Document of The World Bank

Report No: 27282

IMPLEMENTATION COMPLETION REPORT(SCL-41110)

ON A

LOAN

IN THE AMOUNT OF US$60 MILLION

TO THE

REPUBLIC OF THE PHILIPPINES

FOR A

SECOND SUBIC BAY FREEPORT PROJECT

April 14, 2004

Urban & Water Development Sector UnitPhilippines Country DepartmentEast Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 30, 2003)

Currency Unit = Peso P1.00 = US$ 0.018

US$ 1.00 = P53.32

FISCAL YEARJanuary 1 December 31

ABBREVIATIONS AND ACRONYMSBOC Bureau of CustomsBTPI Bataan Technology Part Inc.CADT Certificate of Ancestral Domain Title CAS Country Assessment StrategyDBP Development Bank of PhilippinesDENR Department of Environment and Natural ResourcesEC Ecology CenterEIA Environmental Impact AssessmentFAPO Foreign-Assisted Project OfficeFIRR Financial Internal Rate of ReturnGIS Geographical Information SystemGOP Government of PhilippinesIFMS Integrated Financial Management SystemIPDP Indigenous Peoples Development PlanIRR Implementing Rules and RegulationsJBIC Japanese Bank for International CooperationLGU Local Government UnitsMIS Management Information SystemsMMS Maintenance Management SystemNBF Non-Bank FinancedPCO Pollution Control OfficerPNB Philippine National BankPSD Power Services DepartmentPUD Public Utilities DepartmentPWG Public Works GroupPWTSG Public Works and Technical Support GroupQAG Quality Assurance GroupSAR Staff Appraisal ReportSBF Subic Bay FreeportSBFZ Subic Bay Freeport ZoneSBMA Subic Bay Metropolitan AuthoritySDD Social Development DivisionSEC Securities and Exchange CommissionSSFFZ Subic Freeport and Freeport Zone

Vice President: Mr. Jemal-ud-din Kassum, EAPVPCountry Director: Mr. Robert Vance Pulley, EACPFSector Manager: Mr. Keshav Varma, EASUR

Task Team Leader/Task Manager: Mr. Aldo Baietti, EWDWS

PHILIPPINESSecond Subic Bay Freeport Project

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 65. Major Factors Affecting Implementation and Outcome 166. Sustainability 187. Bank and Borrower Performance 198. Lessons Learned 219. Partner Comments 2310. Additional Information 25Annex 1. Key Performance Indicators/Log Frame Matrix 26Annex 2. Project Costs and Financing 29Annex 3. Economic Costs and Benefits 31Annex 4. Bank Inputs 32Annex 5. Ratings for Achievement of Objectives/Outputs of Components 34Annex 6. Ratings of Bank and Borrower Performance 35Annex 7. List of Supporting Documents 36

Project ID: P040981 Project Name: Second Subic Bay Freeport ProjectTeam Leader: Aldo Baietti TL Unit: EWDWSICR Type: Core ICR Report Date: April 14, 2004

1. Project DataName: Second Subic Bay Freeport Project L/C/TF Number: SCL-41110

Country/Department: PHILIPPINES Region: East Asia and Pacific Region

Sector/subsector: Roads and highways (33%); Water supply (30%); Power (28%); Ports, waterways and shipping (7%); Sub-national government administration (2%)

Theme: Infrastructure services for private sector development (P); Other urban development (P); Environmental policies and institutions (S); State enterprise/bank restructuring and privatization (S)

KEY DATES Original Revised/ActualPCD: 07/06/1995 Effective: 10/15/1997

Appraisal: 08/19/1996 MTR:Approval: 11/26/1996 Closing: 06/30/2000 06/30/2003

Borrower/Implementing Agency: SUBIC BAY METRO. AUTH./SBMAOther Partners:

STAFF Current At AppraisalVice President: Jemal-ud-din Kassum Russel CheethamCountry Director: Robert V. Pulley Javad Khalilzadeh-ShiraziSector Manager: Keshav Varma J. ShivakumarTeam Leader at ICR: Aldo Baietti Aloysius OrduICR Primary Author: Aldo Baietti; Sati Achath

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: SU

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: Yes

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

The objective of the US$108 million project (Loan of US$60 million) was to continue strengthening the capacity of Subic Bay Metropolitan Authority (SBMA) to regulate and manage the growth of the Freeport, and to support further infrastructure development, including SBMA's initial partnership with the private sector through a water supply joint venture.

The objective was clearly stated, important to the country’s economic and social development, and realistic in scale and scope. It was also timely and appropriate to the needs of the Borrower, considering that the Freeport had grown much more quickly than anticipated, putting unexpected strains on SBMA's management capacity and accelerating its need to evolve institutionally and provide infrastructure services. The project was the Bank's second intervention (The first Subic Bay Freeport Project (Subic I: Loan 3745-PH, June 1994) consisted of infrastructure rehabilitation and upgrading, and technical assistance to strengthen the SBMA and develop an environmental management plan.) to assist the Philippines in converting the U.S. Navy's former Subic Bay Naval Base into a freeport.

The Bank's catalytic role in supporting SBMA's institutional strengthening and provision of the infrastructure services needed to make the Subic Bay Freeport (SBF) attractive to private investors was fully consistent with the Bank's lending strategy for the Philippines, as outlined in the Country Assistance Strategy (CAS) discussed at the Board April 4, 1996. The Philippine CAS emphasized investment lending operations to strengthen infrastructure (power, water supply, solid waste management and transport) to promote economic growth vital to rapid poverty reduction. The CAS also emphasized private sector participation in providing infrastructure services. The Freeport had, in a relatively short time, boosted the Philippines' reputation as an attractive and convenient investment location for major international corporations. Continued growth was expected with the completion of Taiwanese and Japanese industrial parks. Subic had thus become a significant growth pole for the Philippine economy, generating important foreign exchange revenues and creating jobs.

The Freeport's very success thus meant, however, that its need to provide infrastructure had grown more rapidly than anticipated. Without the investments proposed under this project, water supply, electric power and transport constraints could slow Subic's growth momentum and harm its competitive position. The transport rehabilitation/upgrading investments were the most critical: without them an estimated 13,000 to 16,000 new jobs would have been lost over a period of five years.

The project envisioned the following social and environmental benefits that justified its implementation:

• The project would increase the SBF's attractiveness to overseas investors and encourage existing investors to expand their operations. It was estimated that as a direct result of project interventions, SBF would create many new jobs most of which would occur in industry with the balance in tourism-related services, commerce and administration. Judging from similar development experiences in the sub-region, incremental export earnings per industrial employee/year of about US$12,000 were expected. Thus, by the turn of the century, SBMA estimated that some US$600 million in export revenues would accrue to the Philippines.

• The project was also expected to provide much needed services to residents of Olongapo City and Subic town, and improve administrative efficiency/governance throughout the Subic Bay metropolitan area.

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• The project would also improve the administrative and operational efficiency of the power and water utilities which was a necessary step toward corporatization and eventual privatization of these utilities. The provision of cleaner drinking water to the population of Olongapo City and the associated improvements in the city's sewerage system, would have an immediate, beneficial impact on the overall health of the population.

The project was complex and demanding for the Borrower, because under four components, the project involved multifarious activities in various areas, such as management, environment, water, power, privatization, and institution building. It was also challenging in terms of the institutional development of SBMA.

3.2 Revised Objective:

Soon after entering effectiveness on October 15, 1997, the project encountered a number problems which caused implementation delays and ultimately resulted in a substantive restructuring and cancellation of several components. First, the project was delayed by 11 months because the SBMA had issued a negative pledge against its assets, breaching the conditions of the Subic I Loan Agreement. More significantly, following the May 1998 Presidential elections in the Philippines, the new administration removed the SBMA chairman from office. The resistance of the outgoing SBMA chairman to accept this change in leadership, led to: (a) major civil disturbances within the Subic and neighboring area as many residents were loyal to the outgoing chairman; (b) a loss of key management and staff within the SBMA; and (c) political tension with the adjacent Municipality of Olongapo City which spilled over into the project, since two components required the city government’s support to successfully implement.

The change in SBMA's leadership significantly altered the cordial relationship that was enjoyed previously between the SBMA and Olongapo City, with severe consequences, most notably, to the power and water project components. Concerning the power component, Olongapo City was no longer willing to merge the Public Utilities Department (PUD) of the City with its equivalent Department in the SBMA. For the water component, the political tension made it difficult for the SBMA to secure support for the bulk water supply in the Pamatawan area of Ambles. As a consequence, test drilling and other concessions and agreements were frustrated and lost, resulting again in significant delays. With these recurring problems, on March 2000, the SBMA requested that the Bank restructure these components and focus only on areas that were fully within the SBMA's jurisdiction.

In an attempt to assist SBMA in improving project performance and to assure the accomplishment of the development objectives, SBMA and the Bank agreed in June 2000 to a 7-point action plan, including a restructuring of the project. SBMA prepared a restructuring proposal endorsed by the Department of Finance (guarantor). The restructuring was approved by the Board on June 1, 2001, and the Loan closing date was extended by the Bank to June 30, 2002. The restructured loan essentially cancelled the water and much of the power component for which the SBMA had needed the cooperation of Olongapo City, for an overall reduction in the total Loan from $60 million to $36.15 million.

