Completion Report

Project Number: 37749-013 Loan Numbers: 2465 and 8238 December 2020

Philippines: Agrarian Reform Communities Project II This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS

Currency unit – peso (₱)

At Appraisal At Completion 16 September 2008 31 December 2017

₱1.00 = $0.021 $0.0200 $1.00 = ₱47.13 ₱49.977

ABBREVIATIONS

ADB – Asian Development Bank AED – agriculture and enterprise development APCP – Agrarian Productivity Credit Program APFS – audited project financial statement ARB – agrarian reform beneficiary ARBO – agrarian reform beneficiaries’ organization ARC – agrarian reform community ARCP – Agrarian Reform Communities Project ARMM – Autonomous Region in Muslim Mindanao CARP – Comprehensive Agrarian Reform Program CDD – community-driven development DAR – Department of Agrarian Reform DMF – design and monitoring framework EIRR – economic internal rate of return EMMP – environmental management and monitoring plan ESS – environmental and social safeguards FMR – farm-to-market road GAP

ha – –

gender action plan hectare

IRA – internal revenue allotment IPDF – indigenous people development framework km – kilometer LBP – Land Bank of the Philippines LGU – local government unit M&E – monitoring and evaluation MDFO – Municipal Development Fund Office mt – metric ton NDAP

NGALGU –

National Disbursement Acceleration Program national government assistance to LGU

NPCO – national project coordination office OFID

OPEC – –

OPEC Fund for International Development Organization of the Petroleum Exporting Countries

PAP – project affected person PBGS

p-m – –

performance-based grant system person-month

ROW – right of way

NOTE

In this report, “$” refers to United States dollars.

Vice-President Ahmed M. Saeed, Operations 2 Director General Ramesh Subramaniam, Southeast Asia Department (SERD) Director Jiangfeng Zhang, Environment, Natural Resources and Agriculture

Division (SEER), SERD Team leader Aliya Mukhamedyarova, Unit Head (Project Administration), SEER,

SERD Team members Edwin O. Lara, Senior Safeguards Officer (Environment), Philippines

Country Office (PHCO), SERD Leonard H. Leung, Natural Resources and Agriculture Economist, SEER, SERD Roma Gianina B. Panopio, Senior Operations Assistant, SEER, SERD Edita T. Tayao-Castro, Project Analyst, SEER, SERD Judy A. Vermudo, Associate Safeguards Officer (Resettlement), PHCO, SERD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 1

A. Project Design and Formulation 1 B. Project Outputs 2 C. Project Costs and Financing 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 6 G. Technical Assistance 7 H. Consultant Recruitment and Procurement 7 I. Gender Equity 8 J. Safeguards 8 K. Monitoring and Reporting 10

III. EVALUATION OF PERFORMANCE 10

A. Relevance 10 B. Effectiveness 11 C. Efficiency 11 D. Sustainability 12 E. Development Impact 12 F. Performance of the Borrower and the Executing Agency 13 G. Performance of the Asian Development Bank and Cofinancier 13 H. Overall Assessment 13

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 14

A. Issues and Lessons 14 B. Recommendations 15

APPENDIXES

1. Design and Monitoring Framework 16

2. Project Cost at Appraisal And Actual 21

3. Project Cost by Financier 22

4. Disbursement of ADB Loan Proceeds 24

5. Contract Awards of ADB and OFID Loan Proceeds 26

6. Chronology of Main Events 28

7. Status of Compliance with Loan Covenants 30

8. Project Output Achievements 38

9. Gender Action Plan 50

10. Environment, Involuntary Resettlement, and Indigenous Peoples Safeguards 55

11. National and Provincial Poverty Data 65

BASIC DATA

A. Loan Identification

1. Country Philippines 2. Loan number and financing source 2465 (OCR) and 8238 (OFID) 3. Project title Agrarian Reform Communities Project II 4. Borrower Republic of the Philippines 5. Executing agency Department of Agrarian Reform 6. Amount of loan Original amounts:

ADB: $70,000,000 OFID: $30,000,000 Revised amounts: ADB: $67,000,000 OFID: $21,609,000

8. Financing modality Project loan

B. Loan Data

1. Appraisal – Date started – Date completed 2. Technical discussions – Date started – Date completed

16 April 2007 18 May 2007 22 May 2008 26 May 2008

3. Loan negotiations – Date started – Date completed

2 September 2008 2 September 2008

4. Date of Board approval 27 October 2008 5. Date of loan agreement 8 December 2008 6. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

8 March 2009 4 March 2009 0

7. Project completion date – Appraisal – Actual – Number of extensions

31 December 2014 31 December 2017 3

8. Loan closing date – In loan agreement – Actual – Number of extensions

30 June 2015 30 June 2018 3

9. Financial closing date – Actual

19 August 2019 (ADB loan) 15 January 2020 (OFID loan)

10. Terms of loan – Interest rate – Maturity (number of years) – Grace period (number of years)

0.15% per year 25.5 years 6.5 years

11. Terms of relending (if any) – Interest rate

Not applicable

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– Maturity (number of years) Not applicable – Grace period (number of years) – Second-step borrower

Not applicable Not applicable

12. Disbursements

a. Dates

ADB Loan

Initial Disbursement 15 May 2009

Final Disbursement 22 July 2019

Time Interval 122 months

Effective Date 4 March 2009

Actual Closing Date 30 June 2018

Time Interval 112 months

OFID Loan

Initial Disbursement 6 March 2014

Final Disbursement 8 April 2019

Time Interval 61 months

Effective Date 4 May 2009

Actual Closing Date 30 June 2018

Time Interval 110 months

b. Amount ($)

ADB Loan

Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6=4–5)

01-Works 40,243,000 7,571,000 0 47,814,000 34,667,568 13,146,432 02-Equipment 02A-Vehicles 743,000 28,120 0 771,120 771,120 0 02B-Motorcycles 326,000 (5,831) (137,560) 182,609 182,609 0 02C-Computers 177,000 (22,289) 0 154,711 154,711 0 02D-Other Office Equipment

344,000 (242,904) 101,096 101,096 0

03-Consulting Services

10,465,000 (2,619,536) 7,845,464 6,592,362 1,253,102

03A-Consulting Services for AED

806,000 0 806,000 71,681 734,319

04-(NGO Contracting) Training/Fellowships

1,806,000 (806,000) 0 1,000,000 578,650 421,350

05-Interest and Commitment Charge

8,325,000 0 00 8,325,000 2,024,953 6,300,047

06-Unallocated 7,571,000 (7,571,000) 0 0 0 0 Total 70,000,000 0 (3,000,000) 67,000,000 45,144,750 21,855,250

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OFID Loan

Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6=4–5)

01-Works 30,000,000 0 8,391,000 21,609,000 8,811,052 12,797,948 Total 30,000,000 0 8,391,000 21,609,000 8,811,052 12,797,948

C. Project Data

1. Project cost ($‘000) Cost Appraisal Estimate Actual Foreign exchange cost 60,800 53,956 Local currency cost 147,600 64,746 Total 208,400 118,702

2. Financing plan ($’000)

Cost Appraisal Estimate Actual Implementation cost Borrower financed 105,300 64,746 ADB financed 61,700 45,145 Other external financing 30,000 8,811 Total implementation cost 197,000 116,677 Interest during construction costs Borrower financed 3,100 0 ADB financed 8,300 2,025 Other external financing 0 0 Total interest during construction cost 11,400 2,025

3. Cost breakdown by project component ($‘000) Component Appraisal Estimate Actual Community-driven development 5,300 1,058 Agriculture and enterprise development 25,200 7,271 Rural infrastructure 135,200 95,548 Project implementation management 9,600 12,800 Contingencies 21,700 0 Total project cost before financing charges 197,000 116,677 Financing charges during implementation 11,400 2,025 Total 208,400 118,702

4. Project schedule

Item Appraisal Estimate Actual National- and regional-level consultants Date of contract Q1 2010 Q3 2010 Completion of work Q4 2011 Q2 2011

Baseline survey consulting firm Date of contract Q1 2010 Q1 2011 Completion of work Q1 2014 Q3 2016 NGO contracts Date of contract Q1 2010 None Completion of work Q1 2011 None Project management consulting firm for ARMM Date of contract Q1 2010 Q2 2011 Completion of work Q1 2013 Q4 2015 Engineering quality assurance firm Date of contract Q1 2010 Q4 2012

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Item Appraisal Estimate Actual Completion of work Q4 2011 Q1 2014 Civil works contracts Date of award Q3 2010 Q4 2013 Completion of work Q3 2014 Q4 2017 Equipment and supplies First procurement Q1 2010 Q3 2010 Last procurement Q3 2012 Q1 2013

ARMM = Autonomous Region in Muslim Mindanao.

