75866 August 2012 PPIAF Assistance in the Republic of the Philippines Since 2002 PPIAF has funded 27 activities in the Republic of the Philippines (Philippines) worth $4.71 million, four of which are ongoing. Five of these activities have been funded under the Sub-National Technical Assistance (SNTA) program for a total of $1.06 million. Technical Assistance for Enabling Environment Reform in the Philippines Although the Philippines has undertaken critical reforms of its enabling environment for private sector participation in infrastructure service delivery, such as promotion of private participation in water supply and power sector restructuring, infrastructure bottlenecks have remained a key constraint in the country’s economic growth and poverty alleviation efforts. Various assessments, including the Country Framework Report (CFR) for Private Infrastructure published in 2000, have noted that the lack of infrastructure is one of the country’s key impediments of economic growth. Recognizing the vital importance of infrastructure in development but faced with severe fiscal constraints, the government sought PPIAF assistance in 2003 to develop a policy framework and regulatory environment for public-private partnerships (PPPs) for the provision of infrastructure. The objective of this assistance was to build on the CFR by updating the progress in the infrastructure sector since 2000, conducting focused case studies to draw lessons learned from past experiences, and investigating a number of cross-cutting issues that were not explicitly detailed in the CFR, such as the public sector role in PPPs. This activity included: a study tour for regulators and officials from the planning agency to the University of Florida; several working papers and case studies on private sector participation; and two rounds of stakeholder consultations to identify their key concerns and seek feedback. The PPIAF-funded report assessed the country’s major infrastructure sectors, analyzed key cross - sectoral issues, and recommended immediate actions for visibly improving infrastructure in the near term. The main conclusion from the analysis was that despite having undertaken some of the most important reform measures in the infrastructure sector, particularly in terms of private sector participation, the deteriorating quality of infrastructure was as a key impediment to the Philippines’ economic competitiveness. The report further concluded that, in order to ease infrastructure constraints, the Philippines needs to achieve a gradual increase in infrastructure investments to at least 5% of GDP and improve the efficiency of this spending. Attaining these targets in a relatively short time is a formidable but feasible task. The report also noted that the Philippines enjoys several significant advantages, including the presence of agreed policy frameworks that are important for infrastructure development, critical sector reforms that have already been initiated, and a public broadly supportive of private sector participation in infrastructure provision. The key challenge for the Philippines is to implement the agreed frameworks rapidly and consistently. The report recommended the way forward for sustained development in infrastructure include: instigating a rigorous fiscal reform program; pursuing continued reforms in key sectors—particularly power, roads, and water—to improve cost recovery, competition, and institutional credibility; improving central oversight of the planning and coordination of investments; and making a few focused investments through PPPs to address key bottlenecks and achieve quick gains in service delivery. A consultative version of the report was launched at the Philippine Infrastructure Conference in Manila on May 23, 2005. The conference was attended by around 100 stakeholders, including the then President of the Philippines. Subsequently, a roundtable discussion titled “Infrastructure as Building Blocks to Development� was held on May 16, 2006 to launch the published report. The report has been widely disseminated to stakeholders including legislators, national and local government officials, academics, and civil society. In 2008 PPIAF provided further support to facilitate a substantive policy dialogue among stakeholders on priority infrastructure policies, programs, and projects. The objective of this activity was to assist the 1 Philippine Development Forum to facilitate the process for developing consensus and generating commitments among different stakeholders towards critical actionable items of the government’s infrastructure reform agenda. This activity assisted the Philippine Development Forum ’s Infrastructure Sub-Working Group to facilitate discussions at the workshop Infrastructure Development to Promote Economic Growth through Increased Competiveness, which was held on March 10, 2008 and attended by 146 participants. A discussion paper was also prepared as part of this activity, and was presented at the annual Philippine Development Forum annual meeting on March 28, 2008. The discussion paper presented five main thrusts for addressing infrastructure bottlenecks: i) fast-tracking infrastructure projects through the resolution of technical and legal issues; ii) implementing clear competition policies in infrastructure provision; iii) building capacity in infrastructure development; iv) improving the linkage between planning, budgeting, and funding processes; and v) optimizing economic, social, and environmental impacts of infrastructure facilities. Recognizing the importance of addressing infrastructure issues across many sectors, a separate working group on infrastructure was by the Philippines Development Forum. The working group contains three sector-specific sub-working groups: transportation, water and sanitation, and energy. Results of PPIAF’s Multi-Sector Activities in Philippines Category Outputs Enabling environment reform  Final Report “The Philippines: Meeting Infrastructure Challenges,� October 20, 2005 Analyses/assessments prepared  Discussion Paper: In Pursuit of a Competitive, Broad-Based and Sustainable Economy, 2008 Capacity and awareness building  Study tour by seven government officials to attend a course at the University of Florida, Gainesville  Roundtable discussion “ Infrastructure as Building Blocks to Workshops/seminars Development,� May 16, 2006  Workshop at the Philippine Development Forum on “Infrastructure Development to Promote Economic Growth through Increased Competitiveness,� March 10, 2008 Category Outcomes Enabling environment reform Institutions created or  Philippines Development Finance Infrastructure Working strengthened Group, 2008 Capacity and awareness building  Consensus achieved on necessary reforms for infrastructure Consensus achieved policy frameworks, 2006 Technical Assistance for the Philippines Water Supply and Sanitation Sector Since 2001 PPIAF has funded nine activities in the water supply and solid waste management sector in the Philippines. These activities have built capacity in Local Water Utilities Administration, initiated a policy dialogue for promoting private sector participation in the development and management of water 2 supply utilities, and established a regulator for local government water supply contracts with private sector operators. In the solid waste management sub-sector PPIAF assistance has assisted in building capacity for solid waste management initiatives. Water Supply Since 1994 the government of Philippines has undertaken a broad range of sectoral reforms in the water and sanitation sector. In 1996, under technical assistance jointly funded by the World Bank, United States Agency for International Development, and the Asian Development Bank (ADB), a report was prepared that recommended regulatory reforms for the water sector, including the establishment of a Water Regulatory Commission (WRC). It was within this context that the government of Philippines requested technical assistance from PPIAF in 1999. PPIAF provided funding to assist