With the amendment, President’s Notification entitled ‘Philippines – Second Subic Bay Freeport Project (Loan No. 4111-PH) Restructuring and Amendment to the Loan Agreement’, dated June 1, 2001 to restructure the project, the development objective was revised: “to assist the SBF to attract and maintain private investors while remaining economically viable and environmentally sound”. The revision of the development objective was not viewed as material as the spirit of the original objective was maintained. Additional emphasis was however placed on the environmental sustainability of the SBF for which the

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project components in this area were expanded. In addition, some qualifying text referring to water and power was deleted as those components were cancelled. In order to complete the works left unfinished by June 30, 2002 and achieve the development objective, the Loan closing date was further extended to June 30, 2003.

3.3 Original Components:

Originally, the project consisted of the following four components. The components were reasonably related to achieving the project’s objectives.

Component I: Institutional Strengthening (US$4.6 million: 5% of the total project cost)

This component comprised: (a) capacity building on freeport policy through a package of short- and long-term technical assistance in key areas including customs, taxation, and incentives; (b) human resources management assistance to assess SBMA's skills mix needs vis-à-vis its corporate objectives and to develop staff training programs; (c) commercialization, privatization, and planning support to further facilitate conversion through commercialization and privatization measures; (d) studies related to issues affecting the competitiveness of the SBF and its attractiveness to investors; (e) technical assistance support to SBMA's Foreign-Assisted Project Office (FAPO) for two advisors to strengthen its capability in procurement and financial management; and (f) support to SBMA's Ecology Center (EC) to strengthen the Center's capacity for environmental management, monitoring and regulation, and impact assessment.

Component II: Water Supply (US$32.6 million: 35.6% of the total project cost)

This component was designed to increase the quantity of treated water available in the Secured Area, Olongapo City, and Subic Town through a public-private joint venture. The component included: (a) detailed engineering and the development of the Pamatawan well field; (b) construction of approximately 7,600 meters of raw water transmission main from the Pamatawan well field to a water treatment plant at Castillejos; (c) construction of electrical power transmission lines to the well field and treatment plant; and (d) construction of a water treatment plant and a booster station.

Component III: Power Distribution (US$26.1 million: 28.5% of the total project cost)

This component aimed to merge the Olongapo City Public Utilities Department (PUD) and SBMA's Power Services Department (PSD). The component consisted of: (a) construction of overhead and underground sub-transmission circuits to effect the interconnection of the Olongapo and SBMA franchise area; (b) installation of 13.8 kV cables to replace damaged cables and to enhance the environment of prime waterside locations in SBMA's area; (c) rehabilitation and extension of LV systems, including replacement of 4.1 kV system in Olongapo City; (d) provision of facilities and equipment for the integrated power distribution network; (e) engineering services for the supervision of installation, including strengthening the technical capability of the merged operations; and (f) technical assistance, training, and management services to establish commercial operation in the integrated organization.

Component IV: Roads, Bridges and Related Infrastructure (US$28.1 million: 30.7% of the total project cost)

The components consisted of: (a) road improvement, including: (i) widening Rizal Highway to four lanes plus turning lanes from Kalalake Bridge to the SBMA Expressway; (ii) widening Argonaut Highway from

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the Industrial Park (Phase I) Access Road to Boton Road to three lanes; (iii) widening the link from Tipo Road to Binitican Bridge to four lanes, and building a new SBMA expressway extension from Binitican Bridge to join Argonaut Highway near Boton bridge; and (iv) improving signalization and channelization at key intersections in the SBF; (b) rehabilitation and retrofitting four existing bridges-Kalalake, Malawaan, Boton and Binitican-to meet the latest seismic design codes; (c) provision for a new bridge to replace the Kalaklan bridge; (d) carrying out a road maintenance study; (e) a road alignment study for the SBFZ By-Pass to improve traffic flow in the long term in the freeport; (f) improvements in related infrastructure; and (g) consulting services for detailed engineering and construction supervision for the civil works components and a Road Advisor (technical assistance) to strengthen the PWG's capability to implement this component of the project.

3.4 Revised Components:

As explained in Section 4.1, the project’s activities under the restructured design consisted of the following:

Institutional Strengthening Component ($5.6 million)

The focus and overall objectives of the existing institutional strengthening component were not changed in the restructured project. However, two additional areas of expenditure were included under this component. First was the inclusion of funding for the development and implementation of an integrated financial management system (IFMS). This system should have been installed under Subic I but implementation delays, the change in SBMA's administration, and an overly ambitious program resulted in little institutional development being retained by SBMA and the loss of much of the hardware and software financed under the first project. The revised plan for Subic II involved a much simpler system.

Second, the restructured project included an additional provision for consulting services to the Ecology Center to introduce an incentive-based pollution and environmental management system. The consultants were also to assist the Ecology Center in procuring pollution monitoring and other equipment and in preparing a work plan for the period ending June 30, 2002, the closing date of the Loan following restructuring.

Water Supply Component ($0.0 million)

Political changes, also meant that the original well field (Pamatawan) had to be abandoned and new test wells were planned at nearby Dinalupihan field. For these reasons, this component was dropped from the restructured loan. Inordinate delays in project implementation resulting from inadequate staffing and mobilization of design and other consultants had meant that it would be impossible to carry out the proposed works prior to the original loan closing date or even the revised closing date of June 30, 2002.

Power Component ($4.5 million)

SBMA had identified power distribution within the SBF as a priority for privatization. As this was in line with the Bank's philosophy and SBMA's corporate development strategy, SBMA requested to cancel this component prior to commencing any major works within the sector and instead focus on privatizing the system. This request was consistent with the financial and economic implications of Olongapo City's decision to withdraw from the proposed joint development of a power distribution system.

The major advantages for SBMA under the privatization of power distribution included: (a) major savings

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in capital works and in resulting debt; (b) immediate access to expertise which would address system improvement needs and current power reliability problems; (c) income from the lease or purchase of existing distribution assets; (d) immediate savings from system losses; and (e) the partial resolution of the conflict of interest resulting from SBMA's role as the distributor, consumer, and regulator of electricity in the SBF.

In addition, investors within the SBF were experiencing deteriorating power reliability. Brownouts were becoming more frequent and as a result of reduced economic activity in the SBF, SBMA's income had been reduced and cash flow had become problematic. As a consequence it lacked funds to undertake emergency works to guarantee uninterrupted power supply.

The restructured project addressed this problem by financing the procurement and installation of the equipment and works necessary to remedy immediate system needs. Additionally, it also included funding to assist SBMA with the privatization of the power distribution network within the SBF.

Roads and Bridges and Related Infrastructure ($30.7 million) Component changes included significant additions to airport works and maintenance, and the preparation of a maintenance management system for the airport and port hard-standings. It included the partial resurfacing of the main landing strip, the development of a comprehensive airport maintenance plan, and the supply and installation of equipment to improve airport safety standards.

3.5 Quality at Entry:

The ICR deems the quality at entry to be satisfactory and the project as well conceived. As mentioned in the earlier section, the project objective was consistent with the CAS and the government priorities and met the critical needs of SBF. Since SBMA had already developed the technical capacity, and had demonstrated serious commitment to the project, the quality of design was generally adequate to meet the project’s overriding objective.

As the Quality Assurance Group (QAG) review of the project’s supervision observed, the project focused on improving the provision and quality of infrastructure services, as prerequisite to attracting private investors to Subic Bay, and on the institutional capacity of SBMA to manage the activities and processes leading to that. The project was given a "B" environmental rating and an Environmental Impact Assessment (EIA) was carried out by SBMA's Ecology Center established under Subic I. The EIA was reviewed by the Bank and was found to be satisfactory.

The quality at entry, however, could have been further enhanced had the loan from Development Bank of Philippines (DBP) been identified during appraisal as part of the due diligence of SBMA's finances, so that the project could have avoided the eleven-month effectiveness delay caused by the Negative Pledge (for details see Section 5.3).

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:

Satisfactory. Despite the early implementation problems, which culminated in the project’s restructuring, the SBMA managed to get the project back on track and achieve its development objective, in addition to realizing positive outcomes in a number of areas. For example, the project contributed in strengthening

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SBF as an investor-friendly place, creating new jobs, increasing the revenue of SBF, transforming Subic as an environmentally sound tourist destination, and supporting infrastructure development. In addition, the project was also instrumental in promoting substantial institutional development on SBMA, and making the SBF a well-managed and attractive freeport in the region. These achievements are demonstrated by the following.

(A) Strengthening SBMA’s capacity to regulate and manage the growth of the Freeport.

(i) Increasing SBF’s attractiveness to investors. The presence of the World Bank and the number of activities it financed for infrastructure and institutional strengthening allowed the SBMA to successfully manage a significant expansion of the SBF. After a slight drop in investor confidence resulting from the Asia crisis, investment and productive activity flourished. Major locators such as Federal Express (FedEx) investing in the expansion of the Subic Bay International Airport demonstrates such confidence. This is also borne by the fact that, investments in SBF increased from $2.59 billion in 1998 to $4.16 billion as of June 30, 2003, and the number of companies investing in the SBF increased from 304 to 640 during the same period. The total export value of goods produced at Subic more than doubled from $555.9 million in 1998 to $1.32 billion in 2002. The number of ships calling to Subic Bay increased from 1,373 in 1998 to 1,764 in 2002. Besides its industrial importance to the country, Subic is now a major tourism destination both domestically and in the region and a major hub for academic institutes and learning centers.