5. Project performance report ratings

Implementation Period Ratings

Development Objectives Implementation Progress From 4 March 2009 to 31 May 2011 Satisfactory Satisfactory Single Project Rating From 1 June 2011 to 30 September 2011 Actual problem From 1 October 2011 to 31 December 2011 Potential problem From 1 January 2012 to 31 March 2012 Actual problem From 1 April 2012 to 30 June 2012 Potential problem From 1 July 2012 to 31 December 2012 On track From 1 January 2013 to 31 March 2013 On track From 1 April 2013 to 30 September 2013 Potential problem From 1 October 2013 to 31 December 2013 Actual problem From 1 January 2014 to 31 December 2014 On track From 1 January 2015 to 31 March 2015 Potential problem From 1 April 2015 to 30 September 2015 Actual problem From 1 October 2015 to 31 December 2015 On track From 1 January 2016 to 31 December 2016 On track From 1 January 2017 to 31 December 2017 On track From 1 January 2018 to 30 June 2018 On track From 1 July 2018 to 31 December 2018 Potential problem From 1 January 2019 to 30 June 2019 Potential problem

D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons

No. of Person-

Days Specialization of Members

Inception Special Project Administration

7–8 May and 14–20 May 2009 23–24 September 2009

4 3

36 6

a,b,c,d b,e,f

Loan Review No. 1 19–30 October 2009 3 36 c,e,f Loan Review No. 2 19 April–4 May 2010 5 75 c,e,f,g,p Special Project Administration 21–23 June 2010 3 9 e,f,q Loan Review No. 3 22 November–14 December 2010 3 66 c,e,f Loan Review No. 4 4 July–16 August 2011 3 75 e,h,i Loan Review No. 5 15 November–16 December 2011 4 31 b,e,i,j Loan Review No. 6 23 November–19 December 2012 3 27 b,e,k Consultation 13–14 August 2013 2 4 b,k Loan Review No. 7 12–17 September 2013 4 24 b,f,k Mid-term Review 24 June–8 July 2014 4 40 b,g,k,n Loan Review No. 8 26–30 October 2015 4 20 b,k,m,r Safeguards Review 1–5 February 2016 2 10 m,r Loan Review No. 9 7 October–8 November 2016 3 24 k,n,o Loan Review No. 10 13 October–3 November 2017 2 10 b,k Project Completion Review 3–11 June and 2–4 July 2019 3 17 b,k,s

a = senior social development specialist, b = unit head (project administration), c = project officer, d = integrity officer, e = financial due diligence specialist, f = rural development specialist, g = senior natural resource economist, h = senior project officer, i = associate project analyst, j = senior social development specialist, k = project analyst, l = senior financing partnerships specialist, m = natural resources specialist, n = principal natural resource and agriculture economist, o = senior project officer (Cambodia resident mission), p = consultant (energy), q = staff consultant, r = consultant (safeguards), s = staff consultant (project completion).

I. PROJECT DESCRIPTION 1. At the request of the Government of the Philippines, the Asian Development Bank (ADB) approved a $70 million loan for the Agrarian Reform Communities Project (ARCP) II on 27 October 2008.1 The project aimed to help the government reduce rural poverty by implementing the Comprehensive Agrarian Reform Program (CARP)2 and strengthening the capacity of the agrarian reform communities (ARCs). It built on experience gained from the success and challenges of the first ARCP.3 The expected outcome was improved capabilities and well-being of poor and marginalized groups in the target communities through four outputs: (i) community-driven development, (ii) agriculture and enterprise development, (iii) sustainable rural infrastructure, and (iv) project implementation and management. 2. At appraisal, the project envisaged facilitating access to agricultural support services and markets in 152 target ARCs and 11 ARC clusters in the 19 poorest provinces of southern Luzon, Mindanao, and Visayas, totaling 150,000 persons in 44,000 households.4 The project intended to facilitate a transformation from subsistence agriculture to agribusiness development and, as a result, improve the capacity and well-being of poor and marginalized groups in the target communities. The total investment cost was estimated at $208.4 million, to be financed through a $70.0 million loan from ADB, a $30.0 million loan from the OPEC Fund for International Development (OFID), and $108.4 million from the government.5

II. DESIGN AND IMPLEMENTATION

A. Project Design and Formulation 3. Most of the rural poor in the Philippines belong to landless households in southern Luzon, Mindanao, and Visayas. Lack of equitable access to the means of production, including land, capital, irrigation, technology, information, employment opportunities, and markets, has led to deep poverty and low living standards. The government responded to widespread rural distress and unrest in the 1980s with the CARP, which aimed to acquire and distribute public, alienable, and disposable lands suitable for agriculture and private agricultural lands, to eligible agrarian reform beneficiaries (ARBs). The project selected the provinces with the highest incidence of rural poverty, within which there were at least four ARCs that had not received assistance from foreign-supported projects administrated by the Department of Agrarian Reform (DAR). 4. At design, the project was in line with the government’s Medium Term Development Plan, 2004–2010 to reduce poverty by (i) expanding the production base by moving away from subsistence agriculture to agricultural diversification and commercialization; (ii) increasing

1 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Loan and

Administration of Loan to the Republic of the Philippines for the Agrarian Reform Communities Project II. Manila. 2 Government of the Philippines. 1998. The Comprehensive Agrarian Reform Program, Republic Act No. 6657. Manila.

The CARP was extended through the CARP Extension with Reforms, which was signed into law in 2009. This extended the deadline of agricultural land distribution to farmers and introduced significant reforms, such as improved support services for agrarian reform beneficiaries, clear policy on the conversion of agricultural lands, and equality between men and women as qualified beneficiaries.

3 ADB. 1998. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Republic of the Philippines for the Agrarian Reform Communities Project. Manila.

4 The project provinces included Basilan, Camarines Norte, Camarines Sur, Eastern Samar, Lanao Del Sur, Leyte, Maguindanao, Marinduque, Negros Occidental, Northern Samar, Romblon, Shariff Kabunsuan, Sorsogon, Sulu, Tawi Tawi, Western Samar, Zamboanga del Norte, Zamboanga del Sur, and Zamboanga Sibugay. In 2012, Marinduque and Shariff Kabunsuan were replaced with the provinces of Palawan and Oriental Mindoro.

5 The government financing included $56.0 million from local government units comprising equity contributions from municipalities and beneficiaries.

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production and efficiency to improve the quality, competitiveness, and prices of agricultural products; and (iii) promoting the equitable distribution of production and productivity gains, complemented by good governance and the strengthening of local communities. The project was prepared using ADB project preparatory technical assistance and built on the experience of the first ARCP.6 It was aligned with ADB’s Country Strategy and Program, 2005–2007 for the Philippines, calling for developing sustainable agricultural enterprises and rural infrastructure, and improving the capacity of local government units (LGUs) and communal-based organizations.7

5. LGU participation was essential to the project. The 1991 enactment of the Local Government Code triggered the devolution of authority and responsibilities for developing, financing, and managing development programs and projects from the national government to LGUs. In 2003, the government revised the cost sharing policy whereby the national government and LGUs were required to share 50% each of total project cost.8 Given the limited financial capacity of LGUs, the government allowed them to shoulder 10%–20% cost-sharing up to 2009. Starting from 2009, the Department of Finance made it mandatory to follow the 50% cost sharing under all development projects including ARCP II. During the design of ARCP II, ADB discussed with the government the implications of the increased cost sharing ratios and ability of the LGUs to provide the increased counterpart contributions. At the final stage of project design in 2008, DAR and ADB requested the National Economic and Development Authority to retain 10%–20% cost-sharing, since this was applied to the first ARCP. However, this was not granted. DAR decided to proceed with the project envisaging initiatives and alternative financing arrangements would be found to supplement LGU cost share in the project. Furthermore, many LGUs agreed to participate in the project even if they were aware of the high cost-sharing. B. Project Outputs 6. The project had four outputs. The project achievements at completion compared to the design and monitoring framework (DMF) targets, as revised in 2014, are summarized in Appendixes 1 and 8.9 7. Output 1: Community-driven development. Achieved. The project aimed to mobilize, organize, and strengthen the capacity of communities and institutions through a community-driven development (CDD) approach and enable them to participate actively in the sustainable development of their ARCs. There were four performance targets: (i) 152 ARCs and 11 ARC clusters set up community-based groups for planning, training, microfinance, and technology transfer, (ii) 136 LGUs prepare detailed development plans by year 2 covering 152 ARCs and 11 ARC clusters, (iii) training and development plans prepared and implemented for cooperatives, barangay water and sanitation associations, irrigation associations, and other people’s organizations in 152 ARCs by year 6, and (iv) 136 LGUs assisted with training in participatory planning, financial management, fiduciary requirements of ADB and the government by year 2. These capacity building targets were exceeded. The project trained 161 ARCs and 11 ARC

6 ADB. 2005. Technical Assistance to the Republic of the Philippines for Agrarian Reform Communities Project II.

Manila. 7 ADB. 2005. Country Strategy and Program, 2005–2007. Manila. 8 Government of the Philippines, National Economic and Development Authority. 2003. Guiding Principles and

National Government – Local Government Unit Cost Sharing Policy in the Evaluation and Processing of Project Involving Devolved Activities. Manila, Government of the Philippines, Department of Finance. 2009. Order 40-2009. Revised National Government – Local Government Unit (NG-LGU) Cost Sharing Policy”. Manila.

