

Appendix 7 31

Covenant



financial condition of the agencies of the Borrower responsible for the carrying out of the Project and operation of the Project facilities, or any part thereof.

(b) The Borrower shall (i) maintain, or

cause to be maintained, separate accounts for the Project, including separate accounts for each of the Project airports; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently. applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to the Bank; (iii) furnish to the Bank, as soon as available but in any event not later than nine (9) months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the covenants of this Loan Agreement), all in the English language; and (iv) furnish to the Bank such other information concerning such accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request.

(d) The Borrower shall enable the Bank,

upon the Bank's request, to discuss the Borrower's financial statements for the Project and its financial affairs related to the Project from time to time with the Borrower's auditors, and shall make necessary arrangements for any representative of such auditors to participate in any such discussions requested by the Bank, provided that any such discussion shall be conducted only in

Complied with. Complied with.

32 Appendix 7

Covenant



the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree.

VIII. Reporting 21.

(a) The Borrower shall furnish, or cause to be furnished, to the Bank all such reports and information as the Bank shall reasonably request concerning (i) the Loan, and the expenditure of the proceeds and maintenance of the service thereof; (ii) the goods and services and other items of expenditure financed out of the proceeds of the Loan; (iii) the Project; (iv) the administration, operations and financial condition of the agencies of the Borrower responsible for the carrying out of the Project and operation of the Project facilities, or any part thereof; (v) financial and economic conditions in the territory of the Borrower and the international balance-of-payments position of the Borrower; and (vi) any other matters relating to the purposes of the Loan.

(b) Without limiting the generality of the

foregoing, the Borrower shall furnish, or cause to be furnished, to the Bank quarterly reports on the carrying out of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as the Bank shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and, proposed program of activities and expected progress during the following quarter.

Article IV, Section 4.07

Complied with. Partially complied with.

Appendix 7 33

Covenant



(c) Promptly after physical completion of the Project, but in any event not later than three (3) months thereafter or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower shall prepare and furnish to the Bank a report, in such form and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, including its cost, benefits, the performance by the Borrower of its obligations under this Loan Agreement and the accomplishment of the purposes of the Loan.

Complied with.

ADB = Asian Development Bank, ATO = Air Transportation Office, CAA = Civil Aviation Authority, DOTC = Department of Transportation and Communications, EIB = European Investment Bank, ICAO = International Civil Aviation Organization. Source: Asian Development Bank.

34 Appendix 8

LAND ACQUISITION AND RESETTLEMENT A. BACKGROUND

1. The civil works for the six airports required land acquisition and resettlement (LAR), although at the time of the Fact Finding Mission for the Project no LAR plans (LARPs) had been prepared. Thus, although the Asian Development Bank’s (ADB) LAR policy was effective at the time, the Project was approved without any LARPs. The affected families as reported in the Report and Recommendation to the President numbered about 55, and the affected land area amounted to 65 hectares (ha) of land. However, the assessment conducted in 1998 jointly by Department of Transportation and Communications (DOTC) and the local government units (LGU) of the area, after the loan was approved, revealed that the land area required for acquisition for the six airports was 96 ha. Again during the detailed design in 2001, the International Civil Aviation Organization (ICAO) was mobilized to undertake review of the project plans and technical specifications on safety aspects of the airports. During this review, ICAO recommended additional land acquisition and removal of structures to bring project airports into compliance with the ICAO safety standards. This increased the affected area to 174 ha, covering 383 private lots owned by 315 landowners. Also, the number of structures and/or houses affected was 599, involving 599 affected families. 2. A special loan review mission was fielded 15–16 July 1999. Since the Project was already delayed in LAR implementation, this mission advised DOTC to initiate immediately LAR activities and submit an LARP by 31 July 1999. This mission also reiterated that LARP should be in accordance with the Borrower’s laws and regulations and ADB’s Policy on Involuntary Resettlement. 3. Land acquisition and resettlement committees were created under DOTC Special Order 99–1863 in 1999 to comply with the loan covenants. These committees (inventory, appraisal, and negotiation) were formed to effectively carry out LAR activities. They were composed of DOTC and Air Transportation Office (ATO) personnel, and city and/or municipality and barangay LGU representatives. LAR planning and cost estimation continued and in 2000, six memorandums of agreement (MOAs) for LAR were signed between DOTC and the six LGUs. The MOAs stipulated that the LGUs would implement LAR activities with funding for compensation from DOTC. 4. In June 2001, DOTC submitted to ADB the six LARPs for the Project. However, there were many inconsistencies between the LARPs and the aforementioned MOAs. A loan review mission of 25–27 June 2001 advised DOTC that the land and properties to be acquired should be compensated at market value. Thus, ADB requested DOTC to undertake a market value survey, revise the LARP and make a relocation plan for the informal settlers affected. At this point, the estimated number of affected families was 405, of which 313 were informal settlers. It was also agreed during the mission that if DOTC was unable to fully implement LAR in accordance with ADB’s Resettlement Policy by 31 March 2002, the Borrower would request that ADB fully or partially cancel the loan within 1 month. 5. In March 2002, DOTC submitted to ADB an LAR compensation policy framework and procedural guideline formulated in accordance with the ADB Policy on Involuntary Resettlement. Consequently, the first five updated LARPs were submitted by DOTC and were subsequently approved by ADB. The last one to be approved was the Sanga-Sanga LARP in April 2004.