It is unlikely that without the World Bank presence, the higher level of investment, as expressed by major locators, would have materialized. After the departure of United States Navy in November 1992, Subic and neighboring municipalities, particularly Olongapo, were left with no significant economic base to justify large investments. With the arrival of the Bank, Subic was perceived as a more credible investment base that led to its initial but moderate growth. The Freeport prospered and achieved substantial economic importance during the second project, beyond what had even been contemplated during preparation. The Subic Freeport is now poised for substantial additional growth with the new port development and the implementation of the Subic-Clark economic corridor.

In September 2003 SBMA earned the ISO 9001: 2000 Certificate of Excellence for Investor Servicing and Locator Assistance. The Certification was issued after key authorities of SBMA such as Human Resource Management Department, Investment Processing Department, Locator Registration and Licensing Department, Labor Department, Seaport and Airport Departments and several other departments passed the strict audit compliance procedures conducted by the TUV Product Service (Germany), the certification body implementing the standards of the International Organization for Standardization (ISO). This certification again attests to the reputation Subic Bay had gained as an ‘investor-friendly’ location, its adherence to an environmentally friendly ambience and management performance, all directly or indirectly supported by the project.

(ii) Creating new jobs and increasing revenue. During the second project the SBMA succeeded in creating more jobs than what had been originally lost with the departure of the US military. Between 1998 and 2003 the total number of persons employed within the Freeport increased from 7,756 in 1998 to 53,017 as of June 30, 2003. Likewise, during the same period revenues of the SBF increased from Ph P 82.5 million to Ph P 226.2 million.

(iii) Increase in tourism. The project facilitated in transforming Subic as a major environmentally-friendly tourist destination in the Philippines. The total number of tourists visiting the SBF increased from 2.35

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million in 1998 to 7.97 million in 2002.

(iv) Institutional Strengthening.

Freeport Policy and Regulatory Strengthening:

SBMA achieved progress in policy and regulatory strengthening, even though the strained relations with the local government unit (LGU) of neighboring Olongapo City limited progress to a certain extent, particularly in the realm of LGU interface.

(a) Building interface with LGUs. The institutional strengthening (IS) program succeeded in devising and regularizing a forum in which LGU and SBMA officials exchanged information about infrastructure investment plans and land use plans, and for preparing population, household, and employment forecasts.

(b) Improving, revising, and operationalizing amended implementing rules and regulations (IRRs). IRRs were amended to enhance incentives for regional headquarter operations. Draft IRR amendments were prepared, and a back-up study and participatory workshops were executed to rationalize incentives and registration/licensing for enterprises. A committee was formed to facilitate adoption of amended IRRs by the Board of Directors. Improvements were achieved in the regulation of labor and occupational health and safety.

(c) Customs Administration. The IS component catalyzed the formation of an excellent interface between the Bureau of Customs (BOC) and the SBMA. Memoranda of Understanding (MOU) between the two agencies, collaborative public relations efforts, and re-engineering customs procedures and computerize systems via BOT arrangement (Joint Development Agreement signed between BOC, SBMA, and private investor), are among the most concrete and tangible evidence of this progress.

(d) Taxation. In the realm of taxation, the SBMA made a substantial improvement when it revised the IRRs in late 1999 to expand incentives relevant to regional headquarter operations of Freeport Enterprises. Another major improvement was achieved when the SBMA sought to change its tax status as a government-owned-and-controlled corporation, which resulted in the exemption of SBMA from taxes, thereby improving its financial performance and to a certain extent, its autonomy.

(e) Economic Model. A financial model was developed, and updated to reflect the impacts of privatization, organizational restructuring, and other key changes. SBMA staff were trained on the use of the model and as a result, its staff were able to identify the lower economic benefit of commercial/warehousing activities as a key issue (fastest growing market segment in the Freeport, but one that generates the least benefits in terms of jobs, investment, and exports, while absorbing large quantities of space). Attention to this led to a consensus in favor of targeting other sectors in the context of marketing efforts.

(f) Public Services Regulation. The project supported capacity strengthening for the SBMA in public services regulation, which was largely applied in the area of water utility regulation. The SBMA institutional strengthening project provided technical support to the Subic Bay Water Regulatory Board (SBWRB), including training, and a detailed review of Subic Water's franchise agreement. The consultants also recommended to the SBMA to create a semi-autonomous multi-utility regulatory board (electricity, telecommunications, public transport, etc.). After consideration on this, the SBMA opted instead to create new internal departments, or designate existing ones, to undertake more focused attention on regulating

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public services.

Commercialization and Planning:

The greatest amount of progress occurred in the area of physical planning, infrastructure planning, strategic planning, and property commercialization. Limited progress occurred in the realm of privatization.

(a) Strategic Planning. The Strategic Plan, officially adopted by SBMA's Board of Directors in late 2000, represented an important milestone for SBMA's goal of strengthening itself as an institution. This plan has become the overall blueprint for the Freeport's development. The process of developing it led to a better appreciation of the various strengths, weaknesses, opportunities and threats faced by the SBMA. It also facilitated greater interaction between the SBMA management and stakeholders such as locators, the Board of Directors, and key players within national government agencies. While progress on implementing many parts of the Strategic Plan was slow, there were good results in some areas of the organization, and the Strategic Plan document remains an important reference.

(b) Organizational Restructuring. Early on, the SBMA undertook a significant change in the structure of senior management. A singular Chief Operating Officer position was replaced by three Senior Deputy Administrator positions (Operations, Services, and Business Development). This change helped to distribute the workload more evenly, lessening the burden on the senior manager charged with oversight of operations. In addition, the most significant organizational change was the establishment of a Privatization and Commercialization Office (PCO) and the formation of a task force, Special Operations Land Disposition to improve real estate disposition. Other changes recommended by the consultants, including restructuring SBMA activities into five distinct functional areas (internal services, external/municipal services, regulatory services, asset management services, and promotional services) have not yet been acted upon by SBMA management, although these changes do remain as medium to long-term goals within the Board-approved SSEFZ Strategic Plan 2001-2005.

(c) Land Use Plans. SBMA successfully built up its capacity for developing land use plans. A total of four area land use plans were developed, and a schedule was outlined for formal adoption of a Comprehensive Land Use Plan. Zoning guidelines were developed to ensure proper development patterns according to land use plans. Beyond the "secured area" of the Freeport, progress was also made in coordinating infrastructure and development plans with nearby towns, particularly Dinalupihan and Hermosa, which benefited from good relations with senior SBMA management, and were in a position to more directly benefit from activities associated with the Subic-Clark development corridor concept.

(d) Infrastructure Plan. SBMA brought together all infrastructure project plans together into a comprehensive infrastructure plan, complete with a physical map (produced by the SPO with the GIS system that had successfully been implemented under the project), capital budget estimates, and schedules. This represented a substantial achievement, one that should improve SBMA's ability to properly oversee the development of world-class infrastructure.

(e) Privatization Studies & Business Plan for Privatization and Commercialization Office. This work provided an important starting point for SBMA privatization efforts, including a reinterpretation and more precise definition of SBMA's legal mandate. Although most attention subsequently focused on only one of the four transactions identified as priorities (power distribution), the groundwork should prove useful to future SBMA administrations with less political constraints to their ability to increase restructuring and private sector participation in the SBMA. The study conducted on the potential for

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outsourcing solid waste management proved useful to the Freeport Services Corporation, in that it identified areas where efficiencies could be improved.

(vi) Ecology Center. The project facilitated the strengthening of the Ecology Center. The reorganization is now fully complete with the designation of environmental officers throughout the mainstream organization (each department has at least one officer) in line with the Bank’s recommendations. Designated environmental officers are involved in putting together the environmental components, inclusive of environmental assessments for SBMA’s internal projects and in ensuring that environmental concerns are properly addressed within their designated areas. This move will build the capacity of the different departments to take on the responsibility of assuming operational roles such as, operating the landfill, so as to allow the Ecology Center to focus on its planning and regulatory functions. The Ecology Center is proceeding on other issues related to protection of the coastal and forest areas, by establishing constituency groups with neighboring communities. Besides the work with the Aeta (see Indigenous Peoples paragraph below) and other neighboring communities for protecting the forest areas, the Ecology Center is working with neighboring municipalities to strengthen enforcement against illegal fishing. Despite these advances, however, more work needs to be done in developing a strong constituency within the boundaries of the Freeport area.

Social Fencing. The project made significant progress in the concept of social fencing Based on an Initial Environmental Examination prepared for the sub-Project, "social fencing" was recommended as an appropriate supplement to physical fencing/structures for specific areas where responsibility for securing the SBFZ jurisdiction and protecting the forest reserve can be shared with local communities. Using this strategy, instead of merely erecting physical barriers, SBMA established partnerships with communities in securing areas from encroachment or unauthorized passage with or without the presence of physical barriers, hence the term "social fencing." This was accomplished by organizing, educating and mobilizing community groups to assume responsibility for securing target areas. Following its successful implementation, "Social Fencing" was subsequently expanded as a separate subcomponent under the Ecology Center to resolve a number of implementation projects.

In the two initial sites (Tipo and Bangal), SBMA entered into a Community-Based Forest Management Agreement with the communities in these areas to formalize the tenurial arrangement for the utilization, protection and management of a total area of 209 hectares (136.6 ha in Bangal and 72.6 ha in Tipo) within the secured area of the Freeport. This directly benefited a total of 60 farmer-beneficiaries who were organized into two farmers’ associations duly registered with the Securities and Exchange Commission (SEC). Community Resource Management Plans have been prepared in these sites and training and consultations have been conducted to prepare those involved.