9 The DMF targets were revised during the midterm review in July 2014. In particular, under output 2, of the five original targets, (i) the fourth target, that “at least 15 MFIs assisted to pilot-test their agriculture-based microfinance products in the ARCs by year 2” was removed; and (ii) the second target, that “value-adding activities adopted by 20% of local producers and entrepreneurs by year 6” was replaced by the second target as reported in the main text.

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clusters on strategic planning, basic accounting, and financial management. In addition, 161 ARC development plans and 11 ARC cluster development plans were prepared and integrated into the respective LGUs development plans. Cooperatives and barangay water and sanitation associations, irrigation associations and, other people's organizations in 152 ARCs were strengthened, and training was provided to 136 LGUs covering 152 ARCs which covered strategic planning, basic accounting for non-accountants, and financial management. 8. Output 2: Agriculture and enterprise development (AED). Partly achieved. There were five DMF performance targets: (i) crop yields increased by 15% by year 6, (ii) value-adding activities adopted by 20% of local producers and entrepreneurs by year 6, (iii) improved land titles to about 22,000 ARBs by year 6, (iv) at least 15 microfinance institutions assisted to pilot-test agriculture-based microfinance products in the ARCs by year 2, and (v) at least 15,000 ARB and non-ARB borrowers have access to credit and savings facilities of microfinance institutions and/or cooperatives by year 6. At midterm review in June-July 2014, the target (ii) was modified to “up to 5 long regional value chains and 19 short provincial and LGU market-led value chain development assessments and action plans prepared and implemented by December 2016”. The target (iv) was removed because the DAR used its own financial program with the Land Bank of the Philippines as the financial intermediary. Of the four targets remained, one target was achieved, two were partly achieved, and one was not achieved. The target for crop yields was partially achieved. While site-specific data on ARC crop yields are not available, province- and district-level data show a 10% average increase in crop yields over the project period.10 The target to develop and implement five regional and 19 provincial market-led agricultural value chains was achieved. All value-adding enterprises supported by the project remained profitable and contributed positive returns to the farmers’ organizations, with an average return on investments of 71%. The target of providing access to credit for at least 15,000 ARBs was exceeded. About 22,242 beneficiaries received loans under the AgriCASH program in 2010–2012, totaling ₱304 million. However, the project did not achieve the target to award land titles to 22,000 ARBs.11 At project completion, land titling covered 6,409.4 ha and benefited 3,534 ARBs, only 20% of the reduced target. The failure to achieve this target was due to the refusal of some ARBs to have their lands surveyed, the poor survey results on the collective Certificates of Land Ownership Awards and cadastral records on untitled properties, complex and time-consuming inspections, verifications, and approval of surveys, missing copies of the Certificates of Land Ownership Awards, and peace and order issues in Mindanao. 9. Output 3: Rural infrastructure. Partly achieved. There were five performance targets: (i) construct 1,925 kilometers (km) of farm-to-market roads (FMRs) and bridges, (ii) rehabilitate small-scale irrigation systems covering 12,375 ha of farmland, (iii) provide post-harvest processing facilities, (iv) reduce transport and handling costs by 30%, and (v) provide social infrastructure to improve health and reduce vulnerability (with no DMF target). The targets for FMRs and irrigation systems were not achieved. At project completion, only 770 km of FMRs had been constructed or 40% of the FMR target, and small scale irrigation systems were rehabilitated serving 4,649 ha or 38% of the DMF target. Data was not available to confirm the reduction in transport and handling costs, although this target was likely achieved. Anecdotal evidence from individual subprojects noted a 65% reduction in transport costs for rice (from ₱100 to ₱35 per sack). The project achieved its target for post-harvest processing facilities by providing 19 solar dryers, four warehouses and 12 multi-purpose centers. In addition, the project provided social infrastructure facilities, including 29 multipurpose buildings, 24 barangay health centers, 21

10 Irrigated rice yield increased from 4.5 metric tons (mt) per hectare (ha) to 6 mt/ha in Leyte (a 33% increase), and to

6.3 mt per ha (a 40% increase) in Zamboanga del Norte. 11 During the July 2014 midterm review, this target was reduced to 17,204 titles.

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daycare centers, 29 multi-purpose buildings, 129 school classrooms, and 14 units of potable water supply systems. 10. The inability to meet the rural infrastructure performance targets is due to the inability of LGUs to shoulder the increased equity requirement imposed by the revised national government-LGU cost sharing policy, and incomplete and inconsistent guidelines for the LGUs to gain access to the performance-based grant system (PBGS) to motivate them to participate in the project. In response, starting from 2016 the government reduced the financial burden on LGUs by providing performance-based grants which again reduced the LGU commitment to 25%–30% of project cost. Under the PBGS, the participating LGUs received a capital grant up to 20% of total cost of rural infrastructure subproject after an assessment of their performance. Over ₱900 million was approved for 116 LGUs but only ₱500 million was released to 96 LGUs by the end of 2018 because the other 20 LGUs withdrew from the project. In addition, the government helped LGUs through the National Disbursement Acceleration Program (NDAP) which channeled a 25% equity grant to the LGUs. However, the NDAP was discontinued from June 2014 following the Supreme Court decision declaring it unconstitutional, which again raised the required LGU contribution to 50% of project cost.12 Other initiatives included (i) lifting of the 3% cap on implementation costs; (ii) an agreement with the United Nations World Food Program to pay unskilled laborers with food for their work constructing FMRs, which was considered as the LGUs’ share); (iii) equity loans from the MDFO; and (iv) guidelines for LGUs to use in-kind contributions in the form of materials, labor, and equipment in computing their counterpart. 11. Output 4: Project implementation and management. Partly achieved. There were five performance targets: (i) project management structures are mainstreamed into existing government structures as far as possible, (ii) quality assurance regime for rural infrastructure established, (iii) at least 80% of organic staff and consultant’s performance are satisfactory, (iv) adequate office equipment, vehicles, and other support provided, and (v) on time satisfactory completion of the project with at least 90% of funds financed in accordance with procurement plan. The project management structure was mainstreamed into the existing government structure and a quality assurance system for rural infrastructure was put in place. However, the last target was not achieved as project completion was delayed for 3 years.

C. Project Costs and Financing 12. At appraisal, the total project cost was estimated at $208.4 million, including taxes and duties of $18.2 million, comprising (i) a $70.0 million ADB loan (33.6%); (ii) a $30.0 million loan from the OFID (14.4%); and (iii) the government contribution of $108.4 million (52.0%), which included $52.4 million from the DAR’s budget and $56.0 million from LGUs’ equity contributions. The LGU contributions were either in cash or monetized as in-kind contributions. Total project actual expenditure amounted to $118.7 million, 57% of planned expenditure. Actual disbursements included $45.1 million under the ADB loan and $8.8 million under the OFID loan, and national government expenditures totaled $23.1 million. Actual LGU contributions to rural infrastructure was $41.6 million, including in-kind expenditure contributions. Output 1 utilized only about 20% of the estimated budget as the government used its own resources to support CDD activities, providing $20.0 million through the PBGS.13 About 29% of the estimated budget was utilized for output 2. The funds envisaged for output 3 was underspent because of the reduced

12 In 2011, the Office of the President approved the national government assistance to LGU (NGALGU), which provided

LGUs with 25% of contract costs as equity. After the Supreme Court ruling on July 2014 that declared the NDAP, the source of the NGALGU fund, unconstitutional, the release of NGALGU funds was discontinued.

13 The project collaborated with other organizations such as the Development Bank of the Philippines, Center for Agriculture and Rural Development, and National Confederation of Cooperatives, which supported the AED activities.