the National Economic Development Authority to draft legislation for regulatory reforms in the water sector, including the establishment of the WRC. The WRC would be responsible for tariff regulation and granting licenses to private sector operators. In July 2000 the first draft of the WRC Bill was disseminated by the authority to various government agencies. Members of the congressional committee visited American and British regulators as part of a study tour in August 2000 to learn about different regulatory models. In 2002 the WRC Bill was sent to Congress for review but was not enacted. New legislation for the establishment of the WRC is pending before the current congress. Stakeholders, including representatives from policy and governance initiatives, the national government, and the Global Water Partnership, deliberated the draft bill from May-November 2011. In 2002, as part of the ongoing reforms to attract private sector participation in the sector, the government sought assistance from PPIAF to establish a national level regulatory body to build capacity of the staff that regulate private participation in infrastructure at the local level. The main objective of the activity was to assist the government establish the Contract Administration Unit, which was to be based at the Development Bank of the Philippines until the WRC was established. Outputs produced as part of this activity included working papers on the organizational structure and processes of the unit, in addition to operating guidelines. The guidelines formalized the establishment of the unit by defining its scope and organizational structure, and clarified its relationship with different agencies in project implementation and management. The Contract Administration Unit was established within the Development Bank of the Philippines, and the operating guidelines were approved and accepted by the development bank and the Department of Interior and Local Government in 2004. The unit has since been resolving conflict over design-build-lease contracts between local governments and private operators. In late 2002 PPIAF also supported the design of a template for a regional water supply to be piloted in La Union province. The pilot was structured using output-based aid schemes, where the government would provide a subsidy to the private operator for connecting poor households to the water distribution system. Under the output-based aid model, the private operator would only receive a payment from the government once the connections to the poor households were installed and verified. The main objective of the PPIAF activity was to develop model bidding documents for the pilot project that clearly outline service obligations, fees, and other contractual arrangements. The overriding objective of this activity was to design a template that would serve as a starting point and be improved upon by local needs and other countries seeking to implement an output-based aid subsidy scheme. PPIAF-funded assistance supported the mobilization and review of contract design options, the development of key bidding variables and contractual inputs, and the drafting of model bidding documents, which included a draft invitation for proposals, instruction to bidders, and operation and management contract. However, a legal case filed by the labor association of the Metro La Union water district against the provincial government hindered the project from being implemented. The bidding process stalled when two prequalified bidders for the pilot project chose not to submit bids in light of the legal case filed by the labor association of the water district against the government. 3 In 2007 the government of Philippines requested PPIAF assistance to review private sector participation experiences in urban water supply outside Metro Manila. This activity was part of a series of studies designed to move water sector reforms forward, particularly in opening up the water supply sector to new financial resources by encouraging financial institutions and other water supply implementing agencies — such as the Local Water Utilities Administration, which lends to water districts —to lend to water service providers. The reforms were also designed to encourage greater private participation in the water sector. PPIAF supported the preparation of series of case studies on a sample of existing PPP arrangements to review operator experience and performance, and elicit views from participating private operators, local governments, and consumers. The PPIAF-funded report summarized insights gleaned from a group of three case studies which included: i) successful projects were in areas where quality and quantity of raw water sources was good, or where bulk water supply was available and reliable; ii) technical capacity in operation and management system was important; iii) technical capacity to deal with local government was equally important; iv) local operators had increased in number and were better skilled at dealing with the dynamics of operating a water supply system; v) the experienced, more advanced local operators were open to the idea of partnering with global operators; vi) the lack of effective economic regulation was not a constraint for private operators or local governments to participate in the provision of water supply, so long as the parties were able to meet their objectives; and vii) the Contract Administration Unit has been resolving issues on contractual basis. The report then laid out a set of minimum conditions to promote private sector investment in urban water supply, which included: i) increasing the availability of finances for private water operators; ii) familiarizing financial institutions with the business of water supply; iii) the need for more viable and robust water supply projects; iv) mitigating risks for private operators by preparing hydrological studies at the project level; v) initiating and continuing capacity building initiatives for all stakeholders; vi) wider dissemination of information regarding government-sponsored water programs, especially those encouraging PPPs; vii) establishing standard and transparent procurement methods; and viii) establishing an independent regulator. Additionally, the report made several recommendations for engaging private operators in a Local Water Utilities Administration project, which included: i) requiring participating water districts to set performance targets on service coverage; ii) requiring private operators to follow consistent construction standards and service levels; and iii) requiring private operators to adopt similar tariffs. The analysis of the second set of five case studies noted that the experience on PPPs outside Metro Manila was far below expectations in terms of service efficiency and delivery. The report also found that local politics had exacerbated these problems and there was a need for increase accessibility to financing for private operators. Insights from the case studies were presented to key government officials on April 1, 2008. Key findings were presented at a stakeholder workshop held on May 28, 2008. Around 30 participants from the Local Water Utilities Administration, water districts, relevant government officials and civil society actively participated in the discussions. The reforms stalled after the utilities administration’s chairperson opted to focus on strengthening its lending to water districts, rather than moving forward on opening up the sector to new financial resources and improving the enabling environment for private sector participation. The case studies, however, remain a useful tool in policy dialogue with various stakeholders. In 2008 PPIAF supported an activity to assess the conditions of water and sanitation services in Metro Iloilo and explore possible options, including private sector participation, in improving water service levels in the municipality. The objective of the activity was to assist the Board of Metro Iloilo Water District (MIWD) to identify a management and