Appendix 8 35

6. In August 2002, ATO and the Department of National Defense–Armed Forces of the Philippines (DND–AFP) agreed on an MOA whereby ATO will compensate DND–AFP-owned land and permanently relocate all affected military facilities. Compensation for such land affected by the Project was to be in the form of land swap of ATO-owned properties occupied by military installations. 7. Based on the Loan Review Mission of 2–16 October 2002, it was estimated that LAR activities would be completed by 15 December 2002 for Cotabato, Dipolog, Butuan, and Pagadian; by 15 January 2003 for Puerto Princesa; and by mid-2003 for Sanga-Sanga. Furthermore, the completion of the relocation of the military facilities was expected by 15 March 2003 according to the aforementioned MOA. 8. The summary comparison of these LAR activities—completion of which was a prerequisite for civil works contract awards—against loan milestones in Table A8.1 below shows that preparation of LARPs have taken 6 years. One LARP was prepared after the original loan closing date. Ideally, these activities should have been completed before loan appraisal. Also, as explained in paras. 3 to 9, the extent of LAR significantly increased over time, and during the detailed design stage. This indicates that the feasibility study during project preparation did not adequately capture the scope of LAR.

Table A8.1: Comparative Schedule of Loan Approval and Land Acquisition and Resettlement Plan Preparations

Milestones Dates Loan Milestones Loan approval 16 September 1997 Loan Signing 21 January 1998 Loan Effectivity 11 November 1998 Loan Closing (original) 31 May 2003 Loan Closing (revised) 30 October 2004 Actual Loan Closing 5 September 2005 LARP Milestones Initial inventory of affected families and properties Creation of LAR committees 1999 MOAs for LAR signed between DOTC and the six (6) LGUs 2000 Mobilization of consultants for detailed engineering design and construction supervision

21 February 2000

Submission of first LARP June 2001 Mobilization of ICAO consultants for project monitoring July 2001

Milestones Dates Approval of LAR compensation policy framework and procedural guideline

March 2002

Approval of five LARPs (except Sanga-Sanga) March 2002 MOA for LAR between ATO and DND–AFP August 2002 Approval of Sanga-Sanga LARP April 2004

ATO = Air Transportation Office, DND-AFP = Department of National Defense-Armed Forces of the Philippines, DOTC = Department of Transportation and Communications, ICAO = International Civil Aviation Organization, LAR = land acquisition and resettlement, LARP = land acquisition and resettlement plan, LGU = local government unit. Source: Asian Development Bank.