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demand from LGUs for rural infrastructure, resulting from the high LGU counterpart requirement. The OFID loan aimed to support 25 ARCs in the Autonomous Region in Muslim Mindanao (ARMM), financing 100% of civil works costs, including the construction and rehabilitation of FMRs, water supply systems, communal irrigation systems, and social infrastructure. However, only 29.4% of OFID funds were utilized under the project because of difficulties in project implementation in ARMM associated with security concerns. Output 4 exceeded its budget by 33% as additional expenditures were required for safeguards, database management systems, recurrent costs, rural infrastructure reimbursement, planning and assessment workshops, and report preparation. 13. The project had two partial loan cancellations: (i) $3.0 million from the ADB loan, approved in October 2014; and (ii) $8.4 million from the OFID loan, approved in September 2016. On 31 August 2016, the Department of Finance asked ADB to cancel another $6.3 million from the ADB loan but this did not happen as the project completion was forthcoming on 31 December 2016. After another one-year extension, the DAR no longer pursued the requested partial cancellation. As of 19 August 2019, net final disbursements of the ADB loan totaled $43.1 million (less $2.0 million in interest accumulated during construction). For the OFID loan, net final disbursements were $8.8 million. At financial closing, the undisbursed loan amounts were $21.8 million for the ADB loan and $12.8 million for the OFID loan. D. Disbursements 14. The loans were disbursed in accordance with ADB’s Loan Disbursement Handbook (2017, as amended from time to time). Three advance accounts were established, including two for the ADB and OFID loans with the MDFO for civil works under the rural infrastructure output, and one for the ADB loan with the DAR for all other eligible expenses. The ADB advance account ceiling at the MDFO was maintained at $2.00 million from 2009, and ADB approved ceiling increases to $4.78 million in 2013 and to $8.30 million in November 2015. This facilitated transfers to the LGUs given the slow liquidation process (LGUs’ exhibited limited capacity for financial management and auditing). The OFID advance account ceiling was initially set at $1.37 million and was increased to $3.00 million in July 2016. The ADB advance account at the DAR was maintained at $1.62 million from project start-up to completion. At financial closing, the project refunded the unused advances of $1.35 million ($0.26 million from the DAR advance account and $1.09 million from the MDFO advance account) for the ADB loan, and $0.30 million for the OFID loan. 15. The disbursement projections for the two loans were not realistic (Appendix 4). Actual disbursement was slow in the first 3 years because of delays in implementation of rural infrastructure subprojects as LGUs had a limited ability to supply counterpart funds. Further, the submission of withdrawal applications to ADB were frequently delayed due to the turnover of audit staff and their unavailability to audit and endorse documents. Finally, the LGUs had difficulty preparing the monthly accounting reports on subproject expenses, which were audited by the Commission on Audit as a prerequisite for fund release. LGU accountants had limited capacity overall and had other priority responsibilities within their LGUs. E. Project Schedule 16. At approval, the project was envisaged to be implemented over 6 years (2009–2014). The ADB loan was approved on 27 October 2008, signed on 8 December 2008, and became effective on 4 March 2009, with loan closing on 30 June 2015. At the borrower’s request, the loan closing date was extended consecutively for 3 years, primarily because of the slow implementation of the rural infrastructure subprojects (output 3). In 2009, the first year of project implementation, LGUs

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proposed only 11 rural infrastructure subprojects which were approved by the government after a 3-year delay due to a shortage of counterpart funds in the LGUs. Subsequently, the pace and number of projects increased beginning in 2012 when the government helped LGUs lessen the financial burden by reducing their required minimum equity contribution. The government also allowed in-kind contributions (equipment and labor) as part of the LGU’s cost-sharing and helped LGUs with grants from the PBGS. However, additional issues arose which contributed to project delays. First, project start was slowed by delays in the recruitment of the project management consulting firm. Later, the transfer of funds under the PBGS was slowed down by the LGUs as they were late to submit the required eligibility requirements, such as (i) letters of intent to the national project coordination office (NPCO), (ii) authorization for the MDFO to access the local government performance management system and local government finance monitoring system, and (iii) certified statements of receipts and expenditures and the audited financial report. In addition, LGUs and the MDFO lacked sufficient staff to process the large volume of documentation, leading to mistakes and backlogs. These produced a knock-on effect as the liquidation of the first tranche release was required before the next tranche releases. Finally, the DAR was reorganized during project implementation and project-trained staff were reassigned to other posts. 17. Project implementation in the ARMM areas lagged , primarily because of security concerns. The special management team engaged by the project in 2012 and DAR’s NPCO supported the DAR-ARMM in project administration. They also coordinated with LGUs in the region. The ADB review mission in October–November 2016 recommended engaging additional consultants to support project implementation in the ARMM. Three additional individual consultants were engaged and rendered short-term services for 3–4 months because of peace issues and security challenges in the ARMM. The DAR’s NPCO consultants handled project implementation and disbursement, traveling to ARMM provinces to gather documents from LGUs. 18. After loan closing in June 2018, the winding-up period for the submission of withdrawal applications had to be extended from 31 October 2018 to 31 March 2019 for the ADB loan, and from 31 October 2018 to 31 December 2018 for the OFID loan. However, financial closing of the ADB loan was on 19 August 2019 and for the OFIID loan on 15 January 2020 because the government needed more time to refund the unused advances. Also, DAR and the Municipal Development Fund Office (MDFO) required more time to collect documentation from the LGUs to liquidate advances. In addition, some LGUs had insufficient cash balances to settle eligible expenditures of the completed subprojects. F. Implementation Arrangements 19. Implementation arrangements were consistent with those approved at appraisal. The DAR as the executing agency supervised project implementation through its Foreign Assisted and Special Projects Office, headed by its project director. A project executive committee was established and chaired by the DAR secretary, and the NPCO was established within the Foreign Assisted and Special Projects Office. Implementing agencies included all participating municipal LGU and DAR offices at the regional and provincial levels. At the municipal level, LGUs set up local project offices chaired by the municipal mayors. The DAR regularly provided the MDFO with liquidation reports and a list of documents needed from the LGUs to facilitate fund disbursements. The NPCO conducted meetings with the MDFO on the status of fund liquidation for completed subprojects. The project and regional and provincial engineers conducted pre-final and final inspections of the completed subprojects to facilitate fund disbursement. The NPCO conducted seminars and workshops under the project to help implement priority AED projects in project-assisted ARC clusters. An ARMM regional project office was established in Cotabato City for

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project activities carried out in the region, with local offices in each ARMM province. The DAR central office transferred funds directly to the DAR-ARMM. As in other project provinces, the MDFO transferred funds directly to LGUs for rural infrastructure projects. The counterpart fund requirement constrained the ARMM, given its poverty levels, and six of seven proposed municipalities in Tawi-Tawi province withdrew from the project. Implementation arrangements were appropriate, but LGU capacity limitations and the constrained counterpart contributions impeded project implementation. G. Technical Assistance 20. The project was prepared with a $384,000 technical assistance, which was approved in September 2004 (footnote 6). The TA was very thorough and used a participatory approach to consolidate stakeholders’ views and suggestions on the project design and implementation. It provided substantial background for project formulation, including performance targets which were based on feasibility assessments. However, it predated the enforcement of the government policy on LGU cost sharing which led to the reduced demand for rural infrastructure. Thus, the performance targets were set too high. Consultant assistance for implementation was provided as part of the loan, including capacity development under outputs 1 and 2. H. Consultant Recruitment and Procurement 21. Procurement of all goods and services was conducted in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). Procurement under the rural infrastructure output was the responsibility of the municipal LGU through its bids and awards committee (Republic Act 9184).14 Procurement of equipment and materials, including for schools and health centers, totaled less than $100,000 and was done through the shopping method. There were $34,667,568 worth of civil works contracts disbursed under the ADB loan, and $8,811,052 of civil works contracts disbursed under the OFID loan. The ADB loan covered 152 shopping packages worth $3.5 million, 249 national competitive packages worth $31 million, 139 land tenure improvement contracts, 77 individual consultant’s contracts, and 4 consulting firms’ contracts. The OFID loan covered 14 shopping packages ($0.488 million) and 60 national competitive packages ($8.323 million). For the ADB loan, contracts were awarded starting in 2010, when consultants were engaged, and equipment was procured. For the OFID loan, contracts were awarded in the beginning of 2013. 22. At appraisal, the project envisaged providing an estimated 5,890 person-months (p-m) of consulting services (5,860 p-m of national consultants and 30 p-m of two international consultants). Actual consulting inputs at completion were 3,574 p-m comprising (i) 72 individual national consultants who rendered a total of 1,545 p-m of inputs; and (ii) five national consulting firms with total estimated inputs of 2,029 p-m. At appraisal, the consulting services program included regional support service officers on contract basis who were supposed to help LGUs prepare subproject proposals. The consulting services also included a poverty impact assessment firm, microfinance experts, legal assistant officers, land tenure improvement legal officers, rural development and fiduciary arrangements, and nongovernment organizations. During project implementation, the DAR did not proceed with recruitment as most of the individual consultants were already in place and the government budget for the project lapsed in 2016. Hence, 2,316 p-m of the targeted estimate of 5,890 p-m in consulting services were not used.