operation model that could help the utility improve services in line with demands from water consumers and local governments. The PPIAF-funded report documented the findings of the options studied, which included: i) improved 4 MIWD: the utility would implement internal changes aimed at improving governance and accountability; ii) PPP improved MIWD: the utility would continue to exist without any internal reforms, but would contract to private firms the supply of bulk water and the reduction of nonrevenue water; iii) management contract: MIWD would retain a firm that would provide a team of professionals to take over key management positions and would be paid a performance-based fee; iv) a lease/affermage contract: a private firm would take over all of MIWD’s existing functions, except for planning and funding capital investments; v) a concession contract, in which a private firm would take over all of MIWD’s functions, including planning and funding of capital investments; and vi) a joint-venture/concession contract, where MIWD and a private partner would co-own a special purpose company that would take over, under a concession contract with MIWD, all the functions that MIWD currently performs. A series of stakeholder workshops were held on July 16 and 17, 2009 to discuss the various options. During the week of July 20, 2009, congressional representatives with interests in Iloilo were apprised of the findings and options for private sector participation in water supply. The Board of MIWD was subsequently apprised of the stakeholder-preferred option. The intention was to facilitate consensus building among key stakeholders around a preferred option, which was agreed to be a concession contract, and to take this option to implementation. After the initial study was completed, the International Finance Corporation (IFC) indicated an interest in developing the project; however the project did not proceed. Results of PPIAF’s Activities’ in the Philippines’ Water Supply and Sanitation Sector Category Outputs Enabling environment reform  Working papers on the structure and processes of the Contract Administration Unit, 2003  Review of Experiences of the Local Private Sector in Urban Analyses/assessments Water Supply in the Philippines, 2008 prepared  Analysis of Five Case Studies of Private Sector Participation in the Philippines’ Water Sector, 2008  Assistance to Metro Iloilo Water District in Exploring Options for the Provision of Water Supply and Sanitation Services, 2009 Policies prepared or legal or  Draft Water Regulatory Commission Bill, 2000 regulatory changes recommended  Operating guidelines for the Contract Administrative Unit, 2003 Project cycle-related assistance  Draft bidding documents for a pilot regional water supply output- Transaction support based aid project, 2007 Capacity and awareness building  Study tour to American and British water regulators, 2000  Stakeholder workshops in Manila in April and May 2008 to Workshops/seminars discuss private sector participation in the water sector  Stakeholder workshop to discuss preferred options for Metro Iloilo Water District, 2009 5 Category Outcomes Enabling environment reform Institutions created or  Contract Administration Unit established, 2004 strengthened Policies adopted, legislation  Operating guidelines for the Contract Administration Unit passed/amended, or regulation approved, 2004 issued/revised Capacity and awareness building  Consensus achieved on concession contract option for PSP in Consensus achieved water supply in Metro Iloilo, 2009 Solid Waste Management Solid waste management (SWM) has been one of the most pressing problems of rapidly urbanizing cities in the Philippines. The Metro Manila waste disposal system has historically suffered from acute deficiencies, which culminated in a crisis in early 2001 and nearly caused a collapse of the system. In 2002 the ADB provided support for advisory technical assistance to the Department of Environment and Natural Resources, Metropolitan Manila Development Authority and select local governments to address the SWM issues in Metro Manila, with components for community–based recycling, medical waste management, interim and longer-term waste disposal options, and capacity building. Other aspects of the SWM sector were assisted by other international aid agencies, such as the United Nations Development Programme, which was undertaking a project with Metropolitan Manila Development Authority to pilot community-based solid waste management initiatives in Metro Manila. However, neither of these projects addressed large-scale SWM projects or the role of private sector participation through in the sector. Against this background PPIAF provided technical advisory assistance in 2002 to the newly formed Office of the Presidential Adviser for Strategic Projects to strengthen its capacity to address private sector involvement in SWM services. The objectives of the activity were to facilitate private sector involvement in Metro Manila’s SWM sector, build consensus among key stakeholders, and strengthen the capacity of the government to successfully review, negotiate, and implement long-term build-operate-transfer concession agreements for financially viable sanitary landfill facilities. The activity included an evaluation of existing and proposed Metro Manila solid waste disposal sites, discussions with senior members of the Office of the President regarding overall strategic planning for Metro Manila waste disposal development, and building the capacity of senior members of Department of Environment and Natural Resources and operational personnel involved with the planning and implementation of waste disposal services. The PPIAF activity was implemented in close coordination with a related ADB activity, and complimented ADB’s previous work on waste disposal in the Philippines. The PPIAF -funded consultants worked closely with ADB officials to finalize and disseminate The Garbage Book, which highlighted the acute deficiencies of the SWM system in Manila. The PPIAF-funded study covered a broad analysis of the Manila waste disposal system, highlighted the existing status and deficiencies of the sector, outlined the historical and current involvement and performance of the private sector, and made recommendations for sector improvements, particularly as related to increasing private sector participation. The study concluded that there was no coherent and integrated regional strategy to address Metro Manila waste disposal issues, the government continued to adopt short-term dumping practices in order to avoid a crisis, and Metro Manila was running out of options for the disposal of residual solid waste. The main recommendations of the study included: i) the Metro Manila Waste Management Board should 6 initiate measures to encourage development of sanitary landfills, targeting support for PPP initiatives; ii) possibilities for additional disposal subsector financing from user-pay tariffs should be explored, including the options for incorporating solid waste disposal tariff with the existing water and wastewater tariffs for the metropolis; and iii) discussions should be held with Philippine Infrastructure Corporation, a quasi- government corporation which is mandated by the government to take the lead in the development and financing of large-scale municipal infrastructure projects, to coordinate the development and financing of SWM projects. In September 2004 the government of the Philippines abolished the Office of the Presidential Adviser for Strategic Projects. In 2003 PPIAF provided support to a second activity in the Philippines’ SWM sector. The main objective of this assistance was to analyze the local rate structures and collection mechanisms, compare them with the mechanisms used in other developing countries, and recommend the best strategy for local governments (LGUs) contemplating imposing user charges for SWM activities that fell within their jurisdiction. The study’s recommendations included a consideration the