There is a great sense of ownership, appreciation and participation of the farmer-beneficiaries to the project and other similar concerns (i.e., forest fire prevention and management). The social fencing project has also improved the social acceptability of the ongoing perimeter fence sub-project in communities adjacent to the secured area. In addition, Ecology Center is working with two other communities, namely, Mabiga of Hermosa in the province of Batan which has benefited 53 farmer beneficiaries (443.29 ha), and in Minaga in Morong which has benefited 36 farmer communities (128.61 ha).

Protection of the Environment and Social Participation. Progress was made with the mangroves situationSome mangroves which were inadvertently damaged during the construction of Rizal Highway were replaced by the SBMA. The SBMA reported that the replanting program has been very successful, with the reforestation of 1.33 hectares (26,000 propagules), and the restoration of affected areas amounting

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to 0.33 hectares (8,811 propagules). Given the success of the program, the replanted areas have already been turned over to SBMA’s responsibility.

Indigenous Peoples (Aetas of Pastolan Village in Subic Forest). As part of the indigenous peoples development plan (IPDP), in December 2000 the Aytas community was awarded a Certificate of Ancestral Domain Title (CADT), a long-term tenurial instrument that affords the Aetas the status of resource manager and stakeholder over 4,387 hectares. The Aytas of Subic Forests are the first indigenous group in the Philippines to be granted a CADT.

Under the IPDP, SBMA has been assisting the Pastolan Aytas to acquire their ancestral land domain title and providing livelihood projects like broiler production, freshwater fishponds, demonstration farms and reforestation, as well as other agriculture-based products. The IPDP is also providing infrastructure projects such as multi-purpose training center, and a level-two water system. The Pastolan Aytas are now actively participating in national and international fora on Indigenous People’s rights, policy advocacies and the promotion of indigenous culture.

Further, in early 2001, the Social Development Division (SDD) of the Ecology Center, expanded its assistance to the Indigenous People (IP) of Kanawan, Morong of the province of Bataan. The Kanawan Aytas, like the Pastolan Aytas, claim to have been relocated to Kanawan, Morong just outside the boundary of the Freeport in 1976, but they were previously scouring the forests of the Naval Magazine Area of the Freeport and had lived in Sitio Timac, Baranga Mabayo, Morong which is part of the protected area of the Freeport.

The SDD to date is assisting them to get formal recognition from SBMA management as legitimate IPs with ancestral rights over the forest areas of the Naval Magazine area. Their objective is to gain access to their traditional hunting and fishing grounds in the Naval Magazine forest, employment opportunities and livelihood assistance -- similar to the Pastolan Aytas. Thus far, 15 Kanawan Aytas have been employed as forest rangers and ground maintenance workers under SBMA.

In the absence of project funds intended for Kanawan Aytas, SDD helped the community link-up with donor agencies and philanthropists. One anonymous donor took interest and provided the community with the following assistance:

• Regular medical and dental mission conducted every two months since July 2002 and benefiting 135 individual Kanawan Aytas

• Monthly feeding program for Kanawan toddlers• Electrification of elementary school and provision of school supplies • Donation of church benches

SDD staff also visit the community at least once a month to provide assistance during community meetings. The thrust is to help them establish linkages with as many agencies (government and non-government) as possible and integrate them with mainstream society. Slowly, community leaders by themselves are now networking with various institutions to request urgent basic services for the community.

(vii) Integrated Financial Management System (IFMS). The IFMS was commenced, and significantly implemented under Subic I. Due to delays in implementation under the first project, the completion of the IFMS subcomponent was added to Subic II. As of April 2004, the system is 90-95% complete, with

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loading and data conversion at 80% complete. Phase I includes the following modules: Project Management is 100% completed, Accounts Receivable, Accounts Payable, and General Ledger are all completed at 85%. On-going activities include monitoring and providing assistance on data entry for Project Management while data/ beginning balances of Accounts Receivable and Payable were already posted to their respective subsidiary ledgers. For the General Ledger, transactions from October to December 2003 are being loaded while January to March 2004 transactions are already encoded using the system.

Phase II is comprised of modules for HRM/Payroll and Fixed Assets and Inventory Management. System design and design of these two modules are in progress. Preparation of Purchasing and Cash Management modules will commence after Accounts Receivable and Accounts Payable modules are completed. (B) Supporting further infrastructure development.

(i) Privatization of Power Distribution. The project financed consultants to assist SBMA in the privatization of its power distribution system. It hired a privatization specialist, a financial specialist, a power engineer, and a regulatory specialist to undertake privatization and validate previous studies on privatization. The team of consultants assisted SBMA in the formulation of tender documents, and in the conduct of bidding process to bring private sector to rehabilitate, operate, manage, and maintain the power distribution system in Subic Bay. In May 2003, SBMA signed a Distribution Management Service Agreement with a private utility company and in October 2003, the responsibility for power distribution was handed over to this private company. Under the privatized distribution, the electricity rate has been reduced by P0.40/kwh for the next five years.

(ii) Emergency Rehabilitation of Power Distribution. Emergency rehabilitation financed by the project is expected to improve the existing distribution system by minimizing the tripping of power lines. This, in turn, would provide benefits to locators/investors, especially in terms of increased productivity and efficiency.

(iii) Expansion of Airport Apron. SBMA’s expansion of 3.74 ha airport apron will allow the airport to accommodate eight additional MD-11 wide-bodied cargo aircraft of FedEx from the present 12 planes. The airport apron expansion is considered one of the vital components for the long-term economic development of SBF.

(iv) Rizal-Argonaut Road. The newly constructed Rizal-Argonaut Road will provide better access to industrial and commercial cargo in the Subic, and ultimately once the Subic-Clark-Tarlac Toll Road is constructed, will shorten travel time between Subic and Clark.

(v) Installation of modern navigational aids such as touchdown zone lighting, radar, and global positioning system financed by the project will adequately compensate for Subic Bay Airport’s short runway.

4.2 Outputs by components:

(A) Institutional Strengthening Component.

Policy and Regulation: See Section 4.1

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Financial. This component was cancelled by the SBMA Ad Hoc Management Committee on December 12, 2000. However, a number of planned subcomponent activities were carried out prior to this including:

• A diagnostic of SBMA financial management was carried out to asses policies, plans, programs, procedures, staffing, and overall/relative performance.

• Assistance was provided to the SBMA Finance Group to develop an IFMS financial proposal (for inclusion in Subic II Project), to determine current liquidity, update cash flow projections, etc.

Integrated Financial Management System (IFMS). Three months of training were given to the development team, which consisted of MIS staff and other department personnel.

• FMS Hardware and Software. All hardware and software were successfully installed prior to completion of the contract.

Ecology Center.

• Training was given to 35 EC staff and environmental officers on the Fundamentals of Environmental Management and 25 EC staff and pollution control officers on Enforcement and Compliance Capacity Building. Additional training was given to 143 people on eco-industrial development, environmental management system, cleaner production, pollution prevention, and CEO Forum.

• Three packages of GIS software including one upgrade, and monitoring equipment were procured.

• EC also helped in the organization of pollution control officers for industries and is acting as advisor and helping in planning regular activities. The EC also gave the officers training on environmental management system and cleaner production and orientation on sustainable development.

• EC organized community forest fire brigades and gave them training on fire fighting and incorporated forest fire protocols with forest rangers and fire department. Consequently, the incidence of forest fire has been substantially reduced.

The training provided to the EC staff and Environmental Officers of other SBMA departments have helped to improve their understanding of the basic environmental management concepts and tools. The EC staff primarily involved in the implementation of environmental regulations, are now confidently able to implement their mandated tasks especially on monitoring and environmental enforcement. Likewise, the Environmental Officers who are primarily tasked to oversee the environmental concerns of their respective departments, have become aware of the environmental impacts of their activities.

The Pollution Control Officers (PCOs) of the locator companies are now fully aware of the established environmental standards and regulations being implemented within the Freeport Zone. They are more aware of Environmental Management Systems and how to improve their operations relative to pollution control and cleaner production. Subsequently, the PCOs are now organized into an association to have a better coordination among the companies, sharing of information and even technical knowledge on operations. In line with the program of EC to encourage self-regulation among the locators, the PCOs are currently closely coordinating with the EC on their effort to comply with all the environmental requirements.

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The CEO Forum was conducted to promote awareness among the managers and administrators of industries on the benefits of industrial-ecology in their business operations. This program was geared towards encouraging the participation of the industries in environmental compliance and promotion of self-regulation as a business tool for efficiency.

Achievement of this component is satisfactory.

(B) Power Component: $4.30 million

The project financed emergency rehabilitation of distribution lines, including the following: (i) Remy field substation consisting of two 20 MA, 69'13.8 kV transformers: (a) replacement of the

existing 13.8 kV switch-gear; (b) rehabilitation of the 69 kV switchboard; and (c) replacement of the existing station batteries and battery;

(ii) Subic substation consisting of two 25 MVA, 69/13.8 U' transformers: (a) installation of a new 69 kV Power Circuits Breaker with two 69kV isolation switches (disconnect switches); (b) installation of three single pole lighting arresters rated 69kV; (c) installation of a neutral grounding reactor for each of the two 25 MVA transformers; (d) installation of potential transformers and current transformers for metering; and

(iii) Overhead 13.8 kV distribution system: (a) replacement of 120 rotten wood poles with concrete poles; (b) installation of two 3-phase circuit reclosers and seven sectionalizers for the 13.8kV lines; and (c) replacement of bare overhead lines with insulated aluminum conductors in the wooded areas.