14 Government of the Philippines. 2002. Government Procurement Reform Act, Republic Act 9184. Manila.

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23. The consulting services inputs comprised: (i) 419 p-m of accountants deployed in the project management office, the MDFO, and the DAR’s regional and provincial offices who consolidated liquidation documents for withdrawal applications for the subprojects. Consulting inputs in the ARMM, the region facing the greatest challenges, were as follows; (ii) 281 p-m of rural infrastructure engineers who monitored and inspected rural infrastructure projects; (iii) 1,860 p-m for a project management consultant engaged to support the DAR-ARMM and oversee the OFID-funded subprojects in the ARMM; and (iv) 1,014 p-m of other specialists including a project management adviser, economists, monitoring and evaluation (M&E) specialists, CDD specialists, rural finance specialists, a procurement specialist, a safeguards specialist, an agribusiness enterprise development specialist, value chain specialists, the baseline survey firm, the engineering quality assurance firm, and the business service providers who implemented AED projects and knowledge management activities in the ARC clusters. Performance of all consultants was satisfactory except for one business service provider whose contract was pre-terminated due to undelivered outputs. I. Gender Equity 24. The project was categorized as having some gender elements because of its potential to improve women’s access to opportunities and services and improve women’s voices in agriculture. At project completion, all GAP targets were achieved, including the following: (i) of the 3,534 titles awarded to ARBs, 1,442 (41%) were awarded to women; (ii) 249 women (out of 780 recipients) received loans under the Agrarian Productivity Credit Program (APCP), which helped them set up production activities (producing, for example, pineapple, cacao, rice, vegetable, and ginger); (iii) under the AgriCASH program, 110 female farmers (out of 660 farmers) accessed microloans for income-generating projects such as sari-sari stores and vending; (iv) seven of the 18 value-adding enterprises set up under output 2 are led by women; (v) 381 women (out of 505 participants) were trained on value chain activities; (vi) by project completion, 16,555 of the 40,563 members of 182 people’s organizations were women (40.81%), and there were 11 women-led people’s organizations and 2 all-women people’s organizations, of which the boards of directors are mostly women; (vii) about 45% of all beneficiaries of training programs were women, exceeding the target of 33%; and (viii) social infrastructure subprojects such as health stations, day care centers and potable water supply were designed considering women and children as the major end-users of these projects (Appendix 9). J. Safeguards 25. Environment. The project was categorized B for environment at appraisal based on ADB’s Environment Policy (2002). An overall initial environmental examination and an ARCP II safeguards manual were prepared, providing guidelines to implementing agencies to integrate environmental and social concerns during design and implementation of subprojects. All 475 subprojects – which consisted primarily of small-scale rehabilitations of communal irrigation and potable water systems, FMRs, and social infrastructure – were assessed in accordance with the safeguards manual. One hundred twenty (120) initial environmental examinations were prepared, and 259 certificates of non-coverage were issued. Pro-forma Sangguniang Barangay Resolutions (i.e., environment commitments) were issued for social infrastructure subprojects. Out of the 475 subprojects, 186 required environmental management and monitoring plans (EMMPs). The EMMPs included mitigation measures to address soil erosion, temporary traffic management, loss of access, waste management, occupational and community health and safety, and monitoring requirements. Government permits were secured and the EMMP and environmental compliance certificate conditions were discussed with the community and contractor during pre-construction conferences. DAR representatives supervised construction works. No significant adverse impacts

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occurred during minor civil works. A multi-level grievance redress mechanism up to the level of NPCO was established. No formal complaint reached the NPCO since the few complaints received were resolved at the barangay and LGU levels. There were no outstanding complaints at project completion (Appendix 10). 26. Involuntary resettlement. The project was categorized B for involuntary resettlement at appraisal and remained the same at project completion. Out of a total of 475 infrastructure subprojects that were implemented, 177 subprojects had project affected persons (PAPs) in which either a portion of their lands, or improvements such as trees and crops were affected. Only 66 subprojects prepared short resettlement plans containing right of way (ROW) acquisition, which in most cases were donated to the LGU. Other subprojects were supported only by a master list containing PAPs and legal documents for the ROW documentation. Legal documents executed by the PAPs included a deed of donation, deed of conveyance with quit claim, joint quit claim, permit to enter, and usufruct agreement. There was no reported third-party validation on the land donation process. The guidelines of voluntary land donation, based on international best practice, were not included in the resettlement framework. A total of 2,820 PAPs were affected, 87 of which from 4 subprojects were compensated an aggregate amount of $86,125. A total of 298 subprojects had no PAPs as certified by the LGUs. These subprojects include rehabilitation or improvement of an existing FMRs with ROW acquisition already secured by the LGU before ARCP II and social infrastructure subprojects. There were no reported grievances related to subproject construction raised to NPCO. As the LGUs claimed that complaints or queries were immediately addressed or settled that there are no formal complaints. Issues that were cited were related more to requests of PAPs to have a family member hired or provided with job in the construction. These requests were accommodated or immediately acted upon by LGUs, as this was consistent with project policy. Most of the complaints were focused on the delays in project implementation, or delays in payments to contractors due to late releases and slow fund liquidation. The project recommended careful review of land donation documents and to ensure annotation on the title of area donated to the project (Appendix 10). 27. Indigenous peoples. The project was categorized A for indigenous peoples at appraisal. An indigenous people development framework (IPDF) was prepared based on full participatory consultations and was in line with ADB’s Policy on Indigenous Peoples, 1998 and the Indigenous Peoples Right Act, 1997 of the Philippines. Of the total project target of 150,000 households, indigenous peoples comprised 1,000–1,400 households. Integrated social safeguard monitoring reports and external monitoring reports were prepared and disclosed on ADB’s website.15 The reports confirmed the implementation of IPDF requirements for the indigenous peoples communities, mostly in form of direct involvement of the indigenous peoples from project identification, through preparation and implementation of rural infrastructure. Rehabilitated FMRs improved the mobility of indigenous peoples and made the transport of farm products to the market and access to health and social services easier. Tribal centers served as the meeting venue of tribes where they conduct rituals, settle conflicts, and store their costumes, musical instruments and other common properties the tribes used in their rituals. The indigenous peoples decision-making practices were respected all throughout the project development process. Meetings, agreements, and activities with indigenous peoples were properly documented, which

15 Government of the Philippines, Department of Agrarian Reform, National Project Coordination Office. 2019.

Environment and Social Safeguards Monitoring Report 2009–2017: Agrarian Reform Communities Project II in the Philippines (prepared for ADB); Government of the Philippines, Department of Agrarian Reform, National Project Coordination Office. 2019. Indigenous Peoples Safeguards Monitoring Report 2009–2018: Agrarian Reform Communities Project II in the Philippines (prepared for ADB); Government of the Philippines, Department of Agrarian Reform, National Project Coordination Office. 2019. Environment and Social Safeguards Monitoring Report January 2018–June 2018: Agrarian Reform Communities Project II in the Philippines (prepared for ADB).

https://www.adb.org/sites/default/files/project-documents/37749/37749-013-esmr-en.pdfhttps://www.adb.org/sites/default/files/project-documents/37749/37749-013-esmr-en.pdfhttps://www.adb.org/sites/default/files/project-documents/37749/37749-013-smr-en.pdfhttps://www.adb.org/sites/default/files/project-documents/37749/37749-013-smr-en.pdfhttps://www.adb.org/sites/default/files/project-documents/37749/37749-013-esmr-en_0.pdfhttps://www.adb.org/sites/default/files/project-documents/37749/37749-013-esmr-en_0.pdf

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helped avoid grievances during project implementation. To ensure free and prior informed consent as detailed in the IPDF, all rural infrastructure subprojects were required to secure certificates of non-overlap, or certification precondition from the National Commission on Indigenous Peoples. A total of 233 subprojects were issued with certificates of non-overlap and 54 subprojects were issued with certification precondition.16 Training was provided to some project communities on organizational development, agricultural farming technologies and value chains. The number of indigenous peoples participating in each training and meeting, however, were not reported although IPDF required 50% indigenous peoples participation. The impact on indigenous peoples communities from improved land tenure or access to sustainable rural financial services was also not reported largely due to a lack of training and low capacity in the project team to handle indigenous peoples issues. K. Monitoring and Reporting 28. One of the 28 loan covenants had not been fully complied and one loan covenant was partially complied with at project completion (Appendix 7). A covenant on contracting nongovernment organizations and microfinance institutions for CDD was not complied with because DAR decided not to recruit NGOs for CDD. DAR also used its own credit program to support the CDD activities under the project. The DAR submitted audited project financial statements (APFS) and audit reports with management letters and auditor’s opinions. During 2010–2017, the project complied with APFS covenant. Most of the APFS were submitted on time during project implementation. The final APFS was submitted on 19 November 2020 as it required revisions and the Commission on Audit was unable to review the documents in due course because of the coronavirus disease quarantine period. Although ADB reviewed the annual APFS, no checklists were prepared for some years. For other covenants, the DAR established a project performance management system in the NPCO, based on the DMF. The NPCO submitted quarterly project M&E reports. A baseline survey was prepared in 2009 and a partial survey was conducted in 2012. However, due to a shortage of funds, the DAR did not carry out follow-up surveys, the planned impact assessments at the midterm review, nor the impact evaluation at project completion. Instead, it prepared a draft project completion report in January 2019 and focused on output achievements and some subproject-level outcome assessments.