willingness of the waste generators to pay user charges, the appropriate levels of user charges to be levied, cost recovery tariffs, and economic levels of subsidy that could be applied if necessary. Two secondary objectives of the activity were to assist, as far as practicable, the selected pilot cities to develop their system of user charges, and to provide a basis for evaluating the financial viability of private sector participation in the provision of SWM services in the Philippines. As part of the study a willingness-to-pay survey and affordability analysis were also conducted on the six- participating cities. A stakeholder meeting held to discuss the findings of the study was attended by about 35 people who actively participated in the discussions. The study found that LGUs subsidized SWM service provision, often by more than 90% of the apparent cost of the services provided, and fees differed widely between LGUs, as did the complexity of the tariff structures adopted. In addition, the study found that the LGUs’ current accounting proc esses made it difficult to estimate the true cost of SWM, which was the key factor required to adequately determine appropriate user charges. The willingness-to-pay survey indicated that there was room for increasing user charges. Recognizing that the actual level of user charges depended on a host of factors that differed across LGUs, guidelines were drafted as part of the study to provide a rational framework for SWM cost recovery. While they applied key principles that espoused full cost recovery, efficiency, simplicity, fairness, and equity, the guidelines also provided flexibility to allow LGUs to structure appropriate collection systems and cost recovery mechanisms, rather than advocating a uniform system for all LGUs. Two of the six participating cities have increased either direct or indirect user charges to support their respective SWM initiatives. In 2007 PPIAF supported a follow-up activity to the 2006 study on SWM user charges. According to the 2006 report, subsidies continued to be an important aspect of the sustainable provision of SWM, including attracting additional private investment in the sector. The objective of the follow-up activity was to develop a cost-sharing framework for SWM services, which would provide greater incentives for LGUs to undertake projects and investments in the subsector. It also supported the preparation of a strategy and action plan for implementing the cost-sharing framework. The final report proposed that the national government provide fund 40% of the total waste management investment for first and second class cities, 25% for third and fourth class cities, and 20% for the fifth and 1 sixth class cities. This arrangement favored highly urbanized cities, which bear the bulk of the solid waste problems. The report further suggested that the national government could shoulder an additional 5% of the investment cost if the LGUs formed a cluster for SWM service delivery. In terms of institutional arrangements, the study recommended that the National Solid Waste Management Commission take the 1 Cities are ranked according to their average annual income. For example, first class cities are those with an average annual income of Php 400 million or more, while second class cities have an average annual income of Php 360 million or more, but less than Php 400 million. http://www.nscb.gov.ph/activestats/psgc/articles/con_income.asp 7 lead in the technical review of LGU cost sharing proposals, while the Municipal Development Fund Office could perform the review of the net financial capacity of LGUs and undertake fund management of the grant funds from the government. Regional consultation workshops were held in November 2007 and a final stakeholder workshop was held on September 29, 2008. The findings of the study were also presented at a Joint Meeting of the National Economic Development Authority’s Committee on Infrastructure and the Investment Coordination Committee in April 2008. The government subsequently adopted the cost-sharing arrangements recommended by the study and funds were earmarked to operationalize the arrangement. Building on the results of the 2006 PPIAF-funded study on user charges, PPIAF provided support to the City of General Santos in 2009 for the tender process of a sanitary landfill. The activity helped the bids and awards committee and technical working group facilitate and oversee the tender process of the design-build-operate contract. The main objective of the assistance was to build capacity, enhance skills for formulating, planning, and implementing PPP projects employing, and to prepare a toolkit that could be used to extend a similar capacity building activity to other cities planning to develop infrastructure projects using a design-build-operate model. A capacity building workshop and pre-testing of the toolkit was undertaken for key officials and the bids and awards of General Santos City. A training session was also held for the National Solid Waste Management Commission on design-build-operate contracts in January 2010. The City of General Santos successfully completed the tender process for a design-build-operate contract for a sanitary landfill and a 3-year contract for Php 362 million was awarded in June 2010 to R-II Builders and Philippine Ecology Systems Corporation Consortium. Construction of the landfill is currently ongoing. Results of PPIAF’s Activities’ in the Philippines’ Solid Waste Management Sector Category Outputs Enabling environment reform  Technical Advisory Consulting Services to the Government of the Philippines to Promote Metro Manila Solid Waste Disposal Analysis/assessments prepared System Improvements, 2004  Study on the Collection of User Charges for Solid Waste Management Services, 2006 Policies prepared or legal or  Development of a National Government–Local Government Cost regulatory changes Sharing Framework for Solid Waste Management Services, recommended 2008 Capacity and awareness building  Stakeholder workshop to solicit comments on the draft final report on appropriate user charges for SWM services, attended by 35 people  Regional consultation workshops held in November 2007 and a final stakeholder workshop held on September 29, 2008 to Workshops/seminars discuss solid waste management cost-sharing framework  Training seminar for officials from General Santos City on design-build-operate contracts, 2009  Training seminar for officials from the National Solid Waste Management Commission on design-build-operate contracts, 2010 Knowledge products produced  Disseminate of The Garbage Book, 2004 or disseminated  Design-build-operate toolkit, 2010 8 Category Outcomes Enabling environment reform Institutions created or  Two of the six pilot cities have increased either direct or indirect strengthened user charges to support their respective SWM initiatives, 2006 Policies adopted, legislation  Cost-sharing framework for solid waste management services passed/amended, or regulation adopted by the national government, 2009 issued/revised Project cycle-related assistance  General Santos City has successfully tendered a Php 362 million Transactions facilitated design to design-build-operate contract for a sanitary landfill, 2010 Capacity and awareness building  Technical capacity of the National Solid Waste Management Technical capacity enhanced Commission and the General Santos bids and award committee enhanced, 2010 Technical Assistance for the Philippines’ Telecommunications Sector In 2000 the Philippines’ Department of Transportation and Communication initiated a program called the Alternative Communication Program, to mobilize private companies to install payphones in un-served barangays (villages). The initiative also sought to provide public access to the Internet, computers, and other information and communication technologies and services through multipurpose community telecenters in 1,525 municipalities. Additionally, the government was seeking to lease or sell state-owned telephone