Achievement of this component is satisfactory.

(C) Roads and Bridges Component $21.40 million

Most of the subcomponents were satisfactorily implemented making the Roads and Bridges component the largest component with regard to disbursements.

(i) Subic Bay International Airport Improvement. This sub-component was satisfactorily completed in April 2003.

(ii) Rizal-Argonaut and SBF Expressway Extension was completed successfully in accordance with the approved revised designs. Included in this "works" program were the replacement bridges designed under the Bridge Retrofitting program.

(iii) Security Fencing Works was 85% complete at the time of project closing. Subsequently, SBMA completed the remaining activities using its own funds.

(iv) Kalaklan Bridge. Detailed engineering design was successfully completed. However, SBMA subsequently cancelled this activity because of the delay in the acquisition of right-of-way and the consequent inability to complete the work before the project closing.

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(v) Maintenance Management System (MMS). Works were successfully designed but the planned "works" program was not completed at the time of project closing. SBMA considers these works subcomponents to be of critical importance, and therefore implementation of the works based on the designs completed under Subic II are being discussed for SBMA funding.

(vi) Metes and Bounds Study and the GIS Study. Both studies were completed and the SBMA is fully utilizing the end products like maps and GIS.

(vii) Training was conducted on MMS for local engineers of SBMA.

Achievement of this component is satisfactory.

4.3 Net Present Value/Economic rate of return:

The SAR conducted economic analysis only on the water supply and power distribution components which were cancelled or significantly modified with the restructuring of the project. No specific economic analysis was carried out in the SAR for the Road and Bridges component because the civil works that were programmed under the project contributed to the overall improvement of the Freeport rather than for any discrete activity for which the related benefits could be defined. Likewise, after the restructuring, the power component involved only a minor emergency rehabilitation and maintenance and assistance to SBMA with the privatization of power distribution network. For these same reasons, the ICR evaluation focused its assessment on the overall economic development of the SBF as demonstrated by the following performance indicators:

1998 June 30, 2003Investments $2.59 billion $4.16 billionNo. of companies invested in SBF

304 640

Export value of goods produced at Subic

$555.9 million $1.32 billion (in 2002)

Total number of employees in the SBF

7756 53, 017

Total number of tourists visiting the SBF

2.35 million 7.97 million (in 2002)

Number of ships calling to Subic Bay

1,373 1,764 (in 2002)

Revenue increase PhP 82.5 PhP 226.2 million

4.4 Financial rate of return:

Not applicable

4.5 Institutional development impact:

The project resulted in a substantial institutional development impact. For example:

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• SBMA has reasonably succeeded in regularizing its staff so that when there is a change of administration, there will be only a minimum chance of key staff members leaving the organization when the current chairman leaves his position. It is worth mentioning that, while in 1998 SBMA had only 82 regular staff out of its approved staff strength of 1818, by October 31, 2003, 970 staff had been regularized and 369 are expected to be regularized in the next few months (coinciding with the term of the current chairman) SBMA still has about 475 people working under contracts since they do not have the required qualifications for regularization such as passing the required civil service examination and meeting additional educational requirements.

Those staff who are regularized and were involved with the project have gained valuable experience on various aspects of project implementation and their continued working in SBMA will be a valuable asset when undertaking future projects. For instance, Institutional Strengthening training received by SBMA staff in carrying out their post-project activities such as, the preparation of the land use plan for the BTPI campus in Morong, customer service, value orientation, and supervisory development course for middle-level management has contributed to institutional development. For details see Section 4.1.

• Another major institutional development impact of the project has been on the Ecology Center, which has been adequately empowered and is now moving forward with a clear sense of direction. For details see Section 4.

• The project has also resulted in the institutionalization of the Foreign-Assisted Project Office (FAPO) with its enhanced capability in project management and streamlined procedures on procurement, financial management, monitoring and evaluation.

• The implementation of a computerized maintenance management system (MMS) is very useful for the efficient functioning of seaport and airport, even though SBMA has only limited personnel to manage MMS.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

Asian Financial Crisis. The 1997 Asian financial crisis and the resulting devaluation of the Peso had a major impact on SBMA and the development of the SBF. Apart from the direct financial implications for SBMA and their booked income stream, cash flow also suffered significantly as was evidenced by SBMA's deteriorating accounts receivable over the period, and reduced demand for space in the main industrial parks within the SBF. Also, there were only fewer aircraft movements through the new Subic Bay International Airport and fewer tourists in 1998 and 1999. Additionally, manufacturing firms, retail outlets, restaurants, and concessionaires were among the domestic and foreign investors which left the SBF during the crisis. The number of visitors, which had increased from just over 1 million in 1993 to over 2.6 million in 1997, fell sharply in 1998 to 1.25 million. At the end of 1997 SBMA estimated that about 40,700 people were employed in the SBF, up from about 6,700 in 1993. This dropped to about 27,600 at the end of 1998-a decline of about 30% in one year.

5.2 Factors generally subject to government control:

(i) Change of national administration. See Section 4.1.

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(ii) Appointment of key staff. The national government’s constraints on the appointment of key staff for administering, managing and implementing SBMA activities restricted SBMA's ability to provide sufficient staff with suitable skills to support the Subic II Project subcomponents. Existing skilled SBMA staff were already pre-occupied with their assigned task and therefore found it difficult to assume additional responsibilities for managing and participating in the project’s day-to-day activities, especially for the institutional strengthening support subcomponent.

(iii) Conflicting laws. Delays were experienced in obtaining an Environmental Clearance Certificate and Tree Cutting Permits due to issues regarding approval by the Department of Environment and Natural Resources (DENR) and the SBMA Ecology Center. While under its Charter SBMA had the authority to cut trees, the DENR insisted that SBMA obtain a license from the national government for cutting trees. Even though this issue was subsequently resolved, the interpretation of environmental laws led to considerable delays in project activities.

5.3 Factors generally subject to implementing agency control:

(i) Negative pledge. By pledging certain of its assets to creditors and giving that pledge priority over the Bank's loan, SBMA had breached the Negative Pledge Clause under the Subic I Loan Agreement. The SBMA had to take appropriate steps to resolve this problem by reaching agreements with the creditors, the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP), to eliminate the liens and replace them with a sovereign guarantee from the Department of Finance (in the case of the PNB) and to pay a higher interest rate on its loan with the DBP. Because of this, the effectiveness of the Subic II project was delayed by about 11 months.

(ii) Administrative delays. At times during implementation, the SBMA management and Board took an inordinate amount of time to decide on approving project management recommendations related to contract issues such as, procurement, contract extensions, variations orders and claims. These delays were primarily due to the inexperience and conservative approach of the new SBMA administration as well as the heavy workloads of the senior management in their new positions.

(iii) Dispute between the SBMA and the neighboring community of Morong. A political dispute between the SBMA and the neighboring community of Morong delayed perimeter fencing because Morong’s Mayor objected to putting up a fence in his town’s territorial jurisdiction. This problem was however, resolved.

(iv) IFMS problems. The resignation of the Consultant Component Manager prior to contract completion led to the hiring of a large team of IFMS Contractual Personnel to work with existing SBMA staff to carry out the outstanding services as well as related SBMA’s on-going activities. The implementation also experienced considerable delays due primarily to initial attempts to base the IFMS system on the existing system, and on underestimates of programmer input requirements. Ultimately the initial eight-month implementation period was extended by one year. In addition, the SBMA reported a slippage of several months due to unanticipated work that was needed in order to respond to the Commission on Audit’s system requirements. The slippage delayed completion of the second and final phase of the work by a few months.

5.4 Costs and financing:

The total cost of the project was US$29.80 million compared with the SAR estimate of US$108.0 million. The lower project cost was because of two reasons: (a) after the project restructuring, the total cost was reduced from $108.0 million to $43.1 million; (b) significant devaluation of the Peso since 1998. The

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Bank financed $25.50 million, and SBMA contributed $4.30 million equivalent in local costs. At the time of restructuring, the ratio of Bank to SBMA financing was increased from 60:40 to 75:25, with effect from January 1, 2001. The two extensions of the Loan closing date are discussed paragraph 3.2 above.

6. Sustainability

6.1 Rationale for sustainability rating:

Likely. The sustainability of the project is likely based on the following facts:

SBMA. As mentioned earlier, the project has led to increased inflows of investment, rental and lease income for SBMA, and employment in the Freeport area. For example, investments in SBMA increased from $2.59 billion in 1998 to $4.16 billion as of June 30, 2003; number of companies invested increased from 304 to 640; and the number of employees in the SBF increased from 7756 to 53,017 during the same period. In addition, the project has enhanced SBMA's managerial, administrative and regulatory

capabilities, to create a viable and sustainable institution. Institutional Strengthening. SBMA is proceeding to strengthen constituency groups with key stakeholders and neighboring communities, even though much work still needs to be done in developing a strong constituency base within the boundaries of the Freeport area, particularly with the business community located within Subic. A strong stakeholder community can be one of the viable options that the current administration has to ensure continuity in its policies and philosophies, particularly as it pertains to the protection of the environment and upkeep of the Freeport.

