NATIONAL ROADS IMPROVEMENT AND MANAGEMENT PROGRAM,

PHASE II

(NRIMP 2)

1.         project development objective

The development objective for Phase 2 is consistent with the objectives of the long-term NRIM Program.  It is to: 

Improve operation, organizational effectiveness and fiduciary control in the management and financing of the national road system, to enhance road user satisfaction in the project areas and efficiency in the use of financial resources.

2.         Expected Outcomes

The achievement of this development objective will be evidenced by the following outcomes or results by the close of Phase 2 of the Program:

1. Administrative efficiency improved  - Project delivery time reduced (with: Improved road management organization implemented, new planning and business tools applied, processing times for procurement, payments and land acquisition reduced);

2. Sustainability of financing for NRS asset management - Increased cost recovery from road users (with revenues to the Road Fund increased from 40 percent to at least 60 percent of asset preservation needs);

3. Value for money improved – Medium-term average cost of preserving national paved roads reduced (with economic prioritization of preservation program, contract cost and time over-runs reduced, long-term and preventive maintenance contracts implemented, bid price excess reduced, integrity strengthening plan targets met); and

4. Road user satisfaction with the National Road System improved - user survey results improved (with condition of national roads improved, length of paved roads increased).

3.        COUNTRY AND Sector issues addressed by the project

  3.1       Recent reforms have started to deliver improved outcomes, but there are many challenges 

               ahead.

           For some years, the Philippines’ per capita growth performance has lagged significantly behind other East Asian countries, and domestic and foreign investment flows have been well below the level reached by its neighbors.  However recently, there have been some positive signals on growth and investment levels in the Philippines.  For example, GDP expanded by 7.3 percent in 2007, the highest in decades.  External imbalances remained robust, due mainly to rising remittances from migrant workers and large capital flows.  The country’s economy has the basis for a vibrant private sector, liberal domestic and foreign investment regimes, and good entrepreneurial capacity of its human resources. The country has also benefited substantially from strong intra-regional trade.  In addition, it has a very active civil society which is a potential agent for change.  Yet, political and institutional hurdles have made a long term coherent reform agenda difficult to implement in the country.

  3.2     Inadequate infrastructure, especially roads, is perceived as one of the serious constraints to investment and therefore to growth¹

As an archipelago, transport is critical to the national economy of the Philippines.  The country’s transport system is based on roads and inter-island shipping – the two modes account for almost all freight and passenger traffic. 

While some progress in the past few years, the efficiency of the road network in promoting growth and providing safe access has been limited by high levels of congestion, widespread poor condition of roads and bridges, inadequate connectivity, and the lack of a sustainable road safety strategy.  As a result, for example, intercity freight rates in the Philippines are more than 50 percent higher than in Thailand or Vietnam.

  3.3     After a period of under-investment, investment in the national road network is picking-up

Capital expenditures on the road networks were at a low of P34 billion (0.9 percent of GDP) in 2002, and rose little during a period of fiscal constraint through 2005.  Private sector investment has been low due to an uncertain investment climate, poor legal environment and land acquisition problems. 

Under the 2005–2010 Medium-Term Philippine Development Plan (MTPDP) expenditures would remain flat, providing only half of what would be necessary to maintain the existing network and to sustain economic growth rates of around 4 percent.  While funds allocated to road maintenance have risen since 2004 due to rising revenues from road users in a Special Road Support Fund (SRSuF) - these were only about one third of the estimated needs in 2006 and cost recovery needs to rise further. With the recent resurgence in the economy, the capital budget and SRSuF for 2007 rose to P69 billion (1.8 percent of GDP) which could restore the sector if well prioritized, spent efficiently and sustained.  The Government has made infrastructure a priority, and the 2008 budget has an additional P14.3 billion for infrastructure.

  3.4     Government has moved on the road sector reform agenda but progress is variable

Road sector reform was initiated in 1997 and articulated in the Better Roads Philippines 2000 study (1999).  The reform strategy focused on sustainable financing through road user cost recovery, and commercialization of road sector operations through establishment of a road management authority and increased private sector participation.

At the institutional level, the road fund and Road Board were established in 2001 and became fully operational in 2004 and the road maintenance program was expanded.  At the organizational level, the internal business processes in Department of Public Works and Highways (DPWH) are being improved however the organization is still large and over-staffed. 

The proposed establishment of a road management authority did not receive political backing in 2002-04, despite extensive consultations and study of options.   Given the difficulty of mobilizing legislative support for a comprehensive institutional overhaul, attention has now shifted to incremental reform and improving the efficiency of the current organizations.  A Rationalization Plan was prepared for DPWH in 2006 under a national program which would move the agenda forward on this basis.

  3.5     Operational performance has been mixed but maintenance regime is improving 

Many chronic contract performance problems relating to major civil works that have been outsourced to the private sector for many years have been overcome, especially in avoidance of disputes and in prompt and policy-compliant land acquisition.  However, some operational difficulties persist, including cost over-runs, slow contract administration, and, in some instances weak quality and supervision.  For road and bridge maintenance, funding has been rising but needs to be more effectively programmed and efficiently utilized – budget allocations are fragmented to District level, are not need-based, and drained by administration costs, and are exposed to risks when used for employment-generation programs. 

Under NRIMP-1, progress was made through a centrally-programmed preventive maintenance program, and through piloting long-term performance-based contracts which provide comprehensive management of long sections of road.  Expanding and institutionalizing these approaches for the future calls for reforms in the programming and budgeting process, the control of implementation and costs, and the excessive staffing, high administrative budget, and organizational or jurisdictional issues.