36 Appendix 8

B. FINDINGS

1. LAR Policy Framework 9. The LAR policy framework contained in the June 2001 LARP generally adopted the principles of ADB's Policy on Involuntary Resettlement, as follows:

i. All attempts will be made to avoid or minimize adverse effects to the affected families;

ii. Where adverse effects cannot be avoided, a land acquisition and compensation scheme will be established;

iii. Public information and consultation with the local government units and key stakeholders will be ensured at every stage of the Project;

iv. All affected persons residing in, doing business in, or having rights over resources within the project area are entitled to compensation for their loss of assets; and

v. Affected persons losing all of their productive assets (land, residence, or buildings), or experiencing partial loss of assets where those assets remaining are no longer viable for productive use, are entitled to full compensation.

10. However, this 2001 LARP policy had fundamental differences that did not follow the ADB policy, as below:

i. Compensation of land will be based on zonal value plus 10%; and ii. Compensation value of houses and other structures and/or improvements will be

determined by the appraisal committee composed of a city and/or municipal assessor, treasurer, engineer, ATO airport manager and project implementation unit (PIU) project director.

11. Regarding the first difference above, ADB policy required that compensation for affected land and improvements should be based on replacement cost, preferably valued by a private appraiser. The Loan Review Mission of 25–27 July 2002 reiterated to DOTC that the LARP has to be implemented according to ADB’s Policy on Involuntary Resettlement. The Mission advised that the land and properties to be acquired should be compensated at market values and not zonal values. Also, this mission requested DOTC to undertake a market value survey as soon as possible. The results of this survey were to be submitted to ADB by the end of August 2001. According to the revised implementation schedule, the LARP was to be completed by 31 March 2002. 12. As for the aforementioned second difference on implementation, this LARP provided for the sharing of responsibilities of LAR activities between DOTC and the respective LGUs of the area. In MOAs executed in 2000 between these agencies, the LGUs were tasked to implement LAR activities while DOTC would only provide the funds, with no adequate supervision in place. ADB did not agree to this arrangement, and requested that DOTC, as the Executing Agency, be totally responsible for implementing the LAR activities and supervising the LGUs. 13. DOTC revised the 2001 LARP to conform better with ADB’s Resettlement Policy. After lengthy discussions, the policy issues were settled in 2002 with the formulation and submission of the updated LAR compensation policy framework and procedural guidelines by DOTC. The updated version included, among others, the following policy areas (LARP, 2002):

Appendix 8 37

i. Compensation for affected land would be at fair market value as determined by a private appraiser duly registered and recognized by both the government lending banks and ADB;

ii. Compensation for affected houses, structures, and commercial buildings would be at replacement cost, free of depreciation, salvage materials, and building materials;

iii. Annual and perennial crop (including plants and trees) compensation would be provided to all affected families suffering this loss; and

iv. Informal settlers would be given resettlement plots, compensation for affected structures, and a subsistence allowance.

14. As for the affected military facilities, compensation would be replacement or functional relocation in the same configuration as that of existing affected structures, improvements to existing structures and turning over of the same after construction. 15. After the new compensation policy was approved, the first five updated LARPs were submitted by DOTC and subsequently approved by ADB. Among the six LARPs, the last to be approved was the Sanga-Sanga LARP in April 2004. These frameworks are summarized in Table A8.2 below.

Table A8.2: Each Land Acquisition and Resettlement Policy and Major Content Therein

LAR Policy Major Content LARP 2001 - Compensation of land will be based on zonal value plus 10%;

- Compensation value of houses and other structures will be determined by the appraisal committee composed of city or municipal assessor, treasurer, engineer, ATO airport manager and PIU project director.

MOA between DOTC–ATO and LGUs

- The LGUs were tasked to implement LAR activities while the DOTC will provide the funds.

LAR Policy 2002 - Compensation for affected land will be at fair market value as determined by a private appraisal company duly registered and recognized by both the government lending institutions and ADB;

- Compensation of affected houses, structures, and commercial buildings will be at cost of reproduction of a new one (replacement cost), which is free of depreciation, salvage materials, and building materials.