Civil Works. All completed civil works are being adequately administered and maintained by the Public Works and Technical Service Group (PWTSG) except for ports and airport infrastructure, which will be administered and maintained by their respective SBMA departments.

Metes and Bounds, Aerial Photos and Orthophotomosaics. These would be maintained and controlled by a technically qualified and competent individual in PWTSG.

Computerized Systems. In general, these will be maintained and upgraded as necessary by the Management Information Systems (MIS) Department.

Financial Sustainability. SBMA has committed to borrow $151.7 million from JBIC for a Subic Bay Port Development Project and $11.9 million for a Subic Bay Freeport Environment Management Project. While these two loan commitments would impose an additional burden on SBMA’s current financial sustainability, according to SBMA’s financial projections, SBMA is expected to be able to pay off this loan by 2040 from the benefits accrued from these two projects.

In addition, SBMA’s accounts receivables from locators are high, which stood at $52.7 million as of October 31, 2003. The outstanding accounts receivables were largely due to a dispute between the SBMA and locators over electricity tariffs, and as such, the revenue that has been booked may not necessarily be valid. A committee has been set up to review the fairness of these charges and to reconcile differences between what investors thought to be legitimate tariff versus the amounts imposed by SBMA. This issue is expected to be resolved soon with the revised tariff structure that is being implemented since late 2003.

Management Continuity. With the progress made in institutional strengthening, a more concrete organizational and management process, and the regularization of staff, SBMA is expected to be less vulnerable to leadership changes.

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6.2 Transition arrangement to regular operations:

See Section 6. 1.

7. Bank and Borrower Performance

Bank7.1 Lending:

Satisfactory. The Bank's performance in the identification, preparation, and appraisal of the project was satisfactory. The identification process focused on critical gaps and opportunities for interventions in SBF. The project’s consistency with the government’s development priorities and the Bank’s country assistance strategy was assured. In addition, the Bank also covered in-depth sociological aspects and local issues while designing the project. With a harmonious team of a good skill mix, it brought in state-of-the-art expertise into project design, providing for flexibility and responsiveness to local needs.

During preparation and appraisal, the Bank took into account the adequacy of project design and all major relevant aspects, such as technical, financial, economic, and institutional, including procurement and financial management. In addition, during the appraisal, the Bank assessed the project's risks and benefits. The Bank had a consistently good working relationship with the Borrower during preparation and appraisal.

7.2 Supervision:

Satisfactory. The Bank's performance during the implementation of the project was satisfactory. Sufficient budget and staff resources were allocated, and the project was adequately supervised and closely monitored. Over the five years of project implementation, there were 14 supervision missions, with an average of about three missions per year. Supervision teams included specialists in water resource, water and sanitation, environment, legal, finance, energy, social anthropology, social development, information systems, civil works, logistics, financial management, and procurement. External consultants were used for specific aspects of project components.

The Bank’s client relationship was generally cordial and productive. However, the relationship with SBMA was at times troubled in the early stages of implementation, but that was to be expected given that its performance was occasionally disappointing and had to be pointed out. The team maintained a broad range of contacts, including the investor community in Subic Bay, and neighboring municipalities.

Aide-Memoires were regularly prepared and transmitted, flagging outstanding issues and underscoring benchmarks for actions. These alerted the government and the implementing agencies to problems with project execution and facilitated remedies in a timely manner, in conformity with Bank procedures. The Project Status Reports (PSRs) realistically rated the performance of the project both in terms of achievement of development objectives and project implementation. Whenever delays in implementation occurred, the Bank’s task team was able to define concrete steps and a timetable for putting the project back on track and pace. The Bank paid sufficient attention to the project’s likely development impact. The quality of advice, and the follow-up on agreed actions were adequate. Loan covenants and remedies were enforced effectively.

The Bank was very responsive and decisive with regard to expediting needed changes in the program

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throughout the implementation period. The Bank undertook a special mission to welcome the incoming SBMA administration. It also showed flexibility in suggesting needed modifications in implementation, including that for the Power Component, the addition of the Airport Improvement sub-component, and the expansion of the Institutional Strengthening Program. The task team worked closely with the government and the SBMA, and provided them with extensive assistance including technical advice. The Bank conducted workshops and seminars at the early stages of implementation on specific subjects, such as procurement and disbursement. With the decentralization of Bank functions to the Country Office in Manila, the Bank could provide quick response and follow-up.

The Bank’s supervision performance was reviewed by QAG which remarked that: “The reports to the borrower were candid and timely. The project was restructured consistent with evolving trends in provision of infrastructure services, but more important, this was not done until the borrower had actually implemented a seven point action plan to demonstrate its commitment to change performance in order to achieve project objectives and enable sustainability of project benefits”.

The QAG further remarked that: “The Bank staff brought the institutional weaknesses to the attention of SBMA and Government at the end of each supervision mission in a candid manner and together with suggestions for remedial action. These suggestions were followed up with formal communications from the Sector Manager.”

7.3 Overall Bank performance:

Satisfactory. Overall, the Bank's performance was satisfactory during all phases of the project.

Borrower7.4 Preparation:

Satisfactory. The Borrower's performance in the preparation of the project was satisfactory. The Borrower displayed the required level of commitment to the objectives of the project and covered the adequacy of design and all major aspects, such as, technical, financial, economic, institutional, environmental and sociological factors, including stakeholder commitment. The staff of SBMA worked closely with the Bank's project team on a continual basis, with full cooperation and enthusiasm.

7.5 Government implementation performance:

Satisfactory. Overall, the government implementation performance was satisfactory.

The civil unrest and court challenges that followed after the administration that came to power in June 1998 and changed the SBMA leadership effectively closed the SBMA for a period of three months. This closure, and the unprecedented period of duress and uncertainty that followed, had a major detrimental impact on the SBF. It was apparent that the administration that came to power in June 1998 made little effective attempt to intervene to quell the unrest and mitigate the significant damage caused by the protracted leadership struggle. Ad hoc policy changes and reversals made by the new administration destabilized the SBF business environment. The government implemented a number of actions that diluted the integrity of the policy framework and introduced ambiguity into the freeport investment environment. The government performance during 1998-2000 regime was unsatisfactory.

On the other hand, the administration which later came to power in January 2001, consistently maintained its commitment throughout the rest of the implementation period. It was very responsive in taking

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corrective implementation measures, and was effective in dealing with outstanding operational issues. Appropriate levels of review and approval were usually in place; financial accountability and follow-up were observed, and expenditures were duly authorized before they were incurred. Documentation was maintained properly for periodic review. The Ministry of Finance fully collaborated with the Bank. The project did not suffer from any counterpart funding problems. In view of its commitment and responsiveness, performance of the current administration and the overall, the government implementation performance is rated as satisfactory.

7.6 Implementing Agency:

Satisfactory. The overall performance of SBMA, which coordinated the project, was satisfactory.

The performance of the implementing agency varied throughout the project cycle due to administrative changes. The original SBMA administration sought a radical change in the SBMA institution that provided for a complete over-hauling of the administration to be accomplished largely within the Subic II loan period.

On the other hand, the new SBMA administration opted for the principle of developing SBMA with a more conservative step-by-step implementation that considers the existing GOP constraints related to existing staffing quotas, government regulations and budgetary constraints. As mentioned earlier, before the project was restructured in June 2001 and even for a few months thereafter, there were generally significant delays throughout project implementation by senior SBMA administrators in approving project management recommendations related to contract issues including procurements, contract extensions, variations orders and claims. It would appear that these delays were due primarily to the "conservative" nature of the new administration, and to the heavy workloads of the senior SBMA administrators. SBMA and FAPO were not proactive in addressing these slippage nor in ensuring a better performance by the contractor and the supervising consultants.

However, the performance of SBMA and FAPO improved a few months after the restructuring. Thereafter, implementation progressed in accordance with the new timetable set at the time of reprogramming activities. SBMA became more organized and effective in dealing with procurement, disbursement, progress reports, and in maintaining proper records of the project. Appropriate levels of review and approval were in place, expenditures were duly authorized before they were incurred and documentation was maintained properly for an adequate period of time for the purpose of review. There were no discrepancies or difficulties regarding the Special Account and funds flow, and there were no audit objections to compliance with contractual or internal control requirements. Financial management procedures were conducted in line with the Bank's guidelines. They were receptive to the Bank’s advice, and highly collaborative with respect to meeting demanding benchmarks and deadlines.

7.7 Overall Borrower performance:

Satisfactory. The overall performance of the Borrower was satisfactory.

8. Lessons Learned

The following lessons were learned from the project:

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(a) The SBMA needs to have more autonomy and flexibility in order to improve its performance and efficiency. Operating as a traditional government-owned and controlled corporation is extremely difficult for an entity that must move quickly to compete with freeports worldwide. The SBMA was constrained by government regulations and procedures from being able to act commercially in a number of key areas of its operation and charter. Also, a better legal framework is required so that building institutional capacity is not so difficult and restricted by rules.

(b) The Bank should have taken timely and appropriate remedial actions when the possible risk of change in SBMA leadership which was already identified during project preparation became a reality. For example, the Bank should have seriously assessed the crisis situation in the SBMA after the change of leadership and discussed an immediate time-bound action plan or a definite deadline for the suspension or cancellation of the project.