networks that provided minimal telephone service in about 600 rural municipalities. Against this background, the department sought PPIAF assistance to develop a plan to extend access to communication and information services in rural areas. The PPIAF-funded report was divided into four parts that included: i) an analysis of the existing conditions regarding access to communication and information, summary of the initiatives to improve access in rural areas, and a rough estimates of the net cost of these initiatives; ii) a discussion of and recommendations on dealing with three strategic issues that were at the center of the initiatives and incentives to attract private investment, strategies to develop telecentres, and privatization of government municipal facilities; iii) an analysis of policy and regulatory issues, and recommendations; and iv) an implementation plan. The implementation plan proposed a phased approach of four partially overlapping phases to be completed by the government over a period of seven years. In the first phase it proposed that the government aim at obtaining quick initial results by using available tools, e.g., issuing licenses to telecenters in about 800 municipalities currently not connected to government’s telephone networks, and resolving policy and regulatory issues. For the second phase, the plan recommended that the government look to transfer responsibility of its municipal telephone networks to the private sector through the lease or sale of facilities. In phase three the report proposed the establishment of a funding mechanism for allocating cash subsidies that could be used to competitively award licenses and subsidies for telecenters in the remaining municipalities and certain barangays. By the final phase, the report projected that licenses and subsidies should have been awarded for barangays within the reach of about 90% of the remaining un-served rural population. Recommendations were also made on two executive orders on the Alternative Communications Program drafted by the Department of Transportation and Communication. 9 Video Conferences and small group meetings were conducted between January-August 2002 to discuss the implementation strategy and draft report, and provide guidance to the Department of Transportation and Communication. In 2009 the agency responsible for implementing the telecommunications initiatives was transferred to the Commission on Information and Communication Technology. The Commission’s Community eCenters program is a partnership between public agencies, private operators, and local communities to establish and operate multipurpose community telecenters. The program continues to provide broadband internet access and other ICT services to underserved rural and urban areas. Results of PPIAF’s Activities in Philippine’s Telecommunications Sector Category Outputs Enabling environment reform Policies prepared or legal or  Recommendations on two executive orders on the Alternative regulatory changes Communication Program, 2002 recommended  Extending Rural Access to Communication and Information: Plans/strategies prepared Recommended Approach and Implementation Plan, 2002 Category Outcomes Enabling environment reform Institutions created or  Department of Transportation and Communications strengthened strengthened, 2002 Technical Assistance for the Philippines’ Energy Sector Since 2002 PPIAF has supported seven activities in the energy sector that have assisted the Government of the Philippines to privatize the National Transmission Corporation, build consensus for rural power sector reform, build capacity within the Electricity Regulatory Commission, and increase private sector investment in remote areas. One ongoing activity is providing support to the government to prepare a natural gas market development strategy for South Mindanao, a province in the Philippines. The Government of the Philippines enacted the Electric Power Industry Reform Act of 2001 to ensure a safe, reliable, secure, and efficient electricity supply would be available at affordable prices. In order to accomplish this objective, the Act mandated the newly established regulatory agency, the Energy Regulatory Commission (ERC), to establish a new cap for the recoverable rate of distribution system losses, which would consider among other technical considerations, the load density, sales mix, cost of service, and delivery voltage. Pursuant to the Act, the ERC disseminated the Philippine Grid and Distribution Codes to establish standards, rules, procedures, and other requirements to govern the electric power industry. The Philippine Distribution Code required the ERC to establish separate caps for the segregated distribution system losses and distribution utilities, which could be classified and segregated into administrative, technical, and non-technical losses. In view of the requirements of the Act, the ERC sought PPIAF support in 2002 to develop a methodology for segregating distribution system losses, benchmarking the system loss performance of distribution utilities, and establishing the caps for the recoverable rates of distribution system losses. Several tasks were completed as part of this activity, including: a review of related policies, regulations, studies, data, and methodologies; an assessment of models and methodology for segregating distribution system losses; preparing draft guidelines for the application and approval of recoverable rate of distribution system losses; training workshops for utility engineers on segregating distribution system losses; and a national consultative workshop. 10 Approximately 100 participants attended a national workshop that was held in June 2004 to showcase the methodology for segregating distribution system losses and present the draft guidelines. The guidelines established a methodology for segregation and calculation of distribution losses, which promoting greater transparency and accountability. The guidelines were adopted by the ERC in September 2004. The passage of the Electric Power Industry Reform Act in 2001 also provided the framework for sector reform by introducing greater competition in contestable segments of the industry. Recognizing that the success of such reform was dependent on the support of stakeholders who would be affected by the reform initiatives, the government sought PPIAF assistance in 2002 to outline a communication strategy to building consensus for rural energy projects involving the private sector. The main objective of the activity was to assist the government to develop a communication strategy that would strengthen PPPs, address the concerns of the stakeholders in specific institutional and policy issues, mitigate political risk through identification of potential conflict issues and negotiation, and review the capacity building needs of government communication staff. The PPIAF-funded assessment of the existing communication capability of lead government agencies involved in the reform process revealed that they had inadequate communication resources. The assessment further identified a general lack of awareness among external stakeholders and mapped out a systematic communication plan encompassing traditional and non –traditional forms. The recommended strategic approach to building consensus and implementing the plan included: i) introducing capacity building initiatives for lead agencies; ii) creating support structures for delivering accessible, timely, and accurate information to the target audience; and iii) initiating highly focused and targeted communication activities. The assessment then laid out the next steps to generate broad-based public support for rural energy sector reform, which included: securing a pledge of commitment from the management of lead implementing agencies to support the Rural Power Reform Communication Plan; agreeing on the communications assessment, strategy, and roles of each implementing agency; defining the implementing mechanisms of the plan such as budgetary requirements, resources, and