  3.6     Corruption has been a major threat to the efficiency and fairness of procurement process in the Road Sector but reforms are being introduced 

There is a widely held perception that national and international competitive procurement have often been affected by collusion and bid-rigging, with high payoff margins. To counter the problem, Government has tightened rules, improved oversight, opened competition and reporting, and enforced bid ceilings in national procurement reform. Apart from bid ceilings, which the Bank’s procurement policy does not support, the other corrective measures mentioned above are being put in place to strengthen international procurement under NRIMP 2. Among the business process reforms in DPWH, computerization of the contractor qualification process has improved the efficiency and transparency of procurement, and other electronic support systems are ready to be implemented.  The budgeting process is also being improved at the national level to address perceptions of manipulation, especially the allocation for general maintenance and project listing in capital budgets, and to reduce the opportunity for budget realignment and authorization which at times have been instruments of cash diversion. Fighting corruption is a formidable challenge that cuts through sectors and levels of bureaucracy. A Government framework for strengthening integrity is now in place for DPWH that mitigates corruption risks through information sharing, independent monitoring involving beneficiaries, better use of communication technologies, tighter financial controls, and the broader goal of promoting integrity among staff.

4.        project description

A brief description of the project is given here while more details are given in Annex A.

  4.1     Project components

The project will support: (a) improvement of 450 km of national arterial roads and related bridges, including upgrading of 146 km and rehabilitation or widening of 304 km; (b) delivery of a comprehensive road maintenance program through long-term performance-based contracts and preventive, routine and emergency maintenance; (c) improved organizational effectiveness and integrity of public road management services in DPWH through reforms in corporate processes, partnerships, and service delivery structures; and (d) strengthened operation of the Road Fund and a framework for subsequent sector restructuring. 

  4.2     Part A:  National Road Improvement and Asset Preservation

Component A.1:  National Road Improvement (estimated cost US$ 248.78 million, incl. $118.37 million loan).   Works and services for road upgrading, rehabilitation and widening, bridge replacement, and landslide rehabilitation, totalling approximately 450 km of roads and 1,000 m bridges on the arterial National Road Network.

Component A.2:  Road Asset Preservation (estimated cost US$ 280.3 million, incl. US$ 86.91 million loan).  The coverage of preservation works on the national road network will be expanded in partnership with the Road Board, including financing on a sector-wide basis, and comprehensive long-term performance-based maintenance, as follows:

A2.1  Long-term Maintenance (US$ 149.94 million, incl. US$ 52.15 million loan) - support for long-term performance-based contracts of about 5 to 10-year duration for comprehensive maintenance on about 1,000 km length of the arterial road network including the Strong Republic Nautical Highway (5 percent coverage of the paved length of NRS); and

A2.2 Preventive Maintenance (US$ 127.60 million including US$32.00 million loan) – finance for an 11 percent slice of the national road maintenance program in partnership with the Road Board, supporting preventive maintenance of about 1,200 km of the national road network over 4 years, through a sector-wide approach and mechanism of reimbursement  to the Road Fund.

A2.3 Maintenance Services (US$ 2.76 million loan) – advisory support for implementation of the asset preservation program and for improving the service delivery of routine/general maintenance under DPWH/SRSuF.

  4.3     Part B:  Institutional and Capacity Development

Component B.1:  Business Process Improvements (estimated cost US$ 54.31 million, incl. US$26.96 million loan and $4.1 million grant). The modern business tools for planning, financial management and procurement that were designed and piloted under NRIMP1 will be institutionalized and implemented in all regional and a majority of district offices of DPWH, including expansion of the communications networks and computerization,  conduct of regular asset surveys, and strengthening internal controls and internal audit.

Component B.2:  Corporate Effectiveness (estimated cost US$ 8.07 million, incl. US$ 1.40 million loan and US$ 6.4 million grant).  This will upgrade and modernize the corporate structure, processes, and operating codes of DPWH to make it a user responsive, transparent, and efficient public sector agency with high integrity standards, and will enable effective participation by road users and citizens, through four subcomponents, i.e.

          B.2.1:  Organizational Effectiveness.  – Enhancement of DPWH effectiveness through an institutional audit and organizational restructuring, including national initiatives on rationalization, corporate standards, integrity, performance management and leadership. 

          B.2.2:  Road Partnerships.  Support for a multi-stakeholder partnership of road users and non-governmental organizations for improving responsiveness and transparency in the road sector, for communicating with DPWH, Road Board and various government agencies.   

B.2.3:  Road Management Service Delivery.  Support for a pilot trial of options for commercializing the current operations of district engineering offices to improve service delivery of road maintenance and other functions.

          B2.4: Integrity Support.  Support to strengthen the fiduciary integrity of the project implementation, through independent technical audit, parallel procurement evaluation, and strengthening institutional integrity.

Component B.3:  Strategic Sector Reform (estimated cost US$ 1.24 million, incl. US$1.20 million loan).  Support to strengthen the operations of the Road Board and update its mandate, review road cost recovery, and to revisit options for restructuring the management and delivery of services in the sector.

Component B.4:  Trainings and Workshops (estimated cost US$ 0.25 million, loan).  Activities for facilitating achievement of the Project objectives and related skills development.

5.        Project costS

Table 1.  Summary of Project Costs

1$ = P 48.20

Table 2:  National Road Improvement Works under NRIMP Phase 2

Table A 3:       Long-Term Maintenance and Preventive Maintenance Programs

on National Roads under NRIMP-2