- Cash compensation for annual and perennial crops (including plants and trees), if any, at market value and sufficient time to harvest the crop.

- Informal settlers will be given resettlement plots, compensation for affected structures, and subsistence allowance.

- Government facilities will be replaced or relocated. ADB = Asian Development Bank, ATO = Air Transportation Office, DOTC = Department of Transportation and Communications, LAR = land acquisition and resettlement, LARP = land acquisition and resettlement plan, LGU = local government unit, MOA = memorandum of agreement, PIU = project implementation unit. Source: Asian Development Bank.

38 Appendix 8

2. Impacts and Quantities 16. The Project Completion Report (PCR) Mission reviewed various project documents of DOTC, the first LARP submitted in 2001, the revised compensation policy framework and revised LARPs submitted in 2002, the LAR status reports of 2002 and 2006, and the PCR of DOTC submitted in 2007. Also, the Mission reviewed the 2002 LAR Status Report and 2003 Re-Appraisal Report Volume 3 on LAR Status prepared by the detailed engineering and construction supervision consultants, and the six property appraisal reports of the appraisal committee (see para. 10). 17. Many of these reports had inconsistent figures on LAR impact and quantities. After careful verification with DOTC, the Mission was able to reconcile the figures for the impacts and quantities as in the DOTC PCR of 2007. The total number of affected structures was 599, affecting the same number of families. The total number of affected land and/or lots was 383, with 315 affected landowners. Also, the total land area affected was 174.11 ha. These are summarized in Table A8.3.

Table A8.3: Summary of Affected Families and Properties

Airport

Affected Families

Structuresa

Landowners

Affected

Lots

Area Affected (hectare)

Puerto Princesa 122 122 87 113 36 Cotabato 122 122 69 70 49 Butuan 113 113 8 10 38 Dipolog 96 96 78 102 29 Pagadian 67 67 42 48 7 Sanga-Sanga 79 79 31 40 13 Total 599 599 315 383 174

a Affected military properties not included (see Table A8.4 below). Sources: Department of Transportation and Communications Project Completion Report 2007 and

Land Acquisition and Resettlement Status Report, May 2006. 18. Informal Settlers: The final figures indicate that there were 379 affected informal settler families. These were in Puerto Princesa, Cotabato, and Butuan, as shown in Table A8.4 below. 19. Military facilities and other facilities affected: The affected buildings were mostly military facilities except in Dipolog and Sanga-Sanga, where LGU-run and private school buildings were affected. The total number of affected building facilities was 107, as shown in Table A8.4 below.

Table A8.4: Summary of Affected Informal Settlers and Military and other facilities

Airport

Informal Settlers

Affected Military and other Structures

Puerto Princesa

119 24

Cotabato 84 43 Butuan 110 9 Dipolog 0 16

Appendix 8 39

Airport

Informal Settlers

Affected Military and other Structures

(LGU school buildings: 9; Government buildings: 7)

Pagadian 66 None Sanga-Sanga 0 15 (Military facilities: 8;

Private school buildings: 7) Total 379 107 LGU = local government unit. Source: Department of Transportation and Communications Project Completion Report 2007.

3. LAR Implementation

20. Compensation of Affected Families. Originally scheduled to start in 1997 after loan approval, LAR activities did not commence until 2002. The updated LARPs were approved in March 2002 for the five airports (all except Sanga-Sanga), and the corresponding LAR activities followed immediately after. The payments for compensation for structures and land for these airports were completed in 2003. For Sanga-Sanga airport, LARP was approved in April 2004. Payments for the affected properties of Sanga-Sanga were put on hold at that time because of peace and order problems. Nevertheless, the payment checks were ready by then. Given the fact that all obligations of the DOTC for Sanga-Sanga affected families had cash allocations and checks readied, the PCR Mission considered LAR implementation for structures and land substantially complied with (over 90%). DOTC informed the mission that these checks are now being reprocessed for release. The average LAR accomplishment for structures is 99.83 percent and for land is 98.67 percent as shown in Table A8.5 below.