(c) In a project of this type, which encompasses many players, including national government, municipalities, and the SBMA, cohesion and commitment from all players are critical. The Borrower should also be equally committed to all components of a project, instead of focusing on some components while neglecting others. Likewise, continued involvement of stakeholders, especially close partnership with the surrounding communities is necessary for the success of the project.

(d) Future projects should give highest priority to institutional strengthening and capacity building since they are important factors for the successful operation of free ports and economic zones. These would enable borrowers, particularly relatively young institutions such as the SBMA, to improve their ability to implement projects with greater efficiency and effectiveness. Likewise, for a fledgling institution like the SBMA, it is important to ensure that it be staffed with personnel with appropriate skills and training. In addition, the tasks to be carried out by the institutional strengthening consultants should be well-defined and made clear before the commencement of the project itself.

(e) It is important to ensure at the commencement of the project itself that, there is a competent and experienced project manager working full time, to take care of day to day matters of implementation. Similarly, greater emphasis should be given for adequate staffing and training.

(f) Financial management and project systems should be kept simple. Progress should be closely monitored during implementation, and needs should be continually reassessed. It is also necessary to prepare projects efficiently to ensure that time and financial resources are not wasted. For example, considerable time and costs were spent assessing financial software. Ultimately the IFMS had to be developed from the scratch, thus wasting the preparation resources.

(g) In order to minimize delays and avoid mis-procurement, it is important to streamline standard administration procedures for all aspects of project implementation, such as procurement of goods and services, invoicing, processing and payment of project activities.

(h) Before implementing the project, it is necessary to anticipate and resolve the problems which could impede smooth implementation. For example, the conflicting laws of the national government and SBMA regarding Environmental Clearance Certificate, and permits for cutting trees could have been resolved before effectiveness to avoid implementation delays.

(i) In a multisectoral and multifunctional project, resources for supervision should be allocated based

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on the country’s capacity for using local expertise. This project was able to provide adequate project supervision only because it could use local bank staff and local consultants and draw from trust funds for international consultants.

9. Partner Comments

(a) Borrower/implementing agency:

The draft ICR should take note that the original scope of the Power Component could not be undertaken because Olongapo City (“The City”) was reluctant or unwilling to collaborate with the Borrower. As originally conceived, the Power Distribution Component was intended to merge the Public Utilities Department (PUD) of the City with its equivalent Department in the SBMA. Under this design, the Component was supposed to benefit from the economies of scale arising from this merger. This merger could not be pursued because of the unwillingness of the City to collaborate with the Borrower in this direction.

In spite of repeated efforts in good faith made by the SBMA to encourage the City to collaborate with the Borrower and continue implementation of the component in its original scope, the City indicated that it would not support the planned merger. As a result, implementation of the component, as originally planned, could not proceed. This was conveyed early on by the SBMA to the Bank with a request for the component to be restructured to focus entirely on power distribution within the Subic Bay Freeport. However, much time passed until the Bank gave its concurrence in March 2000 to proceed with the revised power component.

It may be pointed out that similar problems have arisen with respect to other projects of the SBMA which involved various degrees of integration with the City. This also includes other ODA-financed projects of the SBMA and the National Government. These and similar problems have arisen out of the lack of cooperation from the City and have contributed to implementation delays on the part of the SBMA.

Achievement of Objectives and Outputs:

Reference is made to the impact of the long and protracted change in SBMA’s leadership on the project, particularly on the power and water components. However, the change in itself did not directly precipitate the revision of the power and water components. As mentioned above, in the case of the power component, the difficulties stemmed primarily from the unwillingness of the City to cooperate with the SBMA to pursue the project in its original scope. The SBMA had worked to continue the project in its original form, but was unable to do so for this reason. In the case of the water supply component, problems arising from social acceptability and political tensions were evident even before the change in the SBMA administration.

Rizal-Argonaut Road:

Reference is made to “the newly constructed road which shorten travel time between Subic and Clark”. “Riza” should read “Rizal.” It should be pointed out that the reference should instead be made for the Subic-Clark-Tarlac Toll Road Project of the Bases Conversion and Development Authority (“BCDA”), and not the Rizal-Argonaut Highway Widening and Expressway Extension Project, as the latter project is confined to the SBF, and does not link it to the Clark Special Economic Zone. Construction for the Subic-Clark-Tarlac Toll Road Project has not yet commenced.

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Lessons Learned:

The Bank correctly pointed out that Subic II was complex and demanding for the Borrower because the project involved multifarious activities in various areas, such as management, environment, water, power privatization, and institutional building. The Bank further pointed out the SBMA as a fledging institution and the importance to staff it with personnel with the appropriate skills and training. Given this assessment, it would be instructive to consider more capacity building in future lending operations. This would enable Borrowers, particularly relatively young institutions such as the SBMA, to improve their ability to implement projects with greater efficiency and effectiveness to deliver the desired development impact. It would be further instructive to factor in the capacity of the implementing agency in the design of the project, particularly in more complex and demanding projects such as Subic II.

Institutional Strengthening Support:

The Services Group (TSG) contract to support the SBMA administration was implemented only partially, with several of the subcomponents being cancelled:

The preparation of the Subic Bay Freeport Strategic Plan was the most important activity planned for this subcomponent, and this plan was submitted, approved, and adopted by the SBMA Board, and underwent its 1st quarterly review. Although no revisions have been made, the Strategic Plan and the training received during its development are still viewed by relevant SBMA staff as very important. It has also helped SBMA in organizing a number of projects in areas of infrastructure, tourism, and recreation, as well as in the formulation development guidelines for the different districts.

Factors Subject to Control of Implementing Agency - Negative Pledge:

It is thought that the reference to “Subic I” in connection with the Negative Pledge issue should refer to “Subic II” instead. It is understood that the Negative Pledge issue became a delay for Subic II.

Absence of a regular project manager:

It will be noted that a regular Project Manager had been originally hired by the SBMA with the concurrence of the Bank. However, the Task Manager at the time chose not to extend him and instead, advocated for the role of the Project Manager to be taken up concurrently by the Sector Manager for Roads and Bridges. This decision was conveyed to the Borrower during the restructuring of the Project in 2000.

Counterpart staff:

It is further noted that the SBMA had recommended a component manager as counterpart staff for the Institutional Strengthening Component, but was not supported by the Bank’s Task Manager.

(b) Cofinanciers:

N/A

(c) Other partners (NGOs/private sector):

N/A

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10. Additional Information

A. The Bank’s ICR Team consisted of the following members:

Aldo Baietti (Task Team Leader)Sati Achath (Consultant)Evelyn Quirante (Team Assistant)

B. List of Task Team Leaders of the project in chronological order:

Aloysius OrduAldo Baietti

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome/Impact Indicators:

Institutional Strengthening ComponentIndicator Projected in SAR/PAD End of

ProjectActual/Latest Estimate

*introduction of computerizedmerchandise controls, removal ofdocumentary controls over dutyfree shops.*revision of the Freeport customsprocedures manual.*reduction in amount of time for customs to clear import & export consignments.*establishment of framework for resolution of pending issues relating to taxation and investment incentives with concerned national government agencies.

*streamlined movement of goods and services between Freeport and customs territory.

*reduced leakages of duty-free goods into domestic customs territory.

* enhanced competitiveness of SBF firms.

*rationalized incentives for freeports in the Philippines.

* The Joint Memo Order between SBMA and the BOC (Bureau of Customs) was approved last October 2003 and started the implementation of TAFS-ASYCUDA (Trade Automation & Facilitation Systems - Automated Systems for Customs Data) last November 2003* The Automation of importation and export using ASYCUDA allows the following: Cost Savings, Fast, Convenient, 24 hours x 7 days operation, Minimum manual intervention, Transparency, and Minimal travel time.

*establishment of a Freeport policy unit within SBMA to undertake regulatory & oversight functions.

*issuance of DOJ opinions on video transmission, printing & publishing freedoms in SBF; SBMA authority over air traffic rights.*establishment of framework for commercial dispute resolution.*issuance of SBMA framework agreement with LGUs including provision of utilities services.

*clear delineation of regulatory and oversight responsibilities with national government agencies.*enhanced definition of Freeport framework in line with legislation and international best practices.

*delineation of functions, responsibilities and authority with neighboring LGUs.

*While a Freeport policy unit was taken up, efforts were directed to prioritize the privatization of the SBMA power distribution system, and form the water regulatory board. Both have since been completed. The definition of a Freeport framework was attended to selectively under the TSG Strategic Plan;

*Air traffic rights and air operations at SBF are handled jointly by the Air Transportation Office (ATO) and SBMA which ensures compliance with International Civil Aviation Organization (ICAO) standards;

*Commercial Dispute resolution is being undertaken as required without the benefit of a

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framework;

*An SBMA framework agreement with LGUs that includes the provision of utilities will require more time. Efforts to arrive at some degree of integration with utilities services have not been more supported by LGUs. Olongapo City would not support integrated solid waste management and power distribution with the SBF, both of which were funded by ODA loans signed by the SBMA.

*development of plan to restructure the SBMA.*development of SBMA criteria to assume equity positions in projects.*issuance of timetable for privatization of SBMA subsidiaries.*implementation of privatization transactions.

*division of SBMA into separate entities for major functions: administrator of Freeport regime; exerciser of municipal authority; owner & developer of assets within the Freeport.*greater role for private sector in provision of services within the Freeport.

*Successful privatization of the SBMA power distribution system, which was turned over to a private sector company on October 25, 2003.