III. EVALUATION OF PERFORMANCE

A. Relevance

29. The project is rated relevant. The project was aligned with the government’s (i) Medium-Term Development Plan, 2004–2010 to reduce poverty through growth in the rural economy; (ii) the Agriculture and Fisheries Modernization Act (1997), which sought to improve the competitiveness of agriculture; and (iii) the Local Government Code (1991), which aimed to devolve responsibility for service delivery to LGUs. The project is also aligned with ADB’s past country partnership strategies (2006–2010 and 2011–2016), which targeted high, inclusive, and sustainable growth, and with the current country partnership strategy (2018–2023), which supports government priorities to promote high and inclusive growth, and local economic development. The project interventions responded to the needs and aspirations of the ARBs and

16 Based on Indigenous People Law of the Philippines, the certification precondition refers to the certificate issued by

the National Commission of Indigenous Peoples (NCIP), signed by the chairperson, attesting to the grant of free prior and informed consent by the concerned indigenous cultural communities and indigenous peoples after appropriate compliance with the requirements provided for in this guidelines (NCIP Administrative Order No. 3, Series of 2012: The revised guidelines on free and prior informed consent and related processes).

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other smallholders in the project areas. The construction and rehabilitation of FMRs improved communities’ access to markets and town centers, resulting in reduced transport and hauling costs and travel time. Rehabilitated communal irrigation systems improved the efficiency of water distribution. AED interventions in technology and organizational capacity building, value-added enterprise development, and marketing and financial support – together with CDD and rural infrastructure interventions – addressed the complex and multifaceted nature of problems besetting the rural poor.

30. The project could not achieve all objectives in full because of the high cost-sharing requirement which reduced the demand for rural infrastructure. Despite assurance from DAR, further assessment may have better gaged the impact of the increases in the LGUs’ contributions under the revised national government-LGU cost sharing policy (para. 5) and would have allowed the targets for the infrastructure component to be reduced accordingly. However, the infrastructure that was completed, and the other components directed at reducing poverty by improving productivity and improving livelihoods, are relevant. Although difficult to implement, the land tenure reform component was also very relevant. Therefore, the project is rated relevant.

B. Effectiveness

31. The project is rated less than effective. There were three outcome targets: (i) at least 70% of ARCs and ARC clusters are empowered to improve their lives through greater social inclusion, equitable access to land and other productive resources, and improved access to health and education, (ii) at least 50% of target ARBs increase their annual incomes by 10% by year 6, and (iii) at least 30% of target ARBs rise above the poverty line by year 10. Unfortunately, there is insufficient data to determine if these targets have been achieved. A baseline survey was conducted in 2009, and a partial survey was conducted in the selected ARCs in 2012. The final impact assessment study did not push through due to lack of counterpart funds. The government budget allocation for the completion survey to be conducted in 2018 was cancelled. However, in 2012 the DAR conducted an assessment of the initial gains achieved in areas with completed rural infrastructure subprojects, covering five provinces in four regions.17 The assessment’s major findings indicated that aggregate average household income levels in the two ARCs in Sorsogon increased by about 30% from ₱60,600 in 2009 to an estimated ₱78,970 in 2012, while the average inflation rate declined from 4.1% in 2009 to 3.2%. The average household income for 2012 was higher than the official government-generated poverty thresholds of ₱43,575 for Sorsogon and ₱45,110 for all of Region V. Thus, in 2012 the project was on track to achieve its target to reduce poverty in the assessed ARCs. Since then, only anecdotal evidence exists at subproject levels.

C. Efficiency

32. The project is rated less than efficient. While the economic analysis at appraisal provided an economic internal rate of return (EIRR) of 29%, it was not possible to recalculate the EIRR because of insufficient data on both the project cost and project benefit sides. On the cost side, some LGUs often did not keep good records of their contributions (whether cash or in-kind) to the rural infrastructure. While good records were kept in other LGUs, on the benefit side, there is only anecdotal evidence of the project outcomes and impacts. The project completion impact study to collect detailed data on benefits such as vehicle operating cost savings (from FMRs) or increased farm income (from irrigation systems) was not conducted due to lack of counterpart funds. A detailed economic analysis cannot be done without detailed cost and benefit streams from a

17 Most of the respondents had been interviewed during the baseline survey.

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sample of subprojects.18 Hence, the evaluation on efficiency puts weight on process efficiency rather than on the EIRR. Despite ADB’s support to ensure the project implementation arrangements as designed (para.19), substantial delays occurred during implementation – not only because of problems resulting from the national government-LGU cost sharing arrangements, which affected final subproject selection, contract awards, and actual construction – but also because of problems with funds flow, the procurement of consulting services, and liquidation of funds due to low LGU capacity. Delays also contributed to increased construction costs. The project was extended three times from its original completion date.

D. Sustainability

33. The project is rated less than likely sustainable. Under output 1, the capacity of the LGUs to prepare integrated local development plans remained strong at project completion. Output 2 is considered sustainable because all value-adding enterprises were financially strong, and 3,625 ha of land titles were permanently transferred. Output 3 accounted for over 65% of the total project cost, and thus the sustainability assessment hinges on the sustainability of the rural infrastructure output. The DAR conducts an annual inspection of ARCs’ assets, including FMRs, which the LGUs are expected to maintain for 10 years. The subprojects underwent regular inspections by DAR and LGUs engineers, and were maintained as of the project completion mission. If maintenance is not satisfactory after three inspections, the performance-based grants from the national government are converted to a loan to incentivize proper maintenance. The Department of Public Works and Highways provides technical support as needed. The irrigator associations who own and manage the irrigation facilities and responsible for maintaining them, with technical support provided by the National Irrigation Administration, have limited funds for O&M. While data limitations preclude a numerical-based assessment on the government’s allocation and utilization of funds for operation and maintenance of public infrastructure, poor maintenance of assets has been commonly observed after project completion due to government budget constraints.

E. Development Impact

34. The project’s development impact is rated less than satisfactory. The project contributed to raising incomes, providing employment, and reducing poverty and vulnerability in the target provinces as demonstrated in the partial survey in select ARCs in 2012. This survey documented an increase in average annual household income from ₱60,600 in 2009 to ₱78,970 in 2012 (a 30% increase). However, the final impact study was not conducted, and only anecdotal evidence exists at the subproject level (Appendix 8). Yields and production have not increased more than in non-project areas. Thus, the rise in incomes in the project area cannot be attributed to the project. Nevertheless, a total of 40,563 members from 161 ARCs directly benefited from the improved capacity to move away from subsistence agriculture towards agribusiness development. The rehabilitated FMRs are reported by beneficiaries to have improved farmers’ access to markets and reduced transport costs and damage to produce, and have positively impacted women’s lives by shortening the time to reach markets, social services, schools, clinics, and social service centers. The improved potable water systems reduced the incidence of waterborne diseases and associated medical expenditures, and eased the fetching of water, especially for women and children. Other social infrastructure such as clinics and classroom buildings reduced maternal and child mortality and increased school enrolment. However, without the final study these positive benefits cannot be fully quantified.

18 In any event, since there was significant cost overrun and the project failed to meet the DMF’s infrastructure targets,

it is unlikely that the EIRR if recomputed would reach the 12% threshold required for the “efficient” rating.

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F. Performance of the Borrower and the Executing Agency

35. The performance of the borrower is rated satisfactory. The DAR has institutionalized the CDD approach in LGU planning and formulation of ARBOs. The change in the national government-LGU cost sharing policy, which reduced demand from LGUs for rural infrastructure, was beyond the control of the DAR. Moreover, the DAR introduced measures to mitigate the impact of the cost sharing policy. However, following a reorganization in 2012, the incoming DAR management decided that the project should focus on CDD (output 1) and meet the ARBs’ AED needs through a separate Agrarian Reform Community Connectivity and Economic Support Services Program. Implementation of the individual rural infrastructure subprojects was largely in the hands of the LGUs. Some of the LGUs with weak technical and financial capacity withdrew from the project resulting in implementation constraints and reduced demand for rural infrastructure subprojects. Coordination across and among agencies was satisfactory. Data collection on achievements could have been better and the planned completion survey could have been undertaken. G. Performance of the Asian Development Bank and Cofinancier

36. ADB’s performance is rated satisfactory. During project implementation, ADB fielded 11 review missions and 2 special project administration missions jointly with the DAR and made recommendations to improve implementation and increase provincial level coordination. The original project design was based on the experience of ARCP, which had a lower LGU equity contribution requirement (10%–20%) under the cost-sharing policy than ARCP II. ADB had expected the same to be applied to ARCP II. While the impact of this was assessed to some extent during project preparation, demand for rural infrastructure subprojects should have been better evaluated as the project got under way, and project targets should have been adjusted accordingly. The government helped address the high cost-sharing requirement by providing financial support to LGUs through the PBGS and NDAP. ADB regularly emphasized that DAR should set up an effective M&E system. The OFID supported the project administration and well-coordinated with ADB. As ADB administered the loan, OFID is not rated.