expertise requirements; and determining the timeline for major communication programs and activities. The communication strategy was adopted by the government and became the basis for the government’s communication plan for promoting private sector participation in rural electrification projects. In 2004 PPIAF provided additional assistance for rural energy sector reforms by supporting the preparation of power supply agreements (PSAs) for power supply to remote areas serviced by the National Power Corporation’s Small Power Utilities Group (SPUG). As part of the reform program for the country’s electricit y sector, the government had resolved to introduce private sector participation in power generation on the remote islands that were not connected to the main electricity grid. The aim of the government was to improve coverage and efficiency in these areas by divesting PSAs between SPUG and existing electricity cooperatives to private sector power producers. Whenever applicable, SPUG’s generation assets were to be sold to the Independent Power Producers (IPPs). Against this backdrop, the government appointed the IFC as a lead transaction advisor to provide assistance for successfully executing this divestment. The Global Partnership on Output-based Aid (GPOBA) and PPIAF supported the IFC team. The main objective of PPIAF’s assistance was to provide support i n designing model PSAs, subsidy agreements, and transaction documents for the transfer of PSAs from rural electricity cooperatives to IPPs. A number of tasks undertaken by this activity included: reviewing and designing legal documents; assisting SPUG to obtain regulatory approval from the ERC; drafting the marketing and bid materials, including an information memorandum, model bidding rules, and pre-qualification criteria; assisting in due diligence procedures; finalizing bidding and contractual documents; and assisting in the evaluation of bid proposals. 11 In late 2004 PPIAF provided follow-up assistance to further support the development of a PPP structure for the supply of electricity in the pilot areas serviced by SPUG. The objective of this activity was to assist SPUG to conduct public consultations with end-users in the three initial pilot areas of Romblon, Tablas, and Marinduque. This would allow users to voice any concerns they had regarding PSAs and the subsidy agreements applied under the PPPs. PPIAF also helped SPUG to draft and file the rates and subsidy applications for the pilot areas, to ensure that they were consistent with existing regulations. A workshop was held with the senior management of the electricity cooperatives, to build their capacity for power sales contracting and increase their understanding of the PSAs. The management and Board representatives of the cooperatives, along with representatives from relevant government agencies, attended a consultation workshop in Manila on December 9, 2004. Following the workshop, consensus was achieved on the proposed transaction design for the pilot PSAs. The government, with the IFC as its transaction advisor, successfully tendered the PSAs in the five pilot areas. The ERC approved the PSAs for three of the pilot areas in June 2008. In July 2010 the ERC approved the PSA for a fourth cooperative, Masbate. In August 2010 a fifth PSA was signed between the Coastal Power Development Corporation and the Basilan Electric Cooperative. These transactions have assisted in the development of a new regulatory framework, created an attractive sector for local private investment, and supported the development of a fair and balanced PSA for the IPPs and electricity cooperatives. Moreover, it has improved standards by achieving reliability of supply and an aggregated generation capacity of the five areas of 46.16 MW, with a result of an aggregated increase of capacity of 13.28 MW; generated subsidy savings due to the reduction of generation cost for the areas of Tablas, Romblon, Marinduque, Masbate, and Basilan; and assisted in meeting the Department of Energy’s policy by encouraging market-based renewable energy solutions. In 2007, at the behest of the Power Sector Asset and Liabilities Management Corporation (PSALM) PPIAF provided support for the assessment of concession options for the National Transmission Corporation (TRANSCO), which was one of the key action items of th e government’s power sector restructuring plan. The key objectives of the activity were to facilitate the successful implementation of the TRANSCO concession by: i) highlighting priority areas for improvement in relevant documentations and communication materials, with a view to enhance the chance of success of bidding and achievement of financial closure; and ii) bringing in proven international practice and experience of similar transactions. The final report provided an assessment of the concessionaire procurement plan, transaction documents, and other bidding documents. A key component of the assessment was to conduct an independent analysis of the concession arrangements and advise the PSALM review committee on the granting of the concession. The assessment also considered the major issues of recovery payments and assessed the financial model developed by PSALM to value the concession. Finally, it discussed the accounting methods and manner in which the plant, property, and equipment in service concessions should be valued. The main conclusions and recommendations of the report included: i) a concession or an outright sale were the most appropriate means for the government to meeting its objectives; ii) international competitive bidding was the appropriate choice for the concession; and iii) further work was needed regarding concession accounting and international standards to update the advice provided in the earlier round of bidding, in order to ensure that the recovery payment would be recorded as deferred income and not capital. The report concluded that the TRANSCO privatization by concession was well conducted overall. The government successfully awarded the TRANSCO concession for $3.95 billion to the National Grid Corporation of the Philippines, which eventually secured a congressional franchise to operate the transmission network. In 2007 PPIAF provided support to the ERC for building capacity to review allegations of abuse in the wholesale market. The main objective of the activity was to provide technical analysis and advice on the 12 interpretation and assessment of ‘abuse of market power’, which would assist the ERC and other energy market surveillance bodies to undertake their market surveillance roles. The PPIAF-funded final report defined the conditions, behavior, information requirements, and criteria to determine market power abuse or anti-competitive behavior of an electricity spot market trading participant. Furthermore, it provided examples of international experience to draw conclusions and lessons for the Philippine regulators. The primary purpose of the report was to provide appropriate background and practical guidance to the ERC on various approaches that it could take to address certain immediate market power issues in its purview. An overarching recommendation of the report was the need for regulatory oversight to move lockstep with the development of the market and always reflect the guiding principles of the market itself. The main recommendations relating to jurisdictional aspects of market monitoring and mitigation included amending the ERC Competition Rules and Wholesale Electricity Spot Market Rules to coordinate investigatory activities, and updating these rules to ensure that they are consistent with each other. The report further recommended that the ERC and the Philippine Wholesale Electricity Spot Market define market power as the ability to control or influence price through actions related to either physical or economic withholding or uneconomic production of power. Various methodology and benchmark mechanisms were also recommended to help monitor the market and identify abuses of market