Table A8.5: Summary of Accomplishments of Compensation

Airport

Structures

Accomplishment (%)

Affected Lots

Accomplishment (%)

Puerto Princesa 122 100 113 96 Cotabato 122 100 70 100 Butuan 113 100 10 100 Dipolog 96 100 102 100 Pagadian 67 99 48 96 Sanga-Sanga 79 100 40 100 Total 599 99.83 383 98.67 Source: Department of Transportation and Communications Project Completion Report 2007. 21. Resettlement of Informal Settlers: All informal settlers were compensated at replacement cost for the affected structures. They also received disturbance compensation of P5,000 for each family. Transport assistance was also given to those who requested it. Based on the final figures, 179 affected families had relocated to the assigned resettlement sites while 174 affected families had opted for self-relocation, even though they were provided with resettlement lots. A small number of affected families (27) had remained un-relocated. This group was allowed to stay temporarily when they signed "quit-claim" letters assuring that they would not seek future compensation since they had received payments already, and would relocate when construction begins. Therefore, as of 2003 compensation payments and

40 Appendix 8

allowances for informal settlers had been fully accomplished in the four airports, while relocation was 93 percent completed. This is summarized in Table A8.6 below.

Table A8.6: Summary of Resettlement Accomplishments for Informal Settlers

Airport

Informal Settlers

Transferred to relocation

site

Self

Relocation

Percent resettled

Not yet

relocateda Puerto Princesa 119 90 9 83.19 20 Cotabato 84 14 65 94.04 5 Butuan 110 75 35 100.00 Dipolog 0 Pagadian 66 0 64 96.96 2 Sanga-Sanga 0 Total 379 179 174 93.13 27 a Not yet relocated but have received compensation for structures and disturbance allowance. Source: Department of Transportation and Communications Project Completion Report 2007. 22. Military Facilities: Not all military and school facilities affected had been relocated as of the PCR Mission period. The exception was Puerto Princesa, where 17 of the 24 affected facilities had been relocated. The other seven facilities were not relocated right away because some of the affected structures for relocation form part of the airport civil works, such as the military ramp, taxi way, etc. 23. For Cotabato and Butuan, relocation of facilities could not commence because relocation was contingent on commencement of the civil works. In Cotabato airport, relocation was scheduled to commence only once the area where the structures were situated was leveled (materials will be used to backfill the end of the runway). It was estimated that relocation would begin only 1 year after civil works commenced. In other airports, relocation did not happen because the civil works were cancelled. DOTC terminated further negotiations with the military when it was apparent that the civil works implementation would not materialize. Table A8.7 summarizes the status.

Table A8.7: Summary of Accomplishment of Land Acquisition and Resettlement for Military and Other Facilities

Airport

Affected Structures

Facilities already

relocated/ replaced

Accomplishment (%)

Remaining facilities to be

relocated/ replaced

Status/ Remarks

Puerto Princesa

24 17 71 7 These remaining LAR activities are contingent on civil works.

Cotabato 43 0 0 43 These LAR activities are contingent on civil works.

Butuan 9 0 0 9 These LAR activities are contingent on civil works.

Appendix 8 41

Airport

Affected Structures

Facilities already

relocated/ replaced

Accomplishment (%)

Remaining facilities to be

relocated/ replaced

Status/ Remarks

Dipolog 16 0 0 16 These LAR activities are contingent on civil works.

Pagadian 0 Sanga-Sanga

15 0 0 15 These LAR activities are contingent on civil works.