H. Overall Assessment

37. The project is rated less than successful. It is rated relevant. The project was well aligned with the government and ADB priorities to reduce poverty, especially in rural areas. However, the impact of the increased cost-sharing contributions by LGUs could have been foreseen. It is less than effective as it is not possible to evaluate whether the impact and outcome targets have been met without reliable data. Further, the rural infrastructure component, which constituted 65% of total planned expenditures, achieved less than half of its deliverables. The CDD and AED components contributed substantially to the project outcome but met only 16% of the land title improvement targets. The project is rated less than efficient because of significant implementation delays, and the project is unlikely to yield an EIRR above the 12% threshold required for an efficient rating. The project is rated less than likely sustainable given the generally poor maintenance of assets in the Philippines because of insufficient budget allocations for operations and maintenance. Development impact is less than satisfactory.

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Overall Ratings Criteria Rating Relevance Relevant Effectiveness Less than effective Efficiency Less than efficient Sustainability Less than likely sustainable Overall Assessment Less than successful Development impact Less than satisfactory Performance of Borrower and executing agency Satisfactory Performance of Asian Development Bank Satisfactory Source: Asian Development Bank.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons 38. Project design. As agrarian reform and poverty reduction is complex and multisectoral in nature, the project became broad in scope and lost focus on its prime objectives. While achieved at project completion, supporting agribusiness enterprises of smallholder farmers and value chain development was more complex than expected. Land tenure improvement needed special attention. The project should have conducted a more thorough review of the acquisition of rights-of-way, including for donated land, and ensured that annotation was documented on the title of donated areas.

39. National government and LGU cost sharing. The national government-LGU cost sharing policy aimed to empower LGUs in local governance. However, LGUs have limited financial capacity to cofinance rural infrastructure. Although the 2003 cost-sharing regulation was not applied during project processing, the project should have conducted more extensive financial management due diligence to help determine LGUs’ financial capability to provide counterpart funds during project implementation and if measures taken by government did not remedy the difference. 40. Partnership. Establishing and sustaining partnerships with other government agencies, civil society, and the private sector will bring additional resources to enhance project activities. Under output 2, the project increased the efficiency of the seaweed enterprise in Oriental Mindoro by partnering with the Department of Trade and Industry, Department of Labor and Employment, and LGUs. In general, however, project-supported enterprises had difficulty attracting the private sector due to their small size and limited production scale. 41. Capacity building should cover not only training, but also the provision of agriculture inputs to demonstrate and encourage the adoption of high-yield practices and technologies. Training for key DAR technical staff introduced new concepts of value chain development. Future projects should ensure that understanding of particularly private sector participation and market requirements and skills for value chains development are fully developed. 42. Monitoring and evaluation. ADB should work with the executing agency to establish an effective project M&E system and ensure effective monitoring by the executing agency of all project activities during implementation, including DMF targets. Regular feedback is important to resolve implementation issues. With the close monitoring of expenditures by loan category, it is equally important to assess the progress of project outputs on a regular basis. Inadequate attention was given at the design stage to ensuring that DMF performance indicators were appropriate, data were collectable, and an effective M&E system was developed. The completion survey was not conducted, inhibiting a comprehensive assessment of project achievements and

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sustainability of individual activities, although DAR prepared some assessments of the accomplishments of components (Appendixes 1 and 8).

43. Safeguards. Regular training should be provided to ensure that LGUs have adequate capacity and consistency to oversee and monitor safeguards compliance, including the hiring of full-time, qualified, safeguards specialists throughout the project’s life. This is important for complex multicomponent projects addressing poverty. The environment and social safeguards management plan should be included in bidding documents. A more thorough review should be conducted on right-of-way acquisition, particularly for donated lands, ensuring that annotation is documented on the title of the area donated to the project. Adequate monitoring and supervision to the LGU officials by the assigned safeguard officers should be ensured for quality safeguard management and requirements. Lack of resources, implementation budget and monitoring were the causes of implementation gaps on safeguard requirements of the project.

B. Recommendations

44. Project focus. Poverty-focused projects should center on a few outputs, providing reinforcement within a specific geographical area, rather than across many provinces. Convergence of government agencies involved in similar activities, such as the Department of Agriculture, and the Department of Trade and Industry should be part of the project design.

45. LGU participation. Where participation of LGUs is key for the project, a thorough assessment of the technical and financial capacity of the participating LGUs should be conducted and appropriate support should be provided during project implementation. For future interventions, it would be good to have broader policy discussions between ADB and the government on the implications of the cost sharing policy requirements on the capacity of LGUs to participate in ADB projects.19 46. Private sector as partner. Private sector and financing institutions should be involved in projects, including value-adding and market-oriented enterprises, from the outset and play a more active partnership role.

47. Monitoring and evaluation. A rigorous M&E system should be established. When a project has distinct components and several subprojects within these components, it should focus on monitoring and assessing the progress of project components against the outcome and output targets and not expenditure categories. The impact study was cancelled because of insufficient counterpart funds. It is recommended to undertake the final impact study before a project performance evaluation report is prepared.20

48. Safeguards. Training should be provided to ensure adequate capacity to oversee and monitor projects’ safeguards performance. The environment and social safeguards management plan should be included in bidding documents. Guidelines on voluntary donation based on international best practice should be included in resettlement framework of multicomponent projects.

49. Audited project financial statements. The acceptability of the revised final APFS is required.

19 Financial support and capacity building are envisaged for LGUs under the Competitive and Inclusive Agriculture

Development Program (approved on 12 August 2020) and future investment projects. 20 Impact study is being prepared for 2021.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Original Performance

Targets/ Indicators Revised Performance

Targets/Indicators Achievements

Impact ARBs and non-ARBs in approximately 152 ARCs and 11 ARC clusters reduce poverty and have sustained improvements in incomes and quality of life.

• ARBs and non-ARBs in

selected ARCs and ARC clusters increase their annual incomes by at least 10% by year 10 (compared with a baseline survey to be done in 2008)a

• No change

The baseline survey was conducted in 2009 and partial survey was conducted in the selected ARCs in 2012. No final impact study was conducted due to lack of counterpart funds. A 2012 project survey showed an increase in average annual household income from ₱60,600 in 2009 to ₱78,970 in 2012 (30% increase). Since then, only anecdotal evidence exists at subproject levels (see below). The government was not able to allocate the budget for the impact assessment survey because of lack of counterpart funds. (Some provincial level data from PSA sources is included in Appendix 11 but this does not specifically target ARCs supported by the project).

Outcome Capabilities and well-being of poor and marginalized groups in the target communities improved

• At least 70% of ARCs

and ARC clusters are empowered to improve their lives through greater social inclusion, equitable access to land and other productive resources, and improved access to health and education

• At least 30% of target

ARBs rise above the poverty line by year 10

• At least 50% of target ARBs increase their annual incomes by 10% by year 6 (PAM)

• No change • No change • No change

Due to lack of reliable data, full impact not measurable. 214 ARCs were mobilized. 22,242 ARBs and non-ARBs were able to access credit facilities. Project level data on improvements in incomes and agricultural productivity were not compiled. Provincial level data on increases in incomes and crop yields is inadequate. Data from the AED component show that in several crops gross margins increased by more than 15% (irrigation yields increasing from 80/90 cavans per ha to 120 cavans in Leyte; 4.5 mt/ha to 6.3 mt/ha in Zamboanga del Norte), while income increases in several areas for specific products exceeded the 10% target (e.g., dried fishing in Leyte: 40%; coffee processing in Sulu 64% and in Basilan 19%).

(Data was not collected by ARC - some provincial level data from PSA sources are included in Appendix 8; this does not specifically target ARCs supported by the project)

Appendix 1 17

Outputs 1. Community

Driven Development

• 152 ARCs and 11 ARC

clusters assisted set up community-based groups for planning, training, microfinance, and technology transfer

• 136 LGUs with detailed plans prepared by year 2 covering 152 ARCs and 11 ARC clusters

• Training and

development plans prepared and implemented for cooperatives, barangay water and sanitation associations, irrigation associations, and other people’s organizations in 152 ARCs by year 6

• About 136 LGUs assisted

with training in participatory planning, financial management, fiduciary requirements of ADB and government by year 2

• No change • No change • Reworded at MTR as follows:

Cooperatives, barangay water and sanitation associations, irrigation associations, and other people’s organizations in 152 ARCs strengthened by year 6

• Removed at MTR.

The indicator was removed but kept in eOps. Thus, the target was evaluated.