power. The report provided helped build capacity of the ERC for investigating allegations of market abuse in the wholesale spot market. The ERC subsequently concluded its investigation and found “no prima facie� evidence against the electricity spot market player alleged to have unduly influenced prices in the wholesale market. Results of PPIAF’s Activities in Philippines Energy Sector Category Outputs Enabling environment reform  Private Sector Participation in Provision of Power Supply to Rural Non-Grid Areas in the Philippines, 2005 Analyses/assessments prepared  Technical Assistance to the Energy Regulatory Commission of the Philippines for the Investigation of Market Power Abuse, 2007 Policies prepared, legal or  Guidelines for the Application and Approval of Caps on the regulatory changes Recoverable Rate of Distribution System Losses, 2004 recommended  Communications Needs Assessment and Strategy to Build Plans/strategies prepared Consensus for Rural Power Sector Reform, October 2006 Project cycle-related assistance  Information Memorandum: Private Sector Participation in Power Generation in Marinduque, Tablas, and Romblon, 2005  Power supply agreements for Marinduque Tablas, and Romblon, 2005 Transaction support  Model lease, subsidy, and connection agreements for SPUG, 2005  Public consultation brochures in English and Tagalong, 2005  Assessment of the Privatization of the National Transmission Corporation of the Philippines by way of a Concession, 2008 13 Capacity and awareness building  National workshop to discuss the draft guidelines for the caps on recovery of distribution losses, June 2004  Pre-Filing Workshop on Power Supply Agreements: Marinduque, Romblon and Tablas, February 2006 Workshops/seminars  Public consultation with end users in the three initial pilot areas regarding concerns on PSAs and subsidy agreements  Workshop with electrical cooperatives regarding PSAs held in Manila on December 9, 2004 Category Outcomes Enabling environment reform Institutions created or  Energy Regulatory Commission strengthened, 2007 strengthened Policies adopted, legislation  Guideline for the Application and Approval of Caps on the passed/amended, or Recoverable Rate of Distribution System Losses issued by the regulations issued/revised ERC, September 29, 2004 Plans/strategies adopted or  The communications strategy on enhancing private sector implemented participation in rural electrification was adopted, 2006 Project cycle-related assistance  Successfully tendered PSAs in Tablas, Romblon, Marinduque, Masbate, and Basilan, 2006-2008 Transaction facilitated  TRANSCO concession was awarded for $3.95 billion to the National Grid Corporation of the Philippines, 2008 Category Impacts Improved level of services  Dependable capacity increased from 15 MW to 24.7 MW, Additional private investment in  Provided increased investment of $28 million in SPUG areas the sector Fiscal impact on government  Saved the government $7 million in subsidy payments Technical Assistance for the Philippines’ Transport Sector Cebu City, the second largest urban area in the Philippines, has been growing rapidly, which has been caused severe congestion problems in the Metro Cebu area. In 2008, the Mayor and other city officials attended a PPIAF-sponsored workshop on transport planning and bus rapid transit (BRT) systems. Following this workshop the city requested PPIAF support in 2009 to prepare a concept plan for a demonstration BRT corridor in Cebu City. The primary objectives of the assistance were to conduct a detailed study on the potential BRT corridor and prepare a concept plan for an integrated, comprehensive public transport system. 14 A series of focus group discussions was held from March-May 2010 with existing public transport and car users supplemented to discuss the proposed corridor. Ethnographic research and user questionnaires were also conducted to gauge users’ opinions on the p roposed corridor. The final report defined the pilot BRT corridor based upon a thorough understanding of local user needs, current and future demand estimates, and international best practice. It concluded that BRT in Cebu was physically, institutionally, and financially viable, and would offer a new form of public transport that had the potential to significantly enhance the mobility of those that live and work in the city. The report was divided into five sections that included: i) an assessment of the existing conditions, including an examination of the potential market for BRT and analysis of user needs; ii) a methodology for estimating potential demand and analysis of integrated land use and transport planning to optimize the potential of BRT; iii) a detailed analysis of the BRT system; iv) an examination of the institutional and regulatory context; and v) a summary of the costs associated with the BRT corridor. The report recommended a phased implementation of the pilot BRT system, with the first phase operating between Bulacao and Ayala Mall. A subsequent extension to Talamban was recommended to form a BRT line that would bisect Cebu City. Taking into account the range of international practice and the BRT concept developed for Cebu, the report further identified three strategic options for the implementation of BRT system. From these options the report recommended that the government should lead the investment in infrastructure with an arms-length special purpose entity to coordinate and manage the line, with operations and support services provided under contract by the private sector. Since the completion of the study, progress has been made on moving the project forward. The Cebu City Council met on June 16, 2010 to discuss the proposed BRT project. At the meeting, the council was supportive of the project and discussed next steps in its preparation, which would allow the city to access a proportion of the $1 million in grant funding from the World Bank’s Clean Technology Fund for a feasibility study and detailed design of the project. The ongoing feasibility study is likely to be completed by August 2012 and the detailed design is expected to begin in October 2012. The World Bank and Agence Française de Développement are currently supporting the implementation and operationalization of the first phase of the BRT corridor. Results of PPIAF’s Activities in Philippine’s Transport Sector Category Outputs Enabling environment reform  Study and Concept Plan for a Demonstration Bus Rapid Transit Plans/strategies prepared Corridor, 2010 Capacity and awareness building  Stakeholder meetings to discuss proposed BRT corridor, March- May 2010 Workshops/seminars  Stakeholder meeting to discuss findings of the report, June 16, 2010 Category Outcomes Enabling environment reform Plan/strategy adopted or  Adoption of preferred BRT concept plan for high priority corridor, implemented 2010 15 Technical Assistance through the Sub-National Technical Assistance (SNTA) Program The devolution of infrastructure development in the Philippines to LGUs and rapidly increasing demand for infrastructure has placed significant pressure on the LGU financing framework. Local government finances are heavily dependent on tax revenues and transfers from the national government, which are often insufficient to finance critical capital expenditures. The Government of the Philippines recognizes that the lack of high quality infrastructure in LGUs is constraining economic growth. In 2008 PPIAF assistance was requested for the third component of a Water and Sanitation Program initiative, the Small Water Utilities Improvement and Financing Project. The initiative’s objective was to improve the performance and financial viability of small water utilities. The first two phases of the project consisted of a benchmarking initiative, which concluded that small utilities with viable operational performance are constrained from expanding or improving their services from a lack of access to financing. The purpose of the SNTA activity was to assess the financing needs and options for small water