Total 107 17 15.9 90 LAR = land acquisition and resettlement. Source: Department of Transportation and Communications Project Completion Report 2007. C. EVALUATION AND CONCLUSION

24. General. Completion of LARPs was a prerequisite for awarding civil works contracts, as agreed during loan appraisal. In fact, the Project should have been approved only after the completion of LARPs. As it was, completion of LARPs took about 6 years; one LARP was not completed until after the original loan closing date. Over those six years, the extent of LAR increased significantly, indicating that the feasibility study undertaken during project preparation did not accurately capture the scope of LAR. Based on this, project preparation was unsatisfactory. 25. Policy. Since the Project was approved after ADB's Policy on Involuntary Resettlement was established in 1995, the Executing Agency was required to adhere to this policy. The first LARP submitted in 2001 attempted to follow the policy in general. Importantly, however, the vital compensation policy was deficient. 26. Eventually, DOTC agreed to revise the first LARP. An updated LAR Policy Framework and Compensation Guidelines was submitted in March 2002. The contents of this document adhered to ADB's Policy on Involuntary Resettlement in substance and spirit. The succeeding LARPs that followed then were approved and accepted by ADB. Likewise, DOTC agreed to take responsibility for implementing LAR activities in conjunction with the LGUs. Based on this, the 2002 LAR policy adopted by the Executing Agency for this Project is satisfactory. 27. Implementation. LAR activities for structures were reported 99.83 percent complete. Similarly, LAR activities for land were reported 99.67 percent complete. These completion levels are considered satisfactory. Furthermore, during the PCR mission, ADB was able to confirm that all affected families had similar or better living conditions than before resettlement. 28. Regarding the 379 informal settlers, they were compensated for their affected structures and were given additional disturbance allowances of P15,000 per family. Of the 379 affected informal-settler families, 179 (47 percent) relocated within the assigned resettlement sites, and 174 (46 percent) opted for self relocation (although resettlement sites were available to them). A small group of 27 have not yet relocated, although they have received their compensation and disturbance allowance. This level of accomplishment is considered satisfactory.

42 Appendix 8

29. LAR for military and other facilities (school and Government buildings) was partially implemented. Most of the transfer and relocation involved were contingent on commencement of civil works, which were eventually terminated. Overall, the LAR policy adopted by the Executing Agency and implementation are considered satisfactory. Table A8.8 below summarizes the accomplishments and evaluation.

Table A8.8: Summary Evaluation of Compensation Policy and Land Acquisition and Resettlement Implementation

Type Affected

Compensation Policy (LARP 2002)

LAR Policy Applied Evaluation

Land owners Cash compensation equivalent to the fair market value of the affected area as determined by a private appraisal company, and free of taxes, fees and stamps except property tax

Cash compensation equivalent to the fair market value of the affected area as determined by Cuervo Appraisers was paid to almost all of the affected families.

Policy: Satisfactory Implementation: Satisfactory

Owners of structures and improvements

Cash compensation equivalent to replacement cost of affected structures and improvements as determined by a private appraisal company Disturbance compensation Cash compensation for annual and/or perennial crops (including plants and trees), if any, at market value and sufficient time to harvest the crop

Cash compensation equivalent to cost of reproduction of a new one (replacement cost) for affected structures, improvements, crops, and trees, as determined by Cuervo Appraisers (plus an additional P15,000 as disturbance compensation for severely affected families), were paid to almost all affected families. Transport assistance was provided, if requested.


Informal Settlers

Residential plot at resettlement area and compensation for structures affected at replacement cost Disturbance allowance

Resettlement plot and compensation for structures and improvements at cost of reproduction of a new one (replacement cost)—plus an additional P15,000 disturbance compensation for severely affected families—were given to almost all affected families. Transport assistance was provided, for those who requested it


Appendix 8 43

Type Affected

Compensation Policy (LARP 2002)

LAR Policy Applied Evaluation

Government Facilities

Replacement or functional relocation on a turnkey basis

71 percent of facilities relocated in Puerto Princesa No accomplishments in the other airports

Policy: Satisfactory Implementation: Discontinued due to Project termination. (Replacement and relocation would have continued.)

LAR = land acquisition and resettlement, LARP = land acquisition and resettlement plan. Source: Asian Development Bank.

Documents

Third Airports Development (Southern Philippines) · PDF fileAFTN/AIS – aeronautical ... (ICAO) January 1998 20 May 2001 ... 1. The objective of the Third Airports Development Project