Exceeded target. 161 ARCs and 11 ARC clusters assisted (see Appendix 8 for list of clusters). Organizational development and capacity building programs provided to 182 organizations covering 161 ARCs with total membership of 40,563 members, of which 24,008 are male and 16,555 are female. Most ARBOs are engaged in economic activities. Achieved. 161 ARC development plans and the 11 ARC cluster development plans were prepared and integrated into the respective LGUs development plans. Achieved. Cooperatives and barangay water and sanitation associations, irrigation associations and, other people's organizations in 152 ARCs strengthened. Functional community-based M&E groups were installed in 49 ARCs with completed rural infrastructure subprojects. 35 IAs existed in the approved rehabilitation of irrigation subprojects under the project. They received regular training and capacity building assistance by NIA prior to the approval of the subprojects. With the irrigation facilities in the service areas now funded by the LGUs, the IAs were transformed into ARBOs and provided with CDD assistance under the project. Achieved. Training provided to 136 LGUs covering 152 ARCs. Capacity building training included strategic planning, basic accounting for non-accountants, and financial management. The project assisted all 20 provinces in training on project implementation, which covered financial management, procurement, contract management, monitoring and evaluation, and infrastructure quality monitoring and durability system.

2. Agriculture and enterprise development b

• Crop yields increased by 15% by year 6

• Modified at MTR as follows: ARBs achieve 15% increase in crop gross margins by year 6

Partly achieved but full impact not measurable. Specific data on ARC crop yields is not available, although nationwide and province level data show increases in crop yields on average of around 10% over the project period. Data from the AED component show that in several crops gross margins have

18 Appendix 1

• Value-adding activities

adopted by 20% of local producers and entrepreneurs by year 6

• Improved land titles to

about 22,000 ARBs by year 6

• At least 15 MFIs assisted

to pilot-test their agriculture-based microfinance products in the ARCs by year 2

• At least 15,000 ARB and non-ARB borrowers enabled to have access to credit and savings facilities of MFIs and/or cooperatives by year 6

• Modified at MTR as follows: Up

to 5 long regional value chains, and 19 short Provincial and LGU market-led value chain development assessments and action plans developed and being implemented by December 2016 with potential to achieve a minimum of 15% increase in ARB output value added

• No change • Removed at MTR because DAR

used its own lending program with Land Bank of the Philippines as the FI

• No change

increased by more than 15% (irrigation yields increasing from 80/90 cavans per ha to 120 cavans in Leyte; 4.5 mt/ha to 6.3 mt/ha in Zamboanga del Norte), while income increases in several areas for specific products exceeded the 10% target (e.g., dried fishing in Leyte 40%; coffee processing in Sulu 64% and Basilan 19%). Achieved. All the value adding enterprises supported by the project are profitable and contribute positive returns to the farmers’ organizations with an average return on investments of 71%. Net profit per month ranged from ₱417 (Peanut Brittle/Molido enterprise in Sorsogon) to as high as ₱126,795 per month for the duck eggs business in Maguindanao. The other high earning enterprises are the coffee enterprises in Basilan and Sulu generating monthly net income of ₱76,420 and ₱48,333, respectively. Enterprises need FDA certification to facilitate marketing and secure better prices. Not achieved. By December 2014, only 3,625.2 ha were distributed with individual titles benefiting 2,272 ARBs. Targets were thus reduced to 29,698 ha distributed with individual titles benefiting 17,204 ARBs. By June 2018, performance improved with titles covering 6,409.4 ha, benefiting 3,534 ARBs. This is only 20% of the reduced 2014 ARB target, and 16% of the original target for ARBs. Not assessed. Partly achieved. LBP, through its agri-cash program exceeded its lending targets from 2010–2012 with 22,242 beneficiaries receiving loans totaling ₱304 million compared with the target of ₱196 million. From 2012 to 2014, the lending target of ₱197 million was achieved and beneficiaries target was only half met.

Appendix 1 19

3. Rural infrastructure development

• Approximately 1,925 km of farm-to-market roads and bridges successfully constructed, serving approximately 116,000 hectares of farmland, by year 6

• Small-scale irrigation

systems serving approximately 12,375 hectares of farmlands successfully rehabilitated and/or constructed by year 6

• Post-harvest processing

facilities provided in communities with assured irrigation and/or surplus generation capacity

• Transport and handling

costs reduced by 30% by year 6

• Other benefits may

include improved peace and security, greater social inclusion, improved participation by vulnerable groups

• No change • No change • No change • Removed at MTR.

The indicator was kept in eOps. Thus, the target was evaluated.

• Removed at MTR.

The indicator was kept in eOps. Thus, the target was evaluated.

Partly achieved. 770 km of access roads were constructed and rehabilitated. The target was not achieved because LGUs, due to financial constraints, were not able to provide the counterpart fund for farm-to-market roads. Partly achieved. Small-scale irrigation was provided to 4,649 ha (38% of the original target). Achieved. Post-harvest facilities were provided in consultation with the AED component. 19 solar dryers, 4 warehouses and 12 multi-purpose centers. Partly achieved; impact not measured. Data was not collected systematically for the project. Anecdotal evidence from individual subprojects indicate a two thirds reduction in costs of transporting palay (from ₱100 to ₱35 per sack). Achieved. Social infrastructure facilities were provided, including 24 barangay health centerst, 21-day care centers, 29 multipurpose buildings, and 129 school classrooms.

4. Project implementation and management

• Project management structures are mainstreamed into existing government structures as far as possible by year 2

• No change

Achieved. Project management structures as mentioned in the RRP were established, integrated within the structure of DAR and LGUs, including a PEC and NPCO within DAR. A regional project office was established for ARMM. Advance accounts were established in DAR and DOF (MDFO) for ADB and OFID loans. Liquidation delays and problems arose

20 Appendix 1

ha = hectare, km = kilometer, mt/ha = metric ton per hectare, p-m = person-month. ADB = Asian Development Bank, AED = agriculture and enterprise development, ARB = agrarian reform beneficiary ARBO = agrarian reform beneficiaries organization, ARC = agrarian reform community, ARMM = Autonomous Region in Muslim Mindanao, CDD = community-driven development, DAR = Department of Agrarian Reform, DENR = Department of Environment and Natural Resources, DOF = Department of Finance, DPWH = Department of Public Works and Highways, FDA = Food and Drug Administration, FMR = farm to market road, LBP = Land Bank of the Philippines, LGU = local government unit, M&E = monitoring and evaluation, MDFO = Municipal Development Fund Office, MFI = microfinance institution, NIA = National Irrigation Administration, NPCO = national project coordination office, OFID = OPEC Fund for International Development, PEC = project executive committee, PSA = Philippine Statistics Office, RRP = Report and Recommendation of the President. a ADB. 2011. Conduct of the Agrarian Reform Communities Project II Baseline Study Final Report. Consultant’s report. Manila (Loan 2465/Loan 8238(OFID)-PHI). b Value chain and credit indicators amended following 2014 mid-term review mission. Sources: Asian Development Bank; Department of Agrarian Reform.

• Establish Quality

Assurance (QA) regime for component 3 – rural infrastructure

• At least 80% of organic

staff and consultants’ performance satisfactory

• Adequate office

equipment, vehicles and other supports are provided at national, 6 regions and 18 provinces

• On time satisfactory

completion of the Project with at least 90% of funds of all financiers’ finance in accordance with procurement plan

• Establish Quality Assurance (QA) regime for component 3 – rural infrastructure.

• Removed at MTR.

The indicator was kept in eOps. Thus, the target was evaluated.

• Adequate office equipment,

vehicles and other supports are provided at national, 6 regions and 18 provinces

• On time satisfactory completion of the Project with at least 90% of funds of all financiers’ finance in accordance with procurement plan.

among LGUs, NPCO and MDFO. DPWH and NIA provided technical oversight for rural infrastructure. Coordination among the support agencies including the Department of Agriculture, DSWD, and DENR could have been better. Achieved. Quality assurance was established and monitored by the DAR engineers and the LGUs Achieved. The consultants’ inputs were estimated at 5,890 p-m at project appraisal, but actual inputs rendered were 3,574 p-m. Performance of DAR organic staff was satisfactory. Performance of all consultants was also satisfactory except for one business service provider whose contract was pre-terminated due to undelivered outputs. Achieved. Not achieved. Substantial delays occurred during project implementation, problems resulting from the national government and LGU cost-sharing arrangements and on procurement and liquidation of funds. The project was thrice extended with closing date extended for 3 years.

Appendix 2 21

PROJECT COST AT APPRAISAL AND ACTUAL Table A2: Appraisal Estimate and Actual Expenditure

Appraisal Estimate ($ million)

(net of tax) Actual ($ million)

(net of tax)

Item Foreign

Exchange Local

Currency Total Cost Foreign

Exchange Local

Currency Total Cost A. Investment costs 1. Civil works 47.8 86.3 134.1 95.5 0.0 95.5 2. Equipment

a. Vehicles b. Motorcycles c. Computers d. Other office equipment

3. Environment and social safeguards

0.6 0.3 0.1 0.3 0.0

0.1 0.1 0.1 0.0 0.2

0.7 0.4 0.2 0.3 0.2

0.8 0.2 0.2 0.1 0.0

0.0 0.0 0.0 0.0 0.0

0.8 0.2 0.2 0.1 0.0