Output Indicators:

Other ComponentsIndicator Projected in SAR/PAD Actual/Latest Estimate

Power Component*Construction of 23 km of overhead and 3 km underground 69 kV sub-transmission circuits;*Expansion of five existing 69/13.8 kV substations;*Construction of one new 69/13.8 kV substation;*Installation of 20 km of 13.8 kV cables;*Rehabilitation and extension of 50 km of 13.8 kV and 50 km of LV system.

*Reduce SBMA’s administrative consumption of electricity from 40% to 10% by 2000;*Reduce usage and live losses from 24% to 12% by 2000;*Provide 100% meter coverage to domestic consumers in the SBMA housing areas by 2000;*Replace 100% of consumer-owned meters in the Olongapo franchise area by 2000.

* Project Completed Started: November 14, 2001Finished: September 30, 2002Cost: Php 55,574,145.95

Water Component*Development of 20 wells with average capacity of 450 m3/hour;*Construction of 7,600 meters of raw water transmission main;*Construction of electric power transmission lines to the Pamatawan well field and treatment plant;*Construction of water treatment plant

*Meet projected water demand by user;*Domestic – 49.50 to 87.3 million liters/day (MLD), Commercial – 13.8 to 72.8 MLD, & Institutional – 3.1 to 4.7 MLD by 2000;*Increase incremental water sales of about 33 million cubic meters by

Not applicable since this component was dropped.

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and a booster station;*Construction of 19,400 meters of treated water transmission main;*Installation of a ground water monitoring network;*Reforestation of the Pamatawan River Basin; and*Identification of water supply sources.

2000;*Reduce non-revenue water to 5% of total water pumped by 2000;*Reduce system losses for bulk water close to 0% by 2000;*Provide 100% water meter coverage to consumers in the SBMA housing areas by 2000.

Roads and Bridges*Widening selected sections of Rizal and Argonaut Highways;*Constructing an extension to the SBF Expressway;*Replacement of 5 existing bridges – Kalaklan, Kalalake, Malawaan, Boton, and Binictican;*Establishing a road maintenance management system;*Reinstatement of existing Freeport Roads;

*Carrying out a road alignment studies for the Freeport northern by-pass, the SBIA by-pass, and the Morong Connection Road;*Location and monumenting of SBFZ boundaries;*Aerial photos/mapping of SBFZ;

*Repair/replacement/ extension of Security Fencing and Boundary Patrol roads;*Upgrading of GIS.

*Increasing network capacity to meet projected traffic growth from expanded airport, port, and the new industrial areas;*Improving network user benefits by reducing travel time, improvement of road alignments/by-passes, and reducing road roughness;*Improving vehicular and pedestrian safety by improved traffic flow, signalization of major intersection, and replacement of substandard bridges; *Provide a greater service life and traffic capacity by replacement of distressed bridges in the SBF;*Enhance SBMA’s ability to program, procure and supervise maintenance works by private contractors;*Enhance SBMA’s ability to administer and monitor Freeport activities, and planning Freeport development.

* Project CompletedContractor: AMO/IPMStarted: September 8, 2000Finished: December 15, 2002Cost: Php 628,134,038.26

* Consultancy CompletedConsultant: SMECStarted: May 27, 1998Finished: June 30, 2002Cost: US$ 1,524,016.10* Cancelled

* Project CompletedStarted: May 15, 1998Finished: January 31, 2000Cost: US$ 478,419.17* Project Substantially CompletedStarted: April 2, 2002Finished: Sept. 27, 2003Cost: US$ 346,538.42

Indicator Projected in SAR/PAD Actual/Latest Estimate* Upgrading of GIS * Project Completed

Started: March 22, 2000Finished: April 2, 2001Cost: US$ 346,538.42

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ millionA. Institutional Strengthening 4.60 4.10 89.1B. Water Supply 32.60 0.00 0C. Power Distribution 26.10 4.30 16.4D. Roads and Bridges 28.10 21.40 76.1

Total Baseline Cost 91.40 29.80 Physical Contingencies 10.80 Price Contingencies 5.80

Total Project Costs 108.00 29.80Total Financing Required 108.00 29.80

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 47.40 18.00 3.50 0.00 68.90(29.40) (11.10) (0.00) (0.00) (40.50)

2. Goods 7.20 0.00 0.00 0.00 7.20(7.20) (0.00) (0.00) (0.00) (7.20)

3. Services 0.00 0.00 12.48 18.50 30.98(0.00) (0.00) (12.30) (0.00) (12.30)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 54.60 18.00 15.98 18.50 107.08(36.60) (11.10) (12.30) (0.00) (60.00)

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Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 6.80 4.00 3.50 0.00 14.30(6.80) (4.00) (0.00) (0.00) (10.80)

2. Goods 3.00 0.00 0.00 0.00 3.00(3.00) (0.00) (0.00) (0.00) (3.00)

3. Services 0.00 0.00 11.40 0.00 11.40(0.00) (0.00) (11.40) (0.00) (11.40)

4. Miscellaneous 0.00 0.00 0.30 0.80 1.10(0.00) (0.00) (0.30) (0.00) (0.30)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 9.80 4.00 15.20 0.80 29.80(9.80) (4.00) (11.70) (0.00) (25.50)

1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF.A. Institutional Strengthening

3.80 0.80 3.80 0.00 100.0 0.0

B.Water Supply 18.50 14.10 0.00 0.00 0.0 0.0C.Power Distribution 15.70 10.40 4.00 0.30 25.5 2.9D. Roads and Bridges 17.50 10.60 17.70 4.00 101.1 37.7

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Annex 3. Economic Costs and Benefits

N/A

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Supervision

03/30/1998 7 TASK MANAGER (1); SOCIAL ANTHROPOLOGIST (1); PROCUREMENT SPECIALIST (1); CONSULTANT, ENGINEER (1); CONSULTANT, FINANCIAL (1); CONSULTANT, INSTITUTNL (1); TASK ASSISTANT (1)

S S

06/30/1998 2 TASK MANAGER (1); PROCUREMENT SPECIALIST (1)

S S

10/12/1998 7 TASK MANAGER (1); SOCIAL ANTHROPOLOGIST (1); CONSULTANT, ENGINEER (1); ENVIRONMENT SPECIALIST (1); PROCUREMENT SPECIALIST (1); CONSULTANT, FINANCIAL (1); FINANCIAL SPECIALIST (1)

S S

03/26/1999 7 TASK TEAM LEADER (1); ENVIRONMENTAL SPECIALI (1); SOCIAL ANTHROPOLOGIST (1); PROCUREMENT SPECIALIST (1); FINANCIAL ECONOMIST (1); ENGINEER (1); WATER & SANITARY ENG. (1)

S S

05/15/1999 3 TASK MANAGER (1); PROCUREMENT (1); FINANCIAL ECONOMIST (1)

U S

U S09/30/1999 7 TEAM LEADER (1); WATER

ENGINEER (1); PROCUREMENT OFFICER (1); INSTITUTIONAL SPEC. (1); FINANCIAL ECONOMIST (1); ENGINEER (1); SECTOR DIRECTOR (1)

U S

04/10/2000 5 TASK TEAM LEADER (1); FINANCIAL ECONOMIST (1); PROCUREMENT SPECIALIST (1); ENVIRONMENT (2)

S S

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06/30/2000 6 TASK TEAM LEADER (1); ENGINEER (1); FINANCIAL ECONOMIST (1); PRIN. OPERATIONS OFF. (1); PROCUREMENT SPECIALIST (1); ENVIRONMENT (1)

U S

02/07/2001 1 TASK MANAGER (1) U S06/18/2001 6 TASK TEAM LEADER (1);

PROCUREMENT SPECIALIST (1); ENVIRONMENT SPECIALIST (1); SOCIAL SPECIALIST (1); FINAN.SPEC.CONSULTANT (1); FREEPORT SPECIALIST (1)

S S

11/16/2001 5 TEAM LEADER (1); OPTNS OFFICER, PROC. (1); OPTNS OFFICER, ENV. (1); OPTNS OFCR., SO.SFGRD (1); CONSULTANT (1)

S S

02/27/2002 4 TEAM LEADER (1); PROCUREMENT/FIN. MGNT (1); SOCIAL SPEC. (1); ENVIRONMENTAL SPEC. (1)

S S

09/02/2002 6 TTL, PSD SPECIALIST (1); SENIOR OPERTNS OFFICER (1); ENVIRONMENT OPTNS OFCR (1); SOCIAL SAFEGUARD OPTNS (1); FINANCIAL MNGMNT SPEC (1); PROGRAM ASSISTANT (1)

S S

02/14/2003 6 SR.FINANCE SPECIALIST (1); SR. OPERATIONS OFFICER (1); ENVIRONMENTAL EXPERT (1); SOCIAL SAFEGUARDS (1); FINANCIAL MGMT (1); PROGRAM ASSISTANT (1)

S S

ICR10/30/03 1 1 CONSULTANT S S

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Supervision 116.5 410.7ICR 2.6 21.8Total 197.8 738.1

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Indigenous PeoplesPrivate sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

1. Aide Memoires, Back-to-Office Reports, and Project Status Reports.

2. Project Progress Reports.

3. Consultant Study Reports financed under the Project.

4. Borrower's Evaluation Report dated June 12, 2003; and

5. Staff Appraisal Report for the Republic of Philippines Second Subic Bay Freeport Project, dated October 30, 1996 (Report No. 15956-PH)

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