utilities and analyze the likelihood of obtaining commercial financing to meet these needs. A rapid assessment of commercial financing for small water utilities revealed that private financial institutions had little knowledge of water utilities’ business and were noncommittal about providing financing to the utilities. The assessment identified the utilities’ lack of credit history, inability to presen t bankable projects, and inability to ring-fence business accounts as key constraints to financing. Several actions were recommended to address these constraints, including the establishment of sound regulations and clear performance standards. Given the f indings of the rapid assessment, the activity’s focus shifted to strengthening the utilities’ financial management systems. A manual on ring-fencing water utility accounts was also prepared through the SNTA activity. It provides an operational framework and step-by-step guide for LGUs to ring-fence the accounts of their water utilities. Drafts of the guide were discussed at consultation workshops held on August 20, 2008 and May 27, 2009. The report was disseminated through a capacity-building program for small utilities that was undertaken with the National Water Resources Board. The ring-fencing manual was adopted by the Darasa Rural Water and Sanitation Association (RWSA), the Buhi Multi-Purpose Cooperative, and the Maragusan Multi-Purpose Cooperative. As a result, the Darasa RWSA received a PHP 1 million (roughly $22,700) one-year loan from Landbank with an interest rate of 11% to develop a water supply source. Darasa also sourced PHP 2.1 million from its income to fund 200 new connections. The manual was also adopted and piloted by Antequera Waterworks System in Antequera, Bohol, starting in November 2008. The pilot enhanced the creditworthiness of the small water utility and increased the capacity of local government units in ring-fencing accounts related to the operation of water utilities. Antequera Waterworks subsequently received a PHP 1.5 million (approximately $33,000) seven-year loan from Landband to finance the construction of a new water source. After the SNTA activity, the ring-fencing manual was further piloted by the Philippine Water Revolving Fund to improve the water utility operations in five LGUs and three cooperatives. The Margosatubig, Jagna, and Alberquerque LGUs improved the performance of their water utilities, including increased collection efficiency. It is too early to tell if the manual strengthened the Magallanes and Mahayag LGUs and the Lamac, Matanao, and O’Donnel cooperatives. A total of 33,300 people have new or improved access to water services as a result of this activity. In 2008 the Government of the Philippines also requested PPIAF technical assistance to reform the LGU financing framework, improve the creditworthiness of LGUs, and increase their access to market-based financing. Building the legal and institutional capacity of LGUs, as well as the framework for raising capital from local markets, is critical to the government’s strategy for LGU development. Th e government issued Executive Order 809 in July 2009, expanding financing options for creditworthy LGUs by allowing them to access funds directly from multilateral financing institutions without a sovereign guarantee. 16 Eight tier-one cities (defined as having an average annual income of at least PHP 400 million) were identified as pilot cities for the credit assessments. The Iligan, Malabon, Mandaluyong, Marikina, Naga, Quezon, Tacloban, and Taguig cities obtained credit ratings and conducted financial management assessments to identify their weaknesses. A workshop was held on August 24, 2010 to discuss the findings of the assessments and facilitate knowledge-sharing between the LGUs. The common constraints to creditworthiness and reforms to overcome these constraints were discussed; however it was noted that several of the recommendations would require national reforms. PPIAF assistance was requested in 2009 to expand the activity to additional cities. The activity was substantially delayed by the 2010 Philippine elections and the reluctance of pilot cities to commit to additional credit ratings. The second phase was subsequently cancelled in 2010. As of November 2011, the cities that participated in the first phase have yet to obtain market-based loans. Marikina City requested additional PPIAF support in 2008, to develop an overall financing strategy and prepare the implementation of its priority projects suitable for market-based financing. While the city has improved its finances, rapid urbanization and annual flooding remain significant challenges. As part of its development plan, the city identified a multi-year capital expenditure program for several priority infrastructure projects that could be financed from a range of sources, including public-private partnerships. A workshop that explored financing options for Marikina City’s priority projects was held on November 18, 2008. An initial scoping and diagnostic of the city’s finances was conducted, and a financing strategy to implement the priority capital expenditure program was produced. The report included draft transaction documents such as terms of reference and resource plans, to assist in the implementation of several priority projects. The report’s findings were presented at a stakeholder worksh op on March 30, 2009. In November 2009 Marikina City secured preliminary approval for a PHP 300 million (approximately $6,400,000) loan from the International Finance Corporation for a rehabilitation project. However, following a change in leadership, the city decided to obtain a loan from a government-owned bank instead. Results of PPIAF’s SNTA Program’s Activities in the Philippines Category Outputs Enabling environment reform  Small Utility Access to Market Credit: Lessons and Options, 2008  Credit ratings for Iligan City, Malabon City, Mandaluyong City, Marikina City, Naga City, Quezon City, Tacloban City, and Analyses/assessments prepared Taguig City by Standard & Poor’s, 2009  Financial management assessments for Iligan City, Malabon City, Mandaluyong City, Marikina City, Naga City, Quezon City, Tacloban City, and Taguig City, 2009  Guide to Ring-Fencing of Local Government-Run Water Plans/strategies prepared Utilities, 2009  Advisory Assistance for Marikina City, 2009 Capacity and awareness building  Financing Options: Role of the Private Sector, 2008  Advisory Assistance for Marikina City, 2009 Workshops/seminars  Workshop to consult on and present the ring-fencing manual, May 2009  Credit Ratings for Philippine Cities – Workshop for Mayors, August 2009 17 Category Outcomes Enabling environment reform  Creditworthiness of the small water utilities Darasa RWSA, Antequera Waterworks System, Buhi Multi-Purpose Cooperative, and Maragusan Multi-Purpose Cooperative was Institutions created or enhanced, 2008 strengthened  Margosatubig, Jagna, and Alburquerque Local Government Units were strengthened, 2009  The cities of Iligan, Malabon, Mandaluyong, Marikina, Naga, Quexon, Tacloban, and Taguig were strengthened, 2009  Ring-fencing strategy to improve creditworthiness was adopted and piloted by Antequera Waterworks System, 2008  Ring-fencing strategy to improve creditworthiness was adopted by the Alburquerque, Jagna, Magallanes, Margosatubig, and Plans/strategies adopted Mahayag Local Government Units, Darasa RWSA, and the Buhi Mulit-Purpose, Maragusan Multi-Purpose, Lamac, Matanao, and O’Donnel Cooperatives, 2008  Marikina City adopted capital investment and financing strategy, 2009 Project cycle-related assistance  Antequera Waterworks received a $33,000 loan from Transactions facilitated Landbank, 2008  Darasa RWSA received a $22,700 loan from Landbank, 2011 Capacity and awareness building  Consensus achieved among small water utilities to adopt ring Consensus achieved fencing manual, 2009 Category Impacts Increased number of people with  33,300 people with new water connections, 2008–2011 infrastructure service 18